The Employment Tribunal Rules (ET Rules) and the CPR
The amount of a costs order in the employment tribunal (ET) can be made subject to detailed assessment, to be carried out (either by the ET or by a county court) in accordance with the Civil Procedure Rules 1998 (CPR) (rule 78, ET Rules). It was traditionally understood that this application of the CPR to ET procedure was limited to the assessment of the level of costs, as opposed to the separate question of whether costs should be ordered at all. As reflected in the CPR, “costs follow the event” in the civil courts. In contrast, the ET has a limited costs jurisdiction, which depends on the existence of improper or unreasonable conduct and the exercise of discretion in the presence of such conduct as to whether to award costs.
In addition, even when an ET orders a detailed assessment, it ought to consider placing a cap on the sum of costs eventually assessed (Jilley-v-Birmingham NHS Trust  UKEAT/0584/06).
The settled view appeared to be that the CPR had little role to play when addressing the costs regime of the ET and certainly none before the stage of assessment. This blog considers whether that remains a correct view in the light of the decision in Swissport v Exley and others UKEAT/07/16.
The Facts of Swissport
The case concerned a TUPE transfer. The ET considered that a number of Swissport’s arguments had no reasonable prospects of success and, consequently, made a costs award against it. The order required Swissport to pay the costs of the successful Claimants incurred in relation to a particular part of the proceedings (a “period costs award”). The amount of those costs was then to be determined by detailed assessment.
The potentially complicating factor was that the Claimants funded the claim under a Damages-Based Agreement (“DBA”), which provided that the Claimants’ costs liability was limited to 10% of the damages that they recovered. The ET’s reasoning did not address whether they considered that this impacted on its ability to make a period costs award.
Swissport argued that the ET erred because, logically, raising (what the ET considered to be) misconceived arguments had no causal effect on the eventual level of the costs that the Claimants would be obliged to pay their representatives. No evidence was given or finding made by the ET that any costs recovery on the part of the Claimants impacted on their costs liability to their representatives.
The Lawfulness of DBAs
DBAs (historically unlawful) are now governed by the Damages-Based Agreements Regulations 2013 (DBA Regulations 2013). The Regulations impose a series of stringent requirements as to the lawfulness of a DBA. They also expressly draw a distinction between employment and non-employment claims. In a non-employment claim there is a statutory obligation (in order for the agreement to be lawful) that any sums recovered from the other party to the litigation must be set off against the eventual sum to be paid by the client to the solicitor (regulation 4). Such a requirement expressly does not exist as regards a DBA concluded in an employment matter.
The CPR Position as regards DBAs
The CPR require costs to be assessed on the usual basis for the type of case concerned, notwithstanding that the receiving party has funded their claim under a DBA. However, the amount payable under the DBA acts as a cap on the maximum amount which can be recovered. (CPR 44.18.)
The EATs judgment on the DBA issue
The EAT rejected Swissport’s contention that a period costs award was impermissible in the context of a claim funded by a DBA in an employment matter.
The EAT concluded that the different treatment of employment and non-employment matters in the DBA Regulations 2013 was not material. In its opinion, the CPR approach should apply in the ET just as much as it did in the civil courts.
Slade J said:
“49. …In my judgment these factors are relevant in considering whether a ‘period’ Order for costs by an ET in favour of a party who has entered into a DBA is appropriate. CPR Rule 44.2(6) applies to Costs Orders in civil claims for which the Claimant has entered into a DBA. In my judgment the application of Regulation 4 to such claims but not to employment claims does not affect the appropriateness of a ‘period’ Costs Order in the ET. Such an argument is not particular to a ‘period’ Costs Order but would apply generally to all Costs Orders made under ET Rule 78(1) where the receiving party has entered a DBA. If the paying party has or will pay or be liable to pay the receiving party any expenses under agreement or other Order, in exercise of their discretion there is nothing to prevent the ET making an Order which would have a similar effect to Regulation 4 between those parties up to the limit agreed to be paid by the Claimant to their legal advisor under the DBA.”
The clarification of the EAT on this point is to be welcomed (and doubtless represents something of a relief to many Claimant practitioners). However the approach adopted arguably suggests the CPR approach guiding the exercise of the discretion as to award costs at all (i.e. under Rule 76, ET Rules). Further, it involves the application of the CPR approach in circumstances where the wording of the DBA Regulations 2013 might be felt to suggest every reason why that approach ought not to apply.
The Pro-Rata Issue
The Claimants’ total costs liability under the terms of their DBA was set at 10% of the level of damages awarded. The period costs award meant that they were only entitled to recover costs for part of the proceedings. However, the ET allowed that the amount of costs assessed could be up to the full 10%. Swissport contended that the ET’s approach was erroneous as it involved a failure to recognise the validity of some of the arguments that it had sought to deploy and involved awarding the Claimants their full costs.
The EAT rejected this pro-rata argument and once again did so by means of the application of principles drawn from the CPR. In short, it stated that there was no scope under either the ET Rules or the CPR for pro-rating the maximum amount payable by Swissport (paragraph 50 of the judgment).
The appeal in Swissport succeeded on other grounds and therefore the costs decision was overturned rendering any further appeal unlikely.
It remains to be seen if the reasoning in Swissport will lead to a shift in the approach of ETs when exercising their discretion as to costs. However, it is considered that the effect of the same is more closely to align the costs jurisdictions of the ET and the civil courts. The desirability of that approach in the generally costs-free jurisdiction of the ET is perhaps a matter for discussion on another day.
In the second part of this blog, to follow, I will look at the EAT’s reasoning on when the merits of a case should be assessed for the purposes of determining whether to make a costs order.
Nicholas Siddall is a member of Littleton Chambers and appeared as counsel for Swissport in Swissport.