Can and will an employee claiming discrimination be liable for legal costs if they lose?

Introduction

We previously published two articles (“Recent District Court decision on whether ‘gweilo’ remark discriminatory” and “Legal update: What’s the problem with “gweilo” and various local slangs applied to certain ethnicities?”)  on this site in respect of the case of Haden, Francis William v Leighton Contractors (Asia) Limited [2022] HKDC 152, where the District Court dismissed a race discrimination claim by a British construction professional (the “Employee”) who alleged that his former employer (the “Employer”) had discriminated against him by terminating his employment.

The District Court subsequently handed down its decision on costs which varied its earlier order that each party bear its own costs and ordered the Employee to pay the Employer’s costs on a party-to-party basis.

We summarise below the main reasoning of the Court and its helpful remarks/ guidance in determining the cost issues in discrimination proceedings.

Costs in discrimination proceedings

Many people may be aware of the normal rule in litigation that a losing party will need to pay the costs of the successful party in the litigation. However, this does not apply as the normal and usual rule in discrimination claims.

Under specific provisions of the District Court Ordinance*, the normal rule in discrimination proceedings is for each party to bear its own costs unless the Court orders otherwise on the ground that:-

1. The proceedings were brought maliciously or frivolously; or
2. There are special circumstances which warrant an award of costs.

Having regard to the objectives of the anti-discrimination legislation to eliminate discrimination and to change prejudicial attitudes that may exist in society, the Court had in past cases described the rationale for the above rule as avoiding individuals who may have legitimate grievances from being discouraged from enforcing their rights due to potential costs concern.

Relevant tests

The Court in Haden elaborated the tests for the above rule as follows:

1. Proceedings are brought maliciously if the claimant commenced them not only out of spite or ill will but also where there is an improper motive;
2. Proceedings are brought frivolously when the claimant subjectively knew that the claim had no substance and was bound to fail, or it is objectively considered that the claim is so manifestly misconceived that it can have no prospect of success; and
3. Special circumstances are considered at the wide discretion of the Court which could take into account the litigation conduct of a party and the pre-litigation conduct.

The burden is on the party seeking costs to show that the proceedings fall within one or more of the above situations.

Application of tests

The application of the above tests can be seen from the Court’s consideration of the Employer’s arguments for costs in the case.

1. In respect of the Employer’s argument that the proceedings were brought frivolously, the Court agreed that this is should be assessed on an objective basis, not on a subjective basis.
1. The Court considered that the Employee did not subjectively know that his claim was hopeless as:-
1. There was evidence to show that the Employee believed there was ‘racism’ during his employment; and
2. It was the Court’s view that the Employee had a high ego and was likely to insist that he had a valid complaint even if he was legally advised about the merits of his claim.
2. On the other hand, based on the evidence objectively assessed, the action should not have been brought in the first place.
1. The Court dismissed the Employee’s argument that he had put extensive and detailed evidence in support of his claim as it considered much of his evidence to be irrelevant or weak.
2. It also dismissed his argument that the Court found certain submissions or facts in the Employee’s favour as they were not related to the main question that the Court was considering.
2. In respect of the Employer’s argument that the proceedings were brought maliciously, the Court did not consider it to be the case.
1. The Court did not agree with the Employer’s argument that the Employee brought the action as a means to retaliate against the Employer for having dismissed him given the Court’s earlier view that the Employee subjectively believed that he had a claim.
2. As for the Employer’s argument that the Employee sought to make unwarranted financial gain by commencing the proceedings and making a settlement offer of HK$1.8 million, the Court considered that such an offer was a mere counteroffer made in response to the Employer’s settlement offer to ‘drop hands’.
3. In respect of the Employer’s argument that there were ‘special circumstances’ (within the meaning of the relevant paragraph of the District Court Ordinance) which warrant making an adverse costs order against the Employee, the Court accepted it partially as:
1. The Court agreed that the Employee should have accepted the Employer’s offer to ‘drop hands’ by the time the Employer had filed its defence and the parties had completed the relevant discovery processes as there were adequate reasons for him to do so.
2. It considered the Employee’s unreasonable refusal to accept the offer by the Employer amounted to ‘special circumstances’.
3. On the other hand, despite the Court’s criticisms of the Employee’s undesirable conduct (such as seeking to rely on matters not properly pleaded) and his solicitors’ conduct in litigation, it did not consider them to amount to ‘special circumstances’.

Order to pay Employer’s costs

Given its conclusion that the Employee should not have commenced the legal proceedings against the Employer, the Court ordered the Employee to bear the Employer’s costs of the action (including its counsel’s costs) on a party and party basis.

It should be noted that the Court refused the Employer’s request to order the costs on an indemnity basis as it referred again to its view that the Employee did not have an improper motive when commencing the proceedings.

Conclusion

Haden is one of the few local cases where the Court departed from the usual rule for parties in discrimination proceedings to bear their own costs, particularly against an individual claimant.

Notably, this also occurred in Sit Ka Yin Priscilla v Equal Opportunities Commission and Others (DCEO 11/1999), where a former senior staff member of the Commission claimed that she was treated less favourably on the ground of disability and/ or sex. The claim was dismissed by the District Court which found that there was no evidence to substantiate the claim and dismissed it with costs to the Commission. The Court of Appeal also dismissed the staff’s appeal to it with costs.

Conversely, it should be noted that the ‘special circumstances’ proviso to the normal rule of costs can apply to the respondent (namely an employer) in a discrimination claim. This was the case in 秦秀清 對 長鴻鋁窗裝飾工程有限公司 (DECO 3/2018) where the Court ordered the respondent, in that case, to pay the costs to the claimant due to his unreasonable conduct during litigation.

Notwithstanding the ruling in Haden, a party in discrimination proceedings may still have to spend considerable time handling the litigation and either party may not be able to recover all of the legal costs it incurred even if a costs order has been made against the other party.

Employers should take reasonably practicable steps to prevent any discrimination or harassment claim or complaint from arising in the first place and seek legal advice at an early stage to explore any possible option of an early resolution of a dispute.

*Section 73B(3), 73C(3), 73D(3) and 73E(3) and Cap. 336 District Court Ordinance (elegislation.gov.hk)  

Russell Bennett and Mark Chiu

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Russell Bennett
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.