Hirachand v Hirachand [2024] UKSC 43
Although primarily a family law case concerning the recoverability of CFA success fees, the Supreme Court’s decision in Hirachand v Hirachand had broader implications for the litigation funding market. The appeal raised the question whether a party who had entered into a conditional fee agreement could recover the success fee element from the opposing party as part of an inter partes costs order. The Supreme Court held that it could not, reaffirming the principle established by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which implemented the Jackson reforms by abolishing the recoverability of CFA success fees and ATE insurance premiums from opponents. The decision’s relevance to litigation funding lay in its broader confirmation that the costs of funding litigation, whether through CFAs, ATE insurance, or third-party funding, are borne by the funded party and cannot be shifted to the opponent through a costs order.
This principle has significant practical consequences for the litigation funding model. Because funders cannot recover their success fees or returns from the opposing party, these costs must come from the damages recovered. This creates a direct tension between the funder’s return and the net recovery available to the funded party or, in collective proceedings, to the class. The Supreme Court’s reaffirmation of the non-recoverability principle in Hirachand reinforced the economic architecture within which litigation funders must operate. It confirmed that funders’ returns are and will remain an expense borne by the funded side, making the waterfall and distribution provisions in funding agreements (as considered in Gutmann v Apple) all the more commercially significant. The decision also had implications for policy debates about whether the current framework strikes the right balance between facilitating access to justice through third-party funding and protecting claimants’ recoveries from excessive deductions by funders and their lawyers.