When a dispute arises which subsequently leads to litigation, the internal costs of investigating and dealing with the problem can be significant. Wasted management or staff time is, in principle, recoverable as a head of damage in both contract and tort claims if a claimant can establish that staff have been significantly diverted from their usual activities. Consider the following to ensure that you are in the best position to recover the most staff or management costs possible:
You must be able to show that staff time has been diverted from usual duties to deal with investigating or mitigating the problem. Properly kept records of the time spent dealing with the problem are essential. Although records can be reconstituted retrospectively, there is more uncertainty (and therefore less credibility) in such a method and the court might discount the amount recoverable to reflect this. Contemporaneous records are therefore preferable. When dealing with an issue that you believe might subsequently end in litigation, remember to:
- keep contemporaneous records for each of the employees involved in dealing with the problem
- record how long they have spent and what activities they have been involved in
- use the right employee for the right task and be prepared to justify why the particular employee was used
- record what the particular employee would have been doing had he/she not been diverted to deal with the problem
- if the nature of your business is such that disputes are not uncommon, consider having a pre-prepared spreadsheet/IT application available for immediate implementation as soon as a dispute arises. This will help ensure that all staff time is captured from the outset
- consider what records you have or need to keep to show the quantum of the claim for wasted time
Without such contemporaneous written records, further potentially irrecoverable management costs will be incurred in putting together such evidence.
The court may also be more willing to award such costs where the employee has effectively undertaken the work that an expert would otherwise do, such as checking financial records, and which would be recoverable as part of the expert's fees.
Disruption by the defendant
There has to have been a disruption to the business attributable to the defendant and the disruption must be significant. Evidence of this will need to be produced.
Quantification of loss
The court will infer from such disruption that had the employee not been diverted to deal with the problem, he/she would have been engaged on company business which would have generated revenue for the business. The defendant can rebut this inference. The starting point for the basis of quantification will be the cost of the employee's time or the director's salary during the period they were diverted from the company's business. Neither actual loss of revenue, loss of profit nor additional expenditure has to be established.