.	Appeal No. UKEAT/0100/08/CEA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
                                                                                                    On 23 April 2008

Before
THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT)
(SITTING ALONE)

RATCLIFFE DUCE AND GAMMER	APPELLANT

1)	MRS L BINNS T/A PARC FERME
2)	MR N McDONALD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

In a Matter of Costs

	APPEARANCES

For the Appellant	MR C STIRLING
(of Counsel)
Instructed by:
Ratcliffe Duce & Gammer LLP
49-51 London Street
READING
Berkshire
RG1 4PS	
For the First Respondent	No appearance or representation by or on behalf of the First Respondent.

For the Second Respondent	No appearance or representation by or on behalf of the Second Respondent.

SUMMARY

Practice and Procedure

Costs

Wasted costs order made against appellant firm of solicitors.  Employment Tribunal applied the wrong principles and relied upon the wrong authorities.  Had the right principles been adopted, the only possible conclusion was that no such order could be made.  Appeal upheld.

  

THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT)

1.	This is an appeal against the decision of the Employment Tribunal, in which it made an award for wasted costs against the Claimant’s solicitors, now the Appellants before me. It did so on the basis that the Claimant’s continued pursuance of the complaint was unreasonable and misconceived and that the Appellants should have appreciated that.

2.	The background, very briefly, was this.  The Claimant’s solicitors lodged unfair dismissal proceedings on his behalf.  A preliminary issue was whether he had twelve months continuous employment.  The Claimant alleged he had been employed from 1 September 2005 until 16 November 2006. Initially he was called a self-employed contractor and subsequently became an employee, but his case appears to have been that in reality he was an employee doing the same work throughout.

3.	The Respondent in the ET3 initially accepted that the Claimant had provided services to them as an independent contractor between September 2005 and December 2005, but thereafter had been an employee. They later retracted this, however, and said that the Claimant had not been employed at all before December 2005 in any capacity. They provided some documentation to support this. On this premise the Claimant would not have the twelve months’ continuity of employment necessary to pursue the unfair dismissal claim.

4.	The Claimant was alleging that he had bank statements proving that he received payments from the Respondent over the period September to December 2005 but in the event they were never provided.  He also said that he had a witness, whom he identified, who would confirm that he had worked for the Respondent during that period.
5.	  The solicitor did not attend the hearing at which the Tribunal concluded that there was no requisite continuity of employment. Having dismissed the claim, the Tribunal gave the Appellants notice as to why a wasted costs order should not be made against them “pursuant to rule 40(3)” of the Tribunal rules.

6.	Various representations were made to the Tribunal by the Appellants as to why they had not acted unreasonably.  There was a very detailed reply by the solicitors for the employers.   In giving her reasons, the employment judge identified the question she had to ask herself as follows: 
“The Tribunal have to decide whether, in all the circumstances of the case, the representative conducted the case unreasonably or whether the bringing or conducting of the complaint was misconceived.  Unreasonable conduct is a precondition of the power to award costs.  There need be no causal link between the costs incurred and the unreasonable behaviour.”

She was here applying the principles enunciated by the Court of Appeal in McPherson v BNP Paribas [2004] ICR 1398, to which she expressly referred.

7.	The employment judge found that the complaint was misconceived.   She summarised the errors of the Claimant’s representatives as follows:
“…Firstly, no heed was taken with regard to the documents provided by the Respondent establishing when the Claimant went on the Respondent’s payroll. Secondly, there was a failure by the Claimant’s representative to heed the significance of the contract of employment signed by the Claimant stating a commencement date of 19 December 2005. Thirdly, there was a failure to heed the significance of the Claimant’s failure to obtain the bank statements he stated proved his case. Fourthly, there was a failure also to appreciate that the Claimant’s witness, Mr Rutherford, was not an employee at the same premises as the Claimant so that his evidence on the Claimant’s alleged daily attendance was worthless. The Tribunal, therefore, find that the pursuance of the case after June 2007 was unreasonable since the case was obviously misconceived at that date.”
Accordingly she concluded that the wasted costs order should be made of the costs incurred from a particular date when she thought that the Appellants ought to have appreciated that the case had no prospect of success.
The grounds of appeal.
8.	The Appellant advances a number of grounds on which the Employment Tribunal erred in law in this matter. I am not going to set them out in detail. Suffice it to say that the fundamental point from which most of the other complaints derive is that the Tribunal relied upon the wrong order.  The Employment Judge purported to make an order under rule 40(3) of the Tribunal Rules of Procedure whereas a wasted costs order is made under rule 48.

9.	The Tribunal did identify parts of rule 48 when setting out the statutory background, but there is no further reference to that rule. As I have said, the letter to the Claimant’s solicitors, following the judgment of 19 September, required them to show cause why they should not pay wasted costs pursuant to rule 40(3).  That is not the appropriate provision for such wasted costs.  The employment judge simply assumed that wasted costs could be awarded against the representatives in precisely the same circumstances as they can be awarded against a party to the action. 

10.	That approach was wholly misconceived. There is a fundamental difference between the scope and application of the two sets of costs rules.  Costs orders (or preparation time orders which, broadly, apply where the successful party is not represented) are made against the unsuccessful party in certain circumstances, including where the action is misconceived, which includes where the case had no reasonable prospect of success. 

11.	A wasted costs order is made under rule 48 personally against a legal representative (or other representative who is acting for profit). Rule 48(3) defines the circumstances where such an order can be made:
“Wasted costs means any costs incurred by a party –
(a)	as a result of any improper, unreasonable or negligent act or omission on the part of any representative; or
(b)	which, in the light of any such act or omission occurring after they were incurred, the tribunal considers it unreasonable to expect that party to pay.”

12.	This precisely mirrors the definition given in section 51 of the Supreme Court Act 1981. Accordingly, the authorities applicable to wasted costs in the civil law generally are equally applicable here.  The two leading authorities analysing the scope of section 51 and the circumstances in which such orders can be made are Ridehalgh v Horsefield [1994] Ch 205 (CA) and Medcalf v Mardell and others [2002] UK HL 27; [2003] 1 AC 120 (HL).  (A valuable compilation of the principles to be drawn from these cases is found in the recent judgment of the EAT (HH Judge Burke QC presiding) in Mitchells Solicitors v Funkwerk Information Technologies York Ltd. UKEAT/0541/07.)

13.	There is no doubt when one examines this decision that the Tribunal did apply the wrong rule when considering whether wasted costs should be paid. That led it ineluctably to make further related errors. It meant that it applied the wrong test to determine whether the solicitors were liable to pay these costs, and it relied upon the McPherson case, which is not the appropriate authority.  Where a wasted costs order is concerned, the question is not whether the party has acted unreasonably. The test is a more rigorous one, as the leading authorities referred to above make plain. They demonstrate that a wasted costs order should not be made merely because a claimant pursues a hopeless case and his representative does not dissuade him from so doing. 

14.	The employment judge did not have her attention drawn to these authorities, nor did any of the parties identify the error she had made in focusing upon the wrong rule. Nobody had their eye on the ball.  As a consequence she also adopted the wrong procedure. She allowed the Respondent’s solicitors to submit comments upon the Appellant’s representations to her. That is not an appropriate procedure to adopt when a wasted costs order is made. The Tribunal should give the representative a reasonable opportunity to make oral or written submissions as to why the order should not be made (rule 48(7)).  But whilst the other party may apply for an order -although the issue can exceptionally be raised by the Tribunal at its own initiative - it does not thereafter comment on the submissions, and it will never be appropriate for the receiving party to cross examine the representative against whom the order is being considered. 

15.	I should add that there are various errors of fact which raise grounds of appeal, and in particular which documentation was received when by the Claimant’s solicitors. The Respondents concede that the Tribunal did make certain errors about this, but submit that they do not materially affect the outcome.

16.	I see no purpose in engaging in any detailed analysis of those matters. The approach of the Tribunal here was fundamentally misconceived from the beginning and it is clear that the order cannot stand. 

Could a wasted costs order properly be made?
17.	The only question then arising is whether the matter should be remitted for fresh consideration or whether I can safely conclude that a wasted costs order could not properly be made. I am wholly satisfied that no such order could properly be made.   In summarising my reasons it is necessary to provide some brief discussion of the basic principles of this jurisdiction.  

18.	In Ridehalgh the court emphasised that courts should apply a three-stage test when determining whether a wasted costs order can be contemplated:-
(1)	Has the legal representative of whom complaint is made acted improperly, unreasonably, or negligently?
(2)	If so, did such conduct cause the applicant to incur unnecessary costs?
(3)	If so, is it in the circumstances just to order the legal representative to compensate the applicant for the whole or any part of the relevant costs?

19.	The notion that a wasted costs order can be made against a lawyer simply because his client is pursuing a hopeless case is entirely erroneous.  Such conduct does not of itself demonstrate that their representative has acted improperly or unreasonably.  Clients frequently insist on pursuing a case against the best advice of their lawyers. The reasons why costs should 
not be awarded in such circumstances were fully explained by Sir Thomas Bingham MR, as he was, in the Ridehalgh case (page 863) as follows:
“Pursuing a hopeless case
	A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or a defence which is plainly doomed to fail.  As Lord Pearce observed in Rondel v Worsely [1967] 3 All ER 993 at 1029, [1969] 1 AC 191 at 275:
	‘It is easier, pleasanter and more advantageous professionally for barristers to advise, represent or defend those who are decent and reasonable and likely to succeed in their action or their defence than those who are unpleasant, unreasonable, disreputable, and have an apparently hopeless case.  Yet it would be tragic if our legal system came to provide no reputable defenders, or representatives or advisers for the latter.’
As is well known, barristers in independent practice are not permitted to pick and choose their clients.  Paragraph 209 of the Code of Conduct of the Bar of England and Wales provides:
	‘A barrister in independent practice must comply with the “Cab-rank rule” and accordingly except only as otherwise provided in paragraphs 501, 502 and 503 he must in any field in which he professes to practise in relation to work appropriate to his experience and seniority and irrespective of whether his client is paying privately or is legally aided or otherwise publicly funded:  (a) accept any brief to appear before a court in which he professes to practise;  (b) accept any instructions; (c) act for any person on whose behalf he is briefed or instructed; and do so irrespective of (i) the party on whose behalf he is briefed or instructed (ii) the nature of the case and (iii) any belief or opinion which he may have formed as to the character reputation cause conduct guilt or innocence of that person.’
As is well known, solicitors are not subject to an equivalent cab-rank rule, but many solicitors would and do respect the public policy underlying it by affording representation to the unpopular and the unmeritorious.  Legal representatives will, of course, whether barristers or solicitors, advise clients of the perceived weakness of their case and of the risk of failure.  But clients are free to reject advice and insist that cases be litigated.  It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved.  They are there to present the case;  it is (as Samuel Johnson unforgettably pointed out) for the judge and not for the lawyers to judge it.
	It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail;  it is quite another to lend his assistance to proceedings which are an abuse of the process of the court.  Whether instructed or not, a legal representative is not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for reasons unconnected with success in the litigation or pursuing a case known to be dishonest, nor is he entitled to evade rules intended to safeguard the interests of justice, as by knowingly failing to make full disclosure on ex parte application or knowingly conniving at incomplete disclosure of documents.  It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.”

20.	To similar effect was the following observation of Lord Hobhouse  in the Medcalf case (p.143H):
“…………It is the duty of the advocate to present his client’s case even though he may think it is hopeless and even though he may have advised his client that it is (Ridehalgh pages 233-4). It is not enough that the court considers the advocate has been arguing a hopeless case. The litigant is entitled to be heard: to penalise the advocate for presenting his client’s case to the court would be contrary to the constitutional principle to which I have referred. The position is different if the court concludes that there has been improper time wasting by the advocate or the advocate has knowingly lent himself to an abuse of process. However, it is relevant to bear in mind that if a party is raising issues or is taking steps which have no reasonable prospect of success or are scandalous or are an abuse of process, both the aggrieved party and the court have powers to remedy the situation by invoking summary remedies – striking out; summary judgment; peremptory orders, etc. The making of a wasted costs order should not be the primary remedy; by definition it only arises once the damage has been done. It is a last resort.”
His Lordship also observed that the representative owes no duty to his opponent, and that the jurisdictional was penal and has to be approached with considerable caution.
21.	The distinction therefore is between conduct which is an abuse of process and conduct falling short of that.  In this case there was no attempt to determine whether there was an abuse of process, and there was no basis for supposing that there was.  It has not been suggested that the case was being pursued for any improper purpose or anything of that nature.

22.	Furthermore, a particular problem arises in circumstances where the privilege of the client is not waived. In those circumstances it will be a very exceptional case indeed where a court will be entitled to infer that a party is abusing the process of the court by pursuing a hopeless case. The reasons are again explained by the Master of the Rolls in Ridehalgh (p.237B):
 “In the usual case where a waiver would not benefit their client they will be slow to advise the client to waive his privilege and they may well feel bound to advise that the client should take independent advice before doing so. The client may be unwilling to do so that and may be unwilling to waive if he does so the respondent lawyers may find themselves at a grave disadvantage in defending their conduct of proceedings, unable to reveal what advice and warnings they gave, what instructions they received. … Judges who are invited to make or contemplate making a wasted costs order must make full allowance for the inability of respondent lawyers to tell the whole story. Where there is room for doubt, the respondent lawyers are entitled to the benefit of it. It is again only when, with all allowances made, a lawyer’s conduct of proceedings is quite plainly unjustifiable that it can be appropriate to make a wasted costs order”.

23.	In this case privilege has not been waived.  There is absolutely no basis at all for concluding that there was an abuse of process.  This is a case where the representative did not prevent a party pursuing what turned out to be a hopeless case, but even if it is fair to infer that the solicitor should have appreciated that it was hopeless - and it must be remembered that the claimant was maintaining that he had relevant evidence to support his case until the last minute - it does not follow that he could have influenced his client to drop the case in any event.

24.	 I should add that in addition since there was no evidence that the claimant would have withdrawn even if advised to do so, there was no basis for inferring that any costs had been incurred as a consequence of any misconduct.  Unlike the position where an ordinary costs order is made, where there is no need to fix the amount by reference to the additional costs actually resulting from unreasonable conduct (as the McPherson case makes clear), where a wasted costs order is made, the actual loss flowing from the misconduct must be calculated.  If the claimant would have continued the action in any event, no costs are wasted.

Disposal
25.	This appeal is bound to succeed.  The employment judge acted on the wrong principles and the costs order must be set aside.  Had the right principles been applied, there would have been no basis for making a wasted costs order.  Accordingly the wasted costs application is dismissed.