Subject of Unexplained Wealth Order now hit with Account Freezing Order
The short answer to this question is that our legal system, like any other human endeavour, is not immune to change, and neither should it be. I have been a lawyer for over 30 years, and during my career I have seen many changes. Some have made things worse for the injured people that I represent, but others have made things much better, and at Kingsley Napley we are always trying to refine and develop the way in which we work.
In this blog I will look at three current subjects of reform which are likely to have an impact on how Cerebral Palsy clinical negligence claims are conducted in the future. They are:-
Each of these subjects involves very technical and complex legal issues, and have been the subject of many learned commentaries, and a number of blogs on our own web pages.
In this blog, I will not be going into great legal detail, but I hope to summarise them in lay terms, and draw some general conclusions.
The Department of Health’s Consultation on the introduction of a Rapid Resolution and Redress Scheme for Severe, Avoidable Birth Injuries
The Ministry of Justice Proposals for reform of the Discount Rate
The Discount Rate is an accounting measure that we use to calculate the present, lump sum value of future expenditure. For example, we currently act for a number of children and young people with Cerebral Palsy. Some of them have limited life expectancy, but in most cases we have to try to work out how much it is going to cost to look after our client – carers, equipment, accommodation and therapy etc. – for many decades to come.
Some aspects of the claim, such as care, can be dealt with by a Periodical Payments Order – i.e. an indexed-linked annuity payment that is made every year for the rest of our client’s life. However, for most other aspects of a claim, we have to capitalise them at present value. In a simple sense, that involves adding up all of the annual future costs and then applying a “discount factor” to allow for the investment return that our client will get from investing the money until it is actually needed.
For many years the Courts have acknowledged that an injured claimant receiving a lump sum compensation award is in a very different position to the “ordinary investor”. A person receiving a compensation award is not an investor by reason of choice or good fortune. The compensation is designed to meet nothing more than the “necessities of life” for the remainder of that person’s life, and although they have to invest it, there can be no room for speculation or risk. For that reason, the law to date has been that the Discount Rate should be set with reference to very low risk, or no risk, Indexed-linked Government Stocks (ILGS).
Of course, as the economy changes, so does the rate of return on ILGS, and for that reason the Lord Chancellor has long had the power to vary the Discount Rate. It was last varied in 2001, when it was reduced from 3% to 2.5% to reflect the fact that ILGS were no longer performing as well. However, the Lord Chancellor cautioned that he did not “propose to tinker with the rate” to take account of every transient shift in market conditions.
Since then the returns on ILGS have consistently reduced, meaning that the rate has been set too high, and Claimants have been under-compensated. It took some further 16 years of campaigning and legal challenge to persuade the Government to vary the rate, and in February of this year the Lord Chancellor accepted that market conditions had shifted sufficiently to justify a change in the Discount Rate. Accordingly it was then set at minus 0.75% to reflect the current all-time low in investment returns.
This change meant that nearly all of our high value claims had to be recalculated, and in some cases millions of pounds were added to the value of the case. Lawyers on the Claimant side felt that this was a long overdue adjustment. Lawyers on the Defendant side, and the insurance companies and the organisations they represent, argued that the Rules needed to be changed, because the increase in damages was excessive. In response, the Ministry of Justice readily agreed to an urgent Consultation to review the Discount Rate, and how it should be set in the future.
The Consultation closed in May, and on 7 September the Government produced draft legislation to introduce the following changes:-
The Lord Chancellor said that the Government wants to introduce a new framework which is based on how claimants actually invest, and that the move will help ensure that claimants continue to receive full compensation whilst at the same time significantly reducing overpayment.
As a medical negligence solicitor bringing cases, and as a Court of Protection Professional Deputy administering awards, I am always concerned that the money will run out, and the harsh reality is that when we are trying to calculate expenditure for the next 10, 20, 30 or 40 years, we cannot (at least at the present time) know if we have got things right.
It is precisely for that reason that the Law had previously said that the only fair way to attempt to achieve full compensation for an injured person, would be to link the Discount Rate to ILGS.
There is a long established principle in English Law which states that the effect off compensation should be to put the injured person back in the position that they would have been in but for the accident. Furthermore, to quote Lord Scarman in the famous case of Lim Poh Choo v Islington Area Health Authority (1980)
There is no room here for considering the consequences of a high award upon the wrongdoer or those who finance him; and, if there room for any such consideration, upon what principle, or by what criterian, is the Judge to determine the extent to which he is to diminish upon this ground the compensation payable?”
Another famous Judge once remarked that the only certainty in these cases is that the Claimant will be awarded either too little or too much. I agree with that, but it seems that the proposed scheme for setting the Discount Rate will push the risk more heavily towards the Claimant, and further away from the principle of full compensation.
Cerebral Palsy and other serious injury cases often include a claim for the purchase and adaptation of a home to meet the needs of the injured person. For many years we have calculated this part of the case with reference to the Roberts v Johnstone formula, which gives the Claimant all of the conversion costs, and part of the additional capital cost involved in buying the property.
The calculation was linked to the Discount Rate that I discuss above, on the basis that the Claimant should be compensated for the loss of the investment income on that part of the damages that has to be used to purchase the property.
As with everything else to do with the Discount Rate, it hasn’t worked very well for some years, because of the low rate of return on ILGS. However, unlike other aspects of the claim, the effect of the reduction in the Discount Rate to minus 0.75% had been to completely wipe out the non-adaptation element of Accommodation claim. In mathematical terms this makes sense – after all if the Discount Rate acknowledges that ILGS are not actually producing a return on investment, then it would hardly make sense to compensate the Claimant for the loss of non-existent investment income.
Unfortunately, this gives rise to a serious practical problem for Claimants, particularly in the South East, where the cost of purchasing and adapting a suitable property is often in the region of £1.5M.
The High Court was asked to consider this conundrum earlier this year in a case called JR v Sheffield Teaching Hospitals NHS Foundation Trust.
The outcome of that case was effectively an acknowledgement that Roberts v Johnstone is no longer a suitable approach. The Judge (probably correctly) said that he was nevertheless bound to apply that formula, and having done so, found that he had to allow nothing for the capital cost of acquiring the accommodation.
However, the Judge also acknowledged that a fairer approach needed to be established, and so gave permission for the issue to be referred to the Court of Appeal. He also suggested that the Appeal should be expedited, and I understand that it will be heard later this autumn.
Pending the Appeal, Claimant lawyers are putting forward a number of alternatives – for example:-
Things change, and (we hope) improve all of the time. Our legal system is supposed to set out the body of rules that we all comply with, and the role of our lawgivers – the Government, and our Appellate courts, is to make sure that those rules are applied fairly, and that any changes are made in a proper and timely transition.
On the Discount Rate, Claimants are currently doing very well, but in the future they are likely to be worse off. On Accommodation claims they are currently doing badly, but in the future they are likely to be better off.
In those cases that we currently have coming to trial we are factoring all of this in, and because we deal with so many high value claims, and have done so for many many years, changes in the law are more or less “business as usual” for us. What doesn’t ever change is our approach to the work, which is all about securing the best possible outcome for our clients.
Terrence Donovan is the Head of the Clinical Negligence and Personal Injury Department at Kingsley Napley. He has been conducting Cerebral Palsy medical negligence cases for over 25 years, and is considered to be one of the leading experts in the field. If you would like to speak to him about any of the matters discussed in this Blog, he can be contacted on firstname.lastname@example.org.
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