Recovery of litigation costs

It is established in English law that a successful party in arbitration or litigation may recover the reasonable costs it incurs in pursuing its case.

Subject to the discretion of the court or arbitrator, the costs which would normally be recoverable would be the reasonable expenditure of the successful party on lawyers and external advisers for the purpose of conducting the case.

These would include the fees of solicitors and expert witnesses, the expenses of witnesses of fact and the party's own disbursements in travelling, copying documents and the like.

More controversial, however, has been the recovery of the successful party's direct costs incurred in connection with using its own employed staff to prepare material for the case.

In arbitration an uncertain process has evolved whereby a successful party may recover the costs of a claims consultant or solicitor engaged to prepare and present its case, but may not be able to recover the costs of its own engineering or surveying staff engaged upon the same purpose. Exceptions to this general statement must be given, however.

In the 1969 case of Nossen's Letter Patent the claimant was entitled to recover the costs of its own specialist employees, where it was held that these individuals were the most suitable or convenient experts to employ in the role of expert witness. The salaries of the staff involved and their out-of-pocket expenses were allowable as costs, but no overhead or profit was permitted on the basis that these were not occasioned by the litigation.

There is a fine line between a party's employee engaged as an expert witness and an 'expert' employee engaged in assembling the factual evidence.

In the 1984 case of Richards and Wallington (Plant Hire) Limited -v- Devon County Council, the cost of the claimant's staff, who were not acting as experts, was disallowed as a recoverable cost. In that case the judge said: "Essentially what (these individuals) were doingÉ was digging out the basic factual material which was necessary to prove the claim and on which (the expert) evidence was to rest. These two gentlemen were engaged on a factual exercise; they were certainly not independent experts; they were not, in truth, acting as experts at all and, in my judgment, these costs fall within the ordinary costs that the litigant must bear of digging out its own factual material, through its own employees, to prove its own case."

This is not to say that such costs are entirely lost. It will be open to a party to seek to recover such costs as a head of damages for breach of contract. In the 1994 case of Babcock Energy Limited -v- Lodge Sturtevant Limited, evidence was adduced that Babcock had a full order book and that if its staff had not been involved in dealing with the problems created by the defendant, they would have been fully and gainfully employed elsewhere.

Allowing the claim

The judge allowed this head of claim and stated: "The plaintiff might have provided an alternative calculation by reference to the additional costs to it of employing others, but I do not consider that it is obliged to do so if it can satisfactorily demonstrate the costs of time unnecessarily spent and therefore lost."

In March of this year, these matters were once again examined in the case of Amec Process & Energy -v- Stork Engineers & Contractors. Stork had engaged Amec as subcontractor to fabricate, construct, install and pre-commission the top side facilities for a floating production platform for the extraction and processing of crude oil from the North Sea. The contract did not progress well and lead to a lengthy litigation, in which Amec was largely successful.

Amec estimated its costs in conducting the litigation in the order of £5.7m. Included within this was the cost of time spent in preparation for trial by Amec's own personnel. Amec had engaged its own personnel and agency staff to undertake much of the work involved in collating, analysing and presenting the primary and supporting evidence to be used by its expert witness. These personnel also undertook much of the preparation of the visual evidence aids, such as histograms, graphs, bar charts, photographs, tables, as-built programmes and the like.

His Honour Judge Thornton QC noted that, had this work been undertaken at greater expense and with the use of many more hours of time by legally qualified personnel employed by Amec's solicitors, this work would in principle have been recoverable. Stork argued, however that, based upon the principle decided in the Richards -v-Wallington case, such costs were irrecoverable.

Judge Thornton noted that the Civil Procedure Rules defined recoverable costs as including "fees, charges, disbursements, expenses and remunerationÉ" Judge Thornton was satisfied that the time charges incurred by Amec in employing its own personnel fell within each of these categories of costs.

In his opinion it would be contrary to the stated principles of the Civil Procedure Rules if such expenditure, which was necessarily incurred by Amec, was not recoverable.

Accordingly, subject to detailed assessment as to whether the tasks performed on an hour-by-hour basis were properly and reasonably incurred, Amec was entitled to recover these costs. This represents an important shift in the categories of parties' costs which may be recoverable, whether in arbitration or litigation.