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Baroness Carnegy of Lour: My Lords, I have a question about this amendment. The amendment is extremely welcome and is necessary. I have not been able to give my noble friend notice of the question and I hope it is not too difficult to answer. New Section 5A(4) states:

What does that mean? Does it mean that if someone fails to declare an interest and fails to withdraw he carries on regardless? I do not quite understand the provision.

Lord Carmichael of Kelvingrove: My Lords, I was aware that the noble Baroness had been involved in discussion in Committee. She made some very good points.

I am very grateful to the Minister for taking up the point that I and, I believe, my noble friend Lord Ewing of Kirkford raised. I do not recollect giving the Minister a chance to clarify further the point raised by the noble Baroness. I understand the point that the noble Baroness makes. What would be the reprimand for someone who did not declare an interest? Is that included in the Minister's amendment?

I am perfectly happy with the response to the points I raised in Committee. I have given my interpretation of what I believe the noble Baroness sought. I may be wrong in that, but she may be able to clear the matter up and give the Minister a chance to reply more fully.

Baroness Carnegy of Lour: My Lords, that was my concern. If the validity of the proceedings is not affected if someone does not declare an interest, that is slightly strange. It means that someone votes not having declared an interest. I am not happy about that. Is that what the provision means?

There is another point. If the people who declare an interest suddenly withdraw, reducing the committee numbers to fewer than a quorum, the appointments committee cannot proceed. My noble friend will probably tell me that this insertion follows other clauses in other legislation. If so, there must be a good explanation of these points.

The Earl of Lindsay: My Lords, I am grateful for the welcome that has been extended to the amendment by both my noble friend Lady Carnegy and the noble Lord, Lord Carmichael. I shall give my noble friend a short answer now, and promise to follow it up with a longer

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answer in writing between now and Third Reading but with sufficient speed so that should any adjustment need to be made there will be time to make it.

The intention of subsection (4) is that the appointment is valid even if it is discovered that an interest which should have been declared was not declared.

With that answer, and the promise that I shall write to my noble friend on the matter and follow it up between now and Third Reading should a revision need to be made, I hope that the House will accept the amendment.

Baroness Carnegy of Lour: My Lords, with the leave of the House, I suggest that my noble friend considers the issue. It is possible to rig a committee. I hate to say that, but having spent some time in local government and having been instrumental in setting up arrangements for appointments committees which avoid such a thing, I do not think that one should be too innocent about the matter.

The Earl of Lindsay: My Lords, I said that I would do exactly that. I shall look at the issue.

On Question, amendment agreed to.

Schedule 5 [Miscellaneous and Consequential Amendments]:

The Earl of Lindsay moved Amendment No. 13:

Page 30, leave out lines 17 to 23 and insert--
("5. In section 32(10)(a)(ii) of the Finance Act 1991 (definition of qualifying course of vocational training) for the words "Scottish Vocational Education Council" there shall be substituted the words "Scottish Qualifications Authority.").

The noble Earl said: My Lords, this amendment simply replaces a reference to SCOTVEC in finance legislation with a reference to the SQA. It is consequential on changes made to Section 32(10) of the Finance Act 1991 by Section 144 of the Finance Act 1996 which received Royal Assent on Monday, 26th April. I beg to move.

On Question, amendment agreed to.

Damages Bill [H.L.]

5.44 p.m.

The Lord Chancellor (Lord Mackay of Clashfern): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.--(The Lord Chancellor.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD SKELMERSDALE in the Chair.]

Clause 1 [Assumed rate of return on investment of damages]:

Lord Irvine of Lairg moved Amendment No. 1:

Page 1, line 12, leave out from ("account") to end of line 13 and insert ("in exceptional circumstances").

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The noble Lord said: This amendment was one that I heralded in my speech on Second Reading.

Clause 1 of the Bill deals with an issue that has been a subject of recent argument in the courts. It will be considered in the Court of Appeal later this year. The courts reduce awards made to victims, to compensate them for their future loss of earnings and the cost of care, to take account of the fact that they receive compensation in the form of an immediate lump sum which can be invested. To make an accurate reduction for this accelerated payment (as it is known) the courts must apply the best possible estimate of the rate of return that victims will earn on their investment. If the assumed rate is too high then the victim will have been undercompensated. If it is too low a rate he will have been overcompensated.

For a number of years there has been a general assumption by the courts that they should use an investment rate of 4 per cent. to 5 per cent. so as to make the appropriate discount. However, there is gathering concern that the appropriate rate of return on investments is lower than 4 per cent. to 5 per cent. so that victims are being significantly undercompensated.

The percentage figure of 4 per cent. to 5 per cent. is taken to have been laid down by a 1979 decision of your Lordships' House in its judicial capacity, and by a 1970 decision before that. The figure may have been right for its time though that is questionable, but obviously should not be regarded by the courts as an invariable prescription for all time. When this issue comes before the Court of Appeal later this year it is to be hoped that a more realistic rate will be set.

Clause 1 of the Bill confers a power on the Lord Chancellor of the day to set by statutory instrument a prescribed rate of return that the courts will be required to take into account in future cases. That is sensible. It will provide for a fixed rate, but with the flexibility to change the rate as and when necessary.

It is important to have a fixed rate on which parties to personal injuries litigation can rely. This saves costs and court time. Without a fixed rate both sides have to advance expert evidence in favour of their preferred rate. Practitioners in this field are very conscious of that. In a recent personal injury case, the combined cost to both sides of presenting expert financial evidence to establish the appropriate investment rate was about £15,000. We must be ever mindful to frame our laws in a way that does not encourage unnecessary cost in litigation.

However, I recognise that there may be exceptional cases where it is appropriate for the court to apply another rate. But those cases are exceptional and the legislation should recognise that.

As currently drafted, Clause 1(2) provides that, notwithstanding the existence of a prescribed rate, the court may apply a different rate of return,

    "if any party to the proceedings shows that it is more appropriate in the case in question".
We consider this provision to be too wide. It is likely to have the effect in practice of undermining the benefits that flow from the certainty of having a prescribed rate.

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The amendment is simple. It provides that the scope for departure from the prescribed rate should be limited to "exceptional circumstances". This formula is commonly used in legislation and the courts understand the restrictive intent underlying its use. It would operate as a disincentive to unnecessary and costly expert evidence and argument why the prescribed rate is said not to be appropriate in a particular case. The point of the amendment is that the prescribed rate will generally be appropriate. A party should be able to invite the court to depart from the prescribed rate only if the circumstances of the party's case are truly exceptional. I beg to move.

Viscount Chelmsford: I have no interest to declare in the amendment, but I should advise the Committee that my background is in the insurance industry and I am currently briefed by the Association of British Insurers.

I do not believe that the noble Lord, Lord Irvine of Lairg, is correct in suggesting that in the great bulk of cases the current rate is wrong. Because of the mix of portfolios arranged at the time the lump sum is used, simply to use the current rate for gilts would in the opinion of the insurance industry overcompensate.

The Lord Chancellor: To some extent, my noble friend is heralding a later amendment on the matter which we shall come to. The question underlying a good deal of the discussion is what is the precise philosophy. As I said in response to the Second Reading debate, I would in any event be anxious to see what the Court of Appeal decides before exercising the powers conferred under the Bill.

There is a good deal of agreement about the desirable result of the legislation: it is to try to simplify so far as possible the assessment of damages. I understand the concerns of the noble Lord, Lord Irvine. Our aim is to avoid any unnecessary expert evidence and we have already introduced Section 10 of the Civil Evidence Act 1995 for that purpose. However, we should pause to consider what purpose a party might see for bringing in an expert or other evidence when the courts have, with or without legislative assistance, arrived at a discount rate which is accepted as reflecting the real rate of return on a plaintiff's investment of his lump sum in the generality of cases. Once such matters are established and accepted, I cannot see that it would be in the interests of either party to seek to introduce evidence that such a rate is not, after all, generally appropriate.

Clause 1 is designed to provide the courts with such guidance as may be necessary from time to time to take account of current changes and developments in the current economic climate and market conditions to achieve the element of certainty. It is obviously essential that the Lord Chancellor, exercising the power conferred by this section, should have the benefit of the widest possible consultation with those best able to advise. But even when that has been done, one achieves a degree of certainty, but there is a difference between a certainty as to what is generally appropriate and a rigidity which might oblige the court to apply what is acknowledged to be generally appropriate in a particular case where it was manifestly inappropriate and would lead to an unjust result.

13 May 1996 : Column 366

It must be right to allow either party to draw to the court's attention some feature or features of the case before it which suggest that a different rate ought to be used in that case in order to arrive at a figure which would provide a more accurate reflection of the actual loss in that case. Where the case includes some feature which makes it appear wrong to apply what would otherwise be regarded as a routine calculation, that feature may or may not be regarded as an "exceptional circumstance". It would not be easy to define what was meant by an "exceptional circumstance" in such cases.

I agree that the phrase is common in the statute book. However, it may be that one such feature happened to appear in a significant proportion of the cases heard in one particular year. The factor that makes the statutory rate inappropriate may happen in many cases at one time and therefore, strictly speaking, the circumstances would not be exceptional but it would be perfectly apparent that the routine calculation was not appropriate. The court will have no difficulty in identifying those cases as they arise and there will be no encouragement for parties to digress by leading extraneous expert or other evidence in other cases. Clearly we could not in legislation identify and specify all the categories of case feature and which would influence the court in considering the application of subsection (2).

To take one example, the courts might consider the circumstances of plaintiffs to be affected by their own situation in regard to their assets. Someone with a large portfolio already might be willing to invest their damages less cautiously so as to produce a return larger than a plaintiff of more modest means could afford to contemplate.

The phrase that we used in the Bill refers to another rate being more appropriate. We are operating in a new area and I cannot foresee all the possibilities. Therefore, I prefer to adhere to what we have in the Bill. If a rate is fixed well--as I hope it will be--one would not expect a more appropriate rate to be fixed often. But, on the other hand, what must really be judged is the appropriateness of the rate rather than the circumstances which might be looked upon as exceptional. Circumstances which could suggest a different rate might occur in a run of cases where it could be hard to say in all of them that the circumstances were exceptional.

Obviously there is room for a difference of opinion on the matter, but I submit that the phrase in the Bill is the wisest at this juncture. As time proceeds, if that structure is used then a more precise formula might be advisable.

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