News Category 3
The Discount Rate: What Next? - Trevor Ward, Fletchers Solicitors
26/08/18. A reminder – when claimants suffer life changing injury and accept a lump sum payment method of compensation, the same is calculated by reference to a rate of return over their lifetime on the theoretical basis of expected earnings from investments of that sum against inflation. The method uses the ‘Discount Rate’.
Some of us will remember the days when the discount rate was 4.5% and then 3% following the decision in Wells v Wells (and other cases) in 1999 and before the introduction of section 1 of the Damages Act 1996 and the power of the Lord Chancellor to fix the rate. The Lord Chancellor did not indeed fix the rate until 25 June 2001. Then 2.5%. The Lord Chancellor immediately reviewed the rate but confirmed it on 27 July 2001. One concern at the time was the detrimental effect of frequent changes to the rate, particularly on settlements.
And so it remained until 2017. This followed an attempt by APIL to judicially review the Lord Chancellor’s decision in 2012 and the ‘consultations’ and the establishment of a working party to consider the discount rate that followed.
It was then the (new) Lord Chancellor, Liz Truss, who announced a new discount rate (surprising to some) of -0.75%. This was effective from 20 March 2017. I say a surprise to some but not too many; it had been on the cards for a while and using the same methodology (a methodology which apparently cannot be changed without primary legislation) she looked at the previous three-year returns on ILGS, similar to the exercise carried out in 2001, and reached this decision. It was clear to most that we were in a very different economic climate in 2017 than in 2001.
Such a discount rate substantially increased compensation amounts, insurance reserves, uncertainty and consternation in the reinsurance market and a substantial increase on balance sheet provisions for the NHSLA. Uproar ensued and the government embarked upon a period of further reflection and consultation culminating in the Civil Liability Bill Part 2 currently weeding its way through the Parliamentary process.
Aside Brexit and the Parliamentary recess in the summer, it is likely that Part 2 of the Bill will have its second reading in early September and if it obtains the Royal Assent, implementation in relation to the discount rate change will commence shortly thereafter. What will that look like?
The assumed investment risk for claimants will change from very low risk to low-risk. It is uncertain what this means and whether claimants will be required, perhaps at their own cost, to risk their investment in part and thus potentially jeopardise the 100% compensation principle for so long established.
A panel of experts will at some point be formed to assist the government in setting the rate; but apparently not the first change in rate. That is to be restricted to the Treasury and the government actuary, perhaps to ensure the government can afford the appropriate rate!
Who will be appointed to the eventual panel remains to be seen.
The review period may be extended from the initial 3 to a 5-year period.
Evidence as to what the rate should be based upon what claimants do with their compensation is to say the least thin and in any event probably flawed by past economic circumstances and claimants lack of security.
There may be an extension of the use of periodical payments orders (PPOs) to more inventive areas outside of care and case management, although consideration will have to be given to the appropriate indexation of those future payments.
The security of future payments may also be under consideration so as to assist those organisations currently not deemed to be secure for PPOs e.g. Medical Protection Society and the Medical Defence Unions.
Accommodation claims have been historically linked to the discount rate but I suspect that has to change. Roberts V Johnstone is no longer relevant when considering property prices and the economic changes since 2001. A vehicle for a senior court to consider is required.
There has been much speculation as to what the new rate will be, I suspect we won’t have to wait too long now.
Trevor Ward
Senior Solicitor
Fletchers Solicitors
Image ©iStockphoto.com/DNY59
Editorial: Heatwaves and Court Facilities - Aidan Ellis, Temple Garden Chambers
25/08/18. At the start of July, an article in the Economist discussed the obvious difficulties arising from wearing wigs and gowns in Court during a heatwave. As the heatwave intensified over July and the start of August, the article appeared prescient, though not perhaps for the reasons the author intended. In many civil cases, of course, the problem is not really about wigs and gowns. In practice, in personal injury litigation, the number of occasions on which wigs and gowns are worn is continuing to fall even in multi-track cases. I wonder whether new pupils and tenants feel the same obligation to buy their own robes immediately as I did when starting out thirteen years ago.
Nevertheless, although personal injury lawyers are rarely over-heated by their own court dress, the unusual heat did illustrate broader issues about county court facilities. In the newer buildings, there is often modern air-conditioning throughout. In others, the air-conditioning may not cover the whole building, meaning that while the court rooms themselves were generally cool, on occasions the waiting rooms became unpleasantly hot and certain conferences rooms bordered on the unusable. On at least one occasion, I waited for several hours on a staircase, because it was the coolest part of the building. This is not simply a spoilt lawyer grumbling. Court staff, particularly ushers, have to work in the same conditions in waiting rooms. Litigants, already in an unfamiliar and stressful environment, may not give of their best in such conditions. Moreover, there are other ongoing concerns about the facilities offered ranging from the uneven availability of drinks to the lack of private conference rooms.
The effect of various listing arrangements seems to be that certain courts become particularly busy on particular days, when block listing is carried out. For instance, many will be familiar with the floating list at Clerkenwell and Shoreditch County Court. This may well be beneficial in terms of listing efficiency, but it also has the side-effect of intensifying the pressure on conference rooms and waiting areas in the affected Courts. If these arrangements are to be a permanent feature, it would surely be sensible to give thought to the facilities (conference rooms, seats, toilets, drinks, and air-conditioning) necessary to accommodate the increased number of litigants in the court on such occasions.
Aidan Ellis
Temple Garden Chambers
Image: public domain
Faking it: Holiday Sickness Claims, An Update on the New Rules - Katherine Ettridge, Blake Morgan
23/08/18. As many of you may have heard in the news, tour operators have warned that British tourists could be banned from all-inclusive package holidays in some countries, or the price of going on all-inclusive holidays could rise, as there has been a huge spike in reports of holiday sickness, mostly from British tourists.
Rogue firms have been using touts at the holiday destinations to encourage tourists to make illness allegations so that the firm can receive part of the compensation. Some of these claims management firms are leading tourists into believing they can make a fraudulent or exaggerated claim without any consequence.
The Foreign Office updated its travel advice with new guidelines, warning tourists that they may face legal proceedings if they are caught faking illness and trying to get compensation. The Ministry of Justice has said that UK holidaymakers who are found guilty of making a fraudulent claim face up to three years in jail.
The SRA has also updated a warning notice in August 2018 confirming that they are investigating some claims firms involved in holiday claims. Such types of holiday sickness claims have demonstrated that some law firms fail to properly assess all the evidence before submitting claims. The SRA have stated that there "seems to be a serious risk that many holiday sickness claims are not genuine. Examples of risk factors in holiday sickness claims would include:
· The claim is made some time after the alleged incident
· There was no report of the claim to the hotel
· There was no extensive sickness amongst others in the same accommodation
· The claim comes from or involves people that have actively sought out/farmed for claims in a resort
· The client’s contemporaneous report of the holiday was positive
· The client drank or ate excessively before or after becoming ill"
The Association of British Travel Agents (ABTA) has reported a 500% increase from around 5,000 claims in 2013 to around 35,000 claims in 2016, although I note there is no evidence to show how many of these claims have been spurious.
The new rules were bought in, in April, before the start of the Summer Holidays. http://www.justice.gov.uk/courts/procedure-rules/civil/protocol/pre-action-protocol-for-resolution-of-package-travel-claims
The idea is that the new rules, campaigned for by ABTA, to fix legal costs which can be claimed by claimant lawyers in package holiday sickness claims, mean that Tour Operators can defend potentially fraudulent claims without fear that their costs will be hugely disproportionate. Many operators were settling holiday sickness claims out of court, rather than challenging them because defence costs were so unpredictable and often spiralled out of control.
The new rules for holiday sickness claims are feared by claimant solicitors to be just another step towards fixed costs in all foreign claims, and this raises the long running argument of access to justice being restricted and the mission creep which has started with the initial fixing of costs in gastric illness claims. Claimant lawyers had urged the government not to impose fixed fees across all claim types, since extra costs are incurred abroad through instructing local experts, translation services and serving local standard evidence.
One of the more relevant cases in this regard was Caldwell v Thomas Cook Tour Operations Ltd.
Caldwell v Thomas Cook Tour Operations Ltd
The Claimant made a claim for illness against the tour operator, following a package holiday in Menorca. The Claimant stated that he and his son had become ill as a result of eating contaminated food. A questionnaire was filled in on the flight home which confirmed that no member of his group were ill during the holiday, however the Claimant said that it was his 10 year old son who had filled it in.
DDJ Colvin found against the claimant and stated that it was inconceivable that, if the Claimant and his son had been confined to a hotel room for a period of eight days, that not a single report of that incident would have been made to the hotel, as it was an incident that was of such disruption to a family with young children.
There is also "significant inconsistency between the pleaded case, the letter of claim, the medical report and the statement of evidence. There was no mention of a specific incident of the claimant eating some pink chicken in the letter of claim or statement of case, despite the claimant relying on that in his witness statement." Further, "the explanation that it was the claimant’s son who filled in the satisfaction questionnaire was quite astonishing and was rejected. It was clear, having looked at the questions, that they had been answered by an adult. In that form he confirmed categorically that he was not ill."
DDJ Colvin addressed the Claimant's credibility and he did not find it necessary to deal with the further issues including the relationship of any gastric illness to the food and drink served, because he was not satisfied that there was such an illness. He found the claim to be fundamentally dishonest, as the Claimant could not have been mistaken about alleging illness.
Since October 2017, four other couples were either sentenced or ordered to pay significant legal costs by the court after making false package holiday sickness claims.
Steps for Tourists to take
The consequences of finding fundamental dishonesty are widely known and will not be discussed in this article. In terms of specific steps to take, although the fixed costs measures have been brought in to crack down on those who engage in dishonest practice, unfortunately it makes it harder for those with genuine claims whose holidays have been ruined, to receive the compensation they deserve.
If tourists have been on an all-inclusive holiday, not eaten off site and suffered a gastric illness then they need to make sure they get a report from the hotel or tour representative and medical evidence at the time of illness. Also, to get details of any other guests who have suffered the same or similar sickness. It is important to seek advice from their travel insurer as soon as possible. Evidence will be key in bringing such claims, now.
Image ©iStockphoto.com/shaunl
Reforming the Personal Injury Discount Rate in Scotland - Nicola Edgar, Morton Fraser LLP
21/08/18. The Damages (Investment Returns and Periodical Payments) (Scotland) Bill was introduced to the Scottish Parliament in June 2018 and provides a new method of fixing the Discount Rate with the aim of ensuring fairness and certainty.
The Personal Injury Discount Rate
The Discount Rate is applied to personal injury settlements to accurately compensate the injured party for their loss by taking account of the likely rate of return which the pursuer can expect to receive from investing their award over their lifetime. It is applied to any award for future pecuniary losses such as future loss of earnings or provision for future care or medical costs.
In March 2017 in Scotland, following a similar change in England and Wales, the discount rate was changed for the first time since 2002 when it was reduced by the Scottish Ministers from 2.5% to minus 0.75%. This substantial reduction was due to the fact that the market had changed dramatically over this period and the new rate took account of the reduced returns available from investments. The rate change significantly impacted on the compensation payable, resulting in a marked increase in damages payments and additional financial pressure on defenders, such as insurers and the public sector.
The Bill
The Bill is set out in two parts - the first part focusses on proposals to alter the method of calculating the discount rate, whilst the second part proposes providing Scottish courts with the power to impose Periodical Payment Orders (PPOs) as a method of compensating a pursuer for future financial loss.
Calculation of Discount Rate
The current method of setting the discount rate, in line with the decision by the House of Lords in Wells v Wells (1999) 1 AC 345, assumes that a pursuer is risk adverse, investing in only 'risk free' investments, with minimal potential returns. However, the new method is based upon what the Advocate General for Scotland argues to be the reality, that a pursuer will have a 'cautious' as opposed to a 'risk free' portfolio. Therefore, the new method is based on the assumption that the pursuer will potentially receive greater returns and, in turn, the level of settlement payable by defenders will ultimately be lower to take account of this.
Who will review the rate and how often
The Bill proposes moving the responsibility for fixing the discount rate from the Scottish Ministers to the London based Government Actuary's Department (GAD). The recent rate change adversely impacted defenders as little notice was provided and a large financial obligation was created overnight. The Bill has proposed that the rate be reviewed at least every 3 years to prevent this happening again and ensure that the rate will be expected, transparent, incremental and a reflection of current market conditions.
Periodical Payment Orders (PPOs)
The second part of the Bill sets out proposals for providing courts with the power to impose PPOs for future loss, as an alternative to settling a case on a lump sum basis.
A PPO allows for future losses to be paid annually, in line with inflation, either for a set number of years or until the pursuer's death. This type of settlement is often recommended in catastrophic injury cases, particularly where the pursuer is young and future losses are uncertain due to the nature of the injuries and potential care needs. Currently parties can agree a PPO, however, the Bill provides that courts will have the power to impose a PPO, even if one or both parties object.
From a pursuer's perspective, the advantage of a PPO is that they will not be exposed to the risk of investing their lump sum, or the risk of their compensation running out if they live beyond their life expectancy. For a defender, the cost of the claim can be spread over time and there is no risk of overcompensation if a pursuer doesn't live as long as expected, resulting in a windfall payment to their beneficiaries.
It will be interesting to see the extent courts utilise their power to impose PPOs, particularly where one or both parties wish to avoid it. If the courts were to begin to impose PPOs against the wishes of parties, this may influence negotiations and encourage parties to agree early settlement.
Summary
Whilst the Bill is not proposing a further change to the discount rate, it is putting in place a new regime for this to be done in the future. It is expected the rate would be reviewed once the Act is brought into force, which is expected to be in 2019.
The overall policy aim for the new statutory regime is ensure the method and process of fixing the rate is clear, fair, transparent and credible. The intention is that it will ensure a balance between the potential for a pursuer to run out of compensation with the potential to overcompensate, ensuring that the pursuer receives as close to 100% compensation for their loss as possible.
Nicola Edgar
Associate
Morton Fraser LLP
Image ©iStockphoto.com/catenarymedia
Fundamental Dishonesty, Conspiracy and Multiple Passenger Claims - Vaughan Jacob, Lamb Chambers
19/08/18. Matthew Boon and 18 others v (1) Dale Pritchard (2) Nigel Mordescai (Liverpool CC, HHJ Gregory, 14 February 2018)
On 11 July 2015 a minor road traffic accident occurred on a roundabout between a van driven by the first defendant and a coach driven by the second defendant. The second defendant’s coach that day carried 25 passengers on a stag do. After the drivers had stopped and exchanged details the stag party continued on to a day at the Chester Races and then afterwards to a nightclub in Wigan. Within a few weeks of the accident 20 of the 25 passengers claimed they had suffered soft tissue whiplash type injuries and claimed damages for personal injury. Of the 20 claims, 19 were presented through the same set of solicitors.
The insurers of both Defendants faced a difficult decision whether to settle or fight the personal injury claims. Certainly the accident circumstances were suspicious. The description of the accident by both drivers and an expert engineering report suggested the collision was no more than a light glancing blow. Indeed the drivers themselves barely noticed the impact and suffered no injury. However each Claimant relied on the corroborative accounts of his peers as well as supporting evidence from a medico-legal expert, GP notes, physiotherapy invoices and statements from family members confirming whiplash symptoms. Further, even if the insurers fought the 20 claims and succeeded they would likely be unable to recover their legal costs of the successful defence owing to the qualified one-way costs shifting provisions found under CPR 44.14. Only a finding that the claims were fundamentally dishonest pursuant to CPR 44.16(1) would allow the insurers to recover their legal costs of defending the claims and make the defence commercially viable.
The Defendants called the Claimants’ bluff. At a 6-day trial in Liverpool County Court all Claimants were subjected to cross-examination alleging that the collision was so minor it could not have caused personal injury. In addition the Defendants’...
Image ©iStockphoto.com/payphoto
![Appeal judge rules that credit hire company has no costs liability following a finding of fundamental dishonesty in personal injury case: RSA v. Fastrack Solutions Limited [2023] 4 WLUK 92 - David Bowden, Erimus Chambers](/content/images/resized/images/stories/carkeys_72_72.jpg)
