Civil Liability Bill [HL]

Lord Faulks Excerpts

2nd reading (Hansard): House of Lords
Tuesday 24th April 2018 Lords Chamber

[Lord Faulks (Con)]

My Lords, I begin by declaring some interests. I am a practising barrister, and Part 2 of the Bill, relating to the personal injury discount rate, is relevant to the size of the awards in cases in which I am instructed by both defendants and claimants. In particular, I declare an interest as acting for the National Health Service and for various medical defence unions in claims of the utmost severity. I should also declare an interest as having being a Minister in the Ministry of Justice between 2013 and 2016, immediately following the noble Lord, Lord McNally, from whom we have heard. During that time, whiplash reform was frequently discussed. However, during my time in the Ministry of Justice, neither Lord Chancellor changed the discount rate.

The Bill, or something like it, has been a long time coming. Noble Lords may remember that in the Queen’s Speech a Bill was foreshadowed which would,

“ensure there is a fair, transparent and proportionate system of compensation in place for damages paid to genuinely injured personal injury claimants”.

The scope of this Bill, which is,

“to make provision about whiplash claims and the personal injury discount rate”,

is much narrower, although I anticipate that the aim of the legislation very much reflects what was said in the Queen’s speech. I hope that, at the very least, we will be able to debate the future of Section 2(4) of the Law Reform (Personal Injuries) Act 1948, as referred to by my noble and learned friend Lord Mackay and the noble Lord, Lord Sharkey.

I imagine that most noble Lords will agree that many whiplash claims have contained a strong element of a racket. There may well be a dispute as to how much of a racket, but very few of us will have escaped invitations to commit a fraud, usually on the telephone, inviting us to say that we have been involved in an accident. There is also the sort of fraud suggested to the noble Lord, Lord McNally. There is such an accumulation of anecdote that it becomes beyond anecdotal evidence. I regularly used to receive telephone calls when I was a Minister, inviting me to participate in these frauds. When I identified myself and invited further information to be provided to me, the phone suddenly went silent.

The difficulty, or perhaps the advantage, to some people with whiplash is that it is neither provable nor disprovable by any scans or investigations, and so provides an opportunity for those who wish to participate in a fraud, or simply wish to exaggerate the impact of a particular accident on their neck or back. I agree with the noble Lord, Lord Monks, that insurers have played their part in what has been this racket. The inclusion of pre-medical offers precluding settlement is definitely a step in the right direction and it is important that it should remain in the Bill.

Part 1 reflects a strategy to restrict the level of damages and to discourage these ambitious, or fraudulent claims. It has been criticised, and I quote the briefing from the Law Society as “arbitrary, disproportionate and wrong”. It said that the Bill ignores genuine claimants, and even that the evidence of fraud is very slender. It is true that the existence of a tariff will mean smaller claims for pain, suffering and loss of amenity, although when a scheme of this sort was originally announced, not by the Ministry of Justice, but by the Treasury, it was suggested that no damages at all would be paid for pain, suffering and loss of amenity. However, in this scheme, what are known by lawyers as special damages will be recoverable—that is, loss of earnings or medical expenses attributable to the injury. There is a power, subject to the regulations, for an uplift on the tariff for damages in exceptional circumstances. It is said that this will give rise to litigation—that the changes and the proposed increase in the small claims limit will result in a proliferation of litigants in person. I am sure these and other criticisms, which we have already heard canvassed in the course of these debates, will be debated in Committee. My view is that this part of the Bill is aimed in the right direction and is a necessary correction to the whiplash claims racket.

By contrast, I do not think that there should be much real debate about the need to change the discount rate, which was dramatically reduced as a result of a decision of the then Lord Chancellor, Ms Truss, from 2.5% to -0.75%. Even cautious wealth advisers have described this rate as “incredibly generous”, and this is borne out by relevant international comparisons. As we have heard, the Government’s proposal is to change the assumption. The result should still be a generous discount rate from the point of view of claimants and should result in fair compensation to them. The Government could in fact have gone further in relation to the assumptions, but have been rather conservative—with a small “c”.

I do, however, have a number of issues with this part of the Bill. The first is that it could be some time before it takes effect. The cost to the taxpayer of a change in the discount rate is very high indeed. The Department of Health is a particular loser. The suggestion is that the recent changes may result in a loss of as much as £1.2 billion a year. Furthermore, the cost of clinical negligence claims generally, as revealed in the recent National Audit Office report, has got completely out of hand. Every day that -0.75% remains the discount rate will be a further blow to government, both national and local, as well as to those affected by increased premiums.

There is a 180-day turnaround period between the Lord Chancellor deciding to commence a review and the expert panel reporting back. But the obligation to commence a review begins only after commencement of the Act, and we do not know when that will be. As I understand the Bill, he or she has 90 days after commencement before the 180-day turnaround period even begins, and perhaps my noble and learned friend will confirm my understanding of this. The commencement date—see Clause 11 in Part 3—is on such a day as the Secretary of State may appoint, and so the period does not begin automatically once the Bill is passed. The Lord Chancellor must be ready for these changes. Why can the initial 90-day period in which the Lord Chancellor has to commence a review not be curtailed to, say, 30 days? Surely preparation should be under way for at least some preliminary work on the composition of the panel. I hope my noble and learned friend will be able to reassure the House that the Government intend to get on with this as soon as possible.

My other main concern is the frequency of the review. My experience as a practitioner is that, pending a probable change in the discount rate, parties on both sides, particularly in substantial cases, will inevitably and legitimately seek to game the system. Indeed, I can tell the House that that is going on at this very moment, depending on when trials might take place in relation to anticipating forward changes in the discount rate. If the review is every three years, there will be a constant exercise in guessing whether the discount rate will go up or down. By complete coincidence, the period of five years that was suggested by the noble Lord, Lord Sharkey, and my noble friend Lord Hodgson, is one to which I adhere. I respectfully suggest that it should be five years. What is important is that there should be regular reviews, as opposed to no reviews at all or very infrequent reviews, which, as we have heard, has been the position since the Damages Act came into force.

I am also concerned about the recoverability of investment advice as a separate head of damages. My construction of Clause 3(3) of Schedule A1 inserted by Clause 8 leads me to think that this should not be a separate head of damages as is now the case following the decision of Eagle v Chambers—here I have to declare an interest, as I was involved in that case. Given that the discount rate reflects a degree of advice—or at least proper advice given to a claimant—then surely he or she cannot recover the cost of additional expert advice as once was customary in large cases.

Finally, I want to say something about periodical payments. I entirely endorse what a number of noble Lords, including my noble friend Lord Hodgson, have said about periodical payments. I read the Government’s response to the House of Commons Select Committee in which they said that they would investigate, either directly or with the help of a third party, whether there are any ways in which the present law and practice regarding PPOs could be improved to ensure that any avoidable obstacles to their use are removed. It seems to me that periodical payments are often much more satisfactory than lump sums and are a clear indication that a claimant is not interested in gambling on the uncertainties of the market or indeed his or her life expectancy, but simply wants to make sure that damages are available, as and when needed, for the rest of their lives.

In this context, I will comment briefly on the speech of the noble and learned Lord, Lord Hope, who was one of the judges in the case of Wells v Wells. He spoke of the power that always existed for having varying rates, according to different heads. I agree with my noble friend Lord Hodgson that some of his anxieties would be and are satisfied by the regular awards of periodical payments, particularly cases of cerebral palsy for example, where life expectancy, even in the time of my practice, varied considerably. It is now very much longer than it was, because of improvements in medical science.

I have thought carefully about whether it ultimately should be for the Lord Chancellor to decide these matters or if there should be a panel, taking it out of the political sphere entirely. Indeed, the political pressures on a Lord Chancellor not to do anything are plainly there in the existing legislative framework. Ultimately, it is appropriate that a Lord Chancellor should decide, albeit with the obligation regularly to review on advice, because ultimately it is a political matter. This was one of the difficulties that the Supreme Court faced because, as the noble and learned Lord, Lord Hope, said, it did not have all the evidence that one might have to come to its conclusion. The Supreme Court does not have what the Supreme Court in America has, so-called Brandeis briefs, with all the information enabling you to make an almost economic or socioeconomic decision. Politicians make what legal academics call polycentric decisions about the appropriate discount rate or any other factor. That is not something that courts in this country are able to do.

In my view, subject to hearing further argument, the structure of the Bill in this respect is right. We want a fair system of compensation for both sides in litigation, and one that commands public support. The Bill, though capable of improvement, should do this.

Civil Liability Bill [HL]

Lord Faulks Excerpts

Committee: 1st sitting (Hansard): House of Lords
Thursday 10th May 2018 Lords Chamber

[Baroness Butler-Sloss (CB)]

My Lords, this is a good Bill but it is incomplete. As the Minister will have noticed, every single speaker has said that, to be completed, it requires a legal definition. Individuals who say that they have a whiplash will have to have a medical diagnosis, but in a Bill of this sort, which is intended to deal with fraud, there absolutely has to be a legal definition, for the reasons given by my noble and learned friend Lord Judge, which I entirely support.

[Lord Faulks (Con)]

My Lords, I declare an interest as a racketeering lawyer, as my noble friend Lord Blencathra would have it, although it has been some time since I was involved in whiplash claims.

I accept that there are genuine whiplash claims and that some whiplash problems last for a considerable time and can cause difficulties that continue well beyond six months, 12 months or even two years. The majority do not. However, the legislation we are concerned with here ought to be clear—I agree with all noble Lords who have said this—which would mean a definition in the Bill. This has been a problem for this Government and previous Governments and we have to accept that we are dealing with a slippery and powerful opposition in trying to pin down this racket.

Whiplash injuries have an attraction for fraudsters because, as no doubt my noble friend Lord Ribeiro will confirm, they are difficult to prove or disprove on medical analysis—they do not show up on scans of any sort—and doctors have to rely on the veracity of the patient to satisfy themselves that they may or may not have whiplash symptoms.

We do not want to pin down a definition of whiplash injuries and the nation’s necks appear to improve, only for its lower backs to deteriorate, and suddenly we are invited to consider claims in which, as a result of some movement of the thorax, lumbar or cervical regions in an accident, all the symptoms are referable to the lower back, which is outside the definition and would be equally difficult to prove or disprove. I therefore counsel the House to use caution in saying that we must pin down the definition. As legislators that is of course desirable but we want to help the Government to deal with this problem.

A similar issue arose during consideration of the Psychoactive Substances Bill, when everyone in the House said that we must be clear as to what the substances are and put them in the Bill. However, the conclusion was that we should not do this because of the infinite adaptability of those who produce such substances. While I sympathise as a matter of principle with those who have spoken—I will listen with interest to what my noble and learned friend says—we should be careful not to do anything which may assist those who have perpetuated this racket.

[Lord Trevethin and Oaksey (CB)]

My Lords, I support everything that has been said by every lawyer who has spoken this morning. Clearly, the Bill needs a definition. However, I also agree with what the noble Lord, Lord Faulks, has said about the difficulty that has arisen in constructing the definition.

The House will not be able to tell whether the Bill will work as a matter of practical justice until we see the definition. It will need to be a broad definition for the reasons given by the noble Lord, Lord Faulks. It is easy to foresee that when the Bill passes into law, as it probably will, there will then develop heavy tactical warfare between those acting on the claimant’s side and those acting on the defendant’s side, which will be focused on the precise wording of the definition. If there is undue looseness in the definition, that warfare will clog up the courts and be generally undesirable.

In short—I do not disagree with anything I have heard this morning—it is clearly necessary for the Bill to contain a definition and for this House to consider the proposed definition in minute detail and with great care to ensure that the Bill works when it passes into law.

--- Later in debate ---

[Lord Beecham (Lab)]

I must apologise to the noble Lord for delaying his expectations slightly, and declare my interest as an unpaid consultant in my old firm of solicitors.

It is clear that we must have a proper definition. It is equally clear that the definition ought to be provided by a medical source. The groupings of this rather long day are such that the recommendation that I shall be making in the next group is relevant to this first group, in that the responsibility for defining a whiplash injury should be on the Chief Medical Officer and the definition incorporated into primary or secondary legislation. That takes the decision away from politicians. I disagree with the noble Lord—I do not think that the definition should be a political decision: it should emanate from the medical profession and be embodied in legislation. An amendment to that effect on Report would perhaps be helpful.

It is clear that there are problems; nobody denies that. There is an argument about the extent to which the current system is being abused, but any abuse is unacceptable and reflects on innocent people who have suffered genuine injury. Their cases need to be dealt with properly. So there has to be change. However, with due respect to those who tabled these amendments, who may well have drawn on medical advice, we should at some point incorporate a requirement for that medical advice to emanate from a medical source—I have suggested the Chief Medical Officer but it could be another source—rather than be determined by politicians.

[Lord Faulks]

The term “whiplash” is pretty loose. What is the noble Lord inviting medical experts to do to interpret a term that is not really medical?

[Lord Beecham]

There surely has to be a medical definition—and where better to get it from? The medical profession deals with injuries that are labelled “whiplash injuries”. There may be some argument about the definition, but surely it can be decided only on the basis of medical skills.

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[Lord Monks (Lab)]

My Lords, I follow for a moment the line that previous speakers have addressed. I understand that the Scottish position is different from that proposed in the Bill and that people injured in the course of their employment are treated differently from others. It would be interesting if the Minister, with his extensive knowledge of the Scottish position, could outline what the different reasoning might be. I am not asking him to speak for the Scottish Government, but I am sure he understands how Scottish practice has developed in a different way.

A number of us are concerned that this is a Bill for the insurance industry, tackling problems that it should have addressed itself. If insurance companies were paying out claims without properly investigating, if they were making money available just because it was too much trouble for them to assess the honesty of those making the claim, they have spawned the industry that we are now grappling with and trying to make sense of. The insurance industry should put its own house in order, not come crying to the Government too often to say, “You should do this for us with legal changes”.

I am conscious that we could have a problem with drivers who get injured and are covered by the road traffic laws being treated differently from a driver of a forklift truck, say, who has an accident in the factory or depot, and is not covered by road traffic law. There are inconsistencies here which, I understand, the Scots have addressed differently from the position under the Bill. The Minister shakes his head, and I stand to be corrected, but I should be interested in his observations on that point.

[Lord Faulks]

My Lords, the noble Lord, Lord Monks, makes a good point: the insurance industry has its share of responsibility for what has occurred in its eagerness to settle claims which may not have been genuine to save the cost of going to court to argue the matter, but to describe this as an insurers’ Bill may be to overstate the case. In the Bill, we are all concerned to stamp out what has been a widespread fraud—not at the expense of genuine claimants, of course, but I do not think anyone looking at the statistics could deny that there has been a serious and long-standing problem that needs a solution.

The noble Lord, Lord Beecham, mentions the Chief Medical Officer in one of his amendments. Of course, the definition of whiplash and the approach to it should be informed by medical opinion, but I respectfully suggest that, ultimately, we as a legislative body have to grasp that definition and approach, bearing in mind medical evidence but nevertheless seeking to identify what is going on in the real world, rather than simply tying ourselves to a medical definition which may of itself be imprecise.

As to where the cut-off should come—whether it should be 12 months or two years—it will always be somewhat arbitrary. However, there seems to me a risk that if we reduce it to 12 months rather than two years, we can anticipate a number of medical reports suggesting that matters should resolve themselves in, say, 18 months—not the more reputable medical experts, but, I am sad to say, not all of them have in the past been in that category.

The point made by the noble Baroness, Lady Primarolo, about the availability of therapy in various contexts is good but, as I understand it—my noble and learned friend will correct me if I am wrong—we are concerned here with damages for pain, suffering and loss of amenity. That does not preclude damages for loss of earnings or for the cost of medical expenses, whether for therapy or otherwise, which can be recovered in addition to the tariff claim. I hope that that is some answer to the question of whether those matters can be attended to following an accident.

As to the argument about whether employment should be an accepted category, while that might have some initial attraction, I would counsel against that approach. I can imagine a revision to the standard message following any such amendment. It would be, “We understand you have recently been involved in an accident while you were driving in the course of your employment”. That would inevitably follow if we narrow or exclude incidents arising from employment. Whether you are driving in the course of your employment, recreation, or whatever the reason, you are equally likely to—

[Baroness Berridge]

I hate to interrupt my noble friend, but in principle, what is wrong with a call saying that? If someone is driving in the course of his employment, it is in a different category because the employer will have to give evidence that he was indeed driving in the course of his employment. There is a danger that we are saying all these calls are a bad thing, or that all claims management companies are a bad thing and all insurance is a good thing. What in principle is wrong with a call of that nature that can be substantiated by evidence, and would need to be from the person’s employer?

[Lord Faulks]

I am grateful for that intervention. My point is that if someone has been genuinely injured, whether in the course of employment or not in the course of employment, they are entitled to make a claim, and nothing should preclude that, regardless of whether they receive a message in the current form or in an amended form. It seems to me that it would be inappropriate to make a distinction between the circumstances in which you may or may not suffer a whiplash injury. My point was simply that if there is an amendment to the law, those seeking to encourage not the genuine claimants—of which there are certainly some—but those who are not genuine may revise their message to take into account the revision that we make in the law. Of course I am not against genuine claims. On the amendment tabled by the noble Earl, Lord Kinnoull, and my noble friend Lord Hodgson, although I understand the disaggregation that lies at the heart of their amendment, I am not for the moment persuaded that this is not a matter that is catered for under Clause 2(3) and (4). I shall listen with interest to what my noble and learned friend says.

[Lord Beecham]

Perhaps I may invite the noble Lord to refer to the provisions that refer to MedCo. He talked about doctors’ reports as if they could be made by rather unscrupulous doctors at the behest of a client. Would not use of the MedCo system pretty well ensure that the reports would be valid and authentic?

[Lord Faulks]

The MedCo system has contributed very considerably to the improvement in the standards of medical reporting. For those of your Lordships who are not familiar with it, it was a system to prevent what was undoubtedly an abuse of the system by some doctors, to allow the random allocation of medical experts to deal with whiplash injuries. It is certainly an improvement. My point is that there is still a risk in certain cases of there not being reliable medical evidence.

[Lord Trevethin and Oaksey]

Before the Minister responds perhaps I may, in the probing spirit of the amendments, mention one point that has occurred to me in light of the noble Earl’s proposed deletion of the word “psychological” from various provisions in Clause 2. I completely understand what the Government are hoping to achieve by using the term “minor psychological injury” in those provisions. I imagine they have in mind the fact that in cases of the type we are considering, it did become routine, and probably still is routine, for claimants to be advised to get a supportive report from a psychiatrist that uses the term “post-traumatic stress neurosis” or something similar as a way of enhancing the eventual award. I can see that that is a problem that the use of the term “psychological injury” is directed at.

The noble Earl makes a significant point when he refers to the bruised or gashed knee of the claimant in this type of case. I am not sure how that type of case, where there is a whiplash injury but also some other injury that is outside the definition of whiplash injuries, will be satisfactorily addressed. I imagine that the tariff award for whiplash injury will be fairly low. I do not have the answer to this problem, but I am contemplating the position that will arise when a claimant has suffered a whiplash injury and is entitled to the tariff award, which may be only a few hundred pounds, but has also suffered a probably rather less serious injury to, say, his or her knee. A gashed or bruised knee might stop them from playing football, skiing or whatever it may be, and would be worth, I guess, a few hundred pounds—it might edge into £1,000. You might get an anomalous outcome that would involve claimants recovering more for very trivial injuries to the lower part of the body than they are entitled to recover, pursuant to the Bill, for the relevant whiplash injury. I do not know what the answer is, but it is a potential problem.

Civil Liability Bill [HL]

Lord Faulks Excerpts

Committee: 1st sitting (Hansard continued): House of Lords
Thursday 10th May 2018 Lords Chamber

[Lord Brown of Eaton-under-Heywood (CB)]

My Lords, I understand that the clear purpose of Part 1 of the Bill is to discourage false claims for whiplash injuries in road traffic accidents. The proposed method, besides wisely insisting henceforth on medical reports, is essentially by substantially reducing the damages recoverable in such claims to, as the noble Lord, Lord Sharkey, has just explained in some detail, figures well below those that are suggested in the 14th edition of the Judicial College guidelines, based as they are on typical court awards for such injuries.

The real question raised here is whether it is right to create especially low awards and, if so, how much lower than the norm for this particular injury suffered in this particular way specifically because disproportionate numbers of this sort of claims are likely to be false, not least because it is highly subjective and very difficult to establish objectively the reliability of the complaints. These are essentially political questions. It may be addressing the next group of amendments to say that it would make no sense whatever to involve the judiciary in answering these political policy questions. We know what the courts regard as the appropriate levels; we have those from the Judicial College guidelines.

As to what the political answer is to the precise level of damages proposed and whether or not it should be on the face of the Bill, I am essentially agnostic—although if anything I would favour that it should be. What rather surprises me is that, as I understand it, none of the amendments to the Bill is designed to challenge the whole Part 1 approach, which inevitably involves discrimination against those genuinely claiming for whiplash injuries in this context. Is the problem, one may ask, despite a number of improvements in the overall legal landscape over recent years—and indeed, no doubt consequentially, some reduction in the level of these claims—really bad enough to justify that whole approach? That does not seem to be squarely addressed in any of the amendments.

That said, I would add that I am in broad agreement with the whole idea of tariffs for injuries, certainly for lesser injuries, and indeed even of reducing awards in respect of a number of these lesser injuries. When I used to practise in this area decades ago, I used to think even then that lesser injuries were altogether too generously compensated, certainly in comparison to the graver injuries, which were not. Tariffs promote certainty and predictability, although of course always at the cost of some flexibility. That very predictability and certainty cuts down the enormous expense, the worry, the concern, the delay and the hassle of litigating expensively—as it invariably is—in this field. Indeed, that is also the effect of raising the small claims tribunal limits. I therefore also tend to support that to some degree in respect of these lesser injuries.

Overall, one must recognise that this is par excellence a policy issue, and it is for the Crown to justify Part 1 in the way that I have indicated. Part 2 raises very different questions, and to that I give my total support.

[Lord Faulks (Con)]

The amendment tabled by the noble Lords, Lord Sharkey and Lord Marks, seems at least to question the underlying premise behind these reforms. I respectfully suggest that the Government have established the premise. The Minister set out the Government’s case, as it were, at Second Reading, and the statistics seem to lead ineluctably to the conclusion that there is widespread abuse of the whole whiplash claims system. The solution, though it is inevitably somewhat rough and ready, is that there should in effect be a reduction in what claimants might have been able to claim under the system that currently obtains, although that is in relation only to damages for pain, suffering and loss of amenity and excludes loss of earnings or any other consequential losses. It is a reduction but a fairly modest one and we are speaking of injuries at the lower end of the scale, although I do not downplay the discomfort that can follow from whiplash injuries. However, the purpose behind the reforms is surely, first, to provide certainty and, secondly, to make the awards reasonably modest so as to provide less of an incentive for those who would seek to make fraudulent claims. That, combined with the ban on medical officers, should fulfil what is, as the noble and learned Lord rightly says, essentially a policy decision.

In effect, the losers about whom we should be concerned are those genuine claimants, as opposed to the many who are not genuine, who I accept will get a lesser sum than they would otherwise have obtained. In the round, though, I suggest that this is a sensible policy decision. The House may have in mind that when these reforms were initially trailed by the then Chancellor of the Exchequer George Osborne—and it came from the Treasury rather than the Ministry of Justice—the suggestion was that there would be no damages at all for whiplash injuries. This is a modification of that change, and of course there is the right of the judges to have an uplift in circumstances that we may be exploring later. Still, I suggest that it would be a mistake to pass these matters back to the judges. The Judicial College guidelines are in fact an extrapolation from individual cases decided by judges. They then, as it were, create a form of certainty, although they are variable according to individual cases.

I think the Government have made a case. They have to grasp the nettle, and they have done so in this case.

[The Earl of Kinnoull (CB)]

My Lords, I congratulate the noble Lords, Lord Sharkey and Lord Marks, for framing a good debate in this important area, and I thank the noble Lord, Lord Sharkey, for his very clear opening remarks. There seem to be three issues here: first, who should set the tariff; secondly, where it should be set out; and, thirdly, how it should be amended.

I regard the tariff as being very much a political matter. The problem that we are trying to cope with is a widespread low-level fraud that is afflicting our country. It is easy money offered by the claims industry for people following what are probably genuine motor accidents. I read out earlier a quite shocking quote from one of the leading people in the claims industry:

“Even if you don’t experience any symptoms straightaway, don’t rule out the possibility that you’ve suffered this type of injury”.


I feel that as it is a political and social problem it must have a political solution, and it cannot really have a judicial solution.

I am grateful to the noble and learned Lord, Lord Brown, who has lent me his copy of the Judicial College guidelines. The introduction states:

“Assessing the appropriate level of any award remains the prerogative of the courts, which are not constrained by any range identified in this book, since the figures within any such range are persuasive, not obligatory, and merely represent what other judges have been awarding for similar injuries”.


Therefore, the whole basis on which the Judicial College has been gathering figures and making judgments is not the sort of basis on which in any event one would want to build a tariff construction. It is the wrong starting material, although it is an interesting book. Accordingly, I feel that the Lord Chancellor must be the person who takes a decision about what will be contained in the tariff.

In respect of my other two questions, I return to the 22nd Report of the Delegated Powers and Regulatory Reform Committee, which considered this issue at paragraph 13 and stated:

“In our view it would be an inappropriate delegation of power for damages for whiplash injury to be set in a tariff made by Ministerial regulations rather than on the face of the Bill. The tariff should be set out on the face of the Bill, albeit amendable by affirmative statutory instrument”.


I feel that answers both my questions. I urge the Minister to consider having a tariff on the face of the Bill and to ensure that it is amendable with suitable parliamentary oversight.

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[Lord Marks of Henley-on-Thames]

Absolutely not. The Judicial College can respond, and be required to respond, to political guidance if Parliament chooses to legislate on the level of damages. I do not say that that is what is wrong. My concern is about the fairness and comparability of picking out whiplash injuries in an attack on fraud and reducing the compensation to genuine claimants accordingly. My point about the £225 and £450 figures—

[Lord Faulks]

Does the noble Lord accept that if you reduce the amount of damages, it provides something of a disincentive to those who are fraudulent?

[Lord Marks of Henley-on-Thames]

Of course I accept that. It is a question of whether the cost in unfairness is worth paying. It is a dilemma that the noble Lord himself correctly outlined in his speech. We are simply saying that we ought to try every other avenue before trying this drastic avenue of introducing an unfair system for genuine claimants. I will see if I can get beyond the next couple of sentences.

My point about the £225 and £450 figures is that they represent a cliff edge. They compare to £1,800, which is the expected award set out in the Government’s impact statement for such injuries of less than three months’ duration to date. The Government’s response to the outcry that these damages are so low has not been to meet the outcry at all but to reduce them from £235 to £225 and from £470 to £450.

One of our problems with the present proposals is that there is no evidence base for a recent increase in the number of fraudulent claims. We entirely accept the case that the noble and learned Lord, Lord Keen, made both at Second Reading and today that there is a wide prevalence of fraudulent claims that we have to tackle. However, there is not a wide base of evidence for an increase in such claims, nor is there sufficient evidence of how many claims are fraudulent or genuine. There is certainly no evidence that only the fraudulent claims would be deterred and that the genuine claims would continue. That worries me seriously, because the noble and learned Lord suggested earlier today that a genuine claimant might continue whereas a fraudulent one might be deterred. We simply do not accept that. It is just as likely—and I say this also without an evidence base—that genuine claimants would be deterred because the amount at stake had become so low, even though they had a fair claim.

We entirely agree with the Government that the proposal for compulsory medical reports discriminates between genuine and fraudulent claimants. I repeat my declaration at Second Reading that I have just concluded some litigation about compulsory medical reports and the operation of the pre-action protocol. However, there is no corresponding evidence of discrimination in the case of these drastic cuts in damages, which we say are unjust, unfair and fail to give fair compensation to genuine claimants. They discriminate unfairly between injuries sustained in road traffic accidents by drivers and passengers in motor vehicles and those sustained in such accidents by cyclists and pedestrians. Who would receive the traditional level of damages? Passengers and motorists would not, even in genuine cases. They discriminate unfairly between accidents which are covered by the Bill and accidents at work or accidents caused by, for instance, a council’s negligence. Those can also be a source of fraudulent claims.

If the Government are determined to have a tariff, we are worried about the cliff edge. I see no fundamental reason in principle against a tariff; it is a question of weighing the advantages of certainty outlined by the noble and learned Lord against the fact that you have a cliff edge where those cases that are very close to the three-month level produce very large discrepancies in damages. If we are to have a tariff, let it at least be one that does not penalise genuine claimants by allowing them an award that is far too low. That is the basis for our alternative Amendments 13 and 96. We do not put them forward as a preferred option, but they are more acceptable than the Government’s proposals.

--- Later in debate ---

[Lord Keen of Elie]

With respect, first, I understand that there was not intended to be a change between the impact assessment and the SI publication. That is why the rather odd difference of 4 point something per cent emerges. I acknowledge that that was not intended.

[Lord Faulks]

My Lords, I am very grateful to the Minister for giving way. Perhaps he will confirm to the House that even the Judicial College guidelines or awards of damages by judges for pain, suffering and loss of amenity are not mathematically calculated; they are figures arrived at doing the best that a judge can to represent the nature of the injury by such an award.

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[Lord Bassam of Brighton (Lab)]

My Lords, I have Amendment 14 in this group. Much of this ground was covered in the earlier debate, and I anticipate the Minister’s response in that light. I take the point made by my noble friend Lord Beecham that we perhaps need to find another route on this issue, and in a sense that is what Amendment 14 does. It seeks to place a duty on the Lord Chancellor to consult the Lord Chief Justice and obtain the agreement of the Judicial College on the proposed amount for tariffs, before making regulations to set damages tariffs for whiplash.

The Delegated Powers and Regulatory Reform Committee of your Lordships’ House recommended that it is the judiciary, with its experience of personal injury claims, that should determine the provisions for damages or, failing that, the responsibility should be undertaken by independent medical experts. Noble Lords have referred to medical experts in earlier debates and recognise their value. I know that many would prefer the Government to abandon their plan to discard the use of the Judicial College guidelines for general damages claims, but there is value in the current guidance. This is a probing amendment, along with others, to find a way of enabling consultation and constraining the absolute power currently set out for the Lord Chancellor.

One of the worries that feeds this is that genuine cases may be dealt with in a way that leads to undercompensation. We do not know what the scale of the problem is, because the Government have not produced statistics on what they believe to be the level of genuine or, for that matter, fraudulent claiming. While that remains the case, we must surely protect those who have genuinely suffered and need to make a claim for good reasons.

It is worth reminding ourselves that the Bar Council recommended that the Lord Chancellor should be required to have regard to decided cases. That seems a reasonable approach. If the Lord Chancellor is required to consult the Lord Chief Justice before making regulations on the uplift in exceptional circumstances, what justification can there be for him not to consult the Lord Chief Justice on the tariff amounts generally? It may be that, with its experience, the Judicial College guidelines would be an appropriate starting point and basis for consultation.

We recognise the power of the Government’s argument generally to change and make reforms, but it is also important to recognise the value of the judiciary’s knowledge in this field and the importance of consulting it in setting tariffs. After all, it has the experience.

[Lord Faulks]

I just wanted to say one thing. First, I am not sure whether I have declared during Committee that I was a Minister in the Ministry of Justice when the subject of whiplash reform was frequently discussed, although the precise shape of that reform did not manifest in the same way that it does in this Bill. I made that clear at Second Reading, but would like to make it clear now.

Civil Liability Bill [HL]

Lord Faulks Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Tuesday 15th May 2018 Lords Chamber

Moved by

[Lord Faulks]

56: Clause 8, page 7, line 34, at end insert—
“( ) In deciding whether it is appropriate to take a different rate of return into account, the court should consider—(a) the particular nature of the loss in respect of which damages are sought; and(b) any offer by a defendant to agree a periodical payments order.”

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[Lord Faulks]

My Lords, I begin with my declaration of interest, one I gave in Committee and at Second Reading. It is perhaps of some relevance to the debate that we are currently engaged in that I have for some years been involved in claims of the utmost severity and I am to this day instructed for defendants, particularly the National Health Service, the Medical Defence Union and insurers, but also claimants.

I move Amendment 56 in my name and that of the noble and learned Lord, Lord Hope of Craighead, who is not in his place because he had an unavoidable engagement. He knows essentially what I shall say. I cannot claim a total endorsement of any comment I may make in advance, but I can say that he supports the general tone of what I shall say in support of the amendment.

The desirability of periodical payments is clear, and has been well articulated around the House today—but not, I agree with the Minister, in all cases. The Government have very much acknowledged the need to encourage them but have so far not included in the Bill any specific provisions which would have that effect. The noble and learned Lord, Lord Judge, explained the difficulties of estimating life expectation, and he is of course right—although it may have passed his experience and practice that there is an enormous amount of literature now, particularly from the United States of America, in which very refined estimations of life expectation are provided to the court, particularly in the case of the most seriously disabled, so that you are able to enter an algorithm to see the likelihood of reaching a certain age. Having said that, it may well be the case that there is a spurious accuracy about that documentation, in view of the fact that the expectation of life of a seriously brain-damaged child, for example, has radically increased over the time when I have been in practice. An estimation made 20 years ago would simply not be right now for a child with exactly the same injuries.

Section 2(1) of the Damages Act 1996 gave the courts a power for the first time to order periodical payments, but could not do so unless the parties consented. That was preceded by a structured settlement agreement that had been reached in a particular case; it had attracted much attention and, therefore, Parliament intervened to give judges in appropriate circumstances a power of that sort. Then by Section 100 of the Courts Act 2003 the courts were enabled to order periodical payments, if they thought it appropriate. However, my experience is that they do not generally do so. In fact, I have never heard of the courts ordering periodical payments where a defendant is a secure provider but one side or another objects to such an order.

One consequence of the drastic lowering of the discount rate is that periodical payments have become much less attractive. With such a generous discount rate and the consequent rise in lump sums, there is very little incentive on a claimant to seek periodical payments when he or she can do better even by cautious investment in the market. We do not know what adjustment to the discount rate may be or, indeed, when any such adjustment may be made. Even if there is an increase to +1% as opposed to -0.75%, it may not be enough to discourage lump sums as opposed to periodical payments. It should be remembered that before the case of Wells v Wells in 1998, and for many years, the discount rate was +4.5%. It was lowered to 2.5% in 2001 to reflect the decision in Wells.

Amendment 56 is intended to provide some legislative encouragement to a party to seek periodical payments. The assumption by the courts currently is of a claimant as an incredibly cautious investor; in future, he will be regarded as a slightly less cautious investor by virtue of this Bill. Surely, if an investor is really anxious to avoid the uncertainties of the future, the best way in which he or she can do that is by an order for periodical payments with appropriate indexation. It used to be said, and indeed it has been said this afternoon, that the one thing that one knows about a lump sum is that it is either too much or too little. Inevitable uncertainties about life expectation mean that the degree of inaccuracy may be profound. Surely, then, if a sensible offer of periodical payments is made by a defendant and turned down by a claimant in favour of a lump sum, it indicates that the claimant is not nearly so risk averse as the legislation and the discount rate presumes that he is.

It is, of course, entirely a matter for the claimant what he or she wants to do with his money, subject only to the unlikely intervention of the courts to order periodical payments. It seems to me, therefore, that it should be open to the court to vary the discount rate to reflect the fact that, by turning down a reasonable offer of periodical payments, a claimant has evinced an intention to be rather more adventurous than the legislation presumes that he will be. This could either have the result of reducing the overall sum, thus making periodical payments more attractive in the light of a different discount rate, or of promoting settlements, factoring in the possibility of a court varying the discount rate in the light of sensible offers of periodical payments. One way or another, it may go some way to redressing the tendency away from periodical payments in favour of lump sums. I do not think it falls foul of what the noble and learned Lord, Lord Woolf, indicated: that Parliament should not tell judges of great experience precisely how to reflect these principles in an individual case.

The other part of the amendment concerns the particular nature of the loss in respect of which damages are sought. In substantial claims, there are a number of different heads of damage, and it may be that with some heads a different discount rate is appropriate. At the moment, the Bill talks of “classes” of case, not of different types of loss within the same case. In large claims there will be many heads of loss. They will include the cost of future care—usually the largest amount—the cost of specialised equipment; adaptations to accommodation; therapeutic and other medical treatment and loss of earnings, to name some of the main established heads of damage. Different considerations as to the appropriate discount rate may apply to different heads of loss.

In 2010, sitting in Guernsey, Jonathan Sumption QC, before his elevation to the Supreme Court, applied different discount rates to loss of earnings claims from those which he applied to other heads. That decision is not, of course, binding on our courts but it does illustrate that it may be appropriate to vary discount rates depending on the type of loss. This is done in a number of other jurisdictions.

My amendment originally contained a further factor to be taken into account in varying the discount rate, namely if a court concluded that a claimant would not in fact seek to recover a particular cost privately but would rely on the state. Very often, an award is made on the assumption that a claimant will, for example, seek to have his medical treatment and care provided privately, when that may not in fact be the case. In certain extreme cases, one is much better off receiving care for complex conditions through the state rather than, as it were, setting up a private hospital. This part of the amendment was initially accepted by the Table Office, but I was then told that it was outside the scope of the Bill. I am bound to accept that ruling but, as other noble Lords have said—and may say again—it is important that an outmoded provision, namely Section 2(4) of the Law Reform (Personal Injuries) Act 1948, is reviewed, and probably repealed, as soon as possible. I beg to move.

[The Earl of Kinnoull]

My Lords, I will speak extremely briefly on Amendment 57. This is merely a drafting suggestion on an issue where there is common ground with the Government. Trouble arises if you use the word “classes” to an insurance-based person like me, for whom it has a different meaning. To me, it means things like motor insurance, medical negligence or employer’s liability. I want to make sure that it is clear that one can not only follow the jurisprudence of Jonathan Sumption sitting in Guernsey—as has just been pointed out by the noble Lord, Lord Faulks—and vary things a little bit by head, but also in terms of what I call the yield curve. The yield curve is a very simple thing: the longer you invest the money, generally, the higher the interest rate you get.

For instance, if you invest the money for a month with the US Government at the moment you will get -0.25% or so; if you invest it for 10 years you will get 3% or so. On the whole, there is a gentle yield curve. That is reflected in Hong Kong and in Ontario, where they have a system of discount rates. In Hong Kong, if you will have future needs for between nought and five years in the court’s assessment, the discount rate used is 0.5%, between five and 10 years it is 1%, and over 10 years it is 2.5%. In Ontario they split it into two rather than three, and again it is based on the number of years of your future needs, which is assessed by the court: between nought and 15 years it is 0% at the moment, and over 15 years it is 2.5%.

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[Baroness Vere of Norbiton (Con)]

My Lords, in speaking to Amendment 56 I will speak also to Amendments 57 and 57A.

Amendment 56 would require the court to consider certain factors when deciding in an individual case whether it would be appropriate to take into account a discount rate or rates different from that prescribed by the Lord Chancellor. Under new Section A1(2), introduced into the Damages Act 1996 by Clause 8(1), the court is not prevented from taking a different discount rate into account if any party to the proceedings shows that it is more appropriate in the case in question. This reflects the current law in the Damages Act 1996, although in practice the courts in England and Wales, following the decision of the Court of Appeal in Warriner v Warriner, have chosen not to exercise the current power to depart from the prescribed rate.

The effect of the amendment would be to direct the court to consider the two different sets of circumstances listed in the amendment when deciding whether to apply a rate different from the prescribed rate or rates in an individual case. How the consideration of the factors would operate to assist the court in reaching a decision in practice is unclear, but it appears that the factors mentioned are not intended to be exhaustive.

The overarching effect of the amendment would be considerably to complicate individual proceedings as it would open up the potential for a different rate to be applied much more frequently than at present. This would be likely to encourage disputes between the parties—for example, over whether a reasonable PPO offer had been made. This would create uncertainty in the law and could prolong litigation and impede settlements, as the parties in any individual case would be unclear as to what discount rate would be appropriate and might be unwilling to settle without a court ruling.

When in the March 2017 consultation we asked whether the court should retain a power to apply a different rate if persuaded by one of the parties that it would be more appropriate to do so, 96 of the responses to the question supported the retention of the existing power, with 23 against. These, in general, were concerned about the problems of uncertainty, inconsistency and delay if the power were to be expanded. These difficulties would only be increased if the amendment were adopted. We believe that it is desirable for the Lord Chancellor to set a rate that is generally applicable and is not constantly called into question in individual cases. This is the core benefit of a prescribed rate and it should not lightly be set aside.

Amendment 57 would specify that, in addition to the ability of the Lord Chancellor to specify different discount rates for different classes of case, different rates could also be specified for different periods and for descriptions of future pecuniary loss. We do not consider that the amendment is necessary. New Section A1(4) already prescribes that the Lord Chancellor may distinguish between classes of case by reference to, among other things, the description of future pecuniary loss involved and the length of the period during which future pecuniary loss is expected to occur. The Explanatory Notes state:

“Subsection (4) makes clear that the power in subsection (3) to prescribe different rates of return for different classes of case includes the power to set separate rates for different sorts of future loss or for different durations of award. For example, under this power one rate might apply to damages for the first ten years and another rate to damages for subsequent years”.


I therefore reassure the noble Earl that the Bill already addresses the point he has raised.

Amendment 57A would ensure that the Lord Chancellor’s power to prescribe different rates of return for different classes of case could be applied to specify different rates for classes of case defined by reference to the anticipated scale of the award. New Section A1(3) provides that different rates of return may be prescribed under new Section A1(1) for different classes of case. New Section A1(4) clarifies that this power extends to defining classes by reference to heads of loss or duration of loss. This clarification is not exhaustive of the categories that the Lord Chancellor might adopt.

The power to set different rates of return for different classes of case is, however, already provided for, and the Lord Chancellor will decide whether to use the power to set different rates in the way that best delivers the objective of setting a prescribed rate. Such cases could indeed extend to the situation envisaged by the amendment, although this may be a difficult distinction to define and apply in practice. However, they could also be classed by reference to numerous other classes of case. It is, however, unnecessary to define what the classes may be. Given this, I do not think that the amendment proposed is necessary. On the basis of the explanation I have given, I hope that my noble friend will feel able to withdraw his amendment.

[Lord Faulks]

I am very grateful to all those who took part in the debate and to the Minister for her informative reply. I have to say, however, that I did find that it went two ways: on the one hand, we do not need the amendment because it is already there; on the other hand, the amendment, if effected, will cause uncertainty. That may not wholly do justice to the subtlety of the argument, but it did seem essentially to be that.

As I understand it, my noble friend said that the Lord Chancellor can choose different rates but a judge cannot, because the decision is made. That is, of course, at odds with the decision made by Jonathan Sumption and with the view of many. I respectfully submit that, although it will not be a regular occurrence, it is better for there to be a degree of flexibility for judges to order a different rate depending on the particular head of loss—as was done in the case in Guernsey and in many other jurisdictions. But I can see that I have not yet persuaded the Government of that.

As to the other part of the amendment, which relates to the consideration of an offer of periodical payments, with respect, I do not understand how that causes confusion, difficulty or uncertainty. It is a factor that a court can take into consideration—it is entirely a matter for the court. It is also, I submit, something that will assist in bringing about a settlement, because a claimant who is in receipt of a sensible offer of periodical payments may say to him or herself, “If I don’t accept this offer, there is a risk that there will be a less favourable discount rate”. That should promote settlement, which seems to be an aim that everybody concerned with these debates shares. So at the moment I am not satisfied that that would cause any difficulties.

I share with all noble Lords the desire to somehow include in the Bill or elsewhere more encouragement to use periodical payments. Therefore I would like to be included on the CC list for the meeting with the Minister so that I can bring what limited wisdom I have to try to encourage this. In the meantime, I shall consider carefully what my noble friend said. For the time being, I beg leave to withdraw my amendment.

Amendment 56 withdrawn.

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[Lord Faulks]

My Lords, my amendment is Amendment 59. Everything that I would have said has been said very well by the noble Earl. It is clear that we need to get on with this. The cost is extortionate. There was general agreement at Second Reading that any day’s delay was too many. I accept that there are things that have to be done, but not so many things and over such a long time as is currently within the terms of the Bill. The Minister made some encouraging noises at Second Reading and I hope he can go beyond those in response to this amendment.

[Lord Sharkey]

My Lords, we have Amendments 60, 64, 67, 68 and 71 in this group. They all have the same purpose. All are aimed at bringing forward the date of the first review of the PIDR and I want to thank the MDDUS for its help in drafting.

Amendments 60, 64, 67 and 68 each bring forward, in the appropriate place in the Bill, the start date for the first review of the PIDR to 30 days from commencement, which now seems rather timid in light of the proposals put forward by the noble Earl, Lord Kinnoull, and the noble Lord, Lord Faulks. However, as things stand, the Bill specifies a 90-day period from commencement within which the first review must start. The likely timing for the new rate determination to take effect is set out on page 3 of the Minister’s letter to us of 30 April. He said:

“Assuming the Bill receives Royal assent this year and that the provisions are brought into force within two months, the statutory timetable means the first review would be completed before the end of 2019”.


That is to take too long. Specifically, the 90-day period from commencement to the start of the first review is too long, so is the 180 days from the review start to its conclusion, and so is the unsatisfactory commencement provision in Clause 11(1), which allows the Secretary of State to choose any commencement date that he likes.

Our Amendment 71, which I will come to an a moment, deals with the 180-day period and the noble Earl’s later amendment in this group, Amendment 94, to which he has already spoken, deals with the commencement date issue. For the moment, I will speak only to the amendments that deal with the period within which the rate review must begin after commencement. The Bill specifies 90 days. We see no reason why it should be as long as that and our amendments reduce that period to 30 days.

The protracted timetable imposed by the Bill is unnecessary and inflicts real damage. Most noble Lords would agree that the current PIDR is causing real commercial harm. It is also causing real and irreversible financial damage to the NHS. For each month that the current rate operates, the NHS must accrue an additional £300 million against future clinical negligence claims. Those are enormous sums that would be much better spent on front-line activity in the NHS.

Amendment 71 also aims to bring forward the date of the first review. It addresses the length of the consultation period, who must be consulted and the length of the whole review period. Amendment 71 replaces paragraph 2 in new Schedule A1, inserted into the Damages Act 1996 by Clause 8(2) of the Bill. Paragraph 2 as it stands sets out the various elements of the timetable for conducting reviews of the PIDR and the timetable applies to the first and subsequent reviews. New paragraph 2 also sets out who must be consulted in the course of the reviews. It stipulates that the determination of whether to change the rate must be within the 180-day review period. That period must start no later than 90 days following commencement, which is left entirely to the discretion of the Secretary of State.

Amendment 71 replicates new paragraph 2, except that it addresses itself only to the first review and makes the following changes: it shortens the review period from 180 days to 90 days; it shortens the 90-day consultation period to 60 days; and it restricts the consultation for the first review to the Government Actuary—or his deputy if the office is vacant—and the Treasury. In other words, there is no consultation with the expert panel defined in paragraph 5 of new Schedule A1. Actually, it follows the original proposal made in the September 2017 Command Paper. Amendment 71 then goes on to restore all the existing provisions of paragraph 2 so that they no longer apply to the first review but to every subsequent review.

Our amendments in this group, together with Amendment 94 of the noble Earl, Lord Kinnoull, would significantly bring forward the review. By the Minister’s estimate, the Bill would produce the first review by the end of 2019 if all goes well. Our amendments, taken together, would produce the first rate review by mid-2019, at least six months earlier. This is what we should do and I commend these amendments to the Committee.

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[Lord Sharkey]

I have in this group Amendments 74, 87 and 88. Amendment 74 is a probing amendment. It provides the Committee with an opportunity to debate the value of the Lord Chancellor having a decisive role in determining the PIDR. As things stand, that is what he or she has—a decisive role. It is true that the Bill will create an expert panel to advise him and that it sets out the assumptions on which he must make that determination, but it is the Lord Chancellor who makes the decision. This poses the obvious question—why? What are the merits of having a politician making this judgment? What merit is there and what dangers might there be in having this decision in the political arena?

It is true, of course, that the rate decision has many serious consequences—for claimants but also for insurers and for the NHS, as we have discussed. These consequences are far reaching—but so are the consequences of changes to the Bank of England base rate. Changes in the base rate affect everyone who has a mortgage, every borrower and every saver. Some recent changes to the base rate have had dramatic effects on millions of people and continue to do so. For example, millions of people with savings have been dramatically disadvantaged by rate changes since 2007. Equally, millions of mortgage holders have benefited enormously from these changes. But these decisions on the base rate were taken not by politicians but by the MPC—an expert panel. If decisions on such wide-reaching and consequential matters can be taken by an expert panel without political involvement, why have political involvement in the PIDR? Why have the Lord Chancellor involved?

I raised this question when I met Ministers to discuss the Bill. The noble and learned Lord, Lord Keen, commented that the Lord Chancellor’s role was a matter of government policy. I understood that. However, we did not have time to go into the question of why it was government policy or whether there were better alternatives. We did not discuss what grounds the Government might have for maintaining the policy or whether any assessment had been made of alternative arrangements. We now have a little more time to discuss the issue and the merits of removing this role from the reach of politicians for reasons analogous to removing control of the base rate from them. I look forward to the Minister’s reply.

Amendments 87 and 88 are straightforward. They deal with the expert panel itself, as set up in paragraph 5 of the new Schedule A1 to the 1996 Damages Act, inserted by Clause 8(2). This panel is to be consulted by the Lord Chancellor in determining the rate. The Bill specifies the members of the panel as the Government Actuary, or his deputy if the office is vacant, who is to be chair, and four other members appointed by the Lord Chancellor, one of whom must have experience as an actuary, one experience of managing investments, one experience as an economist, and one experience in consumer matters relating to investments. All these roles seem pretty well defined, except possibly the last one. Could the Minister flesh that out a little? Can he give examples of the kind of persons who might qualify as having,

“experience in consumer matters … relating to investments”?

It seemed to us that the panel might benefit from an additional member with different expertise. Amendment 87 would add a member who is medically qualified and has experience of changes in medical science and their effects on life expectancy. The PIDR has a very significant effect on the damages awarded against the NHS for clinical negligence, as we have mentioned. Payouts last year amounted to £1.7 billion and the amount has been rising steeply in recent years.

Awards for clinical negligence frequently have to take into account estimates of life expectancy. The Committee will know that the PIDR has a very significant effect on damages awarded against the NHS for clinical negligence. As I said, payouts amounted to £1.7 billion last year, and much of this was determined by reference to life expectancy. Of course, actuarial methods can and do give an estimate of life expectancy, but for the most part this will be based on extrapolations of current trends. What might not be taken into account is the likelihood of discontinuous change brought about by the speed of advances in medical science. We live in a golden age of medical research. It is not a total exaggeration to say that one hears nowadays almost daily of some remarkable medical breakthrough that will in due course benefit patients by curing disease, improving quality of life and prolonging life itself.

It seems to us that the expert panel would benefit from having first-hand, direct experience of these new treatments and their likely effects. A member with such experience would make a valuable contribution to any assessment of the role played by life expectancy in determining awards. I look forward to the Minister’s thoughts on the matter.

Amendment 88 would impose a duty on the Lord Chancellor to secure that,

“each of the appointed members approaches the work of the expert panel as an expert with the object of recommending a rate of return that is fair to … both claimants and defendants”.

It could be argued, for example, that the last change to the PIDR was not fair to both claimants and defendants in that it produced a huge rise in the amounts awarded to claimants. And it works the other way: there might be rates that a panel thought unfair to claimants. If so, it would be important that that view helped form the recommendations. We see our amendments as allowing a dispassionate view of the effects of a change to the PIDR for both claimants and defendants, and this should have an explicit role in informing the panel’s recommendation. I hope that this is not controversial. In fact, I rather hope that the Minister will be able to demonstrate that the amendment is unnecessary and that the requirement for fairness is somehow already built into the procedure.

[Lord Faulks]

My Lords, the question of whether this should be a political decision or one taken by the panel is difficult. I thought carefully about this, as I am sure other noble Lords did. Ultimately, I respectfully submit that it should be a political decision taken by the Lord Chancellor. Of course, that decision will be critically informed by what the panel tells him or her. The provisions in the Bill provide that, when a Lord Chancellor makes a rate determination, he or she must,

“give reasons for the rate determination made, and … publish such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.

My noble and learned friend will correct me if I am wrong, but, if the Lord Chancellor were to take a perverse view, ignoring all the advice or not giving sufficient reasons for it, he or she would potentially be liable for judicial review. Ultimately on the question of accountability, this is a political decision and a politician should be answerable for it.

Of course I yield to no one in my admiration for doctors—we have a number of distinguished doctors in your Lordships’ House, and they are the experts who can assist the House on questions of life expectation. However, with great respect, that is not quite the question that the panel is there to answer; it is there to answer the question of yield for investment having regard to an investor of reasonably cautious nature. While some doctors might have a view about this, I am not sure that questions of life expectation have anything to do with what is essentially an actuarial or financial calculation. Therefore, I am afraid that I am unable to support that suggestion.

[Lord Mackay of Clashfern]

My Lords, the Act which this Bill amends gave the Lord Chancellor this power. I suppose that, at that time, the Lord Chancellor had intimate relations with the judiciary—but he also had the responsibility of accounting to Parliament if there was a question about the matter. The connection between the Lord Chancellor and the judiciary has somewhat diminished since that time, but the Lord Chancellor still has a primary duty in relation to the judiciary that other members of the Government do not.

It is also important to have accountability in this matter. As my noble friend has just said, if the Lord Chancellor ignored the advice of the panel, he might have good reason for doing so, but it would be very difficult for him to explain it, because one would assume in this case that he or she would accept the judgment of the panel and he or she would be answerable to Parliament.

I share my noble friend Lord Faulks’s difficulty in relation to medical help. It is for the judge to decide on the length of time or the nature of the requirements for care, treatment and so on that a person may have. This particular exercise is primarily for those expert in the matter of investment.

I have perhaps interpreted the new schedule to which the amendment applies rather too generously. I assumed that there would be different rates of return fixed for different classes of case and that it might therefore be possible to change them on review—for example, to have no rate of return for a particular class or to enlarge the class that another rate of return applied to. It would be extraordinary if one could abolish this duty by the exercise of paragraph 8(2)(a). I do not think that that was intended—but my noble and learned friend may say that it was.

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Moved by

[Lord Faulks]

62: Clause 8, page 8, line 15, leave out “3” and insert “5”

[Lord Faulks]

My Lords, we have had a debate effectively asking the Government to get on with the process of fixing the discount rate. We have now had a debate about who should be on the panel and how they should go about exercising the function of deciding the discount rate. This group of amendments is to do with a shorter, but very important, issue—namely, the regularity of reviews.

It is plain, I suggest, that there must be regular reviews, and much more regular than in the past. One of the problems that existed, and still exists until the law is changed, is that there was no particular period in which the Lord Chancellor had to exercise his or her power to alter the discount rate. It was very rarely done, not least because of the potentially significant political consequences of the decision. When, finally, the then Lord Chancellor, Ms Truss, altered the discount rate in 2017, it had the most dramatic effect. While more regular reviews are desirable, the question is: how regular should they be?

The problem about having a review every three years is that parties to litigation will have a quite understandable tendency to try to guess the outcome of the determination of the new discount rate and to game the system. I do not wish to imply anything inappropriate about such gaming; it may well be done by either side in a dispute, and is simply a factor in the uncertainty involved in negotiations, where a party thinks it would be to their advantage either to wait until after determination of the discount rate or to ensure that a trial or settlement is concluded before the discount rate is altered.

Large claims take some time to get to court. A brain-damaged baby does not have to begin a claim—or, at least, a claim does not have to be begun on their behalf—until after he or she attains their majority at the age of 18. The normal limitation period for personal injuries is three years, but there are exceptions in terms of date of knowledge and, under Section 33 of the Limitation Act 1980, there is the power to disapply the limitation period in certain circumstances.

In a complicated criminal negligence case, it may be a number of years before there is clarity in terms of causation and, indeed, prognosis, once all the various experts’ reports have been assembled and exchanged, and there have been meetings of appropriate experts. There is then the problem of finding a court date for trial.

There is thus plenty of time and room for manoeuvring. In my view, a three-year period is definitely too short. I would have favoured, if I had been asked, a seven-year period, but I suggest in this amendment five years as a compromise. If any evidence is needed of the gaming of the system, it is apparent now. That evidence may be anecdotal, but there is such an accumulation of this anecdotal evidence that it simply cannot be ignored. Parties are either anxious to conclude their cases before the putative date of the variation of the discount rate or to delay matters. There is much speculation as to when this Bill will become an Act. I fear that such manoeuvring will take place almost continuously if the three-year period is maintained.

I therefore ask my noble and learned friend the Minister seriously to consider altering the period to five years, which will mitigate to some degree the uncertainty that prevails on discount changes. Uncertainty, I accept, is inevitable in litigation, but where there is such a degree of uncertainty, with potentially large consequences in the size of a claim, it militates against settlement. Settlement of claims avoiding court hearings is surely desirable and unless the Government change the frequency of the review, I fear that there will be a very real increase in the number of claims that do not resolve themselves. Alternatively, there will be a number of applications to court to try to adjourn matters or accelerate them to reflect some perceived advantage to one side or another. I beg to move.

[The Earl of Kinnoull]

My Lords, I shall speak very briefly to Amendments 72, 73 and 75. Essentially, the points I made about the initial review apply here as well, and I shall not repeat them. But it seems to me that the sparking off of a review within a review period —not right at the end—because something has made the Lord Chancellor feel that there had better be a review now indicates that there is probably a need for one, either up or down. Therefore, I feel that we should trim the period of the review down. This is only a discount rate—it is not a very big thing and can be done relatively quickly. The three amendments merely suggest a way of trimming it down. Perhaps I may suggest to the Minister that when we have that very large cup of tea, we kick this around as well. It would be a great shame if future trimming reduced the rate heavily. There may be people whose cases are being settled at the wrong rate, so we have a duty to try to do things at a reasonable pace.

[Lord Faulks]

Does the noble Earl not accept that there is a risk that if there is such a frequent review, those who are parties to litigation will simply feel that they are in a permanent state of uncertainty about what the discount rate may be? They have to rely, for at least a reasonable period, on a certain discount rate.

[The Earl of Kinnoull]

I am sorry if I have confused the noble Lord. I am merely saying that once the review has been sparked off by the Lord Chancellor’s decision—it does not matter what the periodicity is; I was very interested in the arguments advanced by the noble and learned Lord—it should take place at a reasonable pace, because somebody is suffering if it is done slowly. That is the purpose of trying to trim the rates. This is not difficult; one discount rate has been set by a group of people who will have exactly the right sort of skills. I therefore think it can be done a bit quicker but, as I said, it is probably best discussed not in the Chamber but with the Minister.

[Lord Beecham]

I am not really persuaded by the logic of the amendment of the noble Lord, Lord Faulks. It is not as if all claims will be faced with a five-year period. If a case is brought two years before a review, the courts will be dealing with a more recent determination than if it had been five years. I do not see the advantage of the noble Lord’s proposition. There will be some cases that will obviously be closer to that date than others.

[Lord Faulks]

May I help the noble Lord? When you are coming up to a review period, whenever that is—whether of three years or five—there will be an element of one party or another seeking to guess the outcome. My point is that you do not come up to that cliff edge so often if it is five years rather than three.

[Lord Beecham]

Yes, but if you bring your case a year or two before a review, whether it is a three-year or a five-year review, your position is not changed, is it? I just do not see the logic of the amendment, and I will not be supporting it.

[Baroness Vere of Norbiton]

My Lords, the amendments in the group alter how often reviews of the rate take place and shorten the timing of the review period. Some of the points I shall make have been touched on in previous groups but, I feel, are worth repeating in this context.

The three-year period adopted in the Bill represents a compromise approach based on the responses to the March 2017 consultation. A wide range of views were expressed as to how often the rate should be reviewed, from automatic reviews at short intervals to every 10 years. The most popular options among the substantial majority who favoured fixed-period reviews were: one year, with 28 responses; five years, with 23 responses; and 21 favouring something in between.

In adopting a three-year period, we were conscious that any fixed period will at some stage influence litigation behaviour. In our view, three years strikes a reasonable balance between the risk of continual, or at least over-frequent, anticipation of rate changes associated with a shorter period influencing litigation behaviour, on the one hand, and the risk resulting from a longer period of more dramatic changes to the rate, on the other.

We believe that the more frequent reviews under a three-year cycle should lead to smaller adjustments in the rate on each review than that under the five-year cycle proposed in Amendment 62. This should reduce concerns about the size of any change in the rate as a result of the review, which should also reduce any temptation to distort the litigation process in the hope of benefiting from a significant advantageous change to the rate. We continue to believe that a three-year maximum review period represents a reasonable compromise between the different views held in this House and outside it.

Amendments 72 and 75 would shorten the period within which a review of the discount rate must be completed, from 180 to 120 days. Amendment 73 would shorten the time available to the expert panel to deliver its response to the Lord Chancellor from 90 days to 75 days. We fully recognise the need to ensure that reviews are conducted promptly and do not take up an excessive amount of time. However, it is equally important that sufficient time is available to enable the review to be properly informed and to give the expert panel and the Lord Chancellor an adequate period to consider all the issues that may arise.

We have drawn on the experience of reviewing the rate under the present law in proposing the time periods now in the Bill. It may be helpful to explain how the 180-day period allowed for in the Bill is made up. Turning to the first 90-day period, each review will require the analysis of up-to-date evidence on investment returns and investment behaviour to ensure that a fully informed decision is reached. The expert panel will need to consider this evidence in detail and prepare a thorough report for the Lord Chancellor. We consider that the 90-day period allowed for in the Bill represents a challenging but reasonable deadline for the panel to provide this. Turning to the second 90-day period, the Lord Chancellor will in turn need to consider the panel’s report and, as is the case under the current framework, consult HM Treasury. As the panel will be introducing new expertise into the review process, it is important that the other parties involved have the benefit of its considered views. Again, we consider that the 90-day period allowed for in the Bill is reasonable for this part of the review.

We therefore consider that the overall period of 180 days is reasonable to ensure that proper preparation of the review and careful consideration of the issues can take place. A significantly shorter period, such as that proposed in the amendment, could reduce the thoroughness and effectiveness of the review process. On the basis of the explanations I have given, I hope that my noble friend will feel able to withdraw the amendment.

[Lord Faulks]

I am grateful, or fairly grateful, to all noble Lords who spoke in this debate. I am sorry that the noble Lord, Lord Beecham, is entirely at a loss to understand the purpose of my amendment. Quite a number of other people seem to favour five years, so it is not a complete outlier. In fact, as many seem to favour five years as three years or any other period.

As my noble friend conceded, whatever period is selected is in a sense a compromise. It must be arbitrary. I am grateful to my noble friend for answering not only this group of amendments but an earlier group when dealing with the mechanism of the time limits for the Lord Chancellor to go through the process of conducting the review and appointing a panel. We have already been told that our suggestions are inappropriate in that respect, but it is nice to be told again. That was clearly in the speaking note.

As to the question of why three years, my noble friend said that there may be smaller adjustments after three years rather than five. With great respect, that depends on the economic climate. There may be some enormous economic event—we are not unfamiliar with those, sadly—which means that there could be a dramatic change in a short period. I am unconvinced by that argument.

My main point was gaming. I have personal evidence and experience that it is going on at the moment. Clearly, it is anecdotal, but I suggest that three years is definitely the wrong period. I will withdraw my amendment now. I shall do my best to accumulate better evidence to try to convince the noble Lord, Lord Beecham, among others, and the Government, that five years is a better period. In the meantime, I beg leave to withdraw the amendment.

Amendment 62 withdrawn.

--- Later in debate ---

The House of Lords Select Committee on Financial Exclusion looked at the issue. One of its conclusions was that the degree of financial education and understanding in this country was actually quite low. How that matches with the sort of considerations and assumptions that have flowed from some of these discussions today and last week needs explaining. I beg to move.

[Lord Faulks]

My Lords, I was about to warmly welcome the noble Lord, Lord McKenzie, to our Bill until he described my amendment as “heinous”. I do not seem to be going down very well with the Opposition Front Bench this evening. It reminds me of happier days when I was on the Government Front Bench and met with a similar lack of enthusiasm.

I would like to speak to Amendment 79, which raises a rather different point from others in the group, although I have not sought to decouple it. The point is that claimants’ lawyers are, understandably, imaginative in finding different heads of damage to include in schedules to enable them to recover on their client’s behalf the maximum possible by way of damages. One growth area that emerged was the cost of investment advice. When the discount rate was 4.5%, there might have been some basis for that claim for investment advice, particularly in the case of large sums recoverable by way of a lump sum as opposed to periodical payments. However, the approach of the court in Wells v Wells in 1998 assumed an extremely cautious investor who invested his or her money only in gilts—ILGs. That rather removed the justification for any specific and additional claim for investment advice. Following Wells, the Lord Chancellor in June 2001 changed the rate to 2.5 %, where it remained until 2017.

It always seemed to me that, if the assumption in Wells was of a highly risk-averse investor, it made little sense to award damages to reflect the cost of investment advice on the assumption that he would, in fact, be rather more adventurous in his investment strategy. I am glad to say that this was the view of the Court of Appeal in the case of Eagle v Chambers in 2004, 1 Weekly Law Reports 3081, a case in which I acted for the defendants. I can see a potential argument being advanced that, with the change in the assumption that damages are invested using a slightly less cautious approach, it may be argued that Eagle v Chambers is no longer good law and that the cost of investment advice could be removed.

I do not in any way seek to decry the point made by the noble Lord, Lord McKenzie, about financial exclusion generally. However, I suspect that bulky reports from financial investment advisers will be submitted to the court, suggesting what the cost of investment advice might be. Even with the benefit of MiFID II, that advice may not be as transparent as one would like; it will certainly be expensive, particularly when intended to cover a long period. The cost of the advice, perhaps being obtained on both sides, will significantly add to the burden on the part of a defendant, whether that defendant be an insurance company, the National Health Service or another public body. One way or another, ordinary members of the public will be paying for this.

One construction of the rather opaque paragraph 3(3) of new Schedule Al, inserted by Clause 8, is that the rate has been fixed on the assumption of proper advice on the investment of damages, in the sense that advice is understood to have been taken or not taken in fixing the rate but it is not to be the subject of a separate claim. In other words, in fixing the discount rate the investment advice is understood to have been done by the Government. My amendment seeks to make what may be the proper construction of the Bill explicit to prevent an additional cost of litigation, and to make it clear that the decision in Eagle v Chambers remains good law. I look forward to hearing the Minister’s response on this issue.

--- Later in debate ---

[Lord Keen of Elie]

I do not know whether the noble Lord wants me to respond to that but I will, very briefly, if I may, with the leave of the House. Where you have major claims for catastrophic injury, the lawyers involved for the claimants are highly sophisticated. One clear message that I received when discussing this with claimants’ lawyers was that they are concerned not only with the processing and pursuit of the claim itself but with establishing a framework within which the claimant will be able to live. I imagine that almost invariably involves the provision of suitable investment advice, albeit no one is obliged to accept it.

[Lord Faulks]

My Lords, in practice, when these cases come before a court, particularly where there is a party who lacks capacity, a judge, before approving one of these orders—they have the right to approve or disapprove a settlement—must be satisfied that appropriate advice has been taken on the split between periodical payments and a lump sum and that, generally, it is a satisfactory settlement from the court’s point of view. If they are subject to the Court of Protection, the court will then be able to manage investments according to the best interests of the protected party. If I may say so, the noble Lord has a good point on what happens to those who do not need the approval of the court or who are outside the protected party, and who are like anybody else who comes into a large sum of money in any other context. They will be well advised to take advice: some do; some, I fear, do not.

[Lord McKenzie of Luton]

I am grateful to the Minister and to the noble Lord for that education and further information. I still take away the point about where those who do not take advice end up. There is a difference between people receiving compensation for damages—where in most instances it is a one-off arrangement to last them for the rest of their life—and somebody who wins the pools and has a stash to invest, which they may do wisely or foolishly.

The genuine point is this: it is important to be comfortable that people will be as encouraged as they can be to take advice—I know you cannot force them—and to know that any gaps have been covered in our deliberations on the Bill. That is particularly important in this era of scammers and cold-callers. We know the impact that they can have on people’s pensions and there is a real parallel here. Having said all that, I think I have probably said enough, and I beg leave to withdraw the amendment.

Civil Liability Bill [HL]

Lord Faulks Excerpts

Report stage (Hansard): House of Lords
Tuesday 12th June 2018 Lords Chamber

[Lord Hunt of Wirral (Con)]

My Lords, this group contains 18 amendments, of varying importance. I declare my interest as having been a partner for 50 years—this year—in the global commercial law firm DAC Beachcroft LLP. I was so pleased to see the noble Lord, Lord Morris of Handsworth, in his place earlier because for many years I had the honour to act for the Transport and General Workers’ Union when, on the instructions of Mr Albert Blyghton, I went into battle to recover substantial damages where people had been seriously injured.

In supporting the words of the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and the noble Earl, Lord Kinnoull, I remind the House that here we are dealing with a racket, as described by the noble Lord, Lord Blencathra, which has grown up in this country thanks to what is termed the compensation culture, encouraging not just fraudulent but spurious—I think that is a better description—claims, which have now made us the global whiplash capital. I greatly regret that.

After all, in this group of amendments we are talking about only minor injuries. As has been pointed out by the noble and learned Lord, Lord Brown, there has been a political decision. I remind noble Lords that in the Red Book in 2015, the then Chancellor of the Exchequer, Mr George Osborne, said:

“The government will bring forward measures to reduce the excessive costs arising from unnecessary whiplash claims … including by … removing the right to general damages for minor soft tissue injuries”.


I am not sure everyone here was present when we had a debate—and we have had a number of subsequent debates—about the need to tackle this whiplash culture.

Not everything George Osborne said in that Autumn Statement was received with universal acclamation but I well remember that that particular announcement was welcomed on all sides of the House. “At last”, we said, “we’re going to get rid of the whiplash culture”. There was a clear consensus in this House that the law and the courts had allowed a racket to flourish, leading to a manifest and substantial injustice—the injustice of millions of law-abiding insurance policyholders having to pay over the odds to fund this mass of bogus claims. We can point the finger at the insurance industry, perhaps, for allowing too many but we are talking not just about insurance-funded claims but about a whole range of minor claims, and we have to decide as a House whether we intend to fulfil what I understood we had agreed to do about this racket.

I congratulate my noble and learned friend the Minister on the determination he has shown to end this racket and to end the injustice. We have identified an injustice and we have promised to act to end it.

There is a judicious balance in the Bill, as one would expect, and those with genuine minor injuries have nothing at all to fear from it. The option of doing what George Osborne initially recommended, namely to remove general damages completely from soft tissue claims, has perhaps wisely been abandoned in favour of the proposed tariff. In Amendment 1, as we have already heard, the Government have further answered their critics in this House by putting a clearer definition into the Bill. It is not perfect but it is a lot better than the previous one in the draft regulations. It comes closer to capturing the scale of the problem.

I thought we had a consensus in this Chamber in July last year, when we debated the need to tackle the regulation of claims farmers during the passage of the then Financial Guidance and Claims Bill. I highlighted at the time the work of Carol Brady, in her excellent report in 2015, and the need to follow the money. Noble colleagues on all sides of the House agreed in that debate that these were important measures; now, we have to tackle the money itself, in the form of damages and solicitors’ fees, and we are of course suddenly beset by an enormous number of last-minute amendments. I must share with the House that, following the then Chancellor of the Exchequer’s announcement, I was told: “Don’t think for a moment that this will ever pass, because the jobs of thousands of those employed in the claims management industry will be lost. They will fight hard to stop the Government’s action”.

Why should the noble and learned Lord, Lord Woolf, of all people, be challenging the Government’s stated intent here? I have already heard the depressing rallying call of access to justice. In truth, I worry about some of the briefings that we have received in preparing for this debate. They really seek to delay what action the Government are taking. I know that the noble and learned Lord, together with many other Members of this House, has received instructions from me personally in the past and I have huge respect for him. We must surely recognise, as the noble Earl, Lord Kinnoull, reminded us, that the Government committed in the manifesto at the last election to tackle the rampant compensation culture around whiplash claims—the same culture which pays the bills for those who continually text and call us with offers of money for nothing. We must not allow our eye to be taken off that ball.

The noble and learned Lord, Lord Woolf, referred to the Judicial College guidelines. Amendments 11, 17A and 17B propose sagely that those guidelines are the cure of all ills, but they are really not the answer to the question we have to address. I do not know the guidelines off by heart but I know this particular section, because it reminds us that,

“the figures … merely represent what other judges have been awarding for similar injuries”.

That is all the guidelines do. They also say:

“The figures in this new edition recognise that … the general increase in RPI … since … 2015 has been 4.8%”.


With respect to the good work that the Judicial College does to make awards consistent, the guidelines simply record the numbers previously thought of by other judges over the years and then uprate them for inflation. These and other amendments proposed by the noble and learned Lord, Lord Woolf, in fact oppose the entire substance of Part 1. They ask us to agree to leave the problem to the judges to sort out.

I respectfully answer that the courts have had many years to contain the problem but I have yet to see any conspicuous success. The assessment of damages by judges is based on a ratchet effect; it can go up but it can never slip back, as the Judicial College guidelines themselves admit. Judges do not redress the balance at any time. On one recent occasion when they had the opportunity to do so—the noble and learned Lord may recall Heil v Rankin in 2000—the judges increased damages for all but minor injuries and left the damages for those alone, so the control effect is simply absent. That is why it is now up to Parliament to do what needs to be done.

I conclude by reminding colleagues that a graphic illustration of leaving such matters solely to the discretion of judges can be found in a High Court appeal case last month, Molodi v Aviva Insurance. A whiplash claim was initially accepted by the county court judge, even though Mr Molodi had lied on a number of aspects of his case. The High Court judge in Manchester, Mr Justice Spencer, threw the claim out and issued a salutary warning to the judiciary,

“it is also pertinent to recognise the problem that fraudulent or exaggerated whiplash claims have presented for the insurance industry and the courts. This was recognised in March 2018 when the Ministry of Justice published a Civil Liability Bill … proposing new, fixed caps on claims … The problem of fraudulent and exaggerated whiplash claims is well recognised and should, in my judgment, cause judges in the County Court to approach such claims with a degree of caution, if not suspicion”.

The need to issue such a general warning to fellow judges belies the suggestion that we can safely leave this issue for judges to control. The tariff is sorely needed. It applies the brake, which only the Government can apply, not the courts.

[Lord Faulks (Con)]

My Lords, I repeat my declaration of interests made at previous stages of the Bill. The noble and learned Lord, Lord Woolf, and others have advanced powerful arguments in favour of protecting the entitlement of those genuinely injured who seek compensation for whiplash. Coming from such a distinguished source, these arguments clearly demand a great deal of respect around the House. It is therefore—to adopt a phrase used by judges—my misfortune not to agree with the noble and learned Lord’s amendment. The noble and learned Lord, Lord Brown, referred to the fact that judges from time to time decide matters of policy and relied on the case of Caparo and the fair, just and reasonable test. It is of course for Parliament to decide fairness, justice and reasonableness, and it should approach this problem with that in mind.

It is undoubtedly true that some genuine claimants who have sustained whiplash injuries will be entitled to rather less than they would have been if the Bill becomes law, but we need to stand back and consider the policy driver behind these changes. At Second Reading, the Minister pointed out that there has been a 70% rise in 10 years in the number of road traffic accident-related personal injury claims. Of these, 85% are for whiplash-related injuries. In 2016-17, there were 670,000 whiplash claims—it is rather surprising that anybody gets into their car at all—yet we know that we have more of these injuries than any other European jurisdiction notwithstanding the considerable improvement in standards of road safety in this country and the adoption of neck restraints and the like. All this costs motorists and consumers a great deal, and the cost of premiums falls particularly harshly on those who live in rural communities and have to drive cars and on the young, who may find it difficult or impossible to pay premiums.

--- Later in debate ---

I can barely suggest that leaving out these words would be a concession because I am not trying to change the outcome, but I hope that at the very least a statement could be made in the Chamber that these words do not provide an override of the conditions laid down in the earlier new paragraph 3(2), to which I made reference. I am sorry to be pedantic but 30 years as a patent attorney teaches me that, if in doubt, leave it out.

[Lord Faulks]

My Lords, I could not hope to better that very compelling speech and I will not try to add any confusion to the analysis. I agree with what my noble friend Lord Hodgson said about the desirability of periodical payments, but all is not gloomy on that front. I regularly act for the NHS in settlements involving periodical payments even now, when it is probably less attractive for periodical payments than it has ever been, having regard to the change in discount rate. Nevertheless, the desirability for periodical payments is a point that the House is generally agreed upon and I entirely accept what my noble friend has said.

However, it has to be said—my noble and learned friend the Minister will confirm it—that the courts have power to order periodical payments by virtue of Section 100 of the Courts Act 2003, which built on the original Act—the Damages Act 1996. The fact that they do not is usually because both sides are advised at a reasonably high level, having regard to the size of the claim and the complexity of injuries, so on the whole the courts will stand back and not seek to impose on or insist against somebody’s periodical payments. None the less, it is something that all advisers will be very much bearing in mind, and I do not disagree with the suggestion that the rules of the court may well be useful to ensure that as far as possible these are considered by the courts, the parties’ advisers and the parties themselves.

I turn to the amendment tabled by the noble and learned Lord, Lord Hope, which, as he kindly said, built on something that I put down in Committee. He puts it much better in his amendment than I did. Of course, the variation in rate is something that was explored, as I said in Committee, by Jonathan Sumption QC, as he then was, in a case in Guernsey, when he decided that it would be appropriate in certain cases to have a different discount rate. As the noble and learned Lord, Lord Hope, said, the amendment makes the scope of the power clearer. There is much in what he says.

I look forward to what will apparently be a fruitful analysis by the noble Lord, Lord Beecham, when he comes to address his amendments. The review that he suggests in Clause 89 troubles me a little because, although all noble Lords are concerned to encourage periodical payments, I am not quite sure how that will work. There are all sorts of reasons why people may or may not have periodical payments. Certainly by changing the discount rate in an upward direction from, say, 0.75% to 1% or 2%, it is much more likely that they would go for periodical payments. However, there are a plethora of reasons why they will or will not seek periodical payments. It is quite a difficult thing for that review to provide the sort of clarity that I am sure the amendment is seeking to achieve. I look forward with interest to the explanation behind it.

[Lord Beecham]

My Lords, I shall attempt to provide some sort of explanation. The amendment seeks a review of what is actually happening in the light of the changing circumstances; it does not prescribe a particular solution. It offers precisely the opportunity for the professions to contribute to ensuring that the arrangements for periodical payments suit the client, particularly those who have suffered significant injuries and may be looking for lifetime support. It is very much an open request, and the expertise of the noble Lord—and others, of course—is very welcome in dealing with it.

Amendment 73A in my name also seeks a different review on the assumptions on which the discount rate itself is based and how investors have dealt with that over time. As will be seen, the review should, I hope, indicate whether the assumptions on which the discount rate is based need to be changed, and set out any recommendations.

This is entering new territory, and it is reasonable to have a report within a reasonable time—three years is probably long enough—to allow a proper examination of the impact of the new arrangements. For that matter, there is a question of course about how often there should be such a review. It would be difficult to prescribe, because interest rates and returns on investments change. We have been living in a fairly good period in terms of returns, but that may not last. So periodic reviews should be very much part of the agenda.

On the amendment proposed by the noble Lord, Lord Hodgson, I strongly support the position that he takes and hope that the Minister will feel sympathetic to it and to the other amendments in this group.

Civil Liability Bill [HL]

Lord Faulks Excerpts

Report stage (Hansard - continued): House of Lords
Tuesday 12th June 2018 Lords Chamber

[Lord Hope of Craighead (CB)]

My Lords, I added my name to Amendment 69 and I support everything that my noble and learned friend has said. There is just one point that I would like to add. I draw attention to subsection (4) of the new Section A1, which is printed at page 7, lines 37 to the foot of the page. It refers to the content of the original order that the Lord Chancellor will have made, which is the background to the review process. The order not only talks about the rate but has to contemplate the possibility of descriptions of pecuniary loss, the length of the period during which pecuniary loss is expected to occur and the time when the pecuniary loss is expected to occur.

So one is not simply talking about the calculation of a rate of return in the abstract. It would be open to the reviewer to examine whether there should be some fresh approach to the matters that are contemplated in that subsection. It underlines the important point that my noble and learned friend has been making about the need for judicial input against the background of experience which everybody in the courts has drawn out of cases involving these very serious injuries. I support the amendment for that reason.

[Lord Faulks (Con)]

With some hesitation, I offer some slight doubt about the two contributions from the noble and learned Lords relating to the role of the Lord Chief Justice. I entirely accept the significance and appropriateness of the role of the Lord Chief Justice in the first part of the Bill, as the Minister accepted. I am more troubled about the suggestion in relation to the role which the Lord Chief Justice might play in the rate of return on investment. In essence, this is a quasi-mathematical function. The noble and learned Lord, Lord Judge, is quite right that judges regularly see and approve complex cases, and will be aware of the adequacy or otherwise of damages. However, with great respect, that is not quite the issue that the panel will be deciding.

I see a further problem and would be grateful for the Minister’s comments on it. The Lord Chancellor makes the rate determination—it has been accepted that this is essentially a political determination—must,

“give reasons for the rate determination”,

and,

“publish such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.

If he or she has to give reasons in response to a judicial review—the Minister has said that the decision must be amenable to such review—presumably those reasons might include the advice that he or she has been given by the Lord Chief Justice. I am a little concerned that this puts the judiciary in an unfortunately political position, when it has been agreed that the role of the Lord Chancellor is pre-eminently a political one, albeit advised by the panel. So although I entirely accept the experience and wisdom of the judiciary, I wonder whether this is entirely the right role in this context.

[Lord Hope of Craighead]

Does the noble Lord agree that subsection (4), towards the foot of page 7, is not dealing with matters of mathematics? The matter of description of categories and so on is involved. It goes a little further than the noble Lord was contemplating in his brief remarks.

[Lord Faulks]

I entirely accept that it does, but ultimately the question of what the rate is is determined by experts, taking into account the factors which are, I agree, set out in the Bill. I shall listen with interest to what the Minister says, but it still seems to me that that is perhaps dangerously close to the judges getting involved in an area which might render them subject to criticism.

[The Earl of Kinnoull]

I will speak extremely briefly in support of the noble Lord, Lord Hodgson of Astley Abbotts. It seems to me that the Lord Chancellor would, very properly, have two questions in life that he would want to ask of an expert. The first is: “Do we need a review?” The second is: “Please will you conduct the review?” However, unless there is a standing panel, who on earth can he ask the first question of? I assume that he will not have anyone within the Ministry of Justice to whom he can turn and say: “Are we in circumstances where we need a review?” That is, in itself, a powerful argument for having a standing function that would allow him some access to expertise in this difficult and esoteric area. So, if the Minister is not minded to be amenable to the amendments proposed by the noble Lord, Lord Hodgson, how will that question be answered?

--- Later in debate ---

Moved by

[Lord Faulks]

54: Clause 8, page 8, line 15, leave out “3” and insert “5”

[Lord Faulks]

My Lords, this amendment is in identical terms to that which I advanced in Committee. This time I have the support of the noble Earl, Lord Kinnoull. In view of the fact that there are no changes in the nature of the amendment, I think I can be brief in outlining its purpose.

The purpose is to ensure that the reviews are regular—indeed, that is the purpose of the Bill—which is particularly important in the light of the fact that Lord Chancellors so rarely exercised the power in the previous 20 years or so. The question is: how regular? I respectfully submit that the three-year period is too short, and a five-year period would be much better.

I say this based not least on personal experience at the moment and having had conversations with people on, as it were, both sides of the fence. When you are expecting a change one way or another, as is the position now—because the market suggests, as the noble Earl pointed out, that there probably will be a change, let us say from minus 0.7% to plus 1%—one side or another will see it to their advantage either to bring forward a claim or delay it to take advantage of the putative date of the decision.

This process is perfectly legitimate and part of the hurly-burly of litigation—there are lots of uncertainties in litigation—but this one is of particular significance where large sums of money are concerned. I am not disparaging anyone involved in the litigation process. But if the change happens every five years, there will be less of this gaming than if it happens every three years, just as everyone says about the last year of a four-year term of a President—nothing much happens. A lot of positioning will be taking place before the change.

This is a view expressed widely in the profession. I therefore ask my noble and learned friend carefully to consider accepting the amendment, or at least coming back at Third Reading with something that reflects those considerations. I beg to move.

[The Earl of Kinnoull]

My Lords, I support the noble Lord, Lord Faulks, in his amendments. I should explain why I did not support them in Committee. In Committee, I listened to two eloquent speeches—one from the noble Lord and one from the Minister. They went carefully through the arguments about gaming and not gaming. I thought it was very interesting. I have a lot of knowledge in this area, but I did not actually know. I then spoke to a large number of practitioners on the insurance side to try to form my own view on whether three or five years was right for gaming. I am afraid I strongly formed the view that five years was right and therefore strongly believe that the noble Lord, Lord Faulks, is on to something that would greatly benefit all concerned. That is why I support the amendment.

More importantly, I have tabled Amendments 68, 70 and 71, which are to do with the timing of the second review. Broadly, they try to bring the timing in from what I thought was 180 days to what I thought was120 days. Those thoughts were prior to the arrival from the Minister’s office of the draft terms of reference of the expert panel, which I have in my hand. It is very interesting because the expert panel is established at the very moment that the review trigger is pulled—or, I suppose, immediately after. In fact, in a section entitled “Preparation”, before the review is triggered there is a call for evidence, which asks for all sorts of evidence all round.

That raises two issues for me. The first is that it extends the period of uncertainty. There is a 180-day review period and the call for evidence period, which I assume is at least 60 days—probably 90 days—to increase the level of uncertainty. During this uncertain period, the people who suffer are not the banks of lawyers on either side of the argument; the fee clock is still running. The people who suffer are the individuals who have the catastrophic injuries. So I worry about that.

The second thing I worry about is that if I were an expert, I would not want someone else to draft my call for evidence. I probably do not need the call for evidence because I am an expert. The idea that the poor old Ministry of Justice will be able to ask for all this expert evidence is wrong. The Ministry of Justice is not full of this sort of specialist in the esoteric areas around the setting of a discount rate. I do not believe that is a wise thing to do, so will the Minister look again at the draft terms of reference? Maybe, when we have our coffee to discuss timings, we could have a short session on the terms of reference so that we can try to align this. The basic point behind Amendments 68, 70 and 71 is a desire to allow enough time for a panel of experts very well versed in discount rates to arrive at the correct answer, without extending that time unreasonably. The uncertainty is bad for the victims of the catastrophic injuries.

--- Later in debate ---

I add that I am open to further discussion on the question of time limits; I have already engaged in some discussion on this with some of your Lordships and would be prepared to do so again before Third Reading if there is an element of fine-tuning to be carried out. However, I simply emphasise that these are maxima—which, clearly, should be borne in mind when we approach this matter. In light of that, I invite my noble friend to withdraw his amendment.

[Lord Faulks]

My Lords, I am grateful to the Minister for his response to my amendment, to the other amendments in this group and to all noble Lords who have spoken on this group.

I am sorry that I have not been able to persuade the noble Lord, Lord Beecham, of the wisdom of this amendment—nor, it appears, the Minister, or his predecessor who answered this in Committee. I echo what the noble Lord, Lord Beecham, said about the quality of the scrutiny that the Bill has received around the House. However, I am a little disappointed at the level of the response to this amendment. I have not yet heard any reasons why it should be three years rather than five years; I have heard that it is preferred, but not why. The submission that I have made consistently in debates on the Bill is that gaming is going on—I do not think that anybody doubts that at the moment. I accept the point made by the Minister that five years is the outer limit and that it can come earlier than that. The fact is that when, quite rightly, a “must” obligation is inserted in the Bill and there must be a review every three years, it means that in the year leading up to the review people will inevitably be guessing and manoeuvring to do that. That will happen less often if the period is five years. It is a simple but powerful point and, since we are on the whole determined to try to encourage the settlement of cases and as much certainty as possible, this seems to be desirable.

My noble and learned friend has very helpfully said that his door is open, as indeed it has been throughout the passage of the Bill, and I pay tribute to him for his engagement generally. I suggested in Committee that I would try to bring forward some evidence to convince the Government, but I am not sure what more evidence I can give. Inevitably it is hearsay evidence, although we now also have the evidence of the noble Earl, Lord Kinnoull, but I will not give up. Given that my noble and learned friend has left that door open, I will continue to try to assemble better arguments or more evidence to support this amendment. In the meantime, I beg leave to withdraw.

Amendment 54 withdrawn.

Civil Liability Bill [HL]

Lord Faulks Excerpts

3rd reading (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

[Lord Cromwell (CB)]

My Lords, I invite the Minister to join me in wishing the noble and learned Lord, Lord Hope of Craighead, a very happy birthday today. That pleasurable duty discharged, I have to say that I disagree with his amendment. I found very helpful his explanation of the constraints that surround it; none the less, the purpose of the clause, as the noble and learned Lord, Lord Mackay, alluded to, is surely as a safety valve for unforeseen circumstances. I accept, and said in an earlier debate, that courts have seldom, if ever, been able to exercise such a power, but we would be well advised at least to keep that option available, should any court be brave enough to do so at some point. For that reason, I feel that we should not support this amendment.

[Lord Faulks (Con)]

My Lords, either there is a realistic power to vary the rate—I can see that there are some arguments in favour of that, which found favour with Mr Sumption, as he then was, when sitting in Guernsey—or it does not have any real meaning, as is the case following the decisions of the Court of Appeal. Although flexibility is desirable, if it is meaningless and if we as a legislative body decide that we are not going to overrule any decisions of the Court of Appeal, the noble and learned Lord, Lord Hope, is absolutely right about being accurate in the way that we legislate.

[Lord Beecham (Lab)]

My Lords, I hesitate to take either side of this argument, given the wisdom and experience of both noble and learned Lords, who have given conflicting views. I am therefore perfectly content, for once, to allow the Minister to indicate the Government’s attitude. After all, this Bill is not ending here; it is going to another place and there will be time for people with greater acumen than mine to look into the arguments advanced by the noble and learned Lord. It will be interesting to see what the Minister makes of them, but, of course, it is not the end of the day and perhaps this elevated discussion can take place with a more useful result than we are likely to see today.

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Moved by

[Lord Faulks]

2: Clause 10, page 9, line 28, leave out “3” and insert “5”

--- Later in debate ---

[Lord Faulks]

My Lords, I return to a group of amendments concerned with the regularity of the review of the discount rate. I raised this matter at Second Reading, in Committee and on Report, so I will not weary the House by going over the arguments again. Suffice it to say that I entirely agree with what the Bill does in providing for the obligation to have regular reviews at a certain juncture, although the Lord Chancellor has the right to have an earlier review if necessary. My argument, which I am glad to say the noble Earl, Lord Kinnoull, supports, as I think others in the House do, is that it is important that the reviews be regular and there would be an obligation to hold them, but that they do not have to take place too frequently. Why is that? Because those involved in litigation, on both sides, will inevitably seek effectively to guess—however well informed that guess might be—what the discount rate will be after it has been determined.

If there is to be a change every three years, the period leading up to the moment of change is likely not to result in settlements or to result in adjournments—in other words, in perfectly legitimate gaming of the system. This will happen inevitably whenever a review is about to take place, but it will happen less often if it is five years than if it is three years. This will, I think, help to produce more settlements. There are always uncertainties in litigation, but this is a particular uncertainty in large cases, where the discount rate can have such an effect on the quantum of damages. My submission is that five years, for the reasons I have already advanced, remains a better provision than three years. I accept that any provision is arbitrary, but I hope that the Government will listen to me today, will take into account all the evidence they have obtained and decide that, after all, five years might be a better period than three years. I beg to move.

[Lord Beecham]

My Lords, I am slightly puzzled at the effect of amendment as moved by the noble Lord, because the Bill prescribes that the rate of return must be started within a period; not every three years, or every five years, but within that period. So potentially, it seems to me—perhaps the noble and learned Lord will either correct me or confirm that I am right—that you could have a review at less than five years, depending on the circumstances. If, for example, there were a crash, as in 2008, which affected rates of return and so on very significantly, you would not have to wait up to five years to deal with it; you could have that review within the period. In effect, any time within that five years could mean a three-year review, a shorter review or something with a maximum of five years. If that is the case, is that acceptable to the Government?

[Lord Keen of Elie]

My Lords, I am obliged to my noble friend Lord Faulks and to other noble Lords who raised this matter in Committee and on Report. On the point raised by the noble Lord, Lord Beecham, it is indeed the case that we are talking about a maximum period for review, and therefore it can be at any time within that period. What we are concerned to avoid is the situation that arose in the past where many years passed before a review was carried out.

The choice between the two periods, three years and five years, is essentially a pragmatic one, I suggest. The arguments for the two options appear to me to be quite evenly balanced. A number of noble Lords have made the point that there would be less likelihood of a gaming of the system if that period were extended to five years. It was a point made in particular by the noble Lord, Lord Marks, on Report, when he indicated that he would prefer a five-year period over a three-year period.

Following discussions with several of your Lordships after Report, we have given further consideration to the question of the length of the review cycle and we accept that a five-year maximum period could help to reduce the effect of the litigation practice of trying to game the system, as distinct from a three-year period. In light of the arguments that have been made, the Government propose to accept these amendments.

[Lord Faulks]

I am extremely grateful to my noble and learned friend for accepting the amendment and for listening generally to the arguments that have been advanced in your Lordships’ House in this connection and, indeed, in other connections.

Amendment 2 agreed.

Moved by

[Lord Faulks]

3: Clause 10, page 9, line 32, leave out “3” and insert “5”