Court considers applying a running total of annual periodical payments to offset against statutory funding

In the interesting case of WNA v NDP [2023] EWHC 2970 (KB) the Court was asked to consider whether the annual periodical payment should be used as a running account and the Claimant should be made to use any surplus to pay for care the following year(s).

This is not an argument that we’ve seen articulated in the courts before now, and the judgment makes for interesting reading for any practitioners considering the issue of double recovery.

The facts of this case are that the parties had mostly agreed the terms of the settlement and had settled on the figure of £325,000 for the annual payment (subject to annual indexation). This payment included provision for both care and case management. They had also agreed a reverse indemnity provision in the event that the claimant required more than that to cover her care costs and therefore needed to apply for statutory funding.

However, the main issue between the parties was whether the Claimant should apply for statutory funding once her need exceeded £325,000 in a given year (or the indexed figure for that year), or whether she should first use any surplus gathered in previous years before applying for statutory funding. It should be noted that this was a purely hypothetical situation as the judgment is clear that both parties considered the agreed annual figure to be sufficient.

Essentially, the claimant proposed that accounting should occur on an annual basis and that any surplus should not be utilised the following year(s) to cover care, whereas the defendant proposed that accounting should be on a running basis and any surplus should be used before any application for statutory funding.

When considering the issue, the judge accepted that ‘the authorities show that the Court should be alert to double recovery; also that the Court should not just deprecate double recovery where it arises, but should actively intervene to prevent it.'

However, he noted a number of practical difficulties with the defendant’s proposed ‘running total’:

1. Was there to be a minimum amount of surplus to be taken into account? If not, sums of a few pounds or pence would need to be ring-fenced for any potential future shortfalls.
2. Was it proportionate to require the claimant to keep detailed records for many years? Was there a cut off point?
3. Is the cause of the surplus relevant? What if, say, the reason is that suitable and sufficient staff were not available, so that the claimant had to struggle on with inadequate care to meet her needs and had a frankly horrid time over the year? Or what if the surplus arises as a result of an underpayment of case management?
4. Would there be an obligation to keep any surplus in an interest-bearing account and would this interest be counted as surplus?

The court was also concerned that the defendant’s proposal was not retrospective and that if there was no surplus at the time statutory funding was obtained but a surplus arose in later years queried why this should not be paid retrospectively to the state.

Ultimately, the court concluded that the annual payment may be used only for care and case management within the relevant accounting period which in this case is a single year. Therefore, if there is any surplus at the end of any particular year, the claimant was at liberty to deal with it as she saw fit.
There are a number of key takeaways from this particular case:

• Firstly, it reiterates the ‘active intervention’ courts should take to avoid the issue of double recovery. The authorities show that this is something that can arise and should be considered even when there is no statutory regime in place at the time of settlement. 
• Secondly, the court has highlighted a number of practical issues with the proposal that there should be running total accounts to cover care costs. In this instance the claimant had capacity and therefore the accounting would practically be her responsibility. The court was not convinced that the additional accounting required would not have been too onerous for her. However, each case will turn on its own facts and this may not be the case for a claimant with a professional Deputy who is already preparing detailed accounts.
•  However, and thirdly, it seems unlikely that a court would be persuaded to approve an order on the basis of a running account unless the parties were agreed, and all the practicalities noted above were addressed in full. It seems to us that there are likely to be easier and less complex ways to avoid a potential double recovery.
• Finally, whilst care costs are increasing year on year, it seems likely that there may be more emphasis on double recovery. 

At Clyde & Co we administer a number of annual periodical payments. A selection of them contain reverse indemnity provisions to address the issue of double recovery. As above, each case turns on its own facts and they each have differing care regimes and differing provisions to deal with potential double recovery. It is therefore crucial that practitioners give proper consideration to the best way to deal with this when negotiating a settlement. The options can often be practically complex when administering them annually and specialist advice should be obtained by both parties.

Readers will be aware that the case of Hadley v Przybylo is being heard at the Supreme Court at the end of February and the discussion about recoverability of attendance at MDT meetings will be further considered.