Periodical Payments to a Foreign Jurisdiction
This article explains the case of a ‘Brazilian national who suffered a catastrophic brain injury while residing in London. It deals with her legal team’s efforts to repatriate her and to ensure that she was returned to a safe environment with sufficient care and support. The main focus of the article is the action taken by her legal team to ensure that she had financial security for the rest of her life. This involved agreeing the first reported periodical payment order involving a foreign jurisdiction.
Weeks after celebrating her 21st birthday, Barbara Picoli Oliva suffered catastrophic injuries in a road traffic accident on 16 June 2008. Barbara, a Brazilian national, was living in London with her husband seeking to improve her English. She was riding as a pillion passenger on her husband’s motorcycle when a vehicle pulled across her path. She was thrown from the motorcycle and landed heavily, striking her head. Despite her helmet, she suffered a severe traumatic brain injury involving both subdural and subarachnoid haemorrhages, bilateral pneumothoraces and a base of skull fracture.
Medical treatment in London
Barbara’s mother and sister immediately travelled from Londrina in Brazil to London to be at her side. She underwent emergency neurosurgery. After a few days her ventilator was turned off but Barbara was able to breathe independently and her condition stabilised.
Barbara was transferred to the Royal National Hospital of Neuro-disability. She was awaiting a cranioplasty but this was continually delayed for over a year without explanation. While Barbara’s condition was stable she was still in a state of minimal awareness and was not progressing.
Barbara’s mother who had remained in London desperately wanted her to return to Brazil to continue her recovery. In January 2010, her solicitor Jenny Kennedy travelled to Brazil to visit hospitals and to interview potential neurosurgeons to determine whether they would be able to offer Barbara the best possible care. She found that the level of care in the private sector in Brazil was excellent and that as long as private funding was available Barbara would be well cared for.
A substantial interim payment was secured from the defendant’s insurers and a private medical ambulance was chartered for over £100,000 to fly Barbara to Sao Paulo on 24 March 2010. Barbara was admitted to the Albert Einstein Hospital and underwent the cranioplasty. In July she was transferred to a local hospital in Londrina.
Jenny returned to Brazil in October 2010 to determine whether it would be possible for Barbara’s long-term care to continue in the family home. She travelled with an architect and case manager. The family home was considered suitable for adaptation. Works began in May 2011 and were completed by December 2011.
Barbara required the assistance of two carers 24 hours a day. Various care providers were interviewed and assessed. Eventually a care package offered by a local hospital was chosen. ‘They were able to offer 24 hour nursing care in a domestic environment. They were also able to supply other services such as occupational therapy, physiotherapy and neuropsychology within the same package. The care package was introduced immediately upon Barbara’s return home in December 2011.
The cost of the package was broken down into the individual cost of nursing care per day or the cost per session of the relevant therapies. As per the contract the cost of the package was increased in line with inflationary tables. For example the cost of the package was increased from 2011 to 2012 by 7% with reference to increases in healthcare detailed in Brazilian inflationary tables, which it is understood is practice in Brazil. Following her return home Barbara made considerable progress with considerable therapy input.
Once Barbara was at home with a care regime in place, various experts travelled to Brazil to assess her. Life expectancy was a key issue and there was a large discrepancy between the respective neuro-rehabilitation experts instructed by the parties. Reliance on data such as Strauss alone was considered to be misleading as it did not take into account that Barbara was a Brazilian national. Barbara’s legal team instructed the actuary, Mr Anthony Carus, to provide a detailed report from a statistical viewpoint considering Brazilian life expectancy research and data. Barbara’s neuro-rehabilitation expert and Mr Carus considered that Barbara’s life expectancy would be in excess of another 50 years. The defendant’s instructed expert only felt Barbara would live a further 20 to 25 years.
Lump sum or periodical payments?
In light of this spread of life expectancy evidence, periodical payments seemed to be the obvious method to overcome the mortality risks of living longer than any determination of the duration of future loss. That said, in the event that the claimant’s evidence was to find favour with the court, the mortality risks of living longer than another 50 years would be reduced, increasing the benefits of flexibility that only a conventional lump stun can provide. However, the financial analysis as to which form of award would best meet Barbara’s future needs depended on a number of primary issues, which required expert evidence; those being:
- Whether it was appropriate to apply a discount rate of 2.5% per annum, real and net, or an alternative in respect of a conventional lump sum.
- How either a conventional lump sum or periodical payments paid under the order of the UK court would be taxed in Brazil.
- Whether it was appropriate to adjust the applied discount rate to take into account prices and earnings growth in Brazil, assuming it to be different to that in the UK.
- Whether a suitable measure could be found that would pass the Mackay J test (set out in the Court of Appeal decision in Thompstone et al ) to uprate any periodical payments.
- The denomination of any suitable periodical payments.
With regard to the appropriateness of applying a 2.5% per annum discount rate, the contents of the Court of Appeal decision in the matter of van Oudenhoven  acted as the guide:
But if a claimant is saying that his or her case is exceptional it most surely be right to examine all the circumstances of that claimant’s case to see whether it truly is exceptional. Thus, in the case of a foreign claimant who is saying that his or her case is exceptional because of the incidence of foreign tax the court is bound to look, in general terms at least, at whether there are corresponding advantages in the country concerned. For example, could the money be invested in the equivalent of ILGS producing higher yields? How does the level of indirect taxation and the cost of living compare with that of the UK? In this case the only information which we have is that Dutch income tax is higher than UK tax. Does this fact alone mean that this is an exceptional case?
In light of the above, Barbara’s legal team obtained evidence from Mr Piers Lowson, financial risk management expert, to ascertain:
- the existence of index-linked government bonds in Brazil;
- the redemption yield on these bonds compared with ILGS;
- whether this redemption yield represented an equivalent risk-free rate of return in Brazil, compared with ILGS in the UK;
- whether insurance could be purchased against default on Brazilian index-linked government bonds, in the event that the redemption yield did not represent a risk-free rate of return;
- the cost and duration of such insurance; and
- whether outside factors, such as financing the World Cup and Olympics, could impact on the redemption yields and risk of default.
Barbara’s legal team obtained further Brazilian accountancy evidence with regard the taxation of such bonds in Brazil compared with the taxation of ILGS in the UK.
Barbara’s legal team also obtained evidence from Dr Victoria Wass, labour economist and member of the Ogden Working Party, with regard to:
- the level of price inflation in Brazil compared with the UK; and
- the level of real earnings growth in Brazil compared with the UK.
Barbara’s legal team were conscious that there had not been any reported case post-van Oudenhoven where the court has considered the claimant’s position to be ‘exceptional’ and applied a discount rate different to that set by the Lord Chancellor.
The evidence from Mr Lowson was that there was an index-linked government bond market in Brazil and that the yield on those bonds reflected the default risk, given that the Brazilian government had defaulted on its debt in 1826, 1898, 1902, 1914, 1931, 1937 and 1983 and a further default was only avoided in 2002 by a $30m loan from the IMF.
Brazil’s credit rating was Baa2 (Moody’s), BBB (Standard & Poors) and BBB (Pitch), compared with Aal, AAA and AAA respectively for the UK.
Mr Lowson’s evidence also confirmed that insurance was available for the default risk, but the net impact of paying for the insurance would be to reduce the redemption yield to those akin to current redemption yields on ILGS in the UK, However, there was no certainty that such insurance would be available in the future or at what cost, and the financial impact of the World Cup and Olympics could impact upon the price of such insurance.
The Brazilian accountancy advice provided confirmation that the taxation on the Brazilian bonds would not be significantly different to the impact of taxation on ILGS for a claimant who was tax-domiciled in the UK. However, the advice in respect of periodical payments was that such income might well be taxable in Brazil. This was clearly a major issue in terms of the viability of periodical payments, as any periodical payments would have to be ‘grossed-up’ each year by the defendant to ensure that Barbara received the income required to meet her needs net of taxation. Furthermore, the taxation rate could be as high as 40%. We are not aware of any case where the court had awarded periodical payments that had to be ‘grossed-up’ annually.
Dr Wass covered the differential in Brazilian inflation and earnings growth compared with the UK, setting out that Brazilian inflation and growth in earnings has been significantly higher than that in the UK in recent years. The problem was attempting to forecast whether this past trend would continue into the future or whether Brazil was in a period of economic ‘catch up’ and the rates would level off over time.
These issues would be overcome, particularly in respect of the future care and therapies elements of the claim, if periodical payments were viable.
Dr Wass considered whether there was a suitable measure that could be applied to uprate periodical payments in respect of future care and therapies that would meet the Mackay J test. The following is the relevant part of the Court of Appeal judgment in Thompstone with regard to the test that should be applied to an alternative measure:
His Honour Judge Bullimore took the view that the exercise is bound to be a comparative one but that any alternative that was unsuitable would have to be rejected. That must be right, and before Mackay J the criteria for suitability were hardly an issue. He identified them in the following words:
’70. Before considering individual measures proposed I should consider the criteria that should be applied when making what I consider to be a comparative assessment as to whether each meets the test of fairness of appropriateness defined above.
71. The experts helpfully agreed the criteria for the suitability of an index as being:
- accuracy of match of the particular data series to the loss or expenditure being compensated;
- authority of the collector of the data;
- statistical reliability:
- consistency over time:
- reproducibility in the future;
- simplicity and consistency in application’
This appears to me an entirely appropriate and sensible list of the qualities which are to be looked for. Mr Hail sought to add that the candidate measure should be ‘free of distorting factors.’ Dr Wass, more realistically in my view, said that that is in effect asking for the impossible though it should be as free as possible.
Dr Wass identified a number of prices and earnings-based candidate measures, concluding that the IPCA health and personal care group (IBGE IPCA 62) was the most accurate measure to apply (while IBGE IPCA 63 is entitled ‘personal care’, which would seem to be a good match for the need, this element of the index is made up of toiletries). This measure, while unlikely to be a perfect match, included the costs of medical treatment, dentistry, therapies and private health plans, which was likely to be the closest match to the services being provided by the local hospital (rather than there being provided directly employed personal carers).
This measure had increased at an average rate in excess of 6% per annum since 1999.
Finally, it was unquestionable that for any periodical payments to be appropriate they needed to be denominated in Brazilian Real.
In light of the above, the initial conclusions were reached:
- life expectancy was uncertain;
- whether a 2.5% per annum real and net return could be achieved in Brazil was also uncertain;
- whether the claimant being resident in Brazil represented ‘exceptional circumstances’ to such a degree that would justify varying the discount rate and whether an alternative rate was supportable in evidence was also uncertain;
- there was a suitable measure that could be applied to uprate periodical payments in respect of future care and case management;
- there was no reason why periodical payments could not be denominated in Brazilian Real; and
- periodical payments in respect of future care and therapies would reduce the importance of the discount rate and life expectancy issues.
Application of IBGE IPCA 62
The final question was whether the application of IBGE IPCA 62 was practicable, in respect of a workable schedule to any periodical payments order. Given that the measure was expressed as an annual growth rate, it had to he applied in a different manner to the application of ASHE 6115 or the RP1 in the schedule to the model order. In that schedule, a base year is defined with the total growth in earning or in the Index applied to the original multiplicand (ie A to B, A to C, A to D etc), The application of the IBGE IPCA 62 requires the annual growth rate to be applied to the previous years’ payments (ie A to 13, 13 to C, C to D etc).
This was relatively straightforward in terms of drafting and Barbara’s legal team were satisfied that the application of IBGE IPCA 62 was practicable. A guide was drafted to the workings of the schedule, to clearly set out how one would find and apply the data each year (in a similar manner to that provided in Thompstone).
Having put this option to the defendants they took a reasonable and helpful stance during negotiations which took place on 14 June 2013. The tax position as to periodical payments being taxable in Brazil was not definitive however legal advice suggested that the payments would not be subject to tax if Barbara is medically certified as disabled. As the position the tax position was not clarified at the time of negotiations the defendant agreed to ‘hold the claimant harmless’ in respect of any potential taxation. The defendant also agreed to be liable for any bank charges to ensure that Barbara received the full amount of the agreed payments.
As a result, the following was agreed:
- Periodical payments of R$325,000 per annum, net of taxation, IBGE IPCA 62-linked in respect of the following elements of the claim:
- technical nurse/supervision;
- technical nurses expenses;
- support and care of the family;
- speech and language therapy;
- occupational therapy;
- nutritional advice;
- domestic assistance; and
- A conventional lump sum of R$6,500,705 in respect of all other losses.
The settlement was approved by the Honourable Mr Justice Lewis in the High Court on 18 July 2013.
This is a tragic case and Barbara’s life has been changed forever. However the efforts of her legal team have allowed Barbara to return to home to the love and affection of her family. This case also acts as an important marker for claimant solicitors acting for foreign nationals injured in the UK especially when life expectancy is an issue between the parties. It outlines the evidence and expertise required to secure a periodical payment order which can secure a claimant’s financial future.
This article was written by Ian Peters, an injury specialist at Anthony Gold, with Richard Cropper, a consultant at Personal Financial Planning. The article was first published in Personal Injury Law Journal, March 2014, and is reproduced with kind permission.