It is often the case that valuable management time is spent dealing with the consequences of a breach of contract and/or negligence by another party.
Can management expenses involved with such time be recovered as damages?
The NSW Court of Appeal recently examined this question, in the context of a contractual claim for damages for rectification costs incurred in respect of defective construction work.
Bastow engaged PND as a sub-contractor, to perform certain work at Terrigal in NSW.
Bastow claimed that PND’s work was defective and successfully sued PND for (part of) the cost of the claimed rectification costs.
However the trial judge excluded an amount of $43,669 claimed by Bastow for time spent by its employees in relation to the defects and their rectification.
The trial judge rejected this part of the claim on the basis that “there is no evidence that the allocation of this time resulted in any additional cost to Bastow”.
In its cross-appeal Bastow challenged this conclusion.
The 3 Justices comprising the Court of Appeal unanimously observed that:
- to claim management time by way of damages it is necessary for additional expense to be incurred
- if existing staff are paid more, or additional staff are employed to manage a breach of contract and its consequences, damages may be recovered for the amounts so paid
- if no additional staff are employed, but the diversion of management time to the breach of contract means that the employer loses other valuable business opportunities, then damages might be allowed, subject to proof and quantification of such loss
(The Court of Appeal also unanimously expressed agreement with the ultimate conclusion in a Queensland case (Orlit Pty Ltd v JF&P Consulting Engineers Pty Ltd  QCA 277), in which it was held that a developer was entitled to recover rectification expenses incurred by executives (employed by a related entity) as a consequence of defects caused by the negligence of an engineer sub-contractor.)
The Court unanimously held that Bastow had not proved that it incurred any additional management expenses. In particular:
- it did not appear that Mr Bastow caused himself or the other staff member involved to be paid overtime or any other compensation or additional remuneration
- nor did it appear that any additional staff or contractors were employed, either to deal with PND’s defective work and its consequences or to attend to tasks from which Mr Bastow had been distracted.
Further there was no evidence that Bastow had been prevented from seeking or taking up any valuable business opportunity because Mr Bastow’s attention was focused on PND’s breach of contract and its consequences.
In order to claim damages for expenses involved with lost management time, caused by a breach of contract or negligence by another party, it is necessary to prove that additional expenses have been incurred.
That may be proved by:
- paying existing staff more to deal with the breach/ negligence; or
- employing additional staff to deal with the breach/ negligence.
If existing staff are utilised to deal with the breach/ negligence, and they are not paid more to deal with it, damages are not available for lost management time.
In that case only damages for valuable lost business opportunities may be recoverable. The problem is that there may be no valuable business opportunity which has been lost, and even if lost, proving the lost opportunity and recovering damages is notoriously difficult.
The case is PND Civil Group Pty Ltd v Bastow Civil Constructions Pty Ltd  NSWCA 159 (27 June 2017).