Recovery Of Costs For In-House Lawyers – A Reminder

One of the foremost concerns for a client when contemplating litigation is whether they will be able to recover costs if successful. Providing guidance on this can be difficult given the many uncertainties linked to the recovery of costs. A recent case considered of the question of the extent to which the costs associated with the work of in-house lawyers are recoverable. We have summarised the decision below and provided guidance on how to ensure that recovery of costs is maximised.

6th December 2014

Ladak v DRC

The case was heard in the Employment Appeal Tribunal but the decision serves as a useful reminder for all areas of litigation. Directions were given by the tribunal in relation to the claim. The employee failed to comply with the directions and the case was struck out. Costs were awarded in favour of the employer. Although the claim was dealt with summarily, the employer had undertaken a substantial amount of preparation for an evidential hearing and had incurred disbursements including counsel’s fees.

The problem here was that a substantial amount of preparatory work had been done by the employer’s in-house legal team. It was argued on behalf of the employee that, as the individuals were employed by DRC, their costs were not recoverable costs. Their salary was payable by DRC regardless of the work they had done in preparing for the case. This was rejected by the Employment Appeal Tribunal.

The Tribunal observed that there would have been a remarkable lacuna in the rules if a party could not recover expenses for in-house solicitors but could have recovered the same expenses if they appointed external legal advisers. This could not be justified by the fact that the solicitors were employed by the party.

Discussion

It has been settled in England for some time now that in-house lawyers are able to recover costs for the time they spend on an action under the CPR. This decision brings employment procedure in line with that. In practice, courts take a pragmatic approach to the issue, using the cost of employing the solicitor as a guide. The actual hours spent by the solicitor is multiplied by a notional charge-out rate. As with a solicitor in private practice, a court will assess whether the rate applied and hours spent are reasonable.

This means that there is a need for in-house solicitors to provide evidence showing the time spent on a particular case. The court will expect a detailed itemised breakdown of time spent and accurate records should be kept from the outset. As with solicitors in private practice there is a need for the work to be done at the appropriate level in order to ensure maximum recovery.

Only costs associated with the dispute can be recovered and certain costs, such as the time spent locating documentation in support of the claim, cannot be recovered. The court will look at whether the time spent could be considered the work of a "client" or the work of a "solicitor". If external counsel are also instructed the court will need to look in detail at the work done in-house to ensure that it is the work of a "solicitor" and not of a "client". This makes the accurate recording of time even more important.

With the move towards accurate costs budgeting at the outset of litigation in England and Wales, it will be important for all in-house solicitors and their external advisers to work out how much time will be spent by each individual lawyer. This must include an assessment of the complexity of the work to ensure that the task is carried out by someone with the appropriate level of experience. This work is essential to ensure that the expenses attributable to that work can be recovered if successful.

A Scottish perspective

In principle it is also possible for in-house lawyers to recover their expenses in Scottish litigation. Although there is no real judicial guidance on the point, it is again important that in-house lawyers keep a full itemised breakdown of the time they spend on a dispute, as the Court will consider whether the time spent is proportionate should the account of expenses be assessed.

In Scotland there are two bases on which expenses can be recovered. These are hours spent on a matter or the block fee basis. A block fee is payable for a particular stage in the process. It may prove easier to claim the expenses of in-house solicitors on the basis of the block fee to avoid any dispute about the proportionality of the time spent on a particular task. This is particularly true for organisations with smaller in-house teams which do not have solicitors with different levels of experience which could result in the task being undertaken at the wrong level.

One further concern in relation to the "hours spent" basis is that the Court may take the view that, as the in-house lawyer may not be an expert in the litigation field, an external solicitor would take less time to complete the task. These considerations could result in a lower level of recovery than that potentially achieved by external solicitors.

How can Shepherd and Wedderburn LLP assist?

Our Commercial Disputes team works with many clients (including in-house legal teams) in a wide variety of commercial litigation across the courts in both England and Wales as well as in proceedings before the specialist tribunals of the UK.

Over recent months we have seen a move towards more proactive project management of litigation prompted, in part, by the introduction of costs budgeting. By working with clients and their in-house legal teams we can identify the different phases and tasks within the particular litigation matter in hand, enabling us to agree an appropriate division of labour and help you plan the most efficient use of the resources available, whether those are within the in-house legal team, external solicitors or the Counsel team. In our experience, proactive management of the litigation at the outset can assist considerably in ensuring that the litigation is conducted in the efficient manner that the Courts are seeking and that the irrecoverable costs of litigation are kept to a minimum thereby putting you in the best position to challenge the cost budgeting proposals of your opponent.