If your business has been disrupted by a problem that later leads to litigation, you may be able to recover the cost of time spent by management and staff in remedying the problem.
Current guidance from the courts has provided support to businesses seeking to recover wasted management costs caused by another party's tort or breach of contract, provided a claimant can satisfy certain requirements. Wasted management or staff time can be recovered as damages provided it can be shown that staff have been significantly diverted from their usual activities.
In order to succeed in a claim, you need to show that the other party's actions caused such a significant disruption that staff and management have been diverted from their normal activities. More than inconvenience is required.
To be a significant disruption, not everyone in the business needs to have been affected, particularly if your organisation is a large one. However, those staff and management who have been diverted do need to have spent a significant amount of time dealing with the problem. If there is evidence such as minutes of meetings and substantial email correspondence regarding the disruption showing that staff have undertaken investigations or remedial work, this will help to show that the disruption has been significant.
Proving the claim
In order to prove the claim, you are required to produce written records of time spent by staff in dealing with the problems.
Ideally this would involve producing written records of the time spent by each employee, with descriptions of the work done. To ensure accuracy, it is preferable that these records are contemporaneous.
However, the court recognises that, at the height of a crisis, businesses may not be able to prioritise separate and clear records of the time being spent by staff and management in dealing with a problem. In the case of Bridge UK.Com Ltd v Abbey Pynford plc  EWHC 728 (TCC), the High Court allowed a reconstruction of the time spent dealing with a problem from other contemporaneous records within the business. However, questions over the accuracy of these records may lead to the amount of time being reduced.
Do you need to show that your business has lost actual revenue?
There is no need to show that there has been actual revenue lost by the disruption, because if there has been a significant disruption the court will infer that had the employee or management not been diverted from their usual activities, they would have generated income for the business.
What is required, however, is evidence of a significant decrease in turnover during the period the business was affected or an increase in turnover after the issue was resolved. Such evidence will help to prove that there has been a disruption to the business or diversion of staff from their usual activities.
How are damages calculated?
The claim for damages can be assessed by reference to the cost of the employer of the employee's/manager's wasted time and not by assessing the profits which would have otherwise been earned if the breach had not occurred.
In most cases it is appropriate to consider the cost of employing staff and renting any equipment for them to perform their normal activities as the basis for quantifying losses, rather than attempting to assess the value of lost sales. However, if it is thought that the business has suffered a substantial loss of profits then it would be appropriate to use expert forensic accountancy evidence as a basis for assessing the loss.
What might not be claimed as wasted management costs?
It is important to differentiate between the costs incurred by the business disruption to a party caused by a breach of contract or tort and the costs and disruption of preparing for court proceedings, such as gathering evidence or preparing written submissions or witness statements.
Are litigation costs recoverable?
The costs of preparing a case for the court proceedings will not be recoverable as wasted management costs resulting from the breach. It will therefore fail as a claim for damages. Instead these costs might be recoverable as part of the costs in the litigation.
What should you do?
If you are considering a claim for time spent by staff and management in dealing with a problem, you should:
- assemble written records of the time spent by staff and management in dealing with the problem with a detailed description of the work done i.e. investigation, managing or resolving the effects of the breach
- identify the work that would have been done by the employees if they had not been diverted to address the breach
- if records were not kept at the time of the problem, assemble these as soon as possible and retain the documents used to produce the records to minimise any criticism of their accuracy
- keep copies of all documentation detailing work done on rectifying the problem, such as emails or meeting minutes
- keep copies of payroll, invoices and other documents detailing the costs of employing staff and management who were diverted to dealing with the problem and the cost of hiring any equipment needed for their normal activities
- obtain an explanation of how the diversion of staff created disruption to the business
If you are in any doubt about what to do, seek legal advice.