"No loss" and "lost years" considered under new discount rate:

Transcription

1 "No loss" and "lost years" considered under new discount rate: JR (A protected party by his mother and litigation friend JR) and Sheffield Teaching Hospital NHS Foundation Trust Severe Brain Injury Subject Matter Expert Group BLM Roger Brooks Partner T +44 (0) E roger.brooks@blmlaw.com Andrew Kerr Partner T +44 (0) E andrew.kerr@blmlaw.com Felicity Lowe Associate T +44 (0) E felicity.lowe@blmlaw.com Alexandra Payne Associate T +44 (0) E alexandra.payne@blmlaw.com

2 In our comprehensive update 1 on the discount rate change (published 28 February 2017), we proposed that the advent of negative discount rates would result in a no loss outcome for accommodation claims under the Roberts v Johnston (R v J) formula. That did not mean the formula or the principles underpinning it were no longer the right approach, however. In this judgment handed down on the 25 May, the judge adopted the no loss approach awarding nil damages, notwithstanding the need to acquire alternative property. A significant sum was awarded to allow adaptation of a notional new property which is a separate issue to the capital cost. Separately, a lost years claim was permitted. Both these heads of loss are likely to be subject to appeal. The judgment dealt with a number of heads of future loss. The approach to the a lost years claim for a 24 year old claimant injured at birth is interesting and we understand likely to be subject to appeal alongside the Roberts v Johnstone outcome. In this note we focus on those two heads of damage as well as the approach to future loss of earnings, future care and Deputy/Court of Protection costs. The case itself provides an insight into the new scale of quantum awards post the rate change. The claimant was awarded 7.93million, plus Periodical Payment Orders (PPOs) for care and case management of 293,117. Using the parties multipliers of and respectively a capitalised value would have been between 24.07million and 23.45million. This indicates that these damages points, and particularly assessing the annual loss, are more important than ever, given that they will be subject to the new rate multipliers. Claimant and injury An anonymity order was made by the judge. The claimant (JR) was born on the 14 November 1992 and was 24 at trial. During birth he suffered intracranial haemorrhage and brain injury. Liability was accepted. JR had severe motor impairments. Spasticity is very severe in the muscles of all four limbs with no effective movement of his lower limbs. He was wholly dependent on others for most aspects of daily living: all transfers; dressing; personal hygiene. He has difficulty rolling or manoeuvring in bed and needs regular night time assistance. The brain injury led to significant cognitive impairment and some impairment of higher executive functioning. General damages were agreed at 300,000 and all past losses were agreed. Despite the severity of the injuries JR was described as a delightful young man with an outgoing personality and many interests. He retained an interest in IT and photography, and overcame his physical limitations to participate in powered wheelchair football matches on a regular basis and was said to be a wheelchair footballer of high quality. He was described as someone who did not regard his difficulties as a barrier to activity. Rather, he sees them as something to be overcome so he can follow his interests. 1 Lord Chancellor s statement on the discount rate JR and Sheffield Teaching Hospital NHS Foundation Trust 1

3 Life expectancy was agreed to be to 70 years and the multiplier for the lost years agreed at 26.64, which should be compared to the impaired life period of c from age 70. Accommodation costs This item was dealt with in two parts (1) the cost of a new property, applying the principles in Roberts v Johnstone, and (2) the costs of adapting and running the property, also including a home based hydrotherapy pool. Not all costs are easy to discern from the judgment but worth mentioning the claim positioned under this head alone was 2.33million with awarded damages of 840,000. (1) Roberts v Johnstone The no loss argument is in BLM s view, the logical outcome of the principles which drive the Roberts v Johnston which are in our view: The R v J approach has never been about providing a sum to purchase a property, rather it is to compensate the claimant for the loss of investment income on additional capital tied up in a property. This approach is necessary to balance against the benefit of the appreciating capital asset represented by the new property and avoiding over-compensation. The loss of investment income is measured as the income from risk free investments, the same type of investment that underpins the discount rate. Since Wells, the discount rate and the annual percentage used in the calculation of R v J have been the same for this very reason. In times of nil or negative risk free investment return rates, the claimant would not have been able to obtain any return had he not had to place his capital into a property, and therefore there has been no loss. It was not in dispute that JR s current accommodation a three bedroomed bungalow occupied along with his parents and his elder sibling was unsuited to his needs. The judge took 900,000 as the likely cost of a suitable property. The defendant argued, applying the no loss approach that there is at present no ability to obtain any positive return on a capital fund based on a risk-free investment. Consequently a zero sum should be awarded for accommodation costs. The judge accepted this argument saying that the only evidence he had available as to the level of risk free return was the discount rate, as it was on risk free index-linked gilts. The judge rejected an argument by the claimants that although the Court of Appeal s decision in R v J was binding, the annual percentage was arbitrary. It was clear from the judgment and confirmed by the House of Lords in Wells that it should represent the risk free level of return. He said the assumption has always been that the claimant could fund the additional capital needed from other heads of damage, in effect a loan that would be returned to the claimant s estate on his death. Here, the judge took the view that the capitalised loss of earnings claim was likely to exceed 1million (see below), and would provide the funds to fulfil that assumption. Although it was argued by the claimant that to require him to use these damages would deprive him of monies intended to compensate for a different JR and Sheffield Teaching Hospital NHS Foundation Trust 2

4 loss, the judge s response was that in the long run he would recover his full loss because his estate would have the full appreciated value of the accommodation. Although the earlier pre-r v J decision of George v Pinnock recognised an alternative approach based on the additional annual mortgage costs, no evidence was put forward by the claimant as to what the costs would be. Neither was any other potential solution supported by evidence e.g. a reversionary interest in favour of the defendant in return for fully funding the property purchase. In the circumstances the judge was satisfied that he had to apply the R v J approach and in so doing it had to lead to a nil award given the current rates of risk free returns evidenced by the discount rate. The judge expressed the view that a fair and proper solution needed to be found to how to compensate a claimant who needed to purchase additional accommodation. However, he was, in this case, constrained to apply the R v J approach. It is understood that leave to appeal to the Court of Appeal has now been granted. Inevitably this case, and others on the R v J issue, will be deliberated upon by the Court of Appeal in the near future. Whilst the no loss argument is faithful to the principles and logic of R v J, this judgment is a temporary landing point possibly on this issue. It does nevertheless, provide a baseline for defendants where, as is commonly happening, the parties explore, flexible means to deal with accommodation claims perhaps through adopting different combinations of annual percentage or discount rate. This is very much for consideration on a case by case basis. (2) Adaptation and Hydrotherapy pool The nil award under the R v J approach was a separate matter to the recoverability of the costs of adapting a new property to the claimant s needs, subject to such costs being reasonable and justified. Although the claimant had made an offer on a property valued at 1.5m, it was accepted by both accommodation experts that it was a larger property than the claimant needed. The judge remarked that it would be would be a matter for the Court of Protection as to whether purchasing that property would be a reasonable use of JR s damages,, but he should not consider adaptation costs on the assumption it would be purchased. Consideration of this head of damage had to proceed on the basis of a theoretical property (although still valued at the 900,000 assumed previously) and the type of adaptations that would be expected. Accepting that it was not possible to calculate the cost in a mathematical fashion, the judge allowed 400,000 with a deduction for betterment of 60,000 which represented some reduction on the claimant s expert s figures, though they are not specifically set out. The claimant was unsuccessful in recovering the costs of a home-based hydrotherapy pool. When considering the claim for physiotherapy, the judge had decided six sessions per annum or water based therapy should be provided. Applying a reasonableness and proportionality test he found that the anticipated need for hydrotherapy was not such as to even begin to justify the provision of a pool at JR s home. He accepted the claimant liked the water, relaxes in it and would enjoy having his own pool, JR and Sheffield Teaching Hospital NHS Foundation Trust 3

5 however, the judge decided to follow the approach he had adopted in HS v Lancashire teaching Hospitals 2 which was to allow for visiting a local hydrotherapy pool as part of a physiotherapy regime at a frequency of 35 times per annum with a cost for each of 55 producing an annual cost of 1,925. The lost years claim The impaired life expectancy was to 70, some 16 years less than normal life expectancy. The claimant sought damages to reflect the loss of pension during the lost years. The defendant argued that the Court of Appeal in Croke v Wiseman 3 ( Croke ) decided that someone in the position of JR could not recover for lost years. On behalf of JR it was argued that the decision in Croke did not apply in this case. The judge decided there was no difference between earnings or pension in the lost years and that the claim could be based on pension, less the usual allowance for the costs the claimant would have spent on himself. The allowance the judge applied was 50% of the annual pension (rejecting the claimant s assertion of a one third deduction) which produced a lost years multiplicand of 6, To this would be applied the agreed multiplier for the lost years portion of 25.22, which of course, based on -0.75%, is higher than the actual period of life lost. The defendant s argument was that the claimant, having been severely disabled from birth, and unlikely to have any dependents, should not be entitled to a lost years claim. Either the absence of any likelihood of dependents, and/or that the claim was too speculative, ought to bar the claim. For some years there has been said to be an inconsistency between the Court of Appeal s decision in Croke and the earlier House of Lords decisions in Picket v British Rail Engineering 4 and Gammell v Wilson 5. This inconsistency was highlighted by the Court of Appeal when considering an appeal against a decision to award lost years damages to a child in the case of Whipps Cross University NHS Trust v Iqbal ( Iqbal ), 6 although the Court of Appeal felt it was bound by Croke notwithstanding the inconsistency and allowed the appeal against the award. Croke was taken as establishing a point of principle that a young child is not able to bring a lost years claim, principally because so much speculation would need to be employed both to ascertain the loss and also whether there would ever have been any dependents to benefit in the lost years. The inconsistency referred to is that whilst in Pickett and Gammell the House of Lords highlighted the evidential difficulties in relation to lost years claims for children, the House did not rule them out on principle 7, nor was it a requirement to identify any dependents at all now or in the future to establish the basis of a lost years claim. 2 [2015] EWHC 1376 QB 3 [1982] 1 W.L.R [1980] A.C [1981] 6 [2007] EWCA Civ In fact in Gammell Lord Scarman gave the example of a child television star who might be able to establish a claim which was not speculative, or of older children, teenagers, able to show real employment prospects JR and Sheffield Teaching Hospital NHS Foundation Trust 4

6 Like the Court of Appeal in Iqbal, the judge took the view that Croke was binding on him. The approach he took was to say that the claimant was not a child. He was 24. Although severely incapacitated since birth, that took him outside the child principle in Croke. He rejected the defendant proposition that this meant the ability to recover for lost years arbitrarily depended on when the claim was brought, if the claim had been brought much earlier the child exception might have applied. 8 The judge took the view that the policy considerations that applied to the child principle could not apply to a 24 year old. Moreover, if there was a requirement to show the likelihood of dependents, his view of the claimant was that his engagement in social activity, sports, college and demeanour meant there was a good prospect that the claimant would enter into a long term relationship which would give rise to dependents. The case has highlighted the inconsistency between Croke and the earlier House of Lords decisions although the judge found a way round Croke back to earlier principles set in Picket and Gammell. However, nothing in these cases mean that such claims are bound to succeed rather that they are not barred in principle. The House of Lords made clear the evidential difficulties such claims would face, so the distinction between principle and evidential difficulty may amount to the same outcome. Future loss of earnings and pension Reference was made in the context of the Roberts v Johnstone claim that the claimant might have a 1million+ loss of earnings claim against which he could borrow to finance the property purchase. The judge recognised that it was impossible to base an assessment of future lost earnings on evidence relating to his pre-accident earning capacity. His current physical and mental condition had been more or less constant since his birth. Likewise, it was impossible to reach any view as to what his likely level of educational or vocational achievement may have been. Neither was there any hope of employment in the future. Nevertheless the judge pointed to the claimant determination and motivation, enthusiasm in sport and college as aspects of personality that would have been present if not injured and enhanced his employment prospects. Looking at the family, the claimant s brother, aged 26, was a welder and claimed to be earning 35,000 per annum though no evidence was available in the hearing to support that; the father earned 20,000 as a forklift truck driver. The claimant invited the judge to take into account two cousins, one of whom had graduated from university and worked as senior accounts manager the other was studying for a degree in criminology. However no evidence of earnings, current or anticipated, was provided. The defendant suggested that the claimant would have gone into a skilled trade in the steel industry and that median gross annual pay for a skilled tradesman should be used which in 2016 was 26,751 or 21,358 net. In the end the judge alighted on 23,000 net. 8 The litigation started 20 years after birth with no explanation as to why it took so long. One consequence was damages interest amounted to 747,000, with only a small reduction on the calculated rate of 59.4% to 50% to allow for most of the costs being incurred in periods closer to trial. JR and Sheffield Teaching Hospital NHS Foundation Trust 5

7 The total awarded for future loss of earnings and loss of pension was 1,194,666 which comprised one single year of future loss of pension at a multiplicand of 12,675. This was referred to as a single year of loss of pension, prior to expected date of death which suggests a notional retirement age of 69. Unfortunately, there is no confirmation of the multiplier adopted as between the claimant s contention of and the defendants of 52.94, but the amount awarded (deducting one years pension and dividing the remainder by 23,000) suggests a multiplier of 51 to 52. The judgment does not indicate any contention for a Blamire award by the defendant and whilst one might think that would be a reasonable approach with a child injured from birth, there may have been other factors driving the decision that a multiplier/multiplicand approach was correct. At 2.5% the multiplier would have halved, narrowing the gap between the range of a Blamire award and a multiplier/multiplicand settlement, but the new level of multipliers indicate the consequence of a decision now between the two approaches. The care claim There was a single issue under this part of the claim that remained to be resolved. It was agreed that JR required two carers around the clock. The dispute related to whether the two night time carers should both be waking, or it was possible to have one waking and one sleeping. This is a common situation, though the impact on the care claim of the differential between the two approaches is heightened by the application of a much higher multiplier (if not being paid as PPO). JR s difficulty was that he couldn t move or roll without assistance. That position would not change. It was the repositioning that required two carers. The frequency of that would determine the issue. The claimant s expert evidence was of a convention that a sleeping carer should not be expected to get up more than twice in the course of a 10 hour night. If more than that, the expectation is to be paid the waking night rate. If the person for whom care is being provided is likely to require two carers more than twice in a night on any kind of regular basis, two waking carers must also be employed. The defendant s care expert suggested that one sleeping carer was sufficient so long as the total disturbance over the course of a year did not amount to more than six to eight weeks; responding to this the claimant care expert considered this to be the absolute maximum. With these views in mind the judge considered the night care diaries for July 2016 to April indicated the number of times JR had to be turned i.e. an activity requiring two carers. They It was noted that there had been an increase in the turning due to the claimant having a lumbar spine problem, but generally over a six month period there had been 37 nights in which two carers had been needed. Annualising that rate (74 nights) it amounted to over 10 working weeks which, the judge held, was significantly more than the maximum allowed for sleeping carers as identified by the care experts. On that basis the judge was satisfied that JR would require two waking carers for the rest of his life and the care package would be costed on that basis. There is no breakdown of the package but it was to be paid JR and Sheffield Teaching Hospital NHS Foundation Trust 6

8 periodically at a single fixed amount for life of 293,117. If capitalised the figure would be between 15.5million and 16.2million for care and case management alone. Whilst the wake-up frequency is a common consideration when looking at waking or sleeping carer issues, it is noted that the level here relied on to justify the higher costs of a waking carer amounts to only 20% of nights in other words, 80% of nights where the need for a second waking carer would not arise. Of course the defendant was not able to make anything of that as the frequency exceeded that of its own expert and the argument is always one does not know when the 20% will arise so there has to be 100% provision. Neither does the judgment say if 20% met the claimant s experts less precise threshold of being woken on a regular basis. The cost differential between waking and sleeping care (which is usually equivalent to four hours per night) impacts the annual PPO amount but if within a lump sum, will be greater impacted by the application of new multipliers. Is it perhaps questionable for a defendant to have to pay damages on account of an eventuality that does not arise four times out of five does not arise, and should some other way of funding a low level of contingency might be something for defendants to explore? Court of Protection costs The two issues the judge highlighted, and where the experts did not agree, were the level of input required from the deputy and his team, and the level of seniority of staff appropriate for each task. A separate point was whether some tasks should be carried out by the carer team or case manager, a relevant point, but no detail is in the judgment. Court of Protection and deputies costs were awarded on a lump sum basis in the sum of 899,000. They reflected findings by the judge that appropriate sums were 30,000 in year one, 20,000 in year two, 15,000 year three and four, and 10,000 for year five and for life. The award was largely reflective of the claimant s expert s figures, only marginally shaved downwards. The defendant s expert s figures were between 50% to 66% of the claimant. The claimant expert had adopted a far more structured in her approach she had provided a breakdown of the tasks and hours for each year and then split the number of hours by fee earners: Grade A, C and/or D. The defendant s expert s approach was, in the words of the judge, more impressionistic 9, not conducting a break down as the claimant expert had done, but saying that his figures were what he would charge for similar cases. The judge did not say that this was a wrong approach but that it made it difficult to compare the two experts approaches. The judge accepted (as the experts had) that the deputyship will be more intensive in the early years than thereafter. That must be reflected in the sums awarded in relation to those years. The deputyship would be relatively intensive throughout partly because JR had a genuine degree of capacity, albeit not sufficient for him to manage his own affairs, and there would need to be consultations with him in a way that there 9 The same description as used by Foskett J in James Robshaw v United Lincolnshire Hospitals NHS Trust where the same experts were involved. JR and Sheffield Teaching Hospital NHS Foundation Trust 7

9 would not be with someone with little or no cognitive ability. 10 That is something to take into account when assessing the continuing costs of the deputyship. The judge included a helpful summary of the parties positon and his award (all net of VAT). His view was that the claimant s position was broadly correct. The level of these figures may guide reserving in similar cases where there is fluctuating capacity. Year Claimant Defendant Award 1 30,605 plus cost of 2 visits 14,000 inclusive of 2 visits 30,000 inclusive of visits 2 21,492 plus cost of 2 visits 9,000 inclusive of 2 visits 20,000 inclusive of visits 3 17,040 plus cost of 1 visit 8,000 inclusive of 1 visit 15,000 inclusive of visits 4 17,040 plus cost of 1 visit 8,000 inclusive of 1 visit 15,000 inclusive of visits 5 onwards 11,232 plus cost of 1 visit 7,000 inclusive of 1 visit 10,000 inclusive of visits Summary points: 1. The current discount rate and the percentage used for the annual loss under R v J are the same and imply no loss of risk free investment income. R v J does not give rise to a loss. 2. Parties may wish to adopt a flexible approach to compensation for alternative accommodation thought it is useful for defendants to have the no loss argument as a threshold. 3. The Court of Appeal is likely to hear appeals in the near future. 4. Croke v Wiseman remains binding and child claims for lost years are not permitted. The judge in this case found a way round but it seems that decision will be subject to appeal. 5. Inconsistencies between Croke and the earlier House of Lords decisions may lead to a change in approach, however this is likely to be the difference between not allowed, and allowed but with significant evidential difficulties, as opposed to signalling such claims are valid. 6. Whilst we are not aware of all the evidence in the case, the award for loss of earnings highlights one approach to combatting the effects of the discount rate as being to argue for a Blamire award rather than to accept an M x M approach which exposes to new rate multipliers. That is not to say that the right approach was not adopted in this case. 7. There is room for exploring the threshold for a second waking carer (though the principle would apply to a single carer as well) if the consequence of even 20% excess waking leads to paying care costs as if that 20% applied to 100% of the time. 8. The judgment perhaps suggests that different approaches between Deputy and Court of Protection experts can be influential and even if differences remain it would be prudent to ask an expert to address the opponent s methodology in the same way that expert uses. Moreover, the fluctuating capacity situations can lead to higher costs as this case illustrates. 10 The relevance of the variable capacity is ascertaining those transactions where the claimant does or does not have capacity or where supported capacity arises if the claimant has capacity but only with support in making a decision. JR and Sheffield Teaching Hospital NHS Foundation Trust 8