This appeal raised an important issue as to the reliance that may be placed on without prejudice material in making a costs award when the material in question was not “without prejudice save as to costs”.
Relevant Background
- The claimant (who described himself as a Muslim of South Africa/Turkish/Iranian origin) was employed by the First Respondent as an agency worker and had been assigned to the Second Respondent as a driver.
- He pursued ET claims of race and religion/belief discrimination and harassment, relating to comments made by other workers, alleging they had called him “babaji”, which he said was an inherently discriminatory term, and “fucking Muslim”.
- He also made a claim of victimisation when his placement with the Second Respondent was terminated.
- The claims were ultimately dismissed.
On the dismissal of the claims, the Respondent applied for costs. The ET considered the without prejudice correspondence relating to settlement discussions between the parties and took the view that the Claimant had acted unreasonably in the negotiations, such that it was appropriate to make an award of costs of £10,000 for each the Respondents.
- Subsequent to the ET hearing, the Claimant obtained new evidence and applied to the ET for reconsideration of its decision, making a number of points but including clear reference to this new evidence.
- The ET, however, rejected the reconsideration application under 72(1) of the ET Rules 2013.
- The Claimant appealed against:
- the ET’s substantive decision on his claims and the award of costs; and
- the refusal of his reconsideration application.
Both appeals were allowed.
We look here at the decision on costs.
HER HONOUR JUDGE EADY QC:
Costs – The Law
63. The ET made a costs order on the basis that the Claimant had acted unreasonably in bringing or conducting the proceedings, (see Rule 76 ET Rules, which relevantly provides:
“76. When a costs order or a preparation time order may or shall be made
(1) A Tribunal may make a costs order or a preparation time order, and shall consider whether to do so, where it considers that—
(a) a party (or that party’s representative) has acted vexatiously, abusively, disruptively or otherwise unreasonably in either the bringing of the proceedings (or part) or the way that the proceedings (or part) have been conducted; or
(b) any claim or response had no reasonable prospect of success.”
64. It is common ground that there are three stages involved in the determination of a costs application: (1) the ET needs to determine whether or not its jurisdiction to make a costs award is engaged – here, whether in the circumstances provided by Rule 76…1) existed; if so, (2) it must consider the discretion afforded to it by the use of the word “may” at the start of that rule and determine whether or not it considers it appropriate to make an award of costs in that case; only then would it turn to question (3), that is to determine how much it should award.
See Abaya v Leeds Teaching Hospital NHS Trust UKEAT/0258/16, paragraphs 14 to 18, Haydar v Pennine Acute Hospitals NHS Trust UKEAT/0023/18, paragraphs 25 and 37, and Ayoola v St Christopher’s Fellowship UKEAT/0508/13 at paragraph 17.
65. Where correspondence is marked “without prejudice save as to costs” – sometimes referred to as a “Calderbank offer” (see Calderbank v Calderbank [1975] AER 333 CA) – it is common ground that such documentation can be referred to on any application for costs (see Kopel v Safeway Stores Plc [2003] IRLR 753). That, however, it is not the case where the correspondence is marked is simply “without Prejudice”, see Reed Executive plc v Reed Business Information Ltd [2004] 1WLR 3026, in which it was held that the Court has no jurisdiction to order disclosure of the without prejudice negotiations for the purpose of deciding the question of costs:
“20. Negotiations or offers which have taken place expressly on the “without prejudice save as to costs” basis are of course admissible on that question. So much was decided in the family law context in Calderbank v Calderbank [1976] Fam 93 and in the general civil litigation context by Cutts v Head [1984] Ch 290. Such offers go by the name “Calderbank offers.”
21. But generally,
parties who have negotiated on a wholly “without prejudice” basis have always done so in the faith and expectation that what they say cannot be used against them even on the question of costs.
As long ago as 1889 this Court held, in Walker v Wilsher (1889) 23 QBD 335 that, in the words of the headnote: “Letters or conversations written or declared to be “without prejudice” cannot be taken into consideration in determining whether there is good cause for depriving a successful litigant of costs.” I shall call that the rule in Walker v Wilsher. Bowen LJ reasoned this way, at page 339:
“In my opinion it would be a bad thing and lead to serious consequences if the courts allowed the action of litigants, on letters written to them “without prejudice,” to be given in evidence against them or to be used as material for depriving them of costs. It is most important that the door should not be shut against compromises, as would certainly be the case if letters written “without prejudice” and suggesting methods of compromise were liable to be read when a question of costs arose.”
22. There are exceptions to the general rule of non-admissibility of “without prejudice” negotiations. Robert Walker LJ conveniently listed the most important instances in Unilever v Procter & Gamble [2000] WLR 2436 at p. 2445. What is not included in that list is a general exception of non-admissibility when it comes to the question of costs. Indeed, it is implicit that he thought there was no such general exception, as appears from the passage, at p 2445 where he discusses Calderbank offers:
“(7). The exception (or apparent exception) for an offer expressly made “without prejudice except as to costs” was clearly recognised by this court in Cutts v Head, and by the House of Lords in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, as based on an express or implied agreement between the parties. It stands apart from the principle of public policy (a point emphasised by the importance which the new Civil Procedure Rules, Part 44.3(4), attach to the conduct of the parities in deciding the question of costs).”
Costs – The Parties’ Submissions
The Claimant’s Case
66. For the Claimant it was noted that the only conduct that the ET found was unreasonable was the Claimant’s counter offer (of £42,000). Indeed, at paragraph 68, it had recorded that, absent that aspect of the history, it would have been hard to persuade the ET that its costs jurisdiction was engaged. Failure to beat a settlement offer could be a relevant factor in assessing reasonable conduct (see Raggett v John Lewis Plc [2012] IRLR 906, paragraphs 41 to 46), but that would not have been open to the ET here, given: (1) the Claimant was entitled to seek a non-pecuniary remedy in the form of a declaration of discrimination; (2) the Claimant’s schedule of loss was in the region of £20,000 and the offer made by the Respondent was considerably lower than that; and (3) the ET was having regard to without prejudice correspondence, when the £42,000 counter offer was not said to have been made “without prejudice save as to costs” (and thus that documentation was inadmissible even on the question of costs, see Reed v Reed).
67. The ET had moreover, failed to demonstrate that it had exercised its discretion. Although it had referred to the exercise of discretion at paragraph 71, the use of the word “therefore” suggested it saw the finding of unreasonableness as determinative of the exercise of its jurisdiction which was wrong (see paragraph 17, Ayoola). The ET had further failed to have regard to the fact that making a counter offer of £42,000 had not led to any increase in costs.
The Respondents’ case
68. The First and Second Respondents[‘] arguments on the costs appeal overlapped sufficiently to mean their submissions can be taken together. They both take the view that it did not necessarily follow that, if the Claimant succeeded on his new evidence appeals, the costs decision must fall away. Otherwise, it was noted that the guidance in Reed v Reed was concerned with correspondence that went beyond the question of costs; in any event, although the email of 8 September 2017 was not expressly headed “without prejudice save as to costs” the content of the email had made it apparent that was the case and it had referred to the Claimant’s counter offer of £42,000, so that was before the ET on the question of costs (although it was accepted that Reed v Reed must mean that the Claimant was entitled to rely upon his assertion of without prejudice privilege, which could not be simply rendered “subject to costs” by another party’s reference to it, in a subsequent document headed in that way). More generally, the Respondents contended that the ET had plainly been entitled to take the view that the Claimant had acted unreasonably, a decision reached on wider grounds than simply his counter offer of £42,000.
69. As to the exercise of discretion, paragraph 71 made clear that the ET had considered whether it was appropriate to exercise its discretion to make a costs award, as did the fact that it then went on to consider the costs warning letter and the Claimant’s means, all matters relevant to the exercise of its discretion. More generally, the decision in this regard was adequately explained.
Costs – Discussion and Conclusion
70. Given my view that the new evidence adduced by the Claimant would probably have an important influence on the ET’s substantive decision, I find it difficult to see how the costs decision can stand: either the Respondents relied on evidence that had been doctored or the Claimant has adduced material that he has fraudulently created – in either event, I cannot see that this would not have an important influence on the question of costs.
71. Even if that was not correct,
it is apparent that the ET had regard to without prejudice material that was not marked “without prejudice save as to costs” and did not, in the body of the document, suggest that was its purpose; that was wrong (see Reed v Reed).
The Claimant was acting in person before the ET and it is not suggested that it was not open to him to take this point on appeal (a point that Kerr J expressly permitted to proceed to a Full Hearing and to which no objection has been taken).
It is also apparent that the Claimant’s privilege could not be, and was not, waived by any reference to his counter offer in the Respondents’ correspondence. The ET’s decision is thus vitiated by its reliance on material to which it should never have been referred.
72. In the yet further alternative, even if the ET had been entitled to refer to this material and it was entitled to see the Claimant’s refusal of the Respondents’ offer as unreasonable conduct such as to mean that its costs jurisdiction was engaged, I am not satisfied that the ET then demonstrated any recognition of the fact that it still had a discretion as to whether to make an award of costs. The use of the word “therefore” in paragraph 71, indeed suggests that it saw the making of the award as an inevitable consequence.
73. For all those reasons, I therefore also allow the appeal against costs.
Toby Moreton
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