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The personal injury discount rate in England and Wales is under review, and is widely expected to return to a positive value. Under a higher discount rate that generates lower Ogden multipliers and lump sum awards, claimants may financially prefer to settle on a periodical payment order (PPO) basis.
The Damages (Variation of Periodical Payments) Order 2005 provides some flexibility for compensators to vary a PPO downwards for future contingencies, including health improvements or other reductions in care costs, to ensure that the compensation principle is not breached.
The 2005 Order allows variation for a future serious deterioration or significant improvement. The PPO must specify the type of deterioration or improvement and only one such variation application is allowed for each specified event.
Example of a variable periodical payment order: Martin v Salford Royal NHS Foundation Trust [2022]
In this clinical negligence case the defendant succeeded in persuading the High Court that a deterioration in the claimant’s condition would lead to a reduction in her care and case management costs.
The claimant had a history of mental health problems. She suffered a femoral fracture, complicated by septic shock and multiple organ failure, restricting movement in all limbs, and requiring a wheelchair and carers.
Orthopaedic and neurorehabilitation experts opined that she would need to move into a nursing home in older age, due to left-sided weakness and progressive limb stiffness.
The defendant successfully applied for a downwards variation if in the future the claimant’s physical and psychiatric problems led to her moving into a nursing home, which would be cheaper than care in her own home. The court accepted that the power to vary applies to both physical and mental conditions, and that the contingency was measurable and more than fanciful, and approved the clause.
Example where a Tomlin order can offer more flexibility than a periodical payment order: AA v CC [2013]
Whilst the 2005 Order specifies certain pre-conditions for variation, the parties have a far wider opportunity to agree PPO contingencies privately between themselves on a contractual and non-statutory basis.
In the above case the claimant suffered a traumatic brain injury. The defendant agreed to periodical payments for future deputyship costs and the parties agreed that such periodical payments would cease if the claimant regained financial capacity, but resume if he lost it again.
The court was unable to make a variable PPO because that solution is only intended for cases where there is a single reduction or increase in the payment amount rather than a stop/start change. However, the court accepted that the parties could agree a Tomlin order with PPO terms in the schedule, and the court could approve it notwithstanding that it could not make an order in such terms itself.
Comment
The ability to adjust periodical payment orders in response to changing circumstances offers a deflationary opportunity for compensators, for example where medical evidence supports a move from community to residential care, from waking to sleeping night care, or night and day to day only care.
The legal flexibility to account for future contingencies is an important safeguard to avoid unfair outcomes or overcompensation, whether by negotiating a discounted lump sum on a balance of risk basis, or agreeing a variable PPO or Tomlin order.
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