Many charities with be familiar with the Inheritance (Provision for Family and Dependants) Act 1975 (the '1975 Act'). If you have had to deal with a claim under the 1975 Act then you will also know that it is a notoriously discretionary and fact specific jurisdiction. For that reason it is particularly helpful to chart the trends and consider court decisions so that your charity is best equipped to address them when they do come across your desk.

By way of reminder, where an individual dies domiciled in England and Wales, the 1975 Act allows certain categories of people (including spouses, cohabitees, children (of any age), those treated as children of the family and those maintained by the deceased) to claim 'reasonable financial provision' from the estate if the will or (if applicable) intestacy provisions fail to make 'reasonable' provision for them. 

In the case of a husband, wife or civil partner that means 'such financial provision as it would be reasonable in all the circumstances of the case … whether or not that provision is required for his or her maintenance.'

For all other applicants it means 'such financial provision as it would be reasonable in all the circumstances of the case for the Applicant to receive for his or her maintenance.'

Reasonable provision

The court will use the following factors (the 'section 3 factors') when assessing what is reasonable:

1. the financial resources and financial needs which the applicant has or is likely to have in the foreseeable future;
2. the financial resources and financial needs which any other applicant for an order under section 2 of this Act has or is likely to have in the foreseeable future;
3. the financial resources and financial needs which any beneficiary of the estate of the deceased has or is likely to have in the foreseeable future;
4. any obligations and responsibilities which the deceased had towards any applicant for an order under the said section 2 or towards any beneficiary of the estate of the deceased;
5. the size and nature of the net estate of the deceased;
6. any physical or mental disability of any applicant for an order under the said section 2 or any beneficiary of the estate of the deceased; and
7. any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant.

For spouses the court will also have regard to the age of the applicant, the duration of the marriage and the contribution made by the applicant to the welfare of the family of the deceased, including any contribution made by looking after the home or caring for the family. 

Unless at the date of death the couple were separated and a separation order has been made by the family court, it will also the 'have regard to the provision which the applicant might reasonably have expected to receive if on the day on which the deceased died the marriage, instead of being terminated by death, had been terminated by a divorce order'. Often referred to as the 'divorce cross check', this does not set an upper or lower limit on the provision which may be awarded in the 1975 Act claim but rather sets an indication of what the spouse might expect to receive. 

It is these factors which make 1975 Act cases highly discretionary and fact specific. Those that reach court (rather than settling) often do so when a novel point arises or to clarify the above principles.

'Reasonable' provision for spouses

Two recent cases considered the question of what is reasonable provision for a spouse. 

Sim v Pimlott [2023] EWHC 2296 (Ch)

David Sim had five children: Louise, by his first marriage to Anne; David Jr by a relationship with Yvonne; Katie and Alistair, by his second marriage to Pauline, and Callum, by his third marriage to Valerie.

David and Valerie began their relationship in 1982, when he was married to Pauline. 11 years later, in 1993, David divorced Pauline. Around 1995 or 1996 Valerie moved in with him into Lothlorian House, and they married in 1998. By 2009 Valerie and David's relationship had broken down and they intended to divorce, getting as far as decree nisi before the petition was withdrawn. 

In December 2017 David made his last will with Bramhall solicitors. He was advised on the 1975 Act and said that his relationship with Valerie 'had deteriorated such that he wished to limit the provision he made for her under his will to the maximum permitted by law' (ie required by law). 

Towards the end of David's life their relationship deteriorated further, with Valerie refusing to allow him to live with her at Lothlorian House. On 16 January 2018 David died aged 79. At that time divorce proceedings were pending once again, and Valerie was seeking non-molestation and occupation orders against him.

The net value of his estate was £1.2 million, out of which his 2017 will gave Valerie: 

• £250,000 provided she released any claims she might have under the 1975 Act and vacated Lothlorian House together with anyone else living there; 
• £125,000 provided she facilitated the sale of their jointly owned property in Dubai; and 
• a life interest in residue (subject to powers of appointment in favour of other beneficiaries).

In addition, she would receive his NHS pension.

In 2019 Valerie brought a 1975 Act claim that made reference to David's domestic abuse, including controlling behaviour and repeated rape of Valerie. She said that David had promised not to kick her out of Lothlorian House. Her son Callum gave evidence to this effect.

In April 2022, Valerie was involved in a road traffic accident leaving her with a brain injury, which she said meant further provision should be made for her. 

The judge found Valerie to be an unreliable witness, who said whatever she thought would serve her best. He further held that:

• the provision in the will had been reasonable for the most part: it was reasonable to impose the conditions, and if Valerie had met those conditions the provision for her would have been reasonable. Having chosen not to meet the conditions, Valerie could not then claim that the provision she would receive as a result of her own choice was insufficient. 
• it was not inherently unreasonable provision for Valerie to be the object of a life interest. However, the provision was unreasonable in not providing Valerie with accommodation, leaving her homeless and without resource to buy a home. So a variation was ordered such that the trust would buy a house for Valerie to live in. 
• in respect of her brain injury, she should seek compensation from the other driver or their insurer, and not from David's estate.

Clearly the situation that Valerie was in was very sad but this case shows the care that a judge will take to look at all the circumstances and the precise provision made in the will. The inadequacy of Valerie' housing was the primary focus for the judge and, in our experience, particularly where an applicant has other sources of income (eg deceased's pensions) an overwhelming concern is provision of accommodation. Often, that is the key to resolving a dispute before it reaches court.

Standish v Standish [2024] EWCA Civ 567

While this case concerns the financial provision made for each spouse on their divorce (rather than the provision made on the death of one spouse as in a 1975 Act claim), the court will take these principles into account in a 1975 Act claim by a spouse, under the 'divorce cross check'.

In Standish v Standish the question before the court was: 'how should assets, transferred by the wealthier spouse into the other's name (eg for tax planning purposes), and treated by the couple as ring-fenced for the wealthier spouse, be divided on divorce?'.

Whether such assets fall into the matrimonial pot may significantly affect what assets are taken into account in the 'divorce cross check' and correspondingly, the court's assessment of how much is reasonable to award under the 1975 Act. 

Mr and Mrs Standish married in 2005. Prior to the marriage, Mr Standish built a very successful business before retiring in 2007. In comparison Mrs Standish had modest assets before their marriage. The couple enjoyed a high standard of living, largely as a result of Mr Standish's wealth. One family home was in joint names, but the majority of the other assets remained in the husband's name throughout their marriage. In the later stage of their marriage for tax planning purposes Mr Standish transferred assets (now worth c.£80million) from his sole name to her outright, with the expectation that after a “reasonable” period she would place the assets into trust (which he believed he could be added as a beneficiary of before the money passed to their children).

By 2020 their marriage had broken down and they divorced. At the time of their divorce, the couple's assets were £132 million.

On divorce the presumption is that assets of the marriage will be divided equally between spouses ('the sharing principle'), subject to the needs of either party and certain other exceptions such as one spouse making an exceptional contribution to the couple's wealth and assets acquired before the marriage and kept separate during the marriage being excluded from the available assets.

In calculating whether the transferred assets were matrimonial property, an important factor was the source and ownership of the assets (rather than who held them during the marriage). The court held Mrs Standish had not treated the assets property owned jointly by her and her husband, but as property of her husband. Therefore, it was not matrimonial property and was not included in the assets available to be divided. A fair application of the sharing principle on that basis would have resulted in Mrs Standish receiving approximately £25 million, subject to assessment of her needs.

The Court also considered when a non-matrimonial asset (ie one brought into the marriage) would become matrimonial and therefore fall into the pot of available assets. The Court held it would happen in narrow circumstances, and only where fairness required or justified the asset being included within the sharing principle. However, that would not mean that it had to then be shared equally. 

Commentary

The divorce cross check and how the family court approaches including or excluding assets from the available pot is helpful to bear in mind when considering the potential pot a 1975 Act claimant can claim against. It is particularly helpful for your charities in estates where significant assets were brought into the marriage by the deceased: Standish v Standish gives grounds to push back on the assumption these should be awarded to or shared with the surviving spouse by right. 

However, it is also important to remember the divorce cross check is only a guide, and will be less persuasive in cases where needs dominate the surviving spouse's claim. While the Matrimonial Causes Act 1973 and the 1975 Act have overlapping aims (in providing for spouses on the breakdown of a relationship), by their nature they operate in very difference circumstances. Any application of the divorce cross check must be caveated with these differences.

Can litigation costs be taken into account?

Under the Civil Procedure Rules (CPR), under which 1975 Act claims fall, the substantive issue(s) are dealt with first and then a decision on costs follows, usually at a separate hearing. In other words, in 1975 Act claims the question of how costs are dealt with only arises after the financial provision has been awarded and quantified.

This process allows for confidential (ie without prejudice save as to costs 'WPSATC') settlement discussions to be had and, as appropriate, taken into account on the question of who should pay the costs of the litigation. Being able to negotiate confidentially allows parties to be more open about the weakness in their case or to concede points in an attempt to settle the dispute. But clearly they would not want such concessions disclosed to the Court when it is determining the merits of that party's case!

However litigation is not cheap. When determining what is 'reasonable provision', section 3 of the 1975 Act (above) requires the Court to consider the claimant's 'financial needs' – of which the need to pay one's lawyers is arguably one! Particularly where estates are limited in value and so by necessity the focus becomes on meeting the claimant's needs, their legal costs can undermine the purpose of the award. If their legal costs are not taken into account, they will be left with less than the Court assessed as being reasonable in the circumstances and necessary to meet their needs. This is brought into particularly sharp focus with the increase in Conditional Fee Agreements ('CFA') which often come with steep success fees. 

But conversely taking account of the claimant's legal costs at the time of the substantive hearing (ie when determining the quantum of an award) contradicts the CPR's costs regime and flies in the face of WPSATC offers. That risks prejudice to the defendants, including charities defending claims as a residuary beneficiary. This is the dilemma faced by the Court in the following two cases.

Srendarjit Kaur Jassal v Sajad Ali Shah [2024] EWHC 2214 (Ch)

In about 2000 Fiaz Ali Shah began a relationship with Srendarjit Kaur Jassal. In due course they began living together (although never married). Their relationship broke down in 2012 but subsequently their relationship resumed (although the extent was disputed). On 6 December 2018 Fiaz made a will, leaving nothing to Srendarjit. 

Fiaz died in April 2020. The Grant of Probate valued his estate at c. £1.4million.

Srendarjit brought a successful 1975 Act claim as a surviving cohabitee.

In calculating her reasonable provision Deputy Master Marsh included £235,000 of property needs, £200,000 of income needs and (controversially) her litigation costs of £140,000 (plus VAT). No order was made as to costs, with the order stating that costs had already been dealt with in the lump sum award.

The executors appealed on the ground that Deputy Master Marsh had made an error of law by awarding Srendarjit her litigation costs as part of the substantive award as opposed to separately from and subsequently to the substantive award in accordance with the CPR.

The Court followed the 2012 case of Lilleyman v Lilleyman in which a surviving spouse was successful in her 1975 Act claim but, at the costs stage, certain WPSATC offers were revealed including a Part 36 offer she had failed to meet. Accordingly she was ordered to pay a percentage of the defendant's post-offer costs which significantly reduced her reward.

In making the costs order, the judge contrasted the position under the 1975 Act and the Matrimonial Causes Act 1973. As discussed above, there are strong similarities between the objectives of both acts. However, they fall under two very different procedural regimes. The Family Procedure Rules 2010 (which govern MCA 1973 cases) place emphasis on making open offers and allowing the Court to take account of the parties' respective costs when making a substantive award. It does so at the expense of encouraging WPSTAC offers and the possibility of adverse costs orders for those who refuse a Part 36 offer they fail to beat. Following Lilleyman, the Court in Jassal held that 'there are no doubt good reasons for the two different regimes – there are clearly very different considerations which apply to financial remedy proceedings following divorce than those which apply to regular civil litigation. As things stand, proceedings under the 1975 Act are squarely governed by the CPR'. It considers that if there is to be a change then it is for Parliament to do.

Until it does so, the position remains: a claimant's litigation costs cannot be taken into account as part of the substantive award.

Hirachand v Hirachand [2024] UKSC 43

Navinchandra Dayalal Hirachand died in a house fire in 2016 leaving his wife, Nalini, and their two children Sheila and Katan.

Navinchandra's 25 June 1998 will appointed Katan as executor and left his entire estate (£554,000) to his wife, who was frail, profoundly deaf and suffering from cancer.

Sheila was estranged from her parents. She had severe health problems and insufficient income or assets to support herself. Sheila brought an application for maintenance under the 1975 Act.

In light of Nalini's competing needs, the judge considered it was not appropriate to award Shelia capital for a home or an income fund for life. He did however award her £138,918 to cover her current financial needs and £80,000 plus VAT of her assessed costs.

The evidence showed that Sheila had entered into a CFA with her solicitors for all legal expenses incurred after 6 March 2018 and that she had no other way of funding the litigation. The CFA contained a 72% success fee (according to the judgment, £48,175 in addition to the costs actually incurred). The judge held her obligation to pay the success fee formed part of her 'financial needs' to which the Court must have regard under section 3(1) of the 1975 Act. Accordingly, the £138,918 included £16,750 to cover what the judge considered was a reasonable success fee (25%). The judge did not know whether Part 36 settlement offers had been made and accepted his order created a risk of injustice.

The Court of Appeal upheld the judge's decision. 

Nalini appealed to the Supreme Court. It held that the success fee should not have been included within Sheila's award as allowing recovery of the success fee within the substantive order ignored the established costs regime and the prohibition on recovery of success fees:

• The 1975 Act is governed by the CPR. Awarding success fees within the substantive award is inconsistent with the CPR's cost regime, under which litigation costs can only be recovered after the substantive hearing, through a separate costs order. That was the law when the 1975 Act was enacted and remains so now. Further, awarding success fees in the substantive award would make the CPR Part 36 regime unworkable.
• The Courts and Legal Services Act 1990 prohibits success fees in civil litigation being recovered in a costs order. The principle behind this is an important one: CFAs and success fees are major contributors to disproportionate costs in litigation. In Hirachand the Supreme Court took a broad interpretation of 'costs order' to protect this princple, finding that to the extent the substantive order dealt with the success fee, it was a costs order and so was caught by the 1990 Act's prohibition. 

The Court ordered the substantive award was reduced by the £16,750 attributable to the success fee.

Commentary

The decisions of the Court that a claimant's litigation costs (including success fees) cannot be taken into account when quantifying the substantive award will be welcome news to charities. The decisions support the underlying principles of the costs regime in providing for just and proper outcomes and in deterring the incurring of disproportionate costs. In supporting the Part 36 regime, these decisions should encourage (rather than undermine) settlement efforts. And, by confirming success fees are not recoverable, residuary beneficiary charities are protected from covering a the often incredibly high mark ups agreed by the claimant.

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