Where an internal investigation in business leads to litigation, the question that is often asked is whether, and to what extent, the costs of the internal review can be recovered from the other side. This topic was touched upon in our last e-bulletin and is a question often asked by clients. In this e-bulletin, we give a more detailed examination of principles involved.

In the case of R+V Versicherung AG V Risk Insurance & Reinsurance Solutions SA & Others [2006] EWHC 1705, it was held that lost management time is a distinct head of damage and costs can be recovered even if no loss of profit, business or revenue is shown.

The Judge made it clear that the Court required proof that there had been “some significant disruption” to the business. Evidence submitted by R+V comprised employee time (including a calculation of the gross wage of each employee), internal overhead costs and fees charged by external contractors. R+V claimed €3,328,357 and recovered €3,143,357. €185,000 was disallowed on the basis that it was felt this amount related to subsequent litigation rather than prior investigation.

R+V’s successful recovery was no doubt helped by the fact that it was able to produce records in respect of the time spent on the matter. In Tate & Lyle Food and Distribution Limited and Another v Greater London Council and Another [1982] 2 All ER 854, the Court accepted that management time incurred as a result of breach of contract could be recovered, but the claim failed as the claimant was unable to submit any contemporaneous records.

In Pegler Limited v Wang (UK) Limited [2000] B.L.R. 218 and Horace Holman Group v Sherwood International Group Limited (April 2000, Unreported), the Court allowed a claim where records were not contemporaneous, but reconstructed later. Although a recovery was made, the amount granted by the Court was less than the amount claimed, and no doubt less than if contemporaneous records had been provided.

To ensure that the opportunity to recover internal costs is not lost, make sure that you keep accurate and contemporaneous records and make sure that they identify clearly the particular tasks carried out and the time spent on each and who has spent that time.