2.1 The provisions regarding costs in employment tribunals are set out in rules 38 to 48 of the Employment Tribunal Rules. Under these rules a tribunal can make three types of order: (1) a costs order; (2) a preparation time order; and (3) a wasted costs order. This section will deal with each of these orders in turn.
(i) Costs orders
2.2 Costs orders. The general power to order the payment of costs is set out in rule 38 of the Employment Tribunal Rules. Rule 38(1) provides:
“…[A] tribunal or [Employment Judge] may make an order (“a costs order”) that- (a) a party (“the paying party”) make a payment in respect of the costs incurred by another party (“the receiving party”); (b) the paying party pay to the Secretary of State, in whole or in part, any allowances (other than allowances paid to members of tribunals) paid
26 Civil Procedure Rules, rule 44.3(2)(a).
27 [2002] EWCA Civ 1479; [2003] IRLR 82 at 86.
28 [2004] EWCA Civ 306; [2004] ICR 884 at 891 and 892.
29 Scott v Inland Revenue Commissioners [2004] EWCA Civ 400; [2004] ICR 1410 at 1422 to 1423.
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by the Secretary of State … to any person for the purposes of, or in connection with, that person's attendance at the tribunal.”
2.3 The meaning of “costs”. Costs in this context are defined as fees, charges, disbursements or expenses incurred by or on behalf of a party in relation to the proceedings.30
2.4 Procedural matters. The Rules expressly state that any costs order will be payable by the paying party and not by that party's representative.31 A party may apply for a costs order at any time during the proceedings or at the end of a hearing.32 A costs order cannot be made unless the party against whom the order may be made has been given the opportunity to provide reasons as to why the order should not be made.33
2.5 The receiving party must be legally represented. A costs order may only be made where the receiving party was legally represented34 (a) at the hearing or (b) if the proceedings are determined without a hearing, at the time the proceedings are determined.35 If the receiving party was not legally represented the tribunal cannot make a costs order but may make a preparation time order (see below).
2.6 The circumstances. Rules 39, 40 and 47 of the Employment Tribunal Rules set out the circumstances in which an employment tribunal can make a costs order.
The Rules set out both mandatory circumstances where an order must be made and discretionary circumstances where an order may be made.
2.7 Mandatory costs orders. Rule 39 of the Employment Tribunal Rules relates to unfair dismissal proceedings. It provides that a costs order must be made in certain defined circumstances,36 essentially where the respondent attempts to thwart reinstatement.
2.8 Discretionary costs orders. Rule 40 sets out three situations in which an employment tribunal has discretion to make a costs order:
(i) Under rule 40(1) an employment tribunal may make a costs order when acceding to an application for an adjournment or postponement of a hearing or pre-hearing review.
(ii) Under rule 40(2) an employment tribunal may make a costs order in certain defined circumstances. Rule 40(3) sets out these circumstances:
“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.”
30 Employment Tribunal Rules, rule 38(3).
31 Ibid, rule 38(6).
32 Ibid, rule 38(7).
33 Ibid, rule 38(9).
34 Pursuant to Rule 38(5), a person is legally represented if that person has the assistance of a person who has a general qualification within the meaning of section 71 of the Courts and Legal Services Act 1990 (e.g. a barrister or a solicitor). Employees of the receiving party (e.g.
an in-house lawyer) are expressly included in the definition.
35 Employment Tribunal Rules, rule 38(2).
36 Ibid, rule 39(1)(a) and (b).
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In this context, misconceived includes “having no reasonable prospect of success.”37 (iii) Under rule 40(4) an employment tribunal may make a costs order against a party who has not complied with an order or practice direction.
2.9 Rule 47 specifies additional circumstances, peculiar to employment tribunal proceedings, in which a costs order may be made.38 Essentially, this is where a party has previously been ordered to pay a deposit as a condition of proceeding under rule 2039 and he has unreasonably pressed on.
2.10 The amount. The Employment Tribunal Rules provide for the calculation of the amount of the costs order. Accordingly, the amount of the costs order must be determined in one of the following ways:
(i) the tribunal may specify the sum to be paid provided it does not exceed £10,000;
(ii) the parties may agree on the sum to be paid; or
(iii) the tribunal may stipulate that the amount to be paid be determined by way of detailed assessment in a county court in accordance with the Civil Procedure Rules.40
The Employment Tribunal Rules expressly state that the amount calculated pursuant to paragraphs (ii) and (iii) above may exceed £10,000.41
2.11 Ability to pay. Contrary to earlier case law,42 the Employment Tribunal Rules stipulate that the tribunal “may have regard to the paying party's ability to pay when considering whether … [to] make a costs order or how much that order should be.”43 Although it is not mandatory for a tribunal to consider a party's ability to pay, the view has been expressed that in many cases it will be desirable to take into account the party's ability to pay.44
37 Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 (SI 2004/1861), regulation 2(1).
38 An employment tribunal must consider making a costs order against a party on the ground that the party conducted the proceedings unreasonably in persisting to have the matter determined by the tribunal, when: (a) that party has been ordered to pay a deposit under rule 20 as a condition of being permitted to continue to participate in proceedings; (b) the tribunal has found against that party; and (c) no award of costs has been made. However, the tribunal must not make a costs order unless the grounds which caused the tribunal to find against that party are substantially the same as the grounds recorded in the rule 20 order for considering that the party had little reasonable prospect of success.
39 Pursuant to rule 20(1) of the Employment Tribunal Rules, if at a pre-hearing review an Employment Judge considers that the contentions put forward by any party in relation to a matter have little reasonable prospect of success, the Employment Judge may make an order requiring that party to pay a deposit as a condition of that party being permitted to continue to take part in the proceedings relating to that matter. The Rules provide that the deposit must not exceed £500.
40 Employment Tribunal Rules, rule 41(1).
41 Ibid, rule 41(3).
42 See Kovacs v Queen Mary and Westfield College and another [2002] EWCA Civ 352;
[2002] ICR 919. In particular, see paragraph 33 at 930 where Chadwick LJ states: “…ability to pay is not a factor which an employment tribunal is required or entitled to take into account when deciding whether or not to make [a costs] order…”.
43 Employment Tribunal Rules, rule 41(2).
44 See Jilley v Birmingham & Solihull Mental Health NHS Trust and others, EAT 0584/06/DA, paragraph 53 of the official transcript.
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(ii) Preparation time orders
2.12 Remedy available for unrepresented parties. Preparation time orders were introduced by the 2004 Regulations (and the Rules). Preparation time orders allow parties without legal representation to recover certain costs of preparing for employment tribunal hearings. The rules governing preparation time orders are set out in rules 42 to 47 of the Employment Tribunal Rules. Rule 42(1) sets out the general power:
“…[A] tribunal or [Employment Judge] may make an order (“a preparation time order”) that a party (“the paying party”) make a payment in respect of the preparation time of another party (“the receiving party”).”
2.13 The meaning of “preparation time”. For the purpose of the Rules, preparation time means: (a) time spent by the receiving party or his employees carrying out preparatory work directly relating to the proceedings; and (b) time spent by the receiving party's legal or other advisers relating to the conduct of the proceedings, in both cases up to but not including time spent at any hearing.45
2.14 The circumstances. The circumstances in which a preparation time order can be made are set out in rules 43, 44 and 47 of the Employment Tribunal Rules. These rules are identical to rules 39, 40 and 47 (discussed above) which govern the circumstances when a costs order may or must be made.
2.15 The amount. The Employment Tribunal Rules provide for the calculation of the amount of the preparation time order. Specifically, the tribunal is required to make an assessment of the number of hours spent on preparation time on the basis of: (a) information from the receiving party; and (b) the tribunal's own assessment of what is a reasonable and proportionate amount of time to spend on such preparatory work.46 The complexity of the proceedings, the number of witnesses and the documentation required are examples of the factors that should be taken into consideration in the tribunal's assessment.47 Once the number of hours has been ascertained the amount of the award is calculated by applying an hourly rate. The hourly rate was initially set at £25.48 The hourly rate is presently £28 and will increase to £29 from the 6th April 2009.
2.16 The Employment Tribunal Rules expressly state that no preparation time order may exceed £10,000.49 The tribunal may consider the paying party's ability to pay when considering whether to make a preparation time order or the amount of such order.50
(iii) Wasted costs orders
2.17 Rule 48(1) of the Employment Tribunal Rules provides that an employment tribunal may make a wasted costs order against a party's representative. The provisions relating to wasted costs in the Employment Tribunal Rules are based on the wasted costs provisions applicable in the civil courts pursuant to sections 51(6)
45 Employment Tribunal Rules, rule 42(3).
46 Ibid, rule 45(1).
47 Ibid.
48 Ibid, rule 45(2).
49 Ibid, rule 45(2).
50 Ibid, rule 45(3).
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and 51(7) of the Supreme Court Act 1981. Accordingly, the civil court authorities relevant to wasted costs will be applicable in the employment tribunal context.51
3. INTERPRETATION BY THE COURTS
3.1 In this section I will discuss how the Rules relating to costs orders and preparation time orders have been interpreted by the courts. Specifically, I will focus on the interpretation of rules 40(3) and 44(3).
3.2 Vexatiously. The term “vexatiously” in the context of a claimant’s conduct was discussed in the case of E. T. Marler Ltd. v Robertson.52 In that case Sir Hugh Griffiths stated that:
“If an employee brings a hopeless claim not with any expectation of recovering compensation but out of spite to harass his employers or for some other improper motive, he acts vexatiously…”53
3.3 Sir Hugh Griffiths went on to state that a finding that an applicant has been vexatious is:
“…a serious finding to make against an applicant, for it will generally involve bad faith on his part…”54
3.4 Similarly, albeit in the context of a respondent’s conduct, the term vexatiously was defined as:
“the doing of something over and above that which is necessary for the conduct of the litigation, and suggests the existence of some spite or desire to harass the other side to the litigation, or the existence of some other improper motive.”55
3.5 It is clear from the case law that for a party’s conduct to amount to “vexatious”
there must be evidence of spite, a desire to harass the other side or some other improper motive. In practice, a finding of vexatious conduct (and accordingly an award of costs) has been found (or confirmed) where a claimant pursued a claim primarily to disrupt the respondent’s business56 and where a claimant’s claim was groundless and the claimant’s intention was simply to harass the respondent.57
3.6 Abusively, disruptively. In the context of rule 40(3) and 44(3), the term
“disruptively” refers to disruptive behaviour by a party and “abusively” refers to abusive language, as opposed to an abuse of process.58
51 See Harvey on Industrial Relations and Employment Law, Butterworths (2008), Division T, paragraph 1076.
52 [1974] ICR 72.
53 Ibid, at 76. This case considered rule 13 in the Schedule to the Industrial Tribunals (Industrial Relations etc) Regulations 1972 (SI 1972/38).
54 Ibid.
55 Cartiers Superfoods Ltd v Laws [1978] IRLR 315 at 317.
56 See Wrenhurst v Catholic Herald Ltd EAT 312/81.
57 See French v Brent Walker Ltd EAT 746/86.
58 See Walker DJ and Carstairs C: Employment Tribunals: The Complete Guide to Procedure (Third Edition), EMIS Professional Publishing (2007), paragraph 13.8.5.
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3.7 By way of illustration, a finding of, inter alia, disruptive conduct was found (and upheld by the Employment Appeals Tribunal) in a case where a claimant repeatedly requested an adjournment of proceedings, failed to attend interlocutory hearings and, at the fourth and final hearing, failed to attend following a brief adjournment to allow him to consider his position.59
3.8 Otherwise unreasonably. The term “unreasonable” bestows on employment tribunals a discretion to order costs as a result of the conduct of the parties and, in practice, awards of costs are more often made on the basis of unreasonable conduct than on the other grounds. However, two scenarios are particularly relevant to the criterion of unreasonable conduct: (a) withdrawal of a claim; and (b) rejection of an offer to settle.
3.9 Withdrawal of a claim. The Employment Tribunal Rules do not contain a provision equivalent to rule 38.6 of the Civil Procedure Rules whereby a claimant who discontinues a claim may be liable for the defendant’s costs incurred prior to the notice of discontinuance. In McPherson v BNP Paribas (London Branch) Mummery LJ (with whom the other members of the Court substantially agreed) identified the opposing positions as regards the withdrawal of a claim in the context of disputes before employment tribunals.60 On the one hand it was noted that it would be unfortunate if claimants were deterred from dropping a claim by the prospect of a costs order being made against them on withdrawal, which might not be made if they fought on to a full hearing and lost. On the other hand, tribunals should not follow a costs practice which might encourage speculative claims whereby claimants pursue cases in the hope of receiving an offer of settlement and, failing such an offer, withdraw the claim without the risk of costs sanctions. Accordingly, Mummery LJ held that the crucial question is:
“…whether, in all the circumstances of the case, the claimant withdrawing the claim has conducted the proceedings unreasonably. It is not whether the withdrawal of the claim is in itself unreasonable.”61
Accordingly, the mere withdrawal of the claim itself does not amount to unreasonable conduct.62
3.10 In the McPherson case, the Court of Appeal held that the claimant’s conduct of the proceedings had been unreasonable. For example, the claimant failed to comply with orders of the tribunal and the claimant continued to give the impression that he was pursuing the claims, allowing the respondent to incur considerable expense, while on the claimant’s own evidence (and unknown to the respondent and the tribunal) he had been considering abandoning the proceedings on health grounds some five months before the notice of his intention to withdraw the claims.63
3.11 Mummery LJ also stated that the tribunal must have regard to the nature, gravity and effect of the unreasonable conduct when deciding whether to exercise its discretion to award costs.64 Mummery LJ further held that the unreasonable conduct
59 Garnes v London Borough of Lambeth and anor EAT 1237/97. See also Employment Tribunal Practice and Procedure: Employment Law Handbook, IDS (2006), page 565.
60 McPherson v BNP Paribas (London Branch) [2004] EWCA Civ 569; [2004] ICR 1398 at 1405.
61 Ibid.
62 See Unegbu v Newman Stone Ltd EAT 0157/08/ZT.
63 McPherson v BNP Paribas (London Branch) [2004] EWCA Civ 569; [2004] ICR 1398 at 1406.
64 Ibid, at 1408.
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was a relevant factor to be considered by the tribunal when deciding on, inter alia, the form of the order.65 In the McPherson case, the tribunal ordered the claimant to pay the costs of the whole of the proceedings. However, the Court of Appeal varied the costs order so that the claimant was only liable to pay the costs of the proceedings incurred after the claimant’s conduct became unreasonable.
3.12 Rejection of an offer to settle. If a party makes an offer to settle on a “without prejudice save as to costs” basis and the other party rejects that offer and either (a) loses the case or (b) wins the case but is awarded a sum less than that offered by way of settlement, an employment tribunal could, at least in theory, make an order for costs against that other party on the basis that the other party acted unreasonably in refusing the offer to settle. It is important to note, however, that a failure by a party to beat such a settlement offer should not, by itself, lead to an order for costs against that party.66 The employment tribunal must first conclude that the conduct of the party in rejecting the offer was unreasonable before the rejection becomes a relevant factor in the exercise of the tribunal’s discretion to make an order for costs.67 In the case of Kopel v Safeway Stores Plc, the Employment Appeals Tribunal upheld an award of costs against the claimant on the basis of her unreasonable conduct, where the claimant refused a “generous” settlement offer and included in her claim
“manifestly misconceived” claims under the European Convention of Human Rights.68 In practice, however, costs orders are rarely made on the basis of a rejection of an offer to settle.
3.13 Misconceived. The term “misconceived” replaced the term “frivolous” used in previous versions of the employment tribunal rules. In E. T. Marler Ltd. v Robertson,69 Sir Hugh Griffiths defined the meaning of “frivolous” as follows:
“If the employee knows that there is no substance in his claim and that it is bound to fail, or if the claim is on the face of it so manifestly misconceived that it can have no prospect of success, it may be deemed frivolous…”70
3.14 Conversely, “misconceived”, as defined in the 2004 Regulations, includes having no reasonable prospect of success.71 The addition of the misconceived criterion in recent iterations of the Rules has lowered the threshold for a costs order (or preparation time order) in that for an award to be made the tribunal no longer has to satisfy itself that the case had been bound to fail, but rather that the case had no reasonable prospect of success.72 In Scott v Inland Revenue Commissioners, Sedley LJ confirmed that the correct question was not whether the party, in bringing or conducting the proceedings, thought he was in the right, but whether he had reasonable grounds for thinking he was.73
65 Ibid.
66 Kopel v Safeway Stores Plc [2003] IRLR 753 at 755.
67 Ibid.
68 Ibid.
69 [1974] ICR 72.
70 Ibid, at 76.
71 Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 (SI 2004/1861), regulation 2(1).
72 Gee v Shell (UK) Ltd [2002] EWCA Civ 1479; [2003] IRLR 82 at 85: Scott Baker LJ, commenting on the 2001 amended employment tribunal rules, stated that “[t]his regulation therefore lowered the threshold [for a costs order to be made] by the addition of the criterion of the misconceived bringing or conducting of proceedings.”
73 [2004] EWCA Civ 400; [2004] ICR 1410 at 1423.
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4. PRACTICAL CONSEQUENCES