The New South Wales Court of Appeal recently reaffirmed that management and supervision time expended as a consequence of a breach of contract is recoverable, provided the party seeking to claim such costs can demonstrate either that:
- it incurred additional costs to deal with the consequence of the breach (e.g. by hiring additional staff or paying overtime); or
- as a result of the breach, it was required to divert its existing staff away from other valuable commercial opportunities.
Facts of the Case
In PND Civil Group Pty Ltd v Bastow Civil Constructions Pty Ltd [2017] NSWCA 159, Bastow Civil Constructions Pty Ltd (Bastow) had entered into a contract with Energy Australia to construct trenches in public roads, install cable ducts and undertake certain civil works, including backfilling and sealing the trenches. Bastow subsequently subcontracted some of these works to PND.
Bastow asserted that a portion of the work completed by PND was defective, and sought to recover:
- rectification costs; and
- the costs of management and supervision time for the rectification work (management costs).
In the first instance, the primary judge agreed that the works were defective and awarded Bastow damages. However, the primary judge refused to award any management costs.
PND appealed the primary judge’s decision. Though the Court of Appeal confirmed that management and supervision costs are recoverable as damages for breach of contract, it unanimously held that Bastow was not entitled to recover its lost management costs, because:
- Bastow failed to prove that it had incurred any additional costs; and
- there was no evidence that Bastow had been prevented from seeking or taking up any valuable business opportunities, as a result of the breach.
Take away
The decision in PND Civil v Bastow emphasises the importance of being able to demonstrate and quantify the actual loss incurred as a result of a breach of contract.
In particular, if a party wants to recover for the time spent managing and supervising the consequences of a breach of contract, it must be able to provide evidence which establishes that:
- the costs claimed are additional to those it would have incurred in any event; or
- where no additional costs were incurred, the time spent dealing with the breach was time which would have otherwise been spent on other commercial or business opportunities.
Examples of the type of evidence include:
- contracts for additional staff engaged to deal with the consequences of the breach, or to assume the roles of existing staff diverted to dealing with the consequences of the breach;
- overtime or additional remuneration paid to existing staff for time spent dealing with the consequences of the breach;
- timesheets, which clearly show the additional time spent by each staff member on the consequences of the breach; and
- evidence of other projects for which the party would have submitted a tender, or commercial opportunities which would have been explored, had management time not been required to deal with the consequences of the breach.
Ordinarily, management and supervision costs will not be recoverable where they relate to the time spent by existing staff dealing with a breach during their ordinary working hours, as this arguably falls with their role, and there is no additional cost incurred.
In summary:
- management and supervision time may be recovered as damages for breach of contract, provided that it is supported by the appropriate evidence and it for the actual loss incurred;
- both developers and contractors should keep in mind the evidentiary requirements for substantiating management and supervision costs for dealing with a breach; and
- preparation of evidence should commence as soon as possible after the occurrence of a breach, to ensure any future claim has the best possible chances of success.
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