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The Hidden Costs of Litigation and The Ability to Recover Staff Time

Parties involved in litigation will often ask whether or not they can recover their time as a result of their involvement in the litigation.

Generally speaking the cost to a party of time spent by its staff in dealing with litigation is not recoverable as damages. The costs of employment of external professional legal representatives (such as Solicitors and Barristers), subject to the court’s discretion, is recoverable. If a party acts as a litigant in person (on its own behalf) in litigation then its costs of the litigation are recoverable.

In respect of the costs of litigation, a party involved in litigation is therefore constrained to recovering the legal costs that it has expended (or subject to the court’s power to assess those costs, part of those costs) or an amount in lieu of the instruction of legal representation.

A client involved in litigation will often complain that significant managerial time is being devoted to the instruction of lawyers and liaising with the legal team. Unfortunately, as there is no ability to recover such lost time as damages this may be seen as a hidden cost of litigation and something which should certainly be a consideration to a party if embarking upon time consuming litigation. There are however circumstances when it is possible to recover the cost of staff time rectifying the consequences of the breach of contract or wrong that has been perpetrated.

For example in a contractual situation, where there is a breach of contract and a party seeks to recover damages the injured party may have to divert its staff time from their ordinary work in order to deal with the consequences of the breach or even hire new staff to deal with the consequences of the breach. Generally speaking, a claimant can recover damages in respect of its staff time employed to overcome the effects of the breach. The more salient question to a party embarking on litigation is how the court may look to assess these costs.

Practically, the costs of staff time diverted to deal with the breach will have to be calculated by reference to a notional hourly rate. Given that justification will be necessary to demonstrate the notional hourly rate it is beneficial for there to be accountancy input as to how this figure is arrived at.

With regard to the recovery of time, the claimant is well advised to ensure that its staff keep detailed contemporaneous records of the time which they spend in dealing with the consequence of the wrong. In effect the claimant’s employees would be well advised to time record their time by reference to the activity being performed to rectify the breach.

Whilst the staff cost of prosecuting or defending litigation may not be recoverable as damages it is worthwhile at an early point in the litigation considering whether a claim in damages can be made in respect of the time that staff are being put to in dealing with the effects of the wrong to ensure that this too does not become a hidden cost of litigation.