The appeal in the case of Hirachand v Hirachand & Anor (“Re H”) has been eagerly awaited by those who work in the Contentious Probate field; a landmark decision in relation to the recoverability of success fees from opponents under a Conditional Fee Agreement (“CFA”).
Following a run of cases where the issue has been debated and decided in different ways, this case will be cited going forwards as an authority on the subject. It has sought to clarify whether a Judge can consider an applicant’s indebtedness to their lawyers for a CFA success fee, when making an award under the Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”).
CFAs and Costs Recovery
A CFA is an agreement between a client and their legal representative, whereby the client’s costs only become payable in certain circumstances, usually only if the client “wins” the case (often referred to as ‘no win no fee’ agreements). To reflect the risk of losing and the lawyers being unable to recover any fees at all – as well as the inevitable delay in payment if successful – there is usually a “success fee”. In the event that the client does win, the solicitor can recover higher costs than normal, up to an additional 100% of their base costs. The success fee can therefore be a significant sum, particularly where a claim proceeds to trial.
The general rule in civil litigation is that although a “loser” will usually be ordered to pay the costs of the “winner”, that only relates to their base costs and any success fee under a CFA cannot be recovered by the winning party as part of that costs award. The success fee element of those costs will usually need to come from the client directly.
There was good reason behind the change of rules a number of years ago to ensure the success fee could not be recovered from opponents in civil litigation – however, it did present an issue in claims under the 1975 Act since the very nature of the claim was that the Claimant was in financial need and ought to be awarded a sum from a Deceased’s estate in consideration of their needs. If they were awarded a sum from the Estate to reflect their needs but then they had a costs obligation to their lawyers in respect of a CFA success fee, then the anticipated effect of the award may well be defeated by that costs liability. This tension is what led the Court to consider this issue in certain recent cases.
In Re Clarke  EWHC 1193, Deputy Master Linwood did not increase an award in a 1975 Act claim to reflect the success fee the Claimant would be required to pay. He gave several considered reasons for this, the key ones being as follows:
- Consideration of damages in a claim takes place before costs are considered
- It would go against the policy that losing opponents in civil litigation cases should not be responsible for a success fee in existence by virtue of the Claimant’s arrangement with its own lawyers
- Its effect would be to increase damages by way of costs
- A claimant proceeding under a CFA would be in a better negotiating position
However, shortly thereafter, in the unreported case of Bullock v Denton, HHJ Gosnell did consider it right to take account of the success fee payable in his award in a 1975 Act claim and ordered that a Claimant receive a contribution to the CFA success fee as part of the award. It is thought that HHJ Gosnell did not have the benefit of being referred to the Re Clarke decision so it is unclear if his decision would have been the same if that had been before him. However, these two decisions sparked greater scrutiny of the subject and it was unsatisfactory that the issue had been decided differently in the two cases.
In Re H (Deceased)  EWHC 1134, the Court considered the issues and the previous case law and decided that the Court could take account of a success fee that would be payable when considering what award to make under the 1975 Act, and could make an award that included at least part of the success fee that would be payable.
As is often the case, this was said to be due to facts specific to that case but practitioners will wish to rely on this in any matters where they are acting for a Claimant in a 1975 Act claim under a CFA. This has now been considered and upheld on appeal by the Court of Appeal in the same case, cited on appeal as Hirachand v Hirachand & Anor  EWCA Civ 1498.
Facts of Hirachand v Hirachand (“Re H”)
The case of Re H concerns an adult child claim under the 1975 Act.
C, the claimant, was aged 50 and of limited means. She was estranged from her family but sought to bring a claim under the 1975 Act for reasonable financial provision from her father’s estate.
C’s father had passed away and the whole estate passed to her mother (the first defendant) under his Will. The second defendant was C’s brother, who was his personal representative. They were the only 2 children of the deceased. The mother was the sole beneficiary of her father’s estate and therefore C sought to bring a claim for reasonable financial provision from the estate on the basis that the provisions of his Will did not provide her with that. C’s mother also had needs and the Court was keen to ensure those were also met so, as in many of these cases, it had a fine balancing act to perform.
C had been largely estranged from her family since 2010 and had substantial needs. Her significant needs were considered carefully as was the fact that she had cut herself off from her family and had received no financial support from them in her adult life, apart from during her postgraduate degree between 2007 and 2011. Her needs were extensive and there were interesting issues as to the background of the family relationship and the interplay between that and C’s existing needs. C also argued that as part of any award for reasonable financial provision, the success fee should be considered under the CFA she had entered into with her own lawyers.
First Instance Decision
The Court decided that reasonable financial provision had not been provided for C in the Will and made an award based on a number of categories of need which struck a balance between her needs and also the need of her mother for the rest of her life.
The Court also considered that it was appropriate to consider her liability for the success fee as part of her reasonable needs. The Court was aware that the decision to do so may cause some potential injustice to C or to the estate and so aimed to take a cautious approach. In doing so, the Court included a 25% uplift as part of the award on the basis that it did not consider the claim could have been seen to be one which had a high chance of failure (thus not being worthy of a higher success fee).
There were two grounds of appeal to be determined; the one to which this article relates as to recoverability of success fees from opponents ,and also whether the fact the trial had been conducted by a remote hearing had denied C’s mother a fair hearing on the basis that she was profoundly deaf and resident in a care home, requiring assistance from a care home worker during the hearing (though it was also relevant that she had been in persistent breach of procedural requirements during the claim).
The Court of Appeal concluded there was no merit in the ground of appeal relating to whether C’s mother had a fair hearing on the basis that she could not expect to be entitled to have made available to her all the protections that are in place to ensure a participating party can put their case effectively. She was not a participating party, she was a debarred party by virtue of her previous breaches of rules.
As regards the hot topic of recoverability of success fees as part of an award under the Act, the Court of Appeal concluded that a liability for a success fee could be taken into account and that, in this particular case, if the Court did not do so then one or more of the Claimant’s primary needs would not be met. It concluded that a success fee could be regarded as a debt capable of being taken into account when assessing a claimant’s maintenance need and the 25% figure awarded by the lower Court was upheld.
Conclusion and Discussion
It is clear that this is a very thorny issue and the clarification of the Court of Appeal is welcomed.
Success fees can often be considerable and therefore allowing their recoverability from an opponent in addition to standard costs will have a significant impact on how claims are pursued under the 1975 Act.
It doesn’t seem likely that the Court of Appeal has left it open for the totality of a success fee to be included regardless of the scenario and they have made it clear that the Court at first instance was correct in taking a cautious approach to the success fee, in that case allowing for a 25% uplift. The Court of Appeal has also made it clear, which will come as a relief to those representing Defendants, that it will by no means always be appropriate to make such an order in a claim under the Act, and also that it is unlikely to be made unless the Judge is satisfied that the only way in which a Claimant had been able to litigate was by entering into a CFA arrangement. Further, the extent to which the Claimant has achieved “success” will also be taken into account.
There was something unsatisfactory about an award being made under the Act to meet a Claimant’s reasonable financial needs which would then not fulfil that aim due to costs owed to the Claimant’s own lawyers. However, the reverse position is also a concern, that a weak claim for reasonable financial provision could actually get stronger the longer it continues and the closer to trial by virtue of the increased costs and therefore greater likelihood of a higher award being made because it can include an element of the success fee. That still leaves the slightly unsatisfactory position that a Claimant with a weak claim on merits could actually end up in a better negotiating position as a claim runs through to trial.
There could yet be more debate on this subject as it is likely there will still be interesting questions as to the difficulties arising as a result of the Court forming a view on the question of costs without the benefit of the usual factors after the judgment is given, such as any Part 36 offers or refusals to mediate. The Court of Appeal acknowledged that difficulty but considered it of minimal risk on the basis that many CFAs were thought to include an obligation on the Claimant to accept a reasonable offer of settlement failing which the CFA may be terminated and also that a success fee may not be payable in the event that a Claimant is advised to reject a Part 36 offer which it then subsequently fails to beat at trial.
It is also of note that this has the potential to create tension as between Claimants and their lawyers not only because of advice that may have been given on Part 36 offers but also on the basis that the Court may be willing to give an opinion on what would have been a “reasonable” level of success fee. This is of course done by the Court at the conclusion of the action with the benefit of all the facts and evidence before them, which would not be available to lawyers at the outset when fixing the success fee in a case. This could result in a Claimant questioning their own lawyers as to the level of success fee to be paid and may put pressure on lawyers to reduce any success fee otherwise owing to them giving a finding by the Court as to what it considered was reasonable with the benefit of hindsight and with all the variables in the claim now determined.
Undoubtedly there will be more to come on this subject and, as always, arguments will be made as to why individual cases ought to be assessed on their own individual facts -unsuccessful Defendants will inevitably find reasons why their cases ought to be distinguished from this case.
Alison Parry is a Partner at JMW Solicitors