Costs under new DIFC costs regime for employment disputes

Clyde & Co's MEA employment team and Rajiv Bhatt of Littleton Chambers successfully resist costs application in one of the first reported judgments following the 2025 practice direction.

Practice Direction No. 1 of 2025: Access to Justice in Employment Disputes (the “Practice Direction”) has materially altered the default approach to costs in DIFC employment claims. A recent wrongful repudiation/post termination restraint dispute (AZ v BY (Claim No: CFI 119/2025) provides one of the first detailed applications of the Practice Direction to an interlocutory costs application. The judgment can be found here.

Clyde & Co’s Ben Brown and David True instructing Rajiv Bhatt of Littleton Chambers successfully resisted a costs application on behalf of the Defendant at a Case Management Hearing.

This article analyses the useful guidance given by H.E. Justice Pelling in AZ v BY as to the principles that should be applied to costs applications under the Practice Direction.

The case also provides guidance as to the principles applicable to expedition.

The dispute

The dispute in broad terms as summarised by H.E. Justice Pelling was whether or not the Claimant’s contract of employment was wrongfully repudiated by the Defendant, and if so, whether that had the effect of discharging various post termination covenants contained in the contract of employment.  It was the Defendant’s position that the issue of the enforceability of the Claimant’s post termination covenants only arose once the Claimant had resigned and announced his intention to take alternative employment and once an amended pleading had been prepared in which it was contended that his post termination restrictions were unenforceable. 

The Claimant’s costs application arose in the context of his application to expedite the trial.

Prior to the Claimant’s expedition application the parties exchanged correspondence.  The Claimant requested the Defendant’s consent to expedition. The Defendant’s position was that there was nothing in the facts of the case as then pleaded or then being advanced in correspondence that would justify expedition. 

The Claimant then issued his expedition application.

After the expedition application was issued the Claimant informed the Defendant, inter alia, that he wished to take up alternative employment and that he would be amending his pleading so as to bring into dispute the impact of the alleged repudiation of contract on his post termination restraint provisions. The post termination restraints were likely to expire before a trial in the ordinary course could take place.

The Defendant then consented to expedition.

The Claimant’s position was that he should get his costs of the expedition application as the Defendant unreasonably failed to consent to expedition prior to the issue of the application.

The costs application

Before going on to discuss the judgment, it is useful to set out the relevant paragraphs from the Practice Direction. These are:

Introduction

This practice direction is issued to enhance access to justice in employment related disputes, recognizing the need for a proportionate, fair and efficient procedural framework within the DIFC Courts.

The direction applies to all employment claims brought before the court of first instance. CFI ...

Adverse Cost Orders

The general rule in employment disputes shall be that each party bears its own legal costs.

The court may, in its discretion, make an adverse cost order where:

(a) A party has brought or conducted proceedings unreasonably,

(b) A party has acted vexatiously or in bad faith, or,

(c) It is otherwise in the interests of justice to do so.

Any such order must be proportionate and accompanied by reason.”

In a short and clear ex tempore judgment, H.E. Pelling provided useful guidance on the principles that should be applied to costs applications in employment cases in the DIFC Courts.

First, he endorsed the position that the purpose of the Practice Direction was to promote access to justice in respect of employment cases. He described this as a “strong policy constraint” which “necessarily means that cases where the default position is not applied should be very much the exception rather than the rule”.  The judge made clear that paragraph 3.2 of the Practice Direction was “engaged in only exceptional circumstances”. He also made clear that the rule applied equally to employers and employees.

Second, the phrase that costs are “exception rather than the rule” will be very familiar to employment lawyers who practice in England & Wales. It broadly derives from the celebrated English case of Gee v Shell UK Ltd [2002] EWCA Civ 1479, which was cited by the Defendant.

However, whilst the purpose of the Practice Direction mirrors the position under the Employment Tribunal Rules of Procedure 2024 (“ET Rules”), H.E. Pelling declined to draw too much from the ET Rules in circumstances where Employment Tribunals are creatures of statute. Instead he commented that the DIFC Courts are Common Law Courts that apply general principles of common law.  He therefore borrowed from the principles that apply to indemnity costs in England & Wales.

Third, as to the test to be applied H.E. Pelling concluded that there is a two stage test (very much like in England & Wales):

a.    First, the applicant must satisfy one of the gateway provisions in paragraph 3.2 of the Practice Direction.
b.    Second, even if one or more of the gateway provisions are satisfied the Court retains a residual discretion.

Fourth, as to the concept of unreasonable conduct under paragraph 3.2(a) H.E. Pelling applied the principles relevant for indemnity costs as identified by the English Court of Appeal in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson [2002] EWCA Civ 879 in that such conduct must be “out of the norm” and that the applicant must “demonstrate unreasonableness to a high degree” before it will be appropriate to displace the general rule under paragraph 3.1 of the Practice Direction.

Expedition

H.E. Pelling also made some useful comments on expedition.

Applying the English case of Petter v EMC Europe Ltd & another [2015] EWCA Civ 840 he concluded that there must be a “real and objectively identifiable reason for urgency” and it is for the applicant to satisfy the court of this; it is not open to the parties to agree expedition.

In AZ v BY H.E. Pelling concluded that the Defendant could not be criticised for resisting expedition.  There was nothing in the facts of the case as pleaded or then advanced in correspondence prior to the application being made which would justify expedition.

Comment

AZ v BY is an important decision which, as far as we are aware, is the first reported decision dealing with costs under the new Practice Direction.

H.E. Pelling’s reasoning suggests that costs applications under the new Practice Direction will be difficult. Unreasonableness to a “high degree” will be required before paragraph 3.2(a) of the Practice Direction can be engaged and even then the court retains an overall discretion.

H.E. Pelling’s hesitation to borrow principles under the ET Rules 2024 is also interesting in circumstances where the rationale for the no cost jurisdiction is identical. It remains to be seen whether other judges are more amenable to borrowing principles from the ET Rules in circumstances where the provisions are very similar.