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Domonique McRae discusses the decision in Swissport Ltd on whether a 'period' costs award may be made when a party has entered into a DBA

Swissport Ltd v Exley and others (UKEAT/0007/16/JOJ) concerned a number of employees, predominately baggage handlers, who on 1 April 2013 were subject to a transfer from Servisair UK Ltd to Swissport Ltd, a large ground-handling agent, following its acquisition of a contract which serviced a particular airline.

Eight of the affected employees, who were found to have been unfairly dismissed when Swissport Ltd refused to accept that they transferred to it by virtue of the Transfer of Undertakings (Protection of Employment) Regulations 2006, funded litigation against the company by way of a damages-based agreement.

Upon conclusion of the tribunal claim (in which collectively they were awarded sums in excess of £380,000), the claimants made an application for their costs on the basis that the respondent’s defence had no reasonable prospects of success and were awarded ‘the entirety of their costs between the date of the receipt of the response document and the conclusion of the Polkey hearing’.

This costs award was subject to the limitation that, if the costs were calculated as being greater than the total liability to their advisers (pursuant to the terms of the DBA) then such costs would be capped at that level.

This raised an interesting point in respect of the relationship between the costs paid by the claimants to their legal advisers and the calculation of those costs for the period in which the respondent was found to be liable (given that, among other matters, the DBA percentage fee to be paid by the claimants was not commensurate to the amount of work undertaken by their advisers, and arguably therefore it would not be appropriate to assess costs in accordance with the normal hourly rate model).

As a result, the respondent appealed the decision of the Employment Tribunal and the matter was listed as a category A hearing as it raised legal points of public importance.

Relevant law

The Employment Tribunal (Constitution and Rules of Procedure) Regulations 2013 stipulate that, when an award of costs is made, they can be calculated by way of a detailed assessment carried out in accordance with the Civil Procedure Rules 1998. The CPR in turn provides, at rule 44.18, that the fact a party has entered into a DBA will not affect the making of any order for costs which otherwise would be made.

It is curious, however, that the Damages-Based Agreements Regulations 2013 and its predecessor are silent as to whether those costs, after assessment, should be subject to a cap based on the individuals’ total liability to the adviser, especially as it expressly excludes employment claims from regulation 4, in which it confirms this point in relation to any other type of claim or proceedings to which the regulations apply. There is no similar setting-off provision contained within the ET Regulations.

The judgment

In determining this point, the Employment Appeal Tribunal clarified the interplay between the DBA percentage fee and costs for employment matters and held that regulation 4 does not affect the appropriateness of a ‘period’ costs order in the ET (or indeed any other costs order made under ET regulation 78 where the receiving party has entered into a DBA). The EAT found that, in exercising its discretion to award costs, there is nothing to prevent the ET from making an order which would have a similar effect to regulation 4.

It rejected the appellant’s argument that the claimants’ total liability to their legal advisers should be attributed to the entire proceedings and then prorated according to the ‘period’ of costs awarded. It held that ‘to limit a costs order in this way would advantage a paying party where the receiving party has entered into a DBA’.

Windfall for paying parties

This decision, while perhaps unsurprising, does create authority for the award of costs in employment cases where the receiving party is funded by means of a DBA. It also highlights a point which has already become the subject of some scrutiny: that a paying party can experience a windfall if costs are assessed as being greater than the total liability the individuals are due to pay to their advisers under a DBA – a point recognised by the Civil Justice Council in its ‘Damages-Based Agreements Reform Project: Drafting and Policy Issues’ report of September 2015.

Domonique McRae is a solicitor at SA Law