1. In giving this Judgment, I refer to the parties as the Claimant and the Respondents, as they were before the Employment Tribunal. The appeal is that of the Claimant against the Judgment of the East London Employment Tribunal (Employment Judge Corrigan sitting alone, on 11 February 2013), sent to the parties on 4 July 2013, in which the Employment Judge declined to award costs against the Respondents. The Claimant was represented before the ET and on this appeal by Mr Livingstone, of Counsel. Before the ET, all five Respondents were represented by Mr Bertram of Counsel, but before me Mr Howard of Counsel appears for the first and second Respondents, and Mr Hobbs of Counsel appears for the third Respondent.

1. The appeal was permitted to proceed to a Full Hearing after consideration by Mr Recorder Luba QC on the papers, who considered that it potentially raised two issues of general importance. First, what was the relevance, if any, of the fact that the Respondents were volunteers and trustees of a charity? Second, what was the relevance, if any, of the fact that any recovered costs would inure to the benefit of the Claimant's insurance company rather than the Claimant personally?

1. For completeness, I note that there had been two other Respondents to the ET proceedings, but I am not concerned with their respective positions at this stage, and they are not parties to this appeal.

1. I also note that there is a cross-appeal in respect of the Employment Judge's conclusion that her costs jurisdiction had been engaged at all. That has been stayed pending this appeal, and, again, I do not consider it further at this stage.

1. The Respondents were volunteer members of the management committee of a charitable body titled "The Essex Racial Equality Council", or "the charity". The Claimant was employed as its director. During the latter part of his tenure the charity ran out of money. Without money, the charity could not continue to function and could not pay the Claimant's wages. Accordingly, his employment was terminated as from 22 December 2009.

1. The management committee of the charity comprised volunteers, including the three Respondents. Members of the management committee were alive to the risk of personal liability for the charity's debts. There had been an intention formed back in 2007 to create a company limited by guarantee to protect the management committee in this regard, but that had still not been put into effect by the time of the Claimant's dismissal in 2009.

1. The Claimant therefore brought ET proceedings naming, relevantly, the three Respondents as members of the management committee. The Respondents sought to avoid liability by taking the point in the proceedings that the company limited by guarantee had been formed and was the responsible party. They sought to maintain that position from the time they lodged their ET3 in November 2011 until ultimately the matter was settled by means of a consent order in November 2012, i.e. some 12 months later. The Employment Judge considered that the Respondents' defence in this regard had been misconceived (paragraph 5) and that maintaining that position for so long had been unreasonable (paragraph 6).

1. The Claimant then applied for his costs in the ET proceedings against the three Respondents. Given the view she had formed as to the misconceived nature of the defence and the unreasonable nature of the Respondents' position, the Employment Judge agreed that her costs jurisdiction was engaged pursuant to Rule 40, Schedule 1 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004. Having so found, she correctly directed herself that she then needed to consider whether it was appropriate to make such an order; she concluded that it was not.

1. In reaching that view, the Employment Judge first observed that the three Respondents were volunteers and trustees of a charity and that they were already personally liable for the Claimant's substantive claims, and she did not consider it appropriate to order costs against them in addition. Secondly, she noted that the Claimant had been funded by an insurer and was "therefore not personally out of pocket".

1. In conclusion, in her final paragraph (paragraph 8), she said this:

"I have heard what the parties' representatives have said about the situation where someone is funded by an insurer (namely that that should be disregarded as a matter of principle) but I am not persuaded that within the rules in relation to costs in the Employment Tribunal that there is a legal principle that prevents me making this order, i.e. no order as to costs, which is the order that I consider to be appropriate."

1. The Grounds of Appeal can be summarised under two main headings. First, whether it was relevant for the Employment Judge to have regard to the means and financial circumstances of the Claimant as the potentially receiving party, in particular, as a discrete sub-point, to the fact of his having had the benefit of legal expenses insurance. The Claimant's submission was that these factors were irrelevant and should properly have been disregarded by the Employment Judge. Second, whether the Employment Judge should have disregarded the fact that the Respondents were volunteers and trustees of a charity; the Claimant urging that that, without more, was not relevant to their ability to pay. Properly understood, that second ground has to be a challenge on the basis that the Employment Judge wrongly fettered her discretion, alternatively, took into account an irrelevant circumstance, as she was considering the appropriateness of making an award of costs, not the Respondents' means as such.

1. The relevant legislative principles are to be found in the ET Rules 2004, schedule 1. Rule 38 provides generally for the power of an Employment Tribunal or Employment Judge to make a costs order and makes it clear that costs can mean "those fees, charges, disbursements or expenses incurred by or on behalf of a party".

1. That wording was considered by the EAT, Langstaff P presiding, in [Taiwo v Olaigbe ]()and Anor UKEAT/0254/12 and UKEAT/0285/12, in which it was held that the rule covered the situation where a party to litigation in ET proceedings is supported by another who incurs a fee or charge or makes a disbursement or incurs and expense on that party's behalf. At paragraph 69, the President observed:

"There is every good reason of policy why Parliament might provide in a Tribunal such as the Employment Tribunal for costs incurred by another to be recovered if the occasion were appropriate – for such Tribunals frequently hear claims brought by those who have lost their employment and are likely to be without income, who may well be in difficult social and financial circumstances as a consequence. They may need financial help if they are to access justice. It is not at all surprising that the legislature should recognise that, and make provision for reimbursement if the conduct of the other party sufficiently merits it. Similarly, where Respondents are named as employees of an institutional Respondent against whom a claim is also brought (as, for instance, where claims of discrimination are brought against a corporation, and those of its employees whom it is said committed acts of discrimination against a Claimant) it is not uncommon for the employer to pay the costs of all in defending the claim."

1. Costs in the ET do not, however, simply follow the event. They can be awarded where particular circumstances are found to arise (see, relevantly, Rule 40(2) and (3)):

"(2) A tribunal or judge shall consider making a costs order against a paying party where, in the opinion of the tribunal or judge (as the case may be), any of the circumstances in paragraph (3) apply. Having so considered, the tribunal or judge may make a costs order against the paying party if it or he considers it appropriate to do so.

(3) The circumstances referred to in paragraph (2) are 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."

1. Costs awards in the Employment Tribunal are still the exception rather than the rule (see Yerrakalva v Barnsley MBC [2012] ICR 420, per Mummery LJ, at paragraph 7).

1. Moreover, although regard may have been had to the conduct of the paying party to found such an award, a costs order remains compensatory not punitive. The receiving party is being compensated for the expense to which she has been unreasonably put (see Benyon and Ors v Scadden and Ors . Even if the relevant circumstances are found - i.e. the ET or Employment Judge finds that a claim was misconceived or there was unreasonable conduct - that will still not be sufficient. The ET or Employment Judge must then specifically address the question as to whether it is appropriate to exercise the discretion to award costs (see [Robinson and Anor v Hall Gregory Recruitment Ltd ]()UKEAT/0425/13 and Criddle v Epcot Leisure Ltd . As the answering of this question involves the exercise of a broad discretion, an appeal against the costs order (or, as here, a refusal to make a costs order) will be doomed to failure, unless it is established that the order is vitiated by an error of legal principle or was not based on the relevant circumstances. The original decision-taker will be better placed than the appellate body to make a balanced assessment as to the interaction of the range of factors affecting the court's discretion, see Yerrakalva, per Mummery LJ, at paragraph 9. I also note the observation at paragraph 49 of that case, as follows:

"[…] as orders for cots are based on and reflect broad brush first instance assessments, it is not the function of an appeal court to tinker with them. Legal microscopes and forensic toothpicks are not always the right tools for appellate judging."

1. In the present case it is indeed contended that the Employment Judge erred in law, in taking into account the Claimant's means, in particular the fact that he had the benefit of legal-expenses insurance. This is said to be contrary to the principle laid down in Bradbourn v Great Western Railway Co [1874] LR 10 Ex 1, where it was held that it would be contrary to fairness and justice if a wrongdoer should get the benefit of an insurance policy for which the innocent party has paid. That approach was approved by the House of Lords in Parry v Cleaver [1970] AC 1 and the principle thus laid down recently characterised by Popplewell J in Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travel Plan SAU of Spain) [2014] EWHC 1547 CC, paragraph 36, as follows:

"[…] benefits do not fall to be taken into account, even where caused by the breach where it would be contrary to fairness and justice for the defendant wrongdoer to be allowed to appropriate them for his benefit because they are the fruits of something the innocent party has done or acquired for his own benefit."

1. Where there is an error of law in the making of a costs order, the question will arise as to how the appeal is to be disposed of. That question has most recently been considered by the Court of Appeal in the case of [Jafri v Lincoln College ]()[2014] EWCA Civ 499, per Laws LJ. Effectively, if the EAT detects a legal error on the part of the Employment Tribunal, it is bound to send the case back unless it concludes (a) that the error cannot have affected the result - in such a case, the error will have been immaterial and the result as lawful as if that error had not been made; or (b) that without the error the result would have been different but the EAT is able to conclude what it must have been in any event. Where there is more than one possible outcome, however, the case must be remitted.