2 May 2005

Major Changes Ahead

The Courts now have the power to impose periodical payments in personal injury claims. Stuart Brown Q.C. looks at the new Rules and speculates as to how future practice will change. On the 1st April 2005 Section 100 of the Courts Act 2003 came into effect. Its implementation had been long in gestation but it may be many practitioners are not yet fully aware of the major changes effected. In many cases traditional lump sum awards will be a thing of the past and claimants can expect to receive their future losses by way of regular indexed periodical payments with only general damages and past losses being calculated and received as a lump sum. In a short article only the principal features of this new regime can be identified. Major amendments have been made to CPR 21, 36 and 41 and to the accompanying Practice Directions. A new statutory instrument provides for possible future variation (both upwards and downwards) if circumstances significantly alter.

First the former consensual regime (allowing structured settlements) has been replaced by obligations imposed both on the Court and parties to consider the appropriateness of periodic payments in every case where future losses are awarded. Those payments will be indexed (generally in line with the RPI). Different levels of payment can begin at differing times perhaps to coincide with lost promotion opportunities or enhanced care needs. The decision whether to utilise periodical payments is for the Court guided by its view of the claimant's needs; the claimant's wishes are a factor but not decisive. Periodical payments can only be ordered if their security can be guaranteed. Insurers (but not Lloyds syndicate members or the MIB) and government departments are effectively presumed to be secure. In the case of other Defendants proof of security on a case by case basis is needed. The power to order future variation if circumstances alter is confined to claims begun after 1st April 2005. The provisions are closely analogous to the present rules relating to provisional damages save that there is scope for downwards adjustment if the claimant's condition improves. How will future practice change? First it is important to stress that the Rules apply to all claims and not merely those involving injuries of maximum severity.

Particular Rules apply to infants and patients where the obligation to consider periodical payments is spelt out in detail but more minor claims by those of full age and capacity are also covered. Thus if a claimant suffers a relatively minor back injury which places him at a modest disadvantage on the labour market the Rules apply. Second the avowed intent of the legislature is to alter not only the way in which damages are paid but also how they are calculated. It will not perhaps be necessary, if periodical payments are awarded, to consider questions of multipliers or indeed life expectancy but only the quantum of the annual future need. To revert to the language of structured settlements calculations should be "bottom up" not "top down".

Next financial advice will be necessary in a wide range of cases and will almost certainly be required in most cases where the claimant is under a disability. The Rules specifically impose an obligation to consider "appropriateness" as soon as practicable.

Many District Judges are likely to be interventionist. The parties must make their views (and more important their reasoning) plain in pleaded cases. Many claimants might prefer regular payments freeing them of investment concerns whereas others would welcome the flexibility of a lump sum. The ultimate arbiter is the Court. Defendant insurers have traditionally preferred to "close a file" (as evidenced by their general attitude to provisional damages); they will no longer have the luxury of choice. Periodical payments, whether regular annual sums or "one-off" future payments (for a wheelchair perhaps), are to be indexed. CPR 41 (8) spells out that indexation shall be by reference to the RPI "unless the court otherwise orders". This seems an invitation to revisit the question of whether care costs (which may rise faster than inflation) should be indexed differently.

Periodical payments, however funded, will enjoy the same tax advantages as those received under a structure difficult questions (for defendant insurers) will arise as to funding methods. Annuity payments may not match the award made and insurers will have to contemplate self funding. The wording of court orders and compromise agreements will be a major drafting exercise and Part 36 offers (by whichever side) are likely to require very careful consideration if costs protection is to be assured. Great care will have to be taken in the larger cases in seeking interim payments which might wholly extinguish the lump sum component of any "mixed" award. The future variation provisions are unlikely to arise for some months but, even though their scope is more limited than was initially envisaged, they offer real opportunity for yet further change to the traditional approach and perhaps merit a separate article on another occasion.