Appeal No. EAT/0543/03 LA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 24 October 2003

Before
HIS HONOUR JUDGE RICHARDSON
DR S R CORBY
MRS M V MCARTHUR

HEALTH DEVELOPMENT AGENCY	APPELLANT

PROFESSOR RICHARD PARISH	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR NIGEL PORTER
(of Counsel)
Instructed by:
Messrs Izod Evans
34 Southwark Bridge Road
London SE1 9EU	
For the Respondent	MR RICHARD DAVISON
(of Counsel)
Instructed by:
Messrs Royds RDW
2 Crane Court
Fleet Street
London EC4A 2BL

HIS HONOUR JUDGE RICHARDSON

1	This is an appeal against a decision of an Employment Tribunal sitting in London (Central) promulgated on 23 May 2003.  The Appellant is the Health Development Agency (“the Agency”) which is a special health authority.  The Respondent is Professor Parish.  By his decision the Chairman sitting alone ordered the Agency to pay £8,519 to Professor Parish, expressed to be “in respect of costs incurred by him in these proceedings because the Agency and its representatives had acted vexatiously and otherwise unreasonably”.

2	Professor Parish was employed by the Agency as Chief Executive.  By a letter dated 22 November 2002 he was dismissed with 6 month’s notice expressed to terminate on 25 May 2003.  By letter dated 28 November his solicitors formally requested a written statement giving particulars of the reasons for dismissal.

3	By section 92 (1) (a) of the Employment Rights Act 1996, when an employee is given notice he is entitled to be provided by his employer with a written statement giving particulars of the reasons for dismissal.  This is a statutory entitlement.  It does not depend on contract.  It is a valuable right.  It requires an employer to lay his cards on the table when he dismisses an employee.  Whatever may have been said orally or informally or in negotiations, the reason for dismissal has to be set out with due formality.  The statement, once given, is admissible in evidence in any proceedings: section 92 (5).

4	By section 93 (1) of the 1996 Act, an employee may present a complaint to an Employment Tribunal on the ground that the employer unreasonably refused to provide a written statement under section 92.  So, there are two qualifications to the employee’s right.  First, he must establish a refusal.  That usually means he must ask first, as Professor Parish did here.  Second, he must establish that the employer unreasonably refused to provide a statement.  If no reason for the refusal is given by the employer it will not be difficult to persuade a Tribunal that the refusal is unreasonable.  But if there is genuinely good reason, then the employer has a defence.

5	By section 93 (2) (b), if the employee’s conduct is well-founded, the Tribunal must make an award of 2 week’s pay.  Such an award marks the default.  But the employee has a potentially more valuable remedy.  Under section 93 (2) (a), the employee may ask the Tribunal to make a declaration as to what it finds the employer’s reasons were for dismissing the employee.

6	On 2 December 2002 the Agency’s solicitors replied to Professor Parish’s request.  They refused to provide reasons.  They said, erroneously, that the Agency was not required to give reasons.  Asked to explain, they said there was no obligation under the contract to give reasons.  This was no answer at all.  The right is a statutory right.  They maintained this position in correspondence.  

7	Professor Parish had no option if he was to pursue his right but to commence proceedings.  On 15 January he presented his Originating Application.  He claimed a declaration based on his understanding of the real reason why he was dismissed.  He also claimed two week’s pay.

8	On 5 February the Agency lodged its Notice of Appearance.  It did not suggest that it had any good reason for refusing to give a written statement of reasons for dismissal.  On the contrary, it recorded an offer to pay the two week’s pay in respect of Professor Parish’s entitlement under section 93 (2) (b).  The use of the word ‘entitlement’ carries the implication that the Agency accepted it had unreasonably refused to provide the written statement.  That is, after all, when the entitlement arises.

9	The Notice of Appearance did not set out any reason for dismissal or suggest that any was to be provided.  Rather, it contended that a declaration is a discretionary remedy which should only be granted if there is clear evidence to support it.  It denied what Professor Parish said but raised no positive case for the Agency at all.  Subsequently, the Agency paid the two week’s pay, which was accepted by Professor Parish without prejudice to the claim for a declaration.

10	In March, for the first time, there was a suggestion by the Agency’s solicitors that it intended to put forward a positive case, calling witnesses and producing documents.  Professor Parish’s solicitors correctly pointed out that the Notice of Appearance contained no positive case in respect of which evidence might be necessary.  A Directions appointment was sought and ordered.

11	Finally, on 26 March the Agency’s solicitors wrote to Professor Parish’s solicitors setting out the reasons for his dismissal.

12	Two things should be noted about this letter.  First, it is said that the reasons set out in the letter have been taken from reasons given under the cloak of negotiations in September 2002.  That may well be; but the purpose of section 92 is to bring out into the open that which is cloaked by secrecy of one kind or another.  Second, it is said that reasons were not given by the Agency earlier for Professor Parish’s protection and because it did not wish to diminish in any way the possibility of his getting another job.  These are unfortunate reasons.  The right given by section 92 is the employee’s right.  It is for him to exercise.  It is not for the employer to deny him his right in this way. 

13	Professor Parish had, therefore, obtained in late March the statement of reasons for which he had been asking since late November, four months previously.  The statement had not been promised in correspondence or in the Notice of Appearance.

14	On 15 April his solicitors wrote saying there was an application for costs.  The Agency’s solicitors replied resisting the application.

The Decision

15	The Directions appointment had been set for 17 April.  The Chairman heard the application on the Directions appointment and granted it.  The Chairman heard argument on both sides.  He set out the procedural history in a way to which no exception has been or could be taken.  He noted the arguments of the two sides.  The application was for costs after 2 December 2002 when the Agency refused to give a statement.  No point seems to have been taken as to the hourly rate or as to the number of hours encompassed in the costs.

16	On behalf of the Agency, it was argued before the Chairman that there was no jurisdiction to make an order for costs in respect of costs incurred prior to the date of commencement of proceedings and it was argued that after the proceedings had been commenced the Agency did not act unreasonably.  It was said that there were protracted negotiations between the parties, that reasons were held back until it became clear that an amicable settlement was not possible.

17	The Chairman rejected the argument about jurisdiction.  He held that he had the power to award costs prior to the commencement of the proceedings.  He concluded:

11	(6)	“I find that the Respondent and its representatives acted vexatiously and otherwise unreasonably in the conduct of these proceedings, thereby forcing the Applicant to incur unnecessary costs from 2 December 2002 to this hearing date and to incur additional costs by forcing him to present his Originating Application to this Tribunal which he might not otherwise have done and pursue his remedies under sections 92 and 93 of the 1996 Act.”

18	He was accepting submissions made by Professor Parish’s solicitor.  One of those submissions, the concluding submission, was that the Agency by its conduct had unreasonably required the Applicant to instigate proceedings in the Tribunal and despite numerous letters had unreasonably maintained its refusal to give written reasons until 26 March 2003.

The Rule

19	Section 13 (1) of the Employment Tribunals Act 1996 provides that Employment Tribunal procedure regulations may include provision for the award of costs or expenses and for taxing or otherwise settling such costs and expenses.  The current rule is Rule 14 of Schedule 1 to the Employment Tribunals (Constitution & Rules of Procedure) Regulations 2001.  By that rule:
14	(1)	“Where, in the opinion of the tribunal, a party has in bringing the proceedings, or a party or a party's representative has in conducting the proceedings, acted vexatiously, abusively, disruptively or otherwise unreasonably, or the bringing or conducting of the proceedings by a party has been misconceived, the tribunal shall consider making, and if it so decides, may make – 
(a)	an order containing an award against that party in respect of the costs incurred by another party.
…
(3)	An order containing an award against a party (“the first party”) in respect of the costs incurred by another party (“the second party”) shall be - 
(a)	where the tribunal thinks fit, an order that the first party pay to the second party a specified sum not exceeding £10,000;
(b)	where those parties agree on a sum to be paid by the first party to the second party in respect of those costs, an order that the first party pay to the second party a specified sum, being the sum so agreed; or
(c)	in any other case, an order that the first party pay to the second party the whole or a specified part of the costs incurred by the second party as assessed by way of detailed assessment (if not otherwise agreed).
…
(6)	Any costs required by an order under this rule to be assessed by way of detailed assessment may be so assessed in the County Court in accordance with the Civil Procedure Rules 1998.”

Costs before Proceedings Begin

20	On behalf of the Agency Mr Porter’s first submission is that the Chairman erred in law in awarding costs relating to a period prior to the commencement of proceedings.  Mr Davison for Professor Parish says that there is no such restriction.  He says that the enabling power in the legislation is wide enough to encompass assessment of costs and expenses quite generally.  He says the act contemplates a County Court taxation on ordinary civil principles.  He submits that once an Applicant for costs passes through the gateway of proving some unreasonable or vexatious conduct an Employment Tribunal can award costs whenever incurred, even costs before the proceedings commence.

21	The Employment Tribunal’s power in Rule 14 is founded upon a finding as to the way a party has brought or conducted proceedings.  In our judgment the conduct of a party prior to proceedings or unrelated to proceedings cannot found an award of costs.  In our judgment it is necessary for there to be a causal relationship between the conduct of a party in bringing or conducting proceedings and the costs which are awarded under Rule 14.

22	It follows that the Employment Tribunal has no power to award costs against a party until the time the party has brought or, as the case may be, conducted proceedings.  We therefore accept Mr Porter’s submission.  The Chairman erred in law in awarding costs from 2 December 2002.

23	We amplify our views as follows.  In civil proceedings the court has power to award the costs “of and incidental to” proceedings.  These words derive from section 50 (1) of the Supreme Court of Judicature Consolidation Act 1925.  They have been held to encompass costs prior to the commencement of proceedings: see Admiral Management Services Ltd v Para-Protect Ltd [2002] 1 WLR 2722 where the authorities are discussed and applied.  It is commonplace for pre-action costs to be awarded in civil proceedings. 

24	But the Employment Tribunal’s power to award costs has always been drawn more narrowly.  There is a valuable discussion of its history by Chadwick LJ in Kovacs v Queen Mary and Westfield College and Others [2002] IRLR 414 at paragraphs 28 to 31.  As he pointed out, it has been a consistent feature of the successive regulations, by virtue of which the Employment Tribunal awards costs, that there has been a restriction as to conduct.  He observed paragraph 30:

30	“…the power to make orders containing an award of costs, subject to the restriction referable to conduct, gave proper recognition to the need to ensure (i) that, in connection with the determination of employment rights, a party - and, in particular, an employee - could have recourse to a tribunal without being deterred by the potential liability for the other party's costs which is a feature of litigation in the courts and (ii) that that immunity was not abused.”

25	The interpretation that we have given to Rule 14, which we think accords with its ordinary meaning, is consistent with this recognition.  At no stage in the Rule’s history has it contained the familiar words ‘costs of’ and ‘incidental to’.  At every stage in the Rule’s history it has been tied to a finding about the way in which proceedings have been brought or conducted.

26	It is also clear, in our judgment, that the Employment Tribunal, having found that a party has conducted proceedings unreasonably, should award costs which are attributable to that unreasonable conduct.  The jurisdiction in Rule 14 is compensatory, not punitive: see Kovacs v Queen Mary and Westfield College at paragraph 35 and Simon v British Gas and Another (Unreported, June 2003, EAT/0836/03), per His Honour Judge Clark at paragraph 22.  To similar effect is Davidson v John Calder (Publishers) Ltd and The Calder Educational Trust Ltd [1985] IRLR 97, which was concerned with an earlier version of the costs rule.

27	An Employment Tribunal, having found fault in the conducting of proceedings, needs to examine carefully what loss is attributable to that conduct.  It does not need to conduct a minute examination or make individual findings about every hour of a solicitor’s time.  It may make a broad assessment; but it cannot, once having found vexatious or unreasonable behaviour in the conduct of proceedings, backdate its award to include costs which are not attributable to that conduct.

Costs after the Notice of Appearance

28	For these reasons the award of costs from 2 December 2002 must be set aside.

29	Mr Porter’s second line of submission is that the conduct of the Agency and its representatives in the course of proceedings cannot be characterised as vexatious or unreasonable.  In making his submission, of course, he was covering the whole period.  We now concentrate on the period which begins with the lodging of the Notice of Appearance.

30	For a finding to be made that there was vexatious conduct, it is necessary, he submits, for there to be a finding that the conduct of the Agency or its representative must have been brought out of spite or to harass Professor Parish or for some other proper motive.  He relies on ET Marler Ltd v Robertson [1974] ICR 72.  Therefore, he says, the Extended Reasons lack an important finding.

31	We are inclined to agree with him about this.  A finding of vexatious conduct, particularly where it involves a legally-qualified representative, is a serious finding to make.  We consider that there ought to have been clear reasoning for such a finding.  In the end, however, it makes no difference whether to the end result, that is the power of the Tribunal to award costs, whether the finding is of vexatious conduct or unreasonable conduct in the proceedings.

32	Mr Porter submits that the Chairman erred in law in his conclusion that the Agency or its representatives had acted unreasonably.  He has developed his submissions in the Skeleton Argument and before us.  We will endeavour to summarise them.
33	He submits that the Chairman failed to distinguish between a refusal to provide written reasons, which was an integral part of the cause of action relied on by Professor Parish, and unreasonable conduct in relation to the proceedings.  He says it was reasonable to resist the proceedings in the way the Agency did.  He says the right of the employee to complain was recognised.  He says that it was reasonable to resist the proceedings because Professor Parish sought a declaration which would have given an untrue reason for the dismissal.  He says it was reasonable to resist the proceedings for the purpose of trying to settle the case amicably.  Any or all of these reasons, he submits, should have led the Chairman to conclude that unreasonable conduct had not been made out.  Any other conclusion, he says, demonstrates an error of law.

34	We reject this argument.  The Extended Reasons of an Employment Tribunal must not be read as a statute.  The Chairman has set out in the history and the submissions quite enough for the finding to be sustained.  We, moreover, agree with him.  We would go further.  In respect of the period from the filing of the Notice of Appearance to the time when reasons were given, his conclusion, in our judgment, was plainly and unarguably right.

35	A Notice of Appearance is required to set out sufficient particulars to show on what grounds a party resists the proceedings.  The Notice of Appearance in this case said that the proceedings were resisted on the grounds that it was not proper to grant a declaration.  The Notice of Appearance did not set out any case about the reason for dismissal, nor say that it was intended to give a reason for dismissal.  If the Notice of Appearance had done that, subsequent costs would have been avoided.

36	The only reason given for the change of stance in the Agency’s letter dated 26 March is that:

“…as your client appears to be determined with his declaration and his demands, then our client has had no option but to write to your client formally and openly.”

37	The Agency had already given reasons, which we have criticised, for not giving written reasons when they were due.  It was the statutory duty of the Agency to give its reasons.  The determination of Professor Parish to proceed is demonstrated by the Originating Application.  It is not reasonable to file a Notice of Appearance which is effectively a holding notice in the hope of deflecting the need to comply with a statutory obligation.  Once proceedings have begun, the time for prevarication is over.  It was, in our judgment, plainly unreasonable to continue to prevaricate.  

38	We have accepted that there can be no order for costs in relation to the period prior to the date when the Notice of Appearance was lodged, but it was unreasonable to maintain the stance that was maintained in the Notice of Appearance.  If a positive case was to be put forward as to the reason for dismissal, it could and should have been done in the Notice of Appearance or in a letter accompanying the Notice of Appearance.

39	What about Mr Porter’s point, that the Agency was doing no more than it had done before proceedings commenced?  Has the Chairman confused the statutory test in Rule 14 (which he set out) with the underlying failure to provide reasons?

40	We do not think his conclusion is invalidated in this way.  In any event we think his conclusion was plainly and unarguably right.  The Agency was unreasonable prior to the commencement of proceedings.  If it carries that over into the way it conducts proceedings, the test is satisfied.

41	We are satisfied that it is plainly and unarguably the case that to file and serve a Notice of Appearance in the way that was done here, and for the reasons that are given in the March letter, was unreasonable.  Therefore, the Chairman’s error in awarding costs prior to the Notice of Appearance does not, in our judgment, invalidate his conclusion relating to the proceedings thereafter.  We uphold his conclusion that he has a power to award costs for unreasonable conduct but only from the date when the Notice of Appearance was filed and served.  Unreasonable conduct finished at the date when the letter was actually given.  Until that time no clear indication having been given of the stance of the Agency, the unreasonable conduct continued.

The Amount of Costs

42	A final word about the amount of costs.  This matter must be remitted for rehearing to establish what costs are due to the Agency’s unreasonable conduct from the time of the Notice of Appearance.  Mr Porter criticised the amount of costs awarded as excessive.  The appropriate amount of costs to award will, if it cannot be agreed, be for consideration at the remitted hearing.

43	It is clear that before the Chairman, whose decision is under appeal, no criticism was made of hourly rates or hours spent.  When the case is remitted, the Chairman will have to consider with care what hours are attributable to the unreasonable conduct.  For example, in this case, it is common ground that the costs included the perusal of the reasons for dismissal when given.  But, as Mr Davison accepted, the reasons for the dismissal would have had to have been perused whenever they were given.

44	The Chairman will have to consider carefully what is attributable to the unreasonable conduct.  In so doing, it seems to us that the Rule intends that he should have regard to principles of the kind which are set out in the Civil Procedure Rules.  For, if a summary assessment is not appropriate, the case will then go a detailed assessment which the Rules provide expressly must be in accordance with those rules.

45	For the reasons which we have given, the appeal will be allowed, to the extent we have set out.  The matter will be remitted for further hearing, if it cannot be agreed.