Hirachand v Hirachand: success fees in Inheritance Act claims

The Supreme Court’s unanimous decision in Hirachand v Hirachand and another [2024], handed down on 18 December 2024, has brought much-needed clarity to the treatment of success fees in claims under the Inheritance (Provision for Family and Dependants) Act 1975.

Katie Alsop and Charlotte Kahrman of HCR Law’s Disputed Wills, Trusts and Estates team acted for the appellant. They consider the implications for those advising on and funding inheritance disputes.

Background

The facts of the case were relatively straightforward. Navinchandra Hirachand died in August 2016, leaving his entire estate to his widow, Nalini Hirachand. His daughter, Sheila Hirachand, who suffered from severe health problems and lacked sufficient income or assets to support herself, brought a claim under the 1975 Act for reasonable financial provision from the estate.

Sheila had entered into a conditional fee agreement (CFA) to fund the claim. The CFA provided that, if her claim succeeded, she would be liable to pay her solicitors’ fees together with an uplift of 72% (the success fee).

At first instance, the High Court found that the will didn’t make reasonable financial provision for Sheila and awarded her a lump sum of £138,918. Because the court was prevented from including any provision for the success fee in a costs order by section 58A(6) of the Courts and Legal Services Act 1990, the judge included a contribution of £16,750 towards the success fee as part of the substantive award under the 1975 Act. The Court of Appeal upheld this approach.

The issue before the Supreme Court

The central question for the Supreme Court was whether the Court of Appeal had been wrong in law to decide that a CFA success fee constituted a ‘debt’, the satisfaction of which could be treated as a ‘financial need’ within the meaning of section 3(1)(a) of the 1975 Act, for which the court could make provision in a substantive award.

The Supreme Court’s decision

The Supreme Court unanimously allowed the widow’s appeal and excluded from the order any sum referable to the success fee. Lord Richards, delivering the court’s judgment, held that, in determining the appropriate relief in a 1975 Act claim, a judge cannot include, directly or indirectly, any allowance for a success fee.

The court’s reasoning rested on several important grounds. First, while the meaning of ‘maintenance’ in section 1(2)(b) of the 1975 Act is wide enough to include a sum to meet a liability for litigation costs generally, there are strong policy reasons for prohibiting the recovery of success fees as part of a substantive award. Lord Richards confirmed that the general rule, established by a consistent line of authority, is that the liability of one party to pay some or all of the costs incurred by another party is treated as a matter separate from the substantive relief sought in the proceedings.

Second, 1975 Act proceedings are subject to the costs regime contained in the Civil Procedure Rules (CPR). To permit a party to recover base costs or success fees as part of the substantive award would undermine the integrity of that costs regime and produce an incoherent result.

Third, following the Jackson reforms, section 58A(6) of the 1990 Act was introduced to prohibit the recovery of success fees in any costs order, reflecting the policy conclusion that success fees were “the major contributor to disproportionate costs in civil litigation”. The Supreme Court held that the logical extension of this policy is that success fees aren’t recoverable as part of a substantive award in any civil proceedings, including those under the 1975 Act.

Fourth, the court noted that Part 36 of the CPR, the regime designed to encourage settlement, would be rendered “virtually unworkable” if success fees were recoverable as part of the substantive award, potentially creating injustice to the estate.

The Supreme Court also rejected the argument that a valid parallel could be drawn between 1975 Act proceedings and financial remedy proceedings under the Matrimonial Causes Act 1973. It observed that the costs regime in civil proceedings governed by the CPR is “substantially different” from that applicable to financial remedy proceedings and that success fees are, in any event, prohibited in family proceedings.

Practical implications

Katie Alsop notes that the Hirachand decision has significant implications for those considering the funding of 1975 Act claims. Where a claimant funds a claim by way of a CFA, the success fee can no longer be passed on to the unsuccessful party or recovered from the estate as part of the award.

A successful claimant must meet the success fee, together with any shortfall between their solicitors’ costs and the amount recovered on assessment, from their own resources or from the sum awarded to them.

Charlotte Kahrman observes that the decision is likely to prompt a careful reassessment of the funding options available to potential claimants. There are early indications that alternative models, such as deferred fees, damages-based agreements (DBAs) and after-the-event insurance provided by litigation funders, may become more prevalent, although that hasn’t been our experience to date.

At the very least, claimants and their legal advisers will need to carry out a thorough balancing exercise at the outset, considering whether the anticipated size of the estate and any likely award will be sufficient to absorb the success fee. This is particularly important in claims by adult children, where the quantum of awards is inherently uncertain.

HCR Law continues to offer a range of funding agreements, including CFAs, which are offered at the firm’s discretion and only where the circumstances of a matter warrant it.

From the perspective of defendants and estate beneficiaries, the decision is broadly welcome. It reduces the costs exposure faced by those defending 1975 Act claims, as they no longer risk having to contribute to a claimant’s success fee as part of an adverse award.

Katie and Charlotte note, however, that the clarification in Hirachand hasn’t led to a noticeable reduction in 1975 Act claims overall. Instead, funding models are adapting to ensure that meritorious claims can still be pursued.