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Court of Appeal rules on indexation of future care claims

18 January 2008

The Court of Appeal yesterday gave judgment in Thompstone1, upholding first instance decisions in four cases2 that periodical payments relating to care should be referenced to an earnings related measure (ASHE 6115) rather than the Retail Prices Index (RPI).

Each of the appeals involved seriously injured claimants with substantial future care needs. Liability was not in issue.

The Court held that ASHE 6115 should be the default basis for indexation of future care costs. The courts will only entertain defendants arguments to the contrary where there is "significantly different…and more persuasive" evidence. If a defendant cannot provide that, its arguments may be struck out.

History

Since 2005 the courts have been able to make a periodical payments order (PPO) without the consent of the parties3. Under such an order, a claimant will receive all or part of his damages for future loss as annual payments, rather than a lump sum. So that payments keep pace with inflation, they are uplifted annually by reference to the Retail Prices Index (RPI) or, where the court so orders, in some other manner.

There is evidence that in recent years, care costs have increased at a greater rate than RPI. Claimants argue that in relation to such costs an alternative means of indexation is required. The measure that has found most favour is the ASHE 6115, a subset of the Annual Survey of Hours and Earnings, published by the Office for National Statistics.

In 2006 the possibility of departing from RPI was tested in the Court of Appeal for the first time4. The result was of limited significance, establishing only that departure was arguable. The Court indicated that the matter may require further consideration at the appeal level once a body of first instance decisions was available. Thompstone provided that opportunity.

The decision

The Court rejected the defendants arguments and permitted a departure from RPI:

  1. Exceptional circumstances are not required before the Court will depart from RPI
  2. Arguments based on distributive justice had been rejected in Flora, and the Court remained bound by that. The principle that a claimant should receive 100 compensation outweighs the public interest in controlling spending
  3. It is for the Court to determine what index will best meet the claimants needs in each case. The Court may, it seems, depart from RPI without either party leading evidence on the need to do so

  4. In considering an appropriate index, the Court should have regard to:

    1. Accuracy of the match of the index with the element of damages to be indexed
    2. Authority of the compiler of the index
    3. Statistical reliability
    4. Accessibility
    5. Consistency over time
    6. Reproducibility in the future
    7. Simplicity and consistency of application
  5. ASHE 6115 is the appropriate index for payments relating to care, meeting all the above criteria
  6. New and strongly persuasive arguments will be required to challenge use of ASHE 6115 in indexing future care claims
  7. In determining the form of a PPO, the Court should give equal weight to the claimant and defendants interests, but it will rarely be appropriate for a defendant to seek to second-guess a claimant and his advisors or to call expert evidence in this area

Further appeal?

Leave is being sought to appeal to the House of Lords. However, the Court of Appeal gave a single, strong judgment, having heard evidence in relation to 4 claims. We have yet to learn whether leave to appeal will be granted or whether, on appeal, this decision will be reversed.

What now?

Many claims involving PPOs have been stayed pending the outcome of Thompstone. While the possibility of a further appeal remains, these stays may require extension. In the meantime, defendants should re-examine their reserves to account for this judgment.

If the decision stands then the default position will be that indexation in relation to care claims should be based on the appropriate centile of ASHE 6115. It is difficult to envisage new evidence that is likely to persuade the court otherwise.

It also appears that, while a court will give equal weight to the legitimate preferences of claimant and defendant when making a PPO, a simple cost benefit to the defendant will carry no weight. There will be little scope to challenge the views of a claimant and any independent financial advisor he may instruct as to the needs of the claimant. The defendant will not generally be permitted expert evidence in this field.

The future

This decision is likely to encourage more claimants than previously to seek a PPO. While there will still be many who prefer the flexibility of a lump sum, PPOs may become an attractive option for many of those claimants who have a long term need for care.

Claimants may also seek to explore alternative indexation in relation to other losses. The claim of Sarwar5 already provides a first instance example of an ASHE linked earnings award. Defendants should be alert to the possibility of claimants seeking to push these boundaries.

The suggestion that claimants will ultimately seek to establish that the 2.5 discount rate for lump sum settlements (which is based on RPI) should be departed from in appropriate cases is not a new one. The court in Thompstone was clear, however, that PPOs and lump sum awards are entirely separate areas, and claimants will gain no leverage from this judgment. If the discount rate regime is to be changed, then it seems unlikely that this will be through the courts.

Conclusion

The Thompstone judgment is a pivotal decision and is likely to lead to substantially increased liabilities for future care costs paid under PPOs.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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