Barnsley Metropolitan Borough Council v Yerrakalva

When considering costs for unreasonable conduct in employment tribunal proceedings, the tribunal must assess the whole picture. It should identify the conduct, explain why it was unreasonable and consider its effects. No precise causal link is required between particular conduct and specific costs, but causation remains relevant.

A finding of unreasonable conduct establishes jurisdiction to award costs. It does not automatically justify recovery of all costs. The tribunal must consider every relevant circumstance, including the receiving party’s own litigation conduct. An appellate court should interfere with a costs discretion only for an error of principle, disregard of relevant circumstances or an obviously wrong result.

An employment tribunal ordered a claimant to pay all costs reasonably and necessarily incurred by her employer over a specified period after she withdrew her disability discrimination claim. The tribunal found that she had given untruthful evidence on matters material to disability and means. It nevertheless criticised the employer for conducting the defence disproportionately and claiming costs estimated at £92,500.

The Employment Appeal Tribunal, in decision UKEAT/0231/10/RN, set aside the order. The employer appealed. The central questions were whether the employment tribunal had jurisdiction under Rule 40 of Schedule 1 to the Employment Tribunals (Constitution & Rules of Procedure) Regulations 2004 and whether it had lawfully exercised its discretion by ordering payment of all the costs.

1. Appeal allowed in part. Lord Justice Mummery, with whom Lord Justice Patten and Sir Henry Brooke agreed, held that the employment tribunal had jurisdiction to award costs, but had erred in ordering the claimant to pay 100% of the relevant costs. The order was restored and varied so that she would pay 50% of the costs reasonably and necessarily incurred in relation to the Pre-Hearing Review.

2. Rule 40 of Schedule 1 to the Employment Tribunals (Constitution & Rules of Procedure) Regulations 2004 should be applied according to its language. The tribunal must consider the whole picture, identify the conduct relied upon, explain why it was unreasonable and consider its effects. The decision in Macpherson v BNP Paribas (London Branch) [2004] IRLR 558 did not require the tribunal to divide the circumstances into separate compartments labelled nature, gravity and effect. Nor did it make causation irrelevant. It rejected only the need for a precise causal link between particular unreasonable conduct and specific costs.

3. The claimant’s untruthful evidence on matters material to her disability claim and means amounted to unreasonable conduct. It was reasonable for the employer to investigate and challenge her credibility. The withdrawal of the claim before a final merits determination did not prevent the tribunal from deciding costs on the material available.

4. The jurisdictional finding did not itself justify an award of all costs. In exercising its discretion, the tribunal had to take account of its own significant criticisms of the employer. The employer had defended the case over-vigorously, prolonged the Pre-Hearing Review and incurred costs disproportionate to the issues. By failing to factor that conduct and its effects into its overall assessment, the tribunal committed an error of law.

5. Remittal would have caused further cost and delay and neither party sought it. The Court of Appeal therefore exercised the discretion afresh. The award was confined to 50% of the costs reasonably and necessarily incurred in connection with the Pre-Hearing Review, where both the claimant’s untruthfulness and the employer’s excessive response were principally material.

1. Court of Appeal (Civil Division): Allowed the employer’s appeal in part. It restored the employment tribunal’s costs order but varied it to 50% of the costs reasonably and necessarily incurred in relation to the Pre-Hearing Review.

2. Employment Appeal Tribunal: Underhill J set aside the employment tribunal’s costs order in decision UKEAT/0231/10/RN.

3. Employment Tribunal: Following withdrawal and dismissal of the relevant claim, ordered the claimant to pay the employer’s costs reasonably and necessarily incurred between September 2005 and 6 April 2009, subject to detailed assessment.