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Courts Act 2003


Section 100: Periodical payments

352.Section 100 replaces section 2 of the Damages Act 1996 with new sections 2, 2A and 2B for England, Wales and Northern Ireland and makes consequential amendments to section329AA of the Income and Corporation Taxes Act 1988 (ICTA 1988) for the whole of the United Kingdom.

353.The new section 2 gives courts the power to order, without the consent of the parties, that damages for future pecuniary loss (i.e. loss of future earnings and care costs) in personal injury cases are wholly or partly to take the form of periodical payments, and requires the court to consider in all cases whether periodical payments are appropriate. The power to make an order without the consent of the parties only relates to awards in respect of future pecuniary loss, and the new section preserves the current position in respect of other damages (i.e. non-pecuniary loss and past financial loss) by allowing the court to order periodical payments where the parties consent. The court must be satisfied that the continuity of the payments is reasonably secure before it makes a periodical payments order. The continuity of payments is deemed to be reasonably secure if it is protected by the Financial Services Compensation Scheme or a Ministerial Guarantee given under section 6 of the 1996 Act or where the source of the payments is a government or health service body (new section 2A enables the Lord Chancellor to specify in an order the bodies that will constitute “government and health service bodies” for this purpose). The court must also be satisfied as to the security of any subsequent changes to the way in which payments are funded, unless the new method is protected in one of the above ways.

354.To ensure that the real value of periodical payments is preserved over the whole period for which they are payable, new section 2 provides that periodical payments orders will be treated as linking the payments to the Retail Prices Index (RPI). The timing and manner of adjustments to take account of inflation will be determined by, or in accordance with, Civil Procedure Rules. It is expected that, as now, periodical payments will be linked to RPI in the great majority of cases. However subsection (9) preserves the court’s power to make different provision where circumstances make it appropriate.

355.To avoid the possibility of claimants receiving less than the true value of the award as a result of their assigning their right to receive the payments in return for a lump sum, section 2 also prevents the assignment of the right to receive periodical payments unless the court is satisfied that there are special circumstances that make it necessary. This does not affect the claimant's ability to borrow against their future income. Unsecured loans will thus be allowed, but not secured loans that put the claimant's right to receive payments at risk.

356.The new section 2A enables Civil Procedure Rules to specify matters which the court is required to take into account when considering whether to order a periodical payment or approve an assignment, and when considering the security of the payment. These could for example specify factors which might make a periodical payments order less, or more, appropriate than a lump sum order, such as the life expectancy of the claimant (where a short life expectancy might make a lump sum preferable but periodical payments might be more suitable for a longer life expectancy) and where there has been significant contributory negligence (which may mean that periodical payments would not be adequate to support the care required).

357.The new section 2B gives the Lord Chancellor an order-making power to enable the court to vary periodical payments under specified circumstances. A range of provisions which may be contained in such an order are set out in subsection (3). An order made under this power is subject to prior consultation by the Lord Chancellor and the affirmative resolution procedure. Following the recent consultation it is intended that the first order will enable variation of periodical payments orders only where there is a significant medical deterioration or improvement in the claimant's condition which can be foreseen at the time of the original order and where the court provides for the possibility of variation in that order. Because of the potential overlap with the current system of provisional and further damages, the section allows an order made by the Lord Chancellor to apply or vary the enactments governing these areas.

358.The section also makes a number of consequential amendments to section 329AA of the ICTA 1988 to reflect the new provisions and ensure that all periodical payments made in respect of personal injury (including those made by the Motor Insurers’ Bureau under the Untraced Drivers Agreement and the Uninsured Drivers Agreement) are exempt for income tax purposes however funded.

Section 101: Periodical payments: security

359.Section 101 replaces sections 4 and 5 of the Damages Act 1996 with a new section 4.  The purpose of this amendment is to ensure that protection under the Financial Services Compensation Scheme (FSCS) can apply to a wider range of options for funding periodical payments.  It replaces the term “structured settlement” which is no longer apt given the court’s power to order periodical payments.  The section also makes provision for the treatment of periodical payments in the event of the recipient’s bankruptcy.

360.At present, private sector defendants and insurers generally provide periodical payments under a “structured settlement”, that is by the purchase of an annuity for the claimant.   This is because payments under an annuity are secured against the failure of the Life Office under the statutory protection provided by the FSCS (the scheme created under section 213 of the Financial Services and Markets Act 2000).

361.The FSCS currently provides protection in respect of 90% of the payments due under an annuity.  Sections 4 and 5 of the DA 1996 override this limitation for annuities bought pursuant to a “structured settlement”.  In other words, periodical payments for personal injury damages can be 100% protected under the FSCS by this route.

362.Subsections (1) and (2) of the new section 4 have the same effect.  They apply where a claimant has a right to receive periodical payments of damages for personal injury, and that right is protected under the FSCS – in other words the claimant is the beneficial owner of an annuity (whether purchased by the defendant, the defendant’s insurer or the Motor Insurers’ Bureau).

363.In future, periodical payments may be ordered rather than agreed.  It is intended that defendants and their insurers should be entitled to fund these payments in whatever way they choose, provided the continuity of payment is adequately secure.  Protection under the FSCS will be deemed to constitute adequate security.  There are a number of options that may be relevant.  For example, a general insurer may prefer to fund the payments directly rather than purchase an annuity, perhaps purchasing an annuity at a later date when annuity rates are more favourable. Or the insurer may wish to purchase an annuity in its own name, and then undertake to pass the periodical payments to the claimant.  This may be attractive, for example, where there is a possibility of the payments being reduced on appeal or variation.

364.At present, the FSCS would not operate effectively to protect the claimant’s right to continue to receive the payments in the event of the failure of the underlying insurer.  In the example of self-funding by the defendant’s insurer, the defendant rather than the claimant would be the policy-holder, and it would be for him to pursue any claim under the FSCS.  But if the defendant was a large firm, it would not be eligible to claim under the FSCS.  And unless the general insurance policy in question was one of compulsory insurance (motor or employer’s liability), the scheme would only protect 90% of the payments due.  Similar issues arise where the insurer owns the annuity that is funding the periodical payments.

365.Subsections (3) and (4) of the new section 4 provide for recipients of periodical payments to have a direct claim under the FSCS, and for that claim to cover 100% of the payments, when any arrangement is put in place to fund periodical payments that attracts the protection of the FSCS – that is where it is underpinned by an annuity or a relevant general insurance contract (certain categories of general insurance are not protected by the FSCS). In these circumstances, subsection (4) gives the claimant a direct claim under the FSCS in respect of the full amount of the periodical payments, and extinguishes any other potential claim. It provides that the claimant shall be deemed to be protected by an arrangement of the same kind as the one that is actually in place, that is by an annuity or a relevant general insurance contract. (It is not intended to suggest that the claimant is deemed to have the same class of general insurance as that underpinning the actual arrangement – this would not make sense for example in the case of third party liability insurance.)

366.The new approach makes it unnecessary to replicate the other provisions contained in the current section 5 of the 1996 Act in order to retain their effect (for example the fact that enhanced protection for the claimant no longer turns on his being an annuitant means that the express provisions in section 5(5) for payments to be received and held on trust on behalf of an annuitant will no longer be necessary). The courts will retain full discretion to specify the period for and intervals at which the payments are to continue, to provide for specified future increases or adjustments (e.g. an increase when the claimant turns 18).

367.Section 101(2) and (3) makes consequential amendments to section 6(1) of, and the Schedule to, the DA 1996 to reflect the terms of the new section 2 (as inserted by Section 100).

368.Section 101(4) and (5) protect the continuity of periodical payments in respect of future loss in the event of the recipient’s bankruptcy. The effect of the provisions is that on bankruptcy, periodical payments do not automatically form part of the bankrupt’s estate. They can only be claimed for the estate for the duration of the bankruptcy by way of an Income Payments Order, under section 310 of the Insolvency Act 1986. In order to fully protect any care cost element to the payments, the new section prevents an Income Payments Order being made in respect of any part of the payments identified as relating to expenditure likely to be incurred as a result of the injury.

369.Subsections (1) to (3) of section 101 will apply to the whole of the UK, although some of the funding arrangements envisaged are unlikely to be relevant in Scotland where the courts will not have the power to order periodical payments (subject to any future legislation which may be passed by the Scottish Parliament). Subsections (4) and (5) of the section apply to England, Wales and Northern Ireland only.

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