August 2017

Defective construction work – recovering the costs of your time for your contractor’s mistakes

 

“It is your construction work that is defective and you will have to pay the rectification costs!

And by the way ... you are also going to have to pay for my time and my staff's time dealing with the rectification of your defects!"

How many times have you heard or even said this yourself?

It’s true, you and your employees spend much valuable time dealing with the rectification of your contractor’s or subcontractor’s defective work.

Who is going to pay the cost of this time?

Can you recover the cost of management time as damages?

This issue was recently considered by the NSW Court of Appeal in the context of a claim for damages for rectification costs incurred by a head contractor in respect of its subcontractor’s defective work.

The case is PND Civil Group Pty Ltd v Bastow Civil Constructions Pty Ltd [2017] NSWCA 159 (27 June 2017).

The Facts

Bastow Civil Constructions (Bastow) contracted with Energy Australia to undertake work that involved constructing trenches in public roads, installing cable ducts in those trenches and backfilling and sealing trenches.

Bastow subcontracted some of that work to PND Civil Group (PND).

Bastow claimed that PND’s work was defective and successfully sued PND in the District Court of New South Wales, for (part of) the cost of the rectification works.

The District Court judge concluded that Bastow had suffered loss and quantified Bastow’s loss as the costs of the rectification work, namely $269,355.

In quantifying the loss, the District Court judge excluded an amount of $43,669 claimed by Bastow for the time its employees spent in connection with the defects and their rectification.

The $43,669 part of Bastow’s claim against PND was rejected by the District Court judge because “there is no evidence that the allocation this time resulted in any additional cost to Bastow”.

Bastow challenged this conclusion in its cross-appeal filed in the New South Wales Court of Appeal.

Bastow submitted that the District Court judge had erred in holding that Bastow was not entitled to recover, as an element of its damages, the cost of the management time spent by its employees in dealing with PND’s defective work.

The Decision

The NSW Court of Appeal unanimously found against Bastow concluding that there was no evidence that Bastow had incurred any additional management expenses.

The Court found that:

(a) it did not appear that Mr Bastow caused himself or the other staff member involved (who were both employees of Bastow) to be paid overtime or any other compensation or additional remuneration;

(b) nor did it appear that any additional staff or contractors were employed, either to

(i) to deal with PND’s defective work and its consequences, or

(ii) to attend to tasks from which Mr Bastow had been distracted because of his attention to matters of defect rectification; or

(c) there was no evidence that Bastow had been prevented from seeking or taking up any valuable business opportunity because Mr Bastow’s attention was focused on PND’s breach of the contract and its consequences.

When might the cost of management time be allowed in a damages claim for rectification of defective work?

To successfully claim the cost of management time, as damages for breach (defective work), the claimant must prove that it incurred additional expense.

The Court noted that damages may be recoverable for lost management time in certain circumstances such as where the Claimant can prove that;

(a) existing staff were paid more, or

(b) additional staff were employed to either:

(i) manage the breach of the contract and its consequences; or

(ii) attend to tasks from which existing staff had been distracted because of their attention to the defective work issues; or

(c) if no additional staff were employed, but the diversion of management time to the breach of contract meant that the employer lost other valuable business opportunities, then damages might be allowed, although the quantification of lost business opportunity may be difficult to establish.

Why tell me this?

To claim damages for the cost of management time lost in dealing with the rectification of defective work carried out by your contractor or subcontractor, you must have incurred additional costs.

These additional costs incurred, which you must be able to prove, will most likely be in the form of:

(a) additional payments (such as overtime or additional remuneration) made to staff members; or

(b) the employment or engagement of additional staff or contractors, either to deal with the subcontractor’s defective work and its consequences or to attend to tasks from which your employees have been distracted because of their attention to the rectification of the defective work.

Author: Mark Glynn