Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

Moved by

[Lord Keen of Elie]

That the Bill be now read a second time.

Relevant document: 22nd Report from the Delegated Powers Committee

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

My Lords, the Bill makes important changes to our personal injury compensation system. It is about making that system fairer, more certain and more sustainable in the future for claimants, defendants, the taxpayer and motorists. This builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies.

The first part of the Bill will deliver a key manifesto pledge: to support hard-working families by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims, which lead to higher insurance costs. The second part of the Bill will provide a fairer method for setting the personal injury discount rate. It will, for the first time, use a new, regular, more transparent mechanism in which the Lord Chancellor consults independent experts before setting the rate. We aim to provide full compensation for seriously injured claimants while being fair to those, particularly the National Health Service, who bear the cost of paying. We believe that the Bill will provide a compensation system that meets the rightful needs of claimants while saving the public money, both as consumers and taxpayers. About three-quarters of the United Kingdom motor and liability insurance market has already committed publicly, through a letter published on 20 March, to ensure that any savings resulting from enactment of the Bill will be passed on to the public.

I begin with the issue of whiplash. DWP data shows that around 650,000 RTA-related personal injury claims were made in 2017-18. That is nearly 200,000 more than in 2005-06—a rise of 40%. If we take the 10 years following 2005-06, the rise is around 70%. We estimate that around 85% of these are for whiplash-related injuries—higher than in any other European jurisdiction —yet Department for Transport figures show that in the decade up to 2016-17, reported road traffic accidents went from around 190,000 to around 135,000—a fall of 30%. Many claims will, of course, be genuine and the Government would never seek to deny justice to those who suffer injury; it is absolutely right that individuals are compensated for genuine injuries. However, by 2016-17, there were around 670,000 whiplash claims in the United Kingdom. That number is too high and the costs to motorists and consumers too great. It comes despite major improvements in motoring safety, such as the increased use of integrated seat and head restraints. We must ask ourselves what is going wrong.

The reality is that some of these claims are not genuine. Last year the insurance industry identified 69,000 motor insurance claims that it considered fraudulent. By their very nature, these claims are difficult to detect, so I ask the House to consider that the problem goes much further than this already significant number. That the number is so high is indicative of an ever-pervading compensation culture in this country. The knock-on effect of this has been to drive up insurance premiums. I would go as far as to say that, for some, it has become socially acceptable to make a whiplash claim for little or no injury. Noble Lords may have seen examples in the media of exaggerated or fraudulent whiplash claims, such as the man making a claim after his car was slowly reversed into in a supermarket car park. It transpired that he was not in the car at the time.

As the House will no doubt agree, the purpose is to compensate those for whom genuine injury has occurred. Our reforms seek to reduce and control the costs of whiplash claims and to disincentivise people making fraudulent or unmeritorious claims. The level of compensation paid out for such claims is, in the Government’s view, out of all proportion to any genuine injury suffered, especially when balanced against its effect on the price of premiums paid by ordinary motorists. Insurance industry figures show that in 2017 car insurance premiums rose at the fastest rate ever. Though there are other contributing factors, without reform to whiplash claims those increases are estimated by the ABI to continue at an alarming rate—potentially 10% per year. For many people—particularly those in rural communities—owning a car is not a choice: it is a necessity. Higher insurance premiums hit young and elderly motorists particularly hard. That is why we pledged in our manifesto to bring down the cost of motoring. The Bill can and will do that.

The measures in the Bill relating to whiplash will therefore address a number of issues. They will introduce a ban on settling whiplash claims without medical evidence. This will discourage fraudulent claims and encourage insurers to investigate claims properly, providing fairness and certainty for claimants, so they do not feel pressurised into accepting an offer before knowing the true extent of their injuries. They will provide for a new system of fixed tariffs for payments for pain, suffering and “loss of amenity” in whiplash claims. This will give claimants proportionate compensation while controlling the costs of claims. The final tariff figures will be set in regulations to be debated via the affirmative procedure by Parliament following Royal Assent. The judiciary will have discretion to increase the compensation payable in exceptional circumstances, with the cap set in supporting regulations. The whiplash reform programme also includes measures not in the scope of this Bill, to increase the small claims track limit for road traffic accident personal injury claims to £5,000 and for all other personal injury claims to £2,000.

The measures in the whole reform programme are fair and proportionate. They will prevent fraudulent and unmeritorious whiplash claims from driving up insurances costs, allowing insurers to pass on savings of about £1.1.billion a year to consumers. This would mean an average reduction in car insurance premiums for consumers of around £35 a year. As a Government we fully intend to hold the market to account in making sure that happens.

I now turn to the second part of the Bill, the personal injury discount rate. Fairness and sustainability are at the heart of our reforms. With any change to the system for compensating the seriously injured, we must keep in mind the person behind every claim. The Government continue to support the aim that seriously injured people should receive 100% compensation to meet expected future financial losses, including medical and care costs. The way compensation is calculated must be fair to both claimants and defendants, including the National Health Service.

This Bill will reform the personal injury discount rate, which adjusts a compensation lump sum to allow for the return a claimant is expected to receive by investing it over the period of the award. Currently at minus 0.75%, we have one of lowest rates in the world. In Germany, it is 4%; in France it is 1.2%, and in Ireland it is 1%. The current rate consistently compensates for injury at more than the 100% required by law. Awards currently average 120% to 125% even after management costs and tax. This is putting huge pressure on the National Health Service in claims for clinical negligence. Last year, the NHS spent £1.7 billion on such cases, a cost that has almost doubled since 2010-11, with an unsustainable average increase of 11.5% every year.

The current legal framework requires the Lord Chancellor to assume claimants to be very risk-averse investors, and the discount rate has been set since 1998 with reference to returns on very low-risk investments—index-linked UK gilts. This is unrealistic. In reality, claimants do not behave as very low-risk investors; they invest their compensation in diversified low-risk portfolios and on average receive higher returns than is assumed under the present law. This results in inflated payments for claims which overly penalise defendants.

Every pound spent on overcompensation could instead be spent on front-line public services: in our hospitals, our schools and our Armed Forces. We will therefore do a number of things in the Bill. We will provide for the discount rate to be set in future by reference to how evidence indicates claimants actually invest, giving a more realistic rate that will mean that injured parties with low-risk investment appetites still receive full and fair compensation and ensure that defendants, including the NHS, are not left shouldering the burden of overcompensation.

We shall provide for the first time that the Lord Chancellor should set the rate regularly—at least every three years—and must do so after expert advice from an independent panel which protects the interests of claimants, as well as defendants, by ensuring that the rate is grounded in investment practices and market conditions.

Transparency and fairness in setting the rate were two of the main concerns voiced by the Justice Select Committee, and we have responded to that in setting out our position in the Bill. Changes to the discount rate will affect only lump-sum payments for future financial loss. They will not affect periodical payment orders, which account for a significant proportion of the compensation paid for future loss in the cases involving the most serious and long-term injuries.

Periodical payment orders are annual, risk-free payments providing a steady stream of income which is not affected by the discount rate, allowing claimants to plan for their long-term needs. PPOs are available from the National Health Service in all negligence cases, including those involving brain damage during birth, and in almost all cases where the defendant is insured by a UK-regulated insurer. A court is able to provide protection by ordering a PPO where it believes that it is in the claimant’s interest. In any event, for serious long-term injuries, claimants will continue to be able to rely on the National Health Service as any other person would.

These reforms will reduce spending pressure on the NHS. The NHS Confederation and other influential medical bodies have described how the change last year in the discount rate exacerbated the financial impacts of clinical negligence claims. These higher litigation costs against the NHS are now unsustainable.

This fairer approach to setting the discount rate could, assuming a rate between 0% and 1%, save the taxpayer between £250 million and £550 million per year and, in turn, mean savings to insurers of between £0.5 billion and £1.5 billion per year, to be passed on to consumers in the form of lower insurance premiums.

Alongside our wider work to reform the civil justice system and, through the Financial Guidance and Claims Bill, strengthen the regulatory regime for claims management companies and ban cold calling, the reforms contained in the Civil Liability Bill are needed to put personal injury payments on a fair, more certain and sustainable footing for the future. In turn, they will save the NHS and consumer money. Legislating to ensure that genuine whiplash claims are backed by medical evidence, and that claimants receive proportionate compensation, will reduce the number and cost of whiplash claims. This will allow insurers to pass on savings to consumers, and, as I have said, three-quarters of the UK motor and liability insurance market has already publicly committed to doing so.

In changing the system by which the discount rate is set we want to continue to ensure fairness, so that those who suffer catastrophic personal injury get 100% compensation, within a more informed and transparent system in which the rate is set by the Lord Chancellor at regular intervals, with the benefit of independent expert advice, in the interest of claimants. I commend the Bill to the House and I beg to move.

--- Later in debate ---

[Lord Keen of Elie]

My Lords, I thank the whole House for all the contributions on the Bill today. I might not answer every query posed during this stage of consideration, but—and I hope this reflects the steps that we have taken already—I would be perfectly open to, and would welcome, meeting any of your Lordships who wish to engage with me and officials prior to Committee to discuss particular issues. That is an invitation I hope at least some noble Lords will consider taking up if they have any queries.

Clearly, there are different views about the state of the Bill at this stage, but I could not accept the observation made by the noble Lord, Lord Cromwell, that it is rough-hewn. Respectfully, it appears to me that a great deal of work has been done to prepare for the issues that we shall have to address. I will look at those issues in two parts, as does the Bill, and begin with whiplash.

The noble Lord, Lord Beecham, took issue with some of the statistics and suggested that perhaps matters had turned, but let us be candid. I shall not use some of the terminology used by noble Lords about a racket or anything else. What we have is a very obvious and clear trend in the development of claims for road-traffic-based whiplash injury. It has been going on for more than 10 years. The consequences are very clear and obvious; it may well be that we should have considered acting sooner to address this issue, but act we must and that is what we intend to do.

The New England Journal of Medicine recently carried out an analysis of the incidence of whiplash injury and the availability of compensation. It discovered a very obvious correlation between the availability of compensation and the incidence of whiplash claims reported in road traffic cases. The noble Earl, Lord Kinnoull, observed that when he attended meetings with the reinsurers Munich Re in Germany it had alluded to the situation in the United Kingdom, which is quite exceptional. Unless Scandinavians have much thicker necks than us in this part of the world, there is little to conclude except that a claims culture has developed, because the incidence of these claims in that part of the world is very different from our own.

We therefore have to address how these claims will be contained in the wider public interest and, ultimately, in the consumer interest. However, I do not suggest that any one part of the community is wholly or solely to blame for the situation we now find ourselves in. For example, I do not demur from the suggestion that insurers have been complicit in the development of this claims culture over the past 10 years or more in their willingness to avoid undue expense and simply to settle claims without the necessity for any form of real evidence. Many noble Lords have experience of that themselves.

However, there is some rationale to the way in which we are attempting to approach this matter, and it includes the reference to proposed changes in the small claims limit as well. The idea of a tariff is not entirely novel; such an approach has already been taken in Italy and in Spain, where they faced a similar claims culture. We are, first, bringing together a tariff and, secondly, making it a requirement that no claim can be settled without a medical report, or MedCo report. I discern that there is almost universal approval for that step. Thirdly, we have agreed that the claims portal for small claims will be reviewed, which the noble Lord, Lord Marks, suggested would be required, to make it accessible to claimants themselves when they come to make claims. It will of course be simpler for them to make that claim in circumstances where they know that there is, beyond the issue of liability, a tariff that determines the damages for pain and suffering. I emphasise those damages because this does nothing in respect of the claims for wage loss and other outgoings incurred by claimants in the circumstances.

I will also take up a point mentioned by the noble Lord, Lord Marks, with regard to the cost as compared with the tariff of damages at the very lower end. I understand that where liability is accepted, the cost of the MedCo report will be a relevant recoverable cost, no matter whether this is in the small claims court or otherwise. Another question that has been raised is how the original cost of the MedCo report is funded, and we are looking at that and discussing it with interested parties at present. However, there will be no material issue over the recovery of the MedCo report cost itself, which the noble Lord identified as in the region of £180 plus VAT.

That, then, is the background. There are other potential targets. The noble Lord, Lord Beecham, referred to the conduct of claims management companies, and I will say a little about that. As noble Lords will be aware, we are already taking steps through the Financial Guidance and Claims Bill, which is making its way through the other place, to address some of the difficulties that arise with regard to claims management companies. First, their regulation will go to the FCA. As the noble Earl, Lord Kinnoull, observed, that is a regulator with teeth, and we consider it properly positioned to deal with claims management companies. There will also be the means to limit the percentage that claims management companies can take from a claimant when they deal with a claim, to try to control their activities in that regard.

We have of course been concerned with the issue of cold calling, which I suspect has bedevilled virtually all of us at one point or another. The Information Commissioner is concerned with that as well. One of the difficulties, and this was touched upon in the course of debate, is how to regulate the unregulated. One of the real difficulties is that in the context of cold calling, we have seen the claims management companies, or those who carry out this cold calling, move out of the United Kingdom and carry out this conduct from abroad. It is a very simple thing for them to do, and it is a very difficult thing for us to stop. That is why you have to look at alternative routes to addressing the wider issue that we have to deal with. We are certainly concerned that we need to control the activities of the claims management companies, although they alone are not responsible for the way in which this whole industry of whiplash claims has developed.

I notice that the noble Lord, Lord Monks, who I appreciate is not entirely sympathetic to the Government’s position on this, did make a passing remark in the context of other claims, such as workplace claims. He said the abuse was a lot less than in road traffic accident cases, but implicitly he accepts the existence of abuse in the context of RTA cases, and I believe that is almost universally acknowledged. We seek to address that in Part 1 of the Bill. We consider that we are taking a proportionate approach. Yes, it distinguishes whiplash-type injuries that occur in a road traffic context from other forms of accident or injury, but that is because we have to address a particular mischief. That is what we are doing with Part 1 of the Bill. It appears to us that this is the sensible and considered way forward in order to control this situation.

I note that the Delegated Powers Committee has made a number of recommendations with regard to Part 1 of the Bill. We do not entirely agree with its recommendations, but I have noted the concern expressed by noble Lords about the question of defining whiplash injury. The intention was to have a degree of flexibility, so that if the claims industry developed in a particular direction in response to legislation, we were equipped to deal quite rapidly with that. It may be that noble Lords would like to see rather more in the way of definition so far as whiplash is concerned, and I take on board the observations that have been made.

There is also the question of the tariff, and of course an illustrative tariff was provided in the papers that were produced along with the original Bill and to which reference has been made. We consider that being able to regulate the tariff by the affirmative procedure is a more flexible way of being able to respond to changes. But, again, I hear what noble Lords say and we will have to consider that going forward.

I would like to respond to a number of points made by the noble Lord, Lord Sharkey. First of all, I hope I have made clear that medical report costs are recoverable. There was a suggestion that they were not. He referred to the position of other parties such as cyclists being caught, but they are not brought within the tariff on the basis of Part 1 of the Bill. To answer that particular point, they are specifically excluded at Clause 1.

I would like to move on to Part 2, the question of the discount rate, and address a number of points. First of all, it appears to be generally understood that we do need to put in place a means by which the discount rate can be determined and reviewed on a regular basis in order that we do not encounter the sort of situation we had in 2017, when we saw it go from 2.5% to minus 0.75%. I wholly agree with the observations of the noble Earl, Lord Kinnoull, that the present discount does not realistically reflect the way in which a party—any party—is going to invest funds going forward. Therefore, we have to bring this back into a realistic scenario.

The objective—here I address a number of points made by the noble Lord, Lord Cromwell—is not to have representatives of various interested parties partaking in an exercise of trying to agree a rate. The whole point of the structure in Part 2 is that there should be an expert panel, not a representative panel. The noble Lord asked about there being a fair balance of representation on the panel, but that is not the intention or the objective. The idea is that we should have an expert panel to advise the Lord Chancellor.

The intention is that that should be an open exercise so that, for example, the way in which the expert panel reports to the Lord Chancellor will be open. Indeed, in our response to the Justice Select Committee, the Lord Chancellor observed that he would be publishing the recommendations of the panel’s report in circumstances where he received it and was to act upon it. In due course, he will also be required to explain the way in which he fixes the discount rate. Indeed, he will be amenable to judicial review in carrying out that function, so that there will be ultimately an oversight of the way in which he discharges that duty. We consider it appropriate that that should be done openly and effectively in that way.

Clearly, it will be important that the discount rate should be reviewed at regular intervals. We have alighted upon the period of three years for review after considering various representations, but I have heard the references to five years as a review period and the interesting alternative mentioned by the noble Lord, Lord Marks, of essentially having an expert panel meeting at regular intervals to consider whether there are circumstances that might require a proper review of the discount rate. We would be open to discussing these alternatives to see how we can effectively ensure that the discount rate continues to reflect the reality of investment.

On the point of investment, I believe there is general consensus that we should move from the very-low risk level to the idea of a low level of risk for investment. That is not to suggest that claimants are going to become stockbrokers—I really do not feel that that is a proper reflection of the situation at all. The intention in Part 2 of the Bill is to bookmark the place in which the expert committee will address the question of how the discount rate should be fixed. It is to give the panel a degree of flexibility in that context between, at one end, very low risk and, at the other end, low risk by an investor who is not concerned about having to provide for their future care.

On the question of future care, which arises most particularly in the context of clinical negligence cases and the subsequent cases of severe injury that very often arise from that, there is always the difficulty of determining not only what the appropriate discount should be but, as noble Lords have observed, what life expectancy may be. That is always an estimate. You could almost say that you invariably get it wrong; you can never be sure that you have got it right. That is why we consider that PPOs are a very important option available to claimants. Looking at the data that has been gathered in arranging guidance for the Bill, we have noted that their use is essentially limited to cases where claims exceed £1 million, and more generally £5 million. They are not always taken up, and one of the problems with the present discount rate is that it would tend to discourage claimants and their advisers from taking up PPOs. But clearly, if you want certainty with regard to future care, one way to secure it is to agree to a PPO, and we would wish to encourage them.

We have to underline, however, that PPOs are not universally available. For example, I understand that the Medical Defence Union, which is a mutual, is not in a position to guarantee future payment of a PPO and therefore not in position to provide them. However, that may alter as we look at the question of indemnity arrangements—for example, in respect of general practitioners—which we are doing at the present time. We certainly wish to encourage the use of PPOs and are looking at providing guidance to claimants and their advisers, in order to ensure that they are taken up in appropriate circumstances.

One further issue that has been raised by a number of your Lordships is Section 2(4) of the 1948 Act. We recognise the question that is being raised about this and the appropriateness of maintaining that. Presently, Section 2(4) of the 1948 Act would not fall within the scope of the Bill. I appreciate that, if we were to amend the long title of the Bill, we might be able to bring the matter within scope, but there is a concern that the repeal of Section 2(4) potentially raises issues that will have to be the subject of consultation with interested parties. We are concerned that we need to act promptly, particularly with regard to the discount rate, and it would be unfortunate if that process was materially slowed because of an attempt to bring Section 2(4) and its repeal into the present Bill. I hear what noble Lords have said and am not unsympathetic to the suggestion that the time has come to revisit that provision and understand why we need to maintain it. My concern is that attempting to bring it into the Bill at this stage could have unfortunate consequences for the way in which we are trying to deal with the discount rate.

On that last point, I appreciate the concern about the delay in respect of the discount rate. We are proposing to carry out the first review as swiftly as possible. I understand that we are aiming for April 2019, not 2020 as has been suggested. There is a 90-day period and then a 180-day period. There is a need to have an expert panel in place, but considerable steps may be taken in anticipation of the Bill passing to ensure that we have the machinery in place for the swift appointment of an expert panel, so that the review can be carried out as soon as possible. I will take further advice from officials on the question of how far we can go with that sort of preparation prior to Royal Assent of the Bill, in order to move swiftly on that matter.

I appreciate that I have not addressed all of the queries that have been raised this afternoon. In the time available, I regret that I will not be able to do that but, as I said at the outset, I am open to meetings with noble Lords who wish to raise questions on the Bill prior to Committee, and I would welcome the opportunity to engage with them. I beg to move.

Bill read a second time and committed to a Committee of the Whole House.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

[Lord Mackay of Clashfern (Con)]

My Lords, I thoroughly agree with the proposition that is highly desirable for the definition used as the basis for later provisions in this part of the Bill to be on the face of the Bill. The difficulty I have had so far is in identifying what we want to do. It is the area of exaggerated claims, or something of that sort, that underlies the Government’s proposals. I agree that it must be, ultimately, a medical definition, because a medical report saying that you have this injury is an essential requirement for you to come under this part of the Bill.

The difficulty, however, is that the doctors have to know where these exaggerations take place. I have been instructed by people who suggest that if you go for the back, and the rest, you are extending the thing beyond the real position. I have, therefore, some sympathy with the amendment restricting that, which I think is to be moved or spoken to later. I do not, however, profess to know exactly what the problem is, in the sense of the area of medical expertise that is being used by the claimant industry to exaggerate claims. That is their idea: to exaggerate these claims and ask for more than they are worth. As I said at Second Reading, I have some experience long past of the difficulty of actually quantifying the correct amount for these injuries, particularly if they are serious—and they can be quite serious, I think. This is my problem and I would be glad of help when the Minister comes to speak.

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

My Lords, I am obliged for all the contributions that have been made so far this morning. I observe that it appears to be generally recognised that the Bill is addressing a very real issue about which policy decisions have to be made and implemented. I quite understand the question raised about where the definition of whiplash injury should appear. The definition in the Bill seeks to limit injuries to those soft tissue injuries that affect the neck, back or shoulder and arise from road traffic accidents. The vires in the Bill are tightly drawn to enable regulations to be made by the Lord Chancellor that would apply only to a discrete number and type of injury.

It is interesting to see the diversity of amendments that have come forward this morning. That may underline the particular challenge we face in arriving at a suitable definition, be it in the Bill or in regulation. We have sought to address an issue that involves reconciling a legal understanding of this matter with a medical definition—one which covers both injury and the symptoms of injury. That involves us engaging with not only medical expertise but a degree of legal expertise. In addition, while I am not going to go through the detail of every amendment, because I understand what lies behind them, I will note this much. The noble Earl, Lord Kinnoull, set out three points for consideration, and in doing so underlined the very real problem that we need to address here. It was emphasised by the suggestion that if you go to a particular claims management site you are encouraged to believe that even if you have no symptoms you may still have a claim.

I was reminded of an incident some years ago where I was acting for an American pharmaceutical company. The US attorneys showed me a photograph of a genuine roadside sign that had been erected in the state of Mississippi. It said, “If you’ve taken drug X and suffered a fatal heart attack, telephone this number”. The lengths to which we lawyers will go know no bounds, and our belief in the Almighty is always there. There is a very real industry out there. I do not use the term “racket”, but others have—and with some justification.

Looking to the current position, the noble Lord, Lord Sharkey, correctly observed that the regulations that we have produced in draft to elaborate the definition of whiplash injury have only just appeared. I quite understand the need for noble Lords to consider those regulations in more detail. In turn, I will consider in more detail whether we should incorporate a more precise definition in the Bill. But I stress that, even if we were to take that step, it would be necessary for us to bear in mind the ability of government to proceed by way of regulations to support any definition in the Bill. We are well aware that flexibility will be required with regard to any final definition so that we can meet the way in which claims development occurs—the way in which this sort of market develops—in order to put limitations on claims.

At the end of the day, the detailed definition of whiplash injury will need to reconcile the current legal understanding with an accurate medical definition covering both injury and symptoms. Our aim is to achieve that objective, but to what extent we achieve it by incorporating the definition in the Bill is not a matter on which I would take a final position. I quite understand the suggestion that we should consider further the extent to which the definition can appear on the face of the Bill, and also allow noble Lords the opportunity to consider the scope of the draft regulation that has only recently been made available. In the light of that, and understanding that these are essentially probing amendments, I invite noble Lords not to press them at this time.

[The Earl of Kinnoull]

My Lords, I am grateful for those last few sentences from the Minister, which were very helpful and reflect the strong mood of the House. I must say that if we had had a brief fee clock going, with the number of very expensive lawyers here, it would have been going round quite rapidly. I will make one point, following what the noble Baroness, Lady Berridge, said. I too am a non-practising barrister, but I would never do anything to suggest that advocacy was not valuable. Advocates are immensely valuable in our justice system.

I do, of course, have experience of sitting on the other side of the table from the “claims industry”, as I term it—and the last thing those people want is an advocate in the mix. Most of their companies do not employ that many lawyers: some companies have no lawyers at all, or just one on their writing paper. They want a paper-based or telephone-based operation, in order to process things as cheaply as possible. This would actually help advocacy, because it would try to push things back into the proper legal market and away from companies that have been commoditising the rather grubby process of grabbing money. But, on the basis of what the Minister has said, and knowing that we will be having discussions with a view to bringing forward some sort of amendment on the definition—no doubt several noble Lords who have spoken today will be involved—I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

My Lords, I intervene briefly, having put my name to the noble Earl’s amendments. I am not sure that the noble Lord, Lord Trevethin and Oaksey, quite followed the idea behind this, which is that psychological injuries are specifically identified at various places in this clause but minor injuries are not. The purpose of the amendments is therefore to remove psychological injuries as a specific category and reinsert them further down, through Amendment 22, with minor injuries, so that we sweep up everything concerned with a whiplash unless it is a serious injury, such as a fracture of a leg, which is clearly a different issue. However, the issue is picked up by the reinsertion by Amendment 22 of the words “minor injuries”, such as a bruised knee.

[Lord Keen of Elie]

I am obliged to noble Lords for their contributions to the Bill in Committee. I begin with Amendment 4, moved by the noble Lord, Lord Beecham, which would limit the definition of whiplash to soft tissue injuries of the neck. There is then a further amendment that would require the definition of whiplash to be set by the Chief Medical Officer of the Department of Health. The amendment to remove the back and shoulder from this definition would significantly reduce the number of claims subject to measures in the Bill, namely the tariff and the ban on settling claims without medical evidence. It would also encourage claims displacement into other areas to avoid them being subject to the tariff. That would be a serious issue.

The definition in the Bill has been adapted from that in the Prisons and Courts Bill following feedback from stakeholders that the definition in the latter Bill was not broad enough to capture the intended claims. The current definition, with the draft regulations that have now been produced, is intended to achieve that objective.

The amendment requiring the definition of whiplash to be set by the Chief Medical Officer of the Department of Health would provide an independent person who has responsibility for advising the Government on medical issues, but the definition of whiplash injury needs to reconcile the current legal understanding with an accurate medical definition that covers both injuries and their symptoms. This is why the Government have developed the definition of a whiplash injury with input not only from medical experts, but from other expert stakeholders, including claimant and defendant solicitors.

Amendments 8, 9 and 10 restrict the scope of the tariff provisions by reducing the injury duration of affected claims to 12 months from two years. As the noble Lord, Lord Faulks, observed, this would reduce the number of claims captured by these reforms, but have the negative effect of encouraging claims displacement or claims inflation. Having an injury duration of up to two years will ensure that genuinely injured claimants seek timely treatment for their injuries, as well as enabling the Government to reduce and control the level of compensation in whiplash claims and consequently—as is one of the objectives—reduce insurance premiums for consumers.

The noble Earl, Lord Kinnoull, spoke to Amendments 15 to 20 and 22, which would widen the types of injuries affected by both the tariff of damages and the ban on settling claims without medical evidence. It would remove the term “psychological” from the clause, so that the measures in the Bill would apply to all minor injuries related to road traffic accidents, regardless of whether they are psychological or physical in nature. Consequently, this would apply the single-figure tariff to all those injuries, irrespective of number and type, by reference to the duration of the whiplash injury alone. This would result in the reduction of damages for a substantial number of personal injury claims outside the scope of our proposed reforms. The proposed reforms are intended to reduce the number and cost of particular claims—“an industry”, some people have referred to; “a racket”, others have mentioned. We are committed to addressing the issues that arise with whiplash injury.

I understand the point made about the bruised knee. I respond to the noble Lord, Lord Trevethin and Oaksey, on the potential for discrepancies between awards made under the tariff for the whiplash injury itself and awards made for other minor injuries.

Clause 2(8) makes provision for the fact that the court will take into account other minor injuries and will make an award that is not related to the tariff itself. That is my understanding of the words in parentheses: that, in the context of the whiplash injury, regard will be had to the limits imposed by the tariff and the regulations but that, with respect to the other injuries, there will be no such limitation. That is why we do not consider it appropriate to delete the term “psychological” and extend these provisions to all minor injuries. Including minor psychological claims within the original tariff, as the noble Lord, Lord Trevethin and Oaksey, indicated, was done in order to meet the way in which claims develop in this area. Indeed, it is in line with the Judicial College guidelines for personal injury compensation, which indicate that minor psychological injuries such as travel anxiety are not in themselves separate injuries attracting compensation; they have to be linked to physical injury itself.

Turning to Amendment 21, moved by the noble Baroness, Lady Primarolo, if one considers Clause 2(6), persons who are unable to locate treatment for either their physical or psychological injuries are in fact only required to take appropriate steps to seek such treatment. There is no requirement for them to undertake it if it is not available for any number of practical reasons. I would therefore suggest that this amendment is unnecessary in the circumstances.

[Baroness Primarolo]

Can the Minister explain, then, what the point is of putting a subsection into a Bill that will have no effect, given that we know that psychological and physiotherapy services are under enormous strain and vary around the country? On the point he makes about people just adjusting how they make their claim, surely the answer would be, “We tried and it wasn’t available”. If it is to be a test, should it not be a test that is capable of being judged?

[Lord Keen of Elie]

With great respect, the relevant text can be judged, because the requirement is that a person should take reasonable steps to secure those services where they are required. If they are not available then that is an answer to the point.

May I move on to Amendments 27A and 49A, on the course of employment? I have to confess that, on this matter, I am inclined to side with the noble Lord, Lord Bassam. It appears to me, with due respect, that there is perhaps a misunderstanding here. If we look at Clause 1(3), we see that it is concerned with a situation in which a person suffers whiplash injury “because of driver negligence”. Whether a person is in the course of their employment or not, if they suffer a whiplash injury because of driver negligence, the third-party driver’s negligence will be responsible for the injury and, therefore, the insurer of the third-party driver will respond. If, on the other hand, the injury is the consequence of the driver himself, then he will have no claim, because you cannot claim in respect of your own negligence. In neither event would there be a legitimate basis for claim against the employer. It is for that reason that we do not consider it necessary to exclude a group to that extent.

[Lord Marks of Henley-on-Thames]

I am sorry to interrupt the Minister, but is that the point? The point of these amendments, as I understood them, was to exempt those who drive in the course of their employment from the rigour of the new provisions of this Bill when they are claimants, so that the claimant in the course of his employment has a legitimate claim. We may assume it is a legitimate claim because, as the noble Baroness, Lady Berridge, said, it would have to be backed up by the employer’s evidence saying, “This claimant, driving my lorry on a perfectly legitimate delivery, was injured”. It is the claimant who counts, not the defendant.

[Lord Keen of Elie]

With great respect, if the claimant is driving, his claim will be against the third-party driver whose negligence caused the claim. There is no reason why, in those circumstances, you should distinguish between a claimant who is in the course of his employment and a claimant who is not. They are both liable to suffer the same injury in the same circumstances as a result of the negligence of the same party. The distinction is one without a difference, with great respect. There is no justification for making such a distinction. I recollect discussing this with the noble Baroness, and she talked about the distinction between motor insurance and employers’ liability insurance, but there is no question of the claim being directed against the employer’s liability insurance in such circumstances.

[Baroness Berridge]

That is not the point that is being made here. I would be grateful if my noble and learned friend could address the question. We are all, I believe, in your Lordships’ House working on the assumption that the target of the Bill is fraud, not genuine claimants. So the specific question is, where is the evidence that people who are claimants when they drive in the course of their employment and are injured by a third party’s negligence—the claim is not against their employer but against the other driver—are fuelling any of the calls or the fraud that is the underlying principle of the Bill? Because that is an injustice.

[Lord Keen of Elie]

With the greatest respect to my noble friend, there is no basis for distinguishing between the cohort which is driving in the course of employment and the cohort which is not driving in the course of employment when an injury is suffered due to the negligence of a third-party driver. I am not aware of any examination, study or evidence that would seek to distinguish, or of any conceivable basis for distinguishing, between those two cohorts. So, with the greatest respect, I would suggest that it is a distinction without a difference.

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

May I just try to assist—I hope—the noble and learned Lord? The fact that the employer can authenticate that the accident was caused while the driver, the claimant, was acting in the course of employment does not authenticate the fact that he suffered a whiplash injury, and that is the vice that this legislation is designed to attack. Why, in any event, exempt from these provisions that particular class of driver? Why not the man taking his wife to hospital to have a baby, or a whole host of perfectly legitimate drivers? I hope to have helped.

[Lord Keen of Elie]

I am grateful for the noble and learned Lord’s assistance. In the past his interventions have not always been of assistance, but they certainly are on this occasion. I would go further and suggest that it would make no more sense to exempt people who were driving red cars at the time of the accident. It is a distinction without a difference; it is as simple as that. That is why we do not consider this to be a helpful line of inquiry, and it is not one that we intend to pursue further.

With regard to the other amendments that were spoken to in this group, I have endeavoured to address the points made. I acknowledge the point made by the noble Earl, Lord Kinnoull, and indeed by the noble Lord, Lord Trevethin and Oaksey, about the potential for anomalies where someone suffers a whiplash injury and other forms of injury as a result of the same accident. That is there, and there is no obvious answer to that. Nevertheless, the Bill is structured with the intention of addressing the vice we are really concerned with here and which is generally acknowledged to exist. In these circumstances, I invite noble Lords not to press their amendments.

[Lord Beecham]

My Lords, I beg leave to withdraw the amendment.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

[Lord McKenzie of Luton (Lab)]

My Lords, this is a step back from the legal intricacies of the Bill to reflect on a wider issue. The problem that the Government identify is the high number and cost of RTA whiplash claims. Their policy objective and intended effect are to disincentivise minor exaggerated and fraudulent claims—that is, to bear down on costs by reducing compensation levels for all, and requiring medical evidence before claims are settled. The impact assessment records that the volume of RTA-related PI claims has remained fairly static over the last three years, with rising volumes of traffic, meaning that there are proportionately fewer fatal or serious accidents. It attributes this in part to improvement in vehicle design—for example, integrated seats and headrests. Yet the Department for Transport recorded, for the year ended September 2017, 27,000 killed or seriously injured, with 174,000 casualties of all severities.

Although there was a decrease in settled claims, attributable in part to LASPO reforms, financially settled soft tissue claims for that year totalled some 520,000, whether they were from whiplash or as a result of other road traffic accidents. What seems to be missing in this debate is any form of focus on a wider prevention agenda. It should be about not only reducing costs but avoiding the pain and suffering and sometimes life-changing injuries in the first place. Why are we not raging against the scale of all this, as well as chipping away at monetary compensation levels?

I should point out at this juncture my interest, set out in the register, as president of RoSPA, the safety charity, and am grateful to it for the information it provided. I shall instance just two developments which have the potential to make a difference. In-vehicle monitoring—telematics—is increasingly available in the UK. As noble Lords may be aware, these systems essentially monitor how, when and where a vehicle is driven. The system can provide in-vehicle alerts if pre-set parameters are exceeded. There are obvious benefits for crash reduction circumstances. At present, it is understood that take-up of a variety of different systems is ad hoc and the catalyst, particularly for younger drivers, is reduced insurance premiums. Would not a comprehensive national take-up campaign have a beneficial effect on the real reduction of whiplash, reducing not only costs but the actual medical effects and suffering?

It is understood that next week the European Commission will propose new regulations that will focus on the mandatory fitting of autonomous emergency breaking systems. It has been estimated by the EU new car assessment programme that AEB can prevent up to 38% of rear-end crashes and avoid 1,100 fatalities and 120,000 casualties over the next 10 years. Currently, about 21% of new cars fit AEB as standard. I hesitate to move into issues of the European Commission, but will the Government support those regulations, both before and after Brexit, if that is where we end up?

I am aware that this amendment may be seen as a bit away from the mainstream before us today, but I hold to my point that concerns over levels of compensation for whiplash should be about prevention as much as about having a fair and robust system of compensation. I beg to move.

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

I thank the noble Lord for his contribution to the debate and I acknowledge the importance of looking more widely at issues such as road safety in the context of addressing the very issue that this Bill is intended to deal with.

On the question of the European Union regulations, in so far as they have direct effect before exit day, they will form part of retained EU law, and in so far as they do not have direct effect by that date, they will not form part of retained EU law. Going forward, it will be for our domestic legislatures to consider the appropriate steps to take with regard to such measures, and of course they will be conscious of developments in other jurisdictions when addressing that point. I am sorry to revert to an earlier Bill and its progress through this House, but I thought that I ought to address that point directly.

We recognise that the definition of whiplash injury is complex and that there is a need to reconcile the current legal understanding with an accurate medical definition that covers both injuries and symptoms. That is why we developed the definition of a whiplash injury, and the wider reform proposals, with extensive input from expert stakeholders, including medical experts, in order that we could come to a view about the appropriate definition for these purposes. In developing the whiplash reforms, we have considered the impact of improvements in vehicle safety. Indeed, developments in vehicle safety have been one of the features of the analysis and impact assessment that have been carried out. As the Government have mentioned on several occasions, it is surprising that the number of whiplash claims continues to be so high despite the significant improvements in vehicle safety over recent years, including the development of safe seats and head restraints which have had such a material bearing on safety in road traffic cases.

The amendment would enable the Government to take account of advances in vehicle safety and driving techniques when revising the definition in regulations. The noble Lord did not go so far as to incorporate the possibility of increasing numbers of driverless vehicles—but, looking further ahead, that is an additional development that we may have to take into consideration. It is crucial that we retain the ability to continue to amend the definition of whiplash in order to reflect all these developments, some of which may come along far more rapidly than we presently anticipate. That is why in the first instance we propose that the definition should be set out in regulations that can be amended and, in any event, allowing for the suggestion that there should be a more extensive definition in the Bill, it would be essential that there should be the means to amend that definition rapidly in response to changing conditions, and to do so by way of regulations.

--- Later in debate ---

[Lord Beecham (Lab)]

My Lords, I concur with the views expressed and proposals made by the noble Lords, Lord Sharkey and Lord Marks. They are absolutely on the right track, although I do not agree with the provision for the Judicial College guidelines to be taken into account. It will be seen that in the next group, we have an alternative proposal suggesting that the Civil Justice Council should be involved in making the decisions.

In this group, however, there is an amendment in my name and that of my noble friend Lord McKenzie which would restore a degree of discretion for the court to uplift the amount of damages payable where it deems it just to do so in all the circumstances of the case. That would revive the role of the judiciary in assessing damages, at least to some extent, where it felt that the scale proffered under the legislation was inadequate—as noble Lords have already made clear, that seems likely in many cases.

I broadly support the amendments of the noble Lord, Lord Sharkey and Lord Marks, and will revert to one aspect to which I referred in the next group.

[Lord Keen of Elie]

My Lords, I am grateful for the contributions that have been made. It respectfully appears to me that the points made by the noble Lords, Lord Sharkey and Lord Marks, materially bolstered the approach that the Government take in the Bill. Why do I say that? Because it is quite clear that we are addressing a matter of policy and have to do so as such. What ultimately has to be taken here is a political decision, not a judicial determination.

In fairness, I think it was a slip from the noble Lord, Lord Sharkey, but when he talked about the question of whether claims are genuine or not reasonable, he said that it was unquantifiable—and then corrected himself to unquantified. The former is more accurate than the latter.

Let us be clear. More than 80% of road traffic injuries are allegedly whiplash-induced injuries. The vast majority of all personal injury claims are whiplash claims. Over 10 years, the number of whiplash claims has rocketed—yes, it has stabilised a little in the past year or two, but it has still rocketed. At the same time, the number of road traffic accidents reported has dropped by 40%. At the same time, the number of vehicles classified by Thatcham as safe from the perspective of seating and headrests has increased from 18% to 80%.

As some people have said, an industry is going on. As others have suggested, there is a racket. We have a claims culture that has built up—I attribute no blame to any one party; all sides involved have contributed in one way or another to the ballooning of the claims culture. The time has come—indeed, the time may be almost past—when we need to address it as a political issue.

The noble Lord, Lord Sharkey, suggested that somehow we were making a transfer from claimants to motorists. With great respect, a very large proportion of claimants are motorists, so it is not as simple and straightforward as that. Secondly, he talked about the transfer requiring to be justified. The transfer is a consequence of the policy decision we are making to deal with the industry, the claims culture; it is not the purpose of it. It is, as I say, the consequence.

[Lord Sharkey]

In fact, I was asking the noble and learned Lord, with respect, to justify the quantum, but perhaps he is going to deal with that.

[Lord Keen of Elie]

With respect, as I say, the quantum is a consequence of the steps we are taking to address the claims culture. The way in which we are doing it is such that we are confident that the benefits will be passed to consumers in the form of motor insurance premiums.

[Lord Sharkey]

In that case, perhaps the noble and learned Lord could explain exactly how the tariff was constructed—on what basis?

[Lord Keen of Elie]

Yes, I shall come to that. We have had regard to the present level of damages awarded in these cases, we have had regard to expert input about how we can deal with the claims culture that has built up, and we have taken the view on the level of tariff required to implement the policy decision that we have made to deal with this emerging problem.

[Lord Sharkey]

Does the Minister accept that that is not really an explanation? It is simply a statement that the Government have done something. I was asking for the basis on which they arrived at these numbers. In fact, oddly, the numbers changed between the impact assessment and the SI published yesterday. There must be a reason for that; there must have been some discussion. There must be some basis on which these amounts were constructed, but it is not clear from his answer what they are.

[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.

--- Later in debate ---

[Lord Sharkey]

I think this is a misunderstanding. I was not trying to imply that there was an element of certainty involved here. I simply wanted to know how the figures had been arrived at. Why not some other figure? Instead of 235, why not 200? Why not 400? How were these figures arrived at?

[Lord Keen of Elie]

With respect, a judgment had been made having regard to all the information available as to what level should be set for the tariff to address the very problem that we are attempting to deal with. It is not based on some mathematical formula or percentage.

[Baroness Berridge (Con)]

I refer my noble and learned friend to his previous comment which, fairly, recognises that all parties are to blame, which is something that I think he conceded at Second Reading—that the insurance industry shares part of the blame. May I clarify? When he says that all parties are to blame for this, may I clarify that he was not including the genuine claimants, who have become a focus in this House: that they are not to blame for an industry, a racket or whatever created by others?

[Lord Keen of Elie]

Everybody readily acknowledges that point but, with respect, you cannot take 650,000 claims and identify 300,000 that happen to be fraudulent, or 200,000 that happen to be exaggerated. A policy decision has to be made, acknowledging that there are within that very large body of claims perfectly genuine claims, perfectly fraudulent claims, exaggerated claims and minor claims that would never have been brought but for the encouragement of a claims industry that sees the financial benefit of ensuring that people take these claims forward. That is part of the culture that has developed. I noticed that when the noble Lord, Lord Beecham, suffered an unfortunate accident on the Tube and mentioned it in this House, he was asked if he intended to make a claim and said no. One was encouraged by that. People tend to consider that these events can happen; they may be able to point the finger of blame at someone, but they feel that life goes on and it is unnecessary to be distracted by such issues. We have a claims management culture that goes out of its way—many noble Lords have noted it—to encourage people who would otherwise think nothing of a minor injury to come forward and join the bandwagon. Let us emphasise: this is a matter of policy that we are addressing in these circumstances.

[Baroness Primarolo (Lab)]

On that point, the Minister will be aware that the business model for insurance companies is to assist those who they insure, and to make claims against others when it is appropriate. They are part of that industry, and some of them own claims management companies. Will the Minister explain to the House what he undertook in terms of research to make sure that the figures he is basing his assertions on are correct?

[Lord Keen of Elie]

I acknowledge the noble Baroness’s expertise in these areas as a non-executive director of Thompsons Solicitors, and her knowledge of the claims culture that has built up. With respect, in carrying out our work, we looked at the behaviour of the insurance industry in this context. Of course, the insurance industry can operate as an intermediary because, where the claims arise, it passes on the costs to the consumer by way of increased premiums. There have been instances in the past where insurance companies have passed on details of their own insurees’ claims to third parties and that has been exploited. I was quite open earlier in saying that we acknowledge the contribution of a number of different parties to what has developed into an unacceptable claims culture. That is what we are seeking to address in this Bill.

Can I continue just a little further in that context? The first group of amendments from the noble Lords, Lord Sharkey and Lord Marks, proposed that compensation for pain and suffering should be determined by reference to the Judicial College guidelines. Indeed, the second set of amendments proposed to place the tariff amounts into the Bill rather than in regulations made by the Lord Chancellor. All those figures would be significantly higher than those proposed by the Government—indeed, more in line with the amount currently paid out by claim.

I understand that noble Lords feel that the proposed tariff amounts are too low, but we continue to be concerned about the high number and the high cost of these claims in general, and the impact of that on the consumer. Therefore, we have to take a policy view as to how we can disincentivise not just fraudulent claims but what I would call unmeritorious claims—very minor and exaggerated claims. Our view is that it is right to set the tariff through regulations, which will help to control those costs and ensure greater certainty to both claimants and defendants when they come to deal with these claims, remembering that the vast majority of these claims never reach court anyway. They are dealt with before they ever arrive at the door of a court. In addition, we consider that a tariff will provide the flexibility required to change the tariff amounts, in reaction not just to inflation but to changes in the market, if I can gently call them that. We know that we are dealing with a marketplace; it is extremely inventive and can rise again phoenix-like from any statutory provision that we bring forward.

Therefore, we are going to have a tariff of predictable damages, albeit for those who suffer injury with a duration of up to 24 months. That is a relatively minor personal injury, but not one to be dismissed—and we do not seek to dismiss them. The relevant tariff will then be applied. It will be far simpler for someone to take their claim forward and, of course, we then have in place the requirement for an independent medical expert report, albeit in circumstances of dealing with subjective complaints of injury, as the noble Lord, Lord Sharkey, acknowledged. They can be very difficult to determine. If someone comes forward with symptoms, on the basis of a subjective assessment, a report can be made, but it can be very difficult to determine whether those subjective complaints are well based. Indeed, as the noble Earl, Lord Kinnoull, observed, there are claims management companies that would encourage someone to come forward even if he had not suffered any symptoms so far, in the belief that something might emerge in due course. That is why we have taken that approach, albeit we have allowed for the judiciary to have input so that it can, in appropriate or exceptional circumstances, increase the tariff award by up to 20%.

[Lord Marks of Henley-on-Thames]

I just wanted to make this point, but because of the noble and learned Lord’s plea I have perhaps left it a little late, as he has left the question of the figures. He made it clear that a political judgment was made in reaching these figures. The noble Lord, Lord Faulks, asked for clarification that the Judicial College guidelines, on which we rely, were merely an extrapolation from judges’ awards. However, as I expect the noble and learned Lord will accept, there is an element of circularity here because the judges reach their decision as to what is appropriate invariably after having the Judicial College guidelines cited to them, so they feed on themselves and are therefore a fairly carefully worked-out set of figures into which there could be political input.

[Lord Keen of Elie]

With respect, as the noble Lord outlined, they are self-perpetuating figures. Therefore, although we have regard to those guidelines when coming to a view as to where the tariff should be set, that was only one element in deciding the appropriate levels for the tariff itself.

I shall turn for a moment to the amendment proposed by the noble Lord, Lord Beecham, which would provide the court with complete discretion with regard to any percentage increase of exceptional circumstances. We do not consider that that is an appropriate way forward. It would simply lead to an increase in litigation and in the claims culture, so that is why we feel that there should be an appropriate limit on how any exceptional circumstances can be dealt with by the court.

In that context, I should point out that the tariff system is not entirely a novelty. Other European jurisdictions faced with the same claims culture and the same racket, as some people have called it, have introduced tariffs as well, or tables of predictive damages. That includes Italy, Spain and France. In due course both Houses will have the opportunity to debate the details of any regulations that are introduced to put forward the appropriate figures for the tariff, which at present we consider should be in the regulations, if only for the purposes of flexibility.

Again, I want to emphasise that this is essentially a matter of policy to deal with a very particular problem. It is a political decision; it is not one that we consider is for the judges; it is one that is ultimately for the Lord Chancellor to deal with in his capacity as a Minister. It is in these circumstances that I invite the noble Lord to withdraw the amendment.

[Lord Sharkey]

I thank the Minister for the long and comprehensive—and occasionally interrupted—answer. There is an issue here. I accept that it is a political decision, of course, and we are all operating on that basis, but I am still worried and puzzled about the way in which this table of tariffs has been devised. I have heard nothing from the Minister to suggest that it is not arbitrary. In particular, he did not answer my question so perhaps he can do it now. Were the figures devised on the basis of some target saving being set and then working backwards to say what the tariff would be to generate that saving? If that is the case, we ought to be told.

[Lord Keen of Elie]

Can I be clear to the noble Lord? I am not aware of there having been any target saving. As I sought to indicate earlier, this was rather an approach from the other direction: what policy is required? Effective policy is required to deal with the problem facing us.

[Lord Sharkey]

The Minister will forgive me if I say that that sounds a bit like the back of a political envelope. The question still remains. We are interested in what these figures are, and it would help our discussions if we had a clearer idea of how they were arrived at. I am sure that we will want to pursue that as the Bill makes progress. In the meantime, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Keen of Elie]

My Lords, I was rather hoping that my noble friend was going to explain the tariff, but that may be for another day.

If I respond shortly, it is not because I dismiss the importance of the amendments that have been moved but because I have already sought to set out the Government’s approach to the tariff, and I hope that will be appreciated. However, I understand the purpose of these probing amendments, in particular the amendment spoken to by the noble Lord, Lord Bassam, which reflects some recommendations from the Bar Council. I will add two short points.

First, as I mentioned before, we allow for the 20% uplift for exceptional circumstances to be placed in the hands of the judiciary. Secondly, in setting the tariff, the Lord Chancellor is going to consult widely and take into account the views of a wide spectrum of interested parties in order to arrive at what is considered, for policy purposes, to be the appropriate levels, both now and in the future. However, we do not consider that it is appropriate to formalise any part of that consultation, for example by reference to consulting the Lord Chief Justice.

I have heard what has been said; it is essentially a development of the previous group of amendments. I appreciate why these additional amendments have been moved, but invite noble Lords to withdraw.

[Lord Beecham]

My Lords, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we have Amendment 26 in this group. I thank my noble friend Lord Young for stepping in to the breach in place of the noble Lord, Lord Berkeley, and for the other contributions that have been made.

[Lord Keen of Elie]

We have not finished the previous group.

[Lord McKenzie of Luton]

I am sorry. I will speak to Amendment 23 only to congratulate my noble friend for stepping into the breach. I thank him and the noble Lord, Lord Butler, for speaking in support of cyclists. We are very happy to support their proposition.

[Lord Keen of Elie]

I am obliged to the noble Lord for supporting their proposition rather than their amendment—which, I venture, is entirely appropriate in the circumstances. Clause 1 goes out of its way to ensure that vulnerable road users such as cyclists or motorcyclists are not encompassed within the ambit of the provisions in Part 1 of the Bill. That has to be made absolutely clear. I entirely endorse the views expressed by the noble Lord, Lord Butler, as to the types of injury normally suffered by cyclists or motorcyclists. It does not tend to be of the whiplash variety, which is why we have ensured that they are not included in the terms of the Bill. In particular, as I say, Clause 1 expressly serves to exclude vulnerable road users of that type.

However, the point that the noble Lord made was more to do with a matter outwith the present Bill, which is the proposal to increase the small claims limit to £5,000 for road traffic cases. That is being mooted. Indeed, that increase was a factor in our approach to the whole issue of whiplash injury—but it was not limited to that. The proposed increase in the small claims limit will apply to all road users, including cyclists and motorcyclists. The Government’s reasons for seeking that increase are not simply limited to whiplash claims and the claims culture that has developed there but reflect the fact that, in our view, low-value road traffic accident claims—whether whiplash or otherwise—are appropriate for the small claims track and are capable of being dealt with in that track, whether they be for whiplash or other forms of road traffic injury.

In that context, I also note that we are developing, with expert input, the claims portal for these small claims so that claimants will find the system far more accessible. I simply seek to emphasise that the Bill does not embrace vulnerable road users such as cyclists. However, our reason for increasing the small claims limit for road traffic accidents in general is not limited simply to the view that that is a means of dealing with the whiplash claims culture; it reflects a wider view that low-value road traffic accident claims can appropriately be dealt with in the small claims track. Of course, where those claims are perceived to be complex, they can be moved from that track into the next track of judicial determination. In these circumstances, I invite the noble Lord to withdraw the amendment—albeit he acknowledges that it was tabled for probing purposes.

[Lord Young of Norwood Green]

I welcome what the noble and learned Lord said—I have found it constructive and helpful. Nevertheless, I still think that there is some concern and, rather than having to return to this on Report, it would be useful if we could meet him for further consultation.

[Lord Keen of Elie]

I am perfectly content to meet the noble Lord. As I return to my feet, I am reminded of the regular reading material of the noble Lord, Lord Sharkey, which includes the Insurance Times. I circulated a letter to Peers following Second Reading and it may be referring to that, but I do not recollect having made the sort of concession reported in that material. Unless the noble Lord feels that he can correct me, I am certainly not aware of it. Our position has always been that the original draft of the Bill specifically excluded vulnerable road users. I suspect that it is a case not of journalistic licence but of journalistic error.

--- Later in debate ---

[Baroness Primarolo]

When the Minister considers in the round the comments made by other noble Lords, will he undertake to go away and look specifically at the way in which Scotland has approached this important question of asymmetry in the process? Will he look at whether there is a way of incorporating or dealing with claims in a similar way, without clearly undermining what he has identified as the Government’s policy principles in simply reducing tariffs?

[Lord Keen of Elie]

My Lords, perhaps I may begin with Amendment 26, as put forward by the noble Lord, Lord Beecham, and Amendment 47, put forward by the noble Lords, Lord Marks and Lord Sharkey, and my noble friend Lady Berridge. These amendments seek to secure assurances as to the recoverable cost of a medical report in respect of whiplash injury claims, notwithstanding the increase in the small claims track limit.

The cost of medical reports is currently recoverable in personal injury claims where the defendant insurer has admitted any part of liability. It is intended that these costs will continue to be recoverable following these reforms, including the proposed reform in the small claims track, which is not part of the Bill. I seek to reassure the noble Lord, Lord Marks, in particular that it is intended that that cost will be a recoverable element in each and every case where liability is accepted. My understanding is that the civil procedure rules currently permit the recovery of such a cost; if there is any issue with that, I would be perfectly happy to look at it again to ensure that the rules reflect that position, because that is certainly our intention.

The effect of Amendment 27 would be to require the Civil Procedure Rule Committee to undertake both a review and a consultation in respect of the proposed increase to the small claims track limit for whiplash claims before publishing its decision. I appreciate that the noble Lord, Lord Bassam, is taking us beyond the realms of whiplash claims and I will comment upon his observations in a moment. The Government have already undertaken a consultation on this issue and our policy changed as a result of that consultation. Originally, we proposed raising the small claims track limit to £5,000 for all personal injury claims but, after consultation, we proposed that the track limit should be raised to £5,000 for road traffic accident-related personal injury claims but only to £2,000 for all other personal injury claims, including employer/employee claims. We do not believe that a further consultation on this issue is required, nor that such a requirement should be placed into the Bill.

I observe in passing that the small claims limit for non-personal injury claims is now, I believe, £10,000 and it operates adequately. In respect of the personal injury limit of £1,000, that was set about 10 years ago so even if we were to apply various inflation-linked multipliers, it would be in the region of £1,700 to £2,000, depending upon what index was taken in respect of inflation. As regards personal injury claims in general, it is not going much beyond that.

The proposal in the amendment tabled by the noble Lord, Lord Bassam, is that the increase should be to a maximum of £1,500, as opposed to the increase to £5,000 for road traffic accidents and £2,000 for personal injury claims. In that context, the noble Lord observed that these cases—I believe he was referring to non-road traffic accident cases in particular—can be very complicated. I acknowledge that, but if such a claim is complex, that is a ground for removing it from the small claims process to the fast track. There is already provision for that very situation, so we do not consider that further steps need to be taken.

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[Lord Bassam of Brighton]

Can the Minister assure me that there will be consultation with the trades unions? Given the case he is making, it is important that that should take place. Their experience here is highly relevant.

[Lord Keen of Elie]

Trades unions’ experience is, essentially, filtered through claimant solicitors such as Thompsons, and those being consulted include representatives of both claimant and defendant groups—so that is being done. However, I would be perfectly happy to meet the noble Lord, and such representative groups as he may wish to bring to a meeting, to discuss the proposed increase in the limits on small claims. If he wishes to do that, I shall be perfectly content for him to contact my private office, and we can make suitable arrangements. At this time, however, I invite noble Lords not to press their amendments.

[Lord McKenzie of Luton]

My Lords, I beg leave to withdraw the amendment.

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[Lord Beecham]

My Lords, I am a little concerned at the degree to which political considerations are supposed override our system of justice. This is not the first time it has been mentioned. However, the latest case is perhaps the least acceptable of the recommendations of this kind. Why on earth should Parliament decide on the so-called exceptional circumstances—undefined, of course, for the purposes this debate—on what are already constrained sums to be awarded in damages? It is trespassing too much on the rights of the citizen and the role of the judiciary. I hope that the Minister will concur with that, given his enormous experience of these matters, and, I apprehend, a real interest in justice being effective and available. With all due respect, the amendment moved by the noble Lord undermines both.

[Lord Keen of Elie]

My Lords, I am obliged to my noble friend Lord Hodgson for his amendment. I understand the intent when we are seeking to address a very particular problem. However, I cannot concur with the proposal that we should set in the Bill some limit to the judicial discretion that will be exercised in exceptional circumstances. We have yet to see how exceptional circumstances will develop once the Bill comes into effect. We therefore consider it more appropriate that the percentage increase in tariff should be determined by regulation by the Lord Chancellor in order that he may, from time to time, have regard to developments once the Act is in force. We do not consider it appropriate to constrain that exercise by setting a ceiling in the Bill. For these reasons, I invite my noble friend to withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

I thank my noble and learned friend for that reply. It was not entirely unexpected. I say to the noble Lord, Lord Beecham, that it is nothing to do with access to justice, it is merely limiting judicial discretion. Indeed, the noble Lord accepts that judicial discretion is going to be limited because he is quite happy to have this percentage in regulations which can subsequently be altered one way or another without much parliamentary scrutiny for all the reasons we know. I note the points my noble and learned friend has made, and I beg leave to withdraw the amendment.

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[Lord Beecham]

My Lords, the amendments in this group pray in aid, as it were, for the work of MedCo, a body set up by the Government, I believe in 2015, to facilitate the sourcing of medical reports on injuries of the kind that we are debating under the terms of the Bill. The Ministry of Justice produced a pre-action protocol for what it calls low-value personal injury claims in road traffic accidents. Before that, there was no system at all to effectively source reports, and apparently a practice was developing of some claimant representatives—not necessarily solicitors—and insurers using what are described as “tame” doctors to produce medical reports for the purposes of securing compensation.

The Government set up the MedCo organisation to provide claimants with access to independent medical reporting facilities from reputable sources, which are themselves subject to regulation and control by the MedCo board. Apparently MedCo had a bit of an uneasy period in its early days and there have been a number of reviews, but the principle remains valid. I understand that it is now working better and that there is no channelling of medical reports to, as it were, sympathetic doctors who might be relied on to back up claims that are less than valid. To that extent, the Government’s original idea has proved right.

In relation to the Bill, it appears that there will be a necessity to reconstruct the portal so that litigants in person can access and use the portal themselves. Therefore, it is all the more necessary to ensure that the MedCo system is available and as user-friendly as possible. I hope that the Minister will acknowledge that I am taking the unusual stance of having supported a decision made by the Government some time ago and seeking that it should continue to flourish. I look forward to his acknowledging that this is a good way of serving justice for both sides in such cases, by having thoroughly professional, independent people providing the necessary political evidence, not being paid for a particular kind of evidence—which one suspects can happen and perhaps has happened hitherto, producing some decisions that were, frankly, unjustified. I hope that the noble and learned Lord will build on the position created originally in 2015 by the Government and ensure that it remains applicable and useful under the new regime being developed.

[Lord Keen of Elie]

My Lords—

[Lord Bassam of Brighton]

There are other amendments in this group, are there not?

[Lord Keen of Elie]

There are indeed, and that was why I wondered at the noble Lord’s reticence. If the noble Lord wishes to speak to them, I am not the person to stand between him and the remainder of the Committee.

[Lord Bassam of Brighton]

I am extraordinarily grateful to the noble and learned Lord for his prompt rising, as it were, from a sedentary position. My Amendment 42A is in this group. On the Bill as a whole, in Clause 4 the Government seem to recognise the problem of what are called “pre-med offers”, yet fail to ensure that they are sufficiently discouraged. We are in the same territory here but perhaps not seeking to approach it in the same way. My understanding is that such offers are made to people sometimes at a point of vulnerability following injury and sometimes, it has to be said, in the most cynical of circumstances—when sick pay runs out and after putting in a denial, which, although clearly weak, sometimes worries people.

Lawyers for claimants have a professional duty to put an offer to their client. There are many circumstances in which desperate people ignore the advice to reject that comes with that offer and accept what is offered, however inappropriate the sum is to the injuries that they have suffered. Pre-med offers are not made to be fair or reasonable. The offers are often made by defending insurers to get rid of a case cheaply, and I quite accept that the Government are right to seek to prohibit them. The consequence of acceptance in the absence of a medical report is that if the injured person later develops conditions arising from the accident, they will of course fall back on the NHS to support them. They will have no compensation to get treatment and the cost will fall more widely on society and the taxpayer. Meanwhile, the insurer for the guilty party who caused the injury will have walked away having saved money.

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The Government want to take away free legal help from, we think, about 90% of people injured on the roads and at work. That is a terrible situation and we ought to act as best we can against the insurers. I hope that the Minister will take this issue seriously. It is clearly on the Government’s radar, but we do not think they are approaching it in quite the right way.

[Lord Keen of Elie]

I am obliged to noble Lords. The amendments from the noble Lord, Lord Beecham, would place the requirements for medical reports to be provided by an accredited medical expert selected via the MedCo portal or other experts specified by the Lord Chancellor in regulations. Currently, the Civil Procedure Rules require any initial medical report in support of a whiplash claim to be sought through the MedCo IT portal, which is established and proves, as the noble Lord indicated, the independence and quality of these medical reports. The Civil Procedure Rules also require that all MedCo medical reports must be provided by an accredited medical expert. I am therefore uncertain what additional benefit the amendments would add to that process, because we already have in place the requirement that it should be a MedCo report that is obtained.

Indeed, the amendments could have a negative impact on the success of MedCo as, on one view, it would widen the pool of medical experts to any person with medical qualifications rather than someone who has been accredited specifically for these types of report by MedCo. I may have misunderstood Amendment 41, but that appears to be what its result would be, although that may be unintended. I emphasise that we consider that the creation of MedCo, as adjusted recently, has been a success and will continue to be so. We require that parties should have to go through the MedCo portal for an appropriate independent expert report before these claims are settled.

So I ask the noble Lord to reconsider the terms of the amendment because we do not feel that it adds anything to the Bill. I believe we have a common intention here and it may be that I have misunderstood what lies behind Amendment 41, but at present we believe the present structure of MedCo reports and the portal is appropriate as it stands, and at this stage we would not be prepared to contemplate the amendments that have been moved. If the noble Lord wishes to discuss this matter further with me, I will be content to do so because it may be that I have somehow misunderstood the intent of Amendment 41 in that regard.

I turn to the point raised by the noble Lord, Lord Bassam. We looked at the whole question of how it would be most appropriate to deal with claims that were settled without a MedCo report. That would place the insurer or relevant party settling the claim in breach of their own regulatory requirements, and appropriate steps would be taken. In due course, as we know under the financial regulation Bill that is currently going through, that would be the FCA in respect of claims management companies.

I draw attention to Clause 5(6), which states:

“A breach of section 4 does not make an agreement to settle the whiplash claim in question void or unenforceable”.


We adopted that approach to ensure that the claimant should not suffer at all in circumstances where the person making the settlement did so without the report. In other words, the claimant would be entitled to retain all sums paid in those circumstances. If we make the agreement void, the sector would potentially seek recovery of the sums passed in respect of a void transaction. I appreciate that the noble Lord seeks to qualify that, but it raises complex issues over contract liability. We believe that we have taken the correct approach by ensuring that the person making the settlement, who is a regulated party, will be in breach of their regulatory regime if they do so without a MedCo report, while equally ensuring that the claimant should not suffer because of that misfeasance, and should be able to retain the settlement sum.

We do not believe that there is a major issue in this context with regard to those who are persuaded to settle early but, if that is an issue, it is more widely encountered across personal injury claims as a whole, and we do not see any basis for taking an exceptional route in regard to whiplash injury claims. I hope that that reassures the noble Lord that there is a mechanism to protect the claimant and enforce the requirements of Clause 4 against those who are settling claims.

[Lord Bassam of Brighton]

I am grateful to the noble and learned Lord for his attempt at reassurance. I will reflect on his words, but I may come back with something on Report because I want to ensure that we have that protection there.

[Lord Keen of Elie]

I quite understand the noble Lord’s concern, and I would be willing to consider any further amendment that he puts forward on this in due course. At this stage, I invite the noble Lord to withdraw the amendment.

[Lord Beecham]

I am obliged to the Minister for his invitation, which I will certainly take up. The intention of the amendments is to fill out, as it were, the provisions in Clause 4 relating to regulations to be made by the Lord Chancellor about the appropriate evidence of an injury for the purposes of this clause. It may be that both of us are replicating something that already exists, but we can have a look at it and I am sure it is a matter on which we can reach agreement one way or another. I beg leave to withdraw the amendment.

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[Lord Keen of Elie]

My Lords, clearly these amendments are directed primarily at two areas: first, the review or regulation of the effectiveness of these reforms and the supporting regulations and, secondly, the issue of cold calling. I will deal with each in turn. I am not going to go through the detail of each set because I understand that the force of the amendments is all in one direction on the first point. The amendments as drafted would require reports on these reforms to be published shortly after their implementation. Although I understand the reasoning behind them, I question how effective they would be in their current form. I appreciate, nevertheless, that these are essentially probing amendments and it is in that spirit that I address them.

As has been observed, the insurance sector has made it clear and very public that it has a commitment to pass on savings. Having made that commitment, insurers will be accountable for it in a highly competitive market. Insurers have pointed out how they have passed on to customers the benefits of previous government action to cut the cost of civil litigation without the need for regulation. The Government, of course, are intent on monitoring the reaction of the insurance sector to these reforms and will engage with it in that regard. If the industry as a whole sought to avoid passing on these savings, that would signal that the competitive nature of the market had changed. If that were to happen, I have no doubt that the Financial Conduct Authority and, indeed, the Competition and Markets Authority would wish to investigate.

Nevertheless, I hear the message from around the Committee about the need to put further discipline in place with regard to these savings, and that is a matter that we will consider. As I say, I appreciate what is intended here. The question is how we can effectively bring that about. We have to remember that the insurers are regulated by the FCA already. Oversight is in place with regard to their conduct. With all due respect, I take issue with my noble friend Lady Berridge about there being some conflict between shareholder interest and the interest of customers.

An insurance company requires to rely on its integrity in order to maintain its resilience as an insurer. Any board of directors that abandoned integrity in favour of a larger dividend would find itself not only in conflict with its regulator but, no doubt, in conflict with its own shareholders, who would not appreciate that sort of conduct either, given that it would simply undermine the capital value of their investment. Therefore, I do not believe that there is that conflict of interest at all.

The amendment put forward by the noble Lords, Lord Beecham and Lord McKenzie of Luton, would introduce a formal requirement for Her Majesty’s Treasury to keep under review the ban on cold calling, and the amendment in the names of the noble Lords, Lord Marks and Lord Sharkey, would introduce a formal requirement for the Lord Chancellor to review the effect of cold calling and the ability to introduce regulations for a ban on cold calling. Of course, a ban on cold calling in relation to claims management was introduced in the Financial Guidance and Claims Bill and was agreed by this House quite recently. As noble Lords will be aware, the Bill inserts a provision into the privacy and electronic communications regulations, which govern unsolicited direct marketing calls, to ban such calls in relation to claims management services unless prior consent has been given. The Government consider these to be robust proposals which will add to the package of measures in place for tackling unsolicited marketing calls.

With regard to the use of the material that is obtained, there is of course provision for regulation of the legal profession. The SRA has regulations in place for the acquisition and use of such data, so that matter is already regulated. However, I acknowledge the point made by the noble Lord, Lord Marks, about the difficulty of what I would term “regulating the unregulated”, where cold calling centres are based outside the United Kingdom. I am advised that it is possible to trace more than half the cold calls received in the United Kingdom to one place—essentially a factory—based in Pakistan. But it is fleet of foot: it changes its name and location on a regular basis. That is a formidable challenge and we are seeking to approach it by means of regulating, apart from anything else, the use of the material gleaned by those means.

The amendment put forward by the noble Lord, Lord Beecham, would introduce a formal requirement for the Treasury to make regulations requiring the FCA also to prohibit certain pre-medical offers—I think that that is also in the amendment. Again, we are of the opinion that the Bill deals sufficiently with that issue as well.

As I indicated, I have heard what has been said around the Chamber about the consideration of further measures to ensure that savings are passed on to consumers, and I will give that further consideration before Report. On that basis, I invite the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for that detailed reply. I am sure that these are matters to which we will need to return at a later stage. One of the things that we were seeking to be sure about—and this is, perhaps, an issue that we share with the Lib Dems—is how extensive and how robust across the board are the prohibitions around cold calling. The noble and learned Lord mentioned the SRA. As I recall, when we were debating the financial guidance Bill at Second Reading, the SRA and its activities were held out as being a reason to ban cold calling for personal injury claims. But then one noble Lord in the debate said, “No, there are people getting round that by a number of means”. It is those sorts of issues that we want to be sure about, so that we can look across the piece and see that cold calling—so far as it can possibly be legally achieved within the UK—is dealt with. Having said that, I beg leave to withdraw the amendment.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

[Lord Woolf]

There is an answer to the problem that the noble and learned Lord raises. It might have implications for the workload of the judiciary but I think that could be handled. We should get away from the idea that a judge should assess damages in appropriate cases only at one stage. There is no reason why you cannot have a system where the matter can be restored to a judge in a case of differences of opinion to take into account succeeding circumstances. If the power existed, the courts would find that in the majority of cases, litigants—properly advised, as they are in these big cases—would come back only when there was a real difficulty between the insurer in practice and the claimant. In that way, matters could be reviewed to reflect any differing circumstances. It was not a one-off assessment that I was advocating but the ability to change the assessment. That would apply to PPOs as it would to any other laws.

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

My Lords, I am obliged to my noble friend Lord Hodgson for setting out the background to this matter. His Amendment 55 would require what he referred to as new rules of court to be made that highlight features of periodical payment orders which may make them a more appropriate way for a person with a long-term injury to receive an award for damages for future care costs. I understand that Amendment 55 and the other amendments in this group are essentially probing amendments.

“Rules of court” in Amendment 55 means the Civil Procedure Rules. The purpose of the Civil Procedure Rules—and, indeed, all rules of court—is to govern the practice and procedure of the court and the parties in court proceedings. This may be a technical issue but that does not detract from the importance of ensuring that claimants who have suffered long-term serious injuries are well informed as to the implications of their choice between a lump sum payment of damages and a PPO. I am conscious of the point made by the noble and learned Lord, Lord Mackay of Clashfern, about the care that the Executive must always exercise in circumstances where it may be perceived that they are giving directions to the judiciary. I will explain why the Government therefore take a more modest approach to this issue but one which they feel will be effective.

Of course, some Civil Procedure Rules have been made in relation to the exercise by the court of its powers under Section 2(1) of the Damages Act 1996 to order that all or part of an award of damages in respect of personal injury is to take the form of a periodical payment order. These rules already require the court to consider all the circumstances of the case, as well as the preferences of the claimant and defendant and the reasons for them. I appreciate that there are instances in which PPOs may not be available; for example, a mutual insurer such as the Medical Defence Union would not be considered sufficiently well reserved to meet future liabilities. I appreciate also that there have been reservations among insurers about the use of PPOs because of the way in which they are required to reserve for them and the capital requirements related to that.

PPOs are certainly in principle considered a better form of taking compensation for future loss than a lump sum because they provide strong protection for claimants who may be concerned about the return on a lump sum. This Government certainly support their use. At the same time, we must keep in mind that the person behind a claim has a choice and is entitled to make one in such circumstances. We consider it important that claimants making a choice in these circumstances should be properly informed, irrespective of whether their particular case reaches such a stage that the court has to consider whether to order a PPO. Of course, not every case will reach the court; many will be settled before that and, at an earlier stage, claimants have to be properly informed as to which option they should adopt.

I note the point made by the noble and learned Lord, Lord Judge, with which I entirely agree. It is perhaps moot to say that no estimate of life expectancy is ever precisely accurate because they are just that—estimates—and one takes that out of the equation where you have a PPO.

The Government remain fully committed to ensuring that appropriate advice is available to claimants in all cases and stand by the commitments they made to action in their response to the Justice Select Committee. To pick up on the points made by the noble and learned Lord, Lord Hope of Craighead, the point made in paragraph 50 of the response to the JSC was a concern to ensure that guidance was provided to individual claimants. It is our intention to put in place appropriate guidance and to ensure that it is available. We aim to do that by the end of 2018. In addition, we are investigating whether current advice received by claimants on the respective benefits of lump sums and PPOs is effective, and whether there are other ways in which the use of PPOs could be increased within the present system. At present, we intend to complete this work by the summer of 2019.

I hope that goes some way to meeting the concerns expressed by the noble Earl, Lord Kinnoull, on these matters. He raised a further question on indexing and I think the noble Lord, Lord Monks, touched on this. The reason that the ASHE 6115 index is taken is that it is the specific care costs index. It may be that wage costs have not increased at the same rate as the wider RPI, which may explain the discrepancy the noble Earl pointed out. However, the ASHE 6115 index is a specific care costs index, which is why that has been employed in the past.

Amendment 92 would require the Lord Chancellor to conduct a review of the impact of setting a new discount rate on the extent to which PPOs are made by the courts, but within six months of the provisions in Part 2 of the Bill coming into force, and then to publish a report of the results within 18 months of commencement. As the noble Lord, Lord Beecham, hinted, that may be far too tight a timescale to produce an effective report. We certainly do not consider that a requirement to carry out a review of this nature at the time proposed would be particularly informative. That is because the first review of the rate under the Bill would probably not have been completed by the time at which completing the review under this amendment would be required. Effectively, that would mean that the review would have to focus on any impact that had resulted from the setting of the rate as of March 2017 under the present law, which was a rate of minus 0.75%. I suppose that such a review may, however, be of limited use given that the legal framework for setting the rate would have changed but I suspect that it would tell us only something about the past, not the future.

I also observe that the settlement of major cases can take some years to agree, whether or not they arrive at the door of the court, so it might be some time before there is sufficient evidence to draw meaningful conclusions about changes in claimant behaviour. We do not yet have the statistical information about the effect of the March 2017 change in the discount rate on the use of PPOs. We therefore do not know whether the lowering of the rate has diminished the take-up of PPOs, although there is certainly some anecdotal evidence to that effect. It is logical to assume that this would occur, given the size of the change that took place in March 2017.

The evidence from the previous four years does, however, suggest that the use of PPOs is concentrated in the most serious and long-term cases, with the propensity to use them increasing with the size of awards up to about £5 million. They are not really employed in cases where the award of damages is lower than £1 million. That is largely because the use of PPOs is concentrated on provision for future care costs—long-term care costs, generally in cases of catastrophic injury. That is why there is a large percentage of cases in which PPOs are not considered appropriate. The National Health Service pays out PPOs in about 70% of awards over £1 million, while the equivalent figure for insurers is only about 36%, and there may be further work to be done. That is why we are going to look at the question of further guidance in order to encourage their use. Certainly, the take-up is far from negligible in serious cases.

On the comment of the noble Lord, Lord Beecham, this is not just about funding clinical negligence claims by the NHS. It goes far deeper than that; it is about ensuring fairness between claimants and defendants in the difficult process of assessing damages, particularly damages awarded for future care. I do not accept the noble Lord’s general point that we are simply trying to move the cost of future care from victims to somewhere else. That is not what we are about; this is concerned with ensuring fairness between claimants and defendants.

I have spoken about the way in which the amendments would require some sort of review. Amendment 92A would also require such a review to assess whether the fact that a PPO may be uprated by reference to an inflation index other than the retail prices index is having an impact on the relative merits of PPOs versus lump sums in the context of a revised discount rate. That would go beyond a consideration of the impact of the discount rate to the overall level of damages award, and how individual elements may be indexed for inflation. At present, the index used for PPOs is a very specific care cost index rather than the RPI.

We will, as I have indicated, be taking forward a range of initiatives to encourage the use of PPOs and to ensure that claimants are properly advised when choosing the form of their award. We hope to have the first part of that process completed by the end of 2018 and the wider investigation completed by the summer of 2019. We believe that those practical steps will encourage the use of PPOs where appropriate—we will, of course, monitor that—and create a situation in which a review requirement, such as that envisaged by the amendments, will not be necessary. Indeed, it would be more appropriate to move in this direction rather than find ourselves in the somewhat invidious position of the Executive sending out directions to the judiciary about how it should approach the award and determination of damages in such serious cases.

With that explanation of the Government’s position, I hope the Committee will be reassured that we are committed to effective action to encourage the use of PPOs. On that basis, I invite the noble Lord to withdraw the amendment.

[Lord Mackay of Clashfern]

Before my noble and learned friend sits down, I understood the noble and learned Lord, Lord Woolf, to have suggested that a PPO could be reviewed as the instalments were going ahead. That would be something of an innovation but it might be worth considering. I do not know whether my noble and learned friend has that in mind.

[Lord Keen of Elie]

We do not have that in mind. One of the concerns about such a proposal is the impact it would have on the insurers and their inclination to embrace PPOs. At present they are concerned about their reserving liability and their capital requirement on the basis of risk when it comes to a PPO. If we were to add to that equation the possibility of the PPO being revived at some indeterminate point in the future, I believe it would have a counteractive effect on the employment of PPOs by insurers. I have noted what the noble and learned Lord, Lord Woolf, said; I will take it away and consider it further, but my initial reaction is that it could act as a disincentive for the operation of PPOs.

[Lord Hodgson of Astley Abbotts]

My Lords, I thank my noble and learned friend for that extensive reply and other noble Lords for their contributions to this debate.

I take issue with my noble and learned friend on two matters. First, it is perfectly possible for us to deal with the question of PPOs for mutuals by setting up a proper reinsurance programme. That could be done quite easily. Therefore, to say that we would like to do this but we cannot because mutuals cannot provide it is inaccurate. We can sort that out with a certain amount of technical help.

Secondly, the noble Lord, Lord Sharkey, said that we were engaged in a nudge. Personally, I am engaged in a bit of a shove, and I hope that the noble Lord, Lord Monks, will join us in in that shove. I am not sure that my noble and learned friend has given a shove; I think it is a very delicate pressure on the arm of the industry, which I am not sure will be effective.

We heard from the noble Earl, Lord Kinnoull, about how PPOs are declining in use and from the noble and learned Lord, Lord Woolf, about the culture and question of fairness, which must be at the heart of all our discussions. I was encouraged to think that such an eminent jurist as him should think that the rules of court could provide the flexibility to enable the issues covered by my amendment to be incorporated. We are in an era where things are moving fast, and we do not want to find ourselves stuck in inflexibility.

My noble and learned friend Lord Mackay of Clashfern referred to the question of interference by the Executive with the judiciary. I made clear that I was concerned about that in my opening remarks. The amendment is designed so that Parliament, the legislature, makes its view clear. It is nothing to do with the Executive. It is giving judges a steer, but after that, it is over to them how they proceed. My worry about my noble and learned friend’s comments is that the best remains the enemy of the good. We have a system that is not working very well, but we are saying, “This is frightfully difficult, so we should not change it; we are likely to cause more trouble by changing it than we solve, let sleeping dogs lie”.

The system is not working very well. The transfer of investment and longevity risk away from the individual has to be a key part of making matters fair. It deals with important and difficult cases of the sort raised by the noble and learned Lord, Lord Judge. I hope that the Minister will agree to meet some of us between now and the Bill’s next stage, because I do not think we have got to the bottom of this. We are missing an opportunity to do something seriously helpful for people who suffer long-term, life-changing injuries. In the meantime, I beg leave to withdraw the amendment.

[Lord Keen of Elie]

In response to my noble friend Lord Hodgson, and a point raised by the noble Lord, Lord Sharkey, I would be perfectly content to meet them before the Bill’s next stage to discuss this. If they contact my private office, that can be arranged.

Amendment 55 withdrawn.

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[Lord Beecham]

My Lords, I simply wish to confirm that we on this side agree with what noble Lords have suggested, so the quicker we can get things moving, the better for everyone.

[Lord Keen of Elie]

My Lords, I believe that we are as one in our desire to see these provisions brought into force as rapidly and as sensibly as possible, and all of these amendments stem from the entirely reasonable, and indeed strongly argued, wish for the review to be carried out in order to minimise the impact that the present discount rate is having—disproportionately, one would venture—on defendants and in particular on NHS Resolution.

As I explained in writing to noble Lords following Second Reading, to which the noble Lord, Lord Sharkey, referred, the Government remain fully committed to beginning the first review of the rate promptly after Royal Assent and to completing that first review as soon as is practicable in 2019. To that end, I indicated that although the expert panel cannot be appointed before the power to do so has been created, preparatory work on the setting up of the panel is already under way and the Government will progress the appointment process as far as they properly can before Royal Assent. I hope that that goes some way to meeting the point made by the noble and learned Lord, Lord Judge. As part of that preparatory work, the Government intend to publish the draft terms of reference for the expert panel in time for the Report stage of the Bill in this House. However, the appointment of the expert panel cannot take place until after Royal Assent and thus the completion of the appointment process cannot be predicted with absolute certainty.

The effect of Amendment 58 and its related Amendments 63 and 66 might be to force the Lord Chancellor to delay commencement or risk the time to conduct the review being eaten into, thereby reducing its effectiveness. We have in mind the stages that have to be gone through. Amendment 59 would reduce the period of time within which the first review of the discount rate must be started following commencement from within 90 days of commencement to 10 days of commencement, and other amendments specifying 30 days have been referred to as well.

What I would emphasise is the word “within”. These are outliers, but we are determined to carry out the process as swiftly as we reasonably can. Having regard to that, however, we have to make provision for any uncertainties that may emerge, and therefore to fix too stringent a period might impact adversely upon the whole process that we want to carry out. In other words, while it is important to move quickly, it is also important to ensure that any review is completed fully and properly and is not going to be the subject of untoward challenge.

As I have said, the appointment of the expert panel to advise the Lord Chancellor simply cannot take place until after Royal Assent and even then it may still take a little time, despite the preparations that are ongoing even now. If the review starts without the panel being ready to start work, the whole task is going to be thrown into some difficulty.

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[Lord Mackay of Clashfern]

My Lords, I want to say just one thing about the nature of the Lord Chancellor’s judgment in this case. The noble Lord, Lord Cromwell, said that the Lord Chancellor is acting on behalf of the Government, but that is not the nature of the decision: it is the Lord Chancellor’s decision as representing the Lord Chancellor himself. He has the responsibility of a personal decision in this matter, in the way this Bill is drafted. Certainly, when I had responsibility for these matters, it never occurred to me that I should consult the Cabinet about it.

[Lord Keen of Elie]

My Lords, I begin by acknowledging the point made by my noble and learned friend Lord Mackay of Clashfern. The Bill makes perfectly clear that this is a decision of the Lord Chancellor as Lord Chancellor, and it is in that context that it has to be seen and understood.

Amendment 61 would replace the proposed three-year maximum review cycle for the second and subsequent reviews of the rate with a system under which the need for the rate to be reviewed would be determined by the expert panel by reference to changes in returns on investment. Of course, there are then consequential and supplementary amendments. The effect would be to add a new and distinct responsibility to the role of the panel. It would in effect, as I believe my noble friend Lord Hodgson acknowledged, require a standing panel to be created. If more than a year had passed since the rate was reviewed, the expert panel would be required to assess the need for a review and then to advise the Lord Chancellor to review the rate if it considered that the nature of return on investment had changed enough to justify a review. If the panel decided that this condition had not been satisfied, it would have to report its reasons for this view to the Lord Chancellor.

The concept of a review based on changes in investment returns was canvassed as an alternative to a fixed review period in the Government’s 2017 consultation on how the rate should be set, and it was supported, let me be clear. However, basing the review requirement on changes in investment returns would, we believe, create more uncertainty and be less predictable than a regular fixed-date review. The introduction of a requirement for the panel to consider the need for a full review annually could further fuel such uncertainty.

I appreciate the concerns raised by the noble Lord and others at Second Reading about the potential for a fixed review period to prompt undesirable litigation behaviour and the possibility of what is sometimes termed the gaming of the system in anticipation of a change to the rate. However, this problem would not be avoided by the system which the amendment proposes. Litigants would still know when the panel would be required to consider whether the rate required reviewing. Indeed, such occasions would be more frequent under the amendment than under the three-year cycle proposed in the Bill. One can imagine a stop-start mentality emerging leading up to the time when the panel was expected to report.

A further consequence of the amendment would be that the expert panel would have, in practice, to exist independently of the review of the rate, rather than being convened by the Lord Chancellor for each review, as the Bill currently provides. In effect, a standing panel would be required, which would have to exercise judgment as to the timing of reviews, rather than confining itself to the technical matter of advising the Lord Chancellor on the factors that might be considered in the setting of the rate, which is the purpose of the expert panel. The amendment would therefore make a very significant change to the proposals in the Bill regarding when the rate should be changed. The Government’s proposals for a fixed-period maximum cycle for the review of the rate have, as I say, been developed through consultation and been the subject of pre-legislative scrutiny, and we consider that they provide a simple and certain method by which reviews can largely be predicted.

Amendment 74 would require the Lord Chancellor to adopt any recommendation from the expert panel as to whether the rate should be changed and, if so, what the rate should be. Clearly, such a change would diminish significantly the responsibility and accountability of the Lord Chancellor for any review outcome—indeed, it would essentially remove it. Amendment 74 would also remove the requirements on the Lord Chancellor, the panel and the Treasury set out in paragraph 2(6) and (7) of new Schedule A1 to comply with or to take into account the duties of the Lord Chancellor in relation to the setting of the rate that are set out in paragraph 3 of new Schedule A1. What we would have is the elevation of the panel from an advisory role to essentially an executive role. That would be a major change and clearly greatly alter and increase the role of the panel.

The creation of the expert panel to advise the Lord Chancellor is, of course, one of the most important changes introduced by Clause 8. The panel is central to the Government’s proposals for the way in which the rate is set, introducing new expertise and transparency. The panel will play a very important role in providing assistance to the Lord Chancellor in setting the rate, but it would not in our view be appropriate for the panel’s recommendations to bind the Lord Chancellor in deciding whether the rate should change and what it should be. The setting of the discount rate requires the weighing of different potential outcomes for individuals in relation to a range of possible rates. An element of value judgment will ultimately be required. It is important, therefore, that the decision-maker should be politically and publicly accountable for decisions on the rate. That is why the Lord Chancellor is, in our view, the appropriate person to make that choice. Indeed, this was recognised by the Justice Select Committee, which stated in its report that:

“Setting the discount rate has repercussions on the taxpayer through Government expenditure and also consumers through its impact on insurance premiums and inflation; therefore we think it is right that the decision to set the discount rate lies with the Lord Chancellor”.


We agree with that assessment.

In addition to being influenced by the pre-legislative scrutiny carried out by the Justice Committee, the proposals we have put forward have been developed through the public consultation process. In response to the question of by whom the rate should be set, the largest single group of support was for the rate to be set by the Lord Chancellor following advice from an expert panel. I note the support for that which has been given, in particular, by my noble and learned friend Lord Mackay of Clashfern, expressing his experience as Lord Chancellor and underlining the distinct role of the Lord Chancellor in this context.

[Lord Sharkey]

The Minister talks about the consultation and the preferences expressed there. As I think I mentioned at Second Reading, there was no majority in favour of the Lord Chancellor being involved. There was a majority for other methods, not the Lord Chancellor.

[Lord Keen of Elie]

I acknowledge that. As I said, the greatest number of responses were in support of that particular proposal. I reiterate that.

I understand that Amendment 74 is a probing amendment but it would at a stroke remove many of the benefits that the proposed reforms in the Bill are seeking to achieve. This is because paragraph 3 of the new schedule governs how the Lord Chancellor is to decide what the rate should be, and Amendment 74 would remove paragraph 3 from the schedule. The essential change made by paragraph 3 to the present law is that in future the rate is to be assessed on returns reasonably expected to be achievable from a diversified low-risk portfolio of investments. This has regard to how claimants actually invest and the returns available to them. This evidence-based process of assessment will replace the hypothetical approach of the present law, which leads to the rate being set largely by reference only to returns from UK index-linked gilts.

Our evidence is clear that claimants simply do not invest all their awards in UK index-linked gilts; in other words, claimants do not pay Her Majesty’s Government to look after their money. Our research indicates that setting the rate on this basis leads to awards of compensation that are expected to produce on average around 135% of the funds anticipated to be necessary to meet the claimant’s losses, although this drops to 120% to 125% after taxation and the costs associated with the management of investments have been accounted for—a point that I will return to in a moment. The new system will put the setting of the rate on a far more realistic basis and bring the average closer to the target of 100%. This will be fairer for both claimants and defendants.

In support of this process, the paragraph sets out a number of key assumptions that the Lord Chancellor must adopt in deciding what the rate should be and a number of supporting factors he or she must take into account. It also enables the Lord Chancellor to identify and apply further assumptions and to take into account further factors in determining what the rate should be. Amendment 74 would remove the entire framework provided by the Bill for the basis of the setting of the rate. The effect would be that, unless the Supreme Court were to decide to adopt a different basis for the setting of the rate in a future case, the rate would continue to be set on the basis of the present case law, principally the 1998 decision of the House of Lords in Wells v Wells, which was referred to by the noble and learned Lord, Lord Hope, at Second Reading; it is a case on which I believe he sat. This would remove the central aim of the reforms to provide a fairer, more certain and more sustainable system for both claimants and defendants, and would remove any possibility of overcompensation and its impact on the National Health Service.

Clearly, we want seriously injured individuals to be fully compensated for all the losses caused by their injury. They should receive the full and fair compensation that is legally due to them. We do not seek to change the overriding objective of 100% compensation. The problem is that at present the rate has to be set largely by reference to UK index-linked gilts. But our evidence is that this is not how such claimants actually invest and therefore we have to move on.

I add that it might be a little odd to adopt the noble Lord’s Amendment 74 in light of his Amendment 71, which encourages us to have the Lord Chancellor fix the first rate without recourse to the panel at all. There seems to be a slight tension between the two amendments. I have expressed my view on Amendment 71, and we are going to look at that again, but I do not find it easily reconcilable with Amendment 74, albeit I acknowledge that it is a probing amendment.

[Lord Sharkey]

I simply observe that I do not think lawyers have an exclusive right to exercise and run conflicting arguments.

[Lord Keen of Elie]

Generally speaking, they are alternative arguments.

Amendment 77 would add an obligation on the Lord Chancellor to take into account the response of the expert panel in determining what the rate should be. Of course, that is exactly what the Lord Chancellor will do. Indeed, why would the legislation require the Lord Chancellor to consult the panel and require the panel to respond if the Lord Chancellor was not required to consider the panel’s response? Of course, there may sometimes be merit in stating every detail of a process in primary legislation but I suggest that it is not necessary in this case.

Amendments 82A, 85A, and 90A, spoken to by the noble Lord, Lord Cromwell, relate to the procedures and responsibilities governing the operation of the panel. Clearly, the expert panel has an important advisory role but it is not appropriate or desirable to load it with the additional responsibilities suggested in the amendments. Paragraph 2(7) of new Schedule A1 already requires the panel to take into account the duties of the Lord Chancellor under paragraph 3. Paragraph 4 requires the Lord Chancellor to give reasons for his or her decision and to publish information about the response of the panel. As the noble Lord, Lord Faulks, observed, ultimately the Lord Chancellor’s decision on the matter, as it is disclosed, will be amenable to judicial review. It is not a case of the Lord Chancellor receiving the expert panel’s views and simply ignoring them. Clearly, such a perverse course of action, which one would not anticipate, would leave his decision-making power amenable to review.

The obligations are expanded by the commitments that we gave to the Justice Select Committee to consult the panel about the allowances to be made for taxation, investment management charges and inflation in the setting of the rate and, over and above that, to publish the panel’s report to the Lord Chancellor at each review. It is not a case just of disclosing what the panel’s advice may have been but of undertaking to publish the panel’s report and then to give reasons for the decision that the Lord Chancellor has made.

As I touch upon that, I recollect that the noble Lord, Lord Sharkey, raised the question of the experts on the panel. I will come on to the question of a medical expert in a moment but I note that with regard to the position of someone concerned with consumer investments, one would be interested there in the context of someone who acted as a financial adviser to those who made investments as consumers at various levels. That, I understand, is what is contemplated at that point.

As I have sought to underline, the overall thrust of the amendments is that the panel should, in effect, carry out a pre-review of the rate. This is not the intended role of the panel. The panel’s role is advisory. It will be consulted by the Lord Chancellor and it will provide the Lord Chancellor with its views. The report of the panel and the Lord Chancellor’s decision and his reasons for the decision will be published. But the role of the expert panel is not to take away from the role of the Lord Chancellor. It is not the role of the panel to make a decision on what the rate should be. Its role is to provide expert support to the Lord Chancellor.

At the end of the day it is the Lord Chancellor who will make the necessary determination and will be publicly answerable for the determination he makes. Therefore, we consider that the decision must be for the Lord Chancellor, who will take that decision in his role as Lord Chancellor and be legally and politically accountable for it. The process of the setting of the rate is going to be transparent. The panel has been created for a very important purpose—namely, to bring new expertise to the process of setting the rate—but it is not its role to second-guess the outcome of the final review by the Lord Chancellor.

Amendment 84 would require the Lord Chancellor to base the allowances to be made for taxation, inflation and investment management costs on recommendations from the expert panel. The Lord Chancellor is already required by paragraph 3(5) of new Schedule A1 to make appropriate allowances for each of these three items. This will be an evidence-based exercise requiring judgment as to what the standard allowance should be against the range of possible individual circumstances that might be foreseen. The expert panel forms an integral part of the Government’s proposals. It will introduce additional expertise but, at the end of the day, the final decision must be for the Lord Chancellor. The amendments proposed by the noble Lord, Lord Cromwell, would in my submission take the role of the panel way beyond that of an expert consultative role.

I turn to Amendment 87, which was spoken to by the noble Lord, Lord Sharkey, and would extend the membership of the expert panel to include a medical representative. Here I concur with the view already expressed by my noble friend Lord Faulks. On one view, the effect of this amendment would be to broaden the general expertise within the panel, but I should explain that its role is intended to focus purely on matters relating to financial rates of return, in order to provide advice to the Lord Chancellor. The Bill therefore provides for the panel to be chaired by the Government Actuary and that the other members should have experience as an actuary, a manager of investments, an economist and, as I indicated earlier, in consumer matters relating to investment—for example, as a financial adviser.

The Government consider that this range of expertise is the most relevant for providing advice on what the relevant investments and rates of return are likely to be, and will be the most useful source in formulating advice for the Lord Chancellor. While medical expertise is relevant when determining a lump-sum amount of compensation to which the discount rate is to be applied, or in estimating the life expectancy of a claimant, these are separate issues to the setting of the discount rate and would be outside the remit of the panel, as an expert panel advising the Lord Chancellor. We do not see that a medical expert would contribute to the process of the expert panel.

I turn next to Amendment 88, which was also spoken to by the noble Lord, Lord Sharkey, and would require the Lord Chancellor to use the power to appoint the four appointed panel members to secure that each of those members approaches the work of the panel as an expert with the object of recommending a rate of return that is fair to the interests of both claimants and defendants. The appointed panel members are indeed intended to be experts in their fields. The expertise that they will bring to the process of setting the rate is one of the most significant reforms introduced by the Bill. The Government made it clear in their response to the Justice Select Committee that they intend to recruit experts who will act as independent experts in providing their advice, not as representatives of specific interest groups. This is not a representative panel; it is, I emphasise, an expert panel.

The appointed panel members will be required to disclose potential conflicts of interest and, under paragraph 3(2) of new Schedule A1, to take account of the duties imposed on the Lord Chancellor as to how the rate is to be set in deciding what response to give to the Lord Chancellor’s consultation. The mix of expertise stated in the Bill strikes, we suggest, a correct and fair balance between the various areas of knowledge that would be required. The proposed additional requirements on the Lord Chancellor in Amendment 88 are therefore unnecessary.

This amendment, however, also seeks to indicate what the objective of the work of each of the appointed panel members should be. The panel as a whole will play a very important role in providing advice, as I say, to assist the Lord Chancellor in setting the rate. It is very important that this advice is fair, which is why the Bill sets out the range of expertise referred to. However, the role and objective of the panel is to advise the Lord Chancellor on matters relevant to the setting of the rate by the Lord Chancellor. The role of the individual appointed members will be framed accordingly. We consider that the requirements on the Lord Chancellor under the terms of the legal framework for the setting of the rate, coupled with the advice from the panel of experts, who will bring a balanced range of expertise, and the requirements in the Bill which provide that the Lord Chancellor will give reasons for his or her decision, underline the way in which the decision-making process will be accountable and transparent. It will also have the objective of being impartial.

Amendment 91, which I believe was spoken to by my noble friends Lord Hodgson and Lord Hunt, who is still with us, would remove the provisions in paragraph 8 of new Schedule A1, which interpret provisions in relation to the setting of the discount rate to cover the possibility of the Lord Chancellor deciding on the occasion of a review to set no rate or no rate for particular classes of case, on the one hand, and changes from that situation, on the other. In fact, that new paragraph would reproduce the provisions in the Damages Act 1996 which indicate that the court must take into account such rate of return—if any—as may from time to time be prescribed by an order made by the Lord Chancellor. This wording implies that the Lord Chancellor might decide to set no rate under the present law. The provisions in paragraph 8(2) to (4) are intended to clarify how this power would operate.

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[Lord Hodgson of Astley Abbotts]

My Lords, I will briefly support the noble Baroness, Lady Bowles of Berkhamsted, in what she just said. It is easy for us to overlook what quantitative easing has done to the returns on savings and fixed interest. It has been a much longer-running saga than was anticipated, and it is still carrying on. If we are to set up a system that precludes people investing in equities, which gives some protection against that, we will be doing no service to the people who need this money as part of the way to recover from terrible injuries they received. The last line on page 9,

“who has different financial aims”,

does not add anything at all to the situation and will merely provide fuel and funds for lawyers to discuss exactly what that means in cases in future years.

[Lord Keen of Elie]

I am obliged to all noble Lords for their contributions. The noble Lord, Lord McKenzie of Luton, began by referring to the briefing from APIL—the Association of Personal Injury Lawyers. I am familiar with it, and indeed, the association invited me to speak at its annual conference, where I confirmed that we would take the Bill through Parliament. I have not cleared my diary for next year. Much of what they had to say, which was repeated by the noble Lord, was, as the noble Earl, Lord Kinnoull, pointed out, met by the need to encourage the uptake of periodical payment orders. We are committed to that and we will take it forward in various ways. They need to be embraced more thoroughly, not only by claimants but by defendants —insurers—as well. Nevertheless, I make that point.

The noble Lord referred to the case of Wells v Wells, which has been mentioned before. There we saw the reference to what was essentially construed as “very low risk investment in UK gilts”, and we are moving away from that. However, there is an additional element in that, which is volatility: you have an investment portfolio which may be subject to volatility, and you may find that it is at a low point at a stage when you need to withdraw capital funds. That has to be factored in as well, and we appreciate all that.

On the suggestion that we are somehow inviting people to invest their savings, or a majority of them, in hedge funds, that will not do at all. The portfolio A that was examined included 13% UK equities, 15% overseas equities, and 18% of alternative investments which could be modelled as hedge funds. We have to see all this in context. We took clear evidence on the nature of a low-risk portfolio, and there was reference, for example, to widows and orphans, but we are in a different climate in this context. We are not seeking to move away from the idea of 100% compensation. I will come on to the probing amendment of the noble Baroness, Lady Bowles, on setting the rate by reference to not only a floor but, I suggest, a ceiling—there are reasons for that—and the question of investment objectives, as distinct from different financial aims.

Amendment 78 seeks to amend paragraph 3(2) of new Schedule A1 by removing the words,

“in the opinion of the Lord Chancellor”,

from the requirement that the Lord Chancellor must decide the rate on the basis that,

“the rate of return should be the rate that, in the opinion of the Lord Chancellor, a recipient of relevant damages could reasonably be expected to achieve”,

if he invested the relevant damages for the purpose of the assumed objectives. The effect of the amendment would be to prevent the Lord Chancellor seeking to justify a rate on the basis that it seems perfectly reasonable in his subjective opinion when, by any objective assessment, the rate proposed is not supportable.

The noble Lord referred to an “unfettered discretion” and conflict with a political interest, but we are talking about the Lord Chancellor making the decision in his capacity as Lord Chancellor. He does not have an unfettered discretion. He is subject to public law duties in the exercise of his functions. Any decision of the Lord Chancellor as to what the rate should be must be rational, and any failure in rationality can be challenged by way of judicial review. I have already touched upon that and the question of disclosure, and I shall not repeat it.

It is necessary to have reference to the opinion of the Lord Chancellor in relation to setting the rate because the setting of the discount rate is not now, and will not under the proposed legislation, be a precise science—it cannot be. The decision to be made on the rate will require the weighing of different potential outcomes for individuals in relation to a range of possible rates. An inevitable degree of subjective assessment is involved in this process. That is why it is appropriate that, although there is an expert panel, that subjective assessment is made by the Lord Chancellor, albeit with the reasons being given and explained, with a rational analysis of the information submitted to him.

Amendment 78A would require the Lord Chancellor to assume, when considering the damages to which the discount rate would apply, that the relevant damages would be payable as a lump sum or partly as a lump sum. The current wording of the Bill requires the Lord Chancellor to assume that the relevant damages will be payable wholly as a lump sum. We do not consider that this amendment is necessary. The discount rate will only ever be applicable to damages payable as a lump sum, and in setting the rate the Lord Chancellor will have regard to that.

Amendment 79 would include the requirement to assume, among the assumptions which the Lord Chancellor must make under paragraph 3(3) of new Schedule A1 in determining the discount rate, that the cost to the claimant of investment advice shall not be recoverable by way of damages. I appreciate the point made by my noble friend Lord Faulks about the need to be clear about how investment management costs are to be treated in setting the rate, but we do not consider that this amendment is necessary.

Paragraph 3(5) of the schedule provides for the Lord Chancellor to make such allowance for “investment management costs” as he thinks appropriate. This provision has been included on the basis that under the current law the cost of investment advice is not, for the reasons explained by my noble friend Lord Faulks, recoverable as a head of damages and therefore needs to be taken into account as a factor in setting the discount rate. Should the law change, an allowance in the setting of the discount rate would then become unnecessary, as the claimant would already have the benefit of the compensation for the costs. However, we understand that paragraph 3(5) reflects the current law and can adapt to changes in the law. Therefore, we do not consider that it casts doubt on the present law regarding the unrecoverability of investment costs as a head of damage. That is a feature of fixing the discount rate.

Amendment 80, tabled by the noble Earl, Lord Kinnoull, seeks to change one of the assumptions that the Lord Chancellor is required to make under paragraph 3(3) of the new schedule. Under the amendment, the recipient of the relevant damages would be assumed to invest in a diversified portfolio of investment grade listed debt securities rather than a diversified portfolio of investments. The range of investments to be assumed to be made and included in the diversified portfolio under the amendment is clearly narrower than that under the proposed assumption in paragraph 3(3)(c) at present.

The Bill does not restrict the investments that are to be assumed, save that the overall investment approach must be assumed to fall within the range of risk described in paragraph 3(3)(d). We consider that this approach avoids the rigidity of tying the assumptions to a single type of investment. The Lord Chancellor and the panel can therefore assess what the appropriate investments should be in the circumstance of the review. In making their assessment, the Lord Chancellor and the panel will have to have regard to evidence of how claimants actually invest and the returns actually available to investors. We consider that to be a more sustainable system for the future.

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[Lord McKenzie of Luton]

My Lords, I thank the Minister for that very detailed reply and all other noble Lords who have spoken in this debate. On a small point of detail, I think the noble and learned Lord referred to 80% hedge funds. I do not think that is the figure I mentioned, but even at 18% it seems surprisingly high—but there we are.

One outstanding issue is that of how those who are compensated actually make their investments. I draw a parallel with the pensions system. We have just spent quite a long time in this House and at the other end looking at default arrangements for people who have a pension pot and want to transfer it or cash it in on some basis. Encouragement to try to get those individuals to take advice of one sort or another is exercised quite extensively. I raised the same point in relation to people receiving compensation for injury and damages. What happens when they get the cheque? Is there any encouragement for them to get independent guidance on where they should get such advice from? That is still a bit of a mystery to me, even after the debate. I do not know whether there is anything more the Minister can say on that point. The presumption is that individuals will make their own arrangements with presumably regulated advisers. But what about those who do not? What is the process and system that encourages them to avail themselves of investment advice?

[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.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

[Lord Beecham]

My Lords, I refer to my interest as an unpaid consultant to my former legal practice. A distinguished former Member of this House in the late 19th century, Lord Bowen, who served as a Lord of Appeal in Ordinary, was a noted wit. He it was who wrote:

“The rain it raineth on the just


And also on the unjust fella;

But chiefly on the just, because

The unjust hath the just’s umbrella”.

In its enthusiasm to deprive the unjust claimant in whiplash cases of the umbrella of justice, the Government’s measures, embodied in Clauses 2 and 3, will effectively remove it from the just claimant—a reversal of Lord Bowen’s scenario. As the noble and learned Lord, Lord Woolf, asserted, this is,

“a proposal which involves a genuine victim of whiplash injuries receiving reduced damages in order to deter a dishonest claimant from bringing a claim”.

Let me be clear. There can be no one in this House who wishes to facilitate false claims. All of us support the need for any claim to be founded on objective medical evidence, and it is right for this to be a requirement of any out-of-court settlement. However, as the Bar Council points out, the effect of the Bill as originally drafted, and the draft regulations that have been published, would result in reductions of between 22% and 89% in compensation for the victims of whiplash injuries for up to two years, coupled with the costs that they will have to bear no longer being recoverable by the defendants. Thus the compensation under current Judicial College guidelines, set in 2017, for a four to six-month duration of injury, would drop from a range of £2,150 to £2,703 to £470 under the draft regulations, and for a 10 to 12-month duration from £3,257 to £3,810 as a range to £1,250. Of course, the new arbitrary figures for damages would relate only to the time factor and not, for example, to the intensity of any pain suffered.

The amendment proposed by the noble Lord, Lord Sharkey, comes closer to the Judicial College guidelines, but it would be better in my submission simply to delegate the responsibility for certain tariffs to the college rather than to either Ministers or Parliament. That should be a matter for the judiciary.

The Minister’s letter of 7 June contains some welcome changes to the Bill as drafted, including a triennial review of Part 1. However, it contains a statement that underlines the problematic nature of the Government’s response. The Minister avers:

“The Lord Chancellor should set those tariffs which will act to disincentivise unmeritorious claims to reduce costs for all motorists but which will also continue to provide a proportionate amount of compensation where genuine injury is suffered”.


In other words, a genuine claimant is to recover less compensation than he would otherwise receive in order to deter the fraudsters.

But why are the insurers not more rigorous in their assessment of claims, and what happens when the fraudsters cotton on to the implication that they simply need to moderate their claims and the insurers will be content to pay up, effectively on demand, without demanding proper examination of the claim? As the noble and learned Lord, Lord Woolf, averred in a note circulated some time ago, this proposal,

“involves a genuine victim of whiplash injuries receiving reduced damages in order to deter a dishonest claimant from making a claim”.

There is of course disagreement about the extent and cost of fraudulent claims, which should certainly be resisted by insurance companies. It has been suggested that they have been too ready to settle dubious claims rather than risk the costs of defending them. But, importantly, the insurance industry’s own estimates show that the amount paid out on whiplash claims declined by 17% between 2007 and 2016, while premiums rose by an average of 71%. Meanwhile, premium tax—imposed, of course, by the Government—doubled to 12% between 2014 and 2017, and the cost of repair bills has risen by 33% since 2013. The noble Baroness, Lady Berridge, gave us further illustrations of where costs are rising. I remind your Lordships at this point that there is not a consensus on the number of fraudulent complaints brought and settled hitherto. Of course fraud must be deterred—but again I say, not at the expense of genuine victims.

Another consequence that is highly likely to flow from the Bill’s proposals is on the working of an already overstretched court system, with the increased number of litigants in person already causing delay likely to rise even further. Perhaps the forthcoming courts and tribunals Bill will impact on this, as more people who work in the system will be empowered to offer advice—although not representation, which is no longer available from legal professionals. However, there must be a risk in reducing the level of expertise in this way.

Amendments 6 and 8 in this group would restrict the application of the clause to 12 months rather than two years. Most cases are in that category, and two years of pain and discomfort is surely too long for the lowest level of compensation. Injuries that are serious enough to last over one year and up to two years are not “minor” by any reasonable definition. The effect of the reductions in damages is the removal of the right to claim full compensation. These are arbitrary and disproportionate measures.

Amendment 7 deletes an unnecessary requirement to mitigate the effect of damages which of course is already part of common law. We on these Benches support Amendment 9. On Amendment 10, there has been much pressure, understandably, for the tariff to be in the Bill. However, the problem with that amendment, and generally with Clause 2, is that the figures would be determined by the Lord Chancellor—with all due respect to former Lord Chancellors in your Lordships’ House. Our view is that, while any changes would be made by secondary legislation, the setting of the tariff should be determined by the Judicial College—and we concur with the argument of the noble and learned Lord, Lord Woolf, in that respect—in accordance with the practice as exemplified by the 14th edition of the Guidelines for the Assessment of General Damages in Personal Injury Cases. It should be for the judiciary, not the Government of the day, to determine this, and we do not favour Amendment 10 on that ground.

Amendment 12 goes some way to meet that requirement, but still leaves it open to the Lord Chancellor of the day—now, of course, no longer necessarily someone well-versed in legal matters, as other noble Lords have pointed out—to take a position contrary to that of the judiciary. This could be a troublesome precedent for other areas of justice at a time when it seems to be increasingly difficult to recruit judges of calibre, let alone with the experience of the noble and learned Lords participating in today’s proceedings.

Amendment 29A follows in seeking to leave out Clause 13 and giving the court power where it seems that the tariff is inadequate in respect of damage inflicted. We on these Benches support Amendment 46, which would require regulations for the FCA to report on the effect of insurance practices in relation to premiums and savings.

The noble and learned Lord, Lord Woolf, made a powerful case for removing Clauses 2 and 3 from the Bill. If the real concern is the prevention of fraud, with which we all concur, we should look at other measures. These could include heavier sentences for insurance claims fraud, higher no-claims bonuses and, above all, not punishing a genuine claimant for the misdemeanours of the fraudulent or the laxity of the insurance industry in resisting the fraudster. Of course, the role of claims management companies demands rigorous examination and action.

In the light of our support for the noble and learned Lord’s proposal to delete Clause 2, we will not push our amendments to Clause 2 today, as we hope that the clause will disappear. However, should it remain, we will need to bring our amendments back at Third Reading.

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

I am obliged to noble Lords for their contributions. I will speak to Amendment 6 and to Amendments 7, 8, 9, 10, 11A, 12, 17, 17A, 17B, 18, 19, 20, 25, 26, 27, 29A, 30, 32, 39 and 46. I hope noble Lords will forgive me if I take a little time over some of the points.

I begin by picking up on some of the observations made by noble Lords but will begin with a generality. I sometimes have the feeling that, were some noble Lords faced with an enormous edifice, their response would be, “You have to explain how every component part is held together before I am prepared to believe that I face an edifice”. The reality was outlined by my noble friend Lord Faulks, who pointed out that there has been a 70% rise in whiplash-based claims in the past 10 years, during which time the number of road traffic injuries reported has dropped dramatically and during which time Thatcham Research has identified that the safety of seats and headrests in cars has improved in something like 88% of vehicles on the road, up from 18%.

Seven hundred and eighty thousand personal injury claims arising out of road traffic accidents were reported in 2016-17. That is the totality. Of those, 670,000 were whiplash claims. It is an astonishing statistic, and the edifice, let alone its component parts, is enormous. As some have already observed, there is clearly widespread abuse.

We have heard reference to the need to test the validity of claims. I noted the reference of the noble Lord, Lord Beecham, to the impact on the courts of increased litigation. One has only to stop and imagine the impact of trying to litigate 650,000 claims in the courts in order that liability can be established and the claim can be tested in each case. The cost implications of that go wider than just the impact on the courts.

There was a call from the noble Lord, Lord Marks, to do more to test the validity of claims. Again, one of the difficulties is the sheer magnitude of the problem that we now face. He also alluded to the need for further measures in relation to aspects such as cold calling, which feed this enormous industry.

To address that point, the GDPR and the Data Protection Act 2018 ensure that, where personal data is obtained through an unlawful cold call, further use of that data will not be allowed, and indeed the ICO can impose very large fines. In addition, the Financial Guidance and Claims Act bans any legal person, not just claims management companies, from making unsolicited calls relating to claims services without having first obtained consent. Crucially, changes made by that Act make it explicit that any organisation in the United Kingdom cannot make unlawful cold calls and, in addition, cannot instigate others to do so on their behalf. Notwithstanding that, there is an enormous unregulated industry out there, much of it based abroad where we cannot touch it, and it continues with these practices. It is a major social problem and requires a policy decision.

Touching on the matter of the damages, the noble and learned Lord, Lord Woolf, referred to a highly complex judicial process, but I take issue with that. As my noble and learned friend Lord Mackay of Clashfern pointed out, the assessment of damages for pain, suffering and loss of amenity is essentially a jury question. Whether you give it to a judge or a jury is neither here nor there; it is essentially a jury question and it always has been.

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Moved by

[Lord Keen of Elie]

11: Clause 2, page 2, line 35, after “injury” insert “or injuries, taken together,”

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Moved by

[Lord Keen of Elie]

13: Clause 2, page 2, line 38, after “injury” insert “or injuries”

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Moved by

[Lord Keen of Elie]

19: After Clause 2, insert the following new Clause—
“Review of regulations under section 2
(1) The Lord Chancellor must carry out reviews of regulations made under section 2.(2) The first review must be completed before the end of the period of three years beginning with the day on which the first regulations under section 2 come into force.(3) Subsequent reviews must be completed before the end of the period of three years beginning with the day on which the previous review was completed.(4) The Lord Chancellor must prepare and publish a report of each review.(5) The Lord Chancellor must lay a copy of each report before Parliament.”

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Moved by

[Lord Keen of Elie]

21: Clause 3, page 3, line 31, leave out “a whiplash injury” and insert “one or more whiplash injuries”

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Moved by

[Lord Keen of Elie]

28: Clause 3, page 4, line 15, leave out “a whiplash injury” and insert “one or more whiplash injuries”

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Moved by

[Lord Keen of Elie]

33: Clause 4, page 4, line 27, after “injury” insert “or injuries”

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Moved by

[Lord Keen of Elie]

40: Clause 4, page 5, line 6, leave out “a whiplash injury” and insert “one or more whiplash injuries”

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[Lord Sharkey]

My Lords, Amendment 46 is in my name and those of my noble friend Lord Marks, the noble Earl, Lord Kinnoull, and the noble Lord, Lord Beecham. I am grateful to them all for their support. The amendment addresses the question of pass-through. How much of the savings generated for insurance companies by whiplash reforms would in fact be passed on to motorists, in the form of reduced premiums?

Most of the insurance companies wrote to the Lord Chancellor in March. The penultimate paragraph of their letter said that,

“the signatories to this letter today publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims and reform to the personal injury Discount Rate”.

There would obviously need to be clarity about: the definition of a cost benefit; whether all customers would share the promised distribution or just those with motor insurance; and how the savings would be passed on. This might be in lowered premiums or just the promise of lower than expected premiums in the future, for example.

The House of Commons Justice Select Committee again noted the problem in its May 2015 report. Paragraph 3 of its conclusion and recommendations said:

“Potential savings to motor insurance customers are central to the policy justification for these reforms, but we conclude that the Government’s estimate of the pass-through rate may be over-optimistic, given the lack of robust evidence and the unenforceable nature of insurers’ promises to reduce premiums”.


The committee recommended that,

“if the reforms are implemented, the Government work with the ABI and either the Prudential Regulation Authority or the Financial Conduct Authority to monitor the extent to which any premium reductions can be attributed to these measures and report back to us after 12 months”.

Our amendment would require the Treasury to make regulations specifying that the FCA would require all motor insurers to publish a report on the savings made as a consequence of the whiplash reforms in the Bill, and how and to what extent these savings have been applied to reduce motor insurance premiums. It specifies the period to be covered by these reports as 12 months after commencement and how long the insurance companies would have to submit reports to the FCA, which would be three months. The FCA would then have a further three months to make and publish a reasoned assessment of whether the insurers have made the promised passed-on savings. The amendment also gives the FCA the power to request further reports from insurers annually as it sees fit. Finally, it would ensure that the FCA has the power to force the insurance companies to pass on savings if they have not done so, or done so sufficiently, within 30 months of commencement.

I think most if not all noble Lords would agree that the insurers should be held to their promise. To do that, we need to monitor and assess whether they have in fact held to their promise and, if they have not, to have the power to force them to do so. To do these things requires a tough and experienced regulator. Only the FCA has the resource, reputation, toughness and experience to be the regulator to do that, which is why this amendment gives it the job.

I know that the Minister feels strongly that insurers must be held to their promise and I realise that achieving this may be a rather complex matter. However, it is critical that we achieve it. It would be absolutely scandalous if savings made by insurers as a consequence of the Bill were retained by insurers. Amendment 46 sets out a method by which we can hold insurers to account for their promises. I beg to move.

[Lord Keen of Elie]

My Lords, we have on several occasions referred to the savings under these measures, which will be passed on to consumers by motor insurers. I understand that a number of Peers clearly have concerns about ensuring that this actually occurs.

I should say that the Government hold firm that the highly competitive nature of the motor insurance sector will mean that insurers have little or no choice but to pass on savings to consumers or risk being priced out of the market. An in-depth investigation by the Competition and Markets Authority in 2012 found that the motor insurance market is highly price-sensitive, driven by low levels of market concentration and high levels of penetration by price comparison websites. Resulting estimates indicate that 85% of insurance savings from whiplash measures will be passed on to the consumer. Finally, as the noble Lord, Lord Sharkey, observed, motor insurers providing cover to 84% of the UK market have already written to the Lord Chancellor to make the welcome commitment that they will pass on any savings.

That said, the Government are not unsympathetic to the underlying intention of Amendment 46, as tabled by the noble Lord, Lord Sharkey. The point is that having made a firm commitment, insurers should be accountable for meeting it. It is, however, important that any amendment in this regard is drafted with care so that it is effective but does not also impose requirements that push beyond the recognised remit of regulators such as the Financial Conduct Authority. I also observe that we must ensure that any legislative requirement in this area does not infringe on the very important area of competition law.

I therefore confirm that the Government will accept the views of Peers and develop an amendment, to be tabled in the House of Commons, that meets these requirements and provides an effective means for reporting on the public commitment made by the insurance sector, showing that it results in savings being passed on to consumers and thereby holds insurers to account. This is quite a complex and delicate process and it is ongoing at present.

I add only one further matter. Requiring a report to be made within 12 months of commencement is not likely to be the best way forward because claimants have a three-year period in which to make claims. After the Bill receives Royal Assent, there will therefore be an overhang for up to three years of claims that fall outwith the requirements for the tariff to be applied. We will have to look carefully as well at what point it would be appropriate for a report to be made and laid before Parliament. However, that is under active consideration and, in light of that indication, I hope the noble Lord will consider it appropriate to withdraw his amendment.

[Lord Sharkey]

My Lords, I am very grateful for the Minister’s answer and encouraged by it, too. I take the points about being careful on competition law and the period over which we assess the insurance companies’ return to the people they insure. I will follow with interest the progress of a government amendment as it goes through the House of Commons. Having said that, I beg leave to withdraw the amendment.

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[Lord Judge (CB)]

My Lords, as it has not emerged that the amendment is the property of the Opposition, perhaps I may add a few words in support of Amendment 47.

Lord Justice Jackson’s report was a remarkable document. It exhaustively analysed the entire structure of our civil justice system. It would not have supported the present Government’s position. I would love to read out the Justice Committee’s report—but, if I did, we would be here awfully late and no one would want to hear it. However, can we briefly recognise that the Justice Committee report is not adverse to the Government’s proposal but deals a series of hammer blows, each one individually worth noting?

“We recommend the Government should not increase the small claims limit to … £5,000”.


Bang.

“There is no policy justification for including vulnerable road users within the reforms proposed”.


Bang.

“We recommend that they be excluded from any higher small claims limit that is imposed on other RTA PI claims”.


Bang.

“We are deeply unimpressed by the inability of the Ministry of Justice to quantify”.


Bang.

And so it goes on. This is not one of those reports with recommendations that obscure their meaning, and perhaps the Minister will consider that as an important feature of this debate.

[Lord Keen of Elie]

My Lords, I will not begin with a bang but I will address the points that have been raised.

I begin by pointing out, with great respect, that the noble Baroness, Lady Hayter, may not be entirely correct in some of the propositions she advanced. She said that the £1,000 limit had been with us since 1999. It has been with us since 1991. The small claims limit in respect of claims other than personal injury and housing claims is now £10,000 and operates effectively and efficiently at that level. That has to be borne in mind as well.

The noble Baroness spoke with her consumer hat on and referred to the small guy. Reference was made to the worker with limited ability to deal with his claim. The noble Lord, Lord Bassam, referred to workers being pitched out on their own with no help and alluded to a number of examples given by Thompsons solicitors—I shall come back to that in a moment—of where they were perplexed by the way in which claims were dealt with by insurers. The noble Lord, Lord Monks, said rather modestly that Thompsons solicitors were one of the largest firms of trade union solicitors in the country. They must be the largest by quite a long way. They are well established and have been for many years. Why do we refer to them as trade union solicitors in this context? It is because one of the great benefits of union membership for workers is the availability to them of legal advice and assistance when they require it in respect of a claim, particularly one arising in the course of their employment—which is why legal aid is not available in those circumstances. So, far from the little guy, the worker, being pitched out on their own without any help, they almost invariably have the assistance of probably the largest and most established firm of trade union and personal injury solicitors in the country.

I do not decry that—it is an immediate and obvious benefit—but the disbenefit of increasing the small claims limit is that the extent to which the union will recover its legal costs will be more limited, and that will have an impact on trade unions. I understand that and one has to take it into account in the overall scheme of these provisions.

[Lord Bassam of Brighton]

The noble and learned Lord will probably accept that somewhere in the region of 6 million people are members of trade unions. That leaves a rather larger workforce who are not represented by trade unions. Those employees are in a more vulnerable position than that faced by those who are represented by a union. My guess is—perhaps the noble and learned Lord can help me here—that the majority of people will not be able to access the support they would get if they were a trade union member. So most people who come up against this limit will be affected by that.

[Lord Keen of Elie]

I note what the noble Lord says about national trade union membership, and no doubt the unions will try harder to recruit more widely. One of the obvious benefits they can hold out is the provision of legal advice and assistance for those who become members. I accept that there is a balance to be struck.

Amendments 47 and 48 seek to restrict the increase in the small claims track limit for whiplash injury claims to a maximum of £1,500, as opposed to the proposal that there should be an increase to £5,000. They also seek to restrict the ability of the Civil Procedure Rule Committee to make further amendments to the upper limit. As we have indicated before, motor insurance premium costs are increasing as insurers pass on the cost of dealing with the continuing high number and cost of whiplash claims. I referred earlier to the 2017 election manifesto provision that the Government were committed to cracking down on these claims and ensuring that the money saved was returned to consumers through lower premiums. These amendments would maintain the burden on ordinary motorists by restricting the flexibility of the Government to reduce the costs of civil litigation through changes to the Civil Procedure Rules.

Whiplash claims are generally straightforward and do not routinely require legal advice. The small claims track is suitable for such claims. It is designed to be accessible to litigants in person, and the Government are working closely with stakeholders to develop a comprehensive package of guidance and support for users.

The Government have chosen to increase the small claims limit for road traffic accident personal injury claims to £5,000 for good reason. This limit, as I said, has been set at £1,000 since 1991 and, as compensation levels have risen, the small claims track no longer covers the same breadth of claims as it once did. Following consultation, the Government believe that increasing the limit for RTA personal injury claims to £5,000 is a careful and proportionate increase, particularly having regard to the fact that the limit for other claims, with the exceptions I mentioned earlier, is now £10,000. A level of £5,000 will facilitate early and expedited settlement under the proposed tariff structure and will encourage insurers to challenge unmeritorious claims, many of which are not now challenged because of the potential legal costs.

A decision to tie such limits—currently, for good reasons, enshrined in secondary legislation—to a restrictive primary legislative process would be inflexible. The Civil Procedure Rule Committee, under the leadership of the Master of the Rolls, sets out the rules of procedure to ensure that the civil justice system is fair, open and effective. It is the body that sets the financial upper limits for the current three tracks of the civil justice system following consultation. That system has operated effectively for some time. It is flexible and it is appropriate that procedural changes should be made in this way to the civil justice system.

However, we listened to points made earlier about the position of those who are considered to be vulnerable road users. Noble Lords will be aware that they are already excluded from the provisions of Clause 1, and it is proposed that they may be exempted also from the £5,000 limit on the small claims track. We are giving further consideration to that at the present time.

Amendment 48 seeks assurances as to the recoverability of the cost of a medical report in respect of whiplash injury claims, notwithstanding the increase in the small claims track limit. That has been addressed already. The amendment also seeks to change the nature of the small claims track itself by permitting a claimant to recover their legal expenses. We consider that, given the nature of the small claims track for personal injury claims, it would be wholly inappropriate to introduce the recovery of legal expenses. The small claims track was designed to be a low-cost process accessible to litigants in person. The rules have been purposefully and carefully drafted to ensure that both parties share the financial burden of litigation and pay their own legal costs—or, in the case of a union member, have them met by the union. That is a key advantage of the process.

A number of noble Lords have questioned why insurers do not do more to challenge potentially inflated or fraudulent claims, particularly whiplash claims. Part of that answer lies in the cost of defending a claim in the fast track. Increasing the small claims limit so that more of these straightforward whiplash claims—where the insurance industry tells us that liability is admitted in around 90% of cases—are heard in a small claims court will encourage insurers to challenge unmeritorious claims. By contrast, challenging a claim in the fast track is an expensive process that insurers not unnaturally seek to avoid. So there are very clear cost advantages overall in increasing the limits for the small claims track. Where a case is considered to be of a degree of complexity such that it would not lend itself to the small claims track, clearly the court can direct that it should go on to the fast track.

Therefore, in respect of Amendment 48 in particular, the idea of having different cost rules in the small claims court based on the type of claim would create confusion, would undermine the whole purpose of the small claims track and would potentially be unfair to all users of the court system. In these circumstances I invite the noble Baroness, Lady Hayter, and the noble Lord, Lord Bassam, not to press their amendments.

[Baroness Hayter of Kentish Town]

I thank not the Minister but the noble and learned Lord, Lord Judge—I will get him to move things in future. He is so much more effective than I am.

I was very disappointed by the tone of the response. I stand here as the shadow Consumer Minister, talking about consumers, and we get a sort of suggestion that this is all about keeping trade unions happy. As my noble friend Lord Bassam said, sadly there are only 6 million people in trade unions—I wish it was more. It is exactly the low paid and the people who are most vulnerable to this who are not represented by trade unions—but, even if they were, I do not accept that that makes putting up the limit somehow acceptable.

I will not take up time. I acknowledge a movement on vulnerable passengers—for which, as a cyclist and a pedestrian, I am grateful—but I am afraid that the Government’s own figures show that, by their changes, one in four of the people compensated today would no longer be compensated. If on that basis the Minister thinks that we will save costs—in other words, it is injured people who will pay—I do not think that that is good enough. It should be done not behind the scenes but in the Bill. I beg leave to test the opinion of the House.

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[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.

[Lord Keen of Elie]

I am obliged to noble Lords. In speaking to Amendment 49, I shall also address Amendments 50, 73, 73A and 89. Clearly, we welcome the support on all sides of the House for the appropriate use of periodical payment orders as a means of ensuring that the anticipated future needs of an injured person are met. Of course, periodical payment orders avoid many of the uncertainties inherent in taking damages for future loss as a lump sum.

My noble friend’s Amendment 49 would require new rules of court to be made to highlight features of PPOs that may make them more appropriate than a lump-sum payment for a person with a long-term injury who is risk-averse, who would otherwise receive a large award for damages for future pecuniary loss. In responding to the very similar amendment tabled by my noble friend in Committee, the Government underlined their support for the use of PPOs. However, they also recognised that claimants and defendants must be able to make choices, and that the best choice for any individual is dependent on the circumstances of their particular case. My noble friend Lord Faulks pointed out that under Section 100 of the 2003 Act it is open to the court to insist on a PPO being utilised. As far as I am aware, the court has never actually exercised that power, but it does exist in statutory form.

It is vital that claimants who have suffered long-term serious injuries are well informed as to the implications of their choice between a lump-sum payment and a PPO, irrespective of whether their particular case reaches such a stage that the court has to consider whether to order a PPO. The Government remain fully committed to ensuring that appropriate advice is available to claimants in all cases. We are working to encourage the use and understanding of PPOs. In particular, we will over the coming months provide, or at least endorse, guidance that ensures claimants fully understand the choice between a lump sum and a PPO, and investigate whether current advice received by claimants on the respective benefits of lump sums and PPOs is effective.

Over and above that, we have listened carefully to the points raised in Committee and in further engagement with noble Lords. I am obliged to many of them for their engagement in the period running up to this stage of the Bill. The Lord Chancellor has now written to the Master of the Rolls on this matter, and I am pleased to say that he has recently agreed in principle to the Civil Justice Council, with its specialist expertise, exploring the issue with a view to suggesting the most practical, beneficial steps to increase the use of PPOs within the current system. The Government are grateful to the Master of the Rolls for this.

Taken together, we believe that these steps will ensure that focused and practical action will be taken to identify effective reforms that will encourage the use of PPOs whenever they are suitable. These measures can be tailored to address specific identified problems. Rules of court may be part of the solution, but they will relate to the practice and procedure of the courts. That is the appropriate function of rules of court and their related practice directions, not providing guidance as to when one form of taking an award of damages might be better than another, which might be better in guidance itself. In light of that explanation, I hope that my noble friend would consider it appropriate to withdraw his amendment.

I turn now to Amendment 50 in the name of the noble and learned Lord, Lord Hope, which, as he says, would require the court to consider certain factors in deciding in an individual case whether it would be appropriate to take into account a different discount rate to that prescribed by the Lord Chancellor. As he pointed out, the wording in the present Bill reflects almost exactly the wording that appeared in the original provisions in the Damages Act 1996. The application of those earlier provisions is, of course, coloured by the decision of the Court of Appeal in Warriner, and the more recent decision in the Inner House in Tortolano. In light of that, I wish to give further consideration to the matter that the noble and learned Lord has raised to come to a view as to whether something might be done to tailor the wording to address the almost complete guillotine that is, in effect, in place in the two Appeal Court decisions.

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[Lord Hodgson of Astley Abbotts]

My Lords, I said that my amendment was designed to tilt the balance in favour of PPOs, and I am grateful to the Minister for his comments. It is good to know that guidance will be rewritten to draw attention to the PPO advantages, and to hear the news that the Lord Chancellor has written to the Master of the Rolls on using the Civil Justice Council to make improvements in that regard. Before I withdraw my amendment, can my noble and learned friend say how long he thinks it will be before the Civil Justice Council produces some results from that discussion and consultation?

[Lord Keen of Elie]

I cannot at this stage answer that question. However, I will consider the point and write to my noble friend, and place a copy of the letter in the Library.

[Lord Hodgson of Astley Abbotts]

I am grateful to my noble and learned friend and, on that note, I beg leave to withdraw the amendment.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

[Lord Keen of Elie]

I am obliged to noble Lords for their contributions. In speaking to Amendment 53, in the name of my noble friend Lord Hodgson, I shall speak also to Amendments 56, 60, 63, 69, 75 to 77, 79 to 86 and 88. I shall not, however, be speaking to the amendments in the next group, although I appreciate that the noble Lord, Lord Marks, referred to them. On that point and the submissions made by him, the period for review is not fixed either at three years or five years. It is not the case that review would not be available in years one to four if it was five years. The Bill is clear that the three-year period following the last review is the outlier—it is the maximum period—and it is there to ensure that we do not face the situation that we have had in the past where, for one reason or another, no review takes place over many years whether or not a panel or anyone else believes that such a review should have taken place. I wish to make that clear.

The reason we have grouped the amendments in the way we have is because they are generally concerned with the creation of a standing panel or make provision for the panel rather than the Lord Chancellor to determine when the rate should be reviewed and how it should be set. Amendment 53 would replace the system proposed in the Bill for reviewing the discount rate with one without time limits under which the need for the rate to be reviewed would be determined by the expert panel; and it provides that the panel will make its decision by reference to whether the nature of returns on investment has sufficiently changed for a review to be needed. I recognise that Amendments 56 and 60 are consequential drafting amendments on Amendment 53 to remove references to the three-year maximum period that we find in the Bill.

Amendment 77, again in the name of my noble friend Lord Hodgson, would make the obligation on the Lord Chancellor to establish the panel a one-off obligation rather than an obligation on the occasion of each review. Again, that is clearly consequential—as is Amendment 81—because if there is a standing panel there would be no need to deal with the simultaneous review as the panel would not cease to exist at any point.

Amendment 63, in the names of the noble Lords, Lord Marks and Lord Sharkey, would require the Lord Chancellor to have regard to the views of the panel in deciding when to commence any subsequent review of the rate. The expectation underlying the proposal is that the panel will be established again on a permanent basis. I will come back to the observations of the noble Earl, Lord Kinnoull, about that in a moment.

Amendments 75 and 82 would require the panel to be responsible for advising the Lord Chancellor, broadly on an annual basis, whether the rate should be reviewed and also for advising him or her in respect of the second and subsequent reviews of the rate. Again, Amendments 76, 79 and 83 through to 86 are consequential on these changes.

On the point made by the noble Earl, Lord Kinnoull, about who the Lord Chancellor would consult in deciding whether or not there should be a review if there was no standing panel, the answer is that he may consult who he wishes in that context—for example, it is open to him to consult with the Government Actuary and Her Majesty’s Treasury as to whether or not economic conditions are such as to prompt him to consider a review. There is no limit as regards the inquiries he may make in order to inform his decision—I emphasise his decision—as to whether or not a review will be required.

The panel’s expertise will be in technical matters and its introduction will inject expertise and help to ensure that the rate is reviewed properly with full expert consideration of the issues. However, deciding whether the current rate is no longer appropriate engages issues of judgment as to the level at which the rate should be set and we do not consider that the panel would be well placed to make that decision. It is a question not only of monitoring investment returns, but of making a broader judgment as to the social impacts of, for example, a change in the rate.

The Government therefore consider, as did the Justice Select Committee, that the Lord Chancellor should be responsible for this decision. To ask the panel to make, in effect, a substitute judgment as to what the rate should be would be contrary to its nature as an expert panel in providing merely technical advice. Again, we do not consider that the panel should be in that decision-making position. The Lord Chancellor, of course, has to make a properly informed decision in reaching a conclusion on the outcome of a review.

We have listened to concerns expressed by noble Lords and others in Committee that a long-stop fixed review period might result in all parties to litigation somehow engaging in what is termed gaming the system in expectation of a change to the rate. Obviously, we share a desire to ensure that as far as possible that sort of conduct does not take place. On one view, a standing panel might mitigate some of the potential gaming at the end of a fixed period, but we fear it would increase the frequency of gaming around the intervals at which the panel would meet. Claimants and defendants can also watch changes in rates of return, and it will not take long for them to anticipate when there might be a degree of change in investment returns that might trigger the panel’s interest in a review. We consider that whichever route we take there is always the risk of gaming. It is something we want to minimise, but we are not persuaded that a standing panel would be the means by which to minimise the gaming of the system, as it has been termed.

Delivering regular and broadly predictable timings for reviews was the principal concern of those we consulted when they replied to the consultation in March 2017. We know from responses to the consultation and pre-legislative scrutiny that the majority of claimants and defendants want and benefit from certainty and predictability. We consider that the approach proposed in these amendments would make the system less certain and perhaps less predictable. We consider that the present approach will deliver a process that will see the rate reviewed at least every three years following the first review. As the noble Lord, Lord Marks, conceded, it is not a fixed term. This will ensure that there is not the possibility that the rate will again be left without formal review for a period of about 16 years, but, of course, the Lord Chancellor will be able to review the rate at any time in the period if he or she consider that the rate is no longer set at the right level.

The reality is that there will always be litigants anticipating what may happen because of changes in the market and seeking to take advantage of them, but we must seek to mitigate and minimise that risk. I emphasise again that the fixed period within which a review must be begun is a maximum period.

I accept that in theory it would be possible to combine a standing panel with the Lord Chancellor deciding when the rate is to be reviewed, but such a panel would probably be inactive for considerable periods and it would increase the level of cost and bureaucracy required. That is something that we do not consider desirable. While the precise estimate for these will depend on how often the panel would consider whether there should be a review, a permanent appointment would require some form of continuous funding and administration.

Amendment 88, which is also in the name of my noble friend Lord Hodgson, would remove the provisions in paragraph 8 of the new Schedule A1 that cover the possibility of the Lord Chancellor deciding on the occasion of the review to set no rate or no rate for a particular class of case. They make clear, for example, that a reference to a review of the rate includes reference to a review of a situation where no rate has been prescribed. Even if the Lord Chancellor decided not to set a rate, paragraph 8 ensures that the review mechanisms in the Bill will still apply and that “no rate” will be reviewed at the next appropriate juncture in the same way as if it had been a rate. The provisions of paragraph 8 do not, contrary to some of the fears expressed in Committee, provide a means for the Lord Chancellor simply to dismantle the machinery for the required reviews of the discount rate.

It may be helpful in understanding paragraph 8 to consider the present law. The new section A1(1) reproduces provisions in the Damages Act 1996 that indicate that the court must take into account such rate of return, if any, as may from time to time be prescribed by an order made by the Lord Chancellor. The wording implies that the Lord Chancellor might decide to set no rate under the present law, and the provisions in paragraphs 8(2) to (4) are intended to clarify how this power would operate.

I concede that the possibility of no rate being set for some or all classes of case may well seem an unlikely eventuality. However, just as is envisaged in the present law, circumstances might arise in which a category of rather unusual cases occur that call out for individual assessment of an appropriate discount rate. Preserving a “no rate” provision would enable the parties in the cases affected to plan their litigation with the certainty that the discount rate would have to be settled as part of the case. That would be a potential benefit for claimants and defendants in unusual cases. Removing these provisions would be unhelpful to future users of the Bill.

Amendment 80 in the names of the noble Lords, Lord Marks and Lord Sharkey, aims to indicate that the four appointed panel members are expected to approach the work of the panel as experts with the objective of advising the Lord Chancellor in a way that is fair to the interests of both claimants and defendants. This is the spirit in which the appointed panel members are intended to approach their work. That is one of the reasons why they are required to take account of the duties imposed on the Lord Chancellor in determining the rate. The amendment is expressed in terms that appear to be aspirational in nature rather than obligatory, leaving us a little uncertain as to what the effect is intended to be.

The Government have already made clear in the response to the Justice Committee our intention to recruit panel members who will act as independent experts and that appointed panel members will be required to disclose potential conflicts of interest. The provisions in the Bill and the assurances already given will lead to advice from the panel that will be fair to the interests of claimants and defendants. We do not consider that any further express provisions are needed in order to ensure that result.

Amendment 69 in the name of the noble and learned Lord, Lord Judge, raises the question of the Lord Chancellor being expressly required to consult the Lord Chief Justice during the review process. I note the point made by my noble friend Lord Faulks with regard to the potential implications for the Lord Chief Justice. There are some grounds for that because under other legislation—such as, for example, the 2007 Act with respect to the regulation of the legal profession—there is a provision where a party applies for regulatory status, but the Lord Chancellor will consult with the Lord Chief Justice on such an application. Indeed, that occurred recently; the Lord Chief Justice gave his opinion and that is now subject to scrutiny in the context of an ongoing application for judicial review. It is a rather unfortunate situation that the views of the Lord Chief Justice, which he is obliged under the statute to express, come under the scrutiny of his own Administrative Court. So there are potential difficulties here.

Nevertheless, I recognise the force of the point that is made under reference to Amendment 69. On the one hand, I can say that the Lord Chancellor is of course free to take evidence on the question of how he is going to fix the rate, and that could include evidence from the Lord Chief Justice, but that is hardly a complete answer to the suggestion that he ought to be consulted. In light of what has been said on this matter, having regard to the difficulty that was identified by my noble friend Lord Faulks, I would like to take that proposal away and consider it further in anticipation of Third Reading. I will give it further thought and will be happy to speak to noble Lords on that point in due course. In the meantime, I invite my noble friend at this stage to withdraw the amendment.

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[Lord Beecham]

My Lords, I am inclined to agree with the noble Earl about Amendments 68 and 71, but I am afraid I remain unconvinced about the five-year period as opposed to the three-year period, and find myself in the rather strange position of agreeing with the Minister. It is not as though all claimants will be five years off a review. Some will be and others will not necessarily be. There will be different timescales for individual claims, and I do not think five years is necessary to protect the integrity of the system. Some people will try to game, whatever the period. Five years is not necessarily more likely to protect against that than otherwise. Rather unusually—I am sure the noble and learned Lord will stick to the three-year period in the Bill—I will have to agree with him.

I should like to say at the end of this very long day that the House has done its usual very good job of scrutinising difficult legislation. It is a little late to try to recall everything that we have discussed and agreed, but a good job has been done today and I hope the Bill will be improved. The Minister has offered to consider a number of matters before Third Reading—and, in any case, the Bill will go somewhere else in another week’s time and come back to us eventually for further consideration. There may be changes that we have to consider at that stage.

On behalf of these Benches—or what is left of us—I thank the Minister for his running of the Bill. He has been more than willing to talk to colleagues, even when some of them, like me, are rather slow on the uptake in this rather technical area. It is not one where, in practice, I had very much to do with cases at this level, as a personal injury lawyer—thank heavens. Around the House, we have heard some very important contributions from Members from all sides, and there is every prospect of further changes being made at Third Reading or in another place on the basis of the level of debate, discussion and argument that we have had. That is a signal tribute to the work of the House.

[Lord Keen of Elie]

I am obliged to noble Lords for their contributions, not only to this grouping but to the debate as a whole that has taken place this afternoon and evening. In speaking to Amendment 54, I shall speak also to Amendments 57, 61, 62, 67, 68, 70 and 71. I do so because, although they were not formally moved in this grouping, the noble Lord, Lord Marks, made it clear that he was addressing the amendments in this group when he spoke earlier. I appreciate his determination not to repeat himself.

As I explained in Committee, the choice between three and five years is not one of principle. The three-year period adopted in the Bill represents a compromise approach based on the responses received to the March 2017 consultation, which included a wide range of views, ranging from automatic reviews at short intervals up to a 10-year fixed maximum. We have listened carefully to the arguments this evening and in Committee from noble Lords about the potential for the gaming of the system, depending on whether there is a three-year or five-year maximum between periods.

I note the observations of the noble Lord, Lord Beecham, who brought himself to agree with the Government on this matter. Tempted as I am to move away from the Government’s position in light of that, I maintain that, overall, it would be appropriate for us to look to three years. But there is no clear-cut case, and I am perfectly content to speak again to noble Lords before Third Reading if they wish to make further representations to the Government with regard to the period. So I do not close the door on that, but our position is that three years would be appropriate, and we would have to be persuaded by something that might be termed “new evidence” before we would consider moving away from that position. However, as I say, the door is open.

Amendment 67 largely replicates the provisions already in the Bill for the conduct of a review, but applies them only to the second and subsequent reviews, in light of Amendments 65 and 66. But Amendment 67 in isolation makes a relatively small number of changes to the procedure for the conduct of the second and subsequent reviews. First, it adopts the language of advice rather than response to describe the panel’s reply to the Lord Chancellor. Secondly, it makes clear that it is not just the question of whether the rate is to be changed but what the new rate is to be that is subject to the provisions for determining the review in paragraph 3 of the new Schedule A1—and that, in reaching these decisions, the Lord Chancellor should have regard to the advice from the panel. Finally, that amendment would introduce a requirement that the Lord Chancellor will consult the panel within 10 days of the start of the 180-day period for the completion of the review. This is new, but noble Lords’ proposals for the first review contain a similar provision, albeit with a 25-day period, and we are conscious of that.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

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

[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.

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

My Lords, I am most obliged to the noble Lord, Lord Beecham, for his positive contribution to the debate, to all noble Lords and noble and learned Lords for their observations on this amendment, and to the noble and learned Lord for moving it.

From the very outset—I go back to the Law Commission’s 1994 report on structured settlements—it was intended that a provision of this kind to depart from a prescribed rate should be very much the exception rather than the rule. Clearly, it recognised that it would be both expensive and time-consuming if the prescribed discount rate could regularly be the subject of challenge on the basis that there might be another more appropriate rate for any number of reasons. That goes some considerable way to explaining the position of the Court of Appeal in the case of Warriner v Warriner.

As the noble and learned Lord, Lord Hope, observed, I referred to a guillotine, but I qualified it with the words “almost complete”—this is a deficient guillotine; it is not a complete guillotine. I said that because, for example, the decision of the Inner House of the Court of Session, the appeal court in Scotland, in Tortolano v Ogilvie Construction, indicated that there may be cases in which the power to depart from the prescribed rate can be applied—but I accept that they will be wholly exceptional. In Tortolano, the court suggested that there might, for example, be a need to take account of a claimant who had to pay tax in a foreign jurisdiction, and that impacted upon the valuation of the award.

These are wholly exceptional circumstances, but the provision in Section 1(2) of the Damages Act 1996, which would be preserved by the words in subsection (2) of the proposed new Section A1, would allow for those wholly exceptional circumstances where the judiciary would be entitled to exercise an inherent discretion in order to achieve justice between the parties. It is in these circumstances that I would resist the amendment; I recognise that there may be room for taking this further, although I have been unable to identify it so far, to ensure that we can perhaps more clearly identify circumstances in which the exception would be applicable.

As the noble Lord, Lord Beecham, indicated, the Bill will be considered in the other place, and I and my officials would be content to explore further with the noble and learned Lord, Lord Hope, if he wishes to do so, whether the provision might be improved in some way. However, I have difficulty with that because I am concerned that if we intrude too much into this quite exceptional discretion, there is a risk of encouraging unnecessary and expensive litigation over the appropriate rate in individual cases.

On that basis, and recognising the point that the noble and learned Lord makes, I invite him to withdraw the amendment.

[Lord Hope of Craighead]

My Lords, I am very grateful to all those who have taken part in this short debate. I am grateful in particular to the noble Lord, Lord Beecham, for his suggestion that this might be considered a little further when the Bill moves to the other place. It is a very difficult issue and, as the noble and learned Lord, Lord Mackay of Clashfern, has indicated, it is very hard to find another form of words which can address it.

I am concerned about putting into the Bill something which raises false hopes. The circular from the Association of Personal Injury Lawyers indicates that it was trying to find something in the wording which is not really what the Minister was talking about. We are not dealing with cases of exceptional injury within the domestic system, which is what the association was talking about. I take it from the Minister’s reply that he would not encourage people to have a go at changing the discount rate between reviews, which would be contrary to the idea of laying down certain rules for application while the reviews subsist.

It is a very tight issue as to whether there is a point in this provision at all. But having heard what has been said, and with particular thanks to the Minister for his reply today and for the way in which he has listened to me on two occasions, I beg leave to withdraw the amendment.

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[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.

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[Lord Keen of Elie]

My Lords, I begin by thanking the noble Lord, Lord Sharkey, not only for his contribution to this part of the Bill but for his engagement since Report in addressing these matters. I extend those thanks to other noble Lords, including the noble Earl, Lord Kinnoull, who has also engaged extensively on these matters.

Just to be clear, the Government are fully committed to beginning the first review as soon as possible after Royal Assent and to completing it as soon as is practicable. I hope that I can extend that comfort to the noble Lord, Lord Sharkey. That is why we have no objection in principle to the amendment. The only remaining question for the Government was the practical one of whether the 90-day period will be sufficient to ensure that all necessary preparatory work can be finished before the 140-day period for the completion of the first review. The Government have begun this work and are making good progress and, although there are public expenditure rules that may affect the timing of its completion, the Government now consider that the 90-day period is sufficient.

In view of this and having regard to the strength of opinion expressed across the House that the first review should proceed quickly, I am pleased to indicate that the Government intend to accept this amendment as well. Perhaps I can refer back to the observations of the noble Lord, Lord Monks, when I move that the Bill do now pass. For the present purposes, we accept the amendment.

[Lord Sharkey]

I simply express my gratitude to the Minister and his team for accepting the amendment and their co-operation throughout the passage of the Bill.

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Moved by

[Lord Keen of Elie]

That the Bill do now pass.

[Lord Keen of Elie]

My Lords, in moving this Motion I thank noble Lords across the House for their careful scrutiny of the Bill throughout its passage. Noble Lords have made not only detailed but informed contributions to the debate, and that has resulted in improvements to the Bill before it passes to the other place tomorrow for further consideration.

There have been extensive amendments to the whiplash provisions and appropriate amendments to Part 2 with regard to the discount rate. We consider that the Bill is in a better place as a consequence of your Lordships’ contributions.

I have been asked by my noble and learned friend Lord Mackay of Clashfern to put on record a clarification that I provided in my letter to Peers following Report. This relates to a request by the noble Baroness, Lady Bowles, for confirmation that the words “different financial aims” in what was then paragraph 3(3) of the new Schedule A1 to the Damages Act 1996,

“do not provide an override of the conditions laid down in the earlier new paragraph 3(2)”.—[Official Report, 12/6/18; col. 1649.]

As I indicated in my letter, I can confirm that the words in question form part of the definition of the approach to investment that the recipient of relevant damages is to be assumed to take for the purpose of securing the objectives set out in paragraph 3(2) and that the words “different financial aims” cannot therefore override those objectives. It is perhaps appropriate that I put that on record.

Finally, the Government share with the House the view that insurers should be accountable for meeting their commitments to pass on savings from the reforms. Therefore, we have also committed to developing an effective means for reporting on the savings made by the insurance sector being passed on to consumers, making sure that insurers are held to account. We will bring forward an amendment to this effect as soon as possible in the House of Commons. It is quite a complex issue, having regard to, among other things, commercial sensitivity and competition issues.

The noble Lord, Lord Monks, referred to the proposed changes to the small claims limits. We consider that these are appropriate in the circumstances. Of course we are open to debate on these matters, and if the noble Lord wishes to engage with me further on them, I am content to meet with him for that purpose. He is fully aware of the Government’s position on these issues. They form part and parcel of the overall package that we consider has to be delivered to address the issues referred to in the Bill.

Again, I thank all noble Lords for their contributions to the Bill.

[Lord Hodgson of Astley Abbotts]

Before my noble and learned friend sits down, could he possibly say a word about periodical payment orders, an issue which has occupied a number of us quite a lot? He said at the previous stage that he would confirm that the Government placed emphasis on the importance of PPOs as part of the array that is available to the courts when damages are decided.

[Lord Keen of Elie]

My Lords, I am obliged to my noble friend for that reminder. Clearly, it is our intention that this matter should be taken forward. As I indicated before, we are engaging with the judiciary on this matter, and we have engaged already with the Master of the Rolls to see what further developments can be put in place on the provision of PPOs. We share the view that the noble Lord has expressed that the appropriate use of PPOs should be encouraged, and we are grateful to the Master of the Rolls for his agreement in principle to the Civil Justice Council reviewing the law and practice regarding PPOs to see whether they can be improved. The timetable for that has not yet been agreed, but we hope it can begin towards the end of this year or early next year, with a view to completion in the summer of 2019. I hope that that reassures my noble friend.

I thank noble Lords again for their contributions to the Bill. I am content to carry on further discussions relating to the Bill during its time in the House of Commons if noble Lords so wish. Thank you.

Civil Liability Bill [HL]

Lord Keen of Elie Excerpts

Ping Pong (Hansard): House of Lords
Tuesday 20th November 2018 Lords Chamber

Moved by

[Lord Keen of Elie]

That this House do agree with the Commons in their Amendments 1 to 6.

1: Clause 3, page 4, line 17, at end insert—
“( ) The Lord Chancellor must consult the Lord Chief Justice before making regulations under this section.”

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6: Clause 14, page 16, line 6, leave out subsection (2)

[The Advocate-General for Scotland (Lord Keen of Elie) (Con)]

My Lords, with the leave of the House—or as the House leaves—I beg to move that the House do agree with the Commons in their Amendments 1 to 6.

The Civil Liability Bill will provide effective measures to tackle the continuing high number and cost of whiplash claims, which will lead to lower insurance premiums for ordinary motorists. It will also create a better system for setting the personal injury discount rate.

I should like to take this opportunity to thank noble Lords for their contributions and insightful scrutiny, which have already shown during previous debates how the Bill can be strengthened and improved.

The Commons amendments we are considering today were all brought forward by the Government in the other place. Amendment 1 introduces a requirement for the Lord Chancellor to consult the Lord Chief Justice before setting the tariff. This amendment was introduced to meet a commitment made to this House and, in particular, to the noble and learned Lords, Lord Judge and Lord Hope, at Report.

It remains the Government’s firm view that it is the Lord Chancellor who should set an appropriate and proportionate tariff through regulations. This enables the Government to ensure that damages remain proportionate and continue to disincentivise unmeritorious claims, but following reflection on the helpful points made by this House during debates in Committee and at Report, the Government agreed that there is merit in the Lord Chancellor seeking the input of the Lord Chief Justice before setting or amending the tariff. This will provide the judiciary with a formal route by which to comment on the level of damages for whiplash injuries. Consulting the Lord Chief Justice allows the views of the judiciary to be reflected in the setting of the tariff, as well as by way of the uplift in exceptional circumstances.

Amendment 2 corrects a drafting omission. The amendment clarifies, but does not change, our intent in regard to Clause 5. Clause 5 enables the Lord Chancellor to provide in regulations that the court may increase the amount awarded under the tariff in circumstances which it considers to be exceptional. The amendment adds the words “or injuries” to Clause 5(7)(a), and merely reflects that the amount of compensation specified in the tariff can relate to either a single injury or two or more injuries. This is consistent with the language used elsewhere in the Bill. This amendment makes no material change to the provisions of the Bill, but provides necessary clarification and consistency.

Amendments 3, 4 and 5 have arisen from previous debates, when noble Lords raised concerns about whether insurers would stand by their commitment to pass on the benefits arising from the Bill. Recognising the concerns raised by noble Lords and those in the other place, the Government amended the Bill in Committee in the other place to provide for an effective means for insurers to demonstrate that savings arising from the Bill have been passed on to consumers. This is the new Clause 11, as introduced by Amendment 3.

I am confident that Clause 11 allows the Government to hold insurers to account against their public commitment to pass on savings from the Bill in a rigorous but proportionate way, without risking anti-competitive or overly interventionist practices. The clause was developed after intensive and careful consultation with insurers, accountants, auditors and regulators.

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[Lord Beecham (Lab)]

My Lords, I refer to my interest as an unpaid consultant with my old firm. I begin somewhat unusually by congratulating the Minister on having improved a pretty flawed Bill since it left us. I assume that he has played a significant part in that. In particular, I strongly endorse the provisions of Amendment 1, which are an improvement on the original wording. However, we would still have preferred the retention of the existing system which allows judicial discretion on the level of compensation to be awarded based on judicial guidelines. To answer the noble Lord, Lord Hodgson, that is how the system operates and there seems to be no good reason why the assessment of damages for this kind of injury should be different in those terms from any other form of injury.

Of course, we also continue to be opposed to the increase in the small claims limit by an amount higher than inflation, in accordance with the review carried out by Lord Justice Jackson several years ago of civil litigation costs. In fact, the increase is something like 100%, although I take the noble and learned Lord’s point that that is not strictly within the scope of this Bill.

The Justice Select Committee warned that,

“increasing the small claims limit for PI creates significant access to justice concerns”.

The Government’s plans to increase the small claims limit will mean that more cases are allocated to the small claims track. That will leave tens of thousands of working people priced out of getting proper legal representation. These measures are a further gift to insurance companies which are already experiencing increased profits at the expense of people injured through no fault of their own.

What assessment have the Government made of the impact of the changes to the operation of the courts, given that increasingly claimants will be unrepresented? Within the last fortnight, the Permanent Secretary at the Ministry of Justice has told the Justice Select Committee that two of the main spending assumptions were fundamentally “unrealistic” and that even the Treasury recognised that the department was under “considerable strain”. In these circumstances, how confident is the Minister about the ability of the courts to deal with an increase in unrepresented claimants from 5% to 30%, as predicted in the whiplash impact assessment? That of course relates only to that particular area; there will be another shortfall in relation to other claims. How long do they anticipate will be the “long term” envisaged before the courts operate at cost recovery level, as suggested in the whiplash impact assessment? To be clear, whiplash impact for this purpose is on the system, not on the unfortunate claimant.

It is estimated that insurers will gain £1.3 billion a year. I hope that the noble and learned Lord’s confidence that the industry will ensure that those savings are passed on to policyholders will be proved correct. Why will it be six years before the Treasury reports to Parliament on the savings accrued to policyholders, as apparently will be the case? It seems an inordinately long time to assess the impact of this provision. Further, is it not ironic that the Government, who make so much of the need to protect policyholders from the impact of exaggerated or fraudulent claims, have themselves increased insurance premium tax four times in eight years, thereby currently collecting £2.6 billion a year more from the people they purport to be helping through this Bill?

While the commitment given at Third Reading in the Commons that vulnerable road users will be exempt from the changes is welcome, why are children and people injured at work not included in the exemption? Extending the change to those two groups would seem to be a reasonable move.

By sheer coincidence, today sees the publication of the report of the Constitution Committee. It is highly critical of the Government’s increasing reliance on secondary legislation. The committee supported the views of the Delegated Powers and Regulatory Reform Committee earlier this year that key measures should be included in the Bill and not left to secondary legislation. Also, most tellingly, it said that judges, not the Lord Chancellor, should set the new tariff and that the Lord Chancellor should not be granting powers to make provision for damages relating to minor psychological injury. This accords with amendments debated during the passage of the Bill through this House but not enacted.

I hope that a review of this measure will provide an opportunity to return to this issue and adopt that approach in due course. I repeat that the Bill comes back to us in better condition than it was, but I remain convinced that it is not in as good condition as it should be.

[Lord Keen of Elie]

I am obliged to the noble Lord, Lord Beecham, for acknowledging that we have at least achieved a curate’s egg, if nothing more.

The Bill makes important changes to our personal injury compensation system; it makes that system fairer, more certain and more sustainable in future for claimants, defendants, motorists and the taxpayer. That builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies, which play such a big part in this. The first part of the Bill will deliver a key manifesto pledge. It will support the consumer by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims that lead to higher insurance costs. The second part of the Bill will provide a fairer method for setting the personal injury discount rate and reviewing it so that it does not remain at one level, as it did for 16 years.

I am grateful for noble Lords’ observations and careful scrutiny of the Bill. I want to touch on one or two of their points. The noble Lord, Lord Sharkey, commented on the complexity of the approach taken on Clause 11. That approach was carefully crafted after consultation with interested parties, including the FCA, to ensure that it is as effective as possible. At the end of the day, the Government’s approach has been determined by the need for a rigorous and proportionate regime for insurers as far as savings are concerned. We have to remember that the FCA is an independent body. Clearly, we cannot confirm exact FCA action in respect of these matters but we assure the House that it will take very seriously any case where an insurer does not treat customers fairly. That could include a public commitment not being met if that formed part of a policyholder’s or consumer’s expectations.

The Government have taken a careful and considered approach to what is sometimes termed “naming and shaming”, particularly with regard to the provisions in Article 6 of the European Convention on Human Rights. There are circumstances in which the FCA may decide publicly to censure a firm, but that would typically follow a detailed investigation. The idea of somehow naming and shaming a firm before such an investigation could raise questions about convention rights under Article 6. I suggest that we have taken a considered approach to this but, ultimately, those outliers—if I can call them that—who might seek to abuse the system will be open to censure, potentially publicly, by the FCA in due course.

In the context of the point made by the noble Lord, Lord Hodgson, I readily adopt the observations of the noble and learned Lord, Lord Judge. At the end of the day, consultation with the Lord Chief Justice will allow the judiciary some input into, or comment on, the setting of the tariff of damages against the background of its knowledge of the general level of damages awarded for personal injury in diverse cases. One would hope that this would ensure no material divergence in levels of damages as far as that is concerned.

The noble Lord, Lord Monks, raised a number of questions. Regarding Amendment 1, the primary legislation approach to setting the tariff is not considered appropriate because it should be amenable to review and flexibility. Setting it in stone would not allow for that. Regarding the question of employers’ liability and employers’ liability clauses, we consider that the courts are equipped to cope with such claims. On cost recovery, referred to in the impact assessment at paragraph 5.66, I note that the aim is ultimately to try to achieve cost neutrality so far as the court process is concerned, but I acknowledge that that is a long-term aim.