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Mr. Lloyd: That is an important point. We are not trying to saddle people with debts; that is certainly not what the tribunal process is intended to be about.

Mr. Hammond: I think that the hon. Gentleman just described the award of costs as a fine. Is that how he sees such awards throughout our tribunal and legal systems? I see them simply as compensation paid to injured parties for costs they have incurred.

Mr. Lloyd: If the hon. Gentleman had been listening, he would have heard me say that awards should not come to be seen as fines. Of course they can constitute recompense to injured parties.

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Let us consider the origin of the tribunal. It was about low-cost justice; it was not about encouraging highly paid lawyers to represent one side or the other. The aim was to retain common sense and a sense of proportion, and I think the Minister has tried to strike that right and proper balance.

I hope, though, that the Minister will reflect on concerns that have been expressed throughout about the deterrent effects. It is in everyone's interests for fewer cases to go to tribunals, but only if that is because disputes are resolved at an earlier stage or, even better, because an industrial relations climate develops in which problems do not arise in the first place. What we do not want is a fall in the number of tribunal cases that merely masks injustice and unfairness. That is why I want the Minister to monitor the situation. We need to be sure that people who really need access to tribunals, in order to resolve genuine problems in the workplace, are not deterred.

Mr. Hammond: The hon. Gentleman has succinctly identified what needs to be done, but I can think of no method of distinguishing between the two possible causes of a fall in the number of applications to tribunals. Has the hon. Gentleman any ideas for how the Minister might undertake the monitoring that he has suggested?

Mr. Lloyd: There are many ways of doing it. Opposition Members will disagree profoundly with this, but I believe that a growth in trade unionism would provide a much better way of determining whether workers are being treated properly. If the number of applications falls, it will of course be possible to note the number of successful claims and the number of unsuccessful claims. A massive rise in the number of unsuccessful claims, or a proportionate rise against the background of an overall reduction, would tend to suggest that something was going wrong—that people with real claims were not going to tribunals.

Mr. Kevan Jones: Might not one way of reducing the number of applications be to educate small business and other employers to use proper procedures?

Mr. Lloyd: Absolutely. We can argue later about whether the code mentioned elsewhere in the Bill will prove effective, but, as my hon. Friend says, it may be possible to resolve many problems long before even mentioning tribunals if employers and, indeed, employees work within the context of properly structured grievance and disciplinary procedures.

The Government have made progress. They have taken an important step, but we need to make it clear that we do not intend to deter legitimate claimants, and we need to monitor the situation to ensure that the spirit of what the Minister wants to achieve is translated into practice throughout the country.

Rob Marris: I begin by declaring that, among my registered interests, I am a non-practising solicitor. I want to ask the Minister about two disjunctions. First, under amendment No. 29, an award could be made either for legal costs or for preparation time in respect of

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employment tribunals. Can he assure me that that provision will also apply to employment appeal tribunals? Secondly, clause 23 states:

a new clause 34, subsection (1) of which states:

Will the Minister clarify that wording, which suggests that such a tribunal could award either costs or expenses?

Alan Johnson: The hon. Member for Runnymede and Weybridge (Mr. Hammond) said that, in principle, the Opposition accept the thrust of the Government's efforts in respect of preparation costs, but he suggested that there is another approach. The basis of the Bill as debated in Committee was that some money could come from preparation costs, and some from actual legal representation. Various arguments have been advanced time and again. The point made by my hon. Friends—that in addition to having costs awarded against them, people could also have to bear the huge expense associated with a company's putting time and effort into defending a case—was raised by the Law Society and the National Association of Citizens Advice Bureaux.

Mr. Hammond: Yes, but the Minister has not dealt with it. Under the amendment, a company could still rely entirely on its own resources, and its internal costs could still be the subject of an award.

Alan Johnson: Yes, but the fear that considerable costs would be imposed on top of legal charges was a separate issue. The central argument is that, in a system that tries to discourage legal representation, it is ludicrous that those who sit at their kitchen table night after night, prepare their own case, represent themselves and win should get no recompense. On that central point, people said to me, "Why don't you introduce one thing or the other?" If the issue is ensuring that those who do not use legal representation are no worse off—we must remember that, in terms of wasted costs, we are talking about 4 per cent. of cases—surely the award should be made in respect of either preparation costs or legal costs.

The hon. Member for Runnymede and Weybridge mentioned frivolous cases, but I should rebuke him mildly. In fact, because those who chair employment tribunals thought that the word "frivolous" was entirely inappropriate to the legal profession, it was removed. It was replaced by the word "misconceived", and in respect of wasted costs, reference is now made to misconceived, vexatious and unreasonable claims.

My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is absolutely right: last year, a third of recipients were respondents, not applicants; in fact, the year before that the ratio was 50:50. Some 50 per cent. of such costs were awarded to businesses—probably small businesses—which, if they represented themselves, could not claim back the costs incurred.

It is important to get the matter into perspective. We have not sought to widen the basis of costs awards, and nor should we. The existing definition—which refers to misconceived, vexatious and unreasonable claims, and to abusive behaviour during a tribunal—presents no problem and relates to only 4 per cent. of cases.

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5.30 pm

Mr. Hammond: The Minister has addressed his remarks to the own costs element. He painted a picture of the fear of the own costs that a vast firm might incur internally as a deterrent to the applicant. In the next breath, he talked of an own costs applicant slaving away at his kitchen table night after night. I thought that the Minister's objective was to encourage people not to be legally represented at tribunals. Would not the simple and logical approach have been to limit the award of costs to own costs, not legal costs?

Alan Johnson: No, I think that we have got the balance right. We will consult on the regulations and take into account the points that were made about putting a cap on costs, although that will be less necessary if the House accepts the amendments. If the central argument is that those people who are not legally represented cannot claim wasted costs, we shall give them the choice between own costs and legal costs. That has met the requirements of the Law Society and the National Association of Citizens Advice Bureaux. We all duck and dive with our arguments, but I mentioned small businesses because—as my hon. Friend the Member for Wolverhampton, South–West pointed out—they made up a third of the parties that were awarded costs last year, and 50 per cent. the year before.

The hon. Member for Runnymede and Weybridge also asked for some indication of the number of cases. In 2001–02, there were between 115,000 and 120,000 applications. In the year before, there were 130,000. However, I would counsel hon. Members against drawing any conclusions from those figures, because in the year before last many one-off cases were brought, including EU cases in which a whole group was settled at a time. Those included some famous cases that my hon. Friend the Member for Wolverhampton, South-West will remember. It is those special circumstances that have led to that reduction, not my year as the Minister responsible for employment relations.

We believe that the Bill will mean that some 30,000 to 40,000 cases will be settled outside employment tribunals which would have otherwise gone before them. Part of that reduction will be those disputes settled in the workplace, and part will be those settled during the fixed period of conciliation. Part will also be accounted for by those cases that were struck out at the pre-hearing stage, as my hon. Friend the Member for North Durham (Mr. Jones) mentioned. At the moment, vexatious, misconceived or unreasonable cases cannot be struck out at the pre-hearing stage and the tribunal can only require a deposit of £500—an increase from £100. A later amendment will allow cases to be struck out at that stage.

Hon. Members have asked how we may further reduce the number of cases, and we have introduced the ACAS arbitration scheme, which was agreed by both sides of the House. It has not been totally successful so far, with only 14 cases using the scheme, but we can do much more work to advertise its availability.

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