The new costs regime for the industrial tribunal

Joe O’Keefe, intern at Law Centre (NI), considers the implications for lawyers, advisers in the voluntary sector and their clients of new cost provisions for industrial tribunals.

From 4 April 2004 a new costs regime, modelled on that in operation in England and Wales since 2001, has been introduced for the industrial tribunal in Northern Ireland. The Industrial Tribunals (Constitution and Rules of Procedure) Regulations (NI) 2004 make three important changes in regulation 14 which all practitioners should be aware of:

1. a new ground for ordering a party to pay the costs of the other party has been introduced, this is where ‘the bringing or conducting of the proceedings by a party has been misconceived’;

2. the amount that an industrial tribunal can order in summary costs has been increased from £500 to £10,000;

3. a paid representative may, once new Rules of Procedure are introduced in April 2005, be personally liable for wasted costs if s/he has conducted proceedings in an improper, unreasonable or negligent manner. This will not apply to the not for profit sector.

Although it is important that all advisers should be aware of these new provisions, their impact should not be overemphasised. The Northern Ireland tribunals have yet to make rulings on the new costs provisions, so it is difficult to predict exactly how the Regulations will be interpreted in this jurisdiction. However, this article examines the English courts’ interpretation of equivalent provisions, which can give some persuasive guidance. While the provisions undoubtedly have the potential to have a dissuasive effect on potential complainants, advisers should inform clients that, in light of the cases discussed below, costs orders in industrial tribunals should still only arise in exceptional circumstances.

Although this article concentrates primarily on the likelihood of costs orders being made against applicants, it is perhaps worth noting here that costs can also be awarded against respondents. The term ‘misconceived’ is defined in regulation 2(2) as including ‘having no reasonable prospect of success’. This ground replaces the previous ground of ‘frivolous’ conduct and it has been suggested by Scott Baker LJ in Gee v Shell (UK) Ltd (2003) IRLR 82 that this represents a lowering of the threshold for making an order for costs. Therefore, the apparently greater likelihood of an order for costs against an unsuccessful complaint, together with the increased level of costs which can be awarded, might prima facie discourage complainants from pursuing a case before the tribunal. This may be particularly so if the respondent employer has made threats in correspondence before the hearing that it will apply for a costs order at the end of the proceedings.

The English experience

A glance at the English experience in recent years is not encouraging. Employers’ representatives have been adopting an approach to costs that is perhaps better kept as the preserve of the County Court and High Court. Threats of costs applications are being routinely issued in letters before the hearing and are frequently acted upon during the proceedings. Costs seem to have become a legitimate litigation tactic for the respondent, following the example of other civil disciplines.

All this makes harrowing reading for the potential complainant, but the Court of Appeal in England has begun to re-emphasise the unique nature of the industrial tribunal as a ‘no costs jurisdiction’ and has implicitly discouraged the use of costs as a deterrent to potential complainants. The message is that complainants should not fear an order for costs when considering taking a case to the industrial tribunal – such concerns should not frustrate a fair hearing.

In Gee v Shell (UK) Ltd (2003) IRLR 82, a case involving the old costs regime, the appellant had received a threat to apply for costs from the respondent before the hearing and had then received a costs warning from the tribunal itself during the hearing. Anxious that a substantial order for costs (going beyond the summary limit) would put her house at risk, the appellant reluctantly withdrew her claim. The Court of Appeal found that the costs warning from the tribunal had been ‘unfair and oppressive’.

The essence of the decision is an attempt to re-characterise the industrial tribunal as a unique civil jurisdiction not subject to the same tactical manoeuvres and pressures of other civil jurisdictions. According to Scott Baker LJ: ‘This is a jurisdiction where an order for costs is very much the exception rather than the rule. Parliament had set a very high threshold for a costs order to be made.’

The invisible hand of human rights guides the proceedings of all public hearings and the industrial tribunal is no different. Scott Baker LJ tacitly recognised the potential relevance of human rights issues where the threat of costs had interfered with the due process of a case before an industrial tribunal.

‘The ultimate question is whether an applicant has been denied a fair hearing. The danger is that where a tribunal makes or presses a costs warning that is not justified or in a manner that is not justified an applicant will be deprived of a hearing at all.’

Confronted with unjustified overtures to costs by either the respondent or the tribunal panel, practitioners should be keen to re-assert this passage and to ensure that the tribunal is fulfilling its obligations under Article 6 of the European Convention on Human Rights guaranteeing a fair trial and access to the courts.

The Court of Appeal also addressed the influence which legal representatives can have on the tribunal compared with the complainant who may not even be represented. Sedley LJ provided the guidance that: ‘Lawyers… have an obligation not to let their weight become overbearing, whether on the tribunal or on the opposing party.’

Where there is a mismatch of adversarial skill, lawyers must be reticent to control the tribunal, assert legal truths incapable of being properly tested by the other party or otherwise unnecessarily intimidate the other party, particularly with regard to costs.

In Lodwick v London Borough of Southwark (2004) EWCA Civ 306 the Court of Appeal again considered the issue of industrial tribunal costs, this time in light of the new regime. In ordering the appellant to pay £4,000 in costs to the other party, the tribunal referred both to him having raised matters which appeared to be designed to obfuscate the issues and cause delay and to the weakness of his complaints.

Giving judgment, Pill LJ restated the approach to costs orders laid down in Gee and proceeded to consider the impact of the new ‘misconceived’ ground on the making of such orders. He noted that while the tribunal in this case had referred to the ‘weakness’ of the complaints, it did not find that the proceedings were misconceived. Further, while it had referred to the delay caused by some of the matters raised by the appellant, the tribunal failed to specifically quantify such delay. Commenting on these shortcomings in the tribunal’s reasoning, Pill LJ commented: ‘To order costs in the employment tribunal is an exceptional course of action and the reason for, and the basis of, an order should be specified clearly.’

Therefore, if an order is made for reasons which are either not made apparent or not within the circumstances strictly defined by the legislation then it is open to the representative to challenge the order. In attempting to ascertain when the ‘misconceived’ ground will apply, complainants should be conscious that the tribunal will not simply order costs because a case has been unsuccessful. Indeed, Pill LJ recognised the dangers that a false wisdom bestowed by retrospect can have in relation to costs awards when a failed action looks unjustified at its conclusion, despite the apparent prospect of success at its outset. ‘Misconceived’ entails more than simply a lack of success, rather it is suggested that it requires something akin to ‘frivolity’, in that it must constructed on rotten foundations rather than having been subject to gradual erosion during the proceedings.

Readers may be thinking at this point that a costs order will be extraordinary indeed, however, in a cautionary note for both complainants and their representatives, Pill LJ warned: ‘Nothing in this judgment may be taken as encouraging, or permitting a toleration of, the slack or unbusinessmanlike conduct of cases before employment tribunals.’An indication perhaps that those presenting cases before a tribunal should always ensure that, firstly, their prima facie case and, secondly, their conduct of the proceedings is beyond reproach. If this is satisfied then orders for costs need not be an issue.

Impact in Northern Ireland

If threats of costs applications in pre-hearing correspondence were to become prevalent in Northern Ireland, it is suggested that this may breach the solicitor’s professional duty by putting unwarranted pressure on a complainant to withdraw. Similar professional misconduct could be deemed to occur if unjustified costs applications were made by a lawyer at the end of a tribunal hearing. Such applications would possibly be contrary to the spirit of the industrial tribunal and to the dicta laid down in Gee and in Lodwick.
Lawyers must, therefore, be vigilant and only seek costs where they are warranted under the legislation and should perhaps desist from referring to cost applications in pre-hearing correspondence, otherwise a complaint could quite properly be made to the relevant professional body if the adviser and complainant feel sufficiently aggrieved.

As the new costs regime is implemented in Northern Ireland, all potential parties and representatives should be conscious of the unique nature of the industrial tribunal system as a ‘no costs regime’, which should give confidence to potential complainants to pursue a case even when faced with threats from the respondent employer to seek costs. The vast majority of cases should continue to proceed without costs ever being in issue; where they are, it must be for a good reason and consistent with the legislation.

While advisers should explain to a client the potential for exposure to a costs order in certain circumstances, it should also be emphasised that this will be the exception rather than the rule, despite any threat of a costs application contained in pre-hearing correspondence.

It is perhaps not complainants, but lawyers, who have most to fear from the new costs regime. The power to make an order for costs against a representative personally is currently part of the new draft Rules of Procedure which are now due to come into effect on 3 April 2005. This may prompt some representatives to walk on eggshells when presenting a case. Advisers in the voluntary sector, however, should not be overly alarmed – it is specifically envisaged, according to the DEL public consultation on the Rules, that advisers who operate on a ‘not for profit’ basis will not be subject to these wasted costs orders.

This aspect of the new Regulations should, therefore, have the effect of raising the standards of case presentation before the industrial tribunal without forcing complainants, or their representatives, to abandon otherwise well-founded cases simply due to a fear of an order for costs.