Cooke v United Bristol Health Care

These conjoined appeals raise an important question about the calculation of damages for future loss in personal injury claims.

In the case of Sheppard the claimant appeals against the order of Senior Master Turner made on 7 July 2003, permission to appeal having been given by the Senior Master. Sonni Cooke appeals against the order of His Honour Judge Bursell QC, sitting as a deputy High Court Judge, made at Bristol on 1 July 2003 with permission given by Hale LJ on 28 July 2003. Christopher Page’s appeal is brought against the order made by His Honour Judge McKenna sitting as a deputy High Court Judge at Birmingham on 19 June 2003, with permission granted by Mantell LJ on 2 July 2003.

In each case the claimant has been very severely injured, and there is no outstanding dispute as to liability. In Sheppard and Cooke (if I may use the claimants’ surnames for convenience) liability has been admitted to the tune of 100%, and in Page to the tune of two-thirds. Sheppard and Cooke are both infants. Sheppard is nine. He suffered grave internal and spinal injuries in a road traffic accident on 25 July 2000. He is estimated to have a life expectancy of about 69 years. Cooke is twelve. His claim is for damages for what is described as neo-natal negligence. He has suffered severe brain damage and other grave associated deficits. His life expectancy is put at sixty years. Page is a young man of twenty. He suffered severe cerebral damage in a traffic accident in 1996. His life expectancy is said to be sixty-one years.

As must be obvious, the major element in the damages to which each of these claimants is entitled represents the cost of his being cared for in the years to come. So it was that in each case the claimant’s advisers sought an order to admit the evidence of a Mr Rowland Hogg. He is a chartered accountant who has established a practice, as he himself puts it, “advising on the financial aspects of legal disputes”. The burden of his evidence, were he to be allowed to give it, would be to the effect that the future cost of care in each of these cases would be grossly underestimated if what has been called the conventional method of assessing damages is applied. I will explain what is meant by the “conventional” method shortly. In the Sheppard case there is also a substantial claim for future loss of earnings and pension, and in these respects also it is said that Mr Hogg’s evidence would demonstrate that the conventional method of assessment would yield a substantial shortfall from the real position.

Mr Hogg had prepared reports in the cases of Page and Sheppard, though not, by the time the matter went before HH Judge Bursell, in the case of Cooke. Each of the judges below ordered that Mr Hogg’s evidence should not be admitted when the issue of quantum of damages came to be tried. The appeals are against those orders.

The essential objection to the admission of Mr Hogg’s evidence, and the basis of all three judgments below, is that its acceptance by the court of trial would frustrate or nullify the proper operation of s.1(1) of the Damages Act 1996 and the order made by the Lord Chancellor under that subsection on 25 June 2001, and confirmed by him on 27 July 2001. I will of course cite the statute and describe its operation, and the Lord Chancellor’s order, in due course. But for the sake of clarity it is necessary first to give an account of the background. I will start with a description of the conventional means by which damages for future losses are calculated in cases such as these. To anyone with experience of personal injury litigation, what follows is elementary, but I am not only addressing the tutored reader.

Damages for personal injuries have long taken the form of a single lump sum payment assessed at the date of trial. (We are not on these appeals concerned with other models, such as that of the structured settlement constituted by an order for periodical payments.) Thus the single lump sum must include compensation both for the claimant’s pre-trial losses (and of course general damages for pain, suffering and loss of amenity) and the losses which he will sustain in the future, notably represented in cases like these by the cost of future care. In fixing the lump sum, the trial judge must follow a basic principle, namely that it should represent “as nearly as possible full compensation for the injury which the plaintiff has suffered”: Wells v Wells [1999] 1 AC 345, 363F per Lord Lloyd of Berwick (my emphasis). Lord Lloyd added at 364 A-B:

How is the element of future loss contained in the single lump sum payment to be arrived at? Suppose that at prices current at the date of trial the loss is proved or agreed to amount to £1,000 per annum. Assume further that the claimant’s life expectancy is taken to be 20 years. It would obviously be possible simply to award the product of these two factors: £1,000 x 20 = £20,000. But that would leave out of account two important matters. The first is that the claimant does not receive his money as and when he suffers the loss, that is, over the 20 year period, but now and all at once. So he can invest the cash, thus ultimately getting more (maybe a lot more) than £20,000. The second is that the calculation of the annual loss at current prices (£1,000) leaves out of account the possibility, or rather (now and for many years past) the certainty, of future inflation. It will be plain that the first of these two circumstances may tend to lead to the claimant being over-compensated, and the second to his being under-compensated. Accordingly some adjustment has to be made either to the ‘multiplicand’ – the £1,000, or the ‘multiplier’ – the figure of 20, or both. As I shall show it has been well settled for many years that the adjustment is to be made to the multiplier alone.

In Hodgson v Trapp [1989] AC 807, Lord Oliver said this (826-827):

As is no doubt obvious the “dependency” referred to by Lord Diplock is the multiplicand, and the “number of years’ purchase” is the multiplier. It is I think useful to cite certain further passages from Cookson v Knowles. First, at 571G–572A Lord Diplock said this:

As will be apparent, it is implicit in this reasoning that the two contingencies to which I have earlier referred, that is the effect of accelerated payment and the effect of inflation, are both accommodated by treating the multiplier not simply as a number representing the claimant’s life expectancy, but rather as a number which (when applied to the multiplicand) will represent the cost of buying an appropriate annuity to meet the relevant future loss over the predicted period. Thus the multiplicand remains the figure proved as representing the loss at current prices at the date of trial. Inflation and acceleration are built into the multiplier, and the mechanism for doing that requires that a rate of interest be arrived at as the notional return to be earned on the lump sum over the period in question. This rate of interest is what is known as “the discount rate”; and as I will shortly show this concept of the discount rate is at the core of these appeals. The fact that the multiplicand remains fixed at current prices is confirmed by Lord Diplock’s statement in Cookson at 573C–D, that “[f]or the purpose of calculating the future loss, the ‘dependency’ used as the multiplicand should be the figure to which it is estimated the annual dependency would have amounted by the date of trial.” And Lord Fraser of Tullybelton said this at 575G–H:

Two points about this approach to the assessment of damages are I think worth noticing at this stage. The first – plain enough – is that an appropriate discount rate will depend upon prevailing economic conditions, and so is likely to shift from time to time. The second is that if a single discount rate is set for all cases, whether by the courts or by statute (or executive decision taken under statute), the full compensation principle will only be achieved in a rough and ready way, since actual rates of inflation will differ between different sectors. Thus wages are prone to rise at a faster rate in some sectors than others; and prices likewise.

These considerations form part of the backdrop to the Damages Act 1996 and the Lord Chancellor’s order made under it, and also to the decision of their Lordships’ House in Wells v Wells, which in turn has to be understood for a proper appreciation of the 1996 Act and order. I will first set out without comment the relevant provisions of the Act, and then look at Wells which was decided after the Act was passed, but before the Lord Chancellor’s order was made under it.

S.1 of the Act of 1996 provides in part:

In Wells the House heard three conjoined appeals. In each case the trial judge had assessed the multiplier by reference to a 2.5 or 3% discount rate. The awards were reduced by the Court of Appeal which held that the discount rate should have been 4.5%. The basis of the first instance decisions was that the judges proceeded (for the purpose of calculating the multiplier) on the footing that the claimants should appropriately invest their awards in index-linked government stock (“ILGS”), rather than in equities or any other market. ILGS is a risk-free investment in two senses. First, if the stock is held until the maturity date the capital sum invested is in no circumstances reduced as an absolute figure. Secondly, the sum invested is guaranteed to bear a return, at the maturity date, representing the percentage increase in the retail price index (“RPI”) between (in effect) the date of issue and the date of maturity. In each of the cases in Wells the Court of Appeal’s choice of a discount rate of 4.5% reflected the return on an investment comprised of a mixed portfolio of equities and gilts; and of course that reduced the lump sum damages receivable by each of the claimants in comparison with the effects of the lower discount rate taken by the trial judges.

The House of Lords restored the orders made by the judges at first instance. It was accepted that how the claimants actually invested their money was irrelevant to the process of calculation. Lord Lloyd held (373C–D):

Their other Lordships agreed. They all favoured the ascertainment of a discount rate by reference to the rate of return on ILGS. Lord Steyn said this at 388D-F:

It is clear, moreover, that in arriving at a discount rate by reference to ILGS their Lordships had by no means forgotten the exigencies of those cases in which, as in the three appeals before us, the claimants would be dependent on the award of a capital sum to meet what might be very heavy costs of care running well into the future. I will cite four short passages. First, Lord Clyde at 394G–H:

Now I may go to the Lord Chancellor’s order made under s.1(1) of the Act of 1996 to fix the discount rate at 2.5%. As I have indicated the order was made on 25 June 2001 and revisited on 27 July 2001 when that rate was confirmed. On the same day, 27 July 2001, a detailed statement of reasons was issued by the Lord Chancellor explaining his choice (and confirmation) of the rate of 2.5%. The order had originally been based on the Lord Chancellor’s understanding of “the accurate figure for the average gross redemption yield on Index-Linked Government Stock for the 3 years leading up to 8 June 2001”. Questions had however been raised as to the correctness of that understanding, and so the matter was looked at again. Some “limited inaccuracies” in the Lord Chancellor’s information were revealed, and he made it clear in the statement of 27 July 2001 that he had considered the issue of the appropriate discount rate to be set under s.1(1) of the 1996 Act “completely afresh”. In the event he adhered to the rate earlier fixed of 2.5%. I will cite these extracts from the statement:

Now I may confront the essential basis on which the admission of Mr Hogg’s evidence is objected to by the respondents. I acknowledge first that it cannot sensibly be suggested that the evidence would not be factually relevant to the calculation of the future loss element in each of these claims. In Cooke’s case, for example, it is said that Mr Hogg’s evidence would tend to demonstrate that the cost of future care should be assessed at some £4.6m, in contrast to the claimants’ figure arrived at on the conventional basis of £2.3m. Why then should the courts of trial not receive such material? It is necessary to look briefly at the core elements in Mr Hogg’s approach.

The central thesis is that care costs (and indeed wages also, though not to the same extent) have historically increased at a significantly steeper rate than is represented by RPI. Mr Hogg has amassed much material to support this thesis. He considers that the most suitable inflation index for care costs is the NHS Pay Cost Index (“PCI”) (see for example paragraphs 3.8 – 3.12 in his report in Sheppard’s case). The PCI measures the rate at which pay costs rise in the NHS. Those costs are not identical to the cost of engaging home carers, but Mr Hogg believes (I summarise) that it is the best that can be done. He produces a graph (Appendix L to the Sheppard report) showing that since 1983 the PCI has increased at an annual average rate of 2.5% above RPI. Then he has deployed these figures to produce revised multiplicands with stepped increases over time to reflect the faster rise in care costs in comparison with RPI. In a supplementary report in Sheppard’s case dated 24 June 2003 he has produced fresh tables allowing for new information (from the Department of Health) to the effect that since 1975/6 the PCI has run at some 2.3% above RPI.

Whether, or the extent to which, Mr Hogg’s thesis would survive being tested in court by cross-examination and perhaps the introduction of other, contrary, evidence is not material for present purposes. The argument before us has proceeded on the footing, strictly for the purposes of these appeals, that Mr Hogg’s thesis is uncontested.

In paragraph 1.7 of his supplementary report in Sheppard’s case Mr Hogg says this:

This brings me to the nub of the matter. The respondents say that Mr Hogg’s contentions as to the rising cost of care are by no means a “separate issue” from the discount rate set by the Lord Chancellor. On the contrary: the submission is that any acceptance by a trial court of those contentions would in reality disapply the Lord Chancellor’s discount rate; and that is illegitimate and in consequence cannot be allowed. It would nullify the effective operation of s.1 of the Act of 1996, and thus be an affront to Parliament itself.

More particularly, the respondents say that this court has already held that a direct assault (in any individual case) upon the Lord Chancellor’s discount rate is impermissible: Warriner v Warriner [2002] 1 WLR 1703; and Mr Hogg’s translation of his care cost inflation figures into the multiplicand, as opposed to the multiplier, is nothing but an indirect attempt, constructed to escape the coils of Warriner, to achieve the same result.

Warriner was also a case in which there were substantial claims for future care costs and loss of future earnings. The defendant appealed against a case management decision by which the court below had allowed an application by the claimant to introduce evidence from Mr Hogg (the same Mr Hogg: he had also advised the claimants in Wells) to the effect that in cases of the kind in question the Lord Chancellor’s discount rate was inappropriate, and a lower rate should be used. It is I think clear from Dyson LJ’s account (1709E-F) of the respondent claimant’s argument that, at any rate by the time the case reached this court, it was accepted that there could be no assault in principle on the rate fixed by the Lord Chancellor. What was said was that by virtue of s.1(2) of the Act “a lower rate is more appropriate by reason of the particular circumstances of the case. These are the combination of a long life expectancy and a claim for damages in excess of £3m.”

Dyson LJ, giving the first judgment, set out at 1710A-C the passage from Lord Steyn’s speech in Wells at 388 which I have already cited, and concluded as follows (1710-1711, paragraph 33):

In the course of argument Mr Davies QC for Page accepted for his part that if this court were satisfied that the Lord Chancellor had approached his task, pursuant to s.1(1) of the Act of 1996, on the distinct footing that the multiplicand (for care costs) fell to be treated as based on current costs at the date of trial, then there is no escape from the conclusion that the endeavour in these cases to introduce Mr Hogg’s evidence amounts to an assault on the Lord Chancellor’s discount rate; and there is no contest but that such an assault is impermissible. This concession (assented to also by Mr Burton QC for Sheppard) was with respect clearly right. The courts cannot depart from the Lord Chancellor’s discount rate save in a case properly falling within s.1(2), whether the means of doing so are direct or indirect; and the test for a proper s.1(2) case was stated by Dyson LJ in Warriner at paragraph 33 which I have read. In these appeals only Mr Hogarth QC for Cooke seeks to rely on s.1(2), as he did before the judge below. I shall deal with his argument on the point after I have disposed of the principal question, whether indeed there is here an illegitimate attempt to subvert the Lord Chancellor’s discount rate.

In my judgment that is precisely what these claimants through their advisers are about in seeking to introduce Mr Hogg’s evidence. The key rests in the fact, plain in my judgment beyond the possibility of sensible argument, that it is a premise of the Lord Chancellor’s order that the effects of inflation in claims for future loss are to be catered for solely by means of the multiplier, conditioned as it is by the discount rate. Accordingly the multiplicand was necessarily treated as based on current costs at the date of trial. This conclusion is demonstrated by the established conventional means of assessing future loss, collected from Cookson v Knowles and later authority; from the reasoning in Wells v Wells; and from the background to the Damages Act 1996, which consists not only in the decisions of the courts but also in the Law Commission materials referred to by Carnwath LJ (whose account of them I gratefully acknowledge).

In the end, the central issue in these appeals falls to be resolved upon what, I have to say, seems to me to be a very straightforward basis. Once it is accepted that the discount rate is intended in any given personal injury case to be the only factor (in the equation ultimately yielding the claimant’s lump sum payment) to allow for any future inflation relevant to the case, then the multiplicand cannot be taken as allowing for the same thing, or any part of it, without usurping the basis on which the multiplier has been fixed. And it must be accepted that the discount rate was so intended: by the House in Wells, by Parliament in the Act of 1996, and by the Lord Chancellor in making his order under the Act. Mr Hogg’s attempt to treat his calculation of the multiplicand as a “separate issue” from the discount rate, and counsel’s submissions supporting that position, are in the end nothing but smoke and mirrors. It follows that the substance of these appeals constitutes an illegitimate assault on the Lord Chancellor’s discount rate, and on the efficacy of the 1996 Act itself, and (subject to Mr Hogarth’s point on s.1(2)) they must in my judgment be dismissed.

In so concluding I have not forgotten the force of the appellants’ arguments based on the full compensation principle. I have already said (paragraph 12) that if a single discount rate is taken across the board, as has been done by the Lord Chancellor’s order, the full compensation principle will only be achieved in a rough and ready way, since actual rates of inflation will differ between different sectors. Counsel for the appellants would of course roundly insist that that is scant comfort to their clients, who it is said stand to suffer very substantial shortfalls.

Be it so on the facts of these cases: still it cannot, in my judgment, amount to a proper basis for allowing these appeals to prosper. The court is obliged by ordinary constitutional principles to act, in its decisions case by case, conformably with the discount rate set by the Lord Chancellor, who is Parliament’s delegate under the Act of 1996. He may be persuaded at the political level to set a different rate. He may (I encourage nothing) be amenable to judicial review. But so long as the rate he has set is extant, the courts cannot in the adjudication of personal injury claims subvert or undermine it.

I should record the fact that there was argument at the Bar upon the question how far the admission of Mr Hogg’s evidence in these (and no doubt other) cases would lead to delay, uncertainty, and additional expense. Counsel for the respondents were at pains to insist that it would encourage litigants, and require courts, to address issues of future inflation case by case, or at least on a much more variegated basis than is implied by a single discount rate; and this would give rise to a state of affairs little short of chaos. Such consequences were eschewed by counsel for the appellants who insisted that Mr Hogg’s materials were structured in such a way as to obviate altogether any need to recalculate the inflation factor case by case. However on the view I take of the case, this contest is neither here nor there. Mr Hogg’s material is not to be condemned as a Pandora’s box, but because its admission would be contrary to principle, for the reasons I have given.

On s.1(2) Mr Hogarth’s argument amounted, with respect, to nothing more than an insistence on the very high costs of future care in his client’s case given the long life expectancy. But circumstances of that kind were plainly in the Lord Chancellor’s mind when he fixed the discount rate as he did. Applying Dyson LJ’s reasoning in Warriner at paragraph 33, Cooke’s case is not a permissible candidate for exceptional treatment under s.1(2). His appeal, like those of his fellow appellants, must in my judgment be dismissed.

I agree that these appeals should be dismissed. I add a few words of my own only because of the importance of the principal question raised. In assessing damages in personal injury cases for the purpose of making a lump sum award, the court has to make a number of predictions. The problem is particularly acute in relation to the assessment of future care costs in serious personal injury cases. The predictions include the likely annual amount of those costs and the period over which it is likely that they will be incurred. The prediction of the impact of inflation on such costs is central to the main issue that arises on these appeals. In the pre-Wells era, future inflation was regarded as sufficiently taken care of by the higher rates of interest obtainable as a result of inflation itself. As Lord Steyn said in Wells (page 382B):

The issue in Wells was whether this practice should be modified by adopting a discount figure assessed by reference to ILGS, on the footing that it was now practicable for a plaintiff to protect himself against RPI inflation by investing in ILGS. The House of Lords decided to substitute a discount rate of 3 per cent for the previous conventional figure of 4 to 5 per cent. The reason for the change was clear. The previous figure had been selected on the basis that inflation could effectively be ignored: the impact of inflation would be taken into account in a rough and ready way by the discount rate of 4 to 5 per cent. But as Lord Lloyd said in Wells (page 373E), that was only because there was no better way of allowing for future inflation. In Wells, it was decided that the rate of 3 per cent should be used to fix the multiplier because that would afford better protection against the impact of future inflation than the higher rate of 4 to 5 per cent. Thus, for example, Lord Hutton (page 403B):

See also per Lord Hutton at page 403F-G. Thus, after Wells, and until the Lord Chancellor exercised his power to fix a rate under section 1 of the Damages Act 1996, the effects of future inflation were to be taken into account in the assessment of damages by calculating the multiplier on the basis of a discount rate of 3 per cent. It was implicit in the reasoning of their Lordships that inflation would not be taken into account in the other way that might have been adopted, ie by adjusting the multiplicand. Inflation had never been considered to be relevant to the determination of the amount of the multiplicand. Furthermore, if inflation were to be taken into account in the calculation both of the multiplicand (or certain parts of the multiplicand) and the multiplier, it would be necessary to avoid double counting: this would introduce an undesirable complication which it is clear was never in the contemplation of their Lordships.

It is common ground that the multiplicand has always been calculated on the basis of costs current at the date of trial, and that inflation has always been taken into account (if at all) in determining the multiplier. That position (implicitly endorsed in Wells) also provides the background against which section 1 of the 1996 Act must be understood. The statute is silent about multiplicands. The object of the statute was to give the Lord Chancellor the power to fix discount rates. In this way, it would no longer be for the courts to determine what rate to adopt so as most effectively to provide inter alia for the impact of future inflation of wages and care costs.

It is apparent from his statement of 27 July 2001 that the Lord Chancellor understood this to be the object of his statutory power. The passage quoted by Laws LJ at para 19 of his judgment makes it clear that the Lord Chancellor selected the rate of 2.5 per cent having regard inter alia to the likely rate of inflation, particularly in the context of larger awards. He said in terms that he considered that it was reasonable to assume an inflation rate for the foreseeable future somewhere below 3 per cent, and that this in turn “provides comfort that a discount rate set at 2.5 per cent is reasonable”.

In my judgment, when viewed against the background which I have mentioned (and the Law Commission material to which Carnwath LJ has referred), section 1 of the Damages Act empowered the Lord Chancellor to vary the discount rate to be used in the calculation of the multiplier in order to take account of future inflation. It is clear from his statement that the Lord Chancellor intended to do just that.

At the heart of the case advanced on behalf of all three appellants before us is the submission that, if they are not permitted to claim damages on the basis that inflation of care costs will not exceed RPI, there will be a breach of the fundamental principle that the object of an award of damages for future expenditure is to place the injured party as nearly as possible in the same position he or she would have been but for the accident. They should not be shut out from seeking to prove that the cost of future care will substantially exceed the RPI.

The compensation principle is not in issue. It was acknowledged by their Lordships in Wells. They well understood that the cost of future care would or might exceed RPI inflation: see pages 354E and 367H. And yet they fixed a rate of 3 per cent, which was substantially based on a return for ILGS (where inflation is measured by the RPI). Their Lordships recognised that this would not produce a return that would match future inflation precisely. Thus, for example, Lord Steyn spoke of an element of “arbitrariness in any figure” (388D); and Lord Hope referred to there always remaining “an element of uncertainty in prediction which may only in a rough and ready way satisfy the desire that justice be done between both parties” (394G). Their Lordships recognised that a single rate was a somewhat crude instrument, but they adopted it for the public policy reasons that certainty was necessary in order to facilitate settlements and save costs.

These same considerations informed the decision of the Lord Chancellor to select the single rate of 2.5 per cent. He too was aware of the compensation principle, and stated explicitly that this was the principle that he “must strive to apply”. He could have chosen different rates for different heads of loss. But he decided not to do so in order to “eliminate scope for uncertainty and argument about the applicable rate”.

It is clear, therefore, that both the House of Lords in Wells and the Lord Chancellor in fixing the rate at 2.5 per cent purported to be giving effect to the compensation principle. The submissions made on behalf of the appellants amount to saying that neither the House of Lords nor the Lord Chancellor achieved what they expressly said they were setting out to achieve. If the present appeals were being decided without reference to the fact that the Lord Chancellor has fixed the discount rate, this challenge could not be made since the decision in Wells would be binding on this court. But, of course, the fact that the Lord Chancellor has fixed the rate cannot be ignored. Once it is shown that, in fixing the rate, the Lord Chancellor intended his single rate to allow for future inflation in respect of all heads of loss, an attempt to persuade a court to calculate damages by allowing for future inflation of certain heads of loss by a different method can be seen for what it is. Despite the disavowals vigorously made on behalf of all three appellants, these challenges are, in my view, nothing less than a plain attempt to subvert the Lord Chancellor’s rate itself.

The assessment of future loss is not an exact science. That is why there will always be cases where some claimants who receive lump sum payments will, as things turn out, be under-compensated, and others will be over-compensated. That was well understood by their Lordships in Wells, and by the Lord Chancellor when he fixed the rate of 2.5 per cent. If his rate is too high, at any rate for certain heads of loss, then an attempt can be made to persuade him to alter the rate. But unless he agrees to do so, the impact of future inflation should be reflected in the assessment of damages by calculating the multiplier alone, and, unless section 1(2) can be invoked, by applying the rate of 2.5 per cent.

As regards the argument advanced by Mr Hogarth that a different rate from 2.5 per cent was “more appropriate” within the meaning of section 1(2) of the Act in the case of Cooke, I agree with Laws LJ that Warriner presents an insuperable obstacle. The exceptional factors relied on by Mr Hogarth were (a) the long life expectancy; (b) the very high costs of future care; and (c) the fact that the damages that would be awarded on an application of the 2.5 per cent discount rate would be about half what they would be if Mr Hogg’s evidence were to be accepted: in other words, there would be a huge shortfall. But as Laws LJ points out, (a) and (b) were plainly in the Lord Chancellor’s mind when he fixed the rate at 2.5 per cent, and have been ruled out for exceptional treatment by Warriner. The third factor is not in truth a separate factor at all: it is merely a function of (a) and (b).

For these reasons, as well as those given by Laws and Carnwath LJJ, I would dismiss these appeals.

It is not in dispute that, at the time of the enactment of the Damages Act 1996, damages for future costs of care and loss of earnings were assessed by what has been called the “multiplier/multiplicand” method of assessment. In its 1992 Consultation Paper on Structured Settlements and Interim and Provisional Damages (CP125), the Law Commission commented on this approach:

This was not the first time on which the Law Commission had addressed the issue. In 1973 (Personal Injury Litigation – Assessment of Damages, Law Com No. 56) the Law Commission had criticised the ruling of the House of Lords in Taylor –v- O’Connor [1971] AC 115, under which the “multiplier approach” was to be regarded as the normal and primary method of assessment, and had recommended a new approach giving greater weight to actuarial evidence. This recommendation was not adopted at that time. However there followed what Purchas LJ described in 1985 as

A related campaign concerned the admissibility of evidence of more sophisticated methods of calculating future inflation (see e.g. Mitchell –v- Mulholland [1972] 1QB 65, 78-81, 83-84). Two decisions of the House of Lords in 1979 put this issue beyond argument (see Cookson –v-Knowles [1979] AC 556; Lim –v- Camden Health Authority [1980] AC 174). In the former case it was established that, at least in relation to claims for loss of wages, the assessment should be based on wage rates at the date of trial and that no further adjustment should be made for inflation, that being taken into account “in a rough and ready way” in the multiplier (see p 569-71 per Lord Diplock; p575-7 per Lord Fraser). This approach was confirmed in Lim. The rationale was said to be (in summary) that forecasting future inflation was “pure speculation”; that “inflation is best left to be dealt with by investment policy”; and that use of current money values was “inherent in a system of compensation by way of a lump sum immediately payable”. (p 195, per Lord Scarman). Earlier, Lord Scarman had underlined the need for “a radical reappraisal of the law”, taking account of the “perplexities of the present case”, and the then recent Pearson Report on Compensation for Personal Injuries (1978 Cmnd 7054). Such a re-appraisal, in Lord Scarman’s view, called for “social, financial, economic and administrative decisions which only the legislature can take” (p 182 F-G).

As seen in the passage quoted above, when reviewing this matter in 1992, the Law Commission concentrated on the problems arising from the choice of multiplier. They proposed what they called “a radical approach”, using the rate of return on index linked Government securities (“ILGS”) to establish an appropriate rate of discount. Another, and more fundamental, part of the proposals related to the provision of statutory machinery for “structured settlements”. Instead of receiving a single lump sum to cover all damages, the claimant would receive an initial lump sum (normally representing past costs and past pain and suffering); the defendant would then use the balance to purchase an annuity from a life insurance company to cover future loss and expenses.

In the first part of its report, dealing with the multiplier, the Law Commission proceeded on the basis of the established law that inflation should not be taken into account (citing Auty -v- NCB, above). They noted however that their proposals relating to the ILGS would mean that

The Commission’s final recommendations in relation to the multiplier were reflected in the draft Bill annexed to their final report. Clause 6 (1) was to have effect “in relation to the assessment, in an action for personal injury, of the sum to be awarded as general damages for future pecuniary loss”. Sub-clause (3) provided that

In my view, one cannot construe Section 1, and in particular the discretion given to the Lord Chancellor, without taking account of this background. Where a Bill is based wholly or partly on a Law Commission recommendation, it is appropriate to take account of the Report to find the mischief to which the provision was directed (see Pepper –v- Hart [1993] AC, p 633-635). It is clear that both the Law Commission and the draftsman of the 1996 Act, when providing for the method of fixing the rate of return to be assumed for the purpose of calculating future pecuniary loss in actions for personal injuries, were doing so against the background of the established multiplier/multiplicand method of assessment.

Although not stated in terms, such an assumption is implicit in the statute, since otherwise it would be impossible for the Lord Chancellor to know the basis on which he is to fix the relevant rate. His discretion could only be exercised on the basis of the law as it stood. He had no right to assume that the courts might, by a future alteration of the law, make up for any shortfall in inflation rates by adjusting the multiplicand. Accordingly, any such matters had be taken into account (and, in the absence of contrary evidence, must be assumed to have been taken into account) by the Lord Chancellor in fixing the rate of return.

For the reasons given by Lord Scarman, the assessment of the economic and other factors relevant to that task are not well suited for examination through the Court process. I accept that the evidence presented before this Court shows, in a more dramatic way than hitherto, the potential increases in damages which could in theory be achieved by taking account of differential historic rates of inflation. However, it is equally clear that this is only one part of the overall picture. As was acknowledged by the Lord Chancellor’s statement, the inflation assumption on which the ILGS index is based does not in practice reflect the investment choices that claimants are likely to make. In any event, in my view, such arguments must be addressed if at all to the Lord Chancellor in the context of his review of the rate under Section 1.

For these reasons and those given by Laws LJ and Dyson LJ, I would dismiss these appeals.