House of Lords - Explanatory Note
Courts Bill [HL] - continued          House of Lords

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Damages

Clause 92: Periodical payments: jurisdiction

265.     Clause 92 replaces section 2 of the Damages Act 1996 with new sections 2, 2A and 2B for England, Wales and Northern Ireland and makes consequential amendments to s.329AA of the Income and Corporation Taxes Act 1988 (ICTA 1988) for the whole of the United Kingdom.

266.     The new section 2 gives courts the power to order, without the consent of the parties, that damages for future pecuniary loss in personal injury cases are wholly or partly to take the form of periodical payments, and requires the court to consider in all cases whether periodical payments are appropriate. The power to make an order without the consent of the parties only relates to awards in respect of future pecuniary loss, and the new section preserves the current position in respect of other damages (i.e. non-pecuniary loss and past financial loss) by allowing the court to order periodical payments where the parties consent. The court must be satisfied that the continuity of the payments is reasonably secure before it makes a periodical payments order. The continuity of payments is deemed to be reasonably secure if it is protected by the Financial Services Compensation Scheme or a Ministerial Guarantee given under section 6 of the 1996 Act. The court must also be satisfied as to the security of any subsequent changes to the way in which payments are funded, unless the new method is protected in either of the above ways.

267.     To avoid the possibility of claimants receiving less than the true value of the award as a result of their assigning their right to receive the payments in return for a lump sum, section 2 also prevents the assignment of the right to receive periodical payments unless the court is satisfied that there are special circumstances that make it necessary. This does not affect the claimant's ability to borrow against their future income. Unsecured loans will thus be allowed, but not secured loans that put the claimant's right to receive payments at risk.

268.     The new section 2A enables Civil Procedure Rules to specify matters which the court is required to take into account when considering whether to order a periodical payment or approve an assignment, and when considering the security of the payment. These could for example specify factors which might make a periodical payments order less, or more, appropriate than a lump sum order, such as the life expectancy of the claimant (where a short life expectancy might make a lump sum preferable but periodical payments might be more suitable for a long life expectancy) and where there has been contributory negligence (where significant contributory negligence may mean that periodical payments would not be adequate to support the care required).

269.     The new section 2B gives the Lord Chancellor an Order-making power to enable the court to vary periodical payments under specified circumstances. The range of provisions which can be contained in such an Order are set out in subsection (3). An Order made under these provisions is subject to prior consultation by the Lord Chancellor and the affirmative resolution procedure. Following the recent consultation it is envisaged that the first Order will enable variation of periodical payments orders only where there is a significant medical deterioration or improvement in the claimant's condition which can be foreseen at the time of the original order and where the court provides for the possibility of variation in that order. Because of the potential overlap with the current system of provisional and further damages, the section allows an Order made by the Lord Chancellor to apply or vary the enactments governing these areas.

270.     The Clause also makes a number of consequential amendments to section 329AA of the ICTA 1988 to reflect the new provisions and ensure that all periodical payments are exempt for income tax purposes however funded.

Clause 93: Periodical payments: security

271.     Clause 93 replaces sections 4 and 5 of the Damages Act 1996 with a new section 4. The purpose of this amendment is to ensure that protection under the Financial Services Compensation Scheme (FSCS) can apply to a wider range of options for funding periodical payments. It also replaces the term "structured settlement" which is no longer apt given the court's power to order periodical payments.

272.     At present, private sector defendants and insurers generally provide periodical payments under a "structured settlement", that is by the purchase of an annuity for the claimant. This is because payments under an annuity are secured against the failure of the Life Office under the statutory protection provided by the FSCS (the scheme created under section 213 of the Financial Services and Markets Act 2000).

273.     The FSCS currently provides protection in respect of 90% of the payments due under an annuity. Sections 4 & 5 of the DA 1996 override this limitation for annuities bought pursuant to a "structured settlement". In other words, periodical payments for personal injury damages can be 100% protected under the FSCS by this route.

274.     Subsections (1) and (2) of the new section 4 have the same effect. They apply where a claimant has a right to receive periodical payments of damages for personal injury, and that right is protected under the FSCS - in other words the claimant is the beneficial owner of an annuity (whether purchased by the defendant, the defendant's insurer or the Motor Insurers' Bureau).

275.     In future, periodical payments may be ordered rather than agreed. It is intended that defendants and their insurers should be entitled to fund these payments in whatever way they choose, provided the continuity of payment is adequately secure. Protection under the FSCS will be deemed to constitute adequate security. There are a number of options that may be relevant. A general insurer may prefer to fund the payments directly rather than purchase an annuity, perhaps purchasing an annuity at a later date when annuity rates are more favourable. Or the defendant or insurer may wish to purchase an annuity in their own name, and then undertake to pass the periodical payments to the claimant. This may be attractive, for example, where there is a possibility of the payments being reduced on appeal or variation.

276.     At present, the FSCS would not operate effectively to protect the claimant's right to continue to receive the payments in the event of the failure of the underlying insurer. In the example of self-funding by the defendant's insurer, the defendant rather than the claimant would be the policy-holder, and it would be for him to pursue any claim under the FSCS. But if the defendant was a large firm, it would not be eligible to claim under the FSCS. And unless the general insurance policy in question was one of compulsory insurance (motor or employer's liability), the scheme would only protect 90% of the payments due. Similar issues arise where the defendant or insurer owns the annuity that is funding the periodical payments.

277.     Subsections (3) and (4) of the new section 4 provide for recipients of periodical payments to have a direct claim under the FSCS, and for that claim to cover 100% of the payments, when any arrangement is put in place to fund periodical payments that attracts the protection of the FSCS - that is where it is underpinned by an annuity or a relevant general insurance contract (certain categories of general insurance are not protected by the FSCS). In these circumstances, subsection (4) gives the claimant a direct claim under FSCS in respect of the full amount of the periodical payments, and extinguishes any other potential claim. It provides that the claimant shall be deemed to be protected by an arrangement of the same kind as the one that is actually in place, that is by an annuity or a relevant general insurance contract. (It is not intended to suggest that the claimant is deemed to have the same class of general insurance as that underpinning the actual arrangement - this would be nonsensical in the case of third party liability insurance.)

278.     The new section 4 will apply to the whole of the UK, although some of the funding arrangements envisaged are unlikely to be relevant in Scotland where the courts will not have power to order periodical payments (subject to any future legislation which may be passed by the Scottish Parliament).

279.     The new approach makes it unnecessary to replicate the other provisions contained in the current section 5 of the 1996 Act in order to retain their effect (for example the fact that enhanced protection for the claimant no longer turns on his being an annuitant means that the provisions in section 5(5) for payments to be received and held on trust on behalf of an annuitant will no longer be necessary).

280.     Clause 93(2) makes consequential amendments to section 6(1) of the DA 1996 and the Schedule thereto to reflect the terms of the new section 2 (as inserted by Clause 92).

Provisions relating to Northern Ireland

Clause 94: Power to alter judicial titles: Northern Ireland

281.     This clause provides the Lord Chancellor with a power to amend the judicial titles listed (the list encompasses all of the judicial titles in the Supreme Court and county courts in Northern Ireland) in the future should the need arise. Some titles may need modernisation, to make them more helpfully explanatory to court users. The acceptance commanded by titles containing a presumption of male gender might also change. Such orders may only be made with the concurrence of the Lord Chief Justice of Northern Ireland. Clause 59 makes similar provision or England and Wales

Clause 95: Official Solicitor of Northern Ireland

282.     This clause removes the post of Official Solicitor to the Supreme Court in Northern Ireland from the list of statutory offices in Schedule 3 to the Judicature (Northern Ireland) 1978 (sub-section (1)) as all the other statutory officers exercise judicial functions. This clause specifies the amendments to s75 of the J(NI)A 1978 that relate to the position.

PART 9: FINAL PROVISIONS

SUMMARY

283.     Part 9 contains minor definitions and qualifications referred to in the Bill, and states the parliamentary scrutiny to be employed for clauses allowing the Lord Chancellor to make rules, regulations and orders. This part also provides for the enactment of the consequential and repeal Schedules of the Bill and states that provisions in the Courts Bill extend only to England and Wales, subject to a few exceptions. Part 9 allows the Lord Chancellor to make transitional and consequential provision by order and also contains the short title of the Bill.

COMMENTARY ON CLAUSES: PART 9

Clause 96: Interpretation

Clause 97: Rules, regulations and orders

284.     Clause 96 contains definitions used throughout the Bill (e.g. 'judge'), and definitions of Acts referred to in the Bill. Clause 97 sets out the parliamentary scrutiny to be employed for clauses allowing the Lord Chancellor to make rules, regulations and orders.

Clause 98: Minor and consequential amendments, repeals etc.

285.     Clause 98 enacts the consequential and repeal Schedules of the Bill. Subsection (3) allows the Lord Chancellor to make an order for supplementary, consequential and transitional provisions, while subsection (4) makes it clear that such an order can, if necessary, amend or repeal other enactments. This type of clause is not unusual in Bills which reform existing statutory schemes and therefore require transitional provisions and/or which have a large number of consequential amendments, see for example the Adoption and Children Act 2002. A power to make transitional provision by order is essential, for example, to make provision for existing court security staff in the higher courts to be designated as court security officers and acquire the enhanced security powers in Part 4 or to ensure that information registered in the current register of judgments can be transferred to the new register of judgments and orders.

286.     Schedule 6 contains minor and consequential amendments arising from, among other things, provisions in this Bill removing magistrates' courts committees, the post of justices' chief executive, commission areas and petty sessions areas.

287.     Given the scale of these consequential amendments, the power to make consequential amendments by order is important both because further statutory references in need of amendment may come to light and because Bills in the current Parliamentary Session that contain references to, for example, petty sessions areas could be enacted or implemented before provisions in the Courts Bill, requiring consequential amendment.

Clause 99: Commencement

Clause 100: Extent

Clause 101: Short title

288.     Clause 99 provides for the Lord Chancellor to order commencement dates for provisions in the Bill. By virtue of clause 100, provisions in the Courts Bill extend only to England and Wales, subject to subsections (2) and (3) which contains exceptions. The Short title of the Act will be "Courts Act 2003", by virtue of clause 101.

EFFECTS OF THE BILL ON PUBLIC EXPENDITURE

289.     The Bill is expected to have an effect on public expenditure which is initially neutral and later a reduction. Additional preliminary costs arising from the re-organisation of the courts will be negated by possible savings to the Health Service through the move towards periodical payments and possible improvements in fine enforcement. Later the new courts organisation should lead to savings. The costs of the Bill costs will be accommodated from within departmental spending limits, using appropriate phasing and piloting as necessary.

Unified courts agency

290.     The current cost of running the magistrates' courts is £435m per annum. The Lord Chancellor currently funds 80% of the cost, with the remaining 20% covered by local authority funding (£85m). As a result of the Bill the Lord Chancellor will have sole responsibility for the funding of magistrates' courts and there will be an attendant transfer of funds within Government.

291.     There will be initial implementation expenditure on management of the transfer of pay and pension responsibilities, buildings and associated contractual obligations from Court Service, MCCs, Greater London Magistrates' Courts Authority (GLMCA) and Local Authorities to a new single agency.

292.     Once the new agency is established, the implementation costs will be balanced by an organisation which represents better value for money and improves quality of service through the integration of courts administration at national and local level. This will enable economies of scale and more efficient and effective use of resources, better focussed on local needs.

Security

293.     The provisions on security will strengthen and ensure greater consistency in the existing court security regime. This will be achieved by giving the Lord Chancellor statutory responsibility for court security, and providing and defining in statute the roles of new court security officers with enhanced powers to control and maintain security in court precincts.

294.     The provisions in the Bill have no immediate financial implications since these provisions are enabling measures which will allow improvements to court security, as necessary, from within existing resources.

Inspectorate

295.     The provisions in the Bill on inspection provide for the establishment of a new courts inspectorate. The Inspectorate of Court Administration will replace but build upon the work currently undertaken by the Magistrates' Courts Service Inspectorate (approximate cost £2m per annum). The new Inspectorate, as well as continuing with the inspection of magistrates' courts and the Children and Family Court Advisory and Support Service (CAFCASS), will also begin inspections of the Crown Court. It is estimated that the additional costs for extending inspections into the Crown Court will be approximately £0.4m per annum. The Inspectorate's work of annual inspections and the identification of best practice will lead to continued improvements in the efficiency and effectiveness of the magistrates' courts and the Children and Family Court Advisory and Support Service and, for the first time, bring undoubted benefits to the management and performance of the Crown Court. Further extension of the inspection regime to other parts of the courts system will be subject to phasing. The new inspectorate will contribute to whatever new arrangements are set in place following the current review of cross-criminal justice inspection.

          Fine enforcement

      296.     The Regulatory Impact Assessment calculates that, using 2000-01 as a base year, each 1% improvement in the payment rate yields a benefit to society of c£4m per annum. On the assumption (which can only be fully tested through the pilot schemes) that implementation of the fine enforcement package achieves a 10 percentage point increase in the payment rate, the benefit to the Exchequer could be around £40m per annum. In addition, there would be further (albeit unquantifiable) benefits arising from the increased credibility of the fine as a sanction for criminal behaviour.

297.     A decision on national implementation of each element of the fine enforcement package would only be taken once the pilots had been evaluated, and on the basis of much firmer cost/benefit projections. Clause 31 of the Bill contains provisions enabling the Lord Chancellor to modify the provisions set out in Schedule 2 in the light of the pilot schemes, so that the enforcement measures which are implemented across England and Wales are both practicable and effective in reducing arrears. Should any of the proposed measures not prove cost-effective, they will not be pursued.

     Periodical payments for damages

298.     The Bill provides for a new system of periodical payments for personal injury damages. The financial effects of these provisions on the public sector will affect primarily the National Health Service, which is by far the largest single public sector defendant required to fund damages awards for personal injury. The provisions would create savings for the NHS in that damages awarded by way of periodical payments would not need to include the claimant's costs for investing a lump sum and liability for income tax. Short to medium term cash savings will be gained as streams of periodical payments are put in place instead of immediate lump sums. These savings on damages will reduce the resources diverted from patient care. The RIA tests the effect of different levels of uptake of periodical payments. These demonstrate potential ongoing annual savings of between £22m and £32m, and an initial reduction in annual cash requirement of between £126m and £245m, reducing to a neutral effect and ultimately a smaller negative cash flow impact after 24 to 32 years.

          Criminal Procedure Rule Committee

299.     The Bill provides for the establishment of a new Criminal Procedure Rule Committee. This will require the establishment of a new secretariat. It is anticipated that this will eventually consist of six members of staff, at a cost of approximately £0.35m per annum. Once the new Rule Committee is fully operational the expenditure on supporting the preparation of rules for the Magistrates' and Crown Court Rule Committees will no longer be necessary.

300.     In the longer term, the reform of criminal procedure should result in streamlined processes for the criminal courts, with incidental savings for the administration and consequential benefits for the wider criminal justice system.

EFFECT ON PUBLIC SECTOR MANPOWER

301.     As a result of the establishment of the new unified courts agency, 10,100 staff will transfer from the employment of the Magistrates' Courts Committees and the Greater London Magistrates' Courts Authority to the Lord Chancellor.

302.     The security clauses have no immediate effect upon the levels of public service manpower. If the decision is taken to provide additional court security officers, then levels will rise.

303.     Fines officers for the unified courts administration would be appointed in every area under provisions in the Bill, after the initial pilot schemes. Existing staff in MCCs (or after abolition of MCCs, in the new courts agency) would become designated fines officers, with statutory powers. The introduction of this post is likely to require some re-organisation of the existing responsibility of administrative staff, but it is not expected to increase the overall salary bill. Any additional manpower costs would be offset by a reduction in enforcement court hearings and a corresponding decrease in warrant tracking by court staff.

COST TO BUSINESS AND REGULATORY IMPACT

304.     The only provisions in the Bill which will result in a significant cost to business, charities or the voluntary sector are those in respect of periodical payments for personal injury damages, and enforcement of financial and non-custodial penalties. The two Regulatory Impact Assessments are being placed in the Library of the House and on the Department's website as accompanying documentation.

     Periodical Payments

305.     The Regulatory Impact Assessment (RIA) on periodical payments shows that the provisions will affect a range of personal injury claims, including claims for clinical negligence, public and employers liability, and motor accidents. The overall impact on claimants will be that, where periodical payments are awarded, they will be relieved of the risks associated with large scale investment of the award and will not have the risk that they will outlive the award. It is anticipated that the net effect for claimants will be positive. The impact on private sector defendants covered by general insurance policies will depend upon whether the liabilities of insurers are raised or lowered, and thus what impact there is on insurance premiums. It is estimated that, subject to changes in annuity rates, insurers could achieve savings of around 4% by purchasing annuities compared to paying a lump sum. However, given the uncertainties involved, the safest conclusion to draw is that the value of claims against liability insurers will not be materially affected. (Details of the impact on public sector defendants is given above).

306.     It is likely that the market for financial advice and management of investment portfolios will shrink as a result of a move to periodical payments, although there may be the opportunity for additional business as a result of the increased use of annuities. The taxpayer will benefit from the savings to the NHS and other public sector defendants of staging payments over a number of years, and also potentially from the removal of the risk that claimants will exhaust their awards and fall back on the State. However, it is not possible to quantify these benefits with any certainty. The overall impact on the courts and lawyers is assessed as neutral.

     Fine enforcement

307.     The Regulatory Impact Assessment on fine enforcement shows significant potential benefits in enabling the courts to set fines at an appropriate level, removing the need for some court hearings and providing greater powers to manage and enforce collection of fines - with the overall aim of improving payment of fines and improving confidence in the effectiveness of the fine as a punishment. These benefits outweigh the potential impact on advice agencies who are likely to be involved in advising people (to assist them in completing forms), bailiffs (who would have a role in enforcement) and the organisation maintaining the register of fines. A decision on national implementation of each element of the fine enforcement package will only be taken once the pilots had been evaluated, and on the basis of much firmer cost/benefit projections.

308.     Prior to piloting the measures, it is not possible to say what the effect the proposed measures will have on the payment rate of fines. However, it can be said that the benefit to society from having a financial penalty paid in full is represented by the level of that fine. Therefore, using 2000-01 as a base year, each 1% improvement in the payment rate yields a benefit to society of £4 million.

     COMMENCEMENT

309.     The provisions in the Bill will come into force on days appointed by the Lord Chancellor by order.

310.     Clause 36 (Effect of Act of Settlement on existing justices of the peace) will come into effect as soon as is practicable after Royal Assent.

311.     It is anticipated that the provisions in the Bill on unified administration and bringing the courts closer together will be brought into force on a day appointed by the Lord Chancellor, not before April 2005.

312.     Provisions on fine enforcement will be piloted as soon as possible after Royal Assent, with national implementation proceeding according to the effectiveness of the measures.

     EUROPEAN CONVENTION ON HUMAN RIGHTS

313.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined in section 1 of that Act). The statement has to be made before second reading. On 25th November 2002, the Lord Chancellor made the following statement—

    "In my view, the provisions of the Courts Bill [HL] are compatible with the Convention rights."

 
 
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Prepared: 29 November 2002