Employment tribunal - Unreasonable conduct of proceedings

Yerrakalva v Barnsley Metropolitan Borough Council: Court of Appeal, Civil Division (Lords Justice Mummery, Patten and Sir Henry Brooke): 3 November 2011

The employee had been employed as a school teacher by the employer local authority. She brought race, sex and disability discrimination claims and a victimisation claim against the employer. Ten months later she issued a second claim form alleging that she was physically disabled as a result of injuries sustained in an accident at school.

She claimed that she had problems walking, suffered serious discomfort, used a walking stick, was ‘virtually unable to walk’ and could not stand for long periods.

The employer denied the injuries and contested the credibility of her evidence about her disability. It contended that she was not disabled, alternatively, that she had exaggerated her disability, that she had exaggerated her claim and that she had given untruthful evidence on relevant issues to the employment tribunal (the tribunal). The employee withdrew her sex discrimination claim and, subsequently, her disability discrimination claim. The tribunal made an order formally dismissing her claim.

In a judgment as to costs, the tribunal ordered the employee to pay 100% of the employer’s costs reasonably and necessarily incurred between her issue of the claim and the tribunal’s order dismissing the claim. The tribunal, in making the costs order, exercised its power under rule 40 of schedule 1 to the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, SI 2004/1861 (the regulations).

In making its order, the tribunal noted that there had been a part-heard pre-hearing review which had lasted for three days and generated many documents and much correspondence. Further that the employee had said things which it believed were not truthful regarding the state of her health, a previous personal injury claim and about her financial means. The amount of such costs was to be determined by way of detailed assessment. The employee appealed the costs order. The Employment Appeal Tribunal (the EAT) allowed her appeal and set aside the costs order.

The EAT held that the tribunal had not attempted to carry out the exercise of taking into account 'the nature, gravity and effect' of the claimant's conduct. The tribunal had appeared to think that, once abuse of process had been found, then, subject to the question of means, it had to make a 100% order. Further, with reference to McPherson v BNP Paribas (London Branch) ([2004] 3 All ER 266) (McPherson), the tribunal had misunderstood the established law relating to a causal nexus between the costs relied upon and the costs incurred.

Furthermore, had the tribunal had regard to the 'effect' of the employee's lies, it could not have concluded that she ought to pay 100% of the costs of the proceedings since many, if not most, of the costs had been incurred prior to the pre-hearing review. With regard to that conduct, it was difficult to see how the lies told at the review had caused the employer any loss at all for which it had been entitled to be compensated. The hearing had been aborted by the withdrawal of the claim, consequently it could not be seen what effect the lies could have had on anything that had occurred up to the moment of the withdrawal. The employer appealed.

The employer submitted that the EAT had been wrong to interfere with the tribunal's legitimate exercise of discretion because: (i) it could not be said that the tribunal's exercise of its wide discretion had been perverse or plainly wrong; and (ii) there had been no error of law in the tribunal's understanding of McPherson.

The court ruled: The actual words of rule 40 of the regulations were clear enough to be applied without the need to add layers of interpretation, which might themselves be open to differing interpretations. The vital point in exercising the discretion to order costs was to look at the whole picture of what had happened in the case and to ask whether there had been unreasonable conduct by the claimant in bringing and conducting the case and, in doing so, to identify the conduct, what had been unreasonable about it and what effects it had had.

The main thrust of McPherson had been to reject as erroneous the submission to the court that, in deciding whether to make a costs order, the tribunal had to determine whether or not there had been a precise causal link between the unreasonable conduct in question and the specific costs being claimed. There had been no intention to give birth to erroneous notions such as that causation was irrelevant or that the circumstances had to be separated into sections and each section to be analysed separately so as to lose sight of the totality of the relevant circumstances (see [40]-[41] of the judgment).

On the evidence that was before it, the tribunal had been entitled to proceed to a decision on the employer's costs application on the basis that the employee's conduct of the proceedings had been unreasonable and that it had jurisdiction under rule 40 of the regulations to make an order for costs against her.

Consequently, there had been no error of law in the tribunal's finding of unreasonable conduct by the employee and that finding had given it jurisdiction to make an order for costs. However, there had been an error of law in the tribunal's judgment on costs and its order could not stand. The tribunal had correctly held that it had jurisdiction to make a costs order but it had then failed to factor into the exercise of its discretion the significant criticisms voiced by it of the employer's litigation conduct and the effect of that conduct on the costs incurred by the employer and claimed by it from the employee.

However, it did not follow from the error of the tribunal that no order for costs should be made against the employee. It had been the tribunal's findings about her conduct that had given it jurisdiction to make a costs order. Consequently, although the tribunal had had jurisdiction to make a costs order, it had erred in law in the exercise of its discretion.

The employee's conduct and its effect on the costs should not have been considered in isolation from the rest of the case, including the employer's conduct and its likely effect on the length and costs of the pre-hearing review (see [43], [45]-[48], [50]-[52] of the judgment).

The appeal would be allowed and the costs order of the tribunal would be restored. However, that order would be varied so as to provide that the employee was ordered to pay the employer 50% instead of 100% of the costs reasonably and necessarily incurred by it in the tribunal in relation to the pre-hearing review (see [53]-[55] of the judgment). McPherson v BNP Paribas (London Branch) [2004] 3 All ER 266 explained.

Per curiam: The actual words of rule 40 are clear enough to be applied without the need to add layers of interpretation, which may themselves be open to differing interpretations. Unfortunately, the leading judgment in McPherson delivered by me had created some confusion in the ET, EAT and in this court.

I say 'unfortunately' because it was never my intention to re-write the rule or to add a gloss to it, either by disregarding questions of causation or by requiring the ET to dissect a case in detail and compartmentalise the relevant conduct under separate heading, such as 'nature' 'gravity' and 'effect'. Perhaps I should have said less and simply kept to the actual words of the rule (see [40] of the judgment).

Per curiam: On matters of discretion an earlier case only stands as authority for what are, or what are not, the principles governing the discretion and serving only as a broad steer on the factors covered by the paramount principle of relevance. A costs decision in one case will not in most cases pre-determine the outcome of a costs application in another case: the facts of the cases will be different, as will the interaction of the relevant factors with one another and the varying weight to be attached to them (see [42] of the judgment). Decision of Employment Appeal Tribunal UKEAT/0231/10/RN reversed.

Antony Sendall (instructed by HLW Commercial Lawyers LLP) for the employee; Edward Legard (instructed by Barnsley MBC Legal Services Division) for the employer.