UK: Damages For Defective Works - Management Time & Loss Of Profit

Claims for damages for breach of contract often include components for both management time and loss of profit. The Technology and Construction Court has recently considered the principles concerning the recovery and assessment of these two types of damages. In Bridge UK.Com Limited v Abbey Pynford plc [2007] EWHC 728 (TCC), the claimant sought to recover damages for the defective installation of a foundation for its printing press.

Management time

A claimant will usually include as part of its claim, the costs of its senior staff in dealing with a breach of contract. Effectively, the claimant is seeking to be compensated for the diversion of its employees from revenue generating activities in order to attend to the consequences of the breach.

Until now, insufficient records have usually prevented a claimant from successfully claiming this element of loss.

• In this case, however, where actual time records did not exist, the Court accepted as evidence of loss a schedule of time spent in dealing with the defective foundation by the company’s director. The schedule was based on a retrospective assessment that had been carried out by looking through various documents that recorded what happened.

• The Court dealt with the inherent uncertainty of such a retrospective assessment by the application of a 20% discount to the costs claimed.

To maximise the chances of recovering the costs of management time, contemporaneous records of management time spent in dealing with any claims should be kept wherever possible during the course of the contract. These should include details of the diversion of staff time and also demonstrate where possible that the diversion caused significant disruption to the business.

Loss of profit

Provided they are foreseeable, lost profits are usually recoverable. Claimants often seek to recover lost of profit to compensate them where they have lost out as a result of a breach of contract by the party from whom they are claiming.

In this case, because of the defective foundation, the claimant had to outsource some printing. It sought to recover as damages the profits that it would have made had it been able to carry out this work itself.

• The Court held that the loss of profit on the outsourced work should be based on the additional expenditure incurred by the claimant in relation to the outsourced work. It must therefore make an allowance for the expenditure which the claimant would have incurred in any event in carrying out that work, for example the costs of its own labour had it done the printing in-house.

• The Court was not provided with information on the resources which the outsourced work would have taken the claimant in terms of its own costs. It therefore applied a 50% deduction to the costs claimed.

Whilst it is not clear why information concerning resources was not provided in this case, it seems likely that had it been and had the information been sound, the Court may have been willing to award the claimant a greater proportion of the costs claimed. It would therefore seem prudent to keep records of this nature wherever possible.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 11/04/2007.