The starting point here is the Civil Procedure Rules. Capacity is dealt with under CPR 21. The key provisions are:-

CPR 21.2 (1) A protected party must have a litigation friend to conduct proceedings on his behalf.

and

CPR 21.3 (3) If during proceedings a party lacks capacity to continue to conduct proceedings, no party may take any further step in the proceedings without the permission of the court until the protected party has a litigation friend.

These rules mean that where it is drawn to the attention of a Court that a person lacks capacity then the proceedings must be stopped until a litigation friend is in place. In order to decide whether a person lacks capacity the Court will need to consider the provisions 

Section 2(1) of the Mental Capacity Act 2005 states:

For the purposes of this Act, a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.

Section 2(2) states that the impairment or disturbance can be permanent or temporary. Section 2(4) states that the issue must be decided on the balance of probabilities.

Section 3 (1) provides that for the purposes of section 2, a person is unable to make a decision for himself if he is unable—

(a) to understand the information relevant to the decision,

(b) to retain that information,

(c) to use or weigh that information as part of the process of making the decision, or

(d) to communicate his decision (whether by talking, using sign language or any other means).

Application of the rules on Capacity