Mark Shulman, Consultant Solicitor at Keystone Law

**COSTS
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Costs regime
With recent changes to the costs regime and a greater willingness of Tribunals to make costs orders, this area of the law is becoming more complex. On 29 July 2013 new ET Rules came into force (see rules 75-79. 

The latest ET statistics (2011/12) show an increase in the number of costs awards (although the figures were skewed by a case in which 800 claimants were ordered to share the liability of one costs award of £4,000). However, if those 800 awards are counted as one single costs award of £4,000, the total number of costs awards was in fact 612 (up from a total of 487 in the previous period), with 496 of those being made to Respondents. Adjusting for the skewed figures, the mean award of costs would be £2,973 and the median award would be £1,730. The highest costs award was £36,466.

Whilst the award of costs is the exception rather than the rule, when they are awarded the scope can be wide. For the purposes of the ET rules, "costs" means fees, charges, disbursements or expenses that have been incurred by or on behalf of the receiving party, including expenses that witnesses incur in connection with attendance at the ET.

Where a costs order is made, the ET can order the paying party to pay a specified amount (up to £20,000), or order the paying party to pay the whole or a specified part of their costs with the amount to be determined by way of a detailed assessment in the County Court or by an Employment Judge applying the same principles. This latter provision is new and allows an employment judge to carry out a detailed assessment whereas previously the matter had to go to the County Court for a detailed assessment.

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Hopeless cases
Should a costs order be made in every hopeless case? The EAT said not necessarily and not in the specific circumstances in [Graham v London University College Hospitals NHS Foundation Trust & Ors]() UKEAT/0130/13/LA.

Background
The Claimant was a medical secretary dismissed for gross misconduct because of excessive internet use, inappropriate use of email and getting behind on her work. She brought claims of unfair and wrongful dismissal and race discrimination, all of which were dismissed at the ET. The ET said that her claims were misconceived and made a costs order against her amounting to £1,500. The Claimant appealed.

Was there an error of law?
The EAT pointed out that the mere fact that a claim was misconceived did not necessarily mean that it should result in a costs order. The ET had to go on and decide as a matter of discretion whether a costs order was appropriate.

The EAT considered the ET had been entitled to adopt a broad-brush approach and to award what was a modest amount and without giving any kind of detailed reasons for how they had arrived at the £1,500 figure. However, the ET had taken into account irrelevant considerations when deciding whether to make costs order. In particular, their two key reasons for making a costs order had been that the Claimant:

* could have (but had not) investigated whether a woman of her own ethnicity called to give evidence, agreed with the Claimant's assertions that she had been discriminated against on the grounds of race; and * had not accepted any responsibility for her excessive internet use that correlated with her diminished work performance.

As to the first reason, the EAT pointed out that the Claimant had called the witness to give evidence that the Claimant was a good, hard-working medical secretary. The ET had not been right to say that it was incumbent on the Claimant to seek the views of a witness to test the strength of the Claimant's case on alleged race discrimination – the witness had not been called to give evidence about that matter.

The second reason, whilst being an observation on the Claimant's performance and attitude, did not seem relevant as to whether her ET claim was so hopeless as to give rise to a costs order.  If it was right that failure to take responsibility for her poor work performance was a relevant factor, almost any claim for unfair dismissal based on poor work which failed on the facts, was going to result in an award of costs.

Accordingly, the EAT set aside the ET's costs order and given the small amount at stake, proceeded to decide themselves whether a costs order should be made. The employer pressed for a costs order on the basis that the Claimant knew she was at risk of costs, not least because of the three "Without prejudice save as to costs" letters sent during the proceedings in the run up to the hearing. The employer contended that the Claimant therefore knew or should have known that her claims were hopeless: she had taken a gamble and the weaknesses in her position were drawn to her attention, but she pressed on.

Fresh exercise of discretion
Exercising discretion afresh, the EAT's view was that no costs order should be made. Whilst the claims were found to have been hopeless, (thus providing jurisdiction for making a costs order), it was subjectively excusable for the Claimant to carry on because of:

* the fact that the Claimant was self-represented; * the outcome of the case management discussion at the ET when her claims of unfair and wrongful dismissal and race discrimination were allowed to go forward to a full-merits hearing; and * what the EAT had itself seen and made of the Claimant at the appeal hearing.

The EAT concluded that this particular Claimant in her particular circumstances was not to be found so culpable in carrying on with her case that an order for costs should be made.

However, the EAT expressly made clear that it was not laying down any general proposition that just because a claim gets through a case management discussion or a Pre-Hearing Review, no order for costs could be made, or that just because a Claimant is self-represented, no order can be made.

Is it wrong in principle to award costs against a Claimant who behaves unreasonably, even if this might deter other people bringing claims? No said the EAT in [Ghosh v Nokia Siemens Networks UK Ltd]() UKEAT/0125/12/MC.

The Claimant claimed unfair dismissal and race discrimination at the ET. The proceedings lasted 9 days. Her unfair dismissal claim was upheld because of procedural irregularities but she was not awarded any compensation because she was held to be 100% responsible for her own dismissal. Her claims of race discrimination were dismissed in their entirety and having considered her lack of means, costs were awarded against the Claimant in the sum of £5,000.

The Claimant was permitted to proceed with an appeal solely in relation to costs. In order to avoid a further hearing, the Respondent said they would not enforce the ET's costs order if the appeal was not pursued, but the Claimant still wanted her case heard at the EAT.

The EAT started by confirming that the ET had correctly directed itself before making a costs order. In the circumstances, the ET had been entitled to conclude that the number of wholly unsubstantiated allegations that put the employer to great expense at a nine-day hearing, (plus considerable preparation), justified it in exercising its discretion to make the costs order.

As to the Claimant's suggestion that the EAT's decision would somehow set a precedent which would discourage litigants from pursuing cases, the EAT thought it was wide of the mark. The only litigants who might be discouraged were those tempted to behave unreasonably. The appeal was therefore described as being "without merit" and was dismissed.

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Standard v indemnity costs
When costs are awarded on the standard basis, only those costs which are proportionate to the matters in issue in the case may be allowed, with any doubt working in the paying party's favour. In cases where costs are awarded on an indemnity basis, the question of whether they are proportionate to the matters in issue is removed and where there is any doubt about whether any of the costs were reasonably incurred or whether the amount of those costs was reasonable, that doubt must be resolved in favour of the receiving party (see rules 44.4(1) and 44.4(2) of the Civil Procedure Rules).

Whilst the County Court does not have the power to take into account the paying party's ability to pay when assessing the costs, the ET itself can order that any costs assessed by the County Court should be limited. However, a party's ability to pay can be taken into account by a County Court if the party against whom an order is made makes a subsequent application to pay in instalments.
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Indemnity costs
Are there any special considerations when costs are awarded by an ET on an indemnity basis? In [Howman v The Queen Elizabeth Hospital Kings Lynn]() UKEAT/0509/12/JOJ, the EAT set out principles that apply in such circumstances. The case is of some significance because of the rarity of ET costs awards on an indemnity basis and also because Howman is believed to be the only reported case in which an ex-employee has appealed against an order requiring payment of costs on an indemnity basis from their own pocket.

Background
The Claimant lost his claim for unfair dismissal. The ET decided that the claim was misconceived in that it had no reasonable prospect of success and made an order for costs, estimated to be around £45,000, subject to a detailed assessment by the County Court on an indemnity basis. An appeal was brought by the Claimant on the basis that the ET should not have ordered him to pay the Respondent's costs on an indemnity basis and that it should either have capped the costs which he was required to pay, or taken some other measure which took into account his inability to pay such a large award of costs.

When should the indemnity basis be ordered?
The EAT said that the answer was where the conduct of the party has taken the situation away from the norm. In the context of ET proceedings, this meant only when the conduct of the paying party has taken the situation away from even the very limited types of cases under the ET Rules where it was appropriate to make orders for costs (under the old ET Rules when a party had "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". See now the new Rule 76.

Secondly, ETs have discretion as to whether to take into account a party's ability to pay a costs award. In the final analysis, if the ET decides to have regard to someone's ability to pay in deciding what order for costs it should make, what it needs to do is to balance the need to compensate the litigant who has unreasonably been put to expense against the other litigant's ability to pay. However, it appeared to the EAT that various considerations had apparently not come up on the ET's radar. In particular:

* given his limited financial means, the only way in which the Claimant could meet the order for costs was if his (jointly owned) house was sold. The ET had not considered whether in all the circumstances, it was appropriate to make an award for costs which had that effect on the Claimant and his family; * as the property was jointly owned by the Claimant and his wife, that meant that the Claimant would have been entitled to only a half-share of the net proceeds of sale. The question for the ET was whether it was appropriate to make an award which could come close to wiping out the Claimant's life savings; * the ET also failed to consider that even where it was ordering that the costs be assessed, it was still open to the ET to order that only a specified part of those costs should be paid (e.g. a specific percentage of the total assessed costs, an award only in respect of a specified part of the proceedings, or an award subject to a capped limit).

Whilst the EAT understood why the ET thought that the Claimant's persistence in pursuing a hopeless was so unreasonable, it had taken its eye off the ball when it considered the Claimant's ability to pay costs. The ET's failure to factor-in the required balancing exercise fatally undermined its conclusion.

However, rather than decide the matter itself, the EAT felt that since the issue involved a balancing exercise and the factual position had changed since the original hearing, that exercise was best conducted by the ET which would have all the relevant facts and the case was remitted back to the ET accordingly.

Double costs order
In [Takavarasha v London Borough of Newham & Ors]() UKEAT/0077/12/MC, the EAT considered the question of costs both in relation to the original ET hearing and the costs of the EAT hearing.

The Claimant made claims of race discrimination, victimisation, disability discrimination and unfair dismissal arising out of his employment with the London Borough of Newham.

All his claims were dismissed by the ET. The Respondent sought costs and produced a costs estimate of £28,000. The ET found that the race discrimination and victimisation claims were misconceived and that those claims represented only 25 per cent of the total costs (i.e. £7,000). However, they further reduced that figure to £1,500 in light of the Claimant's means as he was unemployed (although the ET thought he was capable of finding employment and thus took into account his potential earning power).

The Claimant appealed both against the rejection of his claims and the costs order for £1,500. Despite the Respondent offering to forgo the costs order if he dropped the appeal, the Claimant pressed ahead with the hearing.

At the EAT, the Claimant submitted that:

* the ET should have considered as the starting point for a costs order, the figure of £10,000. The EAT disagreed. The starting point was the actual total cost figure of £28,000. The figure of £10,000 was simply the limit for assessed costs at the time of the original hearing. * at a CMD in the ET (before evidence had been heard), the employment judge had stated the Claimant had a "legally well-conceived complaint". However, the EAT pointed out that a legally well-conceived claim may then fail on the facts, as happened in the present case. * as the award of costs was still exceptional in ETs, the costs order was disproportionate given the Claimant's lack of employment. Again, the EAT disagreed - impecuniosity was not a complete answer to a costs application.

Accordingly, there was no error of law by the ET. The EAT then went on to consider an application for costs in relation to the appeal hearing itself. This was against the background that the Respondent had offered to forgo the £1,500 costs order by the ET if the appeal to the EAT was dropped by the Claimant. However, that offer was not taken up and the matter had proceeded to a hearing.

The EAT was clear that after the Burns/Barke questions had been answered (a procedure which involves the EAT inviting the original ET - prior to determination of the appeal - to clarify or supplement its judgment), there really was no reasonable prospect of the appeal succeeding.  In the circumstances, taking account of his means and the fact that he still had a debt of £1,500 for the ET costs, the EAT ordered the Claimant to pay the sum of £2,500 inclusive of VAT, towards the Respondent's appeal costs.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.