The Supreme Court considered whether a court making an award under the Inheritance (Provision for Family and Dependants) Act 1975 could include a sum for a success fee payable under a conditional fee agreement, despite section 58A(6) of the Courts and Legal Services Act 1990 prohibiting recovery of success fees via costs orders. The Court held it could not.
Background
Navinchandra Dayalal Hirachand died on 6 August 2016, leaving a widow, a daughter (the appellant, Nalini Hirachand) and a son. By his will, the deceased left his entire estate to the widow. The daughter, who had severe health problems and insufficient income or assets to support herself, brought a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (‘the 1975 Act’) for reasonable financial provision from the estate, valued at £554,000. The daughter had entered into a conditional fee agreement (‘CFA’) with her solicitors providing for a success fee uplift of 72% on base costs if she succeeded. The respondents were the widow (Sheila Hirachand) and the son (Katan Hirachand); the son took no part in the proceedings.
First Instance Decision
Cohen J, sitting in the Family Division, found that the will did not make reasonable financial provision for the daughter. He awarded her £138,918 as a lump sum, which included £16,750 representing what the judge regarded as a reasonable CFA mark-up (approximately 25%, rather than the agreed 72%). The judge also ordered the widow to pay the daughter’s assessed costs of £80,000. Cohen J acknowledged that the success fee could not be recovered by way of a costs order under section 58A(6) of the Courts and Legal Services Act 1990 (‘the 1990 Act’), but held the daughter’s liability to pay it constituted a ‘financial need’ under section 3(1) of the 1975 Act. He included provision for it in the substantive award, noting that without it the daughter’s primary needs would not be met.
Court of Appeal
The Court of Appeal (King LJ, with Singh LJ and Sir Patrick Elias agreeing) dismissed the widow’s appeal. King LJ drew an analogy with financial remedy proceedings under the Matrimonial Causes Act 1973 (‘the MCA’), where courts had included provision for irrecoverable costs as part of substantive awards given the ‘no order principle’ on costs in such proceedings. She held that the success fee was capable of constituting a financial need for which provision could be made under the 1975 Act.
The Issue
The central question before the Supreme Court was whether section 58A(6) of the 1990 Act prevents a court in proceedings under the 1975 Act from including the payment of a success fee as part of an order for reasonable financial provision out of a deceased person’s estate. The provision states:
A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.
The Court’s Reasoning
The Costs Regime in Civil Proceedings
Lord Richards (with whom Lord Lloyd-Jones, Lord Leggatt, Lord Burrows and Lord Stephens agreed) delivered the unanimous judgment. The Court began by emphasising a fundamental principle of civil litigation: the costs of proceedings are treated separately from the substantive relief and are not recoverable as part of the substantive award. This principle, well established since the 19th century, exists to uphold the integrity of the costs regime. Lord Richards noted:
In the context of civil proceedings generally, the liability (if any) of one party to pay some or all of the costs incurred in the proceedings by another party is treated as a separate matter from the substantive relief sought in the proceedings, and the costs of the proceedings will not be recoverable as part of any substantive relief.
Claims under the 1975 Act are civil proceedings subject to the Civil Procedure Rules (‘CPR’), including its costs regime, even when heard in the Family Division. There is nothing in the 1975 Act to displace this established principle.
The Policy Behind Section 58A(6)
The Court traced the legislative history of success fees. Originally irrecoverable, they became recoverable from opposing parties under the Access to Justice Act 1999. However, Sir Rupert Jackson’s Review of Civil Litigation Costs found that the recoverability of success fees had been ‘the major contributor to disproportionate costs in civil litigation in England and Wales’. His Final Report observed:
If the opposing party contests a case to trial (possibly quite reasonably) and then loses, its costs liability becomes grossly disproportionate. Indeed the costs consequences of the recoverability rules can be so extreme as to drive opposing parties to settle at an early stage, despite having good prospects of a successful defence.
Section 58A(6) was enacted by LASPO 2012 to give effect to the clear policy that success fees should be borne by the CFA-funded party and not passed on to the opposing side. The Government’s response could not have been clearer:
In future any CFA success fee will be paid by the CFA funded party, rather than the other side. Crucially, this would give individual CFA claimants a financial interest in controlling the costs incurred on their behalf.
Application to the 1975 Act
Lord Richards held that allowing success fees to be recovered through the substantive award would wholly undermine this policy. He construed ‘a costs order’ in section 58A(6) broadly:
I construe ‘a costs order’ in section 58A(6) as including any order which dealt with the costs of the proceedings in which it was made, irrespective of the statutory provision or other jurisdiction under which it was made.
The Court identified five principal reasons for this conclusion. First, the clear public policy underpinning the prohibition would be wholly undermined if success fees were recoverable through the substantive award. Second, the reference to ‘a costs order’ rather than simply ‘an order’ was explained by the existing exceptions allowing recovery of litigation costs from third parties or under separate causes of action. Third, ‘financial needs’ under the 1975 Act cannot properly include litigation costs in proceedings subject to the CPR costs regime. Fourth, no exception was made for 1975 Act claims in LASPO 2012 or its commencement orders, whereas specific limited exceptions were made for mesothelioma, publication/privacy, and insolvency claims. Fifth, accepting the argument would logically extend to allow success fee recovery as consequential loss in tort or contract claims, undermining the costs regime across all civil litigation.
Rejection of the MCA Analogy
The Court firmly distinguished proceedings under the MCA. Financial remedy proceedings operate under the ‘no order principle’ introduced by the Family Proceedings (Amendment) Rules 2006, under which costs are generally not ordered. The Consultation Paper which led to these rules explained:
The purpose of applying a ‘no order for costs’ principle in ancillary relief proceedings is to stress to the parties, and to their legal advisers, that running up costs in litigation will serve only to reduce the resources that the parties will have left to support them in their new lives apart.
Lord Richards held this was a crucial distinction: in family proceedings there is in substance no costs regime to undermine, whereas 1975 Act proceedings are fully subject to the CPR costs regime. Moreover, CFAs with success fees are prohibited in family proceedings altogether, making the analogy inapt.
Part 36 Difficulties
The Court also noted that including success fees in the substantive award creates serious practical difficulties with the Part 36 settlement regime, which is central to the efficient resolution of civil litigation. Part 36 offers are not disclosed to the trial judge until the case has been decided, making it virtually impossible to properly assess and account for a success fee element in the substantive award without risk of injustice to one side or the other.
Practical Significance
This decision clarifies that in all civil proceedings subject to the CPR costs regime, success fees under conditional fee agreements cannot be recovered from the opposing party either through a costs order or through the substantive relief. The principle applies equally to base costs: they must be dealt with under the costs regime and cannot be included in a substantive award under the 1975 Act. The decision reinforces the integrity of the statutory costs framework established by LASPO 2012 and preserves the policy objective that CFA-funded parties bear their own success fees, thereby maintaining an incentive to control litigation costs. It draws a clear boundary between civil proceedings under the CPR (including 1975 Act claims) and family financial remedy proceedings under the FPR, where different costs principles apply. The ruling has significant implications for claimants in 1975 Act proceedings who fund their litigation through CFAs, as they must bear the full cost of any success fee without the possibility of recovering it from the estate.
Verdict: The appeal was unanimously allowed. The Supreme Court excluded from the order made in favour of the daughter under the Inheritance (Provision for Family and Dependants) Act 1975 any sum for the success fee payable by her in respect of the proceedings.
