HL Deb 26 October 2004 vol 665 cc1239-47

7.30 p.m.

Lord Triesman rose to move, That the draft order laid before the House on 16 September be approved [29th Report from tlw Joint Committee].

The noble Lord said: Perhaps I may set out the background to this order and explain why we believe it is necessary.

In March 2002, the then Lord Chancellor published a consultation paper called Damages For Future Loss: Giving the Courts the Power to Order Periodical Payments for Future Loss and Care Costs in Personal Injury Cases. It sought views on the use of periodical payments in personal injury cases as an alternative to or in addition to the payment of awards for future loss by way of a lump sum. The proposals in that paper were widely welcomed and were taken forward in Sections 100 and 101 of the Courts Act, which completed its passage through Parliament in November 2003.

The consultation paper also sought views on a number of options relating to the variation of periodical payments. The majority of responses were in favour of some form of variation. Provisions were therefore included in the Courts Act to enable the Lord Chancellor by order to specify the circumstances in which the courts should be able to vary a periodical payments order or an agreement between the parties. This order-making power was subject to the affirmative resolution of both Houses. It is clear to me from study of the debates that people were very keen to see affirmative resolution as the right method.

The issues surrounding the variation of periodical payments were extensively debated in both Houses during the passage of the Courts Act. In those debates the Government made clear their belief that the ability to vary payments in certain limited circumstances has a part to play in the scheme for periodical payments. Ministers made clear that the scope for variation would be tightly controlled and undertook that the proposed order would limit the variation to distinct and foreseeable medical changes in much the same way as the current system for lump-sum provisional damages.

While we hope that the use of periodical payments in appropriate personal injury cases will become the norm, it is likely that the use of variable orders will be very limited. In the majority of cases a non-variable award is likely to be more appropriate. But, because the amount of the award has to be calculated at the time of the original court order, where there are real difficulties in assessing the likelihood of a claimant developing a particular medical condition or indeed overcoming a particular medical disability at the time the periodical payment order is made, it can involve estimates of future need, which may not be accurate.

In some cases claimants might not receive the compensation to which they are entitled, resulting in either their needs not being met or their having to be funded by the taxpayer, whereas in other cases defendants and insurers make substantial and unnecessary contingency payments for events which never occur. This is clearly the worst of both worlds. In these cases a variable order can provide the best solution. To ensure that the power to vary is properly controlled and focuses on the cases where it is most appropriate, Ministers indicated during the debate that the circumstances in which variation could be requested must be set out in the initial court order and must relate only to the claimant's medical condition attributable to the original accident.

Ministers also indicated that the court's permission would be required before an application for variation could proceed. These commitments are reflected in the terms of the draft order which is before the House today.

The central provisions of Articles 2 and 9 of the order are similar to those currently applicable to claims for lump-sum provisional damages. The difference is that in this case defendants will be able to apply for variation as well as claimants, and the circumstances in which an application may be made include both a serious deterioration and a significant improvement in the claimant's condition.

The power to make a provisional damages award in addition to an order allowing variation is preserved, although the cases in which this might be considered appropriate are likely to be rare. The order applies to agreements between the parties as well as to court orders and also sets out various procedural requirements governing variable orders and agreements and applications for variation.

Before an order can be made the provisions of the Courts Act require the Lord Chancellor to consult such persons as he thinks appropriate. As I have already said, full consultation took place in 2002, followed by extensive debate in both Houses. The Government considered carefully all the points raised. This order reflects the commitments given to both Houses as a result of those considerations.

Since then there have been further consultations on the drafting of the order with a range of key stakeholders, including claimants' representatives, insurers and medical defence organisations. A regulatory impact assessment has been prepared. That has been laid before the House. Our intention is that this order should be brought into force shortly alongside the rules of court and other provisions that are necessary to govern the court's ability to make periodical payments.

I do not think this needs further or more elaborate description. In conclusion, I believe that the ability to vary payments in certain carefully defined circumstances is an important element in realising the benefits of periodical payments. The draft order before the House adopts a fair and balanced approach to achieving these aims. It also accurately reflects—as it should—the commitments given by Ministers during the passage of the Courts Act. I therefore ask the House to approve this order. I beg to move.

Moved, That the draft order laid before the House on 16 September be approved [29th Report from the Joint Committee].—(Lord Triesman.)

Lord Hunt of Wirral

My Lords, I thank the Minister for the very helpful way in which he has set out the historical background to, and the details of, the draft order. Once again I declare my interest as senior partner of Beachcroft Wansbroughs.

The Minister asked whether he could add anything. Perhaps at the conclusion of the debate he might define what the word "shortly" means. It would be very helpful if we could have an indication whether that means January or February of next year. I understand that at the moment it is more likely to be February, but it would be so helpful to all those involved if we could have a more specific commitment.

This is a very important opportunity, not only to debate the particular power under this order to vary periodical payments, but also to seek certain clarifications from Ministers on the issue of periodical payments themselves.

First, I should very much like to know if Ministers have come to an agreed view on how widely they expect periodical payments to be used. The ministerial trumpet has recently sounded a trifle uncertain with regard to this matter. It would be helpful to clarify the position.

I would remind the House that when we debated the Courts Bill the noble Baroness, Lady Scotland of Asthal, said that the Government's proposals aimed, 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".—[Official Report, 27/3/03; col. 930.] That appeared to be the kind of unequivocal statement that the courts might welcome as they worked to bed down the new system.

I must, however, now ask the Minister to clarify the position in view of last week's comments in another place by his colleague, Mr David Lammy, which on the face of them seem to contradict directly those of the noble Baroness. In the Sixth Standing Committee on Delegated Legislation on 20 October, Mr Lammy said that, it was expected that there would be quite a small number of periodical payments, in the same way as there is a relatively small number of provisional damages". He went on to say: We estimate that periodical payments would be … a small part of the total amount. I hope that Mr Lammy meant to say that it was expected that there would be a small number of periodical payments which would be varied. If he had said that, I would agree with him because, as this House concluded on our previous debate on the matter, it is certainly important that the scope of variation be tightly controlled. Perhaps the Minister would take this opportunity to untie the knot and sort out for us exactly what the Government's position is.

During the same debate in the other place on 20 October, Mr David Heath raised questions about the application of Section 2(4) of the Law Reform (Personal Injuries) Act 1948, which he described as an anomaly. Mr Lammy replied that the Government were considering such issues, with a view to further consultation if appropriate.

The Chief Medical Officer proposed in his excellent report Making Amends that Section 2(4) should be abolished, so far as clinical negligence was concerned. Last September, in a Written Answer, the Government stated that they were considering abolition for other personal injury claims, too. That was warmly welcomed at the time. It would be helpful to know the present position. It is indeed anomalous that the courts are prevented under Section 2(4) from considering the treatment which might be freely available under the National Health Service to help with the rehabilitation of the injured party, and, in particular, with their future care.

The insurance industry is more than capable of putting forward imaginative proposals in this area. Indeed, as of next April, it is facing up to its responsibility to pay out an additional £150 million for emergency health service treatment provided to those injured negligently, mainly those injured at work. Rather than operating simply as a levy, the money could be targeted at producing better facilities for ensuring that people have an early opportunity to return to work and to a good quality of life. I believe that it is generally agreed that the facilities under the National Health Service could well be improved in that very important respect. It would be very helpful for the insurance industry and all of us to have at least some indication of the timescale within which the Government expect to operate.

In the field of compensation, a much closer match to the needs rather than the wishes of the injured party is vital. I recall that the noble Baroness, Lady Scotland of Asthal, said in the same debate that, 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".— [Official Report, 27/3/03; col. GC 932.] Already under Section 100 of the Courts Act 2003, Civil Procedure Rules are to be made with regard to what consideration should be taken into account by the court in deciding whether to order periodical payments. I am sure many would agree that it would be very helpful if the rules could stress, in particular, the need for the court to have regard to the form of award that best meets the claimant's needs. A restatement of that overriding principle would now be welcome.

As the Minister is aware, however, whenever retrospection is involved, considerable clarity and caution should be exercised. I am well aware that no government will ever be able to sweep away the incubus of possible retrospection once and for all, but I hope that new elements of uncertainty will never be introduced gratuitously or needlessly. When there is such a strong perception of a compensation culture, it is vital that compensation should not exceed "sustainable" levels, with regard both to the level of costs and to the predictability of the level of damages.

7.45 p.m.

Returning to the question of periodical payments, I know that the Minister will agree with me that it is essential that judges be given clear and consistent guidance as well as adequate training. Not only do I ask that such guidance be provided, but perhaps the Minister might look kindly on a plea that such guidance be made public in order that everyone can understand the way in which this new system is to operate.

There is strong support in principle for periodical payments; in particular, when they form part of a structured settlement. There are great advantages for all concerned. They will enable the courts to give claimants the guaranteed level of income they require and deserve to meet their needs, in place of a lump sum, with all the defects which the Minister outlined and are conceded by all those who have to operate the system. It is, therefore, a great responsibility to ensure that the system is readily understood from its very earliest days by everyone who has to work within it. Let our watchwords be: caution, clarity and consistency.

Lord Goodhart

My Lords, the courts have had power for some years to make orders for provisional damages. Those powers are set out in what is now Section 32A of the Supreme Court Act 1981. That means that, where there is at the time of the trial an uncertain prognosis of the injury caused by the defendant's negligence, an order can be made for payment of damages immediately, that order being calculated on the basis of a favourable prognosis. But if the condition of the claimant deteriorates, the claimant then has the right to come back to ask for additional lump-sum damages.

That principle has been criticised from two very different directions. First, insurers and medical organisations such as the Medical Defence Union and the Medical Protection Society are concerned about the uncertainty that they, or their members, face regarding the amount of the liability. Secondly, doctors such as the noble Baroness, Lady Finlay of Llandaff, are concerned at the effect of continued uncertainty on the claimants.

The Courts Act 2003 gave the courts a new power to make orders for periodical payments as an alternative to lump-sum damages. Until then, periodical payments could be made only under structured settlements. We certainly welcome the power to make an order for periodical payments in contested cases, not just where the parties agreed to a structured settlement. Now it is obvious that the problems with an uncertain prognosis apply to a case where a periodical payment has been ordered as much as they apply to a case where a lump sum has been awarded.

The Courts Act, when it was a Bill, included a wide power to make orders to vary a periodical payments order or settlement providing for periodical payments. That power of variation was criticised by the noble Baroness, Lady Finlay of Llandaff, in a powerful speech in the Committee stage of the Courts Bill. She said: Leaving settlements open to review may mean that patients cannot complete the grieving process that will and must occur. They cannot have closure".—[Official Report, 273/03: col. GC 940.] When taking part in that debate, I recognised the force of the noble Baroness's argument, but I could also see real value in allowing variation of earlier orders in a limited class of cases. Therefore in the debates on the Courts Bill I welcomed the power to vary an order for periodical payments or a structured settlement, but only on strict conditions. There were two conditions. First, that the power to vary an order should be limited to circumstances corresponding to those where an order for provisional damages could already be made under Section 32A of the 1981 Act. Secondly, the power should be limited to circumstances where the original order or settlement expressly provided for the possibility of the subsequent variation.

I wanted those conditions to be written into the Bill. The Government refused to put those restrictions in the Bill, except in one limited respect where they accepted my amendment relating to structured settlements. But the present order meets the spirit of the conditions that I wanted to put in the Bill. We therefore are happy to welcome it.

As the noble Lord, Lord Triesman, pointed out, the power to vary a periodical payment order differs from the rules for provisional damages. Unlike provisional damages, it permits a downward variation as well as an upward variation. I accept that as being entirely reasonable. The provisional lump sum damages cannot be varied downwards without recovering a payment that has already been made to the claimant. The drawbacks of trying to do that are obvious. In the case of a periodical payment order, future payments can be reduced without clawing back what has already been paid. Therefore, on those grounds, I am happy with that.

I have one small query. 1 note that the order in Article 13 does not appear to provide for the possible termination of a periodical payment where the claimant has fully recovered, which will happen no doubt from time to time. But, presumably, it could, without being terminated, be reduced to a nominal sum. Can the Minister confirm that that is the position?

I should finally add that if the Government come back with a further order to provide for variation of periodical payments in circumstances that are additional to those covered by this order, which fall outside the conditions that I sought to enforce when debating the Courts Act, in such circumstances we would be unable to promise our support for any such further order.

Lord Triesman

My Lords, I thank noble Lords for what has been a brief but unquestionably useful debate, which gives us a real chance to clarify the issues. I particularly thank the noble Lord, Lord Hunt of Wirral, who has raised a number of points. As I was able to have a sense of what those points would be, I hope that I can respond to them fully and ensure that we are all in a position where we can share information. There is a sentiment on all sides of the House that we want this to work and to work sensibly.

Perhaps I may start with the noble Lord's kind invitation to say what is meant by the word "shortly" and to provide a firm date for implementation—preferably specifying January or February. I am afraid that I cannot make a specific commitment on the implementation date for periodical payments until the rule committee has completed its consideration of the rules and practice directions. That is the only reason that I am unable to do so today. Once they are finally agreed, the Government will be in a position to make a firm decision on implementation. I undertake that we will make that information available as rapidly as we can. Obviously, it is in everyone's interests that we do so.

The noble Lord, Lord Hunt of Wirral, also asked how widely Ministers expect periodical payments to be used. As I indicated in my opening remarks, the Government wish to promote the widespread use of periodical payments. I want to emphasis that in case there was any lack of connection between what was said by ministerial colleagues in different places. We wish to promote the widespread use of periodical payments, but not the widespread use of variations, which we expect to be rare.

We hope that the use of periodical payments will be appropriate in personal injury cases and that they will become the norm in those cases. I gave reasons why I thought that it was unlikely that there would be widespread use or, indeed, anything other than very narrow use of variable orders. We think that it will be limited.

Such evidence as there is—I do not want to overstate the quality of the evidence so far—was considered at paragraph 25 of the Regulatory Impact Assessment. That formed the basis for making at least some extrapolations which we think would be useful.

The noble Lord, Lord Hunt, also asked what the position is in relation to the repeal of Section 2(4) of the Law Reform (Personal Injuries) Act 1948. As he quite rightly indicated, the Chief Medical Officer recommended in his report entitled Making Amends that Section 2(4) of the 1948 Act should be repealed so far as clinical negligence claims are concerned. Instead, packages of care should be provided under the NHS.

As a result of the wider issues that this recommendation plainly raised, the Government indicated that they intend to consider the implications for personal injury claims generally and much more thoroughly, which is a proper response to the Chief Medical Officer's views. We are giving careful consideration to the wider picture and have been discussing some of the options with stakeholders, including insurers, with a view to further consultation if appropriate.

We of course recognise the important part that rehabilitation has to play. The noble Lord, Lord Goodhart, made that point on behalf of the noble Baroness, Lady Finlay. There is a balance here to be struck. Plainly, no one would want to do anything that would prevent someone from reaching closure on what would have been an extremely difficult and unpleasant episode in his or her life. Equally, I do not think that anyone on any side of the House would want to see a decision taken which meant that some really significant change—for the better or for the worse—was not taken into account.

The noble Lord, Lord Hunt, asked for a restatement that the overriding principle in determining whether periodical payments are appropriate should be that the needs of the claimant are paramount, not the claimant's wishes. I very strongly agree on that point. On behalf of the Government, I say that we as the Government strongly agree. As the noble Lord indicated, the draft rules that are currently being finalised by the Civil Procedure Rule Committee state that in deciding whether to make a periodical payments order, the court should have regard to all the circumstances of the case and, in particular, the form of award that best meets the claimant's needs. That is the right way to go. It is the way in which we are being urged to go. It is probably the only way in which we can offset the possible risks of a compensation culture taking over in this area.

The final major question asked by the noble Lord, Lord Hunt of Wirral—I hope that I have not missed any—was whether there would be guidance and training for the judiciary and whether that guidance would be made public. I want to confirm formally today that guidance is being developed for the judiciary on the new system for periodical payments contained in Sections 100 and 101 of the Courts Act. That sort of guidance would normally be included in the Bench Book, which is available on the Judicial Studies Board's public website. It will be publicly available; it is right that that should happen.

Some points were made about funding and the position on full recovery. I hope that I have dealt at least with the issue of closure because it came up in a more general sense in our discussion today. I am aware of the difficulties that have been expressed on funding, some being expressed in the annuities market. The range of products is perhaps not as wide as it needs to be in order to deal with all of those kinds of questions. But there are discussions, which officials are actively involved in, with the insurance industry about its concerns. Those discussions focus on the issues relating to wider questions about the funding of periodical payments in general rather than simply the provisions of this order on variation. That is really the force of the argument; it needs to do that.

Discussions have also taken place with medical defence organisations, which I think are right to believe that there will be some impact on their balance sheets. There may be a small increase in administrative costs. However, insurers and medical defence organisations already reserve for further damages claims in provisional damages cases. They ought to be able to do essentially the same here without making any real change in the amounts required. Estimates that have been made in the insurance industry and medical defence organisations have in general been relatively low and do not suggest that there would be a spectacular change.

I shall deal briefly with the point about full recovery. It is right to say that the order does not appear to provide for termination, but I agree with the noble Lord that the order could be reduced to a nominal sum if that were appropriate. We must make sure that that point is understood as well.

We are concerned with the approval by affirmative resolution in the House of Lords of an order prescribing the circumstances and procedures which should govern the variation of periodical payments for future loss in personal injury cases. The issues surrounding the variation of periodical payments were extensively debated in both Houses during the passage of the Courts Act 2003. I hope that noble Lords will agree that Ministers have listened carefully to the points that have been made—which have great force, there is no question about that—and have given certain undertakings about what the order would contain which are now reflected in the draft order; indeed, noble Lords opposite have generously acknowledged that.

The order provides that a court may provide that an order for periodical payments may be varied only if it is proved or admitted that there is a chance that at some definite or indefinite time in the future the claimant will, as a result of an act or omission which gave rise to the course of action, develop a serious disease or suffer a serious deterioration, or would enjoy some significant improvement, possibly even to the extent of full improvement, in the physical or mental condition where that condition had been adversely affected as a result of the act or omission. I believe that that is the fair and balanced approach, and the House too seems to have agreed with that approach, which I greatly appreciate. I hope that noble Lords feel that we have fulfilled the commitments we made and I commend the order.

On Question, Motion agreed to.