Hirachand v Hirachand - UK Supreme Court Allows Appeal In Inheritance Dispute Case
🎵 On the 18th of December, the Supreme Court gave to me, an award with no success fee…🎵
The UK Supreme Court has today handed down a unanimous decision that CFA success fees cannot form part of an Inheritance Act award.
What was the Supreme Court asked to decide?
Can a success fee under a conditional fee agreement (‘CFA’) be classed as a ‘debt’ so that it can form part of an award for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (the '1975 Act').
Why is this important?
- The 1975 Act allows certain people to claim reasonable financial provision from a deceased person’s estate. This might be a wife, child or other dependant who has not been reasonably provided for.
- Claimants often can't afford legal representation, so they use CFAs (‘no win, no fee’), which require a success fee to be paid if they win.
- Under current rules, success fees can't be recovered from another party. This means the Claimant has to pay their own success fee, reducing the Claimant's financial provision award.
- The Court of Appeal ruled that success fees could be considered a financial need and therefore be included in the award, as it is a debt which the Claimant would have to pay.
- The Supreme Court disagreed with the Court of Appeal. The costs rules are clear and are there for good reason. Success fees cannot form part of 1975 Act award.
What was the claim about?
- The Claimant, the estranged adult daughter of the deceased, brought a claim for reasonable financial provision under the 1975 Act.
- The First Defendant (wife/estranged Mother) was the sole beneficiary of the deceased’s estate, so received all of the estate leaving nothing for the daughter.
- The deceased’s net estate was valued to be in the sum of £554,000. The trial judge assessed the Claimant’s ‘ambitious’ claim to be more than the net estate.
- The Claimant funded her claim with a CFA. The success fee was calculated at 72% of her costs, which amounted to £48,175.
- The trial judge awarded the Claimant a lump sum of £138,918 for financial provision, including the sum of £16,750 towards the success fee (reflecting her level of success).
Why did the Supreme Court disagree with the Court of Appeal?
A 1975 Act award for ‘maintenance’ cannot extend to everything which it is desirable for the Claimant to have. Costs in 1975 Act claims are provided by the Civil Procedure Rules 1998 (‘CPR’). The rules are a ‘vital and integral’ part of the administration of justice.
CFAs provide access to justice where a Claimant cannot afford to bring a claim. A lawyer will enter into a CFA where the Claimant has a good chance of success, as the lawyer only gets paid if the Claimant ‘wins’. If the Claimant ‘wins’, the Claimant becomes liable for the lawyer’s costs plus the success fee. The usual rule under the CPR is that the loser pays the winner’s costs, so the Claimant will seek to recover their costs of the litigation from the deceased’s estate or the other parties to the litigation.
After the award is made by the Court, the Court will assess the Claimant’s costs to see if they are reasonable. The Claimant can only recover their ‘assessed costs’. The ‘assessed costs’ may be less than the costs they owe their lawyer. The Claimant cannot recover the difference from its opponent. To recover costs as part of the award, before assessment, therefore undermines the CPR system.
Under CPR 36, offers to settle the claim can be made throughout the dispute, so that the claim does not go to trial. If the claim does not settle, these offers must not be seen by the Court until after trial. There are costs consequences if a party does not achieve at trial an award more advantageous than the CPR 36 offer. These cost consequences encourage parties to accept a reasonable offer before trial. CPR 36 is, however, ‘unworkable’ if success fees are recoverable as part of the award, and it can remove the incentive to settle.
It was following the Jackson reforms that the costs rules relating to CFAs were amended, so that a success fee cannot be recovered from another party (s58A(6) Courts and Legal Services Act 1990). The justification for this was that success fees are a “major contributor to disproportionate costs” which can force defendants to settle even though they have a good defence. This is not in the interests of justice. There is nothing in the 1975 Act, the CPR or the Jackson Report which suggests there should be an exception for 1975 Act claims. Parallels cannot be drawn with other types of proceedings, such as divorce-related financial relief, where different costs rules apply.
To summarise, “Costs of the proceedings are treated separately from the substantive relief and are not awarded as part of the substantive relief. The important policy reason for this common law principle is to uphold the integrity and coherence of the costs regime”.
What does this mean for 1975 Act claims?
It is unfortunate that, if a Claimant becomes liable to pay a success fee, this will eat into their award for reasonable financial provision. Claimants cannot now, however, use the fact that a success fee may form part of an award as a litigation tactic in their favour. There is also no doubt how the CPR costs rules apply to 1975 Act claims and therefore advisors can confidently advise their clients accordingly.
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