2015 marks Nestor’s 10th anniversary. Andrew Sands reflects on the changes to damages awards in personal injury and clinical negligence cases over the past decade, and explains why advice from the right Independent Financial Adviser (IFA) can prevent the hard work of litigation from being undone.
Nearly a decade has passed since personal injury and clinical negligence lawyers were asked to get to grips with a new periodical payments regime in relation to damages awards. The problems associated with lump sum payments were identified over 30 years ago by Lord Scarman in the case of Lim Poh Choo v Camden & Islington Area Health Authority (1980) when he stated: “The award is final: it is not susceptible to review as the future unfolds, substituting fact for estimate. There is only one certainty: the future will prove the award to be either too high or too low.”
These early judicial observations undoubtedly sowed the seed for the Courts Act 2003 and, on 1st April 2005, periodical payments for future pecuniary loss came into force. With it, came a number of issues that neither the pre-legislative consultations, nor the Department of Constitutional Affairs (DCA) guidance could have identified.
For one thing, the periodical payments regime coincided with the withdrawal from the market of two insurance companies which provided annuities. Therefore, the cost of RPI linked annuities was usually far in excess of the lump sum equivalent, making it unattractive to Defendant insurers who were not happy with funding such open-ended and long-term liabilities from their own resources.
There is no doubt that case law has shaped the periodical payments regime to a very significant extent. Initial slow take-up of settlements inclusive of periodical payments was, in part, due to the slow pace at which the procedural judiciary warmed to its new powers, reluctance of insurers to self-fund and the indexation issue which made periodical payments unattractive – simply because RPI linkage was inappropriate.
The Thompstone Litigation in 2008 is widely regarded as the most important in relation to periodical payments, and has resulted in settlements inclusive of periodical payments becoming the norm in catastrophic cases. That case rectified the problem with RPI linkage, as ASHE 6115 was applied in its place ensuring that periodical payments were annually uprated in line with earnings based inflation.
Periodical payments have found judicial support for heads of future loss other than care and case management (which is the usual model) but such cases are often not reported. Since Thompstone, loss of earnings, rent payments and the costs of Deputyship have been met by way of a Periodical Payment Order.
Demise of the Lump Sum?
Years into the regime, periodical payments have remained firmly in the territory of the highest value cases, but it is widely accepted amongst practitioners that it is still necessary to calculate the lump sum in order to evaluate offers inclusive of periodical payments made during negotiations with reasonable accuracy. The multiplier and multiplicand can still be used as a yardstick in settlement negotiations.
The consideration of periodical payments in lower value cases should be encouraged, as the relevant legislation applies to all heads of future loss – no lower limit is identified.
The role of the Independent Financial Adviser
Effective litigators don’t just steer clients towards IFAs once the case has settled. Many now instruct IFAs to prepare reports that aid the settlement negotiation process. Reports which advise on settlement options can be an invaluable tool, not just for lawyers, but also for clients, as it can aid in the understanding of often complex and technical financial issues. From a practical perspective, proper advice can assist with getting the Claimant off on the front foot. The correct balance between capital and income is essential in ensuring the Claimant’s needs are met. The obtaining of pre-settlement advice is recoverable as a cost of the litigation, and is specifically envisaged in the Practice Direction to the relevant CPR.
There are a very small number of law firms authorised to provide Independent Financial Advice, and for good reason. The regulations are onerous and the cost of running an in-house operation can be burdensome. It’s therefore incumbent on the advising lawyer to guide clients towards specialist IFAs to ensure that the hard work of the litigation is not undone by inappropriate or misguided financial advice.