Monday, 27 February 2017

Discount Rate: In Case of Emergency....

Today's announcement of a change in the discount rate from 2.5% to -0.75% (that's minus 0.75%) was a shock, although the Lord Chancellor has said it was the "only legally acceptable rate". If so, one wonders about the legality of the 2.5% rate that applied up to today.

The change comes into effect on 20 March 2017.  There may be a legal challenge to prevent that. Nevertheless litigators should treat this change as an emergency.


It has immediate implications for practitioners. Gordon Exall has been quick of the mark with sensible advice. Have a look.

Here is a link to tables of multipliers using the -0.75% rate produced by Rebmark. I cannot vouch for the accuracy of the figures.

Future claims could double or even treble in value. In some cases multipliers could be over 100.

The implications of this change are far-reaching. The cost to insurers and the NHS could be very high.

For litigators, immediate attention should be given to:


  • Existing Part 36 Offers
    • Any that depend on an assessment of future awards need to be immediately assessed. 
    • Claimant's must consider withdrawal as a serious option. It might be professional negligence not to do so. However
    • If a Defendant sought permission to accept a Part 36 Offer which would now manifestly undervalue a claim, surely the Court would refuse permission. 
    • Consideration by Cs to make offers based on the new rate - might the new rate be challenged by insurers so that it does not take effect? How should Ds respond to offers based on the new rate but when the time for acceptance expires only a day or so after the new rate is due to come into force?
  • Existing non-Part 36 Offers
    • ditto
  • Ongoing negotiations/settlements
    • Radical reassessment is required.
    • Court unlikely to approve settlement that did not reflect new rate
  • Schedules and Counter Schedules
    • Need to be re-written. All future claims, and claims for loss of earning capacity that are based on the Ogden Tables, need to be re-calculated.
    • Discounts for early receipt would become enhancements for early receipt using a negative discount rate. Is that how they should be used or should there simply be no allowance either way for early receipt.
  • Costs budgets
    • If more work needed, for example re-writing schedules, or obtaining further financial advice, then this needs to be factored in to a costs budget
  • Court fees
    • Some claims will have doubled in value overnight. This might affect the proper issue fee.
  • PPO vs lump sum 
    • The balance of benefits and disadvantages of a PPO or lump sum award has just changed. Financial advice is required to address the new position
  • Interim Payments
    • The assessment of the likely lump sum, insofar as it depends on certain future losses, requires reconsideration.
  • Accommodation Claims
    • Is the Roberts-v-Johnstone calculation still applicable? It would result in a negative amount (Additional cost of accommodation x -0.75% x multiplier). Are new ways of assessing the value of an accommodation claim now required? See this blog from John de Bono QC : Roberts v Johnstone is dead
    • Will there be an early test case on how accommodation claims should be calculated?
    • In the meantime how do litigants deal with this uncertainty?
Of course, this rate will not last forever. In particular, will there be a legal challenge by the insurance industry? Might they succeed in staying the implementation of the new rate so that it does not take effect as planned on 20 March? Or, will there be a short "window" in which claims have a value well in excess of what has come before, and will ever come again?

I am sure there are other implications that will sink in with further reflection. Let me know of any thoughts about what they are and how to deal with them.

2 comments:

  1. Nigel thanks for your interesting blog on these changes. The implications for R v J are significant and I would like to think this will lead to a change in R v J, which has never been particularly helpful. If you had to make an application within the next few months for an interim payment to cover the cost of accommodation it would be interesting. The alternatives to R v J suggested are helpful, but untested. I would be interested in reading an IFA views on the PPO/lump sum balance.

    Much more to come on this subject I expect......

    Carol Jackson

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    Replies
    1. Carol,
      It makes it difficult to give advice now on the likely recovery for an accommodation claim. Difficult for claimant and defendant lawyers.
      Since the multiplier for an 18 year old would now be about 100, you can see that a PPO becomes much less attractive.
      I remain cautious - there may be legal challenges in the courts and/or a swift change in the law through parliament to reverse this and, perhaps, to bring about a more wholesale change in the way the courts assess future losses.

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