A lawyer’s take on a ruling on compensation for wasted staff time

Recent developments in case law have increased the chances of recovering the costs of wasted staff time in liability claims.

Following the Court of Appeal ruling in Aerospace Publishing Ltd vs Thames Water Utilities Ltd, claimants can recover for staff time wasted on investigating or mitigating problems caused by a defendant’s breach of duty, even if they cannot prove any loss of profit or additional expenditure.

In 4 Eng Ltd vs Roger Harper & Another, the defendants sold a company to the claimant on the basis that it supplied engineering services to Mars UK. It later emerged that the defendants had bribed Mars employees to pay invoices they had submitted. The defendants were held liable in deceit and the claimant recovered damages for time spent by two directors investigating the defendants’ fraudulent activities.

The claimant had initially made a claim for business disruption. However, it had also paid the two directors extra to investigate the fraud, at a rate of £100 an hour. So the claimant had incurred an extra liability for which it was entitled to be compensated. The business disruption claim had been calculated on the basis of the directors’ salaries at £279,879. The claim based on the higher rate was £711,200 (£624,888 of which was eventually recovered).

This decision could pave the way for larger claims to include the time costs of staff who investigate problems. Claimants will argue that this reflects the costs that would otherwise be incurred hiring external consultants. Others, however, may create sham devices to create the appearance of extra costs. Large financial institutions that have considerable in-house resources may use separate retainers to create liabilities.

Defendants and their insurers need to be alert to such claims. In 4 Eng, the time spent investigating the fraud was additional to the directors’ usual hours; they were engaged in duties lying outside of their normal work and the claimant established that it was unable to afford external investigators. As a result, there was a genuine need for a separate retainer and the claimant had timesheets detailing the time spent on the investigation.

In addition, 4 Eng was a claim for deceit, where the court’s approach to damages is more permissive. The court may scrutinise such a claim in a professional liability action more closely.