Factual and Procedural Background
This appeal concerns an order for costs made by an employment tribunal and affirmed by the employment appeal tribunal following the withdrawal by the Appellant of claims for unfair dismissal and breach of contract against his former employer, Company A, an investment bank. The Appellant was employed in a sales team from January 1999 until September 2000. He claimed constructive dismissal on 29 September 2000, while Company A alleged dismissal for gross misconduct on 11 October 2000. Shortly after leaving Company A, the Appellant obtained employment with another bank and continued working there throughout the proceedings.
The costs order was notable because employment tribunals rarely make costs orders, especially before a full hearing on the merits. The Appellant withdrew his claim several weeks before the scheduled full hearing, and the costs claimed by Company A for detailed assessment were unusually high for a case that never proceeded to full hearing.
The proceedings began with the Appellant presenting his complaint in October 2000. The initial hearing was scheduled for September 2001 but was adjourned following a late application supported by medical evidence relating to the Appellant's heart condition. The case was re-listed for May 2002. Throughout the proceedings, there was correspondence concerning the Appellant's health, disclosure obligations, and compliance with tribunal orders. The Appellant ultimately withdrew his claims in May 2002, citing health reasons related to stress caused by the litigation.
Company A applied for a costs order on the basis of the Appellant's alleged unreasonable conduct, including misleading statements and failure to comply with disclosure orders. The tribunal made a costs order against the Appellant, which was upheld on appeal. The Appellant then renewed his appeal to this court.
Legal Issues Presented
- Whether the Appellant conducted the proceedings unreasonably such that a costs order under rule 14 of the Employment Tribunal Rules of Procedure 2001 was justified.
- The proper exercise of the tribunal's discretion in making a costs order against an applicant who withdraws claims before a full hearing.
- Whether the costs order should be limited to costs attributable to specific unreasonable conduct or extend to the whole proceedings.
- The timing from which the Appellant's liability for costs should commence.
Arguments of the Parties
Appellant's Arguments
- The Appellant relied on health reasons as the sole basis for withdrawing the claims, emphasizing the stress caused by the proceedings.
- It was argued that withdrawal of claims should not automatically be considered unreasonable conduct warranting costs orders.
- Submission was made that the costs order should be limited to costs attributable to specific instances of unreasonable conduct, not the entirety of the proceedings.
- The Appellant contended that the tribunal erred in rejecting the medical evidence and inferences regarding his health as the sole reason for withdrawal.
- It was submitted that the tribunal's reference to concerns about the Appellant’s probity and a hope for a settlement offer were unsupported and legally erroneous.
Respondent's Arguments
- Company A argued that the Appellant's conduct was unreasonable, including failure to comply with tribunal orders and misleading statements about his medical condition.
- They contended that the costs order should cover the entire proceedings due to the cumulative unreasonable conduct.
- Company A maintained that allowing withdrawal without risk of costs sanctions could encourage speculative claims and late withdrawals, causing prejudice.
- They emphasized the distinction between costs relating to postponements and costs generally incurred due to unreasonable conduct, supporting a broad costs order.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Gee v. Shell UK Ltd [2003] IRLR 82 |
Employment tribunal costs orders are rare and exceptional. |
Used to illustrate the unusual nature of costs orders in employment tribunals. |
| Lodwick v. London Borough of Southwark [2004] EWCA Civ 306 |
Guidance on the exercise of discretion in employment tribunal costs orders. |
Referenced regarding the discretion and principles governing costs orders. |
| Kovacs v. Queen Mary & Westfield College [2002] IRLR 414 |
Consideration of costs orders under employment tribunal rules. |
Confirmed that rule 14(1) does not limit costs orders to those strictly caused by unreasonable conduct. |
| Health Development Agency v. Parish [2003] UKEAT 0543/03 |
Interpretation of rule 14 regarding costs orders. |
Supported the view that tribunals have broad discretion to award costs not strictly attributable to specific conduct. |
Court's Reasoning and Analysis
The court began by identifying the central legal question as whether the Appellant had conducted the proceedings unreasonably under rule 14 of the Employment Tribunal Rules of Procedure 2001. It emphasized that the issue was not whether withdrawing the claim was itself unreasonable, but whether the overall conduct of the proceedings was so.
The tribunal had found that the Appellant's health was not the sole reason for withdrawal, noting a lack of up-to-date medical evidence and the failure to alert the tribunal or Company A earlier to the possibility of withdrawal. The court accepted that some criticisms of the tribunal's reasoning, particularly regarding the Appellant's probity and the medical evidence, had merit. However, reading the tribunal's reasoning as a whole, the court found sufficient evidence to support the conclusion of unreasonable conduct, including failure to comply with orders, procrastination, and misleading statements.
Regarding the exercise of discretion, the court rejected the Appellant's argument that costs should be limited only to those directly attributable to unreasonable conduct. It explained that while the nature and gravity of the conduct are relevant factors, rule 14(1) does not impose a causal limitation on costs awards. The court distinguished this from rule 14(4), which relates specifically to costs caused by postponements.
The court identified an error of law in the tribunal's order that the Appellant pay costs for the entirety of the proceedings, as there was no evidence of unreasonable conduct prior to the introduction of the health issue. The court concluded that liability for costs should commence from the date the Appellant applied to adjourn the hearing on medical grounds, when unreasonable conduct began, continuing through to withdrawal.
In an additional opinion, another judge agreed with the primary judgment but suggested liability should start from the date Company A requested information about the Appellant’s subsequent employment, marking the commencement of unreasonable conduct. This judge did not censure the initial adjournment application on medical grounds due to the supporting medical report enclosed with the solicitors' letters.
Holding and Implications
The appeal is allowed in part. The court varied the costs order so that the Appellant is liable to pay costs only from the date of the application to adjourn the hearing on medical grounds in September 2001, rather than for the entirety of the proceedings.
The decision clarifies that employment tribunals have discretion to make costs orders against applicants who withdraw claims if their conduct is unreasonable, but costs liability should be proportionate to the period and conduct found to be unreasonable. The ruling does not set a new precedent limiting costs orders to causally attributable costs but confirms the importance of a fact-specific approach. It also reinforces that withdrawal of claims is not inherently unreasonable and that tribunals must assess the totality of conduct in context.