Laura Abbott, Principal Associate in the Disputed Wills and Trusts team at Shoosmiths, explains the impact of Hirachand v Hirachand [2021] on the use of conditional fee agreements (CFAs) to fund Inheritance Act claims.

What is the Inheritance Act 1975?

The Inheritance (Provision for Family and Dependants) Act 1975 (the Act) allows certain people (including spouses, cohabitees, children, and persons maintained by the deceased) to claim increased financial provision from a deceased person’s estate where the will or the operation of the statutory rules which apply on intestacy fail to make reasonable provision for them.

Due to the nature of the claim, claimants can be in difficult financial circumstances which means funding the claim can be a problem. There are various options available to resolve that, and largely it will depend on the claimant’s choice of solicitor and contractual arrangements agreed between them, however one common solution is a conditional fee agreement (CFA). 

What is a conditional fee agreement (CFA)?

CFAs are otherwise known as, and commonly referred to as, ‘no win no fee’ agreements. This is because the client will pay nothing for their own legal fees if their claim is unsuccessful (apart from payments to third parties, known as disbursements, which may include court fees or mediation fees, for example). However, if their claim is successful, the client will pay their legal fees together with an uplift on them, known as a ‘success fee’ (to reflect the risk to the solicitor of losing and not being paid at all). 

Hirachand v Hirachand [2021]

The Court of Appeal considered the use of CFAs in the recent case of Hirachand v Hirachand [2021] EWCA Civ 1498 (previously known as Re H).

Case background

The case concerned an adult daughter’s claim for reasonable financial provision from the estate of her late father, pursuant to the Act. The claimant had been financially independent from her parents for most of her adult life and estranged from her father for a number of years. She suffered with a long-term psychiatric illness and was unable to work, and she and her two minor children were therefore reliant on state benefit provision. 

The estate was valued at £554,000 and was left to the deceased’s wife, who was elderly, frail and living in a care home.

Decision

The Judge granted the claimant provision in the sum of £138,918 (roughly 25 per cent of the estate), which he envisaged would be used to:

• meet her income shortfall
• fund psychological therapy
• replace her car and white goods
• meet her legal fees, including part of the success fee she owed to her solicitors under her CFA

This followed an unreported decision in the County Court of Bullock v Denton only nine days before where the claimant (in this case a cohabitee claim under the Act) was awarded £25,000 as contribution towards her success fee under her CFA. 

Appeal

The decision was appealed on two grounds:

1. the first ground related to a procedural point about the conduct of the trial during the COVID-19 pandemic
2. the second ground related to the consideration of the CFA and whether the court was right to include a sum as a contribution towards the success fee

The Court of Appeal dismissed the appeal and held that a success fee can be treated as a liability of the claimant and therefore be considered as a financial need for the purposes of the Act.

What is the effect of the Hirachand v Hirachand decision?

It is anticipated that there will be an increase in the number of claims being funded by way of CFA following the Hirachand v Hirachand decision.

The decision is a controversial one among practitioners. Some argue that for some clients CFAs are the only option to fund a case when they have a genuine financial need and allows for the Act to do the job it was designed to do; ultimately providing access to justice. The decision in this case means the claimants, where successful, will be entitled to keep more of their award rather than it being effectively reduced by the success fee. The awards are carefully calculated to meet their reasonable financial need, so with that in mind it is appropriate to consider the liability for the success fee as part of their needs.

The decision may also mean early settlement is more likely because defendants will take claims more seriously at an earlier stage if being funded on a CFA to avoid potential liability for success fees at trial. However, this raises the concern that the floodgates to frivolous claims are now open, and there will be more pressure on defendants to settle claims that are really without legal merit, because of the increased risk of exposure to liability for success fees.

As a matter of public policy, in other forms of litigation success fees are not recoverable, so the decision goes against this and almost allows success fees to be recovered ‘through the back door’. 

On the other hand, the Court of Appeal did make it clear that success fees will not be allowed in every case and CFA funding must be the only option available to fund the case. The Court will therefore expect to see that any and all other funding options have been explored, for example seeking interim provision for costs under Section 5 of the Act. This could be contentious, particularly because it will form part of the solicitor/client advice and therefore be privileged.

Also, the award allowed in the case represented a success fee of only 25 per cent, whereas the terms of the CFA were that the success fee was 72 per cent.  This means the problem of the success fee eating into their award is not entirely removed for claimants moving forward.

The other major potential problem with the decision is that it does not consider the interaction with the position on costs more generally. The usual rule is that the losing party pays the winner’s costs, subject to the content of without prejudice negotiations. If the claimant has been successful but not beaten an earlier offer to settle, they would not ordinarily be entitled to their costs for the period after the date of that offer; yet their overall award could have included an element of success fee for that period.

About the author

Laura Abbott is a Principal Associate in the in the Disputed Wills and Trusts team at Shoosmiths and is a member of the Society of Trust and Estate Practitioners (STEP).

See also

What makes up the estate for the purposes of the Inheritance (Provision for Family and Dependants) Act 1975?

What are the intestacy rules in England and Wales?

What are your legal rights in Scotland for inheritance?

Challenging the myths of the Inheritance (Provision for Family and Dependants) Act 1975

Find out more

Inheritance (Provision for Family and Dependants) Act 1975 (Legislation)

Hirachand v Hirachand (Judiciary)

Image: Getty Images

Publication date: 5 April 2022

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.