The Claimant began a period of long term sickness from 2009. He was employed by the Respondent's predecessor who had insurance cover to pay Income Protection Payments (IPP). This cover included an 'escalator' of 5% per year. However, following the transfer into the Respondent's employment, the Claimant found that the escalator was not being included in his IPP. The Respondent informed him that the escalator had ceased in 2008, from which time its underlying insurance cover did not include it. The ET held that the Claimant was contractually entitled to the escalator, and therefore upheld a claim for unlawful deduction from wages. The Respondent appealed, arguing that the correct construction of the documentation was that its obligation was limited to the amount in respect of which it or its predecessor from time to time had insurance cover. The ET also subsequently awarded the Claimant the whole of his costs of pursuing the claim up to the point of the liability decision, on the basis that the Respondent had relied as a central plank of its defence, upon a provision in its 2005 Manual which, on the evidence of its own witness given at trial, had ceased to apply in 2007. Its defence based on that Manual was found to have had no reasonable prospect of success, and it was found to have acted unreasonably in running it. The Respondent also appealed that decision.

The EAT dismissed the first appeal and allowed the second appeal. The summary of benefits originally provided to the Claimant contained terms that were clear and certain, and, objectively, intended to be incorporated. They conferred a contractual entitlement to the escalator. On the question of costs, the ET, while it had been entitled to find that the defence based on the 2005 Manual had no reasonable prospect of success and was unreasonably pursued, had failed to take into consideration that there was a further element of the Respondent’s defence, that it had not found had no reasonable prospect of success, and which, though it in fact properly failed, was not so weak as to have had no such prospect.