The Court of Appeal in Hirachand v Hirachand has decided that success fees, payable under a Conditional Fee Agreement (CFA), can form part of the financial provision a party seeks from an estate under the Inheritance (Provision for Family and Dependants) Act 1975 claims (1975 Act).
A Conditional Fee Agreement is an arrangement a party can enter into with their solicitor to fund their legal fees. They are often known as a ‘no win, no fee’ agreement because under a CFA, if a party does win, the solicitor is entitled to charge their usual fee, plus an uplift success fee which is a percentage of their usual fee, but if they lose, the solicitor will not usually be entitled to charge any fees for the work they have done The litigation rules mean that usually the loser pays the winner’s costs. However, the loser does not have to pay the winner’s success fee, and they remain personally liable for this.
In the case of Hirachand v Hirachand, the deceased’s daughter, Sheila, was making a claim against her father’s estate under the 1975 Act after she received nothing from his will. The will left everything to her mother, Nalini. At first instance, the court awarded Shelia £138,918 from the deceased’s estate after concluding the will failed to make reasonable financial provision for her maintenance. Within the award was the sum of £16,750 (25% of her costs) towards the CFA success fee Shelia may have to pay to her solicitors. The Judge found Shelia entered into the CFA because she had no other means of funding the litigation, and that the CFA had involved her incurring a liability. Her solicitors could enforce this liability, which would reduce her needs based award. The Judge said that if he did not consider the CFA uplift within the award, one of Shelia’s primary needs would not be met.
Nalini appealed the decision, stating the judge was wrong to include an amount for the CFA success fee as the usual litigation cost rules states there can be no costs order in respect of CFA success fees.
When considering whether to allow the appeal, the court considered two previous cases; one refused to award an amount for the uplift as part of the 1975 Act award and another one that did. In the case that did not award an amount for the CFA uplift, the judge in that case held it would be contrary to the existing rules to do so. In addition, doing so could put a person making a claim with the benefit of a CFA in a better negotiating position. . In the case that did allow an amount for a CFA uplift, the judge recognised the CFA uplift was a debt that the claimant would need to pay and held it would not be fair for him to ignore that.
For anyone other than a spouse who makes a 1975 Act claim, if the court decides they do not receive financial provision from the estate, the basis of the award is what is reasonable for them to receive for their maintenance. Maintenance does not extend to any, or everything, it would be desirable for the person to have, but is what is required to meet everyday living expenses at whatever standard of living is appropriate to them. Previously, the court has recognised that the payment of debts may form part of a legitimate award for maintenance and the decision to include a CFA success fee in an award was an extension of this.
The Court of Appeal approved the first instance decision and found a CFA uplift is capable of being a debt, the satisfaction of which is a financial need that the court may take into account when deciding what amounts to reasonable financial provision from the estate.
The court did warn that it would not be appropriate to award an amount for a CFA uplift in every case and made it clear that it is unlikely to be included in an award unless the court is satisfied that the only way the claimant could fund the claim was by entering into a CFA. The court should also consider to what extent the claimant has ‘succeeded’ with their claim. Importantly, this decision does not mean that the court will always make provision for a CFA success fee if its payment will have any sort of impact upon the standard of living the claimant would otherwise be afforded by the maintenance award; this suggests that the claimant will have to bear some of the CFA uplift.
If you believe that you have not received reasonable financial provision from an estate but have concerns about your ability to fund a claim, our specialist Contentious Trust and Probate Team can assist.