CFA success fee in the context of Inheritance Act claims – Hirachand v Hirachand and Another
The Supreme Court has today, 18 January 2024, heard the appeal in relation to whether a success fee pursuant to a Conditional Fee Agreement (“CFA”) ought to be taken into account in determining the extent of a needs-based award for a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (“Inheritance Act”) in the case of Hirachand v Hirachand and Another.
The appellant in this case is the widow of the Deceased, to whom the Deceased left his entire estate. The Deceased’s daughter, the respondent, did not receive anything from her father. The daughter therefore brought a claim against the estate under the Inheritance Act for reasonable financial provision for her maintenance.
In order to bring her claim, the daughter entered into a CFA with her legal representatives. A success fee of £48,175 is payable to her solicitors if the daughter is successful in her claim.
Whilst a successful party is generally able to recover part of their legal costs from the losing party, success fees cannot be recovered by way of a costs order by virtue of section 58A(6) Courts and Legal Services Act 1990. In this case, therefore, the daughter would be responsible for the payment of the success fee.
An issue before the Court in the first instance was, having decided that the deceased had indeed failed to make reasonable financial provision to the daughter, whether the daughter’s liability to pay the success fee should be considered part of her “financial needs” when assessing the Inheritance Act award.
An award made pursuant to the Inheritance Act is needs-based, which means that the extent of the award is limited to what “would be reasonable in all the circumstances of the case for the applicant to receive for [her] maintenance”, as set out in section 1(2)(b) of the Inheritance Act. “Financial needs” is left undefined. The Supreme Court has ruled previously in the case of Ilott v Blue Cross and Others (No 2)  AC 545 that financial needs can include liability for a debt.
The judge in the first instance decision decided that the success fee could be included because “If [he does not] make such an allowance one or more of [daughter]’s primary needs will not be met. The liability cannot be recovered as part of any costs award from other parties. The liability is that of [the daughter] alone. She had no other means of funding the litigation.” The judge recognised that some potential injustice might be caused to the daughter or the estate should he decide the matter either way. In seeking to mitigate this potential injustice, the judge allowed £16,750 as recognition of the daughter’s liability for the success fee.
The widow appealed to the Court of Appeal. The issue to be determined by the Court of Appeal was whether the judge was correct to include as part of the overall award a sum by reference to the success fee in exercising his discretion to determine a needs-based award.
The Court of Appeal ( EWCA Civ 1498) held that a success fee, which cannot be recovered by way of a costs order, can be regarded as a debt, and hence the liability to repay it can form part of a financial need. The taking into account of a success fee is, however, limited to situations where the only way the claimant could litigate was by entering into a CFA and thus incurring a success fee. Furthermore, the basis on which an award is determined is still by reference to “reasonable provision”. The Court made a distinction between simply including in the award the amount or a percentage of the success fee payable, effectively discharging the whole or part of debt for the claimant, and only taking into account this liability for the success fee as an element of the claimant’s financial needs. It is the latter that was the Court of Appeal’s decision.
The widow further appealed to the Supreme Court which is being heard today. It is expected that judgment will be reserved to be handed down in the near future. Contentious probate practitioners and potential parties to Inheritance Act claims will be watching with interest.