Smolarek v Tewin Bury Farm Hotel Ltd & Anor (Practice and Procedure)

An Employment Tribunal’s costs jurisdiction under rule 76(1) involves two distinct stages. It must first decide whether the prescribed threshold is met. It must then decide, as a matter of discretion, whether a costs order is appropriate and in what amount.

A costs award is compensatory, not punitive. The paying party’s previous experience of Employment Tribunal litigation may be relevant to what they could reasonably have understood about the proper conduct of the present proceedings. It must not be used to punish them for earlier claims. Nor may an award be fixed at a level intended to deter future claims. If deterrence materially influences the amount, the discretionary exercise is vitiated and the amount must be reconsidered without that factor.

The Claimant’s claims for constructive unfair dismissal, discrimination, harassment, victimisation, wages and breach of contract were dismissed by the Watford Employment Tribunal. The Tribunal then ordered her to pay the First Respondent £5,200 towards costs exceeding £29,000.

The Tribunal found that the claims had no reasonable prospects of success and that the proceedings had been conducted unreasonably. In fixing the amount, it referred both to the Claimant’s ability to pay and to the need for an amount that would make her think carefully before bringing future claims. On reconsideration, it said that the latter observation was an expression of hope rather than a reason for the order.

The Claimant appealed the original costs judgment. The central issue was whether the Tribunal had allowed irrelevant punitive or deterrent considerations to affect its discretionary assessment of costs.

1. Appeal allowed. The Employment Tribunal had validly found that the rule 76(1) threshold was crossed. Its findings of unreasonable conduct and of claims with no reasonable prospect of success engaged its costs jurisdiction.

2. The discretionary second stage remained distinct. Following Power v Panasonic (UK) Ltd, a costs order in this context is compensatory rather than punitive. Although appellate interference with an Employment Tribunal’s costs discretion is exceptional, it is justified where the discretion is affected by an error of legal principle or an irrelevant consideration.

3. The Tribunal was entitled to consider the Claimant’s and her representative’s prior experience of Employment Tribunal and discrimination litigation. That experience could bear on what they could reasonably be expected to understand about presenting and pursuing the current claims. It was not treated as a basis for punishing the Claimant for having brought earlier proceedings.

4. However, the Tribunal expressly set the amount partly so that it would cause the Claimant to think carefully before bringing future claims. That was a deterrent purpose and an impermissible consideration. It tainted the exercise of discretion as to the level of the award.

5. The reconsideration decision could identify other proper reasons for making some costs order, but it could not retrospectively cure the defect in the original reasoning. To use it to repair that reasoning would be the impermissible reconstruction warned against in Anya v University of Oxford [2001] IRLR 377 CA.

6. The question of the amount of the costs award was remitted to the same Employment Tribunal. It was to reconsider the amount without any notion of punishment or deterrence. The EAT also awarded the Claimant £400 appeal costs under rule 34A(2)(a), payable by set-off against any costs ultimately due to the Respondent.

• Employment Appeal Tribunal: appeal allowed. The amount of the costs award was remitted to the same Employment Tribunal for reconsideration without punitive or deterrent considerations.
• Watford Employment Tribunal: after dismissing the substantive claims, ordered the Claimant to pay £5,200 costs. On reconsideration, it upheld the order.