Damages (Personal Injury) Order 2017 — House of Lords, 2017-07-18
Topic: Law and Crime
Richard Keen (Conservative, Centre-right): My Lords, I thank my noble friend Lord Hodgson for tabling the Motion on this important topic. I welcome the valuable contributions that he and other noble Lords have made As has been observed, the discount rate to be taken into account by the court in determining the rate of return to be expected from the investment of a lump sum award of damages for future pecuniary loss caused by a personal injury is set for England and Wales by the Lord Chancellor under Section 1 of the Damages Act 1996. This is colloquially referred to sometimes as the Ogden rate as in practice it is applied through the actuarial tables published by the working group originally set up by the late Sir Michael Ogden As noble Lords have observed, the rate plays a key role in underpinning one of the core principles governing the law of damages. Claimants who have suffered injury as a result of another person’s negligence must be compensated fully for their loss, and should be placed—as far as is possible in financial terms—in the position that they would have been in but for the injury. This is known as the principle of full compensation or the 100% rule. Under this principle, the aim of an award of damages is therefore to compensate claimants fully, but not to overcompensate them or undercompensate them To fulfil that aim, where damages are awarded for future pecuniary loss—such as future loss of earnings or the care costs that are going to be incurred—in the form of a lump sum, the award is, and must be, adjusted to take account of the benefit to the claimant of being able to invest the money before the loss or expense in respect of which it is awarded has actually occurred. The discount rate is the factor applied to the award to make this adjustment so that it represents the expected rate of return. The court, of course, has a power to apply a different rate but, as my noble friend Lord Hodgson noted, it has almost always applied the prescribed rate in these circumstances The Damages Act 1996 does not specify when the rate should be reviewed. However, the Lord Chancellor is under a continuing duty to ensure that it is not set at an inappropriate level. The rate was set in 2001 on a certain basis. Thereafter, there was consultation on the legal framework for setting the rate. Indeed, in 2013, a consultation was carried through but reached no consensus as to any changes or proposed changes to the legal framework for setting the discount rate. So, as at 2013, the coalition Government, of whom the noble Baroness, Lady Kramer, was a member, took no steps to deal with what she referred to as a preposterous state of affairs. Indeed, it was not at that time a preposterous state of affairs In 2015, an expert panel advised with regard to the matter of the rate. But in all these circumstances, when it came to 2016 and the beginning of 2017, the then Lord Chancellor had an existing duty to address the adequacy or otherwise of the discount rate. That was her legal obligation. In the light of that duty, she announced on 27 February this year that the rate should be changed from 2.5% to minus 0.75% with effect from 20 March 2017. I note that the Scottish Government made the same change to the discount rate about a week later on 28 March 2017. The then Lord Chancellor also undertook to review the framework under which the rate is set to ensure that it should remain fit for purpose in the future. The consultation paper she promised was published on 30 March. It sought views on a range of issues, including what principles should guide how the rate is set; whether the existing methodology is appropriate for the future; whether the power to set the rate should remain with the Lord Chancellor or move elsewhere, possibly to an expert panel; whether more frequent reviews would improve predictability and certainty for all parties—a point raised by a number of noble Lords—and whether further steps should be taken to encourage the use of periodical payments orders instead of lump sums, a point touched on by the noble Lord, Lord Beecham Underlying the consultation was the wish of the Government to make sure that the way the rate is set is put on the firmest possible footing in future, so that we have a better and fairer system for claimants and defendants, and, in so doing, keeping true to the 100% principle—namely, that claimants are paid no more but no less than they should be. The consultation closed on 11 May and the Ministry of Justice is currently analysing the 135 responses received, which, as might be anticipated, reflect a broad range of opinion as much as they reflect a broad range of interests. This requires considerable care and thoroughness, as many of the responses are highly complex and contain detailed technical information on investment returns and investor behaviour, something the noble Baroness, Lady Kramer, pointed out could be quite diverse and divergent in particular circumstances It is not for me to anticipate the outcome of the consideration of the consultation, but I seek to assure my noble friend and other noble Lords who have spoken in the debate that an announcement of the Government’s conclusions will be made at the earliest possible opportunity. Of course, the interests of all parties concerned will be considered, and there will be an impact assessment. My noble friend’s Motion is, however, directed at the change of rate rather than the outcome of the consultation. His argument is that the then Lord Chancellor should not have set the rate at a time when she had decided that a further consultation exercise was to take place on how the rate should be set in the future. I venture that this argument is not well founded. As I have explained, the Lord Chancellor is under a continuing duty to ensure that the rate is set at an appropriate level. This means that once the then Lord Chancellor reached her decision on what the appropriate rate should be, she was legally obliged to put that decision into effect. The option of delaying setting the rate until the outcome of the planned consultation was known was simply not available to her My noble friend’s regret that the then Lord Chancellor carried out her duty is therefore, I respectfully suggest, misplaced. The then Lord Chancellor acted correctly both in changing the rate and in initiating a consultation on whether there is a better or fairer way for it to be set in future. Had the Lord Chancellor adopted the approach proposed by my noble friend and delayed a change in the rate until a consultation—and no doubt any consequent change in the law—had been complete, she would have knowingly maintained an inappropriate rate for what might have been a considerable period of time. That would have been in breach of her legal obligation with respect to the setting of the rate Consequently, the approach taken by the Lord Chancellor was correct in law. In these circumstances therefore, the Government cannot support my noble friend’s Motion, and I hope that he will feel able to withdraw it in light of the explanation I have sought to give on behalf of the Government.