New Discount Rates Proposed in Draft Jersey Law

In February of 2017, the then Lord Chancellor, Elizabeth Truss MP, reduced the personal injury discount rate to (-)0.75% from 2.5%. Her successor, David Lidington MP, subsequently announced that the Ogden rate would increase to somewhere between 0% and 1%. It is likely that his successor and acting Lord Chancellor, David Gauke MP, will be responsible for announcing the official rate after the initial review has been conducted.

Last week, the States of Jersey published a report, called: Draft Damages (Jersey) Law 201 (the ‘Draft Law’). Mirroring a discount rate regime already established in Ontario, Canada, the report proposes a dual rate system, as follows:

  • 0.5% of the entire settlement (where the single lump sum covers a period of up to 20 years); or
  • 1.8% of the entire settlement (where the single lump sum covers a period in excess of 20 years).

Factors which influenced the Jersey ‘rate determination’ recommendations, include:

  • 15-year inflation data, which shows that there is no long-term difference between inflation in Jersey and the UK, respectively;
  • The jointly launched consultation by the MOJ and the Scottish Government into the discount rate. This included detailed UK Government Actuary Department analysis of investment returns;
  • The analysis carried out by the UK Government Actuary’s Department in relation to investment returns, which suggested that claimants adopt a ‘low-risk’ as opposed to a ‘very low-risk’ strategy towards investment. This analysis was considered to have equal application in Jersey; and
  • The acknowledgement that ‘expected real return on investments is higher over longer time periods’.[i]

According to the ‘Draft Law’, suggested rates ‘will fulfil the principle of full compensation’ with ‘no financial or resource implications for the State’.

Elsewhere, Damages Act 1996 provisions (which will soon be replaced by the Civil Liability Act), in respect of discount rate adjustment, are not applicable to the Channel Islands. It is, however, interesting to compare the approaches taken by different jurisdictions, and speculate whether they will inspire similar changes elsewhere, e.g. the implementation of a dual-rate system in England and Wales, as opposed to a single rate?

In edition 252 of BC Disease News (here), we reported that the Civil Liability Bill had been approved by the House of Commons and was awaiting Royal Assent. Part 2 of the Bill (here) addresses how initial and subsequent personal injury discount ‘rate determination’ will be completed.

While the initial review in England and Wales will be conducted by the Lord Chancellor, who must consult the Government Actuary and the Treasury, the ‘Draft Law’ is the product of a review carried out by the Jersey States’ Senior Economist and the Director of Treasury Operations and Investments.

It does, however, allow the Chief Minister of Jersey to change the discount rates after consulting the Bailiff, as long as the proposed rate is not a negative figure. What is more, ‘detailed Regulations, providing for matters relating to the setting of the rate in future, will be bought forward for debate within 12 months of the draft Law coming into force’.

In addition, the ‘Draft Law’ confers a statutory power to award damages by way of Periodical Payment Order (PPO). This is reflective of the Scottish Government's Damages (Investment Returns and Periodical Payments) (Scotland) Bill, which introduces a ‘duty for the courts to consider whether a PPO is appropriate when awarding damages, where previously both parties had to consent’.

In edition 237 (here), we reported that a £238 million personal injury claim, brought by victims of abuse in X Children v the Minister for Health (2018), had been inflated by a (-)3.75 discount rate. At the time, we reported that the possibility of a PPO was a ‘live issue’, but the Royal Court was unsure of its capacity to impose such an order.

Evidently, the ‘Draft Law’ provides clarification where there had previously been uncertainty.

 

[i] Kate Mikolajewski, ‘Jersey discount rate: Draft Law published’ (7 November 2018 Lexology) <https://www.lexology.com/library/detail.aspx?g=4afa8b44-93d3-4fb5-8ee8-8a655a9be953> accessed 8 November 2018.