Neutral Citation Number: [2011] EWCA Civ 1332
Case No: A2/2008/1910
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
HHJ McMULLEN QC 
UKEAT/0140/08ZT
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17/11/2011
Before :

LORD JUSTICE MUMMERY
LORD JUSTICE STANLEY BURNTON 
and
LORD JUSTICE PATTEN
- - - - - - - - - - - - - - - - - - - - -
Between :

	DEAN & DEAN (a firm) & ORS	Appellant
/defendant	
	- and -		
	SOFIA DIONISSIOU-MOUSSAOUI	Respondent/claimant	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

MR RICHARD POWER (instructed by Saunders Bearman) for the Appellant
MR DANIEL TATTON BROWN (instructed by DWFM Beckman) for the Respondent

Hearing date: 25th  October 2011
- - - - - - - - - - - - - - - - - - - - -
Judgment

Lord Justice Mummery:
The issue
1.	This is another appeal about costs in an employment tribunal (ET), a topic very recently re-visited by this court in Barnsley MBC v. Yerrakalva [2011] EWCA Civ 1255.
2.	The issue is whether the ET erred in the exercise of its discretion when it refused, for reasons stated in its decision sent to the parties on 1 October 2007, to make a costs order against the claimant in her proceedings for discrimination, sex harassment, unfair dismissal and related claims. The majority of the claims were either struck out on jurisdictional grounds or withdrawn, so that the ET never reached the substantive stage of investigating their factual or legal merits.  
The appeal
3.	The claimant, Ms Dionissiou-Moussaoui, was a solicitor employed in the Family Department of the defendant firm of solicitors, Dean & Dean (the firm) from 1 March 2005 until 25 August 2006. She then resigned in circumstances on which she based a claim of unfair constructive dismissal and other employment related claims. She is the respondent to this costs appeal.
4.	The sole equity partner in the firm and the principal target of serious allegations of sex discrimination and harassment was Dr Mireskandari. Three other members of the firm, who were salaried partners, were joined as parties to the proceedings. They have now decided not to pursue their costs appeal to this court. It is therefore dismissed. That leaves the appeal by Dr Mireskandari and, so far as it remains in the picture since the events described in paragraph 6 below, by the firm.
The appeal  
5.	This appeal is linked to another appeal (Case No B2/2008/1146) against an order made in a different action between the same parties in the County Court. That case was about disputed commission arrangements between the firm and the claimant.  A separate judgment by Stanley Burnton LJ in the other appeal sets out the factual background to the falling out between the parties.  This Court is handing down the judgments in each appeal at the same time.      
6.	On 14 July 2008 the Employment Appeal Tribunal (EAT) dismissed appeals by the firm and the individual parties against the decision of the ET. Serious delays then occurred, as the Solicitors Regulation Authority intervened on the firm on suspicion of dishonesty on the part of Dr Mireskandari. 
7.	On 8 December 2008 Hooper LJ gave permission to appeal against the refusal of the costs application. He did so on the basis that it was arguable that the ET did not apply the appropriate test and that the refusal to order at least some of the costs was perverse. He took the precaution of adding that, even if the appeal were to succeed, he had doubts whether the costs ordered would come anywhere near the costs claimed to have been incurred.
8.	A direction was later given for this appeal to be heard with the related appeal  from the order made by HHJ McMullen QC in the Central London Civil Justice Centre on 25 April 2010.
Background
9.	Having provided a Grievance Letter on 13 November 2006, to which the firm served a Reply on 14 December 2006, the claimant began two sets of proceedings against the firm, Dr Mireskandari and the three salaried partners (Mr Bell, Mr Edwards and Mr Hoffmann). The first proceedings were commenced on 22 February 2007 and the second in identical terms on 31 May 2007.  The claimant raised substantive matters in the proceedings that she had not previously raised in the Grievance Letter. 
10.	On 14 June 2007 the ET made various orders at a Case Management Discussion (CMD). Soon after that in October 2007 the claims against the individuals, other than Dr Mireskandi, were dismissed on withdrawal by her.  A dismissal order was made by the ET on 13 November 2007.
11.	A Pre-Hearing Review (PHR) took place on 6 and 7 September 2007. It concentrated on issues of (a) non-compliance by the claimant with the grievance procedure requirements in s.32 of and schedule 2 to the Employment Tribunal Act 2002 and the Dispute Resolution Regulations then in force and (b) the statutory time limits for the claims and the ET’s jurisdiction to extend time.
12.	The ET dismissed the majority of the remaining claims for the reasons stated in the decision sent to the parties on 1 October 2007. The only surviving claims were for holiday pay and for victimisation.  
13.	On 7 September 2007 the firm, Dr Mireskandari and the salaried partners  sought an order for costs against the claimant, her claims having , for the most part, been struck out or withdrawn by that time. The application was made on the basis of alleged unreasonable conduct of the proceedings by the claimant and on the ground that the claims struck out on jurisdictional grounds were misconceived. The claimant had been warned at an early stage that costs would be claimed against her. The costs of the firm and Dr Mireskandari were estimated at £95,783.61. The costs of the three salaried partners were estimated at £4,065.
14.	The ET refused the application for reasons in the decision sent to the parties on 1 October 2007 and unsuccessfully appealed to the EAT.
15.	As for the costs of the salaried partners, the ET said that it was difficult to see how they would have needed separate legal advice, as the issues were largely the same as in the case against the firm and there was no unreasonable conduct on the part of the claimant. The ET made no order for costs.
16.	As for the costs of the other claims against the firm and Dr Mireskandari that were struck out at the PHR as having no reasonable prospect of success or as misconceived, the ET decision stated that the Chairman was not satisfied that she should exercise her discretion to order costs. The following paragraph contained the reasons for refusing to make an order:
“3.3 The Chairman considered the application for costs under rule 40(3) of the Employment Tribunal Rules of Procedure 2004. The application is made on the grounds that those parts of the claims that were struck out had no reasonable prospect of success or were misconceived. This is a ground for making an order for costs and therefore the Chairman must consider the application and may make an award for costs. The Chairman took into account that she had struck out a large part of the Claimant’s claim for the reasons given. However, it was clear that this was a case where both parties would contest each allegation. The Chairman noted that there had already been a warning at the case management discussion concerning the need to take into account the overriding objective. The issues before the Chairman on this occasion had not been easy, in a large part because of the unsatisfactory nature of the dispute resolution regulations. In addition part of the Claimant’s claim in relation to victimisation will proceed to a hearing. The Chairman made no comments on the amounts set out in the Respondents’ schedule.”         
17.	On appeal the EAT held that the ET did not err in principle, or omit a relevant, or consider an irrelevant, factor when dismissing the applications for costs. HHJ McMullen QC said that the ET looked at the relevant rule 40(3) which conferred a discretion; correctly noted that the claims would be contested, though the truth of a large number of matters would never be known because there had been no trial; correctly expressed the view that the issues were not easy, there having been a succession of cases showing that the Dispute Resolution Regulations were not easy; and properly took account as a relevant factor of the fact that the victimisation claim was not struck out and was going to a hearing; and the matter of the claimant’s ability to pay was not the subject of evidence or explored either in the ET or in the EAT.    
Appellant’s submissions
18.	It was accepted by counsel for the appellants that normally costs are not awarded in the ET and that appeals in relation to a decision not to award costs are very rare, costs being a discretionary matter.  
19.	It was submitted, however, that this case is very different from the ordinary case. Very substantial costs have been incurred in dealing with scandalous and salacious allegations of sexual misconduct against Dr Mireskandari. The damaging and serious allegations were not raised by the claimant, who is an experienced solicitor, at the time of her resignation, or in the statutory procedures which then had to be followed prior to the commencement of claims in the ET. It is claimed that substantial costs were incurred in unnecessary research and resistance of unjustified claims that were dismissed either without investigation or on withdrawal by the claimant. This was a case where the claimant’s conduct justified an order that the costs should follow the event.         
20.	It was submitted that the ET did not adequately address the costs application in the overall context of the conduct of the litigation by the claimant, who had been warned at an early stage that costs would be sought against her.  The decision of the ET took into account irrelevant considerations and excluded relevant considerations, in particular, the context of the case, the nature of the allegations and the way the allegations of sexual harassment were made without following the statutory grievance procedures. The timing and maintenance of those claims in the face of obvious defaults as to time limits and grievance procedures was unreasonable, vexatious and abusive and her claims were misconceived. There was no proper analysis by the ET of the facts and no judicial application of the discretion conferred by the Rules. In particular, the fact that the victimisation part of the case might proceed did not render the parts that were not proceeding, because they were struck out or withdrawn, altogether immune from a costs claim.   
21.	In brief, the ET failed to take into account all the relevant circumstances, wrongly exercised its discretion and reached a perverse conclusion.    
Discussion and conclusion
22.	As happened in Barnsley, this is a case of three rounds of legal argument about costs in the ET. Even more costs have been run up on the sort of appeal that is doomed to fail, unless it is shown that the discretion appealed was flawed by error of legal principle, or by failure to give proper consideration to all the relevant circumstances, or was obviously wrong.
23.	There was no error of legal principle by the ET:  express reference was made to the relevant rule, so that the ET was fully aware of the nature of the discretion and the specified conditions for its exercise.
24.	The ET could hardly fail, after a PHR lasting 2 days, to be fully aware of the nature and context of the claims, of the fact that most of them were struck out for being out of time or by reason of non-compliance with the Dispute Resolution Regulations and of the difficulties that claimants, tribunals and courts had encountered in the application of those complex, unsatisfactory and since repealed Regulations.
25.	In the exercise of its discretion it was relevant for the ET to take account of the fact that (a) the victimisation claim would continue against Dr Mireskandari and (b) if the other matters had proceeded to a hearing, they would have been contested. In that event the ET would have had to decide whether the serious allegations against Dr Mireskandari were true or false. However, as the claims were struck out on jurisdictional grounds, there never would be any testing of the evidence, or determination of the disputed facts, or the merits of those claims at a substantive hearing before the ET. In those circumstances it was not possible for the ET to conclude that the contested claims were false, or were, for that reason, misconceived, frivolous or vexatious.
26.	In those circumstances the ET had to do the best that it could with what it did know. In my view, it did so fairly and adequately. This court is not entitled to interfere with its discretion, even if, had it been exercising the ET’s discretion, this court might have analysed the situation of the parties in greater depth, or given more detailed reasons for its decision, or acceded to the application to the extent of making an order for payment of some of the costs.       
Result 
27.	I would dismiss the appeal. It has not been established that the ET’s refusal to exercise its discretion to order the claimant to pay costs was contrary to legal principle, or failed to take account of all the relevant considerations factors, or was plainly wrong.    
Lord Justice Stanley Burnton: 
28.	I agree.
Lord Justice Patten:
29.	I also agree.