The Supreme Court has made a landmark ruling on the way ‘no win, no fee’ agreements are treated in inheritance claims. Wright Hassall, the firm that represented the appellant in the case, and their client are “pleased” that the Supreme court has reached a positive conclusion and allowed the appeal.
Following a hearing in January 2024, the Supreme Court has now ruled that success fees due under a conditional fee agreement are not recoverable as part of a substantive award for reasonable financial provision made under the Inheritance (Provision for Family and Dependants) Act 1975.
This landmark ruling means the £16,750 success fee payable in accordance with the terms of the CFA which the Respondent entered into with her lawyers is not taken into account as part of her liabilities and as such, the amount will need to be deducted from the High Court’s original award; and must be paid by the Respondent personally. Katie Alsop, Partner, Contentious Probate and Disputes Group lead at law firm Wright Hassall, said:
“Wright Hassall and our client are pleased that the Supreme Court has reached a positive conclusion and allowed the Appeal. We welcome the clarification that success fees due under a conditional fee arrangement are not recoverable as part of a substantive award for reasonable financial provision made under the 1975 Act.
The Supreme Court unanimously allowed the appeal holding that whilst claims under the 1975 Act remain subject to the CPR, costs of the proceedings are treated separately from the substantive relief and a substantive award may not include provision for either a success fee due under a CFA or a party’s base legal costs.”
Amanda Smallcombe, Partner in Birketts’ Private Wealth Disputes team, also echoed this and said that whilst the Supreme Court’s decision may be seen as “hindering access to justice” for some claimants, it is “good news” for beneficiaries of estates defending such claims. She continued:
“Many Inheritance (Provision for Family and Dependants) Act 1975 claims by their nature are brought by people who lack financial resources to pay legal costs and the decisions of the lower courts allowed successful claimants to keep the entirety of the amount awarded to them from the estate for their needs rather than it being eroded by legal costs, but this necessarily meant that the other beneficiaries received even less from the estate.
Solicitors will still take such cases on a no win, no fee basis, but the fact that the success fee will now be payable by the client means that it will be incumbent on all sides of these disputes to work collaboratively to resolve them quickly and cost effectively to preserve as much of the estate for the people involved. Claims under the 1975 Act are ideal for mediation and the parties should consider this even more so now. With beneficiaries being represented by separate solicitors, legal costs can quickly increase, particularly once proceedings are issued. Mediation allows the parties to reach settlement themselves on terms with which they are comfortable with rather than a judge imposing a decision on them.”
Paula Myers, National Head of the Will, Trust and Estate Disputes team at Irwin Mitchell, said that by making it clear that the success fee is not recoverable it is “hoped we will see a reduction in speculative claims”. He added:
“The UK Supreme Court has clarified the interpretation of how ‘financial need’ should be considered when bringing an Inheritance Act claim. The judgment makes clear that allowing a success fee to form part of an award would undermine the costs regime and cannot form part of an award for reasonable financial provision.
If the judges had allowed success fees to be recovered from the estate it could have made it easier for those who have limited financial resources to bring a claim under the Inheritance Act 1975. This could have led to estates potentially facing a higher volume of claims and the value of those claims would be higher too, leaving less left over for other beneficiaries.
The case highlights how complex the probate process can be and the importance that people on both sides of the fence seek quality legal advice in the event of any disagreements or disputes. The increased awareness of rogue executors involved in probate recently and the inheritance tax changes in The Budget mean that we are likely to see an increase in disputed wills, trusts and estates in 2025.”
Scott Taylor, head of private wealth disputes at Moore Barlow said that the conclusion was “not the one we were hoping for our client”. He continued:
“This case has been a first of its kind and we now have the final answer. Whilst it’s not the one we were hoping for our client, it clarifies the long-standing debate.
Unfortunately, it does mean that going forward clients who sign ‘no-win, no fee’ Conditional Fee Agreements (CFA) for claims under the Inheritance Act 1975 (“the 1975 Act”) will not be able to recover the success fee agreed with their/no legal advisors as part of their award.
Instead, claimant’s will need to consider making applications at the outset of their claim for an interim award to help with funding or consider other arrangements with their lawyer which include no win/no fee arrangements where they will bear the burden of any uplift if they are successful.”
Bethan Byrne, Of Counsel in Mishcon de Reya’s Private Wealth Disputes team, commented:
“The judgment has significant implications for future inheritance claims and confirms the separation of substantive awards from litigation costs, which are usually dealt with through separate costs orders. Claims under the 1975 Act are subject to the costs regime in the Civil Procedure Rules (CPR), including the rules under Part 36, in the usual way. The Supreme Court highlighted that including success fees in substantive awards would undermine the established costs regime.
The decision reflects the Court’s adherence to the principle that success fees should not be recoverable from losing parties in civil litigation, a stance reinforced by the Jackson reforms. These reforms aimed to control civil litigation costs, recognising that CFAs and their associated success fees could lead to disproportionate expenses.
Whilst arguably not a surprising decision, the Supreme Court’s judgment in Hirachand v Hirachand has provided much-needed clarity on the treatment of success fees in 1975 Act claims. It has established that success fees, as part of CFAs, cannot be considered a financial need for maintenance under the Act. This decision will undoubtedly influence how future claims under the 1975 Act are structured and the careful consideration parties will need to give to how their claims are funded from the outset.”
Cathryn Culverhouse, Partner at DMH Stallard, commented:
“The Supreme Court has reversed the Court of Appeal’s decision stating that success fees are not debts that can be considered a financial need of the Claimant and which the Court should make provision for. This decision by the Supreme Court will set a precedent for all 1975 Act claims going forward.
The exclusion of success fees in awards means that a significant proportion of the Claimant’s award will be eaten up by the payment of success fees, potentially leaving them with insufficient funds required for their maintenance. Whilst this is bad news for Claimants, the exclusion of the success fees and the resulting smaller award, means that more of the estate will potentially be available for the beneficiaries.
Whilst a blow for Claimants, it is in my view the right decision in law. Success fees relate to the costs of bringing court proceedings which are to be determined after an award is given by the Court. Therefore, it is difficult to see how they could constitute a part of the damages to be awarded. Furthermore, Part 36 offers made in litigation have costs consequences and it is impossible to see how principles of Part 36 would work where a success fee has been awarded in damages but the Claimant has failed to beat a Part 36 offer made.”
