AQ LTD v HOLDEN (Practice and Procedure : Costs) (Rev 1) [2012] UKEAT 0021_12_1604

EAT
AQ LTD v HOLDEN (Practice and Procedure : Costs) (Rev 1)
[2012] UKEAT 0021_12_1604 · 2012-04-16
[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. …[48]... 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.

Cited in 1 later judgment