Causally connected overhead expenses are recoverable

British Telecommunications v Geraghty and Miller International (Queen's Bench Division - 29 July 2004)

Claimants frequently seek to recover expenditure on support services and general running costs - overheads - as part of the losses suffered in property damage cases, arguing that the staff involved would otherwise have been profitably employed on other work. The court has recently considered such a claim.

British Telecommunications claimed an uplift of 126% of its direct labour costs for overheads. The uplift mainly comprised the salary and office costs for management dealing with damage repair work generally, and the cost of providing capital for repair work.

As economic loss is only recoverable in tort where it is consequent upon physical damage, the parties accepted that, in order for there to be recovery, there had to be a causal link between the repair work and the costs claimed.

The defendant contended that BT had to establish that, except for the necessity of carrying out repair works, it could dispense with the services of those involved. BT argued that it need only establish the costs that it had incurred as a result of the damage to demonstrate the causal link.

The court agreed with BT, holding that BT was entitled to recover such overheads as were caused by the repair work, provided that the amounts claimed had been reasonably and properly calculated.

As to causation, the court accepted that BT need only establish the cost of the overhead resources and held that these were recoverable to the extent that BT could demonstrate that, except for using those resources in damage repair, it would otherwise have used them for 'normal' business activities.

The cost of capital was also recoverable in principle, but as BT had adduced no evidence, that part of the claim failed. After analysing which activities were causally related to the damage repair, the 126% uplift was reduced to 79.99%.

Comment: Overhead expenses, whether direct or indirect, will be recoverable in damage repair claims if they are causally connected and sufficiently proximate to the work of damage repair. A claimant need only prove that a particular resource used for repair damage would otherwise have been used in the claimant's 'normal' business. - Guy Lane, BLM London.

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