Counting the cost - it pays to tell the truth

01/07/2009

By Nick Hobden, Partner and Head of Employment.

One of the problems that often rears its head when we are helping to defend claims brought against our clients is the costs regime that applies in the Employment Tribunal (ET).

Whilst Employment Judges have the power to make awards in respect of costs, such awards are made in just a small minority of cases. This is because costs will only normally be awarded where a party is shown to have acted "vexatiously, abusively, disruptively, or otherwise unreasonably". ETs tend to require a lot of convincing that an award in respect of costs, therefore, should be made. However the recent Employment Appeal Tribunal ("EAT") case of Daleside Nursing Home v Mathew (2009) suggests that the odds of securing a costs award may be higher in at least one particular set of circumstances: where a party is shown to have lied.

Mrs Mathew worked for Daleside Nursing Home as a nurse. She brought a claim against her employer, raising various allegations of race discrimination. The most shocking claim concerned an allegation that Mrs Mathew's manager has called her "a black bitch". In effect, her whole claim turned on whether this central allegation was true.

After considering the evidence, the ET concluded that Mrs Mathew's manager had not in fact called her a "a black bitch". As a result, her entire case failed. However when Daleside Nursing Home then applied for an order that Mrs Mathew pay its costs, this application was refused on the grounds that the claimant had a genuine belief in her claim and had not acted unreasonably.

Daleside Nursing Home appealed to the EAT, arguing that where a central allegation of this nature was found to be untrue, it must follow that the claimant acted unreasonably in pursuing a claim based upon a lie. The EAT agreed and decided that it was perverse for the Tribunal to conclude that the making of such a false allegation does not constitute unreasonable behaviour for the purposes of costs.

The EAT was keen to emphasise that its decision was based upon a particular set of circumstances and was not intended to set out any more general statement of legal principle. That said, where an ET is asked to make a finding of fact about such a significant point, and one side or the other is found to have lied, this case appears to open the door to a greater number of successful costs applications.

This development in the law may encourage employers who believe that they have a good defence to an allegation of this nature to continue to defend the claim, rather than simply settling the matter. It is frequently the case that employers are persuaded to settle cases because they know that the costs of defending the claim are likely to be higher than the compensation that the employee is looking for. This can be very frustrating. If employers could be more confident of an award in respect of costs being made, this might make defending claims more commercially viable.