News

The Supreme Court recently handed down the highly anticipated judgment of Hirachand v Hirachand and another [2024] UKSC 43. The appeal considered whether a success fee under a conditional fee agreement (‘CFA’) was recoverable and payable out of a person’s estate as part of an order for reasonable financial provision in proceedings under the Inheritance (Provisions for Family and Dependents) Act 1975 (‘The 1975 Act’). Lord Richards’ judgment, which was unanimously approved by the other Justices, concluded that success fees cannot be included when determining the financial relief awarded in a successful 1975 Act Claim and that they should be treated alongside usual legal costs i.e. separately from the substantive relief.

That is obviously bad news for Claimants potentially liable for success fees, as there is now no route to recovery from the other side (success fees already being unrecoverable under the costs regime in civil proceedings).

Summary of the facts

The deceased’s Will had provided that his entire estate would be left to his wife if she survived him, otherwise, it would pass in equal shares to his son and his daughter. As the wife survived the deceased, she inherited the entire estate and the children received nothing. The daughter brought a claim against the estate under the 1975 Act for reasonable financial provision.

Judgment at first instance

It was held that the deceased did not, by his Will, make reasonable financial provision for the daughter, who was awarded a sum of £138,918. The widow was also ordered to pay £80,000 towards the daughter’s legal costs. The daughter’s solicitor was acting under a CFA which contained an uplift element amounting to £48,175. It has been the case, since 2013, under the costs regime in civil proceedings that success fees under a CFA are not recoverable from the other side to litigation. As a consequence, the Claimant daughter having to bear the burden of the success fee in full would have significantly reduced the award to her. To get around that fact, the Judge decided that the success fee could be included in the substantive element of the daughter’s claim and ordered that a portion of the success fee (£16,750 - approximately a 25% uplift) was to be paid by the estate.

Judgment of the Court of Appeal

The widow appealed the first-instance decision on two grounds: one procedural ground and the second contesting the recoverability of the success fee. The appeal was dismissed by Lady Justice King.

Decision of the Supreme Court and reasoning for the judgment

The widow subsequently appealed to the Supreme Court where five Justices unanimously concluded that success fees are not recoverable as part of any substantive relief granted under the 1975 Act.

The Respondent’s Counsel had submitted the prohibition of recovery of success fees in costs orders under Section 58A(6) of the Courts and Legal Services Act 1990 did not mean that such orders could not be made as part of the substantive relief. That argument was dismissed by the Justices for a number of reasons, primarily that it would undermine the public policy justifications for the prohibition of recovery of success fees within the costs regime if it were permissible to recover via the “back-door” that is the substantive relief. Lord Richards was keen to keep separate the costs regime in civil proceedings (of which success fees form a part) from any substantive relief granted under the 1975 Act.

The Respondent’s Counsel also submitted that there were similarities between the costs regime of the 1975 Act and the Matrimonial Causes Act 1973 (‘MCA’), under which the Court can make provision for a party’s legal costs as part of the substantive award. Due to the alleged similarities between the two jurisdictions, the argument was put forward that legal costs, including success fees, should be recoverable as part of the substantive relief. However, Lord Richards found fault with this argument on the grounds that (i) there is no separate costs procedure in family proceedings, unlike in civil proceedings and (ii) that success fees are specifically prohibited in family proceedings in any event, and therefore the two jurisdictions are not analogous.

In his judgment, Lord Richards highlighted that an ‘incoherent result’ would be produced if a party could recover its base legal costs within the substantive award, rather than via the existing costs regime, and extended that same logic to success fees. Unless Parliament introduces new legislation to overturn the effect of this judgment, or alternatively the effect of the Court and Legal Services Act 1990, success fees are now not recoverable from the other side in proceedings under the 1975 Act by any means.