Commentary Damages 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.