Courts Bill [H.L.]

HL Deb 27 March 2003 vol 646 cc913-47

The Parliamentary Secretary, Lord Chancellor's Department (Baroness Scotland of Asthal)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Baroness Scotland of Asthal.)

On Question, Motion agreed to.

House in Committee accordingly.

[The PRINCIPAL DEPUTY CHAIRMAN OF COMMITTEES (Lord Grenfell) in the Chair.]

Clause 87 [Fees]:

Lord Hunt of Wirral moved Amendment No. 132A: Page 41, line 30, at end insert— but should only seek to recover the recurrent running costs of the courts

The noble Lord said: We now resume the debate which finished on the previous occasion with the success of Amendment No. 132 on civil court fees. In many ways, as the Minister is aware, we on the Opposition Benches are seeking to assist the Government to resist a Treasury-imposed directive, which would lead to virtually all the costs of civil courts being raised through the level of court fees.

Not that I am ever allowed to disclose any private discussion, but I am aware that there is considerable unrest at all levels of civil justice about this policy. In particular, on the last occasion that the Committee debated the Courts Bill, I quoted the Civil Justice Council, chaired by the Master of the Rolls, which had called on the Government to abandon the policy of raising virtually the full cost of civil courts through fees.

However, as the Minister will be aware, since that date and since the passing of the amendment, the Government have decided to unveil court fee increases. I must not show too many of my grey hairs, but I can recall the court fee being £10 for the writ. I remember it rising to £50 and then to £100. I see from the Law Society Gazette of 20th March that, as from 3rd April, if anyone wishes to commence proceedings in the High Court, the proposed increases will mean that the fee will be £500. The Government intend that the court fee for a claim of more than £100,000 within the High Court jurisdiction—say, by someone with a disability who has been injured in an accident—will now be £700. That will be the cost of simply starting the process. One hopes that under the reforms of the Lord Chief Justice, the noble and learned Lord, Lord Woolf, there will be the normal pre-action protocols. But if the proposals go through, the cost of issuing the writ will now be £700, and if the claim happens to be above £150,000, it will be £800.

I ask the Government to reconsider. There is no doubt that, as the Civil Justice Council points out, this will lead to a denial of access to justice. I hope that that will no longer be the case following the passing of the amendment. In these amendments—in particular, Amendment No. 132A but also in Amendments Nos. 132B and 132C—we give the Government a menu of options. Indeed, we are from the Opposition and we are here to help the Government. They can choose any one of these three amendments.

The first—Amendment No. 132A—would exclude the recovery of costs other than recurrent running costs. It is a very sensible amendment proposed by a number of outside bodies. Amendment No. 132B would seek to exclude from this new power for the Lord Chancellor to set fees the recovery of judicial salaries and the cost of accommodation. We are aware that problems have been raised by the Royal Courts of Justice, and those have to be dealt with. I hope that the Government will be able to engage in the widest possible consultation and a proper and open debate about the issue of the Royal Courts of Justice and about whether a level of 100 per cent recovery is appropriate and defensible. If it is not, what should the percentage of recovery be, and is it a percentage that will change over time?

The final amendment—Amendment No. 132C— would lay down that: The Lord Chancellor may not under this section seek to recover judicial salaries". I hope that this will be the most acceptable of the amendments. The provision of judges is a social function. It should not be borne only by those who choose to commence proceedings and are required to pay court fees.

I hope that the Government will consider having a meeting with the Civil Justice Council. I understand that there has been no meeting on this matter, but the Minister will be aware that the council issued a very clear report on it seeking a reversal of the policy. The Civil Justice Council, chaired by the Master of the Rolls, is an important body on which sit leaders of civil justice in all its forms. I believe that they deserve at least a meeting to debate and discuss this policy. In the mean time, I beg to move.

Lord Thomas of Gresford

We on these Benches support the amendments for the reasons very cogently put forward by the noble Lord, Lord Hunt of Wirral. The Minister may recall that at our last Committee meeting I raised the question of whether the fees would be set at a level such that those who could pay would be subsidising those who could not. Following that, she wrote to me on that topic. As I understand it, the Government are saying that that is not the principle upon which the fees will be apportioned. I should be grateful if the noble Baroness could repeat that assurance this morning in open court, as it were, before the Members of the Committee.

Baroness Scotland of Asthal

I intend to deal with all three amendments in responding to the noble Lord, Lord Hunt. The effect of these amendments, none of which are consequential on each other, would make it a statutory requirement that the Lord Chancellor should have regard when prescribing fees to the need: first, to recover only the recurring running costs of the courts, which is Amendment No. 132A; secondly, to exclude judicial salaries and accommodation costs, which is Amendment No. 132B; and, thirdly, as in Amendment No. 132C, to exclude judicial salaries alone. I thank the noble Lord, Lord Hunt, for his attempt to assist the Government in this regard, but I shall decline his invitation.

A statutory provision that excludes judicial salaries and accommodation costs from recurrent running costs would be an undesirable fetter on the Lord Chancellor's powers in exercising his ministerial responsibility to set fees; it would understate the true cost of the service; and it would require a significant proportion of business-related cases being subsidised by the taxpayer.

Subject to subsidies to protect access to justice, the Government's policy is to recover through fees the cost of civil court services, which includes judicial salaries and accommodation costs. That approach is based on the general principle that it is reasonable to expect that those parties who can pay should meet the cost of that part of the civil justice system they are using in order to resolve their dispute. The policy of recovering most of the costs of the courts through fees ensures the best targeting of scarce public resources. These are public expenditure decisions for the Government.

First I shall deal with specific points raised by the noble Lord, Lord Hunt. The Committee will remember that accommodation costs were first included in costs recovery in 1982. In 1992 the noble and learned Lord, Lord Mackay of Clashfern, the then Lord Chancellor— whom I see is sitting in his place—agreed it was anomalous that judicial salaries should not be included. The introduction of accruals accounting across government has brought in capital charges for property which reflect the true cost of services. This principle and approach is now in its 11th year, so it has been established for some time.

The civil courts are funded appropriately. The Government showed their commitment to ensuring that citizens can access and enforce their legal rights or have their obligations determined by an independent tribunal by enshrining the European Convention on Human Rights in the domestic Human Rights Act.

Last year—2001–02—the Government funded civil and criminal legal aid in the sum of £1,717 million. The total cost of running the criminal and civil courts was approximately £1.1 billion. In fairness to the taxpayer, there is no reason why court users who can pay should not pay for the cost of the civil courts service which they are using. We are not talking of those who cannot pay, or, as the noble Lord suggested, the disabled, who may very well have the advantage of legal aid. The noble Lord will know that legally-aided applicants do not pay fees; they are paid by the Legal Aid Fund.

I am happy to repeat what I said in my letter to the noble Lord, Lord Thomas of Gresford. We do not recover "full" cost as the policy of protecting access to justice also applies. The Government funds those receiving exemptions and remissions and the family proceedings subsidy and not other fee-paying litigants. The Government's policy is normally to recover the full cost of government services but Ministers can agree exceptions, as for the civil courts. Recovering the full or partial cost of services ensures the best targeting of scarce resources. So the noble Lord is absolutely right to say that that is the Government's position. I am very happy to reiterate that for the purposes of the debate.

The noble Lord, Lord Hunt, touched on the recent fee increase. The overall increase is under 12 per cent. It is the first increase since April 2000. Some fees have remained unchanged since 1999. Over the three-year to four-year period the annual increase is between 3 per cent to 4 per cent. Without increases a £30 million budget shortfall is projected for 2003–04.

These are important and difficult issues. We think that the Government have struck the proper balance in assisting those who cannot pay and in cushioning them, as I described when last we were in Committee. But those who have the means—and noble Lords will remember we touched on the work in the commercial Court where litigants have those means—should pay and pay at a proper rate. I invite the noble Lord to withdraw the amendment.

11.15 a.m.

Lord Hunt of Wirral

There are number of gaps in the response of the noble Baroness. First, her argument is that the provision would be an undesirable fetter. However, she has not yet given the Committee the benefit of her view, or that of the Government, on the passing of the last amendment which preserved the principle of access to justice. We seek to build on that principle.

The Minister's point about those who can afford to pay does not answer the point raised from our Benches and those of the Liberal Democrats. We are particularly concerned about people who are just above the threshold. Although she may say that it does not apply to legally aided applicants, she will be aware that the Government have virtually abolished civil legal aid. Most applicants must now enter a complicated mechanism called a conditional fee agreement on a no win, no fee basis. Those agreements were introduced without proper research, and the courts must now deal with the consequences.

My final point is that we are dealing with the law of diminishing returns. As fewer and fewer people pay court fees, the court fees rise. Although the noble Baroness seeks to persuade us that an increase of around 12 per cent is small, I do not believe that it is, particularly given some of the specific fees. There is a problem now that fees are being set too high. With the deficit, there is underfunding. The Master of the Rolls recently pointed out that the IT system underpinning the civil justice reforms has not yet been implemented. The Minister should reconsider. She has not responded to my invitation to meet the Civil Justice Council. I hope that she will consider it.

In the mean time, I wish to press Amendment No. 132C, which would exclude judicial salaries, and to test the opinion of the Committee. Therefore, I beg leave to withdraw Amendment No. 132A.

Amendment, by leave, withdrawn.

[Amendment No. 132B not moved.]

Lord Hunt of Wirral moved Amendment No. 132C: Page 42, line 10, at end insert— ( ) The Lord Chancellor may not under this section seek to recover judicial salaries.

The noble Lord said: I beg to move.

11.22 a.m.

On Question, Whether the said amendment (No. 132C) shall be agreed to?

Their Lordships divided: Contents, 90; Not-Contents, 87.

Division No. 1
CONTENTS
Ackner, L.	Howarth of Breckland, B.
Alderdice, L.	Howe, E.
Anelay of St Johns, B.	Howe of Aberavon, L.
Arran, E.	Howe of Idlicote, B.
Ashdown of Norton-sub-	Howell of Guildford, L.
Hamdon, L.	Hunt of Wirral, L.
Astor of Hever, L.	Jenkin of Roding, L.
Avebury, L.	Jopling, L.
Baker of Dorking, L.	Laird, L.
Blatch, B.	Lang of Monkton, L.
Bowness, L.	Livsey of Talgarth, L.
Brooke of Suiton Mandeville, L.	Luke, L.
Buscombe, B.	Lyell, L.
Byford, B.	McNally, L.
Campbell of Alloway, L.	Maddock, B.
Carey of Clifton, L.	Marlesford, L,
Carlisle of Bucklow, L.	Marsh, L.
Cockfield, L.	Methuen, L.
Cope of Berkeley, L. [Teller]	Michie of Gallanach, B.
Crickhowell, L.	Miller of Chilthorne Domer, B.
Dahrendorf, L.	Miller of Hendon, B.
Dean of Harptree, L.	Monro of Langholm, L.
Denham, L.	Mowbray and Stourton, L.
Dholakia, L.	Moynihan, L.
Dixon-Smith, L.	Noakes, B.
Donaldson of Lymington, L.	Northover, B.
Dundee, E.	Norton of Louth, L.
Elis-Thomas, L.	Palmer, L.
Elliott of Morpeth, L.	Park of Monmouth, B.
Falkland, V.	Peel, E.
Finlay of Llandaff, B.	Perry of Walton, L.
Flather, B.	Pilkington of Oxenford, L.
Freeman, L.	Rawlings, B.
Gardner of Parkes, B.	Redesdale, L.
Geddes, L.	Rotherwick, L.
Goodhart, L.	Russell-Johnston, L.
Hodgson of Astley Abbotts, L.	Saltoun of Abernethy, Ly.

Sandwich, E.	Tordoff, L.
Selsdon, L.	Vivian, L. [Teller]
Sharman, L.	Waddington, L.
Shaw of Northstead, L.	Wakeham, L.
	Wallace of Saltaire, L.
Skelmersdale, L.	Weatherill, L.
Smith of Clifton, L.	Wilcox, B.
Strange, B.	Williams of Crosby, B.
Thomas of Gresford, L.	Williamson of Horton, L.

NOT-CONTENTS
Acton, L.	Healey, L.
Amos, B.	Hilton of Eggardon, B.
Andrews, B.	Hogg of Cumbernauld, L.
Archer of Sandwell, L.	Howells of St. Davids, B.
Bach, L.	Hoyle, L.
Barnett, L.	Irvine of Lairg, L. (Lord
Bassam of Brighton, L.	Chancellor)
Bhatia, L.	Jones, L.
Blackstone, B.	Judd, L.
Blood, B.	King of West Bromwich, L.
Boston of Faversham, L.	Lipsey, L.
Brooke of Alverthorpe, L.	Lofthouse of Pontefract, L.
Brookman, L.	McIntosh of Haringey, L.
Burlison, L.	[Teller]
Campbell-Savours, L.	MacKenzie of Culkein, L.
Carter, L.	Mackenzie of Framwellgate, L.
Christopher, L.	Masham of Ilton, B.
Clark of Windermere, L.	Merlyn-Rees, L.
Clarke of Hampstead, L.	Morgan, L.
Clinton-Davis, L.	Morris of Manchester. L.
Cohen of Pimlico, B.	Nicol, B.
Craig of Radley, L.	Orme, L.
Crawley, B.	Patel of Blackburn, L.
David, B.	Pendry, L.
Davies of Oldham, L.	Pitkeathley, B.
Dixon, L.	Ponsonby of Shulbrede, L.
Dubs, L.	Ramsay of Cartvale, B.
Evans of Parkside, L.	Scotland of Asthal, B.
Evans of Temple Guiting, L.	Sewel, L.
Falconer of Thoroton, L.	Sheldon, L.
Farrington of Ribbleton, B.	Sheppard of Liverpool, L.
Faulkner of Worcester, L.	Simon, V.
Fyfe of Fairfield, L.	Smith of Gilmorehill, B.
Gale, B.	Stone of Blackheath, L.
Gavron, L.	Strabolgi, L.
Gibson of Market Rasen, B.	Taylor of Blackburn, L.
Golding, B.	Temple-Morris, L.
Goldsmith, L.	Tomlinson, L.
Gordon of Strathblane, L.	Turner of Camden, B.
Gould of Potternewton, B.	Varley, L.
Grabiner, L.	Whitaker, B.
Grocott, L. [Teller]	Williams of Elvel, L.
Hardy of Wath, L.	Williams of Mostyn, L (Lord
Harrison, L.	Privy Seal)
Haskel, L.	Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

Clause 87, as amended, agreed to.

11.31 a.m.

Clause 88 [Award of costs against third parties]:

Lord Goodhart moved Amendment No. 133: Page 42, line 17, after "of" insert "all or any part of the

The noble Lord said: In moving Amendment No. 133, I shall, with the leave of the Committee, speak also to Amendment No. 136. My noble friend Lord Thomas of Gresford will speak to Amendment No. 138, which is also in the group.

Amendments Nos. 133 and 136 are probing amendments designed to clarify some of the terms of Clause 88. The clause inserts a new Section 19B of the Prosecution of Offences Act 1985, introducing, for the first time, provision for the award of costs against third parties in criminal proceedings. A third party costs order is defined as, an order as to the payment of costs incurred by a party to criminal proceedings by a person who is not a party to those proceedings".

I assume that a third party costs order can apply to part of the costs incurred by a party to the proceedings and not simply to the whole of the costs, and I have tabled an amendment that would clarify that. Although I have little doubt that that is what subsection (2) of the new section means, I would like it clarified.

Amendment No. 136 is designed to deal with a significant omission from new Section 19B. The new section says nothing about the nature of the proceedings by which a costs order may be made against a third party. It is obvious that justice requires that a third party to criminal proceedings—in other words, somebody who is outside the proceedings and is not a party himself—cannot be ordered to pay the costs of those proceedings, unless there has been a hearing at which he is entitled to be present and make the case as to why a third party costs order should not be imposed.

There is no provision in the new section that requires the regulations to be made by the Lord Chancellor to include any provision either for notifying the third party or, more importantly, giving the third party a right to a hearing at which objections can be made to an order being made against him for payment of costs. I beg to move.

Lord Hunt of Wirral

This is an important group of amendments, and I want not only to respond to the words of the noble Lord, Lord Goodhart, but to speak to Amendments Nos. 134 and 135 and support the points that the noble Lord just made.

The intention to introduce a new power for the magistrates' courts and Crown Courts was backed up by a statement made by the noble and learned Lord the Lord Chancellor that the power should be deployed against the media, as he described it. The proposal is of real concern to the Newspaper Society, particularly to the 1,300 regional and local newspapers—daily and weekly titles, paid-for and free—published by its members throughout the United Kingdom. The Committee will know that, as has been pointed out, such newspapers cover the day-to-day work of the criminal courts. I know that the concern that is being expressed is shared by the Society of Editors.

The principle, which everyone supports, is that justice must not only be done but be seen to be done. That requires that justice be administered in public, so that the process and the results are open to public scrutiny. It is important to aid public understanding of the way in which the criminal justice system operates. Often, it is left to the local and regional media to ensure that people are aware of how the criminal law operates.

As they stand, the provisions—namely, the wide-ranging and, to some extent, uncertain powers to make substantial costs orders against the media—will be a disincentive to the reporting of proceedings. Editors, newspapers and the media will face the risk of the award of costs of legal defence and the cost of premiums for insurance against wrongful attempts to impose such penalties. For smaller papers, comparatively small sums could exert a chilling effect on the reporting of court proceedings.

Amendments Nos. 134 and 135 would identify what "serious misconduct" is. As the Bill stands, that need not be contempt in any form, a breach of a court order or a reporting restriction or any other breach of criminal or civil law. It is wrong to introduce new controls over reporting in that way. At the moment, if there has been a mistake, the matter is dealt with under existing law, backed by powerful sanctions but with procedural and substantive legal safeguards for freedom of expression.

Like the noble Lord, Lord Goodhart, I am concerned that there will be a risk that orders for prohibitive costs will be made arbitrarily against third parties—in particular, newspapers—for conduct or publication that is not even unlawful. That could have a chilling effect on reporting and publication that would be detrimental to open justice and public scrutiny and to public understanding of the criminal justice system. I hope that the Minister will reconsider.

Lord Thomas of Gresford

I speak to Amendment No. 138 which, in my opinion, is one of the most important amendments in the Bill. If the Government want to do anything about cost and delay, they must tackle the scandalous situation which has arisen in the past two or three years in respect of the failure of the Prison Service and private security firms to deliver prisoners to court in time, and sometimes at all.

My recent experience covers the Wales and Chester circuit, the northern circuit, the Midlands circuit and the Central Criminal Court in London. Each circuit has the same problem. In the past, we attended court one hour before the hearing. If it was a 10.30 a.m. sitting, we would be there at 9.30 a.m. in order to see the client. Now, it is a complete waste of time to do that. I cannot recall a case recently which has started at the specific allocated time.

The various problems are these. First, there is an unwillingness between the Prison Service and private security firms to co-operate. Secondly, the private security firms, in particular, do not have enough personnel. Consequently, they traverse the countryside—outside London—carrying the prisoners to various courts, and are immune to any criticism made of them. Thirdly, on arrival at the court building, a period of time has to elapse while they arrange themselves and the practice has now developed—I understand as a result of insurance requirements—that no prisoner is taken to a conference room unless handcuffed to a member of prison staff. That is the position within the secure area of the court to which prisoners are brought. All that takes time.

Another problem is that the interview rooms are not properly manned. It happens all the time in Birmingham where there are 12 or 13 interview rooms but only five are manned at any one time. The result is that queues of lawyers, counsel and solicitors stand outside hammering on the door, trying to use the intercom to talk to Prison Service personnel, to people who are completely indifferent to the problems that the lawyers are facing and to the problems that the court upstairs is facing. It results in total frustration.

I referred to Birmingham and Wolverhampton. I remember one day recently when 28 prisoners were brought in custody to the court. They all arrived late. Only three interview rooms existed and the queue of lawyers stretched from the lobby before the entrance to the secure area right across the main hall of the court. Everyone was standing around wasting time and wasting public money.

The judges have no means of doing anything about the situation. They have no coercive powers whatever. Some shrug their shoulders; others do what they can. I know of one judge, for example, who, whenever there is a delay in his court, writes a letter and keeps a copy. In a short period of time, he has acquired a thick file which he intends to send to the Lord Chancellor's Department when a particular private security firm is seeking to renew its contract. That is the only weapon that there is—namely, the contract.

The amendment proposes that the judge is given the power to make an inquiry at the time to establish whether he is being lied to as regards where the prisoner has been taken—that has happened in the past —and to establish the reasons for the delay. Subsequently, the judge could order costs against the Prison Service or the private security firm or wherever the fault may lie. That would instantly improve the situation.

At the moment, this country is spending millions of pounds in paying lawyers for hanging about unable to do their jobs. It is paying millions of pounds for wasted court time. It is an amazing sight to see a High Court judge sitting in his own court for a quarter of an hour because there is no person available to man the dock and therefore no prisoners can be brought in. That happened recently to me in an important Crown Court in the Midlands.

That issue must be tackled. It must be dealt with. The contract system simply is not working. I hope that I shall hear something from the Government which will address this particular problem. It is a scandal.

11.45 a m

Lord Goodhart

Before the Minister replies, the issue of the press, raised by the noble Lord, Lord Hunt of Wirral, is the subject of the single amendment in the next group. I did not speak to it as I asked for it to be degrouped because it is sufficiently important to require its own group. Perhaps the Minister will bear that in mind when replying.

Lord Donaldson of Lymington

I speak to Amendments Nos. 134 and 135 which are perhaps related to Amendment No. 137A. I cannot see how the proposal would work if "wilful" were substituted for "serious". The number of cases in which the press "wilfully" misconducts itself can be counted on the fingers of one hand, if they exist at all. The press lack wilfulness because it is simply negligent. There is a combination of the reporter who misunderstands and the sub-editor who does not understand either, and so forth, which leads to serious misconduct and everyone throws their hands in the air and says, "Well, I'm terribly sorry. It shouldn't have happened and we shall try to ensure that it doesn't happen again".

The question of costs only arises in the Bill if there is not only misconduct, but serious misconduct. Therefore, I cannot understand what is wrong with that. Amendment No. 138 clearly deserves maximum support and I hope that the Minister will be able to say that this is something which will be tackled and will be tackled energetically. She obviously has instructions not only from the Lord Chancellor but also from the Treasury and this is wasting public money. Therefore, one might expect the Government to endorse it enthusiastically.

Baroness Scotland of Asthal

The noble Lord, Lord Hunt, made comments in relation to the chilling effect on local and regional newspapers. I believe that he described the arbitrary way in which costs may be awarded. That procedure will be applied by the courts exercising their judgment judicially. It would be fair to say that the courts have never in the past exercised that duty in an arbitrary way. Therefore, implicit in these provisions in the Bill is that they will continue to behave in the same proportionate way as they have historically.

Before I turn to the particular amendments, there is already an acknowledgement that there is a difference between regional and national newspapers. In contempt cases, the courts have accepted that the fact that a newspaper is regional and not national is a mitigating factor in deciding what the penalty should be. We believe that the same would apply to the new cost provision. I wanted to say that before turning to the amendments.

Amendment No. 133, tabled in the names of the noble Lords, Lord Goodhart, Lord Thomas of Gresford and Lord Kingsland, proposes that the court may order the third party to pay, all or any part of the", relevant costs—in other words, to decide the proportion of costs that the third party should pay.

The intention in this clause is to shift the burden of costs to those who cause them to be incurred or wasted. We also intend that where costs are to be paid, it will be for the courts to decide, after considering all the relevant circumstances, whether it is appropriate for the third party to pay all or only a proportion of the relevant costs. We believe that approach is proportionate and reasonable. I know that this is a probing amendment, so I wanted to say that clearly.

The new section that the clause adds will form part of a group of sections on costs in the Prosecution of Offences Act 1985. We believe that, as far as possible, the wording of the new clause should be consistent with that in other sections. Spelling out, all or any part of the costs", would create a contrast between the new section and the existing Section 19(1) of the 1985 Act, which provides that, The Lord Chancellor may by regulations make provision empowering [the court] in any case where the court is satisfied that one party to criminal proceedings has incurred costs as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, to make an order as to the payment of those costs". Including "all or any part" in one section but not another could form the basis of an argument that the section that did not include that phrase did not permit an order to be made as to part of the costs only.

In addition, the amendment is unnecessary. Our wording already allows the court to make an order for part or all of the costs. I hope that satisfies the noble Lord. I see him indicating that that is so.

Amendments Nos. 134 and 135, to which the noble Lord, Lord Hunt, spoke, would define the meaning of the impropriety that may cause costs to be wasted or incurred. I concur with the comments of the noble and learned Lord, Lord Donaldson, about that. Amendment No. 134 would refer only to "misconduct", rather than "serious misconduct". Amendment No. 135 would define the impropriety as "serious and wilful misconduct". We chose the term "serious misconduct" because we do not want to include all misconduct. We want to catch those whose improprieties are considered serious or grave, such as the juror who prefers to go to the races rather than attending court, or a newspaper that publishes a prejudicial article that causes a criminal trial to be adjourned or abandoned. There is no need to remind the Committee that the Sunday Mirror published an article that caused the first trial of Woodgate and others—more popularly known as the Leeds footballers case—to be abandoned, at considerable cost to the taxpayer.

We do not want to catch a juror who is late for court through his own fault, but only by quarter of an hour. His lateness is clearly misconduct of a sort, but it may not be considered serious and the resulting wasted costs may be inconsiderable. We believe that "serious" is necessary and removing it would widen the scope of the legislation beyond that which was intended.

We view the addition of "and wilful" also as limiting and unnecessary. An impropriety may be serious, but at the same time it may not be wilful. For example, to publish a newspaper article reckless of the potential impact on a trial should be capable of being caught by the clause, even though it may not have been done wilfully, in the sense that there was no wilful intent to disrupt the administration of justice. It is reasonable to believe that a professional journalist or editor would understand the high degree of care that needs to be taken with articles about those involved in or related to current criminal proceedings. However, the same could not necessarily be said about the average man in the street who is not subject to any professional obligation and may be unaware that certain actions could have a detrimental effect on any proceedings. The court will be able to take account of these different considerations in determining whether, in the particular context, an impropriety should be treated as serious misconduct. "Wilful" could unduly restrict the court in cases of reckless acts or omissions where a third party costs order would be appropriate.

Under Amendment No. 136, when the court is considering making a costs order, the third party must be notified and given the opportunity of making representations before any such order is made. Of course we accept that the third party must have a right to a hearing, but we propose to provide for that in regulations and not in the Bill. On the notification of and representation for third parties, the Government intend to follow the provisions in existing regulations.

Lord Goodhart

My point was not that those issues should be included on the face of the Bill, but that the face of the Bill should spell them out as among the specific things that regulations should be required to provide for.

Baroness Scotland of Asthal

I understand what the noble Lord has in mind, but we still say that it would not be necessary. I am happy to say that we intend to include those issues in regulations. They will be similar to provisions in existing regulations that have been made relating to cases under Part 2 of the Prosecution of Offences Act 1985. The noble Lord will know that Regulations 3 and 3B of the Costs in Criminal Cases (General) Regulations 1986 provide that parties to proceedings who have acted improperly, and legal or other representatives who have acted negligently, may make representations to the court before any costs order is made against them. In those cases, it has been sufficient for the issue of representations to be dealt with in regulations and not in the Act. We propose the same here. I hope that the noble Lord will in due course be content with that.

Amendment No. 137 would limit the requirements to be satisfied before the court can consider a costs order by limiting the definition of serious misconduct to an "intentional or reckless act". It would limit the act to one that made a material contribution to the mischief and it would limit the mischief to delaying or causing the abandonment of a trial.

I have already said that we believe that it should be for the courts, after considering all the facts of each case, to determine which improprieties, including omissions as well as acts, constitute serious misconduct. Clause 88 allows the courts to do that.

The noble Lord, Lord Thomas of Gresford, spoke to Amendment No. 138. He rightly raised an issue that causes much frustration to the courts and contributes to the waste of court time and taxpayers' money. He gave us some graphic examples of the nature and extent of the problem and the level of frustration that it has caused to all those who have been subject to it.

However, we believe that the amendment, although absolutely pertinent, is unnecessary. Clause 88 already allows the court to deal with errant deliverers of prisoners. If costs are wasted because of late delivery, the court can look at the circumstances that caused the lateness. If it was the result of serious misconduct, the appropriate action can be taken—the court can make a third party costs order. Putting such detail on the face of the Bill can be unhelpful. It can encourage people to argue that the scope of the legislation has been unnecessarily limited, which will allow for other actions of serious misconduct to escape. I thank the noble Lord for raising this important issue, but we believe that the clause already enables the court to catch the situation that he described. The court will be able to assess whether there was a serious matter of misconduct with which it would be proper to deal. Now that the court has this sanction—these teeth— with which to bite such miscreants, we certainly hope that that will have a salutary effect and will cause people to behave in a more appropriate manner.

Has the noble Lord degrouped Amendment No. 143, because I believe that it was spoken to by the noble Lord, Lord Hunt of Wirral?

Lord Goodhart

It was Amendment No. 137A.

Baroness Scotland of Asthal

I am grateful to the noble Lord.

I turn finally to Amendment No. 143. The amendment proposes that any regulations made under proposed new Section 19B, which deals with the award of costs against third parties in criminal proceedings, should be made by way of the affirmative resolution procedure. When preparing the provision, we took the view that none of the usual reasons for having the affirmative resolution process applied in this case.

In its report on the Bill, the Select Committee on Delegated Powers and Regulatory Reform raised no objection. Noble Lords will know of the importance we have attached to the committee's report. I may say that that applies where the committee has made no recommendation as well as where it has.

Clause 88 inserts a new Section 19B in the Prosecution of Offences Act 1985 which is similar to other provisions on costs contained in Sections 19 and 19A. Indeed, Section 19 is cast as conferring a regulation-making power. Neither of those powers, nor the general regulation-making power in Part II of the 1985 Act, is subject to the affirmative resolution procedure. We see no reason why the regulations made under new Section 19B should require the affirmative resolution procedure when the existing provisions they will mirror have been subject to the negative resolution procedure.

We are satisfied that the regulations made under new Section 19B should be subject to the negative resolution procedure because the provisions which would be contained in those regulations are concerned with the detail of how the court's power to make third party costs orders will operate in practice: in other words, they will be primarily about procedural matters. For this reason, we do not believe that the affirmative resolution procedure is appropriate and I hope that the noble Lord will feel able to withdraw the amendment.

Noon.

Lord Goodhart

I am entirely satisfied with the Minister's response on Amendment No. 133. As regards Amendment No. 136, while I would have preferred to see something in the Bill that specifically required regulations to be made about hearings, I accept the Government's assurance that they will be included, if only because any attempt to make a costs order without a hearing against a third party would be a breach of the Human Rights Act 1998.

Perhaps I may ask my noble friend to comment briefly on his position on Amendment No. 138.

Lord Thomas of Gresford

I am delighted with the response made by the noble Baroness to Amendment No. 138 and I am pleased that the Government intend to cover this scandalous situation as I have described it. The words of William Blake come to mind: Bring me my bow of burning gold", but I do not think that there are sufficient "arrows of desire" in the current phrasing. I should like to make the point very specific because the clause relates to making regulations. Given that, provision should be made in regulations dealing with the Prison Service and the private security firms.

I shall come back to this matter at a later stage, but for the moment I shall not pursue it.

Lord Goodhart

I beg leave to withdraw the amendment.

Amendment, by leave. withdrawn.

[Amendments Nos. 134 to 137 not moved.]

Lord Goodhart moved Amendment No. 137A: Page 42, line 24, at end insert— ( ) In deciding whether there has been serious misconduct, the court must have particular regard to the importance of the Convention right (as defined in the Human Rights Act 1998 (c. 42)) of freedom of expression.

The noble Lord said: The noble Lord, Lord Hunt of Wirral, spoke on the subject of this amendment during the previous debate. The Newspaper Society, as the representative of the provincial press, has spoken to both the noble Lord and myself on this matter.

The society objects to the press being subject to third party costs orders at all on the grounds that the existing penalties for any breach of reporting restrictions under the rules covering contempt of court are entirely adequate. I have to say that I felt unable to go as far as that, but press coverage of the criminal courts, particularly in local newspapers, as the noble Baroness said, is a matter of importance. There is a real risk, as was pointed out by the noble Lord, Lord Hunt, that the possibility of a third party costs order may act as a deterrent to the full and proper reporting of court cases.

When the court decides whether serious misconduct has taken place, it should take into account the important role of the press. Amendment No. 137A is therefore specifically targeted on the press, unlike the earlier amendments, Amendments Nos. 134 and 135, which are of general application and would apply to everyone.

Mistakes made by the press, even if they are mistakes that have serious consequences in terms of costs, should not necessarily be regarded as matters of serious misconduct. Of course the deliberate publication of matters known to be likely to lead to a mistrial is an entirely different matter, but this amendment calls upon the court to have particular regard to the importance of the right of freedom of expression. In doing so, the amendment is based on a similar clause that was added to the Human Rights Bill during the course of its passage through Parliament in 1998.

We believe that, for the same reasons it was felt justified to include the clause in the Human Rights Bill, a clause of this kind would be justified for inclusion in the Courts Bill. I beg to move.

Lord Hunt of Wirral

I agree.

Baroness Scotland of Asthal

I wish I could respond simply by saying that I disagree.

While I understand why the noble Lord seeks to press the amendment, we say that it is inappropriate for the following reason. We object because of the use of the word "particular". The noble Lord has stressed that he wishes the court to have particular regard to the importance of the convention right to freedom of expression when deciding whether to order costs against a third party, but we say clearly that it is our belief that the court, when reaching its decision, should have regard to the totality of the Human Rights Act 1998. No one part of that legislation should have any lesser or greater importance than another. It is the balance struck in the Act that is so important.

As the noble Lord knows, the criminal courts are in any event required to act in a way that is compatible with Article 10 covering freedom of expression, and that will apply when they are considering whether to use the power conferred by this clause. However, we do not think it appropriate for the criminal courts in this context to be required to have particular regard to that article. Section 12 is concerned primarily with the balance between the freedom of expression of rights and the right to respect for private life. We are concerned here solely with apportioning the costs incurred or wasted as a result of serious misconduct by a third party. It is not appropriate to give special weight to freedom of expression in the costs context.

But we believe that the courts have demonstrated, through the way in which they have applied the law in this area, that they will be proportionate, reasonable and proper in the discharge of their duty. There is nothing that the courts have done to date that has caused me to fear that when looking at this legislation they will not properly take into consideration the necessary balance between these issues and discharge their duty with the usual honour and integrity which we expect of our judges.

Lord Goodhart

I am grateful to the noble Baroness for her reply, which was much as I expected. This is a point of some importance. We shall look carefully at what she has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 138 not moved.]

Clause 88 agreed to.

Clauses 89 to 91 agreed to.

Schedule 5 agreed to.

Clause 92 [Periodical payments]:

Lord Hunt of Wirral moved Amendment No. 138A: Page 44, line 24, leave out "pecuniary

The noble Lord said: We now move to consider Clauses 92 and 93 headed "Damages", which provide for periodical payments to be ordered by the court. This gives us an opportunity to review the position of structured settlements. The amendment asks a question about the extent to which periodical payments will be dealing with future loss, whether pecuniary or not.

It is some time since the first UK structured settlement involving periodical payments with model documentation was put in place. In July 1989, the first structured settlement attracted considerable publicity. In the following year more cases were settled on that basis. Since then the flow of cases has increased. In June 1991 a UK Law Commission inquiry was appointed to look at structured settlements which reported in 1994. It concluded the report Structured Settlements and Interim and Provisional Damages in the following terms: Structured settlements are a useful alternative form of arranging an award of damages which should remain available to allow plaintiffs [now claimants] a choice as to how to plan their future". In May 1995, legislation based on the commission's recommendations was enacted. We have seen the development since then. I refer particularly to the Damages Act 1996, which allowed for structured settlements to be made by consent.

In a case before our Judicial Committee in 1998, the noble and learned Lord, Lord Steyn, made the following comments: The present power to order periodic payments is a dead letter. The solution is relatively straightforward. The court ought to be given the power of its own motion to make an award for periodic payments rather than a lump sum in appropriate cases. Such power is perfectly consistent with the principle of full compensation for pecuniary loss. Except perhaps for"— I greatly regret that he added these words— the distaste of personal injury lawyers for change to a familiar system, I can think of no substantial argument to the contrary. But the judges cannot make the change. Only Parliament can solve the problem".

That explains why we are here today discussing Clause 92 in particular.

We have had extensive consultation. I pay tribute to the noble and learned Lord the Lord Chancellor. In March 2000 he published a consultation paper entitled Damages: the Discount Rate and Alternatives to Lump Sum Payments. He concluded that further discussion was necessary. In March last year he published a further consultation paper entitled Damages for Future Loss: Giving the Courts the Power to Order Periodical Payments for Future Loss and Care Costs in Personal Injury Cases. The post-consultation report was published in November last year. I applaud the speed with which the Government have responded in putting forward Clause 92 as far as it allows for periodical payments.

The issue has been looked at the by the Clinical Disputes Forum, which published a paper on the subject in August 2000 entitled Lump Sum Damages and Periodical Payments. The working party of the Master of the Rolls published a report last August on structured settlements.

I support what is clearly a more appropriate way of compensating claimants because it will ensure that they have the money to which they are entitled and for as long as it is needed without the anxiety of the award running out if they live longer than expected. But a number of reports have concluded that there must be an element of finality. We shall come to specific amendments dealing with the proposals on variation in a moment.

The extensive consultation that has taken place has disclosed that periodical payments are to be welcomed provided that they introduce a degree of finality. There are views in favour of periodical payments from a range of organisations such as the National Health Service Litigation Authority, the Medical Defence Union, the Medical Protection Society, the Association of British Insurers, the International Underwriting Association and by claimants' organisations. Generally, these are to be welcomed. But all of them are unanimous in their view that they have serious concern about a proposal for those payments to be varied at some unspecified stage in the future.

The variation clauses could cause much more litigation, endless uncertainty, constant scrutiny for claimants and financial instability for those who seek to compensate. I hope that the Minister will accept that there could be a fatal flaw in the system. If periodical payments are introduced with a suspicion that at some stage in the future they will be changed or varied, then I do not believe that the general welcome for periodical payments will continue.

12.15 p.m.

Lord Clinton-Davis

I am grateful to the noble Lord for giving way. If there is a fundamental change of circumstances, it is impossible not to vary the situation. Obviously, the noble Lord is right in that there should be no repeated surveillance of such a situation. Would the noble Lord like to comment on that?

Lord Hunt of Wirral

The noble Lord is right in that provisions presently exist for what are called provisional damages. Where there is a suspicion that at some stage there will be a serious deterioration in the claimant's condition, then it is perfectly possible for the damages to be put on hold, so to speak, under the system of provisional damages. That could be incorporated under the existing legislation in a structured settlement.

The noble Lord has given me an opportunity to emphasise the point. There may be a suspicion that there will be no finality. The Master of the Rolls' working party demonstrated the attraction of finality introduced by lump sum payments. But, as I read the proposals, there is presently nothing on the face of the Bill to meet the point that the move to the alternative system of periodical payments might produce continuing uncertainty. There is a genuine worry on the part of those who face claims—particularly in the National Health Service but also, generally speaking, insurers and re-insurers and those acting on behalf of claimants—that periodical payments in the form of structured settlements will not succeed because there is no finality and it is impossible for a file ever to be closed.

The Minister may seek to reassure us on that point. I very much hope that she will, as she now seeks to explain exactly what, in form of damages, the periodical payments will cover. I hope that she will not mind my having widened the debate to indicate the general concern that exists over what could be the fatal flaw of variability. I beg to move.

Baroness Scotland of Asthal

I thank the noble Lord for his generous compliments in relation to the way in which this work has been undertaken, and I return them. The work on periodical payments has been successful only, as a number of Members of the Committee have been kind enough to indicate, because of the work done by all those who have participated in this area, including the noble Lord. So this is a joint venture to that extent.

I do not mind at all the fact that the noble Lord has broadened the issue slightly. It may be helpful, therefore, if I set out in broad terms how we view periodical payments, because there has been some confusion. I hope that when we come to deal with the basis on which these could be reviewed I shall be able to make sufficiently clear and helpful comments to reassure the noble Lord that his anxieties as regards periodical payments and their take-up and application are not well founded.

These proposals aim to promote the widespread use of periodical payments as a means of paying compensation for future financial loss and care costs in personal injury cases. At Second Reading, the noble Lord, Lord Goodhart, the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Hunt, all welcomed the powers to order periodical payments. I was pleased, as I have said, that the noble Lord was able to reiterate that today.

At present, a court can order periodical payments only where both parties give their consent. Otherwise, it will order a lump sum. We believe that the existing system of compensation for future losses by way of lump sums is unsatisfactory. It is based on predictions about the future life expectancy of a claimant which are inevitably uncertain and almost always lead to over-compensation or under-compensation. That results in an injustice either to the claimant or to the defendant. If claimants are under-compensated because they live longer than expected, they may need to fall back on the state, causing an additional burden on the taxpayer. If claimants are over-compensated, they receive a windfall, the cost of which is ultimately borne by the taxpayer or through insurance premiums.

In contrast, periodical payments will help to ensure that people receive the compensation to which they are entitled for as long as it is needed. This will give greater security to claimants, who will be able to plan for the future without the anxiety or the awards running out if they live longer than expected. Periodical payments also transfer investment responsibility from claimants to defendants, who are better able to bear it.

We believe that periodical payments can also be valuable in assisting the rehabilitation process. Claimants will receive regular payments which are more accurately assessed to meet their on-going needs rather than face the difficulties of managing a substantial one-off lump sum. That will enable claimants to return to a normal life by allowing them to manage their everyday affairs with a regular stream of income and help them to look to the future and focus on the possibility of rehabilitation. In addition, the absence of the need for complex and often adversarial discussions about life expectancy should lead to the quicker resolution of cases and encourage early and effective rehabilitation.

Periodical payments will provide benefits to defendants by allowing awards to be managed more cost-effectively. They will be cash-flow savings for the NHS and defendants' insurers will have the greater choice over how payments are funded. We do not wish, by way of review, to jeopardise any of that security. The Government believe that the benefit of periodical payments will accrue from the greater use of these payments. A power for the courts to order periodical payments is needed to realise those benefits.

Under the current system, as the noble Lord, Lord Hunt, has indicated, where the consent of those parties to a structured settlement is required, this option remains little used, and lump sums remain the norm—often to the disadvantage of claimants, defendants and the taxpayer.

We recognise that periodical payments will not always be the most appropriate method of payment, and that lump sums will continue to be preferable in some circumstances. Our proposals will not prevent the court making a lump sum order where it considers that to be the best option for the claimant, and it is our intention that the Civil Procedure Rules, supported by practice directions, will provide guidance to assist the court in making an order that best meets the needs of the claimant.

Of course I understand the import of this amendment. But it would change the definition of the type of damages for which the court will be able to impose periodical payments from, damages for future pecuniary loss in respect of personal injury", to damages for "future loss" in respect of personal injuries. As we have indicated in our consultation paper, it is our intention that the power to impose periodical payments should be available in respect of future loss of earnings capacity, future care costs and similar expenses. The use of the term "future pecuniary loss" is intended to cover those areas.

The term is used elsewhere, in the Damages Act 1996 and in other legislation relating to damages, and is issued here for reasons of consistency. The new power will not apply to damages for past loss or to damages for non-pecuniary loss such as pain and suffering. It will apply to "future pecuniary" loss. I hope that we shall be able to ensure that the meaning of the term is explained in the Explanatory Notes to the Bill on that basis. On the basis of my remarks, I invite the noble Lord to withdraw the amendment. I hope that the clarity of that statement has satisfied him.

Lord Hunt of Wirral

I am grateful to the Minister, not only for responding to the amendment, which was essentially probing, but also for giving a general outline of the way in which the Government are approaching the whole question of structured settlements. We shall need time to reflect on the Minister's response, and we shall, of course, return to the subject of variation in a later group of amendments.

My only additional point is that we must bear in mind the needs of people with disability which has been incurred as the result of an accident or trauma. There is a feeling on the part of some of those with disability that they have not been involved at the centre of this whole process relating to periodical payments. There is a real concern that periodical payments be some form of inhibitor as regards the emphasis on rehabilitation and getting people back to work.

Stephen Duckworth, who is a leading campaigner on disability matters, has made me aware that we need to consult people with disability in order to ensure that periodical payments will encourage them to become more independent and more amenable to rehabilitation interventions. There is the possibility—we shall return to the issue on variation—that the constant question mark over the level of payment may have a detrimental effect on the rehabilitation process. We need to focus on that aspect which the noble Baroness will have very much in mind. However, to give the necessary width to the debate, I mention it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

12.30 p.m.

Lord Goodhart moved Amendment No. 139: Page 44, line 28, at end insert— ( ) Periodical payments shall be increased or decreased in accordance with the Retail Price Index.

The noble Lord said: I did not participate in the debate on the previous amendment but I strongly agree with the principle of periodical payments, moving from the existing structured settlement regime, which requires the consent of both parties if it can be done only by an out of court settlement subject to approval by the court, to a situation where the court has power to order periodical payments. While this is a step forward it will be essential to ensure that the real value of periodical payments is maintained. That is the purpose of the amendment.

Even at the Government's target figure of 2.5 per cent inflation, periodical payments with a fixed annual amount would steadily lose their real value over time. Ignoring the effect of compounding, a 2.5 per cent increase over a period of 10 years per annum would lead to a decline in real value of the periodical payment over those 10 years by 20 per cent. The figure is 20 per cent not 25 per cent: that is a matter for the mathematicians. If one takes into account the compounding of the interest—the 2.5 per cent per annum is measured not on what happened 10 years ago but with the previous year's figure—the problem becomes even more acute. The consequences would be not only serious but disastrous if inflation rates were over 20 per cent per annum as in the 1970s or early 1990s.

It is now practicable to ensure that the real value is maintained because the cost of an order for periodical payments can be funded through index-linked government securities. It is not practicable to link periodical payments to earnings. That is unfortunate. Because of the increase in real earnings, a person rendered unfit for work 40 years ago and in receipt of periodical payments fixed even in real terms at the 1963 figures would have a standard of living well below that of a healthy contemporary even if those periodical payments had been index linked. That seems to me an unavoidable problem. There is no realistic way in which an earnings-linked annuity could be funded. However, I believe that linkage to the retail prices index is not only practicable but plainly desirable and essential. I beg to move.

Lord Hunt of Wirral

It is an important amendment. It touches on the way in which periodical payments will be dealt with. I considered carefully this aspect when reading paragraph 35 of the Master of the Rolls' working party's report on structured settlements. Close matching regulations oblige, for instance, life offices to hold assets to match their liabilities. Close matching is a key issue when one considers the way in which any annuity payment will increase in value. That close matching was found in the Insurance Companies Act 1982 but is now regulated by the Financial Services and Markets Act 2000 with the detail to be found in the FSA Interim Prudential Source Book Pr Insurers, Volume 3 Guidance Notes, Section 4.4, linked contracts, paragraphs 2.1 to 2.15.

There is no point in setting up a system for structured settlements when no available products will conform to the close matching regulations That is fundamental if we are to proceed with a general move towards the structured settlements which so many people would like to see.

Baroness Scotland of Asthal

I agree with the noble Lord, Lord Goodhart, and the noble Lord, Lord Hunt. 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. 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.

We believe that it is important to retain the current flexibility and for indexation to be left to the discretion of the court which can have proper regard to the individual circumstances of each case. I hope that that reassures noble Lords. We think that this ability of the court will address their concerns.

Lord Hunt of Wirral

Perhaps I may respond. Where the liability is to make index payments under art RPI structure, there is an available close-matching asset in index-linked government stocks. There is a general wish to see those made more widely available. However, if we were to move to another index—I agree with the noble Lord, Lord Goodhart—there will be no availability of any close-matching product which would enable the defendant, the defendant's insurer, or reinsurer, to make the necessary provision.

Lord Goodhart

I am not sure how the court's discretion now arises. It would arise only by virtue of the requirement that a court approve a structured settlement and that it will not do so unless the settlement makes some provision for indexation of the payments due under that settlement.

We have here a different situation. The court is making the order, not merely approving a settlement agreed between the parties. It is plainly desirable, therefore, that the court should be required to take steps to preserve the real value of the periodical payments. I should like to see a provision on the face of the Bill—perhaps not as absolute as my amendment—which states that the court shall be required to provide for the payments to be indexed unless it sees reason for them either not to be indexed or to be linked to some other index.

Baroness Scotland of Asthal

We should bear in mind how the courts currently approach the issue. When matters come before the court, all parties will have to direct their minds to the nature of the order that the court might make. The noble Lord will be familiar with the process. The court will make enquiries as to what the consequences are for various suggestions that will be urged on it by various parties. That is the nature of the discussion that will be under review. It is part and parcel of the way in which courts have historically approached these issues that they wish to be assured that, if liability is established, the damages that flow from that, both general and specific, together with pecuniary loss, properly compensate the individual applicant for the injury suffered at the date of the incident and, thereafter, for the damages that flow therefrom. We are relying on the practical day-to-day way in which the court has dealt with that process.

Lord Goodhart

I still believe that it would be desirable and important to place something of this kind in the Bill, although perhaps not in these words. I shall consider some alternative possible wording. From my reading of proposed new Section 2(1)(a) and 2(1)(b) of the Damages Act 1996, it is not made expressly clear that the court even has the power to award periodical payments that are index-linked rather than fixed. I am strongly minded to bring back the issue on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goodhart moved Amendment No. 139ZA: Page 44, line 28, at end insert— ( ) In considering whether to order periodical payments under subsection (1), the court shall take into account the views of the claimant.

The noble Lord said: This amendment is entirely different in nature from the previous one. It arises from correspondence with the Association of Personal Injury Lawyers. The association pressed for an amendment that would provide that an order for periodical payments should need specifically the consent of the claimant or a McKenzie friend, when the claimant was represented by a McKenzie friend.

I saw problems with requiring consent in all cases, particularly in the case of a young person who was legally capable of taking a decision for himself but might take an unwise one. The prospect of a large lump sum may be tempting to a claimant who would be better off in the long run with a periodical payment. The claimant might also come under pressure from members of his or her family who expected to profit in some way from the lump sum.

Having said that, the court should undoubtedly have regard to the wishes of the claimant and should be required to find out what they are. I accept that in practice a court that acted reasonably would almost certainly do that. However, the requirement should be in the Bill. I do not suppose that the court would ignore the claimant's wishes, even without a statutory obligation, but if the requirement were in the Bill the court would have to find out the claimant's wishes. It would also mean that if the court did not act in accordance with those wishes, it would have to give reasons for overriding them. It is desirable that it should do so. Therefore, there should be an obligation to have regard to the claimant's wishes. I beg to move.

Lord Clinton-Davis

I have a great deal of sympathy with the amendment, but there are difficulties with it, as the noble Lord, Lord Goodhart, said.

Normally, periodical payments should be a matter for the claimant, but that is not always possible, as the noble Lord said. However, the claimant's plans for the future should be taken into account. The Minister said that guidance would be available to the court, which is important, and I invite her to say something more about the availability of such guidance at this stage. That would be enormously helpful to the House in considering the Bill.

Lord Hunt of Wirral

I should like to support the noble Lord, Lord Clinton-Davis. I should not like a one-sided system to be set up, although I am aware of the views of the Association of Personal Injury Lawyers.

The association made it clear, as the noble Lord has just made clear, that we must have the guidance in place before we go further down this route. The association wrote: This lack of clear direction could have a negative impact on victims and we would strongly urge that guidance is in place prior to the courts using the powers". My main point, however, is one that I mentioned before, which was made by Stephen Duckworth of Disability Matters and several other leading people, who speak in support of the need for rehabilitation. The International Underwriting Association and Association of British Insurers study on rehabilitation and the initiatives taken by periodicals such as Post magazine, urging forward the code on rehabilitation, make it clear that periodical payments must be in the interests of the person receiving compensation. The interests demand that there should be, when appropriate, an early and prompt return to work and/or return to normal life, when that is possible.

Will the Government have some more joined-up thinking about the need for rehabilitation at a much earlier stage, especially when the defendant is a Government department or the National Health Service, in some form or other, or the Medical Defence Union or Medical Protection Society? There is an urgent need to deal with the problem early in the interests of the claimant. Will the Minister comment on the need to ensure that the people who have suffered are at the centre of the discussion?

Baroness Finlay of Llandaff

I apologise for the fact that I have not been present at previous deliberations on the Bill, but I have been unable to attend. I should like to speak to Amendments Nos. 139A and 140A, which are in my name.

The Deputy Chairman of Committees (Viscount Allenby of Megiddo)

We have not reached that group.

Baroness Finlay of Llandaff

Oh, I am sorry.

Baroness Scotland of Asthal

I empathise with many of the comments made by Members of the Committee. I shall reassure my noble friend Lord Clinton-Davis about our approach, and try to respond to the issues raised by the noble Lord, Lord Hunt of Wirral, after dealing specifically with the amendment.

We agree with the noble Lord, Lord Goodhart, that the views of the claimant in relation to periodical payments is the important issue. The Bill already provides for the rules of court to set out criteria that the court must take into account when considering whether to order periodical payments. As the noble Lord rightly said, it would be impractical and perhaps inappropriate to attempt to list in primary legislation all the factors that the court will need to consider. As we all know, this is a developing area of law and it is essential that there is flexibility to adjust the criteria in the light of experience. I respectfully suggest that that is best achieved through secondary legislation. We intend that the rules will assist the judiciary and parties in identifying factors that may be relevant in deciding whether periodical payments or a lump sum is appropriate. I reiterate that there will still be cases where periodical payments are not appropriate and do not meet the needs of the parties, particularly the claimant, and where the court will not so order.

We fully accept that the claimant's wishes are an important factor. I reassure the Committee that those wishes will undoubtedly be one of the factors that the court is required to consider. However, we do not believe that it would be appropriate to single out that factor in primary legislation as the amendment proposes. 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 weight to be given to the claimant's wishes, for example, might depend on the reasons for them and the quality of the advice on which they are based. I think that the noble Lord, Lord Goodhart, mentioned issues to do with pressure from family and whether they think a lump sum might be more advantageous to them. Those are all important issues for the court to weigh.

Does the claimant, for example, want a lump sum to spend on a holiday or to start a business? How strong is his or her business case? Has he or she been properly advised? I am sure that the court will be minded to take into account all those issues. Of course the defendant's wishes run through all of that. However, I think that it would be wrong to suggest, by placing it on the face of the Bill, that the claimant's wishes should outweigh all other factors. I therefore invite the noble Lord to withdraw the amendment.

The noble Lord, Lord Hunt, made an important point about rehabilitation. We, too, see rehabilitation as a very important issue. We hope that, by the introduction of periodical payments, it will be easier to settle cases earlier. We know from research that the earlier these issues are settled, the easier it is for the injured person to be rehabilitated. We hope that that is something that will inure to the benefit of the claimant. We have already said that the proposals offer advantages for the defendant. Rehabilitation, however, is a critical issue. I reassure the noble Lord that the importance of the rehabilitation issue—how we address it and how we encourage individuals to take advantage of the opportunities for rehabilitation—is very much on the agenda and part of the conversations that we are having with various government departments. I assure him that it is not an issue that this department or other departments will fail to address. We are addressing it with great energy.

Lord Goodhart

I am grateful to the noble Baroness for her helpful reply and her assurance that there will be guidance in regulations on the factors that have to be taken into account by the court in reaching its conclusion. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees

Before calling Amendment No. 139ZAA, I have to inform the Committee that if this amendment were to be agreed. I would not be able to call Amendments Nos. 1.39ZB and 139ZC.

Lord Hunt of Wirral moved Amendment No. 139ZAA: Page 44, leave out lines 34 to 40.

The noble Lord said: The amendment would leave out Section 2 of the Damages Act 1996 so far as subsection (4) is concerned. Amendment No. 139A, which is within the group, would leave out lines 4 and 5 on page 45. That provision concerns, enabling a party to apply for a variation of provision included under paragraph (a) or (b). Amendment No. 139B, which is also in this group, would leave out "(a) or", in line 5, so that one could apply only under paragraph (b). Amendment No. 147ZA would leave out the words "whether or not" from line 18 and insert "if". Amendment No. 140ZB would, at the end, insert "or". Amendment No. 140A, which is in the name of the noble Baroness, Lady Finlay of Llandaff, is also in the group I think that that covers all the amendments in the group. I thought that I should read them out so that everyone knows exactly where we are in the latest selection.

Amendment No. 139ZAA is really a probing amendment. I have to confess to the Minister that I really do not understand subsection (4), and I look forward to her explanation. On Amendment No. 139A, however, it should be possible to vary the way in which payments are made. We are dealing here with the mechanics of payment, not with variation—to which we shall return as a big subject for debate. There would be no concern if, for example, the claimant wanted quarterly payments rather than monthly ones. That should be allowed. The intention is clearly for the courts to control such variation. Again, I am giving the Minister the opportunity of responding on the point.

Amendment No. 139B offers for consideration whether the words "whether or not" should be replaced by "if". If the court does not specify the method of payment, I am not sure that the person who is obliged to make the payment should be fixed with a method and then be in breach of the order if he varies it as long as the payments are still made and secure. I hope that that explains the reasoning behind the amendment. It may be advantageous if I now leave it to the Minister to explain. I beg to move.

Baroness Finlay of Llandaff

I apologise to the Committee for my earlier untimely intervention. Amendments Nos. 139A and 140A are in my name. However, I should prefer to speak to them in full later. The points have been more than adequately addressed by the noble Lord, Lord Hunt of Wirral.

Lord Bassam of Brighton

In order to assist the Committee, I think that it might be helpful if the noble Baroness spoke to the amendments now as they are in the group we are considering.

1.00 p.m.

Baroness Finlay of Llandaff

I thank the Minister for that guidance. All of my amendments relate to the proposals to introduce settlement reviews in clinical negligence cases. My concerns are on four levels: for patients themselves; about the complaints procedures which patients encounter in the NHS; for the healthcare professionals; and for the NHS itself.

When a clinical error has occurred, patients understandably and rightly feel deeply wronged. Redress is sought to cover expenses incurred in future care but also—and often much more powerfully—in an attempt to obtain justice for the tragedy that has happened. Of course no money can compensate for the phenomenal emotional and physical trauma that somebody experiences when an error has occurred.

After an error, the complaints procedure comes into play. Patients repeatedly report a block in the process. They feel that there is a brick wall when they desperately need information and an apology—but an apology is slow to come as healthcare professionals and trust management may fear that to apologise would be to admit liability. The new NHS complaints procedures have improved enormously in recent times and the open and speedy way in which issues are dealt with is long overdue.

Sometimes the trust or defence union will settle rapidly out of court to achieve closure for all concerned rather than fight a case, to avoid lengthy court procedures and the stress involved. However, if it is feared that such a settlement might be deemed an admission of guilt that can later be revisited to increase a settlement, the trend towards rapid resolution for closure will be reversed and trusts will try to avoid anything that might be construed as an admission of guilt through fear of later review.

The NHS apparently has a huge and rising bill for negligence payouts. In 2001–2002, the bill for all known and anticipated claims was £5.25 billion—a staggering increase of £850 million in the last year alone. Only five years ago, the total provision for clinical negligence was much lower, at £2.3 billion. National Audit Office accounts show that the NHS paid out £446 million to settle clinical negligence claims last year, which is £31 million more than the previous year. The introduction of settlement reviews can only increase that trend, unless the NHS reverses its current policy of rapid settlement.

I am grateful to the Lord Chancellor's office for corresponding with me earlier this year. Its letter outlines the intention of the Bill, which actually matches what currently happens. The medical defence unions currently fund long-term payments through buying an annuity. I understand that in practice, an annuity can be bought only from the National Farmers Union Mutual and that there is no choice in the market. The defence unions are not in a position to self fund. Their subscriptions are drawn principally from employees of the NHS, so review and variation would inevitably impact indirectly on NHS costs.

I now return to the people at the heart of this—patients and the healthcare profession. Make no mistake, when a doctor makes an error, it is devastating for that doctor. I have seen many professional colleagues feel destroyed by a complaint—even one with no grounds. I have seen colleagues haunted for life by an error. Of course the patient is more than haunted. He or she has to live day in, day out, with the outcome of an error or, worse, negligence. Patients are owed a duty of continuing care, which includes the duty to help them to rehabilitate and resume life as much as possible. The Minister and the noble Lord, Lord Hunt of Wirral, have stressed the importance of rehabilitation, so I shall refer briefly to evidence from rehabilitation programmes.

From 17 well-conducted studies in the literature on the impact of litigation on the rehabilitation process, there is consistent and powerful evidence that ongoing litigation and, independently to it, unemployment have an adverse effect on recovery. For patients to achieve closure on episodes seem crucial to their future quality of life. I am not saying that settlements should not occur. I certainly welcome the implication of the introduction of periodical settlements—but leaving settlements open to review may mean that patients cannot complete the grieving process that will and must occur. They cannot have closure.

The NHS might come to fear that admission of fault may leave the way open to future, unquantifiable review claims—making the early stages worse for patients. The NHS cannot afford the open-ended nature of such reviews. Most of all, the victims—the patients— will be unable to rehabilitate because any long-term improvement may work against a future claim review. Patients will be encouraged to be locked into to an acute psychological state and never achieve closure in their lifetime. It is well documented that the individual's psychological state has a huge impact on physical recovery. I beg to move.

Baroness Scotland of Asthal

I will take up the invitation to explain how the clauses work because I understand that they may have caused difficulties. The points that the noble Baroness makes so powerfully are important and I will respond to them fully when we reach the next group of amendments. I reassure her that a lot of work is continuing. The Chief Medical Officer, to name just one authority, is working hard on reviewing all aspects of clinical negligence, including the complaints procedure. We are hopeful that that work will chart a way through for us.

The proposed amendments would affect the way in which the security of periodical payments is protected. They would have unfortunate practical consequences for the ongoing security of periodical payments awards, so the Government are not able to accept them. None of the amendments is consequential on any other—except Amendment No. 140A, which is consequential on Amendment No. 139A.

It may be helpful if I explain the purpose of the provisions relating to security. New Section 2(3) requires the court to be satisfied before it makes a periodical payments order that the continuity of payments is reasonably secure. New Section 4 of the Damages Act 1996, inserted by Clause 93, ensures that the continuity of periodical payments is fully protected by the Financial Services Compensation Scheme, where the payments are self-funded by an insurer or funded by an annuity. Section 2(4)(b) provides that in those situations, the continuity of the payments is reasonably secure for the purposes of new Section 2(3). Similarly, Section 6 of the Damages Act 1996 and new Section 2(4)(a) guarantee the security of self-funded payments by public sector bodies made under a ministerial guarantee.

In making a periodical payments order, it is not intended that the court should specify how payments are to be funded in terms of the particular type of investment to be used, provided it is satisfied that the payment method is reasonably secure. That matter will be for the defendant or the insurer. It is right that, provided payments are reasonably secure, defendants and insurers should be able to choose the funding arrangements that suit them best.

However, in order to be satisfied of that, it is likely that in most cases the court will specify that payments must only be funded in ways provided for under new Section 2(4)—that is, those ways that attract statutory protection. Alternatively, the court may be asked to agree another method of funding that does not attract statutory guarantees. Therefore, new Section 2(5) enables a court order to include provision about how the payments are to be made and to require the person who is to make the payments to take specified action to secure their continuity. The government amendments that I shall move after the debate on these amendments will, I hope, clarify the section further.

It may sometimes be necessary or desirable for the insurer or defendant to change the method of funding the payments. This will not affect the amount of payments. To ensure that the protection afforded by the original court order is not lost as a result of any subsequent change in funding, new Section 2(7) provides that an alteration in the method of funding shall be treated as a breach of the order unless the new method falls within the protected categories of funding, or the court declares it is satisfied that the continuity of payment under the new method is reasonably secure.

The second possibility would arise in two situations: first, where the defendant wished to change from a protected method of payment to one that was not protected; secondly, where the defendant wished to change from one non-protected method of payment to another. New Section 2(5)(c) enables the court to allow a party to bring the matter back before the court in such situations so that it can consider the proposed new method of funding and approve it if appropriate. The amendments moved by the Opposition would harm the way these interlinking provisions operate.

Amendment No. 139ZAA seeks to remove new Section 2(4), which sets out the methods of payment that the court may consider to be reasonably secure for the purposes of new Section 2(3). As I have explained, the section is designed to enable the court to identify which payments attract statutory protection and therefore which it may automatically consider to be secure.

The amendment would require the court to declare itself satisfied by the security of the individual method of funding in every case, even where a method protected by statute was to be used. As a consequence, defendants and insurers would have to present to the court details of the specific investment or method of payment with which they intended to meet the order. This would reduce the flexibility for defendants and insurers to fund payments in the most cost-effective way, would increase court time and costs unnecessarily and might delay payment.

While I am aware of some concerns about the availability of insurance products to meet court ordered periodical payments, we do not consider it to be a significant issue. Defendants will be able to inform the court if the terms of an order would cause particular difficulties. However, as annuities are already used to provide structured settlements, we would be disappointed if the insurance industry did not seize the opportunity to meet an increased need for periodical payments. We should also not forget that not all periodical payments will be funded by insurance products; for example, as the noble Baroness, Lady Finlay, said, the National Health Service might fund payments directly as they arise, rather than purchasing an annuity from a life insurer.

As I have explained, the provisions in new Section 2(5) are intended to cover all the different situations where the court may need to include provision about the method of payment, and one element would not function properly in the absence of the others. Amendment No. 139A, which seeks to delete new Section 2(5)(c), would have the effect of preventing any application to change the method of payment being made. Amendment No. 140A is consequential and deletes the reference to new Section 2(5)(c) in new Section 2B(1). This reference is included in new Section 2B(1) in order to clarify that the Lord Chancellor's order-making power on variation of periodical payments does not extend to provisions relating to the parties' ability to apply for variation of the method by which the payments are funded.

I am going through the arguments slowly, because when practitioners and others come to look at the provisions I hope that my explanation will assist them to see how they interlink. Amendment No. 139B would restrict the circumstances in which an application to change the method of payment could be made. These amendments would prevent the provisions from functioning effectively to protect the ongoing security of payments. If I may respectfully say so, that would not be in the interests of either claimants or defendants.

The same is partly true for Amendment No. 140ZA, because it reduces the circumstances in which it would be necessary to obtain the court's approval to a change in the method of payment. The effect of substituting "if" for "whether or not" in new Section 2(7) would be to limit the orders covered by the provision. In those orders not covered it would then be possible for the defendant, without the court's approval, to change to a method of payment that attracted no statutory protection. That would create a potential loophole and might mean that certain claimants were not adequately protected.

Amendment No. 140ZB is a drafting point relating to the list of instances in new Section 2(7) in which an alteration of the method by which periodical payments are funded will not be treated as a breach of the order. The word "or" is implicit at the end of paragraph (a) and does not need to be inserted. The drafting here reflects the approach used elsewhere in the Bill; for example in Clause 30(1), Clause 36(4), Clause 49(3) and Clause 57(2).

I have dealt with the matter exhaustively but I hope that it is now clear.

1.15 p.m.

Lord Hunt of Wirral

It is indeed clear. Speaking on behalf of practitioners, I am sure that all those involved in implementing these provisions will print out the Minister's words and place them close to their hearts. I am grateful to her for her explanation. As she has indicated, these provisions deal with variation in the method of payment. I congratulate the noble Baroness, Lady Finlay of Llandaff, on her important points on variability. When we come to page 46 of the Bill and the amendments grouped with Amendment No. 140ZC, we will be returning to those points. I shall defer further comment from these Benches until then. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Scotland of Asthal moved Amendment No. 139ZB: Page 44, line 35, leave out "it is protected by

The noble Baroness said: These amendments clarify the methods of payment to which I have just referred that are reasonably secure for the purposes of new Section 2(3), which requires the court to be satisfied before it makes a periodical payments order that the continuity of payments under the order is reasonably secure.

As I have explained, new Section 4 of the Damages Act 1996, inserted by Clause 93, ensures that the continuity of periodical payments is fully protected by the Financial Services Compensation Scheme where the payments are self-funded by an insurer or funded by an annuity. Section 6 of the Damages Act guarantees the security of self-funded payments by public sector bodies made under a ministerial guarantee. But Section 6 is not designed to guarantee payments made by government departments and is not suited to the National Health Service, which will be funding a substantial number of periodical payment orders, as it would appear to require an individual guarantee in each case. That did not matter when periodical payments had to be made by agreement. It would be clear to the claimant that the defendant department was good for the money, so the absence of a formal guarantee would be no bar to a settlement.

In future, however, a court ordering periodical payments will need to be satisfied as to their future security. That requirement will apply when periodical payments orders are made against government departments and health service bodies, in particular the National Health Service Litigation Authority. At present, such payments are usually self-funded, and we wish to ensure that that can remain the case under the new system. Self-funding the payments as they arise represents the best value for the public money concerned. Therefore Amendments Nos. 139ZB, 139ZC, 139ZD, 139ZE, 139ZF and 140ZBA will ensure that the continuity of payments made by government and health service bodies is reasonably secure for the purposes of new Section 2(3).

Amendments Nos. 140ZBB and 140ZBC enable the Lord Chancellor to specify in an order the bodies that will constitute "government and health service bodies" for the purposes of new Section 2(4) and (7) which deal with alterations to the method of payment. The amendment is framed in that way to provide clarity as to the bodies which are protected and to provide flexibility, for example, to alter the designated bodies should they change in name or status. I beg to move.

On Question, amendment agreed to.

Baroness Scotland of Asthal moved Amendments Nos. 139ZC to 139ZF: Page 44, line 36, at beginning insert "it is protected by Page 44, leave out line 37. Page 44, line 38, at beginning insert "it is protected by Page 44, line 40, at end insert ", or

1. (c) the source of payment is a government or health service body."

On Question, amendments agreed to.

Baroness Scotland of Asthal moved Amendment No. 139ZG: Page 45, line I, leave out paragraphs (a) and (b) and insert—

• "(a) requiring the party responsible for the payments to use a method (selected or to be selected by him) under which the continuity of payment is reasonably secure by virtue of subsection (4);
945
• (b) about how the payments are to be made, if not by a method under which the continuity of payment is reasonably secure by virtue of subsection (4);
• (ba) requiring the party responsible for the payments to take specified action to secure continuity of payment, where continuity is not reasonably secure by virtue of subsection (4);"

The noble Baroness said: As I explained in speaking to previous amendments, the Government wish to give defendants and their insurers as much flexibility as possible in funding court-ordered periodical payments provided always that the claimant's interest in the ongoing security of the payments is protected. To ensure that the Bill achieves that, Amendments Nos. 139ZG and 1390 clarify the provisions relating to the method of funding payments. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 139A and 139B not moved.]

Baroness Scotland of Asthal moved Amendment No. 139C: Page 45, line 5, leave out "or (b)" and insert ", (b) or (ba)

On Question, amendment agreed to.

Lord Goodhart moved Amendment No. 140: Page 45, line 10, after "arrangement" insert "shall not vest in his trustee in the event of his bankruptcy and

The noble Lord said: This probing amendment is intended to discover the proposed effect of a bankruptcy order on a right to periodical payments. I believe that the position should be similar to that of occupational and personal pensions. The position in that regard broadly is, first, that the underlying right to a future pension payment does not vest in the trustee in bankruptcy and therefore cannot be sold to pay debts; secondly, that the pensioner can retain part of the current payments—the guaranteed minimum payment in the case of a contracted-out occupational pension—but the balance of the current payment goes to a trustee in bankruptcy; and, thirdly, that after the pensioner has been discharged from bankruptcy, he or she gets the subsequent pension payments in full. That seems to be a good model for periodical payments for damages.

It would be distasteful in the extreme if someone's rights to substantial periodical payments for severe personal injury could be bought and sold. However, it is not clear that new Section 2(6) of the Damages Act 1996 achieves that. It provides for restrictions on the assignment or charge of the right to periodical payments, which I welcome. But what about bankruptcy? It is not mentioned in that provision. The fact is that the property vests in a trustee in bankruptcy by operation of law, not by assignment or charge. Subsection (6) does not appear to cover the case of bankruptcy. Have the Government formed a view about the effect that a claimant's bankruptcy should have on an order for periodical payments? Do the rights in fact vest in the trustee in bankruptcy? If so, can he dispose of them? What happens about periodical payments becoming payable during a period of insolvency? Do they vest in the trustee in bankruptcy? If so, should all or part of them remain payable to the claimant? For example, should the claimant continue to be entitled to receive payments that would be equal to what he might otherwise receive in means-tested benefits?

This important issue needs more consideration than it appears to have received to date. I beg to move.

Baroness Scotland of Asthal

I say straightaway how grateful I am to the noble Lord, Lord Goodhart, for raising the issue of the insolvency treatment of periodical payments, which I agree is in need of clarification. He spoke on this issue at Second Reading. In my subsequent letter to him and other noble Lords, I set out my understanding of the current law. I have since been informed that the situation is more complicated than was suggested by the initial advice that we were given. We therefore welcome this opportunity to consider the matter.

This is a complex area of the law, and one which has not yet been tested by the courts. At present, the treatment of periodical payments in bankruptcy will depend on whether they are to be considered to be in the nature of "property" or "income" for the purposes of the Insolvency Act 1986. The law is unclear. If they are considered to be property, they would vest in the trustee, but any "personal" element, including care costs, would be held on constructive trust for the bankrupt. Those anxieties were highlighted by the noble Lord. If they are considered to be income, Section 310 of the Insolvency Act 1986 provides that income received after the date of bankruptcy may he claimed for the bankrupt's estate by way of an income payments order. New Section 2A(2) of the Bill ensures that income payments orders can be put in place where necessary.

We believe that periodical payments that relate to loss of earnings should be treated in the same way as the earnings of a bankrupt who is working. It is not fair to treat payments made to replace earned income differently from earned income itself. However, we recognise that different considerations should apply where a claimant is receiving periodical payments specifically to meet the cost of care needs and believe that it should not be possible for those to be claimed for the bankrupt's estate. Under current law, if periodical payments are treated as "income", it is unlikely that the court would make an income payments order in respect of care costs because the provisions of the 1986 Act specify that the court shall not make an order the effect of which would be to reduce the bankrupt's income below that necessary to meet his or her reasonable domestic needs.

If periodical payments are treated as property, care costs will be considered as personal and held on constructive trust for the complainant. We believe that the bankruptcy treatment of periodical payments should strike a balance which recognises that care costs should be protected but does not otherwise give those in receipt of payments preferential treatment over other bankrupts. We are in discussion with the Insolvency Service over an amendment to achieve that balance and to clarify the treatment of periodical payments. Therefore, my thanks to the noble Lord are very genuine, and I am sure that many claimants will thank him, too. I hope that the noble Lord feels able to withdraw his amendment in anticipation of the amendments that we shall bring forward on Report.

Lord Goodhart

Of course, in those circumstances, I shall withdraw the amendment. I am glad that the Government have now taken this matter on board and are dealing with it. I shall look forward with a good deal of interest to seeing the Government's amendments on this in due course. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bassam of Brighton

This may be a convenient moment for the Committee to adjourn until after the consideration of Commons reasons on the Community Care (Delayed Discharges etc.) Bill. Therefore, I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

Lord Bassam of Brighton

My Lords, I beg to move that the House do now adjourn during pleasure.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 1.31 to 3 p.m.]