Willis v 1) GWB Harthills LLP 2) Hester Russell 3) Elizabeth Lord [2025] EAT 79

The EAT helpfully summarises both the approach to costs and key principles regarding ability to pay.

Background

1. A firm of solicitors was sued in the Employment Tribunal by its former managing partner (the Claimant, C) in what the EAT describes as a bitter dispute regarding whether profit share could be paid into C's pension along with PHI payments.

2. At the conclusion of a remedies hearing, where no award was made to C, both parties made an application for costs. C's application was rejected. The Respondent's application succeeded, with C being ordered to pay the Respondent's costs capped at 210,000 with the actual figure to be determined by way of detailed assessment.

Appeal to EAT

3. After having sought three reconsiderations of the costs order, C then appealed. His grounds included complaint the tribunal had failed to properly exercise its discretion to award costs, because it had not considered his ability to pay the award made.

4. He also argued that the tribunal had fallen into error by not considering the effect of the award on C's wife and children given that he expected he would have to sell the family home to pay the award.

5. Further, he criticised the tribunal for speculating that he could release funds by way of equity release, and that he had sufficient means because it took into account the sum due by way of profit share (an estimated 340,000). C asserted it was wrong to take this into account given that it had formed part of the dispute with R.

What should the tribunal consider when exercising discretion to award costs?

6. The power to award costs is set out in the Employment Tribunal Rules 2013 at paragraphs 76 and 84. These provisions now translate to Rules 74 and 82 of the Employment Tribunal Rules 2024. The relevant provisions in the 2013 Rules are as follows -

When a costs order or a preparation time order may or shall be made

76. (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 ...

Ability to pay

84. In deciding whether to make a costs, preparation time, or wasted costs order, and if so in what amount, the Tribunal may have regard to the paying party's (or, where a wasted costs order is made, the representative's) ability to pay. [emphasis added]

7. In his judgement, Judge Taylor noted that the provisions essentially create 3 stages:

  • the consideration of threshold conduct, where the tribunal will assess whether or not there is conduct that could warrant making a consent order (stage 1)
  • the discretionary decision as to whether or not an award of costs should be made. At this stage the tribunal may have regard to the ability to pay (stage 2)
  • the quantum decision, where in the event that an award is to be made the tribunal will decide how much to pay. At this stage the tribunal may also have regard to ability to pay (stage 3).

8. The EAT emphasised that there was no requirement to identify each stage in the analysis of an application for costs, but that they provide a useful framework to ensure that each element is considered.

Matters relevant to the ability to pay question

9. The EAT went on to summarise the principles relevant to Rule 84, the ability to pay question. Paragraphs 9 to 12 of the judgement identify the following principles:

  • while Rule 84 provides a discretion to have regard to the ability to pay, and in many cases it is desirable to have regard to pay, there is no requirement the tribunal does so
  • per the decision in Jilley v Birmingham and Solihull Mental Health NHS Trust UKEAT/0584/06, if a tribunal decides not to have such regard it should explain why
  • factors that may lead the tribunal not to have regard to the ability to pay include where a party has failed to attend, or failed to take the opportunity to provide evidence about ability to pay, or why the tribunal considers that the evidence that has been provided is so unreliable as to be worthless: Jilly
  • where the tribunal does decide to have regard to ability to pay it should equally give a brief explanation as to how it has done so in order that the decision is Meek compliant
  • this may require some analysis of income and outgoings and of any assets or debts. Capital assets may be an important aspect of the parties' ability to pay even if they are not immediately or easily realisable Shields Automotive Ltd v Greig UKEATS/0024/10
  • where assets are jointly owned it may be relevant to consider the share held by the party against whom the cost application is made: Howman v The Queen Elizabeth Hospital Kings Lynn UKEAT/0509/12/JOJ. This may include the effect of the sale on the other person who jointly owns the asset
  • the fact that the parties' ability to pay is limited does not require the tribunal to either discount making an award for costs either at all or within the limits of what they could pay Arrowsmith v Nottingham Trent University [2012] ICR 159
  • the tribunal maybe obliged to raise the question of ability to pay even if not raised by the potential paying party Doyle v North West London Hospitals NHS Trust UKEAT/0271/11
  •  the tribunal is not limited to considering the current state of affairs but may consider what a party could realistically pay over a reasonable period. Vaughan v London Borough of Lewisham (No 2) [2013] IRLR 713. The EAT added that it is open to an employment tribunal to adopt a reasonably optimistic view as to future ability to pay particularly where costs are sent for assessment in the county court, where means may be considered again.

Had the tribunal fallen into error?

10. Having summarised the power and the tribunal's correct approach to it, and the principles relevant to Rule 84, the EAT noted that the employment tribunal had explained how it had exercised its discretion to make the award for costs against him.

11. Importantly the tribunal had made extremely serious findings against C which went to his honesty and the reliability of his evidence. The tribunal had clearly found there to be unreasonable conduct sufficient to address the so called `threshold conduct' question described by Judge Tayler at stage 1.

12. Contrary to the assertions in the grounds of appeal, the EAT found at paragraph 16 that the tribunal had dealt with the stage 2 discretionary decision, and had addressed ability to pay there, as well as considering the point as part of the stage 3 assessment. These arguments therefore failed.

13. Challenges to the manner in which the tribunal assessed ability to pay were also dismissed. While C had advanced evidence of his income and outgoings and his assets and debts, the tribunal had been highly sceptical of his evidence. Judge Tayler noted: `When it chose to have regard to the claimant's ability to pay the employment tribunal was entitled to adopt a reasonably rosy assessment of the claimant's likely future circumstances.' (paragraph 17).

14. He added at paragraph 18 that "The employment tribunal repeatedly noted that the claimant had a half-share in the family home. While it did not specifically refer to the consequences that a sale of the house would have on his wife and children, I do not consider it was required to do so, particularly because on any valuation this was a very substantial capital asset. In taking a realistic view of the claimant's future ability to pay, I do not consider that the employment tribunal erred in law in considering the possibility of some form of equity release, even if it was not specifically canvassed in argument.".

15. These arguments also therefore failed, and the appeal was dismissed.

Comment

16. Costs are not common in the employment tribunal and so an award at this level is remarkable. Given that the tribunal had made `coruscating findings' against C, the decision is not surprising. The EAT's decision provides a useful summary of the process a tribunal should follow and the principles set out with respect to the consideration of an individual's ability to pay.