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Court case opens doors to CFA awards

24th November 2021

Court case opens doors to CFA awards

Joseph Martin, Associate in our Dispute Resolution and Litigation team, examines a significant Court of Appeal case which could lead to an increase in claims for financial provision from an estate funded by a Conditional Fee Agreements (CFA).

There has been some welcome news for claimants seeking reasonable financial provision from estates under the Inheritance (Provision for Family and Dependants) Act 1975.

The legislation enables a prescribed category of applicants the ability to apply to Court for provision from a deceased person’s estate if they consider that they have not been provided with reasonable financial provision from an estate either by reason of the terms of the Deceased’s Will or the Intestacy Rules (that apply when no will has been created).

The recent Court of Appeal case Hirachand v Hirachand [2021] ruled that a successful person can now seek to recover at least a portion of the success fee – the amount paid to lawyers under a ‘no win no fee’ arrangement - as part of the claim itself.

This is a significant shift as it means potential claimants who would previously have been unable to fund litigation – and those who were concerned about the effect of a success fee on what they might recover – now have the potential to recover at least a portion of the costs.

It is common for a case in a 1975 Act claim to be based around the claimant’s own financial hardship.

Background

Sheila Hirachand was estranged from her late father and no provision was made for her in the deceased’s will. Her mother, Nalini, was the sole beneficiary of the estate.

Sheila brought a claim against her father’s estate, seeking reasonable provision under the 1975 Act.

The claim was initially heard remotely in April 2020. Nalini had no legal representation but was assisted by a care home worker of the care home where she resided. At the time of the hearing, Nalini was in her 80s, suffering from ill health and profoundly deaf.

Sheila was successful in her claim and was awarded a lump sum of £138,918 from her late father’s estate. This was considerably less than the amount she had sought.

The defendant appealed the outcome of the case on two grounds, the first of which related to whether the Court was correct in allowing the trial to take place by video link and the second was whether an award under the Inheritance (Provision for Family and Dependants) Act 1975 could include provision to enable a claimant to settle the success fee under a CFA she held with her solicitors.

The first ground is not relevant to this topic so is not discussed in any more detail, but the Court of Appeal determined that it was appropriate to consider the claimant’s liability for the success fee within Section 3 (1) (a) of the 1975 Act.

It was well established that the payment of a debt can form part of the claimant’s financial need and could therefore be included within payments for maintenance under the Act. The wording of Section 3 (1) (a) was unrestricted and financial need is therefore unqualified.

Significantly, the Court did include an element for the success fee that Sheila would incur under the CFA negotiated with her lawyers, commonly referred to as a ‘no win no fee’ agreement. The amount awarded by the Court for the CFA success fee was £16,750, which represented a success fee of around 25%. This was much lower than the actual success fee of 72%.

Impact

Claimants will benefit from the knowledge that they can, in principle, recover all or part of their success fees when bringing their claims under a CFA, particularly where the claimant has no other means by which to fund their claim.

It means many potential claimants who would previously have been unable to fund litigation may now feel able to do so with the comfort that they can, in principle at least, seek to recover some of their liabilities under the CFA within their application.

This is welcomed as public funding under the Legal Aid Scheme has been reduced, meaning access to justice was becoming an increasing problem.

The case is of greater concern to defendants defending CFA funded claims under the 1975 Act as they will have to take into account a greater loss to the estate with the potential additional success fee recovery.

This, in turn, is likely to lead to the increased use of alternate dispute resolution as defendants will be encouraged to settle claims and reduce the risk of CFA recovery from the estate. 

The Courts have not, however, allowed for blanket recovery of CFA success fees. Courts have discretion as to the level of CFA success fee that would be provided for and will be able to review the reasonableness of the success fee and order accordingly.

If the CFA was not the only means by which the claim could have been funded, then an award to recover the success fee would be less likely.

The outcome, therefore, strikes a fine balance between ensuring that there is greater access to justice for claimants, whilst protecting defendants and beneficiaries from claimants recovering unrestricted and disproportionately high success fee recovery. The Courts will assess the reasonableness of the uplift to ensure that the level is appropriate in the circumstances of the case.

Section 5 of the 1975 Act allows claimants the ability to apply for interim relief from an estate which (if approved) sees part of the estate being provided to a claimant during their application for provision.

The outcome of the case will likely lead to defendants encouraging interim relief to claimants, as interim provision could remove the need for CFA funding which, in turn, could act to reduce the loss to an estate.

For solicitors, one practical consequence is to ensure that you disclose that the Claimant is acting under a CFA at an early stage so that the parties are aware of the potential recovery of that success fee in the event that the claim is successful. The extent of that disclosure and the extent to which this will affect the outcome of cases funded by way of CFA arrangements is yet to be seen and no doubt will be something to keep a watchful eye on.

How can Higgs help?

Our team has expertise in claims under the Inheritance (Provision for Family and Dependants) Act 1975 and will consider claims under a CFA arrangement if appropriate.

Contact me on 01384 327341 or joseph.martin@higgsllp.co.uk

 

 

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