Commentary on provisions of Bill
Part 1: Whiplash
26. Part 1 makes changes to the law of England and Wales.
Chapter 1: Whiplash cases
Clause 1: "Whiplash injury" etc
27. This clause specifies those road traffic accident (‘RTA’) related whiplash injuries, and the circumstances in which such injuries are incurred, which are subject to these provisions. Subsection (1) defines "whiplash injury" as an injury of the neck, back or shoulder of a description specified in regulations by the Lord Chancellor. A minor psychological injury or injuries sustained in addition to the whiplash injury will also be subject to the provisions under this part. Subsection (3) provides that these provisions will apply in those cases where a driver of a motor vehicle on a road or other public place in England and Wales causes such an injury to another driver or passenger riding in or on a motor vehicle, because of the driver’s negligence. The effect of subsection (4) is to include cases where a driver has caused an RTA by their negligence, but the acts constituting the negligence could also be relied on to establish another cause of action, such as a breach of statutory duty, against them or somebody else. Regulations made under this section would subject to the affirmative resolution procedure.
Chapter 2: Damages for whiplash
Clause 2: Damages for whiplash injuries
28. This clause enables the Lord Chancellor to specify in regulations, in the form of a tariff, the damages that a court may award for pain, suffering and loss of amenity ("PSLA") for relevant whiplash injuries sustained in road traffic accidents, as specified in clause 1, in those cases where the duration of the injury does not exceed or is not expected to exceed two years. The tariff will provide for an ascending scale of fixed sum payments with the relevant tariff for a particular case identified by reference to the severity of the injury. Regulations may specify different sums for different descriptions of injury: it is intended that the power will enable the Lord Chancellor to (a) set and describe each category of severity of injury on the tariff; and (b) set the amount of fixed sum payment for each such category. The Lord Chancellor may amend the categories, and/or the amount of the payments and may increase or decrease the amounts. The Lord Chancellor may also include within, or in addition to, the specified sums, an additional sum for minor psychological injuries (often referred to as ‘travel anxiety’) arising from the same accident. Regulations made under this section would be subject to the affirmative resolution procedure.
Clause 3: Uplift in exceptional circumstances
29. This clause enables the Lord Chancellor to provide in regulations that the court may, at its discretion, increase the prescribed sum under the tariff and may also specify that the court may only do so in exceptional circumstances. Regulations must specify, by reference to a percentage of the prescribed sum, the maximum increase that might be applied and may increase or decrease the maximum uplift. Regulations made under this section would be subject to the affirmative resolution procedure.
Chapter 3: Settlement of whiplash claims
Clause 4: Rules against the settlement of claims before medical report
30. This clause bans regulated persons (as defined in clause 7) from making or accepting a payment in settlement of, or inviting, or offering to settle an RTA related whiplash claim without appropriate medical evidence. It also enables the Lord Chancellor to specify in regulations what constitutes appropriate medical evidence and those who may provide it. The ban will apply to any material benefit including (but not limited to) a cash payment. This clause applies to all relevant regulators under clause 7 except the Financial Conduct Authority. Regulations made under this section would be subject to the affirmative resolution procedure.
Clause 5: Effect of rules against settlement before medical report
31. This clause requires relevant regulators (as defined in clause 7) to have arrangements in place to monitor and enforce the ban on settling or seeking to settle relevant whiplash injury claims when not in receipt of appropriate medical evidence. This clause enables the relevant regulators to make new rules to supplement any existing rules for this purpose.
Clause 6: Regulation by the Financial Conduct Authority
32. Where the relevant regulator is the Financial Conduct Authority (FCA), this clause provides for HM Treasury to make regulations to enable the FCA to monitor and enforce the ban on settling whiplash claims when not in receipt of appropriate medical evidence.
Clause 7: Interpretation
33. This clause lists both the regulators who are required to monitor and enforce the ban on settling whiplash claims without medical evidence (including the General Council of the Bar, the Law Society and the Chartered Institute of Legal Executives) and those legal service providers to whom the ban would apply (‘regulated persons", namely barristers, legal executives, solicitors and alternative business structures). By virtue of provision in the final and penultimate entries in the table in this clause, the Lord Chancellor has the power by regulation (subject to the negative procedure for statutory instruments) to extend to other regulators and regulated persons both the ban and the duty to monitor and enforce it through secondary legislation.
Part 2: Personal Injury Discount Rate
34. Part 2 makes changes to the law of England and Wales.
Clause 8: Assumed rate of return on investment of damages.
35. This clause revokes section 1 of the Damages Act 1996 for England and Wales and replaces it for England and Wales with a new provision: section A1. It also inserts a new schedule A1 into the Damages Act 1996, providing the detail about how the Lord Chancellor is to approach the review and setting of the discount rate. The new schedule makes changes to the methodology according to which the discount rate is set; provides for an initial review of the rate to take place within 180 days of clause 8 coming into force and, thereafter, for reviews to take place at least once every three years; and makes provision for the establishment of an independent expert panel that the Lord Chancellor must consult in setting the rate.
Section A1
36. Subsection (1) inserts the new section A1. The new section sets out the power of the Lord Chancellor to set the rate. It is for the Lord Chancellor to decide whether to set a rate and different rates can be set for different classes of case. If the Lord Chancellor sets a rate the court must have regard to the rate in deciding the return a claimant is expected to receive from investing damages for future financial loss (the court must consider this as part of calculating the size of an award of such damages to be paid by way of a lump sum). In fulfilling its obligations, the court must comply with the rules of court made for the purposes of section A1. No such rules of court have been made pursuant to section 1 of the 1996 Act to date and none are presently proposed to be made for the new section A1. Subsection (4) makes clear that the power in subsection (3) to prescribe different rates of return for different classes of case includes the power to set separate rates for different sorts of future loss or for different durations of award. For example, under this power one rate might apply to damages for the first ten years and another rate to damages for subsequent years. Subsection (5) of the new section A1 is also new, and provides for the new Schedule A1 (see clause 8(2) below) to have effect. Subsection (6) of the new section specifies how the statutory instrument setting the discount rate is to be made, and is drafted in the same terms as the equivalent provision in section 1(4) of the Damages Act 1996. In summary, the only substantive differences between section 1(1)-(4) of the Damages Act 1996 and the new section A1(1)-(6) are clarification as to the provision for prescribing different rates of return for different classes of case; the introduction of the new Schedule; and the omission of the requirement to consult the Government Actuary and the Treasury before setting the rate. The new consultation requirements are set out in the new Schedule A1. Regulations made under this section would be subject to the negative procedure.
Schedule A1
37. Clause 8(2) contains the new Schedule A1 which is inserted into the Damages Act 1996.
38. Matters dealt with in the new schedule are as follows: paragraphs 1 and 2 introduce a requirement for the Lord Chancellor to start a review of the discount rate within 90 days of commencement of the Bill and thereafter to start a review at least once every three years from the conclusion of the previous review. The objective of every review is to decide whether the rate should be retained or changed (see paragraph 8(2)-(4) as to the interpretation of this requirement where there is or will be no rate).
39. In conducting a review and determining the rate of return the Lord Chancellor is required to obtain the advice of an expert panel, which will be chaired by the Government Actuary. Both the Government Actuary, and the panel, must respond within 90 days of the commencement of the relevant review (as determined by the Lord Chancellor). The Lord Chancellor must also consult HM Treasury. If the office of Government Actuary is vacant, the Deputy Government Actuary is to act instead.
40. The reviews must be completed within 180 days of their commencement (the date of commencement will be decided by the Lord Chancellor).
41. Paragraph 3 contains provisions relating to the core principles and assumptions to be applied by the Lord Chancellor in determining the rate. Paragraph 3(2) provides that the rate to be set is the rate of return that in the Lord Chancellor’s opinion could reasonably be expected to be achieved by a claimant investing a lump sum of relevant damages (defined in paragraph 3(7)) with the objective of covering all the expected costs and losses caused by the injury at the right time when they arise; and, with the further objective that when this has been achieved there is no money left from the lump sum and the income it generated during the period of the award. In forming this opinion, the Lord Chancellor is required to make certain assumptions (and may make others) and to take certain factors into account (which does not rule out taking other factors into account). The specified assumptions are set out in paragraph 3(3). They include that the recipient of the relevant damages receives proper investment advice; invests in a diversified portfolio of investments; and has a low-risk investment profile (which means the recipient is to be assumed to be willing to take more risk than the very cautious investor envisaged under the present law relating to the setting of the discount rate but less risk than would ordinarily be taken by a prudent and properly advised individual investor (who is not a claimant) with similar investment objectives). The intention is that the level of risk assumed in the setting of the discount rate will therefore be higher than is assumed under the present law. The specified factors are set out in paragraph 3(5). This requires the Lord Chancellor to have regard to the actual returns available from such diversified portfolios and the actual investments made by investors of relevant damages; and to make appropriate allowances for taxation, inflation and investment management costs.
42. Paragraph 4 prescribes for the Lord Chancellor to give reasons for making a rate determination and to publish such information about the response of the expert panel established for the relevant review as he or she thinks appropriate. Paragraphs 5 and 6 contain provisions relating to the establishment of an independent expert panel which the Lord Chancellor is to consult in setting the rate. The paragraphs provide for the panel to be chaired by the Government Actuary, and to contain four other members, namely members with experience respectively as an actuary, as an economist, in managing investments, and in relation to consumer financial investments. The panel is to be appointed for each review; but serving on the panel in relation to one review will not disqualify an appointee from serving on the panel for another review. The panel dissolves when the Lord Chancellor’s consultation with it is complete. The cost of the panel will be met by the Lord Chancellor, who may enter into arrangements with other government departments so that they can assist, such as by providing a secretariat to the panel. Meetings of the panel will not be quorate unless the Government Actuary or the Deputy Government Actuary is present. As there may be more than one review ongoing at any time (see paragraph 7) provision is made for individuals to be members of more than one panel.
43. Paragraph 7 contains provisions as to how the Schedule should apply if two or more discount rates are prescribed as a result of a review. Different rates might, for example, be prescribed for different durations of loss. The requirements as to when and how a review is conducted will apply separately to each. This enables the Lord Chancellor to carry out reviews of different rates separately at different times, but different rates may also be reviewed at the same time (in the latter case one or more members of the panel for the review of one rate might also be members of the panel for another rate).
Supplementary provisions under clause 8
44. Clause 8(3) provides that the rate in force under the present law when clause 8 comes into force (currently, minus 0.75%) will continue in force as if the order setting the rate had been made under the new provisions. This rate will therefore be reviewed in the initial review (see Schedule A1, paragraph 2).
45. Clause 8(4) makes consequential amendments to the Damages Act 1996. This includes the omission of section 1 for England and Wales and the insertion of Schedule A1.
Part 3: Final provisions
Clause 9: Regulations
46. This clause provides that regulations under the Bill are to be made by statutory instrument. The clause stipulates that where regulations under this Bill are subject to the negative resolution procedure, they are subject to annulment in pursuance of a resolution of either House of Parliament, and that where regulations made under this Bill are subject to the affirmative resolution procedure, a draft of the regulations must be laid before Parliament and approved by a resolution of each House of Parliament.
47. Subsections (4) and (5) provide that where regulations are made under this Bill (apart from Commencement regulations), those regulations may make consequential, supplementary, incidental, transitional, transitory or savings provision. Subsection (4)(a) also allows regulations to make different provision for different purposes.
Clause 10: Extent
48. Clause 10 sets out the extent of the Bill (see commentary on individual clauses, paragraphs 20 to 25 and Annex A for further information).
Clause 11: Commencement
49. Part 3 (Final Provisions) of the Bill will come into force on the day on which the Bill is passed. All other provisions will come into force on such day as the Lord Chancellor or Secretary of State may by regulations appoint.
50. Subsection (3) allows for regulations to appoint different days for different purposes and to make transitional, transitory or savings provision.
Clause 12: Short title
51. This clause confirms the short title of the Bill.