On 19 March 2019 the Scottish Damages Act was passed unanimously by the Scottish Parliament.

The Act provides a new mechanism for fixing the personal injuries discount rate and a new power for the Scottish Courts to impose periodical payment orders.

The system for fixing the discount rate differs from that set down for England and Wales in the Civil Liability Act 2018 and, although we do not know just what the future will bring; we can be fairly certain that the new discount rate in Scotland will be lower than any rate set in England.

Periodical payment orders

At present a periodical payment order; where damages are paid in annual instalments rather than in a lump sum, can only be imposed when both parties agree. The Act will allow the court to impose an order even when one or both parties object.

There are provisions in the Act to allow amendment, suspension or cancellation of an order.

The pursuer’s wishes

The main change between the Bill as initially presented and the Act as passed is the requirement that a court, when awarding damages for future pecuniary loss, has “special regard to the pursuer’s needs and preferences”.

The amendment reflects concerns that pursuers could be forced into periodical payment orders where the order is against the pursuer’s wishes and interests. However, the Act as passed retains the provision that the court may make an order for periodical payment orders without the consent of the parties. Stronger amendments, proposed during scrutiny, have not been accepted; in particular, that the decision on whether or not to make an order should be made in accordance with the position advanced by the pursuer.

Continuity of payments

The Bill was amended so that the Act contains a requirement that a Court imposing a periodical payment order must specify why it considers that the continuity of payments will be reasonably secure when it makes a periodical payment order.

Expenses for variation and suspension of orders

There were concerns during scrutiny of the Bill that a pursuer might be obliged to meet the legal expenses incurred in varying an order.

The Act as passed provides that the court will not make an award against an injured person in respect of expenses for, amongst other things, variation of the order; other than where the pursuer acts in an inappropriate manner.

Whether a pursuer has behaved other than in an appropriate manner is to be determined in accordance with section 8(4) and (5) of The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018.

S 8(4) will operate where a pursuer either, makes a fraudulent representation or otherwise acts fraudulently in connection with the claim or proceedings or behaves in a manner which is manifestly unreasonable in connection with the claim or proceedings or otherwise conducts the proceedings in a manner that the court considers amounts to an abuse of process.

The extent to which reference to this section is helpful is currently limited as the Civil Litigation Act is not yet fully in force and so we do not know how this provision will be interpreted and applied.

Discount rate

The Act sets out a new mechanism for fixing the personal injury discount rate in Scotland. The system differs to that in the Civil Liability Bill 2018. In Scotland the rate will now be fixed by the Government Actuary with reference to a notional portfolio which is intended to reflect the investment choices of a typical pursuer.

The review period

During a scrutiny of the Bill it was accepted by Ash Denham, the responsible Minister, that the period for review would be changed from three to five years which brings it into line with the positon in England and Wales. This is now reflected in the Act.

The standard adjustments

There was also much discussion around the standard adjustments proposed in the original Bill. The standard adjustments are reductions, to be applied once the discount rate has been calculated. The Bill proposed two; 0.5% to reflect the cost of taxation and professional advice to pursuers and a further 0.5%, to ensure that there was no under compensation.

During debate in Parliament it was suggested that 0.5% was not sufficient to reflect the costs that pursuers would face upon receipt of their damages and in managing those damages in the future. It was suggested that the adjustment should be increased to 1.5%. The final figure in the Act is 0.75%.

Conversely, during scrutiny of the Bill, it was suggested that the adjustment to guard against under compensation should be reduced to 0.25% however there has been no variation of that adjustment and it remains the same at 0.5%.

What next for the discount rate?

The Act provides that a review of the discount rate must start on the day that the Act comes into force. We don’t yet know when that will be.

The review must be completed within 90 days and a report produced. The report must be laid before parliament as soon as practicable after receipt and the rate will come into force the following day.

Accordingly, the new rate should be in force in less than four months after the date on which the Act comes into force.

In England and Wales

In England and Wales, the Civil Liability Act was passed on 18 December 2018 and came into force on 20 December 2018. In terms of the act the first review had to be started within 90 days of the act being in force. The Lord Chancellor announced on 19 March that the review had started. The review must be completed within 140 days. Accordingly we can expect a decision by 5 August.

Accordingly, until we know when the Scottish legislation will come into force, we can’t predict when we will have the Scottish rate. However, given the differences between the procedures and timescales, the Scottish rate may come first, even although the English review has already begun.

What we do know is that the standard adjustments make it very likely that when we do have the new rates, the Scottish one is lower and accordingly, damages for future loss, higher, in Scotland.