Getting out of a hole

"There I was, diggin' a hole, a hole in the ground, sort of big and sort of round." So sang Bernard Cribbins. The public cannot understand – let alone appreciate – why the roads, particularly in cities and towns, are dug up time and time again. There is another group that is equally upset by the roads being dug up. These are the utilities services whose cables and pipes are damaged by other organisations installing different services.

The unsung New Roads and Street Works Act 1991 provides a wide-ranging code governing who can carry out which works, under or in which roads and streets, when, how and on what terms. It has not attracted an enormous amount of attention from the courts – at least not until recently.

With the explosion in multimedia applications, fibre-optic cables, cable television and the like, roads are being dug up ever more frequently – and in more places – than before. Some organisations have undergone substantial damage to their apparatus as a result. For instance, BT suffered more than 29,000 incidents of such damage in the UK in the financial year 1997/8, and brought more than 15,000 claims against third parties for more than £23m.

The time came when BT decided to bring a test case. It claimed only £1858 in respect of nine instances of damage to its apparatus in streets in Leeds. Bell Cablemedia (Leeds) was the defendant whose contractor had caused the damage. Bell admitted liability.

Section 82(1)(b) of the 1991 act requires the authorised undertaker of works in streets to compensate another party "having apparatus in the street in respect of expense reasonably incurred in making good damage to that apparatus when the damage occurred as a result of the execution of those works". It is a strict liability; put another way, Bell would be liable with or without proof of fault and irrespective of whether the work that caused the damage was caused only by its contractors.

The case came before the Leeds Mercantile Court in September last year (to be reported in 2001 BLR Volume 7). The key question to be considered was how to assess and calculate what "expense" is recoverable. Obviously, the direct cost of physically repairing or, as necessary, replacing the damaged apparatus is recoverable. The dispute centred on the less direct costs.

In one year, BT suffered more than 29,000 incidents of cable damage and brought more than 15,000 claims

Section 96 of the New Roads and Street Works Act dictates that the entitlement of the owner of the damaged apparatus to recover expense "shall be taken to include its relevant administrative expenses … including an appropriate sum in respect of general staff costs and overheads". The interpretation of "relevant" by the legal teams on opposing sides gave rise to substantial differences. Battle lines were drawn as to what were relevant administrative expenses, general staff costs and overheads.

To be "relevant", the administrative expenses must pertain to making good the damage. Because section 96 says that the relevant administrative expenses are to "be taken to" be included in the recovery, the plaintiff did not necessarily have to establish that they were directly caused by, or part of, the expense of making good.

However, some costs might well be irrelevant. For instance, a tier of national management that vets the billings made by a lower tier may be unnecessary. The judge said that whether an administrative expense is relevant "will depend on the strength of the connection between the use of the resource and the making good of damage". It is not essential, therefore, that the expense is directly caused by the need to make good.

Overheads are also recoverable by the owner of the damaged apparatus. The act refers to "expenses, such as those related to fixed assets, which do not vary according to the level of business activity". It is still necessary to establish what the overheads and general staff costs are and what the relevant connection is between them and the making good of the damage.

It all makes work for the working man or woman – BT manager, lawyer and judge – as Flanders and Swann sang in The Gasman Cometh, their song about a chain of mishaps by tradesmen. Contracts and legislation are often drafted in extreme detail and at extreme length, leading to discrepancies and disputes. But even with some relatively simple provisions like those in the 1991 roadworks act, great difficulties can arise.