Background
Hirachand v Hirachand and another [2024] UKSC 43 relates to a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (“1975 Act”). Inheritance Act claims: free consultation | Weightmans
At the end of 2024, the Supreme Court handed down a costs’ judgment in Hirachand. This has caused ripples in the disputed estates and Inheritance Act claim field, where funding options and costs risks can be key factors in whether a claim is brought or how strenuously it is defended.
The matter related to the estate of Navinchandra Hirachand, (“Navinchandra”). He left his entire estate to his surviving wife, Nalini Hirachand, (“Nalini”). Sheila Hirachand, (“Sheila”), Navinchandra and Nalini’s daughter, issued a claim under the 1975 Act against Navinchandra’s estate.
Sheila argued that, despite her apparent estrangement from her parents, she had not received reasonable financial provision from Navinchandra’s estate. In doing so, the court was, amongst other things, required to have regard to Sheila’s financial resources and needs, both now and in the future. Wills Dispute Resolution Solicitors | Weightmans
Nalini defended the claim, but Sheila was successful and was awarded a lump sum from Navinchandra’s estate. Sheila’s solicitors acted on a conditional fee agreement, (“CFA”), (otherwise known as a “no win no fee” agreement). As a result of Sheila’s success, her solicitors charged a success fee (or an “uplift”). A success fee is an additional sum payable to solicitors when their client is successful, as Sheila was in this case.
The lump sum Sheila was awarded included a contribution towards the success fee charged by her solicitors as a result of her successful claim.
Law on Costs
The usual rule with regard to costs is that the successful party will be able to claim a proportion of their costs from the unsuccessful party. The amount of costs will be assessed by the court if it cannot be agreed between the parties.
However, generally speaking, success fees are not typically recoverable by the successful party from the losing party.
The High Court and Court of Appeal
On the basis that success fees are not typically recoverable from the losing party, Nalini appealed to the Court of Appeal regarding the requirement that she contribute to her daughter’s success fee.
The Court of Appeal agreed with and upheld the decision of the High Court. This decision therefore cast significant doubt on the usual rule and potentially had significant ramifications for parties involved in claims under the 1975 Act.
The Supreme Court
Nalini submitted a further appeal to the Supreme Court. The court was tasked with determining whether the Court of Appeal was wrong to decide that a CFA success fee is a debt, the satisfaction of which constitutes a financial need which the court may make provision for in an award under the 1975 Act.
The Supreme Court unanimously allowed the appeal and excluded from any sum awarded to Sheila the success fee payable to her solicitors. It was held that a judge cannot include any allowance for a success fee when making an order in a 1975 Act claim.
This means that if a party’s 1975 Act claim is funded under a CFA, the success fee cannot be passed on to the unsuccessful party as part of any costs award made against them. The successful party will have to pay the success fee, (plus any of their solicitors’ costs that they have not recovered from the unsuccessful party), out of their own funds or from the amount awarded to them in the claim.
Implications
The original costs decision in Hirachand significantly increased the risk for defendants in a 1975 Act claim. Defendants faced having to contribute to a success fee if the claimant’s solicitors were instructed under the terms of a CFA. The original Hirachand decision therefore arguably placed defendants under increased pressure to settle claims before they went to a final hearing, as the costs implications in a successful claim could be more significant.
However, as a result of the Supreme Court decision, as the success fee can no longer be recovered from the defendant it is clearly important that both the size of the estate and the amount of any award that might be made are sufficient to ensure that the success fee can be paid by a successful claimant.
There is a possibility that the decision in Hirachand could result in more claims progressing to a final hearing, as the costs’ risk in defending 1975 Act claims has reduced now that success fees are no longer recoverable from the defendant.
As the success fee can no longer be recovered from the defendant there are early indications that alternative models of funding are being considered, with deferred fees (where the fees are deferred to the conclusion of the proceedings, usually with an uplift), and Damage Based Agreements (where the fees are calculated as a percentage of the final recovery), being used. Another consequence is likely to be an increase in the use of “after the event” litigation funding, provided as part of a raft of innovative funding models being offered by litigation funders.
The clarification in Hirachand has not resulted in a noticeable reduction in 1975 Act claims, and alternative funding models will continue to adapt to ensure that claims with good prospects of success can still be made. A practical guide to Litigation Funding | Weightmans or Litigation funding | Weightmans
