Appendix 6 LUMP SUM DAMAGES AND PERIODICAL PAYMENTS REPORT TO THE CLINICAL DISPUTES FORUM

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1 Appendix 6 LUMP SUM DAMAGES AND PERIODICAL PAYMENTS REPORT TO THE CLINICAL DISPUTES FORUM 1. This report summarises and discusses 25 responses to the Clinical Disputes Forum discussion paper on lump sum damages and periodical payments. The respondents, to whom we are grateful for their help, are listed in the Annex to this report. 2. Under the Damages Act 1996, periodical payments can be ordered with the consent of the parties but not otherwise. The CDF proposal is that there should be a power to order periodical payments despite the objection of at least one party. Such objection would, no doubt, be a factor which might influence a court in deciding not to order periodical payments, but under the scheme which we envisage would not be decisive. 3. All respondents save the Medical Defence Union supported the proposal that the courts should have power to order periodical payments in personal injury actions. Some doubted that such a power should apply to cases under the Fatal Accidents Act 1976, in which the multiplier reflects the life expectancy of the deceased and not that of the claimant, and where the deceased may well have been insured. However, we consider that the power should apply to fatal accidents as well as personal injury cases, although we appreciate that the courts might well hesitate longer before exercising it in cases under that Act than where the claim is in respect of personal injuries. 4. Respondents were divided as to whether the discretion to exercise such a power should be fettered by legislation. Our own view is that it will be easier for courts to arrive at just decisions on a case by case basis, and thus allow principles to evolve and guidelines to develop, than it would be for Parliament to produce a satisfactory blue-print. In any event, the assessment of damages then: is part of the traditional role of the courts. It is a role in which juries previously were involved. Now it is the established role of the judiciary. It is a role which, as a result of their accumulated experience, the judiciary is well qualified to perform. Per Lord Woolf MR in Heil -v- Rankin [2000] 2 WLR 1173 at 1192E-F. 5. There was strong support for periodical payments being index-linked, and most respondents were in favour of linkage of categories of loss to the relevant index, e.g. of equipment to RPI but of Proj A Apr

2 care to the average earnings index. We bear in mind that the decision in Heil -v- Rankin supports the continued use of RPI only, as opposed to the gross domestic product or some other index, as the appropriate guide to periodic increases in the nominal value of general damages. However, we comment that in our present exercise we are considering not the evaluation of general damages but a proper approach to providing for needs. 6. Respondents were naturally and properly concerned about the security of a stream of payments stretching indefinitely into the future. One suggestion was that such payments should only be awarded if the court was satisfied that there was a secure compensator. However, we comment that there seems to be no reason why a claimant with full capacity should not be able to take the risk of an award of periodical payments even in the absence of security. Most respondents, however, concentrated on generalised suggestions for statutory protection, e.g. by extension where necessary of the Policyholders Protection legislation. 7. In relation to the NHS, liabilities are transferred to successor authorities under the National Health Service (Residual Liabilities) Act Further, Section 6 of the Damages Act 1996 gives a Minister of the Crown power to guarantee periodical payments ordered by the court. We do not know what guarantees have in fact been given. In these circumstances we suggest that in any case where a claimant has indicated that he will or may seek an order for periodical payments, or in which a court has indicated at a case management conference that periodical payments may be ordered, the defendant should be required to state what, if any, security would be available, and that such statement should be taken into account by the trial judge in deciding whether to order periodical payments or approve a settlement including them. 8. Respondents were overwhelmingly in favour of periodical payments being tax-free in the hands of recipients, as is the case under structured settlements. 9. The majority of respondents also favoured giving the courts the power to order periodical payments at different rates in respect of different periods of time. Such a provision would also be consistent with the practice of structured settlements. 10. The major problem addressed by respondents was whether periodical payments should be reviewable. We previse our discussion of the responses by making two points: (i) If orders for periodical payments are not to be reviewable, they will suffer from the main Proj A Apr

3 disadvantage of structured settlements, which is rigidity. (ii) The need for review of periodical payments would be diminished to the extent that the original order provided for different levels of payments, where appropriate, in respect of different periods in the claimant s anticipated life; different criteria for indexation to match different categories of need; a significant lump sum to cope with contingencies. 11. The majority view was that no lump sum order should be reviewable, and in our view this is clearly right. We say this because we envisage that a lump sum is likely to reflect general damages, immediate needs, capitalisation of future one off needs, and capitalisation of comparatively small recurring costs. 12. Arguments against the power to review periodical payments, which would more naturally reflect significant continuing loss and expense, such as loss of earnings and the cost of care, included the following: the main uncertainty is life expectancy, and the periodicity of payments would eliminate that uncertainty; there could be arguments as to whether any increased need was causally connected to the negligence; reviews would be costly; reviews would prolong the adversarial relationship and its stresses; the possibility of review might discourage a claimant from rehabilitating himself and going back to work, while encouraging defendants to spy on him. 13. The majority, although not an overwhelming majority, of respondents favoured a power to review. We accept that with so small a number of respondents the argument cannot be resolved by counting heads. Nevertheless, we see the power to review as a desirable residual method of correcting injustice on one side or the other. The difficulty would be to prevent its existence being abused to harass, or invoked to tinker about with awards when the change in circumstance was comparatively small. 14. Various control mechanisms have been suggested Proj A Apr

4 there was widespread assent for the proposition that the court should have power to specify not only the dates but also the circumstances in which an award could be reviewed one respondent suggested that the court should have the power to prevent an application for review within a specific time without the leave of the court. costs sanctions should apply to unmeritorious applications. There was some support for a penalty on the party on the question of review if a defined level of success, e.g. a 10% or 25% alteration in the original order, was not achieved. However, a greater number of respondents felt that the costs regime under the Civil Procedure Rules (which we know is being exercised flexibly and with vigour) would provide a sufficient deterrent. We favour the second alternative, as rigidity in producing justice. 15. There was, nevertheless, concern about the overall expense of any review machinery. Two mechanisms were suggested the application should initially be determined on paper, with an oral hearing only if one side objected to the result. A substantial majority of respondents favour this suggestion. it was suggested that applications for review should be made not to the court but to a review panel established for that purpose. There was an almost even division of opinion on this point. Our recommendation is that until experience accumulates, reviews should remain court based, but that pressure should be put on the parties to mediate, reinforced by a costs sanction against any party who, without excellent reason, refused an offer to mediate. 16. Finally, in our discussion paper we raised the question as to whether increased payments should be met by a review fund or review funds provided by levies from government departments, insurers and medical defence organisations. There was a marked division of opinion on this. Objectors pointed to administrative problems, difficulties in calculating contributions, and a disincentive, which such a scheme might provide to the defendants to resist unmeritorious allegations. To this we might add the fact that, logically, if increased payments were to come out of a review fund, it would be strange if decreases in awards benefited individual defendants and insurers. We conclude that increases in awards should be met, and decreases in awards enjoyed, by those who provided the original compensation. Proj A Apr

5 CONCLUSION (a) There is clear support for a power to order periodical payment to be free of tax in the hands of the recipient. (b) Such payments should be tailored to different phases of need and index-linked, preferably to different indices appropriate to different categories of need. (c) The guidelines for discretion in the exercise of such a power should be developed by the courts. (d) Security should be provided by appropriate legislation and government guarantees, and the absence of security should be a powerful, though not necessarily decisive, reason for not making an award for periodical payments. (e) Lump sums should not be reviewable. (f) Periodical payments should be reviewable, primarily but not exclusively at the dates or in circumstances specified by the court or agreed at the time of the initial award or settlement. Nevertheless any party should have the right to ask for a review. (g) Review applications would be well suited to mediation. (h) Unmeritorious applications or unreasonable refusal of mediation should be vigorously controlled by costs orders. (i) Compensators, rather than any review fund, should pay for increases and benefit from decreases in the original awards of periodical payments. ADRIAN WHITFIELD Q.C. September 2000 Proj A Apr

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