Our top tips for maximising the recovery of in-house lawyer costs in civil litigation

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In principle, a business can recover the costs of its in-house legal staff doing legal work in civil litigation from the other side (provided of course that it has been awarded its costs by the court).

And the Employment Appeal Tribunal’s decision in the recent case of Ladak v DRC Locums Ltd [1] confirms that this principle applies both in the civil courts and the Employment Tribunal.

There are however limitations on the costs that can be recovered, for example costs can only be recovered in respect of “legal work” carried out by in-house lawyers. This means that costs cannot be recovered in respect of (i) administrative or secretarial work (ii) time spent arranging funding for litigation [2] (iii) time spent operating as the client, such as marshalling the facts and obtaining basic information about the dispute and (iv) time spent internally relaying advice given by external solicitors.

Where external solicitors are also instructed, the court will be careful to ensure that claims for costs in respect of duplicative work are not allowed.

Here are our top tips to help businesses maximise the amount of their in-house lawyer costs that can be recovered:

Top tips

  • All members of staff (whether legally qualified or not) should keep detailed time records of the work they carry out in relation to the dispute
  • The time records should clearly state the type of work carried out, distinguishing, so far as possible, between “legal work” carried out and work carried out as “the client”. This is important as the type of work will determine whether the costs can be recovered as legal costs or as damages for wasted management time
  • Time records should also be supported by documentary evidence, such as attendance notes
  • The in-house lawyer’s costs should be included in any costs budget which is prepared. Failure to include these costs in the budget may mean that they cannot be recovered
  • Who carries out what work in relation to the dispute needs to be carefully considered and the following questions need to be addressed when managing litigation-related work:
    • is the work being carried out at the relevant level of expertise?
      • Costs will only be recoverable to the extent that they are reasonable and proportionate (unless costs are being assessed on the indemnity basis)
      • It is unlikely to be reasonable and proportionate for a senior in-house lawyer to carry out most of the work on simple or low value claims, in which case the in-house lawyer will only recover a limited proportion of their time costs
    •  is it more cost-efficient to instruct external solicitors?
      • Depending on the size and nature of the in-house legal team, it may be more cost efficient to instruct external solicitors to deal with the dispute from an early stage
    •  is the work a task which can only be carried out by a qualified lawyer?
      • Under the Courts and Legal Services Act 1990, certain tasks, such as drafting formal court documents, can only be carried out by qualified persons. If the task is performed by an unqualified person, the cost of that task cannot be recovered
  • In-house lawyers need to be prepared to defend a challenge to the rate at which their costs are calculated. The cost of in-house lawyers is usually calculated in the same way as external solicitors, i.e. by reference to an hourly rate. Although the case law provides that the hourly rate is to be assessed in the same way as for an external solicitor, the courts have left the door open for arguments that the hourly rate should be lower for in-house lawyers. Businesses need to be prepared to defend any such challenge by reference to the nature and complexity of the dispute together with details of the cost of employing the relevant members of the in-house legal team and the overheads attributable to the legal function.

What about wasted management time?

Although the cost of work carried out as “the client” cannot be recovered as legal costs, it may be possible to recover this cost as damages for wasted management time, where the dispute relates to a breach of contract. Damages can be recovered to compensate the business for the time spent by management and other staff, as well as in-house lawyers, in dealing with the breach. In order for a claim for damages for wasted management time to succeed, businesses will need to:

  • demonstrate that there has been a significant disruption to the business – evidence of a significant decrease in turnover whilst the employees have been diverted or an increase in turnover once the employees have returned to their normal activities will help
  • show that the other party’s breach of contract caused the significant disruption to the business – all minutes of meetings and correspondence which details the work undertaken by employees to investigate and deal with the breach must be kept
  • provide evidence of what those employees would have been doing (i.e. their normal activities) if they had not been dealing with the breach of contract
  • demonstrate the cost to the business of the significant disruption by keeping records of the time spent by management and staff on dealing with the breach, the payroll information for those employees during the relevant period and any additional expenses such as the cost of hiring additional temporary staff or additional equipment required to perform the diverted employees’ normal activities.

Wherever possible, contemporaneous records should be produced. Whilst the court may accept reconstructed records, it is likely to view these as less accurate and therefore reduce the amount of damages recoverable in respect of wasted management time.

[1] [2014] ICR D39
[2] Motto and others v Trafigura Ltd and another [2012] 1 WLR 657