There has been a potential sea change in the funding of claims under the Inheritance (Provision for Family and Dependants) Act 1975 (“the Inheritance Act”) following the rather controversial decision of the Court of Appeal in Hirachand v Hirachand and more recently, the judgment in Higgins v Morgan.
Under the Inheritance Act, if someone feels they have not been left reasonable financial provision from the estate of a deceased person they may bring a claim against their estate. When determining such claims the Court has to consider what is required to give the claimant reasonable financial provision.
We often find that some clients have a very strong case for financial provision from an estate but due to their circumstances they do not have cash available to pay their legal fees. In such circumstances many solicitors offer a Conditional Fee Agreement (“CFA”) which are more commonly known as ‘No Win No Fee’ agreements. These provide for the costs to be charged in the usual way on a time cost basis but the client will only be liable for those costs if their claim is successful. In those circumstances, they will often find that the losing party(ies) will be ordered to pay the client’s assessed costs. In exchange for entering into a CFA the solicitors will charge a success fee based on a percentage of their total fees if they win. If they lose, no costs are payable to their solicitors (though they may still be liable for the assessed costs of their opponent(s)in the absence of insurance).
Why the controversy you may ask?
Section 58(A)(6) of the Courts and Legal Services Act 1990 outlines that success fees are not recoverable from other parties. This includes where used for claims under the Inheritance Act. If successful, the client would therefore have to meet their own success fee from their award (as well as any shortfall in the costs they recover from their opponent(s). The decisions in Hirachand -v-Hirachandand Higgins-v-Morgan appear at first glance to contradict this because they have allowed for the recovery of parts of the success fee that the claimant was liable to pay to their solicitors.
In Hirachand, an adult daughter brought a claim against her father’s estate for reasonable financial provision under the Inheritance Act. He made a Will leaving everything to his wife and appointing her as the sole Executrix.
Justice Cohen concluded that the success fee under theCFA was a debt owed by the daughter and therefore should be added to the overall sum she was seeking for financial provision.
At first instance Mr Justice Cohen concluded, “If I do not make such an allowance one or more of C's primary needs will not be met. The liability cannot be recovered as part of any costs award from other parties. The liability is that of C alone. She had no other means of funding the litigation.”
The Court of Appeal considered that under Section 3(1)(a) the Court had a wide discretion of what constituted financial needs and agreed with Justice Cohen that the success fee of the CFA was a debt the claimant owed and was therefore a financial need which could be claimed.
Lady Justice King sitting in the Court of Appeal agreed and commented:
“...it is quite clear that payment of a debt can form part of a maintenance payment.”
Similarly, the more recent case of Higgins -v-Morgan involved a claim by Mr Higgins who was adopted by the deceased. The deceased’s estate passed to his cousins under the rules of intestacy. Mr Higgins brought a claim against the estate for reasonable financial provision. HHJ Cawson followed Hirachand and found that the success fee should be added to the claimant’s reasonable financial provision. HHJ Cawson concluded (referring to Mr Higgins)“...his liability to pay the success fee will be bound to effect his ability to maintain himself to the extent sought to be achieved by the award”.
HHJ Cawson agreed with Mr Justice Cohen and ordered a payment of £55,000 in total to include a contribution towards the CFA success fee.
It was stated in Hirachandthat the Court would take into consideration whether any other form of funding was available. This has increased pressure on defendants to agree an interim payment under Section 5 of the Inheritance Act or risk paying a contribution towards the success fee. Under Section 5 if a claimant is in immediate need of financial assistance they can ask the court for a payment from the estate. This can then be used for their legal expenses or daily living costs. We are seeing applications for interim payments more regularly. Rather unusually in Higgins -v-Morgan, the defendants were ordered to make an interim payment of £4,000 upfront and £1,000 a month until the final hearing under Section 5 of the Inheritance Act, and yet still had to pay towards to the CFA success fee. It would appear that interim payments do not rule out the chances of the claimant recovering their success fee.
HHJ Cawson considered Section 58 (A)(6) of the Courts and Legal Services Act 1990 and stated:
“...the actual effect of s. 58A(6) is simply to prevent a “costs order” being made so as to permit the recovery of the success fee. It is not in terms outlawing the making of an order under the 1975 Act that includes an element of success fee within the quantum of the award because that has been taken into account as a consideration in respect of the claimant's needs”.
The recent case law in this area seems to suggest that the success fee, or part of it, is likely to be recoverable as it is considered a financial need, providing that a CFA is the only source of funding available to the claimant. This is great news for clients bringing claims with the assistance of a CFA. Those on the opposing side now need to ensure that they advise their client’s that along with the usual cost risks which come with litigation they may also face paying an additional amount to cover the claimant’s success fee. This can be substantial and will increase as the claim progresses. This will inevitably add further pressure on the defendant to settle at an early stage, even if faced with a weak claim or offer interim payments to the claimant to meet ongoing legal costs, particularly in strong claims. However, the claimant in both cases failed to recover the entire success fees, and no doubt defendants will fully explore whether a CFA was really the only available funding.
It is likely that there will be further cases addressing this and wewill have to wait and see if this pattern continues.