In-house legal costs may be recovered
The recent Employment Appeal Tribunal decision in Ladak v DRC Locums Limited upheld the Employment Tribunal’s decision that any costs incurred by in-house lawyers on a matter may be recovered, serving as a reminder that in-house legal costs may be recovered in litigation.
The question in Ladak v DRC Locums Limited was whether section 38(3) of the Employment Tribunal Rules of Procedure 2004 prohibited the recovery of in-house legal costs. The appeal was dismissed and it was held that the wording of the 2004 Employment Tribunal Rules should not be read restrictively. The Employment Appeal Tribunal noted that the words should be given their usual definition and were therefore broad enough to cover in-house legal costs, as they were an expense for the employer. The 2004 Rules have been replaced by the 2013 Rules but the Appeal Tribunal noted that there was “no reason to suppose that these rules of procedure have changed the established position as regards qualified in-house representatives”.
In addition to providing clarity in respect of matters before the Employment Tribunals, the case of Ladak v DRC Locums Limited serves as a reminder for in-house teams that costs incurred by in-house lawyers may be recovered in civil litigation.
Principles in Civil Litigation
The principle that in-house representatives may recover their costs for legal work has long been established in the Civil Courts, on the condition that the work can be categorised as legal work. Costs for secretarial work and research into the facts of the matter will therefore not be recoverable. This should be kept in mind by in-house teams when assessing the level of costs that may be recovered.
The above said, in certain circumstances it may be possible to claim wasted management time. While it is not possible to claim these as costs, it may be possible to claim them as damages if they have arisen as a result of the events underlying the claim (i.e. staff have been diverted from their usual activities) as opposed to in the course of bringing or defending the claim.
In the case of Re Eastwood  Ch 112, Russell LJ set down the following principles to be followed when considering how to quantify the cost of in-house legal work:
- The time should be assessed as if it were the time of an independent solicitor.
- The hourly rate is to be assessed in the same way as it would be if it were claimed in respect of an independent solicitor.
- The court can presume that the figure arrived at will not infringe the indemnity principle.
- Although it may sometimes appear that the indemnity principle has been infringed, it would be impractical to require a full analysis of the costs of the legal department in question.
- Although the principles set out in Re Eastwood remain unchanged, they have come under scrutiny and the Courts appear to recognise that, in certain cases, it may be appropriate to depart from these principles.
The above principles apply even if independent solicitors are instructed (Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd and another  EWHC 90069) albeit, in these situations, the Courts are more likely to scrutinise whether such work can properly be classified as legal work and whether it was duplicative.
This case provides a reminder to parties with in-house legal representatives, both in employment matters and the Civil Courts, that parties may recover some of their internal costs. To do so, it is essential that in-house teams record their time to matters clearly so that the level of costs awarded can be easily assessed by the Court.
This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, click here.