The rule against “split” claims is that the claimant must choose between claiming for his wasted expenditure or claiming for his loss of expected profits, but is not entitled to recover both. The rationale of the rule is that the claimant cannot recover his loss of profits, expected under a contract, and also recover the (now wasted) expenditure he incurred in the expectation of achieving that profit.
In the following case, the judge cited Chitty on Contract (29th edition) which asserts (at paragraph 26-068) that this rule cannot be justified if the claimant can show that there is no overlapping between the two claims. The following case demonstrates how the courts will apply this principle in practice.
Bridge UK. Com Limited (Trading as Bridge Communications) v Abbey Pynford Plc  EWHC 728 (TCC)
The employer engaged the contractor, a specialist ground engineering company, to construct a new foundation for a printing press, to be installed at the employer’s new premises. Delays occurred for which the contractor was responsible. As a result of the delays, the employer had to outsource some printing work and had to decline to accept other work, whilst still having to incur the salaries of its printers during the period of delay.
The employer sought to recover:
- loss of profit on the outsourced work; and
- loss of profit for the period of delay because, if the printing press been operational during this period, the employer would have been able to perform a substantial amount of work which it had been unable to accept.
The court held that the employer could recover losses, essentially under the two heads above:
- Loss of profit on the outsourced work. The court assessed this as the amount by which the employer’s profit was reduced because it incurred additional expenditure in outsourcing this work (which it would not have incurred if it had carried out the work itself).
- Loss of profit on the work it was unable to carry out during the period of delay, when the printing press was not operational. The court assessed this as the wasted expenditure incurred by the employer - namely, the rental value of the printing press and printers’ salaries - during the period of delay, when the employer could not receive any return for the work which would have been carried out, had the printing press been operational.
However, to prevent double recovery under this head, the court deducted an element of the rental value and salaries to reflect those costs which the employer would have expended to earn the profit on the outsourced work (i.e. the employer’s first head of claim). In the absence of any information as to what these costs would have been, the court assessed the loss of profits under this head as 50 percent of the rental value of the printing press and 50 percent of the printers’ salaries.
Loss of profits: editors’ comments
The employer, in this case, was awarded both loss of profits (in relation to the outsourced work) and wasted expenditure (in relation to the work it had been unable to carry out during the period of delay).
This did not offend the rule against “split” claims since (once an appropriate deduction had been made in relation to the wasted expenditure which would have been incurred in relation to the outsourced work) there was no overlap or double recovery.
If the “split” rule had applied, unfairness would have resulted since the employer could not establish what its loss of profit would have been in relation to the work which it had had to decline. This was because potential customers were aware of the delays in the printing press becoming operational, and did not therefore request the employer to carry out any printing work.
The employer also claimed management time it incurred in dealing with the problems caused by the contractor. The employer calculated the hours retrospectively by going through the various documents which recorded what happened.
The employer then calculated its claim for executive time by reference to the annual income of its manager, divided by 2080 hours (equivalent to 52 weeks at 40 hours per week); and the employer added a 25 percent uplift on that amount, as an “opportunity cost”.
Will the court accept a retrospective assessment?
The court held:
- In principle, management costs were recoverable where the employer could demonstrate significant disruption to its business.
- In the absence of records, evidence in the form of a reconstruction from memory was acceptable. Such an assessment was an approximation and may under-estimate or over-estimate the actual time spent. The judge applied a discount to allow for the inherent uncertainty in the retrospective assessment.
The “opportunity cost” was not recoverable. The judge gave no reasons to explain why.
Perhaps the “opportunity cost” was disallowed in this case because it represented the employer’s loss of opportunity as a result of its manager being unable to develop the business whilst the printing press was inoperable. The court had already awarded damages to the employer to compensate it for the loss of work which it had been unable to take on during the period when the printing press was inoperable. Allowing losses for “opportunity cost” in these circumstances would therefore have resulted in a double recovery.