This ruling has sparked interest and debate as it addresses the correct approach to be taken by the courts in assessing a claimant’s financial position and the recovery of legal costs payable by claimants to their solicitors where they act under a no-win no fee agreement.
In short, the question is whether courts can factor in a claimant’s legal costs – more specifically a claimant’s obligation to pay success fees under a Conditional Fee Agreement (CFA) - when determining the amount of financial provision to award.
The background of the case
The Hirachand case involved a claim under the Inheritance (Provision for Family and Dependants) Act 1975, which allows certain individuals to seek reasonable financial provision from an estate if they have been unfairly left out of a will or if the provision that has been made for then is insufficient.
The claimant brought a claim seeking financial provision from the estate of a deceased relative. The key issue that arose from the case is whether the court could consider the claimant’s obligation to pay a success fee to her solicitors under a CFA (a known debt) that would become payable where an award was made in her favour.
In deciding whether an award should be made to claimants, one of the factors the courts must take into account is the claimant’s financial position – that necessarily includes whether the claimant is liable to pay any debts and the effect of those debts on the claimant’s financial position.
In the lower courts’ decisions in Hirachand, including the Court of Appeal, the debts payable by the claimant included the amount payable to her solicitors as a ‘success fee’ i.e. a percentage uplift on the amount of costs payable by the claimant, was taken into account in assessing the claimant’s financial position generally.
The Supreme Court’s ruling
In a landmark decision, the Supreme Court held that courts should not take into account a claimant’s liability to pay a success fee payable under a CFA when determining what level of award under the Inheritance Act was appropriate.
The effect of this ruling is that successful claimants who have brought claims funded under a CFA will no longer receive additional amounts to cover a claimant’s liability to pay a success fee to their solicitor.
The Supreme Court’s decision was one based on policy and brings the issue success fees in Inheritance Act claims into line with other areas of law such as personal injury and medical negligence cases where success fees are paid out of the successful claimant’s damages award rather than being recovered from unsuccessful defendants.
Implications for future cases
The Hirachand decision will shape how courts approach Inheritance Act claims moving forward.
This will no doubt impact claimants who typically have no way of funding claims other than through CFAs. Claimants will still be liable to pay success fees but will have to use their awards to do so. This would therefore affect (or most likely reduce) the amount a claimant actually receives from an award which is intended to make reasonable financial provision for a successful claimant.
As courts will not be factor in success fee uplifts when making awards, solicitors and claimants should carefully consider whether CFAs are the most appropriate funding option for Inheritance Act claims. Even though some claimants will still need CFAs, they and their solicitors will need to consider the level of success fees that may be charged in successful cases. Clients will need to consider whether CFAs with success fees are the best way to fund claims, or whether alternative methods of funding should be used.
Get Expert Legal Advice
For anyone involved in an Inheritance Act claim, seeking expert legal advice is crucial to understand and navigate the complexities of financial provision and related legal costs.Coles Miller’s team of Disputes & Litigation lawyers can help.
Article by Graham McLean
Graham McLean is an experienced Senior Associate in our Dispute Resolution team. He deals with a broad spectrum of civil and commercial disputes including disputes relating to wills, estates, trusts, and inheritance claims; and disputes relating to Powers of Attorney arising from Health and Welfare or Property and Affairs LPAs.