Supreme Court denies separate financial provision for a future debt where the money would be used to pay a Conditional Fee Agreement Success Fee.
This case relates to a long-awaited decision from the Supreme Court, the Judgment handed down 18 December 2024 following a hearing in January 2024. The decision appealed was one from the Court of Appeal made on 15 October 2021 Hirachand v Hirachand & Anor [2021] EWCA Civ 1498 (15 October 2021), which in turn came from a decision of the High Court of Justice Family Division on 07 May 2020 H (Deceased), Re [2020] EWHC 1134 (Fam) (07 May 2020).
The Claimant/Respondent succeeded in the High Court, succeeded on the issues before the Court of Appeal and has not succeeded before the Supreme Court.
Points considered on appeal to the Supreme Court were based on a simple question. If ‘the Court of Appeal was wrong in law to decide that a conditional fee agreement (“CFA”) success fee was a debt the satisfaction of which may constitute a “financial need” for which the court may make provision in an award under the Inheritance (Provision for Family and Dependants) Act 1975?’
“Reasonable financial provision” is defined by section 1(2)(b) to mean, in the case of any applicant other than the spouse or civil partner of the deceased, “such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance”
The case Judgment can be found here: Hirachand (Appellant) v Hirachand and another (Respondents). As it’s a Supreme Court hearing the live sessions are available to watch on the Supreme Court website.
The deceased sadly died in a house fire in 2016, and the entirety of his estate was left by Will to his Widow (the first named Appellant “SH”) who after the fire could not remain at the property and was moved to a care home and due to deteriorating health required increasing levels of care. They had two children, a son (the second named Appellant “KH”) who was also named Executor of the Estate and a Daughter (the Respondent “NH” in this appeal).
NH lived at home until her 30s when she left for university and met a man who became her partner. She lived independently and visited her parents’ home every two to three weeks. She was provided a small amount of financial support from her father during her post-graduate studies and access to a joint bank account. She and her partner decided to have a child in 2011, which her father did not approve of and during that time access to the joint bank account was removed and the father believed she had cut off contact from them in 2010. She became estranged taking phonecalls from them when received, but never initiating any herself likely caused in some part to mental health issues. NH’s first daughter was born in October 2011 and second in 2014. She suffered pre-natal, post natal and worsening mental health problems and had not been able to work since her first pregnancy. The condition reached the severity that she and her partner whilst still being together in a committed relationship during the day, they had separate accommodation overnight and a landlord that was pressuring her to move.
The case came before Mr Justice Cohen in the High Court of Justice Family Division.
A precautionary value was placed on the estate of £554,000 accounting for value of property and the deceased’s own and share of joint assets.
NH was seeking financial provision to be able to get a flat of her own, to be able to get mental health treatment for three years that would give her the best possible chance of being able to return to work and provision for shortfall in living expenses whilst undergoing treatment and replacements for dilapidated vehicle and white goods.
Cohen J could not give her a flat of her own as even reducing down to a property in the lowest suitable bracket priced at £380,000.00 there were concerns that after Inheritance Tax, payment of legal costs and if the sale of the estate property did not realise the maximum valuation of the two that there would not be available funds available to meet the purpose for which it was given.
Cohen J considered that NH’s minimum needs for financial provision should therefore be calculated as an amount to be able to secure new and better rental accommodation including a deposit, mental health treatment and living expenses whilst undergoing the treatment and the replacement vehicle and white goods. He also recognised that she had costs due to her Solicitor claimed at £84,729 plus a success fee totalling £48,175.
SH’s care needs were given consideration before a final decision of what should be awarded for financial provision for NH.
Cohen J determined:
i) that the will did not make reasonable financial provision for NH and;
ii) he should make an award that would constitute reasonable financial provision
iii) the award should be calculated by reference to what NH requires to meet her current financial needs. Not to be set up with a home or income fund for life.
Considering previous decisions from the case of Re:Clarke [2019] EWHC 1193 and 1194 (Ch) which did not allow for the success fee:
‘held that to do so would be contrary to legislative policy and would put a CFA claimant in a better position in terms of negotiation, due to the risk of a substantial costs burden, and in a better position than a claimant in a personal injury claim’
and Bullock -v- Denton & Willoughby [2020] unreported that had reasons to allow it:
‘[94] In my view, I am entitled to take them into account both because they fall within the Claimant’s financial needs under section 3(1)(a) and because they are debts incurred since the death and the court is enjoined to make the assessment at the date of trial not the date of death (section 3(5))’.
Cohen J confirmed that it would not be completely fair to NH to ignore her liability to pay a success fee to her Solicitors.
With some concern that he would be unable to avoid some potential injustice to NH or the Estate and to mitigate that potential injustice, a cautious approach was taken toward that cost liability. Firstly, by assessing the success fee down to approximately 25%: £16,750 and increasing the amount of the reasonable financial provision from the sum of £122,168 to £138,918 so that NH would have the funds to pay it.
The Appeal before Lady Justice King, Lord Justice Singh and Sir Patrick Elias in the Court of Appeal
The relevant point of appeal was the second:
‘In determining the lump sum award payable to NH, the judge included the sum of £16,750 as a contribution towards NH’s liability to pay a Conditional Fee Agreement (“CFA”) success fee. The issue is whether it is wrong in law for a judge to include such a contribution in a maintenance-based award calculated by reference to the financial needs of a claimant’.
The Court of Appeal confirmed that:
‘26. By section 58A(6) Courts and Legal Services Act 1990 (‘CLSA 1990’) a 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 conditional fee agreement’. It follows that the Respondent could not recoup the success fee by way of a costs order’.
’28. The question for this court is therefore whether, notwithstanding s58A CLSA 1990, a judge can, in the exercise of his discretion, include as part of the overall award a sum by reference to the success fee where the award is a needs-based award.’
By the reasoning on Cohen J when considering the Re Clrake and, Bullock cases he had increased NH award as a future debt to account for the success fee.
In Ilott v Blue Cross and Others (No 2) [2018] AC 545 the Supreme Court had confirmed that the payments of debts may form a legitimate part of a maintenance award.
The Court of Appeal looked also at other case law decisions from Divorce/Matrimonial matters with a consensus that in needs-based financial remedy claims the amount of a cost debt can be taken into account and provision allowed so that the outstanding costs don’t diminish their needs award.
In the judgment S58 to 64 the Court of Appeal was satisfied that the claim was a financial remedy case where costs that the losing party could not be ordered to pay were capable of being a debt the repayment of which was a ‘financial need’ pursuant to s25(2)(b) of the Matrimonial Causes Act 1973.
“The success fee cannot be recovered by way of Costs Order by virtue of S58A(6) CLSA1990, but is equally capable of being a debt, the satisfaction of which is in whole or part a ‘financial need’ for which the court may in its discretion make provision in its needs based calculation.”
The Court of Appeal was also clear that this financial provision was by no means appropriate in all circumstances. Whether a Claimant’s only way of litigating was by way of a CFA, the extent to which they have succeeded, or to the extent necessary to ensure reasonable financial provision.
In the Supreme Court before Lord Lloyd-Jones, Lord Leggatt, Lord Burrows, Lord Stephens and Lord Richards giving Judgment on 18 December 2024
If ‘the Court of Appeal was wrong in law to decide that a conditional fee agreement (“CFA”) success fee was a debt the satisfaction of which may constitute a “financial need” for which the court may make provision in an award under the Inheritance (Provision for Family and Dependants) Act 1975?’
The primary focus was on the fact that the sum was based on a success fee. Addressing the Government’s change in policy on recoverability of success fees and reasoning.
Counsel for NH argued the point regarding the 10% uplift recommended by Sir Rupert Jackson in his May 2009 preliminary report to counterbalance the loss of recovery and that such a counterbalance would be beneficial in a necessity-based damages claim where there is no separation between what is deemed needed and what is available with which to pay for additional liabilities.
Considering the 1975 Act and the CPR it was considered by the Court that allowing recovery of unrecovered base costs by way of the substantive award would produce an incoherent result. If it were to be allowed under the 1975 Act what would stop a Claimant, then coming back and seeking base costs over the amount awarded on detailed assessment as debt under the financial provision. The provisions of Part 36 would be unworkable if an ever-increasing success fee element became part of the damages such that an offer is beaten with an amount not reflecting the position as it stood when the offer was made.
The Matrimonial Causes Act did not apply because the no order principle meant that only on matters of conduct would one party pay the costs of the other party and family cases were fundamentally different as there is not always a clear winner or loser, and the no order principle saves the Courts time trying to work who had won.
The Supreme Court confirmed that it was not a debt for which financial provision could be given. It was an unrecovered base cost and success fee for which recovery was prohibited by Section 58A(6) of the Courts and Legal Services Act 1990.
In the decision from the High Court of Cohen J, the distinction is drawn from Para 60 and 66. Vi) that SH & KH were not being Ordered to pay NH’s success fee, the financial provision was simply increased using the success fee as reference to the amount of debt that would prevent the reasonable financial provision being achieved. Para 58 confirms that if the success fee was not triggered Cohen J would need to reduce the amount of the financial provision.
The Court of Appeal in their determination put more focus on them being unrecoverable costs. The Claimant’s conduct in entering a CFA with a success fee was reasonable and no reason as to why the success fee shouldn’t be treated as a debt for which reasonable financial could be awarded.
The Supreme Court decided that unrecovered base costs could not be treated as a debt under the 1975 Act and an order that the success fee be paid by the losing party in the guise of substantive damage was still prohibited by S58A of the Courts and Legal Services Act 1990.
It seems to me that if the purpose of the 1975 Act is to give reasonable financial provision, and most people who need financial provision can’t afford to fund the litigation without a CFA and success fee, then few people are ever going to receive and keep what they need to live on. The Court will direct what the money is intended to be used for, and the client will need to decide what to give up to pay the CFA success fee.
Early settlement offers to mitigate the level of success fee would seem to be the approach that is needed now in these claims.
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David Wilkinson, Costs Consultant
06.02.2025