Neutral Citation no. [2001] NIQB 12
Ref:     
NICE3385

 
Judgment: approved by the Court for handing down
Delivered:
23.03.2001
(subject to editorial corrections)

 

 
IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND
 
QUEEN’S BENCH DIVISION
 
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BETWEEN:
BT (NI)
Plaintiff/Respondent
 
AND
 
DAVID SINTON
Defendant/Appellant
 
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NICHOLSON LJ
 
            This is an appeal by BT(NI) against a decision of District Judge Wells in respect of a claim for £1401.56 for loss and damage alleged to have been sustained by BT as a result of a road traffic accident involving a van driven by the respondent on 25 June 1998.  The details of the claim are set out in a letter to him on 16 October 1998.  His van had collided with a BT telegraph pole and he accepted responsibility.
            The labour charges amounted to £1330.56.  There were claims for travelling and subsistence of £5.20 and for the cost of a telegraph pole (which replaced the pole that had been knocked over by the van) at £65.80.
            Mr Brian Kennedy appeared for the appellant.  There was no appearance by or on behalf of the respondent.  I was told by Mr Kennedy that the District Judge had arbitrarily awarded £1,087.  That is to say, he had reduced the claim by £314.56 without giving any reason for doing so.  The respondent in this appeal has not opposed the claim as presented.  He is uninsured.
            On a weekday in June 1998 - Thursday 25 June to be precise – his van collided with a BT telegraph pole in Adelaide Street, Belfast as a result of his negligence.  Damages have to be assessed on the basis of tortious liability.
 
The Evidence
            Mr Colin Quinn stated that he had been a maintenance jointer employed by BT for 15 years.  A call came to his home at 5pm on 25 June, he went to the BT depot by car, picked up a BT van and arrived at the scene of the accident at 5.30pm.  The police had put up diversion signs and a police landrover was in the street blocking people off from the telegraph pole which was lying across the road.  The pole was damaged.  He had to carry out a risk assessment and concluded that he needed assistance.  He contacted Control in Telephone House where one of six colleagues was on duty and arranged for Brendan McCormick to be contacted so as to join him.  McCormick joined him after 20 or 25 minutes.  He himself had to get up on  top of a Land Rover to cut telephone cables as there was nowhere to secure a ladder.  McCormick took the cables away and the carriageway was cleared.  He clipped cables in such a way as to hang them above the heads of footway users.  The plan was to replace the pole and renew the telephone network.  He left the scene at 7.30pm and went home at 8pm.  His working time on this job was three hours on the Thursday.  The next day a gang employed by BT came to replace the pole.  He gave to the foreman the exact location of the pole.  He was aware that the telephone lines served by means of the telephone pole were business lines and were 10-20 in number.  The gang erected the new pole and he and another BT employee, Billy Davis, a jointer, connected the network.  He and Davis each spent over an hour on that job on Friday 26 June.
            Brendan McCormick gave confirmatory evidence about the events of Thursday.  He was a maintenance jointer.  Two men were needed to work at either end of the broken pole.  Equipment such as ladders, cutters and safety helmets were required.  Both he and Quinn cut wires and made the area safe.
            William Stranaghan, foreman of the gang which erected the replacement pole, had worked for BT for 22 years and was classified as a T1.  He was contacted at 8am on 26 June, needed to know the size of the pole, required a gang of four men whom he named, all of whom were T2As (T stands for technician).  City centre work was hazardous.  He had to assess how to approach the job with cars parked on either side of the street.  A hole for the new pole had to be dug, the pole had to be brought to the scene and manually erected.  New lines had to be put in place and high ladders (40ft high) were used.  The gang arrived at the scene at 9am after loading stores from the depot, completed their work at 5.10pm and paperwork had to be filled in.  All of the gang worked for nine hours on the job.
            John Alexander Russell, a field manager with BT for 22 years, supervised the gang, visited the site after completion of the job, satisfied himself of the safety of the repairs and standard of workmanship.  The pole was nine metres high, longer than usual, and business went on in Adelaide Street as normal after the job was done.  In the city there are higher safety issues and a need for increased checks on safety.  This depends on traffic volume.  The very heavy long pole necessitated the use of scaffolding and special safety precautions in the area.
            John Frederick Wright had worked for BT for 21 years and was the Financial Services Manager.  A job such as this would come to him from a clerical officer with invoices; he would check the assessment.  He had experience both of the nature of the work and the financial side, checked out the actual work and the hours claimed and considered that they were reasonable.  He would have examined the whole file, looked at photographs taken on site, the report from Quinn and so forth.
            Ruth Nelson, the clerical officer who worked under Mr Wright, reported to him, providing documents relating to the Damage Control Unit, supplied a Damage Report and Daily Allocation Report (with timesheets for the men), found out what materials were used and prepared the file which she gave to Mr Wright.  She prepared the rates for hours worked based on the grades and the charges.  There was a mark-up of 126% on charges for working hours and a 20% mark-up on materials such as the new pole.             
            Patrick McClory was involved with the Damage Control Unit and responsible for collating all costs to BT property as a result of accidents such as this and damage done by other contractors.  It was his task to collect all relevant evidence and pass it on to finance branch, namely to Ruth Nelson in this case.
            Julian Richard Kimball-Cook is Head of Pricing Policy for Repayment Works for BT across the United Kingdom, is a Fellow of the Institute of Chartered Accountants, has worked for BT for 20 years and produced his report prepared in 1995 and completed in 1997 showing the calculation of the percentage mark-up.  The report is dated January 1997 and entitled “Report on Method of Calculation of the Overheads of BT on Repair of Damage to its Plant”.  The report which is more than 60 pages in length covers a range of topics listed at the front of the report.
            It deals in particular with Overheads at chapter 4.  It refers to the theory behind absorption-based overheads and the structure of the overheads; it refers to the report by Coopers and Lybrand which bears the same title as Mr Kimball-Cook’s report and which was produced in July 1995 by Andrew Mainz reviewing the method proposed by BT for the calculation of the cost of damage repair work.  The results of the review were set out in the report of Mr Mainz who expressly stated therein that he was aware that it would be submitted in evidence in cases in Great Britain.  The report of Mr Kimball-Cook when published in 1997 was adjusted so as to adopt the report of Coopers and Lybrand in order to include only those items [of overheads] with a strong causal link.
            The Coopers and Lybrand recommendations were further reviewed by loss adjusters downwards but later BT returned to Coopers and Lybrand’s recommendations when settlements could not be reached.  Direct Labour Elements are set out at chapter 5 and Indirect Costs at chapter 6 of Mr Kimball-Cook’s report.
            The overhead rate of 126% in respect of charges for work done is dealt with at chapter 7 and the charges in relation to materials are to be found in appendix 8.
            He referred to the control exercised by Oftel over BT and to the various aspects of overheads such as Control at Telecom House involved in despatching teams to sites, controlling support and in this instance contacting Mr Quinn directly.  He referred also to the field manager and support costs for engineers, the Damage Control Unit, the Accounts Department, support costs such as accommodation, personnel officers and computer systems, safety which involves more senior personnel, supplementary charges for materials such as purchasing, storing, testing, transporting materials and having procurement departments and quality control.  He explained absorption costing methodology.  He went through the different items of overheads, explaining the calculation of each.  He told the court that as from 1 January 2001 the overhead rate claimed was to be 182%.  He stated that BT had comparatively small direct costs, comparatively large overheads, making available their network to other companies and charging them for the use of the network.  He took the court through his report, pointing out that government bodies charged more than 200% in overheads.  Most claims by BT involved insurance companies.  It proved impossible to get agreement with the insurance industry.  My notes indicate a comprehensive review by him of the procedures adopted by him.  He has given evidence in many courts in the United Kingdom about overheads in BT cases.
            Oliver Ford, chartered accountant, a partner in Coopers & Lybrand, referred to the report of Mr Mainz requested by BT as an objective second opinion  for their own report.  Mainz’s figure for overheads was 126%.  BT’s figure had been 200%.  The method used by Coopers and Lybrand was a standard form of methodology.
 
Conclusions
            I have re-read the reports which were put in evidence.  I have read the cases to which I was referred.  I accept that sums for “overhead charges” can be claimed as damages and that it is for the court to determine whether the sums are reasonable and proper:   see London Transport Executive v Foy & Others per Goddard LCJ (unreported:  1955).  In that case, which was decided in July 1955 he upheld overheads of 129%, and seemingly, a further 10%.  He was satisfied that if the repairs had been carried out by an independent contractor, the cost would have been still higher.  In London Electricity Board v London Borough of Bromley (December 1 1988) Judge Willis followed that decision, holding that overhead costs attributable to repair works were recoverable and awarded an on-costs mark-up amounting to 100% of the labour costs and 10% of the material costs to reflect overhead charges attributable to repair works.  His reasoning is set out at pp15-28 of the booklet which was handed into court.  A report on the method of calculation of overheads is annexed to the judgment.  He distinguished Tate & Lyle v GLC [1981] 3 All ER at 720, 721 in which Forbes J accepted that overheads were recoverable but held that the cost of same had not been proved and Ulsterbus v Donnelly [1982] 13 NIJB.  Lord Lowry stated that he was prepared to hold that the costs of overheads, so far as it was relevant had been reasonably and properly worked out.  But he held that the overheads were a constant factor unaffected by the need to undertake the particular repair job.  The evidence put before Lowry LCJ failed to show that the overheads were put in place in order to undertake repairs such as those which had to be carried out as a result of Donnelly’s negligence.
            As he stated at the end of his judgment:
“If the appellant’s repair shop facilities and labour force were wholly or mainly occupied with repairing vehicles damaged by the tortious acts of others, it would be unrealistic to estimate the costs of the repairs by reference to labour only … if the need to employ labour on a repair had increased the appellant’s overhead charges … the only way to compensate the appellants would be to charge … the extra overheads against the respondents.  Thus the true answer will depend on the facts of each case … in this case the evidence in support of the right to charge overheads is not forthcoming …”
 
            See also Bell Telephone Co of Canada v Montreal Dual Hired Concrete Ltd & Another (23 DLR (2nd) 346) in which overhead and administrative expense were allowed and South Wales Electricity Plc v DMR Ltd in which the principle of allowing for overheads was applied by the Recorder of Cardiff (24 January 1996) but in which he reduced the amount of the uplift claimed to 100%.  In BT v Thames Water Utilities Ltd the overhead costs of BT were subjected to scrutiny by District Judge Oldham.  He had the report of Mr Kimball-Cook and the report prepared by Coopers and Lybrand which were also placed before me.  He stated that these reports provide the basis of the costing method used by BT to assess claims for repairs to damage and the reports had, as he understood it, been widely accepted by courts when considering such claims.  He went on to hold that the approach adopted by BT, namely to formulate a properly prepared and approved method of applying a set rate of mark-up to be applied in all their repair cases, was an entirely appropriate one and it would not be reasonable … to require them in each and every case to produce individual records of management time.
            In BT v Shropshire County Coucil (unreported 17 May 1999) His Honour Judge Stanley had placed before him the  reports of Mr Kimball-Cook and of Coopers and Lybrand and was satisfied that BT had been careful to exclude matters not properly claimable as part of the damage, that Coopers and Lybrand reduced the items still further  and that this exercise was undertaken at BT’s request in recognition of the need to confine expenses to those arising directly from the damage done.
            He rejected the attack on Mr Kimball-Cook’s evidence based on the ground that Mr Kimball-Cook could not establish accurately the precise sum paid out and did not calculate with exactitude the cost of supporting staff and resources and he accepted that small damage claims costs must be averaged out across the accounts.  He held that the evidence for BT was watertight and wholly acceptable to him.
            I have also read a note of the judgment of His Honour Judge Martin in BT v PJ Maxwell and Sons Ltd and RJ Martin (unreported:  21 January 1991) and the detailed judgment of the Recorder of Belfast, His Honour Judge Hart QC in BT(NI) v Morrow Contracts (unreported:  18 August 1999).  In the latter case the Recorder analysed comprehensively the calculations of Mr Kimball-Cook, considered the relevant law including the decision of Lord Lowry LCJ in Ulsterbus v Donnelly [1982] 13 NIJB 13 and other cases to which I have referred, such as the decision of Lord Goddard LCJ in London Transport Executive v Foy & Others and cited relevant passages from the Canadian case to which I have referred.
            He concluded that there was ample authority for the proposition that a plaintiff is entitled to recover such overheads as the court accepts were caused by repair work provided that he establishes that the amount claimed for overheads have been reasonably and properly calculated.  He rejected the arguments which were advanced before District Judge Oldham in BT v Thames Water Utilities Ltd and the argument that overheads were lower in Northern Ireland.
            I respectfully agree with the reasoning of the Recorder of Belfast.  The point relating to overheads based on overtime figures with which he dealt did not arise in the present appeal.
            I have also had the opportunity of reading the meticulous judgment of McGonigal J sitting as a High Court Judge in Leeds in BT v Bell Cablemedia (Leeds) Ltd (unreported:  9 September 2000).  This case was chosen as a test case to establish the principles upon which compensation payable for damage to BT apparatus under the provisions of the New Roads and Street Works Act 1991 should be calculated.  But like most test cases it had individual features.
            In that case BT claimed £1,858.47 for nine cases of damage to their apparatus in streets in Leeds in 1995 and early 1996.  Liability was admitted and the action proceeded as a quantum hearing “but on a grand scale with a mass of factual and accountancy evidence”.  It has to be said that distinguishing marks are that the claims were based on section 82 of the 1991 Act and that BT and its opponents were represented by counsel and both sides called expert evidence.
            In the present case BT presented its case unchallenged.  I have no difficulty in accepting their claim in so far as it is based on hours worked by men in different grades, paid at different rates, that is to say, 44 hours in all.  I have no difficulty in accepting the claims for subsistence and travel and materials and the mark-up relating to those items – for example, the materials handling charge of 20%.
            The mark-up for overheads on hours worked is very high.  Has it been justified?  It has passed the scrutiny of a number of judges.  It is supported by unchallenged evidence.  The overhead rate is 126% as at June 1998.  The accounting period on which it is based is the year to March 1989.  A recalculation is in progress.
            As assessment has been made of support costs directly related to labour and materials and of other costs stated to be necessary to carry out this work, but not specifically allocated to the job.  This includes general administration, support and management “necessary to sustain” the part of the company that carries out these repairs.  The approach has been to take the rate calculated for government work and to evaluate this model and recalculate to provide a rate “with a strong causal link to the cost of damage repair”.  The overhead rate of 126% has been in use from 1 January 1997 but a substantial increase is proposed from 1 January 2001.  Damage repair work represents a “mainstream activity” for BT.
            The full repair cycle is set out in Mr Kimball-Cook’s report.  All “reasonably incurred costs are allocated evenly over all productive hours”.  It is stated that absorbing all relevant overheads would give a labour rate of around £62 per hour, significantly higher than the rate claimed.  Adjustments were made downwards by Coopers and Lybrand to “reflect the causal link”.
            The total hours worked are calculated at 5.1.3 of his report:  the overtime premium does not apply in the present case:  engineer’s pay for line testing and other related activities is included:  see 5.2.  So is supervision of engineers and associated clerical work.  Planning engineers’ costs are not included.
            There is a charge for planning and management of damage repair work, of supplies and transport (recovered within the 20% stores handling charge), of finance and billing, the value of which is calculated as less than 1.5% of the total hourly rate.  This is increased by reference to para 6.5.3 and appendix 8.4.  Computing, accommodation, personnel management and administration, general management and administration, costs of HQ, corporate overheads, depreciation of computers and accommodation are claimed and set out in chapter 6 and the reductions made by Coopers and Lybrand are more than 100%:  see chapter 7.
            I am in no position to challenge these charges.  The review of BT’s charges by McGonigal J is most helpful.  He refers at p3 of his judgment to `accounting separation’ which is designed to prevent unfair subsidisation of on part of BT’s operations at the expense of others.  But it is in my view impracticable to use his judgment to attack the claim made by BT in this case because he is dealing with the construction of the Act of 1991 and with cases which had individual features.  It may well be that his careful analysis will be put to use in claims such as this in the future.  But I could not detect any decision of principle which would affect this case.
            I would not be doing justice to his judgment if I sought to analyse it or incorporate parts of it into this judgment, because, as I have said, the evidence presented to me is unchallenged and is based on liability in tort.
            Accordingly I award the plaintiff, BT(NI), its full claim of £1,401.56.  Those who study the judgment of McGonigal J will see that he allowed an uplift of 93.5%. But as he stated:  “The uplift of 93.5% is only of historical significance.  It is an uplift decided by reference to the evidence available in this case … in the interests of facilitating the main objective of the case, namely to decide the principles upon which claims of damage to BT apparatus should be calculated”.  The effect of his judgment on future cases remains to be worked out.

IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND
 
QUEEN’S BENCH DIVISION
 
-------- 
 
BETWEEN:
BT (NI)
Plaintiff/Respondent
 
AND
 
DAVID SINTON
Defendant/Appellant
 
-------- 
 
JUDGMENT
 
OF
 
NICHOLSON LJ
 
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