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Lord Goodhart: I am grateful to the noble Baroness for her reply, which was much as I expected. This is a point of some importance. We shall look carefully at what she has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 138 not moved.]

Clause 88 agreed to.

Clauses 89 to 91 agreed to.

Schedule 5 agreed to.

Clause 92 [Periodical payments]:

Lord Hunt of Wirral moved Amendment No. 138A:

The noble Lord said: We now move to consider Clauses 92 and 93 headed "Damages", which provide for periodical payments to be ordered by the court. This gives us an opportunity to review the position of structured settlements. The amendment asks a question about the extent to which periodical payments will be dealing with future loss, whether pecuniary or not.

It is some time since the first UK structured settlement involving periodical payments with model documentation was put in place. In July 1989, the first structured settlement attracted considerable publicity. In the following year more cases were settled on that basis. Since then the flow of cases has increased. In June 1991 a UK Law Commission inquiry was appointed to look at structured settlements which reported in 1994. It concluded the report Structured Settlements and Interim and Provisional Damages in the following terms:

    "Structured settlements are a useful alternative form of arranging an award of damages which should remain available to allow plaintiffs [now claimants] a choice as to how to plan their future".

In May 1995, legislation based on the commission's recommendations was enacted. We have seen the development since then. I refer particularly to the Damages Act 1996, which allowed for structured settlements to be made by consent.

In a case before our Judicial Committee in 1998, the noble and learned Lord, Lord Steyn, made the following comments:

    "The present power to order periodic payments is a dead letter. The solution is relatively straightforward. The court ought to be given the power of its own motion to make an award for periodic payments rather than a lump sum in appropriate cases. Such power is perfectly consistent with the principle of full compensation for pecuniary loss. Except perhaps for"—

I greatly regret that he added these words—

    "the distaste of personal injury lawyers for change to a familiar system, I can think of no substantial argument to the contrary. But the judges cannot make the change. Only Parliament can solve the problem".

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That explains why we are here today discussing Clause 92 in particular.

We have had extensive consultation. I pay tribute to the noble and learned Lord the Lord Chancellor. In March 2000 he published a consultation paper entitled Damages: the Discount Rate and Alternatives to Lump Sum Payments. He concluded that further discussion was necessary. In March last year he published a further consultation paper entitled Damages for Future Loss: Giving the Courts the Power to Order Periodical Payments for Future Loss and Care Costs in Personal Injury Cases. The post-consultation report was published in November last year. I applaud the speed with which the Government have responded in putting forward Clause 92 as far as it allows for periodical payments.

The issue has been looked at the by the Clinical Disputes Forum, which published a paper on the subject in August 2000 entitled Lump Sum Damages and Periodical Payments. The working party of the Master of the Rolls published a report last August on structured settlements.

I support what is clearly a more appropriate way of compensating claimants because it will ensure that they have the money to which they are entitled and for as long as it is needed without the anxiety of the award running out if they live longer than expected. But a number of reports have concluded that there must be an element of finality. We shall come to specific amendments dealing with the proposals on variation in a moment.

The extensive consultation that has taken place has disclosed that periodical payments are to be welcomed provided that they introduce a degree of finality. There are views in favour of periodical payments from a range of organisations such as the National Health Service Litigation Authority, the Medical Defence Union, the Medical Protection Society, the Association of British Insurers, the International Underwriting Association and by claimants' organisations. Generally, these are to be welcomed. But all of them are unanimous in their view that they have serious concern about a proposal for those payments to be varied at some unspecified stage in the future.

The variation clauses could cause much more litigation, endless uncertainty, constant scrutiny for claimants and financial instability for those who seek to compensate. I hope that the Minister will accept that there could be a fatal flaw in the system. If periodical payments are introduced with a suspicion that at some stage in the future they will be changed or varied, then I do not believe that the general welcome for periodical payments will continue.

12.15 p.m.

Lord Clinton-Davis: I am grateful to the noble Lord for giving way. If there is a fundamental change of circumstances, it is impossible not to vary the situation. Obviously, the noble Lord is right in that

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there should be no repeated surveillance of such a situation. Would the noble Lord like to comment on that?

Lord Hunt of Wirral: The noble Lord is right in that provisions presently exist for what are called provisional damages. Where there is a suspicion that at some stage there will be a serious deterioration in the claimant's condition, then it is perfectly possible for the damages to be put on hold, so to speak, under the system of provisional damages. That could be incorporated under the existing legislation in a structured settlement.

The noble Lord has given me an opportunity to emphasise the point. There may be a suspicion that there will be no finality. The Master of the Rolls' working party demonstrated the attraction of finality introduced by lump sum payments. But, as I read the proposals, there is presently nothing on the face of the Bill to meet the point that the move to the alternative system of periodical payments might produce continuing uncertainty. There is a genuine worry on the part of those who face claims—particularly in the National Health Service but also, generally speaking, insurers and re-insurers and those acting on behalf of claimants—that periodical payments in the form of structured settlements will not succeed because there is no finality and it is impossible for a file ever to be closed.

The Minister may seek to reassure us on that point. I very much hope that she will, as she now seeks to explain exactly what, in form of damages, the periodical payments will cover. I hope that she will not mind my having widened the debate to indicate the general concern that exists over what could be the fatal flaw of variability. I beg to move.

Baroness Scotland of Asthal: I thank the noble Lord for his generous compliments in relation to the way in which this work has been undertaken, and I return them. The work on periodical payments has been successful only, as a number of Members of the Committee have been kind enough to indicate, because of the work done by all those who have participated in this area, including the noble Lord. So this is a joint venture to that extent.

I do not mind at all the fact that the noble Lord has broadened the issue slightly. It may be helpful, therefore, if I set out in broad terms how we view periodical payments, because there has been some confusion. I hope that when we come to deal with the basis on which these could be reviewed I shall be able to make sufficiently clear and helpful comments to reassure the noble Lord that his anxieties as regards periodical payments and their take-up and application are not well founded.

These proposals aim 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. At Second Reading, the noble Lord, Lord Goodhart, the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Hunt, all

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welcomed the powers to order periodical payments. I was pleased, as I have said, that the noble Lord was able to reiterate that today.

At present, a court can order periodical payments only where both parties give their consent. Otherwise, it will order a lump sum. We believe that the existing system of compensation for future losses by way of lump sums is unsatisfactory. It is based on predictions about the future life expectancy of a claimant which are inevitably uncertain and almost always lead to over-compensation or under-compensation. That results in an injustice either to the claimant or to the defendant. If claimants are under-compensated because they live longer than expected, they may need to fall back on the state, causing an additional burden on the taxpayer. If claimants are over-compensated, they receive a windfall, the cost of which is ultimately borne by the taxpayer or through insurance premiums.

In contrast, periodical payments will help to ensure that people receive the compensation to which they are entitled for as long as it is needed. This will give greater security to claimants, who will be able to plan for the future without the anxiety or the awards running out if they live longer than expected. Periodical payments also transfer investment responsibility from claimants to defendants, who are better able to bear it.

We believe that periodical payments can also be valuable in assisting the rehabilitation process. Claimants will receive regular payments which are more accurately assessed to meet their on-going needs rather than face the difficulties of managing a substantial one-off lump sum. That will enable claimants to return to a normal life by allowing them to manage their everyday affairs with a regular stream of income and help them to look to the future and focus on the possibility of rehabilitation. In addition, the absence of the need for complex and often adversarial discussions about life expectancy should lead to the quicker resolution of cases and encourage early and effective rehabilitation.

Periodical payments will provide benefits to defendants by allowing awards to be managed more cost-effectively. They will be cash-flow savings for the NHS and defendants' insurers will have the greater choice over how payments are funded. We do not wish, by way of review, to jeopardise any of that security. The Government believe that the benefit of periodical payments will accrue from the greater use of these payments. A power for the courts to order periodical payments is needed to realise those benefits.

Under the current system, as the noble Lord, Lord Hunt, has indicated, where the consent of those parties to a structured settlement is required, this option remains little used, and lump sums remain the norm—often to the disadvantage of claimants, defendants and the taxpayer.

We recognise that periodical payments will not always be the most appropriate method of payment, and that lump sums will continue to be preferable in some circumstances. Our proposals will not prevent the court making a lump sum order where it considers

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that to be the best option for the claimant, and 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.

Of course I understand the import of this amendment. But it would change the definition of the type of damages for which the court will be able to impose periodical payments from,

    "damages for future pecuniary loss in respect of personal injury",

to damages for "future loss" in respect of personal injuries. As we have indicated in our consultation paper, it is our intention that the power to impose periodical payments should be available in respect of future loss of earnings capacity, future care costs and similar expenses. The use of the term "future pecuniary loss" is intended to cover those areas.

The term is used elsewhere, in the Damages Act 1996 and in other legislation relating to damages, and is issued here for reasons of consistency. The new power will not apply to damages for past loss or to damages for non-pecuniary loss such as pain and suffering. It will apply to "future pecuniary" loss. I hope that we shall be able to ensure that the meaning of the term is explained in the Explanatory Notes to the Bill on that basis. On the basis of my remarks, I invite the noble Lord to withdraw the amendment. I hope that the clarity of that statement has satisfied him.

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