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Mark Shulman, Consultant Solicitor at Keystone Law

**PRACTICE AND PROCEDURE

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**Costs
Should a Claimant have been given the opportunity to make representations in relation a proposed costs order? Yes said the EAT in [Johnson v United Kingdom Border Agency]()** UKEAT/0127/14/BA.

The Claimant brought various claims against the United Kingdom Border Agency alleging unfair dismissal and race discrimination. She attended the first day of the hearing and applied to adjourn it. Although the Respondent attended with witnesses, the Claimant said she had no witness statement and she declined to allow her detailed particulars and Scott Schedule to stand as her evidence. The ET refused the application to adjourn and ordered that the case was to proceed the following day. The Claimant did not attend the remainder of the final hearing, which was to either hear the substantive case or strike out the case on the Respondent's application.

The ET proceeded in her absence with the result that her claim was struck out and a costs order in the sum of £10,000 was made against her. The Claimant appealed both decisions.

*Had the ET Rules been followed?
*The relevant provision relating to costs was to be determined under the old (2004) ET Rules of Procedure. Rule 38(9) provided that:

"No costs order shall be made unless the Secretary has sent notice to the party against whom the order may be made giving him the opportunity to give reasons why the order should not be made. This paragraph shall not be taken to require the Secretary to send notice to that party if the party has been given an opportunity to give reasons orally to the chairman or tribunal as to why the order should not be made."

(Practitioners should note that the new equivalent is to be found at Rule 77 of The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 (the new rules), which has no requirement for written notice to be given, although a reasonable opportunity must still be given to make representations (in writing or at a hearing) in response to a costs application – see further below).

With regard to the costs order, the Claimant submitted that:

* there was a breach of Rule 38(9) as there was no notice given and no opportunity to give reasons orally relating to the costs application. The ET had not informed the Claimant that a costs application was to be heard. Although there had been a threat in correspondence of an application for costs, there was nothing to indicate when it would be made; and * the ET had failed to make even the most rudimentary assessment of costs despite the amount they were said to be (i.e.£42,000 as in a Schedule of Costs for a claim listed for four days) and the amount of costs actually awarded (£10,000).

The EAT agreed that the ET did not inform the Claimant on the first day of the hearing that an application for costs was to be considered if the hearing continued. Indeed, at that time no application had been made, although the possibility of it had been prefigured in "without prejudice save as to costs" correspondence. Nor was the Claimant informed of the costs application subsequently made. She was therefore not on notice of the application itself or when it would be heard.

The EAT considered that she should have been. She was entitled to know that the application was going to be made and when it was going to be made. Therefore the order for costs could not stand.

However, the EAT rejected the submission that the ET had not made an assessment of the costs. It was plain to everyone that the costs would substantially exceed £10,000. Given that the application for costs was limited to £10,000, no more detailed assessment was necessary in the particular circumstances of this case. However, if at a subsequent hearing on remission to the ET, the Claimant attended and made reasoned objections to the amount of costs, the ET would then need to consider them.

**Peremptory refusal of costs application
Should a Respondent have been peremptorily refused their costs application against the Claimant? No, said the EAT in [Onyx Financial Advisors Ltd v Shah]() UKEAT/0109/14/KN, another case involving the same Judge as the Johnson** appeal above.

The Claimant brought ET proceedings claiming unfair constructive dismissal, detriment arising from protected disclosures and holiday pay. He claimed compensation of more than £200,000. His claims were all dismissed.

The ET's conclusions included findings that:

* the Claimant had obtained his employment with the Respondent by fraudulent misrepresentation, stating that he was "travelling" when he had in fact been working for an organisation which would have been likely to give him a poor reference; * the Claimant's "protected disclosures" were really no more than matters drawn to the Respondent's attention in the ordinary course of his work, and he suffered no detriment because of them; * there was an altercation at work in which the Respondent's manager sought to "bulldoze and threaten" the Claimant into making an application to register himself with the Environment Agency and in which another manager made unwarranted and bullying comments. That conduct was a fundamental breach of contract, and the effective cause of the rupture of the Claimant's employment relationship; * after that time the Claimant affirmed the contract, but by the time of his resignation it was the Claimant who was in fundamental breach of contract. He had attempted to blackmail the Respondent and would for this reason have been disqualified from claiming constructive dismissal in any event.

After receipt of the ET's judgment, the Respondent applied by letter for a costs order against the Claimant (the overall costs of the proceedings were said to be about £60,000), which application was refused without an oral hearing or any opportunity for the Respondent to expand its reasons.

The ET's decision on the costs application was to the effect that in the light of the finding that the conduct of the Respondent's managers had amounted to a fundamental breach of contract, it was inappropriate to make a costs order in the Respondent's favour and there was no prospect of the ET making such an order.

The Respondent appealed, submitting that:

* it was an error of law (a breach of the rules of natural justice), to determine the costs application without making any provision for a hearing or, at the very least, for full written submissions. Justice required that the application be heard rather than dismissed peremptorily; * the ET's reasons were insufficient. They contended that the ET had not dealt in any way with the manner in which the Claimant had conducted the litigation, a matter of which the Respondent made specific and detailed complaint. Nor did the ET address the key point that the Claimant had known all along that he had lied to get his job; and * the ET's decision was perverse because the Claimant's dishonesty far outweighed the Respondent's fundamental breach of contract and the conduct of the proceedings had also been unreasonable.

*The ET Rules
*Rule 77 of the new Rules relates specifically to costs and preparation time orders. It provides as follows:

"A party may apply for a costs order or a preparation time order at any stage up to 28 days after the date on which the judgment finally determining the proceedings in respect of that party was sent to the parties. No such order may be made unless the paying party has had a reasonable opportunity to make representations (in writing or at a hearing, as the Tribunal may order) in response to the application."

The EAT confirmed that the ET had a broad discretion as to the manner in which it dealt with an application for costs. A hearing is not always necessary. An application could be dealt with on written submissions. But Rule 77 dealt specifically with the position of the paying party who must have a reasonable opportunity to make representations in response to the costs application.

However, it was plain that the applicant seeking costs must also have a fair opportunity to put its case. This was fundamental to civil procedure of all kinds and inherent in the overriding objective in the ET Rules. That did not mean that the applicant always had to be afforded an oral hearing. On the contrary, it will usually be reasonable to expect the applicant to put that case in writing. But there are proceedings where a case cannot easily be developed in writing. The heavier the litigation and the greater the detail, the more difficult it may be to address the whole matter on paper without a hearing. In such a case, the applicant may ask for an oral hearing, and even if the applicant does not ask for a hearing, the ET might conclude that one is necessary.

But if the ET refused an oral hearing where, as in the present case, it was plain that the applicant had not intended to make its case purely in writing, the ET should have given directions so that the applicant had a fair opportunity to put its case fully in writing.

The manner in which the ET had dealt with the Respondent's letter applying for costs was therefore unsustainable. The employer's letter made an application for a hearing to determine costs at the conclusion of a substantial piece of litigation. The ET was plainly wrong not only to refuse the application for an oral hearing, but also to proceed immediately to determine the application for costs when it was clear that the letter was not intended to set out the whole of the employer's case. The EAT considered that the absolute minimum required of the ET was that the Respondent should have been given an opportunity (if an oral hearing was to be refused) to develop in writing the submissions it wished to make and to produce the costs breakdown on which it wished to rely.

*Lack of reasons
*Further, the EAT did not think that the ET's reasons for rejecting the costs application met the basic minimum standard to be expected. There were two questions to be asked:

1. whether the threshold conditions for an award of costs were met (i.e. whether the Claimant had, as alleged, acted vexatiously, abusively or otherwise unreasonably). This would have involved reasoning on the central point as to whether the Claimant, knowing that the point about fraudulent misrepresentation was being taken and knowing the true position, as he must have done, could reasonably have continued with the proceedings; and
2. if the ET considered that the Claimant's behaviour was unreasonable, it would then have needed to explain why it was unjust to make any award of costs at all when the Claimant had affirmed the Respondent's breach of contract and subjected the Respondent to blackmail.

However, it was not possible to say that it was perverse for the ET to make no award of costs because if the ET had given a fair opportunity to both parties to make submissions and had given proper reasons for its decision, there was a possibility that the result might have been no order for costs.

Therefore, the question whether to make an order for costs and, if so, how much and on what basis was one for an ET on remission after giving both parties a fair opportunity to make submissions.

**Assessment of means to pay a costs order
Had an ET correctly considered the Claimant's means or ability to pay in deciding to make an award of £9,000 costs against him? No said the EAT in [Flint v Coventry University]() **UKEAT/0147/14/KN, (a case decided under the 2004 ET Rules, but still of relevance as there is an equivalent Rule under the 2013 Rules).

The Claimant withdrew his ET claim after his application for an adjournment of the substantive hearing was refused. The claim was subsequently dismissed and a costs order of £9,000 was made against him. The ET considered the issue of the Claimant's ability to pay and concluded that his career history and profile indicated that he would earn enough such that he could pay the costs.

The Claimant's appeal was allowed because the ET had failed to take into account relevant factors. Under the old Rules in Schedule 1, (Rule 41(2)), the means of a paying party in any costs award may be considered at two stages:

* in considering whether to make an award of costs; and * if a costs award is to be made, in considering how much should be awarded.

(The equivalent Rule is now Rule 84 of the 2013 Rules).

The EAT reiterated that the discretion to make an award for costs had to be exercised judicially. Whilst it was not mandatory for an ET to have regard to the paying party's means, it "may have regard to the paying party's ability to pay". Whether or not it took into account the ability to pay, an ET should give reasons for that Decision. In Jilley v Birmingham and Solihull Mental Health NHS Trust UKEAT/0584/06, the EAT (HHJ Richardson) acknowledged there was no absolute duty to take ability to pay into account.

*Ability to pay – at what date?
*However, the fact that a party's ability to pay might be limited at the date of assessment would not require the ET only to assess a sum or make an award that was confined to the amount that that party could pay at that time. ETs were entitled to project forward as to what might be the position in the future and make an award taking into account possible future earnings (see, e.g. [Arrowsmith v Nottingham Trent University]() [2012] ICR 159 and Vaughan v LB Lewisham. Enforcement of a costs order would be in the County Court, which has the ability to take into account a paying party's means and actual ability to pay.

The Claimant had submitted that:

* having decided to take into account his ability to pay, the ET had failed to have regard (or proper regard ) to the Claimant's unemployed status, his disability and inability to work, his absence from the workplace since April 2012, his career and education history; * there was no evidence of a "recent history" of well-paid consultancy work. The only relevant work had been undertaken some 7 years' previously; was limited in time; and had given rise to a total of £4,300 fees. Otherwise the evidence was that the Claimant had a history of low paid, temporary engagements with significant periods of unemployment, including a period of some three years prior to working for the Respondent.

The EAT concluded that the ET failed to take into account relevant matters when considering the Claimant's ability to pay; alternatively it took account irrelevant matters or simply reached a perverse conclusion on the evidence before it. Therefore, the costs award could not stand.

However, the EAT would not substitute its own decision because even if the ET accepted that the Claimant was unable to pay an award in the sum as previously made, it might still consider it appropriate to make an award of some nominal sum. Ultimately, therefore, the matter had to go back to the ET.

**Deposit orders
Had an EJ correctly assessed the quantum of various deposit orders? Yes, said the EAT in [Wright v Nipponkoa Insurance (Europe) Ltd]()** UKEAT/0113/14/JOJ.

The Claimant brought 11 claims of race discrimination and detriment. Three were struck out and seven were allowed to proceed on payment of a deposit, the remaining claim being permitted to proceed without any conditions. The Claimant appealed the imposition of the deposit orders which were for £300 for each of the seven applicable claims, totalling £2,100.

Deposit orders are addressed at Rule 39 of the new Rules. The test for the ordering of a deposit is that the party has "little reasonable prospect of success", as opposed to the test under Rule 37 for a strike-out (no reasonable prospect of success). A maximum deposit order of £1,000 can be made in relation to each allegation or argument where a deposit order is considered appropriate. Unlike costs orders, ETs are obliged to make reasonable enquiries into the paying party's ability to pay the deposit and have regard to any such information when deciding the amount of the deposit.

The main point of the Claimant in the appeal was the submission that the EJ had failed to have regard to the question of proportionality, given that the new Rules allowed for a deposit in respect of separate allegations rather than the whole claim. Therefore multiple allegations could result in a prohibitively high level of collective deposit. The Claimant further submitted that although the EJ had ordered the same level of deposit for each of the seven allegations, it was unclear why he thought each different allegation merited the same level of deposit and why a sum of £300 had been chosen.

The EAT stated that when making deposit orders, ETs should stand back and look at the total sum and consider the question of proportionality before finalising the orders made. In the present case the EAT was satisfied that the EJ had done that. The EJ expressly had regard to the totality of the award made, as comprised of each deposit order, bearing in mind the maximum that could be awarded under the Rules (£1,000 per allegation or argument). In fact, the EJ had not made the maximum awards, but made orders which gave rise to a total sum that seemed to be proportionate when taking into account the number of allegations to which the orders related and the Claimant's means. The EJ had considered that making orders totalling £7,000 would not have been appropriate, but £2,100 was a proportionate view on the totality of the award and a conclusion that was entirely open to the EJ as an exercise of his discretion.

As to the amount of each individual deposit order, that was entirely for the EJ. He expressly had regard to the Claimant's means and it could not be said that the amount in each case was a sum he was not entitled to award. His reasons for doing so were entirely clear and so there was no error of law.

**Striking out powers
ETs had no power under the old (2004) Rules to strike out a claim (or part of a claim) at a CMD, as confirmed in [Bham v 2Gether NHS Foundation Trust Gloucestershire]()** UKEAT/0125/14/KN.

However, it should be noted that under the new ET Rules (Rule 53), CMDs and PHRs have been replaced with one "preliminary hearing" at which both case management and substantive preliminary issues may be determined, including consideration of whether any claim or response should be struck out. It is therefore now possible at any stage of the proceedings to strike out all or part of a claim or response (Rule 37).

*Was there a need for an EAT hearing?
*An interesting point to come out of the case was whether a hearing had been required before the EAT, given that both parties agreed the error of law.

Where, as here, both parties agreed that an appeal should be allowed, it is sometimes possible to avoid a hearing. Paragraph 18.3 of the Employment Appeal Tribunal's 2013 Practice Direction provides that:

"If the parties reach an agreement that the appeal should be allowed by consent, and that an order made by the Employment Tribunal should be reversed or varied or the matter remitted to the Employment Tribunal on the ground that the decision contains an error of law, it is usually necessary for the matter to be heard by the EAT to determine whether there is a good reason for making the proposed order. On notification by the parties, the EAT will decide whether the appeal can be dealt with on the papers or by a hearing…."

Therefore, the matter could have been dealt with on paper if the Claimant had been willing. The case report does not show whether this gave rise to any subsequent costs implications as a result.

**Striking out where facts disputed
A claim should not be struck out where key facts had to be determined, the EAT said in [Romanowska v Aspirations Care Ltd]()** UKEAT/0015/14/SM.

The Claimant worked for the Respondent as a carer of vulnerable and challenging adults. She was dismissed after it was alleged she had forcibly dragged one of the residents to his room. Before her dismissal she had expressed various concerns about issues arising at the home. She claimed unfair dismissal, saying that her dismissal was because of having made protected disclosures, rather than gross misconduct as contended by her employer.

The EJ struck out her claim on the basis that "there [was] no prospect of the claimant being able to show a connection between her disclosure and her dismissal" despite holding that the Claimant might well establish that immediately prior her dismissal she had made protected disclosures. The Claimant appealed.

The EAT's judgment makes clear that where there is a dispute of fact, then unless there are good reasons for supposing that the Claimant's view of the facts is simply unsustainable, it would be difficult to see how justice could be done between the parties without hearing the evidence in order to resolve the conflict of fact which has arisen. Ezias v North Glamorgan NHS Trust [2007] EWCA Civ 330 confirmed that:

"It would only be in an exceptional case that an application to an Employment Tribunal will be struck out as having no reasonable prospect of success when the central facts are in dispute. An example might be where the facts sought to be established by [the Claimant] were totally and inexplicably inconsistent with the undisputed contemporaneous documentation."

Therefore, where the reason for dismissal was a central dispute between the parties, it would be very rare that that dispute could be resolved without hearing from the parties who actually made the decision. Only the employer actually knew what their decision was and so, to know what was in the mind of the employer, it was necessary for the ET to be in a position to hear and evaluate evidence. Only then would the ET know what the principal reason for dismissal was. Some decisions may be obvious, but the present case was not as simple as that. Even if it were to be accepted that there was no dispute about the Claimant physically moving the resident from the top of the stairs to his bedroom, she had argued that in context, this did not amount to misconduct. She supported that submission that in similar situations other employees had not been criticised for misconduct. Although the primary role for such submissions was likely to be in considering the question of whether the dismissal was fair or unfair, it was also relevant to whether such action may have been taken for some impermissible reason i.e. because the Claimant had made protected disclosures.

On that basis, the ET's decision could not stand as the EJ could not herself determine without hearing evidence, what the reason for dismissal was, as she purported to do. The appeal was allowed and the case remitted to a fresh ET.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator. His blog on new employment legislation can be found here.