Court of Appeal holds CFA success fees are recoverable in 1975 Act Claims
18 Oct 2021
Hirachand v Hirachand  EWCA Civ 1498
The Court of Appeal has ruled on the vexed question of whether CFA Uplifts may be included in a Claimant’s ‘financial needs’ for the purposes of a claim under the Inheritance (Provision for Family and Dependants) Act 1975. Conflicting decisions at first instance in Re Clarke  and Bullock v Denton  had left this area of law in a state of confusion.
On the one hand, s.58A(6) Courts and Legal Services Act 1990 provides that success fees may not be recovered as part of a costs order; the intention of Parliament is clear. On the other hand, ignoring a claimant’s success fee liability means they may end up not receiving reasonable financial provision from the estate. The problem is compounded in 1975 Act claims, because the Judge determining the award will be unaware of any Part 36 offers, which may impose an enormous costs burden on a claimant and entirely frustrate the judge’s intended provision.
King LJ started from the principle that a 1975 Act award may be used to pay debts, as well as to provide income, after Ilott v Blue Cross. There is authority from the Family Division (where costs orders are the exception) that a party’s costs may form part of a needs-based award. A success fee under a CFA is such a debt, albeit a contingent one, so it can be included in the calculation of an award.
However, King LJ is keen to emphasise that this will not always be the case: “It is unlikely that an award will include a sum representing part of the success fee unless the judge is satisfied that the only way in which the claimant had been able to litigate was by entering into a CFA arrangement” (my emphasis). Furthermore, an order will only be made ‘to the extent necessary … to ensure reasonable provision is made’; i.e. it is acceptable for a claimant to bear part of their success fee.
The Court of Appeal is trying to balance two competing injustices: First, to an impecunious claimant who has to give up part of her much-needed award to pay a success fee. Second, to a Defendant who ends up bearing a success fee that Parliament has dictated she should not pay, even to a successful claimant. The result is a fudge, and still far from satisfactory. The core issue, that claimants may end up receiving less than they need because of costs orders, has not gone away. Arguably, the right answer is to adopt the Family Division approach, with open offers only, meaning the judge has the full picture when they make their decision.
In practical terms, litigators facing such claims should ask to see the CFA agreement (although not the reasons for the uplift) and will doubtless wish to test whether a CFA was ‘the only way’ for the claimant to bring her claim. There will also be some rather tricky argument over the proper level of success fee; it is hard for a claimant to argue their claim is obviously meritorious, but also warrants a large success fee!