England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
BAILII: [2012] UKEAT 0642_11_0907

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th March 2013

Lord Justice Jackson:

1. This judgment is in five parts, namely:

Part 1. Introduction,

Part 2. The facts,

Part 3. The claimants' application for costs protection,

Part 4. The law,

Part 5. Decision

Part 1. Introduction

2. This is an application by an employer to set aside an order which gives costs protection to two employees who are responding to an appeal from the Employment Appeal Tribunal to the Court of Appeal.
3. The Manchester College is the employer. It was respondent in proceedings before the employment tribunal and appellant in the Employment Appeal Tribunal. I shall refer to it as "the college".
4. The two employees are Mrs C Hazel and Mrs N Huggins. They were claimants before the Employment Tribunal and respondents in the Employment Appeal Tribunal. I shall refer to them as "the claimants". I shall refer to the Employment Appeal Tribunal as "the EAT".
5. I shall refer to Fulham Legal Advice Centre, which acts for the claimants, as "FLAC". I shall refer to DWF LLP, the solicitors for the college, as "DWF".
6. The regulations which are of particular importance to the claimants' claim and the college's defence are the Transfer of Undertakings (Protection of Employment) Regulations 2006. I shall refer to these regulations as "TUPE". Regulation 7(1) of TUPE provides:

"Dismissal of employee because of relevant transfer

Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the 1996 Act (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is—

(a)  the transfer itself; or

(b)  a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce."

In relation to costs issues which arise in the Court of Appeal, I shall set out later the relevant provisions of the Civil Procedure Rules. I shall refer to these rules as "CPR". After these introductory remarks, I must now turn to the facts.

Part 2: The Facts

7. The claimants are members of the academic staff at Her Majesty's Prison Elmley. Mrs Hazel commenced her employment on 1 February 2001. Mrs Huggins commenced her employment on 23 June 2005. The claimants' original employers were a company called A4e Limited.
8. In August 2009 the claimants' employment was transferred to the college pursuant to TUPE. This was part of a wider re-organisation under which the college became responsible for delivery of offender learning at 78 establishments in six different regions.
9. Following that re-organisation, the college became the employer of a very large number of staff. These comprised approximately 3,500 staff within offender learning and 3,000 other staff. The staff which the college inherited were employed on a variety of different contracts and pay scales.
10. Unfortunately, because of economic circumstances, public funding for further education has been substantially cut back since 2009. This has caused substantial financial difficulties for the college.
11. In the circumstances the college decided to introduce staff restructuring and efficiency savings, as well as making a number of redundancies. The restructuring and efficiency savings involved harmonising the contracts of all academic staff. Also, and contrary to assurances originally given, this involved requiring some staff to accept salary reductions. The college required both the claimants to accept new contracts of employment which involved substantial reductions in salary. Mrs Hazel was earning £26,849 per annum. She was required to accept a pay cut of 18.5 per cent. Mrs Huggins was earning £31,629 per annum. She was required to accept a pay cut of 13.2 per cent.
12. The claimants for a long time refused to sign up to the new contracts. Eventually, faced with the alternative of dismissal, they did so. Their trade union, having negotiated the best terms that it could achieve with the college, was advising members to accept the new contracts.
13. The claimants subsequently brought proceedings for unfair dismissal. The college defended this claim, relying upon regulation 7(1)(b) of TUPE. The college contended that its reason for terminating the claimants' previous contracts was "an economic, technical or organisational reason entailing changes in the workforce".
14. The employment tribunal at Ashford heard the claimants' claim on 26 and 27 July 2011. The claimants appeared in person. The college was represented by counsel. By a majority of two to one, the employment tribunal found in favour of the claimants. There was a remedies hearing on 9 December 2011. The employment tribunal ordered the college to re-engage the claimants at their previous salaries, and to reimburse the salary and pension contributions which the claimants had lost in the interim. As a result of that order, the claimants are currently still in the employment of the college.
15. The college appealed to the Employment Appeal Tribunal against the finding of unfair dismissal. At the hearing of this appeal, both parties were represented by counsel. Ms Mary O'Rourke QC appeared for the college. Mr Declan O'Dempsey, acting pro bono, appeared for the claimants. By a decision dated 3 September 2012, the EAT dismissed the college's appeal.
16. On or about 13 September 2012 the college served an appellant's notice seeking permission to appeal to the Court of Appeal against the EAT's decision. On 12 October 2012 the Court of Appeal granted permission to appeal.
17. When the claimants learnt that their case was proceeding to the Court of Appeal, they became fearful of their position. They learnt that they could be liable for adverse costs in the event that they lost in the Court of Appeal. Accordingly, the claimants applied for costs protection.
Part 3: The Claimants' Application for Costs Protection

18. On 25 October 2012 FLAC wrote to DWF requesting that the college agree not to claim costs if it was successful in the Court of Appeal. On 16 November 2012 DWF responded to the effect that the college would not give such an assurance.
19. On 22 November 2012 the claimants applied to the Court of Appeal to impose conditions on the grant of permission to appeal. The particular condition which the claimants sought was that the college would not apply for its costs of the appeal if it was successful. The parties exchanged written submissions on this issue. The claimants undertook that in the event that they were successful in the Court of Appeal, they would not make an application for costs against the college.
20. Elias LJ dealt with the matter on the papers. On 28 December 2012 he made an order which was issued on 7 January 2013 that the college may pursue its appeal only on condition that, if successful, it does not apply for costs in the Court of Appeal.
21. The college was aggrieved by Elias LJ's order. Accordingly, it applied to the Court of Appeal to reconsider and set aside that order at an oral hearing. That oral hearing took place yesterday. Ms O'Rourke represented the college, as she did before the EAT. Mr Adam Ohringer represented the claimants, acting pro bono. I am grateful to both counsel for their assistance.
22. I would summarise the claimants' arguments in support of Elias LJ's order as follows. i) CPR Rule 52.3(7) gives the court an unfettered discretion to impose conditions upon permission to appeal. Those conditions may include a requirement that the appellant does not seek costs if it wins. The court can exercise its powers under Rule 52.3(7) after permission to appeal has been granted.

ii) The claimants have succeeded twice so far in jurisdictions where they were not at risk of an adverse costs order, namely before the employment tribunal and the EAT. It is not just that they should now be forced to litigate at risk as to costs before the Court of Appeal.

iii) Both the claimants are ladies of modest means. They cannot risk incurring liability for the college's costs. If they do not have costs protection, they will have no choice but to abandon their claims and consent to the college succeeding on its appeal.

iv) In a case similar to this, Unison v Kelly [2012] EWCA Civ 1148, [2012] IRLR 951, the Court of Appeal made an order protecting the employees against the risk of an adverse costs order. The Court of Appeal should now follow Unison.

v) If Elias LJ's order stands, the claimants have undertaken not to seek costs against the college if they win.

vi) By the time this appeal is heard, the new rule 52.9A will have come into force. That rule is supportive of and provides a framework for the sort of order that the Court of Appeal made in Unison.

23. I would summarise the college's arguments in opposition to the order made by Elias LJ as follows:

i) The claimants are in the same position as any other litigants before the employment tribunal or the EAT. All such litigants run a small risk that they will end up in the Court of Appeal, which is a costs shifting jurisdiction. The rules should apply to the claimants in this case as they do to everyone else.

ii) CPR Rule 52.9 applies in this situation. The court can only impose a condition on permission to appeal if there is a "compelling reason" to do so. There is no such compelling reason in this case.

iii) Unison should be distinguished. That case involves special circumstances.

iv) The college is not bringing this appeal in order to establish some wider principle. It is simply seeking to defeat the claimants' claims, which it regards as wholly unmeritorious.

v) The college's costs will probably be £15,000 to £20,000. If the claimants lose, they can afford to pay this sum, for example by way of regular deductions from their salaries. The claimants remain in the college's employment. They can reasonably be expected to accept this costs risk.

vi) The proper time to consider costs is after, not before, the hearing of the appeal. If the claimants lose, the Court of Appeal may take a merciful view by awarding to the college only part of its costs, or possibly even no costs, as happened in The Governing Body of St Albans Girls' School and Hertfordshire County Council v Neary [2009] EWCA Civ 1214, [2010] 2 Costs LR 191.

vii) The new rule 52.9A is irrelevant, because it will not come into force until 1 April 2013. Furthermore, if that rule were inforce, the college would file evidence as its own financial difficulties and as to the claimants' financial resources. Both claimants earn more than the national average wage.

24. The college originally mounted an argument based on the claimants' delay in applying for costs protection. However, when the correspondence was examined during the hearing, Ms O'Rourke was constrained to admit that this was a "very, very small factor". In my view, there is nothing at all in this point.
25. Ms O'Rourke also sought to raise arguments as to the merits of her client's case and the reasonableness of the college's appeal. She pointed out that other employees have accepted the new contracts, and in some cases salary cuts. She submits it is unjust that the claimants alone should be in a privileged position.
26. I am simply not prepared to go into these matters. The claimants clearly have a respectable case, as reflected in the fact that they have won before the employment tribunal (admittedly by a majority) and the EAT. Likewise, the college has a real prospect of success in the Court of Appeal. That is why it has obtained permission to pursue a second appeal. This is a case which may go either way when it comes before the full court for determination. It is no part of my function at this stage to express a provisional view about the merits of either party's case.
27. The principal arguments which I must address are the claimant's six arguments and the college's seven arguments which I have enumerated above. Before I address those arguments, however, I must first review the law.
Part 4: The Law

28. CPR Rule 52.3 (7) provides:

"7) An order giving permission may –

(a) limit the issues to be heard; and

(b) be made subject to conditions."

CPR Rule 52.9 provides:

"(1) The appeal court may –

...

(c) impose or vary conditions upon which an appeal may be brought.

(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so."

29. In R (Corner House Research) v Secretary of State for Trade & Industry [2005] EWCA Civ 192, [2005] 1 WLR 2600 and a subsequent line of cases the Court of Appeal developed rules for protective costs orders in the context of judicial review. Such orders were made both at first instance and on appeal. In Eweida v British Airways PLC [2009] EWCA Civ 1025, the claimant, who was appealing from the EAT to the Court of Appeal, applied for costs protection on the basis that she was moving from a "no costs" jurisdiction to a costs shifting jurisdiction. The Court of Appeal dismissed her application, on the grounds that it did not have power to make a protective costs order or a costs capping order.
30. The outcome of Eweida, although correct on the law as it stood, was unsatisfactory for a number of reasons. Many individuals of modest means who litigate in "no costs" jurisdictions are often without legal representation. Indeed, the claimants in this case litigated before the Ashford Employment Tribunal without representation. It is usually unjust to subject such litigants to a risk of adverse costs when they proceed to a higher level. This is particularly so if they win at first instance and are dragged unwillingly into an appeal. It may also be unjust to impose a costs risk if the litigant loses at first instance, but has proper grounds for bringing an appeal. This was the case with Mrs Eweida.
31. Of course it is not always desirable to suspend costs shifting rules when a case comes up from a "no costs" jurisdiction. A classic example is an appeal from the EAT where one party is a well resourced employer and the other party is an employee or a group of employees backed by their union. Such a case may well involve issues of principle or practice on which substantial sums turn. Obviously, in cases like that, there is no reason to disapply the normal costs shifting rules.
32. It is against this background that the Rule Committee has recently promulgated the new rule 52.9A. This rule will come into force on 1 April 2013. It provides as follows:

"(1) In any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

(2) In making such an order the court will have regard to—

(a)   the means of both parties;

(b)   all the circumstances of the case; and

(c)   the need to facilitate access to justice.

(3) If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).

(4) An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise."

33. This new rule is intended to address the mischief which has emerged in cases such as Eweida. Where justice so requires, the court can exclude or limit costs recovery when a case passes from a "no costs" or "low costs" jurisdiction to a court with full costs shifting powers. The new rule will not only apply to appeals from the EAT to the Court of Appeal. The enactment of this rule constitutes implementation of recommendation 71 in the Review of Civil Litigation Costs Final Report (published in January 2010).
34. Over the last couple of years, courts proceedings under the present rules have sought to deal with the problems as best they can. In The Governing Body of St Albans Girls' School and Hertfordshire County Council v Neary an employee succeeded in his claim before the EAT, but lost in the Court of Appeal. In the particular circumstances of that case, the Court of Appeal departed from the normal approach of awarding costs to the successful party. The court made no order for costs. This is not a usual order and no litigant in the Court of Appeal can count upon receiving such merciful treatment if they lose.
35. In Unison v Kelly [2012] employees of a union made claims against that union in the employment tribunal. Self-evidently the employees could not have the backing of their union for this litigation. They won both before the employment tribunal and the EAT. The union obtained leave to the Court of Appeal. They employees then applied for costs protection. The Court of Appeal exercised its powers under CPR 52.9(1)(c) to impose a condition upon the permission to appeal that the union could not recover costs if it won. Once again, I am bound to say that the order made was not a usual one. The court can only retrospectively impose conditions upon permission to appeal under Rule 52.9(1)(c) if there is a "compelling reason" for doing so; see Rule 52.9(2). The employees succeeded in establishing a compelling reason in the particular circumstances of that case.
36. The position in which I find myself today is a difficult one. The old rules are currently in force. On the other hand, in two weeks time and before the present appeal reaches a substantive hearing, the new rule 52.9A will come into force. As from 1 April 2013, the claimants will be entitled to make an application under the new rule.
37. Having set out the legal framework, I must now address the parties' arguments and reach a decision in the present case.
Part 5. Decision

38. I do not accept the claimants' first argument, to the effect that the court can exercise its powers under CPR Rule 52.3(7) after permission to appeal has been given. The court can only exercise its power to impose conditions under that rule at the time when it is initially granting permission to appeal.
39. It follows from this analysis that the order which Elias LJ made and which the claimants seek to uphold must have been made under CPR Rule 52.9. I can only uphold that order if there was a "compelling reason" for making it.
40. Having weighed up the competing arguments of the claimants and the college, I conclude that there is a compelling reason for making that order. I have reached this conclusion for seven reasons:

(i)  The claimants have a claim which has been vindicated at two tribunal hearings and which may prevail in the Court of Appeal.

(ii)  I accept that the claimants will not pursue their claim any further unless they are protected against the risk of adverse costs.

(iii)  I reject the college's argument that a risk of incurring liability for adverse costs up to £20,000 is a risk which the claimants could reasonably be expected to accept.

(iv)  It is quite true that if the claimants lose in the Court of Appeal, the court may adopt a merciful approach in respect of costs. But when one looks at the general run of costs orders made by the Court of Appeal in employment cases, the claimants certainly cannot count on the court adopting such an approach.

(v) The claimants have undertaken not to apply for costs if they win in the Court of Appeal. Therefore, the order made by Elias LJ achieves a level playing field.

(vi)   I accept Ms O'Rourke's submission that the college has been facing financial difficulty following cutbacks in public expenditure. These difficulties have led to some redundancies, as well as the restructuring of staff contracts and pay scales. Nevertheless that does not put the college in a similar position to the claimants. The costs of a few sets of employment tribunal proceedings are part of the overall costs of restructuring which the college is necessarily incurring. For the claimants on the other hand, as teachers earning normal salaries in the further education sector, an order to pay the costs of proceedings in the Court of Appeal would be a disaster.

(vii) If I set aside Elias LJ's order, no useful purpose will be achieved. This is because the claimants will be able to make a fresh application in two weeks time under the new rule 52.9A. If the claimants apply as soon as that rule comes into force, they can hardly be criticised for delay. In my view such an application is bound to succeed. The present appeal is a classic case in which it will be appropriate for the court to make an order under rule 52.9A.

I do not rely upon any one of the above factors in isolation. Cumulatively, however, I am quite satisfied that they constitute a compelling reason for making and upholding Elias LJ's order of 7 January 2013.

41. I accept Ms O'Rourke's submission that Unison was a case with special features. The reasoning in that case cannot simply be transposed to this appeal. On the other hand, for the reasons set out above, I reach the same conclusion in this case as the Court of Appeal reached in Unison.
42. Let me now draw the threads together. I conclude that the claimants are entitled to costs protection as set out in the order of 7 January 2013. Accordingly the college's application to set aside that order is refused.

Order: Application refused