UK: The Recovery Of Internal Management And Staff Costs?

Last Updated: 18 January 2007
Article by Jeremy Glover

Inevitably, if a party suffers a loss caused by a tort, that party will incur wasted staff and management time when seeking to remedy or mitigate that loss. The question as to whether a claimant is then entitled to recover that wasted managerial and staff time is not always an easy one to answer. For example, does the injured party have to establish a loss of profit (i.e. show that income generating opportunities were lost and/or additional expenses were incurred) before it is entitled to recover this time? This question recently came before the English Court of Appeal in the case of Aerospace Publishing Limited and Anr v Thames Water Utilities Limited.

The general position is that a claim for management time can, as a matter of principle, be recoverable on the same basis as overheads and profits. However, it is important to ensure that there is no overlap between any claim for management time and a claim for increased contribution to a contractor’s overheads and profits. Equally important is the need to ensure that proper records are kept of time spent and the work carried out. For, as the Aerospace case demonstrates, there is a difference between time and expenditure incurred in dealing with the loss suffered, which may well be recoverable as damages, and time and expenditure spent in dealing with any potential claim, which may only be recoverable as costs of the action (and which will then be assessed in the usual way).

These issues came before the Commercial Court last year in the case of R+V Versicherung AG v Risk Insurance & Reinsurance Solutions SA & Others, where Mrs Justice Gloster held that as a matter of principle, the costs of wasted staff time are recoverable where the claimant was claiming, as damages, internal management and staff costs and internal overheads. Here, the Judge stated that it had to be demonstrated with sufficient certainty that the wasted time had indeed been spent and that the expenditure was directly attributable to the tort complained of. In other words, for an injured party to be able to recover, that party must show both that there had been a significant disruption to its business and that the staff had been deliberately diverted from their usual activities. If you cannot show this, then the alleged wasted expenditure on wages could not have been said to be directly attributable to the tort.

In coming to this decision, the Judge had disapproved of a previous case, Admiral Management Services Limited v Para-Protect Europe Limited. As both decisions were of first instance, it was thought that there was some uncertainty about this issue. The Aerospace case has now resolved that uncertainty. In his judgment, LJ Wilson, noted that although the difference between the two decisions was not, in his words, "as stark as may appear", to the extent that there was a difference, he preferred the approach of Mrs Justice Gloster.

The Aerospace case was an appeal following a quantum hearing. Liability had been admitted. Following a mains water pipe burst, considerable quantities of water had entered the premises occupied by the claimants who were publishing companies. The water caused significant loss and damage to the claimants’ archives, in particular to an extensive archive of aviation photographs and the reference material. As part of their claim, the claimants had sought their costs in respect of the diversion of staff work necessarily done in relation to, and consequent upon, the flood. The claim was in two parts, one in respect of the claimants’ employees and one in respect of 2 ex-employees who had returned to work on a freelance basis.

In relation to the freelancers, Thames Water said that the work they carried out was an item of costs. LJ Wilson agreed that the assessment work done by them was directly referable the preparation of the claim. Thus, that part of the claim would fall to be assessed as part of the overall costs of the action.

The second part of the claim, that part referable to employees’ work, related to work carried out in the months and years after the flood in respect of works of salvage and reorganisation. It was work which was reactive to the flood. The claimants contended that in the absence of the flood, their employees would have concentrated upon their conventional activities, out of which the claimants would have made money.

Thames Water said that such a claim must be strictly proven; it cannot simply be inferred. It was their view that the claimants had not demonstrated that the employees had been diverted from other relevant revenue generating activities.

Having considered the relevant authorities, LJ Wilson set out the following guidelines:

  1. The facts and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the Claimant to adduce is not adduced, he is at risk of a finding that they have not been established;
  2. The Claimant also has to establish that the diversion caused significant disruption to its business;
  3. Even though it may well be that strictly the claim could be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the Defendant can establish the contrary, it is reasonable for the Court to infer from the disruption that, had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the Claimant in an amount at least equal to the costs of employing them during that time.


On the facts here, the Court of Appeal considered that the diversion of the time of a significant number of the claimants' employees was set out in sufficient detail and adequately established. Accordingly, there could be no sensible challenge to a conclusion that their business was thereby disrupted. The claim therefore succeeded.

Thus, the Court of Appeal has given valuable guidance as to what you need to do to prove a claim for wasted management time. The key is detail. How much time is claimed? How and why were the staff diverted from their work activities? And remember that the records must be sufficient such that a third party – be they judge or adjudicator - can make clear sense of them many months (or maybe years) after the event.

This article is based on an article from a forthcoming issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Jeremy Glover
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