Page v. Sheerness Steel Company Ltd

LORD LLOYD OF BERWICK

My Lords,

Introduction

      There are before the House appeals in three actions for personal injuries, all raising the same question, namely, the correct method of calculating lump sum damages for the loss of future earnings and the cost of future care. Negligence was admitted in all three cases.

      In Wells v. Wells the plaintiff, a part-time nurse, aged nearly 58, was very severely injured in a traffic accident when she was travelling as a passenger in a car driven by her husband. She suffered serious brain damage. As a consequence she is no longer capable of working, or caring for herself or her family. She will require care for the rest of her life. The judge, His Honour Judge Wilcox, awarded her £120,000 for pain and suffering. The total award, including loss of future earnings and cost of future care on a life expectancy of 15 years, came to £1,619,332. The Court of Appeal reduced the figure for pain and suffering to £100,000 and substituted a life expectancy of 10 years 3 months. They arrived at a total of £1,086,959. The main reason for the sharp reduction was that the Court of Appeal took a discount rate of 4.5 per cent. in calculating the lump sum for future loss, whereas the judge had taken 2.5 per cent.

      In Thomas v. Brighton Health Authority the plaintiff was six years old at the date of the trial. He sues by his mother and next friend. He was injured before birth by the maladministration of a drug intended to induce labour. He suffers from cerebral palsy, and is very severely physically handicapped. The judge, Collins J., awarded £110,000 for general damages. The total award on a life expectancy to the age of 60 came to £1,307,963. The Court of Appeal reduced the figure to £994,592. The reason was the same as in the case of Wells v. Wells, save that Collins J. took a discount rate of 3 per cent., not 2.5 per cent. The judge took the same rate of 3 per cent. in arriving at a figure of £72,592 for additional housing costs. The Court of Appeal reduced this item by taking the conventional rate of 2 per cent.: see Roberts v. Johnstone [1989] 1 Q.B. 878. The reason why the Court of Appeal took a rate of 4.5 per cent. for discounting future loss, but only 2 per cent. for the cost of additional housing will appear later.

      In Page v. Sheerness Steel Co. Ltd. the plaintiff, then aged 24, was working in a steel mill alongside a cooling bed when a white-hot steel bar buckled and struck him in the head. It entered the right side of his skull, penetrated his brain and emerged on the left side. A workmate cut the bar short. The plaintiff then pulled the bar out with his own hands. He was conscious throughout. It is hard to imagine how he could still be alive. Dyson J. awarded £80,000 for general damages. The total award, including loss of future earnings to a normal retiring age of 62 and the cost of future care on a normal life expectancy came to £997,345.64. The judge took the same discount rate as Collins J., namely, 3 per cent. The Court of Appeal substituted an award of £702,773.20. The reason for the reduction was the same as in the other two cases.

      A number of separate points arise in relation to the individual cases. They would not by themselves have justified leave to appeal. However, the point which is common to all three appeals is of considerable importance, both for the plaintiffs themselves and for the insurance industry in general. It is convenient to deal with that point first.

      It was common ground between all parties that the task of the court in assessing damages for personal injuries is to arrive at a lump sum which represents as nearly as possible full compensation for the injury which the plaintiff has suffered. This is not therefore the place to discuss other methods of compensation, such as the structured settlement. By section 2(1) of the Damages Act 1996 a court may make an order for the whole or part of the damages to take the form of periodical payments, provided the parties agree. This was in accordance with the recommendation of the Law Commission Report No. 224 Cm. 2646 "Structured Settlements and Interim and Provisional Damages". I note that the Law Commission recommended that in the absence of agreement there should be no judicial power to impose a structured settlement for the reasons which they set out in paragraphs 3.37-3.53 of their Report.

      It is of the nature of a lump sum payment that it may, in respect of future pecuniary loss, prove to be either too little or too much. So far as the multiplier is concerned, the plaintiff may die the next day, or he may live beyond his normal expectation of life. So far as the multiplicand is concerned, the cost of future care may exceed everyone's best estimate. Or a new cure or less expensive form of treatment may be discovered. But these uncertainties do not affect the basic principle. The purpose of the award is to put the plaintiff in the same position, financially, as if he had not been injured. The sum should be calculated as accurately as possible, making just allowance, where this is appropriate, for contingencies. But once the calculation is done, there is no justification for imposing an artificial cap on the multiplier. There is no room for a judicial scaling down. Current awards in the most serious cases may seem high. The present appeals may be taken as examples. But there is no more reason to reduce the awards, if properly calculated, because they seem high than there is to increase the awards because the injuries are very severe.

      The approach to the basic calculation of the lump sum has been explained in many cases, but never better than by Stephen J. in the High Court of Australia in Todorovic v. Waller [1981] 37 A.L.R. at 498 (see Kemp and Kemp Quantum of Damages vol. 1, para. 7-010), by Lord Pearson in Taylor v. O'Connor [1971] A.C. 115, 140, and by Lord Oliver of Aylmerton in Hodgson v. Trapp [1989] AC 807, 826.

      The starting-point is the multiplicand, that is to say the annual loss of earnings or the annual cost of care, as the case may be. (I put so-called Smith v. Manchester damages on one side). The medical evidence may be that the need for care will increase or decrease as the years go by, in which case it may be necessary to take different multiplicands for different periods covered by the award. But to simplify the illustration one can take an average annual cost of care of £10,000 on a life expectancy of 20 years. If one assumes a constant value for money, then if the court were to award 20 times £10,000 it is obvious that the plaintiff would be over-compensated. For the £10,000 needed to purchase care in the 20th year should have been earning interest for 19 years. The purpose of the discount is to eliminate this element of over-compensation. The objective is to arrive at a lump sum which by drawing down both interest and capital will provide exactly £10,000 a year for 20 years, and no more. This is known as the annuity approach. It is a simple enough matter to find the answer by reference to standard tables. The higher the assumed return on capital, net of tax, the lower the lump sum. If one assumes a net return of 5 per cent. the discounted figure would be £124,600 instead of £200,000. If one assumes a net return of 3 per cent. the figure would be £148,800.

      The same point can be put the other way round. £200,000 invested at 5 per cent. will produce £10,000 a year for 20 years. But there would still be £200,000 left at the end.

      So far there is no problem. The difficulty arises because, contrary to the assumption made above, money does not retain its value. How is the court to ensure that the plaintiff receives the money he will need to purchase the care he needs as the years go by despite the impact of inflation? In the past the courts have solved this problem by assuming that the plaintiff can take care of future inflation in a rough and ready way by investing the lump sum sensibly in a mixed "basket" of equities and gilts. But the advent of the index-linked government stock (they were first issued in 1981) has provided an alternative. The return of income and capital on index-linked government stock ("I.L.G.S.") is fully protected against inflation. Thus the purchaser of £100 of I.L.G.S. with a maturity date of 2020 knows that his investment will then be worth £100 plus x per cent. of £100, where x represents the percentage increase in the retail price index between the date of issue and the date of maturity (or, more accurately, eight months before the two dates). Of course if the plaintiff were to invest his £100 in equities it might then be worth much more. But it might also be worth less. The virtue of I.L.G.S. is that it provides a risk-free investment.

      The first-instance judges in these appeals have broken with the past. They have each assumed for the purpose of the calculation that the plaintiffs will go into the market, and purchase the required amount of I.L.G.S. so as to provide for his or her future needs with the minimum risk of their damages being eroded by inflation. How the plaintiffs will in fact invest their damages is, of course, irrelevant. That is a question for them. It cannot affect the calculation. The question for decision therefore is whether the judges were right to assume that the plaintiffs would invest in I.L.G.S. with a low average net return of 2.5 per cent., instead of a mixed portfolio of equities and gilts. The Court of Appeal has held not. They have reverted to the traditional 4 to 5 per cent. with the consequential reduction in the sums awarded.

The argument

      Mr. Leighton Williams Q.C. and Mr. Coonan Q.C. for the defendants pointed out that those who receive large awards are likely to be given professional investment advice. All but one of the accountants called as experts at the three trials gave as their opinion that lump sum awards should be invested in a mixed portfolio of 70 per cent. equities and 30 per cent. gilts. This is what the ordinary prudent investor would do. For experience shows that equities provide the best long-term security. Thus Mr. Topping, the accountant called on behalf of the defendant in Wells v. Wells, produced a table which showed the real rate of return on equities to 31 December 1992 on an investment made on 1 January in each year from 1973 to 1992. In only two of those years has the return been less than 4.5 per cent. net of tax. If the ordinary prudent investor would invest substantially in equities, it was to be assumed that the plaintiffs would do the same.

      The point is put well in the following passages from the judgment of the Court of Appeal [1997] 1 WLR 652, 677.

 "It is for the court to hold the balance evenly between both sides, and just as the plaintiff is entitled to an award which achieves as nearly as possible full compensation for the injuries sustained, so also we think the defendant is entitled to take advantage of the presumption that the former will adopt a prudent investment strategy once he receives his award. Furthermore the court, which, as already noted, is dealing with probabilities when fixing the multiplier, can and should pay regard to the high probability that the plaintiff will invest prudently; any other approach would be artificial."

  . . .

 "Undoubtedly, equities are more risky than I.L.G.S. Undoubtedly in some individual years investing in equities would have yielded a negative return in the ensuing period (the same applies albeit less severely to I.L.G.S.). However the figures produced by the defendants' experts, and in particular the B.Z.W. [Barclays de Zoote Wedd] tables, seem to us to demonstrate that, over longer periods of years, equity investment has been sound."

      Mr. Leighton Williams went so far as to argue that it was the plaintiff's duty to invest in equities in order to mitigate his damage.

      But the matter is not quite so simple as that. It now appears that Mr. Topping's figures, which are reproduced in the Court of Appeal's judgment, and are an important link in the chain of reasoning, are misleading. Mr. Topping has failed to observe that his figures are extracted from a table in the B.Z.W. Equity-Gilt Study in which all the income is assumed to be reinvested. But in the case of these plaintiffs the income is, ex hypothesi, assumed to be spent year by year. Unfortunately Mr. Purchas and his experts failed to spot this error at the trial, although it seems obvious enough now. So Mr. Topping was not cross-examined on the point.

      Mr. Purchas sought to fill in the gap by producing tables from the updated B.Z.W. (now Barclays Capital Equity-Gilt Study), showing the net real return on equities without reinvesting the income. He hoped to demonstrate that the real return on equities is little, if anything, above the return on I.L.G.S., especially if one takes into account the difference in the cost of investment advice, which might amount to as much as 1 per cent. per annum. But Mr. Leighton Williams and his experts were unable to agree Mr. Purchas's figures. So I say no more about them, save that the difference between the two sides does not appear to be all that great. On Mr. Purchas's figures the average annual return net of tax on a 20-year investment in equities over the period 1960-1997, without reinvesting the income, was 3.4 per cent. On Mr. Topping's revised calculation the figure was 4.12 per cent.

      The inability of the experts to reach agreement on the figures is not, in the end, of great consequence. For the problem with equities lies elsewhere. Granted that a substantial proportion of equities is the best long- term investment for the ordinary prudent investor, the question is whether the same is true for these plaintiffs. The ordinary investor may be presumed to have enough to live on. He can meet his day-to-day requirements. If the equity market suffers a catastrophic fall, as it did in 1972, he has no immediate need to sell. He can abide his time, and wait until the equity market eventually recovers.

      The plaintiffs are not in the same happy position. They are not "ordinary investors" in the sense that they can wait for long-term recovery, remembering that it was not until 1989 that equity prices regained their old pre-1972 level in real terms. For they need the income, and a portion of their capital, every year to meet their current cost of care. A plaintiff who invested the whole of his award in equities in 1972 would have found that their real value had fallen by 41 per cent. in 1973 and by a further 62 per cent. in 1974. The real value of the income on his equities had also fallen.

      So it does not follow that a prudent investment for the ordinary investor is a prudent investment for the plaintiffs. Equities may well prove the best long-term investment. But their volatility over the short term creates a serious risk. This risk was well understood by the experts. Indeed Mr. Coonan conceded that if you are investing so as to meet a plaintiff's needs over a period of five years, or even 10 years, it would be foolish to invest in equities. But that concession, properly made as it was on the evidence, is fatal to the defendants' case. For as Mr. Purchas pointed out in reply, every long period starts with a short period. If there is a substantial fall in equities in the first five or 10 years, during which the plaintiff will have had to call on part of his capital to meet his needs, and will have had to realise that part of his capital in a depressed market, the depleted fund may never recover.
 

      While therefore I agree with the Court of Appeal that in calculating the lump sum courts are entitled to assume that the plaintiff will behave prudently, I do not agree that what is prudent for the ordinary investor is necessarily prudent for the plaintiff. Indeed the opposite may be the case. What the prudent plaintiff needs is an investment which will bring him the income he requires without the risks inherent in the equity market; which brings us back to I.L.G.S.

      There are currently 11 stocks available, issued at various dates between July 1981 and September 1992, and maturing at various dates between 2001 and 2030. They are criticised by Mr. Leighton Williams on a number of investment grounds.

      First it is said that if index-linked stocks are sold before maturity they will suffer like other securities from the vagaries of the market. True. But it misses the point. The assumption is that the stocks will not be sold before maturity. For it is to be assumed that stocks will be purchased with maturity dates which match the plaintiff's future needs over the period covered by the award. Since the plaintiff will be holding all the stocks to maturity, there is no risk (or minimum risk) of him having to sell before maturity at depressed prices.

      Secondly, it is said that there are gaps in the maturity dates. Thus there is no stock maturing in 2002, 2005, 2007, 2008 or 2010. Nor is there any stock maturing later than 2030. As for the gaps, they may be filled by new issues. According to the Debt Management Report for 1998-1999 issued by H.M. Treasury, the authorities are committed to a minimum annual level of 2.5 billion index-linked stock in 1998-1999 and for the foreseeable future thereafter; and the aim is to maintain liquidity "in all maturity areas across the curve". But even if gaps remain, there is no problem. The plaintiff will be assumed to purchase enough stock maturing in 2001 to cover his needs for that year as well as 2002. And so on.

      As for the period after 2030, again there is no reason to suppose that there will not be further issues. But even if there are not, the plaintiff knows that he will have an inflation-proof lump sum at that date which will reflect his needs for the rest of his life more accurately than any other available investment. Mr. Owen put it well during argument: the court now has at its disposal a tool for calculating damages which enables it to assume a stable currency until at least 2030.

      Thirdly, it was pointed out that the inflation-proofing of I.L.G.S. is based on movements in the retail price index, whereas nursing costs have, historically, risen faster than the R.P.I. This may be true. But it is hardly a point which helps the defendants. If account were to be taken of this factor it would be an argument for rounding up the lump sum rather than rounding down.

The Court of Protection

      I have left to last the argument on which the defendants placed the greatest reliance, and which weighed heavily with the Court of Appeal. Two of the three plaintiffs are patients. Their affairs are being administered by the Court of Protection. One of the witnesses called for the defence was Mr. Bruce Denman, who is in charge of the investment branch of the Public Trust Office dealing with Court of Protection cases. His evidence was that in the case of a long term investment for an individual patient the portfolio would consist of about 70 per cent. U.K. equities with the balance in gilts and cash. The Court of Appeal said that they were "strongly influenced" by the policy of the Court of Protection.

      But in the case of short term investment (five years or under) the policy of the Court of Protection is very different. The Fact Sheet published by the Court of Protection shows that in such a case "very little risk is acceptable." Equities should be excluded altogether. This corresponds with the expert evidence in the present case, and with Mr. Coonan's concession. What is not explained in the policy statement is why risk is any more acceptable in the long-term than in the short term. I can understand an argument that in the case of a long term fund the equities will have had time to recover after a fall such as occurred in 1972 and October 1987. But as already explained it may by then be too late. The gilts may have been sold and the cash may all have been spent.

      In the end it comes back to the question of risk. Ex hypothesi equities are riskier than gilts. That is the very reason why the return on equities is likely to be greater. The plaintiffs say that they are not obliged to bear that extra risk for the benefit of the defendants. Others like them, with fixed outgoings at stated intervals, take the same view as to prudent investment policy. So the plaintiffs are not alone. Thus Mr. Prevett's evidence was that, since index-linked stocks have been available, it has become the general practice for closed pension funds to be invested in I.L.G.S., so as to be sure of being able to meet their liabilities as they fall due. I would not be surprised to find others in the same position, but on a smaller scale, taking the same view, such as school governors investing a prepaid fees fund. The Court of Appeal rejected this part of Mr. Prevett's evidence, but without giving any very satisfactory reason, other than the need for an investment which affords some flexibility in view of the inevitable uncertainty in estimating the multiplicand. I agree, of course, that there is bound to be some uncertainty in fixing the multiplicand. But that does not seem to me to be a good reason for introducing an unnecessary uncertainty in fixing the multiplier. Two wrongs may make a right. But they are just as likely to make a double wrong.

      As for the Court of Protection's current policy, it may be that they feel obliged to invest in equities so long as the sums available for investment are calculated on the basis of a 4.5 per cent. return. In spite of the risks, it may be the only way of making the money go round. But it does not tell us how large the fund should have been in the first place. In a letter written since the decision of the Court of Appeal Mr. Bruce Denman records the advice given by the Lord Chancellor's Honorary Investment Advisory Committee to the Master of the Court of Protection in the event of awards being calculated by reference to the return on I.L.G.S. The advice is given in guarded terms. He should "seriously consider" a minimum-risk index-linked portfolio. The master has accepted this advice. It is at least clear, therefore, that the present policy is not set in stone.

Recommendations

      I turn next to the commentators and textbook writers. It was the Working Party under the chairmanship of Sir Michael Ogden Q.C. which blazed the trail. In the introduction to the first edition of the Actuarial Tables published in 1984, Sir Michael Ogden refers to the then recent introduction of index-linked government stocks in 1981. They had already become an established part of the investment market. Sir Michael describes the advantages of I.L.G.S. in the following paragraph, at p. 8:

 "Investment policy, however prudent, involves risks and it is not difficult to draw up a list of blue chip equities or reliable unit trusts which have performed poorly and, in some cases, disastrously. Index-linked government stocks eliminate the risks. Whereas, in the past, a plaintiff has had to speculate in the form of prudent investment by buying equities, or a 'basket' of equities and gilts or a selection of unit trusts, he need speculate no longer if he buys index-linked government stock. If the loss is, say, £5,000 per annum, he can be awarded damages which, if invested in such stocks, will provide him with almost exactly that sum in real terms."

      In the second edition published in 1994 Sir Michael Ogden repeats the views expressed in the introduction to the first edition:

 "However, there are now available index-linked government stocks and it is accordingly no longer necessary to speculate about either the future rates of inflation or the real rate of return obtainable on an investment. The redemption value and dividends of these stocks are adjusted from time to time so as to maintain the real value of the stock in the face of inflation. The current rates of interest on such stocks are published daily in the Financial Times and hitherto have fallen into the range of about 2.5 per cent. to 4.5 per cent. gross."

A little later he says:

 ". . . the return on such index-linked government stocks is the most accurate reflection of the real rate of interest available to plaintiffs seeking the prudent investment of awards. . . ."

      The third edition of the Ogden Tables was published in April 1998, after the decision of the Court of Appeal in the present case, but before the hearing in the House. Sir Michael anticipates a fourth edition when the decision of the House is made known, and when the Lord Chancellor has had an opportunity to fix the rate of return under section 1 of the Damages Act 1996. Sir Michael will then be able, as he says, to retire from the task which he was first asked to undertake 15 years ago, and which he has performed with such conspicuous success.

      The Court of Appeal expressed their concern at departing from the recommendation of the Ogden Working Party but added that the Working Party suffered from the disadvantage that the membership did not include any accountants or investment advisers. The plaintiffs challenged the truth of that observation; but in any event I would not regard it as weakening the force of the Working Party's recommendation.

      In between the first and second editions of the Ogden Tables, the Law Commission published Consultation Paper No. 125 on Structured Settlements and Interim and Provisional Damages, to which there was a large response from a variety of sources, including investment advisers. The consultation paper led to Law Commission Report No. 224 (1994) (Cm. 2646). The following passages are relevant:

 "2.25 . . . Our provisional view was that courts should make more use of information from the financial markets in discounting lump sums to take account of the fact that they are paid today. One way of doing this would be to enable courts to refer to the rate of return on I.L.G.S. as a means of establishing an appropriate rate of discount. The purpose of this would be to obtain the best reflection of market opinion as to what real interest rates will be in future. The question upon which we sought the views of consultees was whether it would be reasonable to use the return on I.L.G.S. as a guide to the appropriate discount.

 "2.26 Almost two-thirds of those who responded to this question supported the use of the I.L.G.S. rates to determine more accurate discounts. These consultees agreed that the assumption of a 4 to 5 per cent. rate of return over time is crude and inflexible and can lead to over- or under-compensation and hence to injustice. . . .

 "2.28 We share the views of the majority of those who responded to us, that a practice of discounting by reference to returns on I.L.G.S. would be preferable to the present arbitrary presumption. The 4 to 5 per cent. discount which emerged from the case law was established at a time when I.L.G.S. did not exist. I.L.G.S. now constitute the best evidence of the real return on any investment where the risk element is minimal, because they take account of inflation, rather than attempt to predict it as conventional investments do."

      This is a very strong recommendation indeed. Once again the Court of Appeal expressed concern at departing from such a recommendation, but commented that the recommendation was based on implicit assumptions as to the objective to be achieved, which they did not accept.

      There is a sustained criticism of the Court of Appeal's decision in Kemp and Kemp: The Quantum of Damages vol. 1, para. 6-003/9-6-003/13, and in David Kemp Q.C.'s article in 1997 L.Q.R. vol. 113 at p. 195. I have derived much assistance from Mr. Kemp's commentary, for which I am grateful.

      In the current edition of McGregor on Damages, 16th ed. (1997), Mr. Harvey McGregor Q.C. hazarded a guess that the House would endorse a rate somewhat less than the Court of Appeal's 4.5 per cent. but would not adopt the I.L.G.S. rate. In Mr. McGregor's view that would have been the right solution, because he regarded it as highly unlikely that a plaintiff with substantial damages would invest it all in I.L.G.S. He would be more likely to accept investment advice, and end up with a portfolio largely of equities. This would lead to over-compensation, if equities continue their upward progression.

      For reasons which I have already given I would not agree with this approach. The suggestion that plaintiffs with a substantial award of damages are likely to invest in a portfolio consisting largely of equities is not supported by the research carried out for the Law Commission: see their Report No. 225 para. 10.2. In any event what an individual does with his damages is a matter for him. If he invests in equities, he may be lucky and end up by being over-compensated. But the question is whether his damages should be calculated on the basis that he is obliged to invest in equities.

      Apart from McGregor on Damages, we were not referred to any other commentary or textbook which disagrees with the recommendations of the Ogden Working Party and the Law Commission.

The authorities

      I turn last to see whether the approach which I favour is inhibited by any previous decision of the House. Early cases, such as Taylor v. O'Connor [1971] A.C. 115, are not of any real assistance, since they were decided before the advent of I.L.G.S., the collapse of the equity market in 1972, and the rapid inflation which lasted until the end of that decade. By the time Cookson v. Knowles [1979] AC 556 was decided the theory that one could protect an award of damages against inflation by investing in equities had been exploded. If protection was to be had at all, it was by the higher rates of interest available on fixed interest securities.

      Wright v. British Railways Board [1983] 2 A.C. 773 is an important authority, although not directly in point on the present issue. The question in that case was what is the appropriate rate of interest to award on general damages for the period between the date of service of the writ and the date of judgment. The Court of Appeal in Birkett v. Hayes [1982] 1 W.L.R. 816 had awarded 2 per cent. The House declined to interfere with that rate. Lord Diplock's speech is important for a number of reasons. It was the first and, so far as I know, the only occasion on which he has expressed himself on the subject of I.L.G.S. He pointed out, at p. 783, that the "rate of interest accepted by investors in index-linked government securities should provide a broad indication of what is the appropriate rate of interest to be awarded" for non-pecuniary loss. It provided "powerful confirmation" for the rate of 2 per cent. adopted by the Court of Appeal in Birkett v. Hayes.

      Lord Diplock's use of I.L.G.S. in Wright v. British Railways Board convinces me that if I.L.G.S. had existed at the time of Cookson v. Knowles Lord Diplock would have been the first to see that they provided the answer for which he was looking.

      Wright v. British Railways Board is also important because of Lord Diplock's observation, at p. 784, that guidelines as to the rate of interest for economic and non-economic loss should be simple to apply, and broad enough to allow for the special features of individual cases. Such guidelines are not to be regarded as rules of law or even rules of practice. They set no binding precedent, and can be altered as circumstances alter. It follows that a new approach to setting the appropriate discount rate, differing from that adopted in Mallett v. McMonagle and Cookson v. Knowles, does not have to be justified under the 1966 Practice Statement. Lord Salmon made the same point in Cookson v. Knowles at p. 574.

      Mr. Leighton Williams rightly relied on Lim Poh Choo v. Camden and Islington Area Health Authority [1980] AC 174. It is the strongest authority in his favour. At p. 193, Lord Scarman acknowledged the wisdom of Lord Reid's dictum in Taylor v. O'Connor that it would be unrealistic to ignore inflation in calculating lump sum damages for future loss. He nevertheless held that it was "the better course" to disregard inflation in the great majority of cases. Among the reasons he gave was that it was inherent in any lump sum system of compensation, and just, that the sum be calculated at current market values, leaving plaintiffs in the same position as others who have to rely on capital for their support. To attempt to protect them against inflation "would be to put them into a privileged position at the expense of the tortfeasor, and so to impose upon him an excessive burden, which might go far beyond compensation for loss."
 

      No doubt it was this passage which the Court of Appeal had in mind when they said that it was necessary "to hold the balance evenly between both sides." I have to say that I do not find Lord Scarman's reasoning persuasive. If the object of an award of damages is to put the plaintiff in the same position as he would have been in if he had not been injured by the negligence of the defendant (as was common ground) then one ought, in principle, to get as near as one can to the wages which he would actually have earned but for the injury and the cost of the needs which he will actually incur. In other words, one ought so far as possible to take account of inflation, as Lord Reid had said.

      What then did Lord Scarman mean by saying that this would put the plaintiff in a privileged position in comparison with others who have to rely on capital for their support? Once the lump sum has been calculated and paid, he is in exactly the same position as others, such as those who have saved or inherited a lump sum. But in calculating the sum his position is in no way comparable. For the plaintiff is entitled to be protected against future inflation at the expense of the tortfeasor; otherwise he does not receive full compensation. The others are not so entitled. It is only in that sense that the plaintiff is in a privileged position. I cannot for my part see anything unjust in requiring the defendant to compensate the plaintiff in full, however burdensome that may prove. Lord Scarman recognised this himself when he said, at p. 187:

 "There is no room here for considering the consequences of a high award upon the wrongdoer or those who finance him. And, if there were room for any such consideration, upon what principle, or by what criterion, is the judge to determine the extent to which he is to diminish upon this ground the compensation payable?"

Conclusion

      My conclusion is that the judges in these three cases were right to assume for the purpose of their calculations that the plaintiffs would invest their damages in I.L.G.S. for the following reasons:

      (1)  Investment in I.L.G.S. is the most accurate way of calculating the present value of the loss which the plaintiffs will actually suffer in real terms.

      (2)  Although this will result in a heavier burden on these defendants, and, if the principle is applied across the board, on the insurance industry in general, I can see nothing unjust. It is true that insurance premiums may have been fixed on the basis of the 4 to 5 per cent. discount rate indicated in Cookson v. Knowles and the earlier authorities. But this was only because there was then no better way of allowing for future inflation. The objective was always the same. No doubt insurance premiums will have to increase in order to take account of the new lower rate of discount. Whether this is something which the country can afford is not a subject on which your Lordships were addressed. So we are not in a position to form any view as to the wider consequences.

      (3)  The search for a prudent investment will always depend on the circumstances of the particular investor. Some are able to take a measure of risk, others are not. For a plaintiff who is not in a position to take risks, and who wishes to protect himself against inflation in the short term of up to 10 years, it is clearly prudent to invest in I.L.G.S. It cannot therefore be assumed that he will invest in equities and gilts. Still less is it his duty to invest in equities and gilts in order to mitigate his loss.

      (4)  Logically the same applies to a plaintiff investing for the long term. In any event it is desirable to have a single rate applying across the board, in order to facilitate settlements and to save the expense of expert evidence at the trial. I take this view even though it is open to the Lord Chancellor under section 1(3) of the Damages Act to prescribe different rates of return for different classes of case. Mr. Leighton Williams conceded that it is not desirable in practice to distinguish between different classes of plaintiff when assessing the multiplier.

      (5)  How the plaintiff, or the majority of plaintiffs, in fact invest their money is irrelevant. The research carried out by the Law Commission does not suggest that the majority of plaintiffs in fact invest in equities and gilts, but rather in a building society or a bank deposit.

      (6)  There was no agreement between the parties as to how much greater, if at all, the return on equities is likely to be in the short or long term. But it is at least clear that an investment in I.L.G.S. will save up to 1 per cent. per annum by obviating the need for continuing investment advice.

      (7)  The practice of the Court of Protection when investing for the long term affords little guidance. In any event the policy may change when lump sums are calculated at a lower rate of return.

      (8)  The views of the Ogden Working Party, the Law Commission and the author of Kemp and Kemp in favour of an investment in I.L.G.S. are entitled to great weight.

      (9)  There is nothing in the previous decisions of the House which inhibits a new approach. It is therefore unnecessary to have resort to the 1966 Practice Statement.

Consequences

      Once it is accepted that the lump sum should be calculated on the basis of the rate of return available on I.L.G.S., then an assessment of the average rate of return at the relevant date presents no problem. The rates are published daily in the Financial Times. A table of average rates for the period June 1990 to December 1994 is included in Kemp and Kemp at para. 8-068. No doubt the table will be brought up to date from time to time.

      The average gross redemption yield in June 1995 when Mr. Prevett gave his evidence was 3.78 per cent. If one takes the average over the previous six months it was 3.8 per cent., and if over the previous 12 months it was 3.83 per cent. The equivalent figures for November and December 1995 when Collins J. and Dyson J. gave judgment were marginally lower at 3.53 per cent. and 3.52 per cent. There must then be a deduction for tax on income. In his valuable appendix to the judgment below, Thorpe L.J. scorns the assumption of a 25 per cent. flat rate of tax as "crude, unrealistic and favourable to plaintiffs." I agree. In the first place it ignores the impact of allowances and tax bands. Secondly, it assumes a constant rate of income throughout the period to be covered, whereas in reality the income element in the annual draw-down will reduce and the tax-free capital element will increase as time goes by. The Duxbury Tables attempt a much more accurate calculation of the incidence of tax. Figures put before us show that on a fund of £1 million invested to produce 3 per cent. over 20 years the actual incidence of tax would be no more that 15.37 per cent.

      It is not altogether clear how Judge Wilcox arrived at his 2.5 per cent. as the appropriate discount on an average gross return of 3.8 per cent. If he deducted tax at 25 per cent., he would have arrived at 2.8 per cent. net, not 2.5 per cent. But for reasons already mentioned 25 per cent. is certainly too high, quite apart from the fact that it is no longer the standard rate of tax. Judge Wilcox's figure of 2.5 per cent. cannot stand.

      In its place I would substitute 3 per cent., which is the net discount rate adopted by Collins J. and Dyson J., representing a deduction of 14 per cent. for the impact of taxation on a gross return of 3.5 per cent. This sounds about right. I appreciate that such an approach is less precise than what is available by using the Duxbury Tables, which was Thorpe L.J.'s preferred approach. On the other hand it is important to keep the calculations simple as well as accurate, as Thorpe L.J. was the first to recognise. So far as the three appeals currently before the House are concerned I would regard 3 per cent. as the appropriate net return. It follows that the award in Wells v. Wells will have to be recalculated on that basis.

Guidelines

Section 1 of the Damages Act 1996 provides:

 "(1) In determining the return to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury the court shall, subject to and in accordance with rules of court made for the purposes of this section, take into account such rate of return (if any) as may from time to time be prescribed by an order made by the Lord Chancellor."

      The section came into force on 24 September 1996, but no rate has yet been prescribed. Lord Mackay of Clashfern, the previous Lord Chancellor, was said to be awaiting the decision of the Court of Appeal in the instant cases. It goes without saying that the sooner the Lord Chancellor sets the rate the better. The present uncertainty does not make the settling of claims any easier.

      In the meantime it is for your Lordships to set guidelines to replace the old 4 to 5 per cent. bracket. There is something to be said for a bracket, since it allows some flexibility in exceptional cases, as where, for example, the impact of higher-rate tax would result in substantial under-compensation. Thus on an award of £2 million higher rate tax payable over the first half of a 20-year period would alone amount to nearly £75,000. But the majority of your Lordships prefer a single figure. I do not disagree provided it is subject to the same flexibility as is to be found in section 1(2) of the Damages Act.

      What then should the figure be? The average gross redemption yield on I.L.G.S. has fallen steadily over the last year. In May 1997 it was 3.68 per cent., by May 1998 it was only 2.8 per cent. Less tax at, say, 15 per cent., this would give a net return of 2.38 per cent. Logically, therefore, we should take 2.5 per cent. as the guideline figure, since the assumption is that the plaintiff will purchase in the market at that price. The higher-yielding stock is no longer available. If therefore the calculation is done at 3 per cent. instead of 2.5 per cent., he would be substantially under-compensated.

      But since it is undesirable that the guidelines should be changed too often, it may be better that the average gross return should be ascertained over a period of months rather than on a particular day; and since, as I have said, the average return has been falling over the last year, one would expect the average return over that period to be higher than the current return. Such proves to be the case. Over the last six months and 12 months to March 1998 the average return has been 3.02 per cent. and 3.28 per cent. respectively. These figures justify a guideline rate of return of 3 per cent. net rather than 2.5 per cent., and this is the rate which I would propose for general use until the Lord Chancellor has specified a new rate under section 1 of the Damages Act.

      I would not, however, accept that the average should be taken over as long a period as three years. For if the rate of return had been falling steadily over the whole period (in fact this has not been the case) it would work very unfavourably to the plaintiffs; and vice versa if it had been rising steadily over three years. A year would seem to be the best compromise period. Once the net return has been established to the nearest 0.5 per cent., it is a simple enough matter to find the correct multiplier from the Ogden Tables.

Wells v. Wells

      I come now to the miscellaneous points. They do not call for extensive discussion, since they were argued only briefly. The underlying question is whether the defendants in each case succeeded in showing that damages awarded by the judges at first instance in respect of any particular head of damage (see George v. Pinnock [1973] 1 W.L.R. 118 per Sachs L.J. at 126) are outside the appropriate bracket (see Every v. Miles [1964] C.A. Trans. No. 261 per Diplock L.J.; Kemp and Kemp para. 19-006), or else represented a "wholly erroneous estimate", whether due to mistake of law or a misapprehension of the facts: see Pickett v. British Rail Engineering Ltd. [1980] AC 136 per Lord Wilberforce at 151, and Lord Scarman at 172.

      As already mentioned Judge Wilcox awarded Mrs. Wells £120,000 for pain and suffering. The Court of Appeal reduced the figure to £100,000. On behalf of the defendant it is said that the case falls at the upper end of the moderately severe brain-damage bracket as described in the Judicial Studies Board Guidelines 2nd ed. (1994) (£77,500 to £95,000), and not within the most severe brain-damage bracket (£105,000 to £125,000). Mrs. Wells is severely disabled, and will remain so for the rest of her life. But I agree with the Court of Appeal that the sum of £120,000 awarded by the judge falls well above the bracket for her type of case. The Court of Appeal was therefore right to intervene for the reasons set out convincingly in their judgment, which I need not repeat. As for Cunningham v. Camberwell Health Authority [1990] 2 Med.L.R. 49, on which the plaintiff relied, Mr. Leighton Williams pointed out that the plaintiff in that case was 12 years younger than Mrs. Wells, and it looks as though her injuries may have been rather more serious. In any event the award in that case may have been on the high side. I would uphold the Court of Appeal's figure of £100,000.

      On the other hand I am unable to agree with the Court of Appeal's reduction in Mrs. Wells's life expectancy from 15 years to 10 years. Dr. Peter Harvey's evidence was that her life expectancy is not affected by her present condition in view of the intensive care which she now receives. He would therefore predict a normal life expectancy for a woman of her age, namely, 20 years. Mr. Alan Richardson, on the other hand, predicted a life expectancy of 10 years, or 13 at the most. The judge expressed his conclusion as follows:

 "I prefer the considered and more closely reasoned approach of Mr. Alan Richardson and doing the best I can upon the medical evidence and all the other evidence I am persuaded that the life expectancy in this case more likely than not is 15 years."

      The Court of Appeal fastened on the judge's preference for Mr. Richardson's evidence, and held that he was therefore wrong to split the difference (if that is what he did) by taking 15 years. But this is to misunderstand the judge's approach. Even though he preferred Mr. Richardson's evidence, he was not obliged to accept the lower of his two figures uncritically. Nor was he obliged to reject Dr. Harvey's views out of hand. In arriving at a life expectancy of 15 years the judge took all the medical evidence into account, and all the other evidence besides. In my view the Court of Appeal should not have interfered. I would therefore restore the judge's figure of 15 years' life expectancy.

      The third point relates to the multiplicand. The Court of Appeal rightly rejected a number of Mr. Leighton Williams's criticisms of the judge's findings. But in one respect they found his criticism justified. At the time of the trial the care regime consisted of a residential carer and a day carer by day, and the residential carer and a night carer by night. Miss Teresa Gough, who gave evidence at the trial for the defendant, urged strongly that a night sleeper could be substituted for the night carer, with a saving of £10,539 per year. But the judge preferred the evidence of Mrs. Statham and Mrs. Clarke-Wilson, who had, as he put it, "the direct hands-on experience." If, as they said, Mrs. Wells needed to be seen three times a night, then Miss Gough accepted that that was a task for a night carer rather than a night sleeper.

      In my view the Court of Appeal was right to scrutinise the individual items which went to make up the multiplicand. Since the effect of reducing the rate of discount will be to increase the multiplier in every case, it is all the more important to keep firm control of the multiplicand. Plaintiffs are entitled to a reasonable standard of care to meet their requirements, but that is all. Having said that, however, and having heard all that Mr. Leighton Williams had to say, I am not persuaded that the Court of Appeal was entitled to substitute their own view of the evidence to that formed by the judge. They gave no reason other than it was another instance of the judge over-providing. I would therefore restore the judge's finding under this head.

Thomas v. Brighton Health Authority

      The agreed medical evidence was that the plaintiff has a life expectancy to the age of 60. Collins J. held, however, that he ought to reduce the arithmetical multiplier by about 20 per cent. "to cater for the hazards of life in such cases." In the result he took a multiplier of 23. The Court of Appeal agreed with the judge's approach but started from a different starting-point. With a 4.5 per cent. discount rate the arithmetical multiplier came to 20. Reduced by 15 per cent., rather than 20 per cent., they arrived at a multiplier of 17.
 

      Was it correct for the judge and the Court of Appeal to reduce the arithmetical multiplier, and therefore, in effect, override the expectation of life agreed by the doctors? Mr. Owen submitted that there could be no rational basis for applying a further discount for "contingencies," since the doctors had already taken account of all the contingencies that might affect the plaintiff, such as the increased risk of accident, chest infection, and so on. The only reason given by the judge was that the courts had "tended to reduce multipliers by about 20 per cent." The Court of Appeal took the same line.

      I can see no answer to Mr. Owen's argument. The inevitable result of reducing the multiplier to 17, as Mr. Havers Q.C. pointed out, will be that the plaintiff's damages will run out when he is 39. He will have nothing to cover his needs for the remaining 21 years of his life.

      Mr. Havers conceded that there is room for a judicial discount when calculating the loss of future earnings, when contingencies may indeed affect the result. But there is no room for any discount in the case of a whole life multiplier with an agreed expectation of life. In the case of loss of earnings the contingencies can work in only one direction--in favour of the defendant. But in the case of life expectancy, the contingency can work in either direction. The plaintiff may exceed his normal expectation of life, or he may fall short of it.

      There is no purpose in the courts making as accurate a prediction as they can of the plaintiff's future needs if the resulting sum is arbitrarily reduced for no better reason than that the prediction might be wrong. A prediction remains a prediction. Contingencies should be taken into account where they work in one direction, but not where they cancel out. There is no more logic or justice in reducing the whole life multiplier by 15 per cent. or 20 per cent. on an agreed expectation of life than there would be in increasing it by the same amount.

      It follows from what I have said that I do not agree with the discount which McCullough J. allowed in Janardan v. East Berkshire Health Authority [1990] 2 Med.L.R. 1. In that case the plaintiff, aged five at the time of trial, had a life expectancy to 55. This indicated a multiplier of just under 20 by reference to a 4.5 per cent. discount rate. McCullough J. held that a discount was required to allow for the possibility that the plaintiff might not survive to 55. I do not accept this; and it may be that McCullough J. would not have accepted it either, if he had not felt constrained by previous authority. Left to himself, he said, he would have taken a whole life multiplier of 17.5 to 18. But the multiplier chosen by the Court of Appeal in Croke v. Wiseman [1982] 1 W.L.R. 71 and by the House in Lim Poh Choo v. Camden and Islington Area Health Authority [1980] AC 174 required him to choose 17 instead. But this meant, as Mr. Havers pointed out, that the plaintiff in Janardan's case would have run out of damages at the age of 33, although he was expected to live to 55.

      In Hunt v. Severs [1994] 2 AC 350 the plaintiff had a life expectancy of 25 years. The appropriate multiplier by reference to a 4.5 per cent. discount rate was 14.821. But the judge reduced this figure to 14 because 14 seemed more in line with the multiplier applied in other comparable cases. The Court of Appeal, correctly in my view, substituted a multiplier of 15, as being the nearest round figure to 14.821. Sir Thomas Bingham M.R. observed that an allowance for contingencies may sometimes be appropriate. But he continued:

 "Such an allowance is not appropriate in the present case, where the agreed life expectancy of the plaintiff is 25 years. That is a fact, or rather an agreed assumption, upon which the damages payable for future care must be based."

But the House disagreed. Lord Bridge of Harwich said, at p. 365:

 "The passage I have cited from the judgment of the Court of Appeal appears to show the court as treating the circumstance that both doctors in evidence estimated the plaintiff's expectation of life at 25 years as establishing the 'fact' or 'assumption' that she would live for 25 years and thus converting the process of assessing future loss into 'a simple arithmetical calculation.' I cannot think that this was the correct approach to the evidence. A man or woman in normal health, at a given age, no doubt has an ascertainable statistical life expectancy. But in using such a figure as the basis for assessment of damages with respect to future losses, some discount in respect of life's manifold contingencies is invariably made."

      I have some difficulty with this passage. The plaintiff's life expectancy was not derived from any tables. It was the agreed life expectancy of this particular plaintiff, taking her individual characteristics into account. I cannot for my part see what further room there was for "life's manifold contingencies." The whole point of agreeing a life expectancy, if it can be done, is to exclude any further speculation. With respect therefore I prefer the approach of Sir Thomas Bingham M.R. and the Court of Appeal.

      The explanation for the different approach of the House in Hunt v. Severs may be a continuing hesitation to embrace the actuarial tables. I do not suggest that the judge should be a slave to the tables. There may well be special factors in particular cases. But the tables should now be regarded as the starting-point, rather than a check. A judge should be slow to depart from the relevant actuarial multiplier on impressionistic grounds, or by reference to "a spread of multipliers in comparable cases" especially when the multipliers were fixed before actuarial tables were widely used. This may be the explanation for the relatively low multiplier chosen by the House in Lim Poh Choo's case.

      For the reasons I have given, I consider that the Court of Appeal in the present case were wrong to substitute a multiplier of 17 for the judge's 23. But the judge himself was also too low. The appropriate multiplier derived from the tables on the agreed life expectancy was 26.58.

      I can deal with the second of the two miscellaneous points in Thomas v. Brighton Health Authority quite shortly. In October 1990, 15 months after the plaintiff's birth, and five years before the trial, the plaintiff's parents moved into a larger house. They needed more space, because of his disability. The additional cost was some £60,000 which they raised by way of a mortgage. The question is how the additional cost should be reflected in the award of damages.

      Obviously the plaintiff is not entitled to the additional capital cost, since the larger house is a permanent addition to the family's assets. It will be there, and could be realised, at the end of the period covered by the award. How then should this head of damages be calculated? Should it be the interest on the mortgage? or interest calculated in some other way?

      The answer to this question, described in Kemp and Kemp as "a satisfactory and elegant solution," was provided by the Court of Appeal in Roberts v. Johnstone [1989] Q.B. 878. It is to be assumed that the plaintiff will pay for the additional accommodation out of his own capital. It is further to be assumed that the capital input will be risk-free over the period of the award, and protected against inflation, by a corresponding increase in the value of the house. What the plaintiff has therefore lost is the income which the capital would have earned over the period of the award after deduction of tax.

      But the lost income is not to be calculated by reference to a normal commercial rate of interest. For interest, as Lord Diplock explained in Wright v. British Railways Board at p. 781, normally includes two elements, "a reward for taking a risk of loss or reduction of capital," and "a reward for foregoing the use of the capital sum for the time being." Since the capital input in the new accommodation is free of risk, or virtually free of risk, it is only the second of the two elements of interest that the plaintiff has lost, namely, the "going rate" for forgoing the use of money. The Court of Appeal in Roberts v. Johnstone took 2 per cent. as the "going rate." This was the figure originally chosen by Lord Denning M.R. in Birkett v. Hayes, and accepted by Lord Diplock in Wright v. British Railways Board. Birkett v. Hayes and Wright v. British Railways Board were both cases of non-pecuniary loss, but the point is the same.

      Both sides accept that the correct approach is that adopted by the Court of Appeal in Roberts v. Johnstone. The only question is how that approach should be applied. Collins J. arrived at the "going rate" by taking the average return on I.L.G.S. as the best possible indicator of the real return on a risk-free investment over the period of the award. In other words, he took the same discount of 3 per cent. net of tax as he had taken for the calculation of future loss. The Court of Appeal disagreed. They took the "conventional rate" of 2 per cent., pointing out that Stocker L.J. had not tied his 2 per cent. to the return on any particular form of investment.

      It is true that there is no reference to I.L.G.S. in Roberts v. Johnstone. But in Wright v. British Railways Board Lord Diplock chose the return on I.L.G.S. as the first (and in my view simpler) of the two routes by which courts can arrive at the appropriate or "conventional" rate of interest for foregoing the use of capital. At that time the net return on 15-year and 25-year index-linked stocks was 2 per cent. I can see no reason for regarding 2 per cent. as sacrosanct now that the average net return on I.L.G.S. has changed. The current rate is 3 per cent. This therefore is the rate which should now be taken for calculating the cost of additional accommodation. It has two advantages. In the first place it is the same as the rate for calculating future loss. Secondly it will be kept up to date by the Lord Chancellor when exercising his powers under section 1 of the Damages Act. On this point I would restore the order of Collins J.

Page v. Sheerness Steel Co. Plc.

      The judge took a loss of earnings multiplier of 20.28, which he reduced by 8.65 per cent. to 19 in order to take account of the substantial risk that the plaintiff would not have continued working until the age of 62. The Court of Appeal took a multiplier of 14 including a discount of 17.9 per cent., on the ground that there was merit in Mr. Leighton Williams' submission that the discount should be at least 12.5 per cent. But the judge had already said that he was giving a larger discount than average, because of the nature of the plaintiff's work. There was no need for the Court of Appeal to intervene.

      The judge took a whole life multiplier of 24 based on a rate of return of 3 per cent. net on a normal life expectancy. The Court of Appeal started with a multiplier of 19 and reduced it to 17. For the reasons already mentioned there was no justification for a discount on the whole life multiplier. I would therefore restore the judge's multiplier of 24 as the correct starting-point.

      But as the plaintiff is currently being looked after by his wife, the judge sensibly and correctly split the multiplier in two. He applied a multiplier of 12 to the additional cost currently incurred while Mrs. Page is the prime carer, and the same multiplier for the further costs when she is no longer able to act as the prime carer. There is no dispute on that score.

      Part of the current cost of care is to provide the services of an "enabler," that is to say, "someone who will take the plaintiff out of the house, stimulate his interest in sporting and other activities and generally seek to motivate him and improve the quality of his life." Mrs. Gipson said that four sessions a week would be appropriate, but the judge reduced this to three sessions or 12 hours a week for the reasons he gave, and calculated the damages on the basis of a 52-week year. The Court of Appeal accepted that the cost of an enabler was justified, but reduced the period from 52 weeks a year to 40 weeks, on the ground that there would be breaks in the period of employment, as when the plaintiff is on holiday. It may be that some account should have been taken of holiday periods. But the judge's estimate was not so far wrong as to justify the Court of Appeal's interference.

      Nor was there any sound reason for increasing the discount on damages for loss of pension rights from 10 per cent. allowed (reluctantly) by the judge in the light of Auty v. National Coal Board [1985] 1 W.L.R. 784 to 15 per cent. allowed by the Court of Appeal.

      Finally Mr. Purchas argued that there ought not to be a reduction for the proceeds of permanent health insurance, on the ground that the plaintiff has contributed 4.5 per cent. of his earnings to the scheme. Mr. Purchas sought to distinguish Hussain v. New Taplow Paper Mills Ltd. [1988] A.C. 514 on that ground. The judge did not accept Mr. Purchas's argument. He dealt with this point at some length and his views were upheld in the Court of Appeal. In my view they were right.

For the reasons I have given I would allow all three appeals.

LORD STEYN

My Lords,

      I confine my observations to the principal issue about the discount rate to be applied.

The conventional rate

      It has for many years been settled practice, endorsed by decisions of the House of Lords, that the lump sum to be awarded in a personal injury action for the present value of a plaintiff's future losses of earnings, and the present cost of his future expenses, ought to be determined by using in the calculations a discount rate of 4 to 5 per cent. The rationale was that there was no other practicable basis of calculation that is capable of dealing with so conjectural a factor as inflation with greater precision: Cookson v. Knowles [1979] AC 556, 571G, per Lord Diplock; see also the earlier and subsequent decisions of the House of Lords in Mallett v. McMonagle [1970] A.C. 166 and Lim Poh Choo v. Camden and Islington Area Health Authority [1980] A.C. 74. The question before the House is whether this practice should now be modified in changed economic circumstances by adopting a discount figure assessed by reference to index-linked government securities, the suggested figure being 3 per cent.

The importance of the issue

      The importance of the issue is shown by a comparison of the awards of the three trial judges, who relied on index-linked government securities to fix the discount rate, and the figures substituted by the Court of Appeal, who used the conventional rate. Ignoring for present purposes that in Wells v. Wells the trial judge adopted a discount rate of 2.5 per cent. the use of a 3 per cent. discount rate instead of 4.5 per cent. would increase the awards by very roughly the following sums: