Hirchand v Hirchand [2021] EWCA Civ 1498
Background
Navinchandra Hirachand (“the Deceased”) died in 2016. The Deceased and his wife, Nalini Hirachand (“the Appellant”), were joint tenants of a property worth £700,000 and savings of £127,000. In his sole name, the Deceased had a further £142,000 to which the Appellant was entitled under the Deceased’s will.
In November 2017, the adult daughter from whom the Deceased has been estranged since at least 2011, Sheila Hirachand (“the Respondent”), issued a claim for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”). The Respondent had longstanding mental health problems and had been unemployed since the birth of her first of two children in 2011.
The first instance judge held that, even if the Court treated severable property as part of the Deceased’s net estate pursuant to section 9 the 1975 Act, the available net estate of £554,000 would be insufficient to satisfy the Respondent’s claim for a mortgage free property worth about £450,000, therapy and capitalised maintenance costs. Nevertheless, the judge held that the will did not make reasonable financial provision for the Respondent and, with reference to a psychiatric assessment which suggested that the Respondent’s condition may become manageable after three years of psychotherapy, made a total award of £138,918 which was broken down as follows:
- £17,000 for therapy;
- £48,169 + 32,000 representing income shortfall and loss of universal credit for a period of three years;
- £15,000 for white goods/a replacement car;
- £10,000 for rental deposit; and
- £16,750 towards the CFA success fee payable by the Respondent.
The first instance judge’s reasoning on the CFA success fee was as follows:
“55. I accept that it is appropriate for me to consider this liability as part of C’s needs. I do so for largely case specific reasons. I am not making a large award (unlike in Re Clarke). It is not an award that permits of much elasticity. If I do not make such an allowance one or more of C’s primary needs will not be met. The liability cannot be recovered as part of any costs award from other parties. The liability is that of C alone. She had no other means of funding the litigation.”
Appeal
Permission to appeal was refused in relation to five grounds relating to the first instance judge’s finding that the Respondent was entitled to an award, the amount of the award and its computation. However, permission to appeal was granted on two grounds, including that:
“…the Court erred in law when it made an order for financial provision in favour of the Claimant which included a sum of £16,750 as a contribution towards the Claimant’s liability to pay a CFA uplift. The exercise of discretion under section 9 of the Act to facilitate this aspect of the award was also therefore unlawful.”
Lady Justice King (with whom Lord Justice Singh and Sir Patrick Elias agreed) held that:
- The term “financial needs” in section 3(1)(a) of the 1975 Act include the payment of a debt or debts;
- The payment of debts can form part of a maintenance award where the claimant would otherwise have to pay the debt at the expense of their income; and
- A success fee which cannot be recovered by way of a costs order is capable of being a debt, the satisfaction of which is a financial need for which the Court may in its discretion make provision in its assessment of needs.
Accordingly, the appeal was dismissed on the basis that the first instance judge was entitled to regard the success fee as a debt capable of inclusion in the Respondent’s maintenance award.
However, Lady Justice King emphasised that it would not be appropriate to make such an order in every case and that, where it is, the order should be limited to the extent necessary to ensure reasonable financial provision:
“59. Having said that I should make it clear that it will by no means always be appropriate to make such an order. 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 and consideration will no doubt be given of the extent to which the claimant has ‘succeeded’ in his or her claim. Further, an order will only be made to the extent necessary in order to ensure reasonable provision is made. It does not mean that there can be no impact whatsoever upon the standard of living that the applicant would otherwise be afforded by the maintenance award. In Bassiri-Dezfouli [see [2021] EWCA Civ 1184] the Court of Appeal considered between paragraphs [55] – [59] a number of first instance cases where the impact of debts in the form of outstanding costs was ameliorated but not removed entirely by the inclusion of a sum representing part but not all of the outstanding debt.”
She also commented on the need for parties to engage reasonably in alternative dispute resolution to avoid the potential injustice to the defendant where a claimant receives an award including provision for his or her success fee but fails to beat a Part 36 offer:
“63. I am conscious, as was the judge, of the difficulty identified by Briggs J in Lilleyman [see [2012] 3 WLR 754 and [2012] 1 WLR 2801], namely of the potential for undisclosed negotiations to undermine a judge's efforts to make appropriate provision under the Inheritance Act. The civil litigation costs regime, unlike the approach in financial remedy cases, means that there is the potential for a situation where a claimant is awarded a contribution to her CFA uplift but is subsequently ordered to pay the defendant’s costs of the claim where, for example, the claimant won overall but failed to beat a Part 36 offer. I note however that this is likely to be less of a risk than might be thought at first blush to be the case given that under many CFAs the claimant is obliged to accept any reasonable settlement offer or an offer above a specified threshold or risk the solicitors withdrawing from the CFA. Conversely a success fee is frequently not payable in the event that the claimant, on advice, rejects a Part 36 offer or other relevant settlement offer but subsequently fails to beat that offer at trial.
64. The judge was alive to this tension and commented that he could not avoid some potential injustice to one side or the other. The judge therefore mitigated that potential injustice by taking a cautious approach towards the success fee liability and made an order which resulted in only a modest contribution of 25% towards payment of the success fee. In my view the judge’s cautious approach to this difficult aspect of maintenance cases where the claim is made on the back of a CFA contract cannot be faulted and only serves to highlight the imperative of the full engagement in the Part 36 process and the importance of the parties making realistic offers in order to settle these difficult and distressing cases.”
Comment
It is not yet known whether the Appellant will seek permission to appeal to the Supreme Court. However, unless and until such an application is made, practitioners will need to familiarise themselves with this decision when advising on claims under the 1975 Act. In particular, both claimants and defendants will need to give early consideration to the manner in which potential or intimated claim is to be funded and how to prove that a CFA was or was not the only available option.
(Author: Mathew Roper, Barrister)