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Damages (Investment Returns and Periodical Payments) (Scotland) Bill

Overview

This Bill aims to change the way payments are set in personal injury cases to make up for the loss of future earnings. Personal injury is a legal term for an injury to the body, mind or emotions. A case can be made against someone who is legally responsible for causing personal injury. 

Lump sum payments are often used as a way to settle personal injury cases. Lump sum payments tend to over or under compensate people. This is because predicting a person’s life expectancy and future needs is difficult. 

Compensation in regular payments are called ‘periodical payment orders’ (PPOs). People can only get compensation as regular payments if both parties involved agree to this.

The Bill means the court must consider regular payments in every case. Where appropriate, lump sum payments could still be made.

You can find out more in the Scottish Government's Explanatory Notes document that explains the Bill.

Why the Bill was created

For people who suffer a personal injury, their compensation needs to be calculated in a fairer and more open way.

Similar changes to paying compensation are being made in England and Wales.

You can find out more in the Scottish Government's Policy Memorandum document that explains the Bill.

Where do laws come from?

The Scottish Parliament can make decisions about many things like:

  • agriculture and fisheries
  • education and training
  • environment
  • health and social services
  • housing
  • justice and policing
  • local government
  • some aspects of tax and social security

These are 'devolved matters'.

Laws that are decided by the Scottish Parliament come from:

Bill stage timeline

The Damages (Investment Returns and Periodical Payments) (Scotland) Bill became an Act on 24 April 2019

Becomes an Act

This Bill passed by a vote of 112 for and 0 against or abstentions. It became law on 24 April 2019.

Introduced

The Scottish Government sends the Bill and related documents to the Parliament.

Stage 1 - General principles

Committees examine the Bill. Then MSPs vote on whether it should continue to Stage 2.

Have your say

The deadline for sharing your views on this Bill has passed. Read the views that were given.

Who examined the Bill

Each Bill is examined by a 'lead committee'. This is the committee that has the subject of the Bill in its remit.

It looks at everything to do with the Bill.

Other committees may look at certain parts of the Bill if it covers subjects they deal with.

Who spoke to the lead committee about the Bill

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First meeting transcript

23 October 2018

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Second meeting transcript

The Convener

Agenda item 2 is stage 1 consideration of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I welcome to the committee Kate Donachie, Forum of Insurance Lawyers; Alan Rogerson, Forum of Scottish Claims Managers; Norma Shippin, director and legal adviser, and Joy Atterbury, head of litigation, NHS National Services Scotland; and, finally but not least, James Dalton, director of general insurance policy, Association of British Insurers. I thank all of you for coming to the committee this morning.

I should point out that your microphones are operated by broadcasting, so there is no need to press any buttons. That sort of thing is dealt with automatically. Moreover, there is no need for you to answer every question that every member asks, but please come in as you feel appropriate. If you want to be brought into the discussion, simply indicate as much to me by raising your hand.

I will start the questioning. Last week’s evidence to the committee, which I am sure that some of you will have looked at, probably set out the other side of the argument if we think about this in terms of pursuers’ representatives and defenders’ representatives. What are your thoughts on the present personal injury regime? Does it undercompensate or overcompensate those who have been injured and are seeking personal injury compensation? Is either scenario present in the current system, and how will it play out under the proposed regime?

Who would like to start? I think that James Dalton just volunteered.

James Dalton (Association of British Insurers)

The current framework for setting the discount rate is broken, because, as a result of the damages framework and decision making by the courts, the way in which the rate is set bears no relation to what pursuers do in reality. For example, it assumes that 100 per cent of a pursuer’s compensation is invested in one type of asset, but no rational investor, whether seriously injured or otherwise, would take such a decision. It also assumes that 100 per cent of that compensation is invested in index-linked securities, which again is not a balanced portfolio.

We are therefore very supportive of this legislation, which changes the framework for setting the rate to one that bears much more relation to what happens in reality. It is also much more modern. Although there are some parts of the bill that we would like to be tweaked—and we might discuss those later—we think that, broadly speaking, the old framework is broken and this new framework is a significant improvement.

The Convener

From your point of view, then, the issue is not overcompensation or undercompensation but ensuring that the proper framework is in place. From what you have said, you seem to feel that the current framework is not the proper one.

James Dalton

That is correct. The framework is what we should be focusing on.

Alan Rogerson (Forum of Scottish Claims Managers)

There was a lot of talk in last week’s evidence about seriously injured people being risk averse because they need to provide for their future care. That principle is true, and I fully support it. That is probably where part 2 comes in, because its provisions on periodical payments will apply to those who are very risk averse or who require certainty. Those payments would be uprated with reference to, for example, a wage-inflation index for care workers.

As for part 1, we have in our submission looked at investment choices that an injured person would make. You have to look at these provisions as providing flexibility for an injured person, who will be properly advised on how to invest their damages. That is certainly covered by the bill, and what we need to do is to look at the real-world choices for people with regard to where they invest their damages and the rates of return that they are likely to get.

The Convener

Is it appropriate to focus on what people might do or want to do instead of taking a set approach to the matter?

Alan Rogerson

It is all about providing flexibility and giving people a clear choice. There are those who will require absolute certainty for the future, because they are risk averse or have certain needs, and they will choose periodical payments; however, the fact is that people like to be more flexible. In my experience, injured people like to take the lump sum and have control over their future.

As well as being a member of the Forum of Scottish Claims Managers, I work in my day job as a claims manager for Aviva. Two or three months ago, I had a case in which the settlement comprised future losses in the form of loss of earnings and pension losses, and in the immediate aftermath of the settlement, the injured person decided to buy a house. Therefore, the issue was not so much the choices that she was being advised to make; she needed the flexibility provided by the lump sum and the ability to do what she wanted with the settlement. We absolutely support the principle that it is for injured people to decide what they want to do with the compensation that they receive.

Norma Shippin (NHS National Services Scotland)

It is very difficult to know whether people are being overcompensated or undercompensated with the damages that they receive, because we make no inquiries after a case has been settled about what people have done with their compensation. However, in our negotiations, we try to come to a fair settlement with the pursuer’s agents within the context of the current rules, and we have found with catastrophic brain injury cases that, when you settle with a lump sum, you will always over or undercompensate. As Lord Stewart said in the case of D’s Parent and Guardian v Greater Glasgow Health Board, the one thing that you can be sure of is that you will get the life expectancy wrong. The sum will be either too high or too low, which is why, over the past few years, we in the national health service have moved as a matter of practice to always offering periodical payment orders in catastrophic brain injury cases. It is the right thing not only for the individual but for the NHS—which is all we can speak for—because such payments enable that element of life expectancy roulette to be taken out of the situation.

The Convener

You say that you always get the length of life wrong, but of course you and the courts calculate any lump sum on the basis of actuarial tables.

Norma Shippin

Yes, but we also get evidence from experts on what the life expectancy will be, and there is usually a dispute about the length of that. There might be a variation of up to 15 years.

The Convener

So it is not an exact science from anyone’s point of view.

Norma Shippin

That is right.

The Convener

We move to questions from Jackie Baillie.

Jackie Baillie (Dumbarton) (Lab)

Good morning. Defenders’ representatives have argued that the notional portfolio set out in the bill is overcautious. Can you tell us why? I will start with Mr Dalton, given the supplementary information that he has provided to us.

James Dalton

The research that we have provided to the committee suggests that the portfolio of assets that has been determined by the Scottish Government is quite conservative, and it also assumes a 30-year investment horizon. Our submission is that, when taken together, those two things make it a conservative and low-risk portfolio of investments. According to our analysis, the average life expectancy of a settled claim is around 40 to 45 years, which means that a 30-year period is very short.

In that context, having a portfolio that is underweight on equities means that a person is not hedging their inflation risks sufficiently. If they were to increase the size of the portfolio of equities within the overall portfolio, they would be better able to manage the inflation risk, and if they were to combine that with an extension of the portfolio’s life expectancy from 30 to 40 years, for example, they would get a less conservative but still low-risk portfolio.

Jackie Baillie

Another member will explore the timescale. By definition, equities are riskier; we know that markets go up and come crashing down again. Why introduce that element of risk to someone who would not be engaged in the discussion if they had not been injured? Surely risk free means 100 per cent compensation.

James Dalton

There is no such thing as risk free. If the pursuer wanted to pursue an option that very significantly reduced their risk, they would take a PPO, in the context of the independent financial and legal advice that they had received, in settlement of their claim. It is for the claimant to choose which option to pursue.

We are not suggesting that the portfolio would invest in east Asian information technology start-up companies; it is a question of increasing the overall equity balance in the portfolio, but those equities are likely to be fairly conservative, relative to the very conservative asset classes of cash.

Alan Rogerson

A lot of comparisons can be made between what happens when an injured person takes a lump sum and then invests it and what happens in the drawdown pension market. Last week, Professor Wass talked about closed pension schemes, which seem to me to be aligned far more with defined benefit pensions than with drawdown pensions. A drawdown pension investor is there to provide for the future and invest for the future; they will access the same investment markets as we are talking about for injured people.

I spoke to an independent financial adviser who likened investing in equities to investing in suntan lotion and umbrellas at the same time—rather than in suntan lotion and sunhats at the same time—to hedge some of the down sides to playing the markets.

The idea is that injured people and drawdown pension investors alike would be looking to invest their sum for the future and get the best possible rate of return, being properly advised by proper financial advisers, to make sure that they were taking a cautious approach—but not an overly cautious approach, as we deem the portfolio to take at the moment.

Kate Donachie (Forum of Insurance Lawyers)

The point is that a lump sum cannot be made risk free, because we can never know what will happen in future. The only way to try to remove the risk for a pursuer is by deliberately and significantly overcompensating. Such an approach would depart from the 100 per cent compensation rule and is not necessary, as Alan Rogerson and James Dalton said. There is an option for pursuers that is as close as we can get to risk free: a PPO, which means that they do not have to take risks with stocks and shares and investments.

Norma Shippin

I do not think that NSS has much to say in response to Jackie Baillie’s question; we would refer to actuaries.

Jackie Baillie

Let me come back to Mr Dalton. In its submission to the committee, the Institute and Faculty of Actuaries noted that insurers have to account for personal injuries liabilities on a risk-free basis. Why, then, do you think it fair to expect pursuers to take on more risk than insurance companies do?

James Dalton

There is an important point in that regard, which needs some clarification. There is a difference between the discount rate, in terms of how one calculates damages in personal injury cases, and the way in which insurers have to provide capital on their balance sheets from a solvency perspective. Those are very different things. The risk-free rate—I put “risk-free” in inverted commas—is set by the European regulator, the European Insurance and Occupational Pensions Authority, and is used solely to value liabilities; it is not used to value personal injury claims. It is about valuing the long-term liabilities that an insurer has on their balance sheet.

Jackie Baillie

There is a principle that underlies both situations; the circumstances might be different, but the principle is the same.

10:00  



James Dalton

The principle is that the risk-free rate applies when insurers value liabilities to address the solvency and capital points that insurers are required to adhere to in order to retain their solvency. In this context, we are talking about how to value a personal injury claim that has longevity; that involves different things, which are reflected by different rates. As for the EIOPA risk-free rate, it is never negative.

Andy Wightman (Lothian) (Green)

Mr Rogerson mentioned a client who had bought a house and said that it is for injured people to decide what to do with damages. As a matter of principle, why should the bill make any assumptions about what people will do?

Alan Rogerson

There must be a starting point that assumes what people will do. As part of the settlement process, we would expect an injured person to be properly advised by their solicitors and financial advisers. The compensation is for someone’s future loss of earnings, their pension losses and the cost of their future care needs.

Unfortunately, the approach to date to the discount rate has been to look at what the rate of return would be or what the investment would be. Some injured people might choose to invest the capital sum for their future. However, some people—particularly in the drawdown pension market, for example, with which I drew a parallel—like having the flexibility to choose what to do with their capital sum and are also attracted to leaving something behind for their dependants. It is appropriate to look at injured people in the same way, because they have the same considerations about providing for the rest of their lives and for their families after they are gone.

Andy Wightman

The principle is that a discount rate is needed, because a sum of money is paid up front for the future. The question that is at the heart of part 1 of the bill is about how to set the discount rate.

The bill includes a 30-year period in the assumptions that must be taken into account. We heard that Mr Dalton thinks that that period is too short and that it should perhaps be 40 years. What are other panellists’ views? Given that each case turns on its own facts and merits, is there scope for flexibility about the period?

Alan Rogerson

We talked a little about actuarial tables and life expectancy. The bill assumes a 30-year period for the notional portfolio. A 56-year-old male in the United Kingdom has a life expectancy of 29.64 years, so anyone who is under 56 would go beyond the 30-year period. At 59 years old, a woman has a life expectancy of 29.76 years. That is why the 30-year period is perhaps too short.

Your point about flexibility under the bill is good, and the committee might choose to look at setting split discount rates, for example, which other jurisdictions around the world use. Yesterday, Jersey announced that the discount rate will be 0.5 per cent for periods of up to 20 years and 1.8 per cent for periods of more than 20 years. Examples from around the globe could be looked at, if the committee was minded to consider them.

Joy Atterbury (NHS National Services Scotland)

Our experience is slightly different from that of insurers, because the cases that we principally deal with at this high level involve babies who sustained brain damage at birth. Such cases are usually settled by the time the child is about eight years old, when experts are usually prepared to take a view on their life expectancy. That means that life expectancy predictions can vary hugely. Thirty years will be about right in some cases, but it may be considerably more and in some cases, unfortunately, it can be considerably less. The idea of variability is not a bad one, in our experience, but the number of cases that we are dealing with as lump sums is very small, as you can see from the statistics that we provided you with. They are nearly all being dealt with by PPO, so it may be that our new input is not particularly helpful.

Andy Wightman

That is in health. Broadly speaking, what is the situation in the general insurance market?

Alan Rogerson

I have been doing serious injury claims and dealing with seriously injured people for the past 18 years of my career, and I have never been asked to settle on a periodical payment basis. I know that the statutory framework has not been in place in Scotland, but a voluntary framework has been in place for a good while now and I have still never been asked. My experience south of the border is different; I have been asked for periodical payment settlements and we have done them south of the border, but it has not been a thing in Scotland.

Kate Donachie

My experience is the same as Alan Rogerson’s. I have dealt for a long time with claims for serious injuries and I have never been asked for a periodical payment order, nor has it ever been raised, even as an option, or floated at any settlement discussion.

Andy Wightman

On the 30-year period, in health cases you may have claims that are being settled for people whose life expectancy is really rather short—five years, maybe.

Joy Atterbury

Yes, that can be the case.

Andy Wightman

Does that add to the argument for having a bit more flexibility around the assumptions that one makes about the period over which a portfolio will be invested?

Joy Atterbury

It could do. From our point of view, what it means is that settling by PPO becomes even more important, because we all know that those life expectancy calculations can be wrong. If we calculated a lump-sum settlement on the basis of a predicted life expectancy of five years and, fortuitously, the clinicians’ opinions were proved wrong and the child in fact survived for another 10 years, there would be an enormous gap in the compensation that was available to them. PPOs are always the way to go in that situation.

Norma Shippin

That is obviously compounded when the discount rate changes. It may seem like a small percentage, but it has a huge impact on the future value of a lump-sum payment. The point that Joy Atterbury is making is that if you have got that wrong and have given a lump sum based on a negative discount rate, the figure could be very high and end up not doing the job that it was meant to do, because the individual has died. Changing the discount rate can have a major effect on lump sums, and that makes it even more important for us to be able to impose periodical payment orders, or for the court to do that.

The Convener

Does that mean that you think that the suggested three-year period for review of the discount rate is too short? I think that three, five or seven-year periods have been suggested in various submissions to the committee. What are your views on that?

Alan Rogerson

I would certainly advocate a five-year review period. Three years, in my experience, is a little too short. That is because, in the run-up to a review, either side may see an advantage in holding off and not settling the case—there is a perceived advantage in waiting and perhaps getting more advantageous terms after a review period. A five-year cycle would allow a more stable period in between times. Allied to that are the questions about how an injured person chooses to invest their damages and what sort of advice they get—you would expect a managed portfolio to be reviewed annually. However, I strongly suggest that a five-year review period is the way to go, to stop people taking advantage of the system and of the uncertainty of the review period to delay settlement.

Kate Donachie

My experience in the lead-up to the change to the current rate and, since that rate was fixed, with the consultations that are happening here and south of the border is that litigation behaviour has been impacted; it has made it more difficult to settle cases.

Although personal injury cases are managed on a timetable by the court, the more complicated cases take longer and you might be waiting a year or even two years for a court hearing. That time can be used by the parties to negotiate a settlement, but if one party perceives that there would be a benefit in waiting a year, there is not really anything to stop them doing that if they think that they will get more or have to pay less if they wait. It has a material effect on our ability to settle cases.

The Convener

Recently, I think, there was a 15-year period in which the rate was not altered or changed. Would you agree that five years is the appropriate length of time? Is seven years too long?

Kate Donachie

I think that five years strikes the right balance. There are ups and downs to having a long period or a short period. A five-year period is a reasonable time to keep the rate relevant and avoids the distortion of the litigation process that a three-year rate might bring about.

The Convener

I see that Norma Shippin is nodding in agreement. James Dalton is nodding in agreement now as well.

James Dalton

Yes.

John Mason (Glasgow Shettleston) (SNP)

I would like to continue with the theme of the discount rate. The further adjustment of 0.5 per cent is another factor. On last week’s panel, we certainly had one witness who argued strongly that the pursuer is disadvantaged to start with—they take on the risk of maybe living longer than is estimated and inflation is bound to be higher than any rate that we set because wages and equipment costs tend to go up faster, so the witness argued that the 0.5 per cent adjustment is very much needed to swing things back towards the injured party. I am getting the impression that you folk do not agree with that. Is that right?

James Dalton

The problem is that we have seen no evidence of the problem. You can make a political or policy choice about whether to overcompensate and, as the Government makes very clear in its policy memorandum, it is seeking to achieve the principle of 100 per cent compensation but has also included within the framework for setting the discount rate this further 0.5 per cent margin, which, by definition, overcompensates—that is a political and policy choice. However, it is a very blunt instrument with which to achieve that policy objective.

In our submission, we suggest that if you have decided that you want to err on the side of overcompensation and are being transparent about that, rather than using the blunt 0.5 per cent further margin deduction, you could determine what the actuarially assessed rate is and then round that down to the nearest 0.25 per cent. That would provide you with overcompensation but not to the extent of the significant costs that are associated with a blunt 0.5 per cent deduction.

Alan Rogerson

If the portfolio is already overcautious, as we would submit it should, the extra 0.5 per cent is quite a blunt instrument to then take it into overcompensation territory, as James Dalton says. If there is to be overcompensation, the costs are likely to be borne by insurance premium payers in Scotland, businesses and the public sector alike. The two aspects—the portfolio and the further adjustment—are very much aligned. I am of the same opinion as James Dalton that the 0.5 per cent adjustment seems quite a heavy-handed way of making the change rather than changing the portfolio.

John Mason

Yet we do not seem to have any evidence on whether people are being overcompensated or undercompensated because nobody seems to have done a real study of whether people ended up with money. It seems to me that we are a bit in the dark on all of this.

Alan Rogerson

We are. As one of the panel members said, we do not necessarily get to see what the injured person does with their settlement when they get it. To me, that would be the best evidence to inform the committee of the exact investment behaviours of injured people.

I go back to the current availability of periodical payments and the fact that I have never been asked for one, so lump sums must be working for people. We might not have the balance right in the discount rate so far, but people must want the flexibility of lump sums, because otherwise they would not ask for them.

10:15  



John Mason

It is quite a big jump to say that lump sums must be working because people are not doing something else. If people run out of money late in life, there is not a lot that they can do, is there?

Alan Rogerson

No—I mean that they must be working because people are choosing lump sums and are not asking for periodical payments. No one has ever come to me to ask for a periodical payment.

John Mason

One of my colleagues will ask more about periodical payments, but we have been given other evidence that says that there are other reasons why people want a lump sum.

Moving on, there is the question of the methodology of calculating the discount rate. The plan is that the United Kingdom Government actuary will be a player in that, and that the Scottish Government could perhaps change the notional portfolio. I am an accountant, and I quite like the idea that the process could be completely automated and we could take people out of it. We could look at the inflation rate and what the gilt market, equities and the property market are doing, and then put a formula in place that works its way through. Do we have to involve people?

James Dalton

That is a decision for policy makers. I am a supporter of technology and technological advances, but I would be very cautious about automating a process that will ultimately have such a profound impact on the lives of the most seriously injured people in society. For now at least, it is probably best to remain with the exercise of human judgment in such decisions.

John Mason

Is everyone comfortable with that?

Kate Donachie

The discussion that we are having today and the discussions that the committee has had before on the discount rate highlight the difficulty of fixing a discount rate. Attractive though it may be to think that we could automate that, it is a difficult process that cannot be reduced to an arithmetical formula. It just would not be possible.

John Mason

Should we go the other way, then, and in a sense make it more political or accountable? We could forget the actuary and let Government ministers and their advisers come up with a rate.

Kate Donachie

There should be involvement from the Government Actuary’s Department, but FOIL’s view is that there should be political accountability for a decision that necessarily will involve an element of political judgment in fixing the rate.

John Mason

Do you reckon that that accountability is provided in the bill?

Kate Donachie

It is difficult to know how it will work in practice. Under the bill, the Scottish ministers will retain control and will have the ability to fix a notional portfolio and the standard adjustments, but the Government actuary will have the final say on what the figure is. As matters stand, it is not entirely clear where the accountability for the decision will lie.

Alan Rogerson

In England and Wales, a slightly different route has been chosen, in that, as I understand it, the Lord Chancellor, with a panel of special advisers, will specify the portfolio to the Government Actuary’s Department. The approach that the Scottish Government has taken so far is to say that it will set the notional portfolio and the adjustments—it will set the parameters for the Government Actuary’s Department. Which direction you want to go in is a question for the committee; it is a policy decision. Both options might arrive at similar figures, or they might completely diverge and go down different avenues.

John Mason

So you do not have strong feelings one way or the other.

Alan Rogerson

Not particularly, as long as we recognise what we are doing and what route we are going down, and we do it for the right reasons. We will have to wait and see what transpires.

The Convener

Could any difficulty arise as a result of the paths in Scotland and England diverging?

Alan Rogerson

Possibly. Again, I will draw a parallel with drawdown investors. They invest in the same market, which is UK wide. If the end result is that the discount rate in England and Wales is different from the rate in Scotland, more cost might be passed on to a Scottish premium payer in the insurance market. Conversely, if the discount rate is lower in England and Wales, English and Welsh premium payers would pay more.

The Convener

So you would look at it more as a consequence of the different approach, rather than something that in itself is a difficulty.

Alan Rogerson

It is not a difficulty, but we need to be mindful of the unintended consequences.

Andy Wightman

The fact that insurance premium payers and taxpayers will pay for this has been mentioned. Are there any figures on what percentage of total insurance payouts or total compensation from health boards is lump sums for personal injury claims?

Alan Rogerson

I do not have any empirical evidence of that.

Andy Wightman

I suggest that the percentage would be tiny and that, therefore, any impact on consumers would be almost negligible.

Alan Rogerson

It is a very small proportion of the overall total, but we are dealing with the highest value claims, at the other end of the spectrum, so it is very difficult to know exactly where the truth lies. I can talk about my own company. My employer has said, as part of the whiplash reforms in England and Wales, that it will pass on all the savings to the people paying the insurance premiums. However, I am afraid that I do not have data on what we pay out in Scotland on high-value personal injury claims.

Andy Wightman

Is it possible to find that out, even in broad terms?

The Convener

Panel members could write to the committee if they have that information.

James Dalton

If we can get that information, I am happy to write to the committee.

The Convener

That goes for the others on the panel, too.

Norma Shippin

We have given the committee some information on this. Part of the problem is that because there are a small number of claims, if we provide the annual figures it might identify the person. However, we have been collating the figures over a number of years and could perhaps shorten the period to five years.

The Convener

If you could do that in an anonymised form it would give the committee some understanding of the answer to that point. I do not know whether Kate Donachie is in a position to comment—perhaps I can leave the matter with panel members. Indeed, if you have comments on any other issue that has been raised today, please do not hesitate to write in to add to your submissions.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

I am going to ask one or two questions on PPOs. First, I want to check whether I understand something that Joy Atterbury said. You said that most of your settlements are PPOs.

Joy Atterbury

Most of our high-value settlements are PPOs. The figures that we have given you are for settlements over £1 million. Have you got those?

Colin Beattie

Yes.

Joy Atterbury

The numbers are very small, but they show that in 2016-17, we had one lump-sum settlement over £1 million and two PPOs. In 2017-18, we had one lump-sum settlement over £1 million and two PPOs. The numbers are extremely small. Our desire is to settle those by PPO. There are a number under negotiation at the moment.

Colin Beattie

Am I correct in taking from what you said that, for obvious reasons, it is mainly children who fall into that category?

Joy Atterbury

Yes.

Colin Beattie

And, for the rest of the panel, is it correct to say that there is very little experience of PPOs in Scotland?

Witnesses indicated agreement.

Colin Beattie

Some of the evidence that the committee has seen suggests that the regulatory regime for insurers makes it expensive to offer PPOs. Are there any issues with the regulatory regime that would indicate that?

James Dalton

As I was explaining in response to an earlier question, the way that insurers have to reserve for their long-term liabilities is set out in a very different way from the way that the discount rate is set. They hold capital based on those long-term liabilities.

To answer your question directly, there is no problem with that regime. Insurers comply with that across Europe in valuing those long-term liabilities; they put money on their balance sheets to account for that and to ensure that they are solvent and their capital position is robust. There is no problem with the regulatory regime.

Alan Rogerson

There was some evidence in your meeting last week that there may be a problem with insurer insolvency and how insurers are backed. Insurers that underwrite business in the UK are subject to the financial services compensation scheme rules and guarantee, so there should not be a problem with an insurance company. If an insurance company was not able to fulfil the PPO and went bust, the Government would step in and replace that. That is something that the committee might want to consider in relation to the bill because, at the moment, the Motor Insurers’ Bureau is not named as a compensator for the purpose of periodical payments.

There are perceived issues around the insurance industry and there is the question of whether we like PPOs, but that is not necessarily the right question to ask. The right question is: what is the right thing to do for injured people? I find it hard to envisage a situation where an injured person went to court to ask for a periodical payment and the court did not have sympathy for that injured person and did not give them the periodical payment that they were seeking. It is not really for an insurance company to try to argue against that or to intervene, because there does not seem to be any rational reason to do so.

Colin Beattie

You have touched on a subject that I was going to ask about, which is the bill’s requirement for “reasonable security”—enough to keep the continuing payment going. Obviously, insurance companies have backing and any court is likely to say that a properly constituted insurance company would give reasonable security. However, are there other bodies—such as the NHS—that the court might not see as being able to provide that reasonable security?

James Dalton

Alan Rogerson makes a very important point about the context of the Motor Insurers’ Bureau. Many claims are settled as a result of accidents with uninsured drivers. The MIB settles some of those cases on a PPO basis. Rather than the MIB needing to go to court every time that it wants to settle a case, to demonstrate to the court that it has the solvency and capital to provide that PPO on a long-term basis, we would like the bill to deem the MIB to be a body able to pay such claims—in the same way that insurance companies are.

Colin Beattie

We will note that point. Are there any other organisations that might not meet the “reasonable security” test?

Alan Rogerson

I cannot think of any, because ultimately it would be an insurance company or a Government agency, in which case it would be backed by the Government. I am struggling to think of a single example that would not meet it.

Norma Shippin

Several years ago, before PPOs were in their current format, there used to be structured settlements. In the days of the NHS trusts—if you remember those—there was considerable discussion about whether those settlements would continue. They did not. It was always recognised by pursuers’ agents that there would be some mechanism of payment for a health service organisation or a Government organisation. However, it was a question that we had to field at that time, so I can see that it might be a question for other defenders and probably for pursuers’ agents.

Colin Beattie

I want to tie up the question on the regulatory regime. Are there any practical barriers to insurers offering PPOs, perhaps for regulatory or other reasons?

James Dalton

Not that I am aware of.

Alan Rogerson

The only other aspect to bear in mind is the indemnity limits of a policy. An employer’s liability policy or a public liability policy will have an in-built limit. That would be a barrier in any event, because after that indemnity limit it is essentially the money belonging to a private business or individual.

10:30  



Gordon MacDonald (Edinburgh Pentlands) (SNP)

I want to continue this discussion about PPOs, with particular regard to the variation of PPOs at a future date. This morning, we have heard that PPOs could reduce the chance of someone being overcompensated or undercompensated and that they provide a bit of certainty that someone would get the award that they required if their life expectancy changed at a future date. Given that degree of certainty, would I be right in saying that there are no concerns about courts varying PPOs?

Norma Shippin

You would need to be clear in the guidance about the circumstances in which you would envisage people being able to go back to the court to amend the PPO. One of the advantages of settling a case is that you achieve certainty for the defender and the pursuer. I think that it would be written into the agreement when those circumstances might arise, but it would be important to have some degree of certainty about the kind of situation that you envisage arising, rather than just the general run of cases.

Gordon MacDonald

What do you think those changes could be?

Norma Shippin

For example, someone becoming unexpectedly more severely damaged by an event that took place in their life that was a consequence of the original negligence but which had not been foreseeable at the time of the PPO coming into play.

Gordon MacDonald

Should there be a list of trigger points?

Norma Shippin

That would be helpful. You would not want to think that it would be regularly done by every pursuer in every case, because the whole point of having the discussions and reaching agreement at the outset is to try to foresee matters that could arise.

Kate Donachie

We already have a system of provisional damages that is used, in the main, when we are dealing with people who have developed a disease through exposure to something, perhaps at work, and they have a relatively minor condition that could develop into a more serious condition in the future. The provisional damages regime enables them to have some compensation now for the relatively minor condition but to reserve their right to seek damages in the future if they develop a more serious condition.

FOIL’s submission is that the wording around PPOs and their variation should mirror the wording that is used in relation to provisional damages. There has been a fair amount of argument in court about what a significant improvement or deterioration means and, if you tie the wording around the PPOs to that wording, you would be benefiting from what has already been done.

The legislation also envisages that you would write into the agreement things that might change life expectancy or the need for care, and that would restrict the scope for people on either side to come back again and again to try to change what has already been agreed. There are ways to manage that and to make it acceptable.

Alan Rogerson

It might even be that primary legislation is not the place for that to be considered. It might be that the Scottish Civil Justice Council can take account of that in secondary legislation or rules of court. However, I understand that it is for the committee to ensure that the headline legislation is fit for purpose and enables all of what we are talking about to take place.

Gordon MacDonald

Given that there might be an individual whose illness gets progressively worse in a way that was not foreseen, who should pick up the fees if the matter goes back to court?

Kate Donachie

Again, that is something that will be in the detail. In a broadbrush sense, if someone is compensated because they have been harmed by someone else, it seems right that the person who caused the harm should bear the cost of that. The concern would be that there could be a vexatious person who keeps bringing someone back to court. In those circumstances, you would need to consider safeguarding the defender. However, that is something to be dealt with in the detail of court rules.

At your meeting last week, qualified one-way costs shifting was mentioned. The detail of that system is currently being examined by the Scottish Civil Justice Council. It might, therefore, be appropriate for it to consider the issue that you have just raised.

The Convener

FOIL’s submission suggests changing the wording of the proposed new section 2E(2)(a) from

“a change in the pursuer’s physical or mental condition”

to

“a significant improvement or serious deterioration in the pursuer’s physical or mental condition”.

Is that because if there is new wording, the courts will have to go through the process of establishing what it means, whereas the existing wording, which you suggest using, is already understood?

Kate Donachie

That is correct. Work has been done to interpret the words that we suggest using, and it would be useful to take advantage of the time that has been spent on that rather than trying to start again.

The Convener

On the other hand, I think that you also accept that the issue could be dealt with by the rules council.

Kate Donachie

If the wording reflected the provisional damages wording, people would know broadly what they were dealing with and the level of change that would be required to justify bringing something to court. The level of detail around how the expenses situation works with that and any sanctions for people being vexatious on either side would be for the rules council to determine.

The Convener

So, your primary position is that that wording should be made clear in the bill rather than that being left to the rules council.

Kate Donachie

It would be helpful if the description of the change in circumstances mirrored the Administration of Justice Act 1982 in relation to provisional damages. It would make sense for the detail beyond that to be determined by the Scottish Civil Justice Council.

The Convener

As there are no further questions, I invite our witnesses to state in one or two sentences any key points that they think that the committee should take away from today’s discussion. On the other hand, they might not wish to, as they might feel that that would be limiting too much what they have to say and have set out in their submissions. Would anyone like to make any final comments on anything that we have or have not covered today?

James Dalton

Nothing from me.

The Convener

And nothing from anyone else.

I thank our witnesses for their time. We will suspend the meeting to allow for a change of witnesses.

10:37 Meeting suspended.  



10:44 On resuming—  



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Third meeting transcript

The Convener

Agenda item 3 is an evidence-taking session on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I welcome the Minister for Community Safety, Ash Denham, to the meeting.

The Minister for Community Safety (Ash Denham)

Good morning, convener and committee. Having sat on the Economy, Jobs and Fair Work committee, I just want to say that it is nice to be here at the Economy, Energy and Fair Work Committee.

The Convener

Good—we will see how matters unfold. [Laughter.] I am sorry, minister—I meant nothing untoward by that.

As you will be giving a statement, I will introduce the other witnesses and then invite you to begin. We have from the Scottish Government Jill Clark, civil law and legal system division; Scott Matheson, legal directorate; Alex Gordon, parliamentary counsel office; and Frances McQueen, also from the civil law and legal system division.

May I say, minister, how good it is to have you back at the committee. I invite you to make your opening statement.

Ash Denham

Thank you, convener, and I thank the committee for inviting me to give evidence on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. As you know, part 1 of the bill provides a changed methodology for setting the personal injury discount rate and allows courts to impose, and in certain circumstances vary, periodical payment orders. It follows quite a lengthy period of consultation on the issue, given the range of criticisms of the current methodology, and the bill itself is intended to address some common concerns that emerged from that consultation with regard to the fairness, clarity, certainty, regularity and credibility of the method and process for setting the rate.

Although the types of personal injury cases that will be impacted by the legislation are not high in volume, they are at the serious end of the injury scale. The personal injury discount rate is therefore of significant importance to both pursuer and defender interests in personal injury damages awards for future pecuniary losses. As the committee has heard in its evidence sessions, both interests have very different perspectives on how best to achieve, and what will deliver, 100 per cent compensation for those who have suffered significant life-changing injuries in order to put them back in the position in which, but for their injury, they would have been.

For a range of reasons, the process is not an exact science; it is, as the committee will have heard in evidence, inevitably imperfect. Without the benefit of foresight, it can never be anything other than an approach that provides the best possible assessment for the broadest range of cases. The policy intention in the bill in respect of the PIDR is to strike a balance between making provision for regular reviews and setting out a transparent and credible process that will ensure much needed certainty and clarity in the law.

Part 2 of the bill relates to periodical payments, principally under periodical payment orders, which are an alternative means of paying damages for future losses other than a lump sum. In some cases, a pursuer might have a straight choice between taking a lump sum or a PPO. However, it should be stressed that that is not always the case, and the two options should not be seen in that light, as might have been suggested in earlier evidence sessions.

I look forward to the committee’s questions on the principles of the bill.

The Convener

Thank you for that opening statement, minister. I will start with one or two questions.

You mentioned the uncertainties in this area. Those uncertainties are recognised on all sides and by the committee, and they may affect the notional portfolio and the methodology that is used to create it. One issue that has been raised is the question of how the “notional portfolio” can represent the needs of the “hypothetical investor”—I suppose that the bill’s use of those terms indicates some uncertainty in the first place. Is the methodology used in setting out the notional portfolio clear enough?

Ash Denham

As you will have seen, the bill sets out a portfolio with asset classes and percentage holdings that are designed to meet the needs and characteristics of the hypothetical investor. Because they are laid out in the legislation, I will not go over them now.

The hypothetical investor will have a series of objectives. They will be properly advised, and our objective will be to secure the investment of the award to cover their damages, losses and expenses. They will make withdrawals from the fund over the period to cover their losses and expenses, and the withdrawals will, over the period in question, exhaust that fund.

The portfolio is designed to meet the very specific needs of the hypothetical investor, and it was arrived at on the basis of professional advice and expertise. The Government Actuary’s Department carried out detailed analysis of a number of funds that were categorised as low risk by a firm called Morningstar, which is a third-party investment research firm that is widely recognised across the industry. The notional portfolio was built with reference to those funds. The Scottish Government believes that the portfolio would, therefore, meet the needs of an individual who is in the circumstances that we are describing.

The committee should also note that a small majority of respondents to the 2017 consultation were of the view that the idea of a mixed portfolio of assets was the right way to go, as it balances flexibility with the best way of managing the risk. In addition, some respondents suggested that the approach most closely matches the actual behaviour of pursuers when they are investing. I hope that that answers your question.

The Convener

Do you have a view on how often you will need to use the regulation-making power to change the contents of the notional portfolio? Who will monitor market conditions to decide when and if that needs to be done?

Ash Denham

The intention is to review the portfolio—and the adjustments, which we have not mentioned yet—ahead of every regular review. That would give us the opportunity to change the adjustments if we thought that that was necessary as they were not meeting the needs of the hypothetical investor at that time. In addition, the bill gives Scottish ministers the power to call for an out-of-cycle review. That offers a failsafe, so the portfolio should always match the economic conditions.

On your question about monitoring market conditions, we envisage that we will work in partnership with the Government actuary on monitoring conditions. We will have good and open communication to keep the portfolio constantly up to date.

The Convener

There have been some suggestions about how the discount rate is set up. The current assumption is that the discount rate should be calculated on a risk-free basis, but under the bill, we will move to the assumption that it should be based on a cautious investment strategy, which might fit in with what you were saying about safety and flexibility in the notional portfolio. Do you have a view on whether that change transfers investment risk to the pursuers? If so, is that unfair, or does it strike the correct balance? If the latter, why do you think it does so?

Ash Denham

I heard the question raised in some of the committee’s previous evidence sessions. Our belief is that the portfolio in the bill is very cautious, for the reason that you have highlighted. The committee will also have heard evidence from the other side—the defender interest—that the portfolio is equity light and overly cautious. The Government is trying to tread a careful line down the middle—between the interests on both sides—to ensure that we strike the right balance.

The Scottish Government now accepts that it is appropriate to move away from the index-linked gilts approach that was taken in Wells v Wells and towards a very cautious but low-risk portfolio. We recognise that the hypothetical investor will need to take professional advice that is tailored to them, but we are making further adjustments to reduce the risk to the investor. Wells v Wells did not force pursuers to invest in a particular way, and nor does the new legislation. As will have come out in some of the earlier evidence to the committee, what pursuers actually do is irrelevant. The method is intended to provide a standardised approach that will apply across a broad range of cases.

Dean Lockhart (Mid Scotland and Fife) (Con)

Good morning, minister. I have a couple of questions on the adjustments that are to be made to the discount rate. We have heard some evidence that the 0.5 per cent adjustment for tax and investment advice might not be sufficient, given the market uncertainties and other unknowns in the process. Is it, in your view, a reasonable level of adjustment?

Ash Denham

We sought views from GAD on that very topic—the appropriate level of adjustment for tax, investment management costs and those sorts of things. Although GAD considered that a reasonable allowance would be somewhere between the 0.5 per cent that you have mentioned and 2 per cent, it took the view that the lower end of that range would be more appropriate. It gave a number of reasons for that, one of which was that it thought that investors would typically shop around to get the best possible rate. In its report, GAD suggested that the Scottish Government should seek further advice on the level of the adjustment, and work is being undertaken on that. I do not know whether any of my officials would like to say a little more about that.

10:00  



Jill Clark (Scottish Government)

GAD’s other reason for opting for the lower end of the range was the likelihood of the portfolio being full of passive funds that would not need a lot of management, and the current shape of the market means that there is no pressure with regard to higher tax charges. The fact that there is another adjustment in the bill also compensates on the way down. GAD thought that the adjustment was reasonable for a range of reasons, but we are looking at the matter further.

Dean Lockhart

You mentioned the further deduction—the further margin of 0.5 per cent to reduce the risk of underperformance. We have heard evidence to suggest, and the Scottish Government has said, that there might very well be overcompensation as a result of the further adjustment being introduced. Does the minister accept that that is a potential departure from the 100 per cent compensation principle?

Ash Denham

That is a good question. The answer is no, we do not think that it is a departure. By now, it will be clear to the committee that, as I have said, this area is not an exact science. For a range of reasons, there will always be to some degree the probability of undercompensation or overcompensation, and that is why the adjustments are there. The particular adjustment that we are discussing recognises that an investment, however cautious, will always carry some sort of risk. The methodology that we use acts as a proxy and is therefore unable to take account of individuals’ needs, because factors can vary. That is the reason for that.

The further adjustment is being made to improve the chances of a pursuer having exactly the right amount of funds to cover them. When we talk about the idea of undercompensation, and the likelihood or probability of it happening, it is worth stressing that there are no absolutes. No matter the award basis, there is risk involved. However, there has been some analysis, which I will share with the committee, on the distribution of returns generated by the investment portfolio in the bill, and it shows that, if the return were not to be adjusted in the way that we are describing, it would result in a 50 per cent chance of the pursuer being undercompensated and a 50 per cent chance of overcompensation. The question, therefore, is whether a 50 per cent chance of undercompensation would be acceptable. I would say not, so the further adjustment is needed to reduce the risk of undercompensation.

Dean Lockhart

What is the evidence base to support the 0.5 per cent figure?

Jill Clark

It came from the analysis that GAD carried out for us, in which it applied different margins of justice to drive down, at the lower percentiles, the risk of overcompensation or undercompensation in order to get to a position that was more acceptable than 50 per cent.

Dean Lockhart

Did GAD again give you a range of figures?

Jill Clark

Yes. We sent GAD’s report to the committee, and it is also on our website, where the information is laid out in tabular form.

Dean Lockhart

Thank you.

Andy Wightman (Lothian) (Green)

Can you explain why you chose 30 years as the period over which a hypothetical investor would invest?

Ash Denham

The investor damage profile is 30 years. There is no authority on which to base that figure; it was chosen merely as a useful duration that was neither too short nor too long. We should remember that it is meant to cover a broad range of cases. As there will be cases at either end of the scale, a 30-year period was taken as correct for the damage profile.

Andy Wightman

To what extent do you believe that it will impact negatively on, for example, pursuers with a very short life expectancy?

Ash Denham

It is possibly true that shorter awards might lead to a greater chance of undercompensation. Some work that has been completed on that area indicates that more than one rate would not be necessary at this time. However, the bill provides for the opportunity to set dual or multiple rates to address any issues. Perhaps my officials can add to that.

Jill Clark

We asked GAD to model over a 30-year period on the basis that it was an average, but it also looked at periods of 15 years and 50 years, and its report contains a graph showing the difference between the shorter and longer durations. Ahead of each review, GAD will do the same work and offer advice. If the differential gets too big, it might point to a more sensible option of having more than one rate—one for a shorter duration and one for longer—but the evidence does not currently point in that direction. That said, the bill leaves it open for more than one rate to be applied in the future, should the analysis indicate that it would be better, and fairer, to do so.

Andy Wightman

Section 1 makes it clear that

“the court may take a different rate of return into account if a party to the action shows that the different rate is more appropriate in the circumstances of the case.”

I presume that it was always intended that that provision would never bind the hands of the court.

Jill Clark

Absolutely. Under existing law, the court can look at the particular circumstances of a case and decide that the rate set is not appropriate. We are retaining the same provision in the bill. The provision is used very rarely, but it is nonetheless there.

Andy Wightman

In what circumstances is it used?

Jill Clark

It might be used if the court thought that the circumstances of a particular case were so far outwith the broad application of the rate that it would be more appropriate for another rate to be applied, but such a case would have to be at the extreme end.

Andy Wightman

If ministers were minded to set more than one rate, what circumstances might lead to that happening? How would that apply in practice?

Ash Denham

We have not yet come to that conclusion. As Jill Clark has said, we will be getting more data from GAD, and if it is clear from further evidence that shorter awards might lead to undercompensation, and if we thought that there was a need for different rates to be set, we would need to look at the matter in detail and see how that would work. It is something that we are looking at.

Andy Wightman

One factor might be different durations of life expectancy. Are there other circumstances that might lead ministers to conclude that different rates should be set?

Jill Clark

In general, what is taken into account is the duration of the award rather than a person’s life expectancy. Jurisdictions that have more than one rate will have different rates for 10 years and 15 years, and a different rate for longer periods. A jurisdiction will choose a duration, and the time periods will differ between jurisdictions—there seems to be no consistency in that respect. One would settle on something that, where a differential has been created, would try to close that gap by applying two different rates. Indeed, one could apply three rates—there is nothing to stop multiple rates being applied. Any such change would need to be made because actuarial advice had suggested that, on the basis of analysis and evidence, it was the best way to go.

Andy Wightman

So the calculation is basically about life expectancy and the duration of the award. Are there no other circumstances, such as the capacity of the injured person or their age at the time of the injury, that might lead to different rates being set?

Jill Clark

In general, that all gets tied up in the duration of the award, which lasts until the point at which a person either improves or gets better or until the termination of their life.

Andy Wightman

Thank you.

The Convener

I want to follow up on one aspect of that question: the 30-year period. The Association of British Insurers suggested in its written submission that 46 years would be more appropriate. The ABI said:

“46 years is appropriate because it is the mean duration of future damages in those cases where the discount rate is a significant factor. The GAD report demonstrates clearly that if a more appropriate period of 46 years were to be applied, then the probability of under-compensation decreases. As such, an explanation as to the use of the 30 year period is required.”

Can you answer the point about the probability of undercompensation being higher if one uses the 30-year period? In addition, can you tell us whether a specific methodology was considered to be preferable to others in arriving at the decision to use a 30-year period?

Ash Denham

I will ask my officials to give more detail on that.

Jill Clark

My answer is almost the same as my previous one. Higher or lower, 30 years is a kind of average, if you like, or an appropriate level. GAD applied the same analysis to each duration—we understand that it put each period through its economic scenario generator, and the figures popped out at the end. There was no different methodology applied; GAD simply applied different durations of award.

It is usually the case that the longer the award period, the more time someone has to recover from any dips in the market and get back to a better place. As I said, the figures that GAD provided indicate that more than one rate is not currently necessary. If that has not answered your question, we can provide something more.

The Convener

Perhaps you can provide a further explanation to the committee in writing—that might be helpful. You said that 30 years is an average. I suppose the question is, an average of what? Secondly, why were different factors chosen for that? A further explanation in writing would be appreciated.

Ash Denham

We would be happy to write to the committee with further information.

The Convener

Thank you.

John Mason (Glasgow Shettleston) (SNP)

To build on the questioning so far, I want to ask about political accountability and who makes all the decisions. From what I understand, the Government and you, minister, will be more involved in the notional investment portfolio, but the actual discount rate is much more under the control of the Government actuary and so on, which is a slightly different system from that which applies in England. How do we get the balance right? Could we go one way or the other?

Part of me wonders whether, in this world of automation, we could simply automate the whole process. The portfolio could be tied to the market and discount rates could all be set by formulas, and there would be no political involvement, which sounds quite good. On the other hand, some people would like to put the minister up in the chamber so that we can ask her questions and shout at her about these things. How do we get a balance?

Ash Denham

That is a good and fair question. A bit of comparative work has been done on how other countries do things, and it seems that there is huge variety in the way that different jurisdictions approach these matters. In some jurisdictions, the responsible party is a legislator. In other jurisdictions, it is the judiciary. In some jurisdictions, there is a hybrid system that involves both parties, to differing extents. Obviously, the decision is one in which policy choices come into effect. We have taken a policy decision to place the duty to review the discount rate on the Government actuary because we think that that is consistent with our overall policy of reforming the law so that method and process are clear, certain, fair and transparent.

It is important to mention that our decision is consistent with responses to the 2017 consultation, which showed more support for options that did not involve ministers. The Scottish Government’s view is that the determination of the rate is purely an actuarial exercise; there is no need to exercise political judgment. The decision has been taken to give that duty to a suitably qualified and credible professional, and the Government actuary has been selected because of its expertise and standing in that area. GAD will publish its reasoning along with the rate, which will allow complete transparency in the process. We think that that is the right approach in this case. Would Jill Clark like to add anything?

Jill Clark

Probably not.

John Mason

I am broadly persuaded by your argument on the rate, but why would that not also be the case for the notional portfolio? It has been suggested that, although we have a nice Government at the moment, we might not have such a nice Government in future, and that Government might manipulate the portfolio.

Ash Denham

That is a fair point. That is why it is really good to remove the rate from the political arena—which, as I am sure that the committee is aware, is not the case in England and Wales—and from people who would seek to influence it or ministers who might be under pressure.

The methodology for the portfolio needs to be developed over a longer time and requires more analysis. The portfolio is able to be reviewed by Government ministers in order to ensure that it matches up with economic conditions. It will also be subject to scrutiny by Parliament, which adds an extra level of credibility and transparency to the process.

10:15  



Jill Clark

A constant in the bill is the description of the hypothetical investor. The notional portfolio can be changed only in line with the hypothetical investor. Somebody could not come along and suddenly make the portfolio very risky, because that would not meet the needs of the hypothetical investor. That is the grounding part of the bill. The powers to change the portfolio and the adjustments are simply intended as a way to keep them up to date and relevant as investment markets change. The constant is the description of the hypothetical investor, which will have been agreed by the Parliament.

John Mason

I see that Alex Gordon wants to come in on that.

Alex Gordon (Scottish Government)

I have a technical point to aid navigation of the bill. The Government and the minister have put all the figures before the committee, so if the bill is ultimately passed, Parliament will have endorsed those figures at the outset. Even if ministers were to come forward with regulations to change anything—the period of 30 years, the figures in the notional portfolio or the standard adjustments—those regulations would all be subject to the affirmative procedure, so any such changes would need parliamentary endorsement.

John Mason

That is helpful, thank you. Minister, you said that we could—well, we obviously will—end up with different systems in Scotland and England. Is that a problem? Does it cause any concern, given that some insurers, for example, operate throughout the United Kingdom if not beyond?

Ash Denham

I do not have any practical concerns about that. We consulted jointly with the Ministry of Justice on setting the PIDR. The Lord Chancellor is responsible for setting the terms in England and the Scottish ministers are responsible for doing so in Scotland, so it is appropriate that we took the work forward separately. That might or might not result in different rates being set north and south of the border, and at this time, we do not know how insurers would react to that in setting their premiums. However, it is important to note that the number of catastrophic, high-value cases will be really quite low, and the amount of business will be quite small in relation to the insurance business overall.

John Mason

Insurers are only one of the categories of defender in such cases—the national health service is another. A lot of us are probably sympathetic to the idea that we should be a bit more generous to the injured party, but in reality that would have an impact on the NHS. Presumably, if the NHS was paying out slightly more than elsewhere, we would have to find that money from its budget. Again, I wonder whether we are getting the balance right. Is there a problem for the NHS budget in the future?

Ash Denham

That is a good question. The proposed higher PIDR rate would, in comparison with the current methodology that relates to Government gilts, if the same exercise were carried out simultaneously, produce awards that were on average closer to the principle of 100 per cent compensation. The application of that rate should result in less overcompensation than under the current system. The cost to defenders such as the NHS—which, as you mentioned, is a major player—should be less in terms of the awards that they are required to make. The committee will have heard from the NHS and other stakeholders that they support the continued facility to settle future losses by way of PPOs, and they welcome the changes in the bill accordingly.

John Mason

Can you clarify something? You said that the cost to the NHS would be less. It might be less than the NHS is currently paying, but it would perhaps be more than the equivalent cost in England.

Jill Clark

At this point, we do not know. We simply do not know what the discount rate will be in England and Wales, and we will not know until the end of the review in that regard, because that is when the rate will be set. It is difficult to say.

John Mason

That is fair enough.

Ash Denham

We will keep the matter under review.

The Convener

I suppose the question of whether we have a “nice Government” at the minute depends on whom you ask and which Government the deputy convener was referring to, but we will put that to one side.

I would like the minister to clarify one point. You quite rightly said that different approaches could be taken to this matter. Is it the Government’s intention to effectively institute independent decision making in, and remove political influence from, the specific process for the discount rate, by having the UK Government actuary deal with it?

Ash Denham

Absolutely—the process will be fully transparent and independent of ministers and political interference.

The Convener

Andy Wightman has a brief follow-up, and we will then move to questions from Gordon MacDonald.

Andy Wightman

To follow up on John Mason’s line of questioning, I would like to have one point clarified. I might have missed something, but it seems that the Government actuary will be responsible for setting the rate. Ultimately, that will be down to ministers, but the Government actuary will be the professional adviser in that regard. However, there are no provisions in the bill that relate to what advice ministers will take in making any changes to the notional portfolio, which is a role that is given exclusively to ministers. Do you think that there might be a role for the Government actuary in that regard as well, or am I reading the bill wrongly?

Ash Denham

No, there will be—ministers and the Government will take advice from GAD on that.

Andy Wightman

As far as I can see, there are no statutory provisions for taking advice—or am I wrong?

Scott Matheson (Scottish Government)

There is no statutory provision to that effect, but there is no statutory provision in many areas in which the Government takes appropriate professional advice in a range of circumstances as a matter of course.

Andy Wightman

I am just wondering, because, although the bill makes it clear that the Government actuary—unless the Government appoints somebody else—is responsible for setting the rate, it does not make clear what role any party such as the Government actuary would play in potential changes to the portfolio.

Scott Matheson

The actual determination of the rate is a function that is conferred on the Government actuary. There is provision in the bill to allow, by regulation, the Scottish ministers to change that in due course if it is necessary for somebody else to exercise that function.

At that stage, the Government actuary’s role is one of decision making within a very narrow range of parameters that are set out in the legislation. GAD is not acting as an adviser to ministers who are determining the rate—it will be determining the rate and producing a report. It will be the rate as set out in that report that the courts will take into account, subject to the discretion that was referred to earlier.

Andy Wightman

So the statutory provisions are there because the Government actuary is a decision maker and that has to be made clear, but there is no statutory role for the Government actuary or anybody else in advising ministers on the make-up of the portfolio. My question is, therefore, should there be such a role or should the decision be left totally to the discretion of ministers?

Ash Denham

With parliamentary oversight.

Andy Wightman

Of course, all those elements will be subject to regulation-making powers in Parliament, but when an affirmative procedure comes forward, there is huge depth behind it and one cannot expect Parliament to drill down on every issue. In order to assist Parliament in that job, I suggest that there might be merit in making statutory provisions for advice, in order that such advice can be interrogated in exactly the same way as the GAD report can currently be interrogated by interested parties.

Ash Denham

I come back to the point that Jill Clark made earlier. Under the legislation, the portfolio has to take into account the interests of the hypothetical investor. Any changes to the make-up of the portfolio will bear that in mind, and it will be further scrutinised by the Parliament. I am fairly comfortable with the process as it is.

The Convener

Jamie Halcro Johnston has a brief follow-up question, before I bring in Gordon MacDonald.

Jamie Halcro Johnston (Highlands and Islands) (Con)

It is just a quick point. Paragraph 43 of the financial memorandum to the bill states:

“a 0.25% differential could add around £2m to £5m”

to the cost of claims against public bodies.

South Lanarkshire Council, in its submission to the Finance and Constitution Committee, suggested that it would expect the Scottish Government to cover any fluctuations in costs as a result of claims against public bodies or increases in their premiums. Has the Government looked at that? Is it ready to do what the council suggests?

Ash Denham

We are keeping the matter under review, but I will ask my officials to give you a little more detail.

Jill Clark

The answer is the same as the one that the minister gave earlier. Relatively speaking, we expect the discount rate to increase under the new method, so costs to defenders should therefore decrease. Nonetheless, we will keep the matter under review.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

In previous evidence sessions, it has been suggested that five years, or even seven years, would be a more suitable time period for the discount rate review. What is the justification for having a review period of three years in the bill?

Ash Denham

That is a good question. In general, the bill is meant to ensure that we avoid the previous situation, in which there were very long periods between reviews. It was considered that the three-year period would be a suitable compromise. The Government is certainly open to considering alternative periods, including a five-year period if that would be more acceptable. I would be interested to read the committee’s views on the matter in its stage 1 report if it is considering such a proposal.

Gordon MacDonald

We also heard concerns that, as it can take several years to settle some personal injury cases, either party involved in the case could try to delay or speed up settlement to take advantage of a rate change if they know in advance what it will be. Can any safeguards be put in place in the bill to minimise that risk?

Ash Denham

For the very reason that you have outlined, the three-year review period would seem to strike the right balance. If a routine review is carried out every three years, such gaming of the system might not occur.

In addition, we should bear in mind that, even though a regular review will be carried out every three years, it will not necessarily lead to a change in the rate every time. The bill also gives ministers the opportunity to carry out an interim review. It would be possible to do that at any point, if necessary—for example, if economic circumstances changed drastically, and suddenly the rate was not appropriate—to keep the rate up to date. Again, I would be interested to hear the committee’s views on that. We thought that a three-year period would be appropriate, but I would be interested to hear other views.

Gordon MacDonald

Thank you.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

In previous evidence sessions, there has been some discussion about periodical payment orders and their impact. Are the provisions in the bill sufficient to increase the use of PPOs in Scotland? Does the Government have any other plans to encourage their use?

Ash Denham

The number of cases in which a PPO could be used is quite small to begin with, so we are not anticipating a large increase in take-up. We simply hope that providing courts with the option to encourage people to use PPOs where that is appropriate might lead to a slight increase in numbers. In addition, there might be some influence in cases that do not go to court but are settled by agreement—even though people would not be forced by a court order to use a PPO, they might consider using one anyway.

We know that PPOs are not suitable for all pursuers or in every case. For a variety of factors, some pursuers might prefer to have a clean break, so they will not want to enter into such an arrangement. In addition, not all defenders will be sufficiently financially secure to use a PPO. Nevertheless, we hope that greater use will be made of PPOs.

Colin Beattie

The evidence seems to indicate that virtually 100 per cent of PPOs are used by the NHS and that virtually no one else uses them. Do you see that changing?

Ash Denham

Jill Clark might want to respond to that.

Jill Clark

There might be a marginal change as people feel more encouraged to use them but, as the minister said, the numbers are not very high in the first place. The NHS is the predominant user of PPOs.

Colin Beattie

The numbers are not high, but the value is significantly higher.

Jill Clark

Yes.

Colin Beattie

In last week’s evidence session, the committee noted that the bill’s provisions on reasonable security do not appear to cover the Motor Insurers’ Bureau. Is that omission deliberate? If so, what was the thinking behind it?

10:30  



Ash Denham

The bill’s provisions allow the Scottish ministers to add additional bodies to the list. That would be the process for including the Motor Insurers’ Bureau. I know that the issue has been raised by a number of consultees.

In addition, there was a bit of concern about Brexit, given the timing of the bill and the fact that the UK’s leaving date will coincide with the later stages of its parliamentary passage. It was decided that the inclusion of a power to enable the Scottish ministers to add or remove bodies to the list—in the case that you mentioned, the MIB—was the most appropriate and sensible option.

Colin Beattie

To be clear, are you saying that the Government will consider adding the MIB to the list, or that it will do it?

Ash Denham

At this point, we are considering it.

Jill Clark

We will wait and see. The courts have found the MIB to be a secure provider, but article 4 of the second European directive on motor insurance contributed to the courts’ thinking in that respect, and we want to see what will replace the directive in a Brexit world. Once we are confident about that, the MIB could be added to the list. There is a lack of clarity at the moment—if the directive were no longer in place, what would replace it? Obviously, the UK Government would put something in place.

Colin Beattie

So we must wait for the UK Government to give some sort of indication on that.

Jill Clark

Yes.

Colin Beattie

At present, therefore, you could not add the MIB to the list, given where we are currently situated.

Jill Clark

I think so. One of the factors that has contributed to the courts’ consideration of the MIB as reasonably secure is about to change, so we think that it would be a bit premature to add the body to the list at the moment.

Scott Matheson

The bill’s provisions on reasonable security set up an assumption that allows the court to proceed on the basis that the defender or payer in question will have sufficient financial backing for their PPO payments during the course of an award. However, setting up an assumption does not exclude the possibility that a defender who is not on the list in statute could persuade the court that they have sufficient financial backing. The fact that a defender is not currently included under the provisions in the bill would not prevent them from making a case to the court that they should be seen as being reasonably secure.

Jill Clark

That is what the MIB currently does—it has to convince the court case by case—but normally the court finds that it is secure.

Colin Beattie

Thank you for that clarification.

The committee has heard evidence to suggest that the risk of satellite litigation would be reduced if the wording in the bill on seeking a variation of a PPO mirrored existing legislation. Is the Government considering that?

Ash Denham

We have looked at that matter, and we do not think that the model in the Administration of Justice Act 1982 is an appropriate fit. I will let the officials give you a bit more clarity on that.

Alex Gordon

Again, I am speaking on a technical basis—I hope that I am answering the right question. As a drafting technician, I find it useful to look at other legislation by way of example, but I am wary of picking up something as a precedent that might not be the best fit in the context that we are currently dealing with. I am always open-minded as to how one might go about things, and there is always more than one way to go about anything.

In Government, we choose our approaches very carefully in each particular context. The gateway to variation, and how variation applies once one is through the gateway, rests on two conditions. The court must be satisfied, first, that there is a chance of change in the pursuer’s condition at some point in the future and, secondly, should that change occur, that there would be overcompensation or undercompensation.

At present, we do not weigh the amount of change that is required in the condition or what the chance of change is. That just takes us to the real root of the issue, which is whether there is likely to be significant overcompensation or undercompensation. Perhaps it is not necessary to measure the amount of risk of change or how much change there would be, because it is unlikely that there would be significant overcompensation or undercompensation if there was no change, or no meaningful change, in someone’s condition.

Although we could, on a different day, try to calibrate that differently, I think—or rather, I hope, because I helped to put the provisions on the page—that we can go straight to the root of the problem: namely, the issue of whether there is significant overcompensation or undercompensation. I do not know that we need to clutter the legislation with some other qualifier for the first part of the twofold test, given that the main element of that test is the second part.

Colin Beattie

Staying on the question of pursuers returning to court to request a variation of a PPO, concerns have been raised about the costs involved. Perhaps the minister can consider whether she could commit to ensuring that those costs fall on defenders, which would be a fairer approach.

Ash Denham

That is an interesting point, which raises some questions about the provision for qualified one-way costs shifting, or QOCS, in the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, which was recently endorsed by the Justice Committee and the Parliament as a whole. We would need to look at the interaction between the 2018 act and the bill before us, and consider the matter further. We would be happy to write to the committee with further information on that.

Colin Beattie

That would be interesting. Although we have no feel for how much it would cost for a pursuer to come back for a variation, some witnesses have indicated that the cost could be substantial. There is a question of fairness involved.

Ash Denham

We will be happy to give the matter a little more thought and write to the committee with our thoughts.

Willie Coffey

Good morning, minister. As the new boy on the committee, I will ask a slightly less technical question, although I am very impressed by my colleagues’ rigour in examining the issue in front of us.

You said in your opening remarks that the bill’s intention was to put people back, as far as possible, in the position that they would have been in before they suffered serious injury. Are you confident that it will deliver on that objective? Are you satisfied that there will be sufficient scrutiny opportunities to enable Parliament and the committees to examine the matter in future?

Ash Denham

We are. The bill has been requested, and its principles have been subject to consultation not once but three times, so it is clear that there is quite a desire for a change in the law. There was not exactly a consensus on some of the policy choices, but the Government has been careful to choose a course of action that is intended to strike the appropriate balance between the interests of the pursuer and those of the defender, and to make the method and the process for setting the rate as clear and transparent as possible, with the ability—as you rightly said—for scrutiny by the Parliament. I am very comfortable that the bill does those things.

The Convener

Are there any further questions from committee members?

Andy Wightman

Jill Clark said earlier that she expects the discount rate to increase as a result of the bill. Can she explain why?

Jill Clark

I said that any increase would be relative to what currently exists. Investment markets have changed since 2017 when the current rate was set. The portfolio is a higher risk than the index-linked Government securities investment, so it should follow that the discount rate will be slightly higher, if there is a level playing field and analysis of both options is carried out at the same time.

Andy Wightman

So the Government believes that there is currently overcompensation.

Jill Clark

Yes—under ILGS, the probability of overcompensation is significantly high.

Andy Wightman

Thank you. I just wanted to get that clarification on the record.

Jamie Halcro Johnston

I have a quick question on something that you might be able to clarify, minister. The bill that became the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 initially capped payments for no-win, no-fee arrangements at 2.5 per cent, but that was overturned by a Scottish Government amendment that allowed the current situation to continue for one-off payments. However, that does not apply to PPO settlements. How does that impact on decisions by pursuing solicitors? Might it make them discourage their clients from entering into PPO settlements?

Ash Denham

I will ask my officials to give you some more detail on that.

Scott Matheson

It is difficult for me to speak for the entire legal profession—as an adviser to the Scottish Government, I do not feel that I can really do so.

I believe that some firms, at least, have put in place practices to ensure that the intended recipient of the damages has taken independent actuarial advice; that the decision on whether to take a periodical payment settlement rather than a lump-sum award is taken on the basis of such advice; and that steps can be taken to ensure that the advice is given independently to the recipient of the damages rather than being filtered through the solicitors concerned so that its independent nature is not skewed by the interests of those solicitors. I give that as an example rather than as a statement of universal practice.

The Convener

It would indeed be a brave man or woman who claimed to speak for the entire Scottish legal profession.

I thank the minister for coming in.

10:41 Meeting suspended.  



10:47 On resuming—  



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23 October 2018

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30 October 2018

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6 November 2018

Economy, Energy and Fair Work Committee Committee's Stage 1 report 

What is secondary legislation?

Secondary legislation is sometimes called 'subordinate' or 'delegated' legislation. It can be used to:

  • bring a section or sections of a law that’s already been passed, into force
  • give details of how a law will be applied
  • make changes to the law without a new Act having to be passed

An Act is a Bill that’s been approved by Parliament and given Royal Assent (formally approved).

Delegated Powers and Law Reform committee

This committee looks at the powers of this Bill to allow the Scottish Government or others to create 'secondary legislation' or regulations.

It met to discuss the Bill in private on 2 October 2018 and 23 October 2018.

Read the Stage 1 report by the Delegated Powers and Law Reform committee published on 24 October 2018.

Debate on the Bill

A debate for MSPs to discuss what the Damages (Investment Returns and Periodical Payments) (Scotland) Bill aims to do and how it'll do it.

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Stage 1 debate on the Bill transcript

The Deputy Presiding Officer (Linda Fabiani)

The next item of business is a debate on motion S5M-15169, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill at stage 1.

15:38  



The Minister for Community Safety (Ash Denham)

I am very pleased to be here to open the debate on the general principles of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I thank the convener and members of the Economy, Energy and Fair Work Committee for their insightful scrutiny at stage 1 of what is quite a technical, detailed and, in places, complex bill. I welcome the committee’s positive support for the general principles of the bill, as set out in its report.

I also put on the record my thanks to the Finance and Constitution Committee and the Delegated Powers and Law Reform Committee for their additional scrutiny and consideration. Like the Economy, Energy and Fair Work Committee, I am grateful to all those who provided evidence on the bill. Finally, I thank the Government Actuary’s Department, whose analysis and expertise have been invaluable in informing the bill.

For some time, the personal injury discount rate has been the subject of criticism. Prior to 2017, pursuers’ representatives expressed concern that the rate was, in effect, undercompensating pursuers, and a judicial review was sought. Since the most recent change, there has been criticism from defenders’ representatives and insurers, on the basis that setting the rate by reference to returns on index-linked gilts intrinsically overcompensates many pursuers. There have also been concerns that the duration between reviews has contributed to the scale of the impact of changes, as well as concerns about a general lack of transparency in the process.

When we consulted on the issue in 2017 and asked whether the law on how the discount rate is set should be changed, 78 per cent of respondents agreed that a change is necessary. During the various consultations, common concerns emerged to do with the fairness, clarity, certainty, regularity and credibility of the method and process for setting the rate.

The bill attempts to address those points. It will put in place a new statutory regime for calculating the discount rate that should be applied to future pecuniary losses in personal injury cases. In providing new methodology, the bill requires the Government Actuary’s Department to assume that the damages that are awarded for future loss will be invested in a notional investment portfolio, comprising set classes of investment asset. The portfolio has been designed to meet the objectives and match the characteristics of the “hypothetical investor”, as identified in the bill.

It is encouraging that, in its stage 1 report, the Economy, Energy and Fair Work Committee said:

“the Committee welcomes the additional clarity and transparency provided by having the method for calculating the discount rate set out in legislation.”

The committee noted that that view was shared by most of the respondents to its call for evidence.

As the bill stands, the rate will be reviewed every three years. Currently, there is no statutory requirement for the discount rate to be reviewed regularly. It is clear that the lack of a regular review is detrimental to all parties. Most consultees agreed that the rate should be reviewed on occasions specified in legislation.

The Scottish Government took account of respondents’ views and decided that a review should be carried out every three years, with the possibility of a review being instigated sooner than that, if circumstances require it. Such an approach will provide a significant degree of certainty, tempered with a proportionate degree of flexibility.

Stakeholders suggested that a three-year review period might mean that settlement of cases would be delayed if one of the parties anticipated that a more favourable rate would come into force, and argued that a five-year review period would go some way towards addressing that issue.

The Scottish Government’s view is that it is imperative that reviews are regular. In its stage 1 report, the committee said:

“the Committee believes—in the interests of finding that balance between flexibility and certainty—that five years would be preferable to three.”

As I said in my response to the report, we listened carefully to the people who gave evidence and we considered the committee’s conclusion. I agree with that conclusion. We will lodge an amendment at stage 2 to alter the frequency of review from every three years to every five years. The facility to call for an out-of-cycle review will, of course, remain.

Daniel Johnson (Edinburgh Southern) (Lab)

I accept the minister’s point, in broad terms. Will she give some detail about the out-of-cycle review? In a five-year period, assumptions around investments can change radically. That happened at the turn of the millennium, when there was a stock market crash.

Ash Denham

Daniel Johnson makes a good point. The general point is that the rate must meet the needs of the hypothetical investor and ensure that they get the right amount of money, so that, at the end of the term, the money is exhausted and the person will not have been overcompensated, and, equally, will not have been undercompensated.

The member is right to say that economic conditions can change rapidly, which is why the bill provides for the facility to have an out-of-cycle review, so that if circumstances should change, the Scottish Government will be able to review the methodology and the distance between and frequency of rate reviews and so on, to ensure that the rate still meets the needs of the hypothetical investor.

The 2017 consultation provided options for those who might set the rate, some of which involved ministers and some of which did not. However, overall there was more support for the options that did not involve ministers. The bill therefore provides that the rate will be reviewed by the Government actuary, and the courts will continue to have the ability to apply a different rate should they decide to do so.

The policy decision to place the duty to review the discount rate on the Government actuary is consistent with and integral to the overall policy aim of reforming the law to make provision for a method and process for setting the discount rate that is clear, certain, fair, regular, transparent and credible. The policy approach has been to regard the determining of the rate as an actuarial exercise in which there should be no need to exercise political judgment. The bill will provide, in an accountable way, the framework in which the rate should be set, and thereafter the mechanics of determining the rate will sit with an appropriate professional. The Scottish Government thinks that that strikes an appropriate balance.

Currently, courts can make a periodical payment order for future pecuniary loss resulting from a personal injury only if the parties consent. In certain situations, periodical payments can be an attractive option to provide a guaranteed payment year on year for the duration of an award. The bill will, for the first time, require courts to consider imposing a periodical payment provided that the source of the funding is reasonably secure.

John Mason (Glasgow Shettleston) (SNP)

The committee had concerns about the fact that the court could impose on a pursuer who, for various reasons, might not want a continuing relationship with the defender. Will the minister comment on that?

Ash Denham

We have taken account of that. We recognise that there are many reasons why a PPO might not be suitable for a pursuer or a defender, but we think that the court would take that into account. Both parties would be entitled to put their views on whether they saw a PPO as acceptable, and the court would take those views into consideration before it made its judgment.

The bill also provides for the variation or suspension of PPOs and similar agreements. I note that the committee would like the Scottish Government to lodge amendments to attach more weight to the pursuer’s views when a court is asked to decide whether damages should take the form of periodical payments. I set out the Scottish Government’s thinking on that issue in my response to the stage 1 report, and I will continue to give it further consideration.

I also note that the committee asked the Scottish Government

“to outline how it will promote the use of PPOs beyond the public sector.”

The bill, of course, obliges the courts to consider the use of periodical payments in every case. Again, I have responded to the committee on that point, and I confirm that we intend to progress that matter with the Scottish Courts and Tribunals Service and that we will look carefully at what the Ministry of Justice intends to do on the same issue and see whether anything can be learned from that information.

The report made a number of other recommendations that require action on the part of the Scottish Government. I intend to touch on them in my closing speech.

I very much look forward to listening to the debate.

I move,

That the Parliament agrees to the general principles of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill.

The Deputy Presiding Officer

I call Gordon Lindhurst to speak on behalf of the Economy, Energy and Fair Work Committee for up to eight minutes.

15:48  



Gordon Lindhurst (Lothian) (Con)

I trust that all members present have read our stage 1 report, which is a classic of the genre. Neil Findlay is not present on this occasion to ask me a question about that particular line. I would not comment on whether the report falls within Mark Twain’s definition of a classic as

“something that everybody wants to have read and nobody wants to read”,

but I am sure that the minister has read it. I thank her and her officials for engaging constructively with the committee.

Personal injury cases might seem small in number, but the impact for the individuals affected and for their families is considerable. We are talking about catastrophic life-changing events, compensation for which should be calculated in a fair and transparent manner. That is also a matter of concern to those who pay the compensation.

The Association of British Insurers said that the current system was “broken” and that the bill took a “much more modern” approach:

“We are therefore very supportive of this legislation, which changes the framework for setting the rate to one that bears much more relation to what happens in reality.”—[Official Report, Economy, Energy and Fair Work Committee, 30 October 2018; c 3.]

The minister has helpfully set out the context and content of the bill, so I will focus my remarks on the committee’s findings.

We welcome the additional clarity on how the discount rate—the adjustment to a compensation award to cover future loss—is calculated. That welcome was shared by the majority of respondents to our call for views, but opinion was split on the detail of the bill, with pursuer representatives on one side and defender interests on the other.

The pursuers felt that any investment risk added to other risks, such as the cost of care or of modifying accommodation. Those were risks that the victim of injury would not face had they not been wrongfully injured, and they would be on top of the risk, or perceived risk, in seeking legal redress in the first place. The culmination of those risks could, in their view, lead to undercompensation.

From the defender perspective, the concern was overcompensation and that any discount rate not reflecting the ordinary and prudent investment was unfair and that adjustments to include higher-performing assets would result in better returns. That, as they saw it, was a blunt instrument.

The committee recognises that the calculation of compensation is not an exact science. The approach is of a hypothetical investor with a notional portfolio for a theoretical period of 30 years. We have little information on actual investor behaviour, but the point is not what people do in reality. Rather, it is to provide a standardised approach that works across a range of cases.

The committee asked for more detail on keeping the 30-year figure under review. We do not always receive a response to a committee report before the debate, but we did on this occasion. We can only hope that the minister’s fine example is not lost on her ministerial colleagues.

The discount rate has several adjustments factored in, which are intended to reduce the risk of undercompensation. They cover inflation, tax and investment advice, and underperformance. On balance, the committee is satisfied with that approach. We are also content with the role of the UK Government actuary in setting the rate, which, we heard, was a technical rather than a political exercise—accountability is to be found in setting the legislative framework.

We were also told of concerns about gaming the system—holding back or pushing forward proceedings to suit the timing of a review. One suggestion was to work from when the claim was raised, rather than the date that it is settled. We asked the Scottish Government to consider the merits of such a change. The minister’s response was reflective, if rather sceptical, although she has not ruled anything out, which we appreciate.

This is a complex policy area, and the impact on both the pursuer and defender must be appraised carefully. Let us not lose sight of what this bill is about. The Association of Personal Injury Lawyers told us:

“The award of damages is not an investment pot—it is not a reward. It is a sum of damages ... to look after somebody’s needs for the rest of their life.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 26.]

I turn to the review period. A review held in 2017 was the first for 15 years, and its outcome was not well received by defenders or insurers. The bill proposes that the discount rate be reviewed every three years, with a review of the portfolio preceding every regular review and a ministerial power to call for out-of-cycle reviews. The committee considers that to be a suitably rigorous approach. In the interests of balancing flexibility and certainty, we recommend a five-year review cycle. I am pleased that the minister agrees and that, as she has said today, she is committed to lodging an amendment at stage 2.

On the matter of periodical payment orders, we asked that more weight be given to pursuers’ views. PPOs are regular instalments paid over time, rather than a lump sum on conclusion of a case. The minister has said that she will reflect on the matter, which is welcome, as is her willingness to explore how barriers to the take-up of PPOs can be overcome.

We thank all the witnesses who helped to inform our scrutiny. We are content that the bill’s provisions are consistent and credible and that the change in the law will balance the interests of pursuers and defenders. We look forward to further consideration of the points that I have outlined and which the minister has undertaken to look at in advance of stage 2.

The author Ambrose Bierce defined the future as

“That period of time in which our affairs prosper, our friends are true and our happiness is assured.”

His was a sardonic take on life, but the reality is that victims of personal injury face risk and uncertainty. They contend with trauma and ill health, often for long periods, which have resulted from catastrophic injuries that they have suffered. They encounter a legal process that often seems drawn out, and they should have a fair and transparent compensation system. We commend the general principles of the bill.

15:56  



Dean Lockhart (Mid Scotland and Fife) (Con)

I thank those who provided submissions on the bill and the witnesses who attended the three Economy, Energy and Fair Work Committee sessions that were dedicated to the bill. As the minister said, the bill is technical, but it is important. It provides for a new statutory regime to calculate the personal injury discount rate that applies to compensation awards in personal injury cases.

Under Scots law, the role of compensation is to restore the injured party—to the extent that a financial award can—as closely as possible to the position that they were in before they were injured. When assessing the amount of a lump-sum award, courts take into account the net rate of investment return that a claimant might expect to receive from a reasonably prudent investment of the lump sum. That is referred to as the discount rate.

As the committee’s convener and the minister said, the committee heard evidence that pursuers and defenders want a more stable, transparent and fair method for setting the discount rate. The bill takes into account a number of factors in how the discount rate should be calculated.

First, the bill defines a hypothetical investor. It says that the discount rate should be calculated by reference to the assumption that the hypothetical investor will invest over 30 years and that they will invest in a notional portfolio that is made up of investments in a fixed class of assets. In addition, the bill proposes making a series of standard adjustments to the discount rate—an adjustment to reflect the impact of inflation; a deduction of 0.5 of a percentage point to represent the costs of tax and investment advice; and a further deduction of 0.5 of a percentage point, which is referred to as the further margin—to reduce the risk of undercompensation of the party that suffered loss. The bill also provides for regular reviews of how the discount rate is set and gives courts additional powers to impose periodical payment orders.

There was consensus among defender groups and pursuer groups on a number of areas, including the need to update the system; the need to increase the availability of periodical payment orders and give courts further powers on them; and the need for regular reviews of the discount rate. We are grateful that the Scottish Government is to follow the committee’s recommendation that the review cycle for the discount rate should be over five years instead of three years.

The committee heard differing views on particular aspects of the bill. I will raise three areas where there was a lack of consensus in the evidence.

There is concern among defender groups that the notional portfolio is overcautious and is too highly invested in fixed assets, which offer a lower return than higher-returning investments in equities. The proposed portfolio assumes that only 20 per cent of the investment would be in equities, which is lower than the percentage in a typical balanced investment portfolio. That is important because the interest rates on Government bonds have historically been much lower than the higher returns on equity investments.

Daniel Johnson

I thank the member for giving way. I accept some of what he is saying, but does he not accept that the language being used—the talk of a portfolio of balanced asset classes—is language that many people being awarded damages will simply not be able to navigate and that we also need to take that into consideration in relation to our so-called hypothetical investor?

Dean Lockhart

The member makes a fair point. That is why the further adjustments that we will come to—such as the 0.5 per cent deduction to pay for professional advice in this area to ensure that the injured person has all the necessary professional advice—are an important part of the protection mechanisms that the bill puts in place.

Defender groups acknowledged that the Government will have regularly to change and update the notional portfolio through secondary legislation to take into account market changes. With some time available before stage 2 of the bill, it would be advisable for the Scottish Government to stress test the composition of the notional portfolio to ensure that it does indeed provide the right balance of investments.

The second area that attracted differing views was the further margin adjustment of 0.5 per cent. Defender groups have expressed concern that this further margin adjustment will increase compensation payments beyond the level of 100 per cent, which is the general principle. They argue that a cautious portfolio, which is already baked into the legislation, is likely to produce overcompensation, so there is no need for a further adjustment to deal with the risk of undercompensation.

In the bill’s policy memorandum, the Scottish Government recognises that there is a probability of overcompensation as a result of the application of this further adjustment of 0.5 per cent. Although we understand the Government’s approach of legislating in favour of a risk of overcompensation rather than risking undercompensation, we have to recognise that this will come at a cost. The costs associated with paying more than 100 per cent of compensation will fall on insurers and ultimately on their customers, medical professionals, the national health service in Scotland, and other public bodies that self-insure.

Parliament should recognise as a matter of public policy that if the further margin provision of 0.5 per cent is passed into law, it comes at a cost.

John Mason

Will the member accept that it is inevitable that some people will be undercompensated and some will be overcompensated? It is not possible to exactly compensate everyone.

Dean Lockhart

That is a fair point to make, although the vast majority of the evidence sided with the probability that overcompensation would be the likely result of these new provisions.

The third area where there has been some disagreement relates to the assumption that the hypothetical investor will hold assets for 30 years. A longer period of investment would increase the likely returns and therefore increase the discount rate. It was not obvious from the evidence given to the committee why a period of 30 years should be used. We heard evidence to suggest that the average for a settled claim could be much longer and last around 40 to 45 years.

That led the committee to call on the Government to assess how the 30-year period would work in practice and we are grateful to the minister for confirming that her department will keep under review the operation of the 30-year period of investment to ensure that in reality it does not produce a significant divergence in returns.

Stewart Stevenson (Banffshire and Buchan Coast) (SNP)

Will the member give way?

Dean Lockhart

I am literally about to wrap up.

The Damages (Investment Returns and Periodical Payments) (Scotland) Bill is technical, but it is vitally important for those affected and we believe that it will provide greater clarity and certainty for everyone involved.

16:03  



Daniel Johnson (Edinburgh Southern) (Lab)

I, too, thank the clerks and members of the Economy, Energy and Fair Work Committee for their excellent work at stage 1 of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I acknowledge the many organisations and individuals who participated in the consultation process.

Scottish Labour welcomes the introduction of the bill. The bill seeks to calculate personal awards of damages through the injury discount rate in a way that is

“clear, certain, fair, regular, transparent and credible”.

Ultimately, the bill is about providing security to those who have been injured through the actions of others, often leaving them with life-altering conditions and with substantial life decisions to make.

As members have noted, although this is a technical bill, at its heart is something fundamental and understandable. It is about protecting vulnerable people and making sure that we have in place a system that is fair and equitable, so that they can make the decisions that they need to make in very difficult circumstances. Importantly, it is also about finding the right balance so that our public bodies, in particular the NHS, do not incur unreasonable costs and liabilities. There is also the important point that undercompensating can lead to many such bodies having large bills. If we undercompensate—if we give people too little—often it is the NHS that ultimately picks up the bill.

Although Labour agrees with the broad principles that are outlined in the stage 1 report, we recognise that there are parts of the proposed legislation that need to be tested robustly as the bill proceeds through stages 2 and 3. I will outline two or three such areas in my speech. The first area that requires scrutiny is the make-up of the notional portfolio, which we have already heard about. Concerns have been raised that it is too cautious and too focused on fixed assets at the expense of equities, even though equities would deliver a higher rate of return.

However, we need to strike a cautious note, in particular around the notion of the hypothetical investor. Although it is reasonable to assume that vulnerable people will invest, it is not reasonable to assume that they will become investment experts, or that they should assume risk or that they require to be speculators. It is not reasonable that they have to put their damages award under a metaphorical mattress, but nor should we expect them to bet on the stock market and to base their future on such speculation.

The notional portfolio would need be updated regularly to keep up with market changes, but it is unclear whether the Scottish Government or the UK Government Actuary’s Department would be responsible for doing that. Likewise, it is unclear whether the series of adjustments that are set out in the bill would be adequate to cover the cost of inflation, tax and investment advice or underperformance. We must test all those aspects as the bill proceeds.

Periodical payment orders would allow courts to make awards for future economic loss and for payments to be made in a periodic manner, thereby increasing the security of such payments. We welcome that provision, which can mitigate against some of the uncertainty that is associated with lump sums. For vulnerable individuals in particular, it can provide welcome certainty. However, more weight should be given to a pursuer’s views when a court is asked to decide on a PPO and members have already raised that point. Ultimately, the bill should seek to empower those who seek compensation, instead of taking away any more of their control.

On the 30-year period, despite evidence that suggests that the average life expectancy following a serious personal injury claim with damages of more than £250,000 is 46 years, the bill creates an assumption that the hypothetical investor will hold their assets for a 30-year period. In her evidence, the minister stated:

“There is no authority on which to base that figure; it was chosen merely as a useful duration that was neither too short nor too long.”—[Official Report, Economy, Energy and Fair Work Committee, 6 November 2018; c 8.]

It is important that the period is examined and carefully considered so that the bill provides for a payment period that is realistic.

Labour welcomes the bill and supports its aim of creating a

“fair, ... transparent and credible”

personal injury discount rate. Although it represents progress, the bill is far from perfect and the proposed legislation must be tested robustly and scrutinised closely as it moves forward. Changes in the areas that I have mentioned will help strengthen the bill to provide greater security to those people who have been injured through wrongful action, while also protecting public bodies from unreasonable costs and liabilities. The bill will ensure that we have in place a just system that is fair and equitable. I look forward to following the bill’s progress through stages 2 and 3.

The Deputy Presiding Officer (Christine Grahame)

We move to the open part of the debate. Members have a generous four minutes for speeches.

16:09  



John Mason (Glasgow Shettleston) (SNP)

The bill has been more interesting than I think that some committee members might have anticipated. The bill may affect a relatively small number of people, but how compensation is calculated is of immense importance. The whole question of a lump-sum settlement, and how it is invested, is a tricky one.

There seems to be widespread agreement that the present system, which is based on index-linked gilts, needs modernising, while keeping intact the fundamental principle of 100 per cent compensation so that neither party should gain or lose. As an aside, on the question of gilts, it seems to me that there is something fundamentally wrong when a saver gets a lower rate of interest than inflation. However, I accept that that is a wider question and beyond the scope of the bill.

Overall, I agree with the Government approach that we should move towards a cautious but low-risk portfolio. We heard evidence from defenders, including insurers and the NHS, of the risk of overcompensation. Clearly that would hit the premiums of others who take out insurance, or the public purse in the case of the NHS. However, evidence from pursuers’ spokespeople raised the risk of undercompensation, which is certainly not desirable when a person may have suffered horrendous life-changing injuries.

In practice, a perfect balance, with no risk of over or undercompensation, is impossible to achieve, as there will always be uncertainties in such cases; for example, some people live longer and some for shorter periods than had been expected. The Government has argued that we need a standardised approach, and most witnesses and the committee agree. However, there will always be disagreements on how a hypothetical investor will invest their lump sum and whether the assumption of a 30-year period is reasonable, as others have indicated. The Government has indicated that it is open to more than one rate if that seems to be needed, for example by having a 15-year rate and a 50-year rate as well, and that is welcome.

Particularly contentious for defenders has been the further margin adjustment of 0.5 per cent on the discount rate. On the one hand, that is seen as reducing the risk for the injured party; on the other hand, it is seen as moving away from the concept of 100 per cent compensation—no more, no less. We heard that the injured party or pursuer takes on a range of risks, including living for longer than expected, higher inflation, or stock markets plunging, as they did in 2008. On the other hand, if investments do well, the pursuer might gain.

Another interesting area, which I think that my colleague Angela Constance will touch on, is periodical payment orders. The discussion has focused on whether we should move away from the current position, in which PPOs happen only when both parties agree. As an outsider looking on, PPOs can seem an attractive option, as they can take away some of the injured party’s risk, for example the risk of living longer than expected. However, we heard arguments against PPOs, including the pursuer not wanting an on-going relationship with the defender; the financial solidity, or lack of it, of the defender; possible restriction of the pursuer’s need to spend more up front, for example on accommodation; and defenders not liking PPOs as they add uncertainty to their financial position and, in particular, to their financial statements.

The committee was reluctant to go the full way of giving courts complete autonomy on this. That is why conclusion 10 in our stage 1 report suggests an amendment that would provide for a statutory presumption in favour of the pursuer’s preference. I note the minister’s reluctance to limit the court’s ability to make the best decision, and I think that we need to consider that further after today’s debate and at stage 2.

I think that there is general support for the bill. The committee supports the general principles of the bill and I am happy to align myself with that position.

16:13  



Maurice Corry (West Scotland) (Con)

I, along with my colleagues, welcome this stage 1 debate on the bill. Suffering personal injury is never expected. No one ever wants to have to claim compensation for injuries that have been caused by wrongful behaviour. Through no fault of their own, individuals can find themselves in the midst of a confusing legal framework that does not always work in their favour.

It goes without saying that the framework for such cases must not only be in place, but must operate as clearly and fairly as possible—most definitely for the pursuer, but also for the defender. That is how we can ensure that those individuals are treated sensitively and by a credible system.

We can see that the current personal injury discount rate needs improvement. With a lack of frequent reviews, we have a process that can seem ambiguous and unclear to pursuers and defenders in civil action cases. I hope that the introduction of the bill will see a helpful adaption of how the personal injury discount rate is calculated, with careful consideration of periodical payment orders and how best to set the rate of return.

I offer my appreciation for the work of the Economy, Energy and Fair Work Committee on the bill and generally. The committee’s insightful analysis of the bill has offered the scrutiny that is needed. I hope that its recommendations will help to further mould the bill and make an end result that works for everyone.

I have no doubt that the elements contained in the bill are well intentioned. Making the current calculations for allocating compensation fairer and more efficient is clearly necessary. The process for claimants can be technically murky, especially when they face what can be a very stressful period of uncertainty. We know that few personal injury cases need a discount rate to be applied, but it is still fundamental that the legal framework is absolutely clear for individuals and their family members, not to mention for defenders and their representatives. Making the legislation as clear as possible is in everyone’s interests.

The bill will modernise exactly how compensation will be calculated, and I support that. It allows for adjustments to be made to the discount rate and opens the possibility for PPOs to be changed in certain circumstances. Although there are varying opinions on how beneficial that will be, the principle behind those methods is most welcome.

I believe that the bill will be better attuned than the current legislation to how pursuers behave, especially regarding how compensation is invested. Indeed, the idea of a hypothetical investor, as set out in the bill, should encourage a more modernised framework that will allow for greater flexibility for the injured party as well as clarity.

Of course, there are aspects that will be worth examining in further detail. For example, the 30-year period for holding a pursuer’s assets is, for some, not long enough, yet I recognise that that measure is designed to cover a broad range of cases and will be revisited regularly; I hope that that will be the case as necessary. There is also a question of the extent to which the proposed investments and reductions can lead to under or overcompensation. Indeed, the principal aim is to award full compensation—not more, not less—and its importance for those who are involved should never be underestimated. Neither the pursuer nor the defender should be placed at a disadvantage. With that in mind, I hope that the bill’s end result will allow for adjustments that will accommodate for the needs of each individual. That will lessen the potential risk for pursuers and reduce the likelihood of their being undercompensated.

I welcome the bill at stage 1. Although further assurances and examination of certain aspects of the bill would be beneficial, I echo the support that has been given by the committee. Finding a standard that can be implemented across the board—and which works for each case, despite their differences—is quite rightly our goal. Therefore, I hope that the proposed calculations for setting the discount rate will lead to a more credible and fair outcome for those who are affected by personal injury and give the clarity that each party deserves.

16:17  



Angela Constance (Almond Valley) (SNP)

Although the number of people who are directly affected by the bill is small, the bill is nonetheless crucial. We should always remember whose interests are at the very heart of the bill: the people who have suffered an accident at work, a birth that did not go to plan, or negligence or lack of care by an individual or organisation, which mean that they live with the tragedy of no longer being who they were meant to be or leading the life that they had worked for or, indeed, had dreamed of.

The minister has helpfully put the legislation into the context of a wider programme of reform that abides by the principles of clarity, transparency and fairness. I will return later to the importance of principles.

In the time that I have, I will focus principally on periodical payment orders, because the committee heard substantial evidence about the risks that victims of personal injury bear with compensation, particularly if it is received in a lump sum. No matter how good the legislation, calculating an award for damages, particularly for future loss, is not an exact science and never will be, so the risk of undercompensation can be minimised but never removed.

We have to remember that damages are not surplus funds; they are meant to replace loss of earnings and meet future care costs. Professor Wass advised the committee about inflation-busting care costs, the unpredictability of life expectancy and the costs of specialised accommodation. All of those point to the advantages of a periodical payment order.

The bill will give the courts for the first time the power to impose, without the consent of either party, PPOs. Crucially, courts will only be able to do that where the continuity of payments is secure. However, in his evidence, Patrick McGuire from Thompsons Solicitors expressed concern about the potential for a victim to be forced to accept a PPO and how disempowering that could be for someone who has already suffered a catastrophic injury and endured a lengthy court process.

The committee recommended that the Government lodge amendments to give more weight to the views of the injured person and suggested a statutory presumption. In her transparent and clear response to the committee, the minister said that she did not want to undermine the ability of courts to make the best decision and that courts would inevitably weigh up the views of both pursuer and defender. Far be it from me to be disrespectful to our learned friends of the judiciary, but let us also not be deferential, because we know that little in life is inevitable.

That brings me back to principles: if we cannot have a presumption—and I am not convinced that we cannot—we should at least put some robust principles in the legislation relating to the views and voice of the injured person. There is precedent for that in the Adults with Incapacity (Scotland) Act 2000 and the Mental Health (Care and Treatment) (Scotland) Act 2003, among other legislation. Under such provisions, the court or tribunal, after weighing up all the evidence and hearing all the views, could take decisions to infringe people’s liberty, although it would do so under a clear obligation to listen to the views of those impacted and to demonstrate a wide range of principles.

Let us not add to the feelings of powerlessness and of not being listened to that are all too frequent in the lives of those with significant disabilities, illness or injury. The minister went some way towards recognising that when she acknowledged that PPOs would not be for everyone, given that some people would need a clean break from those who had been responsible for their injury. I am glad that she gave a commitment in Parliament to continue to consider that issue.

16:21  



Jackie Baillie (Dumbarton) (Lab)

As a member of the Economy, Energy and Fair Work Committee, which scrutinised the bill, I am grateful to have the opportunity to speak in the debate. Four minutes is not a lot of time to develop elegant arguments—

The Deputy Presiding Officer

I can give you five minutes.

Jackie Baillie

Oh, my goodness! I cannot guarantee that my arguments will be any more elegant. Let me cut to the chase and focus on two areas: the discount rate and periodical payment orders.

I appreciate that, as other members have pointed out, the Scottish Government’s intention is that there should be neither overcompensation nor undercompensation for people to whom awards for personal injury are made. The principle of 100 per cent compensation is right—albeit that, in practice, that might be difficult to achieve absolutely.

Those who are responsible for paying out compensation—the defenders—believe that the Government is being overgenerous in its calculations of what people with an award would do with their lump sum. Their view is that the Government is too cautious in its assumptions and that investors should invest in equities, rather than fixed assets, thereby potentially maximising their return. However, that clearly carries a level of risk that might be considered to be too high, given the volatility of markets. On the other hand, those who represent pursuers say that any portfolio should be based on no-risk investment. Although I am minded to agree, I think that the Government’s approach is sufficiently low risk and cautious that it strikes the right balance between the two competing interests.

To be honest, most normal people with a personal injury award have probably never considered an investment portfolio before. They will naturally err on the side of caution, wanting to be sure that they have a secure return for their money and that the money will meet their needs well over their lifetime. However, I know that people will invest on the basis of expert financial advice. The Association of Personal Injury Lawyers welcomed the inclusion of standard adjustments in the bill, but noted that the amount for financial advice and tax was underestimated. It would be helpful for the minister to review that before stage 2.

The second area that I will cover is periodical payment orders. I welcome them, because many people with personal injury awards may have to live with the consequences of their injury for many years and will require varying degrees of long-term care. Periodical payment orders are a useful way of dealing with someone’s needs over their whole lifetime, and they are flexible enough to be reviewed and adjusted if a person’s condition deteriorates significantly, for example.

However, for some people with personal injury awards, the preference is to take a lump sum. That might be because they want to buy a house or adapt their existing home. It might be because they have no faith in the organisation making the payment, because it might have caused the injury in the first place. Whatever the reason, it is important for the court to be flexible and a combination of lump sum and periodical payment might be the best option for some.

I ask the minister to give thought to the committee’s recommendation about giving more weight to a pursuer’s views when the court decides whether to award a PPO. I am entirely with Angela Constance on that. It would be disempowering for somebody who has faced that degree of personal injury to have that choice removed. I listened carefully to what the minister said to John Mason, but I am not convinced that the Government cannot go further towards meeting the committee’s recommendation.

It would also be helpful if she would ensure that, if there is a requirement to vary a PPO because of a change in circumstances, the pursuer would not need to bear the costs of doing so. That is an important principle that we will want to clarify.

As other members have said, it is a technical bill. The Scottish Government has, by and large, taken a balanced approach and, in the main, made the right policy choices, but I will not let the Government off the hook easily. There are always areas that can be improved and I look forward to the minister co-operating with the committee to ensure that we have a fair and transparent system of compensating those who have suffered personal injury.

16:26  



Stewart Stevenson (Banffshire and Buchan Coast) (SNP)

I have not been involved with the bill thus far, but I want to develop a number of its aspects; Jackie Baillie has touched on them already.

The committee’s convener, Gordon Lindhurst, mentioned the balance between pursuer and defender and the different views that can be taken. It is worth saying that the phrase “hypothetical investor” is a good one, because most people who will be in receipt of the kind of compensation that we are talking about are not knowingly investors in anything. They are often investors through their pensions without realising it. Many people have industrial life insurance, which was traditionally sold door to door and for which the money was collected every week, or they might have a life policy.

I had a life policy that I took out in 1975 and took the money out of 31 years later—that is almost exactly the period that we are talking about. I have just done the sums, and the discount rate was just under 6 per cent, but I have not taken account of the value of the insurance part of that, which would make the discount rate a little bit higher. That was before the crash, of course, and discount rates now look rather different. The bottom line is that the hypothetical investor about whom we are talking is a pretty cautious beast, and rightly so.

Jackie Baillie used the phrase “no faith” when she was talking about periodical payments, and that was a fair observation. The bill says:

“A court may not make an order for periodical payments unless it is satisfied that the continuity of payment under such an order would be reasonably secure.”

It then goes on to say that the payment must be assumed to be secure when it is a Government that is paying the money out. The one thing that is not in the bill, and which might usefully be added, is that when the court decides that it is satisfied about the continuity of payment, it should explain why it is satisfied, so that, if there is a different view, that view can be challenged. That is a technical point that protects the person who is in receipt of the compensation payment.

There has been some discussion about the costs of tax and investment advice. I am a bit dubious about the 0.5 per cent deduction. I have the feeling that the costs might be a bit higher than that in the real world, so I am not sure that 0.5 per cent is adequate to cover them. I do not speak with certainty, but it is a question that would usefully bear some—

John Mason

Will the member give way?

Stewart Stevenson

I will give way to somebody who knows more than I do about that matter.

John Mason

The committee received evidence—I do not know whether the member would agree with it—that perhaps the investment cost would be higher at the beginning and lower later on.

Stewart Stevenson

I am absolutely sure that the member is correct, but that goes to the heart of how the compensation is provided: whether it is paid in a lump sum up front or in periodical payments. The actuarial risks associated with the two are fundamentally different. When Dean Lockhart said that a longer period of investment would increase the discount rate, I did not agree. I think that the discount rate is what it is, and that is the actuary’s view. The discount cost goes up as the period increases—rather obviously, because there are more years over which the discount will apply.

Jackie Baillie

I will helpfully supply Stewart Stevenson with the discount rate that he was looking for. The Association of Personal Injury Lawyers supplied us with it: it is between 1.5 and 2 per cent per annum.

Stewart Stevenson

That is broadly what I would have expected, so I am obliged to the member for that.

Investors come in all shapes and forms. Over the years, with my wife, I have been an equity investor. We have twice lost all our money on an investment, and in 2008, my bank investment dropped by 96 per cent. Being in the equities market carries a substantial risk. Ultimately, investors in equities are the last creditors to get paid and they may find themselves paying in if the shares are not paid up in value.

The bill strikes a measured balance between the various options. I looked at it for the first time in the past 36 hours. It strikes me as a sensible piece of legislation, which I shall be happy to support.

16:32  



Gordon MacDonald (Edinburgh Pentlands) (SNP)

As the stage 1 report states:

“A person can claim compensation if they are injured through the wrongful behaviour of another person or organisation. The role of compensation is to put the person—to the extent that a financial award can—as close to the position they were in before they were injured as possible.”

The bill is necessary, as the Association of British Insurers explained. It said that

“The current framework for setting the discount rate is broken, because, as a result of the damages framework and decision making by the courts, the way in which the rate is set bears no relation to what pursuers do in reality.”

It continued by saying that

“we think that, broadly speaking, the old framework is broken and this new framework is a significant improvement.”—[Official Report, Economy, Energy and Fair Work Committee, 30 October 2018; c 2-3.]

However, there are issues that need further consideration, especially in relation to lump-sum payment adjustments and periodical payment orders. It is a legal principle that a successful pursuer should receive 100 per cent compensation—no more and no less. However, in order to do so, broad assumptions are being made in relation to life expectancy, future care costs and economic conditions.

The vast majority of claims are settled by a lump-sum payment that must support an individual for 30 years or more. As a result, the bill requires that a series of set adjustments be made to the rate, calculated on the basis of the hypothetical investor investing in the notional portfolio. These are the impacts of inflation: a deduction of 0.5 per cent to represent the costs of tax and investment advice, and a deduction of 0.5 per cent to reduce the risk of undercompensation.

The Association of Personal Injury Lawyers highlighted that

“On the standard adjustment rate, two rates are proposed in the bill—one to reflect investment charges and tax and the second to reflect other contingencies. The suggestion in the bill is 0.5 per cent. The committee needs to look at that area in more detail. The information that we have received suggests that the investment charges and the tax costs could be anything from 0.5 per cent up to 1.5 or 2 per cent.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 25.]

Part 2 of the bill gives courts the power to impose periodical payment orders. Currently, PPOs are used only in the most serious personal injury cases, in which compensation for future loss makes up a significant part of the award. There are only a few such cases per year in Scotland. Thompsons Solicitors LLP expressed concern about a PPO being forced on an injured person, and stated that such a situation

“when a person does not want a PPO and wants the choice of a lump sum but the court makes the decision for them—can be very difficult for somebody at the end of what is often an extremely long road to compensation, as catastrophic injury cases inevitably are. The process of finally getting compensation is ultimately empowering and a decision that is forced on a person in many ways disempowers them. I caution against creating a situation whereby the decision can be forced on a victim. That is not necessarily the case for insurers, but if a victim wants a PPO, they ought to be able to argue for that and a court can make a decision irrespective of an insurer’s view.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 32.]

In the future, if more personal injury cases result in PPOs being awarded, consideration must be given to how people’s changed housing circumstances can be funded. A person who has been seriously injured might be forced to move home, or require an extension to be built to their existing home. If they remain in their existing home, they might require adaptations to their house—for example ramp access, wider doors, lower kitchens or installation of a wet room, all of which require capital sums. If a periodical payment order is imposed, depending on the size of the PPO award they might not have the funds to meet the cost of alterations. As Jackie Baillie stated, there might be a need for a combined financing model to meet up-front housing costs.

Although I welcome the provisions in the bill, including greater use of PPOs, the concerns of pursuers or their representatives must be considered in moving the bill forward.

16:37  



Daniel Johnson

I apologise to members; they are getting a double whammy from me this afternoon. I hope that they do not seek damages as a result. I am working on the humour, Deputy Presiding Officer: that is my new-year resolution.

I would like to make a few brief remarks to reflect on comments that have been made in this afternoon’s debate. First and foremost, we have heard loud and clear from all across the chamber about the need to understand the requirements of the individual. The circumstances in which people find themselves when they are awarded damages are often life changing and catastrophic. As we have just heard from Gordon MacDonald, people might have to consider making changes to their homes. Angela Constance pointed out that the person might have to consider not living the life that they had expected to live. That was very well put.

The question, therefore, is this: what is it reasonable for an individual to have to consider, and what decisions is it reasonable for us to expect them to make? That is why I would like to touch on the hypothetical investor. Dean Lockhart set out well the rational considerations that we might expect a person to make about a notional investment portfolio and the balance that it might achieve, but we need also to ask ourselves about the general understanding of investment and about the decisions that people might make.

I gently put it to the chamber that people in such circumstances might not always make the most rational decisions. They will certainly be cautious, as we have heard from a number of members, but the hypothetical investor is quite different. As the bill progresses, we will need to consider whether we are dealing with the average or reasonable investor, or whether we need a portfolio that also accommodates the unreasonable individual or the vulnerable person who might not make the right decisions. We have had a great deal of discussion this afternoon about getting right the balance between undercompensation and overcompensation, but I suggest that we should seek to err on the side of overcompensation in order to accommodate those things. I know that that is part of the calculation process.

That brings me to a point that was made by John Mason when he illustrated some of the challenges. If we look at the past 20 years and think about what a reasonable investor might have done, we see that the situation has altered quite dramatically in quite short spaces of time. There was a time when gilts were seen as a rock-solid, no-brainer investment, but that has been turned on its head in the past 20 years, which is quite a short period. Likewise, the equities market has been back and forth in my adult life. The requirement for the calculation to reflect that and to be agile is important.

Although I understand the arguments that have been made by committee members about three years versus five years for review, it is important that we test flexibility so that when circumstances change—such as in a black swan event—and there are alterations in the underlying market assumptions about what a reasonable investment looks like, the change can be reflected. After all, in our living memories, we have seen such changes.

That brings me to adjustment factors. I understand that it is impossible to make it an exact science, but we need to test the amount that is factored in for investment and tax advice. It seems to be on the low side at 0.5 per cent but, again, that can change. As we speak, there are changes in the market with the development of technology and the lowering of costs, which need to be reflected.

I will touch on the arguments on PPOs that were made by Angela Constance and Jackie Baillie. The matter is important because PPOs provide an awful lot of benefits and advantages for a great number of people. We need to make sure that we are not being overly paternalistic. The presumption towards the pursuer’s wishes is hugely important, but as with much of the bill, we must seek balance. I instinctively feel that PPOs provide huge advantages to people with particular vulnerabilities and with a need for the certainty that a lump sum might not provide. I also note that there are advantages to PPOs over lump-sum awards to self-insured organisations and institutions, including public bodies.

My final point is about gaming the system, which Gordon Lindhurst raised and is a key point. The bill seeks balance: it seeks to speculate against a myriad of different considerations, some of which are not predictable or understood. Above all, it is important that the bill strikes the right balance and has the flexibility to continue to strike the right balance in the future.

The Deputy Presiding Officer

I have time in hand, so I can give you seven to eight minutes, Mr Halcro Johnston. I am sure that you can use them.

Daniel Johnson

Seventy-eight minutes?

The Deputy Presiding Officer

Did I say 78? No, seven to eight minutes, for the avoidance of doubt. That has taken up a little bit of time.

Jamie Halcro Johnston (Highlands and Islands) (Con)

I understood what you meant, even if others did not.

The Deputy Presiding Officer

Thank you very much. I like you, Mr Halcro Johnston, please proceed.

16:43  



Jamie Halcro Johnston (Highlands and Islands) (Con)

I join other members of the committee in thanking our clerking team for their typical diligence in preparing and supporting the drafting of the stage 1 report. I acknowledge the range of written and oral evidence that we have received as part of the process and I extend my thanks to all those who contributed.

The evidence has proved extremely useful in scrutinising the technical aspects of the legislation and providing members with an understanding of how the current law operates in practice. The bill has two major components: provisions relating to the application of the discount rate and those relating to periodical payment orders.

Near the beginning of our report, the committee recognises a very simple concept that remains an important principle of our law. The report states:

“The law requires that, where a person or body has acted wrongfully, they are liable to compensate anyone who suffers loss as a direct result.”

That straightforward maxim has global appeal. Although it is intrinsically linked with Scotland and our legal system, it has also had considerable influence around the English-speaking world and even beyond. In many ways, it gets to the essence of what we have been asked to consider in relation to damages.

Many of the people whom the provisions will touch have been wronged, often significantly, and have suffered considerable and, as Daniel Johnson said, often life-changing injuries and harm. In many cases, those individuals cannot work or their ability to earn is impaired. In the most extreme cases, they might be entirely dependent on care and support for the rest of their lives.

While there is a clear fundamental principle on the compensation of loss, how that principle is exercised can be opaque. As the wronged party, the pursuer is probably uppermost in all our considerations. As Maurice Corry highlighted, no one wants to be in a position in which they must claim compensation for injuries or accidents caused by wrongful behaviour.

However, for the reasons that members have highlighted, it is incumbent on Parliament to ensure an end result in which, as far as is possible, the law will neither under nor overcompensate. We understand compensation to be a fair reflection of loss but, equally, the committee has heard about the dangers of overcompensation. It is not a perfect science when we are considering a lifetime of injury, but we should at least begin with a solid regulatory framework that attempts to find a balance, because overcompensation will have an impact. In a successful personal injury action against the national health service, for example, compensation is a necessary part of righting a wrong. To overcompensate, however, is not about making a required payment but about a direct transfer of funds away from front-line services. We know that millions of pounds are paid out by NHS Scotland in such cases every year. As claims often take many years to process, the backlog of open cases against the NHS is expected to result in payments of hundreds of millions of pounds over the years.

Daniel Johnson

Will the member take an intervention?

Jamie Halcro Johnston

Of course.

Daniel Johnson

I thank Jamie Halcro Johnston for giving way. Given that he has 78 minutes to speak, perhaps he will thank me for it.

On his last point, does he also accept that, very often, it is the NHS that ends up picking up the bill if there is undercompensation, because it has to bear the brunt of the additional health costs that are incurred when the individual comes back to the service?

Jamie Halcro Johnston

I thank Daniel Johnson for that intervention. He is right; in a number of cases, it can be the NHS that picks up the bill—not in all cases, but certainly in some.

In actions against businesses, the effects often extend more widely. Inevitably, insurance bears the burden of payment in such cases, spreading the consequences beyond the defender and rippling throughout the wider economy. We should rightly be cautious in how the discount rate is applied in principle and in practice. Our recommendations readily acknowledge the importance of the rate to individuals and their families. The bill sets out the means by which it will be calculated. As some members have touched upon, we have considered the impact of the 30-year assumed period, as well as the assumptions on investor prudence. The minister’s responses in those areas have been welcome.

The committee recognises that almost all respondents to our call for evidence supported the provisions around periodical payment orders. As Jackie Baillie and Angela Constance both highlighted, we looked to the flexibility available to pursuers and recommended that the Scottish Government consider approaches that will offer a greater reflection of the pursuer’s views. The minister has suggested that that will impact the ability of the courts to look at a situation in the round. It will be interesting to see how such issues are considered in the later stages of the bill.

I have already touched on the opening speech given by my colleague Gordon Lindhurst. It was interesting to hear both Mr Lindhurst and Dean Lockhart comment on the areas in which defenders’ and pursuers’ groups agreed and disagreed on the terms of the bill as they were considered. As convener of the committee, Gordon also highlighted that there is little evidence of what the actual investor does, so we based all our considerations on a hypothetical investor.

The committee has recommended that the general principles of the bill be agreed to. However, I recognise that there was a significant divide in the evidence that the committee heard, which, we have recognised, can be crudely divided into arguments that are in the pursuer’s interests and those that are in the defender’s interests. I mention that solely as a caution: assuming that the bill proceeds today, an effective balance will have to be struck in any future amendments.

Last week, the committee received the minister’s response to our report. There are clearly areas that are still to be developed and I welcome the minister’s commitment to further careful consideration of calculating the discount rate with reference to when a settlement is reached, rather than when the injury occurred. Although I accept some of her reasoning, there remains scope for gaming actions by extending out the timescale for claims. I will watch with interest to see how the Government’s approach develops.

The Deputy Presiding Officer

I gently remind members to use full names when referring to other members in the chamber.

I call Ash Denham to wind up the debate on behalf of the Government. Minister, if you can—you do not have to—please take us up to decision time.

16:49  



Ash Denham

Thank you, Presiding Officer. I will do my best to get the timing right.

I have listened with great interest to the debate and the speeches from across the chamber, which have been reflective and thoughtful. I welcome the general support that has been expressed for the bill.

The fundamental aspiration of the bill is to ensure fairness, clarity, certainty, regularity and credibility in the method and process for setting the rate. I am very pleased that the committee supports the bill’s general principles and is content that its provisions have been framed in the interests of achieving

“fairness and regularity ... across a range of cases”,

and for both sides of the argument. As the Faculty of Advocates commented,

“the Bill balances the interests of parties.”

It is clear that, in its scrutiny, the Economy, Energy and Fair Work Committee recognised that the process is not an exact science, as has been echoed in the debate. Although much has been made of investor behaviour, I welcome the committee’s view—which I share—that

“the point here is not what pursuers actually do but to provide a standardised approach that can work in the interests of fairness, regularity and credibility across a range of cases.”

Fortunately, there will, in relative terms, be very few people who will be affected by the discount rate or PPOs, but for those who are—those who have suffered what are often catastrophic injuries that change their lives for ever—the bill is incredibly important.

In my opening speech, I mentioned that if time allowed it I would like to turn to some more recommendations from the committee’s stage 1 report, so I will address a few of them now. I note that, as Gordon Lindhurst said, the committee believes that there is merit in applying the personal injury discount rate that is in force at the time when the claim is raised, rather than the discount rate that would apply when the claim was being settled. In that way, the committee hopes to avoid deliberate delaying of settlements by pursuers and defenders—the practice is sometimes known as gaming—when a change to the rate is anticipated that would obtain a more advantageous outcome. I have to say that I am not entirely convinced by that argument, but I listened carefully to what Gordon Lindhurst said. He was right to note that, at this stage, I have not ruled anything out. I will reflect further on the matter and give it careful consideration in order to establish whether there is a potential way forward.

The committee’s report raises the issue of the Motor Insurers Bureau. As I indicated in my response to the report, I would be happy to undertake to report back to the committee in 12 months on the outcome of our consideration of whether the Motor Insurers Bureau can be designated as a reasonably secure body.

The committee also wanted to know more about what would trigger a move to more than one personal injury discount rate. John Mason raised that issue in his highly reflective speech. As I set out in my response to the committee, ahead of each review, the Government Actuary’s Department will check the returns on the portfolio over different time periods—it will probably do so after 10 to 15 years and after 50 years. If the outcome of that exercise demonstrates a significant divergence in returns, that will point to use of more than one rate for different lengths of award being more appropriate in pursuit of the goal of 100 per cent compensation.

John Mason

The minister mentioned 100 per cent compensation. Is she still committed to that principle? Dean Lockhart feels that, overall, we are heading towards giving more to the pursuer, whereas Daniel Johnson suggests that we are going the other way and that there is too much risk for the pursuer. Does the minister feel that we are getting the balance right?

Ash Denham

The Government is committed to 100 per cent compensation. I will come on later in my speech to address other points that John Mason raised.

For the choice of the assumed investment period and the potential use of split rates, the GAD has cautioned against setting out an approach that is too formulaic, because that would be what it calls “spurious accuracy”. Therefore, interpretation of the outcomes will require judgment rather than application of a formula. However, I reassure Parliament that if the evidence points to the need for a formula, I am open to considering that option.

I will turn to other issues that have been raised during the debate. Dean Lockhart and Daniel Johnson mentioned the mix in the notional portfolio. In the 2017 consultation, a small majority were of the view that the most suitable investment approach was a mixed portfolio that balances a number of low-risk investments, because they believed that that was closest to actual pursuer behaviour in the real world. The matter has been the result of extensive analysis by both the GAD and an investment research firm, so I can assure Parliament that it has been looked at carefully and tested extensively, and that it will be kept under review.

Daniel Johnson

What are the minister’s reflections on my point that it is all well and good to come up with a portfolio for a reasonable investor, but that we need also to consider the unreasonable investor and the need to safeguard vulnerable individuals?

Ash Denham

Daniel Johnson is right to raise that point, but he must accept that what is proposed is a proxy that is intended to apply across a broad range of cases. Also, we expect that the person will take investment advice when they are looking at their lump sum, and will use the notional portfolio for that purpose.

A number of members mentioned periodical payment orders, including Angela Constance—in a speech that reminded us all why the bill is so important—and Jackie Baillie. I assure Parliament that I listened carefully to the points that those members and others made about what more the Government could do to increase uptake of PPOs, and to Jackie Baillie’s point about giving extra weight to pursuers’ views about PPOs. I will reflect on those points and see whether what the Government proposes can be strengthened for stage 2.

Not unsurprisingly, there are polarised views on the shape of the reforms: essentially, they have been split along the lines of pursuer and defender interests. It is clear that, although the principle of 100 per cent compensation must—and does—remain key, there are many issues aside from the personal injury discount rate that can impact on people achieving that. Any investment comes with a degree of risk, and the Scottish Government accepts that there is always a possibility of undercompensation or overcompensation. However, I am glad that the committee is satisfied with our approach, which is to apply adjustments with the aim of reducing the risk of underperformance and the probability of undercompensation.

The bill seeks to remove the exercise of determining the rate from the political arena, where there is the potential of pressure from external interests to attempt to influence the outcome. The review of the discount rate will be firmly focused on ensuring that those who have suffered loss and are awarded damages for future pecuniary loss receive the full compensation—neither more nor less. That should provide fairness to all parties that are involved. The GAD will publish its reasoning in pursuance of professional standards, along with a rate, which will ensure transparency in the process. As the Association of Personal Injury Lawyers said in its written evidence to the committee:

“We agree entirely with the Scottish Government’s approach of removing the possibility of political influence over the setting of the rate. There is no legitimate reason or necessity for political involvement. Setting the discount rate should be an actuarial task, not a political one.”

At the most fundamental level, the bill will ensure that reviews are carried out regularly, which should, in turn, ensure that the impacts of changes are minimised. We hope that the provisions on periodical payments will encourage use of PPOs and provide the courts with powers to impose them where they consider that the circumstances are right to do so.

I thank members for their contributions to what has been an interesting and informative debate, and for their support for the general principles of the bill.

Vote at Stage 1

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Vote at Stage 1 transcript

The Presiding Officer (Ken Macintosh)

There is one question to be put as a result of today’s business.

The question is, that motion S5M-15169, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill, be agreed to.

Motion agreed to,

That the Parliament agrees to the general principles of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill.

MSPs agreed that this Bill could continue

Stage 2 - Changes to detail 

MSPs can propose changes to the Bill. The changes are considered and then voted on by the committee.

Changes to the Bill

MSPs can propose changes to a Bill  these are called 'amendments'. The changes are considered then voted on by the lead committee.

The lists of proposed changes are known as a 'marshalled list'. There's a separate list for each week that the committee is looking at proposed changes.

The 'groupings' document groups amendments together based on their subject matter. It shows the order in which the amendments will be debated by the committee and in the Chamber. This is to avoid repetition in the debates.

How is it decided whether the changes go into the Bill?

When MSPs want to make a change to a Bill, they propose an 'amendment'. This sets out the changes they want to make to a specific part of the Bill.

The group of MSPs that is examining the Bill (lead committee) votes on whether it thinks each amendment should be accepted or not.

Depending on the number of amendments, this can be done during one or more meetings.

First meeting on amendments

Documents with the amendments considered at this meeting held on 22 January 2019:

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First meeting on amendments transcript

The Convener

Agenda item 2 is stage 2 of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I welcome the Minister for Community Safety, Ash Denham, who has joined us with her team: Alex Gordon, Scott Matheson, Jill Clark and Frances MacQueen.

Sections 1 and 2 agreed to.

Schedule

The Convener

Amendment 1, in the name of the minister, is grouped with amendments 2 to 6.

The Minister for Community Safety (Ash Denham)

Good morning to the committee.

Currently, there is no statutory requirement for the discount rate to be regularly reviewed, and it is clear that a lack of regular review is detrimental to all parties. In consultation, most consultees agreed that the rate should be reviewed regularly on occasions that are specified in legislation.

In taking account of the views of respondents, the Scottish Government decided that a review should be carried out every three years, with the possibility of a review being instigated earlier if circumstances were to point to that need. That would provide a significant degree of certainty, tempered with a proportionate degree of flexibility.

Stakeholders have suggested that, with the three-year review, the settlement of cases might be delayed if one or other party anticipated a more favourable rate coming into force. They argue that a five-year review period would go some way to addressing that issue, which is sometimes known as “gaming”.

I have always maintained that the Scottish Government’s imperative is that reviews are regular. As I outlined in my response to the stage 1 report during the stage 1 debate, I have listened carefully to those who have given evidence and to the committee’s conclusion that

“in the interests of finding that balance between flexibility and certainty ... five years would be preferable to three.”

The amendments alter the frequency of review from every three years to every five years, but the facility to call for an out-of-cycle review remains.

I move amendment 1.

Amendment 1 agreed to.

Amendments 2 to 6 moved—[Ash Denham]—and agreed to.

The Convener

Amendment 11, in the name of Jackie Baillie, is grouped with amendment 13.

Jackie Baillie (Dumbarton) (Lab)

It was recognised by the minister that injured people are not necessarily ordinary investors—most would not invest in the stock market and those who do are likely to be quite risk averse. I recognise that the Scottish Government has tried to get the balance right. However, the committee needs to be sure that all the assumptions about deductions are accurate as any award will be for the rest of an individual’s life.

Amendment 11 seeks to address an area in which the Government has underestimated the cost of taxation and investment advice. The committee took evidence from the Association of Personal Injury Lawyers at stage 1 and it highlighted its concerns that the adjustments in schedule B1 should reflect as closely as possible the costs that are incurred by the pursuer.

I have had the opportunity to reflect further since the stage 1 report and I will point to several pieces of evidence in support of the amendment. First, the analysis of the Government Actuary’s Department showed that a reasonable allowance for expenses and tax might be anywhere between 0.5 and 2 per cent. I know that the Scottish Government preferred the lower end of that spectrum, but in its evidence to the committee the Government Actuary’s Department stressed

“that a larger adjustment could be plausibly justified.”

Secondly, Richard Cropper, from Personal Financial Planning, estimated the costs at 1.5 to 2 per cent and said that he believes that the Scottish Government figure is “materially under-estimated”. Paul Rosson, an independent financial adviser, said that the smaller the award, the closer to 2 per cent the costs are likely to be. That is simply for independent advice, and does not include any tax. He recognises that, although in the case of a moderate award the cost would be 0.5 per cent across the industry, that does not include any tax. Finally, Graeme Lind, from Tilney Financial Planning, which is based in Edinburgh, said that the standard rate would be 1 per cent plus VAT but that taxation would take the figure

“north of 1.5 per cent per annum”.

In arriving at a figure of 1.5 per cent, I have tried to recognise the broad range of factors. The general consensus, from the Government Actuary’s Department to the range of financial advisers, indicates that 0.5 per cent is just a shade too low to cover both taxation and investment advice.

I pause at that point and invite the committee and the minister to agree with me.

I move amendment 11.

The Convener

I invite Dean Lockhart to speak to amendment 13.

Dean Lockhart (Mid Scotland and Fife) (Con)

Amendment 13 seeks to change the further margin adjustment from 0.5 per cent to 0.25 per cent. In its policy memorandum, the Government made clear that the further margin adjustment is to reduce the risk of undercompensation in certain cases. However, the policy memorandum also states that, as a result of the new further margin adjustment,

“there will inevitably be a probability of over-compensation”.

Many stakeholders see that as a departure from the principle of 100 per cent compensation. The underlying principle is that damages have the purpose of placing the injured person, as far as possible, in the position that they would have been save for the injury incurred, and the courts are very careful at the outset in setting the level of compensation where it is likely to meet future financial losses and care costs.

The bill is not designed to revisit the basic principles of restitution but is aimed at ensuring that the level of compensation as set by the court is adjusted to reflect how the damages may be invested over the longer term. Based on stakeholder feedback, there is legitimate concern that, with the 0.5 per cent further margin adjustment, the bill will change those underlying principles of fair, 100 per cent compensation, which will come at a cost to the NHS and other public bodies and, potentially, lead to higher insurance premiums.

Although we want to avoid cases of undercompensation, this is a matter of public policy: it is widely recognised that if the further margin adjustment is set at 0.5 per cent, it will probably result in overcompensation, which comes at a cost. We must recognise that.

The Convener

Did the member wish to say anything about amendment 11 in the name of Jackie Baillie, or has he covered it? I should have invited him to speak on that as well.

Dean Lockhart

Very briefly, the underlying concern is the same. If we have a 1.5 per cent adjustment in addition to 100 per cent compensation, there is a risk that, over the longer term, that will result in overcompensation. There is wide recognition that the notional investment portfolio is cautious and would largely be made up of passive funds and debt fixed-asset investments. Those types of investments do not require active management, so such investment portfolios usually result in a lower management fee being incurred. My concern about amendment 11 is that we would end up revisiting the underlying principle of 100 per cent compensation if we changed the tax and investment charge adjustment to 1.5 per cent.

John Mason (Glasgow Shettleston) (SNP)

We received evidence on the issue that amendment 11 addresses during stage 1 and even since then we have had further briefings that go in opposite directions. The Association of British Insurers wants to go one way and the Association of Personal Injury Lawyers wants to go a different way.

There is a real issue here and we have considered it. However, I am not convinced by amendment 11. If we were to amend the bill in this regard, we would need to be a lot more sophisticated. For example, we had evidence that, at the beginning, people might have greater investment costs because they would need to take advice from scratch, whereas they would not need so much advice on an on-going basis, especially with a passive investment. That could be considered, but amendment 11 does not cover the issue. Another factor is the size of the settlement. With a very large settlement, a smaller percentage of it will go on investment advice and, with a small investment, the percentage will tend to be larger.

Therefore, we would not improve the bill a lot by making the adjustment 1.5 per cent instead of 0.5 per cent. I am persuaded by the argument that, although most investors will probably take the passive approach, if someone goes for an active approach and so spends a bit more in fees, over the long term, they should make more of a gain, which will match the extra costs.

I am not convinced by amendment 13 either. We took a lot of evidence and I think that we are all committed to the principle that people should be properly compensated. The evidence was that, inevitably, some people will be overcompensated and some will be undercompensated. That will always be the case, and we can never get round it, unless, I suppose, we have a different discount rate for every single person. It seems to me that the figure of 0.5 per cent is pretty reasonable. We could go higher or lower but, on the evidence that we heard during stage 1, I am convinced that we should stick to 0.5 per cent.

Angela Constance (Almond Valley) (SNP)

Like Mr Mason, I would be concerned that amendment 13 might lead to pursuers being undercompensated. Of course, the minister will have her own views on that.

On amendment 11, I accept that, during stage 1 evidence, some pursuer representatives felt that the adjustment may not be enough and the committee tested the minister on that when she was at the committee previously. I wonder whether, in her closing remarks, the minister could give us any thoughts about whether 1.5 per cent is too high and whether she would consider, prior to stage 3, a move to 0.75 per cent or 1 per cent, given that there are concerns.

The Convener

Does any other member wish to speak? If not, the minister may respond.

10:00  



Ash Denham

I am grateful to Jackie Baillie and Dean Lockhart for setting out the reasoning behind their respective amendments, although, in fact, they do opposing things. One would significantly increase the level of damages that are awarded to a pursuer and the other would decrease it. However, it makes sense for me to address both amendments at the same time.

The approach that we have taken in the bill on how the discount rate should be calculated is based on a portfolio that meets the needs of the hypothetical investor as described in the bill. The asset classes and percentage holdings that are contained in the notional portfolio have been balanced in such a way as to support an approach to investment choices that is capable of limiting volatility and also uncertainty. That is the starting point. Thereafter, the bill introduces two standard adjustments that the rate assessor must deduct from the rate of return that they have arrived at. The first is intended to take account of investment advice, management costs and taxation. The adjustment is set out in the bill, with regulation-making powers for the Scottish ministers to change the adjustment, if required.

The Scottish Government accepts that there will be a need to take investment advice and, indeed, one of the characteristics of the hypothetical investor is that they are properly advised. The Scottish ministers sought views from the Government Actuary’s Department on the appropriate level for the adjustment for tax and passive investment management costs—I think that Jackie Baillie raised that in her comments. Although GAD considered that the reasonable allowance for expenses and tax might fall into the range of 0.5 per cent to 2 per cent, it was also of the view that allowance at the lower end was likely to be more appropriate for a number of reasons. It is reasonable to assume that pursuers will shop around to get the most competitive fees, and it is reasonable to assume that pursuers will directly invest in passive funds. In the current environment, income yields, particularly on bonds, are low, which eases the possible pressure of higher tax charges, and there are further prudence deductions included elsewhere in the discount rate.

On the other hand, amendment 13 alters the second standard adjustment—the further margin adjustment—by reducing it to 0.25 per cent from 0.5 per cent. The intention of the further margin is to recognise that any investment, however cautious, carries some risk, and a proxy cannot take account of an individual’s particular circumstances.

As set out in the GAD report, the inclusion of the further adjustment is to improve the chances of the pursuer having sufficient funds to meet their damages. The composition of the portfolio and the level of adjustment, which are set out in the bill, have been carefully arrived at. They are the result of actuarial advice and an analysis of all the available evidence. I welcome the conclusion of the committee, as set out in its stage 1 report, that it was satisfied with that approach.

Altering either of the standard adjustments will alter the final discount rate and, in the case of Jackie Baillie’s amendment, the impact of increasing the level of adjustment for tax, investment advice and management costs to 1.5 per cent would be significant. For the illustrative examples that were included in the financial memorandum, it would increase the claim worth £3.6 million to £5.9 million, the claim worth £1.4 million to £2 million and the claim worth £0.77 million to £0.92 million. The balance would be tipped too far in favour of pursuers and their chances of being overcompensated would increase significantly. It is defenders who would have to fund those increases, be they private sector businesses or public sector services such as the national health service. I cannot imagine that we would want to place an unwarranted burden on businesses and our public services, any more than we would want to reduce the chances of a pursuer being properly compensated for their injury, which is what Dean Lockhart’s amendment would do.

It is worth stressing that, when we talk about overcompensation and undercompensation, we are talking about the likelihood or the probability of it happening; it is not an absolute. There is an element of risk involved for the pursuer, no matter what the award basis is. However, the analysis around the distribution of returns that are generated by the investment portfolio in the bill shows that, if the return were not to be adjusted, it would result in a 50 per cent chance of the pursuer being undercompensated, and a 50 per cent chance of a pursuer being overcompensated.

In my view, a 50 per cent chance of undercompensation is not acceptable, which is why a further adjustment is needed to reduce the chance of undercompensation. Altering the level of further margin downwards would alter the balance of risk faced by the pursuer to their detriment, such that the chance of being undercompensated would increase to an unacceptable level. I hope that it is of some reassurance that the Scottish ministers will review the portfolio, and these adjustments, ahead of each regular review. We take advice on these matters so that any changes will be the result of professional and expert advice and of sound analysis. I maintain that that is the appropriate approach to take. Both these amendments undermine the considered and balanced approach that has been adopted in the bill, and I urge Jackie Baillie and Dean Lockhart not to press their amendments.

The Convener

I ask Jackie Baillie for her closing comments and an indication of whether she wishes to press or withdraw amendment 11.

Jackie Baillie

The purpose of amendment 11, which was specifically based on expert advice and professional opinion and on the Government actuary’s own words, was to increase damages to cover taxation and investment advice, based on the practical experience of practitioners. I remind the minister that the Government actuary stressed

“that a larger adjustment could be plausibly justified.”

Although I understand that she put the adjustment at 0.5 per cent, the Government Actuary’s Department said that it could be substantially higher.

I would like to pick up on two members’ contributions. I am sad to say that Dean Lockhart is entirely wrong. Amendment 11 is about reflecting the real cost of tax and advice, based on evidence and on experts and practitioners with knowledge of what they are doing. The day of experts has not gone. They have been extremely helpful in providing advice to the committee, and not only at stage 1. Further information has been provided to committee members, hence the amendments that are lodged today.

The review of the portfolio ahead of each regular review that the minister talked about is welcome. I would be interested to know, perhaps at a later stage, as she will not have an opportunity to respond, who is going to be involved, and whether that review is going to be set out in statute. I would be minded to consider withdrawing the amendment if the minister were to agree to a discussion on the issue before stage 3. I am also struck by John Mason’s comments signalling that he would perhaps support a more sophisticated amendment that would reflect a variation in costs, and I am happy to consider that with him. Therefore, if the minister is willing to agree to a discussion, I will be happy to withdraw amendment 11. I encourage the committee not to support amendment 13.

The Convener

Minister, do you wish to respond to Jackie Baillie’s offer at this stage?

Ash Denham

Yes, I am happy to take Jackie Baillie up on her offer. I would be glad to meet her to discuss that if she is willing to withdraw amendment 11 at this stage.

Jackie Baillie

I am happy to do so.

Amendment 11, by agreement, withdrawn.

The Convener

Amendment 13, in the name of Dean Lockhart, has already been debated with amendment 11. I ask Dean Lockhart to wind up and indicate whether he wishes to move the amendment.

Dean Lockhart

John Mason was right when he said that we had received briefings on both sides of the argument, both for and against the further margin adjustment and how it might operate in practice. That reflects the fact that each adjustment cannot be viewed in isolation. They both operate in the same way to adjust the original damages award.

The bill sets out total adjustments of 0.5 per cent for tax and investment charges, and 0.5 per cent for further margin, making a total of 1 per cent. The amendments lodged by Jackie Baillie—

The Convener

We are looking for a brief winding up, as opposed to a general recap of the arguments at this stage, and for an indication of whether you wish to move the amendment.

Dean Lockhart

I will not press my amendment for the time being, but I reserve the ability to revisit amendment 13, depending on the other amendments that are lodged at stage 3.

Amendment 13 not moved.

The Convener

Amendment 7, in the name of the minister, is grouped with amendment 9.

Ash Denham

We have taken the opportunity to lodge a stage 2 amendment in order to improve the readability of the text in paragraph 12 of the schedule, which introduces the notional investment portfolio. Amendment 7 will split subparagraph 1 into two subparagraphs, such that some of the text will be moved into a new subparagraph—1(A)—that will follow subparagraph 1, which comes ahead of the notional investment portfolio itself. The amendment makes connected adjustments to tidy up the narrative, including introducing the notional investment portfolio. It is merely a minor drafting amendment; the overall sense of the text will not be altered. The amendment will make no change whatever to the notional investment portfolio, which is set out in the table in subparagraph 2.

Amendment 9 will make a minor and separate adjustment in the provision for

“variation or suspension of agreed periodical payments.”

A reference to “injured person” will replace the slightly more descriptive wording in proposed new section 2H(2)(b)(ii) of the Damages Act 1996, so that it relies on the nearby definition of “injured person”. The result will be that the proposed new section will be unchanged, and the adjustment is consistent with the approach that is taken in various other provisions for periodical payments.

I move amendment 7.

Amendment 7 agreed to.

The Convener

Amendment 14, in the name of Dean Lockhart, is in a group on its own.

Dean Lockhart

Amendment 14 would require the Scottish Government to review the notional portfolio, as it is set out in the bill, before every review of the discount rate by the rate assessor, and to embed in the legislation the duty to consult stakeholders before doing so. The mix of investments in the notional portfolio is an important part of the framework for setting the discount rate. Given that investment markets are fast moving and that the nature of investments changes rapidly, it is important that the Scottish Government reviews the mix of investments before each review of the rate, and that it consults widely in doing so. A consultation approach would enable the Government to take account of the market conditions that exist between reviews, and of the change in investment practice that will inevitably happen between the five-yearly reviews.

I think that the Minister for Community Safety has accepted that, in practice, the Government will review the notional portfolio before each review of the discount rate, anyway. Our view is that it would be better to embed the review expressly in the legislation, and that the duty to consult should also be included. A formal duty to consult would have the advantage of making the position clear and the process more transparent.

I move amendment 14.

The Convener

If no member wishes to comment on amendment 14, I will give the minister the opportunity to respond.

Ash Denham

It is helpful to hear Dean Lockhart’s explanation of the intention behind amendment 14. He is right to suggest that the bill currently provides that

“the Scottish Ministers must have regard to the need to ensure that the notional portfolio remains”

appropriate, but it might be helpful if I outline the intended process that will be followed ahead of each regular review.

The first review will be carried out on the basis of the portfolio and adjustment figures that are set out in the bill. Ahead of the second and subsequent regular reviews, Scottish ministers will engage with GAD to review whether the portfolio is still appropriate, through desk-based research of low-risk portfolios; whether the margins are still appropriate; whether a dual rate is applicable, based on analysis from GAD and commenting on the extent to which investment returns differ over different time periods; whether the period over which the investment returns are to be assessed should be altered; and whether the retail prices index remains the appropriate measure of inflation.

10:15  



Decisions on any change to the portfolio, the adjustments, the period over which expected returns are based and the inflation measures are for Scottish ministers. Any changes will be made by regulations to be laid under affirmative procedure before the review commences. It follows that Scottish ministers could not carry out such a review without consulting others and without taking appropriate professional and expert advice, nor could they lay the necessary regulations to make changes without demonstrating that proportionate and relevant consultation had taken place. That said, I understand that including express provision on the face of the bill would formalise the situation. For that reason, I am happy for Dean Lockhart to press amendment 14.

If amendment 14 is agreed to by the committee, the Government will need to consider whether any drafting adjustments are necessary at stage 3 to ensure that the provisions will work properly, given the possibility of interim rate reviews in addition to rate reviews in the regular review cycle. That would be in addition to the need for the Government to ensure that the overall wording and structure of the provisions will achieve the desired result in the best and clearest way possible.

The Convener

Does Dean Lockhart wish to press amendment 14?

Dean Lockhart

I press amendment 14.

Amendment 14 agreed to.

Schedule, as amended, agreed to.

Section 3—Award, continuity and index-linking

The Convener

Amendment 12, in the name of Jackie Baillie, is in a group on its own.

Jackie Baillie

The purpose of amendment 12 is straightforward; it is designed to give effect to the committee’s recommendations in its stage 1 report. It would allow the pursuer’s voice to be heard in respect of their preference for either a periodical payment order or a lump sum, and would give weight to that preference. When Parliament debated the matter and Angela Constance and myself raised the issue, the minister helpfully said that she would reflect further on it. The amendment is designed to tease out that reflection.

Periodical payment orders are helpful—especially in cases of personal injury, which tend to be catastrophic and involve conditions that will be lifelong for the pursuer. A continuing regular payment would protect payment of on-going costs. That said, there will be circumstances in which a pursuer does not want a periodical payment order but would prefer a lump sum—for instance, where they want to make a large up-front capital investment, perhaps for an adapted house.

I do not want to see a circumstance, and I do not believe that the committee wants to see it, in which the pursuer is forced to have a periodical payment order. Pursuers have often taken a long road to compensation, particularly when there have been catastrophic injuries. Getting a positive decision and an award at the end of that process can be empowering. I do not want to remove that and disempower the pursuer at the final stage because their views have not been listened to. This is about ensuring that the court gives due weight to their preference.

I move amendment 12.

John Mason

Speaking on my own behalf and not necessarily on behalf of my colleagues, I agree with Jackie Baillie’s argument for amendment 12. Periodical payments are inherently good because they take away some of the risk that the committee has been debating for the past half an hour, and give people a constant income that they can live on. When vulnerable people are involved, that has to be a good thing.

However, there are some exceptions. As Jackie Baillie has already said, people may want a large capital sum up front, and I understand that the courts can split awards. There are also situations in which a pursuer wants a clean break from the defender and does not want an on-going relationship, even if it is purely legal.

The idea that the court could “impose” a PPO gets some of our backs up. We know that the courts will listen to both sides, but it would be good to require specifically that they do so. Amendment 12 would not give a veto to the pursuer, but re-emphasises that the pursuer’s desires and fears should be taken into account seriously by the court. If amendment 12 is pressed, I will be happy to support it.

Angela Constance

I am on the record as being sympathetic to what Ms Baillie is trying to achieve with amendment 12. We should be looking for extra efforts or assurances in the bill to ensure that meaningful consideration is given to the views of the pursuer, and that the court process does not add to the sense of powerlessness that people who have suffered a catastrophic injury might well feel. I suppose that I am less prescriptive about how that might be achieved. I just want to see it done in the bill in the best way, so that we are not reliant purely on the judiciary. It is important that the provision be in the legislation.

The minister gave a very clear commitment during the stage 1 debate, which she followed up in correspondence, that she would give the matter consideration prior to stage 3. I suppose that what I would like to hear today is the minister fleshing out how she will consider the issue. What is the scope of her considerations? How will she work with members across the political divide?

Dean Lockhart

I understand the sympathy and concerns that have been expressed by Jackie Baillie and others, but I have some concern about the wording of amendment 12 and the fact that it would cut across the court’s discretion to decide the form of payment that would be in the best interests of the injured party. Perhaps, instead of the provision being embedded in the bill, it could be covered by the rules of court.

I have concerns about proposed new section 2(A3)(b) of the 1996 act, because the statutory presumption would work

“unless the court considers that there are compelling reasons not to do so”.

“Compelling reasons” is a very high legal threshold to meet, so I think that, rather than there being a presumption in favour of PPOs, that would almost automatically result in PPOs, unless “compelling reasons” showed otherwise. I have concerns about the wording of amendment 12.

Ash Denham

I am grateful to Jackie Baillie for lodging amendment 12. During the stage 1 evidence sessions, I listened to people who had great concerns that the bill does not provide that the court, when considering whether to impose a PPO, should give precedence to the views of the pursuer. In my response to the stage 1 report, I explained that I was not keen to fetter the ability of the court to make the best decision according to the facts and circumstances at hand. I went on to say that I would, because of the strong support that had been expressed for an amendment providing that the court should have regard to the pursuer’s preference, give the matter further consideration.

I appreciate from what I heard at stage 1 that not giving effect to the views of the pursuer can be disempowering to those individuals. Having reflected further, particularly on the position of pursuers in such cases and the importance of not adding additional distress in an already very distressing situation, I am pleased to support the principle that underlies amendment 12. However, we need to think very carefully about how the provision could best balance the rights of the pursuers and defenders when aiming to give preference to the pursuer’s position. With that in mind, I offer to work with Jackie Baillie ahead of stage 3 to settle with her the precise approach to be adopted in order to address the matter appropriately.

I am sure that a revised version of amendment 12, in workable terms on which we can all agree, could be devised for lodging at stage 3. Accordingly, I ask Jackie Baillie not to press amendment 12.

The Convener

I ask Jackie Baillie to wind up, and to press or seek to withdraw her amendment.

Jackie Baillie

Angela Constance summed it up best for me when she said that the provision needs to be in the bill, so that it is absolutely clear. I think, therefore, that—I say it with due respect—Dean Lockhart is wrong to say that we could simply put it in guidance or in court rules.

I understand that what the minister is offering is to put the provision in the bill. On that basis, I will happily seek to withdraw amendment 12, and will work with the minister and other members to ensure that we get it right for stage 3.

Amendment 12, by agreement, withdrawn.

The Convener

Amendment 8, in the name of Stewart Stevenson, is in a group on its own.

Stewart Stevenson (Banffshire and Buchan Coast) (SNP)

I spoke in the stage 1 debate on this important bill and have identified a relatively small but important issue in relation to periodical payments. The bill provides for a more subtle and varied way of setting periodical payments—in the case of future pecuniary loss, for example, with or without the consent of the parties. There are, therefore, some important duties that the court must undertake.

The court could also be re-engaged in the issue of periodical payments under proposed new section 2C(2)(a) of the Damages Act 1996, because it might come back to the subject of periodical payments in varying previous orders. It is important that the whole issue of periodical payments be considered.

There is also provision under proposed new section 2C(4) of the 1996 act for a scheme under section 213 of the Financial Services and Markets Act 2000. Of course, ownership of schemes might well change over the period in which periodical payments are to be made, which might be 60 or 70 years.

A wide range of things place a significant duty on the court, when it decides that “continuity of payment” is “reasonably secure”, to explain why it has come to that conclusion. Courts might frequently simply point to the relevant part of the act. However, given that there are private sector ways of securing periodical payments, it would be proper that the person who is likely to be in receipt of a periodical payment is able to understand why the court concluded that payment will be reasonably secure, and that they could, in extremis, if they felt it necessary, challenge that decision outwith the legislation, by other means. That would also allow the person’s representatives to challenge the decision during the court process, if they had doubts about the security of a periodical payment.

That is the basis on which I have lodged amendment 8. I hope that colleagues around the table are prepared to support it, as I have no vote in the matter.

I move amendment 8.

The Convener

Although I do not disagree in principle with what Mr Stevenson said, there are a couple of matters on which I would appreciate clarification. First, if a pursuer makes a periodical payment order application on a certain basis, would not the assumption be that the pursuer is satisfied about security of payment?

The second issue is more to do with the wording of amendment 8 and how it fits with the other provisions in section 3 of the bill. Mr Stevenson alluded to the fact that, under proposed new section 2C of the Damages Act 1996, the court will be required to make an assumption that continuity of payment is reasonably secure. If the act requires the court to make that assumption, I am not sure how the court can be required to give reasons for that assumption. I take on board the point that the court might make an order relating to a scheme that is not covered by the various bodies or, for example, the guarantee under proposed new section 2C(1)(a)(i) of the 1996 act, but I wonder whether the wording is right. Perhaps Mr Stevenson can come back on those two points.

If no other member wishes to comment, I invite the minister to respond.

10:30  



Ash Denham

Thank you, convener. I am grateful to Stewart Stevenson for lodging amendment 8.

Courts issue opinions or notes as a matter of course to give the reasons for their decisions. That is a long-standing practice and is part of the right to a fair trial that is guaranteed by article 6 of the European convention on human rights.

In cases that fall within those provisions, it is likely that the reasoning will be that the party that is funding the PPO will fall within the sources that are identified in the legislation as being reasonably secure, and there will have been no evidence to contradict that position. Nevertheless, there might be others whom the court is satisfied are reasonably secure, so it will be important to expose the reasoning.

I am happy for Stewart Stevenson to press amendment 8, while reserving the possibility of lodging Government amendments at stage 3 to make any necessary technical changes to ensure that his provision dovetails with existing provisions.

Stewart Stevenson

The minister has mentioned some specific issues. The important thing is that, even when the pursuer is applying to the court for a periodical payment order, the court is in control of the outcome. In particular, what it is proposed be inserted at new section 2C(2)(a) of the Damages Act 1996 means that the court will be

“specifying the method by which the payments are to be made”.

The court therefore clearly will have control over the way in which periodical payments will be made.

Proposed new section 2C can, of course, enable an application to be made to the court for variation of provision, but it does not require that that be done. It is therefore important that there is clarity at the outset about the court’s decision making, in this regard.

The minister helpfully pointed out that it is not—shall we say?—particularly novel to require the court to explain its workings. On that basis, I am certainly happy to watch what the Government might do by way of further modification of the provision at stage 3, if that is required, but I would like to press amendment 8.

Amendment 8 agreed to.

Section 3, as amended, agreed to.

Section 4—Variation or suspension of settlement

The Convener

Amendment 15, in the name of Dean Lockhart, is grouped with amendment 16.

Dean Lockhart

Amendment 15 is a probing amendment to ascertain the intended operation of the section. It seeks to clarify that the court may not award a further, or additional, lump sum when considering an application to vary the PPO. In other words, the court may not increase the size of the overall original settlement. That would avoid the risk of the court being asked to reopen the original settlement when considering how to vary the PPO award in future.

Amendment 15 is not intended to prevent the court from being able to award a lump sum instead of a periodical payment that might be required, depending on the individual’s circumstances. Instead, it seeks to clarify that the court cannot award a new lump sum over and above the quantum of the original award.

That is important because, otherwise, the benefits of finality and certainty of damages would be undermined. The single award concept is crucial for reasons of finality and certainty for the pursuer and the defender, and the provision in the bill would create uncertainty and the potential for awards to be reopened in particular circumstances.

There might be another way of addressing the issue by retaining the words “in addition to”, while adding clarification at the end of the subsection to say that any payment of an additional lump sum will not increase the quantum of the original compensation awarded. I am happy to work with the minister to clarify the operation of that section.

I move amendment 15.

Ash Denham

Once again, I thank Dean Lockhart for providing a bit more detail on his amendments.

On amendment 15, it might be helpful if I first summarise how awards of damages for personal injury may be made. The methods of award—that is, either a lump sum or periodical payment—are not mutually exclusive, and a pursuer who receives their award by way of an order or agreement for periodical payments will rarely receive their entire award in that way. At the point at which a settlement figure is agreed or ordered, the pursuer might already have experienced losses—for example, their past salary or past care or treatment—and their settlement might therefore include a capital sum to allow them to purchase a piece of equipment to assist them. Such payments would be made in a lump sum, and only future pecuniary losses could be made in the form of periodical payments. Indeed, the award or settlement might provide for those future losses to be addressed through a mix of lump sum and periodical payments.

That flexibility for the courts is maintained in the bill’s provisions relating to the variation of periodical payments, and if we were to restrict or hamper that flexibility, it would mean that, if a court were presented with evidence that a pursuer’s losses had increased due to a change in their condition, it would no longer be open to the court to award a lump sum in addition to the periodical payments as originally awarded. It would be restricted to a choice between varying the level of the periodical payments or replacing the whole of the periodical payments with a lump sum when increasing the level of compensation.

Additionally, the court can vary an order or agreement only where there is actual change in the pursuer’s condition and the change itself results in significant over or undercompensation. Proposed section 2F of the 1996 act, which is inserted by section 4 and relates to orders, and proposed section 2H, which relates to agreements, do not permit the court to reopen the original award altogether. Therefore, what is set out in amendment 15 would not be the right approach.

On amendment 16, the bill already includes a causation link to the original injury on two fronts: the original court order must include provision enabling an application to be varied in the future, and any change in condition has to result in significant over or undercompensation. The bill does not change the underlying principles in Scots law that require a causal connection between the injury and the loss for which the pursuer is to be compensated. Therefore, if the original order awarding periodical payments includes no provision for variation to be made in the future, the court might not even entertain an application from either party to vary. Where the court enables future variation in this way, it must specify the sort of change in the pursuer’s condition that must occur before an application can be made. In so doing, the original court order will be acting in the light of and subject to the essential rule in law of a causal connection between the injury and the loss.

As a result, there is already a clear and necessary link between the original injury and the circumstances that might result in variation. The reference in proposed section 2F(3)(b)(ii) to “the injured person” being “significantly over- or under-” compensated also links the variation to the original injury and makes it clear that what we are talking about is a significant, not trivial, change to the pursuer’s condition. In addition, amendment 16 refers to a change being “attributable” to the injury, but it is not clear how that would work where the change is actually an improvement, as that would not be “attributable” to the injury. Put simply, the bill needs say nothing more to achieve what amendment 16 seems to be designed to achieve and in my view, therefore, it is not needed.

For the reasons that I have given, I urge the member not to press amendment 15 and not to move amendment 16. If he does so, I ask the committee to reject the amendments.

Dean Lockhart

On amendment 15, I thank the minister for clarifying how the provisions in this section are intended to work. I am concerned about the drafting of the subsection in question, but I am happy not to press amendment 15 if I can work with the minister on wording that might address my concerns before stage 3.

Ash Denham

I am happy to do that.

Dean Lockhart

Thank you very much.

The minister slightly pre-empted my arguments in favour of amendment 16, but she is completely right to say that causation is an inherent underlying principle of Scots law and that there needs to be a link between the original injury and the change in medical condition. Amendment 16 was designed to add to the provisions in proposed new section 2F, which already set out how and when a court can review a PPO. During the committee’s evidence session on the bill, we heard—from BTO Solicitors LLP, in particular—that an explicit reference to the requirement for the change in condition being the cause of the additional compensation is missing from proposed new section 2F. I am happy not to move amendment 16 if I can work with the minister to clarify that the underlying principle of causation will be embedded in the bill at stage 3.

Ash Denham

We have been quite clear that amendment 16 is not needed, because what it seeks to do is already covered in the bill.

The Convener

Jackie Baillie wishes to say something.

Jackie Baillie

I am pre-empting your next question, convener, when you will ask whether members are content for Dean Lockhart to withdraw amendment 15. I will wait for your question.

The Convener

Indeed. The procedure has got slightly out of sync. Are members content for Dean Lockhart to withdraw amendment 15?

Jackie Baillie

No, I am not content. I seek to press amendment 15. I am entirely happy with the minister’s response so, in pressing amendment 15, I am inviting the committee to vote it down.

The Convener

The question is, that amendment 15 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Lockhart, Dean (Mid Scotland and Fife) (Con)
Lindhurst, Gordon (Lothian) (Con)
Halcro Johnston, Jamie (North East Scotland) (Con)

Against

Wightman, Andy (Lothian) (Green)
Mason, John (Glasgow Shettleston) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Constance, Angela (Almond Valley) (SNP)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Baillie, Jackie (Dumbarton) (Lab)

The Convener

The result of the division is: For 3, Against 6, Abstentions 0.

Amendment 15 disagreed to.

The Convener

I invite Dean Lockhart to move or not move amendment 16.

Dean Lockhart

I will not move amendment 16.

The Convener

Do any members object to amendment 16 not being moved at this stage?

Jackie Baillie

Yes—I am going for a clean sweep. I wish to move amendment 16 on the basis that I am entirely content with the minister’s response. I therefore encourage the committee to vote against it.

I move amendment 16.

The Convener

The question is, that amendment 16 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Lockhart, Dean (Mid Scotland and Fife) (Con)
Lindhurst, Gordon (Lothian) (Con)
Halcro Johnston, Jamie (North East Scotland) (Con)

Against

Wightman, Andy (Lothian) (Green)
Mason, John (Glasgow Shettleston) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Constance, Angela (Almond Valley) (SNP)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Baillie, Jackie (Dumbarton) (Lab)

The Convener

The result of the division is: For 3, Against 6, Abstentions 0.

Amendment 16 disagreed to.

Amendment 9 moved—[Ash Denham]—and agreed to.

Section 4, as amended, agreed to.

After section 4

The Convener

Amendment 10, in the name of the minister, is in a group on its own.

Ash Denham

I listened to those who raised concerns during stage 1 evidence sessions about the costs involved should a pursuer return to the courts to have an order for periodical payments varied due to a change in their physical or mental condition that would result in their being significantly overcompensated or undercompensated by the damages being awarded for future pecuniary loss.

When I attended the committee to give evidence at stage 1, I was asked to consider whether I could commit to ensuring that such costs fall on defenders, as that was regarded as a fairer approach. I undertook to look at how the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 would interact with the bill. Although the matter did not feature as a conclusion or a recommendation in the committee’s stage 1 report, it was raised again during the stage 1 debate.

As I indicated in my recent letter to the committee, I agree that the right approach is to ensure that, where such proceedings are raised, the pursuer should continue to receive the protection of qualified one-way costs shifting, or QOCS. That is in the spirit of the 2018 legislation as it relates to personal injury actions. Therefore, amendment 10 will replicate the protection of QOCS as provided for in the 2018 act but it will be adapted for applications that relate to the variation or suspension of an order for periodical payments. Therefore, regardless of who raises such proceedings—be it the defender or the pursuer—the pursuer will not be required to meet those expenses.

10:45  



Where parties have agreed periodical payments without recourse to the courts, or where they have settled an action through an agreement and a subsequent action that relates to variation or suspension arises, the same default position will apply, which is that the pursuer will be protected by QOCS unless the agreement provides differently. In that way, the amendments will not interfere with what has already been agreed between the parties. The protection will extend to proceedings where the injured person is represented by someone such as a guardian or judicial factor or someone who is acting under power of attorney. In those cases, the proceedings may not be in the injured person’s name.

I move amendment 10.

The Convener

Before other members come in, I will raise a point about drafting and the form that the amendment takes. I will put to one side the principle of the amendment, which, as the minister correctly says, brings periodical payment orders in line with the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018. It may be for members of the minister’s team to explain the basis for the approach, but why has it not been done as a simple amendment to the 2018 act, where all the other expenses rules relating to QOCS in the area are contained, rather than by an amendment to the Damages Act 1996, which, after 20 years of amendments and use, is becoming a rather clumsy beast?

Perhaps the minister can come back in on that, because I am not persuaded that that is the best way to do it. Perhaps I should clarify that it might be easier to deal with the issue by simply putting into section 8(2) of the 2018 act a subparagraph (c), which would include any application for a variation of a periodical payment order or the suspension of a right in relation to such an order, or an appeal in relation to any such order. That would put the provision in the 2018 act, rather than reproducing lengthy provisions about the issue in a completely different act.

I am happy for the minister to intervene to clarify that.

Ash Denham

I thank the convener for raising that. It is perhaps important that I put a few notes on the record about why it has been done in that way. The Government gave careful consideration to how best to deal with QOCS in a new section—2J—as contained in amendment 10. Although I accept that section 2J is quite long, that is necessary to cover the details that are required in the context of the other provisions for periodical payments. However, the main rule is captured succinctly in subsections (1) and (2). My view is that it is worth stating that there, for reading alongside the other provisions on periodical payments, and that that allows the provisions on periodical payments—including the way that QOCS operates in connection with them—to stand as a complete set or as one package.

The remaining details are narrated in subsections (3) to (9), partly by free-standing propositions and partly by referring to the civil litigation legislation, where it is appropriate. There is no neat way of shortening that—at least, not without compromising on the absolute clarity that is needed in the context of the provisions for periodical payments. No matter how it is done, the essence of subsections (3) to (9) is essential for everything to work as intended. For example, we need to set out the precise proceedings that are to be covered by the rule in subsections (1) and (2), what the rule is subject to in two different situations and how properly to tie in the provisions with the civil litigation legislation, where that is required.

Critically, the rules that are stated up front in subsections (1) and (2) cannot be missed. Moreover, I suggest that those key subsections are pretty simple in their own terms for the reader to follow.

I hope that that answers your question, convener.

The Convener

I am not sure that it does, because, if one looks at the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, one sees fairly detailed provisions in section 8. I am not persuaded that the drafting set out in amendment 10 is necessary.

Jackie Baillie

I am not going to argue about the drafting; I will stick to the principle of amendment 10 in the name of the minister, which I very much welcome and support. I raised the issue during the stage 1 debate and she promised to reflect on it. I am delighted that she has done so and I agree with the approach that has been taken, so I will support amendment 10.

The Convener

As no other member wishes to speak, I ask the minister to wind up.

Ash Denham

To reiterate, the approach that the convener set out is not one that we want to take; we want to do it specifically in the way that is set out in amendment 10. I hope that that answers the convener’s question.

The Convener

Very well—thank you. The question is, that amendment 10 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Wightman, Andy (Lothian) (Green)
Mason, John (Glasgow Shettleston) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Constance, Angela (Almond Valley) (SNP)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Baillie, Jackie (Dumbarton) (Lab)

Abstentions

Lockhart, Dean (Mid Scotland and Fife) (Con)
Lindhurst, Gordon (Lothian) (Con)
Halcro Johnston, Jamie (North East Scotland) (Con)

The Convener

The result of the division is: For 6, Against 0, Abstentions 3.

Amendment 10 agreed to.

Sections 5 to 9 agreed to.

Long title agreed to.

The Convener

That ends our consideration of the bill at stage 2. I thank the minister and her team.

Before we move on to the next agenda item, I suspend the meeting briefly to allow the minister and her officials to leave.

10:52 Meeting suspended.  



10:53 On resuming—  



Damages (Investment Returns and Periodical Payments) (Scotland) Bill with Stage 2 amendments

Stage 3 - Final amendments and vote

MSPs can propose further amendments to the Bill and then vote on each of these. Finally, they vote on whether the Bill should become law

Scottish Parliament research on the discussion of the Bill

Debate on the proposed amendments

MSPs get the chance to present their proposed amendments to the Chamber. They vote on whether each amendment should be added to the Bill.

Documents with the amendments considered at this meeting on 19 March 2019:

Video Thumbnail Preview PNG

Debate on proposed amendments transcript

The Deputy Presiding Officer (Christine Grahame)

The next item of business is stage 3 proceedings on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. In dealing with the amendments, members should have the bill as amended at stage 2, the marshalled list and the groupings of amendments.

The division bell will sound and proceedings will be suspended for five minutes for the first division of the afternoon. The period of voting for the first division will be 30 seconds. Thereafter, I will allow a voting period of one minute for the first division after a debate.

Members who wish to speak in the debate on any group of amendments should press their request-to-speak buttons as soon as possible after I call the group. Members should now refer to the marshalled list.

Section 3—Award, continuity and index-linking

15:30  



The Deputy Presiding Officer

Group 1 is on periodical payments: pursuer’s wishes. Amendment 1, in the name of Jackie Baillie, is the only amendment in the group.

Jackie Baillie (Dumbarton) (Lab)

I am pleased to speak to amendment 1 in the first group of amendments at stage 3 of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill—that is a mouthful.

Amendment 1 reflects the Economy, Energy and Fair Work Committee’s scrutiny of an area in which it made a recommendation for change to the Scottish Government and on which I lodged an amendment at stage 2, which I was asked to withdraw by the Minister for Community Safety to allow for further discussion. That discussion has resulted in the amendment that is before the chamber today.

In essence, amendment 1 will require the court to have special regard to not just a pursuer’s needs, but their preferences. Many pursuers will have been through a lengthy process in an effort to obtain recompense for personal injury that might well have been severe and catastrophic. In my view, it is essential that the pursuer’s voice is heard throughout the process. Amendment 1 is designed to ensure that at the final stage of the process, a pursuer’s views will have been listened to and given full consideration by the judge. The pursuer’s preference as to whether to receive a lump sum or a periodical payment must be a principal factor at the forefront of the court’s mind.

The language of amendment 1 is careful to avoid creating a presumption, as it does not give the pursuer the right of veto, but I would be very surprised if it were not a key factor in a judge’s decision. I certainly expect that the requirement on the court to treat the pursuer’s preference, as well as their needs, as a principal factor will have a real impact on the court’s decision-making process in every case.

I am grateful to the minister and her officials for working with me to give effect to the committee’s recommendation.

I move amendment 1.

Liam McArthur (Orkney Islands) (LD)

I am grateful to Jackie Baillie for setting out clearly the background to amendment 1. I did not sit through the evidence that the Economy, Energy and Fair Work Committee sat through. However, earlier in the session, the Justice Committee dealt with the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill, which touched on many of the same issues. We wrestled with the fact that, in relation to what are often very significant payments, individuals could come under pressure from members of their family or their wider friend group to opt for a large lump sum, which might not necessarily be invested in their best interests. There was also the issue that, with a lump sum as opposed to a periodical payment, the pursuer would be liable to pay a legal fee to their solicitor, over and above the normal costs.

Jackie Baillie’s setting out of the rationale for the approach is very helpful. Nobody would wish the pursuer’s interests to be ridden roughshod over. For the benefit of me and other Justice Committee members who wrestled with these matters during our consideration of a different piece of legislation, it would be helpful if Jackie Baillie or, indeed, the minister could clarify how safeguards could help avoid situations arising that are clearly not in the interests of the individual concerned.

John Mason (Glasgow Shettleston) (SNP)

I am happy to support amendment 1.

Many members of the Economy, Energy and Fair Work Committee felt that a move towards more periodical payment orders would be a good idea. For those of us looking in from the outside, they are often a good answer, because they take away the risk and the need to make decisions about investments and other such issues, which many people are not comfortable with. However, the point was also made that some people might not trust the defender to keep on paying the money and that some people might just want to break the relationship with the defender and receive a standalone amount.

It is fair to say that the courts might have considered such matters anyway, but it does no harm to re-emphasise that the courts should take into account what the pursuer is looking for.

The Minister for Community Safety (Ash Denham)

It was very helpful to meet Jackie Baillie to discuss the amendment that she lodged at stage 2, which was intended to allow the pursuer’s voice to be heard in respect of their preference for a periodical payment order or a lump sum.

Jackie Baillie and other members have spoken about their desire to address the sense of powerlessness that people who have suffered a catastrophic injury might well feel in the event that an order for periodical payments is imposed. Although that is a very difficult thing to capture, it does not mean that it cannot be done.

We have had a productive discussion since stage 2, and we have come away with a better understanding of each other’s position on the issue. I have always indicated that I had some sympathy with the principle underlying the stage 2 amendment. My concerns lay in the way in which the stage 2 amendment would have been given effect, which I believe would have gone too far and could have created some legal difficulties.

In highlighting the pursuer’s preferences as a key consideration, it is important for balance to be struck so that the pursuer’s position is not treated as paramount, an overly rigid presumption is not created and the pursuer is not given a unilateral veto. In addition, the defender should not be put at a substantial disadvantage compared with the pursuer, which would put at risk the defender’s right to a fair hearing.

I am pleased to say that I do not have any difficulties along those lines with amendment 1. The amendment refers not just to the pursuer’s needs but to the pursuer’s preferences. This addresses the very human aspect of the pursuer’s position, about which a number of members have spoken.

However, amendment 1 goes beyond simply ensuring that the court takes into account the views of the pursuer, as it could do anyway. The amendment expressly highlights the needs and preferences of the pursuer as something for the court to “have special regard to”.

From the particular language used, it may be expected that the things highlighted will weigh heavily as key considerations at the forefront of the court’s mind when it is deciding between the options for the form of the award. Indeed, all things being equal, it may be expected that the pursuer’s needs and preferences will be given priority by the court.

I believe that amendment 1 strikes the appropriate balance while ensuring that the pursuer’s preferences as well as needs are specifically recognised in the bill. Accordingly, I am happy to support amendment 1.

Jackie Baillie

I welcome the minister’s contribution and the contributions of members across the chamber. I was not the only one who raised the matter at stage 1. My colleague Angela Constance did likewise and it is something that the committee considered to be important.

John Mason was right to reference the use of periodical payment orders as the mechanism to reduce risk and ensure that awards are made over the lifetime of a pursuer. The reality is that we will see a combination of lump sums and periodical payments in play but ultimately—I reassure Liam McArthur about this in particular—we want the pursuer’s voice to be heard at the end of a lengthy court process and to ensure not only that their needs are met but that their preferences are taken into consideration. I am sure that the court would be alive to some of the external pressures that pursuers may face.

I ask the chamber to support amendment 1 because it is the right thing to do. I press my amendment.

Amendment 1 agreed to.

The Deputy Presiding Officer

Group 2 is on periodical payments: drafting amendments. Amendment 2 is grouped with amendments 3 to 8.

Ash Denham

All the amendments in the group fall into the category of minor and tidying in nature.

Amendments 2, 4 and 5 relate to an amendment moved by Stewart Stevenson and agreed to by the committee at stage 2 to place a requirement on the court to set out its reasons for being satisfied that the continuity of payments is reasonably secure.

At the time, I reserved the possibility of lodging Government amendments to make any necessary technical changes at stage 3, so as to ensure that the wording of the provision added by Stewart Stevenson fully dovetailed with the related provisions. Amendments 2, 4 and 5 therefore make some minor adjustments to the text in order to do that. I think that they speak for themselves. The substance of Stewart Stevenson’s addition at stage 2 is not affected.

Amendments 3 and 6 to 8 have come about as a result of a change suggested by the Association of British Insurers. The ABI expressed the view that, in new section 2(1A) of the Damages Act 1996, which would be introduced by section 3(1)(c) of the bill, in the reference to a court not making

“an order for periodical payments unless it is satisfied that the continuity of payment under such an order would be reasonably secure”,

“would be” should be changed to “is”.

As well as making the wording chime more closely with the introduction of the assumptions that follow in new section 2C(1) of the 1996 act, the change would bring the drafting more in line with the equivalent provision that applies in England and Wales. Importantly, the conditional element of the matter is not lost altogether, as new section 2C(1) continues to refer as necessary to what “would be” the case.

Although we are satisfied that no difference could arise in practice under the wording used, we are content to make the change. The same point arises elsewhere in section 3 and once in section 4, so similar changes are made for consistency in those places.

I move amendment 2.

Amendment 2 agreed to.

Amendments 3 to 7 moved—[Ash Denham]—and agreed to.

Section 4—Variation or suspension of settlement

Amendment 8 moved—[Ash Denham]—and agreed to.

Schedule—Investments: setting rate of return

The Deputy Presiding Officer

Group 3 is on rate of return: standard adjustments. Amendment 9, in the name of the minister, is the only amendment in the group.

Ash Denham

I explained at stage 2 that the approach taken in the bill on how the discount rate should be calculated is based on a portfolio that meets the needs of the hypothetical investor as described in the bill. The asset classes and percentage holdings contained in the notional portfolio have been balanced in such a way as to support an approach, in terms of investment choices, that is capable of limiting volatility and uncertainty.

The bill also includes two standard adjustments that the rate assessor must deduct when arriving at the rate. Amendment 9 deals with the first of those. It is intended to take account of investment advice, management costs and taxation. The adjustment is set out in the bill, with regulation-making powers for the Scottish ministers to change the adjustment if required. The Scottish Government accepts that there will be a need to take investment advice, and indeed one of the characteristics of the hypothetical investor is that they are properly advised.

Prior to the introduction of the bill, Scottish ministers sought views from the Government Actuary’s Department on the appropriate level for the adjustment for tax and passive investment management costs. Although GAD considered that the reasonable allowance for expenses and tax might fall into the range of 0.5 to 2 per cent, it was also of the view that an allowance at the lower end was

“likely to be more appropriate”.

That is because it is reasonable to assume that pursuers will shop around for competitive fees and will directly invest in passive funds; because, in the current economic environment, income yields, particularly on bonds, are low, which eases the possible pressure of higher tax charges; and because further prudence deductions are included elsewhere in the discount rate.

At stage 2, Jackie Baillie lodged an amendment that sought to increase the standard adjustment for tax and investment management costs from 0.5 to 1.5 per cent. I pointed out that the composition of the portfolio and the level of adjustments that are set out in the bill are the result of analysis, actuarial advice and available evidence. The methodology and adjustments have been carefully calibrated with a view to ensuring that, in so far as possible, the principle of 100 per cent compensation is adhered to. They are a complete package of measures, with the further adjustment ensuring that the possibility of undercompensation is at an acceptable level.

I was also clear that, from the Government’s point of view, Jackie Baillie’s proposed increase would tip the balance too far in favour of pursuers. Too high a percentage for the deduction under consideration would increase significantly the chances of pursuers being overcompensated, which would go against the principle of achieving the right levels of compensation and would pass an undue burden on to defenders, including public services such as the national health service.

During stage 2, Jackie Baillie withdrew her amendment on the basis that we would have an opportunity to discuss the issue further. It was helpful, after stage 2, to meet Jackie Baillie and exchange our views. I was able to advise that we would be working with the Ministry of Justice to get early access to any relevant evidence on tasks and investment management costs arising from its very recent call for evidence ahead of the review in England and Wales, and we have done that.

With that information to hand, we sought further advice from the Government Actuary’s Department. I have considered its advice, which points to a small uplift in the adjustment being required. Its advice is given in the context of the portfolio contained in the bill, and its view is that there have been small increases in the fees that would apply. Specifically, in GAD’s view, there is a small increase in appropriate passive fund manager fees, reflecting evidence from the call and further consideration of the charges that might apply for the Scottish portfolio. It is also GAD’s view that, based on the evidence from the call, it would be appropriate to include a small allowance for charges for platform fees in order to access the funds and for obtaining advice.

15:45  



Amendment 9 would therefore increase the standard adjustment from 0.5 to 0.75 per cent to allow for such increases. I am content that, based on impartial and professional advice, that is the appropriate change to make—and, indeed, that not to make it would be to ignore such advice. The change would ensure that, as far as possible, pursuers would be properly compensated through the application of the discount rate that would be arrived at through the application of the new methodology. The percentage in amendment 9 represents an important aspect of getting that right.

I move amendment 9.

Dean Lockhart (Mid Scotland and Fife) (Con)

As we have heard, amendment 9, in the name of the minister, would increase the standard adjustment to the discount rate for investment charges and taxation to 0.75 per cent from the 0.5 per cent that was originally set out in the bill.

The Economy, Energy and Fair Work Committee’s stage 1 report on the bill considered that adjustment to the discount rate and, after considering evidence from those on all sides of the argument, concluded that, on balance, it was content with the adjustment rate being set at 0.5 per cent.

At stage 2, the minister told the committee that a 0.5 per cent standard adjustment recognised that investors would shop around to get the best possible rate for investment charges, and that the notional investment portfolio would largely comprise passive funds that would not require active management and would not incur significant investment charges. As she set out in her opening remarks, the minister also told the committee that she accepted the advice of the Government Actuary’s Department on the adjustment level being set at around 0.5 per cent.

Given that background, increasing the standard adjustment to 0.75 per cent runs the risk of departing from the fundamental Scottish legal principle of fair compensation. Although Scottish Conservatives understand the Government’s approach of legislating in favour of overcompensation rather than risking undercompensation, we have to recognise that that would come at a cost. The costs that are associated with paying more than 100 per cent compensation would fall on public bodies in Scotland, such as the national health service and other public bodies that self-insure.

John Mason

Does Dean Lockhart accept that it is not possible to get to a position in which everyone is correctly compensated by 100 per cent? It is inevitable that some will be undercompensated while others will be overcompensated.

Dean Lockhart

That is a fair comment. The figure has to lie somewhere on a spectrum. However, based on the evidence that the committee heard, increasing the adjustment to 0.75 per cent would take us quite far on that, and towards the risk of overcompensation. As I said, the reality is that the cost of paying more than 100 per cent compensation will fall on public bodies in Scotland.

For the reasons that I have set out, Scottish Conservatives will not support amendment 9.

Jackie Baillie

I welcome the opportunity to speak on amendment 9 in the name of the minister.

At stage 1, the Economy, Energy and Fair Work Committee took evidence about standard adjustments. As the minister has referenced, at stage 2, I lodged an amendment on the amount that should be allowed for the impact of taxation and the cost of investment advice. As we have heard, the Scottish Government’s position was to allow for 0.5 per cent, which was considered by some commentators to be just too low to reflect the actual cost of advice and taxation.

The Association of Personal Injury Lawyers provided expert evidence from a range of independent financial advisers, all of whom suggested that 0.5 per cent was too low and that the real costs were likely to be between 1.5 and 2 per cent, based on their experience of dealing with personal injury cases. My amendment was duly cautious in seeking to set the rate at 1.5 per cent.

I pray in aid the Government Actuary’s Department’s analysis of the personal injury discount rate, which it published. The minister rightly suggested that its recommendation on a rate that would reflect tax liability and fees for advice was likely to be anywhere in the range of 0.5 to 2 per cent. The minister and the Scottish Government chose to place the rate at the lower end of the scale. However, I point out that the Government Actuary’s Department also said that it would be appropriate for the rate to be set higher.

The minister referenced the fact that there is a review south of the border by the Ministry of Justice, and she has helpfully considered that in her further deliberations. Again, I welcome the helpful discussion with the minister and her officials. They reflected further and have lodged an amendment to adjust the rate upwards to 0.75 per cent. That is not as much as I would have liked and not as much as the evidence suggests we may require, but I recognise that it is a step in the right direction. I will therefore support amendment 9, but I ask the minister to assure the Parliament that she and her officials will keep the rate under review and change it in the light of experience to avoid any suggestion of undercompensation.

Liam McArthur

I am conscious that I do not have the background on the bill that Dean Lockhart, Jackie Baillie and the minister have. I was reassured to an extent by what the minister said about her engagement with the Government Actuary’s Department. There is clearly a balance to be struck here, and the committee came to the conclusion that it is not an exact science.

I was struck by the response that the minister gave recently in a written answer to a parliamentary question from my colleague Alex Cole-Hamilton. She wrote:

“The Scottish Government expects that the UK Government will continue to cover the costs arising from the change in the discount rate to the extent that the rate in Scotland is in line with the rate in England and Wales. The Scottish Government will continue to pass this funding to the NHS in Scotland.”—[Written Answers, 13 March 2019; S5W-21903.]

That is helpful, but it rests heavily on the rate in Scotland being in line with that in England and Wales. As I understand it, that may not be the case in this instance, and I wonder how the shortfall will be met. Has the minister had discussions with not just the Government Actuary’s Department but health colleagues about the potential implications for any financial liability to the NHS?

Also, will a revised financial memorandum be published? As I understand it, there was not one ahead of stage 3, which was rather unhelpful for those of us who were trying to get our heads round the implications of the change that the minister is proposing.

Daniel Johnson (Edinburgh Southern) (Lab)

I echo Jackie Baillie’s comments. The discount rate was the subject of some debate and discussion at stage 1, and rightly so. We are talking about the money that is made available to people for them to get their affairs in order having been awarded compensation. Although much of the talk is of what might be reasonable or what people might typically obtain, we must also consider people whose compensation falls outside the range of reasonable expectations. As John Mason rightly said, some people may be overcompensated and some may be undercompensated, but we need to ensure that we protect the most vulnerable, because the people who we are talking about are undoubtedly vulnerable.

The range of values that the Government Actuary’s Department arrived at was 0.5 to 2 per cent. Although it said that the appropriate rate would be in the lower end of the range, 0.75 per cent is well within the lower end. Like Jackie Baillie, I would like to hear from the minister how the rate will be kept under review and how, if it is found to be insufficient, it might be revised in future.

The increase is welcome, albeit that it does not go as far as we on the Labour benches would like.

The Deputy Presiding Officer

I call on the minister to wind up.

Ash Denham

I will address a number of points. First, on the point that Dean Lockhart raised, I expect the new rate to save defenders money when it comes in in September, and that includes the NHS.

The MOJ’s call for evidence on matters relating to investments was extremely timely, and amendment 9 is based on the most recent evidence. GAD analysed the evidence from that call by the MOJ with reference to the portfolio in the bill, and it revised its advice. It would not be appropriate not to act on the advice that I was given. I want the adjustment in the bill to reflect the most up-to-date evidence that is available, and that is what the amendment will do.

Of course the adjustments will be kept under review, and I note that that is in the bill as well, just to reassure Daniel Johnson on that point.

I press amendment 9.

The Deputy Presiding Officer

The question is, that amendment 9 be agreed to. Are we agreed?

Members: No.

The Deputy Presiding Officer

There will be a division. As this is the first division at stage 3, the Parliament will be suspended for five minutes.

15:54 Meeting suspended.  



15:59 On resuming—  



The Deputy Presiding Officer

We will now proceed with the division on amendment 9.

For

Yousaf, Humza (Glasgow Pollok) (SNP)
Wightman, Andy (Lothian) (Green)
White, Sandra (Glasgow Kelvin) (SNP)
Wheelhouse, Paul (South Scotland) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Swinney, John (Perthshire North) (SNP)
Sturgeon, Nicola (Glasgow Southside) (SNP)
Stewart, Kevin (Aberdeen Central) (SNP)
Stewart, David (Highlands and Islands) (Lab)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Smyth, Colin (South Scotland) (Lab)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Rumbles, Mike (North East Scotland) (LD)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Robison, Shona (Dundee City East) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Neil, Alex (Airdrie and Shotts) (SNP)
McNeill, Pauline (Glasgow) (Lab)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
McKee, Ivan (Glasgow Provan) (SNP)
McArthur, Liam (Orkney Islands) (LD)
McAlpine, Joan (South Scotland) (SNP)
Matheson, Michael (Falkirk West) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Mackay, Derek (Renfrewshire North and West) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Macdonald, Lewis (North East Scotland) (Lab)
MacDonald, Angus (Falkirk East) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
Lochhead, Richard (Moray) (SNP)
Leonard, Richard (Central Scotland) (Lab)
Lamont, Johann (Glasgow) (Lab)
Kidd, Bill (Glasgow Anniesland) (SNP)
Kelly, James (Glasgow) (Lab)
Johnstone, Alison (Lothian) (Green)
Johnson, Daniel (Edinburgh Southern) (Lab)
Hyslop, Fiona (Linlithgow) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Haughey, Clare (Rutherglen) (SNP)
Harvie, Patrick (Glasgow) (Green)
Harper, Emma (South Scotland) (SNP)
Greer, Ross (West Scotland) (Green)
Gray, Iain (East Lothian) (Lab)
Grant, Rhoda (Highlands and Islands) (Lab)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Finnie, John (Highlands and Islands) (Green)
Findlay, Neil (Lothian) (Lab)
Fee, Mary (West Scotland) (Lab)
Fabiani, Linda (East Kilbride) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Dugdale, Kezia (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dey, Graeme (Angus South) (SNP)
Denham, Ash (Edinburgh Eastern) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Crawford, Bruce (Stirling) (SNP)
Constance, Angela (Almond Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Campbell, Aileen (Clydesdale) (SNP)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Bibby, Neil (West Scotland) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Beamish, Claudia (South Scotland) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Baillie, Jackie (Dumbarton) (Lab)
Arthur, Tom (Renfrewshire South) (SNP)
Allan, Alasdair (Na h-Eileanan an Iar) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Adam, George (Paisley) (SNP)

Abstentions

Whittle, Brian (South Scotland) (Con)
Wells, Annie (Glasgow) (Con)
Tomkins, Adam (Glasgow) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Simpson, Graham (Central Scotland) (Con)
Scott, John (Ayr) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Mitchell, Margaret (Central Scotland) (Con)
Mason, Tom (North East Scotland) (Con)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lindhurst, Gordon (Lothian) (Con)
Kerr, Liam (North East Scotland) (Con)
Harris, Alison (Central Scotland) (Con)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Greene, Jamie (West Scotland) (Con)
Golden, Maurice (West Scotland) (Con)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Corry, Maurice (West Scotland) (Con)
Chapman, Peter (North East Scotland) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Carlaw, Jackson (Eastwood) (Con)
Burnett, Alexander (Aberdeenshire West) (Con)
Briggs, Miles (Lothian) (Con)
Bowman, Bill (North East Scotland) (Con)
Ballantyne, Michelle (South Scotland) (Con)

The Deputy Presiding Officer

The result of the division is: For 84, Against 0, Abstentions 26.

Amendment 9 agreed to.

The Deputy Presiding Officer

Group 4 is on rate of return: drafting amendments. Amendment 10, in the name of the minister, is grouped with amendments 11 to 14. [Interruption.] Please—I am trying to say something and I cannot even hear myself.

I call the minister to move amendment 10 and speak to all of the amendments in the group.

Ash Denham

All the amendments in this group relate to an amendment that was moved by Dean Lockhart at stage 2 and that was agreed to by the committee. That amendment reworked the duty of the Scottish ministers in relation to the notional portfolio. The duty previously involved having regard to the need to ensure that the notional portfolio remains suitable for the hypothetical investor. After the amendment was accepted, it involved including the conduct of a review on suitability, incorporating a requirement to consult appropriate persons.

At the time, I reserved the possibility of bringing forward Government amendments to make any necessary drafting changes at stage 3, not only to ensure that the provisions would work properly, given the possibility of interim rate reviews, but to ensure that the overall wording and structure of the provisions reaches the desired result in the best and clearest way possible.

Amendments 10, 11, 12 and 14 make modest adjustments to the text in connection with the review of the portfolio. They align the wording of the text with the provisions cross-referred to; reflect the fact that the on-going assessment of the portfolio, and the making of regulations if necessary, are really just parts of a single process; directly tie the necessity of regulation making to the suitability of the portfolio for the notional investor; tidy the structure and wording of the provisions; and give a useful signpost for the reader to the description of the notional investor. However, the substance of what Dean Lockhart added at stage 2 is not affected by those amendments. They preserve the need to assess the notional portfolio ahead of each five-year cycle of review, along with a duty to consider whether regulations are necessary.

Amendment 13 is different. Interim reviews, by their nature, are likely to be needed where there are urgent or extraordinary circumstances. Amendment 13 therefore excludes interim reviews from the scope of the provisions that were added by Dean Lockhart at stage 2.

I move amendment 10.

Amendment 10 agreed to.

Amendments 11 to 14 moved—[Ash Denham]—and agreed to.

The Deputy Presiding Officer

That ends consideration of amendments.

Final debate on the Bill

Once they've debated the amendments, the MSPs discuss the final version of the Bill.

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Final debate transcript

The Deputy Presiding Officer (Linda Fabiani)

As members are aware, at this point in the proceedings, the Presiding Officer is required under standing orders to decide whether, in his view, any provision of the bill relates to a protected subject matter: that is, whether it would modify the electoral system and franchise for Scottish parliamentary elections. In the Presiding Officer’s view, no provision of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill relates to a protected subject matter. Therefore, the bill does not require a supermajority in order to be passed at stage 3.

We move to the debate on motion S5M-16394, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill.

16:05  



The Minister for Community Safety (Ash Denham)

I thank members of the Economy, Energy and Fair Work Committee for their careful and helpful consideration of the bill; I have very much welcomed the committee’s thorough scrutiny of the bill. It is clear that members appreciated the importance of getting things right; they also appreciated that the process is not always straightforward. I thank the committee clerks, too, for their hard work.

I also thank the stakeholders who contributed views and opinions as part of parliamentary scrutiny of the bill. The Scottish Government has had useful engagement with stakeholders. At times, we heard differing and—dare I say it?—opposing views on some aspects of the bill, which is perhaps not surprising, given that there are pursuers on one side and defenders on the other.

Despite the differences, there is a commonly held view that the current process for setting the discount rate is flawed, and that the law needs to be changed to make it better. The context of the bill is therefore the widely held view, which is born of extensive consultation over the past seven years, that the law on how the discount rate is set needs to be changed.

I will briefly remind members of the key provisions in the bill, and what they are intended to achieve. Part 1 reforms the law on setting the personal injury discount rate. The provisions are intended to ensure that the method and process for setting the discount rate are—as far as is practical—clear, certain, fair, regular, transparent and credible. The fact that there have been seven years of consultation on the matter serves to demonstrate that this is not an easy subject and that there are no easy answers.

The bill provides that the job of reviewing and assessing the rate will, in the first instance, fall to the Government Actuary’s Department. We have adopted an approach whereby determination of the discount rate is regarded as an actuarial exercise that should be free from political interference. In any system for setting a personal injury discount rate, there must be an element of political judgment. The approach that the bill takes separates the actuarial exercise from political judgments, with the latter being set out transparently in the legislation. The scrutiny process for the bill has provided the necessary parliamentary accountability to ensure that we have a framework that is fit for purpose. It will be for the Government actuary to apply the methodology and arrive at the rate. We are of the view that his professionalism and expertise make him the best fit for that role.

The bill also establishes a timeline for review of the discount rate. That is important, because we are aware that the impact of no change having been made for more than 15 years was considerable. The bill, as introduced, provided for a review every three years, but we listened to stakeholders and the committee on that point and amended the bill at stage 2 to reduce the frequency from every three years to every five years, on the basis that the committee considered that such an approach would represent a

“balance between flexibility and certainty”.

One of the most complex aspects of the bill is the methodology for calculating the discount rate. The bill provides a framework for doing that.

It is important to remember that at the heart of the bill are people who have suffered significant, if not catastrophic and life-changing injury, and their right to fair and full compensation. An award for damages is designed to compensate a wrongly injured person for the losses and harm that are caused by the injury—no more and no less.

That is easy to say, but hard to do. The most likely cause of a person’s damages not being enough or being too much stands separate from calculations around the discount rate: it is the assessment of the person’s life expectancy. There are no absolutes; we can only improve or diminish the chances of overcompensation or undercompensation happening.

When I talk about a framework, that terminology is important. The composition of the portfolio, the standard adjustment and the assumption about the award duration are fully integrated and operate together to produce the discount rate. They are a package. For example, a riskier portfolio would attract a different adjustment for tax and investment management costs.

The courts will now have the ability to impose orders for periodical payment, which is provided for in part 2. It is worth noting that the intention behind the bill’s provisions that require a court to consider whether an award should take the form of a periodical payment order, and whether to make such an order without the consent of the parties, is to address effectively the current scenario, which has sometimes been described as the defender holding the trump card, because the defender can, in effect, overrule the pursuer by simply not agreeing to their preferred method of award. I am sure that we all agree that there are good reasons for remedying that position. Where there is disagreement, it is considered that the best independent arbiter is the court—not one or other of the parties that are involved.

I am convinced that the provisions in the bill will result in methods and processes that are clear, certain, fair, regular, transparent and credible.

I move,

That the Parliament agrees that the Damages (Investment Returns and Periodical Payments) (Scotland) Bill be passed.

16:11  



Gordon Lindhurst (Lothian) (Con)

I, too, thank my colleagues on the Economy, Energy and Fair Work Committee for their work on the bill, and I thank the minister for her work on the bill, including her timely response to the committee’s stage 1 report. Not least, I also thank the clerks and legislation team who have assisted me and all the members who have been involved at all stages of the bill’s passage.

Throughout our consideration, there has been genuine recognition, by everyone, of a number of principles. The first is the importance of the proposed legislation, which will add clarity and transparency by providing a statutory framework for calculating the personal injury discount rate. Clarity and transparency are hugely important to a person who has undergone life-changing events. A number of colleagues laid that out unambiguously during the stage 1 debate, when they described how a person’s life might never be the same again following a life-changing incident, if they become unable to earn and will be reliant on care for the rest of their life. Although they might be few in number, cases that involve the discount rate for future losses will benefit from the bill.

The second principle is 100 per cent compensation and the overarching goal of working out a system that would limit undercompensation or overcompensation as much as possible, while recognising that, of course, there can be no exact science for that—as the minister said—and acknowledging the effects of not getting it right for pursuer or defender. Defenders include not just insurers to whom we might have to pay higher premiums. They also include public bodies that we, as taxpayers, fund—for example, the national health service, which could, as we heard during stage 1, be at risk in both overcompensation and undercompensation scenarios. Broadly speaking, the bill has tried to strike the right balance, and I hope that it has been largely successful in that.

Some of the committee’s concerns at stage 1 have been ironed out during subsequent stages. During stage 1, and in my role as convener of the committee, I raised in our report members’ concerns about gaming, a term that relates to cases in which a settlement might be delayed if one or other party anticipates a more favourable rate coming into force. It was welcome that the minister changed the review period of the discount rate to five years. Keeping up to date with market changes is essential in ensuring that the legislation stays relevant, unlike the current process for setting the discount rate, under which a review that was held in 2017 was the first in 15 years.

A number of members from across the chamber have raised the importance of the pursuer’s views in determining periodical payment orders or lump-sum awards. PPOs can be preferable for some people because they give the certainty of a regular income over time. Others prefer a lump sum in order, for example, to pay for accommodation at the outset.

Amendment 1 at stage 3 set a slightly different tone from amendments at stage 2, by asking that the court

“have special regard to the pursuer’s needs and preferences”,

rather than making a presumption in favour of the pursuer’s preferences.

As the minister said in responding to the committee at stage 1, it is important not to undermine or limit the courts’ ability to make the best decision based on all the facts and circumstances of a particular case. Amendment 1 should not prevent courts from making the best decisions, but I would welcome further comment from the minister on how she envisages a court approaching the matter.

Concerns remain about amendment 9, as outlined earlier by my colleague, Dean Lockhart. The goal of the bill is to stick to the 100 per cent compensation principle as far as possible. Witnesses at stage 1 told the committee that:

“The award of damages is not an investment pot—it is not a reward. It is a sum of damages that is awarded to look after somebody’s needs for the rest of their life.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 26.]

There is a risk that amendment 9 will take us beyond the 100 per cent principle and could have significant knock-on effects on insurance premiums and public bodies.

The committee was content with the 0.5 per cent standard adjustments, as, it appeared, the minister was—at least at that stage. Although the change to that is, on the face of it, only a small change, in practical terms it could make a huge difference. That late change by the Government will need to be carefully reviewed, as appropriate, with measures being taken by the Scottish ministers by way of regulation, where appropriate.

16:16  



Daniel Johnson (Edinburgh Southern) (Lab)

I, too, thank the clerks and members of the Economy, Energy and Fair Work Committee for their excellent work on the bill. Speaking on the bill, I feel something of an interloper, given the substantial work and the very difficult subject matter that the committee has been dealing with.

I acknowledge and give my thanks to the many organisations and individuals who participated in the drafting and consultation process. Undoubtedly, their work means that we have a stronger bill in front of us.

Labour supports the bill and welcomes its aim of creating a fair, transparent and credible personal injury discount rate and damages regime. The bill seeks to protect people who have suffered significantly and who, in many cases, will undoubtedly be vulnerable, and to provide greater clarity, transparency and security to those who have been injured through wrongful behaviour.

Ultimately, the bill will ensure that the damages system in place is fair and equitable. It is about creating a system that empowers those who seek compensation, rather than taking away more of their control. As the minister correctly set out in her opening remarks, there are no easy answers. The bill represents a series of balances that have been struck. Through consideration at stages 1 and 2, most of those balances have been struck well.

Let me address some of the amendments that have been agreed to. The bill undoubtedly represents progress. As I said, there is a debate about where the balances have been struck, and we were pleased that progress has been made. Amendment 1 will ensure that the court awarding damages will be required to have special regard to the pursuer’s needs and preferences when deciding whether to impose a periodical payment order. As we have heard, there is a balance to be struck between the preferences of the individual and the ability of the court to decide on the best outcome, given all the facts before it. Amendment 1 strikes that balance, and the bill is stronger for it. It is an important change, which will provide greater security, protection and reassurance for those who pursue damages through the courts.

I turn to amendment 9. Throughout the passage of the bill, Labour has put forward arguments about how we can make the process fairer for pursuers. We welcome the Government doing likewise in some areas, but we have concerns about amendment 9—we feel that it could have gone further. When the bill was drafted, the Government underestimated the cost to the pursuer of inflation, taxation and investment advice. We are pleased that the Government has raised the level of standard adjustment from 0.5 to 0.75 per cent so as to take into account the impact of taxation and the costs of investment advice and management. People will need that advice and support, because they will undoubtedly be facing decisions that they have never had to make before, and speaking to professionals with whom they do not regularly or normally have contact. It is important that people are provided with that level of support.

As I said, it is disappointing that the Government chose to set a rate at the lower end of the range and one that is lower than many would have wanted. Although we support amendment 9, it is important that the matter is kept under review. I welcome the minister’s remarks on that point in debating the amendment.

The bill is an important step forward in providing security to those who have suffered what will often have been traumatic and life-altering events. There is, of course, more that could have been done to provide greater protection to the most vulnerable people who find themselves seeking damages, but the bill is an important step forward.

We urge the Government to keep the measures under review and to be willing to revise and reform the bill’s provisions when it has been enacted, not least with regard to the standard adjustments, as I have outlined.

Labour supports the bill, because it will help to protect vulnerable people who have been injured. Although we recognise its flaws, we welcome its passage and the fact that it will create a fairer, more transparent and more credible personal injury and damages awards regime.

16:21  



Liam McArthur (Orkney Islands) (LD)

I welcome the opportunity to make a few brief remarks although, like Daniel Johnson, I feel like a bit of an interloper in the debate.

Like others, I pay tribute to the members of the Economy, Energy and Fair Work Committee and its clerks for all the work that they have done on a bill that is technical but hugely important, particularly for people who find themselves having to make a compensation claim. Those people are often vulnerable, and they will possibly be at a low point in their life.

The committee was absolutely right to observe in its stage 1 report:

“The number of people affected by personal injury cases where the discount rate applies may be small but the means of calculating their compensation is of vast importance to them and their families, as well as to pursuer and defender interests (the NHS included) and the insurance industry.”

That encapsulates what we are trying to wrestle with.

As I observed during the earlier proceedings, I have had some engagement with the issues through the Justice Committee’s work on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018. During that process, the importance of clarity and transparency, which Gordon Lindhurst and Daniel Johnson have made points on, were at the forefront of our thoughts. They are absolutely key. There is a need to try to avoid the risk of undercompensation and, indeed, overcompensation. As the committee observed, that is “not an exact science”. A balance has to be struck.

I will make a couple of observations that follow on from the earlier exchanges, when the amendments were discussed.

I am very grateful to Jackie Baillie for setting out the background to her amendment. I realised that the process was iterative. I am also grateful to John Mason for his observations on that. As I said during the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill scrutiny process, we were concerned then about lump sums being awarded and then not necessarily being used in the best interests of the individual concerned. There was also the risk of some of the lump sum being assigned to legal representatives, and the issue of the compensation that was needed to manage the costs over a lifetime was very much at the heart of what we sought to achieve. A balance has been struck through Jackie Baillie’s amendment to ensure that the pursuer’s needs, interests and wishes are properly respected and reflected in any judgment that the court comes to as a result of the process.

The other concern related to amendment 9. I will not rehearse that, but I was slightly concerned about what the minister set out in response to a recent parliamentary question from Alex Cole-Hamilton, which bears repeating. She said:

“The Scottish Government expects that the UK Government will continue to cover the costs arising from the change in the discount rate to the extent that the rate in Scotland is in line with the rate in England and Wales. The Scottish Government will continue to pass this funding to the NHS in Scotland.”—[Written Answers, 13 March 2019; S5W-21903.]

It is not entirely clear to me how the shortfall will be made up where those rates diverge.

I know that the minister is acting on actuarial advice, but I am interested to know what conversations have taken place with her health colleagues. It would also be interesting to know why an updated financial memorandum was not published ahead of stage 3.

I recognise that there is an opportunity to review the process. Some colleagues wish the rate to be somewhat higher than the minister proposed and others are concerned that it has increased since stage 1. There is a balance to strike and it is impossible to get the approach absolutely right in every instance, but there are concerns about the process that led to this point.

The bill is welcome. Like the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, it appears to strike the best balance. The bill ensures that people who pursue personal injury cases have the clarity, transparency and security that they need, and it has fairness very much at its heart. On that basis, Scottish Liberal Democrats will support the motion at decision time.

16:25  



John Mason (Glasgow Shettleston) (SNP)

I very much welcome the fact that the bill has got to stage 3. It seems that we have not had many major disputes over amendments this afternoon.

A lot of the bill is about getting the right balance between pursuers and defenders. We do not want to overcompensate or undercompensate but, to be frank, it is impossible to get every case exactly 100 per cent compensated. In fact, it can be argued that every case is inevitably overcompensated or undercompensated. We then have the question whether it is acceptable to have 50 per cent of people overcompensated and 50 per cent of people undercompensated. The Government feels that that is unacceptable and that we should reduce the numbers who are undercompensated, and I tend to agree.

Two contentious issues have been the further margin adjustment and the adjustment to cover tax and financial advice. The Economy, Energy and Fair Work Committee had conflicting evidence on both. The further margin adjustment is to be 0.5 per cent. The Association of British Insurers and others argued fairly persistently for a reduction to 0.25 per cent, and we also heard arguments for an increase, as even 0.5 per cent will leave substantial numbers undercompensated if they live longer or if inflation is higher, for example. On balance, I feel that 0.5 per cent is reasonable and gets the balance about right.

The figure on which the Government has moved is that for tax and financial advice. Again, the committee found it difficult to pin down witnesses, but the general feeling was that 0.5 per cent might not be sufficient. We particularly felt that, at the start of the process, immediately after a lump sum had been awarded, most recipients would be seriously beyond their comfort zone and would need substantial amounts of advice.

I am therefore comfortable that the Government has moved to 0.75 per cent. As Ash Denham said, she has acted on the most up-to-date advice. Gordon Lindhurst said that there was a risk of more than 100 per cent compensation, but some people—just fewer of them—will inevitably get less than 100 per cent. Labour and Daniel Johnson said the opposite—they feel that we should have gone further. There is a lack of information on what pursuers do with a lump sum, and maybe that needs to be looked at and studied more.

Part of me wonders how many such figures should be in primary legislation, which is more difficult to change, and how many could have been in regulations. However, we are at stage 3 now, so it is a bit late in the day to change that.

Another issue has been exactly where periodical payment orders sit in the scheme of things. They seem an attractive option to many of us, as they considerably reduce the risk—for example, from inflation or a longer life expectancy—that a pursuer is subject to. However, we heard evidence that some victims are against PPOs, perhaps because they do not trust the defender to pay or because they do not want any on-going relationship with the defender. We are not trying to tie the hands of the courts, but many of us did not feel that it would do any harm to give the courts a strong indication—as amendment 1 has done—of Parliament’s thinking that they should take seriously the pursuer’s wishes.

Today, at stage 3, we have a bill that will greatly modernise the previous system. Even though the committee’s witnesses did not agree on their detailed evidence, I think that they agreed that the proposal is a step in the right direction and that we should be legislating on this matter. In particular, the idea that investors would put all the money into gilts—traditionally, that has been the safer thing to do—has increasingly seemed unlikely in practice.

It is good that the Government has engaged on the points about which the committee had concerns, and that we have been able to reach a fair degree of consensus today. The Economy, Energy and Fair Work Committee does not deal with a lot of legislation, but I think that we have given the bill very thorough and fair scrutiny, and I am sure that we would be open to handling more legislation in future.

16:30  



Jamie Halcro Johnston (Highlands and Islands) (Con)

I welcome the opportunity to speak in this final stage of the bill. As members will be aware, I have been involved with the bill in each of its stages: I spoke at stage 1, I was involved in the committee at stage 2, and I am speaking in the stage 3 debate today.

The bill’s principles have remained constant. It is right that we make provision to compensate in full those who have suffered injuries, while recognising that overcompensation brings its own problems.

There has been a long wait for a fairer method of setting the discount rate for personal injury cases. Prior to the bill’s introduction, the existing method had simply not been reviewed for an extended period. As a consequence, the changes that we now see are significant.

When I spoke in the stage 1 debate, I highlighted the importance of the subject that we are dealing with, which bears some brief repetition. Although they seem technical, ultimately the rules that we are laying out will ensure that individuals—many of whom have been grievously wronged—are compensated. That compensation can mean that the vital support that someone needs to lead a full life is in place, or it can save them the extensive additional costs that their injuries may incur.

As the bill has progressed, there have been several positives. The stage 2 amendments have been broadly welcomed. They have created a better bill. The extension of the review cycle from three to five years is certainly an improvement. As members have mentioned, that mitigates a number of the concerns that had existed about gaming the system, which threatened to drag legal action out, creating problems not only for the defender, but for the courts. The requirement to consult ahead of reviews of the discount rate and the recognition of the need to consider changed approaches will improve the reviews and make them more worthwhile exercises.

At stage 3, we have had a number of technical amendments. I will not dwell too long on them. Amendment 9, which is the main Government amendment of substance, relates to the change to the adjustment for investment charges and taxation, raising it by 0.25 per cent to 0.75 per cent. The minister will be aware that, in our stage 1 report, the Economy, Energy and Fair Work Committee outlined that it was content with the approach previously presented in the bill relating to the two standard adjustments. The new change is not a minor one, and we do not have a full sense of the cost to businesses and the public sector of making it. In response to a written question to ministers that I submitted last year, it seemed as though they did not have a full picture of the cost of such damages claims to the public purse. In terms of its impact on local authorities, for example, we seem to have drawn a blank.

Much of the discussion on the bill was based on the previous 0.5 per cent adjustment and—as we might expect—that was the basis of the evidence that was taken by the committee. It is therefore disappointing that such an amendment was lodged at this time.

Jackie Baillie’s amendment 1 is the key change on periodical payments. I heard the discussion at stage 2 and appreciate that we have been presented with something quite different from earlier amendments. The amendment proposes that “special regard” be given to the pursuer’s wishes when a court is considering its approach to a PPO. Ultimately, that leaves the decision to the court to make, in light of individual circumstances. The committee heard evidence that pursuers may be concerned about being seen to be forced into future relationships with the defender through a PPO. Ultimately, it ought to remain a decision for the courts in light of individual circumstances, but amendment 1 provides additional scope for the pursuer to be at the heart of the decision-making process.

The bill is worth supporting. In many ways, it is overdue. I appreciate that ministers have taken some cognisance of the committee’s recommendations and the issues that have been raised in the chamber. That said, concerns remain—I think that they are legitimate—about how the changes will operate in practice, and questions remain, particularly on the substantive issue of the standard adjustment that I have spoken about.

16:34  



Jackie Baillie (Dumbarton) (Lab)

I am grateful for the opportunity to contribute to this stage 3 debate on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I congratulate the bill team, the minister and the committee clerks. I thank them and the Association of Personal Injury Lawyers for assisting our consideration of the bill. I think that this is the second bill that the minister has taken through Parliament, which is an achievement of which she should feel proud.

Some might regard the bill as very dry and technical, but it will have a profound effect on those who need to seek compensation. That said, I hope that the provisions of the bill will not apply to many people, because we are talking about people who experience catastrophic and life-changing events. It is clearly desirable that few people experience such trauma and its consequences, but the bill does an important job in focusing on dealing with compensation—how it is calculated and how it is paid.

During the committee evidence-taking stage, it was clear that, although pursuers and defenders had very different views on whether there was likely to be overcompensation or undercompensation, there was agreement about the need for fairness and clarity. The Scottish Government is clear that the policy intention is to achieve 100 per cent compensation for people to whom a personal injury award is made, and I think that we all agree with that objective.

Those who are responsible for paying out compensation—the defenders—believe that the Government is being overgenerous and that its assumptions about investment are far too cautious. For example, defenders suggest that investors will invest in equities and not just in fixed assets, on which there is a lower return. Those who represent pursuers believe that any notional portfolio of investment should be on a no-risk basis and that there might be a danger of undercompensation.

Having listened to the evidence, I think that the Scottish Government’s approach is right. It is not that there is no risk; it is that there is a low risk, which strikes an appropriate balance between defenders’ and pursuers’ interests. At the end of the day, most people with a personal injury award will not have considered an investment portfolio previously. They are likely, as most of us would be, to err on the side of caution.

There might still need to be further work on the standard adjustment for financial advice and tax, but I recognise that we have pushed the Government further than it was originally comfortable going. As I said in the stage 3 proceedings on amendment 9, I welcome the minister’s move to a rate of 0.75 per cent. That is an increase of 0.25 per cent on the previous figure, but I will take it. The standard adjustment is under consideration by colleagues south of the border in the Ministry of Justice and the United Kingdom Government. I was therefore ever so slightly bemused by the Scottish Tories arguing against the position of the UK Tories, before they all decided to abstain after someone clearly phoned the front bench—but there we go.

There is no doubt that the change is a step in the right direction, but, after considering the evidence that the committee heard, we should acknowledge that it might not be enough. A range of reputable financial advisers who are experts in personal damages pointed to a much higher level of costs for tax and advice. I will not rehearse the arguments again, other than to say that even the Government actuary suggested a range of costs, from 0.5 per cent—yes, that is at the lower end—up to 2 per cent. Therefore, I ask that the minister ensures that the issue is kept under close review and that the figure is adjusted with experience, should that become necessary.

I will touch very briefly on periodical payment orders. I welcome the Government’s support for my amendment 1. Angela Constance and I pursued the matter in committee and during the stage 1 debate in the chamber. Quite simply, my amendment ensures that, at the end of a lengthy and often distressing court process, the views of the pursuer will be given due consideration by the judge, before they decide whether to make the award as a periodical payment or as a lump sum.

Overall, I hope that the bill will make a positive difference to the experience of people who have pursued a claim for personal injury. I will therefore be pleased to support the bill at decision time.

16:39  



Angela Constance (Almond Valley) (SNP)

Throughout the parliamentary process for the bill, it has been repeated, including by Jackie Baillie, that although the number of people who will be directly affected by it will—I hope—be small, the minister has brought before us a crucial bill. As I said during the stage 1 debate, the bill is crucial to those who have suffered the consequences of, for example, an accident at work, a birth that did not go to plan or a lack of care or negligence by an individual or organisation, leaving individuals to live with the tragedy of no longer being who they were meant to be or not being able to lead the life that they had worked for or dreamed of.

As Liam McArthur pointed out, while this is a discrete bill, it is also part of a wider package of reform.

I will focus principally on periodical payment orders. As we know, the committee heard a substantial amount of evidence about the risks that victims of personal injury bear in relation to compensation, particularly if it is received in a lump sum. We can be confident that the legislation that is now before the chamber is much improved—it was good to begin with but it is improved as a result of stages 2 and 3. However, no matter how good the bill is when it comes to calculating an award for damages, particularly for future loss, it is fair to say—as John Mason has often said—that that is not, and never will be, an exact science. The risk of undercompensation can be minimised, but it can never be removed entirely.

It is important to remember that damages are not surplus funds. They are meant to replace loss of earnings and provide for future care costs. Professor Wass gave very powerful evidence, advising the committee of inflation-busting care costs, the unpredictability of life expectancy and the costs of specialist services and accommodation. All of that points to the advantages of a periodical payment order. The bill will, for the first time, give the courts the power to impose periodical payments—crucially, where the continuity of payments is secure.

However, the committee also heard evidence from Patrick McGuire from Thompsons Solicitors and others, who expressed concern about a victim potentially being forced to accept a PPO and how disempowering that could be for someone who has already suffered a catastrophic injury and had to endure a lengthy court process. The minister herself acknowledged that some pursuers will want a clean break from those responsible for their injury. Jackie Baillie rightly pointed out that, in the future, we will see PPOs combined with a smaller lump sum.

The committee recommended that the Government lodge amendments to give more weight to the views of the injured person. During stage 1, the minister gave a very clear commitment to take matters forward. I am pleased that she has done that, in collaboration with other members, particularly Jackie Baillie. It is apt that the matter was addressed in the first and subsequent amendments considered during today’s stage 3 proceedings. The wording in amendment 1 that the court must have

“special regard to the pursuer’s needs”

is apt and somewhat poignant.

I welcome the fact that the minister found a way forward to ensure that the voice and preferences of those who have suffered injury are listened to and given appropriate weight, and that therefore we are not adding to the feeling of powerlessness that is felt too frequently in the lives of those with significant disabilities, illness or injury. As the minister highlighted, the bill’s objectives are to be clear, transparent and fair. In my view, the bill meets those objectives, and I congratulate the minister and her bill team.

16:43  



Daniel Johnson

I will try hard not to repeat the arguments I have already laid out and will touch on some of the points that have been usefully made in the debate.

John Mason set out a good analysis at the beginning of his remarks, asking what we want to achieve. There are two approaches—trying to get it right every time, which is an impossibility, and minimising the situations in which there is undercompensation. Ultimately, that is the approach that the Government has taken, and it is undoubtedly the right approach. If we seek to average off, there will be individuals who, through no fault of their own, are disadvantaged. We must have a regime that seeks to avoid that. The fact that some of those representing defenders say that the Government has been overgenerous is—dare I say it?—possibly a good sign. We cannot have a system whereby the net result is right; it has to be a system whereby we get it right more often than not. That is why, throughout the scrutiny of the bill, I have asked not just what a reasonable person might do, but what a more vulnerable person might do under such circumstances.

The most relevant question that John Mason posed was about what pursuers do with the money that they receive. We do not know. That will have to be monitored and reviewed, because, as Jackie Baillie pointed out, we cannot expect those who are awarded damages to suddenly become investment experts and to always make the right investment decisions. The bill involves a series of balances, and that might be the most important one. We must continue to view such people as vulnerable people. They cannot be expected to become investment experts overnight, which is why it was no surprise that amendment 9 was a matter of some debate. It is important that the issue is kept under review.

I turn to the point about public bodies and what happens when there is undercompensation or overcompensation. In both situations, our public bodies are the ultimate guarantors. We should be concerned about situations in which there could be overcompensation, with the result that public bodies such as the NHS might have to fork out higher payments. However, with undercompensation, there is a risk that those same bodies will have to meet the needs of people who are undercompensated. There is a risk that the shortfall that could arise would have to be met by social services and health services, which would have to support people in that position because they did not have enough money from the damages that were awarded. It is far from a one-sided situation; there are two sides, which need to be balanced.

Liam McArthur rightly highlighted two key interactions. We must be mindful of the changes that are being made by the UK Government—that is true of front-bench members of the UK Government in relation to the amendments that they seek to support or otherwise. To a degree, the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill and the Damages (Investment Returns and Periodical Payments) (Scotland) Bill will work in consort. They both deal with how private individuals can seek redress through the courts for situations that are not their fault but which will have a significant impact on them.

We cannot have another regime like the one that we have had, whereby the world moves on and the legislation is unable to keep up. It is clear that, with the welcome five-year review provision, the Damages (Investment Returns and Periodical Payments) (Scotland) Bill has the necessary flexibility and the ability to keep up, but we must make sure that all aspects, including all the calculations of discounts, are reviewed, because the world moves on. Where those discounts are baked into the legislation, there will have to be careful consideration of how they are updated.

Ultimately, the bill will help those who have suffered a great deal, and we hope that it will be a great help to people who pursue compensation through the courts.

16:48  



Dean Lockhart (Mid Scotland and Fife) (Con)

I am very pleased to contribute to this afternoon’s stage 3 debate on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I thank those who provided submissions to the Economy, Energy and Fair Work Committee, the witnesses who attended our meetings and the committee, the minister and her team for the constructive approach that has been taken.

As other members have said, although the bill is technical in nature, it is also very important. It provides for a new statutory regime to calculate the personal injury discount rate that applies to compensation awards in personal injury cases. The Scottish Conservatives welcome its passage. As Angela Constance said, although the discount rate will apply in only a relatively small number of cases, the impact on the individuals and families concerned will be life changing. The additional transparency and clarity that the bill will provide are to be welcomed.

Under Scots law, the role of compensation is to restore the injured party—to the extent that a financial award can—as closely as possible to the position that they were in before they were injured. When they assess the amount of a lump-sum award, courts take into account the net rate of investment return that the injured person might expect to receive from a reasonably prudent investment of that lump sum. That is what is referred to as the discount rate. As virtually every member has said, that calculation is not always a science. However, despite having some reservations in relation to the investment charges adjustment, which was the basis of our discussion of amendment 9, the Scottish Conservatives will support the bill at decision time.

Before the bill’s introduction, there was general consensus among defender and pursuer groups on the need to update the system, to increase the availability of periodical payment orders, to give courts further powers to introduce PPOs and to have regular discount rate reviews. I am pleased that, after revisions at stages 1 and 2, the bill now deals with those issues.

We are pleased that the minister lodged amendments at stage 2 to change the review cycle for the notional portfolio to every five years instead of every three years. It is also important that, in changing to a five-year cycle, the Scottish Government recognised the nature of fast-moving investment markets and changes to investment practice within that period, introducing a formal duty to consult stakeholders as part of that review cycle. I am grateful to the minister for supporting my amendment to that effect, as it has the advantage of making the legislation clearer and more transparent, which is one of the bill’s objectives.

There are still some concerns that the notional portfolio that is set out in the bill is too cautious—that it is too highly invested in fixed assets, which offer a lower return than investments in equities. Likewise, some stakeholders still believe that the Scottish Government is being cautious in its approach to having a 0.75 per cent standard adjustment for investment charges and taxation. We have heard the arguments on that before, but it must be seen in the context of the further margin adjustment of 0.5 per cent, which acts as an additional buffer to avoid undercompensation. We understand the Government’s approach to legislating in favour of a risk of overcompensation rather than undercompensation, but, as I mentioned, we have to recognise that that comes at a cost.

Some members—including Liam McArthur—have explored the implications of what those costs might be to the NHS in Scotland and other bodies that self-insure. Costs could also be borne by small businesses when claims exceed their insurance limit of indemnity.

It will be important for the Scottish Government to assess the bill’s operation and to continuously assess the change to the standard adjustment and other mechanics of the bill to make sure that the bill and those changes do not have unintended consequences.

The Scottish Conservatives will vote for the bill at decision time. We welcome many aspects of it and we hope that it will work in the interests of all stakeholders.

16:52  



Ash Denham

I thank those members who have contributed to the debate and I would like to take a moment to address some of the points that have been raised.

Gordon Lindhurst asked for more detail on what “special regard” would mean for the courts in practice. Of course, it will be for the courts to interpret and apply that provision in the circumstances of a particular case. It is not appropriate for us to go too far in speculating on how that provision will be applied in practice. I hope that I have reassured the member on that point.

Gordon Lindhurst and Liam McArthur raised the point about the difference between the discount rate in Scotland and the rate in England and Wales and what effect that might have on funding for the NHS. Until the respective reviews are completed, we will not know whether there will be different rates. In the financial memorandum, which was specifically mentioned by Liam McArthur, we set out the position as clearly as we can at the moment.

We should remember that the impact of the discount rate can be mitigated by the use of periodical payments. The provisions in the bill that relate to PPOs will be helpful to bodies such as the NHS, which will be deemed a secure funder.

Daniel Johnson and Jackie Baillie mentioned amendment 9. I reiterate that the amendment was the result of advice given to the Scottish Government after analysis by GAD of the most up-to-date evidence available. The rate will be subject to review ahead of each regular rate review and—to reassure Daniel Johnson—it can be adjusted by regulations if the evidence points to the need to do so. In that way, the legislation is, in a sense, future proofed, because it can be updated by regulation.

I note John Mason’s comments on amendment 9 and welcome his general comment on the modernising effect of the bill.

Finally, in her contribution, Angela Constance reminded us of the crucial fact that damages are not surplus funds. That was a point well made.

The bill may seem dry and technical, but often it is a detailed and considered approach that is precisely what is needed to address the complexities and challenges that arise when developing a broad solution for what are all individual and unique cases. Although fair and full compensation is at its heart, nevertheless the bill aims to strike a balance, remembering that overcompensation is to the detriment of the defender and their insurer. If the balance is tipped too far, ultimately it is the general public who pay, either through funding our public services, such as the NHS, or by paying more for their insurance premiums.

Equally, where their funds run out sooner than anticipated, the pursuer will usually have to fall back on the state for their care and possibly other needs. That point was raised by Daniel Johnson. I hope that it is clear that we have listened carefully to what has been said by stakeholders, the committee and other MSPs during stages 1 and 2. I have been pleased to support the committee’s amendments at stage 2; we have agreed some minor amendments to those today to ensure that they work as intended.

We know that there are many reasons why a pursuer may not want to have any part of their damages paid through an order for periodical payments. Those reasons might be very practical, for example if there is an element of contributory negligence involved, and therefore the damages award has been accordingly reduced. It may be that the investment of a lump sum is the most viable way of making up any shortfall, even if there are risks associated with that strategy. Members spoke eloquently about the powerlessness that a pursuer might feel should a PPO be imposed against their wishes. I have sympathy with that, so I was happy to meet Jackie Baillie on that point to discuss the issues and see whether we could reach an accommodation on what would be an appropriate amendment to the bill, bearing in mind that there were legal constraints around what could be done. I think that Jackie Baillie has got the right balance in her amendment in that regard.

Overall, the bill has picked a very careful path through the competing demands of pursuer and defender interests. It was defender interests, supported by the committee in its stage 1 report, who pressed for change in the frequency of review from three years to five years. I lodged some amendments of a minor nature that were agreed to today that respond to points raised by the Association of British Insurers after its scrutiny of the bill, and I was pleased to lodge amendments that were agreed to at stage 2 that ensure that where proceedings to vary an order for periodical payments are raised, the pursuer should continue to receive the protection of qualified one-way costs shifting, as that is in the spirit of the legislation as it relates to personal injury actions.

The amendment debated earlier that increased the standard adjustment for tax and investment management costs simply preserves the interdependencies and therefore the integrity of the methodology for reaching a new rate and ensures that it remains robust and fit for purpose.

On that note, it would be helpful to focus on one of those provisions in particular. I would like to talk about the hypothetical investor, because that is the constant in the bill. Any changes to the investment portfolio, whether they be of the asset type or the percentage allocation, can be made only where the end result is that the notional portfolio remains suitable for investment by the hypothetical investor. The characteristics of the hypothetical investor have been carefully formulated to capture the likely investment objectives of a pursuer.

Importantly, the bill has been future proofed so that the Scottish ministers have the tools and flexibility to ensure that all the components necessary to arrive at a rate, or rates, can be kept up to date. That will allow ministers to ensure that the legislative framework for setting the rate remains appropriate.

Finally, I repeat my thanks to all those who gave evidence to help to improve the bill during its parliamentary passage, and I commend the motion in my name.

The Presiding Officer (Ken Macintosh)

That concludes proceedings on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill at stage 3.

Final vote on the Bill

After the final discussion of the Bill, MSPs vote on whether they think it should become law.

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Final vote transcript

The Presiding Officer (Ken Macintosh)

There is only one question to be put as a result of today’s business. Because it is a question on a bill at stage 3, we will have a division. The question is, that motion S5M-16394, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill at stage 3, be agreed to. Members should cast their votes now.

For

Yousaf, Humza (Glasgow Pollok) (SNP)
Wightman, Andy (Lothian) (Green)
Whittle, Brian (South Scotland) (Con)
White, Sandra (Glasgow Kelvin) (SNP)
Wheelhouse, Paul (South Scotland) (SNP)
Wells, Annie (Glasgow) (Con)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Tomkins, Adam (Glasgow) (Con)
Todd, Maree (Highlands and Islands) (SNP)
Swinney, John (Perthshire North) (SNP)
Stewart, Kevin (Aberdeen Central) (SNP)
Stewart, David (Highlands and Islands) (Lab)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Smyth, Colin (South Scotland) (Lab)
Smith, Liz (Mid Scotland and Fife) (Con)
Simpson, Graham (Central Scotland) (Con)
Scott, John (Ayr) (Con)
Sarwar, Anas (Glasgow) (Lab)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Rumbles, Mike (North East Scotland) (LD)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Robison, Shona (Dundee City East) (SNP)
Rennie, Willie (North East Fife) (LD)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Neil, Alex (Airdrie and Shotts) (SNP)
Mundell, Oliver (Dumfriesshire) (Con)
Mitchell, Margaret (Central Scotland) (Con)
McNeill, Pauline (Glasgow) (Lab)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
McKee, Ivan (Glasgow Provan) (SNP)
McDonald, Mark (Aberdeen Donside) (Ind)
McArthur, Liam (Orkney Islands) (LD)
McAlpine, Joan (South Scotland) (SNP)
Matheson, Michael (Falkirk West) (SNP)
Mason, Tom (North East Scotland) (Con)
Mason, John (Glasgow Shettleston) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Macdonald, Lewis (North East Scotland) (Lab)
MacDonald, Angus (Falkirk East) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lochhead, Richard (Moray) (SNP)
Lindhurst, Gordon (Lothian) (Con)
Leonard, Richard (Central Scotland) (Lab)
Lennon, Monica (Central Scotland) (Lab)
Lamont, Johann (Glasgow) (Lab)
Kidd, Bill (Glasgow Anniesland) (SNP)
Kerr, Liam (North East Scotland) (Con)
Kelly, James (Glasgow) (Lab)
Johnstone, Alison (Lothian) (Green)
Johnson, Daniel (Edinburgh Southern) (Lab)
Hyslop, Fiona (Linlithgow) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Haughey, Clare (Rutherglen) (SNP)
Harvie, Patrick (Glasgow) (Green)
Harris, Alison (Central Scotland) (Con)
Harper, Emma (South Scotland) (SNP)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Greer, Ross (West Scotland) (Green)
Greene, Jamie (West Scotland) (Con)
Gray, Iain (East Lothian) (Lab)
Grant, Rhoda (Highlands and Islands) (Lab)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Golden, Maurice (West Scotland) (Con)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Finnie, John (Highlands and Islands) (Green)
Findlay, Neil (Lothian) (Lab)
Fee, Mary (West Scotland) (Lab)
Fabiani, Linda (East Kilbride) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Dugdale, Kezia (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dey, Graeme (Angus South) (SNP)
Denham, Ash (Edinburgh Eastern) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Crawford, Bruce (Stirling) (SNP)
Corry, Maurice (West Scotland) (Con)
Constance, Angela (Almond Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Chapman, Peter (North East Scotland) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Carlaw, Jackson (Eastwood) (Con)
Campbell, Aileen (Clydesdale) (SNP)
Burnett, Alexander (Aberdeenshire West) (Con)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Briggs, Miles (Lothian) (Con)
Bowman, Bill (North East Scotland) (Con)
Bibby, Neil (West Scotland) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Ballantyne, Michelle (South Scotland) (Con)
Balfour, Jeremy (Lothian) (Con)
Baker, Claire (Mid Scotland and Fife) (Lab)
Baillie, Jackie (Dumbarton) (Lab)
Arthur, Tom (Renfrewshire South) (SNP)
Allan, Alasdair (Na h-Eileanan an Iar) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Adam, George (Paisley) (SNP)

The Presiding Officer

The result of the division is: For 112, Against 0, Abstentions 0.

Motion agreed to,

That the Parliament agrees that the Damages (Investment Returns and Periodical Payments) (Scotland) Bill be passed.

The Presiding Officer

The motion has been agreed to and therefore the Damages (Investment Returns and Periodical Payments) (Scotland) Bill is passed. [Applause.]

Damages (Investment Returns and Periodical Payments) (Scotland) Bill as passed

This Bill was passed on 20 March 2019 and became an Act on 24 April 2019. 
Find the Act on legislation.gov.uk

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