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Proposed Bill to Reverse House of Lords Judgment in Johnston v NEI International Combustion Ltd
Partial Regulatory Impact Assessment
TITLE OF PROPOSAL
1. The proposal is to introduce legislation which will ensure that the House of Lords (HoL) Judgment in Johnston v NEI International Combustion Ltd published on 17 October 2007 1 does not have effect in Scotland. The Judgment ruled that asymptomatic pleural plaques do not give rise to a cause of action under the law of damages. The proposal is the subject of this regulatory impact assessment ( RIA) because of its potential implications for the insurance industry, employers and Government Departments. The assessment is 'partial' until consultation has been carried out, and will then be published again, in final form, taking account of comments received during consultation.
2. As noted above, the Judgment was concerned with asymptomatic pleural plaques. Ensuring that this condition continues to be actionable in Scotland will be the primary intention of the legislation and is the main focus of this partial RIA. However, as discussed in paragraphs 29 to 34, it is possible that the courts might look to Johnston as authority in relation to claims in respect of other asymptomatic asbestos-related conditions. Scottish Ministers do not wish this to happen and intend that the Bill which is introduced to Parliament will make clear that asymptomatic pleural thickening and asymptomatic asbestosis, when caused by negligent exposure to asbestos, continue to give rise to a claim for damages in Scotland. Information is requested in relation to the points raised in paragraphs 29 to 34. We will consider how best to present information received on these aspects in the final RIA.
PURPOSE AND INTENDED EFFECT
Background
3. Pleural plaques:
- are small areas of scarring on the pleura (the membrane surrounding the lungs);
- are an indicator of exposure to asbestos in someone with an appropriate occupational history;
- do not generally cause symptoms or disability;
- do not cause or develop into asbestos-related disease such as asbestosis or mesothelioma; and
- signify greatly increased lifetime risk for developing mesothelioma and a small but significantly increased risk of developing bronchial carcinoma.
4. Since the 1980s, claims have regularly been settled on the basis that pleural plaques are an actionable injury. In 2004, insurers brought ten test cases before Mr Justice Holland in the High Court in England and Wales. Mr Justice Holland gave judgment in February 2005 in favour of the claimants but reduced the amount they were able to claim. In seven cases the insurers appealed to the Court of Appeal in England and Wales, which in 2006 reversed the decision of the High Court judge. The Court of Appeal's decision was subsequently appealed to the House of Lords.5. The HoL Judgment in Johnston reversed over twenty years of precedent and practice. The Judgment is not binding in Scotland, but is highly persuasive and has already been cited in a Court of Session case 2.
6. On 29 November 2007 the Scottish Government announced that it intends to introduce a Bill to reverse the HoL Judgment in Scotland and that the provisions of the Bill would take effect from the date of the Judgment 3. Kenny MacAskill, Cabinet Secretary for Justice in the Scottish Government, announced on 13 December 2007 that, subject to Parliamentary timetabling, he expects to introduce a Bill before the summer recess. The UK Government have decided that it would not be appropriate to legislate 4.
7. Pleural plaques incidence is thought to be rising largely as a result of asbestos exposure, most commonly associated with industries such as shipbuilding and construction. However, they can only be detected on x-ray or CT (computed tomography) scan so are usually diagnosed incidentally during the course of routine medical investigations. There is no accurate record of how many cases are diagnosed each year in Scotland. The long latency means that despite far better controls on asbestos exposure and the elimination of asbestos imports, the rate is still likely to be rising. If the number of cases of pleural plaques follows the same pattern as mesothelioma deaths, then the numbers may peak during the period 2011-2015 (the current projected peak for mesothelioma). There is considerable uncertainty associated with these projections (see also paragraph 25).
8. Latest available figures show that there are in the region of 200 5 actions raised per year in relation to pleural plaques in Scotland. There is currently a build up of around 630 cases because of the situation described in paragraph 4. Approximately 250 of these cases are currently sisted (suspended) by the courts and roughly 380 are backed up with solicitors.
Objective
9. The Scottish Government's objective is to ensure that the HoL Judgment does not have effect in Scotland. It therefore proposes to legislate to ensure that pleural plaques remain an actionable injury in Scots law, so that people who have been negligently exposed to asbestos and are subsequently diagnosed with pleural plaques may continue to be able to raise an action for damages (see also paragraphs 29 to 34). The normal rules of jurisdiction and applicable law will apply in cases with a cross-border dimension. As noted above, Ministers propose that the provisions of the Bill would take effect from the date of the Judgment - 17 October 2007. This means that people whose cases have been sisted by the courts or are backed up with solicitors pending the HoL Judgment will be covered by the provisions of the Bill.
Rationale for government intervention
10. Pleural plaques have been regarded as actionable for over twenty years. They are part of the unintended and unwelcome consequences of our industrial heritage. The HoL Judgment has raised serious concerns for people with pleural plaques. Although plaques are not in themselves harmful they do give rise to anxiety because they signify an increased risk of developing very serious illness as a result of exposure to asbestos. In areas associated with Scotland's industrial past, people with pleural plaques are living alongside friends who worked beside them and are witnessing the terrible suffering of those who have contracted serious asbestos-related conditions, including mesothelioma. This causes them terrible anxiety that they will suffer the same fate. The Scottish Government believes that people who have negligently been exposed to asbestos who are subsequently diagnosed with pleural plaques should continue to be able to raise an action for damages as has been the practice in Scotland for over twenty years.
11. The Scottish Government acknowledges that, if it were to take no action, people with pleural plaques would be able to raise an action for damages if they develop a more serious asbestos related condition. However, such damages would not compensate them for anxiety suffered following a diagnosis of pleural plaques. Also, some people making a pleural plaques claim opt to receive provisional damages; this means they can return to court if they develop a more serious condition and the case can be dealt with quickly as liability will have been established.
CONSULTATION
Within government
12. The Justice and Communities Directorate of the Scottish Government, which has policy responsibility for the law of damages, has consulted with the Enterprise, Energy and Tourism Directorate which has responsibility for business liaison including liaison with the financial services industry, the Finance Directorate of the Scottish Government, the Chief Medical Officer for Scotland, and the Scottish Courts Service. Informal discussions have also taken place with relevant UK Government departments. [ Note: to be completed following this consultation]
Public consultation
13. Meetings have been held with asbestos groups and their representatives and representatives of the insurance industry. This consultation will give these and other interested parties an opportunity to air their views and provide relevant information. Members of the Scottish Parliament expressed their views on the House of Lords Judgment during a debate in Parliament in the name of Stuart McMillan MSP on 7 November 2007 6. [ Note: to be completed following this consultation]
OPTIONS
Sectors & Groups affected
14. Pleural plaques are particularly strongly associated with occupational exposure to asbestos within the construction, steel and shipbuilding industries, including the former nationalised industries. However, there is evidence from occupational analyses of mesothelioma deaths that exposure may have occurred across a fairly wide range of jobs in the past both within and outwith these sectors. End users of asbestos products had substantial risks as well as those manufacturing the products themselves. Within these sectors/jobs, the groups affected are employers/former employers, insurers, and people with pleural plaques.
15. Compulsory employers' liability insurance was introduced in 1972. Where claims pre-date that the impact will be on solvent employers. Responses to this paper will help to estimate the likely impact on solvent employers.
16. The options are essentially to make provision in Scots law to ensure that the HoL Judgment in Johnston does not have effect or not to do so.
Option 1: Do nothing
17. This would mean that the HoL Judgment, regarded as highly persuasive by Scottish courts, would almost certainly be followed in Scotland, so that claims in respect of asymptomatic pleural plaques would be dismissed by the courts. This option would not therefore achieve the Government's policy that claims for this condition should continue to be actionable in the Scottish courts.
Option 2: Legislate to reverse the HoL Judgment
18. The Government considers that the consequences of the HoL ruling are unduly harsh for people with pleural plaques. It believes that legislation is needed to address this problem, for the reasons set out above.
Benefits
Option 1: Do nothing
19. There would be no benefit to people with pleural plaques (now and in the future) from this option. There would be benefit to relevant employers, former employers and insurers, as they would no longer have to meet pleural plaques claims in Scotland.
Option 2: Legislate to reverse the HoL Judgment
20. The benefit of legislating will be that the position of people with pleural plaques in relation to damages will be as it was for over twenty years prior to the HoL Judgment. Ministers place great importance on ensuring that people with the condition should continue to be able to hold to account those who negligently exposed them to asbestos.
Costs
Option 1: Do nothing
21. This option would result in a loss of compensation payments to people with pleural plaques (see paragraph 24 below for details of numbers and payments). This would be a permanent loss, both for those who do not go on to develop a more serious condition and those who do (because any payment in respect of e.g. a diagnosis of mesothelioma would not recognise the anxiety suffered by the person from the time of diagnosis of pleural plaques). There would be no costs for employers and insurers and they would realise savings as a result of not having to meet pleural plaques claims in Scotland (see paragraphs 24 and 25 below).
Option 2: Legislate to reverse the HoL Judgment
22. The proposal will have implications for defenders in pleural plaques cases, i.e. employers and former employers in the relevant sectors, their insurers, the Scottish Government, and some UK Government Departments who have responsibility for liabilities in relation to cases arising from exposure to asbestos during the pursuers' ( i.e. persons raising a claim) employment in former nationalised industries. They will continue to be liable in Scottish pleural plaques cases.
23. Given that the intention is to restore the position for those with pleural plaques to what it was prior to the legal challenge which culminated in the HoL Judgment, the Bill would not create any new liability that did not exist before these test cases were brought before the courts. Additional costs should not therefore be incurred in relation to these claims.
24. There would be savings to insurers and employers if the Scottish Government were to take no action. We understand that the average final settlement value in a pleural plaques claim is approximately £8,000 7. We also understand that defenders' legal costs are usually of a similar order to this, i.e. the average total cost to defenders in a successful pleural plaques claim is likely to be of the order of £16,000. Therefore for the estimated 630 claims outstanding the cost to insurers would be around £10,080,000. As noted in paragraph 8, around 200 actions are raised each year relating to pleural plaques. There will therefore be an annual cost of around £3,200,000 including expenses. As noted in paragraph 11, some pursuers opt for provisional damages. The figures in this paragraph and the following one are based on final settlement costs. Views are sought on an appropriate adjustment to reflect provisional settlements.-
25. Mesothelioma is the only asbestos related disease for which projections of the future burden are available. Given pleural plaques also have a long latency, and in the absence of other evidence, predictions of future mesothelioma deaths may provide the best guide to the potential scale of further rises in cases of pleural plaques. Annual mesothelioma deaths in Great Britain are expected to rise by up to 20% between now and a peak around 2015. Following this, indications are that the mortality rate will then decline. (Although these projections rest on a number of uncertain (and largely unverifiable) assumptions, the timing and scale of the maximum annual death toll is not highly sensitive to these uncertainties.) Based on a 20% increase in mesothelioma deaths, the figure above of £3,200,000 can be extrapolated to a peak of around £3,840,000.
26. As far as Government Departments are concerned, we understand that there are in the region of 37 backed up Scottish cases raised against the Ministry of Defence. The average reserve placed on each claim by MoD is £14,000 (including legal costs). Therefore settlement of these Scottish cases is likely to cost around £518,000. There are around 75 Scottish cases raised, against the Department for Business, Enterprise & Regulatory Reform ( DBERR), primarily for their interest in the former British Shipbuilding, which are currently sisted and an additional 55 unlitigated cases. The cost to DBERR to settle these cases is likely to be in the region of £936,000. The average annual number of Scottish cases raised with DBERR is around 28, which results in an annual cost of around £201,600. These figures are based on the average final settlement figure (including legal costs) of £16,000 of which DBERR's share is typically in the region of 45%. There are currently 3 ongoing cases for which the Scottish Government ( SG) has responsibility. The cost of settling these cases is unknown but is likely to be around a maximum of £48,000. We understand that less than one case is raised against SG annually therefore the cost is expected to be negligible.
27. It is for courts to decide quantum and until some cases have been settled through the courts following the legislation coming into force it is a matter for speculation as to what the average settlement figure will be in future. The projections of future costs in paragraphs 24 to 26 assume quantum remains unchanged. Views are sought on this approach and whether it should be adopted in the final RIA.
28. Legislation to provide for pleural plaques claims in Scotland to continue to be able to be raised may lead to those insurers who also issue policies raising insurance premiums for policies covering liability for personal injury and death. Responses are invited from insurers on any likely increase in premiums and the reasons for this.
Possible wider Implications of HoL Judgment
29. We have given thought to two other asbestos-related conditions in considering the action required to ensure that the House of Lords Judgment does not have effect in Scotland. Asbestosis is a non-malignant scarring of the lung tissue which impairs the elasticity of the lungs, restricting their expansion and hampering their ability to exchange gases. This leads to inadequate oxygen intake to the blood. Pleural thickening is a non-malignant disease in which the lining of the pleura becomes scarred. If it is extensive then it can restrict expansion of the lungs and lead to breathlessness.
30. Asbestosis and pleural thickening can both be detected while asymptomatic. In contrast with pleural plaques, they are usually (but not always) progressive and symptoms/impairment will occur. A person with a diagnosis of asymptomatic asbestosis or pleural thickening has, as with pleural plaques, an indicator of significant exposure to asbestos and the worry of possible very serious disease such as mesothelioma plus the worry that their condition will itself progress and cause impairment (unless they can be told categorically that their condition is non-progressive).
31. If the Bill is narrowly drafted to cover only pleural plaques, the ruling in Johnston may still be applied in relation to asymptomatic asbestosis and pleural thickening. This is because the courts may consider that the ratio (principles of law underlying and justifying the decision) in Johnston provides authority in these cases. They would not be able to apply a tightly drawn pleural plaques Bill to such cases precisely because the Bill would apply only to pleural plaques. We can only speculate as to how widely or narrowly the courts would apply this ratio, but they might apply Johnston to progressive as well as non-progressive asymptomatic asbestosis and pleural thickening, given that the ratio appears to focus more on the lack of symptoms/harm caused by pleural plaques and less on their non-progressive nature.
32. At the end of 2006 there was an English county court case which ruled that someone who had been negligently exposed to asbestos and had developed asymptomatic asbestosis and pleural thickening (as well as pleural plaques) did not have an actionable case. In the period since the Judgment was issued in Johnston, indications have been given to the Court by defenders in cases in the Court of Session of an intention to pursue cases in which the cause of action is minimal symptomless asbestosis as likely test cases.
33. Thus we face the possibility of people who have been negligently exposed to asbestos (with the attendant anxiety), and who have for the moment only asymptomatic forms of two particular conditions which are normally progressive, being unable to raise a claim unless and until symptoms develop, while people with asymptomatic pleural plaques would be entitled to raise a claim under the new legislation.
34. In relation to the two further conditions, it is difficult at this stage to quantify any financial impact as we do not know the extent to which Johnston would be regarded as authority or the extent to which defenders would seek to have it so regarded. It may well be that only a small number of cases would be affected. Responses are requested to assist in preparing what the final RIA will say on this aspect.
SMALL FIRMS IMPACT TEST
35. As previously noted, pleural plaques are particularly strongly associated with occupational exposure to asbestos within the construction, steel and shipbuilding industries, including the former nationalised industries. However, the proposal may also impact on small firms within the construction industry if they negligently exposed workers such as carpenters, plumbers, electricians, painters and decorators to asbestos. As with their larger counterparts, small firms - to the extent that they may be exposed to continuing claims in relation to pleural plaques as a result of the legislation - would experience the impact through continuing to have to make payments where there is a successful claim and may experience an effect on insurance premiums.
LEGAL AID IMPACT TEST
36. In cases where legal aid is granted and the case is subsequently successful, the legal aid costs and outlays will in the majority of cases be offset against the award of expenses made against the unsuccessful party and, if relevant, against the award of damages. However, except for medical negligence cases, almost all personal injury actions are now funded by Conditional Fee Agreements. Therefore, there is unlikely to be any increased cost to the Legal Aid Fund.
"TEST RUN" OF BUSINESS FORMS
37. No business forms will be involved in the implementation of the proposed legislation.
COMPETITION ASSESSMENT
38. It is not expected that the legislation would have any impact on competition in the insurance industry. Employers' liability insurance has been compulsory since 1972 therefore there is already an element of competition in relation to employers seeking the best deal available. Insurance companies already operate in an environment where there are differences in the law of damages north and south of the border. Responses to this paper will help to estimate any possible adverse effect of the proposed legislation on the competitiveness of Scottish business (see also paragraph 28).
39. The Association of British Insurers has indicated to the Scottish Government their view that legislating to provide for claims where there is no loss could have significant consequences for other areas of Scottish law. They consider that it could lead to higher premiums for customers, and make Scotland a less attractive place for companies to do business. The Scottish Government fully understands concerns raised relating to financial and economic considerations. The intention is to encroach into the law of damages no more than necessary to ensure that the HoL Judgment does not have effect in Scotland and we aim to ensure that that any incursion is kept to a minimum. Any case for future legislation which seeks to amend the law of damages would need to be considered on its merits.
ENFORCEMENT, SANCTIONS AND MONITORING
40. The arrangements would be delivered through the civil courts (where parties are unable to reach an earlier and negotiated settlement), which will assess claims brought by eligible pursuers as they did before the HoL ruling. The sanction is that persons who have negligently exposed others to asbestos, causing pleural plaques to form, will continue to be liable in damages for their actions. The Executive will review the impact of this legislation after 2 years. It will be important to know whether legislating to maintain the status quo has had any unexpected consequences.
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