Case No 19
Case Name - Euro Pools v Clydesdale Steel Fabrication Ltd
Year - 2003
Subject Matter - Managerial Time and Cost
Managerial time and costs were issues in this case. Euro Pools entered into a contract with the main contractor in connection with work at the swimming baths at Burntisland in East Moseley in Surrey. Filtration equipment supplied by Clydesdale to Euro Pools proved to be faulty in that a protective lining inside tanks supplied as part of the order had failed and as a result a claim was levied for breach of contract. Part of the claim submitted by Euro Pools included costs in respect of time input by the managing director together with an engineer involved in attending meetings and dealing with substantial correspondence and telephone calls in organising and co-ordinating repairs. The claim was contested by Clydesdale.
Clydesdale’s case was that Euro Pool’s entitlement was to recover any actual cost or loss which resulted as a direct consequence of the defective equipment. The managing director and engineer were not employed specifically in relation to the remedial works and therefore their salaries would have been paid in any event. This being the case Euro Pools had sustained no ascertainable loss as a result of the defects. It was accepted however that fuel costs in relation to visits to the swimming pool were an extra cost which could be recovered. The judge was not impressed; his view being that a managing director will normally be expected to devote the whole of his time in the affairs of his employer involving company strategy, searching for new markets and the development of new products. If he is diverted from these tasks to deal with defective equipment obtained from a supplier, this will deny him the time which he would otherwise have spent on his normal tasks and as such represents a loss to his employer. The same principle applies to the engineer in that time spent on remedial work represents time which could have been profitably spent on his employer’s work.
The claim included the basic salaries of the managing director and engineer, plus a mark-up for overheads. The mark-up for the engineer was 350% added to the hourly cost with a 50% increase on top of the managing directors salary costs. The percentage addition to the engineer’s hourly costs was said to be the usual mark-up for daywork in the industry and the addition in respect of the managing director was intended to represent a reasonable amount. The judge accepted in principle that overheads are rightfully included in the claim. He felt that a contribution should be made to cover such matters as he cost of maintaining business premises, computer systems, head office and accounting staff, salesmen, estimators and general technical support.
The question which has been asked following this decision is whether it is likely to have any effect on the manner in which disputes arising out of construction contracts are resolved in the future. The recovery of managerial costs was the subject of a dispute in the case of Tate and Lyle v Greater London Council (1983). In that case the claim was rejected due to a lack of supporting evidence, but the principle was accepted. It seems that claims in respect of defective work and materials in the future will regularly be extended beyond the recovery of mere remedial costs to include managerial time.