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Baroness Scotland of Asthal: I will take up the invitation to explain how the clauses work because I understand that they may have caused difficulties. The points that the noble Baroness makes so powerfully are important and I will respond to them fully when we reach the next group of amendments. I reassure her that a lot of work is continuing. The Chief Medical Officer, to name just one authority, is working hard on
reviewing all aspects of clinical negligence, including the complaints procedure. We are hopeful that that work will chart a way through for us.The proposed amendments would affect the way in which the security of periodical payments is protected. They would have unfortunate practical consequences for the ongoing security of periodical payments awards, so the Government are not able to accept them. None of the amendments is consequential on any other—except Amendment No. 140A, which is consequential on Amendment No. 139A.
It may be helpful if I explain the purpose of the provisions relating to security. New Section 2(3) requires the court to be satisfied before it makes a periodical payments order that the continuity of payments is reasonably secure. New Section 4 of the Damages Act 1996, inserted by Clause 93, ensures that the continuity of periodical payments is fully protected by the Financial Services Compensation Scheme, where the payments are self-funded by an insurer or funded by an annuity. Section 2(4)(b) provides that in those situations, the continuity of the payments is reasonably secure for the purposes of new Section 2(3). Similarly, Section 6 of the Damages Act 1996 and new Section 2(4)(a) guarantee the security of self-funded payments by public sector bodies made under a ministerial guarantee.
In making a periodical payments order, it is not intended that the court should specify how payments are to be funded in terms of the particular type of investment to be used, provided it is satisfied that the payment method is reasonably secure. That matter will be for the defendant or the insurer. It is right that, provided payments are reasonably secure, defendants and insurers should be able to choose the funding arrangements that suit them best.
However, in order to be satisfied of that, it is likely that in most cases the court will specify that payments must only be funded in ways provided for under new Section 2(4)—that is, those ways that attract statutory protection. Alternatively, the court may be asked to agree another method of funding that does not attract statutory guarantees. Therefore, new Section 2(5) enables a court order to include provision about how the payments are to be made and to require the person who is to make the payments to take specified action to secure their continuity. The government amendments that I shall move after the debate on these amendments will, I hope, clarify the section further.
It may sometimes be necessary or desirable for the insurer or defendant to change the method of funding the payments. This will not affect the amount of payments. To ensure that the protection afforded by the original court order is not lost as a result of any subsequent change in funding, new Section 2(7) provides that an alteration in the method of funding shall be treated as a breach of the order unless the new method falls within the protected categories of funding, or the court declares it is satisfied that the continuity of payment under the new method is reasonably secure.
The second possibility would arise in two situations: first, where the defendant wished to change from a protected method of payment to one that was not
protected; secondly, where the defendant wished to change from one non-protected method of payment to another. New Section 2(5)(c) enables the court to allow a party to bring the matter back before the court in such situations so that it can consider the proposed new method of funding and approve it if appropriate. The amendments moved by the Opposition would harm the way these interlinking provisions operate.Amendment No. 139ZAA seeks to remove new Section 2(4), which sets out the methods of payment that the court may consider to be reasonably secure for the purposes of new Section 2(3). As I have explained, the section is designed to enable the court to identify which payments attract statutory protection and therefore which it may automatically consider to be secure.
The amendment would require the court to declare itself satisfied by the security of the individual method of funding in every case, even where a method protected by statute was to be used. As a consequence, defendants and insurers would have to present to the court details of the specific investment or method of payment with which they intended to meet the order. This would reduce the flexibility for defendants and insurers to fund payments in the most cost-effective way, would increase court time and costs unnecessarily and might delay payment.
While I am aware of some concerns about the availability of insurance products to meet court ordered periodical payments, we do not consider it to be a significant issue. Defendants will be able to inform the court if the terms of an order would cause particular difficulties. However, as annuities are already used to provide structured settlements, we would be disappointed if the insurance industry did not seize the opportunity to meet an increased need for periodical payments. We should also not forget that not all periodical payments will be funded by insurance products; for example, as the noble Baroness, Lady Finlay, said, the National Health Service might fund payments directly as they arise, rather than purchasing an annuity from a life insurer.
As I have explained, the provisions in new Section 2(5) are intended to cover all the different situations where the court may need to include provision about the method of payment, and one element would not function properly in the absence of the others. Amendment No. 139A, which seeks to delete new Section 2(5)(c), would have the effect of preventing any application to change the method of payment being made. Amendment No. 140A is consequential and deletes the reference to new Section 2(5)(c) in new Section 2B(1). This reference is included in new Section 2B(1) in order to clarify that the Lord Chancellor's order-making power on variation of periodical payments does not extend to provisions relating to the parties' ability to apply for variation of the method by which the payments are funded.
I am going through the arguments slowly, because when practitioners and others come to look at the provisions I hope that my explanation will assist them to see how they interlink. Amendment No. 139B
would restrict the circumstances in which an application to change the method of payment could be made. These amendments would prevent the provisions from functioning effectively to protect the ongoing security of payments. If I may respectfully say so, that would not be in the interests of either claimants or defendants.The same is partly true for Amendment No. 140ZA, because it reduces the circumstances in which it would be necessary to obtain the court's approval to a change in the method of payment. The effect of substituting "if" for "whether or not" in new Section 2(7) would be to limit the orders covered by the provision. In those orders not covered it would then be possible for the defendant, without the court's approval, to change to a method of payment that attracted no statutory protection. That would create a potential loophole and might mean that certain claimants were not adequately protected.
Amendment No. 140ZB is a drafting point relating to the list of instances in new Section 2(7) in which an alteration of the method by which periodical payments are funded will not be treated as a breach of the order. The word "or" is implicit at the end of paragraph (a) and does not need to be inserted. The drafting here reflects the approach used elsewhere in the Bill; for example in Clause 30(1), Clause 36(4), Clause 49(3) and Clause 57(2).
I have dealt with the matter exhaustively but I hope that it is now clear.
1.15 p.m.
Lord Hunt of Wirral: It is indeed clear. Speaking on behalf of practitioners, I am sure that all those involved in implementing these provisions will print out the Minister's words and place them close to their hearts. I am grateful to her for her explanation. As she has indicated, these provisions deal with variation in the method of payment. I congratulate the noble Baroness, Lady Finlay of Llandaff, on her important points on variability. When we come to page 46 of the Bill and the amendments grouped with Amendment No. 140ZC, we will be returning to those points. I shall defer further comment from these Benches until then. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Scotland of Asthal moved Amendment No. 139ZB:
- Page 44, line 35, leave out "it is protected by"
The noble Baroness said: These amendments clarify the methods of payment to which I have just referred that are reasonably secure for the purposes of new Section 2(3), which requires the court to be satisfied before it makes a periodical payments order that the continuity of payments under the order is reasonably secure.
As I have explained, new Section 4 of the Damages Act 1996, inserted by Clause 93, ensures that the continuity of periodical payments is fully protected by the Financial Services Compensation Scheme where the payments are self-funded by an insurer or funded by an annuity. Section 6 of the Damages Act guarantees the security of self-funded payments by public sector bodies made under a ministerial guarantee. But Section 6 is not designed to guarantee payments made by government departments and is not suited to the National Health Service, which will be funding a substantial number of periodical payment orders, as it would appear to require an individual guarantee in each case. That did not matter when periodical payments had to be made by agreement. It would be clear to the claimant that the defendant department was good for the money, so the absence of a formal guarantee would be no bar to a settlement.
In future, however, a court ordering periodical payments will need to be satisfied as to their future security. That requirement will apply when periodical payments orders are made against government departments and health service bodies, in particular the National Health Service Litigation Authority. At present, such payments are usually self-funded, and we wish to ensure that that can remain the case under the new system. Self-funding the payments as they arise represents the best value for the public money concerned. Therefore Amendments Nos. 139ZB, 139ZC, 139ZD, 139ZE, 139ZF and 140ZBA will ensure that the continuity of payments made by government and health service bodies is reasonably secure for the purposes of new Section 2(3).
Amendments Nos. 140ZBB and 140ZBC enable the Lord Chancellor to specify in an order the bodies that will constitute "government and health service bodies" for the purposes of new Section 2(4) and (7) which deal with alterations to the method of payment. The amendment is framed in that way to provide clarity as to the bodies which are protected and to provide flexibility, for example, to alter the designated bodies should they change in name or status. I beg to move.
On Question, amendment agreed to.
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