- In Practice
- In Business
- Moving On
Damages - Amount of Damages - Discount made for future pecuniary loss
Simon v Helmot: Privy Council (Lords Hope, Brown, Clarke, Dyson, Lady Hale): 7 March 2012
In November 1998, whilst he was riding his bicycle, the respondent was struck by a car driven by the appellant. He sustained very serious injuries including severe brain damage, partial loss of vision and loss of control of his right arm. His injuries meant that he would never be able to work again and that he would require specially adapted accommodation and 24-hour care for the rest of his life. Liability was admitted as soon as the respondent's claim for damages was notified to the insurers and the issues between the parties accordingly related only to the quantum of damages.
In August 2008, proceedings were issued as the parties could not agree as to the amount of the award. Amongst the issues that the court had to determine was the amount to be awarded for the losses that the respondent would incur in the future. They included his loss of earnings, but the most significant element was his claim for his future care and case management. In carrying out that exercise, account had to be taken of the fact that the money would be paid upfront for losses that would not arise until some date in the future. An adjustment would accordingly have to be made to the lump sum to account for that. The conventional approach was to assess the amount that was notionally required to be laid out in the purchase of an annuity which would provide the annual amount that was needed for the whole period of the loss.
The recurring annual amount had first to be determined, to which a multiplier was then applied. The critical stage in determining the multiplier was to determine the interest rate which represented the return which could reasonably be expected on the lump sum, assuming that it was invested in such a way as to enable the whole amount of the loss to be met during the entire period by the expenditure of income together with capital. The higher the interest rate, the lower the number of years' purchase would be required to calculate the capital value of the annuity. There was an assumption that the choice of interest rate would always take the form of a discount for the accelerated receipt of the lump sum (the discount rate).
In January 2010, the Royal Court of Guernsey awarded, inter alia, damages to the respondent in the sum of £9,337,852.27. It concluded, inter alia, that, in calculating the respondent's future recurring losses, it would be appropriate to start with the discount rate set in 2001 by the Lord Chancellor of 2.5% (the Lord Chancellor’s rate) and then adjust it, inter alia, for specific Guernsey factors. It accordingly applied a single discount rate of 1% in relation to the calculation of the respondent's future recurring losses (the judgment).
The respondent took the view that the Lord Chancellor's rate was too low and that its adoption would result in his being undercompensated. In the absence of any Guernsey legislation establishing a discount rate for the island and any judicial decisions in that jurisdiction, the court should set an appropriate rate following the approach of the House of Lords in Wells v Wells 3 All ER 481 (Wells) which had regard to the current rate of return on index-linked government securities and it should employ two multipliers: one for earnings related losses and the other for costs that were not earnings related.
In February 2010, the respondent filed a notice of appeal requesting that the judgment be set aside to the extent that it depended upon a discount rate of 1% and that it should be re-calculated based upon discount rates of -1.5% for earnings related losses and 0.5% for other losses (the appeal). The respondent developed its case by evidence from three witnesses who included B, an economist and D, an actuary.
The appellant filed a cross-appeal in which he contended that the judgment should be set aside and that a single discount rate of 2.5% ought to be substituted (the cross-appeal). In September 2010, the Court of Appeal of Guernsey allowed the appeal and dismissed the cross-appeal, substituting a discount rate of -1.5% for earnings related losses and 0.5% for other losses. The appellant appealed.
The issue for determination was whether the Court of Appeal had been correct to substitute the rates it had: (i) in relation to non-earnings related losses; and (ii) earnings related losses. As to (ii), the questions that fell to be determined were: (a) whether it was acceptable in principle for there to be different discount rates for different heads of loss; (b) whether it was acceptable in principle to apply a discount rate which was not a discount rate at all, but an adjustment of the lump sum in the reverse direction; and (c) whether the jurats of the Royal Court had been entitled, on the evidence that was before them, to hold that an adjustment to the discount rate was not open to them in the absence of a suitable index and that the evidence before them was of too general a character to be acceptable. The appeal would be dismissed.
(1) On the facts of the instant case, the Court of Appeal had been correct to state, inter alia, that the court ought to have disregarded the Lord Chancellor’s rate and that 0.5% had been the figure that the court ought to have arrived at for the non-earnings related elements of the respondent’s loss (see  of the judgment).
(2) If the evidence showed that inflation would affect different heads of loss in different ways and that the differential was capable of being evaluated, the court should not close its mind to using different rates. To do that would risk giving the victim less than he was entitled to. Wells should not be seen as an indication that a single discount rate always had to be adopted. It would be wrong to do that if the evidence showed that, if that was to be done, a given head of loss would not be fully compensated (see - of the judgment). The victim of a tort was entitled to be fully compensated (see  of the judgment).
Thompstone v Tameside and Glossop Acute Services NHS Trust  2 All ER 553 considered; D's Parent and Guardian v Greater Glasgow Health Board  SLT 1137 considered.
(3) The use of the word 'discount' was not an apt way of describing the exercise. It was, in essence, simply a process of adjustment. In principle, there could be no objection to its operating in the reverse direction if the evidence showed that an adjustment which increased the multiplier was needed to ensure that the lump sum would continue to be large enough to meet losses to be incurred in the future. Otherwise, the effects of accelerated receipt, which were inevitable where the award was by means of a lump sum, would not be properly recognised (see  of the judgment). The victim should, so far as it was possible to do so, be fully compensated (see  of the judgment).
(4) Whether the likely future gap between the growth of Guernsey average earnings and Guernsey inflation could be closed without the victim being over-compensated had to depend upon the extent and quality of the evidence (see  and  of the judgment).
On the facts of the instant case, the lump sum approach was being adopted which was bound to include matters which, by their very nature, could not have been ascertained precisely. B's analysis had been the best evidence that had been available and his conclusions and those of D had been largely unchallenged except on the ground that it had not been enough in view of the dramatic effect that their conclusions had had on the result. Had D's evidence stood alone, there would have been some force in that objection.
However, it was B's evidence that had been critical and that had been based on a thorough examination of information drawn from many countries over a long period. There had been no contrary evidence (see  of the judgment). The Court of Appeal had been right to intervene and to substitute for the single figure of 1% overall a rate of 0.5% for the future losses that were not earnings related and a rate of -1.5% for the earnings related elements of the respondent's future losses, on the ground that those figures had been established by the evidence (see  of the judgment).
Per curiam: 'While I would endorse the Court of Appeal's observations in paragraphs 50-52 of its judgment as to how cases of this kind should be handled in the future, I should also like to express the hope that legislation might be introduced in Guernsey to enable the court to order the payment of damages by means of periodical payments in line with the systems that are now available in the UK' (see 57] of the judgment).
Alistair Schaff QC and Bernhard Doherty (instructed by Alan Taylor & Co) for the appellant; James Dingemans QC and Gordon Dawes (instructed by Mourant Ozannes) for the respondent.
- Criminal law
- Libel and slander
- Contempt of court
- Judicial review
- Employment tribunal
- Police services
- Human rights
- Contempt of court
- Employment tribunal
- Common law
- Judicial review
- Human rights
- Human rights