Appeal No.  UKEAT/0477/10/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 23 March 2011

Before
THE HONOURABLE MRS JUSTICE COX
MS N SUTCLIFFE
MS P TATLOW

HCA INTERNATIONAL LTD	APPELLANT

MRS J L MAY-BHEEMUL	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR B BEYZADE
(Representative)	
For the Respondent	MS S STEINHARDT
(of Counsel)
Instructed by:
Messrs Hardings Solicitors
458 Romford Road
London
E7 8DF	

SUMMARY
PRACTICE AND PROCEDURE - Costs

An appeal by the Respondent employers against the Tribunal’s decision that no order for costs should be made against the Claimant, her claims of detriment on the ground of protected disclosures and constructive unfair dismissal having all been dismissed after a hearing lasting some 12 days. 

No error of law was disclosed in the Tribunal’s reasoning and the perversity challenge failed.  Appeal dismissed. 

THE HONOURABLE MRS JUSTICE COX 
Introduction
1.	This is the full hearing of an appeal by HCA International, the Respondents below, against the judgment of the London Central Employment Tribunal, promulgated with reasons on 5 July 2010, dismissing their application for costs.  This judgment was, by agreement of the parties, arrived at on the basis of written submissions only from both sides.  On appeal the Respondents contend, essentially, that the Tribunal erred in law in misstating the relevant legal principles; in failing to provide any or sufficient reasons for their conclusion on one matter of alleged unreasonable conduct of the proceedings by the Claimant; in arriving in a number of respects at what are said to be perverse conclusions; and in taking into account irrelevant considerations.

2.	The Claimant contends that no error of law or insufficiency of reasoning is disclosed in the judgment; and that the Tribunal’s decision, that there was no unreasonable conduct of the proceedings and that an award of costs would not be appropriate in all the circumstances, was a decision well within the range of decision-making legitimately open to them on the facts.

3.	We should say at the outset that Ms Steinhardt, appearing for the Claimant, made it clear at the start of the hearing that the potential, preliminary issues referred to in the papers, concerning a possible application by the Claimant to call fresh evidence and for a review of the Tribunal’s decision, are no longer pursued.  We shall therefore say nothing further about them.

The Background
4.	The background to this appeal, in summary, is as follows, as appears from the Tribunal’s substantive judgment on the merits and other documents in the bundle before us.  

5.	The Respondents supply healthcare services.  Owning and operating a number of hospitals in London, they employ almost 3,000 employees and have substantial administrative resources, including detailed policies and a Human Resources function.

6.	The Claimant commenced employment with them on 31 August 2004, initially as a weekly Payroll Administrator.  In August 2006 she was appointed as the Central Temporary Staffing Co-ordinator, working in the office responsible for “bank” staff, i.e. staff who are generally not employees of the Respondents but who enter into bank agreements, under which they are available to work shifts from time to time.  In March 2007 the Claimant took up the role of Finance Co-ordinator in that branch.

7.	Between July 2007 and January 2008 difficulties arose following the Claimant’s expressed concerns to her employers as to the use by other employees of her login and password information, and as to what she alleged to be resulting breaches of security, alleged financial irregularities and, ultimately, fraud.   Investigations into these allegations ensued.    

8.	In August 2007 the Claimant became extremely unwell, being found at home by London Ambulance Service personnel in a very distressed and paranoid state with delusions of persecution.  She was admitted to hospital and assessed as suffering from a severe depressive illness.  Although she was soon discharged home, the Claimant did not in fact return to work because of her ill health. Discussions with the Respondents were apparently conducted thereafter by the Claimant’s husband on her behalf.

9.	On 17 January 2008 the Claimant submitted her resignation.  She alleged that her serious ill health had developed as a result of her treatment at work and that she had no option but to resign.  Her resignation was accepted on 23 January.  On 15 April 2008 the Claimant issued her claim in the Employment Tribunal complaining of disability discrimination, detriments on the ground that she had made protected disclosures, and unfair constructive dismissal, including a claim that the reason or principal reason for her dismissal was the making of a protected disclosure.  All her claims were vigorously resisted.

10.	At a pre-hearing review the claims of disability discrimination were dismissed on the basis that there was no jurisdiction to consider them.  The other claims were then listed for ten days for a liability hearing, which commenced on 24 September 2008.  Unfortunately, on the second day of that hearing, whilst giving her evidence the Claimant broke down and became unable to continue.  The hearing was therefore adjourned to 11 March 2009, to enable the Claimant to obtain further medical evidence.

11.	Following that adjournment, the Respondent wrote to the Claimant’s solicitors on 26 September 2008.  In this letter, headed “Without prejudice save as to costs”, they suggested that there were no reasonable prospects of success for the claims, setting out their contentions in support.  They also offered a sum of £2,500 in full and final settlement of the claim and stated that, if the claims were dismissed in their entirety, they would apply for their full costs.  These were said to be expected to amount to approximately £14,500 by the end of the adjourned hearing.  

12.	Responding to this letter on the Claimant’s behalf, on 10 November 2008, her solicitors rejected the offer and took issue with the Respondents’ contentions as to the merits of her claims, responding in some detail on the facts and rejecting any suggestion that the claim was misconceived.  They observed that the matters raised were all essentially questions of fact, which would need to be determined by the Tribunal on hearing all the evidence.

13.	In January 2009 there was a further development.  The Employment Judge hearing the case sadly suffered a heart attack and was therefore absent on sick leave for a lengthy period of time.  It was subsequently determined that it would no longer be practicable simply to resume the hearing, and that the matter would have to be relisted to commence afresh.  The case was therefore re-fixed to commence on 25 November 2009.  

14.	Before that date, the Respondents applied for the claims to be struck out or, alternatively, for the Claimant to be ordered to pay a deposit.  These applications were rejected by the Regional Employment Judge, after a pre-hearing review, in a judgment promulgated with reasons on 27 August 2009.

15.	The liability hearing therefore went ahead on the fixed dates, both parties being legally represented.  The Tribunal heard from eight witnesses, including the Claimant, and considered a great deal of oral and documentary evidence, before reserving their judgment.  We note that, as a result of medical evidence from a consultant psychiatrist, Dr Brenner, on the Claimant’s condition, some adjustments were made at the hearing, by agreement between the parties, to ensure that the Claimant was able to give her evidence without becoming unwell.  There were regular breaks during the Claimant’s evidence for example, and she was permitted to revisit matters that she had dealt with previously when giving evidence.  It is clear from the judgment that this Claimant’s ill health was not in dispute below; and the Respondents had been paying her statutory sick pay before her employment came to an end.  It appears that Dr Brenner was jointly instructed by both parties.

16.	The Employment Tribunal set out their conclusions by reference to an agreed list of issues on liability, annexed to their judgment.  This was a lengthy list reflecting, in our view, the many factual issues to be determined, in addition to questions of legal liability.  

17.	Amongst the many findings of fact in their judgment, the following seem to us to be of some significance in this appeal.  

(1) When the Claimant was expressing and pursuing her concerns as to computer misuse and financial irregularities, managers considered her to be a valued employee who was acting entirely out of character, and they were becoming increasingly concerned as to her state of health.  

(2) When the Claimant voiced fears about possible disciplinary action being taken against her, she was repeatedly reassured that she had done the right thing by raising her concerns through the proper channels; and that staff who raised genuine concerns would not be subject to disciplinary action.  In fact, her initial concern as to the misuse by others of her personal details, as opposed to her subsequent allegations of fraud or financial irregularities, was justified on the evidence.  

(3) She was assessed as someone who was suffering from a high level of anxiety and was then admitted to hospital on the night of the 2 August 2007, after being found to be extremely unwell at her home by attending ambulance personnel.  

(4) After her discharge home, matters reached an impasse.  The Claimant felt too unwell to communicate directly with the Respondents, and the Respondents could not properly continue to investigate her concerns until they had met her and had been able properly to comprehend them.  The basis upon which she was suggesting fraud or other irregularities was simply not understood by her employers.  

(5) Dr Brenner’s report, dated 3 January 2008, described the Claimant has having suffered from a major depressive illness precipitated by events at work, which would hopefully improve once these matters had been resolved.  In fact, the Claimant submitted her resignation on 17 January.  

(6) At the hearing in November 2009 the Claimant produced, very late in the day, a supplementary statement in which she sought to explain a document which she considered to be of some significance in her case; namely a “verification report” for the month of April 2007.  Although produced late, it appears from the judgment that the Respondents withdrew their initial objection to the statement being adduced.  The Claimant therefore adduced it and relied upon it.  The Tribunal stated that they had some difficulty in following this report.  However, on analysis, they found that it contained a number of errors, which rendered invalid the conclusions that the Claimant sought to draw from it.  It is not necessary, in this judgment, to go into any of the detail.

The Tribunal’s Decision on the Claims
18.	It will be helpful to summarise the key findings, so that the issues arising in this appeal can be properly understood.  
  
19.	In relation first to protected disclosures, the Tribunal accepted that, in disclosing information as to members of staff using her user name and password to book shifts, in breach of their confidentiality and security agreements, the Claimant was making disclosures of information which, in her reasonable belief, tended to show a breach of a legal obligation and were therefore protected disclosures.  This appears not to have been in dispute.  In respect of the disclosures of information relating to fraud and financial irregularities, however, although the Claimant genuinely believed in the allegations she was making, the view she had formed was found not to be an objectively reasonable one in the circumstances.  Those disclosures were therefore not protected.

20.	We emphasise that it was not in dispute below that this Claimant was anything other than honest and genuine in her beliefs and in her allegations.  The Respondents accepted that she was genuine, as the Tribunal record at paragraph 159 of their judgment on liability.

21.	In relation to the alleged detriments, the Tribunal dealt separately with each allegation and, with one exception, dismissed each one.  This was either on the basis that detriment had not been made out on the facts, or that the treatment complained of was not on the ground that she had made a protected disclosure.  

22.	The one exception was that the Tribunal found that the Claimant was subjected to a detriment when her statutory sick pay was stopped at one point.  However, they found on the evidence that this was a genuine administrative error, rather than an attempt to punish her for making protected disclosures.  It was in any event rectified prior to her resignation.  As regards fundamental breach of contract, the Tribunal found that the stopping of her sick pay was not in the circumstances a breach of the implied term of trust and confidence.  In any event, the Claimant had not resigned in response to her employers’ delay in making these payments.

23.	Secondly, in relation to the misuse of her login and password information, the Tribunal held that the Respondents had taken reasonably swift action to deal with her concerns, and that they had sought to investigate the matter as fully as they could, in circumstances where they were unable to meet her and discuss the concerns with her personally.  There was, in these circumstances, no fundamental breach of contract.  Further, they found that the Claimant did not resign in response to such breach without having affirmed her contract.  The Claimant was not dismissed, and therefore could not have been unfairly dismissed.

The Costs Application
24.	Following promulgation of this judgment, by letter dated 19 January 2010, the Respondents applied for their costs pursuant to rule 40 of the Employment Tribunal (Constitution and Rules of Procedure) Regulations 2004, as amended.  Inviting the Tribunal to consider the application on the basis of written submissions only, the Respondents relied essentially on the following six factors in support of their application:  

(i) The without prejudice offer of settlement made on 26 September 2008, the non-acceptance of which was said to be unreasonable.  

(ii) Comments made by the Regional Employment Judge at the strike-out hearing on 13 August 2009, in referring in particular, in her judgment, to the costs sanction available in respect of weak claims at the conclusion of a hearing.  

(iii) The fact that the central foundations of the Claimant’s claim were rejected by the Tribunal.  Her credibility was said to have been seriously damaged by the Tribunal’s decision.  

(iv) The Claimant’s unreasonable conduct in reporting her allegations to a number of external agencies, including the Serious Fraud Office and the Metropolitan Police, which it was said had continued throughout the proceedings.  

(v) Other unreasonable and allegedly “pervasive” conduct of the claim by this Claimant, including: (a) serving her supplemental statement addressing the verification report very late in the day, and in respect of which the Tribunal rejected all her claims; and (b) requiring two of the Respondents’ employees, one of whom was a senior employee, to attend the Tribunal and give evidence which, in fact, added no value whatsoever to her claim.  

(vi) The overriding objective, given the significant time and cost to the Respondents of defending these unsuccessful proceedings.

25.	The Claimant’s solicitors then served a detailed response to this application for costs, dated 26 January 2010, addressing each of the six factors and contending that there should be no order for costs in this case.

The Tribunal’s Costs Decision
26.	The Tribunal correctly directed themselves to the provisions of rule 40 of the 2004 Regulations and stated (a) that the decision as to whether to award costs is a matter for the Tribunal’s discretion, which much be exercised judiciously; and (b) that awards of costs by the Employment Tribunal remain the exception rather than the rule, although the introduction of the concept of an award of costs where proceedings are misconceived was said to suggest a lower degree of certainty of failure than was required under the previous test of frivolous conduct.

27.	The Respondents’ grounds were considered to overlap to an extent.  The Tribunal said that, although they had determined each discrete issue, the application had been considered as a whole and their reasoning should therefore also be considered as a whole.  The key paragraphs of the judgment are those at paragraphs 8 to 15, which read as follows:

“8. The first ground upon which the Respondent sought costs was that the Claimant had refused a without prejudice save as to costs offer made on 26 September 2010. The fact that a Claimant has not recovered sums offered by way of settlement does not necessarily lead to an award of costs. It is a factor that may be considered in determining whether the Claimant has acted unreasonably: see Kopel v Safeway Stores Ltd [2003] IRLR 753. The Claimant was offered a small sum by way of settlement. If she had succeeded in her claim she would have recovered a vastly greater sum in all probability. In the context of this case, as set out below, we do not consider that the refusal of the offer merits an award of costs. 
9. The second ground relied upon is the mention of the possibility by the Regional Employment Judge at a PHR. We take this into account insofar that the Claimant was aware of the possibility of an award of costs. However, as set out below, we do not consider that such an award is appropriate in this case. 
10. The third ground relied upon relates to recent authorities in which decisions not to award cost have been overturned on the basis that they were perverse. For example, in Daleside Nursing Home Ltd v Matthews [2009] UKEAT Mr Justice Wilkie overturned a decision of an Employment Tribunal on perversity grounds where they had failed to award costs in circumstances in which they had determined that the central allegation in a race discrimination complaint was a lie. It was referred to as a deliberate and cynical lie. The Employment Appeal Tribunal held that the failure to make an award for costs where there was a clear cut finding of the central allegation of racial abuse was a lie was perverse. It was so much at the heart of the case that there was an overwhelming case that the tribunal had failed to properly address the point. However, in giving the judgment, Mr Justice Wilkie stated: 
‘Mr Prescott QC, who has addressed us briefly and at great length in a written skeleton argument has indicated that this is a case which raises an important issue of principle for employers. We understand that may be so; however the actual case itself does not raise any issue of legal principle of general application, and we want to make it clear that we have approached this appeal on the basis of the particular clear cut facts of this case and that nothing that we say is intended to set out any more general statement of legal principle.’
11. Nonetheless, the case was quoted by the Employment Appeal Tribunal in Dunedin Canmorwe Housing Association v Donaldson [2009] EAT, where again the central allegation in the case was established to be a lie. The Employment Appeal Tribunal found that the Employment Tribunal had been perverse not to make an award of costs. 
12. We do not accept that there is a legal principle to be derived from those and other recent cases on the point. Costs remain discretionary. Where a central allegation is found to be a lie this may support an application for costs and, in extreme circumstances, a failure to award cost may be perverse. This does not mean that every time a Claimant has failed to establish an important element of her claim an award for costs must follow. Here it was accepted by the Respondent that certain of the Claimant's disclosers were protected and that others, though not based on objectively reasonable grounds, were genuinely held. The Tribunal held that the Claimant had not established that she had been subject to detriments done on the grounds that she had made the disclosures. These were determinations reached on a full consideration of the evidence. This is not a case in which the central allegations of the Clamant were a blatant lies. Far from it, the Claimant believed in her case and we do not consider that her failure to establish the claim should found an award of costs. 
13. The fourth ground relates to the reporting of the Respondent to external bodies. We do not consider that amounts to conduct of the proceedings that could found an award for costs. 
14. The fifth ground is described as miscellaneous. It is contended that time was expended by the Claimant producing a supplementary witnesses statement. We do not accept that this conduct was unreasonable. The Claimant was seeking to explain her rather complex rationale as to why she felt the Respondent was guilty of financial irregularity. The witnesses who attended under witness orders were called as the Claimant believed they could assist their case. They did not add significantly to costs. 
15. We do not accept that the Claimant’s conduct of the proceedings has been unreasonable or that they were misconceived in the sense of having no reasonable prospects of success. Furthermore, looking at the matter as a whole and taking into account the overriding objective we would not exercise our discretion to award costs. The Claimant has been unwell. She has put forward a case that she believes in, although we did not accept it. These unhappy claims might have been avoided had the Respondent applied its own email security provision and not allowed other employees to use the Claimants email address which was the start of the problems. In the circumstances we do not consider an award of costs would be just.”

The Appeal
28.	So far as is relevant, rule 40 provides as follows:

“(2) A Tribunal or Employment Judge shall consider making a costs order against a paying party where, in the opinion of the Tribunal or Employment Judge (as the case may be), any of the circumstances in paragraph (3) apply. Having so considered, the Tribunal or Employment Judge may make a costs order against the paying party if it or he considers it appropriate to do so.
(3) The circumstances referred to in paragraph (2) are where the paying party has in bringing the proceedings, or he or his representative has in conducting the proceedings, acted vexatiously, abusively, disruptively or otherwise unreasonably, or the bringing or conducting of the proceedings by the paying party has been misconceived.”

29.	Paragraph 2 therefore mandates the Tribunal to consider making a costs order where, in the Tribunal’s opinion, any of the circumstances in paragraph 3 apply.  Where it is found that any of those circumstances do apply, the Tribunal has a discretion and may make a costs order if they consider it appropriate to do so.  In McPherson v BNP Paribas [2004] ICR 1398 Mummery LJ summarised the general position as follows, in relation to the predecessor provision to rule 40.

“Although Employment Tribunals are under a duty to consider making an order for costs in the circumstances specified in Rule 14(1), in practice they do not normally make orders for costs against unsuccessful applicants.  Their power to make costs orders is not only more restricted than the power of the ordinary courts under the Civil Procedure Rules, it has also for long been generally accepted that the costs regime in ordinary litigation does not fit the particular function and special procedures of Employment Tribunals.”

30.	As the Tribunal therefore correctly observed, awards of costs are not inherently inappropriate in tribunal proceedings.  Equally, however, costs do not follow the event.

31.	On behalf of the Respondents, Mr Beyzade’s first ground of appeal is that the Tribunal erred in stating at paragraph 12 that there was no legal principle to be derived from the cases of Daleside Nursing Home Ltd v Mathews [2009] UKEAT/0519/08/1802 RN and Dunedin Canmore Housing Association Ltd v Mrs Margaret Donaldson [2009] UKEATS/0014/09/0807BI, and indeed in other recent cases in addition.  Mr Beyzade cites in particular Nicolson Highlandwear Ltd v Gordon Nicolson [2010] IRLR 859 and Annapoornamma Yerrakalva v Barnsley Metropolitan Borough Council and the Governing Body of Dearne Carrfield Primary School  UKEAT/0231/10/RN. 

32.	The clear principle to be derived from these cases, in his submission, is that it will be perverse not to award costs to the successful party where there is a finding that the losing party’s central allegation is untrue, or where the central allegation has not been established at trial and is held to be wrong.  In the present case he submits that this Claimant failed to establish the central allegation of her case, namely that she had been subjected to detriments on the ground that she had made protected disclosures.  Further, she failed entirely to establish the allegations made in her verification report.  The Tribunal’s decision not to award costs was therefore perverse and arrived at after a misdirection as to the effect of these authorities.

33.	In our view, Mr Beyzade seems to be seeking, impermissibly, to extract from these cases a principle that an award of costs must follow when a party fails to establish a central allegation in their case.  We reject this submission and we do so without hesitation.  

34.	It is correct that, in a number of the cases cited, appeals against decisions not to award costs were upheld on the basis that the decisions were perverse.  However, on an analysis of each case, it is clear that the EAT concluded only that it was in light of the specific facts found by the Tribunal that their decision that the Claimant had not behaved unreasonably was one which was unsustainable.

35.	In Daleside, the EAT noted that there was “a clear-cut finding that the central allegation of racial abuse was a lie”.  The central allegation in that case was that the Claimant was saying she had been called a “black bitch” and the Employment Tribunal found that this was a deliberate and cynical lie in the circumstances.  In their judgment at paragraph 20 the EAT said as follows:

“In our judgement, in a case such as this where there is such a clear-cut finding that the central allegation of racial abuse was a lie it is perverse for the Tribunal to fail to conclude that the making of such a false allegation at the heart of the claim does not constitute a person acting unreasonably.  Whatever may be their genuine feelings about the other matters of which complaint is made, on the particular facts of this case it was the fact that the lie was explicit and so much at the heart of the case that in our judgment it is appropriate for us to conclude that this was an overwhelming case where the Tribunal has failed properly to address the point and as a result has come to a perverse conclusion.”

36.	In the Dunedin case the Claimant was found to have sought compensation “on a basis which she must have known to be a false one” (see paragraph 24).  It is correct, as Mr Beyzade points out, that in their decision the EAT did refer to the decision in Daleside but once again, reading the case, it is clear that the Employment Tribunal had found that this Claimant’s entire case depended on a lie which was central to the claim.  In Nicolson the Claimant was said to be guilty of conduct that was blatant and that he was unrepentant (see for example paragraph 29). The Tribunal found explicitly that he had lied on oath.  In all these cases the EAT had little difficulty in concluding that, given these clear findings of fact, a conclusion that the Claimant’s conduct was not unreasonable was one which was simply unsustainable.

37.	In the case of Yerrakalva the Employment Tribunal had found that the Claimant had lied in two specific respects at the pre-hearing review, prior to the withdrawal of a discrimination claim.  In that case the Employment Tribunal did in fact make an order for costs against the  Claimant, but on appeal that decision was overturned.  At paragraph 16 of his judgment Underhill P said this, on the basis that the Claimant had lied:

“It may be debatable whether that constituted an abuse of process but it was certainly unreasonable conduct for the purposes of rule 40 (3).  But it was necessary for the Judge in deciding whether to make an award, and if so what the amount should be, to take into account "the nature, gravity and effect" of that conduct: see the passage from the judgment of Mummery LJ in McPherson v BNP Paribas [2004] ICR 1398 set out below.  The Judge did not attempt to carry out that exercise.  He seemed to think that once he found an abuse of process, then -- subject to the question of means -- he ought to make a 100% order.”

38.	A little later, Underhill P set out the extract from Mummery LJ’s judgment at paragraph 40, where he said as follows:

“In my judgment, [rule 40] does not impose any such causal requirement in the exercise of the discretion.  The principle of relevance means that the tribunal must have regard to the nature, gravity and effect of the unreasonable conduct, as factors relevant to the exercise of the discretion, but that is not the same as requiring [the party claiming costs] to prove that specific unreasonable conduct by [the potential paying party] caused particular costs to be incurred [my emphases].’
Thus, while there does not have to be a precise causal relationship between the unreasonable conduct and the costs claimed, any award of costs must, at least broadly, reflect the effect of the conduct in question.  That indeed inevitably follows from the principle that the purpose of an award of costs under rule 40 is compensatory and not punitive: see, e.g., Lodwick v London Borough of Southwark [2004] ICR 884, per Pill LJ at para.  23 (p. 892B).”

39.	Thus, a lie on its own will not necessarily be sufficient to found an award of costs.  It will always be necessary for the Tribunal to examine the context and to look at the nature, gravity and effect of the lie in determining the unreasonableness of the alleged conduct.

40.	As this last case makes abundantly clear, no point of principle of general application is established in any of the cases being relied upon by Mr Beyzade.  In our judgment the Employment Tribunal’s reasoning in the present case, at paragraph 12 of their judgment, is unimpeachable.  Where, in some cases, a central allegation is found to be a lie, that may support an application for costs, but it does not mean that, on every occasion that a Claimant fails to establish a central plank of the claim, an award of costs must follow.  

41.	In this case there were no findings at all that the Claimant’s central allegations, or indeed any allegations made by her, were lies, or that she had deliberately persisted in pursuing complaints that she knew to be untrue.  On the contrary, it appears that the Respondents had accepted that a number of her disclosures were protected.  It seems that some four of the nine disclosures relating to misuse of her login and password information were accepted to be protected disclosures.  

42.	There was only one disclosure making an express allegation of fraudulent activity.  The other disclosures related to complaints as to the misuse of her login details or to various suspicions of financial irregularity.  Whilst the protected disclosures relating to fraudulent activity were ultimately found not to be based on objectively reasonable grounds, they were nevertheless found and accepted to be based on genuinely held beliefs.  As Ms Steinhardt correctly observes, the objective unreasonableness of genuine belief, and a consequent failure on a Claimant’s part to establish the necessary legal elements of the claim, does not equate to unreasonable conduct of the proceedings.  

43.	Further, what is also abundantly clear in the present case is that this Tribunal’s conclusions, that the Claimant had not been subjected to detriments, were conclusions arrived at only after careful consideration by the Tribunal of all the evidence adduced over a period of some 12 days.  We can identify no error of law in their reasoning and the Tribunal’s decision cannot therefore be said to be perverse on this basis.

44.	Mr Beyzade’s second ground of appeal is that the Tribunal did not provide sufficient reasons for the decision, at paragraph 13, that the Claimant’s reports to external agencies did not amount to unreasonable conduct such as to found an award of costs.  

45.	In our view, however, the Tribunal cannot fairly be criticised for the brevity of their conclusion on this point, since no basis for suggesting that this constituted grounds for a costs order had in fact been identified in the Respondents’ written application.  There is no suggestion that this Claimant had improperly spoken to any external body during her evidence on oath or had otherwise behaved inappropriately or in breach of any directions of the Tribunal.

46.	In her judgment of 27 August 2009, after the pre-hearing review, the Regional Employment Judge referred to matters which, even before the previous hearing began in September 2008, had been reported to the police, the Serious Fraud Office and the NHS Counter Fraud Service.  These reports, and the tensions surrounding them, were noted to have impacted significantly on the parties’ approach to the litigation; and to have created “an unusually charged situation”.  However, the Judge also noted that, while some of the references to these external bodies had been made by the Claimant, there had also been references by the Respondents themselves, for example to the Information Commissioner.  Further, that pursuit of external avenues of redress on the part of the Respondents was found to be still active at that stage, as evidenced by the Respondents’ stated intention to appeal against the decision of the Commissioner not to investigate the matter further.

47.	Against this background, and with no specific grounds or evidence in support being identified in the written application for costs, we consider there can be no legitimate criticism of the Tribunal’s decision to reject it, and no complaint of any insufficiency of reasons in holding that this was not “conduct of the proceedings”, such as could found an award of costs in the circumstances.

48.	In his third ground of appeal, Mr Beyzade raises a perversity challenge to the Tribunal’s other findings in relation to the following: the offer in settlement made in September 2008; the observations of the Regional Employment Judge at the pre-hearing review as to the availability of the costs sanction; and the alleged, unreasonable conduct of the Claimant in producing a supplemental witness statement late and requiring two of the Respondents’ witnesses to attend to give evidence.  He also submits that the Tribunal erred in having regard to irrelevant considerations, namely the fact that the Claimant had been unwell; and in referring incorrectly to alleged “email security provision”, both mentioned in paragraph 15.

49.	We have considered Mr Beyzade’s submissions carefully, but none of them seems to us to begin to cross the very high threshold required for a perversity challenge, having regard to the test to be applied (see Yeboah v Crofton [2002] IRLR 634), and the need for an overwhelming case to be made out.  

50.	In relation to the settlement offer, the Tribunal correctly identified the relevant legal principles at paragraph 8 of their judgment.  The fact that a Claimant does not accept an offer will not lead inexorably to an award of costs.  It is certainly a factor to be taken into account in deciding whether a Claimant’s conduct has been unreasonable, and the Tribunal considered it here on that basis.  

51.	As the Claimant’s solicitors pointed out in their written submissions on costs, when the offer was made the Claimant had to assess the total value of her claim, as well as the prospects of success, in order to decide whether it was a reasonable offer.  The Tribunal’s decision that this was a small sum, and that her refusal of that offer, in the context of this case, could not be said to merit an award of costs, was clearly a decision they were entitled to make.  The Claimant had lost her job and, on the evidence before them, her ill health meant that she would be unlikely to be able to work again for a further period into the future. This experienced Tribunal were clearly entitled to have regard to the potentially high value of claims made under this legislation, if they succeeded.

52.	The observations of the Regional Employment Judge as to the availability of a costs sanction need to be seen in the context of her judgment as a whole.  They were made without knowledge of the full facts, as she herself made clear.  She described the Respondents’ strike-out application as an ambitious one in the circumstances.  Further, she noted as follows as paragraph 15 of her judgment:

“The factual matrix was admitted misuse of the Claimant’s log in and admitted whistle-blowing by the Claimant in response to that situation.  In those circumstances a key feature of the case was the scrutiny of the Respondents’ actions in response to those events.  It had not been suggested before the first hearing of the matter that the claim was so weak that a strike-out or deposit order was warranted, nor were there such suggestions made immediately after the conclusion of the first hearing.  These matters were raised in response to the aggravating external circumstances cited earlier in the decision.”  

53.	In respect of the constructive dismissal claim, the Judge noted that it was scrutiny of the Respondents’ conduct that was at the heart of the case.  In relation to the whistle-blowing claim, acknowledging that the issues were more finely balanced, she said this at paragraph 19:

“….some of the Claimant’s allegations were ambitious, for example, in relation to cursors moving across her screen, the bugging of phones and the searching of waste bins.  It appeared possible that some of these allegations were related to the Claimant’s ill health at the relevant time.  However, it was not appropriate to pick and choose these more extreme and colourful allegations to say that the whole of the case had little reasonable prospect of success, when at the root there were the key components of admitted inappropriate access to the Claimant’s computer and admitted whistle-blowing by her in relation to such matters.”  

54.	Further, her conclusion at paragraph 22 included the following:

“…the overall conclusion …is that the interests of justice point to the appropriate course being for the two parties in this case to go back into a trial on a level playing field, with no one party put at a disadvantage.  [I] take into account that if the Respondents’ contentions as to the weakness of the Claimant’s case are ultimately established at trial, there is a costs sanction that can be used in those circumstances.  In the very particular and odd circumstances of this case, use of that costs sanction at the end, when the facts have been established is more appropriate than a pre-judging of the circumstances of the case.”  

55.	Those observations, however, do no more than alert both the Claimant and the Respondents to the possibility of a costs award at the conclusion of the case, as the Tribunal in this case held.  They do not impact upon this Tribunal’s duty, having heard all the evidence, to consider any subsequent application for costs on its own, individual merits.

56.	This Tribunal had heard evidence in this case over a number of days. Their finding that the Claimant’s conduct, in producing a supplemental statement to explain her complex rationale as to financial irregularity, was not unreasonable cannot, in our view, be even arguably categorised as perverse, having regard to their analysis at paragraph 138 of the judgment and the fact that no objection was made, in the event, to this supplemental statement being adduced in evidence.

57.	Nor can their decision that she did not unreasonably consider the two witnesses called as capable of assisting her case.  The Tribunal’s finding that the attendance of these witnesses did not add significantly to the costs of the case is not something we can even begin to unpick in this appeal.  This Tribunal had heard all the evidence over the course of 12 days and were clearly entitled to have regard to that evidence in coming to this conclusion.

58.	Mr Beyzade submits, finally, that the Tribunal erred at paragraph 15 in having regard to irrelevant considerations in determining the question of unreasonable conduct and whether to award costs.  He refers in this respect to the findings as to the Claimant being unwell, and to errors in what the Tribunal incorrectly referred to as the Respondents’ “email and security provision”.  

59.	It seems to us that, at paragraph 15, the Tribunal first set out their conclusion on the first part of the rule 40 procedure, finding that they were not persuaded that this Claimant’s conduct of the proceedings had been unreasonable, or that the proceedings were misconceived in the sense of having no reasonable prospect of success.

60.	They then proceeded to look at the matter as a whole and stated that, having regard to the overriding objective, they would not exercise their discretion to award costs against the Claimant in this case.  This was plainly a reference to the second stage of the rule 40 procedure.  At that point they took into account a number of factors, in considering the exercise of that discretion, including the fact that the Claimant was unwell, something which had not been in dispute below; and the fact of her genuine belief in the allegations.  

61.	We can identify no error in that reasoning.  A party’s ill health can certainly be a factor to be taken into account in the exercise of the discretion.  It was certainly not perverse to take it into account in this case.  Mr Beyzade suggests that there was no opportunity afforded to the Respondents to make submissions about this, but we repeat that the question of this Claimant’s ill health was never in dispute below and the Tribunal were clearly entitled to have regard to it.

62.	So far as the Tribunal’s reference to “email security provision” is concerned, this cannot sensibly be said to amount to an error of law.  In the context of this judgment it was no more than a minor mis-description of the relevant technology, the Tribunal clearly intending in our view to refer to use of the Claimant’s login details, rather than to email security.  On the substantive point being made in the penultimate sentence in paragraph 15, the Tribunal had found, at paragraph 32 of their liability judgment, that in fact this Claimant did report the use of her log-in details to the Respondents, and that her manager did not take any action to prevent it.  This minor, factual error does not therefore in any way vitiate the exercise of the Tribunal’s discretion at this stage.  The Tribunal were fully entitled to have regard, in making this observation, to their conclusions in the liability judgment.

63.	In conclusion, therefore, we find that no error of law is disclosed in this Tribunal’s judgment and their decision has not been shown to be perverse.  These grounds of appeal therefore fail and the appeal must be dismissed.