Out-Law Guide | 05 Aug 2011 | 3:15 pm | 4 min. read
If a business is involved in a court case, it is not uncommon for considerable time to be spent by its employees or consultants in fixing the problems caused by the defendant, investigating the potential claims it has and collating evidence.
This is time spent away from the business, and it may be recoverable as damages or costs.
The claimant can recover a sum representing the lost time by directors and other staff in taking steps to overcome the problems caused by the defendant's actions. This is called 'wasted costs' that can be recovered even if the claimant cannot prove that this caused loss of profit or increased costs.
This guide highlights the criteria that have to be met in order to recover such time, and the steps that need to be taken to maximise any recovery.
Recovering time as a head of damage
The cost of wasted staff time spent on investigating claims or mitigating loss can be recoverable as a specific category, or 'head', of damage, whether or not it can be shown that the time caused additional expenditure or loss of revenue or profit.
There is no distinction between the time spent by profit-making employees, such as sales staff, and non-profit making employees, such as support staff, provided that the time spent by the employees relates to the defendant's actions and minimising the effects of those actions. It is irrelevant that employees might not work fixed hours and can incorporate extra work on top of their existing job - for example, by working at weekends.
However, it has to be demonstrated with 'sufficient certainty' that this wasted time was indeed spent on investigating or minimising the effect of the defendant's actions. A claimant claiming wasted staff time must therefore show 'sufficient disruption to the business' and that 'staff have been significantly diverted from their usual activities'.
Examples of what may amount to 'serious disruption' include time spent by employees:
Proving the loss suffered
To recover the time spent by employees doing this, proper time records must be kept – relying on memory as to how time was spent is not a reliable way of proving loss. If a claimant cannot prove the cost of the wasted management time, the claim may be restricted to nominal damages.
Steps should therefore be taken at the outset of a potential dispute to record management and employee time spend investigating claims and minimising the effects of any damage suffered as a result of the other party's actions.
For example, employees should keep daily time sheets or diary entries should be maintained to provide evidence of the amount of time spent dealing with investigating the claim and minimising the effects of the damage suffered. This need only be fairly simple, but a short description of any activity related to the claim should be provided. Staff may also be asked to identify any instances where work or tasks are reallocated, redeployed or deferred due to demands for time in dealing with the problem.
Records also need to be kept to demonstrate that the time spent by employees investigating the defendant's actions and minimising the effects of damage represents a 'serious disruption' to the business. Calculations should include the time of the claimant's own staff, temporary staff and contractors if they are diverted from carrying out their normal duties.
Claiming management, employee or consultant time spent as costs
Occasionally there are circumstances where time spent by employees or consultants may be recoverable as costs. However the extent of recovery will depend on several factors, including:
For example, an employee's costs in preparing graphs or an as-built programme annexed to particulars of claim may be recoverable.
Where external lawyers are instructed, the cost of the claimant's in-house lawyers will be recoverable only in exceptional circumstances as in-house lawyers are generally regarded as 'the client' when instructing and meeting with external lawyers. The time spent by in-house lawyers or the claimant investigating, formulating and digging out information to support or defend a claim is not recoverable, as this is generally regarded as a cost a claimant has to bear without recovery from the defendant.
As with claiming time spent as damages, it is imperative that the claimant keeps proper time records of what time was spent and on what tasks.
Where employee costs are recoverable, they will be assessed on an 'actual and direct cost' basis. If in-house legal costs are recoverable, subject to certain exceptions, the court will normally allow the in-house solicitor a rate equivalent to an external solicitor of similar standing in the same locality.
The expense of staff time wasted in dealing with the investigation of, and minimising the effects of, a cause of court action can often be recovered with no distinction between the time spent by profit-making and non-profit making staff. There is no need to demonstrate additional losses or lost revenue or profit.
The claimant's claim must be able to show that the wasted time was attributable to carrying out claim investigations or minimising the effect of damage. If the claimant cannot prove the cost of wasted management time, the claim may be restricted to nominal damages.
Because it is more difficult to claim back employee time as part of the costs awarded against the defendant at the outcome of a successful court action, it is better to claim the time as a specific category of damages where this is appropriate.