By Helen Niebuhr, with Nick Martin


Care claims: periodical payments



On 17 January 2008, the Court of Appeal handed down the judgment on the Thompstone case. It reads as eminently sensible and does not just address the indexation issues anticipated and extensively argued.



The tone of the judgment is very much that the form of compensation award the claimant should receive will be that which best meets a claimant's needs (in accordance with the Civil Procedure Rules Practice Direction) and the defendant's preferences for an alternative form that better suits them is irrelevant. From a claimant lawyer's perspective, it is about time this was done.



The most significant points to extract from the judgment are:

- RPI can be substituted by another, more suitable, indexation for Periodical Payment Orders (PPOs);

- Affordability for the defendants cannot succeed as an argument to reduce damages for future loss;

- ASHE 6115 was an appropriate index for future loss (care and case management);

- Defences arguing against ASHE should now be struck out unless raising evidence and arguments are significantly different to that used in Thompstone;

- The form of award, for example any split between lump sum and PPOs, and the index to apply must be that which best meets a claimant's needs;

- The claimant's needs are not restricted to those claimed or 'foreseeable necessities';

- Flexibility for the future is a valid 'need';

- It is expected that the claimant will instruct and call an Independent Financial Adviser (IFA) and the advice of that 'experienced and responsible expert' will be given great weight by the court;

- The fact that the IFA will have discussed with the claimant and/or family their needs and preferences adds to the weight of the advice and preference as to allocation of award and index for any PPOs;

- The defendant is not expected to call evidence from their own IFA to rebut the claimant and their IFA's considered recommendations and preferences on form of award and index.





Lump sum settlements are not dead



The IFA advice will consider alternative forms of settlement. While PPOs for future losses have been assumed to be more compliant with providing 100% compensation, they have the disadvantage of lacking flexibility. For some claimants, this is a very important issue and they do not want to be fixed with the 'groundhog day' existence of having to rewind year on year due to fixed payments providing for the same way of life. The claimant's needs or situation may often turn out to be quite different from those predicted during the litigation, which in these cases is often at an early age.



Even where a PPO is made, flexibility for contingencies suggests a larger lump sum element be provided and therefore not all future losses will necessarily be paid by PPOs.





The claimant's needs first



The test is 'what best meets the claimant's needs', which may not be the same as what he prefers. However, the judgment held that 'it will rarely be appropriate for a defendant to argue that its proposals will meet the claimant's needs better than the proposals being advanced on the claimant's own behalf' and 'it will only be in a rare case that it will be appropriate for a defendant, such as the NHSLA [NHS Litigation Authority], to call expert evidence to seek to demonstrate that the form of order preferred by the claimant will not best meet his needs'.





Financial advice and future cost



IFA reports assume greater importance in determining the allocation of award and the indexation of any PPO, and the court will expect to see them. The financial adviser's report should be based on a free and full discussion with the claimant/family representatives, so claimant lawyers should ensure that their IFA meets with the claimant before preparing their report.



Defendants may now find the prospect of funding PPOs with ASHE indexation unattractive. Some may be unable to securely fund these or, if they have to purchase an annuity to do so, it will cost them several times more than an equivalent lump sum settlement. We may find that, for those defendants, PPOs fall by the way in favour of structured settlements for similar reasons.



However, the court now has the power to order PPOs whether or not either party objects to them, so the defendants may find themselves funding increasing periodical payments and keeping the books open indefinitely, whether they like it or not.



Defendants such as the NHSLA may face a reduction in immediate payouts of lump sums, which will provide short-term cash flow benefit but may pay out a great deal more over the longer term.





Decisions and surprises



The court made clear that it considered the decision given as to the suitability of ASHE 6115 index for care and case management (using weighted average rates applied to ASHE to get the appropriate ASHE 6115 percentile) to be closed. The judgment held: 'We hope defendants will now accept that the appropriateness of indexation on the basis of ASHE 6115 has been established after an exhaustive review of all possible objections to its use'.



Everyone expected the judgment to approve ASHE 6115 for care and case management costs. The defence arguments that ASHE 6115 was unsuitable because the earnings it follows are not a perfect match to home carers, while simultaneously seeking an index - RPI - that reflects no earnings element, were never going to hold water.



However, many lawyers thought the judgment would determine the index, and that agreed annual payments - usually compromised between claimant and defendant's positions as to needs - would be indexed by that. Thompstone makes clear that the assessment of what best meets a claimant's needs is more complex, and expert financial advice is still needed as to the form and allocation of award to achieve that. Therefore, claimant lawyers must not settle claims with significant future losses without obtaining and heeding the IFA's advice.





Unresolved issues



- What the appropriate index will be for other heads of loss that may be subject to a PPO;

- The extent to which other heads of future loss may be capitalised into a lump sum form to allow flexibility for contingencies.



These will be issues taken into account in the financial advice provided by the claimant's IFA, who will consider taking into account all circumstances, and after discussion with the claimant and family:

- The form of award and allocation of future losses as to lump sum and PPOs that best meets the particular claimant's needs;

- The form of indexation appropriate for any future losses subject to PPO;

- Whether the costs of recalculation of PPOs at ASHE 6115 and checking of uplift figures should form another head of future loss for the claimant.



We understand that the calculations are complex and any financial expert taking on the task of checking these will charge an annual fee.





Resolution at last?


With PPOs, we have not yet reached the final stop on the road to achieving 100% compensation for all claimants.



Where a claimant's life expectancy is not heavily uncertain, a lump sum may still be the preferred option allowing closure, investment to provide capital and income for future needs, and flexibility for the claimant to deal with any contingencies.



PPOs still have the inherent problem that if the claimant's needs in future differ from those predicted at the time of settlement, as they undoubtedly will, the PPO may be no better a match for the claimant's ongoing needs than a lump sum, but will be less flexible.



Hopefully, cases that have been left pending final settlement awaiting Thompstone can now be resolved amicably, and these issues will not need to come before the courts again. Leave to appeal has been refused by the Court of Appeal, but it remains to be seen if the request will be made, and if made granted, by the House of Lords.



Helen Niebuhr is head of clinical negligence at Oxford firm Darbys. Nick Martin is managing partner of the Nestor Partnership, PI and clinical negligence IFAs