The risks of no-win-no-fee agreements for claims against an estate

Are “no-win, no-fee” agreements available for claims against an estate?

Funding arrangements such as Conditional Fee Agreements (“CFA’s”) or Damages Based Agreements (“DBA’s”) are collectively referred to as “no win, no fee” agreements. Some firms offer these funding arrangements for some types of claims, however, unless you are claiming against a very large estate and are expecting to recover a significant sum, it is unlikely to be in your best interests to fund your claim under one of these agreements because of the success fee which is charged.

What is a success fee?

Whilst the idea of not paying any legal fees if you lose the case sounds very attractive, the flip side of the agreement is that if you win the case, you will pay to your solicitor on top of their fees (called base costs), a success fee which is calculated on a percentage of the fees incurred (up to 100%) (for a CFA) or a percentage of the damages recovered (for a DBA).

Why is a success fee bad?

The general rule in claims relating to an estate is that the winner of the claim pays the unsuccessful party’s costs. It is generally misunderstood that all costs will come from the estate.

This means that if you are successful in your claim, your legal costs will be paid by the losing party (subject to assessment by the court). The losing party will not, however, be required to pay your success fee, which will have to be paid by you from the award you receive from the court. This is shown in the example below:

• For the purposes of this example, you have entered into a no-win, no-fee agreement with your solicitor which says that if you are unsuccessful in your claim you do not pay your solicitor’s fees, but if you are successful, you will pay a success fee of 90% of the base legal fees.
• By the time the claim reaches trial, your base legal fees are £100,000. Therefore if you win you will be required to pay to your solicitor fees of £190,000 (the base legal fees plus the 90% success fee). If you lose, you pay your solicitor nothing.
• At trial, the Judge finds in your favour and awards you £80,000 plus your costs.
• As success fees are not payable by losing parties, the money you will receive from the defendant will be a maximum of £180,000, being the judgement sum of £80,000 and your base legal costs of £100,000 (in fact it is likely to be less as costs are assessed but for these purposes, we will assume you recover all of your base costs).
• As you can see, you will receive a maximum of £180,000 but now have to pay your solicitor £190,000, so although you have been successful you will actually be out of pocket by £10,000 and will need to pay your solicitor this £10,000 out of your own money.

It is for this reason that funding arrangements of this nature should not be entered into unless the sum you expect to receive from the estate is very large. Otherwise, you would be far better to pay for your legal fees on a normal hourly rate retainer basis, with no success fee. In the example above, the costs you would have to pay your solicitor on a normal hourly rate retainer basis would only reach £100,000; whereas the costs would reach £190,000 on a no-win-no-fee agreement basis.

What are the other downsides of a “no-win, no-fee” agreement?

If you lose your claim, you will not have to pay your solicitor’s fees, but you will be required to pay the fees of the winning party. To protect you, should the case be lost, your solicitor may offer you an insurance policy that will pay the other side’s costs if you lose.

Whilst this may on the face of it solve the issue, there are often high premiums to be paid to the insurer if you are successful in your claim, further reducing your award from the court.

There may also be circumstances when an insurer refuses to pay the costs that you have been ordered to pay after losing a claim, for example, if the court has made a finding that you have been untruthful about anything concerning the case. If you are considering taking out such a policy, make sure that you fully review the circumstances in which the insurer can refuse to pay out.

Finally, whilst the arrangement covers your solicitor’s fees, you will still be required to pay disbursements, such as court fees, experts fees and your barrister’s fees (unless they are also retained under a similar agreement).

Can I ever recover the success fee as damages?

At present, following the decision of the Court of Appeal in Hirachand v Hirachand (2021), it is possible for the court to take into account a success fee payable by a claimant in a claim for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (“the Act”).

This case involved a claim under the Act by a daughter against the estate of her deceased father who had not made provision for her within his will. Following a trial, the Judge awarded the claimant a lump sum for her maintenance. When calculating that sum, the Judge classed the success fee which the Claimant would be required to pay to her solicitor as a debt of the Claimant and increased the award accordingly.

The executor of the father’s estate appealed the Judge’s decision to the Court of Appeal on the basis that the Judge should not have included the success fee as a debt, however, the Court of Appeal disagreed and ruled that Judges do have discretion under the Act to take into account any success fee payable when determining how much to award a Claimant.

A further appeal of this case was heard by the Supreme Court in January 2024 and the decision is eagerly awaited …

If you have any queries about any probate-related claims, or you would like to discuss funding, please contact Laura Alliss or Ella Harmer in the contentious probate department.