The Employment Appeal Tribunal has overturned a tribunal’s decision to make a costs order against an impecunious claimant – on the basis of his future earning potential – because it failed to explain why it ordered him to repay the full £110,000 bill.
In Herry v Dudley Metropolitan Council (Practice and Procedure: Costs)  UKEAT 0100_16_1612, His Honour Judge David Richardson also advised that receiving parties need to tell the tribunal if they are planning to bring bankruptcy proceedings to enforce the costs order.
The claimant, Damieon Herry, was a teacher who brought multiple claims against the school where he worked and the local authority, all of which were dismissed.
The original employment tribunal (ET) ordered that he pay all of the respondents’ £110,000 costs on the basis that he had acted unreasonably in bringing and pursuing the proceedings in the face of three different advisers saying he had no case.
It did so even though he was impecunious due to being unfit for work, with the tribunal considering it “highly likely” that Mr Herry would return to full-time employment.
Mr Herry argued that the ET erred in making an award of 100%. However, HHJ Richardson said the ET provided detailed reasons that “plainly justified” the order. The ET found that the claimant had acted unreasonably throughout in both bringing and conducting the proceedings, whereas the respondents had acted reasonably and proportionately throughout.
But HHJ Richardson said the tribunal had not taken proper account of the claimant’s means. Having decided to take account of his ability to pay, its task was to assess his means and reflect those means in setting what Mr Herry should pay.
“We have reached the conclusion that the ET has not given sufficient or adequate reasons for awarding the whole costs against the claimant; it has not sufficiently explained why its award was reasonable and proportionate; and, unlike the ET in Vaughan, it has not considered whether it ought to have awarded a proportion of the costs or capped the costs, having regard to the claimant’s ability to pay.”
He found that the ET said only that the claimant could return to work as a teacher or supply teacher; it made no findings as to his likely earnings if he did so, while the figures in the ET1 and ET3 forms suggested an income of about £2,000 per month net.
“From this, once he was earning, he would have to pay his rent, travel and support for his child as well as other outgoings. It is difficult to see how he could pay off a figure remotely close to £100,000; and the ET did not explain how he could do so.
“Once granted that the ET decided to take ability to pay into account, there was an obvious case for capping the award or ordering a proportion of the award. The ET did not explain why it did not consider this option.”
He ordered that the ET must consider “entirely afresh” whether and how to have regard to the claimant’s ability to pay.
After the detailed assessment, the respondents had registered the judgment for enforcement and served statutory demands as a precursor to the commencement of bankruptcy proceedings. On neither occasion was the claimant told he could apply in the county for an order staying the judgment by reason of his inability to pay on such terms as were just – by installments, for example.
HHJ Richardson said: “It seemed to us surprising that the respondents should seek to pursue insolvency proceedings for the purpose of enforcing the order for costs where, as here, the ET had recently made an assessment of the paying party’s means as impecunious and had made its order on the basis that his means might improve at some time in the future.”
The respondents suggested that bankruptcy would protect them from further claims by Mr Herry, but the EAT said it would not stop ‘personal’ claims and so he could still pursue unfair dismissal and discrimination claims relating to personal injury or injury to feelings.
“He may not – unless he persuades the trustee – be able to pursue a claim for financial loss arising from discrimination; but, if there were no bankruptcy proceedings, the respondents would in any event have the judgment for costs which they could off-set against any award.
“The ET plainly did not make the order for costs in the expectation that the respondents would bring bankruptcy proceedings: it made the order, not on the basis that the claimant would be bankrupted and the debt released, but on the quite different basis that the debt would remain in place and the claimant’s earning capacity would enable him to make payment in due course.”
HHJ Richardson added that the statutory demands would fall away as a result of his judgment, and said it may be that the respondents take the view that bankruptcy proceedings have little to offer, given his comments earlier in the case.
“But a party who applies for costs to the ET and relies wholly or in part on an argument that the paying party’s future earning capacity is to be taken into account ought to say if there is any intention in the near future to serve statutory demands and bring bankruptcy proceedings.
“Bankruptcy may result in the extinguishment of the debt before any future earning capacity can be brought to bear; and it may have other severe consequences for the paying party – both personal and financial.”
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