the quantification of future losses graeme garrett february 2014

The Quantification of Future Losses

Graeme Garrett

February 2014

Topics for Today

• 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 multiplier-multiplicand 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 multiplier-multiplicand 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


• 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


• 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


• 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


• 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?


• 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?


• 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• 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.


• 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)


• Wells v Wells 1999 1 AC 345

• The breakthrough came in the landmark House of Lords ruling in Wells v Wells.

• Wells set out a number of important principles –

• 1. A lump sum award of damages should result in claimants receiving full compensation.

• “…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.


• 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.


• 5. The only form of investment which achieves these principles is ILGS.

• 6. The Ogden Tables are to be used as the starting point, rather than as a check on common law multipliers.

• 7. It is to be assumed that a claimant will invest entirely in ILGS – not in a mixed bag of equities and ILGS.


• 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.


• 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.


• 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.”


• 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• Definition of “disabled” is lifted from Disability Discrimination Act 1995

• Must satisfy all three parts of test –

• Illness expected to or has lasted for 1+ year

• Must satisfy DDA definition “substantially limits person’s ability to carry out day to day activities”

• Affects kind or amount of paid work

• See examples of day to day activities – Para 35

• No attempt to distinguish varying degrees of disability

• Reduction factors are averages for broadly defined groups of working-age individuals.

• The average indicates a typical outcome for individuals within each defined group

Ogden 6• The New Tables

• 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” ?

• Garth v Grant [2007] All E R (D) 459 (Hickinbottom H.H.J.)

• 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.

• Aged 48. Born in USA. Weighed 30 stones. Medically super-morbidly obese.

• Defendant argued that even before accident her obesity rendered her “disabled” and multiplier should be reduced using Table D.

• 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.

• Appropriate discount factor was 0.87 not 0.60 as contended for by defendant.

• Query – what if defendant had attacked the initial multiplier in Table 8 using medical evidence to demonstrate increased mortality?

• Hunter v Ministry of Defence [2007] NIQB 43 (Stephens J )

• H., 36 at trial, suffered knee injury during army exercises.

• Permanent weakness and instability – fit for light work only.

• Had not worked - or looked for work – since accident.

• Judge found he should have looked for light work – and would probably have found work by trial if had looked.

• 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).

• 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).

• 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)• 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.

• 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


• 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


• “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.”


• 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


• 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.


• 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.


• 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 post-accident 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 post-injury 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 case-specific 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


• 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?


• 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


• Advantages over a lump sum award –• Predictions of life expectancy are

inevitably inaccurate – risk of over or under-compensation 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


• 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


• 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


• 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


• 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

the quantification of future losses graeme garrett february 2014

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