The Supreme Court has today handed down the eagerly anticipated judgment in Hirachand v Hirachand. The key question that the Court had to address was whether the Court of Appeal was wrong in law to decide that a conditional fee agreement ("CFA") success fee is a debt, the satisfaction of which may constitute a "financial need" for which the court may make provision in an award under the Inheritance (Provision for Family and Dependants) Act 1975 (" the 1975 Act"). We previously wrote about the Court of Appeal's decision here. In their judgment, led by Lord Richards, the Supreme Court allowed the appeal and confirmed that success fees cannot be included in awards for financial provision under the 1975 Act.
Background of the Case
The deceased had left his entire estate to his widow and their daughter, facing severe health issues and financial hardship, entered into a CFA with her solicitors, which included a substantial success fee contingent upon winning the case. The High Court initially ruled in favour of the daughter, including a sum towards the success fee as part of her financial needs. That decision was upheld by the Court of Appeal.
The Supreme Court's Decision
The Supreme Court, however, unanimously allowed the appeal brought by the widow, ruling that success fees do not constitute a 'financial need' under the 1975 Act. The Court's judgment, delivered by Lord Richards, emphasised that the concept of 'maintenance' within the Act should not extend to cover litigation costs, particularly success fees. It was also noted that Part 36 settlement offers would be virtually unworkable if success fees were recoverable as part of the awarded sum.
Legal Implications
The judgment has significant implications for future 1975 Act claims and confirms the separation of substantive awards from litigation costs, which are usually dealt with through separate costs orders. Claims under the 1975 Act are subject to the costs regime in the Civil Procedure Rules (CPR) in the usual way. The Court highlighted that including success fees in substantive awards would undermine the established costs regime and contradict the policy objectives of the Courts and Legal Services Act 1990, specifically section 58A(6), which prohibits the recovery of success fees in costs orders.
Policy Considerations
The decision reflects the Court's adherence to the principle that success fees should not be recoverable from losing parties in civil litigation, a stance reinforced by the Jackson reforms. These reforms aimed to control civil litigation costs, recognising that CFAs and their associated success fees could lead to disproportionate expenses.
Conclusion
Whilst arguably not a surprising decision, the Supreme Court's judgment in Hirachand v Hirachand has provided much-needed clarity on the treatment of success fees in 1975 Act claims. It has established that success fees, as part of CFAs, cannot be considered a financial need for maintenance under the Act. This decision will undoubtedly influence how future claims under the 1975 Act are structured and the careful consideration parties will need to give to how their claims are funded from the outset.
The Supreme Court’s ruling may lead to a decrease in the number of trials involving 1975 Act claims pursued by claimants with solicitors on a CFA, due to the risk of achieving a hollow success. Should they win, the claimant’s award may be entirely consumed by the success fee for their legal costs.