Costs Warning Letters in the Employment Tribunal

07 Feb

In order to award costs against a party a Tribunal needs to be satisfied that the paying party has acted “vexatiously, abusively, disruptively or otherwise unreasonably in the bringing or conducting of proceedings”, or that the “claim or response had no reasonable prospect of success’.

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Costs Question Mark

In order to award costs against a party a Tribunal needs to be satisfied that the paying party has acted “vexatiously, abusively, disruptively or otherwise unreasonably in the bringing or conducting of proceedings”, or that the “claim or response had no reasonable prospect of success’.

Respondents often write “costs warning letters” to Claimants to try to get them to withdraw their claims. Such letters typically either suggest that the Claimant has no reasonable prospect of success, or they offer the Claimant a sum of money in full settlement and go on to suggest that if the sum is not accepted, then it will amount to unreasonable conduct for the Claimant to continue with the claim. The latter type of letter is known in the civil courts as a “Calderbank letter”.

The purpose of both these types of letters is twofold – to try to obtain an early withdrawal or settlement of the claim, or, if that fails, to strengthen the position of the Respondent with a view to claiming costs if the claims are taken to trial, and fail. In that case the Respondent’s argument is that either the claim had no reasonable prospect of success from the start, or that it was unreasonable conduct for the Claimant to continue with the claim, especially after the offer was made.

How should a Claimant respond to such a letter?

The mere fact that a claim fails at trial does not mean that it had no reasonable prospect of success from the beginning. It is easy to make that assertion with the benefit of hindsight, and after all the evidence has been heard and examined, but many cases, and especially cases involving allegations of discrimination, are not susceptible to definite predictions about their outcome. It should only be cases which cannot possibly succeed, even if everything the Claimant says is true, which will properly fall into this category.

The other type of common situation is where an offer of settlement is made, and the Claimant refuses it, and then fails to obtain an award for a higher amount than the offer. Whereas in the County or High Court such a Claimant would very likely be ordered to pay the Defendants costs after the offer had been refused, the situation is rather different in the Employment tribunals. It does not follow that simply because the Claimant fails to “beat the offer” that a costs award should be made. The proper question remains whether the prosecution of the claim was unreasonable, and the offer is simply one factor to consider in deciding this. This point has been illustrated recently in a case in the EAT, Anderson and Cheltenham and Gloucester Building Society.  The Claimant was offered £25000 in a Calderbank letter sometime before trial, which she refused, and she then went on to win her case, but was awarded only £18000. The Respondent was then awarded costs against the Claimant by the Employment Tribunal on a straightforward Calderbank basis, but the Employment Appeal Tribunal set this aside, stating that whereas the conduct of a Claimant in rejecting a Calderbank-type offer of settlement can be taken into account in determining whether the claim had been unreasonably pursued, failure to beat the offer will not of itself justify an order for costs in the ET. 

This more guarded approach to the Calderbank principle in the Employment Tribunals reflects the policy embodied in the rules that costs should not usually be awarded, and further, that in many cases it will be notoriously difficult to predict reliably the amount of an award by an Employment Tribunal. The period for which the Tribunal is willing to award future loss, the degree of contributory fault, and the operation of the Polkey doctrine are all variable factors which can affect the outcome, sometimes in an unpredictable manner.

Jeremy Burns

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