On 18 December 2024 the Supreme Court handed down its long-awaited judgment in the case of Hirachand v Hirachand & Another [2024]. B P Collins’ contentious probate team explores the case, which was concerned with whether Nalani Hirachand, the daughter of the deceased and Appellant in the Supreme Court case could recover from the estate as part of her ‘needs and maintenance’ the success fee she owed to her solicitors (under a conditional fee agreement entered into in order to fund the litigation).
Facts of the original case
Nalani Hirachand was the daughter of Navinchandra Hirachand (the “Deceased”). The other parties were her mother, Sheila, and her brother, Katan, although Katan took no active part in the proceedings.
Nalani suffers from significant mental health problems and had not worked since 2011. She had no income available to support herself and although she had been estranged from her parents, she sought provision from her father’s estate.
The Deceased’s will left the entirety of his estate, valued at around £550,000, to his wife. Sheila was in her 80s and profoundly deaf. She had cancer and was very frail. She was living in a care home where it was expected she would reside for the rest of her life.
The High Court decision
The judge at first instance was mindful that the estate was not overly large, and that both Sheila and Nalani had competing requirements and need for provision from the estate. The judge made an award to Nalani, as follows:
- £17,000 for therapy
- £48,169 + £32,000 representing income shortfall and loss of universal credit for a period of three years
- £15,000 for white goods/a replacement car
- £10,000 for rental deposit
- £16,750 to meet the conditional fee agreement (CFA) markup Nalani owed to her solicitors,
- a total award of £138,918.
The High Court Judge’s rationale for making the award was that:
- Section 1 of the Inheritance (Provision for Family and Dependants) Act 1975 (the “1975 Act”) provides that for applicants, other than the spouse of the deceased, the court may order “such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance”
- Section 3 of the 1975 Act provides that the court should take into account the applicant’s “financial needs and responsibilities”
- The Judge considered that the CFA success fee owed by Nalani to her solicitors was a financial responsibility. She had no way of meeting this responsibility aside from the provision from the estate, and if it were not taken into account and awarded to her, she would have to use her funds – with the result that one or more of her other needs would go unmet.
The Judge did not make provision for the entire amount of the success fee but for about 25% of costs liability which he deemed to be a reasonable uplift in the circumstances of the case.
Appeal to the Court of Appeal
Sheila appealed on two points, the first being a procedural matter which was not relevant to the subsequent Supreme Court case, and the second being about the CFA markup.
Sheila appealed on the basis that the Judge had made an error in law in allowing Nalani to recover her CFA markup. Section 58A(6) of the Courts and Legal Services Act 1990 (“the 1990 Act”) provides that: “A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement”.
At the Court of Appeal, the Judges drew parallels with 25(2)(b) of the Matrimonial Causes Act 1973 (“the MCA”) which requires the court, when deciding whether to make an order for ancillary relief and the terms of that order, to have regard to “the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future”. In ancillary relief proceedings, the costs incurred by the parties to litigation are specifically provided for as part of their needs and maintenance.
In dismissing the appeal, the Court of Appeal commented that “a success fee, which cannot be recovered by way of a costs order by virtue of section 58A(6) the 1990 Act, is equally capable of being a debt, the satisfaction of which is in whole or part a ‘financial need’ for which the court may in its discretion make provision in its needs based calculation”. The Court of Appeal concluded that the High Court Judge had been correct to make provision for this.
Supreme Court Decision
A further appeal was made on the matter of the CFA success fee to the Supreme Court which handed down its judgment on 18 December 2024. The Supreme Court overturned the decision of both the Court of Appeal and the High Court, stating that the courts had made an error in law when drawing comparisons between the 1975 Act and the MCA.
The Supreme Court determined that claims under the 1975 Act are governed by the Civil Procedure Rules (“CPR”), not the Family Procedure Rules, even in cases where the proceedings are brought in the Family Courts. In civil claims, the rule is that the costs of proceedings are not recoverable as substantive relief i.e. as damages. There has never been any suggestion that the usual rules on costs recovery under the CPR would not apply in 1975 Act claims. The Judge, Lord Richards, commented that it would “undermine the costs regime and produce an incoherent result if a party could recover base costs not under that regime but by way of the substantive award” in 1975 Act claims. The Judge further stated that there was no different principle applicable to success fees.
Counsel for Nalani, Constance McDonnell KC, argued that the prohibition on a party recovering a success fee from the other party only applies where such an award was made in a costs order, based on the wording of s58A of the 1990 Act. This argument was rejected on five grounds, including that it would be a contradiction of the public policy reasons for not allowing recovery of success fees in a costs order to allow such recovery by way of a substantive award in damages.
Success fees in future claims
It therefore is now settled law that success fees in 1975 Act claims cannot be covered by provision from the estate. This presents potentially significant difficulties for potential claimants to such claims. Success fees are allowable as the incentive for law firms to take the risk of funding claims under the 1975 Act claim. It is representative both of the risk that the firm will not receive payment for the claim for some time (sometimes years before the case reaches trial) and also the risk that the firm may not receive any payment at all if the claim is unsuccessful. As a matter of public policy, such arrangements are important to plug the gaps left by the unavailability of legal aid funding for such claims.
However key considerations in law firms being able to offer such funding are:
a. The recoverability of the success fee; and
b. Whether it is in the client’s best interests.
In essence, both considerations require the client to be able to afford to pay the success fee. It is not difficult to imagine a case where the success fee may be equal to or more than the provision received from a modest estate. Given that such funding is generally utilised where the client is unable to fund the claim privately and given the nature of 1975 Act claims being that the applicant has a financial need, often the client will not have any other way of meeting the liability.
This is also likely to be a concern for clients. It would be a hollow victory indeed if a successful claim for provision from the estate was made, but there was little or nothing left after the legal fees were paid. The position is perhaps best summarised by a quote from the original High Court judgment of Mr Justice Cohen, who stated that in cases where limited awards are made based on the claimant’s needs, if no provision is made for them to be able to pay the success fee, they would have to use their damages with the result that “one or more of [the claimant’s] primary needs will not be met”.
If you require advice or guidance regarding claims relating to an estate, please contact the contentious probate team at B P Collins by emailing enquiries@bpcollins.co.uk or calling 01753 889995.
