Appeal No. UKEAT/0271/11/RN

EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX

	At the Tribunal
	On 4 April 2012
                                                                                Judgment handed down on 20 April 2012

Before
HIS HONOUR JUDGE SHANKS
MR P PAGLIARI
MR M SMITH OBE JP

MS Y DOYLE	APPELLANT

NORTH WEST LONDON HOSPITALS NHS TRUST	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant

	MR M BARKLEM
(of Counsel)
Instructed by:
Rice-Jones and Smiths
7 Ely Place
London 
EC1N 6RY	
For the Respondent 

	MR M SUTTON
(One of Her Majesty’s Counsel)
Instructed by:
Messrs Cater Leydon Millard
Solicitors
68 Milton Park
Abingdon
Oxfordshire
OX14 4RX	

SUMMARY
PRACTICE AND PROCEDURE – Costs

An appeal against a costs order under rule 41(1)(c) ETR that the Claimant pay the whole costs of the proceedings to be assessed.

Subject to “ability to pay” point, no error of law in Tribunal’s decision to order the whole of the costs based on Claimant’s conduct and effects thereof.

On “ability to pay”, Tribunal erred in law in failing itself to raise the question of means before making such an order (which was going to amount to £100K) against a Claimant even though she was legally represented.

HIS HONOUR JUDGE SHANKS 
Introduction
1.	On 24 August 2010, following a seven day hearing at which both sides were represented by counsel, the Employment Tribunal sitting in Watford dismissed a claim for breach of contract brought by the Appellant against the Respondent to this appeal and 12 complaints of race discrimination or victimization brought by her against the Respondent and six other named individuals.  The Tribunal then acceded to an application by the Respondent that the Appellant should pay the whole costs of the proceedings to be assessed under rule 41(1)(c) of the Employment Tribunals Rules of Procedure.  The Respondent’s costs have not yet been assessed but it has presented bills totalling some £95,000.  We were told by Mr Sutton, who represented the Respondent in this Tribunal and below, that the Employment Tribunal was given an estimate of about £60,000; in any event it must have been evident to the members of the Tribunal that the whole of the costs of the proceedings, even following an assessment, would be very substantial. 

2.	It is accepted that the Tribunal had jurisdiction to make an order for costs against the Appellant and in our view it was clearly appropriate to make some order.  However the Appellant appeals against the costs order as made on two main grounds:
(a)	that, having regard to any relevant conduct and its effects, the Tribunal was wrong to order the whole of the costs of the proceedings to be paid;

(b)	that the Tribunal failed to have regard to the Appellant’s ability to pay in deciding on the appropriate order for costs.

The legal framework
3.	Costs do not “follow the event” in the Employment Tribunal.  Rule 40 sets out the circumstances when a costs order can be made.  The relevant parts of that rule for the purposes of this appeal are as follows:

“(2) A tribunal … shall consider making a costs order against a paying party where, in the opinion of the tribunal … any of the circumstances in paragraph (3) apply.  Having so considered, the tribunal … may make a costs order against the paying party if it … considers it appropriate to do so.
(3) The circumstances referred to in paragraph (2) are where the paying party has in bringing the proceedings, or he or his representative has in conducting the proceedings, acted vexatiously, abusively, disruptively or otherwise unreasonably, or the bringing or conducting of the proceedings by the paying party has been misconceived.”

Rule 41 deals with the amount of any costs order as follows:

“(1) The amount of a costs order against the paying party shall be determined in any of the following ways –
(a) the tribunal may specify the sum which the paying party must pay to the receiving party provided that sum does not exceed £10,000;
(b) the parties may agree on a sum to be paid …;
(c) the tribunal may order the paying party to pay the receiving party the whole or a specified part of the costs of the receiving party with the amount to be paid being determined by way of a detailed assessment in the county court …
(2) The tribunal … may have regard to the paying party’s ability to pay when considering whether it … shall make a costs order or how much that order should be.
(3) For the avoidance of doubt, the amount of a costs order made under paragraphs (1)(b) or (c) may exceed £10,000.”

4.	In exercising its discretion to order costs the Employment Tribunal does not have to find a precise causal link between any relevant conduct and any specific costs claimed.  However, Mummery LJ in the Court of Appeal in Barnsley Metropolitan Borough Council v Yerrakalva [2011] EWCA Civ 1255 gave the following important guidance:

“[41] The vital point in exercising the discretion to order costs is to look at the whole picture of what happened in the case and to ask whether there has been unreasonable conduct by the claimant in bring and conducting the case and, in doing so, to identify the conduct, what was unreasonable about it and what effects it had.”

5.	So far as “ability to pay” is concerned, it is clear from rule 41(2), and has been repeated many times (see in particular Arrowsmith v Nottingham Trent University [2011] EWCA Civ 797 at [37]), that the Tribunal is not obliged to take it into account in deciding the amount of any costs order.  However, a Tribunal must obviously act judicially in deciding not to do so and we concur with the judgment of this Tribunal in Jilley v Birmingham and Solihull Mental Health NHS Trust (21 November 2007) where HH Judge David Richardson stated:

“[44] Rule 41(2) gives to the Tribunal a discretion whether to take into account the paying party’s ability to pay.  If a Tribunal decides not to do so, it should say why.  If it decides to take into account ability to pay, it should set out its findings about ability to pay, say what impact this has had on its decision whether to award costs or on the amount of costs, and explain why.  Lengthy written reasons are not required.  A succinct statement of how the Tribunal has dealt with the matter and why it has done so is generally essential.”

6.	We also endorse the view expressed by HH Judge Richardson in that case at [47], which may be of relevance in this case, that it is open to a tribunal to take account of ability to pay by placing a cap on an award of costs even where it orders a detailed assessment.

The whole costs point
7.	The Tribunal’s decision on costs is at paras 176 to 186 of the judgment.  The Tribunal recorded at para 177 that Mr Sutton’s application was brought on the basis that the bringing of proceedings was both misconceived and unreasonable; it set out at paras 178 to 180 a number of criticisms made by Mr Sutton of the Appellant’s conduct and at para 183 made a finding that three of the complaints were “unsustainable on their facts” from the outset; in para 185 it expressed itself satisfied that Mr Sutton’s points were “substantial” and that the discretion under rule 40 had arisen; it recorded that Mr Sutton had requested an order under rule 41(1)(c) and stated (wrongly, on any view) that “this is an all or nothing decision”; it then recorded his submission that the criticisms of the way the case had proceeded “underpin[ned] substantially the entirety of the proceedings”, stated that Mr Welch (counsel for the Appellant before the Tribunal) had not responded to “that element of the application” but had only said that no order should be made at all, and concluded: “In the circumstances we make the order as asked.”

8.	Mr Barklem, who appeared for the Appellant in this Tribunal but not below, made many criticisms of the Tribunal’s judgment in relation to costs in support of his basic submission that the Tribunal ought not to have ordered the Appellant to pay the whole of the Respondent’s costs.  He referred to the criticism of the Appellant’s case set out at para 179 which related in particular to the fact that she had joined a number of individuals as respondents to the claim who were themselves professionally involved in the field of equality and diversity.  He submitted in effect that it cannot be right that there is a higher threshold of sustainability or a greater risk of a costs order depending on the profession of the person against whom a claim is made.  In general we would accept that submission but we would also accept as valid Mr Sutton’s submission that the heightened effect of any particular false allegation against an individual respondent is something that can legitimately be taken into account in the exercise of the costs discretion.

9.	Mr Barklem referred to the findings as to the Appellant’s credit referred to at para 180.  The Tribunal had earlier in the judgment (at paras 10 to 20) decided that the Appellant’s evidence on the main issues in the case could only be accepted where it was corroborated because she had been responsible for false statements in two documents before the Tribunal, one a set of accounts submitted to Companies House and the other a schedule of loss relating to the case the Tribunal was dealing with (in which the Appellant’s claim of some £30,000 (we understand from Mr Sutton) was overstated by £1,400).  We record at this point that Mr Welch had attempted to take responsibility for the false statement in the schedule of loss on the basis that it arose from his own error but the Tribunal had rejected this in part because he was not only the Appellant’s lawyer but also her partner (see para 16).  Mr Barklem’s point in relation to the findings on credit was that they were peripheral to the real issues in the case and that, on analysis, (he said) only the first of the 12 complaints was rejected on the basis that the Appellant’s evidence was actually disbelieved so that the Tribunal had elevated the issue of credibility to an unjustified level in considering costs.  In relation to para 180 he also noted that the final sentence recorded that Mr Sutton was submitting that “some of the allegations made by the claimant were not factually true … and part of the proceedings have been misconceived” (our emphasis).

10.	Mr Barklem noted that para 183 referred to only three (out of 12) complaints as being misconceived (or “unsustainable”) and that the first and last sentence of that para referred to “statements … without credible foundation” and “the continuance of the allegations [amounting to] unreasonable conduct” without giving any clear indication of which “statements” or “allegations” the Tribunal was referring to.  It is right to point out that para 183 was the only part of the judgment on costs where findings were expressly made by the Tribunal.
 
11.	Mr Sutton in response referred us to his submissions recorded by the Tribunal at para 178 (and apparently accepted) to the effect that the whole claim was misconceived “as race discrimination” in that, until the Tribunal had raised the point, race discrimination was not even put to the Respondent’s witnesses in cross-examination; he reminded the Tribunal that three of the complaints were found to be factually unsustainable (see para 183); he pointed out that two others had been found to be based on “gross distortions” (see paras 42 and 165); and he submitted that the finding of dishonesty against the Appellant in relation to the schedule of loss (which would have been a central document in the case if she had succeeded on liability) was of great significance in assessing the Appellant’s overall good faith in bringing the claims.

12.	It is right that the wording of the Tribunal’s judgment on costs was not perfect: the judgment is not always expressed as clearly as it might be; it does not analyse the matters referred to by Mummery LJ in the quotation at para 4 above as rigorously as it might do; there is at least one clear error (see para 7 above); and it does not distinguish clearly between Mr Sutton’s submissions and the Tribunal’s own findings.  However, looking at paras 176 to 186 in the context of the judgment as a whole and giving them a fair reading, it is clear to us that the Tribunal has asked itself the right questions and that it has found, in effect, that the Appellant’s whole case was not brought in good faith.  In those circumstances, it was well within the Tribunal’s discretion, subject to the question of means, to order the Appellant to pay the whole of the Respondent’s assessed costs of the proceedings and we therefore find no error of law and reject this part of the appeal. 

The ability to pay point
13.	We turn to the question of ability to pay.  It is common ground that the Tribunal made an order for costs against the Appellant which amounts to almost £100,000 without giving any consideration at all to the Appellant’s means.  As Mr Sutton emphasised, that was a course which was in principle open to the Tribunal under rule 41(2).  However, as set out at para 5 above, in our judgment if a tribunal chooses not to have regard to means it should have a reason for doing so and say what the reason is.  No such reason is set out in the Tribunal’s judgment but Mr Sutton says, and we accept, that the reason that no account was taken of the Appellant’s means by the Tribunal was quite simply that the issue was not raised on behalf of the Appellant.  In those circumstances, he says, the Tribunal was under no obligation to have regard to ability to pay. 

14.	It seems to us that there must be some circumstances (for example where a claimant is completely unrepresented) where, in the face of an application for costs, the tribunal ought to raise the issue of means itself before making an order.  But Mr Sutton submitted that in the circumstances of this case there was no such obligation.  The Appellant was represented by experienced counsel and there may have been good forensic or other reasons why he did not wish to raise the issue.  In those circumstances, he says, the Tribunal was entitled to rely on him to raise the issue of means if it was in his client’s interest and to ignore the issue if he did not. 

15.	We consider the relevant circumstances to go somewhat further:
(a)	the Tribunal was being asked to make an order for costs in a very large amount against a claimant; such an order will often be well beyond means of the paying party and have very serious potential consequences for him or her and it may also act as a disincentive to other claimants bringing legitimate claims; for those reasons in our view a tribunal should always be cautious before making such an order; 

(b)	so far as we are aware there was nothing to indicate that this was a case where the Appellant was clearly going to be able to pay such an amount (she was obviously not, for example, “an employer with very large resources”: see [34] of Benjamin v Interlacing Ribbon EAT 1 November 2005);

(c)	although the Appellant was indeed represented by experienced counsel the Tribunal had reason to regard his position as somewhat compromised: they knew he was the Appellant’s partner; as we record at para 9 above, they had rejected his assertion that a false statement in her schedule of loss was the result of his own error; and they clearly did not think much of quality of the representations he had made in relation to costs, describing them at para 181 of the judgment as “long and discursive” and rejecting them more or less out of hand;

(d)	(unless the Tribunal members were themselves overlooking the question of means) we think they must have thought (as do we) that there was at least a risk that Mr Welch had overlooked the point.

16.	Taking into account all the circumstances the members of this Tribunal (and in particular the lay members, who regularly sit in the employment tribunal) are firmly of the view that the question of means should have been raised by the Tribunal in this case before making a decision on the costs application.  Whether the failure to do so is categorized as a procedural irregularity or a failure to give effect to the overriding objective to deal with cases justly or a Wednesbury unreasonable omission, in our judgment it was an error of law and an error of law which may have led to a substantial injustice to the Appellant. 

Disposal
17.	We therefore allow the appeal and set aside the Tribunal’s costs order.  After the hearing we told the parties of our decisions on the appeal and accepted Mr Sutton’s submission that the matter would have to be remitted to the same Tribunal as heard the case for them to reconsider their costs order in the light of our decision.  We therefore remit the matter to the Tribunal with directions that:

(a)	they make reasonable enquiries into the Appellant’s means; and
(b)	they consider (in the light of those enquiries along with the findings in their judgment dated 17 November 2010 and any further submissions by the parties):
(i)	whether to have regard to her ability to pay; and (if so)
(ii)	what is the appropriate costs order having regard to her ability to pay.

If the Tribunal decide not to have regard to the Appellant’s ability to pay for any reason we take it that logically they would simply make an order for the whole of the Respondent’s costs to be assessed as before.  We have deliberately not specified any date as at which the Appellant’s means are to be considered: if there have been any substantial changes either way over the years since the proceedings started we see no reason why the Tribunal should not if it thinks fit enquire as to their cause and look at the whole picture when deciding what order to make.

18.	Mr Sutton invited the Tribunal to give leave to appeal on the basis that our decision would give rise to an arguable point of law on the construction of the rules and that a further appeal would therefore be in the public interest.  In the event we do not believe we have said anything novel in relation to the construction of the rules and do not consider the case appropriate for leave.  We have not sought to lay down any guidelines as to what is a good reason for deciding not to have regard to ability to pay; all we have decided is that in the circumstances of this case the fact that the point was not raised on behalf of the Appellant was not a sufficient reason in itself.