Appeal No. UKEAT/0493/12/DM
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX
At
the Tribunal
On
12 April 2013
Before
THE
HONOURABLE MR JUSTICE KEITH
(SITTING ALONE)
MR
M COOK APPELLANT
BUILDING
RESEARCH ESTABLISHMENT LTD RESPONDENT
Transcript of Proceedings
JUDGMENT
THE HONOURABLE MR JUSTICE KEITH
Introduction
1.
The claimant, Martin Cook, was employed by the respondent, Building
Research Establishment Ltd (“the company”), as a project officer. He was
dismissed on 5 May 2011 having worked for the company and its predecessor for
almost 19 years. The company claimed that he had been dismissed on the grounds
of capability. Mr Cook claimed that he had been dismissed by reason of
redundancy. He lodged claims for contractual and statutory redundancy payments
with the employment tribunal. In due course he withdrew both his claims. The
company applied for an order that Mr Cook should pay its legal costs of
defending those claims. Employment Judge Mahoney in the employment tribunal at
Watford ordered Mr Cook to pay £10,000 towards the company’s legal costs. Mr
Cook appealed against that order to the Employment Appeal Tribunal, and this is
the Employment Appeal Tribunal’s judgment following the hearing of the appeal.
2.
The order for costs was unusual in two respects. First, in the majority
of cases, employment tribunals do not make orders for costs at all. That is
because Parliament has set a high threshold for an order for costs to be made,
and because employment tribunals are intended to be accessible to people
without the need for lawyers. Secondly, when an order for costs is made by an employment
tribunal, it is normally after a full hearing on the merits, whereas the order
for costs in the present case was made against a claimant who had withdrawn one
of his claims several weeks before the full hearing was due to take place, and
his other claim on the day of the hearing when a particular problem he was
thought to face was pointed out to him. Those were two of the factors which
Mummery LJ thought of significance in McPherson v BNP Paribas (London Branch) [2004] ICR 1398 at [2].
The relevant facts
3.
Mr Cook presented his claim for a redundancy payment to the employment tribunal
on 3 August 2011. He did not specifically say that he was claiming a statutory
redundancy payment in addition to a contractual redundancy payment, and the
information he gave in his ET1 might have led the reader of it to think that he
was only claiming a contractual redundancy payment. He asserted that the
capitalised value of his claim for a contractual redundancy payment was
£195,000. In due course, the hearing of the claim was fixed for 10 January
2012. However, in late November 2011, Mr Cook took legal advice, and on 3
December 2011 he informed the tribunal that following legal advice he had
served a supplementary witness statement on the company informing it that he
wished to withdraw his claim for a contractual redundancy payment, and that he
wished “to claim only [his] statutory redundancy pay in the Tribunal
proceedings.” That shows that, however he had put it in the ET1, he had been
intending to claim a statutory redundancy payment as well, which was no doubt
why no-one took the point that his claim for a statutory redundancy payment was
out of time.
4.
The employment judge was to find that the reason why Mr Cook had decided
to withdraw his claim for a contractual redundancy payment, and to pursue his
claim for a statutory redundancy payment, was because he had been advised that
since his claim for a contractual redundancy payment was a claim for a sum due
under his contract of employment, the maximum award which the tribunal could
make was £25,000: see Art. 10 of the Employment Tribunals Extension of
Jurisdiction (England and Wales) Order 1994. There was no such limit if Mr
Cook brought his claim in the county court, which was why in his letter to the tribunal
of 3 December 2011, he wrote:
“I reserve the right to bring a claim in the County Court for my
contractual redundancy pay, within the usual period of statutory limitation
under contract law.”
I interpose here to say that the company’s ET3 had not mentioned
the fact that the employment tribunal could not award Mr Cook more than £25,000
for his claim for a contractual redundancy payment, even though the figure of
£195,000 had been referred to in the ET1. That is not a criticism of the
company or its solicitors, but the fact is that they had not done anything to
alert Mr Cook to the maximum amount which the tribunal could award him on this
claim.
5.
On 9 January 2012, the day before the hearing of Mr Cook’s claim for a
statutory redundancy payment was due to take place, the tribunal e-mailed the
following message to the parties:
“Regional Employment Judge Gay has directed me to write to you
as follows:-The claim for statutory redundancy pay here and the intended claim
for contractual redundancy pay in the court appears to turn on exactly the same
facts. In the circumstances, it does not seem appropriate that the claim
should proceed here so that we make binding findings of fact which would affect
the far greater county court claim. It is intended to vacate the Hearing and
stay this claim - unless the parties can provide persuasive, reasoned
objections by 4:00 pm today.”
That e-mail was sent at 2.47 pm, and with commendable speed the
company’s solicitors responded by e-mail at 3.58 pm. They objected to the
proposed stay on the basis that no proceedings had been issued by Mr Cook in
the county court by then. They acknowledged that in Paymentshield Group
Holdings Ltd v Halstead (UKEAT/0470/11) the Employment Appeal Tribunal
had stayed proceedings in the employment tribunal in favour of proceedings in
the High Court which had not yet been issued, but in that case a letter before
action as required by the Civil Procedure Rules had been sent as well as a
draft of the particulars of claim which it was proposed to issue. That did not
apply to Mr Cook’s case. In the interests of completeness, I should add that
there was subsequently a successful appeal in Halstead to the
Court of Appeal (see [2012] IRLR 586), but what is important for present
purposes is that on receipt of the company’s solicitors e-mail, the tribunal
directed the parties to attend the hearing the following day.
6.
The parties duly attended the tribunal the following day for the hearing
of Mr Cook’s claim for a statutory redundancy payment. It transpired that Mr
Cook had not seen the e-mail exchange of the previous day, and Employment Judge
Mahoney explained the effect of it to Mr Cook who was not represented. He told
Mr Cook that such findings as the tribunal would make about whether his
dismissal had been by reason of redundancy would bind the county court in any
claim for a contractual redundancy payment which Mr Cook may choose to bring,
and he provided Mr Cook with a copy of O’Laoire v Jackel International
Ltd (No. 2) [1991] ICR 718 which confirmed that decisions of an employment
tribunal, then an industrial tribunal, can give rise to an issue estoppel. The
employment judge gave Mr Cook time to consider his position. When the parties
returned to the tribunal room an hour or so later, Mr Cook informed the employment
judge that he had taken further legal advice and that he wished to withdraw his
claim for a statutory redundancy payment. It may be that he did not want to
run the risk of jeopardising his much more valuable claim for a contractual
redundancy payment by pursuing his claim for a statutory redundancy payment in
the course of which there would be a risk of a finding that redundancy had not
been the reason for his dismissal.
7.
After Mr Cook had withdrawn his claim for a statutory redundancy payment,
the company applied for an order requiring Mr Cook to pay part of its legal
costs. The employment judge required the company to make that application in
writing with a detailed breakdown of the amount claimed, and he gave Mr Cook
permission to respond in writing. On receipt of those representations, he
would decide whether the application needed to be decided at a hearing. On receipt
of the documents, he decided that a hearing was necessary. The hearing took
place on 24 May 2012. The employment judge reserved his decision, and in a judgment
promulgated on 5 July 2012, the employment judge ordered Mr Cook, as I have
said, to pay £10,000 to the company towards its legal costs.
The employment judge’s reasons
8.
The employment judge made four particular findings of fact which
informed his ultimate decision to order Mr Cook to pay £10,000 towards the
company’s costs. First, Mr Cook was “an intelligent, articulate individual
with a high competency in the use of computers and the internet”. Secondly, Mr
Cook had been “aware of the risk of dismissal for at least eight months before
he was dismissed”. Thirdly, “[f]or at least eight months before his dismissal [Mr
Cook had been] able to go onto the internet and find out that breach of
contract claims in the tribunal were limited to £25,000”. And fourthly, Mr
Cook had “during this period [i.e. in the eight months before his dismissal] [been]
financially able to obtain legal advice about his proposed claim [for a
contractual redundancy payment] but [had] deliberately chose[n] not to do so”.
The employment judge took the view that if Mr Cook had sought advice from a “competent
employer lawyer”, he would have been advised “to issue the statutory redundancy
claim in the employment tribunal and ask for a stay and issue the contractual
redundancy claim in the High Court”. That was the basis on which he concluded
that the conduct of Mr Cook had been unreasonable.
9.
I interpose here to say that it was inappropriate for the employment judge
to have referred to Mr Cook’s claim for a contractual redundancy payment as “a
breach of contract claim”. It was nothing of the sort. It was a claim for
what Mr Cook claimed to be due to him under his contract of employment. That
did not, of course, mean that the statutory limit which the tribunal could
award for it did not apply, but it is unfortunate that the employment judge
mischaracterised the nature of Mr Cook’s claim in the way he did.
10.
The employment judge then went on to consider whether an order for costs
should be made. He thought that Mr Cook’s failure to find out about the
£25,000 limit on “breach of contract claim”, and his failure to obtain legal
advice about his proposed claim for a contractual redundancy payment, made the
unreasonableness of his conduct “particularly serious”, especially as it had
resulted in the company, which had acted with complete propriety throughout,
incurring very substantial legal costs. Had he been assessing those costs summarily,
they would have come to £12,593.40, but since £10,000 was the maximum amount
which an employment tribunal could then award in respect of a claim presented
before 5 April 2012 where the costs were not determined by way of a detailed
assessment in the county court, he limited the award to £10,000.
The relevant law
11.
Rule 40 of the Employment Tribunals Rules of Procedure, which are set
out in Schedule 1 to the Employment Tribunals (Constitution and Rules of
Procedure) Regulations 2004, provide, so far as is material:
“(2) A[n] … Employment Judge shall consider making a costs order
against a paying party where, in the opinion of the … Employment Judge …, any
of the circumstances in paragraph (3) apply. Having so considered, the … Employment
Judge may make a costs order against the paying party if … 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…”
It follows that there are two steps in the process. The first is
for the employment judge to decide whether any of the circumstances in rule 40(3)
apply, and in the context of the present case, that meant considering whether
Mr Cook had acted unreasonably in bringing or conducting the proceedings. That
was a matter for the employment judge’s judgment. The next step in the process
only arose if Mr Cook had been found to have acted unreasonably. The employment
judge had then to consider whether he should make an order for costs in the
light of all the relevant circumstances. That was a matter for the employment judge’s
discretion.
12.
Mummery LJ in McPherson had some important things to say
about when a claimant should be regarded as having acted unreasonably in
bringing or conducting a claim. At [28]-[30], he said:
“28. … it would be legally erroneous if, acting on a
misconceived analogy with the CPR, tribunals took the line that it was
unreasonable conduct for employment tribunal claimants to withdraw claims and
that they should accordingly be made liable to pay all the costs of the
proceedings. It would be unfortunate if claimants were deterred from dropping
claims by the prospect of an order for costs on withdrawal, which might well
not be made against them if they fought on to a full hearing and failed… withdrawal
could lead to a saving of costs. Also … notice of withdrawal might in some
cases be the dawn of sanity and the tribunal should not adopt a practice on
costs which would deter applicants from making sensible litigation decisions.
29. On the other side, … tribunals should not follow a practice on
costs which might encourage speculative claims, by allowing applicants to start
cases and to pursue them down to the last week or two before the hearing in the
hope of receiving an offer to settle and then, failing an offer, dropping the
case without any risk of a costs sanction.
30. The solution lies in the proper construction and sensible
application of [what is now] rule 14. The crucial question is whether, in all
the circumstances of the case, the claimant withdrawing the claim has conducted
the proceedings unreasonably. It is not whether the withdrawal of the claim is
in itself unreasonable ...”
13.
There is one particular case which the employment judge referred to in
his decision which explains why Mr Cook was right to withdraw his claim for a
contractual redundancy payment. It is Fraser v HLMAD Ltd [2006] ICR 1395. Like O’Laoire, it dealt with the overlap between
unfair and wrongful dismissal claims. At [31], Mummery LJ said:
“In future claimants and their legal advisers would be well
advised to confine claims in employment tribunal proceedings to unfair
dismissal, unless they are sure that the claimant is willing to limit the total
damages claimed for wrongful dismissal to £25,000 or less. If the claimant
wishes to recover over £25,000, the wrongful dismissal claim should only be
made in High Court proceedings.”
However, it is important to understand the context in which
Mummery LJ made that observation, since the employment judge erroneously
thought that in Fraser, “the Court of Appeal was dealing with a
costs award in a similar case to this”. In fact, Fraser was not
about costs at all. In Fraser, the claimant had brought claims
of unfair dismissal and wrongful dismissal against the defendant in the employment
tribunal. In his ET1, he purported to reserve the right to bring proceedings
in the High Court for damages for wrongful dismissal in excess of the £25,000
limit on the compensation which the employment tribunal could award. The employment
tribunal found him to have been wrongfully dismissed, and although it assessed his
damages at over £80,000, it limited his award, as it had to, to the statutory
maximum of £25,000. His claim for wrongful dismissal in the High Court was
then struck out by the High Court master, and the Court of Appeal dismissed an
appeal from that order. It held that where a cause of action was the subject
of a final judgment, it merged into that judgment and ceased to exist. A claim
for wrongful dismissal could not be split into separate actions: one for
damages up to £25,000, and another for the excess over that sum. So when the claimant’s
claim of wrongful dismissal was the subject of a final judgment in the employment
tribunal, his cause of action for wrongful dismissal merged and was
extinguished, despite the express reservation in his ET1 of the right to bring
proceedings in the High Court for the excess. Since his claim in the High
Court for the excess was not a separate cause of action, the claimant no longer
had any cause of action which he could pursue in the High Court.
The reasonableness of the withdrawal of the claims
14.
The warning which Mummery LJ gave in Fraser was to ensure
that unwary employees did not fall into the trap of thinking that if they
pursued their claim for wrongful dismissal in the employment tribunal, they
could recover other damages in excess of the statutory maximum in proceedings
in the High Court. That must have been what lay behind Mr Cook’s decision to
withdraw his claim for a contractual redundancy payment. If the tribunal
upheld his claim for a contractual redundancy payment and awarded him £25,000 for
it, he would have lost the opportunity of recovering the balance of his claim
of £170,000. It follows that the withdrawal of his claim for a contractual
redundancy payment was not merely reasonable. It was the only sensible course
open to him.
15.
What about the claim for a statutory redundancy payment? Was it
reasonable for Mr Cook to withdraw that claim? It is necessary here to put
oneself into Mr Cook’s position. He was being told that if he lost his claim
for a statutory redundancy payment in the employment tribunal on the basis that
redundancy had not been the reason for his dismissal, his proposed claim in the
county court for a contractual redundancy payment would have been scuppered.
He was being told that by an employment judge who was himself reinforcing what
the regional employment judge had said the previous day. There was, of course,
no question of any improper pressure being placed on Mr Cook, and any such
suggestion to that effect was expressly disavowed today by Mr Simon Cheetham
who represents him. Indeed, both the employment judge and the regional employment
judge were acting out of a laudable desire to ensure that if Mr Cook decided to
pursue his claim for a statutory redundancy payment, he would be doing so on an
informed basis. But it may be that Mr Cook thought that they thought that
withdrawing his claim for a statutory redundancy repayment was the sensible
thing for him to do. After all, Mr Cook had no reason to suppose that there
would be a downside for him if he withdrew his claim for a statutory redundancy
payment. If he had not withdrawn his claim and it had succeeded, any future
award he obtained for a contractual redundancy payment would have to be reduced
by that amount to avoid double recovery. Moreover, the company’s legal team
did not say that if he withdraw his claim for a statutory redundancy payment,
they would be applying for costs. Nor did the employment judge warn Mr Cook of
that possibility. That is not a criticism of anyone, of course, but looking at
things from Mr Cook’s perspective, I can well understand why he decided to
withdraw his claim for a statutory redundancy repayment. Whether it was
sensible for him to do so is something which I shall return to later.
The reasonableness of the bringing of the claims
16.
But as we have seen, the question is not whether it was reasonable for
Mr Cook to withdraw his claims, but whether he had acted reasonably in bringing
the claims in the first place and in not withdrawing them earlier. It is here
necessary to consider the two claims separately, which is something the employment
judge sensibly recognised by addressing separately the costs incurred in the
period up to the withdrawal of his claim for a contractual redundancy payment
and the costs incurred thereafter. I deal first with whether Mr Cook acted
unreasonably in bringing a claim in the employment tribunal for a contractual
redundancy payment and in not withdrawing it until 3 December 2011. In my
opinion, it was open to the employment judge to conclude that Mr Cook had been
perfectly capable of finding out that there was a £25,000 limit on what the tribunal
could award Mr Cook on his claim for a contractual redundancy payment. But the
flaw in the employment judge’s reasoning was that it was not just the
statutory limit on what the tribunal could award which had made it
inappropriate for Mr Cook to bring his claim for a contractual redundancy
payment in the employment tribunal. What really made it inappropriate was that
even if he was successful on the claim, the employment tribunal’s judgment on
it would have prevented him from claiming the balance in the High Court. That
was not the effect just of the statutory limit on what the tribunal could award,
but the combined effect of that and the Court of Appeal’s decision in Fraser.
It was not suggested by the employment judge, nor could it sensibly have been,
that an unrepresented litigant, even an intelligent one with access to and
familiarity with the internet, could be expected to have discovered the impact
of Fraser.
17.
That leads me to ask this question. If you take Fraser
out of the equation on the basis that Mr Cook could not have been expected to
have been aware of what it decided, would it then have been unreasonable for Mr
Cook to bring his claim for a contractual redundancy payment in the employment tribunal?
In my opinion, the answer is no. He knew, of course, that there was an
important issue over whether redundancy had been the reason for his dismissal.
If it had not been, neither of his claims would have succeeded. It could
strongly be argued that it would have been better for this issue to have been
decided by the employment tribunal than the county court, because the case was
likely to have been heard sooner in the employment tribunal, and Mr Cook would
not have been at serious risk of being ordered to pay the company’s legal costs
if he had lost. If he had won, he could then have issued proceedings in the county
court for the excess of the contractual redundancy payment over the maximum sum
which the tribunal could have awarded, which had been the very strategy adopted
by the claimant in Fraser.
18.
It may be, of course, that if Mr Cook had obtained legal advice before
the end of November 2011, he would have been advised about the effect of Fraser,
and why it would not be sensible for him to proceed with his claim for a
contractual redundancy payment in the employment tribunal. But the employment judge
did not say in so many words that Mr Cook had acted unreasonably by not seeking
legal advice earlier. It would have been a little difficult for the employment
judge to say that when employment tribunals are designed to be accessible to
people without the need for lawyers. In any event, many people would have
applauded Mr Cook for taking legal advice as a result of which he withdrew his
claim for a contractual redundancy payment many weeks before it was due to be
heard. For these reasons, I do not think it that it was open to the employment
judge to conclude that Mr Cook had acted unreasonably by bringing his claim for
a contractual redundancy payment and not withdrawing it earlier than he did.
19.
I turn to Mr Cook’s claim for a statutory redundancy payment. Was it
open to the employment judge to conclude that Mr Cook had acted unreasonably by
bringing such a claim and not withdrawing it before 10 January 2012? The employment
judge himself recognised that it was reasonable for Mr Cook to have brought
such a claim. What he said was that Mr Cook should then have asked for it to
have been stayed until his claim in the High Court for a contractual redundancy
payment had been heard and determined. That, said the employment judge, was
what any competent employment lawyer would have advised.
20.
I think that that puts things far too high. There is a very respectable
argument for saying that a competent employer lawyer might well have given
different advice. I go back to what I said before in the context of Mr Cook’s
claim for a contractual redundancy payment. There was the critically important
question of whether redundancy had been the reason for Mr Cook’s dismissal. If
it had not been, both his claim for a statutory redundancy payment in the employment
tribunal and his claim for a contractual redundancy payment, which by then
could only be pursued in the High Court or the county court because he had
withdrawn such a claim in the employment tribunal, would have failed. Proceeding
with his claim for a statutory redundancy payment would have meant that the
issue over whether redundancy had been the reason for his dismissal would have
been decided in the near future rather than many months or even years later in
the county court, and crucially he would not have been at serious risk of being
ordered to pay the company’s costs if he lost. If he had won, he could have
issued his claim for a contractual redundancy payment in the county court in
the knowledge that it would no longer be open to the company to assert that
redundancy had not been the reason for his dismissal. Indeed, the irony here
is that if he had pursued his claim for a statutory redundancy payment and had
lost, there is unlikely to have been any basis for saying that the proceedings
were so misconceived that he would then have been faced with an application for
the company’s legal costs of defending the claim.
21.
For these reasons, I do not think that Mr Cook could fairly have been
criticised for not seeking a stay of his claim for a statutory redundancy
payment until his claim in the county court for a contractual redundancy
payment had been heard and determined. But the fact remains that he did indeed
withdraw his claim for a statutory redundancy payment, and it is here that I
return to whether it was reasonable for him to do that. I have already said
that I understand entirely why he did that, but for the reasons I have given, I
think that it would have been better for him to “hang in there”, to resist the
pressure which he may have thought he was under to withdraw his one remaining
claim in the employment tribunal, and to let the employment judge, with his
experience of employment law, decide whether redundancy had been the reason for
his dismissal, rather than let the issue be determined, perhaps years later, by
a judge in the county court who may not have experience of employment cases,
and thereby expose himself to the risk of being ordered to pay a huge bill of
costs if he lost. The point therefore is that even if he could be said to have
acted unwisely in withdrawing his claim for a statutory redundancy payment, I
do not believe that it can fairly be said that he had acted unreasonably in
pursuing it until then.
Conclusion
22.
There are a number of other grounds of appeal, for example those
relating to the failure to warn Mr Cook of the consequence in terms of costs if
he withdrew his claims, and to his ability or otherwise to pay those costs, but
in the light of the view I have reached about the core issues which this appeal
has raised, it is unnecessary for me to address them further. It follows that
this appeal must be allowed, and the order of the employment judge requiring Mr
Cook to pay the sum of £10,000 towards the company’s legal costs must be set
aside.
