My Lords, we are dealing with sensitive issues here. Nobody wants claimants to get a raw deal, but we need to examine presumptions that we appear to be writing in, especially in the light— as has just been mentioned again—of the possibility of periodic payments. In his reply to the first group of amendments, the Minister seemed to say that the possibility of periodic payments was a lot more open than it appears to be, due to the statistics.
Amendment 80B is another probing amendment. I tabled it because the language of paragraph 3(3)(d)(ii) of new Schedule A1—it is much easier to say “the last three lines at the bottom of page 9”—does not seem quite right. The wording concerns how it is to be assumed the relevant damages are invested and says to assume,
“less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims”.
My amendment deletes the whole sub-paragraph, but it is a vehicle for probing and there are less extreme ways to fix it.
I understand the intention of the words: the claimant should be reckoned to invest in a cautious and advised way, perhaps more cautiously than an individual who does not have the same vulnerability. Paragraph 41 of the Explanatory Notes explains it as,
“less risk than would ordinarily be taken by a prudent and properly advised individual investor (who is not a claimant) with similar investment objectives”.
Those investment objectives clearly need to be the purposes set out in paragraph 3(2) of new Schedule A1, at lines 25 to 31 of page 9, which includes, for example, that the damages,
“would be exhausted at the end of the period for which they are awarded”.
However, the actual wording in the three lines at the end of page 9 does not seem to say the same thing. The first two lines—
“less risk than would … be accepted by a … properly advised individual investor”—
are broadly okay, but it then says,
“who has different financial aims”,
which is very different from the “similar investment objectives” of the Explanatory Notes. I am therefore slightly puzzled. Was the intention to state that they are different because they are not a claimant, is it a mistake, or have I missed some other point?
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Different financial aims could, for example, include capital preservation, which would then conflict with the capital exhaustion purposes of paragraph 3(2).
Which one prevails? What difference is covered? This could be fixed simply by deleting the last line,
“who has different financial aims”,
by replacing it to correspond with the Explanatory Notes, or by referencing back to the paragraph 3(2) purposes, as it is a sort of adjunct to that anyway. I am not sure that referencing a notional non-claimant investor helps, but noble Lords who have experience in the litigation aspects may be able to say whether it is helpful. Or is it there to help the financial adviser so that they have a defence if sued, by being able to say, “I advised in a similar way to the way I did for that other investor, but with a bit more caution”?
Having got that far in my thought process, I then wondered whether the provision added anything other than confusion, sandwiched between the criteria or purposes I have already mentioned and which are elaborated in paragraph 3(2), and the further factors specified in paragraph 3(5), which could also be in conflict as it goes on to reference taking account of actual investments, which is very different from looking at what this prudent investor—who has to be a bit more prudent than that prudent investor—might have done, and it refers to the advice of the expert panel. Having these three nested purposes, assumptions and extra factors makes it a confused layout, and they are not necessarily properly nested.
Going still further—I am probing, so I will probe further—I wondered whether the balance was right. Is it justified to embed additional caution over and above what you have to do to fulfil the basis purposes? We have already touched on this slightly: it is the other side of encouragement of periodic payments. You do not want to discourage them by overtly encouraging too-generous lump sums—more generous than might be 100% compensation.
When looking at long-tail risks, it is hard enough to find a formula that works for institutions, where the pluses and minuses of differing longevity have a chance to balance out, as will, to some extent, the ups and downs of the discount rates. However, as has been said, at the granular level of an individual there will always be winners and losers with a lump sum. But if you take the view that we want to encourage periodic payments, claimants are, at least theoretically, opting to take a risk if they choose a lump sum over an arrangement with periodic payments; they should therefore perhaps own that risk. There is a delicate balance to be made between full and fair compensation and additionally compensating for risks that the choice of settling for a lump sum entails. Harsh as it sounds, we have to consider who owns that risk and whether it is right for it to be further hedged against, at least as the initial presumption. Thus, given the safeguarding flexibility in the Bill that the court will have to deal with individual circumstances, I question whether the presumption of extra caution is necessary or whether it should be reserved explicitly for when periodic payments are not available. As Amendment 80A has already been introduced, I point out that I am not sure I want to go back to the situation where you are always looking at UK debt, or even debt in general, as the only possible investment. The world of finance is now far too dependent
on that. I am sure that at the time of some of the cases that have been cited, the extraordinary measures of central banks and quantitative easing, which have been pretty devastating to the owners of bonds, were not envisaged. Therefore, to close down and be prescriptive about options is dangerous, just as it is dangerous to have bank capital reliant on that—but that is another matter.
As I said, I am probing; the most basic point is the discrepancy between “different financial aims” in the Bill and “similar investment objectives” in the Explanatory Notes—it seems to me that the Explanatory Notes have got it right. Then there is the additional confusion over what happens because you also have the implications of the purposes in paragraph 3(3) of new Schedule A1 and the factors in paragraph 3(5). It would be useful to have an elaboration, or even some sorting out, of how that is all supposed to work.