Recovery of Success Fees in the context of claims for Financial Provision under the Inheritance (Provision for Family and Dependants) Acy 1975 (“IPFDA”)
Many people who bring a claim seeking an award of financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (IPFDA) live in necessitous circumstances and cannot afford to pay a lawyer to provide them with legal advice and assistance.
Accordingly, they are often empowered to bring a claim by entering a Conditional Fee Arrangement (CFA) with their solicitors, commonly referred to as a no win, no fee agreement.
Under the terms of such an agreement the solicitor’s fee is contingent upon the claim succeeding. The arrangement is often more expensive for clients than other price and payment options because in addition to the solicitor’s base costs, the client will also pay a success fee on top, calculated as a percentage of the solicitor’s base costs, not exceeding 100%.
By virtue of section 58A(6) of the Courts and Legal Services Act 1990, a court cannot order a losing party to make a contribution towards the successful party’s liability to pay their solicitor’s success fee. The inability of a claimant to recover from their opponent a contribution towards the success fee that must be paid to their lawyers has always created a problem in the context of claims under the IPFDA. Claimants who have succeeded in obtaining an award of financial provision may then see the benefit of that award significantly reduced or even extinguished by the success fee they are obliged to pay to their solicitors. In many cases, this can mean that an elongated claim will not work for an applicant on a costs/benefit analysis which can give their opponent leverage in negotiations particularly in respect of small estates or claims of modest value.
In this context the recent decision of the Court of Appeal in the case of Hirachand v Hirachand  EWCA Civ 1498 is most welcome. In this case, the appellate court resolved two previous conflicting decisions of the lower courts concerning whether a judge could include, as part of an overall award, a sum by reference to the success fee. The Court of Appeal approved the decision of the court at first instance by deciding that as part of the overall award of financial provision the defendant ought to pay to the claimant a contribution that equated to 25% of the success fee that the claimant was obliged to pay to her solicitors under their CFA.
The court was able to circumvent the provisions of section 58A(6) of the CLSA 1990 by:
- Utilising section 3(1)(A) of the IPFDA which states that when determining whether and how to make provision for an applicant the court will consider their financial needs and resources; and
- Relying upon a succession of cases (including that of the Supreme Court in lot) which have emphasised that maintenance should not be defined too prescriptively under the IPFDA, and that payment of debts may form a legitimate part of a maintenance award.
The Court of Appeal decided that a success fee which could not be recovered by a clamant from an unsuccessful defendant was capable of being treated as a debt, the repayment of which is a financial need which the court in its discretion may make provision in its needs based calculation.
In reaching its decision, the Court of Appeal drew comparison with financial remedy cases in matrimonial proceedings where the general rule is that both sides will bear their own costs. Consequently, when deciding needs in these cases, the court will consider the costs incurred by both sides. By contrast, in claims under the IPFDA, whilst a successful applicant can be awarded a contribution towards their base legal costs, the court cannot make a costs award in respect of the success fee to be paid to the claimant’s solicitors. The court considered that an applicant under the IPFDA was at a considerable disadvantage under the civil costs regime in comparison to the regime applicable to financial provision on divorce.
The decision is controversial, and its full nature and effect will be seen and evolve in the cases that are to follow which will develop the principles that govern when it is appropriate to include in an award a contribution towards a success fee and, if so, what amount. In the Hirachand decision, the Court of Appeal said whether a contribution towards a success fee should be included as part of an award ought to depend upon:
- Whether the claimant could have brought the claim without entering a CFA with their solicitors.
- The extent to which the claimant had succeeded on their claim.
- The extent to which a contribution by the defendant should be made towards payment of the claimant’s success fee to ensure reasonable financial provision is made for the claimant.
Decisions made by judges in claims under the IPFDA have always been highly fact sensitive and based upon value judgments made by judges in each case. This will doubtlessly remain the case going forward making it difficult to predict with certainty when, and in what circumstances, judges will include a contribution towards a success fee in their overall award. The criteria above could be interpreted as a warning to practitioners not to push low value claims to trial as the court may be less willing in those cases to order the defendant to pay a contribution.
Several talking points arise for practitioners from the decision of the Court of Appeal:
- Is there an argument that the irrecoverable element of base costs should also be considered a debt in respect of which the court can make provision as part of its overall award? If so, how is that element to be quantified given that an assessment of the provision to be made is to be carried out at date of trial but the contribution to be made by a losing defendant towards the claimant’s costs is determined post trial by agreement or, in default of agreement, by the court.
- The courts have proven willing to make interim provision for applicants under section 5 of the IPFDA to meet their liability to pay their lawyers’ fees, effectively shifting this costs liability to the defendant. This is a draconian power when one considers that an interim award may be made and that thereafter the claimant’s case may fail, and the claimant may be unable to repay the amount awarded on an interim basis. Is a CFA fairer to a defendant in such circumstances as it avoids this costs shifting? Will the decision of the Court of Appeal now encourage more applicants to consider a CFA with their solicitors and even make a court less willing to make an interim award to fund costs when a claimant could have entered a CFA with their solicitors rendering the need for an interim award unnecessary.
- Should the power of the court to include in its award a contribution towards a success fee be limited to spousal claims only under the IPFDA? This category of cases most closely resemble financial remedy cases in matrimonial proceedings where both parties bear their own costs, but in which the court will consider costs when assessing financial need. The decision of the Court of Appeal raises the prospect that a surviving spouse making a claim under the IPFDA will no longer be treated less favourably than one made by a divorcing spouse in financial remedy cases and is consistent with the divorce hypothesis enunciated by the courts. However, is there a case to extend the effect of the decision of the Court of Appeal to other category of applicants?
On balance it is right that a successful claimant be awarded a contribution towards their success fee as part of their overall award if it is necessary to do so to avoid the wrecking of an award aimed at meeting their financial needs. It will be interesting to see how the courts will now apply the decision of the Court of Appeal.
John Lambe is Senior Associate at Forbes Solicitors