Hirachand v Hirachand: Court of Appeal upholds provision for CFA success fee in landmark Inheritance Act decision

On 15 October 2021, the Court of Appeal handed down its landmark decision in Hirachand v Hirachand [2021] EWCA Civ 1498, confirming that reasonable financial provision from a deceased’s estate under the Inheritance (Provision for Family and Dependants) Act 1975 (Inheritance Act), can include provision for the success fee in a conditional fee agreement (CFA). This decision may encourage more claimants to seek to fund Inheritance Act claims using CFAs in the knowledge that provision for the success fee could be included in an award from the estate.

Background

This case involved an estranged adult child claiming reasonable financial provision from her late father’s estate under the Inheritance Act. The claimant was suffering from longstanding mental health problems and had not worked since the birth of her first child in 2011. The High Court awarded the claimant £138,918 to cover therapy costs, other living expenses and 25% of the success fee due to her solicitors under a CFA. Financial provision for part of the success fee was one of the grounds of appeal before the Court of Appeal.

What is a CFA?

A CFA is an agreement between a client and their solicitors which sets out the circumstances in which the client is liable to pay some or all of their solicitors’ fees. Usually CFAs provide that a client is not liable to pay their solicitors’ fees unless they are successful (depending on how success is defined in the CFA), in which case the client will also be liable to pay their solicitors a percentage uplift on their fees (known as a success fee) up to 100%.

In 2010, Sir Rupert Jackson conducted a wholescale review of costs in civil litigation and concluded that CFAs had been the major contributor to disproportionate costs in civil litigation in England and Wales. To address this, Parliament passed legislation (the Legal Aid, Sentencing and Punishment of Offenders Act 2012) to ensure that claimants entering into CFAs after 1 April 2013 could not force their opponents to cover the costs of their success fee.

What did the Court of Appeal decide and why is the decision important?

The Court of Appeal upheld the High Court’s decision to include 25% of the value of the success fee in the claimant’s financial award from her late father’s estate. It drew a parallel between financial relief proceedings arising from divorce pursuant to s25(2)(b) Matrimonial Causes Act 1973 where a claimant’s irrecoverable costs are capable of being a debt amounting to a financial need. Whilst existing authorities such as Ilott v Blue Cross and Others (No 2) [2018] AC 545 provide that a maintenance award under the Inheritance Act can include a lump sum to discharge a claimant’s debts, the Court of Appeal’s decision goes much further and clarifies that:

1. Payment of all or part of a success fee in a CFA can constitute a debt forming part of a claimant’s financial needs under section 3(1)(a) of the Inheritance Act, for which the court can make provision in a financial award from an estate; and
2. Providing for all or part of a claimant’s success fee in a financial award from an estate does not breach legislative policy that prevents a claimant from recovering the success fee from their opponent.

How will the Court of Appeal’s decision affect the funding landscape for Inheritance Act claims?

It seems likely that the Court of Appeal’s judgment will encourage more claimants to seek to fund Inheritance Act claims using CFAs given the possibility that provision for the success fee could be included in a financial award from the estate. In CFA-funded cases, it seems likely that CFA success fees will form part of the court’s assessment of a claimant’s financial needs in Inheritance Act claims going forward. However, the Court of Appeal cautioned that it is unlikely that an award will provide for any part of the success fee ‘unless the judge is satisfied that the only way in which the claimant had been able to litigate was by entering into a CFA arrangement’. Satisfying the court that a CFA is the ‘only’ way for a claimant to fund the litigation could prove to be a contentious issue.

Moreover, the court will need to consider the extent to which the claimant has ‘succeeded’ in their claim and the court may decide to limit any contribution to the claimant’s success fee to mitigate any potential injustice caused to the defendant. This includes the possibility that the defendant has made a Part 36 offer which the claimant fails to beat, of which the court is not aware when determining reasonable financial provision from an estate. The Court of Appeal noted the discrepancy between the civil litigation costs regime applied to Inheritance Act claims and the costs regime applied in financial relief proceedings arising from divorce, where parties make open offers and the court is aware of the parties’ costs liabilities when determining financial provision.

Looking further ahead, given the similar factors that the court has to consider when determining appropriate financial provision in Inheritance Act claims and financial relief proceedings arising from divorce, it will be interesting to see whether the costs regime applied to Inheritance Act claims may be subject to reform to correspond more closely with the regime applied in financial relief proceedings.

If you would like to discuss the implications of this decision please contact Lucinda Brown or Cheryl Gayer in our contentious probate team.