EAT decision clarifies power to make costs awards for Tribunal litigation
The Employment Appeal Tribunal (EAT) has clarified the basis on which Tribunals can make costs awards on the higher indemnity basis in rare cases.
Costs awards in the Employment Tribunal
Generally speaking, each party to Employment Tribunal litigation will be responsible for bearing their own costs, irrespective of the outcome of the case. The reason for this is in order not to dissuade would-be claimants from enforcing their rights for fear of being liable for their employer's costs in the event of a defeat.
However, there are exceptions to this rule, and the Tribunal does in fact have the power to make costs in limited circumstances, including where a party has acted vexatiously, abusively, disruptively or otherwise unreasonably, and where a claim or response has no reasonable prospects of success.
Where the Tribunal does make a cost award, it usually does so on what is called the "standard basis". This means that in order to be recoverable, the costs must have been reasonably incurred, reasonable in amount and proportionate.
In rare cases, costs may be awarded on the "indemnity" basis, where there is no proportionality test, and the amount of the final award might be higher.
Background to the case
In the case of Dowding v Character Group plc [2024] EAT 153, the claimant brought multiple claims, including a whistleblowing claim that had no reasonable prospects of success and had been contrived in order to avoid the statutory cap on damages. The claimant had been found to have given dishonest evidence, to have unreasonably accused others of forgery, and to have unreasonably rejected a settlement offer of £200,000. All this amounted to "extremely serious" unreasonable conduct for the purposes of costs. The claimant was ordered to pay the respondent's costs on an indemnity basis. The amount to be paid was capped at £127,563.70 for the substantive hearing, and a further £20,000 towards the respondent's costs incurred in respect of the costs hearing itself.
The claimant appealed to the EAT.
EAT decision
The EAT allowed the appeal, and has remitted the case to the same Tribunal. The EAT agreed that the Tribunal has the power to award costs on the indemnity basis, but when doing so must explain how the case meets the higher threshold to justify a costs award on this basis.
In respect of the costs incurred in the costs hearing itself, the starting point must be to identify the conduct on which the costs decision is founded, and consider the effect, nature and gravity of the conduct.
As the Tribunal had failed to explain its reasoning to the requisite degree, the case has been remitted for reconsideration of both the main costs award and the second award on the cost of the costs hearing.
Learning points
While cost awards are rare in Employment Tribunal cases, they can be made in limited circumstances. This case demonstrates that whilst costs are typically awarded on a standard basis, it is possible to pursue costs on an indemnity basis. This case serves as an extreme example of unreasonable conduct. Employers in similar positions should ensure they maintain comprehensive records during litigation, as this can support their position if the claimant has acted unreasonably, increasing the chances of cost recovery.