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Lord Irvine of Lairg: My Lords, I am not sure but I suspect that the amendment arises as a result of a recent dispute involving Municipal Mutual Insurance. It had entered a state of provisional liquidation, with the result that the plaintiff victim who had agreed a structured settlement with the company was unable--or was thought to be unable--to recover payments under the settlement, although the company continued to receive the sums payable under the annuity which had been purchased in order to implement the structured settlement.

The view was that the protection provided by the Policyholders Protection Act 1975 could not be relied upon by the plaintiff victim. That was thought to be because the protection under Sections 10 and 11 of the 1975 Act appeared to be limited to liquidation and did not extend to provisional liquidation.

These Benches would welcome the advice of the noble and learned Lord on this specific point: if Sections 10 and 11 of the 1975 Act do not extend to provisional liquidation, it appears to us that the argument in favour of the amendment moved by the noble Lord, Lord Meston, is a powerful one.

The Lord Chancellor: My Lords, I have sought to consider this question which is not entirely easy. However, having looked at the Policyholders Protection Act 1975, I have reached the conclusion that if this is a good point, it is a much more general point and does not apply only to structured settlements; it also appears to affect third parties' rights against insurers. The provision is the same.

I have not had time fully to consider this matter. My present belief is that if a person is the creditor of a company in provisional liquidation he will be able ultimately to enforce liquidation. If he has a claim which is liquid against the company I do not believe that his petition for liquidation can ultimately be refused. That is my very superficial answer to the problem. But I wish to look at the matter thoroughly. I believe that if this is a good point it is a much more general point which does not apply only to structured settlements. I am not sure that simply to put into Sections 10 and 11 of the 1975 Act, as this amendment seeks to do, references to liquidation as including liquidation or provisional liquidation will solve the problem. This is an important matter. I should like an opportunity to consider it further. The advice that I have been able to obtain so far is on the lines I have suggested. If there is a real problem here it goes a great deal beyond structured settlements. We may need to look at something more fundamental.

In the meantime, if the noble Lord, Lord Meston, is willing to withdraw his amendment I will undertake to have the matter looked at as thoroughly as possible

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before the next stage is reached. I shall try to intimate to both the noble Lord, Lord Meston, and the noble Lord, Lord Irvine of Lairg, the result of my inquiries before we part with the Bill.

Lord Meston: My Lords, I am grateful to the noble and learned Lord for that indication. I am not able to say whether the case brought to my attention was that referred to by the noble Lord, Lord Irvine of Lairg, to whom I am grateful for reinforcing the point. It appears that there is something of a lacuna. I accept that it is not an easy matter. It struck me that the problem might extend beyond structured settlements. This Bill would enable the problem to be dealt with only in so far as it affected structured settlements. That explains why the amendment finds its place here. With respect, it may be an over-simplification to look for an answer in persuading the court to finalise the liquidation. That appears to have been an obstacle in the case to which my attention was drawn.

I am most grateful to the noble and learned Lord for undertaking to give the matter further consideration. On that basis I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Guarantees for public sector settlements]:

The Lord Chancellor moved Amendment No. 7:


Page 4, line 40, leave out ("Exchequer") and insert ("Consolidated Fund").

The noble and learned Lord said: My Lords, Amendment No. 7 is a small drafting amendment to substitute a more precise reference to the proper destination of any moneys which may be recovered from the principal debtor by a Minister whose guarantee has been called upon. I beg to move.

On Question, amendment agreed to.

7.45 p.m.

Clause 8 [Short title, extent and commencement]:

Viscount Chelmsford moved Amendment No. 8:


Page 5, line 24, at end insert ("but section 1 applies only to causes of action accruing on or after that date").

The noble Viscount said: My Lords, Amendment No. 8 is not about the terms of the Bill but its attachment. I believe that if the Bill were passed today and my noble and learned friend the Lord Chancellor used the index-linked rate, the rate applied to a particular case would almost halve and, conversely, the amount of lump sum to be put in for interest would almost double. As far as concerns the insurance industry whose brief I hold in this matter, that is not necessarily a problem provided it can rate its policies accordingly.

I raised this point in Committee. The problem arises, if the Bill is enacted as currently drafted, in terms of the pipeline claims currently before the courts. I said in Committee that it was the belief of the insurance industry that pipeline claims would cost motor insurers alone the equivalent of £200 million and that across the whole market, including all bodily injury, the cost would

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be perhaps between £500 million and £1 billion. The amendment seeks to provide protection in respect of pipeline claims.

In Committee on 13th May my noble and learned friend the Lord Chancellor, replying to the noble Lord, Lord Meston, said at col. 381 that he believed that my amendment need apply only to Clause 1. Therefore, the amendment has been altered as he suggested. My noble and learned friend said at col. 374:


    "The normal rule of statutory enactment that I have been accustomed to seeing followed is that one does not make retrospective alterations".
I hope very much that my noble and learned friend will stick to that, despite the fact that he is awaiting the result of a particular appeal, because there is good precedent for it. I draw to the attention of the House three pieces of legislation: the reform of the Fatal Accidents Act 1976, which was introduced for accidents occurring on or after 1st April 1991; the consumer protection Act, which applied to products supplied on or after 1st March 1988; and the Social Security Administration Act 1992, which related to incidents occurring on or after 1st September 1989. Therefore, we have put down an amendment which applies to causes of action accruing on or after the date on which the Bill becomes law. I beg to move.

Lord Irvine of Lairg: My Lords, the principle underlying the amendment is very important: that Parliament does not and should not legislate retrospectively except in very exceptional circumstances. I am sure that the noble and learned Lord will agree with that general proposition. The effect of the Bill, if implemented as drafted, is that the prescribed rate which the noble and learned Lord requires the courts to apply in discounting compensation awarded for future pecuniary loss will apply to any claims which are, as described by the noble Viscount, Lord Chelmsford, already in the pipeline, even if the cause of action has accrued before the date of the new determination by the Lord Chancellor.

Therefore, the argument of the noble Viscount, Lord Chelmsford, is that if the prescribed rate is lower than the current assumption of 4 to 5 per cent. the awards that the insurance industry will have to pay out will be higher than anticipated. If I do not over-simplify the matter, the noble Viscount argues that that is inequitable because the premiums for such policies would have been higher if the new prescribed rate had been anticipated. I am not persuaded that there is any element of retrospectivity in Clause 1 of the Bill. As the noble and learned Lord on the Woolsack pointed out in Committee,


    "the aim of the power should be to try to arrive at the figure that the courts would think is the right figure at the present time".--[Official Report, 13/5/96; col. 382.]
That is the reason given by the noble and learned Lord for the proposal that the prescribed rate will be determined in light of the guidance to be given by the Court of Appeal in two cases to be heard later this year. Also, guidance from the Court of Appeal is not a new phenomenon. The current assumption of a 4 per cent. to 5 per cent. rate is based on a Court of Appeal case

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decided in the mid-1980s, which itself involved applying the dicta by the late Lord Diplock in your Lordships' House in its judicial capacity in an earlier decision of the House.

My view is that the insurance industry can reasonably be expected to have been aware of the previous Court of Appeal guidance and of its necessarily contingent nature; that is to say, that it was guidance only which could well change by court decision over time as economic conditions changed. That is what may well happen in the decisions to be handed down by the Court of Appeal later this year.

To my mind, therefore, it follows that setting the new rate will not be inequitable, because it is a contingency that the insurance industry, which, in my experience is highly skilled in assessing in advance the risks that it faces, would, or should, in ordinary prudence, have taken into account already when settling premiums for past policies. Without hearing further argument, I have to confess that I am not persuaded that there is real merit in the amendment.


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