Three recent Court of Appeal decisions -- Wells v Wells, Thomas v Brighton Health Authority and Page v Sheerness Steel (1996), The Times, 24 October -- have overturned decisions of the judge at first instance who awarded multipliers for future loss based upon the real return on index linked government stock (ILGS).

The decisions have had a major and immediate impact on personal injury cases.

The Court of Appeal's principal reasons for reversal were:-- The judges did not agree that the plaintiff should be entitled to invest his damages with the aim of taking the minimum risk.

They rejected arguments that an injured plaintiff should be considered different from any other investor who had to rely on his capital for future needs.

Such an investor would invest his money so that he took an acceptable risk, rather than no risk at all.

This argument was particularly relevant for investors with considerable sums.-- The plaintiff should be assumed to invest his damages prudently.

The court was persuaded that prudent investment involved the inclusion of a basket of investments with a substantial proportion of equities.

They did so after studying not only the expert evidence in the original cases but also evidence from the Court of Protection and after considering the Trustee Investment Act 1961 and the Charities (Trustee Investment Act 1961) Order 1995.-- Investing in ILGS did not provide any precision in putting the plaintiff back into the financial position he would have been in but for his accident.

The judges did not accept that the calculation of the multiplier could be determined with precision by a mathematical exercise.

The multiplier, in addition to taking account of early receipt, needs to consider other factors, for example early death or redundancy.The judgment was that the present conventional discount rate of 4.5% should continue to apply as a starting point for determining multipliers, even though other factors would need to be considered on a case-by-case basis.The judges then considered whether the Duxbury calculation, used in family law, would be of assistance in personal injury cases.

The Duxbury calculation uses computer techniques and calculates a lump sum that, if invested, will provide for the spouse's future needs until death.

A number of variables are programmed, including future inflation, dividend yield, capital appreciation and the current tax structure.

It provides a sophisticated method for assessing future financial dependency, particularly with regard to tax.

The traditional multiplier/multiplicand treatment of tax is, by comparison, crude.The judges mentioned the current tax regime where, after taking account of personal allowances and lower rate bands, a person needs to earn a substantial income before his or her average rate of tax equates to the basic rate of tax.

In addition, since the introduction of indexation relief, capital gains tax is only payable on gains in excess of inflation after taking into account an annual exemption.

It follows that tax on the income from a lump sum investment will be higher in earlier years as the plaintiff lives off the income, but lower in later years as capital is withdrawn.Lord Justice Thorpe, in an appendix to the judgment, re commends the Duxbury calculation in substantial personal injury cases because it provides a more precise method of calculating the future discounted income flow.In particular he states that:-- it makes a more realistic calculation of the annual taxation charge to take account of the switch from living off dividends to withdrawing capital;-- it enables changes in future needs to be incorporated.The appeal court is clearly suggesting that the Duxbury calculation, although still speculative, is more precise, and should replace the multiplier/multiplicand imprecise method of calculating damages.Duxbury includes a number of variables that need to be programmed and is an imprecise calculation because of the subjectivity of the choice of variables.

There will, obviously, still be arguments about the variables.For inflation rates, and rates of return on investments, past averages can be used as a reasonable basis for projecting the future.

In contrast, by tradition, current rates of tax are assumed to continue into the future as no better estimate is available.

Calculating average tax rates in the past is a meaningless figure: it is only 12 years since there was an investment income surcharge of 15%.

If reintroduced, this would have a substantial effect on the Duxbury calculation.It is interesting to note from the 'At a glance Duxbury calculations 1996' the following figures for a 42-year-old wife:-- a need of £20,000 net per annum requires a lump sum of £389,000;-- a need of £50,000 net per annum requires a lump sum of £1,059,000;-- a need of £100,000 net per annum requires a lump sum of £2,249,000.If these needs are converted into traditional multipliers used in personal injury cases, they become 19.45, 21.18 and 22.49, increasing as the annual sum required becomes larger, because of the incidence of higher rate tax.

These compare to the 3% Ogden tables for pecuniary loss of life for a 42-year-old female where the multiplier is 21.7, and the 4.5% tables where it is 17.5.Current law is that multipliers should not be increased to take account of higher rate tax; this was endorsed by the Court of Appeal in these decisions.By advocating a change from the traditional multiplier/multiplicand approach to reliance on the Duxbury calculations, has the Court of Appeal suggested the way forward for personal injury damages?If the Duxbury calculation approach is implemented, it will change the law fundamentally on calculating damages for personal injury making certain legal precedents outmoded.

Imprecision will, nevertheless, remain.It is clear, after all the uncertainty of the past year, that the Court of Appeal has determined that the calculation of damages using both the multiplicand and the multiplier is an imprecise exercise.

It is also clear that settlement of cases will require the traditional solicitor's skill of negotiating the best deal for his client without any scientific starting point.Humphrey Creed is a partner with the litigation support unit at Clark Whitehill, chartered accountants.