Living on the edge: Arrowsmith, Yerrakalva and Dionissiou-Moussaoui
During 2011, the Court of Appeal and the Employment Appeal Tribunal (EAT) had to examine on a number of occasions various issues on the proper exercise of the tribunal's discretion to order costs. Julian Allsop provides a round-up of those decisions and considers whether the EAT's earlier judgment in Daleside Nursing Home Ltd v Mathew is really of such limited use as the Court of Appeal now appears to suggest.
There are four steps in determining a costs application on the discretionary basis pursuant to rules 40 and 41 of sch 1 of the Employment Tribunal (Constitution & Rules of Procedure) Regulations 2004, namely:
- determination of whether the tribunal has jurisdiction (rule40(2)) to make the costs award (rule40(3)) by reference to the conduct that was complained about;
- determination of the extent to which the conduct of the paying party was relevant to the costs that were incurred by the receiving party;
- consideration of whether to take the paying party's means into account (rule41(2)) in relation to the exercise of discretion;
- the assessment of the costs themselves.
First step: jurisdiction to make the costs award?
In February 2009, the EAT appeared to give guidance in Daleside Nursing Home Ltd v Mathew that in circumstances where the central thrust of a party's contention is found to have been based on a lie, it will be perverse for a tribunal not to order costs. However, the extent to which there is any such principle was considered in June 2011 by the Court of Appeal in Arrowsmith v Nottingham Trent University.
Arrowsmith v Nottingham Trent University
Ms Arrowsmith brought a claim of sex discrimination on the basis that she had been refused the post of business development officer with the Nottingham Trent University on the ground that she was pregnant. Her claim was dismissed; the tribunal making the crucial finding that the decision not to appoint her to the post was not influenced by the fact of her pregnancy. In so doing, it rejected her allegations that the interviewing officers were well aware of her pregnancy at the time of interview.
The university made an application for costs on the basis that Ms Arrowsmith had acted unreasonably in bringing the proceedings as they were based on what was contended to be a series of untruths about the interviewing officers' knowledge of her pregnancy. The application based on the guidance given by the EAT in Daleside was successful and the tribunal awarded the university £3,000 towards its costs.
In the Court of Appeal, the award of costs was upheld. However, Rimer LJ explained that Daleside was a decision confined to its own facts, and not a statement of general principle. He endorsed the recent EAT judgment in HCA International Ltd v May- Bheemul where it was stated that a lie on its own would not necessarily be sufficient to found an award of costs; in each instance, the tribunal would have to evaluate the context of the conduct that was the subject of the application.
The tribunal in Arrowsmith did not find in terms that there had not been a lie but rather that central allegations, which were critical to the success of the case, had been found to be untrue. Thus, it is suggested that Arrowsmith is supportive of Daleside; namely that litigants who found core aspects of their case on matters that are untrue should not be surprised if they face a costs award in due course.
Dean & Dean (A Firm) and Others v Dionissiou-Moussaoui
The Court of Appeal revisited this threshold question of jurisdiction to make costs awards in the case of Dean & Dean (A Firm) and Ors v Dionissiou-Moussaoui. In this case, the tribunal refused to make a costs order against Ms Dionissiou- Moussaoui, even though her various discrimination claims, unfair dismissal and related claims were either struck out on jurisdictional grounds (time limits, the repealed Dispute Resolution Regulations and the associated parts of the Employment Act 2002) or withdrawn.
There was no decision on the factual or legal merits of her claims at that stage, and the surviving victimisation and holiday pay claims were to proceed to a full hearing. As well as these factors, the employment judge took into account the fact that each allegation would be contested, and that there had been a warning to the parties to take into account the overriding objective in the conduct of the case and the complexity of the issues. He decided that all these circumstances vitiated against assuming the jurisdiction to make a costs award against Ms Dionissiou Moussaoui. The EAT upheld the decision of the judge in relation to the issue of costs.
In the Court of Appeal, Mummery LJ again upheld the decision of the tribunal. He found that there was no error of legal principle committed by it: express reference was made to the relevant rule and in exercising its discretion; it was relevant for the tribunal to take account of the fact that the victimisation claim was to continue; and that, if the other matters had proceeded to a hearing, they would have been contested. In those circumstances, it would have been necessary for the more serious allegations to be determined.
However, as a result of the claims being struck out on jurisdictional grounds, there would be no testing of the evidence at a substantive hearing before the tribunal. Thus, it was not possible for the tribunal to conclude that the contested claims were false, misconceived, frivolous or vexatious. Therefore, where a claim is withdrawn or struck out on jurisdictional grounds, it is not the rule that an award of costs should be made.
Of course, where allegations are simply withdrawn or dismissed on jurisdictional grounds or where a peripheral lie is told in evidence that is not fundamental to the case, the notion that costs should not be automatically ordered is uncontroversial. But where the central allegation in a claim or response is found on the evidence to have been fabricated (rather than simply not proven), it arguably remains the case after Arrowsmith that costs should be ordered on the basis of Daleside. It should be noted that at no stage in 2011 has it been suggested that Daleside had been wrongly decided.
Step two: relevance of costs claimed to the conduct
This issue, arising out of Mummery LJ's judgment in McPherson v BNP Paribas (London Branch), was considered further by the Court of Appeal in Barnsley Metropolitan Borough Council v Yerrakalva in November 2011.
Barnsley Metropolitan Borough Council v Yerrakalva
Mrs Yerrakalva, a primary school teacher, brought race, sex and disability discrimination claims against her employer, Barnsley Metropolitan Borough Council in 2005, following an alleged accident at work in 2003. In 2006, the sex discrimination claim was withdrawn. In 2007, there was a three-day hearing review to consider the issue of whether Mrs Yerrakalva was disabled. It was adjourned part-heard.
Before the pre-hearing review could be resumed afresh (the employment judge having been taken ill), Mrs Yerrakalva withdrew her remaining claims and they were formally dismissed in 2009. In the meantime, the council made an application for costs on the basis that she had told two lies at the pre-hearing review, although her claims had not been the subject of final determination in the usual way.
The judge allowed the application, considering that he had jurisdiction to make a costs order on the basis that the two lies amounted to an abuse of process/unreasonable conduct, and he made a 100% costs order, to be the subject of a detailed assessment (as the council's costs exceeded the £10,000 threshold). It was unnecessary on the judge's view of Mummery LJ's judgment in McPherson to find any causal nexus between the conduct relied upon and the costs incurred, in order to ascertain the quantum of the costs award. While the judge voiced muted criticism of the council's litigation conduct, this was not reflected in the application of the principle of relevance by way of a reduction in the costs that were directed to be paid by Mrs Yerrakalva.
Mrs Yerrakalva appealed against the costs order and her appeal was upheld by the EAT. Underhill J decided that while it was reasonable for the judge to have found unreasonable conduct by failing to have regard to the broad ‘nature, gravity and effect' of the paying party's conduct, it had misapplied McPherson. The tribunal's view that once jurisdiction had been established, subject to means, it followed that it was appropriate to make a 100% costs award could not be sustained. The costs award was set aside.
The Court of Appeal partially upheld the judgment of the EAT. Mummery LJ considered that while there was no error of law in the tribunal's assumption of jurisdiction to make a costs order, clarification of McPherson was required. It was explained that McPherson was authority for a broad approach to causation arising from unreasonable conduct, as opposed to requiring the tribunal to identify a precise causal link between the unreasonable conduct and the costs that were the subject of the application. While precision may not be required, the extent to which the conduct caused the costs must be reflected in broad terms.
On that basis, Mummery LJ considered that Mrs Yerrakalva should pay 50% of the costs reasonably and necessarily incurred by the council in relation to the pre-hearing review and the costs hearings in the tribunal that followed as Mrs Yerrakalva's untruthfulness and the criticism of the council's conduct related solely to that matter.
Step three: taking note of the paying party's means
Rule 41(2) requires the tribunal to consider whether it should exercise its discretion about whether to take into account the paying party's means in the exercise of its costs discretion.
This ‘discretion within a discretion' was considered further in May in Mirikwe v Wilson & Co Solicitors and Others. If the paying party acts in a particularly unreasonable manner, such as not attending a costs hearing where it is the primary source of evidence as to means, that can be a legitimate reason not to take into account means at the costs hearing at all.
Mirikwe is common sense writ large: it can frequently be the case that the paying party by their absence or other conduct prevents information about their means from coming before the tribunal. It must be right, and in accordance with the overriding objective, for the fact of the absence to influence the exercise of the rule 41(2) discretion in appropriate circumstances.
Step four: assessment of the costs
When the tribunal comes to the assessment of costs, summary assessment is an available course if the amount claimed is less than £10,000 (rule 41(1)(a)). The matter can instead be sent to the county court for detailed assessment in accordance with the Civil Procedure Rules if more is sought, or it is otherwise appropriate to have a detailed assessment. In conducting the assessment, the paying party's means are likely to be relevant.
It was held in July in Shields Automotive Ltd v Grieg that this can include the paying party's capital resources as well as his income; in this case, the paying party's capital in the marital home was adjudged to be relevant. As all relevant assets are now part of the assessment of the paying party's ability to pay, it is now important for practitioners to ensure that in the face of the reluctant target of a costs application questions of the other side are raised in writing at an early stage when it is apparent that a costs application will be made. Necessary credit searches and enquires should also be made to ensure that the tribunal has a full picture as to the paying party's ability to pay. This might also legitimately include disclosure of any relevant legal expenses insurance policy, which might provide for the payment of inter partes costs.
More recently (November), in Osonnaya v Queen Mary University of London it was held by the EAT that an employment judge is not obliged to raise the question of means with the potential paying party, making it incumbent on advocates to raise the issue with the tribunal on behalf of their clients and obtain the necessary evidence in good time for the hearing.
From the authorities decided in 2011 on the issue of costs, the prevailing view as to the application of rules 40 and 41 is as follows:
- in determining whether or not there is jurisdiction to make a costs award, the tribunal should approach the matter on a case-by-case basis, having regard to the overall circumstances of the case before them. There is a palpable reluctance on the part of appellate courts to establish any authoritative jurisprudence on costs issues
Daleside is not authority for the proposition that where there is a clear-cut finding that the central allegation was a lie, it is perverse for the tribunal not to order costs. Previous cases on the exercise of costs discretion can at most amount to guidance as to relevant factors in the exercise of that discretion. Nevertheless in my view, Arrowsmith in effect confirms the correctness of Daleside, such that it will inevitably remain useful in analogous cases, despite judicial reticence to consider it authoritative of any principle per se
- in directing which costs the paying party should pay, it is necessary for the tribunal to have regard to the principle of relevance and assess the causation of costs, albeit on a broad basis without absolute precision
- the tribunal has discretion over whether to take the paying party's means into account in the exercise of its discretion on costs, and it is permissible where the paying party behaves unreasonably by not attending for the tribunal to take that fact into account in deciding not to consider his or her means in the assessment of costs
- the paying party's means include the whole of his or her means, including capital resources. It is also suggested that establishing the position of a relevant policy of legal expenses insurance would be prudent in advance of a costs hearing. There is no obligation on the tribunal to raise the issue of means with the parties.
Cases referred to:
Arrowsmith v Nottingham Trent University  EWCA Civ 797
Daleside Nursing Home Ltd v Mathew  UKEAT/0519/08/RN
HCA International Ltd v May-Bheemul  UKEAT /0477/10/ZT
Dean & Dean (A Firm) and Others v Dionissiou-Moussaoui  EWCA Civ 1332
McPherson v BNP Paribas (London Branch)  ICR 1398
Barnsley Metropolitan Borough Council v Yerrakalva  UKEAT/0231/10;  EWCA Civ 1255
Mirikwe v Wilson & Co Solicitors and Others  UKEAT/0025/11/RN
Shields Automotive Ltd v Grieg  UKEATS/0024/10/BI
This article was first published in ELA Briefing (Vol.19, No.2, March 2012) under the title ‘Living on the edge: tribunal discretion to order costs'
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