Proposed discount rates of +0.5% and +1.8% are dependent on whether award period is greater than 20 years
The Damages Act, the legislation which currently deals with the discount rate in England and Wales has no application in the Channel Islands. Therefore the provisions of the Civil Liability Bill relating to the discount rate are not applicable either.
Addressing this, the States of Jersey last week published the Draft Damages (Jersey) Law 201 ("the Draft Law"). The Draft Law addresses two issues relating to the awards of damages for those with long-term injuries requiring significant future care:
- The setting of a statutory discount rate, used where determining damages awarded as a single lump sum;
- Creating a statutory power to award damages by way of a Periodical Payment Order to cover future care costs and lost earnings.
The Draft Law is the product of a review carried out by the States of Jersey’s Senior Economist and the Director of Treasury Operations and Investments. The report confirms that the proposed discount rates have considered and been informed by the following sources of information:
- 15-year inflation data which shows that there 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 the detailed analysis by the UK Government Actuary’s Department into 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.
The conclusion of the review states that the Draft Law is intended to bring Jersey into line with the England, Wales and Scotland regarding a statutory discount rate and PPOs. The Draft Law fulfils the existing common law position of full compensation, and thus has "no financial or resource implications for the State."
Proposed discount rates
Having given consideration to the above, the Draft Law proposed that the discount rates would be:
- +0.5% - where the lump sum is to cover a period of up to 20 years
- +1.8% - where the damages will cover a period of more than 20 years (applicable to the whole of the award, not just the costs arising after the first 20 years).
The Draft Law does allow the Chief Minister of Jersey to change the discount rates by order, after consulting with the Bailiff, providing that the rate proposed is not a negative figure.
However, it is also proposed that detailed Regulations, providing "for matters relating to the setting of the rate in future" will be debated within 12 months of the Draft Law coming into force.
What can we learn?
- The positive discount rates will be well received by insurers and the NHS. The report accompanying the Draft Law specifically referred to the controversy caused by the imposition of the negative discount rate in 2017.
- The introduction in Jersey of a statutory power to award damages by way of PPO is reflective of the Scottish Government's Damages (Investment Returns and Periodical Payments) (Scotland) Bill. The Scottish Bill introduces a duty for the courts to consider whether a PPO is appropriate when awarding damages, where previously both parties had to consent.
- It is predicted that the Bills in Scotland and England and Wales will set a rate of between 0% and 1% in England and Wales, and 0% in Scotland. It is arguably unhelpful for different discount rates to be established within similar common law jurisdictions, and could potentially prompt forum shopping in applicable cases, particularly as the rate of investment for more than 20 years in Jersey is significantly higher.
- The choice of differing rates for varying lengths of award, reflects the findings that "expected real return on investments is higher over longer time periods". This dual rate method is a reflection of the discount rate system established in Ontario, albeit not a direct transposing of their methodology or rates. This decision to use a dual rate might result in further consideration of the use of dual rates in England, Wales and Scotland. Both Bills do allow for dual rates to be set, and calls for their implementation may grow on consideration of the Draft Law.