Hirachand v Hirachand: CFA Clarity for Practitioners

On 18 January 2024, the Supreme Court heard the appeal in the case of Hirachand v Hirachand & Anor (previously known as “Re H”), and the eagerly awaited judgment was released on 18 December 2024.

Following the Court of Appeal’s decision to uphold the first instance judgment, the Supreme Court was asked to clarify whether a claimant’s success fee under a Conditional Fee Agreement (“CFA”) can be recoverable from an opponent in a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”). This has been a hot topic for practitioners in this field for quite some time and it will no doubt assist to have a final decision on the matter so that parties and legal teams know where they stand.

The Judgment

Following a run of cases where the issue of whether the success fee element can be recovered from an opponent has been debated and decided in different ways, the Supreme Court has now overturned the Court of Appeal’s decision, finding instead that a claimant is not permitted to recover their success fee from an opponent as part of a substantive award, reverting to the usual position under the Civil Procedure Rules.

On the one hand this inevitably leaves potential claimants and their advisors in a difficult position when considering funding a 1975 claim as any CFA with an uplift (success fee) risks defeating part or all of an award if successful. On the other hand, this decision keeps 1975 Act claims firmly within the realm of usual civil litigation rules as regards the applicable costs regime and prevents any tricky considerations as regards linked costs issues, such as consequences of Part 36 offers.

CFAs and 1975 Act Claims

A CFA is a funding arrangement whereby a client’s costs are only payable if the client “wins” their case, either at trial or by way of a negotiated settlement. This arrangement involves an element of risk for the client’s solicitors, because if the client’s claim fails their fees will not be payable. In consideration of this risk, the agreement usually includes a “success fee”, which is an uplift in the solicitors’ fees, calculated as a percentage of base costs up to 100%. Success fees, particularly if claims proceed to trial, are usually significant, and can lead to a large reduction in a client’s settlement, as the starting point is that it is the client’s responsibility to pay it.

The general position, established several years ago, is that a CFA success fee cannot be recovered from an opponent in civil litigation. Essentially, the “loser” of the claim pays the costs of the “winner”, but only their recoverable base costs, not the success fee.

Whilst there were good reasons for this change in the rules, it presented an issue for claimants under the 1975 Act. The remedy sought in a 1975 Act claim is an award from the Deceased person’s estate for the purposes of alleviating the claimant’s financial difficulties. If an award is significantly reduced by a claimant’s costs liability under a CFA (the means by which most of these claims are funded as, by their nature, a claimant is often impecunious) this could mean that the effect of the award could be defeated, so the Courts have been asked to consider the issue in some recent 1975 Act cases, culminating in this significant judgment in Hirachand.

This does not impact the more general position that a success fee is not recoverable as part of the costs of proceedings. The consideration of this issue here has been the argument that the success fee, instead of being regarded as part of the claimant’s costs, is actually a debt of the claimant that will

become due on success and therefore ought to be considered as part of the claimant’s financial position at trial in connection with which an award could be made under the Act.

Previous Cases

In Re Clarke [2019] EWHC 1193, the Court rejected the claimant’s application to increase their award to reflect the success fee he would be required to pay to his solicitors. The Deputy Master gave several considered reasons for this, including a reluctance to place a claimant proceeding under a CFA into an advantageous negotiating position, and to prevent damages being increased by way of costs.

Shortly afterwards followed the unreported case of Bullock v Denton. The court in this case considered that the success fee should be taken into account as part of an award, and that the court could include at least part of the success fee.

These two very different decisions created a need for further comment and clarification by the court, and so the issue was considered again in the High Court In Re H (Deceased) [2020] EWHC 1134, which was the starting point for the case now known as Hirachand which has made it up to the Supreme Court.

Facts of Hirachand

Hirachand concerned an adult child claimant (“C”), who was seeking financial provision from her late father’s estate. She suffered with severe mental health issues, was unable to work and had been estranged from the family since 2011, by her own choice. Other than the period during which she attended university, she did not receive any financial support from her father. The sole beneficiary of the estate was C’s mother, whose own financial needs needed to be carefully balanced by the court with C’s.

First Instance Decision and Appeal

Having considered and balanced the needs of both parties, the court awarded C the sum of £138,918 to be paid out to C from the estate, with £16,750 of this being a 25% contribution towards C’s CFA success fee. The decision to include part of the success fee within the award was one which would lead to a wholesale change in the costs regime in 1975 Act cases.

The decision was appealed, however was upheld by the Court of Appeal. This has now been overturned.

Key Reasons for the Supreme Court Decision

As an overarching point, it is apparent that the Supreme Court did not wish to undermine the costs regime and allow 1975 Act claims to be some form of exception to the usual rules. They confirmed that there was an important policy reason why the costs of proceedings are kept separate from the substantive relief in claims and that this is to uphold the integrity and coherence of the costs regime. This was clearly an important factor.

It is also apparent that, had they decided the other way, it would have resulted in some real difficulties with the effectiveness of Part 36 offers in 1975 Act claims. This decision means that Part 36 can continue to operate as usual without causing too many difficulties for both practitioners in making and accepting or rejecting offers and also for judges in deciding how that might affect their decision on costs.

Further, the Supreme Court were clearly concerned that a decision to allow any part of a success fee to be considered as part of a substantive award could lead on to an argument that irrecoverable base costs could also be included in that category and that success fees could be recoverable in other forms of civil litigation where an argument could be raised that a success fee was in essence consequential loss in a damages claim. That would clearly be an unintended and undesirable consequence which risked a much wider change the costs principles.

There was some argument that perhaps 1975 Act claims ought to be analogous with family proceedings as regards costs rather than with civil proceedings. The starting point in family proceedings is that there will be no order as to costs unless there are specific conduct issues. The Supreme Court considered that those proceedings are however fundamentally different on the basis that there was very rarely a winner and loser in family proceedings and it is not desirable to seek to create one by a costs award.

Implications of the Supreme Court’s Decision and What this Means in Practice

This is a huge decision in the contentious probate sphere and the implications are significant. Arguably the implications were greater were the first instance and Court of Appeal judgments to stand. If that had been the case, the door would have been opened to claimants under the 1975 Act who could by the time of trial have substantially bolstered the value of their claim by virtue of the amount of legal work that had been carried out on it. Defendants would have been in a really difficult position in trying to balance off their risk by pre-trial settlement and undoubtedly claimants would have had a far improved negotiating position by virtue of being represented under a CFA.

This decision however falls firmly towards keeping 1975 Act claims within the usual rules of civil litigation where success fees are the claimant’s problem and where the starting position will be that the loser pays the winner’s costs and any irrecoverable costs (whether by way of success fee or irrecoverable base costs) fall to be considered as part of the claimant’s risk in proceedings. This surely is a win for defendants and brings claimants back to a more reasonable negotiating position.

I expect this will also impact solicitors in this field who may find themselves having to take a look at their own costs, how their success fee has been fixed and how reasonable that may be and I expect that to lead to potential negotiation with their own client at the conclusion of a case if an award is effectively worthless by virtue of their client’s liability for their success fee. I would also expect solicitors in the field to become more creative with their funding arrangements as a CFA with a high success fee instantly looks like it may not be in a claimant’s best interests, particularly in borderline cases.

I would also expect this decision to assist the resolution of these cases, which is of course a positive. It will even up the negotiating positions of claimants and defendants – claimants with the benefit of a CFA with success fee will know there is a much greater risk to them in going to trial even if they are successful (as the award may be defeated by their liability to their own solicitor) and defendants will no longer have a significantly increased litigation risk by the time of trial from an earlier negotiated settlement just by virtue of the significant increase in the claimant’s costs.

In all of the above, we can see the genuinely good reasons for the Supreme Court’s decision and we can support the upholding of the Civil Procedure Rules and the associated costs regime as well as an understandable standing point not to seek to put 1975 Act claims as some form of exceptional case with different rules.

However, let’s take a moment at this point to remember the reason for the 1975 Act; to protect those in financial need who are not adequately provided for from someone’s estate on death. The reality is that this result is also likely to lead to many meritorious claimants opting to (and being advised to) take a lower settlement than their genuine needs or opting not to pursue a claim at all due to the risk of minimal or no benefit even where successful. It would be wrong not to question the undeniably negative impact this will have on the genuine claimants who the 1975 Act was designed to protect.