Inheritance Act claims: Supreme Court to decide if CFA success fee counts as ‘debt’ when assessing extent of reasonable financial provision

The Appellant is represented by Wright Hassall (Danielle Pawson and Katie Alsop) and Counsel Brie Stevens-Hoare KC, Cameron Stocks of Gatehouse Chambers; and Oliver Ingham of 3 Paper Buildings.

The Supreme Court is hearing our client’s appeal against a ruling by the Court of Appeal (which upheld an earlier High Court decision) that in an Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”) claim, the success fee payable under a CFA the claimant entered into with her solicitors, should form part of her financial needs when assessing what award should be made under the 1975 Act. The point at issue is whether a success fee, not ordinarily recoverable in civil litigation cases under the Courts and Legal Services Act 1990, is properly treated as a debt and if so, whether a sum to repay it would fall within the definition of ‘reasonable financial provision’ which the court has the discretion to provide for. If the Supreme Court upholds the Court of Appeal decision, 1975 Act claimants have the potential to recover the CFA success fee payable to their lawyers, which ordinarily have to be personally funded, even if the claimant is successful. This would represent a dramatic change in the funding landscape for these types of claims.

The initial High Court hearing

Our client, the Appellant in this case (Hirachand v Hirachand), is the widow of Navinchandra Dayalal Hirachand (the deceased) who left his entire estate to his wife who is elderly and currently living in a care home. No provision was made for either of his two children. The eldest, an estranged daughter, brought a claim in 2017 under the 1975 Act seeking reasonable financial provision from her father’s estate as she suffers from severe mental illness, leaving her unable to work and dependent on state benefits and intermittent financial support from her partner.

At a one-day trial in April 2020, held remotely, Mr Justice Cohen decided that the daughter’s situation meant that she was in real financial need, a situation exacerbated by her need to enter into a CFA with her lawyers in order to be able to fund the litigation. The CFA included a success fee if the litigation succeeded, which amounted to 72% of the base cost incurred by her lawyers. Ordinarily, a claimant relying on a CFA to bring a claim under the 1975 Act can expect to have to use part of their needs-based award to discharge the success fee owed as they are responsible for paying the success fee. That has the effect of reducing the funds available to meet the needs. In this case, the judge, to avoid that effect, not only awarded a sum appropriate for the claimant’s financial needs at the time of the trial but also a proportion of the success fee owed to her lawyers. The decision to base part of the award on the success fee departed from the usual rules of awarding costs in civil litigation, whereby success fees cannot be recovered from the losing side. Our client, the claimant’s mother, sought, and was granted, permission to appeal the decision in the Court of Appeal.

Court of Appeal decision

There were two grounds for appeal: first, that the High Court hearing should not have been held remotely as Mrs Hirachand was profoundly deaf and thus struggled to follow proceedings; and second, that it was wrong for the judge to include a percentage of the success fee in the maintenance-based financial award.

The Court of Appeal dismissed both grounds. On the first, Lady Justice King who gave the lead judgement, ruled that it was not wrong to hold the hearing remotely given that the Appellant had been barred from actively participating in proceedings. Although the judge had allowed her to attend the hearing, with a care worker in attendance, she was not allowed to participate so whether or not she followed proceedings was irrelevant.

On the second point, Lady Justice King noted that a CFA was the only way in which the claimant could fund her claim – she had no other option. Having committed to paying her lawyers the agreed success fee in accordance with the CFA, the only way she would be able to meet this liability would be from any maintenance-based award made which would reduce the overall amount she received, resulting in her primary needs not being met. The Court of Appeal held that a success fee in a 1975 Act claim is capable of being a debt, and thus part of the claimant’s financial need and could be treated as reasonable financial provision. To pay the success fee out of her award would impact significantly on her ability to meet her financial needs.

Despite this ruling, the Court of Appeal made it clear that such a ruling would only apply if a CFA was the only way a litigant could fund their legal representation and that such an order would amount to ‘reasonable provision’ only.

The next step: the Supreme Court

The Supreme Court granted permission for our client to appeal the Court of Appeal’s decision and the case is to be heard in a one-day hearing on 18 January 2024. Our contentious probate team is advising Mrs Hirachand, through her Litigation Friend. You can read the case summary here.

Why this case matters

If the Supreme Court was to uphold the Court of Appeal’s decision, it would mean that claimants would have far less litigation risk when bringing a 1975 Act claim funded by a CFA as they would be able to recover a proportion of the success fee payable to their lawyers as part of any award. This is contrary to the current position where all litigants are responsible for the success fee element of any CFA they enter into with their lawyers.

To have different rules for 1975 Act claimants would put those funded by a CFA in an incredibly strong negotiating position. In effect, they could litigate in an environment where the costs risk was much reduced as they could potentially (within the caveats laid out by the Court of Appeal) recover both their base costs and their success fee from the estate if they win their case.  Practically speaking, more claimants are likely to be offered CFAs, putting defendants under increased pressure to settle claims favourably and much sooner, irrespective of their merits, as the implications of losing at trial will become too great in the vast majority of cases. The nature of success fees is that they increase by reference to base costs and the longer a claim goes on, the higher the base costs and the higher the success fee.  All of which would lead to an increased sum being awarded from the estate, so as to meet the necessary level of provision.

Additionally, there are procedural issues during the court process to consider. At the moment, the court does not find out what the parties’ legal costs are until the outcome of the claim is decided because these types of claims are not subject to costs budgeting as a matter of course (as it is with other litigation). Were the decision to be upheld, the extent of the success fee would need to be shared in advance so that the court could assess how much the claimant would need to be awarded.

This is problematic as success fees are usually calculated by applying a percentage to the base costs incurred. Any advanced information about a client’s success fee would therefore be an estimate only as the actual total legal costs incurred would not be known until the case had concluded. Additionally, any assessment would be calculated by reference to the base costs incurred before it had been determined whether they had been reasonably and/or proportionally incurred, a test which is applied following the outcome of the case when deciding how much a losing party has to contribute towards the winning party’s costs. This would make calculating the level of success fee that a claimant should recover very difficult and put 1975 Act claims in a unique position, applying apply procedures to them which are not applied to the vast majority of other types of civil litigation. It remains to be seen if the Court of Appeal ruling is upheld, or whether claims made pursuant to the Act will be automatically subject to the Costs Budgeting rules which govern the large extent of other contentious probate matters and civil litigation more generally.

As the Court of Appeal judge noted, the only way the Claimant in this case was able to proceed with her claim was through a CFA as she had no other financial means of doing so. However, there are alternative funding options available so, if you have a similar claim and are not sure how to fund it, please see our article on the subject and do get in touch and we would be happy to see if we can help.

Article produced by Danielle Pawson and Katie Alsop at Wright Hassall.