Justice ministers are looking at introducing a dual discount rate for PI damages which would change depending on how long the effect of injuries lasts.

Opening a call for evidence today, the Ministry of Justice said there was an ‘interesting’ case for setting different rates, applying a higher rate for longer settlement where expected returns are larger.

Personal injury awards are currently subject to a single rate set at -0.25% - effectively adding to the claimant’s lump sum – after the last adjustment in 2019. The rate is designed to ensure the ‘100% principle’ of claimants being in the same position they would have been if their accident had not taken place, and calculates what (if any) discount should apply to take account of investment returns from their lump sum.

But the Damages Act upon which the discount rate was introduced provides the flexibility for different rates to be set for different types of cases, and the government said it is keen to explore whether this approach should be adopted as it has in other jurisdictions.

Introducing the call to evidence, justice minister Lord Bellamy KC said: ‘Historically, there has been a single discount rate used for all cases, regardless of the size and duration of the damages awarded. This differs, however, from the approach used in other common law jurisdictions, and it has been argued that it can result in unfairness to claimants.’

As part of its analysis ahead of the 2019 change, the government actuary developed a working model in relation to prescribing dual rates. This involved setting a lower short-term rate and then moving to a higher rate after 15 years. The idea was shelved due to lack of supporting evidence, but the lord chancellor is required to review the rate again in 2024 and could decide this is the right moment to differentiate.

The call for evidence sets out reasons for and against a dual rate. It warns of the potential to increase confusion, complexity and litigation, and the knock-on effect of rising costs and delays at all stages of the process. A single rate, it is suggested, has the benefits of greater simplicity and transparency.

On the other hand, basing the rates on duration of injuries could make outcomes fairer by ensuring that shorter term claimants benefit from a pro rata larger sum. Ministers would also like the discount rate to be more flexible and believe that the single rate potentially over-compensates some claimants. The stepped rate offers a ‘more logical process’ for claimants and defendants to follow, the consultation argues.

The call to evidence highlights examples of dual rates in Ontario, Jersey, Ireland and Hong Kong. In the latter jurisdiction, for example, the rate is -0.5% for cases where the loss is up to five years, 1% where the loss is up to 10 years and 2.5% where the loss exceeds 10 years. In Ontario, the short-term rate is 0.5% and the long-term rate is 2.5%: since 1999 the short-term rate has been amended 16 times, while the long-term rate has remained unchanged.

The call for evidence will last for 12 weeks and will close on 11 April.

 

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