Companies can recover the costs of their in-house lawyers in legal proceedings
Author: Louise Randall and Robert Syms
It has long been established that the costs of proceedings can be recovered by the winning side. However, what was uncertain was whether these costs could include the work of in-house lawyers. We look at the case which has removed this uncertainty.
The rules governing the recovery of legal costs differ, depending upon whether the litigation is being conducted in the civil courts or the Employment Tribunal. In civil litigation legal costs can only be recovered where they can be characterised as 'legal work'. Whilst this approach has been adopted in Employment Tribunal proceedings, the Employment Tribunal rules also allow parties to recover the costs of a lay representative who charges its client for representation in the Employment Tribunal.
The Employment Appeal Tribunal (EAT) in Ladak v DRC Locums Ltd recently considered whether the Employment Tribunal rules also allowed the recovery of a legally qualified in-house lawyer's costs incurred during litigation in the Employment Tribunal.
Summary of the Ladak case
The Ladak case questioned the position of recovery of legal costs in the employment tribunal. In particular, Mr Ladak argued that, although in-house legal costs could be recovered in civil litigation, this was not the case in the employment tribunal based on the wording in the employment tribunal rules which refer to recovery of 'fees, charges, disbursements or expenses incurred by or on behalf of a party' only. Mr Ladak placed particular emphasis on the differences between civil litigation and litigation in the employment tribunal, suggesting that the rule in relation to the recovery of civil legal costs did not apply in the employment tribunal.
The EAT, however, decided that there would be an absurd lacuna in the employment tribunal rules if a company who had employed an in-house lawyer was unable for that reason to recover legal costs in the employment tribunal. His Honour Judge Richardson stated 'to my mind it is plain that the words 'fees, charges, disbursements or expenses' are not to be read restrictively in the way in which [Mr Ladak] suggests. I consider that it is a normal and permissible use of language to describe the costs of an in-house legal department as a charge or expense upon the employer.'
As a result, the EAT confirmed that companies can recover the costs in respect of time spent by a legally qualified in-house representative in conducting the case even within the employment tribunal.
So how are the costs of an in-house lawyer calculated?
As in-house lawyers do not usually work to an hourly rate, the civil courts have been prepared to take a pragmatic approach and use the cost of employing the in-house lawyer concerned as a reference point. The court will then look at the time involved with an assessment of the reasonableness of the suggested rate and consideration of the completed tasks, as it would a solicitor in private practice.
The court's pragmatism has boundaries in that it will still require in-house lawyers to be able to provide detailed itemisation and proof of the time spent upon a task. Recoverable costs are also limited to legal work: work of a secretarial or administrative nature cannot be claimed.
Some categories of work are not recoverable at all. Most commonplace will be the time involved in gathering the factual information and documents. The court has looked upon this as a cost that all litigants must bear to prove their own case. In-house lawyers also cannot recover the time spent giving instructions to an independent solicitor or any other typical 'client' activity as this is not time spent on legal work.
Top tips for in-house lawyers
- In-house lawyers intending to seek the cost of their time from the other side should from the start of their involvement in a dispute keep detailed records of the work they are doing on the matter and the time they spend on it
- Where in-house teams are involved regularly in litigation it is worth considering whether to adopt time recording procedures similar to those of private practitioners, in order to capture their potentially "chargeable" time
- When external solicitors are conducting litigation and in-house legal costs are to be recovered, these will need to be factored in to the costs budgeting at the commencement of proceedings, or they might not be recoverable
- Time will only be recoverable to the extent it is reasonable and proportionate. This may dictate that unless the in-house lawyer is an experienced litigator there may be a low return on the time invested. Correspondingly, the involvement of senior in-house lawyers in small or uncomplex disputes should be avoided
- As with private practice, ensuring the work is conducted by in-house lawyers at the appropriate level of expertise (from a legal costs recovery perspective) is important. However, this may be difficult with smaller in-house teams or where there are limited numbers of internal litigators
- In cases where costs are recoverable, it may prove more cost-efficient to instruct external solicitors in order to maximise the possibility of legal costs being recovered
Note: A full article on this piece appeared in PLC, October 2014
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.