PERIODICAL PAYMENTS

HC Deb 20 October 2003 vol 411 cc458-67

Mr. Andrew Dismore (Hendon)

I beg to move amendment No. 9, in page 49, line 17, after 'may', insert ', if the claimant consents,'.

Mr. Deputy Speaker

With this we may take amendment No. 10, in page 50, leave out lines 27 to 34.

Mr. Dismore

I should declare an interest, Mr. Deputy Speaker, because I remain a partner in a firm of solicitors that specialises in personal injury cases, although I have not dealt with any since I entered the House. I also remain a member of the Association of Personal Injury Lawyers; I was formerly a member of its executive committee and I chaired its damages specialist interest group. In that capacity I was closely involved in the original development of what were then known as structured settlements and are now called periodic payments. That was in the late 1980s.

I am a great believer in that system of compensation for the right cases in the right circumstances. There is a risk of overdoing things, but I am pleased that progress in the development of the law in that area, for that important remedy, has been so successful. Nevertheless, problems remain, and the Bill addresses some of them— but unfortunately, new ones are created, especially in relation to consent. I also think that an opportunity was missed when we considered how inflation should be dealt with.

My amendment No. 9 deals with consent. It is important to point out that periodical payments have both advantages and disadvantages. Claimants would not have to fear running out of compensation, as they would if damages were ordered as a lump sum, but periodical payments create a lifetime relationship between the claimant and the defendant which the claimant may find extremely difficult. For that reason, the merits of imposing periodical payments must be assessed on an individual case-by-case basis, and I am concerned that, under clause 100, awards for future pecuniary loss—the lion's share of any award—can be made irrespective of whether the claimant consents. That is particularly important if periodical payments are being linked to the retail prices index in respect of inflation because it would prevent the claimant from looking for a better rate of return. Under clause 100, it is possible for a court to order a periodical payment without the consent of either party, let alone just that of the claimant. That puts the claimant completely at the mercy of the court's discretion and the defendant's arguments. I believe that that is unfair because only the claimant is able to say how an award can best be used to place him in the position that he was in before the injury.

In 1991 I wrote a paper for the Law Commission on that very issue. I summarised my views then and they have not changed at all on this particular issue. I wrote: It is the Plaintiff who has been injured by the Defendant, and it should be for the Plaintiff to decide whether he or she wishes to have the damages by lump sum or structured periodic payments. The Court should not have power to compel a Plaintiff to accept a structured settlement if the Plaintiff prefers a lump sum award…The only exception…should be where the Plaintiff is under a legal disability, when the Court has a role in approving any terms of settlement, and in those circumstances, it may be appropriate for the Court to have the power". In response to my submission and others, the Law Commission produced a report in 1994. Paragraph 3.38 on page 38 summarises the position: The corollary of this liberal principle"— the question of how the plaintiff should be able to spend the damages—

is that plaintiffs should be able to insist on receiving their reward in the form of an immediate lump sum payment. Imposition of a different form of award has been seen as interference with freedom of contract. It is also argued by some that it is wrong to introduce paternalism into personal injury awards when awards of damages in other areas of the law continue to leave plaintiffs in receipt of lump sums which they are free to spend as they wish. Baroness Scotland said in another place: We agree with the noble Lord, Lord Goodhart, that the views of the claimant in relation to periodical payments is the important issue. She continued later: The weight to be given to the claimant's wishes, for example, might depend on the reasons for them and the quality of advice on which they are based."—[Official Report, House of Lords, 27 March 2003; Vol. 646, c. 937.] That is to adopt a nanny state approach to this important issue. Elsewhere it has been suggested that if the claimant wanted to set up a business, the court should start to examine the claimant's business case to see whether it was sensible, but that is putting the cart before the horse.

My experience of claimants over more than 20 years in active practice before I became a Member of Parliament is that they are sensible and cautious people, concerned to ensure that their money will not run out. Whether through a lump sum or a structured settlement, they are concerned to ensure that their money is invested and spent wisely. It is the claimant's right to say how he or she should receive their compensation. In taking that right away from claimants, the Bill creates more problems than it will resolve. It is wrong for the courts to impose an award against the wishes of the claimant, let alone those of the defendant.

However, my main concerns about clause 100 are expressed primarily in amendment No. 10, which deals with the question of how to operate a periodic payment in respect of inflation. The clause provides that such operation should, except at the court's discretion, be by reference to the retail prices index. The current position in common law was restated in the Court of Appeal in three cases only last week. The lead case was Sheppard v. Stibbe. The appeal was brought on behalf of a young boy aged nine, Ben Sheppard, who suffered serious spinal injuries—his five-year-old sister was killed—in a car accident in June 2001. Ben is now in a wheelchair; the driver of the other vehicle was convicted of dangerous driving.

Another case was that of Mr. Page, who suffered brain injuries when a motorcycle struck him when he was 13; and another was a 12-year-old from Bristol, Sonni Cooke, who suffered permanently disabling injuries during birth. The cases were appealed against the refusal by judges in the lower courts to admit accountancy evidence to the effect that the future cost of care in each case would be grossly underestimated if the conventional method—the discount rate or, for our argument, the retail prices index, which is the mirror image of the same argument—were applied, thus grossly underestimating the damages. The Court of Appeal ruled that the substance of the appeals constituted an assault on the rate set by the Lord Chancellor—the discount rate of 2.5 per cent., which was applied to compensation for future losses, such as we are discussing in clause 100.

Lord Justice Laws ruled that if a single discount rate is taken across the board, as has been done by the Lord Chancellor's order, the full compensation principle will only be achieved in a rough and ready way. Counsel for the appellants would, of course, roundly insist that that is scant comfort to their clients, who it is said stand to suffer very substantial shortfalls. Be it so on the facts of these cases: still, it cannot in my judgment amount to a proper basis for allowing these appeals to prosper. The court is obliged by ordinary constitutional principles to act in its decisions case by case conformably with the discount rate set by the Lord Chancellor…He may be persuaded at the political level to set a different rate. He may (I encourage nothing) be amenable to judicial review. But so long as the rate he has set is extant, the courts cannot in the adjudication of personal injury claims subvert or undermine it. The effect of the current position—including clause 100—can be seen by using the Ben Shepherd case as an example. Future care costs would be assessed on the conventional basis of the RPI, so he would receive about £900,000 under that head. Between 1963 and 2000, the costs of care increased 2.5 per cent annually above the rate of inflation. If that higher rate were taken into account, the damages would be increased by 149 per cent. to more than £2.2 million. Similarly, compensation for future loss of earnings would go up from about £500,000 to almost £900,000, and damages for medical treatment would be increased from under £700,000 to more than £1 million.

If, as expected, Ben lives into his late 70s, the money will run out and there will be nothing left to pay for his care for the last 30 years of his life. He will be thrown back into dependency on the state. In the past, the practice has been that general damages for pain, suffering and loss of amenity have been used to cross-subsidise the cost of care, but that is effectively subsidising the insurance company and is not the answer.

The Government's position was stated in the other place by Baroness Scotland, who said: It is important that the real value of periodical payments can be preserved over the whole period for which they are payable. The indexation of payments is already a matter for the court's discretion and the Bill does not affect that. However, as I have just illustrated, the courts are not using that discretion in practice. She continued: At present, it is common practice to link payments to the retail prices index. However, it would not be appropriate to prescribe this as a blanket index to which all payments must be linked. In some cases it may be appropriate to link different heads of damage to different indices. The court currently has that flexibility. However—as I have suggested—it is not used in practice. She continued further: We believe that it is important to retain the current flexibility and for indexation to be left to the discretion of the court"—[Official Report, House of Lords, 27 March 2003; Vol. 646, c. 934.] In practice, that discretion is fettered by, for example, the rate set by the Lord Chancellor under the Damages Act 1996 at 2.5 per cent. Now the Government have put the RPI in the Bill, theoretically to reflect the current position, but in practice it would have the effect of further fettering the discretion of the court when awarding damages for future loss by way of periodic payment.

The draft rule amendments to part 40 of the civil procedure rules, which are supposed to bring into effect clause 100, should it be passed by the House, set out the criteria that should be considered when deciding whether to uprate. It says that the amount of the payments shall vary annually by reference to the retail prices index, unless the court orders otherwise under section 2(9) of the 1996 Act. In other words, we are back to where we started. It is a circular argument. The draft practice direction amendments contain nothing to specify how the discretion to depart from RPI should be exercised. I should have thought that if the intention was for that discretion to be used properly, there would at least be something in the draft practice direction to set out guidance to judges on the use of that discretion. In fact, the explanatory notes to the Bill make the position even worse. They emphasise RPI as the appropriate approach. Explanatory note 275 states: To ensure that the real value of periodical payments is preserved over the whole period for which they are payable, new section 2 provides that periodical payments orders will be treated as linking the payments to the…RPI"— subject to discretion. Again, that emphasises the RPI as the norm.

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Why is that important? Usually, periodic payments are only of use in high-value cases involving serious injury, usually with substantial care costs. The current position, reproduced in clause 100, is inadequate. The greatest proportion of such awards relates to the cost of future care for the claimant and to the claimant's loss of earnings. The costs of both over a long period will increase by considerably more than the RPI, which means that the compensation that is intended to provide for those needs will be insufficient; in particular, the money paid periodically to cover the cost of care will quickly become inadequate to pay for a care regime that the court has said is necessary.

As the explanatory notes show, it is expected that periodical payments will be linked to the RPI in the great majority of cases, so it can be anticipated that the RPI will indeed be applied in that way by the courts, which will be disastrous for the claimants who are in most need of help. Surely, the whole point of periodical payments is to improve on the old lump-sum position. In the original consultation paper on the issue, "Damages for Future Loss: Giving the Courts the Power to Order Periodical Payments for Future Loss and Care Costs in Personal Injury Cases", the then Lord Chancellor's Department noted: We consider that periodical payments can provide a fairer and more certain way of ensuring that claimants awarded damages for future losses and care costs, often for the remainder of their lives, receive the compensation to which they are entitled. The paper stated that periodical payments place the risks associated with life expectancy and investment on defendants rather than claimants. This ensures that claimants who live longer than expected enjoy the quality of life they are entitled to, and do not have to fall back on social security when the money runs out. However, that is exactly what will happen if clause 100 is accepted. If the current position is to be improved, periodical payments should be linked to more relevant indices, such as the average earnings index and the Department of Health's care cost index. There is wide recognition in the higher courts that there may be a need to index awards by reference to indices other than the RPI. The Department of Health recognises that hospital and community health service inflation is likely to outstrip the RPI for the foreseeable future and concern has been expressed in the Judicial Committee of another place about the ability of awards to keep pace with expense. There is real concern that the cost of future care for the claimant and the claimant's loss of earnings will, over a long period, increase by considerably more than the RPI, which will mean that the compensation that was intended to provide for those needs will be insufficient. In particular, the money paid periodically to cover the cost of care will quickly become inadequate to pay for a care regime that the court has awarded.

The key argument is that while the RPI may be a sound basis for calculating damages for non-pecuniary loss, other more appropriate indices should be used to calculate pecuniary losses accurately, to ensure that the claimant is neither undercompensated nor overcompensated. I understand that the Civil Justice Council's serious injury and clinical negligence committee has also expressed extreme concern about the proposed RPI link.

In Standing Committee, my hon. Friend the Minister said of a not dissimilar amendment that it made no provision for indexation, in which case the claimant would be worse off. Moreover, the suggestion that there should be links to another index raises the worry that insurers would be unable to provide a product, as financial regulations limit the index-linked products that they can supply.

If there were no provision, claimants would be no worse off at common law than they are at present. My main concern is that the common law position needs to be improved and the Bill would not achieve that. My hon. Friend the Minister prays in aid the insurance difficulties, but the insurer stands in the place of the tortfeasor and the purpose of compensation, as was recognised by Baroness Scotland, is to put the victim in the position in which he or she would have been had the accident not occurred. The effect of the clause would be unjustly to enrich the guilty tortfeasor or his insurers at the expense of the innocent claimant victim, contrary to all principles of common law.

Surely, it is the responsibility of the insurance industry to develop new products if periodical payments are to achieve the objectives laid out in the original consultation. While the Bill requires only the majority of cases to be linked to RPI, the insurance industry has no incentive to bring in alternative products.

The Financial Services Authority says that periodical payments have to be linked to the RPI under the close-matching regulations, but back in the late 1980s, we had all sorts of problems with the Treasury, the taxation system, the various controls over the financial industry and how to structure settlements. In practice, all those problems were overcome by various amendments and concessions made by the Treasury. There is no reason why similar amendments could not be made now to provide just and fair compensation to victims. Victims should not lose out. In any event, the argument about insurance products does not apply to claims against the state for clinical negligence, as it is unlikely that the state would purchase annuity products anyway but would proceed on the basis of self-insurance.

What can be done at this late stage? I am realistic; I recognise that the prospect of my being able to put the amendment to the vote and carry it are somewhat slim, but I put it to my hon. Friend the Minister that, even at this late stage, he could issue a clear indication in responding to the debate that discretion should be used to ensure that victims do not lose out, especially on care costs, and to depart from the RPI where it can be shown that claimants would substantially lose out if the RPI applied in respect of care costs. If my hon. Friend were to do that, those who bring such cases could use the Pepper v. Hart principle to ensure that his remarks were brought before the court and claimants would then have a reasonable chance of getting fair and adequate compensation.

The second thing that my hon. Friend could do is to say that he would try to bring before the rules committee his view that the draft practice direction amendments should themselves be amended to set out the circumstances in which discretion is appropriate, for example, in relation to substantial care costs or future earnings. If we were able to do that, it would at least bring to the attention of the courts the circumstances in which claimants would otherwise be undercompensated if the RPI were to seen simply as the norm.

I urge my hon. Friend to say that he will at least consider those two very simple and straightforward things that would ensure that victims do not lose out, that they get fair compensation and that insurers do not get a windfall at the expense of the taxpayer, who will have to pick up the tab through the social security system when the money runs out.

Mr. Hawkins

The hon. Member for Hendon (Mr. Dismore), from his expertise as an active member of the Association of Personal Injury Lawyers, has obviously considered the detail of what we debated in Committee, when Liberal Democrat Members moved an amendment not dissimilar to that which the hon. Gentleman moved tonight. He is also aware that I have some familiarity with medical negligence cases, although perhaps not his depth of detailed experience. I dealt with such cases at the Bar and in my subsequent work as a corporate lawyer, working in insurance.

As I said in Committee, I am indebted to, among others, my noble Friend Lord Hunt of Wirral and Dr. Gerard Panting and Shelley McNicol from the Medial Protection Society for some of the detailed briefing that I have received in relation to the indexation and RPI issues that the hon. Gentleman has raised.

We in the House are always concerned when any change is proposed that could lead to what has become known in America as defensive medicine—any situation in which surgeons or other medical consultants or doctors would perhaps feel unable to take steps in surgery or other medical procedures that might be vital to the patient's needs but contain an element of risk. If medical specialists were unwilling to use their skills fully because they were looking over their shoulder, worrying about possible negligence claims and the possible insurance position, there would be great concern in the House, and not only among Conservative Members.

Although the Medical Protection Society, which has more than 114,000 members in the United Kingdom alone and more than 200,000 members throughout the world, generally welcomes a move away from lump-sum settlements to providing periodical payments in clinical negligence cases, it has serious concerns about the way in which indexation would operate.

The hon. Member for Hendon has already referred to the debate in another place on 19 May this year, at columns 536 to 538 of House of Lords Hansard. An exchange took place between the noble Lord Goodhart, of the Liberal Democrats and the Minister, Baroness Scotland. In response to clarification by Baroness Scotland of the reference to RPI in this context, my noble Friend Lord Hunt was able to withdraw his amendment, which had sought to limit the operation of an opt-out clause to exceptional circumstances. The hon. Member for Hendon is having another go at getting rid of all reference to the RPI. In Committee, the Liberal Democrats were working on the basis of advice from Mr. David Kemp, QC, who is probably acknowledged as the greatest expert in the field of damages for personal injury and medical negligence.

What we said about the Liberal Democrat amendment in Committee, which is similar to the proposal of the hon. Member for Hendon, is that any taking out of the RPI would virtually stop structured settlements in their tracks. It is difficult enough already to find any kind of insurance-based product that would enable provision to be made for periodical payments, even one that is increasing in accordance with the RPI. In the week before we debated the matter in Committee on 8 July, one insurance company had closed its doors to any new business of that kind, and another company was talking about limiting the range of products that it offers. Continuing attempts are being made in the courts to persuade judges to allow future care costs at a much higher level. To date, those attempts have not succeeded, but great concern was expressed not only by the chief medical officer, Sir Liam Donaldson, that courts may not take into account treatment being available under the NHS, but by the NHS Litigation Authority, which raised the matter with my noble Friend Lord Hunt of Wirral.

What the hon. Member for Hendon has provided is a re-run of the amendment tabled in Committee by the Liberal Democrats. The Government's position then—and now, I suspect—was that the RPI index was the right approach in the great majority of cases. That has been the view not only of the Government but of the insurance industry. What the Opposition do not want is any change to these proposals that would make it more difficult for a responsible body such as the Medical Protection Society to represent its members, that would lead to defensive medicine, and that would make it more difficult for the insurance industry to provide any sort of cover for medical professionals. I suspect that when the Minister comes to respond, he will make similar comments.

On the hon. Member for Hendon's other amendment, what the Opposition say is that the court has to consider the claimant's needs. We expect that rules of court will concentrate on such matters as are in the claimant's best interests. It seems to us that rules of court are the right place for these matters to be dealt with, and that experienced judges can be trusted to use their powers in accordance with rules of court to ensure that the claimant's needs are met. It would not be sensible to make further changes—even though I recognise that the Association of Personal Injury Lawyers holds strong views on the matter—which we believe would lead to the kind of problems of defensive medicine that have been so prevalent in recent years in the United States.

Mr. Leslie

First, I commend my hon. Friend the Member for Hendon (Mr. Dismore) on raising this issue. He discussed the question in Committee, and we talked about it then.

Amendment No. 9 would allow the court to make a periodical payments order for civil court damages only with the claimant's consent. I am afraid to tell my hon. Friend that the Government cannot accept the amendment because it would go against the whole purpose of the provisions on periodical payments. In previous debates on this issue, Members of both Houses recognised the significant benefits of periodical payments. They help to ensure that people receive the compensation to which they are entitled for as long as it is needed; they transfer investment responsibility from claimants to defendants, who are better able to bear it; and they can even benefit defendants, including the NHS, by allowing awards to be managed more cost effectively. The Government believe that a power for the court to order periodical payments is needed to realise those benefits.

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The court must be allowed to take into account all the individual circumstances of the case and weigh all the relevant factors against one another in making the order that it considers best meets the needs of the claimant. The Bill provides for rules of court to specify matters that the court must take into account when considering whether it needs to order periodical payments. We fully accept that the claimant's wishes are an important factor in this decision and they will certainly therefore be one of the factors that the court must consider. However, allowing the claimant effectively to veto an order for periodical payments will undermine the whole purpose of this clause, and we cannot allow that.

We do not consider that claimants have an automatic entitlement to receive a lump sum. A central legal principle in awarding damages is to restore claimants, as far as is possible, to the financial position that they would have been in but for the accident. Before the accident, they would have received their future earnings and pension not in a single lifetime lump-sum payment, but in the form of a stream of income against which they could spend, save or borrow as they chose. Periodical payments reflect that position much more accurately than lump sums.

Amendment No. 10 would remove any provision for the indexation of periodical payments from the Bill. Although I recognise concerns about indexation, I do not believe that amending the Bill in this way is appropriate.

Clause 100 deals with how payments of personal injury compensation are made. It does not attempt to go into detail about how such claims are to be valued. The provisions in the Bill merely seek to reflect the current position in which the great majority of orders—whether for structural settlement purposes or for lump sums—are linked to the retail prices index. Moving away from the current indexation position would raise much wider issues of how care and medical costs are calculated, an issue on which the chief medical officer has recently made recommendations relating to clinical negligence. As the hon. Member for Surrey Heath (Mr. Hawkins) suggested, the amendment would raise regulatory issues for the insurance industry, which is restricted in the index-linked products that it can provide. Any change would result in substantial increased costs for the NHS and insurers. It would therefore not be appropriate to consider any change without full and wide-ranging consultation. All the issues and potential impacts of change would need to be taken into account, along with the chief medical officer's recommendations.

The Bill therefore suggests that the retail prices index should be, as it is now, the norm. However, under clause 100 and proposed new section 2(9) of the Damages Act 1996, the court will remain able to take a different approach to indexation when it considers that the particular circumstances of the case make it appropriate. That is a very important provision in the Bill.

I hear what my hon. Friend says about the extent to which procedure rules give guidance on circumstances when the court may depart from the retail prices index, and I shall certainly undertake to consider the matter in more detail. Nevertheless, I remain of the view that the Bill is drafted flexibly and gives latitude and discretion to the court. I therefore invite him to withdraw his amendment.

Mr. Dismore

I have listened to my hon. Friend and I am rather disappointed by what he said. Nevertheless, I take a crumb of comfort from the fact that he will consider the draft rules and guidance through the code. I urge him to reflect on the fact that the effect of his comments will be to ensure that accident victims will, yet again and as usual, lose out and that the insurance industry will, yet again and as usual, end up through its powerful lobby being quids in.

I will not press the amendment to a vote even though I regard the Government's position as disappointing. I beg to ask leave to withdraw the amendment.

Amendment, by leave withdrawn.