Nicholas Siddall analyses the recent judgment of the EAT in Swissport v Exley & Ors [2017] UKEAT/007/16 (Slade J) in which he successfully appeared and the interesting observations therein made by the EAT as to the correct approach to assessing costs in the Employment Tribunal.
THE FACTS
The detailed facts of the matter are not material save for appreciating that in the context of a TUPE transfer the Employment Tribunal had made a costs award against the Appellant where it considered that a number of the arguments deployed by it had no reasonable prospects of success. The Employment Tribunal thus ordered that the Appellant should pay the costs of the successful Claimants from the service of its response up to the conclusion of a trial of a preliminary issue. I.e. costs incurred in a relevant period of time (hereinafter a “period costs award”).
The complication was that the Claimants funded the claim by means of a Damages Based Agreement (“DBA”) which provided that the Claimants’ costs liability was limited to 10% of the damages that they recovered. The Employment Tribunal did not appear to consider whether this presented any issue in making a period costs award. The Appellant’s position was that this was incorrect when logically its raising, what the Employment Tribunal considered to be, misconceived arguments had no obvious causal effect on the eventual level of the costs that the Claimants would be obliged to pay their representatives. No evidence was given or finding made that any costs recovery on the part of the Claimants impacted on their costs liability to their representatives.
In addition the Appellant advanced a number of arguments as to how it contended that the Employment Tribunal had erred in its approach to the assessment of costs in particular that the Employment Tribunal had not considered the correct; point in time for an assessment of the merits of any particular issue.
THE EAT’S JUDGMENT
(1) The Permissibility of a Period Costs Award
The EAT rejected the Appellant’s contention that a period costs award was impermissible in the context of a claim funded by a DBA. The EAT assessed the history of the Regulations enacted in 2010 and 2013 which rendered such agreements lawful and also considered the CPR approach to such funding arrangements.
The EAT’s conclusion was the different treatment of employment and non-employment matters in the enacting Regulations was not material. It was of the view that the CPR approach should apply in the Employment Tribunal just as much as it did in the civil courts.
Slade J said this
“49. …In my judgment these factors are relevant in considering whether a ‘period’ Order for costs by an ET in favour of a party who has entered into a DBA is appropriate. CPR Rule 44.2(6) applies to Costs Orders in civil claims for which the Claimant has entered into a DBA. In my judgment the application of Regulation 4 to such claims but not to employment claims does not affect the appropriateness of a ‘period’ Costs Order in the ET. Such an argument is not particular to a ‘period’ Costs Order but would apply generally to all Costs Orders made under ET Rule 78(1) where the receiving party has entered a DBA. If the paying party has or will pay or be liable to pay the receiving party any expenses under agreement or other Order, in exercise of their discretion there is nothing to prevent the ET making an Order which would have a similar effect to Regulation 4 between those parties up to the limit agreed to be paid by the Claimant to their legal advisor under the DBA.”
(2) A Pro-Rata Approach
On the facts of the instant case the costs liability under the terms of the DBA was set at 10% of the level of damages. The Employment Tribunal had found that the issue of remedy had rightly been contested by the Appellant but had indicated an intention to assess costs up to the level of 10% of damages as regards those elements of the defence of the claim where it had made a costs order. Was such an approach permissible or ought there to be some reduction of that potential sum awarded in order to reflect the costs incurred in meeting, what the Employment Tribunal found to be, the valid arguments of the Appellant?
The EAT rejected the pro-rata argument on the following basis:
“50. Nor in my judgment can it be said that the ET erred in making a period costs award under which the maximum liability of the Claimant under the DBA was met notwithstanding that the Claimants’ legal advisors would have incurred costs in the compensation part of the proceedings. The basis of Mr Siddall’s contention is that the Prolegal Claimants’ 10% liability under the DBA should be attributed to the entirety of the proceedings and pro rated to take account of the fact that no Order was made against Swissport in respect of the Compensation Hearing. To limit a Costs Order in this way would advantage a paying party where the receiving party has entered into a DBA compared with a case in which the receiving party had not entered into such an agreement. Further such an Order would have to be made under Rule 78(1)(a) rather than under 78(1)(b). The amount of those costs is for detailed assessment. Absent any escalating staging in the DBA applying ET Rule 78(1)(b) and CPR principles there is no scope for pro-rating the maximum amount payable by Swissport as contended by Mr Siddall. In my judgment the ET did not err in stating that the limit on Swissport’s liability on costs was the amount the Claimants were obliged to pay under the DBA.”
(3) The Time for Assessment
A further criticism advanced against the Employment Tribunal’s judgment was that instead of assessing the various arguments of the Appellant at the point of pleading it had assessed the same through the prism of its findings after disclosure, evidence and full argument. The Appellant contended that this was incorrect on the basis of inter alia the decision of the NIRC in Marler v Robertson [1974] ICR 72.
The EAT rejected that submission and contended that the time for assessment was at the conclusion of the case and, in so doing, relied on a comparison of the wording of Rule 37 of the Employment Tribunal rules (strike out) and the relevant costs provisions.
Slade J stated as follows:
“67. …In my judgment this passage clearly shows that in considering the differently worded predecessor to Rule 76 of the current ET Rules the EAT proceeded on the basis that whether a claim was misconceived and whether there had ever been any reasonable grounds for the allegations made was to be judged on all the information available to the Employment Tribunal at the time of making that decision. In Vaughan the Employment Tribunal took their decision on costs after a twenty day hearing following which the Claimant lost her claim. The EAT at paragraph 13 held that the approach of the Employment Tribunal which included taking into evidence given at that Liability Hearing, was unimpeachable.
68. In my judgment the ET did not err in assessing whether the grounds of resistance on which [the Appellant] relied had a reasonable prospect of success on the basis of all the material before them by the time the costs application was made. That included evidence given and argument advanced at all three hearings.”
(4) Failed Strike Out
A further argument deployed by the Appellant was that as one of its contentions had been the subject of a strike out application which had been unsuccessful that it was then impermissible (or at least required detailed explanation) to then order costs against the Appellant as regards the costs incurred in meeting that contention.
The EAT rejected that argument stating as follows:
“99. The ET decided whether to make a Costs Order acts on the material before them at that time. The reasonable prospect of success of a claim or defence can diminish or improve after the lodging of pleadings. A document or witness statement may shed light on a relevant issue and improve or diminish prospects of success. The ET at the Costs Hearing in this case decided whether the ETO defence had a reasonable prospect of success on all the material before them including the changing basis upon which that defence was advanced. Although not expressly referred to it is not sufficient that in theory an ETO defence may exist. In order for that defence to succeed a respondent must establish that the particular ETO was the reason for the dismissal…”
CONCLUSION
The appeal succeeded on other grounds (namely an improper approach to the assessment of the merits of a Polkey defence) and thus the costs decision was overturned rendering any further appeal unlikely.
The analysis in the decision is clearly helpful as it determines the proper approach to costs in the Employment Tribunal in the presence of a DBA and resolves uncertainty in that regard.
However it is suggested that the effect of the said judgment is to suggest a difference in approach to the assessment of costs by an Employment Tribunal. Instead of the more liberal approach adopted by the NIRC in Marler and subsequent decisions one sees instead an approach where an Employment Tribunal is permitted to be much more searching as to the merits of a contention raised by a party when addressing any application for costs. Indeed the wording of the EAT suggests that a shift in evidence can justify an award of costs against a party from inception despite it being possible that such a shift was utterly unforeseeable. The consistency of that approach with decisions such as Marler and Vaughan v Lewisham [2013] IRLR 713 will perhaps be for consideration on another occasion.
