Legal expenses insurance no bar to employment tribunal cost claim, says EAT

Out-Law News | 24 Sep 2014 | 2:26 pm | 2 min. read

The fact that a successful party to an employment tribunal claim has her legal expenses paid by an insurer does not prevent him from claiming for costs, the UK's Employment Appeal Tribunal (EAT) has confirmed.

The EAT overturned an employment tribunal's findings that Mr Mardner, the former director of a charitable body, was not entitled to have the costs of his successful claim paid by the charity's trustees for reasons including the fact that his action had not left him "personally out of pocket". In her judgment, the judge said that there were "public policy reasons" why the successful party's personal means were irrelevant when awarding costs.

"It is easy to see why [the relevance of the claimant's means] should not be [a potentially relevant question]," she said. "That would seem to me to be contrary to public policy and potentially to lead tribunals into making very difficult judgments that would seem irrelevant to the exercise of discretion they are engaged in."

"If costs are compensatory and the relevant criteria are met, then why should it be relevant that the receiving party has not actually been placed into straitened circumstances because of having to fund the proceedings? … [The public policy principal] ... serves to prevent respondents avoiding the cost consequences of their unreasonable conduct because the claimant prudently entered into a policy of insurance, which would otherwise allow them to appropriate the benefit for themselves," she said.

The Employment Tribunal Rules give tribunals and employment judges broad discretion to order one party to pay "those fees, charges, disbursements or expenses incurred by or on behalf of" the other. Costs can be awarded where particular circumstances are found to arise, although orders tend to be "the exception rather than the rule".

The original employment judge in this case had found that she was entitled to consider cost issues due to the "misconceived nature of the defence and the unreasonable nature of [the charity's] position". However, she concluded that it was not appropriate to make an order against its trustees as they were volunteers, and already personally liable for Mardner's substantive claim, as well as because Mardner had been funded by an insurer.

In its judgment, the EAT said that it could only overturn the employment tribunal judge's exercise of discretion if she made her decision based on an "error of legal principle" or not based on the relevant circumstances. The EAT judge said that she had been entitled to consider the losing parties' positions as "volunteers and trustees of a charity that had run out of money, thus fixing them with personal liability", but not the insurance issue.

"She was not saying that it would always be the case that volunteer trustees will not face personal liability for costs, simply that she felt that it was inappropriate to make an award against these volunteer trustees in these particular circumstances," the EAT judge said. "Whether that will be a relevant factor in considering the appropriateness of an application for costs in tribunal proceedings in any particular case will be for that tribunal or employment judge to determine."

However, the same could not be said of the fact that Mardner's costs were covered by insurance policy, the EAT judge said.

Legal costs expert Keith Levene of Pinsent Masons, the law firm behind, said that the decision made "perfect sense".

"As is the position under any funding arrangement whether conditional fee agreement (CFA), legal expenses insurance or third-party funding, the liability to meet costs is always with the claimant," he said. "Courts have always taken the view that the mere fact that a claimant has a funding arrangement in place does not negate that primary liability."

"This is the logical conclusion: otherwise, every time a court or tribunal awards costs it would have to look at the nature of those funding arrangements and whether a client is a 'man of means' or otherwise has the ability to pay his own costs," he said.