United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	ANTONY SENDALL (of Counsel) Instructed by: HLW Commercial Lawyers LLP Commercial House Commercial Street Sheffield S1 2AT
For the Respondents	EDWARD LEGARD (of Counsel) Instructed by: Legal Services Division Borough Secretary's Department Barnsley Metropolitan Borough Council PO Box 600 Barnsley S70 9EZ


 


SUMMARY

PRACTICE AND PROCEDURE – Costs

Discrimination claim withdrawn – Judge awards Rs 100% of their costs, not on the basis that the claim had been misconceived or unreasonably pursued from the start but because he held that C had lied in two specific respects in the course of the introductory processes prior to the withdrawal

Held, allowing the appeal, that in the absence of any reasons to suppose that the lies in question either caused any loss or demonstrated that the claim was misconceived no award was justified - McPherson v BNP Paribas discussed


 


THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)

1. In August 2005 the Appellant commenced proceedings against the Respondents in the Sheffield Employment Tribunal alleging discrimination contrary to the Race Relations Act 1976 and the Disability Discrimination Act 1995. For present purposes all that I need say about the nature of the claims is that the disability from which the Appellant claimed to suffer consisted of damage to her neck or spine causing her serious pain and difficulty in movement. The damage in question was pleaded to have been suffered as a result of an accident at work on 4^th November 2003.
2. The Appellant only intermittently had professional representation and the interlocutory process became very involved. In August 2007 there was a three-day Pre-Hearing Review, before Employment Judge Williams, which was concerned inter alia with the issue of the Appellant's alleged disability. That PHR had to be adjourned part-heard, but Judge Williams then became seriously ill and it was eventually decided that it would have to be re-started afresh. Before that could occur, however, the Appellant wrote to the Tribunal on 18^th February 2008 withdrawing her claim.
3. The Respondents applied to the Tribunal for an order for costs. The application was heard by Judge Williams, who had by that time recovered from his illness. The hearing was initially fixed for one day, but a further hearing was ordered by the Judge in order to hear detailed evidence as to the Appellant's means. By a Judgment and Reasons sent to the parties on 4^th June 2009 he made an order that the Appellant pay the Respondents' costs for the entirety of the proceedings from August 2005 to the date of the second costs hearing on 6^th April 2009, the amount of such costs to be the subject of detailed assessment in the County Court. The Appellant appeared in person at the hearing: the Respondents were represented by Mr. Edward Legard of counsel.
4. This is an appeal against that decision. The Appellant has been represented by Mr. Antony Sendall of counsel and the Respondents again by Mr. Legard.
5. The Respondents' costs application was made under rule 40 of the Employment Tribunal Rules and Procedure. Paras. (2) and (3) of rule 40 read as follows:

"(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 Judge in his Reasons recorded the Respondents as putting their case on the basis that the Appellant had acted vexatiously, abusively, disruptively or otherwise unreasonably. Mr. Legard tells me that it was also submitted that the bringing of the case was misconceived; but in the event it does not matter precisely how it was put.

6. The Judge recited at para. 17 of the Reasons six numbered contentions on which the Respondents relied in support of their overall case. Most of them he went on specifically to reject, and I need not set them out in full. I should, however, record the following passages:

(a) The Judge expressly declined to attribute blame to the Appellant for the problems in what he described as a "the progress of the case". At para. 18 he said:

"I am frankly not prepared to cast the bulk or any particular proportion of the blame insofar as the progress of the case (or the lack of) is concerned on Mrs. Yerrakalva's shoulders. She has throughout, it seems to me, tried to oblige as best she could in that respect in often difficult circumstances for herself …. ."

Between paras. 23 and 27 he went on to record that the Respondents' in-house solicitor, Mr. Hirst, had been perceived by the Appellant and her representatives (when she had them) as having conducted the case in an unduly aggressive manner. Although he does not at that point associate himself in that perception, he does elsewhere express some, though muted, criticism of Mr. Hirst (see (c) below and his observations about the quantum of the costs claimed – para. 13 below).

(b) Para. 19 of the Reasons reads as follows:

"The Respondents suggest that she had brought all this upon herself by making false claims. That, of course, we do not know because the claim has been withdrawn and at no stage have we heard the whole of the evidence relating to the case itself."

(c) At para. 32 of the Reasons, effectively by way of summary of the above points, the Judge says this:

"I cannot conclude as the Respondents suggest that I should, that the Claimant's claim never had any merit from the outset or that she should bear all the blame for protracting it and delaying proceedings. I think the Respondents have not dealt with this as well as they might have done and have made rather more of a meal of it than reasonably or necessarily should have been the case."

It is worth emphasising, albeit in passing, that the Judge did not treat the fact that the Appellant had withdrawn as constituting, or tantamount to, an acknowledgment that her case was misconceived or otherwise as in itself giving grounds for an award of costs. While such a conclusion may well be appropriate in the circumstances of a particular case, it is important that there should be no general rule to this effect, not least because such a rule would be a powerful disincentive to parties in an appropriate case taking a sensible and responsible decision to withdraw.

7. The reason why, notwithstanding those favourable findings to the Appellant, the Judge made the order that he did appears at paras. 30-32 of the Reasons. In summary, he held that the Appellant told two lies in the course of the abortive PHR in August 2007. In order to understand what those lies consisted of it is necessary to set out some background, as follows:

(1) It was the Respondents' case in the substantive proceedings, as regards the disability discrimination claim, that the Appellant was not suffering from any disability and that the injuries which she alleged were exaggerated, if not positively fabricated. It appeared from documents obtained on disclosure that she had suffered, or claimed to have suffered, a number of accidents – mostly road traffic accidents – on either side of the incident of November 2003, and that she had made claims for personal injury arising out of one or more of those accidents. It also appeared that she had made a claim for Disability Living Allowance in May 2006. The associated paperwork, and her medical notes, showed some discrepancies; and it is clear that some of the doctors treating her had reservations as to the nature and extent of any physical injury suffered. In her claim for DLA the Appellant said, quite explicitly, that prior to the onset of her problems "I used to go to the gym, running, tennis, badminton"; but that "I now cannot do any of these things".

(2) At the PHR in August 2007 the truthfulness of that statement in the DLA application was challenged. It was the Respondents' case that the Appellant had not been an active sportswoman at any relevant time. The contention that she had lied in this regard was clearly material to the Respondents' case that she was exaggerating her symptoms. The Appellant fully accepted that she had never done any of the things claimed in the DLA application (beyond playing in the garden with her children), but she said that what appeared to be her claim that she had done so was a misunderstanding.

(3) It also appears to have been in issue at the PHR whether the Appellant had made any claims for personal injury arising out of the road traffic accidents referred to above. It was her case that she had not. Presumably the relevance of this question was to the possibility that she had a motive to exaggerate her injuries.

8. Against that background the lies which the Judge found that the Appellant told were twofold.
9. First, at para. 30 of the Reasons the Judge said this:

"Mrs. Yerrakalva certainly did say at one stage of the proceedings that she was not pursuing any personal injury claim when clearly she was accordingly to letters which were disclosed from two firms of solicitors who were at various stages acting for her. I find in this instance that Mrs. Yerrakalva was not being frank with the Tribunal"

Mr. Legard submitted that "not being frank" is a euphemism for lying. I agree. It is not clear at precisely what stage the false statement is said to have been made, though it was apparently in the course of the interlocutory processes; but it is unnecessary to resolve this since he made it clear (see below) that this was not the principal point on which he relied.

10. Secondly, at para. 31 of the Reasons the Judge referred to the evidence about the DLA claim (and two similar statements recorded by a Dr. Darling who had made a medical report on the Appellant). He then said:

"At the Tribunal hearing in August 2007 she had said otherwise, i.e. that she could not swim or play sport, that she had never played tennis or badminton save with the children. She then went on to say "I've never played sport, I've not even played badminton with the children". She said she did not know how to play badminton and that, she said was the truth. Challenged about this subsequently Mrs. Yerrakalva had been at pains to suggest that this was a misunderstanding. She had not played any of the sports in any serious or competent way. What she had done was merely to play with her children, e.g. in the garden. This, she said, was what had possibly led to any misunderstanding. I have thought about this carefully and cannot in light of what is recorded as her evidence at the Pre Hearing Review on 16 August 2007 other than conclude that she had said one thing when testifying here and quite another when she was applying for benefit. I feel I have, inevitably, in light of what I have seen and heard to come to that conclusion."

The Judge said that it was "[this] matter which most concerned me".

11. Having made those two findings, the Judge at para. 32 recapitulated his rejection of the Respondents' other criticisms (see para. 6 above), but he went on at para. 33 to explain why he was making a costs order. He said:

"However, during the course of the proceedings, i.e. during the Pre Hearing Review in August 2007, she said things which I believe not to have been truthful."

He then gives some reasons why the Appellant's claim that she had been misunderstood could not be accepted. He continued:

"I am quite satisfied that she had understood what was being asked of her and that she has not been truthful with the Tribunal. That I regard as being an abuse of the process and that is why I have decided that it is appropriate to make a costs order. "

12. I should note at this stage a puzzle about the Judge's findings as regards the second lie. Given that the Appellant was found to have said one thing in support of her DLA claim and another to the Tribunal, the natural understanding would be that the lie had been on the former occasion. There were obvious reasons why it was in the Appellant's interests to exaggerate the effect of her pre-injury activities in support of her claim for benefit, and it is thus surely much more likely that she was being truthful when she subsequently told the Tribunal that she had not been an active sportswoman at any material time – in other words, that the lie was to the benefit authorities and not to the Tribunal. But the Judge explicitly held to the contrary: he says at para. 33 that the Appellant "has not been truthful with the Tribunal" – and indeed such a finding appears to be necessary to his conclusion that there had been an abuse of process. The answer could be that the lie consisted not in the substantive statement about the Appellant's pre-injury abilities but in her apparent assertion that she had never said anything different in her DLA application; but that is not what the Judge says.
13. Having found those lies, and that they constituted an abuse of the process, the Judge proceeds to consider the Appellant's means. He found at para. 37 of the Reasons that:

"the claimant has the means to meet a costs order though it may well be that she has obligations outside this country legal and/or moral to repay debts, the sums of which would, exceed the value of the properties she owns."

He then, finally, considered the quantum of the costs award. The Respondents had apparently quantified their costs at over £92,500. The Judge observed that that figure was "highly exorbitant" and that the PHR in August 2007 had been unnecessarily extended by "more than a slight element of overkill on the part of the Respondents". He described them as having acted "over vigorously" and as having run up a bill which was quite disproportionate to the issues at stake. Despite those observations, however, he was not able to say that the costs properly claimable fell below the limit of £10,000 identified at rule 41 (1) (a), and he accordingly directed a detailed assessment in the County Court.

14. The effect of the Judge's order is that the Appellant will have to pay the entirety of the Respondents' reasonable costs of defending the proceedings up to their final withdrawal. He plainly intended that the Costs Judge should take into account his strictures when assessing what part of the costs incurred had in fact been reasonable (and indeed that point is made explicitly at para. 2 of the formal Judgment); but, subject to that, this was a "100% order".
15. In my judgment the award of costs in this case cannot be sustained. My reasons are as follows.
16. I will assume, despite the problem noted at para.12 above, that the Claimant lied at the PHR in the two respects identified by the Judge. It may be debatable whether that constituted an abuse of process but it was certainly unreasonable conduct for the purposes of rule 40 (3). But it was necessary for the Judge in deciding whether to make an award, and if so what the amount should be, to take into account "the nature, gravity and effect" of that conduct: see the passage from the judgment of Mummery LJ in McPherson v BNP Paribas [2004] ICR 1398 set out below. The Judge did not attempt to carry out that exercise. He seemed to think that once he found an abuse of process, then – subject to the question of means – he ought to make a 100% order. It may be that he was misled by a misunderstanding of another aspect of Mummery LJ's judgment in McPherson, since he referred to it in the course of his recitation of the relevant law (see para. 12 of the Reasons), saying that it established that "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". It is necessary to see exactly what, and in what context, Mummery LJ said. At para. 39 of his judgment (p. 1407) he referred to a submission by counsel for the potential paying party that it was a requirement that an award should only be made under the predecessor of rule 40 (which was, for present purposes, in substantially identical terms) in respect of costs "'attributable to' specific instances of unreasonable conduct". He then said at para. 40:

"In my judgment, [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 [the party claiming costs] to prove that specific unreasonable conduct by [the potential paying party] caused particular costs to be incurred [my emphases]."

Thus, while 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. That indeed inevitably follows from the principle that the purpose of an award of costs under rule 40 is compensatory and not punitive: see, e.g., Lodwick v London Borough of Southwark [2004] ICR 884, per Pill LJ at para. 23 (p. 892B).

17. If the Judge had had regard to the effect of the Appellant's lies, he could not have concluded that she ought to pay 100% of the costs of the proceedings, since many, perhaps most, of those costs will have been incurred prior to the PHR. It might have been different if the effect of the lies had been to establish that the claim was misconceived from the start because the Appellant was not truly disabled: that was the kind of case considered in Daleside Nursing Home Ltd. v Matthew (UKEAT/0519/08), Dunedin Canmore Housing Association Ltd v Donaldson (UKEAT/0014/09) and (less directly) Nicolson Highlandwear Ltd v Nicolson [2010] IRLR 859. But the Judge went out of his way to hold that that was not the case here – see para. 6 (b) and (c) above. In fact in my view the position is not simply that it was wrong to order the Appellant to pay the entirety of the costs: I find it hard to see how the lies told at the PHR caused the Respondents any loss at all for which they were entitled to be compensated. The hearing was abortive, and I do not see what effect the lies can have had on anything that occurred up to the moment of withdrawal. In short, had the Judge conducted the exercise that he should have in relation to the lies, he could not – having regard to his other findings – have made an award of costs in this case.
18. Having reached that conclusion, on the basis of the effect of the conduct relied on, I need not seek to assess its gravity. I would only observe that on the analysis at para. 12 above I doubt if 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.
19. I accordingly allow this appeal and quash the order for costs against the Appellant. In these circumstances I need not address a separate ground of appeal directed at the Judge's findings as to her means.
20. Irrespective of the outcome on the appeal, Mr. Legard made an application for an order under rule 34 of the Employment Appeal Tribunal Rules 1993 (as amended) on the basis that the Appellant had behaved unreasonably in her conduct of the appeal, and in particular in relation to the agreement bundle. The directions made on the sift required the parties to co-operate in the argument of a bundle to be lodged by no later than 21 days before the date listed for the appeal: in the event that meant 23^rd September. In fact no bundle was sent to the Respondents until two days before the hearing, which meant that counsel's skeleton had to be prepared without reference to them and Mr. Legard only received his bundle the evening before the hearing. I was taken through the correspondence which showed how this came about. There was some initial delay and confusion because the Respondents' system barred the Appellant's solicitors' e-mails. The bundles were in fact available from 29^th September, though for some reason it was not until 5^th October that the Appellant's solicitor so notified the Respondents' solicitor and asked whether he would like to have copies (as opposed to making up his own). The Respondents' solicitor did not respond because he was away from the office at a tribunal. It seems to me that both sides have some responsibility for the problem with the bundle; and in those circumstances no award of costs would be justified. In any event I do not believe that the additional costs caused by the delay were more than marginal.