Interests on general damages

Lawrence v Chief Constable of Staffordshire, Court of Appeal, 29 June 2000: Peter Gibson, May and Hale LJJ

In recent months, the Court of Appeal has had to consider both whether to reduce the discount rate from 3% to 2% in calculating the multiplier in personal injury actions, while at the same time increasing the interest rate on general damages for pain and suffering and loss of amenity from 2% to 3%.

The irony was not lost on Lord Justice Peter Gibson in the instant case.

The court rejected the appellant's argument that the interest rate on general damages held at 2% since Birkett v Hayes 1982 1WLR816 was not sacrosanct and should reflect the current rate of return on Index Linked Government securities (ILGS), namely 3%.

Reliance was placed upon the judgment of Lord Diplock in Wright v British Railways Board 1983 2AC773 and his view that the court's discretion in awarding a rate of interest on general damages should be exercised in line with 'the broad indication' that can be gleaned from the rate of return on ILGS for a similar period between service of the writ and judgment.

That said, the courts have looked for predictability and 'a simple rule of thumb' (according to Peter Gibson LJ).

The primary difficulty confronting the appellants was that the court properly held that there is no inter-relationship between the interest rate applicable to future loss and that used to calculate interest for delay in receiving payment.

One is not comparing like with like.

The appellate court, on 4 April 2000, in Warren v Northern General Hospital Trust (Stuart-Smith, Mummery and Tuckey LJJ) stopped a growing trend demonstrated in the Newcastle and Birmingham District Registries for the discount rate to be calculated at 2%, rather than the 3% used in the House of Lords decision in Wells v Wells 1999 1AC345.

The argument, successful in the district registries, was that the rate of return from ILGS over a three-year period since Wells had produced a substantial drop and that 2% was therefore appropriate.

The Court of Appeal's approach is, however, not to interfere.

It is waiting pending any involvement the Lord Chancellor may wish to have within his powers under the 1996 Damages Act.

For the time being, there is a degree of clarity, namely discount rates in calculating the multiplier are based on the 3% rate of return, whereas interest on general damages remains at 2%.