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Costs and Capital

When a tribunal considers making a costs order, or the amount of a costs order, they may have regard to the party’s ability to pay (rule 41(2)). In other words, in general, a poor party is less likely to have costs awarded against them than a rich party.

Normally, this means looking at the party’s income and expenditure. But in Shields Automotive Ltd v Ronald Greig the EAT considered whether capital assets — in this case £135k equity in a house — should also be taken into account.

They concluded that they should.

This means that, if you are facing a costs application, you need to be prepared to discuss any capital you have.

As well as the amount of capital, you should also address its liquidity. £10k in cash is very different to £10k in house equity. Cash is easy to access, and therefore easy to use to pay any costs. House equity, however, can usually only be accessed by selling the house or borrowing against the equity. If there are practical difficulties in doing this, you need to tell the tribunal.

The EAT concluded that inaccessible capital was still relevant. But the fact that something is relevant, does not mean that it will persuade the tribunal. The harder it will be to change capital into funds that could be used pay a costs order the less likely the tribunal is to make one.

The case also dealt with the tribunal’s approach to the claimant’s lies about payments to his estranged wife. Suffice it to say that, if you do get caught deceiving the tribunal about your finances, they are likely to ignore them altogether, on the basis that you have prevented them getting an accurate picture.

Thanks to Daniel Barnett for the bulletin that drew this to my attention.

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