1. finance
2. personal finance
3. financial planning
4. retirement and pension

The Quantification of
Future Losses
Graeme Garrett
February 2014
Topics for Today
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Blamire and Smith v Manchester awards
The Ogden Tables
Ogden 6 Cases
The Discount Rate
Periodical Payment Orders
Blamire and Smith v Manchester awards
• Blamire v South Cumbria Health Authority [1993]
PIQR Q1
• Smith v Manchester Corpn (1974) 17 KIR 1
• These are distinct awards and should not be
muddled
• Both awards can in principle be made in the
same case provided they are kept distinct –
Ronan v Sainsbury [2006] EWCA Civ 1074
Blamire and Smith v Manchester awards
• “22. A Blamire award and a Smith v Manchester
award may be combined but they are quite distinct.
The former is appropriate where the evidence
shows that there is a continuing loss of earnings but
there are too many uncertainties to adopt the
conventional multiplier-multiplicand approach to its
quantification. The latter is nothing to do with a
continuing loss. It is an award for a contingent future
loss, in the event of the claimant losing his current
job, where, as a result of the accident, he would then
be at a handicap on the labour market at which he
would not have been but for the accident.” - Ronan
Blamire Awards
• Where the imponderables are such that a
multiplier-multiplicand approach is
inappropriate, at common law the court may
make a global award for lost earning capacity
• Blamire awards have been made where –
• The employment history is either non-existent
or vestigial and the range of alternative
employment wide and varied
Blamire Awards
• Claimant is very young and has not started
employment but such awards tend to be
historic and should be approached with
caution
• Claim is one for loss of profit of a one person
business and the range of possible business
scenarios is too great and evidentially
uncertain
Blamire Awards
• Blamire award should not be used where
there is sufficient evidence to show
permanent disability and the range of lost
earnings
• Thus where there is evidence of existing net
annual loss and the evidence justifies using it
as a basis for calculation of future loss, a
Blamire award is inappropriate
Blamire Awards
• Appropriate contingencies can be reflected
through the conventional multipliermultiplicand approach – Leesmith v Evans
[2008] EWHC 134
• Blamire should not be used where there is
evidence of partial continuing loss of earnings
susceptible to calculation by a multipliermultiplicand approach
Blamire Awards
• The dangers of gross under-compensation by
the use of Blamire are significant and a
multiplier-multiplicand cross check is always
desirable
Smith v Manchester awards
• A Smith v Manchester award is designed to
compensate A for the risk of future loss of or
interruption to employment.
• It compensates A for a weakness on the
labour market as a result of the injury
• It can be awarded as a lump sum –
• Where there is no future LOE claim because
A remains in work
Smith v Manchester awards
• Where there is a partial LOE claim because A
is now working in a less well paid job (but is at
risk of being thrown onto the open labour
market again)
• Where A is not currently working but will be
at risk of unemployment once in work
Smith v Manchester awards
• At common law for an award to be made
there must be –
• a substantial or real risk that A will in the
future find himself on the open labour market
for some reason (whether related to the
injury or the precarious nature of the job) and
• A’s disability (caused by the injury) in that
situation disadvantages him in that labour
market
Smith v Manchester awards
• What is a substantial or real risk ?
• It is suggested that a material risk which is more than
de minimis will satisfy the first part of the test
• Plainly, the nature of the resultant disadvantage on
the labour market will affect the degree of risk
required. A small risk of a substantial disadvantage
will qualify whereas an equivalent risk of a relatively
tivial disadvantage may not
• There is no set formula for valuing a Smith v
Manchester claim
Smith v Manchester awards
• Questions to consider –
• what is the precise nature of the risk of disadvantage
caused by the injury?
• is the risk of unemployment constant, time specific
or will it increase or decrease with time?
• was there any pre-existing disadvantage on the
labour market which wipes out, in practical terms,
any additional disadvantage caused by the injury?
• is A currently employed or not?
Smith v Manchester awards
• if employed, how secure is the employment?
• what is the risk of redundancy for reasons
unrelated to the injury?
• age at date of hearing?
• what is level of unemployment in A’s travel to
work area?
• What is A’s skills base and suitability for other
employment if unemployed?
Smith v Manchester awards
• what is spread of possible earnings that A
might achieve in alternative employment if he
loses his job?
• There is no reason in principle why a claim for
partial LOE on a multiplier-multiplicand basis
cannot be combined with a contingent Smith v
Manchester award
Background to the Ogden Tables
• The Ogden Tables are actuarial tables of multipliers
used to calculate future losses in personal injury
cases.
• The Ogden Working Party was set up in 1984 by the
Lord Chancellor under the chairmanship of the late
Sir Michael Ogden QC.
• At that time judges assessed future losses by applying
common law multipliers.
• Maximum multiplier was 18 years regardless of age
of claimant or the period of loss.
Background to the Ogden Tables
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Tables 1-26 discount the actual period of
loss for 2 factors –
1. Mortality – the risk that the claimant will
die before the end of the period of loss.
2. Early Receipt – the claimant will receive
the damages as a lump sum at the beginning
of the period of future loss. The damages
will produce an investment return.
Tables 27 & 28 discount for early receipt
only.
Background to the Ogden Tables
• The discount which has to be applied to the
arithmetical period of loss depends upon the
discount rate.
• The discount rate is the rate of return or yield
from the invested damages after allowing for
inflation and tax.
• The higher the discount rate, the lower the
multiplier.
• The lower the discount rate, the higher the
multiplier.
Background to the Ogden Tables
• Common law multipliers proceeded on the
(tacit) assumptions that the damages would be
invested in a “mixed bag” of equities and ILGS
and would produce a return of between 4%
and 5%.
• The Ogden Tables gathered dust and were
regarded, at best, as a check on common law
multipliers. ( O’Brien’s Curator Bonis v British
Steel plc 1991 SC 315)
Background to the Ogden Tables
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Wells v Wells 1999 1 AC 345
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The breakthrough came in the landmark House of Lords
ruling in Wells v Wells.
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Wells set out a number of important principles –
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1. A lump sum award of damages should result in
claimants receiving full compensation.
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“…the object of the award of damages for future expenditure is
to place the injured party as nearly as possible in the same
financial position as he or she would have been but for the
accident. The aim is to award such a sum of money as will
amount to no more, and at the same time no less than the net
loss.” per Lord Hope at 390.
Background to the Ogden Tables
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2. Claimants differ from ordinary investors
in that they need income and a proportion
of their capital to meet their ongoing needs.
They should not be required to take any
investment risk.
3. Claimants should be fully protected
against future inflation.
4. How claimants in fact invest their damages
is irrelevant.
Background to the Ogden Tables
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5. The only form of investment which achieves
these principles is ILGS.
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6. The Ogden Tables are to be used as the starting
point, rather than as a check on common law
multipliers.
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7. It is to be assumed that a claimant will invest
entirely in ILGS – not in a mixed bag of equities
and ILGS.
Background to the Ogden Tables
• 8. The discount rate is to be based upon the return
on ILGS after allowing for inflation and tax.
• 9. An investment in ILGS avoids the need for
ongoing investment advice – which is not a
recoverable head of damages.
Background to the Ogden Tables
• Section 1 of the Damages Act 1996 had
empowered the Lord Chancellor (and his
counterparts in Scotland and Northern
Ireland) to set the discount rate from time to
time.
• No attempt had been made prior to Wells to
exercise that power.
• The House of Lords in Wells applied a
discount rate of 3% having regard to the
returns available on ILGS in 1998.
Background to the Ogden Tables
• Following public consultation the Lord
Chancellor, Lord Irvine of Lairg, set the
discount rate at 2.5% in June 2001.
• The Scottish Justice Minister, Jim Wallace
MSP, adopted the same 2.5% rate in February
2002 on the basis that “there are no particularly
Scottish factors that would indicate a need for a
different rate.”
Background to the Ogden Tables
• The discount rate has remained at 2.5% since
then despite the collapse in returns from ILGS
• The Ministry of Justice and The Scottish
Government has recently consulted on the
discount rate (Consultation Paper CP12/2012).
Ogden 6
• Published May 2007
• Introduced a new methodology for calculating contingencies other than
mortality
• Used only for future loss of earnings claims
• Ogden 5 factors – economic activity, occupation, geographical location.
Discount factors very small and in practice frequently ignored.
• Ogden 6 factors - sex, disability status, employment status, educational
attainment
• New methodology based on research by Dr Victoria Wass of Cardiff
University and Zoltan Butt, Richard Verrall and Steven Haberman at City
University
• Data derived from Labour Force Surveys produced by Office for National
Statistics.
• Provides quarterly snapshot of working population and collects data on wide
range of socio-economic and labour force characteristics.
Ogden 6
• Educational attainment –
• D = degree or equivalent or higher
• GE-A = GCSE/Standard grades A-C to A
Level/ Higher Level
• O = below GE-A or no qualifications
Ogden 6
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Definition of “disabled” is lifted from Disability Discrimination Act 1995
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Must satisfy all three parts of test –
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Illness expected to or has lasted for 1+ year
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Must satisfy DDA definition “substantially limits person’s ability to carry out day to day
activities”
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Affects kind or amount of paid work
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See examples of day to day activities – Para 35
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No attempt to distinguish varying degrees of disability
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Reduction factors are averages for broadly defined groups of working-age individuals.
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The average indicates a typical outcome for individuals within each defined group
Ogden 6
• The New Tables
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Table A – Males – Not Disabled – LOE to 65
Table B – Males – Disabled – LOE to 65
Table C – Females – Not Disabled – LOE to 60
Table D – Females – Disabled – LOE to 60
• Using the New Tables
• A three stage approach –
• A – What would the claimant have earned but for the accident?
• B – What is claimant’s residual earning capacity?
• C - Subtract B from A to arrive at future LOE
Example
• Claimant is female aged 35 at date of proof. Has 3 Highers. At time of
accident was employed earning £25K net.
• Now disabled. Doing part-time job earning £5K net. LOE to pension age
60 calculated as follows –
• Multiplier for 35 yo female to pension age 60 = 18.39 (Table 8)
• Use Table C to discount for risks other than mortality. Discount factor
for 35 yo female with Highers, not disabled and in employment = 0.86
• Revised Multiplier 18.39 x 0.86 = 15.82
• Go to Table D. Discount factor for claimant now disabled and employed
with Highers = 0.48
• Revised Multiplier 18.39 x 0.48 = 8.83
• Calculation - £25,000 x 15.82 = £395,000 Minus £5,000 x 8.83
( £44,150) = £351,350
The New Tables
• Always recognised that in many cases it will be appropriate
to increase or reduce the discount factor to take account
of the nature of a particular claimant’s disabilities.
• Also recognised that in some cases where a precise
mathematical approach is inapplicable a Smith v Manchester
or Blamire lump sum approach remains an option.
• What was not anticipated was extent to which judges
would depart from the Tables.
• When does appropriate adjustment to reflect particular
facts become “judicial tinkering” ?
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Garth v Grant [2007] All E R (D) 459 (Hickinbottom H.H.J.)
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Plaintiff was passenger in taxi. Sustained fractured pelvis and fracture dislocation to
hip. Could only walk with crutch for short distances. Candidate for hip
replacement which would probably substantially improve her mobility.
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Aged 48. Born in USA. Weighed 30 stones. Medically super-morbidly obese.
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Defendant argued that even before accident her obesity rendered her “disabled”
and multiplier should be reduced using Table D.
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Held – it was impossible to say that her weight had a “ substantial adverse effect
on her ability to carry out day to day activities”. It had had no significant adverse
impact on kind or amount of work she wished to do and did.
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Appropriate discount factor was 0.87 not 0.60 as contended for by defendant.
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Query – what if defendant had attacked the initial multiplier in Table 8 using
medical evidence to demonstrate increased mortality?
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Hunter v Ministry of Defence [2007] NIQB 43 (Stephens J )
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H., 36 at trial, suffered knee injury during army exercises.
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Permanent weakness and instability – fit for light work only.
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Had not worked - or looked for work – since accident.
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Judge found he should have looked for light work – and would probably have found work by
trial if had looked.
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Judge adjusted Table B RF for disabled, unemployed 36 yo with no qualifications (0.20)
upwards to that for disabled, employed 36 yo with no qualifications (0.39).
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Judge went further by finding that level of disability did not warrant as large a discount as
Table B suggested and made further upward adjustment to RF to 0.60 – mid point between
Table A pre-injury RF (0.80) and Table B post-injury RF (0.39).
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Illustrates significant benefit to defender of finding claimant has failed to mitigate losses by
not returning to work.
• Conner v Bradman [2007] EWHC 2789
(HHJ Coulson, QC)
• C., 50 at trial, suffered serious knee injury in RTA.
• Motor mechanic at time and remained so at trial. Also working part time
as taxi driver.
• Agreed would need knee replacement within a year and would have to
give up work as mechanic.
• C’s case was he would then work full time as taxi driver.
• C claimed future LOE using multiplier adjusted under Table B on basis he
was disabled (0.49).
• His LOE claim £113,935.
Conner v Bradman (Ctd)
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Defendant argued –
1. C not disabled therefore Table B not relevant
Should apply Table A – RF 0.82
Rejected by Judge
2. If C was disabled, at lower end of disability scale
RF should be adjusted upward to reflect greater earning
capacity than average disabled person
• RF should be 0.655 – mid point between Table A and Table B
• Judge accepted RF should be 0.655. Held very likely C would
work as taxi driver for more than half of remaining working
life – no medical reason why could not do so
• Future LOE award - £86,114 – a 23% reduction
Conner v Bradman (Ctd.)
• The Conner decision has attracted widespread criticism.
• See article by Dr Victoria Wass [2008] JPIL 2/08 154
• “Splitting the difference” ignores the relatively low threshold required to
establish disability. Most people categorised as disabled have mild to
moderate degree of disability. (Berthoud 2006)
• The discount factors are based upon average levels of disability for
broadly defined groups. They can never be anything but averages but the
large size of the sample makes them statistically sound. Any upward or
downward adjustment to meet a particular case is likely to be relatively
small for the majority of claimants in that cohort.
• Can it be correct that Mr Conner’s level of disability was significantly
below average?
• A v Powys Local Health Board [2007] EWHC
2996 (HHJ Lloyd Jones)
• A., 16 at trial, suffered CP at birth.
• Severe physical and communication difficulties but
very intelligent – had obtained 10 GCSEs.
• Dr Wass gives evidence.
• Held –
• Educational level – D.
• RF from Table C = 0.87.
• No REC so no need to use Table D
• Leesmith v Evans [2008] EWHC 134 (Cooke J)
• L. 28 at trial. Lighting technician. Above knee amputation and injury to
dominant hand.
• Returned to work as lighting technician in limited capacity at lower pay.
• At time of accident earning £13,000 net
• Claim for LOE £2.7 M
• Argued by 40 would have been lighting director for groups like Rolling
Stones and Genesis earning £250,000 p.a.
• “so remote as to be fanciful speculation”
• “A difficult personality and a past history of poly-drug misuse who
would have found it difficult to work in a team situation”
• Judge found likely future earnings would have averaged £33,000 net pa
Leesmith v Evans [2008] EWHC 134
• Table A – pre-injury RF 0.92 (employed, not disabled, mid-level
education).
• Table B – post-injury RF 0.54 (employed, disabled, mid-level
education).
• Defendant argued for RF falling somewhere between 0.92 and 0.54
because –
(i) definition of “disabled” a wide one and
(ii) reduced multiplicand already reflected some degree of
disability
• Judge made small adjustment to post-injury RF from 0.54 to 0.60.
• Peters v East Midlands Health Authority [2008] EWHC 778
(Butterfield J)
• P., incapax aged 20 at trial, suffered severe cognitive impairment, autism
and blindness at birth.
• Dysfunctional family with poor employment record. Mother of limited
intelligence.
• Claim for future LOE based on basis of Table C RF of 0.68 (not
disabled, employed, lowest education).
• Judge accepted defendant’s argument that RF of 0.68 did not adequately
reflect realities of her limited uninjured earning potential. Likely to have
been sporadic.
• Applied a RF of 0.50.
• Palmer v Kitley [2008] EWHC 2819 (Seymour J)
• P., 21 at trial, injured in RTA when 16 and still at school.
• Had taken GCSEs and was in A level year. Had hoped to study midwifery
at university.
• No longer fit for other than sedentary work.
• Judge found P. an unimpressive witness. Her school record was
undistinguished and judge found that she probably would not have gone on
to obtain midwifery qualification.
• Evidence was that there were more applicants for midwifery posts than
vacancies.
• P. had married RAF serviceman – had to move to new posting every 3
years.
• So many imponderables on evidence that Judge declined to make a
multiplier/multiplicand award and instead made a Blamire award of £30,000
for loss of earning capacity.
McGhee v Diageo PLC [2008] CSOH 74
(Lord Malcolm)
• Pursuer, 25 at proof, sustained serious foot and ankle injuries. Lord
Malcolm rejected Pursuer’s Ogden 6 LOE claim (£330K) as “clearly
excessive, presumably because the Tables are based on some average
disability of greater severity than that which afflicts the Pursuer ”.
• “The Tables are not well designed for the particular circumstances of
this case” - because of an opportunity for retraining and enhanced
employment prospects thereafter.
• The Tables arguably do allow for retraining, for example, by an upward
adjustment to the category of educational attainment.
• Equally it should be possible to adjust the education category
downward where a disability prevents someone using a qualification or
skills.
• Lord Malcolm made a Blamire award of £74,000.
• Hopkinson v MOD [2008] EWHC 699 (Michael Harvey
QC)
• H., 52 at date of trial, was a seaman who sustained serious leg
injuries.
• Judge varied the RF for the non-disabled claimant (Table A) from
0.81 to 0.9 to reflect H.’s good pre-accident work history.
• He then completely departed from Ogden 6 approach. Reverted to
calculating multiplicand by reference to a partial loss – difference
between pre-accident earnings and residual earning capacity.
• Judge then simply applied the same adjusted non-disabled multiplier
instead of applying a new disabled multiplier to the post-accident
REC figure.
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Clarke v Maltby [2010] EWHC 1201 (Owen J)
Solicitor, 45 at trial, injured in RTA.
Sustained various fractures as well as a head injury.
Substantial recovery from physical injuries but suffered from mental fatigue, cognitive
dysfunction, disinhibition, anger, impaired memory, concentration and processing as well
as compromised and inappropriate speech and word finding. Unlikely to resolve.
But for the accident she would probably have made salaried partner at regional law firm
at £110,000 pa. Judge increased that figure to reflect possibility of higher earnings in a
London or City firm.
Residual earning capacity assessed at £40,000 pa.
“I am not persuaded that it is appropriate to apply a Table D Ogden discount. Her
degree of disability has been fully reflected in the difference between her lost and
residual earning capacity.”
This decision knocked some £122,750 or 27% off her LOE claim.
This decision would suggest that a claimant who meets the definition of disabled is not
going to face any additional disadvantage on the labour market. Particularly when one
considers Mrs Clarke’s catalogue of permanent symptoms, can that really be correct?
• Martin Brand v Transocean North Sea Ltd [2011]
CSOH 57 Lord McEwan 24 March 2011
• Pursuer, 26 at Proof, crushed right hand between pipes on
offshore platform
• Index & middle fingers partly amputated
• Various operations. Left with 60% function in hand
• Defender accepted he was disabled
• Solatium agreed at £35k. Proof on future LOE & Pension Loss
• Following accident had been promoted. Moved to HR. Now
Welfare Planning Manager for West Africa based in Angola.
Received 60% supplement. Defender created job to assist him
Martin Brand v Transocean North Sea Ltd
• Pursuer’s case –
• Now disabled. Reduction factor 0.73 Table B
• If not injured would have become Rig Manager
by early 30s. Named 2 comparators
• Would have retired at 70
• Ogden 6 should always be default position
• Claimed Future LOE £729K and Pension Loss
£46K
Martin Brand v Transocean North Sea Ltd
• Defender’s case –
• No evidence he would have made Rig Manager but if
he had, would have taken 20 years plus
• His 2 comparators were exceptional and well above
him in class
• Now earning more than if he had not been injured
• His job was secure and had opportunities to
progress by acquiring CIPD qualification – he had
declined opportunity
• Inappropriate to use Ogden Tables in particular
circumstances of case
Martin Brand v Transocean North Sea Ltd
• “The judge should not seek to make the case
complicated unless, as I regret has happened
here, the parties have done that for him.
What a judge must have are salary figures
which are reasonably certain and, if career
changes and promotions are in issue,
reasonably certain time scales. The
introduction of doubt and uncertainty into any
of these areas would reduce the application of
Ogden formulas to mere guess work.”
Martin Brand v Transocean North Sea Ltd
• Number of reasons why use of Ogden 6
would not be appropriate –
• No clear evidence of when Pursuer would
have became a Rig Manager. Weight of
evidence against early promotion
• Oil industry subject to boom & slump
• Comparators were in a class well above
Pursuer
• He now earned more than before and had
opportunity to progress
Martin Brand v Transocean North Sea Ltd
• Lord McEwan – “I am satisfied that the
pursuer must receive an award to recognise
that if he loses his present position he will be
at a great disadvantage on the labour market.”
• But have to disregard Ogden 6 approach
which would over-compensate
• If he lost present job could not be confident
of securing employment at current salary
• Could lose job or be demoted
• Might marry and want to work elsewhere
• Future LOE award £160K (2 X salary)
Ward v Allies and Morrison Architects
[2012] EWCA Civ 1287
• First consideration of Ogden 6 by an appellate court.
• Appellant working for respondents as model maker
on short term placement.
• Using unguarded circular saw when amputated left
index finger and middle finger dislocated.
Ward v Allies and Morrison Architects
• Index finger was re-attached and made “considerable
recovery”.
• Trial judge awarded lump sum Blamire damages for
future LOE rather than an Ogden 6 award.
• Found appellant not disabled in terms of DDA 1995.
Ward v Allies and Morrison Architects
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Argued on appeal –
Should have found her disabled.
Wrong to use Blamire approach.
Appeal upheld first instance decision.
Case failed on the evidence. Too many
imponderables as to pre-accident career path,
rates of pay and what she was capable of now
to allow a multiplier/multiplicand approach.
Ward v Allies and Morrison Architects
• Issue of whether disabled not the determining
factor in deciding whether to apply Ogden 6.
• In any event CA agreed not disabled as no
evidence her condition affected kind or
amount of work she could do.
Defender Strategies
• 1. Attack imponderables/ gaps in evidence and argue Ogden 6 approach
inappropriate. (Palmer v Kitley)
• 2. Argue for reduction of pre-injury RF to reflect uninjured claimant’s
above average risk of not reaching retirement age or of future periods of
unemployment, e.g. poor medical history, poor employment history.
(Peters)
• 3. Failure to mitigate. Claimant who has made no effort to get a job.
(Hunter v MOD)
•
4. Attack level of disability. Argument claimant’s disability modest
relative to peer group average evidently appeals to judges. (Conner v
Bradman)
•
5. Disability already accounted for in multiplicand – no need to apply a
post-injury RF. Nonsense but it worked in Clarke v Maltby.
Defender Strategies (Ctd.)
• 6. Turn claimant’s good pre-accident employment history against
him. Ogden 6 ignores pre-accident employment history. If claimant
has strong employment history, judge might be persuaded postaccident RF paints unduly pessimistic picture.
• 7. Disability may not be relevant to likely future employment. Loss
of a leg likely to have less impact on professional/sedentary
worker’s earnings than manual worker. Adjustments may be
possible to place/system of work to mitigate effect of disability.
• 8. Future re-training. Claimant may be well-motivated to re-train
for more suitable work. Defender may argue wrong to use
disabled/unemployed RF without upward adjustment. (McGhee)
Pursuer Strategies
• 1. Increase pre-injury RF. May be appropriate to adjust pre-injury RF
upward in response to circumstances of uninjured claimant, e.g.
woman who could/would not have had children in future; claimant in
very secure employment at time of injury; or if injured near end of
degree course (full-time students are classified as not employed).
• 2. Level of disability. Severity of impact of claimant’s disability on future
employment may justify downward adjustment to post-injury RF.
• 3. Relevance of disability to likely future employment. Manual worker
may be particularly disadvantaged byimpaired mobility.
• 4. How relevant are qualifications to post-injury employment?
Disability may prevent claimant from performing work to which
qualifications are relevant. In Conner v Bradman qualification as mechanic
not relevant to work as taxi driver. Could have argued for lower postinjury RF of 0.40 (as opposed to 0.49) on basis he was unqualified.
Pursuer Strategies (Ctd.)
• 5. Claimant employed at proof – a false
impression? Employment may not be secure,
e.g. temporary contract, probationary period
or in sector particularly vulnerable to adverse
economic conditions. May be over-optimistic
to use employed/disabled post-injury RF
without downward adjustment.
Discount Rate
•
Section 1 of the Damages Act 1996 provides –
•
“ 1. Assumed rate of return on investment of damages
•
(i) 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….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 [or Scottish Ministers].
(ii) Subsection (1) above shall not however prevent the
court taking a different rate of return into account if any
party to the proceedings shows that it is more appropriate
in the case in question.”
•
Discount Rate
• As we have seen the 2.5% rate has remained in force since
2001/2002.
• In fixing the rate the Lord Chancellor and the Justice Minister
purported to apply the principles in Wells but both departed from
the core principle that ILGS offered the only risk-free investment
and that a claimant should not be required to assume any risk.
• They reverted to a “mixed basket” approach. There were “
sensible, low risk investment strategies available to claimants
which would enable them comfortably to achieve a real rate of
return at 2.5% or above, without being unduly exposed to risk in
the equity markets.”
Discount Rate
• In fact, it has rarely if ever been possible to achieve a 2.5%
return from ILGS since the rate was fixed.
• Returns from ILGS have declined year on year since 2001 and
now stand at an average of 0.2 %.
• Claimants are faced with the options of investing in ILGS and
seeing the funds run out long before the end of the period of
loss or taking their chances with equities – the very thing
Wells said they should not have to do.
• Returns from equities have also been exceptionally volatile
since 2007. Some investing in equities may have achieved a
2.5% return but many will have suffered losses
• To the extent that damages run out before the end of the
period of loss, the burden of providing care will shift from the
tortfeasor to the state – a negation of the polluter pays
principle.
Discount Rate
• When the rate was fixed at 2.5% in 2001 there was widespread concern
that it was too high and unduly favoured defendants.
• Within months an attempt was made to challenge the rate and to invite
the court to apply Section 1 (2) of the Damages Act.
• In Warriner v Warriner [2002] 1 WLR 1703 the Court of Appeal held that
the words “in the case in question” precluded any head on attack on the
discount rate. A different rate could only be applied if there were casespecific features, e.g. care costs for a foreign claimant.
• This reasoning was followed in Cooke v United Bristol Health Care NHS Trust
[2004] 1 WLR 251 and recently by Lord Brodie in Tortolano v Ogilvie
Construction Limited [2012] CSOH 162. The latter decision was reclaimed
unsuccessfully to the Inner House – [2013] CSIH 10.
Discount Rate
• In England & Wales some claimants at least
have been able to mitigate the effects of an
unachievable discount rate by the use of
periodical payments orders (PPOs).
Introduced by Section 2 of the Damages Act
1996.
• No need to apply a multiplier as defendant
agrees to pay an annual index linked sum for
duration of plaintiff’s life.
Discount Rate
• Since Tameside & Glossop Acute Services NHS Trust v
Thompstone [2008] EWCA Civ 5 it has been possible
to index earnings-related heads of loss – LOE and
care – by reference to ASHE rather than RPI.
• Not a complete answer as only available in small
minority of cases.
• In D’s Parent and Guardian v Greater Glasgow Health
Board 2011 SLT 1137 Lord Stewart pronounced
decree in terms of an agreed settlement which
included periodical payments for child’s lifetime.
About 90% of settlement related to care costs –
these costs index linked to ASHE 6115.
Discount Rate
• If courts were not bound by Section 1 of
Damages Act 1996 what would the
appropriate discount rate be?
• In December 2011 Employment Tribunal in
Michalak v Mid Yorkshire Hospitals NHS Trust
(Case Number 181081/2008) - not bound by
Damages Act -applied a 1% discount rate to
LOE in a sex discrimination case.
Discount Rate
• In Helmot v Simon [2012] UKPC 5 the Privy
Council (Lords Hope, Brown, Clarke, Dyson
& Lady Hale) heard an appeal from the Court
of Appeal in Guernsey.
• Damages Act does not apply to Guernsey and
so CA and PC applied English common law as
set out in Wells v Wells.
Discount Rate
• Guernsey Court of Appeal (which included
Jonathan Sumption QC and Michael Jones QC)
after hearing expert evidence applied discount
rates of – 1.5% to earnings related losses and
0.5% for other losses.
• RPI inflation 0.5% higher on Guernsey than in UK.
Discount Rate
• Sumption J.A. had noted the desirability of consistency and
certainty but held –
• “there is a natural tension between certainty and consistency on
the one hand and perfect accuracy on the other. The English courts
have never carried their emphasis on certainty and consistency
beyond the point where it starts to work injustice to either
side….none of these considerations can justify assessing damages
in Guernsey on an assumption about the rate of return which is out
of date, has no current evidential basis and is not required by any
statute or rule of law.”
• Effect was to increase first instance award of £9.3M (based
on 2.5% discount rate) to £13.8M.
• Privy Council upheld the Guernsey Court of Appeal decision.
Discount Rate
• Very unlikely that current review of discount
rate will result in reduction close to Helmot
discount rates.
• It is a major concern that the discount rate
has not been reviewed since 2001 in the face
of long term collapse of yields from ILGS.
• Political considerations held sway in 2001 and
are likely to do so again.
• Need for PPOs in Scotland now pressing.
Periodical Payment Orders
• Scottish Government has indicated that the
Damages Bill will include provisions giving the
courts the power to impose PPOs without
the consent of the parties
• Likely to come into force in 2015
• PPOs were introduced in England & Wales in
1996
• Initially required consent of parties but since
2005 can be imposed by court
Periodical Payment Orders
• No estimate of life expectancy required
• Court awards an annual multiplicand which is paid
for rest of claimant’s life. Insurer in effect purchases
an annuity
• Court links payments to RPI or such other index as
it may direct eg ASHE for care costs
• Payments guaranteed by Financial Services
Compensation Scheme or by ministerial guarantee
for public bodies – what about Scotland?
Periodical Payment Orders
• Court can direct that annual sum will
increase/decrease at some future date or on some
future event eg developing a disease or condition or
becoming wheelchair bound
• Court may order that part of annual sum continues
after claimant’s death for benefit of dependants
• No minimum sum. A PPO may be appropriate even
with a modest sum eg very elderly claimant
Periodical Payment Orders
• Advantages over a lump sum award –
• Predictions of life expectancy are inevitably
inaccurate – risk of over or undercompensation is reduced
• PPs are tax-free in claimant’s hands whereas
income from a lump sum is taxable
• Any investment risk is borne by insurer
• Claimant avoids cost of investment advice
Periodical Payment Orders
• Payment guaranteed by FSCS or government
unlike payment of income from an invested
lump sum
• If claimant becomes bankrupt his trustee is
not entitled to PPOs (apart from future LOE
element)
• Generally will not affect state benefits or local
authority care
Periodical Payment Orders
• No real risk sums will run out
• Protects claimant from predatory friends and
family
• Removes or reduces scope for courts to
under-compensate by discounting multiplier
Periodical Payment Orders
• Disadvantages of a PPO –
• Lump sums have certainty – provide a clean
break
• Loss of flexibility to meet large or unexpected
capital expenses
• Lump sum has potential of leaving funds for
dependents
• Large reduction for contributory negligence
can make a PPO impractical
Periodical Payment Orders
• Some claimants have very high capital needs
eg paying off a large mortgage or buying and
adapting suitable property
• Problem may be particularly acute for elderly
claimants. Their housing needs may be just as
great as those of younger claimants. However
Roberts v Johnstone formula will produce a very
small sum and they will have to dip into other
heads of damages