Dispute Resolution | Private Wealth
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On 18 January 2024, the Supreme Court heard an appeal relating to a claim under the Inheritance (Provision for Family and Dependants) Act 1975. The question was essentially whether or not the court may factor in a success fee payable under a conditional fee agreement ("CFA") when making an award under that Act.
The Inheritance (Provision for Family and Dependants) Act 1975 (the "1975 Act") is a statute under which individuals can apply to the court for provision from a deceased person's estate. Those who are eligible to apply include the deceased person's cohabitee, spouse, civil partner and children. If the court considers that the deceased person's Will and/or the rules of intestacy fail to make reasonable financial provision for the applicant, it may make an order in their favour, most commonly for a lump sum.
What amounts to "reasonable financial provision" and what order the court ultimately chooses to make depends on a number of factors, including:
Unless the applicant is the deceased person's spouse/civil partner, to whom slightly different rules apply, a successful applicant will have to be in "financial need". This usually means that they are not the sort of person who can readily spend tens of thousands of pounds in legal fees. These individuals often live from pay cheque to pay cheque (whether that pay is from employment or benefits) and are reliant on loans to meet their daily living expenses. Historically, legal aid was available to fund these cases, but that funding has been withdrawn.
Many law firms recognise that potential applicants who cannot afford legal help might well have a good claim under the 1975 Act. In certain cases, law firms therefore offer conditional fee agreements ("CFAs"). CFAs are commonly known as "no win, no fee" agreements. Under a CFA, the applicant would not ordinarily pay any legal costs to their solicitors as the matter progresses but if they "win", whether by achieving a settlement or court order in their favour, then they will be liable for their solicitors' fees plus a success fee. The success fee is often a percentage of the costs incurred. In the case before the Supreme Court, the full success fee was 72% of the solicitors' fees, or £48,175.
In litigation, the normal rule is that the losing party pays the winning party's costs – and this used to include the success fee. In 2013, section 58A(6) of the Courts and Legal Services Act 1990 came into effect, which effectively banned the recovery of success fees from the losing party. It is not possible for individuals who make personal injury claims under a CFA, for example, to recover any part of their success fee from their opponent. They are, however, entitled to a 10% uplift in their general damages, which was intended to compensate them for their inability to claim their success fee. Parliament gave no equivalent entitlement to claims under the 1975 Act.
Navinchandra Hirachand died in August 2016. Under his Will, he left everything to his wife. His daughter brought a claim under the 1975 Act and the judge awarded her a sum of money, which included an amount towards her success fee. Although as referenced above, the full success fee was 72% of the solicitors' fees (£48,175), the court awarded a contribution that approximately equated to a 25% success fee (£16,750).
The deceased's widow appealed to the Court of Appeal, arguing that the judge was not entitled to award the applicant any part of her success fee (under section 58A(6) of the Courts and Legal Services Act 1990). The Court of Appeal dismissed the appeal. It held that the daughter's liability for her success fee was nevertheless a debt that could be counted as a "financial need" for the purposes of the 1975 Act, and so the judge was entitled to make the order he did. The Supreme Court now has to decide whether or not the Court of Appeal was wrong in law, and ultimately whether or not it is possible for success fees to be included in awards made under the 1975 Act.
On the one hand, without CFA funding, these applicants may not be able to afford to make their claim. Often, awards made at the end of the litigation are modest and could easily be wiped out by any success fee, meaning that even a successful applicant might receive no benefit at all. It is central to the 1975 Act that awards are calculated by reference to the applicant's financial needs (amongst other things); is it right for the court to ignore a liability of tens of thousands of pounds? The reality is that not awarding any sum towards a success fee could amount to a barrier to justice, with applicants being unable to have confidence that bringing their claim will be worthwhile.
Legally, the contribution towards the applicant's success fee as part of an award under the 1975 Act is not strictly recovered from the opposing party (as happened in personal injury claims before 2013). Instead, it is paid from the estate of the person who made the Will (or chose not to make a Will), although the reality is that this is very likely to deplete the share of the person, or people, opposing the claim.
That said, if someone chooses not to make adequate provision for their child who is reliant upon them, then perhaps their estate should bear the additional costs that child has to incur in making their claim. Further, under the 1975 Act, the court is obliged to consider the beneficiaries of the estate before awarding anything to the applicant, meaning the applicant may receive more or less of a contribution to their success fee depending on the beneficiaries' needs and relationship with the deceased.
On the other hand, Parliament has decided that individuals in personal injury claims cannot recover any part of their success fee. Instead, they are entitled to a 10% uplift in their general damages. Is it fair for them to pay their success fee out of their award if 1975 Act applicants do not have to? Is it legal for this distinction to be drawn?
Before Hirachand and other similar cases, law firms funded these claims under CFAs, believing the success fee could not form part of the sum awarded, so broadly speaking it seems unlikely that CFA funding will stop whatever the outcome of this case. Success fees are of course only payable if the applicant is successful, so awards that include a payment towards a success fee cannot be said to encourage applicants to bring weak claims to court.
Either way, clarity will be extremely helpful for the legal teams advising on both sides. For the last few years, the position has been somewhat "up in the air", with applicants holding out for higher settlement sums to include a success fee contribution and their opponents saying that they are not entitled to any such contribution. It increases the issues in dispute between the parties, making settlement of the case much more difficult and increasing the costs.
We await judgment. If you think you may have, or if you wish to defend, a claim under the Inheritance (Provision for Family and Dependants) Act 1975, please do not hesitate to contact Alice Vale or any member of our Charities and Private Wealth Disputes team. We act for individuals, executors, trustees, trust corporations and charities.