Costs as Damages: The Tiburon Rule and Its Three Exceptions

The employment tribunal awards costs in fewer than one case in a hundred. Practitioners quote the figure to nervous clients as reassurance, but it has a second edge: a claimant who wins after spending serious money on legal advice will recover almost none of it, however badly the respondent behaved. So the question recurs, usually at the schedule of loss stage — can the legal spend be claimed as damages instead?

In the tribunal the starting point is that costs lie where they fall. There is no loser-pays rule: a costs order needs threshold misconduct — vexatious or unreasonable conduct, a case with no reasonable prospects — under rules 74–84, which is what produces the one-in-a-hundred figure.

The common law's answer is mostly no. In Seavision Investment SA v Evennett (The Tiburon) [1992] 2 Lloyd's Rep 26 Scott LJ accepted that litigation costs would often qualify as damages if ordinary principles applied: the expense flows from the wrong, it is foreseeable, it is reasonably incurred. The rule nonetheless excludes them. What is recoverable as costs may not be claimed as damages from the same party, because a damages claim would by-pass the costs regime — the discretion, the assessment, the presumptions — administered by the court seised of the litigation. The rule is policy rather than logic: it protects the machinery.

The Supreme Court applied the same policy in Hirachand v Hirachand [2024] UKSC 43. A success fee, made irrecoverable as costs by s.58A(6) of the Courts and Legal Services Act 1990, could not be recovered by folding it into a substantive award under the Inheritance (Provision for Family and Dependants) Act 1975 as part of the applicant's financial needs. Relabelling the expenditure does not move it out of the costs regime.

The three exceptions

Halsbury's Laws (vol 29, 2024, para 310) states the rule with three qualifications. Each follows from the rationale rather than cutting against it: where no costs discretion is being by-passed, there is nothing for the rule to protect.

The first is different parties. The rule prevents the parties to one set of proceedings from re-litigating its costs as damages; it says nothing about recovering from B, as damages, the cost of litigation against C. Where B's wrong lands the claimant in proceedings with a third party, the expense is a head of loss like any other, tested for causation, remoteness and mitigation in the ordinary way.

The second is a different costs regime. In Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755, [2002] 1 WLR 1517 the defendants sued in New York in breach of an exclusive jurisdiction clause. The claimant had the proceedings struck out but, under the American rule, recovered nothing for doing so. The Court of Appeal allowed the expense of the strike-out as damages for breach of contract in England: no English costs discretion had been by-passed, because no English court ever had those costs in its hands.

The third is malicious prosecution. In Berry v British Transport Commission [1962] 1 QB 306 a passenger prosecuted for pulling a train's communication cord was acquitted with an award of part of her costs, then sued for the shortfall between the award and what her defence had actually cost. The Court of Appeal let the claim through. Devlin LJ declined to pretend that a costs award is a full indemnity: an assessment of costs and an assessment of damages are two different exercises, and where the prosecution itself is the tort the claimant is entitled to the latter. Since Willers v Joyce [2016] UKSC 43, [2018] AC 779 extended the tort to the malicious institution of civil proceedings, the same reasoning presumably runs there too.

The argument in the tribunal

None of this can be brought in the tribunal as a cause of action. There is no jurisdiction over a freestanding claim in tort — malicious prosecution and negligence alike stay in the civil courts — and contract enters only through the narrow gate of the Extension of Jurisdiction Order. The exceptions matter in the employment jurisdiction because the statutory measures import them: s.124(6) of the Equality Act 2010 applies the measure of damages the county court would apply, and s.123(2)(a) of the Employment Rights Act 1996 includes expenses reasonably incurred in consequence of the dismissal. So the question in the tribunal is never whether the tort would succeed; it is whether the spend counts as loss within the statutory measure. That is where the rule and its exceptions bite.

The exceptions met the employment jurisdiction in Meade v Westminster City Council and Social Work England ET/2200179/2022 and 2211483/2022. The claimant, having won her harassment claims, sought £42,672 at the remedy stage: the element of her legal costs not attributable to the tribunal proceedings, claimed as financial loss under s.124(6) of the Equality Act 2010. The tribunal refused. The advice all related to the same sequence of events as the claim, so there was no separate cause of action; the disciplinary and regulatory processes involved the two respondents themselves, so there was no third party.

What makes the judgment worth keeping is the counter-example the tribunal built at [89]: an employee reported to the FCA by an employer acting in bad faith, who incurs legal costs in the regulatory process and then brings a whistleblowing claim to which the FCA is not a party. Those costs, the tribunal said, would potentially involve a third party and arguably be recoverable as financial damages. That is the first exception, restated in an employment register. A remedy judgment binds nobody; it is also the only place this argument has been run, which makes it the map both sides will bring to the next dispute.

Practical points

• The vehicle question comes first: schedule of loss or costs application. Expenditure that fits an exception — a process involving someone other than the respondent, or a regime whose costs the tribunal never had in its hands — belongs in the schedule as a head of loss, tested for causation, remoteness and mitigation like any other. Expenditure on the litigation itself can only come back under rules 74–84, whatever the schedule calls it, and the one-in-a-hundred statistic is the measure of that.
• Plead into the exception by name. A schedule that claims “legal fees” as a lump invites the Tiburon objection; one that identifies whose process generated the spend, and why that process sat outside the tribunal's own costs regime, joins the issue the authorities actually decide.
• Severability is evidential. In Meade the tribunal was pressed with the distinction between expenditure on the litigation and expenditure on everything else, drawn from Louise Merrett's analysis in “Costs as Damages” (2009) 125 LQR 468. Invoices that mix the two will be read against the claimant; retainers and billing that separate them keep the recoverable element alive.

The rule holds because both parties stand in front of a judge who already has the money in hand as costs. The moment a wrong makes you spend in front of someone else — another court, another country, another regulator — it stops being costs and starts being loss.

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