The Civil Liability Bill
The Government has published the Civil Liability Bill (the ‘Bill’) and has included within the Bill a clause that also addresses revisions to the way…
The Government has published the Civil Liability Bill (the ‘Bill’) and has included within the Bill a clause that also addresses revisions to the way in which the personal injury discount rate is calculated.
This Bill has been long awaited. It includes provisions laying the ground for the introduction of a tariff for whiplash claims. The origins of those provisions can be traced back to policy announcements in 2016 by George Osborne and Chris Grayling, then Chancellor of the Exchequer and Lord Chancellor respectively, which in turn followed many years of lobbying by the insurance industry.
The discount rate issue has developed at a much faster pace. We are only just over a year from when Liz Truss, Lord Chancellor back in February 2017, announced that the discount rate was being revised downwards from 2.5% to -0.75%. The discount rate is a factor used to reduce damages paid to claimants in relation to anticipated future losses, that reduction being to offset investment income return that such damages attract when invested during the period leading up to when they actually come to be used.
The 27 February 2017 adjustment of the discount rate served to dramatically increase compensators’ liabilities in relation to personal injury claims including an element of future loss and those compensators have been eager for the Government to legislate for a change in the way the discount rate is calculated ever since.
The published Bill sets out provisions that are largely reflective of what was set out in the now defunct Prisons & Courts Bill, there being only minor changes to what were s.61 to s.67 of that draft. Specifically, the Bill in its recast form provides for the following:
- Regulations set out by the Lord Chancellor providing the definition of what constitutes a ‘whiplash injury’, which will include ‘an injury, or set of injuries, of soft tissue in the neck, back or shoulder’.
- The amount of awards for pain, suffering and loss of amenity (PSLA or ‘general damages’), in relation to claims involving whiplash injuries of not more than two years duration, to be governed by regulations again set by the Lord Chancellor, after consultation with the Lord Chief Justice.
- The same approach to be adopted in cases where psychological injury is additionally suffered on the same occasion.
- The amounts prescribed in the regulations to vary according to the duration of the whiplash injury and/or whether there is any corresponding psychological injury.
- The court to retain the power to award additional damages for other injuries sustained in addition to the whiplash injury and any accompanying psychological injury.
- The possibility of the regulations reserving a discretion to the court to award a greater amount than the specified tariff damages, with a further possibility of the incorporation of a requirement that the degree of pain and circumstances giving rise to the same must be found to be exceptional before that discretion is exercised.
- A prohibition against a regulated person inviting, offering, making or accepting a payment in settlement of a claim that they know or have reason to suspect is a whiplash claim, without first seeing appropriate evidence of the whiplash injury (i.e. a ban on ‘pre-med offers’)
- A corresponding power for the Lord Chancellor to define ‘appropriate evidence’ within regulations, including provisions around who can compile such evidence.
- A requirement for regulators to devise appropriate rules to monitor and enforce the ban on pre-med offers.
Again, the Bill sets out a framework not dissimilar to the previous draft clause, published in September 2017. It provides for the following:
- The Lord Chancellor retaining the power to set the discount rate, which the courts are required to take account of when calculating future damage awards.
- In setting the rate, the Lord Chancellor will assume that damages are invested in a diverse portfolio of investments, with a risk profile that entails taking more than a ‘very low risk’ approach but less risk than would normally be taken by a prudent and properly advised individual.
- The Lord Chancellor and expert panel (addressed below) must specifically consider setting different rates ‘for different cases’ on each review, the draft legislation having been amended at what is now 8(1)(4) to specifically allow the Lord Chancellor to set different rates according to the type of loss involved, the length of time over which the loss runs and the point in time when the loss will be incurred.
- The Lord Chancellor will take account of tax, inflation and investment advice costs when reviewing the discount rate, and specifically consult the expert panel over these issues.
- The first review of the rate being announced within 90 days of the commencement of what will be the Civil Liability Act.
- Future reviews to be carried out with no more than three years passing between the completion of one review and the announcement of the next.
- Reviews to be completed within a period of 180 days from when they are commenced and to include consultation with both the Treasury and the Government Actuary (the latter to give input within 90 days of the start of a review).
- Each review, including the first review (in contrast to the original draft), will involve the Lord Chancellor receiving advice from an expert panel, to include the Government Actuary, an independent actuary, an economist, a consumer specialist and an investments specialist. Such panels will be formed and then disbanded with each separate review. They have to give input to the Lord Chancellor within 90 days. The Government response paper suggests that the panel’s report will be published but the draft wording is subtly different, the newly introduced s.4 to what will be Schedule A1 to the amended Damages Act 1996 stipulating that the Lord Chancellor shall publish “such information about the response of the expert panel established for the review as the Lord Chancellor thinks appropriate”.
- The outcome of the review necessitating the Lord Chancellor indicating that there will either be no change or a change to a different rate. The reasoning behind the outcome is to be published under s.4.
Those provisions then need to be read in conjunction with the Government’s response to the JSC report of 1 December 2017. That response indicates the following additional steps will be taken:
- There will be a call for evidence on investment behaviour ahead of setting the new rate, which will include specific consideration of how damages awarded to patients and infants are invested.
- The Government Actuary’s Department (GAD) is to produce research about inflation, tax and management investment costs, again ahead of setting the new rate.
- GAD is also to produce research on a wider range of assumptions, the ‘length of awards’ given as an example, again ahead of setting the new rate.
- There is to be a clearer explanation as to the meaning of 100% compensation and why the setting of the rate is not dependent on balancing social costs with the level of compensation.
- The MOJ will provide/endorse guidance/standard practice aimed at ensuring that claimants understand the choice between PPO and lump sum compensation, following on from an investigation of the quality and effectiveness of current advice on this issue and investigation into how PPO uptake might be increased.
- The MOJ will then further investigate whether there is a mechanism by which those responsible for setting the rate might be kept informed about investment behaviour.
- Consideration is to be given to Government or a third party looking at whether investment management costs should be recoverable as a head of damages.
The Government is targeting an implementation date of April 2019 in respect of the whiplash changes. That is potentially achievable but will involve Government working at a pace on a number of fronts, in order to ensure that regulations setting out the actual tariffs to be applied are in place, together with corresponding changes to the CPR and the Portal, in good time.
The discount rate provisions are likely to be implemented as soon as the Bill is passed. However there is then likely to be a lag before that translates to a new discount rate, particularly having regard to the fact that an expert panel will have to be compiled to participate in the first review. Realistically, it is likely to be 2019 before a new discount rate is announced.
In both cases, delays in the progress of the Bill through the legislative process has the potential to cause additional delays and stakeholders will be watching to see whether it is passed before the 24 July 2018 summer recess.
Can we help?
We will be publishing a more detailed account of the Bill and its implications shortly.
In the meantime, should you wish to discuss this in more detail, or would like assistance with any other matter, please do not hesitate to get in touch.
- David Johnson (Partner, Political Affairs, 0207 822 7146)
- Bavita Rai (Partner, Innovation & Client Affairs, 0121 200 3499)
- Doug Keir (Partner, Scottish Affairs, 0141 375 0869)
- Kurt Rowe (Associate, Market Affairs, 0207 822 7132)