| Date | 19 November 2003 |
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| Judgment | Phee Farrar Jones Limited v Connaught Mason Limited, TCC 30 April 2003 |
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| The Issue | Whether a claimant may be entitled to recover management costs as a head of claim. |
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| Implication |
To recover managerial costs, a claimant will have to demonstrate that those costs would not have been incurred but for the other party's breach, or that income generating opportunities have been lost as a consequence of management being engaged in the dispute. |
printIn the event of a dispute arising on a construction contract, both parties will need to take into account the extent of management time likely to be incurred in obtaining a resolution of the dispute. In certain cases, the time that management devotes to the dispute may be severely disruptive to the ongoing business. The parties will also want to take into account the recoverability of the cost of all its management in connection with the dispute. Depending upon the particular circumstances of the case, if the dispute moves towards arbitration or litigation, it will be necessary for the parties to consider whether the cost of management time will be recovered as costs of the proceedings, or whether such costs must instead be claimed as a component part of the sums in dispute between the parties. In December of last year I reported the case of Amec Process & Energy v Stork Engineers & Contractors, which dealt with whether management time could be recovered as costs in arbitration or litigation proceedings. That case appeared to indicate a softening of the court's attitude in awarding costs to a successful litigant. The general rule is that a successful party in arbitration or litigation may recover the reasonable costs it incurs in pursuing its case. Subject to the court or arbitrator, those costs would normally include the reasonable expenditure on lawyers or external advisors for the purpose of conducting the case. This would include the fees of solicitors and expert witnesses, expenses of witnesses of fact and the parties' own disbursements in travelling, copying documents and the like. It was always thought however, that the recovery of the successful parties' direct costs incurred in using its own employed staff to prepare material for the case would not be recoverable as costs in the proceedings. An exception to this would be where the parties' own employees were being utilised as expert witnesses. In the Amec case, Judge Thornton clearly felt that the Civil Procedure Rules allowed him to widen the category of employees that would be permitted to be reimbursed in the event of a successful litigation. The Civil Procedure Rules define recoverable costs as including "fees, charges, disbursements, expenses and remuneration". Judge Thornton was satisfied that that included time charges incurred by Amec in employing its own personnel engaged in preparation for trial. This included Amec's own personnel and agency staff which had been engaged to undertake much of the work involved in collating, analysing and presenting the primary and supporting evidence to be used by the expert witnesses. These individuals undertook much of the preparation of the visual evidence aids such as histograms, graphs, bar charts, photographs, tables, as-built programmes and the like. An alternative to recovering management costs as costs in the proceedings, would be to seek to recover such costs as a head of damages for breach of contract. This issue was examined in the recent case of Phee Farrar Jones v Connaught Mason. Phee was a recruitment consultancy that had engaged Connaught to carry out some refurbishment works on its office premises. During the carrying out of those works, a flood occurred which caused extensive damage to the building. Connaught admitted liability for that flood, which caused a significant delay to the completion of the refurbishment works. Phee decided that it needed to keep all its staff together in one building and the cheapest option would be to lease and fit out nearby premises until all of the delayed refurbishment works were completed. As part of their claim against Connaught, Phee included a claim for 90 hours of a manager's time that had been expended in organising the move to the alternative accommodation. It has normally been thought that managerial expenses such as this could be claimed as damages if the claimant was able to establish that, as a consequence of the other party's breach, the claimant's trading was disturbed in a way which led to the expense being incurred. This was indeed what happened in the case in Forest Holman Group v Sherwood International, where the Court of Appeal accepted that Holman should recover the cost of retaining staff who would otherwise have been made redundant if Sherwood had correctly fulfilled its contract to install a computer system. In the present case however, Judge Toulmin held that Phee had not demonstrated that the manager's costs were discrete expenses that would not otherwise have been incurred. Moreover, there was no evidence that income generating opportunities were lost as a consequence of the manager being required to organise the move to alternative accommodation. Accordingly, in a decision which appears to show a more restricted approach than might be thought to have prevailed in other cases, Judge Toulmin rejected the claim.
CJ-0345
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