YM v Gloucestershire Royal NHS Trust - Periodical Payments and NHS Foundation Trusts
YM v Gloucestershire Royal NHS Trust - Periodical Payments and NHS Foundation Trusts
YM v Gloucestershire Royal NHS Trust & K v King's College Hospital NHS Trust
Forbes J, 21st Oct 2005
The amendments to the Damages Act 1996, which took effect in April 2005, mean that periodical payments for future pecuniary losses can be ordered in a greater number of cases than before. In many cases, claimants will prefer a secure stream of tax-free index-linked periodical payments, guaranteed for life, to the alternative of a large lump sum (for past and for future losses), with the financial risks that investing brings and the worry that the money may run out, especially if the predicted life expectancy is exceeded.
To prevent inappropriate use of periodical payments, section 2(3) of the Damages Act provides that a court may not make an order for periodical payments unless satisfied that “continuity of payment is reasonably secure”.
Section 2(4) provides, in effect, three alternative statutory presumptions for continuity of payment being “reasonably secure”. The first, in relation to a public sector body, is a guarantee from a Government Minister (section 6 of the Act). Next, where periodical payments are to be made by an authorised insurer (either a self-funding liability insurer, or a life insurer under an annuity contract purchased by a defendant), there is protection by the Financial Services Compensation Scheme against the possibility of the insurer collapsing – this provides 100% protection, as opposed to 90% for policyholders in most other cases. The third statutory presumption is where “the source of payment is a government or health service body.” For England, the only health service body designated by the Damages (Government and Health Services Bodies) Order 2005 is the National Health Service Litigation Authority (NHSLA). No individual NHS Trust, whether a Foundation Trust or not, is so designated.
In these two clinical negligence cases, the NHS Trusts involved have become (YM) or have applied to become (K) Foundation Trusts. The question is whether in those circumstances the court can be satisfied that continuity of payment is still “reasonably secure”.
Both Trusts are members of the NHSLA Clinical Negligence Scheme for Trusts (CNST). However, Foundation Trusts are under no obligation to remain in CNST and can leave on appropriate notice. It seems that a Foundation Trust that left CNST would take its liability for future periodical payments with it, thus effectively becoming “self-funding”.
The potential problem is this. If a non-Foundation Trust becomes insolvent or ceases to exist, then the National Health Service (Residual Liabilities) Act 1996 provides that the Secretary of State must exercise his statutory powers to ensure that the outstanding liabilities of the Trust are transferred to another health service body or to himself. Thus, there is a statutory obligation that any order for periodical payments against a non-Foundation NHS Trust will be met, either by that Trust or by a successor body.
However, the position for Foundation Trusts is different. In the event of financial crisis, a claimant with a periodical payments order would become an unsecured creditor of the Foundation Trust. Foundation Trusts are not listed in the Residual Liabilities Act. There is an entirely separate scheme in the event of financial difficulties, under sections 23 to 26 of the Health and Social Care (Community Health and Standards) Act 2003. Under Section 25(3), an order may be made by the Secretary of State to transfer, or provide for the transfer, any property or liabilities of the FT to another health service body. There is discretion, rather than an obligation. There is no special provision for protecting periodical payment claimants in such circumstances.
There is a dispute in these two cases between the Claimants and the Defendant Hospitals / NHSLA as to whether the requirements of the Damages Act 1996 are satisfied.
At a hearing on 21st October 2005, Mr Justice Forbes considered that this issue does raise a potential problem, and has accepted that there is the potential for other cases to be affected, not least because it appears to be Government policy that all NHS Trusts should work towards becoming Foundation Trusts. Accordingly, he decided that it would be best to join the Secretary of State as a party in each action to enable the Secretary of State, if desired, to put forward evidence as to how discretion under the 2003 Act would be exercised and / or to address the question of whether a ministerial guarantee under the Damages Act is appropriate. The matter is to be listed before him for a 2-day hearing early in 2006.