Introduction

The case of Raggett v. John Lewis Plc ([2012] UKEAT 0082_12_1708) addresses key issues surrounding the awarding of costs in Employment Tribunals (ET), particularly focusing on the inclusion of Value Added Tax (VAT) in costs orders. Ms. Raggett, the claimant, was employed by John Lewis as a sales assistant until her summary dismissal for gross misconduct. She appealed the costs order imposed by the ET, challenging both the rationale behind the costs award and the inclusion of VAT in the total costs assessed.

Summary of the Judgment

The Employment Appeal Tribunal (EAT) upheld the ET's decision to order Ms. Raggett to pay costs amounting to £2,655.72. However, it set aside the portion of this award related to VAT (£442.62), determining that VAT should not be included in costs orders when the receiving party can reclaim it as input tax. The EAT affirmed that the ET correctly identified the claimant's conduct as misconceived under ET Rule 40(3) and appropriately exercised discretion in the costs awarded, excluding VAT in accordance with general principles.

Analysis

Precedents Cited

The judgment extensively references several key cases that shaped its outcome:

• Barnsley Metropolitan Borough Council v Yerrakalva [2012] IRLR 78: This case emphasizes the tribunal's discretion in awarding costs, suggesting that tribunals should consider the overall impact of a misconceived claim on proceedings and associated costs.
• Kopel v Safeway Stores Plc [2003] IRLR 753: Highlights the importance of considering unreasonable litigation conduct and the rejection of settlement offers when deciding on costs awards.
• Neary v St Albans Girls’ School [2010] ICR 473: Clarifies that while the Civil Procedure Rules (CPR) do not directly apply to ETs, the general principles do, guiding tribunals in their discretion without being bound by procedural specifics.
• McPherson v BNP Paribas [2004] ICR 1398: Reinforces the principle that costs are compensatory, not punitive, and should reflect the reasonable costs incurred due to a party's conduct.
• Kopel v Safeway Stores Plc [2003] IRLR 753: Establishes that the rejection of a settlement offer must be unreasonable to influence costs orders.

Legal Reasoning

The EAT dissected the ET's decision, affirming that the tribunal appropriately considered the claimant's conduct in bringing a misconceived claim under Rule 40(3). The ET evaluated the overall impact of the claim on the proceedings, including the necessity of a two-day hearing caused by the unfair dismissal claim, thereby justifying the costs awarded. Importantly, the EAT identified that while costs are compensatory, VAT should not be included if it can be reclaimed, aligning with the general indemnity principle for costs.

Impact

This judgment sets a significant precedent in Employment Tribunal proceedings by:

• Clarifying that VAT should be excluded from costs orders when recoverable as input tax, ensuring costs orders remain compensatory rather than punitive.
• Reinforcing the tribunal's discretion to consider the entirety of a claimant's conduct and its impact on costs.
• Emphasizing the importance of not rigidly adhering to procedural rules where general principles of fairness and compensation prevail.

Future ETs will reference this case when determining the appropriateness of costs awards, particularly in relation to VAT and the overall conduct of parties in litigation.

Complex Concepts Simplified

Understanding the nuances of costs in legal proceedings can be challenging. Here's a breakdown of key concepts from the judgment:

• Rule 40(3) Misconceived Claim: This rule allows tribunals to order costs against a party who brought a claim that lacked merit or was unreasonable. In this case, Ms. Raggett's unfair dismissal claim was deemed misconceived.
• Costs as an Indemnity: Costs are intended to compensate the winning party for expenses incurred, not to punish the losing party.
• VAT Exclusion: VAT is a tax that businesses can reclaim if they are VAT-registered. Therefore, including VAT in costs awarded would unjustly benefit the recipient and penalize the payer.
• Calderbank Offer: A settlement offer made without prejudice to costs. Its rejection can be considered when awarding costs, but only if the rejection was unreasonable.

Conclusion

The EAT's decision in Raggett v. John Lewis Plc underscores the Employment Tribunals' commitment to fair and compensatory costs awarding. By excluding VAT from the costs order, the judgment aligns ET practices with overarching legal principles, preventing punitive financial burdens on claimants. Moreover, the case emphasizes the necessity for tribunals to assess the broader conduct of parties, ensuring that costs awards reflect the true impact of litigative actions. This judgment therefore serves as a pivotal reference for future cases, promoting equitable cost management within Employment Tribunal proceedings.