Jersey draft legislation shines a light on discount rates
Jersey could provide an early indication as to the level the discount rate could be set at in England and Wales. On 24 October 2018, the Chief Minister of the States of Jersey lodged the Draft Damages (Jersey) Law 201 (Draft Law), which deals with damages in high value injury claims, following concerns about the discount rate and periodical payment orders (PPOs) arising from an ongoing abuse case.
This case involved the systemic abuse of two sisters living in the family home, between 1999 and 2008. During this period various family members and strangers subjected the sisters to sexual, physical and psychological abuse. The consequences of the abuse were devastating and the sisters suffered significant psychological injuries. The total damages claimed is over £220 million on a lump sum award basis. Liability was admitted, but the parties were in dispute over the value of the claims.
The main area of contention was the nature and cost of care, and what discount rate should be applied, as Jersey is not bound by the discount rate set by the Lord Chancellor. Also, as Jersey operates as a separate legal system to England and Wales, it currently has no express provision that allows a court to impose a PPO.
It will be appreciated that the sums in these claims will exceed limits of indemnity provided by insurance, and would likely be beyond the means of the Jersey Government, particularly if then applied to other cases. As a result, the Attorney General of Jersey intervened in the case and presented arguments relating to PPOs. The issue of whether Jersey customary law permits the making of PPOs remains outstanding and in the meantime, the Draft Law was lodged.
The Draft Law proposes a discount rate be set and for courts to be able to award damages by periodical payment orders (PPOs) in Jersey.
The proposed discount rate is based upon the consultations launched jointly by the Ministry of Justice and the Scottish Government. Included within those consultations was a detailed analysis from the UK Government Actuary’s department into investment returns, which concluded that in personal injury cases, claimants’ adopt a ‘low-risk’ strategy towards investment rather than a ‘very low risk’ or ‘no risk’ strategy.
The proposed discount rate based on those findings are:
- +0.5% - when the lump sum covers a period of up to 20 years
- +1.8% - when damages cover a period of more than 20 years.
The Draft Law also provides for opportunities to change the discount rate in the future.
The provisions made for PPOs are that they can only be made if future payments are secure. They need to be made against either the Minister, an insurer who is backed by a sufficiently strong statutory compensation scheme, or where payment is guaranteed by the Minister of Treasury and Resources, except when the order is made against a Minister or the health service.
The Draft Law also made reference to ongoing litigation. To those cases, the Draft Law would allow courts the power not to apply the discount rate should it disproportionately interfere with the case.
The Draft Law is due to be debated on 4 December 2018.
There is an interesting footnote to the proposed legislation that effectively precludes the possibility of a negative discount rate on public interest grounds. In theory therefore, where inflation exceeds investment returns a negative rate would help to ensure adequate compensation. However the States of Jersey took the view that it was necessary to ensure appropriate balance between the right of the claimant to adequate compensation and the public interest. The conclusion was that it would not be in the public interest for damage awards to be ‘recession-proof’ when all other areas of public provision and private services were not.
The Draft Law is of further significance to England and Wales in respect of the proposed PPO mechanism. The draft wording does not limit the number of applications that can be made to vary a PPO, although an application can only be made if there is a material change of circumstances. Under current English law, variation is only possible once in the lifetime of an Order.
Jersey’s interpretation of the UK consultation suggests a fairer outcome when the new discount rate in England and Wales is finally announced, and is likely to also have a bearing on the new Scottish discount rate, as the Jersey decision, based on the Actuaries calculations, showed little difference between the UK and Jersey.
Charles Martin is instructed by the excess insurers in the case outlined above.