Introduction

Respondents are often faced with complaints in the Employment Tribunal where it is believed that a Claimant’s case, or part of their case, often poorly pleaded, are weak or unfounded. It is however often an uphill struggle to strike out said complaints under Rule 37 of the Employment Tribunal Rules and Procedure. This is particularly the case when faced with complaints of discrimination and victimisation, which usually fall to be determined on complex factual backgrounds and the credibility of differing accounts put forward by witnesses. The Courts have shown reluctance to strike out claims such as those described unless there are exceptional circumstances (see the leading authority of Ezsias v North Glamorgan NHS Trust [2007] EWCA Civ 330).

A tactical approach

Seeking a deposit order under Rule 39 of the Employment Tribunal Rules and Procedure is therefore a useful tool available to a Respondent in such situations. Sometimes Strike Out and Deposit Orders are applied for at the same time, as alternatives – a ‘half–way house’ type approach.

It is important to appreciate, and often helpful in convincing tribunals to make such orders, that ‘little prospect of success’ for a deposit order is not the same as the ‘no reasonable prospects of success’ test for strike out under Rule 37. The distinction between a deposit order and striking out was highlighted in HM Prison Service v Dolby [2003] IRLR 694, where the EAT described the two sanctions respectively as ‘the Yellow card’ and ‘the Red card’. 

The rule on deposit orders is contained at Rule 39 of the Employment Tribunal Rules and Procedure:

Rule 39 (1) provides that: Where at a preliminary hearing (under rule 53) the Tribunal considers that any specific allegation or argument in a claim or response has little reasonable prospect of success, it may make an order requiring a party (“the paying party”) to pay a deposit not exceeding £1,000 as a condition of continuing to advance that allegation or argument.

Rule 39 (3) provides that: The Tribunal’s reasons for making the deposit order shall be provided with the order and the paying party must be notified about the potential consequences of the order.

Rule 39 (5) provides that: If the Tribunal at any stage following the making of a deposit order decides the specific allegation or argument against the paying party for substantially the reasons given in the deposit order— (a) the paying party shall be treated as having acted unreasonably in pursuing that specific allegation or argument for the purpose of rule 76, unless the contrary is shown; and (b) the deposit shall be paid to the other party (or, if there is more than one, to such other party or parties as the Tribunal orders), otherwise the deposit shall be refunded.

In H v Ishmail and another UKEAT/0021/16, Simler P held that the “little reasonable prospect of success” test is “less rigorous” than the “no reasonable prospect of success” test which applies on a strike-out application, but that there must still be a proper basis for doubting the likelihood that a party can establish the facts essential to the claim. That position is a simple re-statement of the law as promulgated in Van Rensburg v Royal Borough of Kingston-upon-Thames UKEAT/0095/07 which confirmed that a tribunal is not restricted to a consideration of purely legal issues, but shall also have regard to the likelihood of the party (usually the Claimant) being able to establish the facts essential to his/her case, and, in doing so, to reach a provisional view as to the credibility and inherent plausibility of the allegations being advanced.

Any party applying for a deposit order should however bear in mind that a deposit order should not be made because the Claimant’s case is unclear and as a substitute to other case management orders such as ordering further particulars (see Tree v South East Coastal Ambulance Service UKEAT/0043/17)

Ishmail also provided helpful obiter for any prospective Respondent wishing to apply for a deposit order:

“… if the money is paid and the claim pursued, it operates as a warning, rather like a sword of Damocles hanging over the paying party, that costs might be ordered against that paying
party (with a presumption in particular circumstances that costs will be ordered) where the allegation is pursued and the party loses. There can accordingly be little doubt … that the
purpose of a deposit order is to identify at an early stage claims with little prospect of success and to discourage the pursuit of those claims by requiring a sum to be paid and by creating a risk of costs ultimately if the claim fails. That … is legitimate, because claims or defences with little prospect cause costs to be incurred and time to be spent by the opposing party which is unlikely to be necessary. They are likely to cause both wasted time and resource, and unnecessary anxiety. They also occupy the limited time and resource of courts and tribunals
that would otherwise be available to other litigants and do so for limited purpose or benefit.” (§10)

Further, in AQ Limited v Mr A J Holden [2012] UKEAT/0021/12 (“AQ Limited”) the Employment Appeal Tribunal noted the following in relation to costs applications against litigants in person:

“The threshold tests in rule 40(3) are the same whether a litigant is or is not professionally represented. The application of those tests may, however, must take into account whether a
litigant is professionally represented. A tribunal cannot and should not judge a litigant in person by the standards of a professional representative. Lay people are entitled to represent
themselves in tribunals; and, since legal aid is not available and they will not usually recover costs if they are successful, it is inevitable that many lay people will represent themselves.
Justice requires that tribunals do not apply professional standards to lay people, who may be involved in legal proceedings for the only time in their life. As Mr Davies submitted, lay people are likely to lack the objectivity and knowledge of law and practice brought by a professional legal adviser. Tribunals must bear this in mind when assessing the threshold tests in rule 40(3). Further, even if the threshold tests for an order for costs are met, the Tribunal has discretion whether to make an order. This discretion will be exercised having regard to all the circumstances. It is not irrelevant that a lay person may have brought proceedings with little or no access to specialist help and advice” (§32)

This is not to say that lay people are immune from orders for costs: far from it, as the cases make clear. Some litigants in person are found to have behaved vexatiously or unreasonably
even when proper allowance is made for their inexperience and lack of objectivity (§33)

That judgment considered an employment tribunal’s refusal to make a costs order under the previous version of the Tribunal rules (2004) which is why there is a reference to rule 40(3) rather than rule 76. However, the principles noted in the extract above in relation to litigants in person remain relevant to the current rules.

These comments will inevitably assist any applicant in seeking to persuade a tribunal to make a deposit order in the first place, and in providing an explanation to a Claimant in subsequent
correspondence as to the costs risks if they continue with the claims.

Usefully a separate deposit order can be made in respect of each allegation in a claim, not just each claim, and this can be valuable where the claims make wide-ranging allegations over a long period. The effect of well drafted and successful deposit order applications, in the early stages of litigation, has several benefits:

a) The Respondent is able to narrow the issues and lay down a solid marker as to those complaints which it (and the Tribunal) consider to have little reasonable prospect of success.

b) If a deposit order application is made simultaneous to a strike out application the Tribunal may be inclined to strike out a certain number of allegations, thereby further reducing the
scope of ‘surviving’ claims.

c) Claimant’s will usually provide further particulars and (often) evidence in support of their claim(s) in order to respond to the application. This is particularly useful when the claims are
poorly set out in the first instance. This has the effect of pinning down the complaints at an early stage and enables the Respondent to better understand the claim it has to meet – even
if ultimately the application is unsuccessful.

d) Often, in the face of a well drafted deposit order which is yet to be heard, a Claimant may have a change of heart and either: (i) discontinue certain, if not all, complaints, or (ii) be more
willing to engage in negotiations with a more reasonable attitude.

e) The Claimant is, in the course of any judgment, given a stark warning by the Tribunal that in the event any complaints subject to a deposit order are nonetheless advanced and are
ultimately unsuccessful that costs sanctions are likely to apply (Rule 39(3)).

f) Claimants are likely to think twice before continuing with complaints which, in the Tribunals view, demonstrate little reasonable prospect of success. Usually litigants in person, who
produce lengthy and ill-focused pleadings, accept the Tribunals view and either withdraw allegations which are subject to a deposit order or simply fail to comply with the terms
rendering those complaints automatically struck out.

g) In the event the complaints are advanced, notwithstanding the imposition of a deposit order, and the sword of Damocles hanging in abeyance, Respondents can rest easy that if successful
the avenue for costs is an easier trodden path (Rule 39(5).

Accordingly, the use of deposit orders is a key weapon in cases involving litigants in person, who very often lack the legal understanding on how and which complaints to advance.

When a costs order is sought against an impecunious litigant, tribunals may consider whether a deposit order application exercise is disproportionate given the financial position of the Claimant. A helpful response to any such concern would be to remind the Tribunal that impecuniosity does not equal impunity. The Court of Appeal in Kovacs v Queen Mary [2002] IRLR 414 cited with approval the following principle: “It does not appear, on the face of the relevant Regulations, that it was intended that poor litigants may misbehave with impunity and without fearing that any significant costs order will be made against them, whereas wealthy ones must behave themselves because otherwise an order will be made”.

In Ishmail (above), the EAT did however hold that a deposit order will be disproportionate if it is so high that it is not practically possible for the paying party to comply. One must not forget that Rule 39 (2) provides that the Tribunal shall make reasonable enquiries into the paying party’s ability to pay the deposit and have regard to any such information when deciding the amount of the deposit. In Oni v NHS Leicester City [2012] All ER (D) 05, the EAT recommended the completion of the County Court means form EX140 by the party whose means are to be taken into account.

The End Game

It is important to remember that the value of any deposit order is not limited to the amount to be paid. In fact, it is the making of the deposit order itself, as opposed to the value of the deposit, which provides the most benefit. Even a nominal deposit order (for example £1 as was the case in Ishmail) still acts as the “sword of Damocles” and opens the way for a future costs order.

A deposit order will only bear its fruit in the event of a successful defence to the claims. If the deposit order is made, and paid, and latterly the Claimant succeeds in establishing his/her
complaints in the face of adversity that is the end of the matter and any deposit is repaid.

However, if the complaints subject to a deposit order are ultimately unsuccessful for the same reasons as the deposit order was initially made the door to costs recovery under Rule 76(1)(a) of the Employment Tribunals Rules of Procedure 2013 is blown wide open.

Rule 76(1)(a) of the Employment Tribunals Rules of Procedure 2013 reads:

(1) A Tribunal may make a costs 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 …”

Rule 76 imposes a two-stage exercise. At the first stage the Tribunal must determine whether the paying party has acted unreasonably or in any other way such as to invoke the jurisdiction to make an order for costs. If satisfied that there has been unreasonable or other relevant conduct at that stage, the second stage is engaged. At the second stage the Tribunal is required to consider making a costs order but has a discretion whether or not to do so (see Oni v Unison UKEAT/0370/14/LA).

The question of jurisdiction (first limb) is easy to satisfy in the circumstances described above as one only need retrace their steps to Rule 39(5) of the Employment Tribunals Rules of Procedure 2013. It is clear from Rule 39(5) that the burden of demonstrating that the Claimant has not been unreasonable falls on the Claimant (Rule 39(5)(a)).

Stage two of the exercise is likely to be more challenging for a Respondent, as made clear by the AQ Limited case, the fact that the claim was brought by a litigant in person may be relevant when the tribunal goes on to consider whether to make a costs order once the threshold of 76(1)(b) has been met.

Conclusion

A deposit order remains an important and useful weapon in the Respondent’s tribunal arsenal. The costs threat remains and can be highlighted to a Claimant in subsequent correspondence.

Accordingly, the “sword of Damocles” should be at the forefront of consideration by any Respondent but should not be used lightly and should only be deployed on claims which are likely
to meet the relevant legal test – to do otherwise would simply waste time and resources and have the effect of encouraging the Claimant to ‘dig in’ having won a battle in anticipation of the war.

Alexander Jones
23rd September 2022

Alex undertakes employment work for both Claimant and Respondent and is willing to accept cases on a Conditional Fee Agreement where the merits allow.

Alex is a member of the Attorney General’s Panel and regularly represents government agencies in the preparation and securing of deposit orders. If you wish to discuss any matter with Alex, his clerks can be contacted on 0151 236 4421