Wider use of Periodical Payments – PILJ October 2014

Andrew Sands and Nick Leech advocate greater use of periodical payments aided by case law, old and new.

Article Source: Personal Injury Law Journal – October 2014

A brief reminder of the benefits of settlement inclusive of periodical payments is always a good starting point. A secure, tax-free, lifelong income linked to earnings related inflation, adds up to a huge head start when contrasted with the traditional lump sum award. The list of headwinds afflicting the latter settlement type is lengthy – tax on investment returns, the unavoidable and often underestimated risks in relation to mortality and investment, and the cost of investment advice. All of those factors are nullified when the Claimant is compensated by way of periodical payment income.

Writing from the perspective of specialist financial advisers, the following factors are critical to the advice process, and in getting the Claimant off on the front foot post-settlement:

• Security and continuity of income: where the Claimant’s needs are concerned, investments should be sought that have a greater degree of protection than those that are available to ordinary investors. Unnecessary levels of investment risk should be avoided where possible.

• Flexibility: the Claimant’s situation will undoubtedly change over the course of their lifetime and finances should look to accommodate changing income needs. Actual income requirements are likely to differ from time-to-time from those anticipated by the experts.

• Tax efficiency: Income Tax and Capital Gains Tax may have a detrimental effect on the Claimant’s financial situation, depending on the tax regime throughout the course of a, possibly very long, lifetime.

Clearly, the above (arguably somewhat conflicting) considerations would ideally be satisfied by the inclusion of a lump sum and periodical payments as part of the Claimant’s award. Periodical payments, by their very nature, provide lifelong secure tax-free guaranteed income, but their lack of flexibility is balanced out by the accompanying capital sum.

Advice Opportunities

Bearing the above in mind, we still see many cases settling on a lump sum basis when periodical payments would have been more appropriate. There is, of course, the consideration of litigation risk, which can feature on occasions. Why would a Claimant risk an attractively pitched lump sum award if the Defendant makes it clear that periodical payments are not on offer? A Court would be likely to make a Periodical Payments Order, however, judicial scrutiny of the Claimant’s case may result in an adverse outcome more generally.

Our role in providing pre-settlement advice revolves around how awards should be apportioned between periodical payments and capital. Inevitably, that process involves consideration of which heads of future loss might be paid periodically. Our involvement usually commences in the latter stages of the litigation. A fairly common experience is that of the Claimant entrenched in the preference of a once and for all lump sum. That might be because the discussion about the appropriate format of the award has been commenced late in the day; or because the Claimant is perhaps attracted to what appears to be a large sum of money, without understanding the full implications of what that might involve. Imagine, for instance, a seriously injured young man with capacity but no earning potential choosing between a lump sum award of, say, £3m or a lump sum of £1m plus and annual periodical payment income of £30,000 for life. He has been told by the man in the pub that he could live off the interest of the larger amount and, let’s face it, the lump sum offer at first blush, does look enticing.

Both of the above scenarios could, to some extent, be addressed by appropriate financial advice given at an earlier stage than might be usual at present. The above young man in particular might be persuaded as to the wisdom of at least considering the options properly. The unhelpful input from the man in the pub is easy to dispel. If, however, views remain entrenched, at least advice has been provided.

Case Law

We alluded above to various heads of future loss that could be met by a Periodical Payments Order. The most common approach is that of care and case management costs paid periodically, with all other losses compensated by a lump sum award.

No review of the cases would be complete without a mention of Thompstone v Glossop Acute Services NHS Trust [2006], in which the Court disapplied the Retail Prices Index as a method of uprating periodical payments in line with inflation. In its place, the Court substituted a measure related to the historically higher wages related inflation, specifically tracking inflation related to care costs. That measure was found within figures compiled by the Office of National Statistics, namely, the Annual Survey of Hours and arnings (ASHE). At a stroke, the Court made periodical payments more attractive, and they became the gold standard of compensation. The ASHE data contains information regarding all occupations, not just care, so would be useful in extending periodical payments to other heads of future loss.

So, to summarise so far, periodical payments could be utilised in more cases, and that would be better for claimants, generally speaking. Greater use might be encouraged in two ways; first advice to claimants earlier within the litigation process where appropriate, and secondly, application of periodical payments to heads of loss in addition to the usual care/case management approach.

The following case is perhaps the high point, in the interpretation of the court’s powers under the statutory periodical payments regime, and its support for greater consideration of periodical payments generally.

Morton v Portal [2010]

Decided by Walker J, the effect of s2 of the Damages Act was considered together with CPR 41.7 and practice direction 41B, in the context of a claimant of full age and capacity. The relevant legislative history and the comments of Lord Steyn in Wells v Wells [1998] were also taken into account. According to Morton, the claimant’s preference as regards the format of the award is merely one of the factors in the practice direction, and does not give the claimant a trump card. Walker J said as follows:

 – it seems to me that s2(1) of the 1996 Act makes it perfectly clear that before making an order which awards damages for future pecuniary loss in respect of personal injury, the court is under an obligation to consider whether to make an order the damages are wholly or partly to take the form of periodical payments.

There is nothing to suggest that the agreement of the parties – either that the damages should be lump sum only, or that they should wholly or partly take the form of periodical payments – would remove that obligation. It follows that if the parties were to reach a contractual agreement in this regard the court would not be required to give effect to that contract.

Walker J made clear that his views were provisional and, because of the circumstances of the case, he did not need to make any findings on the particular points that arose. That is perhaps unfortunate, as it would be very interesting to see how far he would intend the court’s power to apply.

Periodical payments have found judicial support for heads of future loss, other than care, but cases are not often reported. Since the Thompstone litigation, loss of earnings, and rent payments have been met by way of a periodical payments order, and featured within various cases. Some foreign claimants injured in this jurisdiction have had the benefit of periodical payments when living abroad, paid in the appropriate foreign currency, and uprated in line with earnings inflation in their own country. Wider usage is evident and entirely possible when the parties are willing to cooperate.

More recently, judicial support for the use of periodical payments to meet the costs of deputyship, can be found in the following case.

Farrugia v Burtenshaw [2014]

An interesting case in many respects, not least for consideration of variable periodical payments (to reflect provisional damages award), and whether in the circumstances periodical payments could be considered to be secure;

Mr Justice Jay ordered that it was entirely appropriate to award periodical payments for the costs of Deputyship. He approved the annual uprating of such costs to be calculated and assessed by reference to the guideline hourly rates for solicitors. Summary and conclusion Having nailed our colours to the mast in previous articles published in The Personal Injury Law Journal, and at the outset here, we are pleased to be able to draw some support from the above cases.

The ground work laid by the Thompstone cohort of cases should be built upon to widen the use of periodical payments from two angles – more higher value cases settling on that basis and, secondly, adequate consideration should be given to heads of loss such as Deputyship to be paid by a Periodical Payments Order. Defendants might not look upon such developments favourably, but obvious judicial support might be helpful as a tool for persuasion.

Farrugia v Burtenshaw & Others

[2014] EWHC 1036 (QB)

Morton v Portal
[2010] EWHC 1804

Thompstone v Glossop Acute
Services NHS Trust[2006] EWHC 2904 (QB)

Wells v Wells
[1998] UKHL 27

If you prefer to read this article offline you can download the .pdf here.

Source: Personal Injury Law Journal – October 2014