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Earl Russell: I once looked up the word "Dutch" in the dictionary of English slang. I shall not amuse the Committee with some of the things I found there, but I am concerned at the moment with the words "a Dutch account". That is the sort of account that says "to services rendered, £5,000". It is awfully hard to query an account like that. It is quite important under what heads various sums are awarded, since damages for pain and suffering are ring-fenced from the operation of the courts. That is one of the most welcome things in the whole Bill. It means that it is important to the victim to know which damages are put under which head. Indeed, if the victim wishes to argue with that, as has been known from time to time, it is essential that he should know exactly what it is with which he wishes to argue. This is a decision which will be of legal significance.

There is a long judicial tradition, stretching back to the 17th century, recently re-asserted by the noble and learned Lord, Lord Woolf, that there must be reasons given for decisions with a judicial input, otherwise they cannot be challenged. There must be records made and reasons given. The two things are inter-dependent. The courts have, for a long time, tended to find any breach of those propositions a breach of the principles of natural justice.

I understand that the Government do not want the growth of judicial review to go too far. Many on the Bench would also hope that it would not. That depends on certain care in the drafting of legislation as well as on the operation of the judiciary. This is a case where the amount of judicial review in the future might very

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well be kept down by accepting the noble Baroness's amendment, and for that reason I am extremely happy to support it.

Viscount Chelmsford: I am afraid I must oppose this amendment. It ignores the way in which settlement negotiations which do not reach the courts actually take place. Surely it is true that initially each party will seek to emphasise the substance, or the lack of such substance, to each heading of the claim. There will not be too many heads where even approximately agreement on the quantum is going to be admitted initially. The gap between what the claimant's representative wants and what the defendant's representative offers will be wide initially. If these two representatives do succeed in getting their clients to agree on an award out of court, then this agreement will be in the aggregate. No agreement will have been reached on the make up of the individual parts. Whether they need the amendment of the noble Baroness, Lady Hollis, to be agreed, it would undoubtedly reduce the number of out of court settlements significantly and, correspondingly, increase the number of contested cases that will reach court. I must assume that all parts of the Committee would consider that to be retrograde.

Baroness Hollis of Heigham: I wonder whether the noble Viscount, Lord Chelmsford, would help me further. I have noted his words and I am baffled by them. He said that there probably would be no agreement on parts, even if both parties had agreement on the total sum. How could they have agreement on the total sum if they did not agree on how that total sum was arrived at? I do not understand his thinking on that.

Viscount Chelmsford: In my experience, that frequently is the case: after a lengthy negotiation, without agreeing on the parts, there is agreement on a compromise between the aggregate requirements of one party and the other.

Baroness Hollis of Heigham: If the Minister would allow me, how would that aggregate compromise work? Part of the settlement would be for pain and suffering, which is to be ring-fenced, and part for damages for loss of earnings and the like, which are part of the recoupment procedure. How can you agree a total figure if you cannot agree on those two elements, one of which is protected from recoupment and the other is not? This is a new world into which we are moving, and I do not understand how the noble Viscount's thinking applies to this new world.

Earl Russell: I should like to reinforce the point the noble Baroness makes about a new world. I understand that you can reach a settlement in aggregate, and that you can divide that up afterwards. In this new world, in which one part of the settlement is subject to recoupment and another part is not, it will make a great deal of difference to what the victim actually receives under which head those damages are being awarded. Therefore, the effect of what the noble Viscount is proposing may be the opposite of what he suggests.

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He is concerned about the incentive to settle and so, I hope, are we all. I can certainly imagine a litigant being extremely reluctant to settle if he does not in fact understand under which heads he is getting the damages and what they are going to be worth to him when he gets them. That is a question which tends to interest litigants, very naturally. There may be a better chance of getting settlements if litigants do understand exactly what they are getting under which head of damages, and therefore what is going to be recouped and what is not. I thought that might be another possible way of looking at it, and I would be very interested to hear what the Minister has to say about it.

6 p.m.

Lord Mackay of Ardbrecknish: First, I should make clear that we are talking about out of court settlements. We are not talking about court settlements. My noble friend Lord Chelmsford has brought the real world to our proceedings. That real world was evidenced before the Select Committee of another place. It was told that offers of compensation and resultant settlements are very often not broken down into their component parts in out of court settlements. Some 90 per cent. are out of court settlements.

My noble friend Lord Chelmsford is right to say that nothing we do in the Bill should lead to more cases going to court. That would be in no one's interest. The Select Committee was told that offers of compensation and resultant settlements are very often not broken down into their component parts. That was confirmed by my noble friend.

The product of negotiations is a global settlement; that is to say, a single sum of money is offered which represents compensation for all losses suffered. In such negotiations there is rarely a distinction drawn between the separate elements of compensation which may be included; loss of earnings, the cost of care, pain and suffering, and so on. The negotiating parties may very often disagree on the amounts of compensation which they believe should properly be payable in respect of each of these elements. But while their minds may never meet on those issues, they may, nevertheless, be able to agree on an overall sum in settling the claim.

I believe it would be entirely wrong for the operation of the reformed benefit recovery scheme to interfere with that process. Indeed, there is no need for it to do so. Under the reformed scheme it will be possible for both victim and compensator to calculate the amount of compensation they believe should be paid in respect of the losses which the victim has sustained. They will also take a view on the reductions that should be made under the scheme for each of those categories. Each side will therefore have an anticipated net figure or indeed probably a range within which such a net figure should fall. When both parties are satisfied that the offer conforms with their projections, they will settle.

It would be excessively bureaucratic and unnecessary to require compensators to set out all the elements suggested in the amendment when they come to such an agreement--or rather when they are negotiating such an

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agreement, because I presume that that is actually what would happen. Furthermore, it would place them at a disadvantage in the negotiations since the amendment would place no corresponding requirement on victims to set out their calculations for the information of the compensators. I doubt whether representatives of victims would complain if the amendment were carried but I believe that we have to be even handed and be seen to be even handed. In essence, the benefit recovery process must not exert an excessive influence on the way in which compensation settlements are negotiated. It should certainly not exercise an influence which would lead to more cases going to court because the parties could not agree with the component parts, although they might be able to agree the total figure.

That is the nub of my argument. It is an argument about the real world where these negotiations happen and where we all want to see settlements satisfactory to both parties agreed in out of court settlements. I suggest to the noble Baroness and to the noble Earl that they might look at what the Select Committee of another place was told about these out of court settlements not being broken down and that they heed what my noble friend Lord Chelmsford, who understands how this part of the world works, has said. With that explanation, I hope they will agree that it would not be to the benefit of victims, compensators and to the speedy out of court settlement of claims if we went down the road suggested in the amendment.

Earl Russell: It is not quite as simple as the Minister suggests. When he talks about the real sum on which he hopes the two will settle, he is perhaps importing an unjustified adjective. Until they know which parts of that sum are liable to recoupment, and which are not, there is not any real sum involved. What we are dealing with is a notional sum. It is like being paid a salary and not knowing whether it is before or after tax. It makes a considerable difference.

I do not dispute what the Minister and the noble Viscount say about the real world as it has been hitherto. But the Bill is fundamentally changing the situation. Our job as legislators is not to legislate for the real world as it was yesterday; it is to legislate for the real world when the Bill is in force. Those are very different things. I am not a lawyer but I cannot help being tempted to imagine that if I were and I were dealing with a case of this kind, I would very strongly advise my client not to settle until he knew what part of his damages was liable to recoupment and what part was not.

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