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Court of Appeal confirms that success fees can be recovered from an opponent…

WillsArticle PaulCaslin

15th October, 2021

Court of Appeal confirms that success fees can be recovered from an opponent….in certain circumstances under the Inheritance (Provision for Family and Dependants) Act 1975 claims.

The Court of Appeal in Re H [2021] EWCA Civ 1498 has just handed down an eagerly anticipated judgment for many practitioners in the field of contentious probate. In summary, a claimant’s success fee in an Inheritance (Provision for Family and Dependants) Act 1975 (“the Inheritance Act”) claim can be recovered from an opponent in certain circumstances. On first blush, this decision may appear perverse, given the government’s widely known reforms which came into force 2013 preventing claimants from recovering their success fee from an opponent.

The question, in light of this, is how did the Court of Appeal reach this conclusion?

To understand the rationale, it important to first understand the facts of Re H [2020] EWHC (Fam) 1134, as well as the differing cases which preceded it.

Re H was a claim under the Inheritance Act by an adult child for reasonable financial provision from her late father’s estate. Part of her claim was funded by way of a conditional fee agreement (CFA) or better known as a “no win, no fee” agreement.

The claimant’s elderly mother was the sole beneficiary of the estate. She lived in a care home and was in poor health. She was unable to participate in the trial which took place in April 2020, during the height of the national lockdown. However, this was not because of the lockdown restrictions applying to care homes, but due to her multiple breaches of court orders and failure to properly engage with the claim, such that she was prevented from formally relying on evidence in defence to the claim.

Mr Justice Cohen, the trial judge, noted that as a matter of law following the Jackson reforms that parties cannot be ordered to pay an opponent’s success fee – this was made clear by the provision of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which in turn amended s58A of the Courts and Legal Services Act 1990. However, the claimant argued that the purpose of any award under the Inheritance Act was to meet her overall financial needs. Accordingly, any significant deduction from the award to pay the success fee would inevitably impact on the overall purpose of that award i.e. the claimant using part of her award to meet her success fee would mean she did not have enough to cover the sums the court determined she needed for her maintenance.

The trial judge was directed to two conflict cases on this point. The first was Re Clarke [2019] EWHC 1193 and 1194 (Ch) where the court refused to increase an award to take into account a success fee (which in that case was £192,000) on the basis that it would :

1) be contrary to the policy decision behind s.58A(6) of the Courts and Legal Services Act 1990;
2) put a CFA claimant in a better position in terms of negotiation, due to the risk of a substantial costs burden on a defendant; and
3) put a claimant in a better position that a claimant in a person injury case (where they could not recover the success fee).

The second was the unreported case of Bullock v Denton, handed down just nine days earlier in Leeds County Court, in which the judge increased the award by £25,000 as a contribution towards the claimant’s success fee. The judge decided that by making an award, he acknowledged that no reasonable financial provision had been made for the claimant. Therefore the claimant to a greater or lesser extent had succeeded, such that it would likely trigger the success fee element and an additional liability to pay their solicitor.

In Re H, Mr Justice Cohen felt that it was appropriate to consider the success fee as part of any award to account for the claimant’s needs:

“I intend to adopt the same approach as HHJ Gosnell. I think that it would not be fair on C for me to ignore completely her liability to her solicitors. But, I recognise that there is a risk of injustice to the estate, in particular if an appropriate Part 36 offer had been made, of which I am necessarily unaware at this stage of proceedings. In addition, I flag up that I do not know the precise terms of the agreement and what is the definition of “success”. If my award does not bring about the operation of the uplift, I will revisit this element of the award.

I cannot see how I can avoid some potential (and it is only potential) injustice to either C or the estate. All I can do is mitigate the potential by taking a cautious approach towards this liability.

Bearing that approach in mind and knowing what I do of the case, I cannot envisage how it could reasonably be thought that the chance of failure was a high chance. I propose to allow the figure, as part of C’s needs, of £16,750, which approximates to a 25% uplift.”

Accordingly, the defendant appealed, and was granted permission to appeal Mr Justice Cohen’s decision to include £16,750 in the award, comprising 25% of the claimant’s success fee.

The defendant, known as the appellant in the Court of Appeal proceedings, submitted that the claimant’s debt, comprising the success fee could not be regarded as a “provision that is to be made to meet the recurring expenses of living of an income nature” and therefore should be treated as necessary for her maintenance.

The claimant, known as the respondent in the Court of Appeal proceedings, submitted that the award of £16,750 was “directed at meeting day to day living expenses” as she had no other means to discharge the debt other than from the award she was going to receive. In the first instance decision, Mr Justice Cohen acknowledged that had he failed to make an allowance for part of the success fee, then one or more of the claimant’s primary needs would not be met.

The Court of Appeal relied on the Supreme Court’s reasoning in Ilott v The Blue Cross [2017] UKSC 17 where Lord Hughes relied on a passage from the decision in Re Dennis [1981] 2 All ER 140 which confirmed that a court can consider making an award to pay a claimant’s debt and therefore a debt can form part of a maintenance award.

Accordingly, they did not consider Mr Justice Cohen had made an error in principle or law. The appeal was therefore dismissed.

However, the Court of Appeal was careful to explicitly set out that it will by no means always be appropriate for a court to make an order allowing all, or part, of a claimant’s success fee to be recovered from a defendant.

In Re H, it was clear that the claimant’s modest financial circumstances and income meant that she had no way to realistically meet the success fee, other than from any award the court made. It is unlikely that success fees can be recovered unless a court considers that the only way a claimant was likely to litigate was by entering into a “no win, no fee” agreement.

Further, a court will need to consider the definition of “success” under such an agreement when considering whether to make an award.

The Court of Appeal confirmed that a court should only order part, or all of a success fee be included in an award to the extent necessary in order to ensure reasonable provision if made.

The above caveats appear to indicate that claimants with limited or no means to pursue a claim are more likely to recover part, or all, of their success fee. On the other hand, where claimants are already of means, they are unlikely to secure recovery of a success fee.

Finally, the Court of Appeal was alive to the above quote from Mr Justice Cohen, namely the prospect that a claimant could be awarded a contribution to a success fee, but subsequently be ordered to pay the defendant’s costs, for failing to beat a defendant’s Part 36 offer. This risk was felt to be more modest that defendants may allege in the future, given that under many “no win, no fee” agreements, a claimant is normally obliged to accept any reasonable settlement offer or risk the solicitor withdrawing from the “no win, no fee” agreement. Similarly, a claimant may not be obliged to pay a success fee if, on advice from their solicitor, they reject a defendant’s offer but then fail to beat that offer at trial.

Therefore the Court of Appeal stressed the importance for all parties to fully engage in the Part 36 offer making process, by making realistic Part 36 offers to settle claims, rather than seek the court’s assistance and judgment.

Practitioners and clients alike should keep those comments at the forefront of their minds once a claim has properly set out and response provided.

Contact us for help and advice.

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