Continuing our series of articles about 1975 Act Claims (claims for reasonable financial provision from a deceased person's estate resulting in a maintenance award), I write now to address the topic of funding such a claim.
One way to do this is by entering into a conditional fee agreement (CFA). The ‘no win no fee’ funding arrangements that are commonly advertised are CFAs. These arrangements have success fees attached to them - additional payments due in the event of a successful outcome at court and so an argument can be made that these fees ought to be considered by the court when making an award for maintenance. 1975 Act Claims revolve around the financial situation of the claimant and defendant so it has been argued that the courts need to consider the legal fees incurred when making their judgement. Litigation costs can be substantial so may significantly affect the financial position of the parties.
The courts have been considering this very question in the landmark case of Hirachand v Hirachand, specifically in relation to the success fee element of CFAs. The Supreme Court concluded that the courts cannot “include, directly or indirectly, any allowance for a success fee when determining the appropriate relief to be awarded”.
As part of a 1975 Act Claim the financial needs of the claimant are specifically considered and evidence of those needs is required. The courts have concluded that they will not take into account the success fee of a CFA as part of the financial need of the claimant.
Conditional Fee Arrangements (CFAs)
CFAs are one way of funding litigation and a useful way forward when funds only become available at the conclusion of a claim. CFAs are agreements between client and solicitor where only part, or sometimes all, of the solicitors fees become payable if the client is deemed successful in their claim.
If a client is successful, as defined in the CFA, a success fee is applied which the client must pay in addition to the normal fees. A success fee can be up to 100% of the standard fees. If the client is unsuccessful they only need to pay a reduced fee, or no fee at all. In the case of Hirachand v Hirachand the success fee or ‘uplift’ was 72% of the original fees.
It should be noted that disbursements, like barrister fees, are payable by the client regardless of the outcome and fee arrangement with the solicitor.
Costs in litigation are informed by the Courts and Legal Services Act 1990, the Senior Courts Act 1981 and several practice directions which are heavily influenced by public policy. Together they state that success fees are not recoverable from other parties.
The High Court Decision
Prior to this landmark case the High Court had made the decision that the success fee should form part of the claimant’s financial needs and therefore impact the financial award. This was a significant departure from the original position and in direct conflict with guidance on costs.
Traditionally there are rules stating that any costs order “may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a CFA”. It was therefore successfully argued that the High Court should treat the success fee as a debt. This in turn impacts the claimant’s financial needs and was then included as part of the maintenance-based award. They attached conditions to when the court could do this for future cases. Many questioned how this would function logistically - the success fee is necessarily calculated after an award is given so it is difficult to see how the fee could form part of the award.
The Defendant then appealed and the case went to the Supreme Court. The Supreme Court unanimously decided that the High Court’s decision was in direct conflict with the costs guidance and that the success fee should not be considered when making a maintenance award. To account for the success fee is to allow it to be recoverable from the other party, which is contrary to public policy.
The consequences of Hirachand v Hirachand
This decision is likely to impact those bringing a claim as, if successful, they will have to fund the success fee out of a maintenance award that has not factored in the additional drain in their resources. On the one hand this is likely to reduce speculative and spurious claims and deter CFA providers who benefit from disproportionate litigation costs. However careful planning will be needed to make sure the purpose of the award is not undermined by the payment of the success fee. It would be inequitable if the award was used for a success fee when it had been determined that the claimant needed the award for their maintenance.
It is welcome that the situation has been clarified and there is greater certainty as to the court’s attitude towards cost recoverability in 1975 Act Claims. Hirachand v Hirachand will significantly influence how solicitors and their clients approach 1975 Act Claims and inform legal advice on costs.
If you are in a position where you are considering making a 1975 Act Claim or you need to defend such a Claim please contact Sarah Sharpin or Toby Walker by email or on 01494 893512.
Please also view the rest of our articles on 1975 Act claims here, here, here, here, and here.