HIS
HONOUR JUDGE DAVID RICHARDSON
1.
This is an appeal by (AQ) Limited (“AQ”)
against part of a judgment of the Employment Tribunal sitting in Leeds (Employment Judge Hepworth presiding) dated 17 August 2011. The Tribunal rejected a
claim of constructive unfair dismissal brought against AQ by Mr James Holden;
but it refused AQ’s application for costs. AQ contends that the Tribunal erred
in law in refusing that application.
The background facts
2.
AQ is a systems security company
providing text messaging and other telecommunications services. Its managing
director is Mr Adam Beaumont. At the relevant time it employed about 15
people. Mr Holden worked for AQ as a senior systems architect and systems
administrator from 12 June 2006 until his resignation took effect on 26 June
2009.
3.
As the Tribunal found, there were disputes between Mr Holden (and
sometimes Mr Holden’s wife) and Mr Beaumont from time to time. One such
dispute related to the amount of work which Mr Holden undertook. The business
required out of hours coverage. Mr Holden was a conscientious worker and dealt
with many matters out of hours and on holiday. No final resolution was
reached of that dispute. In July 2008 there were incidents involving Mr Holden
and his wife which led to a written warning. In the Spring of 2009 there were
further problems between Mr Holden and Mr Beaumont involving an invoicing
system and alleged lax security.
4.
In May 2009 Mr Holden told a colleague that he had been offered another
job. On 13 May he went off sick. He logged onto the company server as a
privileged user and viewed system logs. He removed his company telephone
number and thereby modified the main company network. The system ceased to
work. A customer complained. Mr Beaumont suspended Mr Holden because the
breakdown in the system appeared to be his fault, subject to further
investigation.
5.
Immediately after being notified of his suspension Mr Holden resigned,
giving 6 week’s notice. He started a new job on 29 June 2009. He commenced
proceedings for constructive unfair dismissal on 14 August 2009.
6.
Some time after his resignation AQ
reported Mr Holden to the police, apparently for offences related to computer
misuse. He was arrested. His home was searched. He was held at the police
station and interviewed. In due course he was notified that no action would be
taken against him. He feels strongly about the matter. He has brought civil
proceedings in the High Court arising out of it. Those proceedings have not yet
been determined. We are told that there is a trial date in the near future.
The Employment Tribunal proceedings
7.
It was plain from an early stage in the
proceedings before the Employment Tribunal that Mr Holden’s remedy for unfair
dismissal would be of limited value. The basic award would be no more than
£1300. In a record of a case management discussion in December 2009 the
Regional Employment Judge wrote:
“Prima facie, the Claimant is only entitled to a basic award but
the claim is complicated by an allegation that his future employability has
been stigmatised by the allegation made to the police and the Claimant’s arrest
consequent upon it. In particular, the Claimant is concerned that any future
Criminal Records Bureau check will reveal the fact that he was arrested for an
offence under section 2 of the Computer Misuse Act for having access to a
computer system without authority with the intention of causing other crimes.”
8.
The case management order required Mr
Holden, if he sought compensation, to include in the bundle for the hearing a
list showing how much was claimed and how it has been calculated, together with
any relevant documents. He did not do so. Accordingly there was no claim for
a compensatory award before the Tribunal at any stage.
9.
Following the case management discussion
AQ attempted to settle the claim. Its first offer attempted to settle a wide
range of litigation. Then, on 4 February 2010 AQ made an offer to settle the
Tribunal claim for £1300, reserving the right to draw the offer to the
Tribunal’s attention. Mr Holden refused the offer. He said: –
“In the absence of any admission of liability, I intend to
continue my present course of action in order to seek a declaration of my
rights, regardless of any compensation sought or payable as I believe that it
may be of assistance in finding work in the future.
Furthermore, your client has already made a frivolous and
baseless legal threat against me, and made demonstrably false claims to the
police which resulted in my arrest. As a result of this, I am unwilling to
enter into any restrictive contract which may allow a breach of contract action
to be brought against me where another claim such as defamation would otherwise
have to be proved.”
10.
In a subsequent letter he said that he
had the right to pursue the claim so as to obtain a judgment in his favour. He
referred to Telephone Information Services v Wilkinson [1991]
IRLR 148.
11.
There were further efforts to settle. Indeed the hearing of the claim
was adjourned part-way through the first day, in April 2010, to enable
settlement discussions to take place. Ms Twine, who has appeared for AQ
throughout, tells us that at this hearing the Tribunal expressed the view to
the Claimant that he should take advice and that his case may have been
weakened. Any such expression by the Tribunal can, of course, only have been a
preliminary view, and no more.
12.
Efforts to settle the case continued; and there was an attempt at
judicial mediation in January 2011. These further efforts to settle were not
specific to the Tribunal proceedings alone. Each side had brought or
threatened to bring civil proceedings against the other, and the settlement
negotiations encompassed those further potential claims. Eventually, all
efforts having been unsuccessful, the proceedings were restored for hearing on
4 and 5 August 2011.
13.
Shortly before the hearing, on 28 July
2011, Mr Holden in turn made an offer to settle the Tribunal proceedings alone
– on the basis that he would receive £1300. He said also that he was
“receptive to amended settlement terms”. AQ did not accept the offer.
The Tribunal’s reasons
14.
When determining the constructive
dismissal claim the Tribunal was not concerned with AQ’s reporting of Mr Holden
to the police – this post-dated his resignation. Mr Holden’s claim was based
upon the following: alleged changes by AQ to his role and responsibilities;
alleged violent conduct and abusive language by Mr Beaumont; alleged direction
from Mr Beaumont to the Human Resources Department to avoid Mr Holden’s
queries; and the allegedly unjustified suspension. At the start of the hearing
in August Mr Holden made it clear that no claim for stigma damages was made.
15.
The Tribunal rejected Mr Holden’s claim. It preferred the evidence of
Mr Beaumont, finding that Mr Holden’s evidence was “in general inconsistent and
not credible”, whereas the evidence of Mr Beaumont was consistent, credible and
in keeping with contemporary documents. In essence it found on the facts
against Mr Holden in respect of most allegations. As regards suspension, it
found that the suspension was pending investigation and was reasonable.
16.
Counsel for AQ, Ms Twine, made an
application for costs. The Tribunal recorded her submission as follows:
“7.1 There was an application for costs by Ms Twine for the
Respondent against the Claimant. It was her submission that the complaint was
misconceived from the very beginning and that the behaviour of the Claimant in
continuing with the claim was unreasonable. She referred to the Claimant's
conclusion at the beginning of this Hearing not to take further any claim for
stigma damages if he was successful rather than withdrawing it before the
Hearing. Therefore the Respondent had to prepare a defence relating to the
possibility of such a complaint if the Claimant was successful. Ms Twine also
submitted that the Claimant had acted in a vexatious way in relation to certain
matters such as derogatory references to the Respondent on the internet. The
claim was made within Paragraph 40(1) of Schedule 1 of the Employment Tribunals
(Constitution and Rules of Procedure) Regulations 2004.”
17.
The Tribunal refused the application for the following reasons:
“The unanimous conclusion of the Tribunal was to refuse the application
for costs. It is unusual for costs to be awarded at all in Employment
Tribunals. The award would therefore be the exception to the normal rule. This
is particularly so when a Claimant is unrepresented at a Hearing. The Tribunal
noted that the original complaint of unfair dismissal made no reference to any
application for stigma damages. No request was made by the Respondent for a
Pre-Hearing Review to decide on the prospects of success of the claim in the
Response form or at the Case Management Discussion. No consideration appears to
have been given by Regional Employment Judge Sneath at the Case Management
Discussion as to the chances of success of the claim. The Judge simply stated
that that there was complication as to remedy in this case relating to stigma
damages.
7.2 On the day of the first Hearing in April 2010 the matter was
adjourned. The parties stated they had come to an agreed settlement.
Unfortunately this agreement was not concluded. It was the decision of the Judge
in this case that the matter be re-listed for Hearing although he gave an
opportunity to the parties to resolve the matter through Judicial Mediation
which again was unfortunately unsuccessful. This led to the Tribunal Hearing
today.
7.3 It is the unanimous conclusion of the Tribunal that there
was not evidence to decide that the claim was misconceived from the very
beginning. The Employment Judge at the CMD did say to the Claimant that he
thought that the matter could be considered to be disproportionate but that
related to the amount the Claimant was likely to obtain by way of compensation
rather than whether he would be successful or not in his claim.
7.4 It had been this Judge's preliminary view that any claim for
stigma damages would probably be unsuccessful. It is not for the Tribunal to
appropriate blame for the non-settlement of the claim after the first Hearing.
Further it is the unanimous conclusion of the Tribunal that it is inappropriate
to award costs (except in exceptional circumstances) relating to preparation
for a Judicial Mediation Hearing. If Employment Tribunals were seen to make
awards of costs in those circumstances it would be increasingly likely that
parties would not volunteer for Mediation.
7.5 In relation to the stigma damages issue the Tribunal was
satisfied that the Respondent had its eyes open to this possibility following
the Case Management Discussion before the first Hearing. It would have been
better if the Claimant had indicated to the Respondent that he was longer
taking that point if successful before this Hearing but the Tribunal is unanimous
in concluding that it has to take account of the fact that Mr Holden is not
represented in these proceedings. The Tribunal's unanimous decision is that
throughout these proceedings the Claimant and his partner have acted in a way
which can only be described as misguided and on some occasions seriously
misguided. The Tribunal does not come to the conclusion, however, that they had
been vexatious. The Tribunal has considered that this process has been and
continues to be a costly exercise for the Respondent company. However we have
been asked to make an award for costs to a significant sum of over £20,000. It
is our unanimous conclusion that the claim was not originally misconceived and
that for the reasons stated above the Claimant has not acted unreasonably. It
is our unanimous conclusion on the balance of probabilities that no Order for
costs be made.”
Statutory provisions
18.
The Tribunal’s power to award costs
derives from Employment Tribunal Rules of Procedure (Schedule 1 to the Employment
Tribunal (Constitution and Rules of Procedure) Regulations 2004).
19.
The key provisions for the purposes of
this appeal are rules 40(2) and (3) and rule 41. These provide:
“40(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 if 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.
41. The amount of a costs or expenses order
(1) The amount of a costs order against the paying party shall be
determined in any of the following ways –
(a) the tribunal may specify the sum
which the paying party must pay to the receiving party, provided that sum does
not exceed £10,000;
(b) the parties may agree on a sum to
be paid by the paying party to the receiving party and if they do so the costs
order shall be for the sum so agreed;
(c) the tribunal may order the paying
party to pay the receiving party the whole or a specified part of the costs of
the receiving party with the amount to be paid being determined by way of a
detailed assessment in a County Court in accordance with the Civil Procedure
Rules 1998 or, in Scotland, as taxed according to such part of the table of
fees prescribed for proceedings in the sheriff court as shall be directed by
the order.
(2) The tribunal or Employment Judge may have regard to the
paying party’s ability to pay when considering whether it or he shall make a
costs order or how much that order should be.
(3) For the avoidance of doubt, the amount of a costs order made
under paragraphs (1)(b) or (c) may exceed £10,000.”
Submissions
20.
Ms Twine firstly submits that the
Tribunal failed to give proper reasons for its decision. She says she raised
the following arguments which were not addressed by the Tribunal. (1) It was
unreasonable for Mr Holden to refuse the offer of settlement made in February
2010; (2) Mr Holden was unreasonable or misconceived in “conducting” the
proceedings – not merely in bring them; she relies on what she describes as the
costs warning in April 2010; (3) Mr Holden was vexatious as he tried to use the
Tribunal proceedings as a lever in other claims, as a fishing expedition or for
ulterior motive.
21.
Secondly, Ms Twine submits that the Tribunal misdirected itself by its
reliance on Mr Holden’s status as an unrepresented litigant. She accepts that
a Tribunal is entitled to have regard to the fact that a litigant is in person
but submits that the Tribunal gave impermissible weight to this factor, in
effect erecting a barrier to the claim for costs. She says this error is to be
found in paragraph 7.1 of the Tribunal’s reasons and carries over into its
conclusion at paragraph 7.5 concerning withdrawal of the claim for stigma
damages. She says that Mr Holden knew very well, from what he was told at the
case management discussion and subsequently, that the claim for stigma damages
was doomed to failure – but substantial legal costs were incurred because it
was not withdrawn. She says that what mattered was not whether the party was
represented but whether the party knew or ought to have known that the claim
was unmeritorious.
22.
Thirdly, Ms Twine submits that the Tribunal took into account an
irrelevant matter (the absence of an application for a PHR) and failed to take
into account relevant matters (the claim was disproportionate; the offer; the
costs warning; the threat of other claims; the use of the proceedings for
ulterior purposes).
23.
Fourthly, Ms Twine submits that the Tribunal may not have had the
correct statutory provisions in mind, since it referred to rule 40(1), which
was inapplicable, rather than rule 40(3) which was the foundation of her
application.
24.
Fifthly, Ms Twine submits that the Tribunal, since it found that Mr
Holden and his partner had acted throughout proceedings in a way which was
“misguided and on some occasions seriously misguided” ought to have found that
the conduct of the proceedings was misconceived or unreasonable.
25.
Finally, she submits that the Tribunal erred in law in taking costs into
account at the rule 40(3) stage, and in failing to appreciate that it could
award a sum less than the total applied for.
26.
In answer to these submissions Mr Davies
on behalf of Mr Holden submits that the Tribunal reached conclusions which
betray no material error of law. He submits that the Tribunal took a broad
overall approach, which was appropriate – see Yerrakalva v Barnsley Metropolitan Borough Council [2012] IRLR 78. It was not required to
analyse each of Ms Twine’s complaints separately in exhaustive detail. He
submits that as a matter of common sense it is relevant, when assessing whether
the conduct of proceedings has been reasonable, to keep in mind that a party is
a litigant in person, likely to lack the objectivity and knowledge of law and
practice brought by a professional legal adviser. He points out that although
Mr Holden had mooted a claim for stigma damages, he had never advanced it. He
submits that considerations of proportionality did not preclude Mr Holden from
bringing the claim; and that the offers to settle for the most part had required
settlement of quite separate proceedings as well. He says it is plain that the
Tribunal knew and applied rule 40(3), which is very well known; and must have
been well aware that it had a power to award less than the full amount of
costs.
Discussion and conclusions
27.
The recent decision of the Court of
Appeal in Barnsley Metropolitan Borough Council v
Yerrakalva [2012] IRLR 78 provides guidance as to the correct approach to
be adopted in an appeal against a costs order. Mummery LJ said:
“7. As costs are in the discretion of the ET, appeals on costs
alone rarely succeed in the EAT or in this court. The ET’s power to order costs
is more sparingly exercised and is more circumscribed by the ET’s rules than
that of the ordinary courts. There the general rule that costs follow the event
and the unsuccessful litigant normally has to foot the legal bill for the
litigation. In the ET costs orders are the exception rather than the rule. In
most cases the ET does not make any order for costs. If it does, it must act
within rules that expressly confine the ET’s power to specified circumstances,
notably unreasonableness in the bringing or conduct of the proceedings. The ET
manages, hears and decides the case and is normally the best judge of how to
exercise its discretion.
8. There is therefore 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.
9. An appeal against a costs order is doomed to failure, 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. 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.
...
41. 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. …
...
49. ... as orders for costs are based on and reflect broad brush
first instance assessments, it is not the function of an appeal court to tinker
with them. Legal microscopes and forensic toothpicks are not always the right
tools for appellate judging.”
28.
In this case the Tribunal, having heard
oral evidence and read a good deal of documentary evidence, was in prime
position to make an assessment of the factors affecting its discretion. It
should also be borne in mind that its reasons, though now reduced to writing,
were given in substantially the same form at the end of a long hearing. In
such circumstances reasons cannot be expected to be “the product of refined
legal draftsmanship” (Meek v City of Birmingham District Council).
They reasons are likely to deal particularly with the arguments pressed
strongly on the day; it does not follow from the failure to deal with every
individual point which was or could have been made that the Tribunal’s exercise
of discretion was flawed.
29.
We immediately and without hesitation reject Ms Twine’s submission that
the Tribunal did not or may not have had the correct legal rule and principles
in mind. We have no doubt that the Tribunal knew and applied rules 40(2) and
(3) and that the reference to rule 40(1) is a slip. This is plain from the
reasons as a whole.
30.
We also reject Ms Twine’s submission that the Tribunal did not address
her submission that Mr Holden was unreasonable and vexatious in the conduct of
the proceedings. The Tribunal noted that these submissions were made by Ms
Twine: see paragraph 7.1 of its reasons. To our mind the Tribunal was
considering these questions in its reasons – particularly in paragraphs 7.1 and
again in paragraphs 7.4 to 7.5. We have no doubt that Ms Twine put forward Mr
Holden’s claim for stigma damages, and what she considered its late withdrawal,
as a key point: that is why the Tribunal paid particular attention to it.
31.
We turn to Ms Twine’s submission that the Tribunal misdirected itself in
its references to the status of Mr Holden as a litigant in person. In our
judgment the position may be summarised as follows.
32.
The threshold tests in rule 40(3) are the same whether a litigant is or
is not professionally represented. The application of those tests should,
however, take into account whether a litigant is professionally represented. A
tribunal cannot and should not judge a litigant in person by the standards of a
professional representative. Lay people are entitled to represent themselves
in tribunals; and, since legal aid is not available and they will not usually
recover costs if they are successful, it is inevitable that many lay people
will represent themselves. Justice requires that tribunals do not apply
professional standards to lay people, who may be involved in legal proceedings
for the only time in their life. As Mr Davies submitted, lay people are likely
to lack the objectivity and knowledge of law and practice brought by a
professional legal adviser. Tribunals must bear this in mind when assessing
the threshold tests in rule 40(3). Further, even if the threshold tests for an
order for costs are met, the Tribunal has discretion whether to make an order.
This discretion will be exercised having regard to all the circumstances. It
is not irrelevant that a lay person may have brought proceedings with little or
no access to specialist help and advice.
33.
This is not to say that lay people are immune from orders for costs: far
from it, as the cases make clear. Some litigants in person are found to have
behaved vexatiously or unreasonably even when proper allowance is made for
their inexperience and lack of objectivity. But the Tribunal was entitled to
take into account that Mr Holden represented himself; we see no error in its
doing so; and we do not accept that it misdirected itself in any way.
34.
We do not consider that it was irrelevant for the Tribunal to take into
account the absence of an application on behalf of AQ for a pre-hearing
review. If the claim had truly been misconceived or vexatious there could have
been an application to strike out (or a deposit order). The matter was not in
any sense decisive of the application for costs; but it was not irrelevant.
35.
There are two features upon which Ms Twine placed particular reliance
before us which are not addressed in the Tribunal’s reasons.
36.
The first is the offer made in February 2010. Ms Twine says she drew
the Tribunal’s attention to this offer. She says that her answer to Mr
Holden’s reason for refusal (that he was entitled was entitled to seek a
judgment to vindicate him on the question of unfair dismissal) was that he was
not really concerned to do so, as shown by his letter in July 2011 - she did
not challenge the correctness of Telephone Information Services v
Wilkinson. In our judgment, however, it was plain that in February
2010 Mr Holden desired to have a judgment to vindicate his position – there is
no reason to doubt his assertion that this was why he refused the offer. The
offer was only open for 14 days. The Tribunal was entitled to disregard it.
37.
The second is what Ms Twine describes as a costs warning in April 2010.
This was not a costs warning in the conventional sense – rather advice to Mr
Holden to seek legal advice and to consider his position. The Tribunal was
entitled to disregard it.
38.
When the Tribunal said that Mr Holden and his partner were “misguided
and on some occasions seriously misguided” it plainly did not intend to find
that they were vexatious: it expressly said so. With guidance, Mr Holden might
have been well advised not to pursue the claim – but that is true of many
litigants, especially litigants in person – and it does not follow that their
conduct is vexatious or unreasonable.
39.
On the question of amount of costs, the Tribunal, which included an experienced
full-time Employment Judge, plainly knew that it had discretion to award less
than the £20,000 claimed. Ms Twine’s submission to the contrary involves
reading the Employment Tribunal’s reasons, which as we have said were delivered
orally, far too strictly. Nor do we accept that the Tribunal fell into the
error of taking the amount of the costs claimed into account when deciding
whether the threshold tests for an award of costs was met. This again places
weight on a single sentence in a set of reasons given orally which that
sentence cannot bear.
40.
We have reached the conclusion that the
Tribunal’s decision to refuse AQ’s application for costs is free from any error
of law; and the appeal will be dismissed.
