Can you recover for staff investigation time when you are involved in litigation?

Preparing for, and being involved in, litigation is costly and time-consuming for companies. Many hours of staff time might be diverted, thus resulting in a loss of revenue. Alternatively, extra staff might have to be recruited in.

Prior caselaw has established that lost internal management and staff time spent unravelling and mitigating the defendant's unlawful behaviour are recoverable as damages.

However, the basic rule (subject to an exception mentioned below) is that costs of preparing for litigation can only be recovered as costs, not as damages. That can work to the advantage of the paying defendant because costs will be assessed on the standard basis and so the amount recoverable will be limited by reasonableness and proportionality.

The claimant in the recent case of Magdeev v Tsvetkov sought to recover his costs in investigating an alleged conspiracy. The judge found that these were litigation costs and as such could only be recovered as damages if a well-known exception applied: namely, where the claim to recover those costs is based on a separate cause of action (ie a cause of action distinct from that on which the main proceedings are based).

That was not the case here: the costs had been incurred in relation to the alleged conspiracy, which was the very claim being brought against the defendant. Furthermore, the loss here consisted of legal costs incurred as a result of the claimant's solicitors having carried out investigations to prepare for litigation, rather than the claimant's own investigation time. In other words, standard preparatory work which is carried out by solicitors as part of their instructions. Accordingly, the claim failed.