UserPromptSubmit hooks don't fire when launched from a subdirectory

Bug

UserPromptSubmit hooks defined in .claude/settings.json at the project root don't fire when Claude Code is launched from a subdirectory of the repo. Other settings from the same file (e.g., permissions) load correctly.

Repro

1. Define a UserPromptSubmit hook in <repo-root>/.claude/settings.json:

{
  "permissions": {
    "allow": ["Bash(myscript:*)"]
  },
  "hooks": {
    "UserPromptSubmit": [
      {
        "hooks": [
          {
            "type": "command",
            "command": "echo '{\"additionalContext\": \"hook fired\"}'"
          }
        ]
      }
    ]
  }
}

1. cd <repo-root>/dir1/dir2/ and run claude
2. Type any prompt

Expected: Hook fires and injects additionalContext.

Actual: Hook does not fire. Claude processes the prompt normally with no hook involvement. Permissions from the same .claude/settings.json file are loaded and enforced correctly.

Running claude from the repo root with the same settings works as expected — the hook fires on every prompt.

Environment

• macOS (Darwin 24.6.0)
• Claude Code CLI