The Personal Injury Discount Rate Consultation

Submissions to the Ministry of Justice Consultation – ‘Personal Injury Discount Rate – How It Should Be Set in The Future,’ closed on the 11th May 2017.

No doubt there will be a range of views and opinions on this very important consultation, and we now await the outcome and feedback from the exercise. It is clear, given the magnitude of the recent change in the discount rate, that there will be polarised views driven by claimant or defendant interests.

It will also be of note to see how the timing of the outcome of this consultation process is affected by recent political events, principally the General Election announcement.

At Nestor, we look forward to the outcome of the consultation. As you would expect, we provided our contribution to the consultation which you can read here. Our contribution, co-authored by our specialist directors – Jennifer Stone, Andrew Sands, Nick Leech and Nick Martin – has been submitted and, in summary, our key points are as below:-

  • As a starting point, we do not consider that the current law on setting the discount rate is defective. We believe that the Wells principles of linking the quantum of future loss damages to low, or no risk investments is well-judged and right for vulnerable claimants. It has always been our view that personal injury claimants are not ‘ordinary investors’ and any departure from Wells ought to be resisted.
  • Although we accept that there are certain practical issues with the use of Index Linked Government Stock (ILGS) as an investment vehicle, we do not believe that these issues are significant enough to break the guiding principle of Wells. It is our view that, in the absence of anything safer than ILGS, any departure from the Wells principles would be unfair to claimants.
  • On the point of how claimants actually invest their damages, we believe that the question is erroneous in the context of Wells. How claimants actually invest their damages is irrelevant to the calculation of their damages. The fact is, given that the 2.5% historical rate was so wrong for so long, claimants were forced to take risk with their damages because of the inaction over the discount rate for so many years. The very size of the recent reduction illustrates that it has been wrong over a very lengthy period.
  • It is our view that, if a claimant chooses to invest their future loss personal injury damages in riskier assets, then that is up to them – as long as they have taken expert and sensible advice. It is their money. This, we believe, is also an irrelevant point when considering the Wells principles which are more concerned with the initial calculation of damages, rather than where a claimant actually invests.
  • We strongly support the greater use of Periodical Payment Orders (PPOs). Nestor has long argued that PPOs ought not to just be the preserve of the larger, more catastrophic personal injury claims. Within our response, we suggest that consideration be given to the introduction of a Practice Direction, which further compels the Courts and practitioners to consider earlier in the process whether a PPO is appropriate. In the majority of future loss claims, a PPO is more often than not in the claimant’s best interest.
  • We believe that there ought to be one discount rate for all, irrespective of the type of claim. We also do not believe that personal injury claimants ought to be assumed to be willing to take more investment risk with their damages if they opt to take a lump sum over a PPO. It would be unfair the penalise a claimant if they, for whatever reason, opted to accept a lump sum. We support greater use of PPOs, but not as a means of disadvantaging the claimant.
  • Our view is that the power to set and review the rate needs to remain the remit of the Lord Chancellor, under S1 of the Damages Act. That said, we also suggested that the Lord Chancellor ought to be compelled to have a fixed review period. The Lord Chancellor ought to be required to review the data on ILGS biennially and announce the outcome on a fixed date. The injustice presently is that the power to set the rate lies with the Lord Chancellor, but there are no formal criteria as to when, or why. It is the lack of meaningful action on the rate in the past few years, which has caused recent dramatic events.

Clearly, we await with anticipation the feedback from the Ministry of Justice on the discount rate consultation, and we are hopeful that many practitioners and interested parties have provided their views.  As ever, our team of specialist directors are here to help and assist personal injury claimants, both pre and post-settlement. Our range of services, expertise and investment advice is available to all, so please get in touch.

In our next newsletter, we will be providing further feedback on our views on discount rates and, in the meantime, if you would like to read our full response to the Ministry of Justice consultation, please click here.