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Published 11 agosto 2020
DAC Beachcroft, in addition to working alongside the ABI, FOIL and LSNI on their various responses, is preparing its own response to the Department of Justice’s Consultation paper on the setting of the Personal Injury discount rate in Northern Ireland. Consultation opened in June and all responses must be submitted by 14 August 2020.
The consultation paper acknowledges that under compensation is not fair on claimants who will be unable to meet all future needs and requirements whilst over compensation has an obvious negative effect on defendants, felt far more widely than just the individual defendant, with higher awards of damages ultimately funded by businesses and consumers through higher insurance premiums, and by the taxpayer through high payments made by health service and other public bodies.
Northern Ireland remains the only UK jurisdiction in which the discount rate still has to be set under an unamended Damages Act and in accordance with the principles established in Wells v Wells.
The consultation seeks the views of interested parties with regard to the methodology applied in setting the PIDR in various other UK jurisdictions including England, Wales and Scotland; and in relation to which model is considered to be most appropriate for Northern Ireland. The Department has indicated that either of the legislative frameworks in England & Wales and Scotland should suffice but it has invited views from stakeholders including suggestions for alternative framework models.
The key differences between the two recently implemented models above are that the assumed portfolio of investments and the adjustments to be made for taxation and managements costs are prescribed in Scotland but are left to judgment in England and Wales.
The framework for setting the rate for Scotland is provided at section B1 of Schedule B1 to the Damages Act 1996 (as inserted by the Damages Investment Returns and Periodical Payments Scotland Act 2019). The Government Actuary, sets the rate. He or she may consult or seek advice and must have regard to the views of those whose views have been sought. The rate is not brought into operation by secondary legislation but by the Government Actuary’s report being laid by the Scottish ministers before the Scottish Parliament. In practice, courts in Scotland must have regard to the rate set by the Government actuary but a court may take a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question.
The framework is provided for at section A1 of Schedule A1 to the Damages Act 1996 (as inserted by the Civil Liability Act 2018). The Lord Chancellor prescribes the rate in secondary legislation, having consulted an expert panel and the Treasury, consisting of the Government actuary, an economist, a person with experience of managing investments and a person with experience in consumer matters as relating to investments. Whilst the rate is prescribed in secondary legislation the court may take a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question.
We endorse the views of the ABI that the methodology of the England & Wales model is the more appropriate of the two models for this jurisdiction. However, in doing so, we are ever conscious of the political background in Northern Ireland and the ever present concern of further government hiatus which would delay the much needed reform to the discount rate.
The drawbacks of the Scottish model are that:
(a) the under or over compensation of Plaintiffs;
(b) The cost of securing an appropriate level of insurance; consumers in Northern Ireland are already burdened with the highest motor premiums in the UK. A reduction in the chosen indemnity levels on insurance policies for businesses – in order to make short term savings, e.g. reduced premiums. As a consequence, Defendants will find themselves under insured thereby exposing Defendants to personal liability or Plaintiffs to situations where they are unable to recover 100% compensation.
(c) The proposed change will impact significantly on small and micro businesses which are less able to absorb the inevitable increases to insurance premium costs. Such businesses also face the risk of being under insured as current policies will have been set at a level which is highly unlikely to be sufficient to meet the significantly higher awards which will come about from a -1.75% discount rate. Business failure and closures will likely follow.
(d) A drop in the willingness of insurers to work within the Northern Ireland market- resulting in the withdrawal of major insurers and specialist managing general agents from the N.I. market leading to a reduction in the number of available insurers, reducing competition and fuelling pressures to increase insurance premiums.
(e) Decreased uptake of optional insurance by both business and voluntary organisations
(f) The difference in cost of claims in Northern Ireland - General damages in NI were increased by, on average, 20 per cent in February 2019, further extending the gulf in valuations of injuries between the jurisdictions. This means that even in the most modest cases for vehicle damage and minor injuries defendants and insurers are paying significant legal damages.
(g) The effect on the health budget. Of particular concern is the effect on already-struggling local health trusts as the costs of clinical negligence claims soar.
DAC Beachcroft (N. Ireland) LLP suggests that a Northern Ireland framework might predominantly follow the methodology of the England & Wales model, whilst moulding certain aspects of the Scottish. One suggestion is that a mathematical exercise would be carried out by the Government Actuary (having fully consulted with all interested parties) with the Minister of Justice having an over-riding discretion to approve or vary the rate (again, only after having consulted on any proposed variation away from the rate proposed by the Government Actuary).
Such a model should be subject to the following caveats:
We will continue to work with all interested parties to ensure that the concerns and worries of our clients around the new setting of a discount rate for Northern Ireland are fully voiced and put forward.
The consultation document can be found here:
If you would like further information on this please do not hesitate to contact Louise Butler or Catriona McCorry of the DACB Belfast office.
+44 (0)289 041 2834
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