FOCIS
FOCIS

Introduction to the Response by FOCIS to the Discount Rate Questionnaire


FOCIS (Forum of Complex Injury Solicitors)

FOCIS members act for seriously injured claimants with complex personal injury and clinical negligence claims, including group actions. The objectives of FOCIS are to:-

1. Promote high standards of representation of claimant personal injury and medical negligence clients,
2. Share knowledge and information among members of the Forum,
3. Further better understanding in the wider community of issues which arise for those who suffer serious injury,
4. Use members' expertise to promote improvements to the legal process and to inform debate,
5. Develop fellowship among members.

Membership of FOCIS is intended to be at the most senior level of the profession, currently standing at [28] members. The only formal requirement for membership of FOCIS is that members should have achieved a pre-eminence in their personal injury field. Four of the past presidents of APIL are members of FOCIS. Firms represented by FOCIS members include:

Anthony Gold
Atherton Godfrey
Boyes Turner
Digby Brown
Field Fisher Waterhouse
Freeth Cartwright
Girlings
Hodge Jones & Allen
Hugh James
Irwin Mitchell
Kester Cunningham John
Kingsley Napley
Leigh Day
Linder Myers
McCool Patterson Hemsi & Co
Osborne Morris & Morgan
Pannones
Parlett Kent
Potter Rees
Prince Evans
Russell-Cooke
Russell Jones & Walker
Stewarts Law

Introduction


FOCIS members act for clients who have sustained injuries of maximum severity and therefore regularly obtain compensation at the highest level. Such awards will be a mixture of lumps sums and periodical payments. The greater part of the awards are for future losses such as the cost of care and other services, loss of earnings and the cost of accommodation.

FOCIS members welcomed the decision in Wells v Wells which established that injured claimants should be allowed the certainty of investment in index linked government stocks (ILGS) rather than require them to invest in the stock market and face the uncertainty of future investment yields and the effects of inflation.

ILGS are by far the best investment claimants can buy to provide yield certainty and protection from inflation. There is nothing else comparable. They are guaranteed by the government, the yield at purchase is what the buyer will get and they are inflation proof.

FOCIS members are acutely aware that the failure of the government to adjust the discount rate in the face of falling yields results in our clients being significantly under compensated. The yield on ILGS has fallen steadily over recent years to below 0.5% but the Discount Rate remains unchanged. All claimants who have settled lump sums in this period for future losses have been significantly under compensated.

FOCIS has been disappointed that the Lord Chancellor has so far declined to exercise his power under the Damages Act to change the discount rate in the face of falling yields on ILGS despite repeated requests for him to do so from interested parties.

FOCIS noted that Judicial Review (JR) proceedings were commenced by APIL in 2011 on the grounds that the Lord Chancellor had failed unreasonably to make a decision to adjust the Discount Rate pursuant to the Damages Act. FOCIS was supportive of the JR proceedings.

The JR was eventually dismissed by the court without a determination being reached on the merits on the grounds that the Lord Chancellor was about to consult before making a new decision on the discount rate.

It is therefore extremely disappointing that more than year has gone by simply to get to the position of issuing the consultation with no prospect of an imminent decision being reached.

FOCIS considers this further delay is regrettable and unnecessary and is to the extreme detriment of seriously injured litigants.

FOCIS also wonders whether the form of the current consultation is correct or necessary as the principles and approach laid down under Wells v Wells are not under review.

FOCIS welcomes the reaffirmation in the consultation document of the principle of full compensation for claimants which underpins the Damages Act and the calculation of the appropriate discount rate.

FOCIS welcomes the statement in the impact assessment that the effect on defendants of a reduction in the discount rate leading to higher damages awards is not a relevant consideration when fixing the rate but is a logical outcome when following the statutory procedure.

It ought to be a relatively straightforward matter involving expert actuarial opinion to establish the current average yield.

The consultation paper sets out the decision in Wells and the approach: (P66 1.11)

"The assumptions to be made at the stage of selecting the discount rate are simply these. First, it is to be assumed that the lump sum will be invested in such a way as to enable the plaintiff to meet the whole amount of the losses or costs as they arise during the entire period while protecting the award against inflation, which can thus be left out of account. Secondly, it is to be assumed that the investment will produce a return which represents the market's view of the reward to be given for foregoing the use of the money in the meantime. This is the rate of interest to be expected where the investment is without risk, there being no question about the availability of the money when the investor requires repayment of the capital and there being no question of loss due to inflation."

Applying these principles, the House of Lords decided in the 1998 Wells v Wells case that the most accurate way of calculating the present value of the loss that claimants would actually suffer in real terms was to assume an investment of the award of damages in ILGS "The assumptions to be made at the stage of selecting the discount rate are simply these. First, it is to be assumed that the lump sum will be invested in such a way as to enable the plaintiff to meet the whole amount of the losses or costs as they arise during the entire period while protecting the award against inflation, which can thus be left out of account. Secondly, it is to be assumed that the investment will produce a return which represents the market's view of the reward to be given for foregoing the use of the money in the meantime. This is the rate of interest to be expected where the investment is without risk, there being no question about the availability of the money when the investor requires repayment of the capital and there being no question of loss due to inflation."

Applying these principles, the House of Lords decided in the 1998 Wells v Wells case that the most accurate way of calculating the present value of the loss that claimants would actually suffer in real terms was to assume an investment of the award of damages in ILGS.

There is simply no viable alternative investment to ILGS which can provide a cautious investor with a risk free inflation proof return. Therefore we cannot understand why this consultation seeks views as to whether there are alternative investments and tries to find out what litigants currently invest in as this is completely irrelevant. (the paper states "The Government is not obliged to reach any conclusion on what individual claimants might actually do with their awards and, lawfully, cannot in setting the discount rate take into account the consequences for defendants of paying awards. ")

The hint of a further consultation on the Wells approach (which could only be altered by primary legislation) is also worrying.

The effect of all this process - more than a year spent drafting the consultation, the consultation itself, consideration of responses, possible further consideration on principles - postpones the decision on the Discount Rate to the indefinite future to the continuing detriment of our clients.

We begin to wonder if the process is in fact designed to achieve this delay

It cannot be stated often enough that seriously injured Claimants have been and are continuing to be under compensated as long as the rate stays where it is.

Roberts v Johnson

If the Discount Rate is reduced to zero or below, the need to amend the law dealing with future accommodation costs becomes overwhelming as the Roberts v Johnson approach will not work (and is not working now).

The courts currently assume that a claimant can be compensated with 2.5% per annum (x the discounted life expectation of the claimant) of the additional capital required to purchase a suitable home. This is because the courts assume that if the money were invested elsewhere, the claimant would achieve a real net rate of return of 2.5% per annum (the discount rate). The actual cost of borrowing money on a mortgage is about 5% and clients with shorter life expectation will never have the capital they need. This problem will only get worse when the discount rate is reduced. If the rate is negative, claimants would be expecting on this convention to give money to the defendants as a result of their needs for extra or adapted accommodation.

We attach our completed questionnaire and urge the Lord Chancellor to seek immediate actuarial evidence of the current average yields on ILGS and then to make the long awaited decision on the current Discount Rate (or rates) which reflects those yields and is in accordance with Wells v Wells and the Damages Act. Any further delay in this process is inexcusable.

We acknowledge assistance with the more actuarial questions from Rowland Hogg and Chris Daykin

FOCIS

22nd October 2012

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