A new approach to costs in the Employment Court?

Due to the nature of the disputes heard, it is a peculiarity of the employment jurisdiction that employee-litigants will generally have access to significantly less financial resources than their employer adversaries. This frequently means that aggrieved employees are not able to benefit from representation by counsel trained in advocacy and familiar with court processes.

Chris Baldock

Aside from highlighting access to justice concerns for employees, when such disputes are escalated to the Employment Court, this financial imbalance can inflate litigation costs for employer-defendants. For example, a self-represented litigant will (quite understandably) lack understanding of the applicable law. The minefield-like intricacies of evidence and procedure can also pose a considerable challenge. Delays in such cases, whether caused by misconceived pleadings or inadmissible evidence, are common. This can lead to many more hours of preparation and court time than might otherwise be seen when both parties are represented by counsel.

Further, employment disputes are inherently personal in nature. As such, without counsel to view matters through an objective lens, there is a risk that self-represented litigants will approach litigation from an entirely emotional, but not necessarily rational, standpoint – after all, reputation and future income are often at stake in these cases. It is not surprising, therefore, that costs can sometimes snowball as a result of the unreasonable conduct of litigation.

Of course, where the employee is successful in the Employment Court, the employer generally has to wear its legal costs and any compensatory remedy it is made to pay (including a contribution to the employee’s costs). However, when an employee is unsuccessful, i.e. where the claim is largely or entirely dismissed, interesting issues can arise.

It is a well-known tenet, within both the civil and employment jurisdictions, that costs should follow the event and that an award of costs should represent a reasonable contribution to costs actually and reasonably incurred. Indeed, under the Employment Relations Act 2000, the Employment Court is empowered to order any party to pay to another such costs and expenses as it thinks fit. The Employment Court can also have regard to any conduct of the parties tending to increase or contain costs.

However, perhaps due to its unique nature as a jurisdiction of equity and good conscience, the Employment Court has adopted a practice, unlike its High Court counterpart, of having regard to a party’s ability to pay when deciding costs (which invariably means a consideration of the employee’s financial circumstances). With security for costs only ordered in exceptional circumstances, this approach has left some employer-defendants out-of-pocket – even after the successful defence of spurious claims.

That all said, three recent decisions of the Employment Court have contested the status quo.

Tomo v Checkmate Precision Cutting Tools Limited [2015] NZEmpC 2

Mr Tomo, a self-represented employee-plaintiff, who abandoned his claim late in the piece, was described as having acted in an “extraordinarily languid” manner throughout the litigation process. The Court noted that he had:

“… been warned on several occasions of the consequences of failing to diligently prosecute his case. By ignoring these warnings, the defendant has incurred unnecessary costs which are directly attributable to Mr Tomo’s conduct.”

When the issue of costs arose, it was noted that Mr Tomo was unemployed, had no assets, had debts owing and, ultimately, had no immediate ability to meet any award against him. On this basis, he asked the Court to exercise its discretion not to make a costs award against him. In considering this, the Court noted:

“Under what appears to be the current approach, an impecunious litigant can embark on lengthy, and doomed, proceedings free from the spectre of a significant, or any, costs liability. The issues that this gives rise to may be said to be reinforced by the restrained approach to orders for security for costs adopted in a number of cases in this Court, requiring exceptional circumstances before such an order will be made.”

A contrast was observed in the Employment Court’s approach to costs to the policy considerations identified in the civil jurisdiction. Namely, that because litigation is expensive, time-consuming and distracting, the requirement that the losing party pay the successful party’s costs acts as a disincentive to unmeritorious claims. It was also noted that the consideration of financial hardship sat uncomfortably with the fact that the regulations permit the Employment Court to give weight to Calderbank offers when deciding costs:

“[If] the employment context does not warrant a different approach to Calderbank offers in this Court, what is the basis for applying a different approach to financial hardship? And while there is an express reference to the relevance of Calderbank offers in reg 68 and conduct tending to increase costs, there is a notable absence of reference to the relevance or otherwise of an unsuccessful party’s financial position in either the Regulations or the Act.”

The Court also observed that there could be a number of reasons why a successful party might wish to have a costs judgment in its favour, despite the losing party not being in a position to immediately pay that award. For example, it may wish to wait and see whether at some stage in the future the losing party’s personal circumstances change.

In spite of the approach previously taken, and due to the aggravating features of the way he pursued his claim, the Court decided it was in the interests of justice to make a costs award against Mr Tomo. Mr Tomo was ordered to pay $3,000.

Scarborough v Micron Security Products Limited [2015] NZEmpC 105

Ms Scarborough was a self-represented plaintiff who was successful in the Authority. However, unhappy with the remedies awarded to her, she made a number of applications to the Employment Court which were variously described as “rambling”, “un-focused” and “irrelevant”. She was repeatedly advised by the Court to obtain professional assistance and was warned over her “insulting and scurrilous comments” directed at the defendant, witnesses and the Authority Member. Ms Scarborough went so far as to accuse the defendant’s counsel of fraud and question whether he was a qualified lawyer at all (he was).

In considering costs, the Court applied the reasoning in Tomo. While the Court considered Ms Scarborough’s difficult financial position, it chose to disregard this fact and noted that the defendant, a small business, faced financial challenges of its own. The Court noted that the aggravating manner in which the plaintiff had pursued her claim, and the unnecessary costs incurred by the defendant as a result, justified a costs award against her.

Given the nature of Ms Scarborough’s conduct, the Court awarded uplifted or indemnity costs in respect of the various failed applications brought over the course of the proceeding.

Stevens v Hapag-Lloyd (NZ) Ltd [2015] NZEmpC 137

Although Stevens sits apart from Tomo and Scarborough, in that the plaintiff was represented by counsel, it highlights the Court’s hardening stance on costs. In that case, the plaintiff, whose earlier challenge to a substantive determination of the Authority had been dismissed, submitted that a substantial costs order should not be awarded as it would present significant difficulties for her.

The Court was not persuaded by this submission. Applying Tomo, the Court noted that the interests of both parties had to be weighed and broader public policy considerations taken into account. Ms Stevens had already been afforded significant leniency by the Authority Member, who had radically reduced the costs award that would otherwise have been made on the basis of financial hardship. However, the plaintiff nevertheless elected to escalate the matter to the Court. The Court observed that while it was the plaintiff’s right to challenge the Authority’s decision, it was also her risk to bear if she was unsuccessful.

In the end, Ms Stevens was ordered to pay to the defendant the hefty sum of $48,000 (this figure being an uplift to 80% of what the Court deemed reasonable for the time spent on the matter). In addition, the Court declined to direct that the sum be paid in instalments, holding that such an arrangement would not be just.

Conclusion

On the issue of costs, these recent judgments suggest a change to the Employment Court’s traditional approach of giving significant weight to the unsuccessful party’s financial position. While the unsuccessful party’s financial position will still be relevant to determining a just award of costs, these decisions demonstrate this factor will not be decisive and must be weighed against other relevant factors, including the interests of the defendant, the broader public interest, and any aggravating behaviour.

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