Appeal No. UKEATS//0014/09/BI

EMPLOYMENT APPEAL TRIBUNAL
52 MELVILLE STREET, EDINBURGH, EH3 7HF

	At the Tribunal
On 8 July 2009

Before
THE HONOURABLE LADY SMITH
(SITTING ALONE)

DUNEDIN CANMORE HOUSING ASSOCIATION LIMITED	APPELLANT

MRS MARGARET DONALDSON	RESPONDENT (DEBARRED)

Transcript of Proceedings

JUDGMENT

APPEARANCES

For the Appellant	MR I KENNEDY
(Solicitor)
The Work Ethic Limited
Glebe End
23 Cramond Glebe Road
Cramond Village
Edinburgh
EH4 6NT	
For the Respondent	No appearance or representation by or on behalf of the Respondent (debarred)	

SUMMARY

PRACTICE AND PROCEDURE:  Costs
Tribunal refused to award expenses where it dismissed claimant’s contractual claim.  Claim was based on the claimant’s assertion that she had not breached the confidentiality clause in a compromise agreement, an assertion repeated by her in evidence before the Tribunal but which was not accepted.  In rejecting her evidence it found that, notwithstanding her denials, she had made prohibited disclosures to two separate people.  In these circumstances the Tribunal was in error in failing to find that the claimant acted unreasonably in bringing and conducting the proceedings and should have made an award of expenses against her.

THE HONOURABLE LADY SMITH
INTRODUCTION
1.	This is an employers’ appeal from the judgment of an Employment Tribunal sitting at Edinburgh, registered on 4 February 2009, Employment Judge Professor V. Craig, refusing their application for expenses (‘the second judgment’). 

2.	I will continue to refer to parties as claimant and respondents.

3.	The context in which that application arose was that by judgment registered on 30 September 2008, the same Tribunal had dismissed the claimant’s claim (‘the first judgment’).  The claimant had previously been in the respondents’ employment and was dismissed.  She entered into a compromise agreement which provided for the payment of certain sums of money to her and bound her to keep the fact of the agreement and its terms strictly confidential.  The respondents had withheld payment to her on learning that she had breached that confidentiality clause. 

4.	The Tribunal found that the claimant had breached the confidentiality clause and that the respondents were, in the circumstances, entitled to withhold payment.  Expenses were reserved.  At a second hearing, the respondents sought an award of expenses.

BACKGROUND
5.	The claimant was formerly employed by the respondents.  She was involved in a disciplinary matter in August 2007.  As from about September 2007, the parties, through their respective solicitors, began negotiating a compromise agreement in terms of which the claimant’s employment would be terminated and she would be paid the sum of £8,000 as compensation together with accrued holiday pay and a contribution towards her legal expenses of £1,250.  One of the clauses of the agreement was a confidentiality clause, the terms of which were strengthened during the drafting process.  In its final form it provided:

“The fact and terms of this Compromise Agreement shall remain strictly confidential between the Employer and Employee and their respective professional advisers.  Accordingly the Employer and the Employee agree that they will not divulge in the future to any person whatsoever the fact of, negotiation and/or terms of this Compromise Agreement (except, in the case of the Employee, to her immediate family in confidence and, in both cases, to their respective professional advisors in connection with the conclusion of this Compromise Agreement or where required by any competent authority or by a court of law or Her Majesty’s Revenue and Customs and to any prospective employer and, in the case of the Employer, as required for any internal reporting purposes within the Employer and its Associated Companies or for the purposes of ensuring compliance with or enforcing the terms of this Compromise Agreement)`.” 

6.	In the main, the claimant’s contact with her own solicitor, Mr Duncan, was by telephone.  On 26 October 2007 she was advised by him to “keep quiet” about the proposed Compromise Agreement.  A conversation she had with another employee on 27 October in which she advised that employee that she had not been dismissed could be construed as her failing to follow that advice.  The Compromise Agreement was signed on 29 October 2007. 

7.	Shortly after the date of signature, the respondents discovered that there was knowledge of the agreement in their workplace.  In particular, Paul Rankeillor, another employee, had intimate knowledge of it and its terms.  He advised that the claimant had phoned him and talked about the agreement on two occasions at about the time it was signed.  On 4 November she had done so.  The respondents’ reaction was to refuse to pay the claimant the sums due under the agreement.  The Tribunal found, in the first judgment:

“68.  	In response to the information supplied to David Elder by Stephen Bell in an email of the 8 November in which he reported to Mr Elder that the claimant had telephoned Paul Rankeillor on two occasions in the most recent of which Mr Rankeillor contended that the claimant had mentioned the sums of money involved in the Compromise Agreement, the claimant initially contended that she had never spoken to Paul Rankeillor on the telephone.
69.  	However, in cross examination the claimant conceded that she did telephone Mr Rankeillor personally and it was her evidence that she said she would not be paying him £90 which she owed him because she was simply being “obnoxious”.
70.  	Although she denied making any mention during this telephone conversation of the Compromise Agreement or the amounts contained therein I am not able to accept that.  In her evidence to the Tribunal the claimant made it clear that Mr Rankeillor was someone in whom she had confided.” 

8.	Later , at paragraph 167, the Tribunal pronounced itself satisfied that the claimant had made disclosures to Paul Rankeillor after 29 October both to the effect that a Compromise Agreement had been entered into between her and the respondents and, subsequently, to the effect that the respondents were refusing to implement it. 

9.	In so finding, the Tribunal had rejected an explanation for Mr Rankeillor’s knowledge which was tendered in evidence to the effect that he must have searched through her personal papers or read her emails whilst briefly babysitting for her on 3 November, something which she accepted was speculation or surmise on her part.  The Tribunal was not impressed by that suggestion for two reasons;  the first was that the claimant had not produced any emails between her and her solicitor and had said that she mainly contacted him by telephone, there was no electronic copy of the agreement on her computer and, further, when, it having been alleged that she had breached the confidentiality clause, she wrote to explain herself, she had made no reference to the possibility of that being the source of Mr Rankeillor’s knowledge.  The Tribunal thus, in effect, found that the claimant had not been telling the truth when she said that she made no disclosures to Mr Rankeillor; she had lied under oath. 

10.	It was also determined before the Tribunal that the claimant had made disclosures about the agreement to Mr Steven Wright.  He was someone who the claimant had known for about 7 or 8 years and who was living at the same address as her at the time the agreement was signed.  He had not, however, moved in with her completely and the history of their relationship had an ‘on/off’ nature to it.  He is not the father of the claimant’s child.  He has since moved out of her house.  The Tribunal determined that he was not part of the claimant’s immediate family. 

11.	At paragraph 168, the Tribunal found that it was also clear that the claimant had disclosed to Steven Wright, after 29 October, the fact that she had entered into an agreement with her employers relating to the termination of her agreement but that they were not sticking by it.  Significantly, that finding was made in circumstances where the claimant had denied both in her evidence-in-chief and in cross examination that she had made any such disclosure.  It was only when Steven Wright gave evidence that it emerged that she had done so.  Thereafter, the claimant’s solicitor did not insist on any case that the claimant had not made any disclosure to Mr Wright; his argument on her behalf focussed on the question of whether or not he was part of her immediate family.  It can be inferred from that that the claimant, notwithstanding her earlier denials, accepted that she had in fact made disclosures to Mr Wright.  In short, she had lied under oath. 

12.	The materiality of the claimant’s breaches of the confidentiality clause required to be considered but the Tribunal gave the argument presented on behalf of the claimant to the effect that they were not material, short shrift.  It observed that the entire purpose of compromise agreements is such that they must, of necessity be kept confidential, that that is something that is known universally, that it was an essential and material part of the parties bargain and that it was significant that the confidentiality clause was in fact strengthened during the bargaining process. 

13.	It is also plain that the claimant, in the course of meetings that she had with the respondents after they had discovered her disclosures, (the notes of which were productions referred to before the Tribunal) had sought to stress that she fully understood the importance of the confidentiality clause and would not have breached it as she could not afford to lose the money that would be due to her under it.  In short, in seeking to persuade the respondents that she had not breached the agreement she founded on having herself fully understood how material the confidentiality clause was.

14.	In her form ET1, the claimant asserted that she not breached the confidentiality clause and she had done nothing which could possibly have made the respondents think that she done so.

THE TRIBUNAL’S SECOND JUDGMENT
15.	The Tribunal refused the respondents’ application for expenses which was made under Rule 40(2) and (3) of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004.  It found that the claimant had not acted unreasonably, giving the following explanation for that conclusion in its paragraphs 46 and 47:

“46. 	Did she act unreasonably?
  47.	In the Tribunal’s view she did not.  Mr Kennedy contended that she was not guided by or based on logic or good sense.  However on the basis that she argued that she had not told Mr Rankeillor or anyone else of the fact or terms of the agreement and bearing in mind the respondent company was adhering to its position of not making a payment the Tribunal is not able to say that the claimant acted unreasonably by requiring the respondent company to prove the allegations that she had breached the terms of the agreement.”  

16.	In paragraph 49, the Tribunal explain that the claimant was not misconceived in bringing the claim, commenting that:

“…while the Tribunal concluded that she had disclosed the terms and the fact of the agreement to Paul Rankeillor after the agreement had been signed, she professed to having a rational basis for believing he had accessed her PC.” 

17.	It then observes, as regards Mr Wright, to whom she had also disclosed, that it was only during the evidence that it became apparent to the claimant that he might not  fall within the “immediate family” exception but does not, as might have been expected, remind itself at that point that the claimant, in evidence, had denied making any disclosure to Mr Wright at all and it was only when it became apparent from his evidence that she had done so that her solicitor’s tack changed to arguing the “immediate family” exception.  

18.	The Tribunal’s observations in paragraph 45 encapsulate its approach:

“Proceedings were necessary once the respondent company had determined that it was not bound by the terms of the agreement.  By alleging the claimant was in breach the claimant had no alternative but to bring and conduct the proceedings if she was to force the respondent company into complying.” 

19.	It also observes that the claimant’s solicitor presented an argument that the breach of confidentiality was not material.

RELEVANT LAW
20.	Rule 40 (2) and (3) of the 2004 Rules provides:

“(2)  A tribunal or chairman shall consider making a costs order against a paying party where, in the opinion of the tribunal or chairman (as the case may be) any of the circumstances in paragraph (3) apply.  Having so considered, the tribunal or chairman 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.”  

21.	Thus, the task for the Tribunal is to determine firstly whether the party against whom the award is sought has, in any way, acted as described in Rule 40(3) and if he has, secondly, determine whether or not it is appropriate to make an award of expenses.  The amount of any such award is then determined under Rule 41, subject to a current maximum of £10,000.  

22.	A Tribunal was asked to make an award of expenses in the case of Daleside Nursing Home Ltd v Mathew UKEAT/0519/08.  There, the claimant had alleged that she was the victim of explicit racial abuse during a telephone conversation; she said that she had been called a “black bitch”.  The Tribunal did not believe her.  The respondents applied for costs but the Tribunal refused the application finding that the claimant had not acted unreasonably;  she had genuinely felt that she had a claim but was “merely wrong” and lost.  On appeal to this Tribunal, that finding was reversed.  A costs order should have been made.  At paragraph 20, Wilkie J said:

“In our judgment, 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.”

DISCUSSION AND DECISION
23.	The claimant’s position throughout – in meetings with the respondents, in her form ET1, and in evidence, was that she made no disclosures at all.  Her case to that effect changed to arguing the “immediate family” exception in relation to Mr Wright when it became clear through his evidence that she had disclosed to him.  The Tribunal found as fact that not only had she disclosed to him, she had also disclosed to a fellow employee, Paul Rankeillor; she did not, initially,  admit having spoken to him on the telephone at all.  That means that the Tribunal, in its first judgment, found that the claimant’s assertions that she had made no disclosures at all was false.  Further, as regards the matter of materiality, it is evident that the claimant plainly understood how important the clause was; she sought to rely on that understanding in an effort to persuade the respondents to believe her when she said she had made no disclosures. 

24.	In these circumstances, as with the Tribunal in the Daleside Nursing Home case, it was perverse of the Tribunal, in its second judgment to fail to conclude that the claimant had acted unreasonably in bringing the claim.  Having made the factual findings regarding the claimant’s disclosures and the claimant herself being well aware of the materiality of the clause there was no basis at all for it take the view that proceedings were “necessary” or that the claimant “had no alternative” but bring proceedings to “force” the respondents into paying.  She, in short, had no business seeking to make the respondents pay her in these circumstances.  Even less was it appropriate or reasonable of her to seek to do so on a basis which she must have known to be a false one. 

25.	There is a flavour, in the Tribunal’s second judgment, of sympathy for the claimant as a lay person and for the difficulty she might have in paying any award.  With all due respect to the Tribunal, these matters are beside the point.  The issue was not whether a lay person could reasonably have been expected to understand the law.  It was whether she had or had not, in simple human terms, approached the essential factual matters that lay at the heart of her case honestly and reasonably.  She had not done so and these are exactly the sort of circumstances where a Tribunal has a responsibility to make clear that it is quite unacceptable to cause expense to another party by bringing proceedings on that basis.  Then, as to the financial burden of the award, the Tribunal is entitled, in the interests of justice, to take account of ability to pay when fixing the amount; ability to pay is not relevant when determining whether or not an award should, in principle, be made. 

DISPOSAL
26.	In these circumstances, I will uphold the appeal and substitute for the second judgment of the Tribunal that the respondents be found entitled to an award of expenses.  I will then remit the case to the same Tribunal for an assessment of the amount of that award.