Success Fees and claims under the Inheritance (Provision for Family and Dependants) Act 1975 (the "1975 Act")

The eagerly anticipated judgment in Hirachand v Hirachand (2024) was recently decided by the UK Supreme Court in December 2024. The issue was whether a Conditional Fee Agreement (CFA) success fee could be considered a "financial need" under the 1975 Act, which would allow the court to make provision for it in a substantive award for reasonable financial provision from the Estate. For many years it has generally not been possible for a litigant to claim a success fee due to their legal team over and above base costs to be claimed from their losing opponent. But there has been a creeping interpretation that success fees should be recoverable.  

In this claim, Nalini Hirachand was claiming under the 1975 Act against her mother Navinchandra Hirachand who was the sole beneficiary of the Estate of her husband and Nalini’s father. Nalini claimed financial provision from the Estate due to her severe health problems and lack of sufficient income or assets. She was successful at first instance and applied for payment of her costs from her mother. Her costs included paying her solicitors a success fee - as they acted on a CFA basis (also called a no win, no fee arrangement). The mother appealed this decision, but this was later upheld by the Court of Appeal.  

Given the importance of this issue generally to funding 1975 Act claims, the matter was referred to the Supreme Court for final determination.  

The Supreme Court considered the following issues:

• Financial Needs: Whether the CFA success fee constituted a financial need that should be met from the Estate. 
• Case law: How previous rulings and the legislative intent behind the 1975 Act regarding what constitutes reasonable financial provision and whether it could include success fees.
• More broadly, public policy: What are the implications of allowing success fees to be included in financial provision awards.

The Supreme Court unanimously allowed the mother’s appeal and excluded from the order made in favour of Nalini any sum for the success fee. The Supreme Court stated a judge cannot include directly or indirectly any allowance for a success fee. The general rule is litigation costs can only be recovered by way of a separate costs order, not as part of a substantive award. It would undermine the costs regime and produce an incoherent result if a party could recover success fees as part of the substantive award. The logical position is to say that success fees are not recoverable as part of a substantive award in any civil proceedings, including those under the 1975 Act. Further, there was also a need to consider how the recovery of a success fee interplayed with CPR Part 36, which is designed to encourage parties to make settlement offers and is based on the proposition that the parties’ costs are to be dealt with only through the operation of the costs regime. The provisions of Part 36 would be unworkable in accordance with their purpose of achieving settlements if success fees are recoverable as part of the substantive award. The Supreme Court found the costs regime in civil proceedings governed by the CPR is substantially different from that applicable to financial remedy proceedings in the matrimonial courts where success fees might be recovered.

This now means 1975 Act claimants will have to bear the deduction of success fees from their award, rather than seeking it from their losing opponent.  So, in essence, back to where we were.

Moving forward, claimants will need to carefully consider how they will fund their 1975 Act claim and conduct a thorough cost-benefit analysis before proceeding.  This is likely to lead to more out of court settlements before costs (and unrecoverable success fees) sharply escalate. The Supreme Court ruling means claimants will need to ensure their claims are strongly focused on demonstrating their financial needs per the section 3 factors as well as the Estate's ability to meet those needs. It also means defendants have less exposure to adverse costs being awarded against them now that the success fee threat has fallen away, once again.    

If you wish to obtain advice concerning a 1975 Act claim or a contested Will, please contact Noel McNicholas on 01926 887700 or noel.mcnicholas@thomasflavell.co.uk.