[2012] UKPC 5

Privy Council Appeal No 0064 of 2011

JUDGMENT

DYLAN SIMON

(Appellant)

v

MANUEL PAUL HELMOT

(By his next friends and guardians ROSEMARY

HELMOT and KENNETH RAYMOND JORDAN)

(Respondent)

From the Court of Appeal of Guernsey

before

Lord Hope

Lady Hale

Lord Brown

Lord Clarke

Lord Dyson

JUDGMENT DELIVERED BY

LORD HOPE

ON

7 March 2012

Heard on 25 January 2012

Appellant Respondent

Alistair Schaff QC James Dingemans QC

Bernard Doherty Gordon Dawes

(Instructed by Alan Taylor

& Co)

(Instructed by Mourant

Ozannes)

Page 1

LORD HOPE:

1. The respondent in this appeal, Manuel Paul Helmot, sustained very serious

injuries in November 1998 when he was struck by a car driven by the appellant

while he was riding his bicycle. They were injuries of the kind that are normally

classified as injuries of the maximum severity. Liability was admitted as soon as

the respondent’s claim for damages was notified to the insurers, and contributory

negligence was not pursued against him. The issues between the parties related

only to the quantum of damages.

2. As is common in such cases, these issues were complex and difficult. The

appellant’s insurer agreed to prescription of the respondent’s claim being extended

indefinitely, no doubt in the hope that it might be possible to achieve agreement as

to the amount of the award. This proved not to be possible, so that the extended

period was brought to an end in July 2008. Proceedings were issued in the Royal

Court on 1 August 2008. Among the issues that the Court had to determine was

the amount to be awarded for the losses that the respondent would incur in the

future. They included his loss of earnings, but the most significant element was

his claim for his future care and case management.

3. The respondent’s injuries included severe brain damage resulting in

psychiatric injury and cognitive impairment including severe short term memory

loss. He also sustained partial loss of vision and loss of control of his right arm.

He will never be able to work again, and he will require specially adapted

accommodation and 24-hour care for the rest of his life. He was 28 years old at

the time of the accident and 39 at the time of the judgment. His expectation of life

has been reduced by 5 years from the normal figure for life expectancy for a man

of his years of 45.9 years. Even with that reduction he has many years ahead of

him during which the constant care and attention that he needs will require to be

paid for.

4. The case proceeded to trial in October and November 2009 before Deputy

Bailiff Collas and three Jurats. On 14 January 2010, after a hearing which lasted

for six weeks, the Royal Court awarded the respondent damages in the sum of

£9,337,852.27, with interest at the rate of 2% from 1 August 2008 until payment.

The respondent had contended that two discount rates should be used for the

calculation of his future recurring losses: 0.5% for non-earnings related losses and

-1.5% for earnings related losses, including his own loss of earnings. The

appellant’s contention was that there should be single discount rate of 2.5%. The

Royal Court applied a single discount rate of 1%.

5. On 12 February 2010 the respondent filed a notice of appeal in which he

asked that the judgment of the Royal Court should be set aside to the extent that it

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depended upon a discount rate of 1% and that it should be re-calculated based

upon discount rates of -1.5% for earnings related losses and 0.5% for other losses.

On 25 February 2010 the appellant filed a cross-appeal in which he contended that

the judgment of the Royal Court should be set aside and that a single discount rate

of 2.5% should be substituted. On 14 September 2010 the Court of Appeal

(Sumption, Jones and Martin JJA) allowed the appeal and dismissed the cross-

appeal. In place of the 1% discount rate that had been applied to all future losses

by the Royal Court it substituted a discount rate of -1.5% for earnings related

losses and 0.5% for other losses. These changes may seem small in percentage

terms, but the effect of the Court of Appeal’s judgment was to increase the total

award of damages by about £4.5m. On 22 July 2011 the Court of Appeal granted

leave to appeal to the Board.

6. As the Court of Appeal said at the outset of its judgment, the issues on this

appeal can be understood only in the light of the developing law and practice of

the courts in England and Wales: para 4. The English common law has persuasive

force in Guernsey in areas not governed by Guernsey statutes or Guernsey

customary law, in much the same way as it has in Scotland. In Morton v Paint

(1996) 21 GLJ 61, which was a case about occupiers’ liability, Southwell JA said

that it was common ground that in relation to the law of torts it has been customary

for the Guernsey courts to adopt English common law as it has been developed by

the English courts. The law relating to the assessment of damages for personal

injury is one of the areas in which there has been a large volume of litigation in

England. Here too it is a source that may legitimately be referred to in the search

for answers to problems that the bailiwick has not previously encountered.

7. This is not to say that the solutions that have been adopted in English law

will be applied in Guernsey without an inquiry as to whether the underlying

conditions in the respective jurisdictions are truly comparable. There is no reason

why a discount rate calculated in accordance with English common law principles

should not be adjusted in order to take account of differences between the two

jurisdictions, as the Deputy-Bailiff accepted when delivering the judgment of the

Royal Court, para 182. But before that stage is reached it is appropriate to focus

on the English approach.

8. There is however one important difference which has to be noted at the

outset. Section 2(1) of the Damages Act 1996 provides that a court awarding

damages in an action for personal injury may, with the consent of the parties, make

an order under which the damages are wholly or partly to take the form of

periodical payments. It gave effect to a recommendation by the Law Commission

in its report on Structured Settlements and Interim and Provisional Damages

(1994) (Law Com No 224) (Cm 2646). Among its recommendations was that there

should be no judicial power to impose a structured settlement on the parties: see

paras 3.37-3.53. But a power to do this was introduced by section 100(1) of the

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Courts Act 2003. In place of the requirement for consent it substituted a new

section 2, which provides that the court may order that the damages are wholly or

partly to take the form of periodical payments. Power to increase or reduce these

payments was conferred by the Damages (Variation of Periodical Payments) Order

2005 (SI 2005/841). The new section 2 applies to England and Wales and

Northern Ireland: see section 100(4) of the 2003 Act. It does not apply to

Scotland, but in D’s Parent and Guardian v Greater Glasgow Health Board

[2011] CSOH 99, 2011 SLT 1137, para 52 Lord Stewart suggested that it would be

helpful to have the same provision in Scotland too. section 2 of the 1996 Act, as

originally enacted, extended to the whole of the United Kingdom: see section 8(2)

of that Act. But like the rest of the statute law of the United Kingdom it has no

direct application in Guernsey.

9. There can be no objection in principle to the parties agreeing to structure

the damages in such a way as to enable future costs to be met by a series of

periodic payments which are adjusted by reference to an agreed index to take

account of inflation. But what Guernsey lacks is the legislative framework which

a court needs to make an order to that effect, or at least to order payment in terms

of the agreement so that it can be enforced without further recourse to the courts.

Experience of the operation of the amended section 2 of the 1996 Act in practice

suggests that this is a reform that Guernsey too might usefully adopt for use in

cases of this kind. For the time being however it is the way English law dealt with

such cases before the 1996 Act was enacted that should be referred to for

guidance. It is the closest one can come to the system that currently operates in

Guernsey.

The assessment of future loss in English law

10. Leaving aside the changes introduced by statute, English law requires that

an award of damages must take the form of a single lump sum. The award has to

take account of all the elements of future loss as well as all the loss for the past.

The inevitable delay in the provision of compensation for past losses can be made

good by an award of interest at the appropriate rate on those parts of the lump sum

that relate to the past. But the payment as part of the lump sum of an amount that

is to compensate for losses to be incurred in the future gives rise to a different

problem. Account must be taken of the fact that the money is being paid now for

losses that will not arise until some date in the future. The adjustment that has to

be made to the lump sum to account for this will affect the total amount to be paid

by way of damages.

11. In the majority of cases this is unlikely to have a very large impact on the

total award. But in cases where the injury is one of maximum severity the lump

sum is already so large that it will make a very great difference to the result. It can

Page 4

make all the difference between the adequacy and the inadequacy of the award to

meet the losses which the injured party will sustain in the future. It can make all

the difference too to the extent of the defendant’s obligation to compensate the

plaintiff for his injury. 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 in before the accident. They should not be left, at the

end of the period during which the loss is to continue, in a better financial position

that they would have been in apart from it: Hodgson v Trapp [1989] AC 807, 826

per Lord Oliver of Aylmerton. 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: Wells v Wells

[1999] 1 AC 345, 390.

12. It has to be recognised that it is not possible, when dealing with losses that

will be incurred in the future, to achieve perfect accuracy. As Lord Steyn said in

Wells v Wells at p 383, perfection in the assessment of future compensation is

unattainable. But, just as there can be no good reason for a shortfall in the amount

required to meet the outlays for nursing care in the future, there can be no reason

for requiring the defendant to pay more than is needed to compensate the injured

party for these outlays. It follows that the calculation should make the best use of

such tools as are available.

13. The conventional approach, as Lord Oliver explained in Hodgson v Trapp

at p 826, is to assess the amount that is notionally required to be laid out in the

purchase of an annuity which will provide the annual amount that is needed for the

whole period of the loss. The recurring annual amount has first to be determined.

This is the multiplicand, to which a multiplier is then applied. It is the selection of

the multiplier that lies at the heart of the dispute in this case. It has to take account

of the period for which the loss can be expected to continue. If, as in this case, the

injuries are of the maximum severity this will be the injured party’s life

expectancy. But one then has to determine the interest rate which represents the

return which can reasonably be expected on the lump sum, assuming that it is

invested in such a way as to enable the whole amount of the loss to be met during

the entire period by the expenditure of income together with capital. This is the

critical stage in the exercise. The higher the interest rate the lower the number of

years’ purchase that is required to calculate the capital value of the annuity.

14. It has been assumed until very recently that it will be possible to achieve a

rate of return on capital which will more than offset the effects of inflation on the

amount of the award. This has led to the assumption that the choice of interest rate

will always take the form of a discount for the accelerated receipt of the lump sum.

One of the issues in this case is whether the law allows the court to adjust the lump

sum in the other direction if the evidence shows that the rate of inflation will

outpace the rate of return on capital, as the Court of Appeal did in this case in

regard to the losses that must keep pace with the rate of inflation for earnings in

Page 5

Guernsey if the respondent is to be fully compensated. The effect of such an

adjustment is to increase, rather than reduce, the number of years used as the

multiplier. The use of the word “discount” is not an apt way of describing that

exercise. But in principle there can be no objection to such an adjustment if the

evidence shows that it is needed to ensure that the lump sum will continue to be

large enough to meet losses to be incurred in the future. Otherwise the effects of

accelerated receipt, which are inevitable where the award is by means of a lump

sum, will not be properly recognised.

15. Prior to the decision of the House of Lords in Wells v Wells it was thought

that it was not too difficult to find a sufficiently reliable guide to the rate of return

that could be expected to be obtained on the lump sum if it were to be invested

sensibly in a mixed basket of gilts and equities. This was reflected in the

conventional assumption that a discount rate of 4 to 5% would be appropriate. In

times of high inflation the rate of interest that can be earned by the prudent

investor tends to be higher too, as interest rates have to provide for inflation as

well as the return that the investor or depositor requires for foregoing the use of his

money. But in Mallett v McMonagle [1970] AC 166, 176 Lord Diplock said that

the courts should leave out of account the fear of inflation on the one hand and the

high interest rates which reflect the fear of it and the capital appreciation which is

the consequence of it, on the other. In Cookson v Knowles [1979] AC 556, 571-

572 he adhered to this approach and at pp 576-577 Lord Fraser of Tullybelton

endorsed it. Lord Diplock said that inflation was taken care of in a rough and

ready way by the higher rates of interest obtainable as one of the consequences of

it, and that no other practical basis of calculation had been suggested that was

capable of dealing with so conjectural a factor with greater precision.

16. The opportunity for greater accuracy in the selection of the discount rate

was provided by the introduction in 1981 of index-linked government securities

(“ILGS”). This made it possible to match the receipts from the investment of a

lump sum almost precisely to the sum needed to compensate by way of a lump

sum for costs to be incurred in the future that were of the same kind as those to

which the rise in value of ILGS was linked by the index. In 1984 the first edition

of the Ogden Tables (entitled “Actuarial Tables with explanatory notes for use in

Personal Injury and Fatal Accident Cases”), which had been prepared by the

Government actuaries’ department and compiled by a working party chaired by

Michael Ogden QC, was published. It contained an invitation to practitioners to

cease using the traditional multipliers which assumed a discount rate of 4 to 5%

and use instead multipliers based on the assumption that funds would be invested

in ILGS discounted at a rate of between 2.5 and 3.5%. In O’Brien’s Curator Bonis

v British Steel plc 1991 SC 315 an attempt was made to persuade the Court of

Session to adopt those rates in the choice of multiplier for the calculation of the

award to be made to a pursuer who had been so severely injured that he required

care for the rest of his life. By the date of the hearing of the appeal interest rates

Page 6

that could be obtained on ILGS had risen to about 4%, so it was conceded that the

argument that a lower discount rate should be adopted was not sustainable.

17. In each of the three cases which were before the House of Lords in Wells v

Wells [1999] 1 AC 345 the Court of Appeal had applied a discount rate of 4.5% in

calculating the lump sum. The House held that the lump sum should be calculated

on the basis of the return available on ILGS. As Lord Lloyd of Berwick explained

at pp 375-376, he took the average of the gross redemption yield over a period of

12 months and allowed for the incidence of tax on the income element in the

investment. This resulted in a figure of 3%, which he regarded as the appropriate

rate of return for the cases that were currently before the House. He noted that

section 1 of the Damages Act 1996 had given power to the Lord Chancellor to

prescribe the rate of return that was to be expected from the investment of a lump

sum award, but that no rate had yet been prescribed. Acknowledging that it was

for the House to set guidelines to replace the old 4 to 5% bracket until the Lord

Chancellor specified a new rate under that section, he proposed that 3% should be

adopted as the rate for general use until he did so.

18. There was a difference of view as to whether the average should be derived

from the average over a period of 12 months, as Lord Lloyd preferred, or three

years as the other members of the Appellate Committee thought was more

appropriate. The result was the same, on the figures that were then available. But

it was acknowledged that the figure of 3% should not be regarded as immutable.

Lord Steyn said at p 388 that only a marked change in economic circumstances

should entitle any party to re-open the debate in advance of a decision by the Lord

Chancellor, as did Lord Hutton at p 404. I said at p 393 that adjustments might

have to be made to that rate in the light of significant changes in the yield on ILGS

in the future, but that these changes should be left to the Lord Chancellor: see also

Lord Clyde at p 397. In Warren v Northern General Hospital NHS Trust (No 2)

[2000] 1 WLR 1404 it was noted that the gross return had dropped from 3.53% at

the time of Wells to 2.84%, but the Court of Appeal refused to depart from the

guideline of 3%. Stuart-Smith LJ said at p 1408 that the need for certainty to

facilitate settlements coupled with the undesirability of extensive evidence from

accountants, actuaries or economists with a view to persuading courts to change

the discount rate militated strongly against any court seeking to do so before the

Lord Chancellor had acted under the statute.

Developments since Wells v Wells

19. On 28 June 2001 by the Damages (Personal Injury) Order 2001 (SI

2001/2301) the Lord Chancellor, Lord Irvine of Lairg, fixed the rate of return for

England and Wales and Northern Ireland at 2.5%. By the Damages (Personal

Injury) (Scotland) Order 2002 (SI 2002/46) the Scottish Ministers fixed the same

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rate for use in Scotland. On 27 July 2001, in the light of criticisms that he had

relied on inaccurate figures as to the yield on ILGS, the Lord Chancellor issued a

fresh decision which again set the rate at 2.5%.

20. The Lord Chancellor said, in a statement of his reasons for that decision,

that in determining the discount rate he had applied the appropriate legal principle

as to the object of the award of damages laid down in Wells v Wells. Although the

statute empowered him to fix different rates of return for different classes of case,

he had decided upon a single rate to promote certainty and because it would be

easy to apply in practice. It was not his intention to make frequent changes to take

account of every shift in market conditions. He had regard to the principle laid

down in Wells v Wells that the assumed rate of return should be based on the yield

of ILGS. He found that the average of the gross redemption yields of ILGS over a

period of three years at an assumed rate of inflation of 3% was 2.46%.

Discounting for tax payable in the hands of a UK taxpayer reduced this figure to

2.09%. Noting that the intervals used in the Ogden Tables for the calculation of

the multiplier was 0.5%, he chose not to round his figure down to the nearest

multiple which was 2% but to round it up to 2.5%. As the Court of Appeal noted

in para 10 of its judgment, his only explanation for that decision was that he had

taken account of matters which he considered were relevant to the setting of a

discount rate which was just as between claimants as a group and defendants as a

group.

21. He made it clear in his statement that he did not accept that the rate of

return on ILGS was a pure and undistorted measure of the real rate of return that

markets would afford in relation to investments with minimal risk. He had had

regard to the fact that the Court of Protection had continued, even in the light of

Wells v Wells, to invest in multi-asset portfolios including an equity element

although the House of Lords in Wells v Wells had chosen not to be guided by its

practice. This indicated that there were sensible, low-yield investment strategies

available to claimants which would enable them to achieve a rate of return at 2.5%

or above without being unduly exposed to risk in the equity markets. He also said

that he had taken account of the fact that it was likely that claimants would not be

advised to invest solely in ILGS but rather in a mixed portfolio in which any risk

would be managed so as to be very low. This view was supported by the

experience of the Court of Protection and the response of the expert financial

analysts whom he had consulted.

22. The Lord Chancellor’s determination was criticised at the time as being too

favourable to defendants. Section 1(2) of the Damages Act 1996 provides that the

fixing of a rate by the Lord Chancellor shall not prevent the court taking a different

rate of return if any party to the proceedings shows that it is more appropriate in

the case in question. But attempts to persuade the courts to take a fresh look at the

issue did not meet with success. In Warriner v Warriner [2002] EWCA Civ 81,

Page 8

[2002] 1 WLR 1703 the Court of Appeal held that this would only be appropriate

if the case came into a category that the Lord Chancellor had not considered or had

special features or circumstances and that, as there was nothing in the facts of the

case of that character, the claimant should not be permitted to adduce expert

evidence as to the appropriate multiplier. In Cooke v United Bristol Heathcare

NHS Trust [2003] EWCA Civ 1370, [2004] 1 WLR 251 the Court of Appeal held

that evidence that the effect of inflation on 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 amounted to an illegitimate assault

on that rate and on the efficacy of the 1996 Act and should not be admitted. Laws

LJ said in para 29 that it was a premise of the Lord Chancellor’s order that the

effects of inflation in claims for future loss were to be catered for solely by use of

the multiplier which was conditioned by the discount rate.

23. No fresh determination has been made under section 1(1) of the 1996 act

since the Orders of 2001 and 2002. But section 100(1) of the Courts Act 2003

gave power to the courts in England and Wales to award damages by way of

periodical payments of their own motion in cases where the parties had not been

able to agree to this. There are now several examples of the way this provision is

being applied in practice. In Flora v Wakom (Heathrow) Ltd [2006] EWCA Civ

1103, [2007] 1 WLR 482 the Court of Appeal held that the claimant should be

allowed to lead the evidence of an expert that the index to be applied to any

periodical payments order that might be made should be a wage-related index to

avoid a shortfall that would result if the periodic payments were linked to the retail

prices index which historically wage inflation had outstripped.

24. In Sarwar v Ali [2007] EWCA 1255 (QB) Lloyd Jones J, applying the

principle of full compensation, sometimes known as the 100% principle, described

in Wells v Wells [1999] 1 AC 345, 390, held that the annual sum which he awarded

under a periodical payments order was to be indexed each year by reference to the

index known as ASHE 6115 for care assistants and care workers. That is not an

index as such, but an annual survey of hours and earnings for that occupational

classification which can be used to track care and case management costs. A

challenge to this approach in Thompstone v Tameside and Glossop Acute Services

NHS Trust [2008] EWCA Civ 5, [2008] 1 WLR 2207 was rejected. It should be

noted however, as Waller LJ explained in para 61, that when the court is making a

periodic payment order under section 2 of the 1996 Act, there is neither a

multiplicand nor a multiplier. There is an annual sum which is to be indexed each

year under section 2(8) by reference either to the retail prices index or as modified

under section 2(9) for so long as the claimant lives or reaches a particular age. The

annual figure forms the base of a periodical payment which is infinitely variable to

keep pace with the effects of inflation.

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25. 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 the child’s lifetime. He did not have power to

award damages by way of a periodical payments order as he was sitting in

Scotland, but he took the opportunity to explain the details of the structured

settlement to which he was asked to give effect. Following recent precedents in

England which had been reported in the Association of Personal Injuries

newsletter, the periodical payments were split into two parts. One, which

amounted to roughly 90% of the total, related to the care costs accounted for by

care staff. Those costs were to be index linked to ASHE 6115. The other part

related to the part of care costs accounted for by nursing staff. They were to be

index linked to ASHE 3211: see paras 34 and 49. It is worth noting Lord

Stewart’s comments in paras 26-31 on the question whether a system of periodical

payments is suitable for use in all cases. He suggested that claimants might

continue to opt for a lump sum in cases where there is a deduction for contributory

negligence. But it should be appreciated that this may operate to their

disadvantage if they are tied to the discount rate fixed under the statute.

The position in Guernsey

26. Statutes of the United Kingdom Parliament may relate to the bailiwick,

either because they are expressed to apply there directly or upon the making of a

subsequent Order in Council or ministerial order: Jersey Fishermen’s Association

Ltd v States [2007] UKPC 30, [2007] GLR 36, para 1. But the Damages Act 1996

is not one of them, and it has no equivalent in the laws of Guernsey. Guernsey law

and English law both accept that the injured party is entitled to be provided with a

sum of money which will put him in the same position as if he had not sustained

the wrong for which he is to be compensated. But there is no provision in

Guernsey for the award of damages for personal injury other than by way of a

lump sum. And there is no statutory discount rate. Regard may be had to the

common law of England for guidance as to how to adjust the present value of a

lump sum to allow for the fact that it is to be paid now to cover losses that will be

incurred in the future. The common law which is relevant is that which was

analysed and developed in Wells v Wells. Significant changes in the yields on

ILGS would justify adopting a different rate from that which was adopted in that

case. But decisions about the effect of the 1996 Act or its application have no

bearing on the way the lump sum is to be calculated according to Guernsey law.

27. It is common ground that there are other factual differences too. They were

listed by the Court of Appeal in para 14 of its judgment. First, the rate of inflation

within the bailiwick has been fairly consistently about 0.5% higher than in the UK

RPI which is tracked by ILGS. This state of affairs can be expected to continue.

Second, income tax rates are lower in Guernsey than those that are payable by

persons ordinarily resident in the UK. This means that the net yield of ILGS to a

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Guernsey resident will be different from that which will be enjoyed by a person

holding the same securities who is taxable in the UK. Third, the statistical

information which is available to track the movement of prices and earnings is

more limited for Guernsey than it is for the UK. For that reason at least, it is less

reliable. These factual differences are all capable of being accommodated by

adjustments to the calculation of the award that would be appropriate if this case

was being decided in England. There is nevertheless a fundamental difference

between the parties as to the rate of return that should be used to arrive at the

discount rate which will determine the appropriate multiplier.

The evidence of the respondent's expert witnesses

28. The appellant’s case in the Royal Court was that Guernsey courts should

follow and apply the single discount rate which had been set by the Lord

Chancellor. The respondent’s case was that the Lord Chancellor’s rate was too

low and that its adoption would result in his being undercompensated. In the

absence of any Guernsey legislation establishing a discount rate for the Island and

any judicial decisions in this jurisdiction, the Court should set an appropriate rate

following the approach of the House of Lords in Wells v Wells which had regard to

the current rate of return on ILGS, and it should employ two multipliers: one for

earnings related losses and the other for costs that were not earnings related.

29. The respondent’s case was developed by the leading of evidence from three

witnesses: Rowland Hogg, a chartered accountant; Roger Bootle, an economist;

and Christopher Daykin, an actuary. Their credentials for giving evidence were, as

the Court of Appeal observed in para 41 of its judgment, as impressive as they

could possibly have been. Mr Hogg is a forensic accountant who has made a

special study of the problems associated with the assessment of damages in cases

of this type. He has given evidence in several such cases in England, including

two of those that were under appeal in Wells v Wells. Mr Bootle is a professional

economist and the author of numerous publications on the subject, including the

impact of inflation on investment strategy. Mr Daykin was the Government

Actuary for the United Kingdom from 1989 to 2007. He was consulted in that

capacity by the Lord Chancellor when he was fixing his discount rate in 2001 and

was responsible for preparing the second to sixth editions of the Ogden Tables. He

has also advised the Social Security Department of the States of Guernsey on the

funding of long term benefits.

30. Mr Hogg’s conclusions as to the appropriate discount rate were summarised

in para 3.8 of his Supplementary Report of 30 April 2009, in which he confirmed

the views that he had expressed in his Report of 23 January 2009. Those

conclusions were as follows:

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“i) The starting point in assessing the discount rate for Guernsey

should be yields from ILGS and I consider that the appropriate yield

before tax is 1.25% (January report para 5.16),

ii) after allowing for Guernsey tax this would be reduced to 1% (para

5.19),

iii) higher inflation in Guernsey than in the UK reduces this to 0.5%

(para 5.24) which is my proposed basic discount rate (para 5.30),

iv) for earnings-related losses there should be an additional

allowance for the faster growth rate of earnings compared with

prices. I propose a deduction of 2% to minus 1.5% (para 5.33) as the

discount rate for such losses, which include future costs of care.”

31. Mr Bootle had been asked to answer two specific questions posed by Mr

Hogg. These were

“(i) What is the likelihood and extent of any divergence between the

inflation rates in Guernsey and the United Kingdom;

(ii) What is the extent of the likely future gap between the growth of

Guernsey average earnings and Guernsey inflation.”

He summarised his overall conclusions in paras 33-34 of his report of 13 October

2006. They were as follows:

“33. Based on general theoretical principles and observations over

recent years, assuming that the monetary link with the UK is

retained, I would regard ½ % p a on average as the best working

assumption for the extent that Guernsey inflation might exceed UK

inflation over periods of 15 years or more. But there will be

considerable variation from year to year. It would be possible for the

average gap to be zero, or even slightly negative. A gap as large as

1% would be possible, but not likely.

34. I would regard 2% on average as the best working assumption

for the excess of Guernsey average earnings growth over Guernsey

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inflation over periods of 15 years or more. But again there will

probably be considerable variation from year to year. The average

figure could be as low as 1% or as high as 3%.”

In an Addendum Report of 15 May 2009 he said that more recent published data

from the UK and Guernsey had done little to alter the picture that he had painted in

his report of October 2006, and that he stood by the general conclusions that he

had reached then.

32. Mr Daykin referred in section 2 of his report of 6 May 2009 to the actuarial

approach to the evaluation of loss of income and future costs, to which additional

rigour had been introduced by the Ogden Tables. In para 2.3 he said that an

actuary would approach the decision as to the appropriate discount rate by

determining a risk-free rate of return, having regard to the yields available in the

market on suitable very low-risk financial instruments which could produce cash

flows similar to those which have to be valued and that the most appropriate

securities would be UK ILGS. In para 2.8 he said that, taking the one-year average

of ILGS with more than 15 years to maturity and allowing for an 11.4% deduction

for tax as proposed by Mr Hogg, the resulting discount rate was 0.86% and that,

before adjustment for the differential between Guernsey inflation and UK

inflation, it should certainly not be more than 1% per annum. In para 2.9 he said

that he agreed with Mr Hogg and Mr Bootle that a reasonable allowance to make

for the future differential between Guernsey inflation and UK inflation was 0.5%,

so the adjusted discount rate for determining the multipliers in Guernsey should be

no more than 0.5% (ie 1.0% less 0.5%). In para 2.11 he said that in his reports to

the Guernsey Social Security Department over a number of years he considered

that an appropriate assumption for real earnings growth in Guernsey was 2% per

annum and that he still believed this to be an appropriate assumption. In para 2.12

he said that heads of damages which were considered to be likely to go up in line

with Guernsey price inflation should be valued using a multiplier based on a

discount rate of no more than 0.5%. per annum. Heads of damages relating to

cash-flows likely to go up in line with earnings in Guernsey, such as loss of

earnings or costs of care, should be valued using a multiplier based on a discount

rate of no more than -1.5%.

33. Mr Hogg, Mr Bootle and Mr Daykin all gave evidence. The scope for

challenging their conclusions was limited. This was because the appellant’s case

was simply that the court should apply the discount rate fixed by the Lord

Chancellor. His only expert witness was a forensic accountant, Mr Gregory. In

para 3.1 of his report dated 2 September 2009 he said that he agreed with Mr Hogg

on the following:

“i. the yields that he has calculated on ILGS;

Page 13

ii. in the UK earnings inflation has been historically at a greater rate than

price inflation;

iii. the restricted statistical evidence available suggests historical earnings

inflation in Guernsey is running at a greater than Guernsey price inflation;

iv. the method followed by Mr Hogg in calculating the three year yields on

ILGS is in accordance with the method set down in Wells.”

In para 3.10 he said that Mr Hogg had correctly calculated the average yields on

ILGS for one year and the three year averages. In para 3.11, as to the adjustment

to be made for tax, he acknowledged that differences as to the adjustment that

might be made to reflect Guernsey tax would, in all probability, not alter the 1%

ILGS yield as calculated by Mr Hogg. In that situation, as those parts of Mr

Hogg’s reports that were the product of his own work were not in dispute, the

answers that Mr Bootle and Mr Daykin gave to the questions that they had been

asked to consider were critical to the choice of the discount rate.

34. Mr Bootle confirmed that although almost 5 months had elapsed since his

addendum he had nothing to add to it. He said that he had placed no weight at all

on the evidence from Guernsey average earnings in relation to Guernsey price

inflation because of the very short runs of data available from Guernsey. A more

robust judgment would be based on the broad base of calculations of international

evidence confirmed over a long period of time, and that his best guess was 2% as a

reasonable forecast figure. This was based on an interpretation of western

economies as a whole. In cross-examination he agreed that the range of figures in

his first report, which could be as low as 1% or as high as 3%, contained a high

degree of variation. He agreed that it was possible that Guernsey inflation could

be lower than UK inflation and that he did not base his figure at all on the

Guernsey data. But in re-examination he said that his conclusion was much more

robust than that, as it was based on the evidence of what happened to the

developed countries’ growth over a long period of time.

35. Mr Daykin said that his current estimate of the rate of return on ILGS, as a

result of the Bank of England’s quantitative easing policy, was 0.5%, which was

less than the 1.0% that Mr Hogg had assumed. He confirmed that as an institution

Guernsey itself assumed and adopted a 2% differential between wages and price

inflation. In cross-examination he acknowledged that the Lord Chancellor did not

accept his advice when he was fixing his discount rate, as he had taken into

account other things such as political issues and the consequences for the Ministry

of Defence and the National Health Service. He said that, although he did not

have access any more to the information on which Guernsey assumed a growth of

earnings over price inflation of 2% as he retired in 2006, it was a public figure

which was in the reports. It was a very reasonable assumption to make, and he

stood by it. He was not cross-examined on the conclusion that 0.5% was the best

working assumption for the extent that Guernsey inflation might exceed UK

inflation over periods of 15 years or more.

Page 14

36. Mr Gregory also gave evidence. He agreed with Mr Hogg’s calculations of

the yields on ILGS, that UK earnings inflation was greater than price inflation and

that such data as there were suggested that earnings inflation in Guernsey was

greater than Guernsey price inflation. He said that it would not be appropriate to

consider average earnings when considering the future rate of increases in the

earnings of carers because top earners’ earnings rise at a faster rate than lower

earnings. But he did not present any calculations of his own. As the Court of

Appeal said in para 43 of its judgment, he did not dissent from the approach or the

conclusions of the respondent’s witnesses, apart from emphasising the inherent

variability of the possible outcomes.

The judgment of the Royal Court

37. The Jurats were directed by the Deputy-Bailiff to consider first whether it

was appropriate to adopt the rate of 2.5% fixed by the Lord Chancellor: para 188.

Having considered the matters that the Deputy-Bailiff said should be taken into

consideration, they concluded that it would be appropriate to start with the

discount rate set by the Lord Chancellor and then adjust it for specific Guernsey

factors and for changes in the net return on ILGS that had occurred since he set the

rate in 2001: para 192. They accepted the unchallenged evidence that yields had

continued to decline since the rate was set. They also accepted Mr Hogg’s

evidence that the average over the last three years was 1.28% and that, after

discounting for Guernsey tax at the rate proposed by Mr Hogg, the net return was

1.13%. As they saw it, the net return to the Guernsey investor had reduced as a

result of these adjustments 1.05% per annum. They then considered the question

whether to adjust for differences between earnings inflation and price inflation.

They were directed by the Deputy-Bailiff that as a matter of law there could be no

basis for adopting different discount rates for different types of loss in the absence

of indices measuring the respective rates of inflation: para 197. But they were

asked whether, if that direction was wrong in law, they would have adjusted the

rate to take account of any difference in earnings inflation if they were directed to

do so. Their answer was that it would be wrong to conclude that inflation in wages

paid to carers in Guernsey simply followed the general economic theory and the

general data analysed by the respondent’s expert witnesses: para 198.

38. The Court’s conclusion was set out in the following paragraph:

“199. In conclusion, the Court sets the discount rate in the current

case by starting with the Lord Chancellor’s rate of 2.5%, deducting

0.5% for the difference between UK RPI and Guernsey RPI and

deducting a further 1.05% to allow for the reduction in the return on

ILGS. Then, rounding to the nearest 0.5%, the Jurats arrive at a

figure of 1% as the discount rate to assume in the present case.”

Page 15

The Court of Appeal

39. The judgment of the Court was delivered by Sumption JA. He dealt first

with the relevance of the Lord Chancellor’s rate of return. He said that in his

judgment the statutory rate of return fixed by the Lord Chancellor under the

Damages Act 1996 was irrelevant in Guernsey. It was certainly not conclusive

evidence, and was not even good evidence because of the dramatic decline since

2001 in yields on fixed interest securities issued by first class borrowers. He also

rejected the appellant’s argument that there was a practice of using a discount rate

of 2.5% derived from the Lord Chancellor’s determination regardless of its

appropriateness in current economic and financial circumstances: paras 20-22.

40. Sumption JA then considered the Deputy-Bailiff’s view that there had, as a

matter of law, to be a suitable index of earnings before the discount factor could be

adjusted to reflect the difference between price and earnings inflation. He said that

this was wrong. It was a question of fact, and if an adjustment could be made

which would serve to compensate the respondent more exactly for his losses there

was no legal reason why it should not be made: para 32-33. The Deputy-Bailiff’s

direction was also wrong because it was based on a misunderstanding of the

function of an index in the calculation of a lump sum. The lump sum was awarded

on the footing that investment in ILGS would achieve an automatic adjustment for

future increases in the general level of prices. The question then was whether it

was possible to adjust the discount rate to reflect the fact that, on the evidence, the

rate of price inflation in Guernsey was not the same as the rate of increase of the

UK RPI and that the rate of earnings inflation in Guernsey was even further from

the rate of increase of the UK RPI: paras 34-37. He also disagreed with the Jurats

that an index was necessary as a matter of fact to enable these adjustments to be

made: para 39.

41. Having considered the evidence, Sumption JA said that it seemed to him to

constitute strong unchallenged evidence of both the existence of a gap between

price and earnings inflation in Guernsey of the order of 2%, and the likelihood that

over time it would persist: para 44. The question then was whether the Appeal

Court could and should intervene to correct the position. He concluded that it

should, for three reasons. First, the Jurats’ view that a current index of earnings

was the only acceptable kind of evidence was based on a conceptual error which

seemed likely to have influenced their thinking. Second, their reasons depended

on the uncertainty of future trends for the earnings of carers in Guernsey as

opposed to average earnings. But evidence from the United Kingdom suggested

that, while the rate of increase was different, it was greater and that any difference

would be likely to increase rather than reduce the award. Third, as far as the Jurats

intended to discard economic theory, they were overlooking the fact that any

analysis of the expected future behaviour of prices and earnings was bound to

depend on economic theory, and they had also disregarded evidence which was

Page 16

powerful, consistent and unchallenged on issues on which their own experience

was unlikely to be of much assistance: para 46.

42. As for the question whether there should be more than one rate, this seemed

to him to be correct in principle in a case where there was a significant difference

between the elements representing loss of earnings and care costs: para 48. The

correct discount rate to apply was -1.5% for earnings related losses comprising the

respondent’s own loss of earnings and the cost of employing his carers. The

correct rate for the non-earnings related elements of the future loss was 0.5%: para

49.

Discussion

43. Mr Schaff QC for the appellant said that economic theory was all very well,

but that nobody could tell whether what was predicted will or will not occur in the

future. However disciplined the exercise, it could not be safe to assume 2%

growth over the next 40 years. As much mischief would be caused by going down

that road as not. Over-compensation was as much anathema, and as invidious, as a

failure to give full compensation. The evidence that was critical was that of Mr

Bootle. He took issue with Mr Bootle’s analysis of the difference between UK and

Guernsey RPI and the very limited basis for his conclusion that 2% was the best

working assumption for the excess of Guernsey average earnings growth over

Guernsey inflation. There was simply not enough information for a figure that had

such a dramatic impact on the result in this case.

44. Mr Daykin had relied on figures used for future planning by government,

but they were drawn from a different context. Moreover he had not had access to

the relevant information at first hand since his retirement in 2006. The Jurats were

not bound to accept such evidence. The lack of an index which could take account

of any difference in earnings inflation was a very significant point which they were

entitled to take into account. The Court of Appeal’s criticism of their view that it

would be wrong to conclude that inflation in relation in wages paid to carers

simply followed the general economic theory and data analysed by the

respondent’s experts was unfair because that was the very issue that they had to

consider and it was a view that was open to them on the evidence.

45. Mr Schaff did not attempt to support the appellant’s original case that the

Royal Court should adopt the rate fixed under the statute by the Lord Chancellor.

He concentrated on his objections to the approach that was endorsed by the Court

of Appeal. As he pointed out, the problems that must be addressed in the

computation of a lump sum award have been under discussion for many years. He

referred to dicta in two decisions of the High Court of Australia. In Pennant Hills

Page 17

Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3, (1981) 145 CLR

625, 639 Gibbs J said that is was unreasonable to suppose that an economist will

be able to predict with accuracy the nature and extent of changes in the purchasing

power of money during a period extending for several decades ahead and that,

while predictions as to the economic future in thirty years time might perhaps be

made by a soothsayer, expert evidence could not rationally be given on such a

subject. In that case there was a difference of opinion as to the discount rate to be

applied in assessing damages for future loss or expenditure. Three members of the

High Court favoured a zero discount to allow for inflation, three favoured a

discount rate of 2% and the then Chief Justice, Barwick CJ, favoured a rate of 5%.

46. Each of the solutions suggested in the Pennant Hills case was the product of

careful thought and analysis in the face of the acute problem, which had been the

subject of much discussion in the authorities including Mallett v McMonagle

[1970] AC 166 and Cookson v Knowles [1979] AC 556, of trying to predict what

was likely to happen in the future with any kind of accuracy. The High Court

returned to the question whether an allowance should be made for inflation in

Todorovic v Waller [1981] HCA 72, (1981) 150 CLR 402. Gibbs CJ reiterated his

concerns about the nature of the exercise: pp 419-420. But, having recognised at

pp 420-421 that there was much to be said for adhering to the settled doctrine

which required the court to reject evidence of inflation, he concurred in the view of

the majority that a rate of 3% should be applied in the future.

47. But finding a solution today is not so dependent on surmise and speculation

as it was when the issue was being discussed in those cases three decades ago. As

Lord Steyn said in Wells v Wells [1999] 1 AC 329, 384, the landscape has

changed. The investment scene has been radically altered. The breakthrough

came with the introduction of ILGS and the appreciation that there was at last a

tool that could be used to provide protection against inflation. It is tailor-made for

investors who want a safe investment for the long term. In practical terms it is risk

free. As nearly as possible, it guarantees the availability of the money to meet

costs as and when it is required. It may not be perfect, as buying and selling gilts

in the short term may result in a gain or loss of capital. But it is the best tool that is

available. The question that the present case raises is how to use that tool, given

that some adjustments are needed to fit the particular situation in which the

respondent finds himself.

48. The Jurats took as their starting point the rate which was determined by the

Lord Chancellor and then sought to adjust it for factors that were specific to

Guernsey and for changes in the net return on ILGS since 2001: para 192. The

consequences of their doing so were set out in para 199: see para 37, above. After

rounding up to the nearest 0.5%, they arrived at a discount rate of 1.0%. They

were right to reject the appellant’s argument that they should simply adopt the

discount rate of 2.5% fixed by the Lord Chancellor. As the Deputy-Bailiff told

Page 18

them, that rate had not as a matter of law been adopted by legislation or by custom

or practice in Guernsey: para 186. And the Jurats noted that the Lord Chancellor

had taken account of information from various sources which meant that he was

not merely performing the same exercise as the House of Lords did in Wells v

Wells: para 191. But, given all these points, should they have had any regard to it

at all?

49. Sumption JA said in the Court of Appeal that the Lord Chancellor’s rate

was irrelevant in Guernsey: para 20. He also said that it had no current evidential

basis: para 21. I would prefer to adopt the second alternative. The Jurats were

well aware that they were not required by any Guernsey statute to apply the rate

fixed by the Lord Chancellor. That rate might have had something to offer if the

Lord Chancellor had adopted the same approach as the House of Lords did in

Wells v Wells. As it is, the evidential value of his determination was wholly

undermined not just by the passage of time but also by the fact that, as the Jurats

themselves appreciated, the Lord Chancellor took account of things that played no

part in the analysis in Wells v Wells at all. He had consulted widely and he took

account of the experience of the Court of Protection and, as Mr Daykin said in his

evidence, of the consequences for the Ministry of Defence and the National Health

Service. It is true that the courts in England and Wales have not given any

encouragement to the idea that they might be willing to take a fresh look at the

issue. But that is because of the statutory context in which the determination was

made.

50. The proper course, in all the circumstances, would have been for the Jurats

to disregard the Lord Chancellor’s rate altogether. The effect of doing this would

have been to start with the current Guernsey net return in ILGS of 1.13%, reduce it

by 0.5% for the higher rate of inflation to 0.63% and then round it down to 0.5%.

The Court of Appeal said that this was what they should have done, and that 0.5%

was the figure that they should have arrived at for the non-earnings related

elements of the respondent’s loss. I agree with that conclusion, although I confess

that I have more sympathy with the Jurats’ reasoning in the face of the very

complex issues that were before them than the Appeal Court’s discussion of this

issue might suggest.

Earnings related losses

51. The most difficult issue relates to the earnings related elements, and in

financial terms it is undoubtedly the most important. Various points arise under

this heading. Is it acceptable in principle for there to be different discount rates for

different heads of loss? Is it acceptable in principle to apply a discount rate which

is not a discount rate at all, but an adjustment of the lump sum in the reverse

direction? And were the Jurats entitled, on the evidence that was before them, to

Page 19

hold that an adjustment to the discount rate was not open to them in the absence of

a suitable index and that the evidence before them was of too general a character to

be acceptable?

52. The answer to the first two questions is to be found in the premise that the

victim of a tort is entitled to be fully compensated. If the evidence shows that

inflation will affect different heads of loss in different ways and that the

differential is capable of being evaluated, the court should not close its mind to

using different rates. To do that would risk giving the victim less than he is

entitled to. The possibility of modifying the effect of tying future payments to the

retail prices index was recognised by section 2(9) of the Damages Act 1996, as

amended by section 100(1) of the Courts Act 2003. It was endorsed by the Court

of Appeal in Flora v Wakom (Heathrow) Ltd [2007] 1 WLR 482, on the ground

that there was no indication in that section that Parliament intended to depart from

the principle that a victim of a tort was entitled to be compensated as nearly as

possible in full for all pecuniary losses: para 29, per Brooke LJ.

53. The working out of this approach in practice can be seen in Thompstone v

Tameside and Glossop Acute Services NHS Trust [2008] 1 WLR 2207, and

although the order that was made in D’s Parent and Guardian v Greater Glasgow

Health Board 2011 SLT 1137 gave effect to an agreed structured settlement it too

demonstrates the strength of the argument that different rates should be used where

this can be shown to be justified by the evidence. Over-elaboration in the carrying

out of this exercise is to be avoided, and it may be that this is what the Deputy-

Bailiff had in mind when he directed the Jurats that it was not open to them, as a

matter of law, to adopt different discount rates for different types of loss. But, for

the reasons I have already explained, the law is to the contrary. The decision of the

House of Lords in Wells v Wells should not be seen as an indication that a single

discount rate must always be adopted. It would be wrong to do that if the evidence

shows that, if that were to be done, a given head of loss would not be fully

compensated.

54. As for the question whether it is open to the court to apply a discount rate

which is not a discount rate at all, the answer to this question too is to be found in

the principle that the victim should, so far as it is possible to do so, be fully

compensated. The effect of the adjustment that the respondent contends for is to

increase, rather than reduce, the number of years used as the multiplier. At first

sight this is counter-intuitive. It is an increase, not a reduction. But, as I suggested

earlier (see para 14, above), the use of the word “discount” is not an apt way of

describing the exercise. It is, in essence, simply a process of adjustment. And in

principle there can be no objection to its operating in the reverse direction if the

evidence shows that an adjustment which increases the multiplier is needed to

ensure that the lump sum will continue to be large enough to meet losses to be

incurred in the future. Otherwise the effects of accelerated receipt, which are

Page 20

inevitable where the award is by means of a lump sum, will not be properly

recognised.

55. The third question is the most troublesome. The problem is that the effects

of the likely future gap between the growth of Guernsey average earnings and

Guernsey inflation cannot be eliminated by linking the adjustment to yields from

securities that are determined by the application of an index in the same way as

ILGS. Nor it is possible, where the award has to take the form of a lump sum, to

update the amounts awarded after a given period by applying indices that measure

movements in costs such as ASHE 6115. The problem is not that the amount to

be built into this part of the award cannot be protected against inflation. It can.

But it cannot be protected to a sufficient degree to close the gap which the

respondent’s expert witnesses identified. The underlying premise requires that the

victim be fully compensated. So the gap should be closed if this can be done

without his being over-compensated which, as Mr Schaff was at pains to

emphasise, is just as objectionable.

56. In the end of the day this must depend on the extent and quality of the

evidence. The Jurats were not prepared to make the adjustment in the absence of a

suitable index, and because they thought that it would be wrong to conclude that

the extent of the gap could be identified by the general economic theory and

general data that the respondent’s experts had analysed. It was general, in the

sense that it was not specific to the earnings of carers in Guernsey because, as Mr

Bootle explained, of the very short runs of data available from Guernsey. But, as

Lord Dyson says in para 113, the law has never demanded precision in the

assessment of future loss. Use of the periodic payments system will go a long way

to achieving this, which is why that system has so much to commend it. Here,

however, it was the lump sum approach that was being adopted. This was bound to

include matters which, by their very nature, could not be ascertained precisely. Mr

Bootle’s analysis was the best evidence that was available, and his conclusions and

those of Mr Daykin were largely unchallenged except on the ground, as Mr Schaff

submitted, that it was not enough in view of the dramatic effect their conclusions

had on the result. Had Mr Daykin’s evidence stood alone, I would have thought

that there was some force in this objection. But, as Mr Schaff accepted, it was Mr

Bootle’s evidence that was critical and it was based on a thorough examination of

information drawn from many countries over a long period. There was no contrary

evidence.

57. I would hold that the Court of Appeal was right to intervene and to

substitute for the Jurats’ single figure of 1.0% overall a rate of 0.5% for the future

losses that are not earnings related and a rate of -1.5% for the earnings related

elements of the respondent’s future losses, on the ground that these figures had

been established by the evidence. While I would endorse the Court of Appeal’s

observations in paras 50-52 of its judgment as to how cases of this kind should be

Page 21

handled in the future, I should also like to express the hope that legislation might

be introduced in Guernsey to enable the court to order the payment of damages by

means of periodical payments in line with the systems that are now available in the

United Kingdom. I share Lord Clarke’s admiration for the ability of the common

law to develop new remedies. But it is one thing to approve a structured settlement

which the parties have agreed to, as Lord Stewart did in D’s Parent and Guardian

v Greater Glasgow Health Board 2011 SLT 1137. To impose such a settlement on

parties who were unwilling or unable to reach such an agreement is another. Like

Lord Dyson, I think that a change of that nature is best left to the legislative

process.

Conclusion

58. The advice which I would humbly give to Her Majesty is that the appeal

should be dismissed. But, like the Court of Appeal, I would pay tribute to the

quality of the judgment of the Royal Court. As Sumption JA said, it is a model of

careful analysis and presentation. For the most part the conclusions that were

reached by the Deputy-Bailiff and the Jurats were accepted by the parties. The

issues before the Board were much the most difficult, and the way they dealt with

them has proved to be of considerable assistance in the resolution of this appeal.

LADY HALE:

59. I agree that this appeal should be dismissed, for the reasons given by Lord

Hope, to which what follows is only a footnote.

60. The only principle of law is that the claimant should receive full

compensation for the loss which he has suffered as a result of the defendant’s tort,

not a penny more but not a penny less. Allied to this is the principle, which no-one

in this case has sought to attack, that damages must be expressed as a lump sum,

payable now. So how to arrive at a lump sum which will provide “full

compensation” in the face of an uncertain future?

61. The principal issue in this case is whether, and if so how, a lump sum award

of damages for future financial loss in a personal injury case can take account of

future inflation. In the past, the rough and ready solution was that there was no

need to do so. The assumed return on the capital sum awarded at today’s values

would more than cater for the future. Indeed, it would generate a profit, for which

a discount had therefore to be made. That solution is clearly not good enough to

provide full compensation these days.

Page 22

62. The decision of the House of Lords in Wells v Wells [1999] 1 AC 345

showed that the rough and ready solution was not a principle of law, but merely a

pragmatic response to the problems of prediction. Once a way could be found of

catering for future price inflation in the award, by assuming that the lump sum

would be invested in the purchase of Index Linked Government Securities, their

Lordships were happy to adopt it. There is glancing reference in counsel’s

argument to the fact that wage inflation has historically outstripped price inflation,

but that was not the point in the case. But if real incomes will rise over time, then

catering only for retail price inflation will lead to under-compensation for those

elements in the loss which relate to future earnings – whether of the claimant

himself or of the people looking after him. There can be nothing wrong in

principle in trying also to cater for the effect of future wage inflation.

63. The problem is how to do it. After all, as Mr Dingemans pointed out, our

estimates of life expectancy, from which the multipliers are derived, are

predictions of the future. So there is nothing wrong in incorporating predictions

into the calculation. But actuaries have been predicting life expectancy for many

years and have a sound statistical base, derived from population studies, from

which to do so. Can it be said that predictions of future earnings are as reliable?

64. We have all lived through a period of almost continuous growth in real

earnings. It is difficult for our generation to imagine anything else. But our parents

lived through the 1930s, and indeed World War II, when life was very different.

How confident can anyone be that economic growth will continue for the next 45

years, the expected life span of the claimant in this case? The recent turmoil in the

markets and economies of the western world might suggest that predictions of

future economic growth are rather less reliable than predictions of future life

expectancy. A prolonged recession may be more likely than the return of the

plague.

65. What was the evidence in this case? The evidence of the economist, Mr

Bootle, was the most significant. His report was dated as long ago as October

2006. The earnings data from Guernsey were too limited for him to base his

predictions upon them. He based his conclusions on two things: first, the general

theory of economic growth; and second, the data collected over a substantial

period from a substantial number of similar western economies. From these he

concluded that the “best working assumption” was an average growth of earnings

over prices in Guernsey over 15 years of 2% p a, although there would be

considerable fluctuation from year to year. And he stood by that in his addendum

report in May 2009 and in his oral evidence at the end of 2009. The intervening

cataclysms had not caused him to alter his long term view.

Page 23

66. Mr Daykin, the former Government actuary, had for many years up until

2006 advised the Guernsey Government of the assumptions they should make

when costing certain pensions and social security schemes. He had consistently

advised that they should assume a 2% per annum growth in real earnings. As an

actuary, he may well have relied upon other expert advice to arrive at that view.

But like any other independent professional adviser, he will have taken a view on

the reliability of that prediction. His consistent advice to Government is therefore

some support for Mr Bootle’s opinion.

67. This is formidable evidence which the defendant was not in a position to

contradict. It is not correct as a matter of law that there has to be a specific index

measuring the relevant earnings in order to make this sort of prediction. The point

in Thompstone v Tameside and Glossop Acute Services NHS Trust [2008] 1 WLR

2207, relied on in the Royal Court, was quite different. There, the court had power

to make a periodical payments order to cater for the future costs of care. Such

orders are automatically index-linked to the retail price index unless the court

considers a different index more suitable. There is a more suitable index, the

ASHE 6115 index of carers’ earnings, and so that index could be chosen to

provide the necessary index-linking. This tells us nothing about the evidence

necessary to support a prediction of future growth in real earnings for the purpose

of calculating a lump sum.

68. This business of predicting the future for the purpose of capitalising

periodical payments is not new. In the Court of Appeal in Wells v Wells [1997] 1

WLR 652, at 686, Thorpe LJ commented that “There does not seem to be a

distinction of fundamental principle between providing for the future needs of

plaintiffs in personal injury litigation and applicants in proceedings under the

Matrimonial Causes Act 1973 or the Inheritance (Provision for Family and

Dependants) Act 1975”. He commended the method of calculation devised and

approved in 1984 in Duxbury v Duxbury (Note) [1992] Fam 62 as preferable to the

conventional “multiplier/multiplicand” method used in personal injury cases. The

Duxbury calculation is described thus in the Family Law Bar Association’s annual

publication At A Glance for 2011- 2012:

“Duxbury calculators are based on an iterative computation, seeking the

amount which if invested to achieve capital growth and income yield (both

at assumed rates and after income tax on the yield and CGT on the realised

gains) could theoretically be drawn down in equal inflation-proofed

instalments over a period (usually, but not always, the estimated actuarial

life expectancy of the recipient) but would be completely exhausted at the

end of the period.”

Page 24

69. Thus it too is aiming to produce a capital sum which will be exhausted at

the end of the assumed period of entitlement but will produce an index-linked

income over that time. It has of course to make various assumptions. The three key

financial predictions are currently an average income yield of 3% per annum,

average capital growth of 3.75% per annum and average (price) inflation of 3% per

annum, making a real rate of return of 3.75%. The authors acknowledge that “The

past is an imperfect guide, indeed a very imperfect guide, but it is the least/most

(un)reliable guide devised so far, and history tells us that average real returns of

3.75% p a are – over the long term – achievable even with a cautious investment

strategy”. In 2009, the Duxbury Working Party (consisting of forensic

accountants, including Mr Tim Lawrence, the originator of the Duxbury calculator,

a Government Actuary, a computer programmer and a leading family law

practitioner, among others) reacted to the dramatic turndown in the economy by

recommending a reduction in the assumed yield in the first year.

70. The Duxbury calculation was first devised when it was thought that the

purpose of financial awards in matrimonial cases was to cater for the

reasonable

requirements” of the dependent party. Now that the “sharing principle” has been

adopted, the calculation is mainly used as a guide to capitalising an existing

periodical payments order or to check whether the sum produced by the sharing

principle will be enough to meet the applicant’s needs. But the point is the same:

how can we most accurately calculate a capital sum which will cater for the future

needs of the recipient?

71. In Wells v Wells, Thorpe LJ made a powerful plea, echoing the evidence

given by the Bar Council in response to the Law Commission’s Consultation Paper

No 125, that the assessment of damages for personal injuries in complex cases

should also adopt the Duxbury method instead of the traditional

multiplier/multiplicand method. My purpose in mentioning it is not to repeat that

plea, for the assumptions underlying the Duxbury calculation are not

uncontroversial in family law circles (see Phillpotts and Bruce, “An Alternative

View of Duxbury” [2010] 40 Family Law 161 and Marks, “An alternative view of

Duxbury: A Reply” [2010] 40 Family Law 614). There are probably more

imponderables in a family law context than in a personal injuries context: will she

marry another rich man? Will his business fail? What to do about retirement? My

purpose is simply to point out that there is nothing wrong in principle in making

assumptions about future inflation in order to calculate a capital sum which will

compensate for future financial losses. Lawyers acting for both husbands and

wives have been prepared to accept that Duxbury calculations are fair, and I do not

think that that is simply the product of indolence.

72. However, Duxbury calculations do suffer from the uncertainties of

prediction. Nothing will in fact turn out exactly as it is predicted to turn out,

whether in family law or in personal injuries law. A far safer way of catering for

Page 25

future financial losses is by way of a structured settlement involving capital

payments for some needs and periodical payments for future needs, which can be

adjusted year on year for inflation in accordance with the most suitable index

available. For a while during the hearing of this case, I was attracted by the notion

that it might be open to the common law of Guernsey to develop such a system for

itself, especially now that the practical issues have been addressed in the Damages

Act as amended in England and Wales, but that possibility was not explored in the

argument before us. There is of course absolutely nothing to prevent the parties’

agreeing such a settlement should they so wish and it is something of a mystery

why this has not been explored in this case, which is the most serious ever

encountered in the Bailiwick. Even after our decision, it might be of benefit to both

sides to do so. In common with Lord Clarke, I would not rule out the possibility of

developing the common law of Guernsey to allow the court to impose such a

solution in a future case, although it is interesting that the possibility was not

seriously considered by the Law Commission of which I was a member when

Consultation Paper No 125 on “Structured Settlements and Interim and Provisional

Damages” was published. I hope, of course, that there is never another case of

such catastrophic injuries on the Island, but it might be prudent for the States of

Guernsey (and the other Islands) to legislate for the possibility before the next case

arises.

73. For these and the reasons given by Lord Hope, therefore, I would dismiss

this appeal.

LORD BROWN:

74. I too agree that this appeal should be dismissed and, although really there is

nothing that I can usefully add to the reasons given by Lord Hope, Lady Hale,

Lord Clarke and Lord Dyson, I shall nevertheless succumb to the temptation of

including this brief addendum.

75. The core considerations in the case are surely these. First, the great bulk of

the claimant’s recoverable damage consists of the cost of having to meet his future

care needs (and, although this amounts to far less, his own future loss of earnings).

Secondly, generally speaking, countries like Guernsey (and the United Kingdom)

grow richer over the years. Certainly that has been the consistent long-term trend

over many decades. Real earnings grow faster than the cost of living ie earnings

inflation exceeds price inflation (RPI). Accordingly, thirdly, if this claimant is

compensated for future loss only on the basis of projected RPI inflation, his award

(intended to compensate him for his future losses over the period of his predicted

further life span of forty years) will almost certainly prove inadequate to meet his

long-term future care needs.

Page 26

76. The real question in the appeal must therefore be this: which approach is

preferable: one which ignores the established trend showing an increase in real

earnings and so produces an award almost certainly less than will be sufficient to

meet the claimant’s likely future care costs, or one which uses the best available

evidence to predict the future relationship between earnings and living costs and

attempts, therefore, to arrive at an award which satisfies the claimant’s undoubted

entitlement to full compensation for his injuries?

77. The answer must therefore be obvious. Only if we were unwise enough to

introduce into Guernsey compensation law a new principle to the effect that

economic theory is just too imprecise a tool by which to seek to gauge likely future

trends (and were therefore to bar, or simply ignore, evidence substantially based

upon it) could the Jurats’ approach in this case properly be upheld.

LORD CLARKE:

78. I agree that this appeal should be dismissed. I wish to add only a very few

words of my own.

79. Much is common ground. There is no relevant statute or customary law in

Guernsey. The issue between the parties has been treated as governed by the

English common law, subject to appropriate adjustments on the facts to reflect the

difference in conditions between Guernsey and England. The parties have

proceeded on the basis that the common law position can be taken from the

decision of the House of Lords in Wells v Wells [1999] 1 AC 345 and that at

common law the relevant damages must be assessed as a lump sum.

80. There are no more recent cases which discuss the common law position for

two reasons. The first is that in England and Wales the assessment of damages is

no longer governed entirely by the common law. By section 1(1) of the Damages

Act 1996 (“the 1996 Act”) the court must to take into account such rate of return

(if any) as may be prescribed by order of the Lord Chancellor. Before making

such an order the Lord Chancellor is obliged by section 1(4) to consult the

Government Actuary and the Treasury. As Lord Hope explains at para 19, in 2001

he set the discount rate at 2.5%. By section 1(2) the court is not prevented from

taking a different rate from that set by the Lord Chancellor if any party shows that

it is more appropriate in the case in question. In fact, in the cases referred to by

Lord Hope the Court of Appeal has construed that subsection somewhat narrowly

and shown a marked disinclination to fix a different rate. The result is that in

practice the set rate has been taken.

Page 27

81. The second reason is that by section 2(1) of the 1996 Act the court was

given power, with the consent of the parties, to make an order under which the

damages were wholly or partly to take the form of periodical payments.

Subsequently, by section 100(1) of the Courts Act 2003, that section was

substituted by a new section 2, which makes detailed provisions for such an order

(“a PPO”) even in the absence of consent. As a result, PPOs are now common. In

paras 23 and 24 Lord Hope describes the way in which the courts have approached

such orders in England and Wales.

82. The approach identified in one of the cases to which Lord Hope refers

seems to me to be of particular significance. In Sarwar v Ali [2007] EWHC 1255

(QB) Lloyd Jones J accepted what he described (at para 143) as a consensus

between the experts that the RPI is not an appropriate index for periodical

payments in respect of future loss of earnings and that an appropriate index for

periodical payments in respect of future loss of earnings should be applied instead

of ILGS: see paras 144 to 152. He equally accepted that the same was true of the

future cost of care and case management: see paras 153 to 158, cf paras 159 to

164. Thus he concluded at para 177 that an earnings based index or measure was

likely to reflect future increases in the cost of care and case management with

considerably greater accuracy than the RPI.

83. It was just such considerations that led the respondent to rely upon the

expert evidence as to earnings inflation in the instant case. It was necessary to rely

upon expert evidence because there was no relevant index and no investment such

as ILGS which would reflect earnings inflation. It is common ground that ILGS

only reflects price inflation. It followed that some further and different evidence

was required in order to satisfy the underlying principle that the respondent was

entitled, so far as possible, to be compensated in full. I can see no reason why

expert evidence should not be relied upon in this regard, provided that it is

sufficiently compelling.

84. I agree with Lord Hope, Lady Hale and Lord Dyson that the evidence was

sufficiently compelling. For my part, I was impressed, not only by the evidence of

the economist Mr Bootle, but also by the evidence of the actuary, Mr Daykin, who

had considerable experience of the economic conditions in Guernsey, albeit some

time earlier. I agree with the conclusion of Sumption JA, giving the sole judgment

in the Court of Appeal, at para 44, that their evidence constituted strong, indeed

unchallenged, evidence of both the existence of the gap between price and

earnings inflation in Guernsey of the order of 2% and of the likelihood over the

long term that it would persist. The appellant did not rely upon evidence of more

recent economic conditions as new evidence upon which he was entitled to rely

but rather upon such material as an indication of the unreliability of prediction. Of

course all predictions involve the risk that they may turn out to be wrong but the

witnesses were relying upon long term trends and, as the Court of Appeal

Page 28

observed, their evidence was not contradicted by any evidence called on behalf of

the appellant.

85. I agree that the conclusions of the Jurats on the facts were flawed because,

as Sumption JA pointed out at para 46, they were not entitled to reject the evidence

of the experts merely because they relied upon economic theory and because their

view involved disregarding evidence that was powerful, consistent and

unchallenged on which their own experience of Guernsey society was unlikely to

be of much assistance.

86. Finally I would like to add three points about the future. First, I agree with

other members of the Board that it would be desirable for legislation to be

introduced expressly to authorise the making of PPOs in Guernsey. Secondly, the

decision in this appeal does not mean that the figure of 2% will be set in stone.

Although uniformity of approach is plainly desirable and frequent changes are

equally undesirable, I agree with Sumption JA that, if there were convincing

evidence to support substantially different figures, the relevant percentages in the

future would indeed be different.

87. Thirdly, a consideration of the development of the approach to the measure

of damages in this class of case vividly demonstrates the flexibility of the common

law. Lord Hope has traced that development by reference to the approach of the

House of Lords up to and including Wells v Wells [1999] 1 AC 345. Lord Dyson

too has set out the history at paras 99 to 101. In particular, at para 13 Lord Hope

sets out what he calls the conventional approach explained by Lord Oliver in

Hodgson v Trapp [1989] AC 807 at 826 and at para 15 he describes the approach

to inflation in Mallett v McMonagle [1970] AC 166 per Lord Diplock at 176,

which was endorsed in Cookson v Knowles [1979] AC 556, at pp 571-572 per Lord

Diplock and at pp 576-577 per Lord Fraser of Tullybelton. As Lord Hope points out

at paras 17 to 18, that approach was discarded by the House of Lords in Wells v

Wells. In particular the House abandoned the approach which had previously been

adopted of taking a discount rate of 4.5-5% based upon what a plaintiff could be

expected to earn on a lump sum if it were invested sensibly in a mixed basket of

gilts and equities. That approach was abandoned in Wells v Wells. Indeed it was

rejected as unsound: see eg per Lord Lloyd at p 371.

88. It was not suggested in the course of argument in Wells v Wells or in this

case that it would be open to the courts to develop the correct approach to the

assessment of damages in this class of case by permitting the making of a PPO in

an appropriate case. However, it appears to me that, if perchance Guernsey should

not legislate as suggested above, it might be open to the courts to permit such a

step, by way of development of the common law. As Lady Hale puts it at para 60,

the only principle of law is that the claimant should receive full compensation for

Page 29

the loss which he has suffered as a result of the defendant’s tort, not a penny more

but not a penny less. She adds that, allied to that is the principle that damages

must be expressed as a lump sum, payable now. That is indeed the approach

which has been adopted to date, and, as she says, the question in this case (as in

previous cases) has been accepted to be how to arrive at a lump sum which will

provide “full compensation” in the face of an uncertain future.

89. It appears to me that in every case of this kind the true question is how, in

"

all the circumstances of the case, to arrive at full compensation. In my opinion, if"

full compensation can be better achieved by a different approach, there is no

reason in principle why the common law should not adopt it. It would simply be a

different (and perhaps better) way of achieving the same end. It is surely a

"

question of fact, and therefore evidence, what is the better way of doing so in the"

circumstances of a particular case. PPOs have been introduced for the very good

reason that they are perceived to produce a more just result, at any rate in many

cases. If that is so, the principle of full compensation would support the

conclusion that a PPO should be made and not a lump sum award.

90. In Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC

174 the House of Lords declined to permit an interim award of damages for these

reasons given by Lord Scarman at p 183:

“Lord Denning appeared, however, to think - or at least to hope - that

there exists machinery in the Rules of the Supreme Court which may

be adapted to enable an award of damages in a case such as this to be

‘regarded as an interim award’ [1979] QB 196, 220. It is an

attractive, ingenious suggestion - but, in my judgment, unsound. For

so radical a reform can be made neither by judges nor by

modification of rules of court. It raises issues of social, economic

and financial policy not amenable to judicial reform, which will

almost certainly prove to be controversial and can be resolved by the

legislature only after full consideration of factors which cannot be

brought into clear focus, or be weighed and assessed, in the course of

the forensic process. The judge—however wise, creative, and

imaginative he may be - is ‘cabin'd, cribb'd, confin'd, bound in’ not,

as was Macbeth, to his ‘saucy doubts and fears’, but by the evidence

and arguments of the litigants. It is this limitation, inherent in the

forensic process. It is this limitation, inherent in the forensic

process, which sets bounds to the scope of judicial law reform.”

91. Lord Dyson makes what is I think a very similar point in para 105, where he

notes that periodical payments are obviously the most accurate (and therefore the

fairest) way of taking inflation into account in the assessment of damages but he

Page 30

adds that it would be a step too far to say that such an innovation should be made

by the courts in the exercise of their inherent power to develop the common law.

In my opinion that is to take too pessimistic a view. I agree with him that the

introduction of such a power and the regulation of its exercise are better done

through the legislative process (after proper consultation of interested parties) than,

as he puts it, by court diktat.

92. However, historically the courts have been willing to develop new remedies

to meet the requirements of justice in particular cases. Take, for example, the

equitable remedies of rescission, rectification, lien and specific performance, all of

which were judicial creations. More recently, freezing and search orders were

introduced in order to deliver justice in circumstances where existing remedies

would have been inadequate. As J H Baker says in An Introduction to English

Legal History, 4th ed (2007), at p 204,

“both … were new procedures devised by judicial discretion, without

precedent, to make the regular law function more effectively … and

they have both now been subsumed in procedural legislation.”

93. To my mind there is no reason of principle that prevents the Guernsey

courts from introducing PPOs at common law in an appropriate case. This would

not herald a dramatic change in the law or involve the creation of a new species of

remedy. It would simply involve the courts adapting an existing remedy, namely

the award of damages by way of a lump sum, by making an award of damages by

way of a PPO in an appropriate case. As Lord Dyson says, such an order is the

most accurate (and therefore the fairest) way of taking inflation into account in the

assessment of damages. It seems to me to follow, if that is so, that the principle of

full compensation would be best met in many cases by the making of such an

order.

94. For my part I would not regard that as any greater development of the

common law than the change made by the House of Lords in Wells v Wells. This

is not to say that legislation would not be better. But, as the Law Commission

noted in para 3.1 of its 1992 Consultation Paper No 125 on “Structured

Settlements and Interim and Provisional Damages”, “structured settlements have

developed in the United Kingdom without legislative assistance”. Para 3.22

included this:

“We believe that the availability of structured settlements as a

remedy in personal injury cases in the United Kingdom should not

now be seriously questioned. Though it has been said that their

development has been somewhat ‘in the shadow of the law’, we

Page 31

believe that the advantages clearly outweigh any disadvantages, and

that the availability of structuring is a useful option which can

benefit plaintiffs, particularly given the high incidence of cases that

are settled.”

95. Thus, as I understand it, parties regularly reached structured settlements in

cases of this kind before the passing of the 1996 Act. Such settlements provided

an initial lump sum for past pain and suffering and costs already incurred and an

annuity or series of annuities from a life insurance company for the future. The

settlements were agreed without the benefit of detailed rules of court; so I do not

regard the absence of such rules as an impediment. Moreover, given the

introduction of PPOs in England, it does not seem to me that the absence of further

consultation in Guernsey is a good reason for the courts to refuse to countenance

such a development.

96. The above views are expressed without the benefit of argument and, would

of course be open to revision in the light of submissions in a particular case. In the

meantime they represent my current views, for what they may be worth. However

that may be, I agree that the appeal should be dismissed for the reasons given by

Lord Hope, Lady Hale and Lord Dyson.

LORD DYSON:

97. In November 1998, Mr Helmot sustained grave injuries in a road accident.

He was 28 years of age at the time. As a result of his injuries, he will need

constant care for the rest of his life. It was common ground that his life

expectancy was reduced to 40.9 years. Negligence was admitted. On any view,

Mr Helmot is entitled to a substantial award of damages, the principal elements of

which are in respect of (i) future loss of earnings and (ii) the cost of his care (the

largest part of which comprises the cost of his carers). I shall refer to these

compendiously as “the earnings related losses”. On 14 January 2010, the Royal

Court made a lump sum award of approximately £9.33m by applying a single

discount rate of 1%. On 14 September 2010, the Court of Appeal increased the

award by approximately £4.5m. They set aside the 1% discount rate and

substituted a rate of -1.5% for the earnings related losses and a rate of 0.5% for the

other losses.

98. I consider that the appeal should be dismissed for the reasons given by Lord

Hope. I do not wish to add anything to what he has said in relation to the 0.5%

rate issue. But in view of the difficulty of the issues relating to the earnings related

losses and in deference to the quality of the submissions of Mr Schaff QC (which,

Page 32

ultimately, I have not felt able to accept), I wish to add some words of my own on

this aspect of the appeal.

99. The full compensation principle has been asserted many times and is not in

doubt. But its application to claims for future losses has given rise to much

difficulty. Before the advent of Index-Linked Government Securities (“ILGS”)

and the ground-breaking decision in Wells v Wells [1999] 1 AC 345, the effect of

future inflation was for practical purposes ignored. It was assumed that a lump

sum award of damages would be prudently invested and that the return from such

investment would take care of the effects of inflation. On that footing, a discount

rate of 4 to 5% was generally adopted. In this way, inflation was taken care of in a

“rough and ready way”: see, for example, per Lord Diplock in Cookson v Knowles

[1979] AC 556 at p 571H. The position was summarised by Lord Scarman in Lim

Poh Choo v Camden and Islington Area Health Authority [1980] AC 174 at p

193D as follows:

“The law appears to me to be now settled that only in exceptional

cases, where justice can be shown to require it, will the risk of future

inflation be brought into account in the assessment of damages for

future loss…..It is perhaps incorrect to call this rule a rule of law. It

is better described as a sensible rule of practice, a matter of common

sense. Lump sum compensation cannot be a perfect compensation

for the future. An attempt to build into it a protection against future

inflation is seeking after a perfection which is beyond the inherent

limitations of the system. While there is wisdom in Lord Reid’s

comment (Taylor v O’Connor, at p 130) that it would be unrealistic

to refuse to take inflation into account at all, the better course in the

great majority of cases is to disregard it. And this for several

reasons. First, it is pure speculation whether inflation will continue

at present, or higher, rates, or even disappear. The only sure

comment one can make upon any inflation prediction is that it is as

likely to be falsified as to be borne out by the event. Secondly, as

Lord Pearson said in Taylor v O’Connor, at p 143, inflation is best

left to be dealt with by investment policy….”

100. It was well understood that accurate quantification was impossible. The

courts were unwilling to admit expert evidence as to future costs based on attempts

to predict the economic or social future of the nation. The objections to such

evidence were stated, for example, by Lord Oliver in Hodgson v Trapp [1989] AC

807, 833C where he drew attention to the “inherently unscientific” nature of the

exercise, saying memorably that

to assess the probabilities of future political,

economic and fiscal policies requires not the services of an actuary or an

accountant but those of a prophet.” No doubt, he would have excluded

economists as well.

Page 33

101. As Lord Hope has said, this problem has also been considered by the High

Court of Australia. In Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty

Ltd (1981) 145 CLR 625, Gibbs J said at p 639 that, generally speaking, the courts

should adhere to the rule that no allowance should be made for inflation in

assessing damages in personal injury cases. He gave two reasons. First, it was

unreasonable to suppose that any economist will be able to predict with accuracy

the nature and extent of changes in the purchasing power of money during a period

extending for several decades ahead: “[P]redictions as to the economic future in

thirty years time may perhaps be made by a soothsayer but expert evidence cannot

rationally be given on such a subject”. Secondly, testimony as to the rate of

inflation at times many years in the future would prolong trials and render more

difficult the assessment of damages without providing any real assistance to the

court. The same reasoning was adopted by Stephen J. At p 656, he identified as

“serious defects” the reliance, “case by case, upon expert evidence regarding an

inherently uncertain fact, the economic future. This has given rise to the familiar

and substantial objection not only to the speculative nature of such evidence but

also to the added complexities which the introduction of such evidence will bring

to trials”. At pp 656-657, he referred to the formidable task of predicting an

average rate of inflation for the relevant period in the future and made the point

that the failure correctly to predict the distribution of swings in inflation over a

long period (in that case 30 years) could lead to gross error in the amount awarded.

Similar reasoning was expressed by the High Court of Australia in Todorovic v

Waller (1981) 150 CLR 402.

102. This rough and ready way of dealing with the problem of inflation (ie

ignoring it) was a pragmatic solution to a difficult problem. It was believed to be

the best that could be devised. It was thought to work reasonably well in times of

stable currency and it had the advantage of certainty. In the United Kingdom, the

arrival of ILGS and the ability to assess damages on the basis of a discount rate

determined by reference to the return on ILGS enabled the courts to deal with

future inflation in a more precise way. The House of Lords in Wells determined a

net discount rate of 3% (to reflect the incidence of taxation) which was based on a

gross return of 3.5%. But even with the advent of ILGS, the House recognised that

precision was impossible. As Lord Lloyd said at p 373C, investment in ILGS was

“the most accurate” way of calculating the present value of the loss which

plaintiffs will actually suffer in real terms. He added at p 373G that it was

desirable to have a single rate applying across the board

in order to facilitate

"

settlements and to save the expense of expert evidence at the trial."

Lord Steyn (p

388D-F) said that it was essential that there should be a “firm and workable

"

principle"

to enable settlement negotiations and litigation to be conducted with the

benefit of a reasonable degree of predictability. He acknowledged that there was

an element of “arbitrariness” in any figure, but was content to adopt 3% as the best

present net figure. It should not be regarded as immutable, but only a “marked

change in economic circumstances” should entitle a party to reopen the debate in

advance of a decision by the Lord Chancellor to prescribe a rate under the

Page 34

Damages Act 1996 (“the 1996 Act”). The effect of the decision should be to

eliminate the need in future to call experts in such cases. Lord Hutton too said at

p 404H that the net rate of 3% should be applied until the Lord Chancellor

prescribed a different rate pursuant to his power under 1996 Act

or unless there is

a very considerable change in economic circumstances”.

103. The inflation-proofing of ILGS was based on movements in the retail price

index (“RPI”). It was well understood in Wells that “it may be true” that nursing

costs had, historically, risen faster than RPI (p 367H). That was not, however, a

point taken by the plaintiffs and its significance was not the subject of discussion

in the speeches. But it lies at the heart of the present case.

104. In the United Kingdom, there have been important statutory developments

since Wells. First, the Lord Chancellor fixed the rate of return at 2.5% in 2001

(for England and Wales) pursuant to his power under the 1996 Act. Secondly,

section 2(1) of the 1996 Act (as amended by section 100(1) of the Courts Act

2003) gave power to the courts in England and Wales to award damages by way of

periodical payments.

105. But the Lord Chancellor’s rate does not apply in Guernsey and there is no

statutory power to order periodical payments in Guernsey either. The assessment

of damages for future losses is determined in Guernsey by the application of

common law principles. It has not been submitted that there is power at common

law to make orders for periodical payments. In my view, periodical payments are

obviously the most accurate (and therefore the fairest) way of taking future

inflation into account in the assessment of damages. But I think that it would be a

step too far to say that such an innovation should be made by the courts in the

exercise of its inherent power to develop the common law. The introduction of the

power to make orders for periodical payments in England and Wales without the

consent of the parties was accompanied by detailed procedural rules (CPR 41.4 to

41.10 and PD41B). These govern the way in which the court should exercise its

discretion to make such orders. The introduction of such a power and the

regulation of its exercise are better done through the legislative process (after

proper consultation of interested parties) than by court diktat.

106. It is important not to lose sight of the fundamental principle that a claimant

is entitled to full compensation and that the duty on the court is to do its best, using

all tools that are available to it, to achieve that end. Before the advent of the ILGS,

the courts were unwilling to take account of expert evidence about future

economic trends because (i) it was too uncertain, (ii) it would be likely to involve

the use of contentious expert evidence which itself was undesirable, and (iii)

inflation was sufficiently taken care of by assuming that lump sums would be

prudently invested. The arrival of ILGS gave the courts a better and more precise

Page 35

way of taking inflation into account and the result was Wells. But as I have said,

the solution propounded in Wells was not set in stone pending a decision by the

Lord Chancellor. It would require a “marked change in economic circumstances”

before the debate could be reopened. The only way in which such a change in

circumstances could be proved to a court would be by expert evidence, almost

certainly from an economist. In other words, the House of Lords recognised that

it might be possible to persuade a court that the principle of full compensation

would be better satisfied by adopting a different discount rate from that adopted in

Wells.

107. That is precisely what was sought to be done in the present case. The

claimants attempted to persuade the court that there has been a marked change in

economic circumstances and that, if the calculation of the earnings related losses

was based on a discount rate derived from the return on ILGS, substantial under-

compensation would result. To that end, expert evidence was adduced on behalf

of Mr Helmot. It seems that no objection was taken to the admission of this

evidence. Indeed, the defendant instructed an accountant, an actuary and an

economist, but only called the accountant (Mr Gregory). The crucial evidence was

that given by two witnesses, Mr Bootle and Mr Daykin. It was not challenged.

Lord Hope has already referred to some of it at paras 31 to 35 above. It led the

Court of Appeal to assess it as

strong, indeed, unchallenged evidence of both the

existence of a gap between price and earnings inflation in Guernsey of the order of

"

2%, and of the likelihood that over the long term it would persist"

(para 44 of the

judgment of Sumption JA).

108. In his oral evidence, Mr Bootle explained that the common experience of

Western economies supports a gap between price and earnings inflation of

between 1% and 3%. The stronger the growth of an economy, the greater the gap.

In times of economic stagnation, there should be no gap at all; and in times of

prolonged economic crisis, the gap can be negative. Indeed, material was placed

before the Board which shows that in the year to November 2011, RPI inflation in

the UK was 5.2%, whereas pay inflation was only 2%. Mr Bootle said (p 671 of

the record) that his figure of 2% over a period in excess of 15 years for Guernsey

was based on

the broad base of calculations of international evidence, very well

based, very well founded, confirmed over a long period of time and 2% is my best

"

guess as a reasonable forecast figure"

. And a little later (p 678) he said that there

was so much evidence from so many countries for such a long period of time that

“robust” statements could be made about the gap. It was “highly unlikely” that a

country like Guernsey would experience no gap at all between average earnings’

growth and inflation. There was a lot of data and 2% was a “reasonable” number.

109. In addition to the opinion of Mr Bootle, there was also the important

evidence of Mr Daykin that in his reports to the Guernsey Social Security

Department over a number of years he considered that an appropriate assumption

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for real earnings growth in Guernsey was 2% per annum and he still believed this

to be an appropriate assumption.

110. I agree that, for the reasons given by Sumption JA and Lord Hope, the

Deputy-Bailiff was wrong to direct the Jurats that, as a matter of law, there could

be no basis for adopting different discount rates for different types of loss in the

absence of indices measuring the respective rates of inflation. But the Jurats were

also asked by the Deputy-Bailiff whether, if that direction was wrong in law, they

would have adjusted the rate to take account of any difference in earnings inflation

if they were directed to do so. They said that they would not do so in the absence

of a suitable index because

it would be to conclude that inflation in wages paid to

carers in Guernsey simply follows the general economic theory and general data

analysed by the plaintiff’s experts on economics” (para 198). They gave no

further elaboration.

111. Sumption JA gave three reasons for rejecting this finding. First, the

erroneous expressed view of the Jurats that a current index of earnings was the

only acceptable kind of evidence “seems likely to have influenced their whole

approach to the facts”. I see no basis for holding that the Jurats did not

conscientiously decide the issue on the alternative hypothesis as they had been

directed to do. Secondly, the Jurats’ reasons

overtly depended on the uncertainty

of future trends for the earnings of carers in Guernsey, as opposed to average

"

earnings"

. I accept that this is a possible reading of the Jurats’ reasoning, since

they expressly referred to earnings in Guernsey. But I am inclined to think that

this is not a sufficient reason for concluding that they did not have regard to the

entirety of the expert evidence and in particular the evidence of Mr Bootle about

the gap between average growth in earnings and price inflation in western

economies (of which Guernsey was one). The reference to Guernsey earnings is

readily explicable by the fact that this was a Guernsey case. In other words, the

Jurats were simply saying that they were unwilling to accept the expert evidence

because it was based on general economic theory and general data.

112. The third reason given by Sumption JA was that:

“so far as the Jurats intended to discard more generally the

‘economic theory’ advanced by the plaintiff’s experts, they were I

think overlooking the fact that any analysis of the expected future

behaviour of prices and earnings and the relationship between them

is bound to depend on economic theory. They were also

disregarding evidence which was powerful, consistent and

unchallenged, on issues on which their own experience of Guernsey

society was unlikely to be of much assistance.”

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113. In my view, the second part of this criticism of the Jurats’ reasoning is

justified. The crucial question is whether they were entitled to disregard the

evidence of Mr Bootle and Mr Daykin which, as Sumption JA said, was

“powerful, consistent and unchallenged”. In my view, the only basis for doing so

would have been that it was speculative and inherently uncertain and that, for the

reasons mentioned in the authorities to some of which I have referred at paras 99

to 101 above, the Jurats were entitled to disregard it. But that is not how the Jurats

put it. They said that they disregarded the evidence because it followed general

economic theory and general data. This suggests that they were of the view that,

unless the expert evidence was specific and precise, they would not accept it. But

the law has never demanded precision in the assessment of future loss. By its very

nature, it cannot be an exact science. The court must do its best on the available

evidence. If the evidence is pure speculation and without any foundation in fact,

the court will reject it. But if evidence as to likely future economic trends is firmly

based on convincing historical data, the court may be able to make findings as to

the future in which it has confidence to the appropriate standard of proof. In

relation to evidence that is based on an assessment of future economic trends, the

court will be especially cautious for all the reasons that have been expressed in

previous authorities. But there is no reason in principle why such evidence cannot

be accepted. Suppose that each year during the past 20 years, earnings have risen

between 2% and 3% faster than prices and that the court is asked to assess future

care costs of someone with a short life expectancy. There can be no justification

for holding that, on these admittedly bare and rather crude facts, damages should

be assessed using a discount rate based on RPI inflation. Such an assessment

would be bound to lead to under-compensation. Ultimately, however, it is a

question of assessing the quality of the evidence in any particular case.

114. Mr Bootle was firm in his evidence, which was based on a great deal of

material, that over a long period it was reasonable to assume that there would be an

average gap of 2% between growth in earnings and price inflation. If this evidence

was accepted, it would demonstrate that a discount rate based on the ILGS would

lead to a massive under-compensation of Mr Helmot’s claim for earnings related

losses. The unchallenged evidence of Mr Bootle and Mr Daykin was so strong

that there could be no basis for rejecting it unless such evidence could never be

accepted in any case, whatever the circumstances. But as I have said, the

authorities have never gone that far and such an extreme position cannot be

justified in principle. It is certainly not compelled by any rule of law.

115. The fact that earnings have tended to increase significantly faster than

prices (as measured by the RPI) has been recognised in English case law on

periodical payments. In Sarwar v Ali [2007] EWHC 1255 (QB), Lloyd-Jones J

made a periodical payments order under the 1996 Act in respect of future care

costs indexed by reference to an index drawn from data specific to carers’

earnings, namely ASHE 6115, rather than by reference to RPI. He accepted that

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RPI was an inappropriate basis for indexation of future care costs. It was common

ground between the four experts instructed in that case that, historically, average

earnings had increased at a faster rate than prices (para 160). The average rates of

increase over periods of 20 and 40 years were variously put at between 1.5% and

2%. This evidence is consistent with that of Mr Bootle and Mr Daykin.

116. In my judgment, there was no good reason to disregard the undisputed

expert evidence in this case. Since there was no challenge to the figure of 2%, it

seems to me that the Jurats had no real alternative but to accept it. No other figure

was suggested.

117. I should refer to two other points made by Mr Schaff. First, he submits that

it is wrong in principle to apply more than a single discount rate in assessing

damages for future losses: the court should adopt the simple approach prescribed

in Wells. He submits that different discount rates for different heads of loss can

only be justified on the basis of expert evidence and such evidence should not be

admitted for the policy reasons to which I have already referred. He also asks

rhetorically: why as a matter of principle should the exercise be limited to two

discount rates if impressive cohorts of experts can demonstrate that different heads

of loss (eg housing costs, transport costs and fuel costs) may all be subject to

inflation at different rates? I regard this in terrorem argument as fanciful. In view

of the cautious approach that the courts have consistently taken to the admission of

expert evidence in this area of the law, it is unrealistic to suppose that arguments of

this kind would be accepted. The Court of Appeal was (rightly) alive to the

dangers of opening the floodgates to expert evidence and all the uncertainty that

this would engender. I agree with what Sumption JA said at paras 51 and 52 of his

judgment.

118. Secondly, Mr Schaff submits that there is no precedent for assessing

damages on the basis of a minus discount rate and that the concept of a minus

discount is counter-intuitive. On this issue, I agree with what Lord Hope says at

para 14. The principle that the lump sum should be adjusted so as to reflect the

predicted rate of inflation is clearly correct. Until recently, the rate of return on

ILGS has exceeded inflation, so that a discount has been required for the

accelerated receipt of the money. But if inflation outpaces the rate of return, then

the lump sum needs to be increased to reflect that fact. That is done by increasing

the number of years used as the multiplier. The term “negative discount” may be

somewhat odd, but the concept is logical and it reflects a correct principle.

119. For these reasons, as well as those given by Lord Hope, I would advise Her

Majesty that the appeal should be dismissed.

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