The recoverability of success fees in claims for reasonable financial provision

In two recent cases involving claims under the Inheritance (Provision for Family and Dependents) Act 1975 (IPFDA 1975), the respective judges were directed to consider whether the Claimants’ success fee under a Conditional Fee Agreement should be paid from the estate as part of what constitutes reasonable financial provision.

In both Bullock v Denton [2020] and H (Deceased), Re [2020] EWHC 1134 (Fam), the judges allowed the claims and further determined that a success fee is rightly regarded as a debt for which the Claimant alone is liable, and should therefore be considered as part of the review of the Claimant’s financial needs and resources under section 3(1)(a) of the IPFDA 1975. In this respect, the judgments are notable for contradicting the long-held belief of contentious probate practitioners that the recoverability of success fees was precluded by the Jackson Reforms of 2013.

Facts

In Bullock v Denton [2020], the first of the two cases, Ms Bullock made a claim for reasonable financial provision for her maintenance from the estate of her late partner and cohabitee of approximately three and a half years, Mr Denton.

By his will, Mr Denton had left the entirety of his c£2,000,000 estate to his brother, specifying in his instructions to his solicitors that he was not in a relationship despite living with Ms Bullock at the time. On the basis of this, as well as alleged discussions in which Mr Denton stated that Ms Bullock was only his housekeeper, and the fact that Ms Bullock temporarily moved out of the property where she lived with Mr Denton, the romantic nature of Ms Bullock’s relationship with Mr Denton was hotly contested by the Defendants. They persisted in this belief up until final submissions were given at trial, despite expert handwriting evidence which concluded that, on the balance of probabilities, Mr Denton had written several Valentine’s Day and Christmas cards to Ms Bullock which referenced their romantic relationship.

Ms Bullock was in a weak financial position compared with Mr Denton’s brother, Christopher Denton, who had no financial need for his inheritance. She claimed reasonable financial provision from Mr Denton’s estate to meet her accommodation need, for which she had been reliant on Mr Denton before his death; to provide for her income deficit of £200-300 per month; to meet contingencies; to meet the costs a new car; and to cover her debts, including the 50% success fee she was liable to pay to her barrister and solicitors under separate Conditional Fee Agreements.

In H (Deceased), Re [2020] EWHC 1134 (Fam), the Claimant (identified only as “SH”) also claimed reasonable financial provision for her maintenance, but this time as an adult child from the estate of her late father.

SH had been financially independent from her parents from around 1999 (save for a short period between 2007 and 2011, during which her father helped fund her through university). Consequent to a breakdown preceded by long-term mental health problems, SH ceased contact with her parents in (she claimed) 2011, though there was evidence to suggest they may have in fact been estranged since 2000. Despite her parents’ continued efforts to renew contact, amends were not made before SH’s father’s death in 2016.
The sole beneficiary of SH’s father’s estate (which the judge valued at £554,000, taking into account jointly owned property) was her mother, KH, who at the time of trial was nearly 80 years old, very frail, and living in a care home. KH’s financial circumstances were largely unknown due to her failure to file evidence, but the judge estimated her average costs of care at £52,000 per year based on evidence from her care home manager.

SH requested provision for an income fund, to meet her shortfall of £1,338 per month; accommodation in place of the two-bedroomed flat she was renting for herself and her two children or, alternatively, an enhanced income fund to provide for a more comfortable standard of living; funding for continuing psychological therapy for a period of 3 years, which her doctor had advised was essential for her to regain her earning capacity; a sum to replace her car and white goods; and a sum to meet the 72% success fee she owed to her solicitors under a Conditional Fee Agreement which she had entered into partway through the proceedings.

Outcome

In both cases, the respective judges accepted that reasonable financial provision had not been made for either Ms Bullock or SH.

In Bullock, HHJ Gosnell made a finding of fact that Ms Bullock and Mr Denton had been in a romantic relationship which would have persisted but for his death and as such, Ms Bullock was awarded a life interest in a property worth £140,000 (to be administered by independent trustees at further cost to the estate) and an additional sum of £70,000 to meet her other needs listed above.

Likewise in Re H, though Mr Justice Cohen was clearly mindful of the estrangement between SH and her father (for which he accepted SH’s mental health problems were to blame) and the fact that KH had significant needs she was reliant on the estate to meet, he nonetheless considered that SH had a clear need for financial provision and awarded her a sum of £138,918 accordingly. This sum was calculated to meet all the needs SH identified, save for the costs of a new property, which he considered excessive on the facts.
Notably, in both cases sums were specifically allocated to Ms Bullock and SH to meet the success fees they would each be liable to pay in consequence of their success, quantified in sums of £25,000 and £16,750 respectively.

Practical Implications

Since the cost reforms initiated by the report of Lord Justice Jackson in 2010, which came into force in 2013, it was generally understood that success fees were not recoverable from an unsuccessful party in civil litigation.

In Re Clarke [2019] EWHC 1193 and 1194 (Ch), Deputy Master Linwood affirmed that this was an appropriate stance to take in claims under the IPFDA 1975, for the following additional reasons:

(i) The calculation of damages is a matter of procedure carried out before costs are considered and has never included an element of costs;

(ii) To allow it would contrary to legislative policy that the losing party should not be responsible for a success fee – s.58A(6) Courts and Legal Services Act 1980;

(iii) It would amount to an increase in damages by way of costs;

(iv) It may put a CFA funded litigant in a better position in terms of negotiation due to the risk of a substantial costs burden;

(v) It would put a claimant in Inheritance Act proceedings in a better position than, say, a claimant in a personal injuries claim.

Yet both HHJ Gosnell and Mr Justice Cohen were more persuaded by the opposing view, which gained authority from the obiter comments of Briggs J (as he then was) in the case of Lilleyman v Lilleyman [2012] 1 WLR 2801, to the effect that, without any consideration for the parties’ cost liabilities, judges’ attempts to award appropriate provision for successful applicants under the IPFDA 1975 are prone to be undermined. Both judges took the view that, as success fees constitute a real liability which Claimants are contractually obliged to pay if they win their case, fairness demands that they be taken into account. Though it should be noted that in neither case did the judge award the full sum owed by each Claimant under the Conditional Fee Agreement.

While some may undermine the significance of these cases by claiming they are exceptional or merely attempts by clever lawyers to introduce the recoverability of success fees ‘by the back door’, it cannot be denied that the arguments therein have very quickly gained traction and publicity since they were initially accepted in Bullock. The reason is clear: they have the potential to revolutionise the scope of what a successful Claimant may now recover under the IPDFA 1975, which in turn may increase the availability of conditional funding options for many applicants who previously had no means to pursue their claim and may have been deterred by the potential impact of a success fee on their award.

Nonetheless, the judgments should not prevent Defendants from continuing to aggressively defend poor claims (see Shapton v Seviour (2020) (unreported). However, it would be tactically expedient to attempt to nip meritorious claims in the bud so as to minimise any success fee ‘debt’ argument. It will be interesting to see how these issues plays out in future claims.

This article was first published by Lexis®PSL on 18/05/2020