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Lord Kingsland: My Lords, I entirely share the views expressed by the noble Lord, Lord Goodhart, on these initiatives.
Baroness Scotland of Asthal: My Lords, I thank both noble Lords for the assent that they have given to these regulations. I say to the noble Lord, Lord Goodhart, that it was necessary for us to strike a balance. We believe that we have achieved the correct balance, but we take seriously all the comments that he has made.
On Question, Motion agreed to.
Lord Kingsland rose to move to resolve, That this House calls on Her Majesty's Government to revoke the Damages (Personal Injury) Order 2001 (S.I. 2001/2301), laid before the House on 27th June 2001.
The noble Lord said: My Lords, when assessing damages in court cases involving personal injury or fatal accident, a long-established principle is that full compensation be paid to the claimant. The courts order payment of such compensation in the form of a lump sum. The sum represents an amount that, when invested, will generate a future flow of annual income sufficient to meet the expected costs of care and medical attention throughout the remaining years of the victim's life. Clearly, to cover any future flow of anticipated expenditure, the lower the expected rate of return from investing the lump sum, the higher the lump-sum award will have to be.
In the case of Wells v Wells, the Judicial Committee of your Lordships' House decided that the so-called Ogden tables, prepared by the Government Actuary, should be used to determine the capital sum that best represents continuing loss of earnings, cost of medical expenses and cost of care in personal injury awards. The tables are especially useful in relation to children who are brain damaged or individuals who are paralysed for life.
In effect, the tables are multiplication tables. The judge determines the annual cost or loss and uses the tables to establish the lump-sum compensation. When using the tables, it is necessary to identify the rate of return on certain specified investments. In order to avoid problems that arise from day-to-day changes in the rate of return, Section 1(1) of the Damages Act 1996 gives the noble and learned Lord the Lord Chancellor power to set it. Section 1(4) of that Act enables such an order to be annulled by either House of Parliament.
This Motion to withdraw is substituted for the customary Prayer because, owing to the need to recall Parliament in September and October this year, the 40-day limitation period had elapsed, through no fault of the Government or the Opposition, before your Lordships reassembled on 15th October.
Despite the urgings of the Judicial Committee of your Lordships' House in the case of Wells v Wells, it was not until June 2001 that the noble and learned Lord, relying on calculations made by the Treasury's debt management office, finally set a rate of 2.5 per cent. However, the calculations were manifestly inaccurate. The noble and learned Lord tried again. New calculations were produced; but in the end he reaffirmed his earlier decision.
In giving the reasons for his decision the noble and learned Lord contended that he applied the appropriate legal principle laid down in Wells v Wells. In particular, he stated that it was,
In Wells v Wells the noble and learned Lord, Lord Lloyd of Berwick, said:
The noble and learned Lord, Lord Lloyd, was firmly of the view that the only appropriate investment upon which to base the rate of return would be index-linked government stocks of over five years duration. However, it is clear that in setting the rate the noble and learned Lord the Lord Chancellor was influenced by the opportunities for equity investment. He said:
However, inconsistency with the Judicial Committee's judgment does not end there. The Judicial Committee also made it clear that the selected gross interest rate should be reduced to allow for the effect of tax on the investment proceeds in the form of income and capital gains tax. In a letter to David Kemp, QC, dated 21st September 2001, the Lord Chancellor's Department said that the base figure used by that department of 2.4 per cent,
There are other less obvious but, nevertheless, important inconsistencies in the way in which the gross amount has been reached. The noble and learned Lord the Lord Chancellor decided to base his conclusions on an average over all index-linked government stocks, saying, without giving a reason, that he was not obliged to accept that part of the Judicial Committee's decision. Yet the inclusion of government stock with redemption rates under five years increases the gross rate to the detriment of long-term victims for whom the tables are primarily designed.
Perhaps the most undermining evidence of all is that provided by the Government Actuary. Section 1(4) of the Damages Act requires the noble and learned Lord to consult the Government Actuary as well as the Treasury. The Government Actuary is the Government's principal adviser on pensions, which are what most of the awards in these cases are intended, after all, to provide.
With the greatest possible respect, the Government Actuary is far better qualified to advise on these matters than the debt management officer of the Treasury, which may, on occasions and subconsciously, be susceptible to the financial concerns of government departments, such as the Department of Health or the Ministry of Defence.
The Government Actuary was a member of Sir Michael Ogden's working party which met to respond to the noble and learned Lord's consultation and which recommended a rate of 2 per cent in May 2000. Moreover, in his report to the noble and learned Lord the Lord Chancellor, pursuant to Section 1(4) of the Damages Act 1998, the Government Actuary stated:
Moved to resolve, That this House calls on Her Majesty's Government to revoke the Damages (Personal Injury) Order 2001 (S.I. 2001/2301), laid before the House on 27th June 2001.(Lord Kingsland.)
Lord Thomas of Gresford: My Lords, I support the Motion in the name of the noble Lord, Lord Kingsland. Perhaps I can add a little flesh to the bones from practical experience. Those of us who practised in the personal injury field will know that the purpose of civil damages is to put the plaintiff in the same situation as if he had never been injured. The purpose is to award a lump sum which, together with interest over a period of time, will meet all the expenses which can reasonably be foreseen. In my earlier years there was a protection to the plaintiff for these capital sums by investing in a mixed bag of equity and government stock. To a degree, that was a protection against inflation. However, it was a slightly risky investment.
In 1981 the index-linked government stock was produced. That was a way in which a person could be fully protected against inflation because the stock was
linked to the retail prices index. As the noble Lord, Lord Kingsland, pointed out, in 1998 Wells set a 3 per cent figure pending the Lord Chancellor's determination under the Act. The Judicial Committee of the House of Lords said the sooner he performed that duty the better; we would know where we were. At the time a figure of 3 per cent was set. That was not a unanimous decision of their Lordships. The yield on index-linked government stocks averaged over a three-year period was 2.85 per cent. It was slightly above the three-year average, even at that time, but the 3 per cent figure was then maintained.I well recall sitting as a deputy judge in the High Court some two years ago faced with claims for personal injury, each attracting lump sum damages of over #1 million, and being faced with this problem. There were strong submissions that the 3 per cent rate should be lowered because, as the noble Lord said, the Government Actuary, upon whose figures the Lord Chancellor was supposed to act, in his working party had advised a rate of 2 per cent. That was the submission made to me as a deputy judge. Naturally, after reserving judgment and making inquiries of the Lord Chancellor's Department as to when the rate would be set, I followed precedent. We thoughtit was certainly strongly put to methat the rate would be coming down from 3 per cent. Nevertheless, I followed precedent. I regret to say that the plaintiffs in those three cases, who were severely injured, lost out in the sort of figures to which the noble Lord, Lord Kingsland, referred in his illustration. I have practical experience of seeing how injured people have not had the money to which the system says they are entitled.
There was a long wait. It was not until June of this year that the Lord Chancellor finally made his pronouncement. It is something like two to three years since the decision in Wells. I should like to know why. We see so many statutory instruments going through this House and through another place. This is perhaps one of the shortest I have ever seen in my life. All it states, effectively, is that the rate should be 2.5 per cent. Why on earth did it take three years for that to happen? Why is not the rate more flexible? Why can it not be altered in accordance with changing rates? As the noble Lord, Lord Kingsland stated, over three years to June, taking into account 2.5 per cent inflation, the average yield at the current rate over a three-year period was 2.1 per cent. If tax is taken into account, it was less than 2 per cent. Yet, at that very moment, the Lord Chancellor announced a 2.5 per cent rate.
For another three, four, five or six years, however long it may take, that is the figure that will be used. If interest rates fall further and if stock levels fall, so the injured plaintiff will suffer. That is insupportable. I want to see the Lord Chancellor produce a flexible rate that changes as the FTSE index changes. The figures are available on a monthly basis. There is no reason why that should not be done, certainly at more regular intervals than three years, so that plaintiffs can be properly compensated for their serious injuries. We have been talking in terms of indices and financial
jargon of one sort or another. However, this is a human problem. It is the injured person who is suffering.
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