Civil Liability Bill [HL]

Debate between Lord Hope of Craighead and Lord Hodgson of Astley Abbotts

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

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, we come to a matter that we discussed at some length in Committee, so I will cut to the chase. An award of damages that will be paid out over a long period—for example, to provide care to someone previously injured in their 20s—is based on two very important assumptions: how long the person will live and what rate of return can be expected from the sum awarded. If the damages are awarded in the form of a lump sum, these two factors assume a particular and increased importance. The first of these factors, the length of time that a person is expected to live, is inevitably based on averages, so if the injured person lives beyond the expected average then there is a risk that the individual will spend the last few years of their life in financially straitened circumstances. As regards the second factor, if the investment performance falls below that which is anticipated then a similar outcome will result.

As we have already discussed, there is a way for the individual to avoid both the longevity risk and the investment risk. He or she can do so by taking the award in the form not of a lump sum but of a periodical payment order, a PPO. Under a PPO, part or all of the award can be paid weekly, monthly, quarterly or whatever to suit the injured party, and paid normally on an inflation-proof basis for the rest of a person’s life. Sadly, though, we have discovered that PPOs appear to be the poor relation as regards the methods of awarding damages. We discussed in Committee the various structural reasons why this was so—the preference of insurance companies for a swift solution and the capital required to back a PPO, the potentially seductive nature of a very large lump sum compared with the more modest amount of a periodic payment and so on.

My amendment is designed to tip the balance more in favour of PPOs, so that in cases where lump-sum damages exceed, say, £1 million and/or the award will be paid out over more than 10 years and/or the individual is of a risk-averse nature, the court should press for the award to be made in the form of a PPO. To be clear, the court should not compel; that would be completely inappropriate. If a person is determined to have a lump sum, a lump sum they must have. However, the court should certainly encourage PPOs. None of this appears to run counter to the wishes of the House of Commons as expressed by the Justice Committee in its report on the discount rate, nor indeed the thinking of the Government as expressed in their response to that report.

So how to achieve this desired result? Giving the Minister the power to make regulations in this area might interfere with judicial independence, so it appears that the only avenue remaining is the use of the Civil Procedure Rules of court, and that may perhaps be a clumsy way to proceed. If my noble friend cannot accept my amendment, and I fear he may be unwilling to do so, I hope he will be able to make a clear and unequivocal statement that the Government favour the increased use of PPOs in the sorts of cases that I have described so that, with the views expressed in your Lordships’ House today and previously in Committee and, no doubt, in due course in the other place, courts can be in no doubt about the will of Parliament in this important matter.

It may be worth while undertaking a review at some future date of whether the use of PPOs is increasing. That might be along the lines of Amendment 89 in the name of the noble Lord, Lord Beecham, to which I have no doubt he will speak fruitfully in a minute or two. In the meantime, though, I beg to move.

[Lord Hope of Craighead (CB)]

My Lords, I should like to say a word in support of Amendment 50, which is in my name and builds on an amendment tabled in Committee by the noble Lord, Lord Faulks, to which I put my name but to which I was unable to speak because at the very moment he rose to speak I was taken out of the Chamber for a business meeting, so I never got to say what I should like to say now.

I have proposed for the noble and learned Lord’s consideration an expanded version of his amendment, and I should like to explain the background to it a little more so that the point is firmly before the House. On page 7, line 32, subsection (2) of proposed new Section A1 provides that proposed new subsection (1), which talks about the duty of the court to take into account the rate of return prescribed by order by the Lord Chancellor,

“does not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question”.

At first sight, that is quite a reasonable provision which the courts might feel able to use from time to time, but, as case law has developed, the door has effectively been shut on any use of the provision in these terms in cases where it is most likely to be wanted, which is those of injury of maximum severity.

In Warriner v Warriner 2002, the Court of Appeal, drawing on points made in Wells v Wells, stressed that on policy grounds there was a need for negotiations to be conducted with reasonable certainty as to the result and to eliminate unnecessary costs and the leading of extensive evidence. Building on the principle stated in Wells, which I of course support, it refused to interfere with the rate of return prescribed. That point was repeated in subsequent cases and more recently in the Court of Session in Edinburgh, where the same principles apply. The Lord President, Lord Carloway, made it clear in the case of Tortolano v Ogilvie Construction Ltd in 2013—Court of Session Inner House Cases, page 10—that there must be something special or exceptional about the case and that the fact that the injuries were catastrophic, which puts the level very high indeed, was not a special or exceptional case factor that would justify departing from the specified rate.

My point is that the Bill repeats almost exactly the wording of the Damages Act 1996, on which the case law has been built. There is one tiny difference. The formula in the 1996 Act was “does not, however, prevent”. In the Bill, we find the slightly different words “shall not, however, prevent”. But the crucial wording, in particular the word “appropriate”, is still there. If the wording of the Bill remains as it is, my concern is that it is effectively a dead letter because the courts, following established case law in the Courts of Appeal both north and south of the border, will feel that there is no case for interfering at all, even in the most extreme cases, where, as I have suggested, the need for even more precision and care in the rate of return is most compelling.

There is reason to be a little more generous at this stage. As the noble and learned Lord is well aware, the basis on which the rate of return is to be struck is to be taken at a slightly different level from that on which Wells v Wells was based. In Wells, the House of Lords used a rate of return that was inflation-proof—adopting a relevant government bond which had that rate of return—to avoid any risk of losing touch with inflation. Now, instead of a very, very low level of risk, there is to be an assumption that more risk will be acceptable than a very low level of risk, although it is less risk than would ordinarily be accepted by a prudent and properly advised individual investor. So there is a change towards a slightly greater element of risk, although not that high. The point is that any change in the level of risk being contemplated raises the possibility that in these extreme cases, the level may fail to achieve what is needed to provide the injured party with what is necessary to compensate them fully for the loss and injury sustained.

Simply to repeat the same formula is unsatisfactory. I was grateful to the noble and learned Lord for agreeing to a meeting the other day at which I was able to explain the point. I think the meeting was left on the basis that an attempt would be made to find a form of words that would not undermine what the Government seek to do but would, at the same time, allow the courts to look afresh at the idea of departing from the rate—although one would of course not want them to do so as a matter of course or have any unnecessary delay or expense in going through these complicated cases just to achieve a different rate. It would have to be a case that really justified such attention.

Some points can be drawn from Wells that may be relevant to my point. First, I was looking at the award in the form of a capital sum—we are talking about that rather than what the noble Lord, Lord Hodgson, was talking about a moment ago—in which the income will not be reinvested. The ordinary investor would reinvest the income to keep the capital sum as inflation-proof as possible, but in our case the income would be used to meet the needs of the injured party. At the same time, the injured party would be drawing on the capital sum, because it is a diminishing fund, the idea being that at the end of the claimant’s lifetime, or when the injuries have finally resolved themselves, there will be nothing left. So we have the extraordinary situation of a sum of money where the income cannot be used to protect against inflation and, at the same time, the sum is reducing. As Lord Lloyd of Berwick pointed out in Wells, if you are having to draw on the capital to meet these costs because the income is not good enough, in a diminishing market, that runs the real risk that the market may not recover sufficiently to bring the award up to the level needed to sustain the injured party for the rest of the period during which that party needs to be sustained. There is a difficult area here: in some cases, particularly if you alter the level of risk, you run into the possibility of the injured party not being fully compensated.

I seek by the amendment to suggest for the noble and learned Lord’s consideration a slightly different formula of words in that critical proposed new subsection that would enable the court to escape from the straitjacket of existing case law in cases that justify a fresh approach. On that basis, I have expanded a little on the formula of the noble Lord, Lord Faulks, to draw attention to the need for this sum to be sufficiently large to meet the needs of the claimant for the rest of the period. It is in that context that I ask the noble and learned Lord to consider my amendment in deciding what best to do to avoid simply repeating a dead letter.