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The Discount Rate: The Channel Islands lead again

Is 26 October 2018 the date when personal injury practitioners and insurers finally marked a rebalancing of the debate on discount rates that has been rumbling on for far too long?

The States Assembly of Jersey has launched a scrutiny review (consultation) on a new legislative approach to setting the discount rate in Jersey, with the lodging of the Draft Damages (Jersey) Law. The Jersey Law Society has also now announced that the time for filing submissions in response to the draft law expires as soon as 9 November. With the States Assembly due to debate the draft legislation on 4 December, the timetable may well be short.

Having carried out its own detailed analysis of the whole discount rate issue, and considered at length the UK Government’s position, the Jersey legislature has decided to follow UK practice and set the discount rate by way of legislation rather than leaving the question to judicial interpretation and judgement.

In doing so, the Jersey government also recognises that they need to set their rate at a level that reflects the established and long-recognised disparity between their economy and the mainland, a disparity that historically runs at a negative of 1% for the island’s economy. This was the rationale for the finding in Simon v Helmot where a negative rate was introduced for the first time in Guernsey.

The new legislation, which should be passed into law by the spring of 2019, clarifies the issue of the calculation of future losses in key areas.

The Discount Rate

There will be a two stage approach.

Firstly, where the future loss is to cover a maximum period of 20 years, then the new discount rate will be +0.5%.

Secondly, where the loss will run beyond 20 years, the rate will be +1.8% covering the totality of the future loss, not just the period beyond 20 years.

They also expressly state that the discount rate can never be negative and indeed comment that a 0% rate would not be used.

Periodic Payment Orders

Unsurprisingly for a jurisdiction where there are no PPOs, and where they now seek to follow the UK, the creation of a statutory entitlement to a PPO is inevitable. Indeed, with the dramatic changes to the discount rate, there will inevitably be pressure from claimants to make greater use of PPOs in significant future loss cases, a trend that we experienced in the UK when the discount rate was at 2.5%.

Impact

With Jersey intimately linked to the UK in so many ways, in particular financially, there can be no doubt that this is not a "go it alone" project. There is heavy reliance on the UK Government Actuary and the UK government has been watching the recent litigation in Jersey in a number of high profile, sensitive and potentially very expensive claims extremely closely.

It is now common practice for claimants in Jersey to plead future losses on the basis of discount rates in the order of -3% for all heads of future loss, again on the basis of the economic differences with the UK.

The very existence of this draft legislation sends a clear message to practitioners in Jersey but probably also to the UK more widely.

Whatever the rights or wrongs of the rationale behind this legislative move (and the Background Summary (opens in pdf) attached to the legislation may be viewed as lightweight) such a clear indication of intent, no doubt supported by the MoJ and UK Treasury, must send a strong signal to all litigants in large loss cases of the future direction of the discount rate.

While +0.5% and then +1.8% in themselves represent significant movements from the UK’s current rate of -0.75% , it must be remembered that the discounting factor applied in Jersey to achieve these rates, does not apply to the UK.

Are we therefore looking at a similar two-tier approach to the formula but undiscounted rates at 1.5% and 2.3%? 

Finally, while insurers continue to reserve on the basis of a -0.75% rate until a law change here, does the current trend to negotiate at JSMs in the 0% to 0.5% range still hold good? Perhaps not in view of the Jersey’s legislature’s comments.

One thing is for certain; this can only increase the pressure on claimant lawyers to bring their cases on for hearing as quickly as possible or, as happened before, to give proper credence to PPO settlements.

Contact

For more information please contact Graham Dickinson, Partner 020 7645 9516 M 07774 862 232, Graham.Dickinson@dwf.law

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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