Costs were not awarded, due to a finding by the ET that the Claimant “did not act unreasonably” in bringing the claim. Lady Smith finds this conclusion perverse. This goes further than the recent line of cases – see my post last year on two authorities deprecating tribunals’ refusals to award costs against lying Claimants.

This case is rather fact sensitive, but will be grist to the mill for many Respondent representatives trying to recoup the cost of meritless or vexatious claims. Another important point comes from Lady Smith’s rejection of the notion that it is legitimate to bring a claim for unfair dismissal simply to obtain a finding that it was so – there is a declaratory power in discrimination legislation, but not in Part X of the Employment Rights Act 1996. Many many clients have told their lawyers in conference that “it’s not about the money, it’s the principle”, but this EAT judgment will strengthen that lawyer’s warning that courts and tribunals do not usually look at it that way.

By way of reminder, the charging of a contingency fee – where the amount charged by the representative is a percentage of the compensation recovered – had gained great popularity in the last few years. Costs are not normally payable by the losing party in the Employment Tribunal, so the DBA model provides one of the few funding options for the impecunious client. There are problems however, and for my discussion of the conflicting pressures on a DBA funded representative, and the background to the government’s decision to regulate them, see my previous post here.

The Damages-Based Agreements Regulations 2010 came into force in April. They provide for the formal requirements of DBAs, the information that must be provided and, importantly, a 35% cap on the percentage charged, including VAT.

As a former solicitor I still receive email notices of new Law Society practice notes – they are usually prosaic in the extreme, and I delete them, but this bulletin contains the following (controversial?) advice:

Tribunal proceedings are non-contentious business under the Solicitors Act 1974 (“the Solicitors Act”) and, so far as solicitors are concerned, a non-contentious business agreement compliant with Section 57(1) of the Solicitors Act could be used for Employment Tribunal matters.

A conditional fee agreement (as opposed to a DBA) would be enforceable and would not be caught by the Regulations. Such an arrangement might enable you to achieve a greater success fee than would be possible under the Regulations, and still avoid your client risking liability to you if the claim fails.

I don’t know if any solicitors have tried this. But the attitude of solicitor-practitioners shines through, and indeed the Law Society have called on the government to repeal the regulations, contending that the 35% cap will withdraw the possibility of representation from some needy claimants.

Read all, here.

(i) the paying party has in bringing the proceedings, or he or his representative has in conducting the proceedings, acted vexatiously, abusively, disruptively or otherwise unreasonably; or

(ii) the bringing or conducting of the proceedings by the paying party has been misconceived.

The above basis is only the first stage however, and the tribunal then has a discretion on whether or not to order costs. Certainly if (ii) applies there will still be no costs order in the vast majority of cases. Whilst an employment lawyer might look at an ET1 and ET3 and immediately assess the chances of the claim succeeding as low, the Tribunal will always have in mind that the Tribunal is intended to be both a costs free environment in the majority of cases, and also that it should provide  a suitable forum for litigants in person to have their complaints heard.

Mathew is an exception, and a rare case of the EAT overturning a Tribunal’s decision not to order costs against a Claimant following an unsuccessful claim. Mrs Mathew, facing a disciplinary, made an allegation that her manager had called her a ‘black bitch’, and claimed race discrimination. The Tribunal found

“We looked at all the surrounding circumstances and the background to this case and preferred Miss Rankin’s evidence over Mrs Mathew’s evidence. If the claimant had been called “a black bitch” she would not have waited for nearly three weeks to raise the issue and done so only because it looked as though she herself might be taken through a disciplinary process. She raised the issue on 6 June 2007 when she was resigning. Such a phrase is so offensive it is incomprehensible that she would not have made her objection much sooner. Mrs Mathew had no explanation for the delay.”

It then went on to order no costs due to it believing the Claimant to have a ‘genuine’ belief in her claim. This reason has no logic to it – if the phrase wasn’t said then Mrs Mathew made it up and lied about it. Where the central thrust of a claim is based on a lie, the EAT decided it was perverse not to order costs. Expect this case to be waved around by both sides in costs applications, as the Tribunal (like many courts) tries to deftly judge one side to be the winner without calling the other side a big fibber.

Verma confirms that it is acceptable to order costs on an unsuccessful strike-out application by a Respondent, and furthermore describes as ‘perverse’ the first-instance decision to allow counsel’s fee at the hearing but not the solicitors’ costs in preparing for it. The Employment Judge seems to have based his decision on the basis that the work done prior to the hearing would have happened in any event, which is clearly wrong. I have to say that I have myself seen parts of costs allowed and others excluded arbitrarily, and this decision does at any rate require Employment Judges to apply some reasoning to the costs orders they make.