The Court of Appeal's recent decision in Hirachand v Hirachand [2021] EWCA Civ 1498 confirms that a claimant's liability under a conditional fee agreement ("CFA") can be considered a financial need under the Inheritance (Provision for Family and Dependants) Act 1975 ("the 1975 Act").
What is a CFA?
If a person considers that someone's Will or the intestacy rules do not make reasonable provision for them, provided they are an eligible claimant, they may seek further provision from the deceased's estate under the 1975 Act. Under this Act, all categories of claimant other than spouses and civil partners can only claim for reasonable financial provision required for their maintenance.
Often, due to the nature of these claims, claimants may have limited financial resources, which makes funding their claim problematic. Law firms regularly enter into flexible funding arrangements with clients, including CFAs, which are colloquially known as a 'no win no fee' agreement. Under these agreements, broadly payment of the law firm's legal fees is usually contingent on the outcome of the claim. For instance, while the law firm would not have their fees paid if the claim fails, if the claim succeeds, they will get their fees paid plus an uplift (or success fee).
First instance decision
The deceased left the entirety of his estate to his wife. Their daughter made a claim under the 1975 Act on the grounds that the disposition of the deceased's estate under the Will did not leave reasonable financial provision for her maintenance.
At the time of the claim, the claimant had pre-existing mental health problems and had not worked since the birth of her first child in 2011. She had been totally estranged from the deceased for circa 10 years prior to his death. She was also the mother of two children. The claimant was awarded £138,918 to meet her financial needs including a £16,750 contribution to her CFA uplift (amounting to an uplift of 25%) and £80,000 towards her basic costs.
The Court of Appeal's decision
The wife of the deceased was granted permission to appeal the first instance decision on two grounds. The second ground was that the judge was wrong to include a contribution to the CFA uplift in the lump sum maintenance based award. The appeal was rejected.
It was noted that the claimant's CFA uplift can constitute a debt for the purposes of s.3 (1) (a) of the 1975 Act. Accordingly, an order under the 1975 Act for provision for the claimant can take into account the sum they are liable for under the CFA uplift without breaching s.58A(6) of the Courts and Legal Services Act 1990, which prohibits a success fee being recouped from the other side by way of a costs order.
Impact on future claims
While this judgment is seemingly good news for claimants under the 1975 Act, caution should be adopted before proceeding on the basis that a CFA uplift is recoverable. Each case needs to be determined on its facts and it is by no means certain that every claimant will be entitled to recover some, or all, of their CFA success fee as part of their 1975 Act claim. The judge stated that it was unlikely that an award would include provision for the success fee unless the court was satisfied that entering into a CFA was the claimant's only means of funding the litigation. There is likely to be a debate over what constitutes the "only" option for a claimant. There may be other funding options available to the claimant in the specific circumstances of the case.
It is therefore important that potential claimants consider all available funding options before embarking on litigation. There may be other options for the claimant, such as litigation funding, deferred fee agreements, insurance, or a request for an interim payment from the estate.
Mishcon de Reya has recently launched MDR Solutions I, a strategic partnership with litigation and arbitration funders Harbour, to offer greater access to funding for claimants, in certain suitable cases, who may be looking for ways to mitigate their exposure to risk. Cases are conducted on the basis of a Damages Based Agreement.