By : Emily Formby
Periodical payments in practice – Emily Formby sets out some hints and tips for the early stages of proceedings.
Since 1 April 2005, all practitioners settling claims involving future loss have had to consider a periodical payments order. In some cases, the court has considered and imposed a payment – with or without the parties’ consideration or consent.
While variation orders will only apply to claims commenced after 1 April 2005, periodical payments have now been a part of practice for nearly a year.
This article does not try to cover the principles behind periodical payments and Orders, which have been addressed in many articles written on the subject. Nor does it replace a thorough reading of the Courts Act 2003, the Damages Act 1996 nor the Department of Constitutional Affairs Guidance Note, nor, perhaps most importantly, CPR 41. What it does aim to do is consider some of the practical aspects of periodical payments, or claims where periodical payments may form part of the damages sum, particularly in the early stages of proceedings – pleadings, the first Case Management Conference (CMC) and interim payment applications.
Periodical payments can only apply to damages for future pecuniary loss – and apply to all damages claims, so encompassing claims under the Fatal Accident Acts, as well as personal injury claims. The most usual heads of damage will be loss of earnings and care (with associated losses such as case management, equipment and so forth).
Over the past year it has become clear that periodical payments are the sensible norm for claims where there is significant dispute over life expectancy. The need for complicated and disputed evidence on life expectancy is negated by the periodical payment for life and the court is spared the invidious task of possibly leaving a seriously injured claimant without sufficient resources for his final years, while trying to strike a fair balance on the evidence for the defendant.
It has become equally clear that the mechanism of periodical payments, reducing future claims to annual sums (not strictly annuities, but such for all practical purposes) is a less satisfactory outcome for claimants who may wish to make large capital payments, for whom contributory negligence is a significant limit on damages recovery or who have other plans for the spending of their damages sum than on the heads of damage to which the carefully crafted and attributed Schedule of Loss has allocated them. One, perhaps unwitting, effect of the periodical payment has been an erosion of the principle that the court takes no interest in how the claimant spends his damages. The parcelling out of a portion of damages at an annual rate can significantly curtail investment or spending plans. Of course, such interference is not without precedent – the Court of Protection has acted thus with patients and children for many years.
CPR 41.6 requires the parties to consider and indicate at as early a stage as possible whether or not periodical payments will be appropriate for any particular claim. The court must also consider periodical payments.
Parties can therefore expect the Master or district judge at a CMC to ask whether or not periodical payments are likely to be suitable for any particular case. One way to pre-empt such questions is to put a short paragraph in the case summary, giving an indication of thinking at that stage. The defendant, if not producing a case summary, should have given consideration to the matter. If neither party has given the court any indication, expect at least the question to be raised by the Master or district judge giving directions, even if it is only a direction that the matter must be considered by a certain date or before a further CMC.
Another option open to the claimant (pursuant to CPR 41.5) is to indicate in the statement of case whether periodical payments are likely to be a feature of the claim. This is open to the defendant in his defence to raise also. Although more rarely done, it can provide an early opportunity for the defendant to raise periodical payments as a negotiating tool by indicating that it is something the defendant wishes to have in place. Often this can put pressure on a claimant, who may wish a capital sum of damages, particularly if liability remains in dispute or there are arguments on contributory negligence that may lead the claimant to receive only a portion of the overall damages calculated as necessary to replace him in the position he would have been in but for the accident.
The court generally expects the claimant to be more in favour of periodical payments than the defendant (the claimant obtains a certainty of tax-free payment at a certain rate for life; the defendant remains unable to sign off a claim). Therefore, if the defendant indicates it is in favour of a periodical payment, the claimant should expect the court to be enthusiastic about the idea and certainly ask the claimant why he does not agree, if that is the case. Since the court is able to impose a periodical payment (although it must satisfy itself that it is right to do so) the claimant may find at an early stage of the litigation that he is facing two in favour of periodical payments, and the pressure will mount.
If the claimant suspects this tactic, he should pre-empt the defendant by setting out in the case summary prior to the first CMC why, in his view, periodical payments are not suitable for the claim, or certainly not at this stage.
Of course, at the early stage of a first CMC, it is highly unlikely that either party has obtained the necessary financial advice to assess a periodical payment properly, and indeed the initial expert evidence upon which such future valuations and estimations are to be based will not be to hand in final form. Therefore, the parties should not feel compelled to give more than a general indication.
Interim payments represent an area of considerable difficulty where periodical payments are involved. Often a claimant will rely on a significant interim payment to fund a care regime or to move house or to buy equipment or obtain treatment that is necessary to give a reasonable prognosis and so enable a better valuation of the final claim. Even if the defendant has assisted the claimant and the parties have committed to a rehabilitation scheme, this is often the case. The problems are compounded if liability is in issue.
Payment of an interim payment requires a reasonable assessment of the claim valuation – even if a best guess estimate, the court will need to take account both of the claimant’s valuation and the defendant’s concerns. The court must ensure that the sum of damages the claimant is likely to recover against the defendant is substantial.
Once satisfied of this, the payment ordered must not be more than a reasonable proportion of the overall anticipated damages sum.
Lump sum issues
Of course, these rules and this practice work well where the damages are to be by way of lump sum. But if not, the periodical payment regime carries additional complications. In a traditional lump sum case, the claimant may base his interim payment request on the valuation of past loss or past loss and general damages, confident that the future loss lump sum will ensure no more than a reasonable proportion of overall damages is paid.
If periodical payments are likely or possible, this may not be straightforward. The court will have to consider what element (if any) of the future loss will be paid by way of periodical payment. At an early interim payment application stage, it is often too soon to say, certainly to reach agreement upon. Evidence is required. Medical evidence is often not to hand, or at a preliminary stage. Rehabilitation may be required before an answer to the question of long-term need is addressed. Yet it may well be the case that the interim payment is required to provide some of the very treatment that will enable such questions to be answered. It may even be the case, for some claimants, that the interim payment is needed to pay disbursement costs to fund the expert evidence required for damages assessment.
The difficulty with interim payments is that they inevitably reduce the contingency in the claim. The inherent flexibility within the lump sum system means that, if an interim payment is ordered on one damages basis, it may still later be justified on another – the ability to “rob Peter to pay Paul” in damages terms is there.
It can often be the case that parties reach compromise on a lump sum basis precisely because a breakdown of damages is not required. The claimant may value care highly, the defendant may have concerns about future employment. If the lump sum is adequate to fit both concerns, they need never be resolved. A requirement to parcel future loss to particular heads of damage removes that flexibility.
The more likely a periodical payment is, the less able the claimant will be to obtain a significant interim payment. The lump sum element of the claim will be smaller and therefore the reasonable amount of damages (bearing in mind the court’s ability to require repayment of interim payment at a later stage if required – CPR 25.8) to be paid by way of interim payment will be smaller.
While a claimant will still often want to make an application for interim payment, the amount of money to be paid is likely to decrease. The defendant may well want to employ periodical payment arguments to illustrate the restricted size of the lump sum available. If the overall interim payment sought is approaching 50 per cent of the likely damages sum, the claimant should expect some stiff opposition from the defendant.
However, if the claimant proposes to use the interim payment to set up a care regime, as a result of which accurate annual estimates for a periodical payment can be obtained, the defendant may find this application difficult to resist. Direct offers of payment for care by way of rehabilitation may be a solution, but may prevent such figures being taken into account at final assessment.
What is certainly likely to be an effect of the periodical payment regime is that claimants will have to give a clearer indication of how the interim payment is to be spent – eroding the rule that the court will not enquire into how damages, including interim payments, are to be spent.
Greater difficulty is likely to be faced by the claimant seeking to purchase a house or make some other significant lump sum expenditure. While the court has an ability to order periodical interim payments (s 2(5), Damages Act 1996) these will not help with lump sum expenditure nor will it assist the court’s overall requirement to ensure no more than a reasonable proportion of damages is paid at the interim stage.
All practitioners should think about periodical payments, and the tactics that can be deployed in litigation from an early stage. Even if the eventual settlement is likely to be by lump sum, both claimant and defendant can use periodical payments to significant effect as one more feature of a claim upon which there can be negotiation.
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