The MoJ’s Call for Evidence in respect of dual or multiple discount rates closed on 11th April 2023, having begun on 17th January 2023.
Chase de Vere’s response applies the Personal Injury & Court of Protection team’s extensive expertise in advising on allocation of damages between periodical payments and lump sums, and lifetime financial planning for our seriously injured clients.
The structured series of 23 questions posed by the MoJ can be found at Personal Injury Discount Rate: Exploring the option of a dual/multiple rate – GOV.UK (www.gov.uk).
Perhaps somewhat unconventionally, we sought to answer the question relating to Periodical Payments out of sequence, addressing this before anything else, such is our conviction regarding this particular issue.
The question reads:
Question 21: The Government remains interested in exploring the use of PPOs in relation to high value personal injury settlements. We would therefore welcome any submissions, data and/or evidence stakeholders may have in relation to the effective use of PPOs.
The Independent Financial Advisers in the Chase de Vere PICOP team are regularly instructed as expert witnesses to provide advice on the viability of Periodical Payments and the extent to which it is appropriate to allocate between a Periodical Payments Order (PPO) and a lump sum. In essence, the purpose of the evidence to the Court, when it is provided, is to establish why claimants should ‘opt-in’ to having periodical payments.
In our view, this system ought to be inverted.
We consider that the default position ought to be that for all high value personal injury claims, the claimant will have periodical payments to meet their most important future expenses, usually care and case management, but potentially other future losses in addition. Should there be good reasons to ‘opt-out’ of this arrangement (and there will be numerous situations where there are good reasons) expert financial evidence should be provided to the Court.
The greatest risk facing claimants receiving a lump-sum only settlement is under compensation. Whilst this risk is what a move to dual/multiple rates would seek to reduce, it can only realistically be expected to have limited success in doing so and can never replicate the real-life systemic risks inherent in managing investment portfolios. The risk of under compensation (and also, from the defendant’s perspective, of overcompensation) can be far better managed by compensating for future losses by way of PPOs, as by their nature PPOs are paid for as long as the claimant lives and are not affected by the prevailing investment climate throughout the term of payment.
Compensating by way of PPO is therefore more likely to result in achieving the overarching objective of restorative justice, which is to say that the personal injury damages reinstate the claimant to their ‘but for’ position. We are, therefore, keen to see amendments to the Civil Procedure Rules (CPR) that invert the system towards a presumption of periodical payments in high value cases.
Notwithstanding our clear and stated preference for PPOs to be used in the majority of cases, we would of course welcome any changes to the PIDR mechanism that improve outcomes for claimants. Whether such improvement can be brought about by implementing a system of dual, or multiple, discount rates is debatable and remains to be seen.
The PIDR Call for Evidence outlines the few international jurisdictions that currently adopt such an approach, whether based on duration or head of loss. As one would expect, these alternative models each have relative advantages and disadvantages when compared to the single rate presently employed in the UK Courts.
It cannot be expected that any particular model; whether single, dual or multiple rate, duration-based or head of loss-based, or any combination of these variables, will ever accurately compensate all claimants, all of the time. All models are ultimately based upon forecasts and economic uncertainties that stretch decades into the future, and by that nature condemned to being inaccurate in the majority of, if not all, instances.
That said, in the event that a change to the PIDR mechanism is made, either following the next review of the rate in 2024, or at any time thereafter, we would like to see a fairer system that allows for claimants with short life expectancies/periods of loss, and those with longer periods of loss, to have their short term needs met in such a way that they are not faced with the requirement to commit that element of their damages to the bond or equity markets. This requires that any short-term rates are properly reflective of the likely return outcomes for claimants (i.e. returns more aligned with cash deposits), demanding a realistically low PIDR in respect of short term needs. Moreover, it is our opinion that the allowance for tax and charges within the PIDR needs to be revisited; the present figure remains far too low.
In Chase de Vere’s opinion it is vital that any changes to the PIDR do not make Periodical Payments less attractive than the lump sum equivalent. We could not agree more with the words of Lord Christopher Bellamy KC when he states in the foreword to the Call for Evidence:
We should always remember that these claims are made by real people, many of whom suffer life-changing injuries. People who depend on their compensation to support them through the significant changes they will need to make should be properly supported for the duration on their injury or, in the most severe cases, for the rest of their lives.
This exemplifies the significance of the issue at hand, and the importance of ensuring that any system of awarding damages, whether by way of PPO, lump sum, or a combination of these, is as robust and fit for purpose as it can be.
Chase de Vere PICOP is here to support you and your clients. We will be happy to have a no obligation discussion, or e-mail us at: picop@chasedevere.co.uk or visit our website at www.chasedeverepicop.co.uk