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Making litigation pay – recovery of internal costs by your in-house legal team

  • United Kingdom
  • Insurance and reinsurance

22-11-2018

Making litigation pay – recovery of internal costs by your in-house legal team

Whilst the principle of recovering time spent by in-house legal teams in civil litigation is a long established one, there remains uncertainty around what in-house lawyers should seek to recover. In this article, James Barrett looks to remove this uncertainty.

The principle

The principle for recovering in-house legal costs was established as far back as 1900 in the case of Henderson v Merthyr Tydfil Urban Council [1900] 1 QBD 434. Where work undertaken can be characterised as ‘legal work’ and the time incurred has been recorded or can be estimated in support, it is, in principle, recoverable between the parties.

The principle was extended in Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd [2006] EWHC 90069 (Costs) to provide that in-house costs could be recovered even if external lawyers were instructed. However, it should be noted that the courts will be focused on establishing whether the work carried out by the in-house legal team is ‘legal work’ and also whether there is any duplication of the work done by the external lawyers, more of which later. Still further, whilst the work itself does not have to be carried out by a qualified solicitor or other legal professional, work undertaken by ‘paralegals’ or ‘legal assistants’, has to be under the auspices of an in-house legal team, and under the supervision, direct or otherwise, of a solicitor.

In response to the obvious question “At what rate should I seek to recover my time?”, the courts have long since held, first in the 1973 case of Re Eastwood; Lloyds Bank v Eastwood [1975] Ch 112, [1974] 3 AII ER, and latterly in the case of Cole v BT [2000] AII ER (D)917, that unless the paying party can point to evidence to the contrary, the rate which should be allowed for an in-house lawyer is akin to that recoverable by his/her external counterpart. Apart from the ease of calculation, the court recognised that in-house legal departments come at a cost, and were keen to avoid a situation whereby the losing party received some sort of costs windfall simply because the successful party had kept the matter in-house rather than using an external firm of solicitors.

This principle applies even in cases where the in-house lawyer may have an agreed lower internal cross charge rate within the business.

Recoverable and non-recoverable work

There are no set principles as to what in-house lawyers can recover and therefore limitations on what is recoverable will mirror those applicable to external lawyers’ bills of costs. In essence if you are seeking to recover work, it must be ‘legal work’, that is, work which you would normally expect an external lawyer to undertake. Work that is tantamount to acting as the client or work which is administrative in nature, is not recoverable.

As with external lawyers, where an in-house lawyer seeks their costs, this will need to be both reasonable and proportionate to the matter. It should also be noted that any costs that you seek to claim must, at the time of the assessment, be capable of detailed itemisation and preferably be supported by a time record. If you are intending to recover the cost of your time from the other side, you should endeavour to keep detailed contemporaneous records of the work you are doing on the matter in question. In-house teams are encouraged to adopt similar practices to time recording as external lawyers such as using a time recording system. However, the absence of time records should not be considered a bar to recovery, the starting point is that the work has been done.

Whilst the guidance on what work is recoverable is necessarily broad, case law has helpfully provided some guidance as to excluded work, this generally includes:

  • costs compensation for more general “labour and trouble” (London Scottish Benefit Society v Chorley)
  • arranging funding for litigation (Motto v Trafigura) – save arguably in Arbitration matters
  • “marshalling the facts” work done by the in-house lawyer (Richards & Wallington (Plant Hire) Ltd v Monk & Co Ltd)
  • instructing an external solicitor
  • not acting as ‘client’ - that is work which a client would have to do to instruct a solicitor in any event, as oppose to work which can be considered ‘legal’ work”
  • Post Box - that is not simply being a conduit between the board and external counsel as such work would be considered ‘client’ rather than ‘legal’ work, and/or duplication (see below)
  • duplicative activity (Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd and another)

Experts’ fees

Another area where recovery can potentially be made, is the costs of internal staff completing specialist work required for the litigation, which could be considered ‘expert’ in nature and where they satisfy the criteria laid out in CPR 35. By way of example this could include an accountant preparing financial modelling.

Conclusion

If you are an in-house lawyer with or without external representation, it may well be possible to recover a proportion of your time, regardless of any internal cross charge considerations, at a commercial hourly rate.

Key to recovery is establishing that the work undertaken was ‘legal’ as oppose to ‘client’ work, and that the time spent has either been recorded, or can be sensibly estimated ex-post facto.

It is also worth noting that costs budgeting rules apply to in-house fees. If you intend to seek to recover in-house lawyer or expert costs at the conclusion of the case, you must make sure such costs are recorded in the Precedent H budget form. Failure to do so could preclude recovery on assessment.

If in doubt, seek the advice of a costs specialist.

Want to know more?

Our Costs Unit has experience of recovering in-house lawyer costs.  If you want to know more, or how best to organise how you work in order to have best opportunity of recovering such costs, please do get in touch.

For more information contact

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