REFORM IN Jersey
to the enactment of the Damages (Jersey) Law 2019 there had been little
statutory intervention in Jersey in respect of the award of damages in personal
injury cases. The Damages (Jersey) Law 2019 changes this. It creates a regime
for setting the “discount rate” for future pecuniary losses,
together with a power to order periodical payments, even in the absence of
consent of the parties. It has introduced a good deal of certainty in an area
of law that was hitherto uncertain.
1 The Damages (Jersey) Law 2019 (“the
Law”) was lodged au Greffe by
the Chief Minister on 24 October 2018, adopted by the Assembly after debate on
29 January 2019, and came into force on 3 May 2019.
2 It is a short Law of only seven articles,
but its importance belies its length. It makes provision for compensation in
personal injury cases by requiring (for the first time in Jersey) courts to
apply a specified discount rate for future pecuniary losses and also creates a
statutory regime for awarding damages by way of periodical payments. Both the
discount rate and periodical payment orders are matters upon which many other
jurisdictions either have legislation or are considering legislation and the
Law represents a substantial reform which has already had a significant effect
in personal injury cases.
3 The Law concerns awards for damages for
personal injury. Damages awarded by a court ought to be sufficient to cover the
loss and expense occasioned by the injury.
4 In calculating damages in personal injury
cases, the Jersey courts have often chosen to follow the principles established
by the English common law. This
includes having regard to the decision of the Privy Council on appeal from the
Court of Appeal in Guernsey in Simon v
Helmot namely, per
“[T]he claimant should receive full compensation
for the loss which he has suffered as a result of the defendant’s tort—not
a penny more, but not a penny less.”
5 Accordingly, the plaintiff should receive
full but not excessive compensation. In many cases there will be uncertainly as
to the cost of future care; how long the victim might need care; and advances
in medical science which may increase or reduce the cost of care.
6 Ultimately, when determining an
appropriate lump sum award for a plaintiff whose claim includes future
pecuniary losses, the court needs to come to view as to:
costs of future care;
the effect of inflation on the costs of care; and
investment returns on the award of damages, which includes considering both
what sort of investments are appropriate in terms of risk and the returns that
might be gained on those investments.
7 The difficulty in awarding damages is
that it is not possible to know exactly how much a plaintiff will need when
damages are assessed. Even if the cost of care required in any case is agreed,
it is not known how much money needs to be awarded today to pay for it when it
is needed in the future.
8 For good reason it is recognised that the
only certain thing about an award of damages in these circumstances is that it
will be too much or too little, see D v
Greater Glasgow Health Board.
The discount rate
9 The discount rate is a method by which
the future pecuniary losses included within a lump sum award are adjusted to
take account of the predicted return on investing the lump sum awarded to the
plaintiff and any inflationary considerations which may affect that predicted
return. Article 1 of the Law defines the discount rate as:
“the rate of the return from the investment of a
sum awarded as damages for future pecuniary loss in an action for personal
10 It is recognised that the setting of a
discount rate for use in personal injury cases is not a straightforward
exercise, and that the outcome is very important to all those affected; both
the victims and their families and, on the other hand, insurers and uninsured
defendants and, in certain circumstances, the state. If the discount rate is
too great, then a lack of investment return or erosion of value through
inflation could cause the plaintiff to run out of money in his or her lifetime.
But if the discount rate is set too low, then damages will be higher than
required, leaving a surplus when the victim dies—a surplus funded by
defendants and/or their insurers. Eliminating all risk to particular plaintiffs
might, for example, come at considerable cost to the wider economy or the
provision of public health services.
11 In England and Wales, the 1996 Damages
Act allows the Lord Chancellor to set the discount rate for that jurisdiction
thus obviating the requirement for the court to determine the rate. The rate
was first set in 2001 at 2.5%, which remained the rate until 2017.
12 It is generally accepted that a
recipient of damages for personal injuries should not be required to invest the
damages in high risk investments. However, Wells
v Wells went further, and this, and other cases, established
that the plaintiff was entitled to invest his or her damages in extremely low
risk investments including gilts i.e.
index linked government stock (“ILGS”).
13 The fact that a plaintiff may choose to
invest in other securities offering a higher rate of return was held to be
irrelevant to the calculation of lump sum damages. Consideration of what is actually
done with an award or how it might be spent or invested was not to be taken
14 It was generally agreed that the
discount rate should not frequently be adjusted.
15 When the discount rate of 2.5% was set
by the Lord Chancellor in 2001, ILGS yields were good and well in excess of
inflation. The 3-year average yields on gilts with 5 years to maturity was
2.46% in 2001. With an appreciated 15% reduction for tax giving a yield of
2.09%, the discount rate was set at 2.5%.
16 However, events subsequent to the
financial crisis from 2008 onwards led to a drastic fall in ILGS yields. Those
wishing to invest conservatively had to accept much lower rates of return. By
this time the historic average ILGS yields had fallen into the negative, leading
to the Lord Chancellor being advised that the discount rate, if it was set
using the same methods used in 2001, should be between –1, and –0.5%.
In those circumstances, the Lord Chancellor, constrained as she was by the
approach taken in 2001, set the rate at –0.75%.
17 This led to controversy, particularly
given the effect upon insurers and the NHS, where the cost of medical
negligence claims suddenly substantially increased. The new rate set by the
Lord Chancellor was also much lower than discount rates set in other countries.
18 Setting the discount rate in England and
Wales has become, as recent experience has shown, a controversial and lengthy
19 It was generally agreed that it would be
sensible for Jersey to pass a law providing for a statutory discount rate. Most
common law jurisdictions have done so. Not to have such a discount rate results
in uncertainty for plaintiffs, defendants and insurers, and makes it worthwhile
for parties to contest the discount rate on a case-by-case basis.
20 The most important case for the Channel
Islands in respect of the discount rate was the Guernsey case Simon v Helmot.
In this case, all parties proceeded on the understanding that the Wells v Wells approach was to apply. However,
on the basis of expert evidence, the court decided that the return on ILGS
investments was lower than when the Lord Chancellor had set the England and
Wales discount rate in 2001, and that Guernsey inflation rates (particularly
for earnings) should be taken to be significantly higher than those in the UK. The
result was that Guernsey Court of Appeal and the Privy Council decided that the
relevant discount rates for Guernsey should be substantially lower than the
then prevailing discount rate set by the Lord Chancellor in England and Wales. This
eventually resulted in a case in Jersey in 2018 where the plaintiff’s
advocates were arguing for even lower discount rates (as low as –4.5%).
v Helmot and periodical payments
21 It was recognised by the Privy Council
in Simon v Helmot that periodical payment orders are the
fairest way of assessing damages. Periodical Payment Orders (“PPOs”)
provide for damages to be paid periodically as opposed to being paid in a
single lump sum. So if a court decides that a plaintiff will need
£100,000 per year to pay for care costs for the rest of his or her life
the court does not need to worry about investment returns or life expectancy if
the sum is being paid annually.
22 The advantages of PPOs include:
it is not necessary to estimate life expectancy;
there is no worry that the damages will run out before the plaintiff dies;
there is no need to speculate on investment returns; and
there is no concern that there might be a surplus at the end of the
plaintiff’s life or when the injuries resolve. Generally courts err on
the side of caution, and there is frequently a considerable lump sum left when
the plaintiff dies which may have the effect of inadvertently enriching third
23 However, there are legitimate concerns
that arise from awarding damages by way of PPOs, including the following:
it is necessary for the order to be secure for the whole term. Many corporate
defendants will simply cease to exist over the course of, say, 50 years.
Accordingly orders can only be made against public bodies or particular
insurers often prefer to pay a single lump sum as it gives certainty of
PPOs have proven inflexible, and for a long time it was a feature of English
legislation that it was only possible to vary an order once. This had the
consequence that parties were reluctant to apply to vary an order as they knew
it would be their only opportunity to do so; and
a lump sum ends the relationship between plaintiff and defendant, whereas PPOs
necessarily continue the relationship, creating uncertainty and additional
24 Prior to the enactment of the Law PPOs
could be ordered in Jersey by consent. It was
not as clear whether customary law permitted a court to make a PPO where one of
the parties objected. The possibility had been suggested (obiter) by two of the judges in Simon
v Helmot. The
Attorney General argued as partie
publique in the case of X v Minister
of Health & Social Services in 2018, that there was customary law authority
allowing the Royal Court to develop practice so as to allow such payments to be
made without legislation, however the case settled before judgment.
25 Legislation which exists in other
jurisdictions in part informed the contents of the damages legislation which
was ultimately adopted in Jersey. Consideration of comparative law was greatly
assisted by an extensive briefing paper prepared for the Ministry of Justice by
the British Institute of International and Comparative Law (“the BIICL paper”).
26 The appendix to this article contains a
bar chart showing various discount rates for jurisdictions, as considered in
the BIICL paper. As the chart demonstrates, the discount rate in England and
Wales (and the discount rate contended for by the plaintiff in the case X v Minister of Health & Social Services
in 2018) was
an outlier when compared with the rates established in comparable countries. It
can be seen that the discount rates in the Australian states generally vary
between 5% and 6%, the rate in Spain is 3.5%, the Canadian rates are generally
between 2.5 and 3%, Hong Kong has three discount rates depending upon the
period during which the loss is anticipated to endure (0.5%, 1% and 2.5%),
South Africa and the Isle of Man hold to the discount rate of 2.5% and in the
Republic of Ireland the rate, depending upon the component of the claim, is 1%
27 The Australian rates show that in these
states the principle upon which compensation is ordered is different from that
which applies in England and Wales. In Australia the discount rate is a
compromise between a discount that accurately reflects the real rate of return
a plaintiff might obtain by investing in reasonably safe investments, and one
that takes into account the fact that too low a rate of return might have
adverse consequences on the provision and cost of liability insurance.
28 Most jurisdictions have a single
discount rate. However the English and Scottish legislation (the latter in its
Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019) have
the power to set different rates. Furthermore, certain jurisdictions do have a
split discount rate, including Hong Kong and Victoria, both of which have a
split rate depending on the number of years of projected loss. Victoria and
Tasmania have split rates based on the type of accident and Quebec and British
Colombia rates split depending upon the type of loss (for example earnings or
29 Different jurisdictions have adopted
different approaches as to who should set the discount rate. In Ontario, it is
set by the Attorney General. In other jurisdictions it is often set by the
Government. In England the rate is set by a Minister (the Lord Chancellor) and
in Scotland the rate is to be set by a rate assessor who is appointed by the
30 The amount of discretion in the rate
assessor varies depending on the model. The process for setting the rate in
Scotland for example is strictly prescribed. The rate of return must reflect
the return that could reasonably be expected to be achieved by a person who
invests in a “notional portfolio”
for a period of 30 years. The notional portfolio is prescribed in a table which
sets out in precise percentage terms the combination of investments which
includes cash, gilts, equities, bonds, investment grade credit and property.
Plainly the more prescriptive the legislation, the less discretion is in the
hands of the rate assessor.
Key aspects of the Law
31 With one caveat, the Law was enacted as
drafted. The Law underwent a lengthy scrutiny process prior to being debated.
32 Article 2 of the Law provides a
mechanism for setting the discount rate. It was thought necessary and appropriate
for the Law to set the discount rate in statute at the outset in order to
ensure that the experience in England and Wales of a lengthy delay in setting
any discount rate should be avoided. In order to prevent such a delay, Article
2 introduces two statutory discount rates which took immediate effect. The
0.5% in respect of future pecuniary loss expected to be occurred for a period
not exceeding 20 years;
1.8% in respect of future pecuniary loss expected to be incurred for a period
exceeding 20 years.
33 Nonetheless, there needed to be a sound
evidential foundation for the setting of the initial discount rate(s). This
evidential foundation was referred to in the report accompanying the proposition
containing the draft Law and exhibited as appendix 2 to the report. It
consisted a review conducted by the States of Jersey’s Senior Economist
and Director of Treasury Operations and Investments which itself referred to a
report prepared by the UK Government Actuary’s Department prepared for
the Ministry of Justice in July 2017.
34 This last report (“the GAD
report”) was the outcome of an analysis of the investment strategy
actually adopted by plaintiffs having received advice from investment advisers
as opposed as to the theoretical (and impractical) investment of the whole of
sum in gilts.
35 This analysis showed that the returns
that plaintiffs received would very much depend upon the investment strategy
adopted by their adviser. The GAD report demonstrated that the proposed discount
rates considered were lower than the median return on many investment
portfolios over the longer term. The consequential level of over-compensation
depended upon the investment strategy selected and ranged between 35% and 48%.
The two principal investment strategies selected by the GAD report were broadly
derived from consultation with wealth and investment managers. The report
showed, for example, that gilts were projected to give a negative annual return
over the next 50 years whereas, by contrast, if a fund was invested in UK
equities over a 30-year period, then the effective real return would be RPI
plus 2%, which would allow a discount rate of 2% to be selected, resulting in
no under or over compensation.
36 The GAD report model featured two investment
strategies. First, an average or typical portfolio invested in by personal
injury plaintiffs, based on evidence from wealth managers, investors and
investment advisers, which corresponded most closely with a low risk strategy. Secondly,
a separate portfolio representing again an average or typical portfolio
invested in by personal injury plaintiffs, based on evidence from wealth
managers and investment advisers, which corresponded to plaintiffs who would be
described as taking more risks than plaintiffs adopting the first portfolio.
Nonetheless both, overall, were low risk investment strategies. The GAD report
stated there is no universally accepted definition of a “low risk
investor” or “a low risk investment strategy”.
37 The expected real returns for the two
portfolios over 10 years were 0.6% and 1.3% respectively, over 20 years 1.2%
and 1.9% respectively, and over 50 years 1.6% and 2.3% respectively; these
figures all being net of inflation.
38 The GAD report indicated that these
“the importance that the duration of the award
is likely to have on claimant outcomes—expected returns over shorter
periods are lower, meaning that claimants that adopt a given strategy with
shorter awards are more likely to be under-compensated.”
39 It was this finding that led directly to
the proposal that there should be two discount rates for Jersey.
40 The analysis of the GAD report by the
Senior Economists and the Director of Treasury Operations and Investment
considered the two assumed portfolios, and agreed that it was unrealistic for
Jersey to follow a “no risk” approach on the footing that
plaintiffs should be treated as if they invested solely through gilts.
41 It was noted that the performance of the
two portfolios led to the recommendation that the discount rate be separated
into two rates—one for short term losses of less than 20 years and one
for long term losses of 20 years or more. This would yield discount rates of 1%
and 1.8% respectively. However it was then necessary to consider whether or not
the UK projected returns (net of UK RPI) should be adjusted having regard to
any difference in historical and future inflation between Jersey and the UK.
42 The Jersey reviewers suggested an
adjustment to the discount rate to reflect the difference in inflation over the
shorter period by reducing the discount rate by 0.5% (to 0.5%). Over the longer
term it was expected that the inflationary differential between Jersey and the
UK would revert to historic norms and that no adjustment should be made. It is
unlikely that Jersey and UK prices should grow apart exponentially over future
decades, as would be the case if it was assumed that Jersey would have a
permanently higher inflation rate.
43 Accordingly the recommendation of the
Jersey experts was that the two initial discount rates should be set at 0.5%
and 1.8% respectively.
44 As to the method of setting the discount
rate, art 2(3) of the Law provides the Chief Minister may, after consultation
with the Bailiff, amend the discount rate. It was thought that the correct
balance between executive and judicial power which is necessary to ensure that
on the one hand public funds were properly protected, and the other that the
interests of victims as litigants were properly catered for, was struck by this
45 The remainder of art 2 of the Law deals
with the matters to be taken into account when setting the discount rate. In
this regard the States have not yet made regulations which provide detailed
rules for the setting of a discount rate, although this may follow, if
necessary, in due course.
46 Without prejudice to the generality of
the regulation making power at art 2(4), art 2(5) sets out that the regulations
may make provision for a number of matters including, for example, the process
for determining the discount rate and any requirement for consultation.
47 The only express criteria that the
regulations must provide for is set out in art 2(6) which provides:
“In making provision in Regulations for
determining the discount rate, the States must take into account the return to
be expected from a lower risk diversified portfolio of investments.”
The purpose of this provision is to ensure that
whatever regulations the States ultimately adopt, the basket of investments by reference
to which the discount rate should be calculated should not contain only gilts
but a “diversified portfolio of investments” which would be
“lower risk” as opposed to “low risk”.
48 Finally, art 2(7) provides that “The
discount rate must not be amended to a percentage less than 0%.”
49 A similar provision was identified in
other jurisdictions and commended itself to the Government and ultimately the
States, on the footing that it would ensure that there was no risk of a
negative discount rate being set with the consequences that might have. It was
thought that it would be only in extremely unusual circumstances, such as
economic collapse, that there would be evidence of longer term inflation
exceeding investment returns and, in such circumstances, it would be wrong for
the interests of plaintiffs to be preferred to the interests of other
individuals faced with similar economic circumstances. It would
only be in those circumstances that the principal of compensation would be
50 Article 3 and certain provisions of the
Income Tax (Jersey) Law 1961 allow the States to make regulations amending the
Law to make provision for the taxation (including exemption from taxation) of
lump sum payments for future pecuniary loss awarded by a court in personal
51 Article 4 places periodical payment
orders on a statutory footing.
52 Article 4(2) provides that—
“A court awarding damages for future pecuniary
loss in respect of personal injury may make an order that damages must wholly
or partly take the form of periodical payments.”
53 Article 4(3) provides that a court may
not make such an order unless it is satisfied “that the continuity of
payment under the order is reasonably secure.”
54 What amounts to reasonable security is
set out in art 4(4) of the Law, and includes orders enforceable against a
Minister, orders protected by a scheme established under any jurisdiction which
gives protection equivalent to the scheme established under s 213 of the
Financial Services Market Act 2000 of the United Kingdom, or it is subject to a
guarantee given by a Minister for Treasury and Resources.
55 Article 4(8) of the Law is significant
in that it provides that—
“A person who has an interest in the making or
receipt of a payment under a periodical payment order may apply to the court
for a variation of the provisions of the order on the ground that there has
been a material change of circumstances since the order was made.”
56 This gives a wider power of variation
than appears to be applicable in other jurisdictions, and certainly in England
and Wales, in respect of the circumstances in which an order can be varied. There
was no attempt in the legislation to define “material change of
circumstances”. This has been the subject of some criticism on the basis
that insurers will be uncertain as to the circumstances in which a PPO can be
said, there is a good argument to the effect that the courts will, in the
perhaps unusual circumstances where such an application was made in Jersey, be
able to give guidance through case law as to what amounts to a “material
change in circumstances”. In England and Wales, only certain changes can
lead to a variation of a PPO, and a particular type of change can only lead to
one variation during the lifetime of the PPO. A
Northern Irish case where the same rules apply shows that such inflexibility
has led to attempts to side-step the statutory regime by building possible
variations in the original PPO. Rather
than delay whilst seeking to develop a perfect regime, or import an imperfect
English approach into Jersey, it was thought better to give a broad discretion
to the Royal Court.
57 The only amendment to the Law in draft
form was made to art 4 in respect of the States’ regulation making power
to make provision for when there has been a material change of circumstances
and when an application can be made to vary a PPO. I return to this amendment
58 Article 5 of the Law deals with the
definition of public bodies for the purpose of making PPOs against such bodies
and art 6 deals with the transitional provisions in respect of actions for
damages instituted prior to the commencement of the Law. This was an important
provision in order to ensure that such human rights issues as might arise from
the Law applying to pending cases could be avoided. This may have been an
unnecessary precaution given the English High Court decision in R (Assn
of British Insurers) v Lord Chancellor, rejecting the need for transitional provisions when the discount rate
was reduced in England in 2017 from 2.5% to –0.75%.
However, given the importance of the Law, it was necessary to prevent human
rights arguments delaying the legislation’s passage to Royal Assent, or
for doubts over its application to persist after its registration.
59 The discount rate applies to court
orders for damages made on or after the commencement date unless the court
considers that to do so would breach the rights of a party to an action under art
6 of the European Convention of Human Rights.
60 Such restrictions do not apply to PPOs. A
PPO could be made in any case, even by a court on appeal subsequent to a trial
that took place before the commencement date. There was no difficulty in
following this approach as the Privy Council in Helmot v Simon had indicated that PPOs would normally be a fairer
way of disposing of a matter than a lump sum award. Lord Dyson put it simply
“In my view, periodical payments are obviously
the most accurate (and therefore the fairest) way of taking future inflation
into account in the assessment of damages.”
61 It has not been suggested in any case
which has been determined since the coming into force of the Law that the
provisions of the Law do in fact amount to a breach of any litigant’s
62 The Corporate Services Scrutiny Panel
published a report on 28 January 2019 on the reforms. The panel received 13
submissions to its review, many of which offered detailed and technical
comments on the draft Law. Three public hearings were held in order to take
oral evidence. All the evidence received was published on the States Assembly
website. The chairman of the panel noted and acknowledged the need for
legislation in this area and that most stakeholders supported the principles of
a new Damages Law.
63 The contributions made during the
scrutiny process will not be described in detail. However, some were valuable
as they came from parties operating in other jurisdictions with experience of
both a statutory discount rate and PPOs.
64 The response of the Association of
British Insurers (“ABI”) was supportive of the draft Law. The
following extracts are of interest:
“2. The insurance industry fully supports the
principle that seriously injured claimants should receive 100% compensation. The
principle of full compensation requires a system that neither over nor under
compensates claimants. However, this is best achieved using methodology for
setting the rate which reflects a real-world approach to investment, rather
than a purely theoretical approach to how claimants invest their damages as the
current framework allows for.
3. The current discount rate in England, Wales and
Scotland of minus 0.75% reflects the application of a purely theoretical
approach [. . .]
4. Such an approach to setting the Discount Rate does
not deliver a rate that reflects reality. No properly advised claimant would
ever invest in ILGS alone, nor any single asset that would deliver a negative
return for the long term.”
65 The ABI expressly supported the proposal
that the discount rate should never be set below 0% and noted that this “underpins
real world investment decisions and is supported by the Senior
66 They went on to say—
“The ABI also supports the policy of reasoning
for this decision noting that it would not be appropriate for damages awards to
be “recession proof” when all other areas of public provision and
private services are not.”
The ABI went on to observe that they understood—
“that the current approach of the courts in
Jersey has often led to claims at levels which would exceed the likely limit of
indemnity of any cover held or available in this market.”
67 The ABI also supported the “dual
“A dual approach should ensure that those claimants
with a shorter investment period, who cannot rely as easily on returns from
investment in equities, are not undercompensated. A higher long term rate is
68 The ABI went on expressly to support the
two rates chosen as set out in art 2 of the Law and noted that those were
variations present in the Ontario and Hong Kong legislation. They observed:
“20. A dual rate mechanism recognises the
problem of using a “single” discount rate to determine lump sums
that are often calculated as the present value equivalent of very long payment
streams (typically 50 years plus). To assume that real yields will perpetually
remain at the current depressed levels in effect ignores the longer term
average returns that have been achieved historically, and that are likely to be
achieved again in the future.
21. The dual rate overcomes this flaw by setting rates
that recognise that settlements covering shorter durations may require
different assumptions from those covering longer durations.”
69 It was noted that the Ontario and Hong
Kong legislation differed and that the consensus appeared to be for a short
term rate of 10 to 15 years, and in that regard “The draft Law’s
combined proposal of 20 years and a rate of +0.5% represents a suitable
70 The ABI went on to observe that there
was a good argument for the short term rate to be more likely to be susceptible
to external factors and therefore more frequent review—noting the
proposal that the short term rate be reviewed every five years in England and
Wales. As to the long term rate that should be revisited but “should
rarely change, since it should not be affected by short-term or even
medium-term factors”. It was noted that the Ontario long-term rate had
not changed and had remained at 2.5% since 1981.
71 Interestingly, the ABI said that their
data showed that for claims with a value exceeding £1,000,000 the “average
life expectancy of the claimant is 46 years.” Accordingly this means, for
the Jersey context, all large cases are likely to be dealt with under the 1.8%
discount rate. Bearing in mind Jersey’s use of the GAD assumptions which
focused on the average period of years which a lump sum would be needed to last
being thirty years, the ABI view was that the long term rate should be “higher
than 1.8% and around the 2.5% net rate applied in Ontario since 1981.”
72 Accordingly their view was that overall
the provisions in the new Law were appropriate. The ABI noted that no allowance
had been made for investment management charges as part of the breaks of the
exercise. They said this was appropriate because plaintiffs purchasing such
services will tend to keep the cost to a minimum; a low risk portfolio involves
less active management meaning low management charges and a portfolio requiring
more active management should generate higher returns.
73 The ABI agreed that the new rate should
apply to existing cases as that was how the common law operated. They noted—
“The rationale is that the application of a
discount rate in an individual case is always a prospective exercise, looking
at the likelihood of future returns—even if it gives the appearance of
increasing or reducing the lump sum award.”
74 However, the ABI did feel that the
provisions in relation to PPOs lacked the necessary clarity as to the
circumstance in which they could be varied. Further, they felt this matter
should be dealt with by way of legislation and left to Rules of Court.
75 A Jersey law firm with experience in
acting in personal injury cases, including representing the plaintiffs in the X Children case, also provided a contribution. They
welcomed the proposal of a statutory system by which the discount rate was to
be set and accepted that it would reduce the cost involved in litigating claims
by avoiding the introduction of expert evidence as to the appropriate rate.
They opposed some of the provisions in the draft Law including the 0% floor for
the discount rate and the failure of the Law to stipulate the frequency of
review of the rate. They were also concerned that the Law did not provide the
courts with the power to set a different discount rate for a particular case if
justice required it, which had been a feature (albeit never used) of the United
Kingdom’s Damages Act 1996, and is also found in other jurisdictions. The
GAD report was criticised as providing an inappropriate evidential foundation
for setting the Jersey discount rate, and it was asserted that the approach of
calculating the discount rate on the footing that a portfolio consisting
largely or wholly of ILGS should be used, whether or not it represented what
plaintiffs did with their fund in the real world.
76 The statutory regime for PPOs was
welcomed, and in particular it was noted that the possibility of varying a PPO
where there has been a material change of circumstance was a welcome
improvement on the English position where, pursuant to the Damages (Variation
of Periodical Payments) Order 2005, the circumstances in which a PPO could be varied
were tightly restricted and only one application to vary could be made in
respect of each specified disease or type of deterioration or improvement
identified by the court when making a PPO. Under English legislation there was
no power to order unrestricted variation in instances such as when the payments
under the original PPO were insufficient and/or because care costs had
escalated over time.
77 It was argued that the transitional
provisions were not compliant with the European Convention on Human Rights as
they would infringe the common law rights to a lump sum in damages. As set out
above, there have been no problems in the United Kingdom in making changes as
to how to calculate the proper amount of compensation without transitional
78 The submission made by DAC Beachcroft,
an English law firm with extensive personal injury litigation experience,
welcomed the draft Law.
79 They noted that the then current
discount rate in England, Wales and Scotland of minus 0.75% reflected the application
of a purely theoretical investment approach, the then Lord Chancellor in
England & Wales having taken the view that the decision should be based in Wells v Wells, and
calculated the discount rate based on investment solely in ILGS. However, no properly
advised plaintiff would ever invest in ILGS alone, and there was absolutely no
evidence, when reducing the discount rate to –0.75% in March 2017, of any
plaintiffs who had invested their lump sum award solely in ILGS. As a result,
they believed that the then current discount rate over-compensated plaintiffs.
They also suggested that the rate of return on ILGS had been affected by a
number of factors including quantitative easing by the Bank of England,
excessive demand over supply, the regulator requirements on pension funds and
the influx of foreign capital during the financial crisis.
80 DAC Beachcroft supported the 0% floor
for the discount rate and the policy reasoning for the decision.
81 They observed that by basing the
discount rate on a real world approach to investment, the draft Law aimed to
provide plaintiffs with full compensation, whilst considering the importance of
protecting the public from the cost of over-compensation. The dual rate was
welcomed and they, like the AIB, observed that the short term rate is more
likely to be susceptible to external factors and may therefore require more
frequent review. As to the long term rate, that should only be changed if there
is evidence of a permanent shift in returns expected over the longer term.
82 As to PPOs, their view was that the
draft Law was too wide in terms of not limiting the circumstances in which an
order could be varied.
83 Various individuals also provided
submissions to the Scrutiny Panel including members of the medical community.
One wrote expressing her concerns in relation to the increased insurance rates
that she was facing and suggested that the States should look towards Australia
where a crisis had provoked change and appropriate discount rate had been set.
She and other medical practitioners suggested a rate of 4.5% or above was
was suggested that any other approach would create a crisis in general
84 The British Medical Association
(“BMA”) (and Hempsons, an English law firm specialising in medical
negligence) made a submission which included describing the “crisis in
clinical negligence funding in England.” The huge increase in the level
of damages for personal injury claims in England and Wales was evidenced. This
was attributed to the change in the discount rate which had provoked “a
surge in inflationary expectations.” They recommend legislation for a
positive discount rate not linked to risk free investment (ILGS), noting the
common law use of a 4.5% discount rate until 1999, and that “people who
recovered compensation on that basis did not run out of money.”
85 It was also recommend that the cost of
care, other therapies and accommodation should be removed as recoverable heads
of loss, and that plaintiffs should make the use of services provided by the
States instead. It was said—
“The problem with the contrary assumption that
we have seen in England is that every claimant demands a one-patient
institution, which was proved to be a prodigiously expensive way of providing
86 A cap on damages was recommended for
consideration. Tables produced by the BMA/Hempsons Solicitors, illustrated the
drastic effect of different discount rates. Assuming a 50 year term of loss,
with a discount rate of –2%, the multiplier was 86, whereas a discount
rate of +5% yielded a multiplier of 18.7. Jersey was invited to follow the
Australian approach to the discount rate, reject the notion of 100%
compensation, and strike a reasonable compromise to take into account the need
for the medical profession to deliver and remain able to provide their
services. The suggestion that to change the Law as proposed might give rise to
a claim that the human rights of a plaintiff whose case was being progressed
through the courts was rejected.
87 The Forum Insurance Lawyers Corporation
(“FOIL”) confirmed that they accepted both the 100% compensation
principle and at the same time welcomed the provisions of the new Law including
the approach to setting the rate and the dual rate.
88 FOIL said that the report from the GAD
indicated that the rate of –0.75% yielded 95% of plaintiffs being
over-compensated by an average of 35%.
89 By contrast, an English firm of personal
injury lawyers took a different view. They suggested that the proposed discount
rates were too high, and that the Jersey Government was wrong to rely upon the
GAD model portfolio.
Amendments made to the Law and the States
90 The scrutiny process led to
reconsideration of the draft Law, and one significant alteration was made as
91 Article 4(8) of the draft Law allowed
for variations to PPOs where there was a material change of circumstances. It
was recognised that the draft Law did not define what those material changes
were, however, it was envisaged that the court would not have any difficulty in
determining what amounted to a “material change of circumstances”.
To that end, the draft Law was amended to provide a regulation making power to
enable the Assembly to prescribe the conditions under which a PPO could be
92 The amendment empowers the States to
make provision for determining when there has been a material change of
circumstances and when an application can be made for variation, including
factors to be taken into account in determining whether there has been a
material change of circumstances;
any period of time that must elapse before an application or subsequent
applications are made, with reference to such factors as may be specified in
the regulations, including the nature of any change of circumstances or
when the leave of the Royal Court is required to make an application, either in
all circumstances or in such circumstances as may be specified.
93 There was also a small amendment to art
2 in relation to the content of regulations which might be made for the
purposes of making provisions in respect of the setting of the discount rate.
Response to the Law
94 So far the response to the Law has been
95 The new Law has had a beneficial effect
on negotiations that the Government of Jersey has had in renewal of its
96 In the run up to the debate on the Law,
members were alerted to a number of pending claims against the States of Jersey
which would be affected by the Law if passed. Of those cases, one settled for
significantly less than was originally anticipated. This was a result of a
complex range of factors, but it was clear that the Law played a significant
and integral role in reducing the overall liability. In relation to the other
cases, any trial will certainly be reduced in length and it is likely that any
lump sum that may be awarded will also be reduced as a consequence of the
statutory discount rate.
97 The reduction in the value of sums
claimed in all cases affected by the Law has so far been to the tune of tens of
millions of pounds. No claims have been made to the effect that
plaintiffs’ human rights have been adversely impacted.
98 As to the position in England and Wales,
after a period of approximately two years the Lord Chancellor has recently set
a discount rate of –0.25%. The rate has been subject to criticism in some
quarters and welcomed in others.
MacRae QC was HM Attorney General for Jersey between May 2015 and January 2020. He has now taken office as Deputy Bailiff of
Discount rates across
various jurisdictions—comparative bar chart (information correct at date the Law was passed)