Yerrakalva v Barnsley Metropolitan Borough Council

An Employment Tribunal considering costs for unreasonable conduct must assess the nature, gravity and effect of that conduct. A precise causal link between the conduct and particular costs is unnecessary, but the award must broadly reflect the loss or expense caused by the conduct and remain compensatory rather than punitive. A finding that a party lied during an abortive interlocutory hearing does not justify ordering payment of all costs where the lies caused no compensable loss and the claim was not found to have been misconceived from the outset. Withdrawal of a claim does not, without more, establish that it was misconceived or warrant a costs order.

The claimant brought race and disability discrimination proceedings in the Employment Tribunal. After an involved interlocutory process and an adjourned pre-hearing review, she withdrew the claim before the review could be restarted.

The Tribunal nevertheless ordered her to pay the respondents’ costs for the whole proceedings. It rejected most criticisms of her conduct but found that she had lied in two respects during the pre-hearing process and treated that as an abuse of process. The appeal concerned whether those findings justified a 100% costs order under rule 40 of the Employment Tribunal Rules and Procedure.

1. Appeal allowed. The order requiring the claimant to pay the respondents’ costs was quashed.

2. Assuming that the claimant had lied in the two respects identified by the Tribunal, that conduct was unreasonable for rule 40(3), although it was debatable whether it amounted to an abuse of process.

3. In exercising the costs discretion, the Tribunal had to consider the nature, gravity and effect of the conduct, as explained by Mummery LJ in McPherson v BNP Paribas [2004] ICR 1398. Rule 40 did not require proof that specific misconduct caused particular costs. It nevertheless required the award to reflect, at least broadly, the effect of the misconduct. The jurisdiction was compensatory, not punitive, as stated in Lodwick v London Borough of Southwark [2004] ICR 884.

4. The Tribunal had treated the finding of abuse as effectively requiring a 100% order, subject to means, without assessing its effect. Its other findings showed that the claim had not been established as misconceived from the outset and that the claimant was not responsible for most of the delay or procedural difficulties.

5. The lies were made during an abortive pre-hearing review. They could not have caused the respondents compensable loss in respect of the proceedings before the review or after the withdrawal. The exceptional situation in which dishonesty establishes that a claim was misconceived from the outset, discussed in Daleside Nursing Home Ltd v Matthew (UKEAT/0519/08), Dunedin Canmore Housing Association Ltd v Donaldson (UKEAT/0014/09) and Nicolson Highlandwear Ltd v Nicolson [2010] IRLR 859, did not arise.

6. The separate application for costs of the appeal under rule 34 of the Employment Appeal Tribunal Rules 1993 was refused. Both sides bore responsibility for the late bundle, and any additional costs were marginal.

• Employment Appeal Tribunal: allowed the appeal and quashed the Employment Tribunal’s costs order.
• Employment Tribunal: ordered the claimant to pay the respondents’ costs for the proceedings from August 2005 to 6 April 2009, subject to detailed assessment.