Economy, Energy and Fair Work Committee

Meeting date: Tuesday, October 30, 2018

Official Report 788KB pdf

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Damages (Investment Returns and Periodical Payments) (Scotland) Bill: Stage 1

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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

That is right.

We move to questions from Jackie Baillie.

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.

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.

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.

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.

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.

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.

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

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?

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.

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

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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.

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?

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.

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?

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.

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.

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

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.

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.

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.

Yes, that can be the case.

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?

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.

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.

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?

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.

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.

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?

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.

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

Yes.

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?

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.

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.

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.

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.

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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?

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.

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?

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.

Is everyone comfortable with that?

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.

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.

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.

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

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.

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.

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

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.

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

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.

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

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

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?

I do not have any empirical evidence of that.

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

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.

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

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

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

That goes for the others on the panel, too.

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.

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.

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.

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?

Yes.

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.

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

Yes.

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.

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?

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.

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.

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?

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.

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

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.

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.

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?

Not that I am aware of.

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  

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?

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.

What do you think those changes could be?

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.

Should there be a list of trigger points?

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.

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.

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.

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?

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.

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?

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.

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

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.

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

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.

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?

Nothing from me.

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—