Costs orders are the exception, rather than the rule, in Employment Tribunal (ET) proceedings. However, where a claimant acts unreasonably in pursuing a claim, the ET can make a costs award in favour of the other party.

In Dunedin Canmore Housing Association Ltd. v Donaldson, the Employment Appeal Tribunal (EAT), when referring to the circumstances in this case and also those in Daleside Nursing Home Ltd. v Mathew, held that where a claimant does not approach the essential facts of the case honestly and reasonably, the ET has a responsibility to ‘make it clear that it is quite unacceptable to cause expense to another party by bringing proceedings on that basis’.

In a more recent case (Nicolson Highlandwear Ltd. v Nicolson), the Scottish EAT confirmed that the appropriate test for making a costs award is whether or not the claimant acted unreasonably in pursuing their claim, not whether or not they succeeded in any aspect of the claim.

Gordon Nicolson, who had originally been a director of the company, was dismissed from his job as retail manager of Nicolson Highlandwear Ltd., which engaged in wholesaling, retailing and hiring out highland wear, after his employer discovered various financial irregularities and that Mr Nicolson was running his own clothing business from the company premises.

Mr Nicolson brought a claim of unfair dismissal. The company responded that he was guilty of gross misconduct and even if his dismissal was found to be unfair, he should not be awarded compensation.

The ET found that Mr Nicolson had been ‘automatically’ unfairly dismissed because his employer had failed to follow the statutory dismissal procedures in force at that time. However, because his own gross misconduct, which ‘some people might describe prima facie as amounting to fraud’, led directly to his dismissal, no compensation award was made. The ET refused the employer’s application for costs. In its view, Mr Nicolson was entitled to seek a declaration that he had been unfairly dismissed, even though he was denied compensation. Also, the fact that he had won meant that it was reasonable for him to have brought his claim, even though no compensation was awarded.

On appeal, the EAT held that the ET’s decision that Mr Nicolson did not act unreasonably by pursuing a claim in which, even if successful, he was unlikely to recover any compensation, was perverse. There was no basis for the ET’s decision that the fact that he had won his claim showed there could be little merit in the application for costs. Furthermore, the ET was wrong to find that it was open to him to pursue his claim for the purpose of obtaining a declaration that he was unfairly dismissed. When bringing a claim of unfair dismissal, the only options available to a claimant when specifying the remedy they are seeking are (a) reinstatement, (b) re-engagement and compensation or (c) compensation only. In any case, Mr Nicolson had ticked box (c).

Mr Nicolson had admitted that he had behaved dishonestly and the only conclusion open to the ET was that he had acted unreasonably in bringing the claim at all and, having brought it, by persisting with it even after it had been made clear that his employer would be relying on his fraudulent conduct to defend the claim and arguing that he should not be granted compensation. In the EAT’s view, ‘the unreasonableness was such as would have led any reasonable Employment Judge to conclude that an award of expenses ought to be made’.