| Date | 6 October 2004 |
|
|
| Judgment | British Telecommunications Plc v Geraghty & Miller International Inc, QBD 29 July 2004 |
|
|
| The Issue | The recovery of overheads as a component of damages in an action for negligence. |
|
|
| Implication |
Overheads will be recoverable where these can be shown to be reasonably and properly calculated and causally connected to the physical damage suffered. |
printIn January 1999 employees of a contractor, Geraghty & Miller, were working in the vicinity of a petrol station in Honiton Road, Exeter. They were trying to locate a diesel leak from the tanks of the service station. Whilst they were drilling a hole in the verge between the service station and the main road they drilled through cables belonging to BT. Geraghty accepted that its employees had made no proper enquiries about the possibility of cables being underneath the verge and accepted liability. The repair work which BT had to carry out was extensive and was hampered by the diesel leak which filled the nearest BT manhole with diesel fuel. In the event, BT claimed a sum of approximately £83,000 as the cost of the repair. Geraghty disputed the amount and the matter proceeded to trial as a test case to establish the principles on which BT could claim for repairs to its cables for an action brought in negligence. The majority of the claim related to BT's labour costs together with an uplift of 126% for overheads. BT supported its claim by producing extracts from its internal accounting records whereby its costs were allocated to over 300 different activities within BT. Geraghty challenged BT's entitlement to recover some of the figures derived from its accounting records but in particular disputed the percentage uplift that BT claimed for overheads. That uplift comprised of three main elements. Firstly, the relevant salary costs of BT's planning department which identified when and where damage occurred, organised and supported the engineers doing the repair works, and restored telephone services to customers. Secondly, the uplift included for the relevant proportion of the office costs for management dealing with damage repair work. Finally the uplift included the cost of providing capital for repair work. In arguing its case in the court, Geraghty contended that for BT to be able to recover such overheads it was necessary for it to establish that but for the carrying out of such repair works, BT could in fact dispense with the services of engineers and support departments including managers and would as a result be able to reduce, for example, the accommodation costs and the like which formed that part of the uplift. BT argued that this was going too far. It need only establish the costs it incurred as a result of the damage. Last month I reported the Scottish case of Euro Pools v Clydeside Steel Fabrications where this subject was examined in the context of a claim under contract. Lord Drummond Young held that if employees were required to perform additional work in consequence of a breach of contract the work itself would represent a loss to their employer. Euro Pools was being deprived of services that its employees were otherwise engaged to carry out and that was sufficient to establish the existence of a loss. As to the quantification of that loss the employer was entitled to make a charge that reasonably reflected both employment costs and overheads. That decision was in contrast to the decision in April 2003 in the case of Phee Farrer Jones v Connaught Mason, where it was held in the TCC that Phee was not entitled to recover the costs of its management staff as a head of overhead where they could not demonstrate that the managers' costs were discreet expenses that would not otherwise have been incurred but for the breach of contract. The legal principles which underpin compensation for negligent damage are in a number of ways quite different to the rules that govern the recovery of damages for breach of contract. In an action brought in negligence the cost of physical repair to damaged property can be recovered but financial damage, often caused "economic loss", can only be recovered if it is immediately consequential on the physical damage. Gerraghty argued that a number of functions for which BT sought compensation were either pure economic loss not directly connected with the physical damage or too remote from the repair activity for their cost to be recoverable. The Judge reflected that argument and held that BT was entitled to recover such overheads as the court accepted were caused by the repair work, provided that BT could establish the amounts claimed had been reasonably and properly calculated. In determining whether overheads were caused by the repair work, BT had to establish that a particular resource had been used for damage repair that would otherwise have been used for BT's normal business. BT did not have to show that it could achieve actual cost savings if there was no repair work to carry out. Such an expense, whether direct or indirect, was recoverable if it was causally connected and sufficiently proximate to the work of damage repair that BT had suffered.
CJ-0440
|
|||
|
© Brewer Consulting |
|||
 |
|||