News
10 September 2001

The Avon C.C. v Hooper Indemnity

Though most severely injured claimants will be compensated upon the basis that they will be cared for in their own home with appropriate privately paid carers many will have received local authority assistance in the years preceding trial and a number will ultimately be cared for (whether by choice or necessity) in local authority funded accommodation. The article seeks to explore the implications of such local authority involvement for the calculation of damages.

Following the decision of the Court of Appeal in Avon County Council v Hooper personal injury practitioners became accustomed to including within compromise agreements in "high value" cases a term indemnifying the injured claimant against any charges sought to be levied by local authorities in respect of the past provision of accommodation or domiciliary assistance.

Usually the sums were relatively small and, it is suspected, the term was included out of an excess of caution and the indemnity given was often never called upon. However it is evident from a recent quartet of cases that local authorities have, "as the case of Hooper entered their consciousness, become more aware of their statutory power to seek recoupment for the costs of their services" (Maurice Kay J. in Kidd's caseiii).

The two most recent cases are presently scheduled for appeal early next year but, in the interim, there is clearly a need to be aware of the problem, especially as it appears to have ramifications not only for the calculation of the claim (and, for the insurer, his potential ultimate liability) but also for the way in which the award is utilised. Where structuring or the formation of a special trust is contemplated particular care needs to be taken.

The source of the "jurisprudence" Given the factual circumstances appertaining in Hooper's case I the decision was unsurprising. The claimant, a cerebral palsy baby, had been accommodated in a Leonard Cheshire home for the 10 years preceding trial. Such had been funded by the local authority. The settlement included a sum to cover future costs and the claimant's advisors sought and received an indemnity in respect of past costs.

The local authority then sued the claimant seeking recoupment and the health authority were joined. The claimant had been cared for pursuant to the statutory duty imposed by section 29 of the National Assistance Act 1948 and the local authority sought recoupment under section 17 of the Health and Social Security Adjudications Act 1983. Put (over-)simply that provided for a charge to be made "as they (the local authority) considered reasonable".

The person receiving the service could avoid a charge by showing it was not reasonably practicable for him to meet the cost. Given there was an indemnity the claimant had the assets to meet the charge and thus the local authority were acting reasonably and were entitled to recover. Subsequent developments What has become plain in the later cases is the need to carefully construe the particular statutory provision under which the local authority seek (or might in the future seek) to render a charge.

If there is no such statutory entitlement then there is no question of an indemnity or declaratory relief and no present or potential increase in the size of the claim or the insurer's outlay In Firth's case ii H.H. Judge Robert Taylor (sitting as a Judge of the High Court as he had at first instance in the Hooper case) had to decide two important points concerning future provision. The claimant, a patient for the purposes of Order 80 R.S.C., had been and intended to continue being cared for in local authority residential accommodation.

First he concluded that the relevant statutory provision (in this case (section 26 of the 1948 National Assistance Act, as amended) did not entitle the local authority to have any regard to capital assets held by a patient where those were the fruits of a personal injury award.

That was (tolerably) plain from the Act and supporting Regulations. Second he concluded that it would be inappropriate to grant an indemnity or make a declaration covering the position if there were to be some future change in the law entitling the local authority to levy charges against such asset. Additionally he declined to make any contingency award for the risk that the claimant might, at some future date, have to pay for such care and accommodation. The next of the quartet chronologically was Kiddiii. Here the claimant was, at the time of trial, still an infant.

An earlier settlement had been provisionally approved but the question of residential educational provision had been left open. When the matter was relisted the local authority sought recoupment of more than £100,000, the bulk of which had apparently been expended in a period of less than two years.

Here attention focussed on the Children Act 1989 (section 29). It was recognised that the Act in Hooper's case had no application to children. As an aside Maurice Kay J. described the exercise of statutory identification and interpretation as "one of labyrinthine complexity" and one which reflected "no credit on those who formulated (the regulations)". Again it was held that there was no right to recoupment. In the two most recent cases iv,v the problem was rather different. Each claimant was a patient. Each had been and would continue to live in accommodation, if not actually run by then certainly, paid for by, the local authority.

Each had negotiated a provisional settlement but each was concerned that such would require to be re-visited if the local authority were entitled to levy a (future) charge. Additionally in each case it was proposed that the settlement be structured in substantial part.

In both cases the "policy" argument was run that it was better that care costs should be met by the guilty tortfeasor rather than being borne by the wider community. In each the judge declined to address that argument but approached the case as a matter of statutory construction (again sections 21-26 of the 1948 Act and the 1992 National Assistance (Assessment of Resources) Regulations).

These had been the subject of recent significant revision following the decision of the Court of Appeal in R v Sefton MBC ex.p. Help the Aged 1997 4 All E.R. 532. Thus though the Regulations were clear as to the "sanctity" of the capital award (being monies derived from a personal injury action administered pursuant to Order 80 and/or held on trust) the real argument was as to the (annuity) income engendered by the structure.

It was first determined that though the Act did not impose any duty on the local authority to provide services (care / accommodation) if these were "otherwise available" this criteria had to be read subject to the means of the person concerned to pay. Further, detailed statutory provisions identified relevant means (for the purposes of determining ability to pay) and expressly excluded regard being had to certain matters.

The difficulty was that the Regulations potentially allowed of a different result where, as in these two cases, the income was both payable under a trust and administered by the court. Ultimately after very detailed examination of the provisions both judges concluded that such income had to be disregarded and gave declaratory relief accordingly. The result was, that as the claimant could not be called upon to pay, his claim could properly be calculated without regard to the cost of local authority funded residential accommodation.

Conclusion - residual difficulties. In each of the two most recent cases the Courts commented on the need for statutory regulations in this area of the law to be "clear and accessible". These were not (as any reading of the judgments quickly demonstrates). There is now persuasive first instance authority on these particular Regulations but only on the facts of these two cases. In particular it seems that if either claimant had been of full age and capacity a different result might well have followed. Munby J in Ryan's case v specifically recognised that such a distinction could arise and indeed saw no difficulty (on policy grounds) with such a result.

Of course such a claimant might be unlikely to seek damages on the basis that he would be accommodated in a local authority funded home but such cases are by no means unknown. The elderly paraplegic with no family ties might well claim on that basis and in such a case as a charge could be levied the costs must be claimed or an indemnity / declaratory relief sought. Another example is suggested by the facts in Ryan itself.

The claimant, recognising a real litigation risk, agreed to accept 80% only. The percentage recovery where contributory negligence is a live issue may be lower still and might of itself preclude the claimant setting up a suitable care regime in his own home. That raises the intriguing (but worrying) possibility, briefly discussed in the judgment, of a claimant recovering only say 50% of the local authority's costs but being liable (on a proper reading of the means tested regulations) for their full (100%) value.

It must also be borne in mind that if any injured claimant had other assets at his disposal (not arising from the award) then the local authority would be in a much stronger position (under the Regulations) and a charge could well be made. This has real implications for financial planning. It is to be hoped the Court of Appeal will assist further. The Law Commission's consultative papervi on deductibility of collateral benefits does not deal with the matter in detail though this is clearly a linked area. In the meantime there is a need for practitioners carefully to investigate whether there has been or may be any financial contribution to the injured claimant by a local authority.

If so, the statutory basis for such must be identified and the Regulations considered in detail to see whether a charge could be levied. Cases should not be compromised if there is doubt. Specialist advice will continue to be needed when questions of structuring or the creation of a trust are considered. Unexpected "alliances" have been forged in the cases where in some the local authority were joined as claimants and in others as defendants.

Claimants may need to determine whether they can take the risk of continued (uninterrupted) local authority provision or whether the "private option (if possible) is not invariably both better and safer. For their part defendants may wish to consider whether in some (extreme) cases arguments as to mitigation of loss could be ventured whilst asserting that they are not liable for the (lesser) costs of such alternative regime. What is plain is that this is an area which practitioners now ignore at their peril. i Avon County Council v Hooper 1997 1 All E.R. 532 ii Firth v Geo Ackroyd Junior Ltd v City of Bradford M.D.C. 2000 Ll. Med Rep.312 iii Kidd v Plymouth Health Authority 2001 Ll. Med. Rep. 165 iv Bell v Todd unrep. 29.6.2001 v Ryan v Liverpool Health Authority unrep. 30.8.2001 vi Law Commission Consultation Paper on Personal Injuries - Collateral benefits (No.147)