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In-house legal costs - are they recoverable and if so at what level?

30 September 2020
Steven Dawson looks at the recently published case of Kuznetsov, R (on the application of) v London Borough of Camden [2019] EWHC 3910 (Admin) in relation to the costs incurred by the in-house legal department of the London Borough of Camden.  

Kuznetsov, R (On the Application Of) v London Borough of Camden 
High Court (Admin)
21 November 2019

Summary 

Following an unsuccessful judicial review in relation to a housing decision of the London Borough of Camden (the Council), Judge Markus QC ordered the claimant, Mr Kuznetsov, to pay the Council's costs totalling £11,614.20 which included an hourly rate of £317 per hour.  The decision was made on the basis of the papers before her, without a hearing.  

The claimant appealed the decision, arguing that the original order should be set aside as the Council had clearly breached the indemnity principle and could not sustain a claim for an hourly rate of £317 per hour.  

Mr Justice Mostyn upheld the original order for costs, following the longstanding case of Re Eastwood (Deceased) [1975] Ch, 112 which stated that the method of assessment of a bill of costs where a party was represented by a salaried solicitor, was to treat it as though it were a bill of an independent solicitor, assessing the reasonable and fair amount having regard to all the circumstances of the case. It would be wrong in the case of an employed solicitor to require a total exposition and breakdown of the activities and expenses of the department with a view to ensuring that the indemnity principle is not infringed.  

Therefore Mostyn J decided that the original decision was not wrong, that the Council could recover £11,614.20, and that a rate of £317 per hour was recoverable in the circumstances.  

Background 

The claimant sought a judicial review of the Council's decision that he did not qualify for the allocation of housing under Part 6 of the Housing Act 1996.  

On 11 December 2018, the claimant was given permission to proceed with his application for judicial review by John Bowers QC, sitting as a deputy High Court judge.  That was an oral hearing, permission having been earlier refused on paper.  The matter proceeded on the basis of only one of the claimant's pleaded grounds.  

The substantive judicial review hearing was listed to take place on 1 May 2019 before Judge Markus QC, and on 26 April 2019, a week before the hearing the Council served its N260 Schedule of Costs making it clear that an order for costs would be sought if the claim were to be dismissed.  The N260 did not contain details of counsel's fees and they were supplied at a later date.  The hearing took place on 1 May 2019 and on 14 May 2019 the learned judge distributed her judgment. On 16 May, the claimant was ordered to pay the Council's costs in the sum of £11,614.20.  
The claimant made an application to set aside the costs order on 23 May 2019 and on 5 June 2019 Judge Markus QC gave directions for the determination of the application.  

The matter came before Mostyn J on 21 November 2019 following compliance with the directions.  

The claimant advanced seven reasons why the decision should have been set aside or varied, however his Counsel ultimately abandoned six of those seven grounds and confined his submissions solely to the one that the sum claimed, namely £11,614.20, breached the indemnity principle as did the hourly rate claimed of £317.00 per hour.  

As part of his preparation for the hearing, the claimant made a Freedom of Information request of the Council to discover its annual payroll budget and the pay grades and annual and hourly costs to the taxpayer of employees of each pay grade.  As part of that request he discovered that the maximum hourly rate paid to an in-house lawyer of the Council was £41.75, which the claimant pointed out was very much a lesser amount than the £317 claimed.  The FOI request also showed that in 2017/18, the Council spent just under £2m on employed lawyers and that the annual payroll budget for legal services was £3m, giving £1m of payroll for ancillary staff.  It was on the basis of that information that the claimant argued that even if there were other costs to be taken into account of an infrastructural nature, it could not inflate the base figure of £41.75 to anywhere near the sum claimed at £317 per hour.  

In deciding against the claimant, Mostyn J relied on the longstanding principle set out in the case of Re Eastwood (Deceased) [1975] Ch, 112 and the fact that that case had survived the advent of the Civil Procedure Rules, as was clear from the decision of Cole v British Telecoms Plc [2002] Costs LR, 310.

In arriving at his judgment he stated: 

"Although the argument has been very persuasively put, I do not agree with it.  The £317 encompasses a great deal more than just the costs, the payroll costs, of people sitting in the offices of the London Borough of Camden.  It extends to a contribution to the infrastructural costs of the Borough itself.  Certainly, it extends to the costs of maintaining not only all the equipment, utilities and all other office costs, but the capital costs of the building in which the legal department is itself housed.  So, one would be reasonably expected to apply figures for notional rent for example.  I cannot see that this case is, by virtue of the evidence that is brought before me, a special case allowing an exception to the general rule.  I concur with Russell J that to investigate this matter would be unworkable in practice and to push abstract principle to the point where it ceases to give results consistent with justice.  

I therefore reject the challenge to the bill of costs, specifically to the hourly rate component of the statement of costs."

Conclusion 

It is clear that following this case, when read in conjunction with the previous decisions of Re Eastwood and Cole, the argument that in-house Solicitors should not recover costs on the same principles as independent solicitors save in exceptional circumstances, cannot be sustained.  Exceptional circumstances will be rare and it is hoped now that such challenges will now not be brought.  

The principle above extends to all employees within the legal department and appropriate rates can be claimed for all employees undertaking of legal work.  

However a note of caution, in order for the principle to be enacted the department must have a legally qualified and practising employee who supervises or has responsibility for the work undertaken within the legal department.  Having a department described as a legal department without any legally qualified employees will mean that costs will not be recoverable.  

Further, in accordance with the case of Ladak v DRC Locums Limited [2014] 6 WLUK 448, it is imperative that in-house legal departments clearly record their time and include detailed itemisation of the work done.  Failure to do so could result in costs ultimately not being recoverable.  

Please contact Steve Dawson.

Further Reading

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