A Disaster - Claiming The True Cost To Your Business

At some stage in your business’s life, someone else’s actions or lack of action could well damage your organisation.

The courts recently dealt with a case where a publishing house’s unique archive of photographs and artwork relating to aircraft suffered irretrievable water damage when a mains water pipe burst on a sunny July afternoon in 2001.

One of the issues for the Court was how much the publishing house could claim for the cost of using its own employees to deal with the consequences of the flood. The staff had spent time inspecting and assessing the flood damage instead of concentrating on the normal money-making publishing house business.

The utilities company which owned the water main which caused the damage argued that as the staff were paid fixed salaries the publishing house needed to establish that the employees were diverted from revenue-generating activities and that this diversion resulted in a loss of revenue. The publishing house, it was argued, could not simply infer a loss from general diversion of staff from their normal activities.

In a previous case a bank claimed the salary of a manager for the time he spent in Vietnam investigating a fraud perpetrated against it. The bank’s claim on this issue was rejected on the basis that its profits were not adversely affected by the manager’s absence.

However the publishing house’s case in the Appeal Court brought the strands of conflicting previous cases together into a set of rulings on these issues.

1. The fact and the extent of the diversion of staff time must be properly established with evidence.

2. The claimant must establish the diversion caused significant disruption to its business; and

3. Diverted staff would have generated income to pay for the costs of their employment so the company could claim for loss of revenue, unless the defendant can establish the contrary,

In this case, the Court found that the publishing house proved, in detail, that their employees, particularly senior ones, were diverted and the business was disrupted. Damages were awarded for the costs of the employees occupied in dealing with the consequences of the flood.

Unfortunately parties cannot claim management or employee costs for dealing with litigation where solicitors are instructed even though it is often a time-consuming and distracting process.

If your business is on the receiving end of a disaster caused by another party’s breach of contract or negligence which results in your management and staff clearing up the mess then keep a careful record of time and costs. The quality of the evidence is all important. The clearer and more comprehensive the records the more likely the Court will allow recovery of the costs.