Private Wealth Disputes Associate Ellen Shipton, from Hugh James’s Southampton office, takes a look at a key judgment handed down this week on inheritance claims.
The Supreme Court has now handed down the long-awaited judgment in the case of Hirachand v Hirachand. The primary issue that the court has been deliberating on for the past 11 months, was whether success fees under conditional fee agreements (often called no win no fee agreements) constitute a “debt”, and therefore whether they should be taken into account when making awards under the Inheritance (Provision for Family and Dependants) Act 1975 (‘the Inheritance Act’).
Under conditional fee agreements (‘CFAs’), solicitors will usually charge their basic hourly rates, plus an uplift or “success fee” if the case is successful. That uplift is essentially danger money to the solicitor firm, a premium they charge if they succeed in the case for the client, to account for the risk that they may not be paid for their work if they do not succeed in the case.
What was this case about?
Very briefly cast your mind back to the heady days of 2020 – then the claimant in this case, Navinchandra Hirachand, originally advanced a claim under the Inheritance Act against her father’s estate for reasonable financial provision. This claim was brought despite allegations that the claimant had been estranged from both her parents. She had instructed solicitors under a CFA to act for her in bringing the case.
At first instance, the High Court found in her favour and awarded her a lump sum payment towards her “maintenance” needs of approximately £140,000 from the estate. Importantly for our purposes, part of that award included a contribution towards her success fee under the CFA of £16,750. That was crucial because, following sweeping reforms to litigation funding, from 1 April 2013 success fees could no longer be recoverable from the losing party under section 58A(6) of the Courts and Legal Services Act 1990 as part of any adverse costs order.
Navinchandra’s mother, the defendant in the claim, appealed the decision to award her daughter the success fee. The Court of Appeal upheld the original award on the basis that the success fee was not, in these circumstances, part of an adverse costs order, but, rather, a debt of Navinchandra’s which could therefore be taken into account as part of her financial needs under section 3(1) of the Inheritance Act. The court was at that point acknowledging that it could not give an inheritance award for maintenance needs, without taking into account the success fee costs the claimant was going to incur.
Mrs Hirachand again appealed that decision, and it was heard by the Supreme Court in January of this year.
What did the Supreme Court decide?
Despite the time that has elapsed, the decision was unanimous and only 26 pages long (light reading for some Supreme Court judgments). In summary, the Supreme Court has found that success fees are not recoverable as part of an award for “financial needs and resources” under the Inheritance Act. The position is therefore the same as in other types of claims, where costs are to be determined after the substantive award has been made and success fee uplifts are not allowed.
What does this mean?
The concern prior to the decision was that if the Supreme Court agreed with the Court of Appeal in this case, then this would have opened the “floodgates”, giving more space for opportunistic claims with claimants and their firms less concerned about the impact of a success fee on an award.
Given the outcome now, there will likely be less Inheritance Act cases (and certainly those whose claimants are under a CFA) proceeding to trial aside from in exceptional circumstances. As is widely accepted, legal costs in these types of claims can be high and it may be entirely disproportionate on a cost basis to proceed to trial – only to watch your award be obliterated by your success fee.
In reality, this will likely shift the focus onto “lump sum” settlements and, especially with settlement discussions, encourage claimants to seek a higher settlement.
Always seek advice
Claims for further provision from an estate under the Inheritance Act can be complicated and subject to statutory limitations. Costs too present an additional factor, requiring balance of economics in a case. For these reasons, it is imperative that potential claimants and defendants take early specialist advice on claims. Hugh James has an expert Private Wealth Disputes team based in Southampton, London and Cardiff who can assist.
