The Court of Appeal on Friday handed down judgment in the matter of Hirachand v Hirachand in which they confirm that (in certain circumstances), success fees can be recoverable from the estate in a claim under the Inheritance (Provision for Family and Dependents) Act 1975 (the Inheritance Act).
Navinchandra Hirachand died in 2016, leaving his entire estate to his widow, Nalini Hirachand.
Their estranged adult daughter, Sheila Hirachand brought a successful claim under S.1(1)(c) and S.(1)(2)(b) of the Inheritance Act for reasonable financial provision as a child of the deceased.
Sheila’s claim was funded by way of a conditional fee agreement (CFA), and success triggered a success fee of 72%, amounting to £48,175. Therefore, the question was: who pays the success fee as on the face of it? Sheila would be liable to pay it, thereby reducing the very fund she had just fought for.
Success fee treatment at first instance
Section 58A(6) Courts and Legal Services Act 1990 (CLSA 1990) provides that a costs order ”may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement”. The success fee was not therefore recoverable from Nalini. .
The question before the Court was: given that the award was a needs-based award made on the basis of what was reasonable for Sheila’s maintenance, and given that the liability for the success fee would necessarily reduce the overall sum below, what would be required for that maintenance?, Could the Court exercise its discretion to include provision for the success fee in the sum awarded regardless of the provisions of S.58 of the CLSA 1990?
At first instance, the judge concluded that he could exercise his discretion in such a manner and awarded Sheila a sum of £138,918.00, of which £16,750 was to be attributable to the success fee.
One of the grounds for appeal was the CFA and the provision for the success fee.
In making its decision, the Court of Appeal considered the considerable number of precedents endorsed by the Supreme Court in Ilott v Blue Cross and Others (No 2) which provided that the payment of debts may form a legitimate part of a maintenance award.
The Court compared the situation to that in financial remedy cases on a divorce. In such cases, the general principle is that “the court will not make an order requiring one party to pay the costs of another party”. In other words, although outstanding costs cannot be recovered from your opponent-spouse, the debt itself is a ‘financial need’ pursuant to s25(2)(b) of the Matrimonial Causes Act 1973.
In Hirachand, the court considered that success fees, which are not otherwise recoverable as a result of S.58 of the CLSA 1990, are equally capable of being a debt, the payment of which is to be taken into consideration as part of the ‘financial need’ that the court would consider when judging what is necessary for a person’s maintenance.
It was clear that in this instance, had allowance not been made for the payment of the success fee, then it was likely that one of Sheila’s “primary needs would not be met”.
The judge at first instance was therefore entitled to consider the success fee as a debt to take into consideration when making an award and so the appeal was dismissed on this ground.
Given that the Court of Appeal has effectively sanctioned the inclusion of success fees in an award under the Inheritance Act, it is likely that we may see an increase in such cases being run under CFAs in practice.
Of course when making an award, the judge will not be aware of any Part 36 offers or the like and therefore taking into account a possible costs liability as a debt is challenging to say the least.
The Court of Appeal did also make it clear that the inclusion of the success fee in an award would depend on the facts of each case and that a success fee was unlikely to be included in instances where the claimant could litigate other than under a CFA. How one judges this remains to be seen. Should a claimant pursue all possible avenues in terms of loans before entering into a CFA? CFAs should therefore still be approached with caution in such matters.