Supreme Court overturns Hirachand decision: a landmark shift for 1975 Act claims

The Supreme Court does not routinely overturn unanimous decisions reached by the Court of Appeal. But in the recent landmark case of Hirachand v Hirachand and another, the Supreme Court also reached a unanimous decision that the Court of Appeal’s decision had been wrong in law - specifically, in its interpretation of whether a success fee arising from a conditional fee agreement (CFA) could be considered a financial need for which provision should be made in a claim pursuant to the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). The Supreme Court decision will have significant ramifications for claims made under the 1975 Act and the way in which Claimants fund those claims.

The Court of Appeal's stance on success fees

In 2021, the Court of Appeal in Hirachand v Hirachand held that an award under the 1975 Act can include a lump sum to enable the claimant to discharge either all or part of a success fee payable under a CFA. In delivering her judgment, Lady Justice King (with whom Lord Justice Singh and Sir Patrick Elias agreed), concluded: “A success fee, which cannot be recovered by way of a costs order by virtue of section 58A(6) of the Courts and Legal Services Act (CLSA) 1990, 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.”

Readers will be familiar with the concept of CFAs: a funding arrangement between a claimant and their solicitor, they are often referred to as a ‘no win, no fee’ agreement. This means that the solicitor will not be paid if the claimant is unsuccessful in their claim. However, if the claimant is successful their costs will usually be recovered from the defendant, but the claimant will have to pay a success fee which can be up to 25 percent of the award received from their own funds.

The Supreme Court had to address a critical issue in the Hirachand case: whether the success fee arising out of a CFA is a debt, which could be considered a ‘financial need’ for which the court can make provision in an award under the 1975 Act. Reversing the Court of Appeal’s decision unanimously, the Supreme Court found that success fees are not debts that can be considered a financial need of the claimant. A judge cannot therefore include, directly or indirectly, any allowance for a success fee when determining the appropriate relief to be awarded under the 1975 Act. 

A claim pursuant to the 1975 Act is a claim for financial need from an estate on the basis that the claimant is not sufficiently provided for under the current terms of the Will or Intestacy Rules. A claim can be brought by certain classes of individuals, including the spouse or civil partner, former spouse or civil partner, children, cohabitees in a relationship of two years or more, stepchildren, and those financially maintained by the deceased before death. In determining such claims, the courts look at a range of factors, such as the needs and resources of the claimant and the beneficiaries of the deceased’s estate, the size and nature of the estate, any disabilities any of the parties have and any obligations that the deceased had to the parties. 

To be successful, a claimant (other than a spouse or civil partner) must show that they have a financial need for further provision from the estate. The damages ordered by the court will be the award that the court deems that the claimant requires for their maintenance, if any. As a result of the very nature of the claim and the need for claimants to show that they have a financial need for provision from the estate, they are often impecunious and unable to pay legal fees, therefore requiring funding arrangements to bring their claim. 

The facts of the Hirachand v Hirachand case were relatively straightforward: a family inheritance dispute concerning the estate of Navinchandra Hirachand (the Deceased), who died in August 2016. The Deceased’s widow, Nalini Hirachand, was the appellant and his daughter, Sheila Hirachand, the respondent. In his will, the Deceased left his entire estate to the Appellant. In November 2017, the respondent brought a claim under the 1975 Act for reasonable financial provision from the Deceased's estate. 

Key implications of the decision

The judge at first instance awarded the respondent a lump sum calculated by reference to her financial needs within the meaning of section 3(1)(a) of the 1975 Act, including an amount referable to the respondent's liability to pay a CFA success fee ‘as a reasonable CFA mark-up and costs’. The High Court fixed the amount awarded for this success fee at £16,750 - approximately, a 25 percent uplift. However, the daughter’s CFA with her solicitors provided for a success uplift of 72 percent, equivalent to £48,175. 

Under section 58A(6) of the CLSA, the respondent would not have been entitled to recoup the success fee by way of a costs order made in her favour. The appellant appealed this aspect of the judge's decision to the Court of Appeal, which upheld the judge at first instance’s award and concluded that the respondent's liability for the CFA success fee was a debt, the satisfaction of which was a ‘financial need’ within the meaning of section 3(1)(a) of the 1975 Act, for which the court might in its discretion make provision for in an award under the 1975 Act. 

In the Supreme Court judgment, Lord Richards said that claims under the 1975 Act remain ‘civil proceedings subject in the usual way to the costs regime in the CPR, 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’. It is important to note that the judgment also highlighted the difficulties in applying Part 36 settlement offers if success fees were recoverable as part of the substantive award. 

Future outlook 

The Supreme Court decision resolves the previously unsettled question in relation to claims made under the 1975 Act pursuant to CFA arrangements. Although the judgment has adverse consequences for potential claimants, it is the the right decision in law. Going forward, the Supreme Court has set a precedent for all 1975 Act claims: clients who sign no-win, no fee CFAs for claims under the 1975 Act will be unable to recover the success fee agreed with their lawyers as part of their award.

This exclusion of success fees in awards means that a significant proportion of the claimant’s award will be eaten up by the payment of success fees, potentially leaving them with insufficient funds required for their maintenance. Manifestly, this is bad news for claimants, but there is an upside: the exclusion of success fees and the resulting smaller award means that more of the estate will potentially be available for beneficiaries. 

For the foreseeable future, clarity and consistency will apply both to the application of success fees in 1975 Act claims and to the separation of substantive awards from litigation costs. This will undoubtedly influence the structure of future claims under the 1975 Act, whether parties choose to bring claims, and ultimately, how they choose to fund them.