Appellants: Dalgleish; Thompsons

Respondents: Cameron; TC Young, Solicitors, Edinburgh

26 February 2013

[1] This appeal was heard by this court on 26 February 2013. We were able to give our decision at the conclusion of the hearing which was to allow the appeal. We advised parties that we would provide written reasons in due course which is what we now do.

[2] The appellants, in this appeal against a decision of the Employment Appeal Tribunal, had both brought claims before the Employment Tribunal for certain payment in terms of section 17 of the National Minimum Wage Act 1998. Their claims were against their employers Turning Point Scotland ("the respondents") and were based on a dispute as to whether they had been underpaid having regard to the aforementioned legislation, by virtue of a failure by the respondents, to make payment in respect of sleepover times at work. The appellants' claims were lodged in the Tribunal on 13 and 14 January 2011. The respondents contested these claims.

[3] An order was made by the Employment Tribunal on 1 March 2011 to the effect that the two sets of proceedings should be conjoined. On 22 March 2011 the respondents applied to the Tribunal for an order asking the appellants to respond to certain questions. These questions were essentially asking each of the appellants in each case to provide (a) a breakdown of the 60 hours or 66 hours she alleged to have worked and a list of dates, and times when she claimed she was disturbed during her sleepover shifts, (b) the basis upon which she calculated she was paid less than the national minimum wage, (c) the basis upon which she asserted that she had a contractual claim under the Employment Rights Act 1996 and (d) the nature of the claim being made by the appellants for breach of contract under the Employment Tribunals (Extension of Jurisdiction Order). Neither of the appellants opposed the granting of such an order which was issued on 31 March 2011. They responded to the order on 14 April 2011. On 6 May 2011 the appellants' representative wrote to the Tribunal indicating that they had been instructed by both appellants to withdraw their claims.

[4] On 18 May 2011 the respondents wrote to the Tribunal applying for an order for expenses. They provided certain materials in support of this request. One of the items which they forwarded to the Tribunal was a spread-sheet which they claimed to show that at all times both appellants had been paid in excess of the national minimum wage for all hours worked, even if sleep-over hours were taken into account. The Tribunal then fixed an expenses hearing. The appellants had taken a competency point against the granting of expenses. The Tribunal found in their favour in that respect. On appeal to the Employment Appeal Tribunal, that Tribunal found against the appellants on the competency point. The appellants did not seek, in the present appeal proceedings before this court, to have the competency point revisited. The Employment Tribunal had gone on to consider the merits of the respondents' claim for expenses and, in the event, found against the respondents in that respect. The Employment Appeal Tribunal, on the other hand, held that the respondents should succeed on the merits of their application for expenses and remitted the case back to the Employment Tribunal for that purpose. The appellants contended before this court that the Employment Judge had misdirected himself in determining the question of the merits of the respondents' application for expenses in their favour.

[5] The Employment Tribunal had had brought to its attention by the respondents two previous EAT decisions reported as South Manchester Abbeyfield Society Ltd v Hopkins and another [2011] ICR 254, which had been issued on 30 November 2010, the days for appealing against which expired on or about 14 January 2011. Those decisions addressed the question of when, if at all, and to what extent, sleep-over periods were governed by the national minimum wage legislation. The respondents also claimed that the facts upon which the appellants proceeded were erroneous. It ought to have been clear from the outset to the appellants that their claims had no prospect of success. At paragraph 35-37 of his judgment, the Employment Judge, in determining the merits of the application for expenses by the respondents stated:

"I did not hear any evidence on this case and neither party sought to lead evidence. The claimants lodged the spreadsheets but there was no formal admission from the claimants that these spreadsheets were correct. The claimants' averments were that one had worked 66 hours a week and the other 60 hours per week. The spreadsheets showed less. There is no doubt that had these spreadsheets been available at the full hearing and been accepted as correct, the claimants may have had some difficulty proving that part of their case which indicated that they had been paid less than the minimum wage. This does not mean the claim was misconceived. The most it can be said is that if the respondents' evidence were preferred to the claimants' averments the claimants would have lost.

As at the date of withdrawal the claimants' claim of breach of contract was still not specified. The claimants themselves had made this point in both their ET1s. They required further information. I never saw the claimants' contract and it might well be that the claimants believed that a claim that sleepovers be treated as core working time might result in them being entitled to some additional contractual payment even if the spreadsheets were correct in showing that they had been paid over the national minimum wage amount when all hours worked (including sleepovers) were taken into account.

On the basis of the information before me it was therefore not possible for me to come to any view as to whether the claimants would in fact have lost their claim had it gone to a hearing. There was evidence which, if accepted, would have defeated part of their claim. The part of the claim that alleged a failure to pay national minimum wage (whether categorised as unlawful deductions from wages or breach of contract) would have failed if this evidence had been accepted. I cannot really say anything about any other part of this breach of contract claim as I never saw any specification of it".

The Employment Judge went on to point out that the area of law upon which the appellants were relying, at least to some extent, was complex and in a state of flux. The Employment Judge observed, at paragraph 38:

"having been consulted, the claimants' solicitors were in the position of requiring to lodge a claim within a fairly tight timescale. That is not unusual in the Employment Tribunal claims. Had they delayed lodging a claim because the law was in a state of flux then the claim would have been time barred. They were entitled to believe that they would have received very short shrift from an Employment Tribunal had they gone to that Tribunal seeking to have the period for lodging their ET1 extended under the 'not reasonably practical' extension. Similarly the claimants' solicitors did not behave unreasonably in failing to delay lodging their claim until they obtained detailed spreadsheets either from the claimants themselves or from the respondents going over back over a number of years working out the hourly rate for every hour worked including sleepovers"

In paragraph 47 of his judgment the Employment Judge summed up the position as follows:

"In short I had before me in this case absolutely nothing to indicate that the bringing of the proceedings by the claimants had been misconceived. The claimants brought a claim in an area of law where many such claims are currently being brought. It is in an area of law where the law itself is in a state of flux. The claim was met by inspecific denials by the respondents. Claimants take counsel's opinion and withdraw their claims. Subject to withdrawal the respondents have lodged documentation which they say if it were accepted as true by a tribunal would meant that the claimants would definitely lose. As at the date of withdrawal that part of the claimants' claim relating to breach of contract was not yet fully specified and it is possible that even if the spreadsheets lodged by the respondents were correct a breach of contract claim might still have existed".

[6] The relevant rules in respect of the award of expenses in the Employment Tribunal are to be found in the Employment Tribunal (Constitution and Rules of Procedure) Regulation 2004 SCH 1.

[7] Regulation 25 of those regulations governs the question of a claimant's right to withdraw proceedings. The regulation is in the following terms:

"25-(1) A claimant may withdraw all or part of his claim at any time - this may be done either orally or at a hearing or in writing in accordance with paragraph 2.

(2) To withdraw a claim or part of one in writing the claimant must inform the Employment Tribunal office of the claim or the parts of it which are to be withdrawn. Where there is more than one respondent the notification must specify against which respondent the claim is being withdrawn.

(3) The Secretary shall inform all other parties of the withdrawal. Withdrawal takes effect on the date on which the Employment Tribunal office (in the case of written notifications) or the Tribunal (in the case of oral notifications) receive notice of it and where the whole claim is withdrawn, subject to paragraph (4) proceedings are brought to an end against the relevant respondent on that date. Withdrawal does not affect proceedings as to costs, preparation time or wasted costs.

(4) Where a claim has been withdrawn, a respondent may make an application to have the proceedings against him dismissed. Such an application must be made by the respondent in writing to the Employment Tribunal office within 28 days of the notice of the withdrawal being sent to the respondent. If the respondent's application is granted and the proceedings are dismissed those proceedings cannot be continued by the claimant (unless the decision to dismiss is successfully reviewed or appealed).....".

Regulation 38 is headed "General power to make costs and expenses orders".

Regulation 38(2) provides:

"A costs order may be made under rules 39, 40 and 47 only while the receiving party has been legally represented at the Hearing or, in proceedings which are determined without a Hearing, if the receiving party is legally represented when the proceedings are determined. If the receiving party has not been so legally represented a tribunal may make a preparation time order (subject to rules 42 to 45). (See rule 46 on the restriction of making a costs order and a preparation time order in the same proceedings)".

Regulation 38(3) then provides as follows:

"For the purposes of these rules 'costs' shall mean fees, charges, disbursements or expenses incurred by or on behalf of a party, in relation to the proceedings. In Scotland all references to costs (except when used in the expression 'waste costs') or cost orders shall be read as references to expenses or orders for expenses.

.....".

Regulation 38(7) provides:

"A party may apply for a cost order to be made at any time during the proceedings. An application may be made at the end of a hearing, or in writing to the Employment Tribunal office. An application for costs which is received by the Employment Tribunal office later than 28 days from the issuing of a judgment determining the claim shall not be accepted or considered by a tribunal or chairman unless it or he considers that it is in the interests of justice to do so".

Regulation 40 is headed "When a costs or expenses order may be made". Regulation 40(2) is in the following terms:

"A tribunal or chairman shall consider making a costs order against a paying party where, in the opinion of the tribunal or chairman (as the case may be), any of the circumstances in paragraph (3) applies. Having so considered, the tribunal or chairman may make a costs order against the paying party if it or he considers it appropriate to do so".

Regulation 40(3) then provides:

"The circumstances referred to in paragraph (2) are where 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 the bringing or conducting of the proceedings by the paying party has been misconceived".

It will be noted that the decision to award expenses or not is a matter for the discretion of the Tribunal provided it is of the opinion that one or other of the circumstances set out in regulation 40(3) has occurred. In Yerrakalva v Barnsley Metropolitan Borough Council and another [2012] ICR 420 an appeal was taken against a decision by an Employment Tribunal regarding costs. In a judgment, with which the other members of the Court of Appeal agreed, Mummery LJ, set out the following clear and authoritative guidance on the limited scope there is for a Tribunal's decision on costs or expenses to be subsequently successfully appealed. At paragraph 5 of his judgment his Lordship, first of all, observed:

"The parties were, of course, perfectly entitled to exercise their statutory right of appeal; but, as both sides appreciate a decision to dispute the exercise of the Employment Tribunal's discretion and to run up even more costs should only be taken after careful thought".

He then continued:

"6. The tribunals below did not agree about the exercise of the discretion. That is not surprising. A familiar feature of all litigation is that experienced judges may sensibly differ on how, in the particular circumstances of the individual case, a cost discretion should be exercised. Parties and prudent advisers should take account of that factor when considering whether a costs order is worth appealing.

7. As costs are in the discretion of the employment tribunal, appeals on costs alone rarely succeed in the Employment Appeal Tribunal or in this court. The Employment Tribunal's power to order costs is more sparingly exercised and is more circumscribed by the employment tribunal's rules than that of the ordinary courts. There the general rule is that costs follow the event and the unsuccessful litigant normally has to foot the legal bill for the litigation. In the employment tribunal costs orders are the exception rather than the rule. In most cases the employment tribunal does not make any order for costs. If it does it, it must act within rules that expressly confine to the employment tribunal's powers to specify circumstances notably unreasonableness in the bringing of conduct of the proceedings. The employment tribunal manages, hears and decides the case and is normally the best judge of how to exercise its discretion".

His Lordship then continued:

"8. There is therefore a strong, soundly based disinclination in the appellate tribunals and courts to upset any exercise of discretion at first instance. In this court permission is rarely given to appeal against costs orders. I have noticed the recent tendency to seek permission more frequently. That trend is probably a consequence of the comparatively large amounts of legal costs now incurred in the employment tribunals.

9. An appeal against a costs order is doomed to failure, unless it is established that the order is vitiated by an error of legal principle, or that the order was not based on the relevant circumstances. An appeal will succeed if the order was obviously wrong. As a general rule it is recognised that a first instance decision-maker is better placed than an appellate body to make a balanced assessment of the interaction of the range of factors affecting the court's discretion. This is especially so when the power to order costs was expressly dependent on the unreasonable bringing or conduct of the proceedings. The employment tribunal spends more time overseeing the progress of the case through its proprietary stages and trying it than an appellate body will ever spend on an appeal limited to errors of law. The employment tribunal is familiar with the unfolding of the case over time. It has good opportunities for gaining insight into how those involved are conducting the proceedings. An appellate body's concern is principally with particular points of legal or procedural error in tribunal proceedings, which do not require immersion in all the details that may relate to the conduct of the parties".

We make no apology for setting out those passages in full as it appears to us they contain a comprehensive and clear statement of the approach that has to be adopted by appellate bodies when faced with an appeal brought against an order made by an employment tribunal in respect of costs or expenses. Notwithstanding that clear guidance and the admonitions contained within it, the respondents appealed the tribunal's decision in this case, and, as has been seen, before the Employment Appeal Tribunal they succeeded in persuading that Tribunal to reverse the Employment Tribunal's decision both in respect of the question of its competency and its merits. In addressing the question of the merits of the application, Lady Smith at paragraph 52 of her judgment stigmatised the appellants' position in the following terms:

"All in all, their approach was such as to fail throughout to engage properly and appropriately with the central issues in these claims until they had the advice of counsel which would appear to have been that these claims had no reasonable prospects of success".

She previously had observed at paragraph 52, of her judgment:

"In these circumstances it should have been plain at the outset that there were very real factual difficulties of the claimants' cases, irrespective of their legal basis".

She then concluded at paragraph 55:

"It seems clear to me that the only reasonable conclusion open to the Employment Judge was that these claims were misconceived, it was unreasonable to raise them and they were conducted in an unreasonable manner".

[8] It appears to us that from the foregoing passages taken from her judgment, that her Ladyship has clearly misdirected herself, losing sight of the fact that applications for costs are peculiarly matters for the exercise of the discretion of the tribunal, at first instance, even where that tribunal is of the opinion that one or other of the grounds set out in regulation 40(3) exists. That is the position whatever view an appellate judge might have taken with regard to the exercise of a discretion in such a situation. With respect, it appears to us that in reaching her judgment, the Employment Appeal Tribunal Judge has failed to have proper regard to the considerations set out so clearly in the judgment of Lord Justice Mummery in the Yerrakalva case cited above. She has, moreover, in our judgment, too readily ignored the effects of the strict time constraints imposed in relation to the bringing of the sort of claims with which we are concerned where it may not be possible to complete a full factual review of the claim before the time limit has expired. In addition, the judge has apparently taken a somewhat robust view of the relevant law in relation to the matters forming the subject matter of the claim in the situation where that law appears to have been in a state of development. In that regard judges are always well advised to keep in mind the advice contained in the words of Lord Steyn in Medcalf v Mardell (2003) 1 AC 120 where at paragraph 47 his Lordship said:

"The law reports are replete with cases which were said to be hopeless before investigation but were decided the other way after the court allowed the matter to be tried".

In the present case the Employment Judge had set out a very clear and carefully considered history of the claims and their nature as he saw them at the time which they were withdrawn. He had referred to the relevant considerations to be kept in mind in relation to such applications and had regard to the provisions of the relevant regulations. We can find nothing at all, in that judgment which would suggest that he had been guilty of an error of legal principle or that his decision was not based on relevant circumstances.

[9] For these reasons we allowed the appeal and reinstated the order of the Employment Tribunal.