§ 7.12 p.m.
§ Report received.
§ Clause 1 [Assumed rate of return on investment of damages]:
The Lord Chancellor (Lord Mackay of Clashfern) moved Amendment No. 1:
Page 1, line 6, leave out ("general").
§ The noble and learned Lord said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 3, 4 and 5. Amendment No. 1 is a minor amendment to subsection (1) to recognise the fact that it may be appropriate for the court to apply a discount to reflect accelerated payment of damages for future pecuniary loss, whether those damages might fall under the classification of "general" damages, or some 1225 other classification, for other purposes. The word "general" therefore appears to be superfluous. The next three amendments are consequential drafting amendments, removing separate references to "damages" in Scotland. It seems to me that for the purposes of this Bill any distinction between general or special damages is of no importance. I beg to move.
§ On Question, amendment agreed to.
Lord Ackner moved Amendment No. 2:
Page 1, line 15, leave out ("and the Treasury").
The noble and learned Lord said: My Lords, I raised this very small amendment in Committee. It seeks to take out "and the Treasury" from subsection (3) of Clause 1. It arises in these circumstances. The Explanatory and Financial Memorandum to the Bill, under the heading "Financial and manpower effects of the Bill", provided:
The Bill's only likely effects on public expenditure are that any exercise of the power in clause 1 could affect the size of awards of personal injury damages against government departments, and that, under clause 6, ministers may accept secondary liability to support the primary obligations of public sector bodies".
It is subsection (3) to which this amendment is directed. It states:
Before making an order under subsection (1) … the Lord Chancellor shall consult the Government Actuary and the Treasury; and any order under that subsection shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament".
Subsection (1) deals with the determination of,
the return to be expected from the investment of a sum awarded as general damages for future pecuniary loss".
§ I raise this amendment on the simple basis that it seemed to me quite wrong that a potential defendant should be allowed to advise on a factor that affects the amount of damages he must pay. That is indeed a startling position. The Treasury has a vested interest in the level of damages and accordingly should not be involved unnecessarily in providing advice in this area. The question really is: is the Treasury being unnecessarily involved?
§ I submitted to your Lordships in Committee that the Government Actuary is well able to undertake without assistance from the Treasury his actuarial task, which is somewhat similar to that undertaken by actuaries in insurance companies which issue life and pension policies. I submitted that we are not in a field of forecasting; we are not looking into the future; the actual rate of return at the moment of the calculation is what is required. That is what is done day in and day out when there is, for instance, a purchase of an annuity.
§ I promised to consider the observations made by my noble and learned friend the Lord Chancellor in Committee and I therefore obtained through Sir Michael Ogden, who your Lordships may remember was the chairman of the committee set up to consider these issues of damages and whose report was accepted by the Law Commission, the views of a very experienced actuary who sat on the committee that produced the report. The recommendation which the Law Commission made was that legislation should be 1226 introduced inter alia to direct courts to take into account the net return on an index-linked government security when determining the return expected on investment of damages but to leave it open for any party to show in individual cases that a different rate of return was more appropriate. By relying upon index-linked government securities there would be no danger of the kind that arises when one bases one's figures on a basket of Treasury and other stock.
In fact, Clause 1 refers to the court taking into account,
such rate of return as may from time to time be prescribed by an order made by the Lord Chancellor",
and not the net rate of return on an index-linked government security. Of course, if the Lord Chancellor ultimately decides that the rate of return should be prescribed by reference to index-linked government securities, then clearly the Government Actuary's Department can provide the necessary information without reference to the Treasury. But Mr. Prevett, the actuary to whom I have made reference, has gone on to advise that even if the Lord Chancellor decides that the rate of return should be prescribed by reference to some other portfolio of investments, the Government Actuary's Department has all the expertise required to provide the necessary advice without reference to the Treasury. He says that the department is involved daily in the consultation and determination of rates of return on invested funds in relation to its work on occupational pension schemes and insurance companies.
§ Therefore, the mention of the Treasury in Clause 1(3) is quite unnecessary. It is wrong as a matter of principle because of the vested interest which the Treasury has in the level of damages. I beg to move.
§ Lord Irvine of Lairg
My Lords, the sentiment which underlies this amendment is the scepticism which has just been expressed about the propriety of consulting the Treasury, given that the Government are often a potential defendant in personal injuries litigation, so that the Treasury may be said to have a vested interest in the rate of return prescribed. We understand that, but on this side of the House we also appreciate the importance of drawing on all the available expertise when deciding on the most appropriate rate of return. We believe that the Treasury may well have useful advice to contribute.
Provided that the noble and learned Lord consults widely—as he has assured us, and I accept, that he will—before determining the prescribed rate, then we are not convinced that it would be wrong to draw on the expertise of the Treasury. Also the decision in relation to the prescribed rate will not lie with the Treasury but with the noble and learned Lord. Therefore, we do not believe that the principle requiring justice to be seen to be done will be infringed. For those reasons we are not persuaded to support this amendment.
§ Lord Simon of Glaisdale
My Lords, I intervene only because what I said in Committee apparently misled my noble and learned friend the Lord Chancellor into thinking that my contention was inconsistent with that of my noble and learned friend Lord Ackner. That is not so: they were perfectly consistent. There are two 1227 separate situations. Either my noble and learned friend is entitled in the circumstances of this clause to consult the Treasury, which is his contention, or he is not, because, as my noble and learned friend Lord Ackner points out and as it is accepted by the noble Lord, Lord Irvine, the Treasury is an interested party. If the Treasury can, with propriety, be consulted, it is absolutely unnecessary to have these words in the Bill. They occur time after time in Bill after Bill and in Session after Session. It is small wonder then that the statute book continues to increase in size, format, bulk, the number of statutes and the number of pages to the immense cost of the taxpayer.
If the Treasury is properly consulted the internal machinery of government takes care of that. I do not believe that anyone has controverted that point. The Treasury is in close contact with all the spending departments and with all departments in so far as they have the power to influence spending. It has special officials who liaise particularly with each department. So if the Treasury is entitled to be consulted, and if it is to be properly consulted, it is quite unnecessary to have these words. It is against the Treasury's own interests that money should be wasted by having this formula in statute after statute. It is in fact a sort of "draftsman's tick"; the words come up on the computer in this sort of context. That is one situation.
The other is that put forward and defended by my noble and learned friend on the Woolsack. He says that it is right in these circumstances to consult the Treasury. The noble Lord, Lord Irvine, is perfectly right when he says that the Treasury has expertise, and so it has. But that is expertise that should not be tapped in the context of this clause because the Treasury is an interested party. I hope that I shall not myself be thought in any way inimical to the interests of the Treasury; on the contrary, I freeze with horror whenever I hear the word "Treasury" hissed out in tones of hatred, which is the general mode of expression. But here it seems to me that my noble and learned friend is absolutely right. The Treasury is an interested party and therefore these words are not merely unnecessary but malign because they direct my noble and learned friend the Lord Chancellor to do something that he should not do merely because the Treasury has expertise. As the noble Lord, Lord Irvine, said, it should not be consulted because that expertise is put to an interested use. Therefore, I support the amendment of my noble and learned friend.
§ Lord Meston
My Lords, it has to be said that the reference to the Treasury originates from the Law Commission's draft Bill. But it is certainly correct that the reference to the Treasury can only be said to be very necessary because the Government have departed from the recommendations of the Law Commission. Its considered view was that it was preferable to discount by reference to returns of ILGS, which was considered to be both realistic and fair. The Bill does not adopt that recommendation, and the noble and learned Lord the Lord Chancellor at the previous stage said expressly that he wished to be able to consider other rates.
1228 Like the noble and learned Lord, Lord Ackner, I have had the benefit of a very interesting paper from Sir Michael Ogden. There has to be great force in his point that there would be no need for the forecasts of the Treasury if in fact the Bill had simply said, as the Law Commission Bill said, that the normal rate should be based on ILGS. Another way of looking at it is to say that by adopting ILGS rates the Treasury would have had an input already because it decides on the rate.
The more I think about this matter the more I feel that there is force in the point that the Treasury's involvement should be minimal as it underwrites the awards against government departments when they are defendants to actions for personal injuries and death.
§ 7.30 p.m.
§ The Lord Chancellor
My Lords, in my submission, if and when the Lord Chancellor is minded to make an order fixing a rate, it would be right for him to consult widely and certainly to consult the insurance industry as well as representatives of those who are plaintiffs in actions.
As the noble Lord, Lord Meston, said, the Law Commission proposal which refers to other than the rate on those securities which are independent of inflation contains the provision that the Government Actuary and the Treasury should be consulted. This clause is modelled on that provision. In my submission, proper consultation with those interests is perfectly in order. It is for the Lord Chancellor ultimately to decide. Of course, the Lord Chancellor himself is a potential defendant in actions from time to time, but the responsibility has to rest with a Minister, and I suggest that in this context that Minister should be the Lord Chancellor.
I believe that the Lord Chancellor should be able to consult the Treasury. That is the primary point about which my noble and learned friend Lord Ackner is concerned. As I have said before, my noble and learned friend Lord Simon of Glaisdale appeared to be taking a somewhat different point on the last occasion and he elaborated on that today. Fundamentally, however, the argument that you do not need to mention the Treasury because the Treasury will be consulted anyway is a different argument from and, to my mind at least, is not entirely consistent with the view that the Treasury should not be consulted in the circumstances of a particular case.
I have considered carefully what my noble and learned friend Lord Ackner has said, but I believe that it is appropriate that "the Treasury" should be left in the clause on the basis that any representations that the Treasury may make will have to be considered carefully, bearing in mind that it is potentially responsible for the effect of any awards against the Government. Equally, that could be said in respect of the insurance industry, for example, when it makes representations. In my submission, it is entirely appropriate that that industry should be consulted. Therefore, I invite your Lordships not to accept the amendment.
§ Lord Ackner
My Lords, I hear what the noble and learned Lord says about his intention to consult widely.
1229 He has mentioned the insurance market. I imagine that in that consultation he will include also trade unions and solicitors' societies concerned with personal injury litigation. When he receives advice from the Treasury. I have no doubt that the noble and learned Lord will ask for comments on that advice from such organisations, which are likely to have rival or opposite interests; otherwise this legislation has identified one privileged class of litigant, the Treasury. I am surprised that the prospect of having such a provision on the face of an Act of Parliament has not been condemned by the noble Lord, Lord Irvine of Lairg. However, in view of the observations that have been made and my hopes that the wide consultation will be on the basis that I have suggested, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
The Lord Chancellor moved Amendments Nos. 3 to 5:
Page 1, line 18, leave out from ("references") to ("to") in line 19.
Page 1, line 19, leave out ("respectively").
Page 1, line 20, leave out ("to damages and").
§ The noble and learned Lord said: My Lords, I spoke to Amendments Nos. 3 to 5 with Amendment No. 1. With the permission of the House, I beg to move them en bloc.
§ On Question, amendments agreed to.
§ Clause 4 [Enhanced protection for structured settlement annuitants]:
Lord Meston moved Amendment No. 6:
Page 2, line 45, at end insert ("and as if any reference in those sections to liquidation were a reference to liquidation or provisional liquidation").
§ The noble Lord said: My Lords, as the House knows, most structured settlements are funded by means of annuity policies. To meet concern about the long-term security of such funds, the Bill as currently drafted would enhance the protection offered by the Policyholders Protection Act 1975, which guarantees payment of 90 per cent. of the policy value where an insurer goes into liquidation, to 100 per cent. in the case of structured settlement annuities. That reform is welcome, but it seems that it will not provide adequate protection for all those injured who find that an insurer cannot meet its liabilities because the protection does not extend to insurers in provisional liquidation.
§ A situation which has been drawn to my attention has arisen when an insured person has suffered real hardship because he has not been paid by the general insurer and has not so far been able to recover the sums owing because the general insurer is in provisional liquidation. In such situations, the Policyholders Protection Act 1975 fails to provide protection for the injured person, who also has no power to compel the liquidator to make matters final so that payment would be guaranteed under the Act. In the case in question, the general insurer has apparently continued to receive the proceeds of the annuity policy purchased when the case was settled, but, despite requests, the general insurer also continues to refuse to allow the annuity policy to be assigned to the 1230 particular plaintiff, despite the fact that such assignments have become common practice since the Finance Act 1995.
§ There seems to be a gap in the legislative protection. The simplest solution seems to be to extend the 1975 Act to provisional liquidations in the case of structured settlements. It is on that basis that this simple amendment is proposed. I beg to move.
§ Lord Irvine of Lairg
My Lords, I am not sure but I suspect that the amendment arises as a result of a recent dispute involving Municipal Mutual Insurance. It had entered a state of provisional liquidation, with the result that the plaintiff victim who had agreed a structured settlement with the company was unable—or was thought to be unable—to recover payments under the settlement, although the company continued to receive the sums payable under the annuity which had been purchased in order to implement the structured settlement.
The view was that the protection provided by the Policyholders Protection Act 1975 could not be relied upon by the plaintiff victim. That was thought to be because the protection under Sections 10 and 11 of the 1975 Act appeared to be limited to liquidation and did not extend to provisional liquidation.
These Benches would welcome the advice of the noble and learned Lord on this specific point: if Sections 10 and 11 of the 1975 Act do not extend to provisional liquidation, it appears to us that the argument in favour of the amendment moved by the noble Lord, Lord Meston, is a powerful one.
§ The Lord Chancellor
My Lords, I have sought to consider this question which is not entirely easy. However, having looked at the Policyholders Protection Act 1975, I have reached the conclusion that if this is a good point, it is a much more general point and does not apply only to structured settlements; it also appears to affect third parties' rights against insurers. The provision is the same.
I have not had time fully to consider this matter. My present belief is that if a person is the creditor of a company in provisional liquidation he will be able ultimately to enforce liquidation. If he has a claim which is liquid against the company I do not believe that his petition for liquidation can ultimately be refused. That is my very superficial answer to the problem. But I wish to look at the matter thoroughly. I believe that if this is a good point it is a much more general point which does not apply only to structured settlements. I am not sure that simply to put into Sections 10 and 11 of the 1975 Act, as this amendment seeks to do, references to liquidation as including liquidation or provisional liquidation will solve the problem. This is an important matter. I should like an opportunity to consider it further. The advice that I have been able to obtain so far is on the lines I have suggested. If there is a real problem here it goes a great deal beyond structured settlements. We may need to look at something more fundamental.
In the meantime, if the noble Lord, Lord Meston, is willing to withdraw his amendment I will undertake to have the matter looked at as thoroughly as possible 1231 before the next stage is reached. I shall try to intimate to both the noble Lord, Lord Meston, and the noble Lord, Lord Irvine of Lairg, the result of my inquiries before we part with the Bill.
§ Lord Meston
My Lords, I am grateful to the noble and learned Lord for that indication. I am not able to say whether the case brought to my attention was that referred to by the noble Lord, Lord Irvine of Lairg, to whom I am grateful for reinforcing the point. It appears that there is something of a lacuna. I accept that it is not an easy matter. It struck me that the problem might extend beyond structured settlements. This Bill would enable the problem to be dealt with only in so far as it affected structured settlements. That explains why the amendment finds its place here. With respect, it may be an over-simplification to look for an answer in persuading the court to finalise the liquidation. That appears to have been an obstacle in the case to which my attention was drawn.
I am most grateful to the noble and learned Lord for undertaking to give the matter further consideration. On that basis I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 6 [Guarantees for public sector settlements]:
The Lord Chancellor moved Amendment No. 7:
Page 4, line 40, leave out ("Exchequer") and insert ("Consolidated Fund").
§ The noble and learned Lord said: My Lords, Amendment No. 7 is a small drafting amendment to substitute a more precise reference to the proper destination of any moneys which may be recovered from the principal debtor by a Minister whose guarantee has been called upon. I beg to move.
§ On Question, amendment agreed to.
§ 7.45 p.m.
§ Clause 8 [Short title, extent and commencement]:
Viscount Chelmsford moved Amendment No. 8:
Page 5, line 24, at end insert ("but section 1 applies only to causes of action accruing on or after that date").
§ The noble Viscount said: My Lords, Amendment No. 8 is not about the terms of the Bill but its attachment. I believe that if the Bill were passed today and my noble and learned friend the Lord Chancellor used the index-linked rate, the rate applied to a particular case would almost halve and, conversely, the amount of lump sum to be put in for interest would almost double. As far as concerns the insurance industry whose brief I hold in this matter, that is not necessarily a problem provided it can rate its policies accordingly.
§ I raised this point in Committee. The problem arises, if the Bill is enacted as currently drafted, in terms of the pipeline claims currently before the courts. I said in Committee that it was the belief of the insurance industry that pipeline claims would cost motor insurers alone the equivalent of £200 million and that across the whole market, including all bodily injury, the cost would 1232 be perhaps between £500 million and £1 billion. The amendment seeks to provide protection in respect of pipeline claims.
In Committee on 13th May my noble and learned friend the Lord Chancellor, replying to the noble Lord, Lord Meston, said at col. 381 that he believed that my amendment need apply only to Clause 1. Therefore, the amendment has been altered as he suggested. My noble and learned friend said at col. 374:
The normal rule of statutory enactment that I have been accustomed to seeing followed is that one does not make retrospective alterations".
§ I hope very much that my noble and learned friend will stick to that, despite the fact that he is awaiting the result of a particular appeal, because there is good precedent for it. I draw to the attention of the House three pieces of legislation: the reform of the Fatal Accidents Act 1976, which was introduced for accidents occurring on or after 1st April 1991; the consumer protection Act, which applied to products supplied on or after 1st March 1988; and the Social Security Administration Act 1992, which related to incidents occurring on or after 1st September 1989. Therefore, we have put down an amendment which applies to causes of action accruing on or after the date on which the Bill becomes law. I beg to move.
§ Lord Irvine of Lairg
My Lords, the principle underlying the amendment is very important: that Parliament does not and should not legislate retrospectively except in very exceptional circumstances. I am sure that the noble and learned Lord will agree with that general proposition. The effect of the Bill, if implemented as drafted, is that the prescribed rate which the noble and learned Lord requires the courts to apply in discounting compensation awarded for future pecuniary loss will apply to any claims which are, as described by the noble Viscount, Lord Chelmsford, already in the pipeline, even if the cause of action has accrued before the date of the new determination by the Lord Chancellor.
Therefore, the argument of the noble Viscount, Lord Chelmsford, is that if the prescribed rate is lower than the current assumption of 4 to 5 per cent. the awards that the insurance industry will have to pay out will be higher than anticipated. If I do not over-simplify the matter, the noble Viscount argues that that is inequitable because the premiums for such policies would have been higher if the new prescribed rate had been anticipated. I am not persuaded that there is any element of retrospectivity in Clause 1 of the Bill. As the noble and learned Lord on the Woolsack pointed out in Committee,the aim of the power should be to try to arrive at the figure that the courts would think is the right figure at the present time".— [Official Report, 13/5/96; col. 382.]That is the reason given by the noble and learned Lord for the proposal that the prescribed rate will be determined in light of the guidance to be given by the Court of Appeal in two cases to be heard later this year. Also, guidance from the Court of Appeal is not a new phenomenon. The current assumption of a 4 per cent. to 5 per cent. rate is based on a Court of Appeal case 1233 decided in the mid-1980s, which itself involved applying the dicta by the late Lord Diplock in your Lordships' House in its judicial capacity in an earlier decision of the House.
My view is that the insurance industry can reasonably be expected to have been aware of the previous Court of Appeal guidance and of its necessarily contingent nature; that is to say, that it was guidance only which could well change by court decision over time as economic conditions changed. That is what may well happen in the decisions to be handed down by the Court of Appeal later this year.
To my mind, therefore, it follows that setting the new rate will not be inequitable, because it is a contingency that the insurance industry, which, in my experience is highly skilled in assessing in advance the risks that it faces, would, or should, in ordinary prudence, have taken into account already when settling premiums for past policies. Without hearing further argument, I have to confess that I am not persuaded that there is real merit in the amendment.
§ Lord Meston
My Lords, I, too, wonder a little about this amendment, particularly in view of the fact that the noble and learned Lord the Lord Chancellor has said several times now that it is his intention to consult, among others, the insurance industry. I also wonder whether in Clause 1 the provision for an order to be made from time to time would allow for an order to do precisely what the amendment seeks to do, by saying that the prescribed rate within that order should apply only to causes of action arising after a certain date.
§ The Lord Chancellor
My Lords, the basic answer to my noble friend's amendment is that, if the exercise of the power in Clause 1 were to double or to halve the rate that would otherwise be payable, then my noble friend would have a good point because the power would be used completely to alter the level of damages that heretofore obtained. My purpose in this power is to simplify the procedure required to reach an award, not to change the level of the awards, so that instead of having to have a different, detailed calculation in every case I would be able to prescribe a rate which would apply generally.
Basically, what I am aiming to do, using this power, is to arrive at what the Court of Appeal will decide is the proper rate in present circumstances. Difficulty may arise at a much later stage, but at present I submit to your Lordships that that is the correct way forward. I do not intend to alter the nature of the burden that would fall on the insurer in respect of pipeline claims, but merely to simplify the method by which that calculation is carried out.
Looking to the future, it may be right to have some power to alter the level as well as to replicate it. This power is not intended to do that. It is intended always to reflect what the courts would do generally apart from this power. I am willing to consider putting into Clause 1 more express words than are there at the moment so as to achieve more clearly what the noble Lord, Lord Meston, said; in other words, to make it 1234 clear that the power can be exercised in relation to claims not yet accrued in a way that might be different from the way in which it affects claims already accrued.
The purpose of this provision is to reflect the current level of damages, not to alter them, as they are to be determined in accordance with the present law by the Court of Appeal in the light of the various powers that it has. Of course, as the noble Lord, Lord Irvine of Lairg, said, the insurance industry has had to take account of that in the past. I, too, agree with the proposition that it is pretty skilled at estimating the future and making reasonable returns for those interested in the outcomes. The level of decapitalisation that has been used over the years has altered, and it alters also to some extent from case to case in the light of the evidence. So such risks are involved in the present situation.
My purpose in using this power is to simplify the method rather than alter the level of damages in the particular case. That is why this proposal differs from that in the Law Commission's original draft Bill appended to its report. In the light of that explanation and assurance, I hope that my noble friend will feel able to withdraw his amendment.
My Lords, the insurance industry can certainly put up with the slings and arrows of court decisions and is accustomed to doing so. The amendment was born of the concern at what looked like a right-angled change between current rates and plain index-linked rates. We have heard a great deal this evening. I am grateful to my noble and learned friend the Lord Chancellor for a number of the things he has said which give great comfort to me and I hope to the insurance industry. I should like to look at them with care. I am interested in my noble and learned friend's suggestion that he may alter Clause 1. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.