Flora v Wakom (Heathrow) Ltd

This is an appeal by the defendants from an order of Sir Michael Turner, sitting as a High Court judge, on 7^th December 2005, whereby he dismissed their application to strike out 11 paragraphs of the claimant’s statement of case and to exclude the evidence of a particular expert witness. The appeal raises an important point on the construction of s 2(8) and (9) of the Damages Act 1996 (“the 1996 Act”).

These two sub-sections, together with ss 2A and 2B, were substituted for s 2 of the original Act with effect from 1^st April 2005 (see Courts Act 2003, s 100 and SI 2005 No 901). The section as originally enacted gave the court power to make an order for periodical payments in a personal injuries case provided that the parties consented to the making of such an order. Section 2(1), as substituted, provides:

In other words, the court is obliged in every personal injury case involving a claim for damages for future pecuniary loss to consider whether to make such an order. This is why the present appeal has an importance transcending the significance of the dispute between the present parties, which is concerned with the consequences of a very serious workplace accident. On 13^th May 2002 the 50-year old claimant fell 35 feet from a ramp. His annual loss of earnings has been calculated at just under £12,000 and his annual need for care has been valued at between £18,000 and £27,000. Liability has been admitted, and only the amount of compensation, and the form of the order for compensation, is in issue.

The dispute centres round the interpretation of s 2(8) and (9) of the 1996 Act:

The claimant maintains that sub-section (8) identifies the default position, and that a court may make the orders identified in sub-section (9) whenever it appears just to do so. The defendants, on the other hand, maintain that sub-section (8) provides for the order a court will ordinarily make, and sub-section (9) may only be triggered in exceptional circumstances. It is common ground that so far as cases involving severe injuries are concerned there is nothing particularly exceptional about the present case. The claimant’s injuries have deprived him of the ability to work, and he has to rely on others to support his daily needs, but this is a common feature of many cases of this type.

The parts of his statement of case which the defendants wish to strike out are concerned to identify the reasons why he contends that a wage-related index such as the Average Earnings Index (“AEI”) would be more suitable than the Retail Price Index (“RPI”) as the mechanism for varying the sums payable under the periodical payments order. In support of his case he wishes to rely on the expert (Dr Victoria Wass) whose evidence the defendant seeks to exclude. He wishes to argue that the latter index is not a reliable measure of wage inflation, and because the court will be largely concerned with assessing compensation for future loss of earnings (which are of necessity wage-related) and the cost of future care (which is largely, if not entirely, wage dependent), he would not receive full compensation through a section 2 order linked to the RPI given that wage inflation has historically outstripped RPI inflation, and that it is legitimate, he says, to refer to the past as a guide to what the future may bring. It was conceded for the purposes of the defendant’s application that Dr Wass’s evidence was capable of demonstrating that in future there would or might be a shortfall between the actual or likely cost of providing for his needs throughout his lifetime and the amount he would receive under a periodical payments order linked to the RPI.

On the present appeal it is not our job to express any views about the merits of his case in this respect. If this appeal is dismissed it will proceed to trial, and it will be for the trial judge to make appropriate findings on the evidence before him or her. Sir Michael Turner, who has immense experience in this field of litigation, expressed the view when refusing permission to appeal that an appeal at this interlocutory stage would not enable this court to give the definitive guidance which was plainly required. Latham LJ, however, with whom May LJ agreed, decided to grant permission to appeal after being told that the relationship between s 2(8) and 2(9) was an issue of importance which was creating concern to courts all round the country. He considered that there was sufficient material already before the court to enable it to make an early determination on the issue of construction without having to await the consideration of detailed arguments based on the respective merits of the two indices in the present context.

The primary submission of Mr Pooles QC, who appeared for the appellants, was that the language of the two sub-sections was clear and that there was no need for us to look at Hansard as an aid to interpretation. If, contrary to this submission, we found any ambiguity in the words used by Parliament, we should consider the extracts from the debate in the House of Lords on the committee and report stages and on the third reading of the Bill, and these would help us to resolve any ambiguity in his client’s favour. Mr Glancy QC, who appeared for the respondents, submitted that the language was quite clear – although in an opposite sense to that contended for by Mr Pooles – and that in those circumstances evidence from Hansard was inadmissible. We read the extracts to which Mr Pooles referred us without ruling one way or another in relation to the rival submissions.

The House of Lords has made it clear that reference to statements made in Parliament about the meaning or effect of a particular clause in a Bill is only permissible for the purpose of construing the equivalent section (when enacted) if three conditions are all satisfied. Those conditions were first identified by Lord Browne-Wilkinson in Pepper v Hart [1993] AC 594, and are clearly set out by Lord Bingham in his speech in R v Secretary of State for Transport, the Environment and the Regions ex p Spath Holme Ltd [2001] 2 AC 349, 391. In that case he and other members of the House made it clear that these conditions should be strictly insisted upon (see pp 392D, 408C and 413G). The first of these conditions is that such reference was permissible only where legislation was ambiguous or obscure, or led to an absurdity.

In my judgment this condition is not satisfied in the present case. If a periodical payments order does not identify on its face the manner in which the amount of the payments is to vary (in order to maintain their real value) then s 2(8) prescribes that it is to be treated as providing for what is set out in that sub-section unless the order contains provision of a type identified in s 2(9). There is nothing in the language of these sub-sections to suggest that the power to make provision such as identified in s 2(9) may only be triggered in an exceptional case (whatever may be the meaning of that phrase). Incidentally, it is interesting to see that the same neutrality is apparent in CPR 41.8(1)(d) which simply provides:

Mr Pooles referred us to a passage in the speech of Lord Carswell in Harding v Wealands [2006] UKHL 32 at [81], but there is nothing in that speech, or in the speeches of the other members of the House in that case, to suggest that the strict conditions laid down in Pepper v Hart and ex p Spath Holme have been relaxed. Lord Carswell perceived “sufficient possible ambiguity” in the Harding case to justify resort to Hansard as a confirmatory aid, a perception not shared by the other members of the House.

My belief that it is illegitimate in this case to rely on what was said by a minister at an advanced stage of the progress of the Bill through the House of Lords is fortified by a passage in the speech of Lord Hoffmann in Robinson v Secretary of State for Northern Ireland [2002] UKHL 32 at [40]:

The remainder of this long paragraph need not be cited here, but it provides a powerful reminder of the problems inherent in access to Hansard unless Lord Browne-Wilkinson’s three conditions are all met. In Robinson Lord Hobhouse spoke powerfully to similar effect at para 65, and Lord Millett (at para 76) expressed himself fully in agreement with Lord Hoffmann.

We were also referred to the Explanatory Notes to the Courts Act 2003, which by s 100 effected the change in the law with which we are concerned on this appeal. Paragraph 354 of these Notes forms part of the explanation of the new provisions as to periodical payments. It states:

The use that courts may make of Explanatory Notes as an aid to construction was explained by Lord Steyn in R (Westminster City Council) v NASS [2002] UKHL 38 at [2]-[6]; [2002] 1 WLR 2956; see also R (S) v Chief Constable of South Yorkshire Police [2004] UKHL 39 at [4], [2004] 1 WLR 2196. As Lord Steyn says in the NASS case, Explanatory Notes accompany a Bill on introduction and are updated in the light of changes to the Bill made in the parliamentary process. They are prepared by the Government department responsible for the legislation. They do not form part of the Bill, are not endorsed by Parliament and cannot be amended by Parliament. They are intended to be neutral in political tone: they aim to explain the effect of the text and not to justify it.

The text of an Act does not have to be ambiguous before a court may be permitted to take into account an Explanatory Note in order to understand the contextual scene in which the act is set (NASS, para 5). In so far as this material casts light on the objective setting or contextual scene of the statute, and the mischief to which it is aimed, it is always an admissible aid to construction. Lord Steyn, however, ended his exposition of the value of Explanatory Notes as an aid to construction by saying (at para 6):

The value of para 354 of the Explanatory Notes as an aid to construction in the present appeal is that it identifies the contextual scene as containing a determination “to ensure that the real value of periodical payments is preserved over the whole period for which they are payable.” That is all. If, however, it is impossible to treat the wishes and desires of the Government about the scope of the statutory language as reflecting the will of Parliament, it is in my judgment equally impossible to treat the Government’s expectations as reflecting the will of Parliament. We are all too familiar with statutes having a contrary result to that which the Government expected through no fault of the courts which interpreted them.

The Explanatory Notice is helpful in that it confirms that the principal purpose of these provisions is to achieve the aim identified by the former Lord Chancellor when he gave his reasons for setting the discount rate mentioned in s 1 of the 1996 Act at 2.5% on 27^th July 2001. He quoted this passage from the speech of Lord Hope in Wells v Wells [1999] 1 AC 345, 390A-B:

This is merely an updated restatement of what Lord Blackburn said in Livingstone v Rawyards Coal Company (1880) 5 App Cas 25, 39, when he spoke of the

Mr Pooles also urged us to take into account the contents of the Regulatory Impact Assessment (“RIA”) which accompanied this part of the Courts Bill when it was presented to Parliament. This, too, reflects the Government’s expectation of the effect of the Act. Whatever may be the merits of such a document in a different context, it is in my judgment of no value at all when the provision with which we are concerned was introduced by amendment at a late stage of the Bill’s passage through the House of Lords, and when no reference at all was made to indexation either in the RIA or in the departmental consultation paper that preceded the introduction of the Bill.

We were also encouraged to take into account recent history surrounding the identification of the appropriate discount rate for the purpose of calculating lump sum awards in personal injury cases and the July 2001 statement by the Lord Chancellor (see para 18 above). Carnwath LJ’s judgment in Cooke v United Bristol Healthcare NHS Trust [2003] EWCA Civ 1370 at [48]-[56]; [2004] 1 WLR 251 provides a valuable summary of the history that led up to the enactment of the 1996 Act. In short, the view of the House of Lords in Cookson v Knowles [1979] AC 556 and Lim Poh Choo v Camden & Islington AHA [1980] AC 174, namely that inflation was best left to be dealt with by investment policy, was succeeded by the view of the Law Commission in its 1994 report on Structured Settlements and Interim and Provisional Damages (Law Com No 224) that courts should be obliged to take into account the net return on an Index-Linked Government Security (“ILGS”) when determining the rate to be expected from the investment of a sum awarded as damages for future pecuniary loss. This in turn was superseded by the decision of Parliament that the rate of return prescribed by an order made by the Lord Chancellor should be definitive for this purpose (s 1(1) of the 1996 Act, subject to the exception provided for in s 1(2) which we were told is for all intents and purposes treated as a dead letter today).

Wells v Wells [1999] 1 AC 345 was decided before the Lord Chancellor exercised his new statutory power for the first time. In Warriner v Warriner [2002] 1 WLR 81; [2002] 1 WLR 1703 Dyson LJ summarised the main effect of that decision and cited passages from three of the speeches in the House of Lords at paras 28-30. The flavour of what he said can be derived from para 28 of his judgment:

The need for some fairer system for awarding damages for future pecuniary loss was signalled by Lord Steyn in his speech in Wells v Wells at p 384 A-E:

The passages from the Lord Chancellor’s 2001 statement that were quoted by Laws LJ in para 19 in his judgment in Cooke show that the Lord Chancellor decided to seek to set a discount rate which would satisfy the legal principle already laid down authoritatively by the courts, particularly in Wells v Wells. He was keen to set a single fixed rate which was easy for everyone to apply in practice. Because experience showed that it was probable that nobody in fact invested their award solely in ILGS, and because claimants’ advisers were unlikely to advise their clients to invest primarily in those securities, the Lord Chancellor considered that it was reasonable to postulate claimants investing in a mixed portfolio in which investment risks would be managed so as to be very low.

When rejecting an attempt to adduce expert evidence to the effect that future care costs would be grossly underestimated if the effect of inflation were only built into the multiplier by means of the Lord Chancellor’s discount rate and the multiplicand was based on current costs at the date of trial, Laws LJ spoke in his judgment in Cooke at para 29 of

At para 31 he reported that if a single discount rate was taken across the board, as had been done by the Lord Chancellor’s order, the full compensation principle would only be achieved in a rough and ready way, since actual rates of inflation would differ between different sectors. At para 32 he said that even if the present appellants stood to suffer very substantial shortfalls, this could not amount to a proper basis for allowing their appeals to prosper, because the court was obliged by ordinary constitutional principles to act conformably with the discount rate set by the Lord Chancellor.

This brief summary of the recent history of the discount rate used for the purpose of calculating lump sum awards for future pecuniary loss is sufficient to show that an award of a lump sum is entirely different in character from an award of periodical payments as a mechanism for compensating for such loss. When setting the appropriate discount rate in the context of a lump sum award the House of Lords or the Lord Chancellor had to guess the future and to hope that prudent investment policy would enable a seriously injured claimant to benefit fully from the award for the whole of the period for which it was designed to provide him/her with appropriate compensation.

A periodical payments order is quite different. This risk is taken away from the claimant. The award will provide him or her year by year with appropriate compensation, and the use of an appropriate index will protect him/her from the effects of future inflation. If he or she dies early the defendants will benefit because payments will then cease. It is unnecessary in the context of this statutory scheme to make the kind of guesses that were needed in the context of setting a discount rate. The fact that these two quite different mechanisms now sit side by side in the same Act of Parliament does not in my judgment mean that the problems that infected the operation of the one should be allowed to infect the operation of the other. There is nothing in the statute to indicate that in implementing s 2 of the 1996 Act (as substituted) Parliament intended the courts to depart from what Lord Steyn described in Wells v Wells at pp 382H-383 B as the “100% principle”, namely that a victim of a tort was entitled to be compensated as nearly as possible in full for all pecuniary losses (see also paras 18-19 above).

For this reason I reject the argument that in enacting s 2(8) and 2(9) of the 1996 Act Parliament must be taken to have intended to provide compensation lower than that which would be awarded through adherence to the 100% principle if a periodical payments order was to be made. For the same reason I reject the argument that the courts should consider questions of affordability when determining what order to make because, as Lord Steyn said in Wells v Wells at pp 383B – 384A, policy arguments based on affordability are a matter for Parliament and not for the courts. It is true that in Heil v Rankin [2001] QB 272 this court took into account questions of affordability at para 95 when determining what amount for general damages, for pain, suffering and loss of the public would perceive as fair, reasonable and just. There is no material, however, on which a court could safely rely in deciding whether the public would perceive it to be fair, reasonable and just for compensation for future pecuniary losses to be reduced simply on affordability grounds. It would have been easy for Parliament to decree that this should be so (and to be willing to incur the accompanying political odium for doing so) but there is no evidence in the language of s 2 of the 1996 Act that this was Parliament’s intention.

Mr Pooles also pointed out that under the law as it now stands an annuity provider is bound to hold close-matching securities, of which ILGS are the most obvious example. This is why representatives of claimants have traditionally favoured RPI or RPI plus a fixed percentage because ILGS are linked to RPI. It appears to me that arguments of this kind are best left to a trial at which a judge can hear evidence from both sides before deciding what order it would be fair and appropriate to make. The regulations now made under the Insurance Companies Act 1982 and the Financial Services and Markets Act 2000 may change as new AEI related instruments are devised, and in my judgment it would be quite wrong to interpret the 1996 Act as being immune to future changes of this kind. In any event it appears that the defendant’s insurance company, like a Government agency, carries out a self-funding policy in relation to periodical payments orders. So long as the court is satisfied that the continuity of payment under the order is reasonably secure, whether by one of the means identified in s 2(4) or otherwise, the order may lawfully be made. In contrast, if the court is not so satisfied, the order may not be made (see s 2(3)).

In the same way, arguments that a simple application of the AEI may over-compensate workers in the lowest quartile of average earnings and may under-compensate workers in the highest quartile are more appropriately left to a trial at which a judge can consider all the evidence before deciding what order it is fair and reasonable to make.

Mr Pooles expressed forensic concern about the prospect of trials at which a host of expensive expert witnesses would have to be called on each side while the court was exploring the merits, if any, of using an index other than RPI. He reminded us of what Stuart Smith LJ said in Warren v Northern General Hospital NHS Trust [2000] 1 WLR 1404 at para 13 about the undesirability of extensive evidence from accountants, actuaries or economists. This judicial comment was made, however, in a quite different context, in the period after Wells v Wells when people were waiting for the Lord Chancellor to use his statutory power to fix a discount rate for the calculation of lump sum awards.

We are now dealing with a different statutory provision and, if the experience of the past is any useful guide, it is likely that there will be a number of trials at which the expert evidence on each side can be thoroughly tested. A group of appeals will then be brought to this court to enable it to give definitive guidance in the light of the findings of fact made by a number of trial judges. The armies of experts will then be able to strike their tents and return to the offices or academic groves from which they came.

There was, in my judgment, considerable force in Mr Glancy’s submission that if the court were to adopt an approach to the interpretation of s 2(8) and 2(9) which was different to that which he advanced there would be a very real danger that this new statutory scheme would not have the beneficial effect identified by Lord Steyn in Wells v Wells but would be rendered to a great extent a dead letter. If it is ordered that the whole of the damages for future pecuniary loss are to take the form of periodical payments, then the claimant will lose the facility of an investment policy that may extinguish the baneful effect of a discount rate that ultimately derives from calculations based on RPI. While there was some evidence that courts were now making orders that represented a mix of a lump sum and periodical payments, the greater the periodical payment content of the award, the more likely it is, on the assumptions on which the court conducted this appeal, that the claimant’s inability to invest a significant part of his award will lead him to be seriously under-compensated as the years wear on.

There is no evidence that this was Parliament’s purpose, and we should not go down that interpretive path if there is any other that is reasonably open to us. (For the importance of purposive interpretation see R (Quintavalle) v Health Secretary [2003] UKHL 13; [2003] 2 AC 687 per Lord Bingham at para 8 and Lord Steyn at para 21.) The court must not, as Lord Bingham put it, frustrate the will of Parliament under the banner of loyalty to that will, and neglect the purpose which Parliament intended to achieve when it enacted the statute:

Sir Michael Turner ended his judgment in these terms:

The members of this court do not have Sir Michael’s unrivalled experience of personal injuries litigation. While I would be readier than he was to consider the defendant’s application to be properly made (based as it was on the defendant’s advisers’ belief that the courts would interpret s 2(8) along the lines so forcefully advocated by Mr Pooles) there is very great force in what he said in the remainder of this powerfully expressed passage. At all events, I agree with him that the claimant should be allowed to advance his statement of case and adduce Dr Wass’s evidence at the trial of this action. It will then be for the trial judge to decide whether it is appropriate to use the powers given to him by Parliament in s 2(9) and to make such order for index-linking the periodical payments (if a periodical payments order is in fact made) as he considers appropriate and fair in all the circumstances, without being obliged to detect exceptional circumstances before he is at liberty to depart from the RPI.

For all these reasons I would dismiss this appeal.

I agree.

I also agree.