Cost Capping Orders

by Admin | Jan 26, 2023 | Litigation

‘Costs capping orders’ (CCOs) were introduced in 2013 as part of a wider ‘costs budgeting regime’ that was to be applied to civil litigation. They allow the court to place a limit on the costs that a ‘successful’ party can recover from another party in litigation, in the hope that doing so will reduce the overall cost of litigation, and make it less unpredictable.

It is perhaps fair to say that the introduction of ‘costs capping orders’ hasn’t been the roaring success that reformers hoped it would. Eight years on from their introduction, what is believed to be the first application for such an order was recently made in the High Court.

Daniel Barrett
dbarrett@thirskwinton.co.uk

The ongoing case of Thomas & Ors v PGI Group Ltd involves 31 Malawian women bringing a claim for damages from the UK-registered parent company of a Malawian-domiciled company that the 31 women were employed by. The claimants allege that the parent company owed them a duty of care, and that this duty has been breached. The financial strength of the two parties is, understandably, significantly disparate.

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The defendant made an application last month for future recoverable costs to be limited to £150,000, meaning this would be the ‘upper limit’ of costs incurred that the claimants would be able to recover from the defendant, if they were successful. The claimants have already incurred costs of £1.66m and their costs budget for future costs is £1.5m. In practice therefore, if a CCO had been made it would have limited the claimants’ recoverable future costs to c.10% of their costs of the litigation. This, Justice Cavanagh said, would likely have forced the claimants to discontinue the proceedings – due to their inability to find any lawyers who would continue to act ‘pro bono’ if their ability to recover future costs was limited. It was on this basis that the defendant’s application was rejected.

This case calls into question the ‘effectiveness’ of CCOs. The claimants argued that the defendant’s application for a CCO was no more than a ‘lightly disguised’ attempt to strike out the proceedings, and that the CCO regime was now effectively redundant given the obligation on parties in litigation to provide costs budgets, and to stick to them. It is perhaps for this reason that only one such application has been made in the eight years since CCOs were introduced. With a ‘post-pandemic’ increase in litigation anticipated, it remains to be seen whether applications for CCOs become more commonplace.

Written by Daniel Barrett

The tax benefits of ownership of property by onshore or offshore residents through
an overseas company have not only been removed but such companies are now more
heavily taxed.
Overseas companies must also now register at the UK Companies House as an
overseas entity disclosing information on a public register about beneficial owners or
managing officers. These rules also apply where the beneficial owner is a trustee of a
trust.

Now that companies are caught by tax rules relating to ATED (Annual Tax on
Enveloped Dwellings) which affects properties valued at as little as £500,000,
Corporation Tax currently at the rate of 25% and potentially Inheritance Tax, most
owners of offshore companies will wish to transfer their property out of the company
structure, usually into individual names or a trust. This can offer an opportunity for
some inheritance tax planning usually by making a lifetime transfer of the property
to family members.

The good news is that SDLT (stamp duty land tax) will be exempt in most cases
provided that the correct procedures are followed.
It is advisable to take tax advice on the range of potential taxes that can arise from
de-enveloping a property.

3 people from a company planning the sale of their business with a solicitor from thirsk winton

HOW TO DE-ENVELOPE

There are usually two ways of proceeding:

1. Pass a company resolution and transfer the property to the shareholders or their nominees by way of a distribution in specie (in kind). This will be exempt from stamp duty land tax (SDLT) provided that it is a voluntary transfer for no ‘chargeable consideration’.
2. Pass a resolution to put the company into voluntary liquidation and carry out a distribution in specie.
The second way will be the more costly since there will be the costs of the liquidator to take into account.

The articles of association must be checked to ensure that a distribution in specie is permitted. If not, the articles can be amended by passing a special resolution. The resolution must be carefully worded if exemption from SDLT is to be claimed. It should not be worded as a cash value dividend equal to the market value of the property to be settled by a transfer of assets.

In order to avoid having to pay SDLT, there should be no third party debt or mortgages over the property. The directors will need to check that the company has sufficient assets to make the distribution and there are no outstanding creditors other than any debt that may be owed to the shareholders themselves.

For overseas companies, a legal opinion may be required from lawyers practising in the jurisdiction as to the legality of the actions being taken in order to satisfy the requirements of the Land Registry.

Our expert solicitors will be pleased to advise and guide you through your transaction. Please contact Alan Zeffertt if you would like assistance:

E: azeffertt@thirskwinton.co.uk

T: 020 7043 1621

M: 07968 190951

Disclaimer: The information in this article is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.

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