Damages (Investment Returns and Periodical Payments) (Scotland) Bill: Stage 3

– in the Scottish Parliament on 19th March 2019.

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Photo of Christine Grahame Christine Grahame Scottish National Party

The next item of business is stage 3 proceedings on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. In dealing with the amendments, members should have the bill as amended at stage 2, the marshalled list and the groupings of amendments.

The division bell will sound and proceedings will be suspended for five minutes for the first division of the afternoon. The period of voting for the first division will be 30 seconds. Thereafter, I will allow a voting period of one minute for the first division after a debate.

Members who wish to speak in the debate on any group of amendments should press their request-to-speak buttons as soon as possible after I call the group. Members should now refer to the marshalled list.

The Deputy Presiding Officer:

Group 1 is on periodical payments: pursuer’s wishes. Amendment 1, in the name of Jackie Baillie, is the only amendment in the group.

Photo of Jackie Baillie Jackie Baillie Labour

I am pleased to speak to amendment 1 in the first group of amendments at stage 3 of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill—that is a mouthful.

Amendment 1 reflects the Economy, Energy and Fair Work Committee’s scrutiny of an area in which it made a recommendation for change to the Scottish Government and on which I lodged an amendment at stage 2, which I was asked to withdraw by the Minister for Community Safety to allow for further discussion. That discussion has resulted in the amendment that is before the chamber today.

In essence, amendment 1 will require the court to have special regard to not just a pursuer’s needs, but their preferences. Many pursuers will have been through a lengthy process in an effort to obtain recompense for personal injury that might well have been severe and catastrophic. In my view, it is essential that the pursuer’s voice is heard throughout the process. Amendment 1 is designed to ensure that at the final stage of the process, a pursuer’s views will have been listened to and given full consideration by the judge. The pursuer’s preference as to whether to receive a lump sum or a periodical payment must be a principal factor at the forefront of the court’s mind.

The language of amendment 1 is careful to avoid creating a presumption, as it does not give the pursuer the right of veto, but I would be very surprised if it were not a key factor in a judge’s decision. I certainly expect that the requirement on the court to treat the pursuer’s preference, as well as their needs, as a principal factor will have a real impact on the court’s decision-making process in every case.

I am grateful to the minister and her officials for working with me to give effect to the committee’s recommendation.

I move amendment 1.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I am grateful to Jackie Baillie for setting out clearly the background to amendment 1. I did not sit through the evidence that the

Economy, Energy and Fair Work Committee sat through. However, earlier in the session, the Justice Committee dealt with the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill, which touched on many of the same issues. We wrestled with the fact that, in relation to what are often very significant payments, individuals could come under pressure from members of their family or their wider friend group to opt for a large lump sum, which might not necessarily be invested in their best interests. There was also the issue that, with a lump sum as opposed to a periodical payment, the pursuer would be liable to pay a legal fee to their solicitor, over and above the normal costs.

Jackie Baillie’s setting out of the rationale for the approach is very helpful. Nobody would wish the pursuer’s interests to be ridden roughshod over. For the benefit of me and other Justice Committee members who wrestled with these matters during our consideration of a different piece of legislation, it would be helpful if Jackie Baillie or, indeed, the minister could clarify how safeguards could help avoid situations arising that are clearly not in the interests of the individual concerned.

Photo of John Mason John Mason Scottish National Party

I am happy to support amendment 1.

Many members of the Economy, Energy and Fair Work Committee felt that a move towards more periodical payment orders would be a good idea. For those of us looking in from the outside, they are often a good answer, because they take away the risk and the need to make decisions about investments and other such issues, which many people are not comfortable with. However, the point was also made that some people might not trust the defender to keep on paying the money and that some people might just want to break the relationship with the defender and receive a standalone amount.

It is fair to say that the courts might have considered such matters anyway, but it does no harm to re-emphasise that the courts should take into account what the pursuer is looking for.

Photo of Ash Denham Ash Denham Scottish National Party

It was very helpful to meet Jackie Baillie to discuss the amendment that she lodged at stage 2, which was intended to allow the pursuer’s voice to be heard in respect of their preference for a periodical payment order or a lump sum.

Jackie Baillie and other members have spoken about their desire to address the sense of powerlessness that people who have suffered a catastrophic injury might well feel in the event that an order for periodical payments is imposed. Although that is a very difficult thing to capture, it does not mean that it cannot be done.

We have had a productive discussion since stage 2, and we have come away with a better understanding of each other’s position on the issue. I have always indicated that I had some sympathy with the principle underlying the stage 2 amendment. My concerns lay in the way in which the stage 2 amendment would have been given effect, which I believe would have gone too far and could have created some legal difficulties.

In highlighting the pursuer’s preferences as a key consideration, it is important for balance to be struck so that the pursuer’s position is not treated as paramount, an overly rigid presumption is not created and the pursuer is not given a unilateral veto. In addition, the defender should not be put at a substantial disadvantage compared with the pursuer, which would put at risk the defender’s right to a fair hearing.

I am pleased to say that I do not have any difficulties along those lines with amendment 1. The amendment refers not just to the pursuer’s needs but to the pursuer’s preferences. This addresses the very human aspect of the pursuer’s position, about which a number of members have spoken.

However, amendment 1 goes beyond simply ensuring that the court takes into account the views of the pursuer, as it could do anyway. The amendment expressly highlights the needs and preferences of the pursuer as something for the court to “have special regard to”.

From the particular language used, it may be expected that the things highlighted will weigh heavily as key considerations at the forefront of the court’s mind when it is deciding between the options for the form of the award. Indeed, all things being equal, it may be expected that the pursuer’s needs and preferences will be given priority by the court.

I believe that amendment 1 strikes the appropriate balance while ensuring that the pursuer’s preferences as well as needs are specifically recognised in the bill. Accordingly, I am happy to support amendment 1.

Photo of Jackie Baillie Jackie Baillie Labour

I welcome the minister’s contribution and the contributions of members across the chamber. I was not the only one who raised the matter at stage 1. My colleague Angela Constance did likewise and it is something that the committee considered to be important.

John Mason was right to reference the use of periodical payment orders as the mechanism to reduce risk and ensure that awards are made over the lifetime of a pursuer. The reality is that we will see a combination of lump sums and periodical payments in play but ultimately—I reassure Liam McArthur about this in particular—we want the pursuer’s voice to be heard at the end of a lengthy court process and to ensure not only that their needs are met but that their preferences are taken into consideration. I am sure that the court would be alive to some of the external pressures that pursuers may face.

I ask the chamber to support amendment 1 because it is the right thing to do. I press my amendment.

Amendment 1 agreed to.

The Deputy Presiding Officer:

Group 2 is on periodical payments: drafting amendments. Amendment 2 is grouped with amendments 3 to 8.

Photo of Ash Denham Ash Denham Scottish National Party

All the amendments in the group fall into the category of minor and tidying in nature.

Amendments 2, 4 and 5 relate to an amendment moved by Stewart Stevenson and agreed to by the committee at stage 2 to place a requirement on the court to set out its reasons for being satisfied that the continuity of payments is reasonably secure.

At the time, I reserved the possibility of lodging Government amendments to make any necessary technical changes at stage 3, so as to ensure that the wording of the provision added by Steward Stevenson fully dovetailed with the related provisions. Amendments 2, 4 and 5 therefore make some minor adjustments to the text in order to do that. I think that they speak for themselves. The substance of Stewart Stevenson’s addition at stage 2 is not affected.

Amendments 3 and 6 to 8 have come about as a result of a change suggested by the Association of British Insurers. The ABI expressed the view that, in new section 2(1A) of the Damages Act 1996, which would be introduced by section 3(1)(c) of the bill, in the reference to a court not making

“an order for periodical payments unless it is satisfied that the continuity of payment under such an order would be reasonably secure”,

“would be” should be changed to “is”.

As well as making the wording chime more closely with the introduction of the assumptions that follow in new section 2C(1) of the 1996 act, the change would bring the drafting more in line with the equivalent provision that applies in England and Wales. Importantly, the conditional element of the matter is not lost altogether, as new section 2C(1) continues to refer as necessary to what “would be” the case.

Although we are satisfied that no difference could arise in practice under the wording used, we are content to make the change. The same point arises elsewhere in section 3 and once in section 4, so similar changes are made for consistency in those places.

I move amendment 2.

Amendment 2 agreed to.

Amendments 3 to 7 moved—[Ash Denham]—and agreed to.

Section 4—Variation or suspension of settlement:

Amendment 8 moved—[Ash Denham]—and agreed to.

The Deputy Presiding Officer:

Group 3 is on rate of return: standard adjustments. Amendment 9, in the name of the minister, is the only amendment in the group.

Photo of Ash Denham Ash Denham Scottish National Party

I explained at stage 2 that the approach taken in the bill on how the discount rate should be calculated is based on a portfolio that meets the needs of the hypothetical investor as described in the bill. The asset classes and percentage holdings contained in the notional portfolio have been balanced in such a way as to support an approach, in terms of investment choices, that is capable of limiting volatility and uncertainty.

The bill also includes two standard adjustments that the rate assessor must deduct when arriving at the rate. Amendment 9 deals with the first of those. It is intended to take account of investment advice, management costs and taxation. The adjustment is set out in the bill, with regulation-making powers for the Scottish ministers to change the adjustment if required. The Scottish Government accepts that there will be a need to take investment advice, and indeed one of the characteristics of the hypothetical investor is that they are properly advised.

Prior to the introduction of the bill, Scottish ministers sought views from the Government Actuary’s Department on the appropriate level for the adjustment for tax and passive investment management costs. Although GAD considered that the reasonable allowance for expenses and tax might fall into the range of 0.5 to 2 per cent, it was also of the view that an allowance at the lower end was

“likely to be more appropriate”.

That is because it is reasonable to assume that pursuers will shop around for competitive fees and will directly invest in passive funds; because, in the current economic environment, income yields, particularly on bonds, are low, which eases the possible pressure of higher tax charges; and because further prudence deductions are included elsewhere in the discount rate.

At stage 2, Jackie Baillie lodged an amendment that sought to increase the standard adjustment for tax and investment management costs from 0.5 to 1.5 per cent. I pointed out that the composition of the portfolio and the level of adjustments that are set out in the bill are the result of analysis, actuarial advice and available evidence. The methodology and adjustments have been carefully calibrated with a view to ensuring that, in so far as possible, the principle of 100 per cent compensation is adhered to. They are a complete package of measures, with the further adjustment ensuring that the possibility of undercompensation is at an acceptable level.

I was also clear that, from the Government’s point of view, Jackie Baillie’s proposed increase would tip the balance too far in favour of pursuers. Too high a percentage for the deduction under consideration would increase significantly the chances of pursuers being overcompensated, which would go against the principle of achieving the right levels of compensation and would pass an undue burden on to defenders, including public services such as the national health service.

During stage 2, Jackie Baillie withdrew her amendment on the basis that we would have an opportunity to discuss the issue further. It was helpful, after stage 2, to meet Jackie Baillie and exchange our views. I was able to advise that we would be working with the Ministry of Justice to get early access to any relevant evidence on tasks and investment management costs arising from its very recent call for evidence ahead of the review in England and Wales, and we have done that.

With that information to hand, we sought further advice from the Government Actuary’s Department. I have considered its advice, which points to a small uplift in the adjustment being required. Its advice is given in the context of the portfolio contained in the bill, and its view is that there have been small increases in the fees that would apply. Specifically, in GAD’s view, there is a small increase in appropriate passive fund manager fees, reflecting evidence from the call and further consideration of the charges that might apply for the Scottish portfolio. It is also GAD’s view that, based on the evidence from the call, it would be appropriate to include a small allowance for charges for platform fees in order to access the funds and for obtaining advice.

Amendment 9 would therefore increase the standard adjustment from 0.5 to 0.75 per cent to allow for such increases. I am content that, based on impartial and professional advice, that is the appropriate change to make—and, indeed, that not to make it would be to ignore such advice. The change would ensure that, as far as possible, pursuers would be properly compensated through the application of the discount rate that would be arrived at through the application of the new methodology. The percentage in amendment 9 represents an important aspect of getting that right.

I move amendment 9.

Photo of Dean Lockhart Dean Lockhart Conservative

As we have heard, amendment 9, in the name of the minister, would increase the standard adjustment to the discount rate for investment charges and taxation to 0.75 per cent from the 0.5 per cent that was originally set out in the bill.

The Economy, Energy and Fair Work Committee’s stage 1 report on the bill considered that adjustment to the discount rate and, after considering evidence from those on all sides of the argument, concluded that, on balance, it was content with the a djustment rate being set at 0.5 per cent.

At stage 2, the minister told the committee that a 0.5 per cent standard adjustment recognised that investors would shop around to get the best possible rate for investment charges, and that the notional investment portfolio would largely comprise passive funds that would not require active management and would not incur significant investment charges. As she set out in her opening remarks, the minister also told the committee that she accepted the advice of the Government Actuary’s Department on the adjustment level being set at around 0.5 per cent.

Given that background, increasing the standard adjustment to 0.75 per cent runs the risk of departing from the fundamental Scottish legal principle of fair compensation. Although Scottish Conservatives understand the Government’s approach of legislating in favour of overcompensation rather than risking undercompensation, we have to recognise that that would come at a cost. The costs that are associated with paying more than 100 per cent compensation would fall on public bodies in Scotland, such as the national health service and other public bodies that self-insure.

Photo of John Mason John Mason Scottish National Party

Does Dean Lockhart accept that it is not possible to get to a position in which everyone is correctly compensated by 100 per cent? It is inevitable that some will be undercompensated while others will be overcompensated.

Photo of Dean Lockhart Dean Lockhart Conservative

That is a fair comment. The figure has to lie somewhere on a spectrum. However, based on the evidence that the committee heard, increasing the adjustment to 0.75 per cent would take us quite far on that, and towards the risk of overcompensation. As I said, the reality is that the cost of paying more than 100 per cent compensation will fall on public bodies in Scotland.

For the reasons that I have set out, Scottish Conservatives will not support amendment 9.

Photo of Jackie Baillie Jackie Baillie Labour

I welcome the opportunity to speak on amendment 9 in the name of the minister.

At stage 1, the Economy, Energy and Fair Work Committee took evidence about standard adjustments. As the minister has referenced, at stage 2, I lodged an amendment on the amount that should be allowed for the impact of taxation and the cost of investment advice. As we have heard, the Scottish Government’s position was to allow for 0.5 per cent, which was considered by some commentators to be just too low to reflect the actual cost of advice and taxation.

The Association of Personal Injury Lawyers provided expert evidence from a range of independent financial advisers, all of whom suggested that 0.5 per cent was too low and that the real costs were likely to be between 1.5 and 2 per cent, based on their experience of dealing with personal injury cases. My amendment was duly cautious in seeking to set the rate at 1.5 per cent.

I pray in aid the Government Actuary’s Department’s analysis of the personal injury discount rate, which it published. The minister rightly suggested that its recommendation on a rate that would reflect tax liability and fees for advice was likely to be anywhere in the range of 0.5 to 2 per cent.

The minister and the Scottish Government chose to place the rate at the lower end of the scale. However, I point out that the Government Actuary’s Department also said that it would be appropriate for the rate to be set higher.

The minister referenced the fact that there is a review south of the border by the Ministry of Justice, and she has helpfully considered that in her further deliberations. Again, I welcome the helpful discussion with the minister and her officials. They reflected further and have lodged an amendment to adjust the rate upwards to 0.75 per cent. That is not as much as I would have liked and not as much as the evidence suggests we may require, but I recognise that it is a step in the right direction. I will therefore support amendment 9, but I ask the minister to assure the Parliament that she and her officials will keep the rate under review and change it in the light of experience to avoid any suggestion of undercompensation.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I am conscious that I do not have the background on the bill that Dean Lockhart, Jackie Baillie and the minister have. I was reassured to an extent by what the minister said about her engagement with the Government Actuary’s Department. There is clearly a balance to be struck here, and the committee came to the conclusion that it is not an exact science.

I was struck by the response that the minister gave recently in a written answer to a parliamentary question from my colleague Alex Cole-Hamilton. She wrote:

The Scottish Government expects that the UK Government will continue to cover the costs arising from the change in the discount rate to the extent that the rate in Scotland is in line with the rate in England and Wales. The Scottish Government will continue to pass this funding to the NHS in Scotland.”—[

Written Answers

, 13 March 2019; S5W-21903.]

That is helpful, but it rests heavily on the rate in Scotland being in line with that in England and Wales. As I understand it, that may not be the case in this instance, and I wonder how the shortfall will be met. Has the minister had discussions with not just the Government Actuary’s Department but health colleagues about the potential implications for any financial liability to the NHS?

Also, will a revised financial memorandum be published? As I understand it, there was not one ahead of stage 3, which was rather unhelpful for those of us who were trying to get our heads round the implications of the change that the minister is proposing.

Photo of Daniel Johnson Daniel Johnson Labour

I echo Jackie Baillie’s comments. The discount rate was the subject of some debate and discussion at stage 1, and rightly so. We are talking about the money that is made available to people for them to get their affairs in order having been awarded compensation. Although much of the talk is of what might be reasonable or what people might typically obtain, we must also consider people whose compensation falls outside the range of reasonable expectations. As John Mason rightly said, some people may be overcompensated and some may be undercompensated, but we need to ensure that we protect the most vulnerable, because the people who we are talking about are undoubtedly vulnerable.

The range of values that the

Government Actuary’s Department arrived at was 0.5 to 2 per cent. Although it said that the appropriate rate would be in the lower end of the range, 0.75 per cent is well within the lower end. Like Jackie Baillie, I would like to hear from the minister how the rate will be kept under review and how, if it is found to be insufficient, it might be revised in future.

The increase is welcome, albeit that it does not go as far as we on the Labour benches would like.

The Deputy Presiding Officer:

I call on the minister to wind up.

Photo of Ash Denham Ash Denham Scottish National Party

I will address a number of points. First, on the point that Dean Lockhart raised, I expect the new rate to save defenders money when it comes in in September, and that includes the NHS.

The MOJ’s call for evidence on matters relating to investments was extremely timely, and amendment 9 is based on the most recent evidence. GAD analysed the evidence from that call by the MOJ with reference to the portfolio in the bill, and it revised its advice. It would not be appropriate not to act on the advice that I was given. I want the adjustment in the bill to reflect the most up-to-date evidence that is available, and that is what the amendment will do.

Of course the adjustments will be kept under review, and I note that that is in the bill as well, just to reassure Daniel Johnson on that point.

I press amendment 9.

The Deputy Presiding Officer:

The question is, that amendment 9 be agreed to. Are we agreed?

Members:

No.

The Deputy Presiding Officer:

There will be a division. As this is the first division at stage 3, the Parliament will be suspended for five minutes.

15:54 Meeting suspended.

15:59 On resuming—

We will now proceed with the division on amendment 9.

Division number 1 Damages (Investment Returns and Periodical Payments) (Scotland) Bill: Stage 3

Aye: 84 MSPs

Abstained: 26 MSPs

Ayes: A-Z by last name

Abstaineds: A-Z by last name

The Deputy Presiding Officer:

The result of the division is: For 84, Against 0, Abstentions 26.

Amendment 9 agreed to.

Group 4 is on rate of return: drafting amendments. Amendment 10, in the name of the minister, is grouped with amendments 11 to 14. [

Interruption

.] Please—I am trying to say something and I cannot even hear myself.

I call the minister to move amendment 10 and speak to all of the amendments in the group.

Photo of Ash Denham Ash Denham Scottish National Party

All the amendments in this group relate to an amendment that was moved by Dean Lockhart at stage 2 and that was agreed to by the committee. That amendment reworked the duty of the Scottish ministers in relation to the notional portfolio. The duty previously involved having regard to the need to ensure that the notional portfolio remains suitable for the hypothetical investor. After the amendment was accepted, it involved including the conduct of a review on suitability, incorporating a requirement to consult appropriate persons.

At the time, I reserved the possibility of bringing forward Government amendments to make any necessary drafting changes at stage 3, not only to ensure that the provisions would work properly, given the possibility of interim rate reviews, but to ensure that the overall wording and structure of the provisions reaches the desired result in the best and clearest way possible.

Amendments 10, 11, 12 and 14 make modest adjustments to the text in connection with the review of the portfolio. They align the wording of the text with the provisions cross-referred to; reflect the fact that the on-going assessment of the portfolio, and the making of regulations if necessary, are really just parts of a single process; directly tie the necessity of regulation making to the suitability of the portfolio for the notional investor; tidy the structure and wording of the provisions; and give a useful signpost for the reader to the description of the notional investor. However, the substance of what Dean Lockhart added at stage 2 is not affected by those amendments. They preserve the need to assess the notional portfolio ahead of each five-year cycle of review, along with a duty to consider whether regulations are necessary.

Amendment 13 is different. Interim reviews, by their nature, are likely to be needed where there are urgent or extraordinary circumstances. Amendment 13 therefore excludes interim reviews from the scope of the provisions that were added by Dean Lockhart at stage 2.

I move amendment 10.

Amendment 10 agreed to.

Amendments 11 to 14 moved—[Ash Denham]—and agreed to.

The Deputy Presiding Officer:

That ends consideration of amendments.