The recent case of Hirachand -v- Hirachand [2021] EWCA Civ 1498 brought the topic of Conditional Fee Agreements (“CFAs”) back into the spotlight. Richard Woodward, associate solicitor in our Dispute Resolution team, discusses the case and whether we’re likely to see a re-birth of no-win, no fee as a result.

Prior to the Jackson reforms of 2013, the world of Personal Injury was over-run with what is widely known as no-win, no-fee agreements. Conditional Fee Agreements (“CFAs”), another name for no-win, no-fee, allowed law firms to offer a service to a client on the premise that the client would only ever pay if they won. However, because the law firm was taking a risk that they may never get paid, they were entitled to add a ‘Success Fee’, which could be 100% (or double what was on their clock).

The reason CFAs were so popular was because the client rarely made any payment towards their legal fees. The general rule in litigation is that the loser pays the winner’s costs, so if the client was successful, their law firm produced a statement of costs (with the uplift) to the loser (who was normally represented by an insurer), and the law firm’s costs were paid that way. This practice resulted in a lot of law firms making a lot of money as, as long as you succeeded on over half of your matters, the 100% uplift meant the winning recoveries outweighed the losing ones. And because law firms wouldn’t take matters with very poor prospects, their success rates were a lot higher than 50%.

The Jackson reforms put a massive hole in that business. Clients were still able to enter into CFAs, but the Success Fee was no longer recoverable from the other side (with some minor exceptions). This meant that CFAs were not attractive to either client or law firm anymore in run of the mill cases. A client wouldn’t want to win and then see their damages reclaimed as legal fees by their solicitors which the law firm wouldn’t want to risk not recovering just their base costs (let alone Success Fee) from their client.

However, CFAs do still exist, especially for cases that have good prospects (and a good chance of a significant damages win) but where the claimant simply could not otherwise afford to pay their legal fees. Inheritance Act claims are one such area where CFAs are offered by law firms and accepted by clients.

Under the Inheritance (Provision for Family and Dependants) Act 1975 (“Inheritance Act”), a disappointed individual who has been left out of a Will (or would not otherwise inherit under an intestacy) can make a claim for ‘reasonable financial provision’. The claims are limited to close family members and those maintained by the deceased prior to death. The issue is that in order to succeed with a claim, especially as an adult child of the deceased, the claimant must show that the financial provision they seek is reasonable in all the circumstances of the case.

When determining ‘reasonable financial provision’, the court has to look at all the circumstances and that includes the current and future financial provision of the applicant together with the size of the Estate. So, if an Estate is worth £250,000, but the applicant is, in his own right, a millionaire, it is extremely doubtful that he would bring a successful claim. On the flip side, if the adult child is in financial difficulties, perhaps on benefits and needs financial help for health needs, based on a similar sized Estate, prospects of success are greatly increased.

But therein lies the problem. The applicant client needs to have financial trouble; yet if they do, how can they afford the £10,000s that it costs to run a claim to trial? That is where the CFA comes in. The law firm offers to work on a no-win, no-fee basis with a Success Fee included. And that was the issue the court was faced with in Hirachand -v- Hirachand [2021] EWCA Civ 1498.

Without going into the full facts of the case, the applicant was an adult child with mental health issues who had not worked for circa 10 years. She had been omitted from her father’s Will that left an Estate of just over £550,000. The applicant succeeded on her claim and it was left to the judge to determine the value of that success. As far as this article goes, the key issue is what the judge decided she should receive in relation to her legal costs.

Miss Hirachand had signed a CFA with her law firm that allowed for a Success Fee (which was 72%). As part of her claim for damages, Miss Hirachand claimed the CFA back from the other side. She contended it was a debt to her and part of all of the circumstances of the case. The defendant averred that CFA recoverability is not recoverable as per the Jackson reforms.

The judge at first instance agreed with Miss Hirachand that the CFA formed part of her debt. After all, without it, she would not have been able to run the claim. She really had no other option than to agree and it would be unfair for her to lose a significant part of her damages because of her financial circumstances.

Notwithstanding, the judge was concerned about balancing the interests of Miss Hirachand and the ultimate beneficiary under her father’s Will, Miss Hirachand’s mother. As such, the judge awarded Miss Hirachand an uplift of about 25%, coming to £16,750 making Miss Hirachand’s total award of £138,918.

The defendant appealed the decision to the Court of Appeal, who heard the case on 15 October 2021. The appeal was dismissed. The Court of Appeal agreed with the court of first instance that a Success Fee could form part of a claim, as it was a debt owed by Miss Hirachand to her solicitors. However, the Court of Appeal was keen to point out that each decision must sit on its own facts and a would-be claimant could not use a CFA to put pressure on a defendant – a CFA is either genuinely needed (in which case there could be some recoverability) or it has been tactically employed, in which case the court will disregard it.

This case is important for both potential clients and their advisors. It allows those probably most likely to succeed with a claim, the opportunity to bring that claim whilst also allowing the law firm to balance the risk of running an expensive litigation and not getting paid.

That said, it is probable that some clients will try and use this case tactically and so attempts to recover CFAs should be looked into deeply. After all, Inheritance Act claims do require full financial disclosure so it would be difficult for a claimant to hide its means to bring a claim without the need for a CFA.

If you need help with contesting a will, inheritance claims, abuse of Powers of Attorney or any other estate or probate issue, please contact a member of our Dispute Resolution team to discuss your situation.