Hirachand v Hirachand: The Court of Appeal controversially upholds the recoverability of CFA success fees in 1975 Act claims

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The Court of Appeal handed down its decision in the case of Hirachand v Hirachand on Friday 15 October 2021. Despite Parliament having passed legislation aimed at preventing the recoverability of success fees payable under Conditional Fee Agreements (commonly referred to as a “no win, no fee” agreements), the Court confirmed that individuals bringing claims under the Inheritance (Provision for Family and Dependants) Act 1975 can recover these success fees from the estates they are claiming from. Conditional Fee Agreements, which have been described as “the major contributor to disproportionate costs in civil litigation”, may now become the dominant means of funding these claims.

Background

Sheila Hirachand made a claim against her late father’s estate under the Inheritance (Provision for Family and Dependants) Act 1975 (the “1975 Act”). The 1975 Act gives certain categories of people, including children, the ability to claim against a deceased person’s estate on the basis that the deceased did not make reasonable financial provision for them.

The trial of the claim came before Mr Justice Cohen via video link in April 2020.

Sheila, aged 50, had a partner and two children. She was of limited financial means and suffered from mental health problems. Sheila had been estranged from her family for many years. Indeed, since 2010, she had only seen her mother once: at her father’s funeral in 2016.

Nalini Hirachand, the deceased’s wife and Sheila’s mother, received her husband’s entire estate under his Will and certain jointly owned assets by survivorship (totalling around £554,000); she was, therefore, the primary defendant to the claim. She was almost 80, suffered from significant health issues and lived in a care home.

Having failed to file an acknowledgment of service, and having failed to comply with certain further court directions, Nalini was not permitted to take part in the trial. She was not legally represented at trial.

How did Sheila pay her lawyers?

Sheila instructed her lawyers on a Conditional Fee Agreement (“CFA”), commonly referred to as a “no win, no fee” agreement. If a party is successful under a CFA, their lawyers will charge their basic fees (calculated on hourly rates) and a success fee (a percentage uplift on the basic fees).

Under Sheila’s CFA, her lawyers were entitled to a 72% uplift on their basic fees (amounting to £48,175) if the claim succeeded.

In 2010, after being appointed to conduct a comprehensive review of costs in civil litigation, Sir Rupert Jackson concluded that CFAs had “been the major contributor to disproportionate costs in civil litigation in England and Wales.” In response, Parliament passed legislation to ensure that litigants could not force their opponents to cover the cost of their success fee stating that: “A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement, litigants cannot recover such success fees as part of a costs order”[1].

The first instance decision

Cohen J determined that the deceased’s Will did not make reasonable financial provision for Sheila and awarded her £138,918 from the estate to cover therapy, income shortfall, replacement goods and a rental deposit.

Controversially, the Judge awarded Sheila a 25% contribution towards her CFA success fee (amounting to £16,750). The Judge stated “that it would not be fair on [Sheila] for me to ignore completely her liability to her solicitors”.

In civil litigation, costs are dealt with as a matter of procedure at the conclusion of trial and the general rule is the loser pays the winner’s costs. The Judge, therefore, went on to make a costs order requiring Nalini to pay Sheila’s basic costs of the claim.

Nalini instructed lawyers and appealed the decision.

The Court of Appeal decision

Giving the lead judgment, Lady Justice King upheld Cohen J’s decision. She held that a CFA success fee should be treated as a simple debt of the claimant and, therefore, the Court should be able to make provision for it under the 1975 Act.  In doing so, she looked towards financial remedy claims on divorce – an area with different rules on costs and where costs orders are not usually made.

King LJ did, however, emphasise that it would not always be appropriate to make such an order and suggested it should not be made unless “the judge is satisfied that the only way in which the claimant had been able to litigate had been by entering into a CFA arrangement”.

The Court did not accept Nalini’s submissions that a success fee award was contrary to Parliament’s clearly stated intention, that such an award was, in reality, a “costs order” for the purposes of s58A(6) or that the decision would create significant procedural difficulties in relation to the determination and settlement of these claims.

Sheila subsequently asked the Court of Appeal to make an order[1] amending Cohen J’s award from the estate to add a contribution towards her success fee costs of the appeal. Notably, the Court determined that amending Cohen J’s award in this way would breach s58A(6) and that this request was different in nature to the submission made to Cohen J that the success fee liability should be taken into account as a reasonable financial need. 

Looking ahead

Previously, conflicting approaches have been taken by High Court Judges as to whether the award of CFA success fees was wrong in law. The Court of Appeal has now provided clarity on the issue, absent any further appeal to the Supreme Court.

Defendants to 1975 Act claims – who have never engaged in “wrong-doing”, as opposed to other categories of defendant such as in civil fraud actions – are now the only defendants in civil litigation who can be ordered to pay CFA success fees.

The decision is likely to have a significant impact on the funding of 1975 Act claims. CFAs are now a far more attractive funding option for claimants and we suggest that they may become the dominant means of funding these claims.

The decision is, however, bad news for testators and their beneficiaries, who face their estates and legacies being reduced by additional layers of previously unrecoverable claimant costs.

 

Mills & Reeve acted for Nalini in the Court of Appeal proceedings with Brie Stevens-Hoare QC and Oliver Ingham

          Link to judgment

 

[1] s58A(6) Courts and Legal Services Act 1990, as amended by Legal Aid, Sentencing and Punishment of Offenders Act 2012.

[2] Pursuant to CPR 52.20(2)(a).

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