FREE CHAPTER from ‘A Practical Guide to Periodical Payment Orders in Personal Injury Cases in Scotland’ by Kirsty O’Donnell


It is a long-established principle in personal injury cases that the objective is for the injured party to secure full compensation as a result of the claim process. This is otherwise known as the 100% compensation principle (see
Wells v Wells [1999] 1 AC 345). This principle was then re-iterated in Simon v Helmot [2012] UKPC 5:

The only principle of law is that the claimant should receive full compensation for the loss which he has suffered as a result of the defendant’s tort, not a penny more but not a penny less.”

The limitations of assessing damages as a lump sum award and the guess work that was associated with calculating future losses were however highlighted in Wells and it was suggested that a straightforward solution, even at that time, was to give the court the power to award periodical payments.

In serious injury cases and indeed any case with future pecuniary losses, practitioners must be alive to the manner in which full compensation can be achieved on a practical level. In Scotland, the methodology behind this at present is for a lump sum to be awarded to the pursuer, which is discounted to take into account various contingencies and to negate the expected investment return through the application of the discount rate (applicable at the date of settlement). At the time of writing in 2021, this is set at -0.75% in Scotland. However, for over 15 years, the discount rate was 2.5%, which led to many pursuers being under-compensated due to the manner in which lump sum awards required to be calculated. In effect, the discount rate is the ‘real return.’ The pursuer is expected to earn a return of -0.75% relative to the assumed growth in the head of claim being valued. The multiplier then deals with future inflation in the calculation of the multiplier. The assumption is that the pursuer will invest the award in low-risk investments and, as a result, it will see an investment return over their lifetime large enough to provide full compensation to the pursuer for their needs.

The difficulty with this approach is that it is the pursuer who is left to take all of the investment risk. In times gone by, the financial markets were much more stable and the rate of return on low-risk investments was much more predictable. Now, pursuers require to make riskier investments to see a better return, particularly if the case has settled or an award is made on a discounted figure. Some pursuers may well be able to seek appropriate financial advice and make calculated investments to ensure that the lump sum award lasts for the duration of their lifetime. However, for more risk averse pursuers, those who struggle to make complex decisions or lack capacity, those who need access to a large capital sum at the immediate conclusion of the case or those with reduced life expectancy, this task can prove more difficult.

The opposite side to the coin is that if an injured party does not reach their life expectancy and in turn, fails to beat it, this can lead to over-compensation of an injured party where the lump sum approach is employed. Insurers then have concerns about families being left part of the compensation sum in the injured party’s estate, which is not the point of compensation. The ideal situation is that the last penny of compensation is spent on the day of death of the injured party. That is however a counsel of perfection and difficult to achieve.

A further complicating factor in cases with significant future losses relates to the review of the discount rate every 5 years and the practical reality of dealing with those cases approaching settlement on the lead up to the review. Different advice then needs to be provided to clients on a range of discount rate scenarios, which muddies the waters and takes away an element of certainty to legal advice being provided to pursuers. Practitioners have therefore required to look outside the box to ensure that pursuers receive full compensation depending on their individual circumstances and needs.

Periodical payment orders have been available to be imposed on parties in courts in England and Wales since 1 April 2005 following the Courts Act 2003. They also have court approved models of periodical payment orders that could be extended to Scotland.

Periodical payment orders were not considered judicially in Scotland until the scene was set in D’s Parent & Guardian (AP) v Greater Glasgow Health Board [2011] CSOH 99. This is a useful case to refer to as a starting point when looking at the nuances of the decision to agree (or not) to a periodical payment order and the practicalities surrounding it. The opportunity was taken by the Outer House of the Court of Session to discuss the use of periodical payment orders but it was, and remains, out with the scope of the Court’s powers to make an award by this mode of settlement when disposing of personal injury cases.

This is however set to change and practitioners will soon be required to consider the use of periodical payments orders when dealing with cases with future pecuniary loss claims.

The Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 was enacted in part on 1 July 2019. Part two of the Act deals with the application of periodical payments but the rules of court are awaited to allow this part to come into force. As it stands, the court still cannot impose or award a periodical payment order after proof, but parties can however look to agree to their use whilst the introduction of the rules of court is awaited. The court then has the authority to grant an order in relation to their application. Presently, the periodical payment agreement would simply be appended to the final interlocutor from court to allow it to be enforced.

The aim of this book is to provide practical advice and considerations for any personal injury lawyer looking to explore settlement of a case by means of a periodical payment order. The two main risks that periodical payment orders remove from the calculation of a traditional lump sum are (i) longevity and (ii) investment risk. These will be discussed more fully later in the book. This book will examine the pros and cons of where a periodical payment order may be appropriate however, there are some situations, such as where the level of contributory negligence will be high, where a periodical payment order will not be suitable or workable to meet the pursuer’s needs.

This is new territory in Scotland and it is anticipated that the approach taken in other UK jurisdictions will be considered as solicitors and the courts find their way in determining their application in Scotland. These types of orders generally will however relate to cases of more substantial value. The key take away is that practitioners will be required to consider and provide advice on this mode of settlement once the rules come into force but there is nothing precluding their use at present if both parties agree to disposing of the case by means of a periodical payment order.

This is not to say that a lump sum award is no longer the best way of settling serious injury cases and that periodical payment orders are the future. This decision will be case-dependent and every case will turn on their facts. A number of factors must be taken into account in a balancing exercise when coming to the decision relating to their use after obtaining the appropriate expert input, the views of the client and looking at the case as a whole. At the end of the day, it is a matter for the client but the added layer here is that if you proceed to court when part 2 of the Act is in force, there is a risk that a periodical payment order is imposed, even if it is against your client’s wishes, if the court considers that this will best suit the needs of the injured party. It should however be noted that the court will always have special regard to the pursuer’s needs and preferences when doing so in terms of the legislation.