Civil Law of Damages: Issues in Personal Injury - Analysis of Written Consultation Responses

6. Future Legislative Reform

Periodical payments

6.1 When there is an award of damages in respect of a personal injury, it is generally paid as a lump sum. But however carefully the pursuer's long-term future losses and needs are estimated, they can rarely be known with certainty, and there is a risk that a lump sum award which underestimates actual requirements may cause the pursuer to suffer hardship. Conversely, an award which overestimates actual requirements may unfairly penalise the defender. An alternative approach, which may help to mitigate such risks, is through the mechanism of 'periodical payments' to spread payments over an extended period (e.g. annual payments, for the remainder of the pursuer's life). It may be that greater use of periodical payments offers scope to reflect pursuers' actual needs and losses more closely than is possible with lump sums.

6.2 At present, where damages for personal injury are payable in Scotland, the courts may make an order for periodical payments, only with the consent of the parties involved. This provision is set out at section 2 of the Damages Act 1996. This position differs from England and Wales and Northern Ireland, where an amended version of section 2 of the 1996 Act is in effect, and as a result, the courts now have the power to impose an order providing for periodical payments to the injured person without the consent of the parties.

6.3 The consultation asked:

Q4j) Do you consider that there would be merit in reviewing the existing approach to periodical payments, as currently set out in the Scottish version of s.2 of the 1996 Act?

6.4 Twenty eight (62% of all respondents) addressed question 4j) as follows:

Table 24: Summary of views on whether there would be merit in reviewing the existing approach to periodical payments

Respondent category	Yes	No	Total
Insurance bodies	12	1	13
Legal body reps	6		6
Solicitor firms	3		3
Academics	1		1
MD Unions	1	1	2
Other	3		3
Total	26	2	28

6.5 It was commonly felt amongst the 93% of respondents seeing merit in reviewing the existing approach to periodical payments, that these are a fair way of settling claims, particularly in serious, catastrophic cases, in order to ensure that pursuers do not outlive the care package put in place following their injury claim. Periodical payments were viewed as vehicles to reduce uncertainty and risk of over or under compensating pursuers. One respondent commented:

"Giving the court the power to award payment protection order awards means that the interests of the pursuer are being considered fully and that the award is sufficient to fully provide for their financial needs during the whole of their lifetime" (ENABLE Scotland).

6.6 Overall, respondents envisaged both advantages and drawbacks of periodical payments to both pursuer and defender, but on balance they were welcomed as potentially:

• saving court time and legal costs
• providing greater predictability to help defenders' cash flow (rather than having to pay lump sums)
• bringing Scotland in line with England and Wales
• helping to overcome difficulties experienced in relation to the discount rate arguments
• taking account of issues arising post imposition of the payment such as changes in medical understanding
• benefitting the NHS in that they will limit the chance of the pursuer exhausting their pot of reparation, and being forced to rely on public support for their treatment and care.

6.7 Two solicitor firms recommended that the need for consent from both parties be removed. One remarked:

"It seems to us that in an adversarial system such as ours, any provision requiring the consent of the opposing parties is rarely going to be invoked" (Thompsons Solicitors and Solicitor Advocates).

6.8 It was argued by two respondents (Acad, Sol) that an ongoing review regime be implemented so that the payments can be increased or decreased over time, should circumstances change.

6.9 The view of one of the respondents opposing the review of periodic payments was that a consensual approach between parties should be retained (Ins). The other respondent (MDU) in opposition stated that from their point of view there would be no merit in reviewing the existing approach to periodical payments as they were not considered a secure provider under s2(4) of the Damages Act 1996.

Interest on damages

6.10 In September 2006, the Commission published a report on Interest on Debt and Damages^[19] with a draft Bill. The Commission proposed the creation of a statutory right to interest throughout the period from the date when the claimant loses the use of money to which he/she is entitled. It was also proposed that interest should run during the same period and at the same rate regardless of whether the claim is for payment of a contractual debt, a non-contractual debt or damages. The rate of interest would be set at a level which adequately compensates the claimant, rather than one which punishes the debtor for the late payment.

6.11 The Scottish Government consulted in January 2008^[20] on the full range of recommendations made by the Commission. The responses to that exercise raised a number of important concerns about the proposed legislation. As regards interest on damages, the responses suggested that the proposals and their potential effect lacked clarity and relied excessively on judicial discretion, without giving express guidance to the Court.

6.12 The consultation asked:

Q4k) Do you consider that there would be merit in reviewing again (but this time, separately) the existing approach to interest on damages for personal injury?

6.13 Twenty five respondents (56% of all respondents) addressed this question, with the overwhelming majority (88% of those who provided a view) considering that the existing approach should be reviewed again, separately. Of the three respondents who disagreed, two legal body representatives argued that the approach is correct, but the interest rate should be reviewed. The other (MDU) provided no commentary to support their response.

6.14 The reasons given by those in favour of a new and separate review were:

• The current rate of 8% is not appropriate in the current economic climate, with what was perceived to be a "mis-match" between the judicial and market interest rates, unjustifiable (17 mentions).
• Currently pursuers have an incentive to delay settlement as the 8% interest rate provides a greater return than would be the case through investment of funds (10 mentions). One respondent commented:

"Why would a pursuer accept a reasonably offered sum when to do nothing achieves a return of 8% - far more than any bank or investment fund (at reasonable risk) would be able to offer? This is an impediment to justice in Scotland" (Aviva Insurance Limited).

• Scotland's approach is out of step with that in England and Wales where interest rates are lower and interest is awarded from the date of issue of court proceedings, not prior to proceedings (7 mentions).
• The rate of 8% is unnecessarily punitive (7 mentions).
• The current approach can result in the claimant being substantially overcompensated due to the difference between the judicial interest rate and the bank base rate (Sol).
• The current approach results in increased insurance premiums for consumers (Ins).
• This area of law is complex and requires its own dedicated consultation (Sol).

6.15 Many respondents referred to the recent decision in Farstad Supply AS v Enviroco Ltd (2013) CSIH 9, in which a modified judicial interest rate was applied with a suggestion that the Rules Council should address the mis-match between the judicial rate of interest and the market rate as a matter of urgency.

6.16 One solicitor firm suggested that interest rates for each case should be determined by the bank rates prevailing at the time:

"It is submitted that the Scottish Law Commission should recommend that interest in respect of past elements of loss in personal injury actions should be awarded having regard to the prevailing rates of Bank interest rates during the relevant period. Clearly it would be impractical for the court to carry out a complex exercise particularly if there had been a large number of interest rate changes over the period but a "broad brush" approach should be employed. There should be no difficulty in providing guidance to the courts by way of Practice Notes" (HBM Sayers).

Summary of views

6.17 The vast majority (93%) of those providing a view saw merit in reviewing the existing approach to periodical payments. These were envisaged as potentially a fair way to settle claims, particularly in serious, catastrophic cases, in order to ensure that pursuers do not outlive the care package put in place following their injury claim.

6.18 The overwhelming majority (88%) of those who provided a view considered that there would be merit in reviewing separately the existing approach to interest on damages for personal injury. The most common reason given was to address what was perceived to be a mis-match in the judicial and market interest rates, which provided an incentive to pursuers to delay settlement.