SUCCESS FEE RECOVERABILITY IN 1975 ACT CLAIMS: RE H  EWHC 1134 (FAM)
The general rule in civil litigation is that costs “follow the event”. In an article I wrote for the special issue of Civil Justice Quarterly on Civil Litigation Costs, Vol. 32 pages 109-312 Issue 2 2013, I discussed the negative impact that this rule can have on access to justice: not only is the losing party hit with two bills rather than one, but the losing party has no direct control over the costs incurred by the successful party.
The harshness of this rule was exacerbated by the ability of the successful party to recover any CFA uplift and ATE insurance premium from the losing party. This meant that some litigants were not required to put their hands in their pockets at all, whilst others were ordered to pay legal costs that far exceeded the value of the claim.
Lord Justice Jackson’s review and the consequent Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”), which came into force on 1st April 2013, put an end to the recoverability of CFA uplifts and ATE insurance premiums (see section 58A(6) and 58C(1) of the Courts and Legal Services Act 1990 as substituted by LASPO). However, the general rule that costs follow the event still subsists.
Claims under the Inheritance (Provision for Family and Dependants) Act 1975 (“1975 Act”) may be issued in the Family Division or the Chancery Division of the High Court or the County Court, but are subject to the civil procedure rules (see CPR Part 57.15(2)) and therefore the civil costs regime.
The courts have recognised that 1975 Act claims do not always fit comfortably within the civil costs regime. In Lilleyman v Lilleyman  EWHC 1056 (Ch), the claimant had received an award under the 1975 Act, but the cost consequences of the defendant’s CPR Part 36 offer meant that the claimant would be left with less than she reasonably required for her maintenance. Mr. Justice Briggs (as he then was) described this as the ‘unfortunate reality’ of the cost regime and expressed unease at the disparity between the cost regimes in 1975 Act claims and financial remedy proceedings arising from divorce where there is limited scope for costs shifting, such that the court is able to make an award which properly meets a party’s needs.
More recently, in Clarke v Allen  EWHC 1193 and 1194 (Ch), Deputy Master Linwood refused to include within an award for financial provision under the Inheritance Act the success fee element of a CFA for the following reasons:
- The calculation of damages is a matter of procedure carried out before costs are concerned and has never included an element of costs;
- To permit it would be contrary to the deliberate policy of the legislature that the losing party should not be responsible for the success fee;
- It would amount to an increase in damages by way of costs;
- It may put a CFA funded litigant in a better negotiating position and could lead to grossly disproportionate costs;
- There is no reason why a claimant seeking reasonable financial provision under the Act should be in a better position than one seeking, for example, damages for personal injury.
In April of this year, in the unreported case of Bullock v Denton, HHJ Gosnell, sitting in Leeds County Court, included within an award under the 1975 Act the sum of £25,000 towards the claimant’s success fee. He did so without reference to the decision in Clarke.
Then, only a week or so later, in Re H  EWHC 1134 (Fam), Mr Justice Cohen awarded £16,750, which represented part of a success fee, in another 1975 Act claim. He reasoned that it was appropriate to consider the liability as part of the claimant’s needs largely for case specific reasons; namely, that the court was not making a large award as in Clarke, it was not an award that permits of much elasticity, if the court did not make such an allowance one or more of the claimant’s primary needs would not be met, the liability cannot be recovered as part of any costs award from the other parties, the liability is that of C alone and she had no other means of funding the litigation.
Clearly Re H will be relied upon going forward. However, I would not get too excited about it just yet.
Firstly, it has limited application. It suggests that the court will only include the CFA uplift where the award is small, the claimant’s ‘primary’ needs would not otherwise be met and there is no other means of funding the litigation. I find this criteria odd in the context of a 1975 Act claim, but I suppose it could rule out spouses whose awards are not limited to maintenance.
Furthermore, the sums awarded in respect of the success fee in both Bullock and Re H were less than half of what the solicitors were actually entitled to. So even if you get the uplift, you are only likely to get a proportion of it, and how that will be calculated is not clear. The fact that an award would have to be revisited if it does not trigger the operation of the uplift, for example where a CPR Part 36 offer has not been beaten, is particularly unattractive.
It is also unclear whether a different conclusion would now be reached in a case like Lilleyman and whether the same approach will be taken in relation to ATE insurance premiums and damage-based agreements.
Finally, and perhaps most significantly, the reasons given by Deputy Master Linwood in Clarke are, in my view, far more compelling. In particular, it seems to me that the approach adopted in Re H was vulnerable to appeal given that it appears to circumvent parliament’s express intention that success fees are not recoverable in whole or in part from the losing party.
A potential solution in respect of 1975 Act claims is a regime whereby each party pays their own costs. This would enable successful claimants to recoup their costs, albeit through an award for reasonable financial provision as opposed to a subsequent costs order, and damage-based agreements could be used to protect unsuccessful claimants. Furthermore, as in financial remedy proceedings, adverse costs orders could be used in limited circumstances to protect against misconduct.
But for now, in light of this conflicting case law, the focus is on advising clients as to whether or not a court is likely to treat a CFA uplift as part of a party’s financial needs and the extent to which that should be reflected in settlement negotiations.
The full judgment can be found here:
Disclaimer: This post is for information purposes only. It does not provide legal advice and no liability is accepted for the accuracy or correctness of the post, or for the consequence of relying on it, by any member of Chambers or Chambers as a whole.
Tags: Family, Civil Litigation, Trusts, Estates, Probate and Private Client