On 18 December 2024, the Supreme Court delivered its much-anticipated decision in Hirachand, holding that Conditional Fee Agreement (“CFA”) success fees cannot be recovered as part of an applicant’s financial needs under the Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”). Although the decision has now provided much-needed certainty in this area, to say it has had a mixed reception amongst Chancery practitioners would be an understatement. This note will provide an overview of the decision and its background as well as some reflections on its implications for future litigants.
Background
Hirachand concerned a claim for reasonable financial provision under the 1975 Act, brought by an adult daughter (“the Respondent”) against the estate of her father (“the Deceased”). The Appellant was the Respondent’s mother to whom the Deceased had left the entirety of his estate, valued at approximately £554,000. The claim was issued in November 2017.
During proceedings, the Respondent entered into a CFA with her solicitors in respect of approximately £67,000 of her fees incurred after 6 March 2018. The CFA contained a success fee, which was calculated as an uplift of 72%, amounting to £48,175. The Respondent’s total liability for costs to her solicitors was approximately £132,904.
The High Court and Court of Appeal Decisions
At first instance, Cohen J allowed the Respondent’s claim and made an award of £138,918. As part of this award, he included £16,750 as a sum required to meet what he regarded as a reasonable CFA mark-up. However, he emphasised that he did so for case-specific reasons. Namely, that if he did not make allowance for the CFA liability, then one or more of the Respondent’s primary needs would not be met by the award (Re H (Decd.) [2020] EWHC 1134 (Fam) at [55]). The Appellant appealed.
The Court of Appeal upheld Cohen J’s decision. Writing for the Court, King LJ held that the concept of “maintenance” within the definition of “reasonable financial provision” in section 1(2)(b) of the 1975 Act should not be construed too narrowly and that the payment of debts may, in appropriate cases, constitute maintenance (Hirachand v Hirachand [2021] EWCA Civ 1498 at [48]-[49]). However, the Court emphasised that it would likely only be appropriate to include a CFA success fee within the calculation of a 1975 Act award where the judge was satisfied that incurring such a debt represented the only means by which a claimant would have been able to litigate (at [59]).
Additionally, King LJ drew an analogy between the 1975 Act regime and proceedings for financial remedies under the Matrimonial Causes Act (“MCA”). In MCA proceedings, outstanding costs which could not otherwise be recovered may be categorised as a debt whose repayment falls to be considered as part of a party’s financial needs in the calculation of an award. This is notwithstanding the principle that family courts will generally not make an order requiring one party to pay the other’s costs (“the no order principle”). By analogy, unrecoverable success fees in 1975 Act claims are equally capable of constituting a debt whose repayment falls to be considered as part of an applicant’s financial needs when making an award (at [58]). The Appellant further appealed.
The Supreme Court Decision
The Supreme Court unanimously allowed the appeal, holding that, in determining the appropriate award in a 1975 Act claim, the judge is not permitted directly or indirectly to include any allowance for an applicant’s success fee.
Writing for the Court, Lord Richards began by considering whether the meaning of “maintenance” in section 1(2)(b) of the 1975 Act could be construed widely enough to include litigation costs. The Appellant had submitted that, as litigation costs cannot be construed as constituting “everyday living costs”, they fall outside the scope of section 1(2)(b). The Court rejected this submission on the basis that it was well-established that legal costs could fall within the ambit of “maintenance” in similar provisions of the MCA and that there were no grounds to construe section 1(2)(b) differently (at [26]). Therefore, in principle, payments to fund legal costs may fall within the concept of maintenance.
Lord Richards then considered the body of case law relating to the recovery of costs in civil proceedings as a general principle, reiterating Professor Louise Merrett’s observation that “[t]he basic rule of English law is that, unless the claimant can rely on a separate cause of action, litigation costs can only be recovered as costs, and not as damages” (at [41]). Further, by way of background to success fees under CFAs, Lord Richards noted that CFAs are permitted in all proceedings, except criminal and family. However, given that the Jackson Report on Civil Litigation Costs identified CFAs as “the major contributor to disproportionate costs in civil litigation”, the recovery of success fees was prohibited by the addition of s58A(6) to the Courts and Legal Services Act 1990 (at [42]-[50]). It was noted that Jackson specifically considered Chancery litigation, including 1975 Act claims, and did not suggest that success fees should be recoverable as part of an award made (at [51]-[52]).
In relation to the recovery of base costs generally, 1975 Act clams are governed by the CPR costs regime which provides for recovery by means of an order for costs; permitting the recovery of base costs as part of substantive relief in 1975 Act cases would undermine the costs regime and produce incoherent results (at [57]).
Lord Richards found that there is nothing in the 1975 Act which expressly or implicitly displaces the general principle that the CPR costs regime will apply. Success fees form a part of the costs incurred by a party and the mere fact that they are not recoverable from the losing party does not mean that they cease to be a part of the costs of proceedings (at [62]). Therefore, there is no reason why irrecoverable costs fees should be included as part of the substantive relief granted in 1975 Act cases. Indeed, were the recovery of success fees permitted, Lord Richards could see no limiting principle as to why a successful claimant’s base costs should be excluded from the calculation of their substantive relief where no order for costs is made (at [63]).
In addition, the Court was of the view that permitting recovery would also undermine the effectiveness of the Part 36 settlement regime. In the Court’s view, Part 36 offers work because their rejection carries potentially substantial costs consequences. The premise for those consequences is that costs are to be dealt with only by way of the CPR costs regime. Therefore, the Part 36 regime becomes unworkable if costs may be dealt with as part of the substantive award (at [67]-[74]).
Finally, Lord Richards rejected the analogy drawn by the Court of Appeal between 1975 Act claims and awards in financial remedy proceedings under the MCA. First, the effect of the no order principle is that there is, in substance, no applicable costs regime in financial remedy proceedings save where justified by a party’s conduct. In those circumstances, to permit the recovery of costs as part of a substantive award does not undermine any separate costs regime (at [93]). In addition, the fact that success fees are prohibited in family proceedings means that there is no basis in the authorities to suppose that family courts would permit the recovery of success fees in any case (at [94]).
One glimmer of hope for potential claimants was the Court’s holding that the power to grant interim relief under section 5 of the 1975 Act includes the provision for an applicant’s legal costs in the proceedings. The Court reasoned that the jurisdictional basis for making an interim order towards an applicant’s costs under section 5 is different in character from including consideration of costs within a final award. The former enables a claim to proceed which otherwise could not be made, whereas the latter blurs the distinction between the award of substantive relief and costs (at [75]-[76]).
Costs in 1975 Act Claims – plus ça change?
In many ways, the Supreme Court’s decision has simply reinforced the pre-existing orthodoxy. At its heart, Hirachand required the Court to consider which party should bear the risk of CFA success fees. The Court’s unanimous answer was that the risk is to be shouldered by the claimant. The underpinning policy considerations were clear: 1975 Act claims are governed by the CPR which provides for a separation between the award of substantive relief and the award of costs. Attempts to blur this distinction undermine the integrity and coherence of the costs regime. From the Court’s perspective, this is the same as the pre-Hirachandposition. Claimants who wish to enter into CFAs may still do so; the Court has simply prevented a glut of CFA claims being made by claimants with dubious prospects. Frivolous (but profitable) claims are averted, litigants are protected, Chancery practitioners are unhappy. So far, so orthodox.
Nevertheless, in adopting a rigid approach, the Court may be said to have prioritised formalism over fairness. Both the High Court and Court of Appeal were alive to Briggs J’s complaint in Lilleymann v Lilleyman (No 2) [2012] 1 WLR 2801 at [26], that elements, such as undisclosable Part 36 offers, may alter the costs position between the parties and undermine a judge’s ability to make a fair award in 1975 Act cases. In this context, the Respondent’s analogy to the holistic view taken in financial relief proceedings under the MCA seems eminently sensible. The purpose of the regime implemented by the 1975 Act is to enable a court to make reasonable financial provision for an applicant where no such provision has been made by the deceased. To prevent judges from considering success fees and broader costs considerations in the assessment of an applicant’s financial needs is to require them to make decisions in the dark.
That being said, the Court rejected the analogy on reasonable grounds: the costs regimes under the CPR and MCA are substantially different and, in any event, success fees are prohibited in family proceedings. Additionally, the efficacy of the Part 36 regime depends on the separation of the award of substantive relief and costs. However, given that Hirachand began life in the Family Division, it is perhaps regrettable that a more flexible approach could not be adopted. Ultimately, the cognitive dissonance of 1975 Act claims arises from their inherent nature: they are Chancery proceedings, governed by the CPR, but which have the flavour of family proceedings and raise many of the same non-legal difficulties. Most CPR regimes (including costs recovery and Part 36 offers) are premised on parties’ rational decision-making as to financial risk. As a result, they are ill-suited to governing disputes in which emotions can run high. Claims under the 1975 Act, in which a small class of family and dependants argue about the division of a deceased’s assets, appear almost uniquely ill-suited. Naturally, it is outside the Court’s purview to rewrite statutory or procedural regimes, but Hirachandhighlights the difficulties that can arise when those regimes are in conflict.
The decision will almost certainly have a chilling effect upon 1975 Act claimants wishing to rely upon CFAs. It is not unreasonable to suppose that this was by design. The Court referenced the Jackson Review’s conclusion that success fees were a major contributor to disproportionate costs in civil proceedings. The assumption being that a claimant acting under a CFA has little to no incentive to minimise their costs. On that basis, it appears clear that the Court sought to minimise the risk of estates being dissipated by successful claimants seeking to recover both their legal costs and disproportionate success fees. The necessary result is that, even if a claimant is successful, there is a real risk that their award will be consumed in large part by their CFA costs. Following Hirachand, this is simply a factor that a potential claimant will need to bear in mind when considering whether to bring their claim in the first place.
—
Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational and/or informational purposes. It is not intended to be a substitute for specific legal advice and should not be relied upon for this purpose.
This article represents the opinion of the author and does not necessarily reflect the view of any other member of St Philips Chambers.
