Mark Shulman*, Consultant Solicitor at Keystone Law
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**COSTS
ETs: recovery of pre-claim costs**
Can an ET make an order for costs incurred by a Claimant before the claim had started? Yes, said the EAT in [Sunuva Ltd v Martin ]()UKEAT/0174/17/JOJ.

Background
On the fourth day of an ET hearing, the Respondent conceded that the Claimant's dismissal by reason of redundancy was a sham, despite an ET3 which had previously denied that the process was "a sham or predetermined in any way".

The Claimant applied for costs on the basis that the defence to the claim of unfair dismissal had no reasonable prospects of success. The employer accepted that that was the case in the light of the sham redundancy process that was put in place. The ET found that "From the outset, the Respondent should have admitted liability" and awarded costs in the sum of £17,136.90 against the employer. Some of these costs related to the period before the Claimant received a copy of the ET3.

*Costs not punitive
*On appeal to the EAT, the employer challenged this part of the award. It was contended that an award of costs ought not to be punitive in nature, but compensatory  (Davidson v John Calder (Publishers) Ltd & Anr [1985] IRLR 97). It was also submitted that the reasoning in Health Development Agency v Parish [2004] IRLR 550 applied. This meant that "…the conduct of a party prior to proceedings or unrelated to proceedings cannot found an award of costs…it is necessary for there to be a causal relationship between the conduct of a party in bringing or conducting proceedings and the costs which are awarded…". Until an employer had seen the case pleaded against it in the ET1, the employer could not know what case it has to answer. So, the argument went, it was effectively punishing the employer to award costs against it in respect of a time before the employer could reasonably know the case it has to meet - logically costs incurred in consequence of an employer's conduct cannot predate the conduct in question.

The Claimant argued that Judge Richardson's judgment in Parish was not good law as it could not stand with the subsequent decision in McPherson v BNP Paribas (London Branch) [2004] ICR 1398. In that later case, Mummery LJ in the Court of Appeal rejected a submission that a persons' liability for costs was "limited, as a matter of the construction…, by a requirement that the costs in issue were "attributable to" specific instances of unreasonable conduct by him".

Scope of costs Rules
The EAT agreed with the Claimant. Looking at Rules 74-76 of the ET Rules, the definition of "costs" was not limited to costs incurred for work done before receipt of the ET3. The definition of costs simply referred to "fees, charges, disbursements or expenses incurred by or on behalf of the receiving party". There was nothing in the wording to limit the costs that may be awarded to costs incurred at a particular stage of the proceedings, or to costs incurred after the proceedings had begun.

Rule 76(1)(b) provides that an ET may make a costs order where it considers that "any claim or response had no reasonable prospect of success". As regards causation, the law remained as stated in McPherson by Mummery LJ (in relation to the previous Rule 14(1)). That Rule did not limit the ET's discretion to those costs that were caused by or attributable to the unreasonable conduct of the applicant. That reasoning applied equally under the applicable 2013 ET Rules.

Therefore, the employer had been wrong to submit that the ET was bound by the Parish case, or by any other authority or principle of law which would confine costs to those in respect of work done before receipt of the ET3. Accordingly, the EAT decided that there was nothing wrong or unlawful about the ET's decision on costs.

Refusal to consent to adjournment
In [France v Khan & Ors ]()UKEAT/0104/17/JOJ the EAT had to consider where the blame lay when an EAT appeal hearing proceeded after the Respondent refused to consent to it being adjourned.

Background
The Claimant made a costs application based on the allegation that the conduct of the Respondents, in failing to agree to the vacation of the EAT hearing, was vexatious and unreasonable, causing an unnecessary hearing. Costs were sought under Rule 34A(1) of the EAT Rules 1993 (as amended), which permit a costs order to be made by the EAT where "…any proceedings brought by the paying party were unnecessary, improper, vexatious or misconceived  or that there has been unreasonable delay or other unreasonable conduct in the bringing or conducting of proceedings…".

There were two appeals for hearing at the EAT. Firstly, there was an appeal against the refusal of a reconsideration application of a costs decision made by an ET. The parties had reached agreement that the reconsideration application should be remitted for hearing before a differently constituted ET. But notwithstanding that agreement, no relisting of that application took place and there was no evidence that the Claimant had asked for the matter to be relisted.

The second appeal was in relation to the decision of the ET on detailed assessment of costs under the costs order.

Both of these appeals were listed to be heard by the EAT on the same day. The Claimant made an application to postpone the hearings on the basis that the detailed assessment of costs depended on the outcome of the appeal about the making of the costs order. The Appellant indicated that she "…has written to the Respondents on two occasions now, requesting their consent to a postponement of the above but is yet to receive any response". The day before the EAT hearings, the Respondents sought to withdraw from the consent order which they had entered into with the Claimant regarding remission of the reconsideration application to another ET.

Fault on both sides
The EAT decided that whilst both parties were responsible for ensuring that the proceedings proceeded in an orderly manner, the primary responsibility for the relisting application was that of the Claimant (as she had asked for the costs matter to be reconsidered). It was "unfortunate" that the Claimant (a lawyer) had not been able to show any steps that she had taken to relist the proceedings before the ET. However, there was also fault on the Respondent's side for seeking to resile, at four o'clock on the day before the hearing of the appeal, from an agreement reached several months previously as to the disposal of the first appeal concerning reconsideration of the costs order.

In the circumstances the EAT considered that the refusal of the Respondents to consent to the Claimant's application for an adjournment of the appeal hearing was unreasonable. The weight of blame on that matter lay with the Respondents who had been "pursuing resistance to the appeals" and maintaining the appeal hearing. But as blame did not lie exclusively with the Respondents, the EAT ordered that the Respondents pay to the Claimant only three quarters of the costs of the appeal, the amount of which was to be summarily assessed.

Wasted costs
Was an EJ right to make a wasted costs order against the Claimants' solicitors? No, said the EAT in [Wentworth-Wood & Ors v Maritime Transport Ltd ]()UKEAT/0184/17/JOJ.

Background
The Claimants through a firm of solicitors, OH Parsons LLP ("OHP"), lodged claims for arrears of holiday pay (following Bear Scotland Ltd & Others v Fulton & Others and for awards in respect of unlawful inducements relating to collective bargaining under section 145B of the TULR(C)A 1992. At the time when those claims were issued in the ET, the relevant legislation and jurisprudence on which the claims were based was relatively new. There was a degree of uncertainty as to the basis on which sums for holiday pay recoverable under EU law should be calculated and whether such claims could be pursued against private employers. As far as liability under section 145B was concerned, there were conflicting first instance judgments at the time.

There were three groups of Claimants. This article looks at only one of these groups where the Claimants issued duplicate claims relating to the period of holiday pay which had accrued since their initial claims. Those Claimants had these duplicate claims dismissed by the ET and there was a wasted costs application by the Respondent against the Claimant's solicitors. In essence the Respondent contended that OHP had been negligent in bringing and/or conducting the proceedings.

The EJ was satisfied that "there should be a wasted costs order against the Claimants' representative on the ground that they acted negligently in bringing those proceedings and subsequently failing to withdraw them".

Three-stage procedure
The relevant statutory provisions for wasted costs are found in Rule 80(1) of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013. These 2013 ET Rules mirror the powers available to award costs against a legal representative in civil proceedings under section 51 of the Senior Courts Act 1981. The leading cases in relation to section 51 are Ridehalgh v Horsefield [1994] Ch 205 and Medcalf v Mardell, Weatherill & Another [2002] UKHL 27. In Ridehalgh, the Court of Appeal referred to a three-stage approach to determining whether a Wasted Costs Order can be contemplated:

(1) Has the legal representative of whom complaint is made acted improperly, unreasonably or negligently?

(2) If so, did such conduct cause the receiving party to incur unnecessary costs?

(3) If so, is it, in the circumstances, just to order the legal representative to compensate the receiving party for the whole or any part of the relevant costs?

In relation to stage (3) of the test, Sir Thomas Bingham MR (as he then was) explained in Ridehalgh that:

"It is…one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court... in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it."

In the subsequent House of Lords case of Medcalf, Lord Bingham had emphasised the need for "real care" before embarking on consideration of a wasted costs application. And in the same case Lord Hobhouse explained that the wasted costs jurisdiction is penal and the fault must relate clearly to a fault in relation to the lawyer's duty to the court (and not in relation to the opposing party to whom he owes no duty). That meant a restrictive application of the jurisdiction was called for - a wasted costs order cannot be awarded against a lawyer simply because his client is pursuing a hopeless case. A "litigant is entitled to be heard" and so to penalise the advocate for presenting his client's case to the court would be contrary to the constitutional position of the advocate and the contribution required to be made on behalf of their client in the administration of justice. The making of a wasted costs order was "a last resort".

ETs should also apply the three-stage Ridehalgh test when determining whether a Wasted Costs Order should be contemplated (see Ratcliffe Duce and Gammer v Binns (t/a Parc Ferme) & McDonald .

Failure to adopt the three-stage approach
In the present case, although the EJ had referred to Ridehalgh v Horsefield, she  had not adopted the three-stage approach. Specifically, the EJ had not stated anything to indicate that she recognised or had given consideration to the "constitutional position" of the Claimant's solicitors (as the third stage of the process required). The EJ had not identified a high degree of impropriety beyond mere negligence and did not reflect the fact that the making of a wasted costs order was to be a last resort. Rather, the EJ had simply concluded that the bringing of the claims and the failure to withdraw them was negligent. That approach was inadequate.

The EJ had not attempted to identify what breach of duty there had been by OHP to the ET which could be seen as akin to an abuse of process. Further, there was no consideration as to what costs had been caused to the Respondent by what particular breach of duty. Nor was there any adequate consideration of the justice of ordering OHP to pay wasted costs in the particular circumstances of this case. The lack of clarity in the state of the law at the times when the claims were made gave no basis at all for concluding that there was conduct akin to an abuse of process that justified an award of wasted costs.

The appeal was allowed and the wasted costs order was set aside.

High Court : Part 36 offers and costs
In [Shalaby v London North West Healthcare NHS Trust ]()[2018] EWCA Civ 1323, the Appellant was a surgeon. He brought a claim in the High Court for breach of his contract of employment, claiming that he had worked more hours than the Respondent had paid him for after he returned to work following a secondment. The central allegation was that the Trust had not paid him properly for his participation in an on-call rota. The Trust made a Part 36 offer to pay Dr Shalaby the sum of £10,842.15 by way of a pay supplement.

Subsequently, his claim for breach of contract was dismissed by the High Court. Therefore, Dr Shalaby had failed to obtain a judgment which was more advantageous than the Trust's Part 36 order. Therefore the provisions of CPR 36.17(1)(a) and 36.17(3)(a) applied.

Indemnity or standard basis?
It was inevitable that Dr Shalaby would have to pay the Trust's costs as his claim had been dismissed. But in dispute on the appeal was whether the costs order should have been on the standard basis or on an indemnity basis for the period after the date on which the Part 36 offer had been paid.

After dismissing Dr Shalaby's breach of contract claim, the High Court judge said on costs that:

"In relation to the indemnity basis of that part of the costs order, that follows as the default rule because the Claimant has failed to better the Part 36 offer…".

Which part of CPR 36.17 applied?
Was that approach right? No, said the Court of Appeal. The effect of CPR 36.17(3) is that "… In normal circumstances, an order for costs which the court is required to make, unless it considers it unjust to do so, is an order for costs on the standard basis" (see Woolf CJ in Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson .

It is only where CPR 36.17(4) applies (i.e. where the Defendant does not accept the Claimant's Part 36 offer and the Claimant subsequently obtains a judgment that is equal to or more advantageous than their offer), that costs are to be awarded on an indemnity basis.

Therefore, as conceded by the Trust's counsel on appeal, the judge had fallen into error. He appeared to have thought that the default provisions relating to costs on an indemnity basis also applied to the present sort of case, when judgment is entered against a claimant.

Therefore, the Court of Appeal concluded that the appeal had to be allowed and ordered that the applicable costs were to be paid on the standard basis (and not the indemnity basis).

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