Costs are compensatory not punitive and reflect the "effect" of the conduct in question"

A successful appeal against costs involves an error in law by the employment tribunal

Barnsley Metropolitan Borough Council v Yerrakalva [2011] EWCA Civ 1255

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The Court of Appeal with Lord Justice Mummery presiding (also LORD JUSTICE PATTEN and SIR HENRY BROOKE) found that costs awards must be nuanced in line with McPherson v BNP Paribas. Misbehaviour such as lying does not lead to an automatic award of 100% by the guilty party.

• "an award of costs, being compensatory and not punitive in character, should reflect the "effect" of the conduct in question".
• "The actual words of Rule 40 are clear enough to be applied without the need to add layers of interpretation."
• The ET costs order was reinstated but varied to 50% to reflect the culpability of the claimant
• An appeal against a costs order will fail unless the law was misinterpreted or the circumstances demand this (a very high threshold to cross)
• Costs awards are the exception rather than the rule
• Costs appeals are becoming more frequent (but not necessarily more successful)

The claimant Mrs A Yerrakalva, ethnically indian, in 2005 brought race, sex and disability discrimination claims and a victimisation claim against Barnsley Metropolitan Borough Council where she worked as a school teacher. The sex and disability discrimination claims were subsequently withdrawn by the claimant although the victimisation claim and unfair dismissal claim is ongoing. The ET having found that the claimant lied to it ordered the claimant to pay the Council's costs described by the Court of Appeal as "a staggering £92,500".

The claimant appealed to the Employment Appeal Tribunal (EAT) against the costs order and the President Underhill J set aside the costs order on 8 December 2010. The Council appealed the EAT decision.

The Court of Appeal repeated that following a tribunal hearing, costs unlike in the courts do not 'follow the event' with the unsuccessful litigant footing the legal bill for the litigation so costs orders are the exception rather than the rule with there being "a strong, soundly based disinclination in the appellate tribunals and courts to upset any exercise of discretion at first instance. In this court permission is rarely given to appeal against costs orders. I have noticed a recent tendency to seek permission more frequently. That trend is probably a consequence of the comparatively large amounts of legal costs now incurred in the ETs."

An appeal against a costs order will fail "unless it is established that the order is vitiated by an error of legal principle, or that the order was not based on the relevant circumstances". Something that the CA felt was not the case here as the claimant had lied, was culpable and was therefore liable to suffer a costs order.

"An appeal will succeed if the order was obviously wrong. As a general rule it is recognised that a first instance decision-maker is better placed than an appellate body to make a balanced assessment of the interaction of the range of factors affecting the court's discretion. This is especially so when the power to order costs is expressly dependent on the unreasonable bringing or conduct of the proceedings. The ET spends more time overseeing the progress of the case through its preparatory stages and trying it than an appellate body will ever spend on an appeal limited to errors of law. The ET is familiar with the unfolding of the case over time. It has good opportunities for gaining insight into how those involved are conducting the proceedings. An appellate body's concern is principally with particular points of legal or procedural error in tribunal proceedings, which do not require immersion in all the details that may relate to the conduct of the parties".

The costs order was made by the ET under Rule 40 (after a party's behaviour was judged vexatious, abusive, disruptive or otherwise unreasonable, or the bringing or conducting of the proceedings by the paying party has been misconceived." )after the claimant withdrew her disability and race discrimination claims against the Council ostensibly owing to the claimant's feeling worn down by conducting the case in person and also by what she felt was oppressive and unreasonable conduct of the Council's representative and the complexity of the case.

The CA noted that the Pre-Hearing Review had been adjourned after the Employment Judge fell ill and that the council had been over zealous in prosecuting the case. It had run up unreasonable costs.

The ET correctly stated that the absence of a determination of the claim on its merits did not preclude a ruling by it on costs. But the tribunal wrongly quoted Macpherson v. BNP Paribas(London Branch)[2004] IRLR 558 when stating that "discretion is not dependent upon the existence of any causal nexus between the conduct relied upon and the costs incurred".

But Macpherson who had made misleading statements about his medical condition in support of an application to adjourn the hearing of an unfair dismissal claim that was withdrawn had his appeal allowed by the CA on the ground that the claimant's unreasonable conduct was only in relation to an adjournment which was not justified on the misleading medical grounds relied on by him, and not in relation to the whole proceedings (paragraphs 39 and 40 of Macpherson v. BNP Paribas).

"In my judgment, rule 14(1)(Now rule 40) does not impose any such causal requirement in the exercise of the discretion. The principle of relevance means that the tribunal must have regard to the nature, gravity and effect of the unreasonable conduct as factors relevant to the exercise of the discretion, but that is not the same as requiring BNP Paribas [the respondents] to prove that specific unreasonable conduct by Mr Macpherson caused particular costs to be incurred".

The EAT believed that as the whole blame for lack of progress of the case was not the claimant's, similarly the claimant should not shoulder all the costs ( The CA agreed with this point, but not as far as the claimant being allowed to get off scot free after having lied to the tribunal ).

The EAT doubted that the claimant's lies constituted an abuse of process and quashed the ET's order as "the nature, gravity and effect" of the claimant's conduct (McPherson) had not been taken into account. It did not follow that once an abuse of process was found it a 100% order should automatically follow.

The EAT also believed that "effect" of the claimant's lies until the PHR was zero as the claimant lied at the PHR and then withdrew the claim.

"The actual words of Rule 40 are clear enough to be applied without the need to add layers of interpretation, which may themselves be open to differing interpretations. Unfortunately, the leading judgment in McPherson delivered by me has created some confusion in the ET, EAT and in this court. I say "unfortunately" because it was never my intention to re-write the rule, or to add a gloss to it, either by disregarding questions of causation or by requiring the ET to dissect a case in detail and compartmentalise the relevant conduct under separate headings, such as "nature" "gravity" and "effect." Perhaps I should have said less and simply kept to the actual words of the rule."

"The vital point in exercising the discretion to order costs is to look at the whole picture of what happened in the case and to ask whether there has been unreasonable conduct by the claimant in bringing and conducting the case and, in doing so, to identify the conduct, what was unreasonable about it and what effects it had. The main thrust of the passages cited above from my judgment in Mc Pherson was to reject as erroneous the submission to the court that, in deciding whether to make a costs order, the ET had to determine whether or not there was a precise causal link between the unreasonable conduct in question and the specific costs being claimed."

Next, on the evidence before the ET, I agree with the Council that the ET was entitled to proceed to a decision on the Council's costs application on the basis that the claimant's conduct of the proceedings was unreasonable and that it had jurisdiction under Rule 40 to make an order for costs against her. When, as here, the case has been withdrawn before it has run the full course to a final conclusion on the merits, difficulties on costs applications are bound to arise from the absence of findings of credibility, the absence of findings of disputed facts and the absence of findings on issues of liability. The Tribunal or court has to do the best it can with such material as it has in a case that has never been fully tried.

The CA found that there was no error of law in the ET's finding of unreasonable conduct by the claimant, that the claimant's unreasonable conduct regarding her evidence made it reasonable for the Council to challenge the credibility of other aspects of her evidence and this finding justified an order for costs although not a 100% of those costs in light of the ET's criticisms of how Council representatives pursued the case.

The EAT was therefore right to hold that there was an error of law by the ET regarding the costs although the EAT was wrong to simply quash the costs order. The CA reinstated the costs order whilst varying it to 50% of the costs "reasonably and necessarily incurred by the Council".. "in relation to the Pre-Hearing Review and the subsequent costs hearings in the ET".

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