Appeal No. UKEAT/0509/12/JOJ
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX
At
the Tribunal
On
30 April 2013
Before
THE
HONOURABLE MR JUSTICE KEITH
MS V BRANNEY
MR S YEBOAH
MR
G HOWMAN APPELLANT
THE
QUEEN ELIZABETH HOSPITAL KINGS LYNN RESPONDENT
Transcript of Proceedings
JUDGMENT
SUMMARY
PRACTICE AND PROCEDURE - Costs
The employment tribunal ordered the employee, following the
dismissal of his claim for unfair dismissal, to pay his employer’s costs of
defending the claim, those costs to be the subject of a detailed assessment by
the county court on the indemnity basis. The appeal was on the ground that
the assessment should not have been on the indemnity basis, and that the
tribunal had failed to take into account the employee’s inability to pay a
large award of costs. The appeal was allowed on the basis that the tribunal
did not appear to have considered (a) the effect of the order it made, which
was that the employee would have to sell his home where he lived with his wife
and two dependant children, his half-share in the home representing a very
substantial proportion of his life savings, and (b) the possibility of putting
a cap on the amount he had to pay. The EAT also held that an order for indemnity
costs should only be made when the conduct of the paying party had taken the
case away from even that very limited number of cases in the employment
tribunal when it is appropriate to make an order for costs.
THE HONOURABLE MR
JUSTICE KEITH
1.
The Claimant, Mr Gary Howman, was employed by the Respondent,
Queen Elizabeth Hospital Kings Lynn NHS Foundation Trust (“the Trust”), from
7 July 2008, latterly as its communications manager, until he was
summarily dismissed on 18 March 2011. His claim for unfair dismissal
was dismissed by an employment tribunal at Norwich (Employment Judge Postle
presiding). The Trust then applied for an order that Mr Howman should pay
its costs of defending Mr Howman’s claim (which it put at £43,076 plus
other disbursements) to be the subject of a detailed assessment by the county court
on the indemnity basis. The tribunal made an order in those terms. Mr Howman
now appeals against that order. It is not said on his behalf that the tribunal
was wrong to have a made an order for costs, or that a detailed assessment of
those costs was inappropriate. The appeal is brought on the basis that the tribunal
should not have ordered him to pay the Trust’s costs on an indemnity basis, and
that it should either have capped the costs which he was required to pay or
taken some other measure which took into account his inability to pay such a
large award of costs.
2.
In view of the limited issues which the appeal raises, it is unnecessary
for us to set out the facts of the case in any detail. All that needs to be
said is that a letter which purported to come from the Trust’s chief executive
was posted on the news section of the Trust’s intranet. It was not a genuine
letter at all, and the Trust took steps to find out who had posted it. Mr Howman
was one of only four people whose access to the Trust’s intranet enabled them
to post the letter on the news section. The four of them were interviewed, and
each of them denied having posted it. However, as a result of information
given to the Trust following an order for disclosure made by the High Court,
the registered user of the e-mail address which had been used to post the
letter was found to be Mr Howman’s wife. She had been nominated by
Mr Howman as the person who the Trust should contact in the event of an
emergency. Not surprisingly, the evidence that it had been Mr Howman who
had posted the letter was regarded as sufficiently robust to justify
disciplinary proceedings being brought against him. At the disciplinary
hearing, Mr Howman continued to deny that he or anyone from his household had
posted the letter. He claimed that there were elements within the Trust who
wanted to see the back of him, and they had managed to use his wife’s e-mail
address to post the letter. His denial was not believed, and his conduct was
regarded as so serious that he had to be dismissed.
3.
Mr Howman advanced much the same case in the employment tribunal,
though, of course, the issues there were not whether it had been him who had
posted the letter, but whether the Trust had had reasonable grounds for
believing that it had been him, whether that belief had been arrived at
following a fair and sufficiently thorough investigation in which
Mr Howman had been given the opportunity to put forward his case properly,
whether his dismissal had really been for what the Trust had believed him to
have done (and was not just a convenient pretext which the Trust had used to
conceal some hidden agenda for getting rid of him for some other reason), and
whether his dismissal had been within the range of reasonable options open to
a reasonable employer believing what the Trust believed Mr Howman to have
done. The tribunal decided all those issues in the Trust’s favour.
4.
When it came to the Trust’s application for costs, the tribunal took the
view that the bringing of the case by Mr Howman had been misconceived,
which was one of the circumstances set out in rule 40(3) of the Employment
Tribunals Rules of Procedure (“the Rules”) contained in Schedule 1 to the Employment
Tribunals (Constitution and Rules of Procedure) Regulations 2004 (“the
Regulations”), which would trigger the tribunal’s power to make an order for
costs against Mr Howman. The reason why the tribunal thought that the
bringing of the case had been misconceived was because it had had no reasonable
prospect of success, which was one of the meanings given to the word “misconceived”
by reg. 2(1) of the Regulations. On that issue, the tribunal found that
Mr Howman “must have known [that] his case … never had a chance of success”
in the light of the evidence which the Trust had assembled which showed
irrefutably that his wife’s e-mail address had been used to post the letter.
Despite that, and despite the advice he had been given by another employment judge
at a case management discussion a few weeks before the case was heard to “carefully
consider his position” in the light of that evidence, Mr Howman had “persisted
in prosecuting this case to the considerable inconvenience and expense of a
public sector employer”. Those were the factors which caused the tribunal to
conclude that this was a case in which it should exercise its power to order
Mr Howman to pay the Trust’s costs of defending the claim.
5.
Two things should be added to that. First, it is not as if Mr Howman
was not alive to the possibility that an application for costs might be made if
he lost his case. Even before the case management discussion, the Trust’s
solicitors had written to Mr Howman to inform him that they were likely to
be instructed by the Trust to apply for costs if the claim was unsuccessful. A
note made by the employment judge who presided over the case management discussion,
which was incorporated into the order made following the case management discussion
had reminded Mr Howman of that. Secondly, in addition to concluding that
the bringing of the case had been misconceived, the tribunal decided that in
one respect Mr Howman’s conduct of the proceedings had bordered on the
unreasonable. Indeed, it may have amounted itself to unreasonable conduct.
That would have been another of the circumstances set out in rule 40(3) of
the Rules which triggered the tribunal’s power to make an order for costs
against Mr Howman. The conduct had consisted of him insisting that a
particular witness be called by the Trust to give oral evidence when his
evidence was not challenged and there was nothing relevant which he could have
been asked.
6.
That is the background against which the two issues which this appeal
raises have to be decided. We deal first with the challenge to that part of
the tribunal’s order which required the assessment of the Trust’s costs to be
on the indemnity basis. The difference between the indemnity basis for
assessing costs and the standard basis for doing so is explained in rules 44.4(1)
and 44.4(2) of the Civil Procedure Rules. When costs are assessed on the
standard basis, only those costs which are proportionate to the matters in
issue in the case may be allowed, and if there is any doubt about whether they
are proportionate in that sense or whether any of the costs were reasonably
incurred or whether the amount of those costs was reasonable, that doubt must
be resolved in favour of the paying party. On the other hand, when costs are
assessed on the indemnity basis, the question of whether they are proportionate
to the matters in issue in the case is taken out of the picture, and if there
is any doubt about whether any of the costs were reasonably incurred or whether
the amount of those costs was reasonable, that doubt must be resolved in favour
of the receiving party.
7.
The diligent researches of Mr Gary Morton for Mr Howman
have thrown up only four cases in which orders for costs to be assessed on the
indemnity basis have gone to appeal. In one of them, the employee’s trade union
was liable for the costs. In another, the award for costs was made against a
corporate litigant. In the third, there was no appeal against the order that
the costs should be assessed on the indemnity basis. Mr Howman’s case is
therefore the only case which Mr Morton has found in which an ex‑employee
is appealing against an order requiring him to pay costs on an indemnity basis
out of his own pocket.
8.
The tribunal did not say why it ordered the costs to be assessed on the
indemnity basis. It was requested to do so by Langstaff P. In his
response on behalf of the tribunal, the employment judge said that the tribunal
had been “astonished”, given the “overwhelming and conclusive” evidence which
Mr Howman knew from the disciplinary process he would be facing, that he
had embarked on this litigation. It was “a case which never stood a chance
from the outset”. The employment judge referred again to a particular witness
being required to attend the hearing when there was no challenge to his
evidence, and he noted that Mr Howman had made “scurrilous and unsupported
allegations” about one of the Trust’s staff, which had “clearly” been intended
to embarrass him and in no way supported Mr Howman’s case, and which had
only been withdrawn “at the last moment”. The employment judge concluded with
the following passage:
“At the end of the day, the Tribunal felt that [Mr Howman],
in bringing the case which stood absolutely no chance on the overwhelming
evidence before him, had brought a public-funded body to the Tribunal at great
expense, and in those circumstances this was one of those very rare situations
where the [employee] should be responsible for the [employer’s] entire costs on
the indemnity basis.”
9.
It is not suggested that the tribunal did not have the power to order
that the costs be assessed on an indemnity basis. Rule 41(1)(c) of the
Rules provides:
“… 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 detailed assessment in a
County Court in accordance with the Civil Procedure Rules 1998 … as shall be
directed by the order.”
The words “as shall be directed by the order” gave the tribunal
the power to direct the basis on which the county court should assess the
costs. That was the view reached by the Employment Appeal Tribunal in Beynon v Scadden
[1999] IRLR 700 (Lindsay J presiding) at [30] on the predecessor to rule 41(1)(c),
namely rule 12(6) of the Industrial Tribunals (Constitution and Rules
of Procedure) Regulations 1993. Nor is it alleged that it was not
appropriate to order that the costs be assessed on the indemnity basis because
that would have been to penalise Mr Howman twice over: his unreasonable
conduct in bringing a claim which had no chance of success had resulted in an award
for costs being made, and it was the same conduct which had resulted in the
costs being ordered to be assessed on the indemnity basis. An argument along
those lines was rejected in Beynon at [31]. As Lindsay J
said, “it is not correct to regard an order for costs as penal: it is, rather,
compensatory, compensating the successful respondent for the expense to which
it has unreasonably been put.”
10.
So when should an assessment on the indemnity basis be ordered? In civil
proceedings in the courts, costs will be assessed on the indemnity basis rather
than the standard basis where the conduct of the party has taken the situation
away from the norm. The norm in civil proceedings in the courts has been that
the unsuccessful party would be ordered to pay the costs of the successful
party. That is to be contrasted with proceedings in employment tribunals where
it is only in the particular circumstances identified in rule 40(3) that a
party will be ordered to pay the other party’s costs. In our view, therefore,
costs incurred in proceedings in employment tribunals should only be assessed
on the indemnity rather than the standard basis when the conduct of the paying
party has taken the situation away from even that very limited number of cases
in the employment tribunal where it is appropriate to make orders for costs.
That is why we think that the employment judge was right to say that it was
very rare for an order to be made for costs to be assessed on the indemnity
basis. In our opinion, it was open for the reasons which the employment judge
gave to treat this case as one of those very rare cases in which such an order
was appropriate. We did not understand Mr Morton to suggest otherwise.
11.
So on what basis is it said that the tribunal erred in law in ordering
the costs to be assessed on the indemnity basis? The argument is that it
prevented the county court from taking into account Mr Howman’s ability to
pay such costs as are assessed. Whatever his ability to pay those costs may
be, he will have to pay them and suffer the consequences if he does not. In
our opinion, there are two answers to that argument. First, it is not the fact
that the costs were ordered to be assessed on the indemnity basis which has
resulted in the county court not being able to take into account
Mr Howman’s ability to pay when it assesses the costs. It is the fact
that the costs were ordered to be assessed by the county court, whether on the
standard basis or the indemnity basis. The fact that only costs which are
proportionate to the matter in issue may be awarded when the assessment is on
the standard basis does not mean that the county court can take the paying
party’s ability or inability to pay into account when it assesses the costs.
12.
Secondly, although the county court cannot take into account
Mr Howman’s ability to pay when it assesses the costs, it was open to the tribunal
to take that into account. In other words, if the tribunal thought that the costs
Mr Howman should have to pay should be capped, it could still have ordered
that the costs be assessed by the county court, and assessed on the indemnity
basis, while at the same time ordering that the sum which the assessment
produces should be limited to such sum as the tribunal thought appropriate.
The real question, then, is not so much whether the costs should have been
ordered to be assessed on the standard as opposed to the indemnity basis, but
whether the order should have been modified in some way to reflect what
Mr Howman could afford.
13.
That brings us to the second ground of appeal. The starting point is rule 41(2)
of the Rules which provides that the tribunal “may have regard to the paying
party’s ability to pay when considering whether it … [should] make a costs
order or how much that order should be”. So it was up to the tribunal to
decide whether it would take what Mr Howman could afford to pay into
account. Obviously, that discretion has to be exercised in a judicious and
measured way, bearing in mind that as a general rule it is not appropriate to
make an order which simply cannot be complied with. Moreover, as the
Employment Appeal Tribunal said in Jilley v Birmingham and Solihull
Mental Health NHS Trust (UKEAT/ 0584/06) (Judge Richardson
presiding) at [44], if a tribunal decides not to take the paying party’s
ability to pay into account, it should say why. However, once the tribunal has
decided that it will have regard to the paying party’s ability to pay, then as
the Employment Appeal Tribunal went on to say in Jilley:
“… it should set out its findings about ability to pay, say what
impact this has had on its decision whether to award costs or on the amount of
costs, and explain why. Lengthy reasons are not required. A succinct statement
of how the Tribunal has dealt with the matter and why it has done so is
generally essential.”
Indeed, if the tribunal has decided that it will have regard to
the paying party’s ability to pay, it has to take into account what it has
found to be his ability to pay. As was said in Jilley at [47],
the rules “are wide enough … to allow a Tribunal to take account of ability to
pay by placing a cap on an award of costs even where it orders a detailed
assessment”. It is true that the Court of Appeal said in Arrowsmith v Nottingham Trent University
[2012] ICR 159 at [37] that “[t]he fact that [the employee’s] ability to pay
was … limited did not … require the tribunal to assess a sum [for costs] that
was confined to an amount that [the employee] could pay”, but we note that Jilley
was not referred to by the Court of Appeal in that case. In the final analysis,
if the tribunal decides to have regard to someone’s ability to pay in deciding
what order for costs it should make, what it needs to do is to balance the need
to compensate the litigant who has unreasonably been put to expense against the
other litigant’s ability to pay. The latter does not necessarily trump the
former, but it may do so.
14.
Mr Howman’s case was one in which the tribunal decided that it would
have regard to his ability to pay. In paras. 14-16 of its judgment, it
summarised Mr Howman’s evidence about his income, his expenditure and his
capital. It referred to a schedule he had produced which showed an income which
he and his wife had of £1,257 a month, consisting of his allowance as a local
councillor, his wife’s salary, child benefit and child tax credit, and
expenditure of £638 a month excluding food, clothing and petrol which varied
from month to month. He had only modest savings if the statements of his bank
and building society accounts which he produced were anything to go by. His
only asset was the house which he and his wife jointly owned and where they
lived with their two dependent children. As for that house, what the tribunal
said about it in para. 17.20 of its judgment was this:
“[Mr Howman] clearly is the joint owner with his wife of a
freehold property, 3 bedroom semi‑detached house purchased approximately 9-10
years ago for £89,000 with a mortgage at that time of £48,000 and at today’s
date there is approximately £48,000 outstanding. During the last decade it has
not escaped anyone’s notice that property prices certainly up until the last 2
or 3 years rose significantly, tailed off and in some cases property prices
have fallen. However the Tribunal are entirely satisfied that the value of [Mr Howman’s]
property would be well in excess of the purchase price he paid of £89,000
approximately 10 years ago. The authorities also tell us that when taking
into account [someone’s] means we are perfectly entitled to take into account
capital as well.”
15.
It is not disputed that it is open to an employment tribunal, once it
decides to have regard to the paying party’s ability to pay, to take into
account their capital as well as their income and expenditure. As the
Employment Appeal Tribunal said in Shields Automotive Ltd v Grieg
(UKEATS/0024/10) (Lady Smith presiding) at [47]:
“Assessing a person’s ability to pay involves considering their
whole means. Capital is a highly relevant aspect of anyone’s means. To look
only at income where a person also has capital is to ignore a relevant factor.
We would add that we reject [the] submission to the effect that capital is not
relevant if it is not in immediately accessible form; a person’s capital will
often be represented by property or other investments which are not as
accessible as cash but that is not to say that it should be ignored.”
Importantly, though, the Employment Appeal Tribunal added:
“In any event, no case was made to the Tribunal that the
Claimant would have difficulty in realising his interest in the house or using
its value in some other way so as to meet his liability for expenses [which is
the Scottish word for ‘costs’].”
That suggests that if the claimant had had to sell his house in
order to pay the costs he was ordered to pay, the outcome of the appeal might
have been different. Indeed, Mr Morton says that there is support for
that in the Government’s recent proposals relating to the remission of fees which
will have to be paid when you bring a claim in the employment tribunal. When
it comes to deciding what someone’s disposable capital is, the current proposal
is that their home is not to be taken into account, though a second and
subsequent home is.
16.
The criticism of the tribunal in the present case is that it did not
think through the implications of the order it was making in two respects.
First, the order for costs once assessed was not likely to be less that £40,000
and could be very much more. Since Mr Howman’s savings were modest, and
since such income as exceeded his expenditure was likely to be small, the only
ways in which Mr Howman could meet the order for costs would be either to
raise capital on the strength of the house or to sell the house. He would not
have been able to raise the amount of capital which was necessary given his
modest savings and income. His liabilities, which included the sum he had been
ordered to pay, and his inability to service any loan once the loan had been
used to pay the debt, meant that if he was to be able to meet the order for
costs, the house would have to be sold unless the Trust decided not to enforce
its order for costs for a while. The question for the tribunal, therefore, was
whether in all the circumstances of the case, including, of course, the extent
of his unreasonable conduct and the need for a public sector employer to be
compensated for having had to incur costs so unreasonably, it would be
appropriate to make an award for costs which had that effect on Mr Howman
and his family.
17.
In that connection, we have not overlooked the argument advanced by
Mr Martin Fodder for the Trust that the tribunal would have been
entitled to conclude that this scenario was not set in stone. Although the
county court cannot take into account the paying party’s ability to pay when it
assesses the costs, it can take it into account when it comes to enforcing the
order for costs. The county court is the court which enforces the payment of
sums ordered to be paid by employment tribunals, and the order is enforced as
if it was an order of the county court: see section 15(1) of the Employment
Tribunals Act 1996. When it comes to enforcing such an order, section
71(2) of the County Courts Act 1984 provides:
“If at any time it appears to the satisfaction of the court that
any party to any proceedings is unable from any cause to pay any sum recovered
against him (whether by way of satisfaction of the claim or counterclaim in the
proceedings or by way of costs or otherwise) or any instalment of such a sum,
the court may, in its discretion, suspend or stay any judgment or order given
or made in the proceedings for such time and on such terms as the court thinks
fit, and so from time to time until it appears that the cause of inability has
ceased.”
That is sufficiently wide to enable the county court “at any
time” – although in this context that means at any time after the assessment
has taken place – to take Mr Howman’s ability to pay into account to the
extent that his ability to pay is such that he can truly be said to be “unable”
to pay. Moreover, the county court has similar powers under section 1(5) of
the Charging Orders Act 1979 and section 15(1) of the Trusts of Land
and Appointment of Trustees Act 1996 to take into account Mr Howman’s
personal and family circumstances if it was asked to make a charging order over
the house in favour of the Trust and later on to make an order for sale. For
example, if it was asked to make an order for sale, it could order that such
sale as it orders be postponed until such time as the children are grown up.
18.
These are not unimportant considerations. However, as Mr Fodder
acknowledged, there is a limit to what the county court would be prepared to do
if it was asked to enforce a properly obtained judgment. Moreover, at
whichever stage in the process the county court may be considering
Mr Howman’s ownership and occupation of the house, it will at all times
give great weight to the opinion of the employment tribunal, which the county court
will assume decided to make its order for costs in the knowledge that the house
would have to be sold if the order it was making were to be satisfied. In
other words, it may be that the opportunities which Mr Howman would have
had in the future to persuade the county court to let him keep his home even
for the time being may be more theoretical than real.
19.
Secondly, the property was jointly owned by Mr Howman and his wife.
That meant that Mr Howman would have been entitled to only a half-share of the
net proceeds of sale. If the value of the house had, say, doubled since it
was bought, it might be sold for £180,000.00. Mr Howman’s share of the net
proceeds of the sale would have been in the region of £65,000.00. The
question for the tribunal was whether, in all the circumstances of the case, it
would be appropriate to make an award which could come quite close to wiping
out Mr Howman’s life savings.
20.
It looks to us as if considerations of this kind did not come up on the tribunal’s
radar. If they had, we would have expected the tribunal to have said something
about all of that in its judgment. They were the sort of points which ought to
have been specifically dealt with. The fact that they were not suggests that
they were not considered at all. We have not overlooked Mr Fodder’s point
that the implications of the order for costs would have been so obvious that
the tribunal cannot have failed to have considered them, and we note that when
announcing the tribunal’s decision orally the employment judge is said to have
referred to the likely equity in the property. However, we do not think that
the tribunal must have considered the implications of its order simply because
those implications were so obvious, and as for the employment judge’s reference
to the likely equity in the property, he could have been referring just as
easily to the value of Mr Howman’s capital as to how that capital might be
realised.
21.
There is another criticism which we think can properly be made of the tribunal.
The tribunal was reminded by Mr Fodder that even where it was ordering
that the receiving party’s costs be assessed (on whatever basis) by the county court,
it was open to the tribunal to order that only a specified part of the costs which
were assessed should be paid by Mr Howman, or that the award should be
subject to a financial limit. In other words, the tribunal could have ordered
Mr Howman to pay a specified percentage of the assessed costs, or that the
costs to be assessed should exclude a particular part of the proceedings (for
example, the Trust’s costs up to and including the lodging of the ET3 because
from then on Mr Howman could not be said to have had anything other than a
clear idea of the nature of the case he had to meet), or that the award be
capped by an amount which reflected the economic impact on Mr Howman and
his family of having to sell their home. There is no consideration of any of
those possibilities in the tribunal’s judgment. We imagine that if they had
been considered the tribunal would at least have referred to them.
22.
We understand entirely why the tribunal thought that Mr Howman’s
bringing of the case, and his persistence in pursuing it when he should have
realised that it was hopeless, was so unreasonable. But it looks as if its
understandable criticisms of Mr Howman’s conduct may have resulted in it
taking its eye off the ball when it came to consider his ability to pay the
costs it was ordering. Its failure to factor into the balancing exercise which
it had to conduct considerations of that kind, in our judgment, fatally
undermined the conclusion which it reached.
23.
In the circumstances, we allow the appeal, and we remit the question of
what the terms of the order for costs should be to the tribunal. We have
thought long and hard about whether we should decide for ourselves what the
appropriate order for costs should be, but on balance we think that the
exercise should be conducted by the tribunal, and despite the robust and
trenchant terms in which it expressed itself by the same tribunal which made
the order in the first place. Indeed, since the issue involves a balancing
exercise of the kind to which we have referred, that balancing exercise is best
conducted by the tribunal which has all the relevant facts. Apart from
anything else, things have moved on since the original hearing in the tribunal:
the house has now been valued; the costs awarded by the tribunal have now been
assessed at £49,052.12, including the fixed costs of the assessment, though the
assessment went through by default; the judgment debt has been registered in
the county court for enforcement in the sum of £51,335.40 including interest
and costs; and a charging order has been made in respect of the property. It
will not be open to Mr Howman to argue that an order for costs should not
have been made, nor that they should not have been ordered to be assessed by
the county court, nor that that assessment should not have been ordered to be
on the indemnity basis. It will only be open to the tribunal to consider
whether its order should be modified, if necessary substantially, to take into
account in the balancing exercise it has to conduct the factors set out in the
relevant paragraphs of this judgment.
