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| Costs in the Employment Tribunal | |||||||||||||||||
| Introduction | |||||||||||||||||
1. |
Unlike the civil courts, costs are generally not awarded in employment tribunals even to the winning party. Although the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 (“the 2004 rules”) made substantial changes to the regime for awarding costs in tribunals, the fundamental principle remains that costs are the exception rather than the rule. The Court of Appeal has firmly stated that costs awards remain exceptional and are rarely awarded in tribunal proceedings*. | ||||||||||||||||
| *Lodwick v London Borough of Southwark [2004] IRLR 554, CA, Gee v Shell UK Ltd [2003] IRLR 82, CA. | |||||||||||||||||
2. |
In 2004/5 tribunals awarded costs in fewer than 1% of cases. In 2005/6 tribunals awarded costs (not including wasted costs and preparation time orders) in 580 cases, of which 148 awards were made in favour of the claimant and 432 in favour of the respondent. The average award of costs was ₤2,259 with only 3 awards exceeding ₤10,000*. The chances of obtaining a costs award or having an award made against you therefore remain very low. | ||||||||||||||||
| *See ETS Annual Report 2004/5 and 2005/6 on www.ets.gov.uk | |||||||||||||||||
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| A comparison with the costs regime in the civil courts | |||||||||||||||||
3. |
The main difference is that unlike the system in the civil courts, costs do not follow the event in employment tribunals | ||||||||||||||||
4. |
The principle applicable in matrimonial proceedings by virtue of the decision in Calderbank v Calderbank [1976] Fam 93 that a party can protect himself against costs in a case involving a money claim by making an offer marked “without prejudice save as to costs”, with the result that a failure by the other side to beat the offer will normally mean that an award of costs will be made against that party, does not apply in employment tribunal proceedings. In employment tribunals, it does not follow that a failure by a party to beat a Calderbank offer will, by itself, result in an award of costs against him. The EAT has stated that an employee has an absolute right to have his unfair dismissal claim decided and a tribunal therefore should not award costs simply because the employee has turned down an open offer of compensation which turns out to equal or exceed the eventual tribunal award*. | ||||||||||||||||
| *Telephone Information Services v Wilkinson [1991] IRLR 148, EAT | |||||||||||||||||
5. |
There is no provision in the 2004 rules comparable to that in rule 38.6 of the Civil Procedure Rules (“CPR”), whereby a claimant who discontinues proceedings in the civil courts is liable to pay the costs incurred by the defendant prior to the notice of discontinuance. | ||||||||||||||||
6. |
The 2004 rules relating to making wasted costs orders against representatives are based on the wasted costs provisions that apply in the civil courts by virtue of s51 (6) and (7) of the Supreme Court Act 1981, and the definition of “wasted costs” is identical to the definition contained in s 51(7) of that Act. As a result, cases decided in the civil courts will be of relevance to tribunals when considering whether to make wasted costs orders. | ||||||||||||||||
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| What kind of orders can the tribunal make? | |||||||||||||||||
7. |
The tribunal can make the following orders: | ||||||||||||||||
a) |
Preparation Time Orders* (where the receiving party was not legally represented) | ||||||||||||||||
| *Rule 42 | |||||||||||||||||
b) |
Costs Orders* (where a party was legally represented) | ||||||||||||||||
| *Rule 38 | |||||||||||||||||
c) |
Wasted Costs orders* (against a representative of any party) | ||||||||||||||||
| *Rule 48 | |||||||||||||||||
| Preparation time orders | |||||||||||||||||
8. |
Such orders can be awarded in respect of time spent preparing for the case by a party who is not legally represented | ||||||||||||||||
9. |
Preparation time is defined as time spent by: | ||||||||||||||||
a) |
the receiving party or his employees carrying out preparatory work directly relating to the proceedings; and | ||||||||||||||||
b) |
the receiving party’s legal or other advisers relating to the conduct of the proceedings up to but not including time spent at any hearing. | ||||||||||||||||
10. |
The tribunal will hear the party’s own representations as to time spent and will consider these against its own assessment of what is a reasonable and proportionate amount of time to spend on the preparatory work, with reference to such matters as the complexity of the proceedings, the number of witnesses and the documentation required. | ||||||||||||||||
11. |
Once the tribunal has assessed the number of hours spent on preparation time it shall calculate the amount of the award to be paid to the receiving party by applying the set hourly rate, which is currently £26.00 (the rate increases by £1 each year on 6 April). | ||||||||||||||||
12. |
A party cannot receive both a costs and preparation time order in the same proceedings and no preparation time order may exceed the sum of £10,000. The paying party’s ability to pay may be taken into account when considering either whether to make a preparation time order, and, if so, the amount of it. | ||||||||||||||||
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| Costs orders | |||||||||||||||||
13. |
A costs order may be made only where the receiving party was legally represented at the hearing or, if there was no hearing, at the time when the proceedings were determined. | ||||||||||||||||
14. |
Costs are defined to include “fees, charges, disbursements or expenses incurred by or on behalf of a party in relation to the proceedings”. | ||||||||||||||||
15. |
A party may apply for a costs order to be made at any time during the proceedings. The application may be made at the end of the hearing, or in writing to the Employment Tribunal Office. An application for costs which is received by the Employment Tribunal Office later than 28 days from the issuing of the judgment determining the claim shall not be accepted or considered by a tribunal, unless it considers that it is in the interests of justice to do so. | ||||||||||||||||
16. |
Before any order is a made a notice must be sent to the proposed paying party giving him the opportunity to give reasons why the order should not be made, or he should be given the opportunity to given reasons orally why the order should not be made. | ||||||||||||||||
17. |
Where a costs order is made, the tribunal must provide written reasons, if a request for such reasons is made within 14 days of the date of the order, and any written reasons must be sent to all parties to the proceedings. The reason and basis for the order should be clearly specified by the tribunal, particularly when a substantial sum is awarded* and the tribunal must explain how it calculated the costs**. | ||||||||||||||||
| *Lodwick v London Borough of Southwark [2004] IRLR 554, CA. | |||||||||||||||||
| **D36 Ltd v Castro [2005] 754 IRLB, EAT. | |||||||||||||||||
18. |
A costs order may be made against or in favour of a respondent even if he has not presented any response to the proceedings or in a case where he has put in a response but it has not been accepted. However in either situation a tribunal only has power to make an order for costs in relation to the respondent’s conduct in the proceedings. | ||||||||||||||||
19. |
A tribunal may make an order for either: | ||||||||||||||||
a) |
a specified sum not exceeding ₤10,000; | ||||||||||||||||
b) |
a sum agreed by the parties; or | ||||||||||||||||
c) |
the whole or a specified part of the costs be determined by way of a detailed assessment in a county court in accordance with the CPR* | ||||||||||||||||
| *Rule 41(1) | |||||||||||||||||
20. |
Ordinarily costs ordered by a tribunal to be assessed under the CPR will be assessed on the standard basis, but a tribunal has full power to order an assessment on the indemnity basis in an appropriate case; to do so is not to be regarded as penal, but compensatory, and the exercise of the power is not restricted to situations where there has been some deception or underhand conduct*. | ||||||||||||||||
| *Beynon v Scadden [1999] IRLR 700 at 707 EAT | |||||||||||||||||
21. |
When considering either whether to make an order, or the amount of the order, the tribunal may have regard to the paying party’s ability to pay. | ||||||||||||||||
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| Wasted costs orders | |||||||||||||||||
22. |
A tribunal may make a wasted costs order against a party’s representative, or order that representative to meet all or part of the costs of any party. It is not an order in favour of the other party but an order for reimbursement of the party by the representative. The tribunal may also order the representative to pay to the Secretary of State any allowance paid to any person for the purposes of, or in connection with, that person’s attendance at the tribunal by reason of the representative’s conduct. It should be noted that a wasted costs award can be made in favour of a representative’s own clients, who could then sue their own representatives to enforce such an award. | ||||||||||||||||
23. |
Wasted costs are those incurred by a party “as a result of any improper, unreasonable or negligent act or omission on the party of any representative; or which, in the light of any such act or omission occurring after they were incurred, the tribunal considers it unreasonable to expect that party to pay.” | ||||||||||||||||
24. |
A representative who is not acting in pursuit of profit is exempted from a wasted costs order, so that the provisions would not apply to a law centre or trade union representative. However, a person is considered to be acting in pursuit of profit if he is acting on a conditional fee agreement. A wasted costs order may not be made against a representative where that representative is an employee of a party. | ||||||||||||||||
25. |
Before making the order, the tribunal should give the representative a reasonable opportunity to make oral or written representations as to any reasons why such an order should not be made. The tribunal may also have regard to the representative’s ability to pay when considering whether it shall make a wasted costs order or how much that order should be. Where an order is made, it must specify the amount to be disallowed or paid. Written reasons must be given if requested within 14 days of the date of the order; this time limit may not be extended. The written reasons must be sent to all parties to the proceedings. The representative’s client must be informed in writing of any proceedings or of any order made under the wasted costs provisions. | ||||||||||||||||
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| When will a tribunal make a wasted costs order? | |||||||||||||||||
26. |
The leading general guidance is contained in the judgment of the Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205 which laid down a three stage test to be applied: | ||||||||||||||||
a) |
Has the legal representative acted improperly, unreasonably or negligently? | ||||||||||||||||
b) |
If so, did such conduct cause the applicant to incur unnecessary costs? | ||||||||||||||||
c) |
If so, is it, in all the circumstances, just to order the legal representative to compensate the applicant for the whole or part of the relevant costs? | ||||||||||||||||
27. |
The court has jurisdiction to make a wasted costs order only where the improper, unreasonable or negligent conduct complained of has caused a waste of costs and only to the extent of such wasted costs. Demonstration of a causal link is essential. The court itself may initiate the enquiry whether a wasted costs order should be made. | ||||||||||||||||
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| When will a tribunal make a Costs or Preparation time order? | |||||||||||||||||
28. |
The tribunal has a discretion to award costs in the following situations: | ||||||||||||||||
a) |
a party has not complied with an order or practice direction*; | ||||||||||||||||
| *Rule 40(4) | |||||||||||||||||
b) |
a full or interim hearing is postponed or adjourned at the request of the paying party*; (the costs under these circumstances are limited to any costs incurred as a result of the postponement or adjournment of the hearing); | ||||||||||||||||
| *Rule 40(1) | |||||||||||||||||
c) |
the paying party has acted vexatiously, abusively, disruptively or otherwise unreasonably in bringing the proceedings or was misconceived in doing so* (the term “misconceived” is defined as including “having no reasonable prospect of success” (reg 2)); | ||||||||||||||||
| *Rule 40 (3) | |||||||||||||||||
d) |
the paying party or his representative has acted vexatiously, abusively, disruptively or otherwise unreasonably in conducting the proceedings or was misconceived in doing so*. | ||||||||||||||||
| *Rule 40 (3) | |||||||||||||||||
29. |
The tribunal must make a costs award where a hearing is postponed as a result of the employer’s unreasonable failure to produce evidence about job availability, when the worker indicated in advance his desire for reinstatement or re-engagement*. | ||||||||||||||||
| * Rule 39 | |||||||||||||||||
30. |
A tribunal has a mandatory duty to consider making an order for costs where it is of the opinion that any of the grounds for making a costs or preparation time order has been made out. This means that if a tribunal considers that there has been unreasonable conduct by a party or his representative, or that the bringing or conducting of the proceedings has been misconceived, it must actively address the question of a possible award, whether or not an application for costs has been made. | ||||||||||||||||
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| What kind of conduct will lead to the making of a Costs or Preparation time order? | |||||||||||||||||
31. |
A tribunal may find that a party should pay costs in any of the following situations: | ||||||||||||||||
a) |
where a party has brought or conducted proceedings for some spiteful or improper motive, e.g. where an employee brings a hopeless claim not with any expectation of recovering compensation but out of spite in order to harass his employers*; | ||||||||||||||||
| *See E T Marler Ltd v Robertson [1974] ICR 72, NIRC | |||||||||||||||||
b) |
where a party’s or representative’s conduct involves time-wasting, unduly lengthy cross-examination of witnesses, calling unnecessary witness, and making outrageous and unsubstantiated allegations; | ||||||||||||||||
c) |
where a party insists on considerable amounts of unnecessary and irrelevant disclosure; | ||||||||||||||||
d) |
where a party unreasonably refuses an offer to settle*; | ||||||||||||||||
| *Kopel v Safeway Stores plc [2003] IRLR 753, EAT where the EAT upheld a tribunal’s award of costs against the claimant where she had failed in her unfair dismissal and sex discrimination claims, and had not only turned down a ‘generous’ offer to settle the case but had persisted in alleging claims which the tribunal described as ‘frankly ludicrous’ and ‘seriously misconceived’ | |||||||||||||||||
e) |
where a party withdraws his claim following unreasonable conduct; the crucial question is whether the party acted unreasonably in the conduct of the proceedings before he withdrew, and not whether the withdrawal of the claim is itself unreasonable*. | ||||||||||||||||
| *McPherson v BNP Paribas [2004] ICR 1398 | |||||||||||||||||
32. |
General points to note | ||||||||||||||||
a) |
In considering whether costs should be awarded on the ground of unreasonable conduct, it is the conduct of a party in bringing or defending a claim, or continuing to pursue the claim or defence that can give rise to an award, and not conduct occurring before the institution of proceedings*. | ||||||||||||||||
| *Health Development Agency v Parish [2004] IRLR 550, EAT | |||||||||||||||||
b) |
Whilst it is open to a tribunal to warn a claimant that he will be at risk of having a costs order made against him if he pursues his claim, it should take care not to issue such a warning in circumstances which amount to unfair or unjustified pressure, particularly in the case of a claimant who is unrepresented. The Court of Appeal has ruled that a tribunal should only give a costs warning where there is a real risk that an order for costs will be made against an unsuccessful claimant at the end of the hearing* | ||||||||||||||||
| *Gee v Shell (UK) Ltd [2003] IRLR 82 | |||||||||||||||||
c) |
There is no requirement when making a costs order on the ground of unreasonable conduct to identify a causal connection between the conduct and the costs incurred. In McPherson v BNP Paribas [2004] ICR 1398, Mummery LJ stated: | ||||||||||||||||
| “The principle of relevance means that the tribunal must have regard to the nature, gravity and effect of the unreasonable conduct as factors relevant to the exercise of the discretion, but that is not the same as requiring [the receiving party] to prove that specific unreasonable conduct by [the paying party] caused particular costs to be incurred.” | |||||||||||||||||
d) |
The purpose of an award of costs is to compensate the party in whose favour the order is made, and not to punish the party ordered to pay the costs. Questions of punishment are therefore irrelevant to the question of whether a costs order should be made and the amount of any costs order*. | ||||||||||||||||
| *Lodwick v Southwark London Borough Council [2004] IRLR 554, at para 23 | |||||||||||||||||
33. |
Further points to note | ||||||||||||||||
a) |
The tribunal’s discretion to award costs for postponements and adjournments is not linked to vexatious or unreasonable conduct. The purpose of the order is compensatory, and not punitive, and ought only to be made in respect of costs incurred as a result of the adjournment or postponement. | ||||||||||||||||
b) |
However the tribunal’s discretion to award costs for non-compliance with an order or practice direction is not limited by a requirement that the order must relate to any costs incurred as a result of the non-compliance. Tribunals would therefore appear to have discretion to award costs or preparation time on a broadly compensatory basis and are not required to calculate the costs attributable to the non-compliance with precision | ||||||||||||||||
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| Relationship with Deposit orders | |||||||||||||||||
34. |
If a deposit was ordered and that party has lost, he is at greater risk of a costs award. Where no award of costs or preparation time has been made against that party the tribunal must consider whether to make such an order against that party on the ground that he conducted the proceedings relating to the matter unreasonably in persisting in having the matter determined*. | ||||||||||||||||
| *Rule 47(1) | |||||||||||||||||
35. |
Before making such an order the tribunal must consider the judgment of the tribunal which ordered that the deposit should be made. If the case is lost on substantially the same grounds as those which founded the decision to order a deposit, the tribunal must consider whether it was unreasonable of the party to have persisted with the case. | ||||||||||||||||
36. |
When a costs or preparation time order is made against a party who has had a deposit order made against him, his deposit shall be paid in part or full settlement of the costs or preparation time order. If the amount of the deposit exceeds the amount of the costs or preparation time order, the balance shall be refunded to the party who paid it. | ||||||||||||||||
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| Some practical tips | |||||||||||||||||
37. |
When making an application for costs, representatives should: | ||||||||||||||||
a) |
prepare a costs bundle, including any pre-hearing warnings, “without prejudice save as to costs” offer letters, and letters from the other side with unjustified threats of costs applications; | ||||||||||||||||
b) |
equip themselves with a costs summary and ensure it contains details of the amount of work done, the dates when it was done and the seniority and hourly rate of the fee earner(s) involved, and disbursements; | ||||||||||||||||
c) |
investigate the party’s ability to pay, e.g. employment income and capital, as this may impact on whether a costs order will be made as well as the amount of any order. | ||||||||||||||||
38. |
When faced with a weak claim, employers should always consider making a well thought-out application for a Deposit Order as it may then be easier to obtain a costs award if the employee goes on to lose the case. | ||||||||||||||||
39. |
The following points are helpfully made by Tamara Lewis in “Employment Law, an adviser’s handbook”: | ||||||||||||||||
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If faced with a costs application against the worker at the end of a case which he has lost, it is important to explain why the case previously appeared to have reasonable prospects of success. It may well be worth referring to these comments from the case of ET Marler Ltd v Robertson: | ||||||||||||||||
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It is unwise to lodge an extremely weak case in the tribunal, in the hope that the employer will make a settlement offer and with the intention of withdrawing before the hearing if no offer is forthcoming. The employer would be able to apply for costs for a misconceived case having been started and conducted up to the date of withdrawal. | ||||||||||||||||
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Representatives should be careful to keep the issues within reasonable bounds and to be aware that if a case is clearly going badly, points should not be laboured. If a costs award has to be argued, point out the matters which called for an explanation from the employer and could only be obtained in the forum of a tribunal hearing. As a matter of public policy, discrimination cases should be heard. For discrimination cases, it is worth pointing out that discrimination is overwhelmingly a matter of evidence, which can be tested only at hearing. | ||||||||||||||||
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In discrimination cases, it may well be worth naming individuals as well as the employing organisation in the ET1. Where there has been deliberate and malicious discrimination, costs may be awarded against an individual respondent for unreasonably defending the proceedings. This is valuable because where, as is common, the employer supports and funds the individual’s case, it can be implied that he has underwritten the individual’s costs, including those ordered against the individual. | ||||||||||||||||
| Tilly Baderin | |||||||||||||||||
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