Editorial from IDS Brief 852, May 2008

Relief for advisers involved in hopeless claims

The Employment Tribunal (Constitution and Rules of Procedure) Regulations 2004 SI 2004/1861 came into force over three and a half years ago. They more or less re- enacted the 2001 rules, but also introduced several new procedures, including a power for the tribunal to make wasted costs orders against representatives in proceedings that have been conducted improperly, unreasonably or negligently. While the majority of the new powers under the 2004 rules have been subjected to judicial scrutiny, building up a useful body of case law, the power to make wasted costs orders has rarely been used by tribunals, and, until recently, had yet to come before the appeal courts. This state of affairs has now changed. In April, the EAT handed down a judgment considering the proper application of the new wasted costs regime, and, in true bus-like fashion, a second EAT decision considering the same issue came along only a few weeks later.

Authorities from civil courts apply

In Mitchells Solicitors v Funkwerk Information Technologies York Ltd, reported on page 10 of this Brief, the EAT considered rule 48 of the 2004 Rules, which defines wasted costs as those incurred by a party as a result of any improper, unreasonable or negligent act or omission on the part of any representative. In Mitchells, a tribunal ordered such costs to be paid by solicitors representing the claimant in a case heard in part over three days in October 2006 and two days in November. The tribunal considered that any competent adviser would have told the claimant after the third day that her claim was highly unlikely to succeed, and so awarded costs against the solicitors in respect of the hearing days after the third day.

His Honour Judge Burke, QC, sitting in the EAT, quashed that order. Rule 48 is modelled on S.51 of the Supreme Court Act 1981, which regulates wasted costs in the ordinary civil courts. Accordingly, he looked to case law on that provision for guidance on when such orders should be made – cases to which the tribunal had not been referred. These authorities make clear that a representative does not act improperly, unreasonably or negligently simply by acting for a party who pursues a claim or a defence that is plainly doomed to fail. The representative must be shown to have assisted in an abuse of the court’s process, thereby breaching his or her duty to the court, and his or her conduct must actually cause costs to be wasted. The tribunal had made no findings on these issues and, furthermore, had impermissibly substituted its own view – that the proceedings’ impending failure was clear by day three – for that of the solicitors.

Order requires high threshold

This ruling confirms that it will be very difficult to succeed in a wasted costs application against a representative, as a number of stringent conditions must be satisfied, including showing an abuse of the court. An abuse of the court includes such matters as issuing or pursuing proceedings for reasons unconnected with success in the litigation; pursuing a case known to be dishonest; and knowingly making incomplete disclosure of documents.

The tribunal rules have long provided for the making of an ‘ordinary’ costs order against the litigant (rule 40 of the 2004 rules). Now that a costs order can also be made against the opposing party’s representative under rule 48, deciding the most appropriate avenue to pursue may be a difficult choice. If a hopeless claim or defence is being pursued because of the representative’s negligence or misconduct, the remedy to opt for would be a wasted costs order against the representative. Conversely, if the client insists upon pursuing the claim or defence despite advice to the contrary, the appropriate remedy would be a costs order against the client. However, given that client instructions and advice are covered by legal professional privilege, it will rarely be clear where the fault lies. In this situation, it is likely that applications will be brought against both the client and his or her representative.

Orders against representatives will be rare

The protection afforded by privilege may make it difficult to prove that a representative was negligent, and courts are unlikely to make a wasted costs order where privilege prevents a practitioner from mounting a full defence to an allegation of wasted costs. By contrast, it is easier to win a costs application against a claimant, given that there is no need to show abuse of court. In addition, the Court of Appeal held in McPherson v BNP Paribas (London Branch) 2004 ICR 1398 (Brief 762) that where costs are awarded against the litigant, they do not have to be caused by the unreasonable conduct.

Mr Justice Elias, President of the EAT, confirmed these principles in Ratcliffe Duce and Gammer v Binns t/a Parc Ferme and anor EAT 23.4.08 (0100/08), in which judgment was handed down shortly after that in Mitchells. Both cases will doubtless serve to reassure advisers acting in litigation that has a slim chance of success. It was previously unclear how tribunals would approach the new wasted costs regime, despite its civil law origins, and so practitioners might have been wary of acting in litigation with poor prospects for fear of being penalised by the tribunal. These cases now establish that a wasted costs order requires a high standard of misconduct. Accordingly, acting on a client’s instructions, even in a hopeless case, will not incur liability for costs on the representative’s part, in the absence of an abuse of the court.