In a significant win for in-house lawyers, the Employment Appeal Tribunal (EAT) recently confirmed that in-house lawyers can recover their legal costs incurred during litigation in the employment tribunals (Ladak v DRC Locums Ltd UKEAT/0488/13). This document includes a checklist for the recovery of costs.

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Recovering costs in legal proceedings: a victory for in-house counsel
In a signifi cant win for in-house lawyers, the
Employment Appeal Tribunal (EAT) recently
confi rmed that in-house lawyers can recover
their legal costs incurred during litigation
in the employment tribunals (Ladak v DRC
Locums Ltd UKEAT/0488/13).
Rules on recovery
It has long been established, both in civil
litigation and employment tribunal cases,
that the costs of legal work can be recovered
from the other side (Henderson v Merthyr Tydfi l
Urban Council [1900] 1 QBD 434; Wiggins
Alloys Ltd v Jenkins [1981] IRLR 275).
However, the rules governing the recovery of
legal costs differ depending on whether the
litigation is being conducted in the civil courts
or an employment tribunal (Civil Procedure
Rules, Employment Tribunals (Constitution
and Rules of Procedure) Regulations 2004 (SI
2004/1861) (2004 Regulations) and rule 74(1)
of the Employment Tribunals (Constitution
and Rules of Procedure) Regulations 2013 (SI
2013/1237) (rule 74(1)).
The employment tribunal rules extend to
parties being able to recover the costs of a
lay representative, who charges his client for
representation in the tribunal.
In civil litigation, legal costs can only be
recovered where they can be characterised
as “legal work”. These principles have also
been adopted in employment tribunal
proceedings.
Ladak
Mr Ladak was a former employee who brought
an unfair dismissal and discrimination claim.
He argued that in-house legal costs could
not be recovered in respect of time spent on
preparation of the defence by the employer’s
lawyer.
His argument was based on the defi nition
of costs under rule 38(3) of the 2004
Regulations and rule 74(1) (together, the
ET rules). He argued that the defi nition
under the ET rules refers to “fees, charges,
disbursements or expenses incurred by or on
behalf of a party” only.
Checklist for recovery of costs
In order to seek to recover the in-house legal team costs, in-house lawyers will need
to implement a system where:
 The potential recovery of legal costs is considered at the outset of the case and
monitored throughout.
 A process is implemented for recording time spent on legal work in connection
with the litigation.
 Legal spend budgeting and costs forecasting must factor in both in-house and
external legal costs from the outset.
 The legal work is conducted at the appropriate level of expertise throughout the
duration of the case.
The EAT was asked to consider whether
the defi nition of costs under the ET rules
extended to cover time spent by an in-house
lawyer. It was accepted that the position in
respect of recovery in civil litigation remained
unchanged.
Mr Ladak placed particular emphasis on
the differences between civil litigation and
litigation in the tribunal, the suggestion
being that the rule in relation to the recovery
of civil legal costs did not apply in the
tribunal.
The EAT decided that there would be an
absurd gap in the ET rules if a company
that had employed an in-house lawyer was
unable to recover legal costs in the tribunal
for that reason.
The EAT held that the words “fees, charges,
disbursements or expenses” are not to be
read restrictively. It considered 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 on the
employer.
As a result, the EAT upheld previous case
law that companies can recover the costs in
respect of time spent by a legally qualifi ed
in-house representative in conducting a case,
including in a tribunal.
Recovery of costs in civil litigation
In-house costs are recoverable in civil
litigation. But how are these calculated?
As in-house lawyers do not usually work to
an hourly rate, the court is prepared to take
a pragmatic approach and use the cost of
employing the in-house lawyer concerned
as a reference point, without being overly
forensic in its analysis. The court will assess
the time involved and the reasonableness
of the suggested rate and consider the
completed tasks, as it would for 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 on 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 looks on this as
a cost that all litigants must bear to prove
their own case. In addition, in-house
lawyers 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.
© 2014 Thomson Reuters (Professional) UK Limited. This article fi rst appeared in the October 2014 issue of PLC Magazine,
published by Practical Law, part of Thomson Reuters (Professional) UK Limited, and is reproduced by agreement with the publishers.

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NEWS BRIEF
Particular care is required, therefore, to ensure
that the work in question is “legal work” when
private practitioners and in-house lawyers
have been working together on a litigation
project. Whether there is duplication of effort
will also be a matter of close scrutiny.
Time recording
In-house lawyers intending to seek the cost
of their time from the other side, either in
the context of civil litigation or employment
tribunals, 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 that they spend on it (see
box “Checklist for recovery of costs”).
Where in-house teams are regularly involved
in litigation it is worth considering whether
to adopt time-recording procedures similar
to those of private practitioners, in order to
capture accurately their potentially claimable
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 start of
proceedings, or they might not be recoverable.
Time will only be recoverable to the extent
that 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 straightforward disputes should
be avoided.
As with private practice, ensuring that the
work is conducted by in-house lawyers at
the appropriate level of expertise (from a
recovery of costs perspective) is important.
However, this may be diffi cult 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 effi cient to instruct external
solicitors in order to maximise the possibility
of legal costs being recovered.
Louise Randall is an associate, and Robert
Syms is a senior associate, at Shoosmiths
LLP.
© 2014 Thomson Reuters (Professional) UK Limited. This article fi rst appeared in the October 2014 issue of PLC Magazine,
published by Practical Law, part of Thomson Reuters (Professional) UK Limited, and is reproduced by agreement with the publishers.