The "nature, gravity and effect" of misconduct must be taken into account when deciding whether to make (and if so the amount of) a costs award
Lying to the tribunal does not lead automatically to a costs order. The costs incurred by this behaviour must be investigated.
Costs awards are not intended to be punitive but compensatory and should not have a default of 100%.
A tribunal is not empowered to punish a claimant for wrongs committed elsewhere such as lying to another tribunal
Even though specific unreasonable behaviour doesn't need to be linked with particular resulting costs any award of costs must broadly reflect the effect of the conduct in question and responsibility for costs incurred.
The cases following Daleside Nursing Home Ltd v Matthew were distinguished as the lies in this case did not establish that the claim was misconceived from the start.
A claimant's decision to withdraw the claim should not in itself be taken to imply the claim was misconceived (obiter).
This judgement by Mr Justice Underhill the president of the EAT is important in going some way to counterbalance some recent costs decisions such as Investigo v Keane that might have been interpreted by employment tribunals as a hardening of the position tribunals should take when faced with claimants who are found lying. The impression was beginning to be gained that should a claimant be caught out then he was fair game. This decision stresses that the employment judge even when minded to award costs must not take an 'all or nothing' position but weigh the extent of culpability of the claimant for costs incurred by the respondent, whilst at the same time not acting to deter claimants from withdrawing from cases when they feel it appropriate.
The Claimant withdrew her claim under the Race Relations Act 1976 and the Disability Discrimination Act 1995 at an early stage (of the pre hearing review [PHR]). The respondent then applied for costs under rule 40 of the Employment Tribunal Rules and Procedure paras (2) and (3) of rule 40. The employment judge found that the claimant had lied on two occasions to the tribunal (and also earlier to the DWP when making a claim for Disability Living Allowance [DLA]) and seeing this as an abuse of process made a costs order against the claimant Mrs Annapoornamma Yerrakalva for 100% costs to be assessed by a costs judge in the County Court (the judge being unsure how to proceed in the face of an outrageous bill of £92,500, his own powers of award in any case being limited to £10,000).
The relevant paragraphs of Rule 40 are:
"(2) A tribunal or Employment Judge shall consider making a costs order against a paying party where, in the opinion of the tribunal or Employment Judge (as the case may be), any of the circumstances in paragraph (3) apply. Having so considered the tribunal or Employment Judge may make a costs order against the paying party 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." The Respondent's barrister in this case, a Mr. Legard believed that the claimant was all of these things! A number of reasons made to the employment judge to support this such as making false claims (the case not having been heard it was not possible to know)and failing to progress the case were rejected by him.
Judge Underhill stressed (as obiter dictum i.e. not as a binding part of the judgement) that just because a claimant withdraws this should not in itself give rise to any presumption that the case was misconceived or even "in itself giving grounds for an award of costs." Were this to happen it would be, "such a rule would be a powerful disincentive to parties in an appropriate case taking a sensible and responsible decision to withdraw."
HJ Underhill took issue with the employment judge's findings regarding the second lie and which probably led to the finding that there had been an abuse of process. That the claimant had lied was a given as she said in support of her DLA claim that she was a sportswoman, and later to the tribunal that she wasn't. That she wasn't was most likely the truth and she was therefore being truthful to the tribunal (other than the lie, not referred to by the judge, when the claimant claimed she had given the same information to both the ET and the DWP).
Rather than the claimant's lies being an abuse of process it was described in the EAT as unreasonable conduct for the purposes of rule 40 (3). The judge should however have determined the amount of any award according to "the nature, gravity and effect" of that conduct ( Mummery LJ in McPherson v BNP Paribas  ICR 1398).
The finding of an abuse of process should not lead automatically to a 100% order. The judge might have misunderstood McPherson where Mummery LJ says, "the exercise of the Tribunal's discretion is not dependent upon the existence of any causal nexus between the costs relied upon and the costs incurred".
Whilst Mummery LJ said there is no need, "to prove that specific unreasonable conduct by [the potential paying party] caused particular costs to be incurred", Judge Underhill here explains this to mean that, "there does not have to be a precise causal relationship between the unreasonable conduct and the costs claimed, any award of costs must, at least broadly, reflect the effect of the conduct in question. (It)
follows from the principle that the purpose of an award of costs under rule 40 is compensatory and not punitive"( Lodwick v London Borough of Southwark  ICR 884). That the majority of the costs were incurred prior to the PHR should have moderated the award of costs.
The ET did not find that the claimant was not disabled or that the claim was misconceived from the start. The case was distinguished from other cases such as Daleside Nursing Home Ltd. v Matthew (UKEAT/0519/08), Dunedin Canmore Housing Association Ltd v Donaldson (UKEAT/0014/09) and even Nicolson Highlandwear Ltd v Nicolson  as lies told at the PHR did not cause any loss to the Respondents, did not affect, "anything that occurred up to the moment of withdrawal" and therefore did not warrant a full costs award.
Judge Underhill in allowing the appeal and quashing the costs order doubted that, "any lie told to the Tribunal was very grave. The lies that may have been told in support of the benefit claim would be another matter; but it was no part of the Tribunal's job to punish the Appellant for those."
A further request by the respondent for an order under rule 34 of the Employment Appeal Tribunal Rules 1993 (as amended) on the basis of unreasonable conduct of the appeal regarding the bundle was rejected because both sides were responsible for problems and because the additional costs caused by delay were marginal.