In the case of Hirachand v Hirachand & Anor [2024] UKSC 43, the Supreme Court provided clarity on whether a solicitor’s success fee under a Conditional Fee Agreement (“CFA”) is recoverable as a financial need for claims under the 1975 Act.
CFA agreements
A CFA agreement is where the solicitor agrees to take on a client on a no win no fee basis, where if the claim is successful, the solicitor will receive a percentage portion of the costs as a success fee.
For example, an estate may be worth £500,000, and a disinherited spouse may be making a 1975 Act claim for £250,000 as reasonable financial provision. The solicitor agrees to take on the case on a CFA basis with a 25% success fee. The spouse incurs £26,500 in legal fees in order to reach Court and receives £200,000 from the estate following trial. The solicitor would be entitled to the £26,500 in legal fees plus a 25% success fee of £6,625.
The question for the Supreme Court in Hirachand v Hirachand was should that success fee (for example the £6,625) be recoverable as part of reasonable financial provision.
Hirachand v Hirachand
In 2020, Navinchandra Hirachand brought a claim against her father’s estate for reasonable financial provision. The claim was defended by her mother, who based her argument on the fact that Navinchandra had been estranged from the family. The High Court decided that the Will had not provided her with adequate financial provision and awarded her £138,918 from her father’s estate for her maintenance. The Court confirmed that the solicitor’s success fee under the CFA made up part of this award as a debt to be considered under s 3 of the 1975 Act and awarded £16,750 for this element.
Navinchandra’s mother Mrs Hirachand appealed the decision on the grounds that it was contrary to section 58A[6] of the Courts and Legal Services Act 1998, which states that a success fee under a CFA is not recoverable from the unsuccessful party (subject to certain exceptions). However, the Court of Appeal upheld the High Court’s decision, drawing comparisons to the Matrimonial Causes Act 1973 in that ancillary relief must take account of financial needs and responsibilities of the parties now and in the foreseeable future, including the costs of litigation.
Mrs Hirachand then went to the Supreme Court which confirmed that success fees are not recoverable as a Section 3 factor under the 1975 Act. The Supreme Court also ruled out any comparisons with the Matrimonial Causes Act as had been argued in the Court of Appeal. It confirmed that the Civil Procedure Rules apply to these cases and that the starting position is that costs of proceedings are not recoverable.
Potential consequences of the ruling in Hirachand -v- Hirachand
The ruling will mean that claimants for 1975 Act claims will now need to pay their solicitors legal fees out of the award they receive as these are no longer classed as a debt under s3 of the Act and they will not form part of the award.
Taking our example from above, this would mean that £33,125 would be deducted from the award of £200,000 by the spouse’s solicitors to cover legal fees.
The ruling may well lead to a decrease in the number of 1975 Act claims that are taken to Court and may even lead to solicitors and clients reconsidering the commercial viability of such claims and whether these can be taken on on a CFA basis. It will seriously need to be considered whether the costs of litigation (including a success fee) would be proportionate to any reward received, which will particularly have an impact on the traditionally weaker and lower value claims which carry more of a risk. There is also the possibility that there will be a shift towards more lump sum settlements to allow claimants to incorporate as much of the success fee as possible and avoid trial costs.
