This is a comment I hear made time and again by directors and business owners when they become embroiled in litigation; It’s a distraction from core duties and takes up too much time which I could be using to generate income and profit.
So, is it worth it?
If you have a good claim then the answer is ‘yes’ because it is possible to claim back the value of the management time you have incurred in remedying the problem caused by the party you are in dispute with.
I recently settled a claim where the opponent easily agreed that management costs should be paid as part of the settlement but it is not always that easy. As a rule, management costs are recoverable but the problem is that they are difficult to prove and not everyone is as trusting as the parties in my recent case.
Here are some tips. They refer to a breach of contract claim but the same principles would apply to a claim for negligence or breach of warranty, for example.
What can I claim?
- The cost of staff diverted from their usual activities which causes significant disruption to your business.
- The profit on turnover, sales or opportunities lost as a result of diverting time to remedy the problem. This can be different from the losses suffered as a result of the breach itself.
How do I prove it?
This is easier in a small business than in a larger one but it should be possible. The key thing is to keep contemporaneous records.
- Evidence of the amount of hours usually spent by a member of staff on their usual activities and the amount of time spent on those activities since the breach occurred
- Evidence of a decrease in turnover and profit (although the latter is not necessarily required)
- Evidence of lost sales or opportunities when your sales or business development staff have been diverted – examples include diary records, time sheets, or internal correspondence
- Ensure all staff keep time sheets and report on a daily or weekly basis to a nominated person as to the amount of time diverted from their usual activities.
Preparation and organisation is key. Make sure all members of staff involved in investigation or remedying the breach know that they must maintain records and nominate one member of staff to be responsible for collating and keeping those records.
How is the wasted time valued?
- Actual losses (additional expenditure, lost revenue, sales or opportunities): This can be difficult to quantify insofar as it is attributable to the time each member of staff spent investigating or remedying a breach. Though it is arguably easier to value for sales staff or staff involved in production as it should be possible to value the turnover or sales attributable to that person.
- If actual losses cannot be proved then wasted time may be valued by calculating an hourly or daily rate according to salary and applying that rate to the hours or days identified in the contemporaneous records referred to above. You should at least be able to claim the cost of the employment of that member of staff for the diverted period of time.
Points to note
- You cannot claim time spent on bringing the claim itself. For example preparing witness statements or collating evidence. The costs of dealing with the claim itself, as opposed to remedying the problems caused by the breach of contract or negligent act, are recoverable in the same way as solicitors costs. So, the costs of wasted management time for investigating or remedying a breach of contract are losses but the costs of putting together the claim for those losses are costs.
- The court may apply discount to the amount claimed for wasted management costs where there is uncertainty as to whether the time incurred was 100% attributable to the breach.