Wells v Wells

Factual and Procedural Background

This judgment concerns three appeals arising from personal injury claims involving grievous injuries sustained by the respondents, with liability admitted by the appellants. Each respondent received substantial damages awards from judges of the High Court, which the appellants appealed on the basis of the quantum of damages awarded. The appeals were heard together in the Court of Appeal (Civil Division) on 23rd October 1996.

The three cases are:

• Case 1: The respondent, a woman aged nearly 58 at the time of injury, suffered severe brain damage in a road traffic accident where her husband, the appellant, was the driver and admitted liability. She was awarded approximately £1.619 million by the trial judge.
• Case 2: The respondent, a child born with cerebral palsy due to maladministration of a drug by a hospital under the Brighton Health Authority, was awarded approximately £1.285 million.
• Case 3: The respondent, a man aged 28, suffered brain damage in an industrial accident at work for the appellant company, which admitted liability. He was awarded approximately £906,000.

Central to all three appeals is the appropriate multiplier to apply to the annual amount assessed for future losses and expenses (the multiplicand). The trial judges departed from the conventional approach of a 4-5% return assumption and instead applied a multiplier based on the return on Index Linked Government Securities (ILGS) at 3%, resulting in significantly higher damages. This approach conflicted with other judges who retained the conventional guidelines, creating legal uncertainty.

The appeals also arise in the context of recent legislative developments, including the Damages Act 1996 and the Civil Evidence Act 1995, which pertain to the admissibility of actuarial tables and the determination of discount rates for future losses.

Legal Issues Presented

1. Whether the conventional approach of applying a 4-5% discount rate for future losses in personal injury damages remains appropriate, or whether the rate should be adjusted to reflect returns on ILGS (approximately 3%).
2. Whether damages for future losses should be assessed on the assumption that the plaintiff will invest the award on a minimum risk basis (e.g., ILGS) or on a prudent investment basis including equities.
3. The appropriate application of multipliers and multiplicands in calculating damages for future losses, including the treatment of contingencies such as mortality, employment risks, and tax incidence.
4. The admissibility and use of actuarial tables (Ogden Tables) and expert evidence in determining multipliers.
5. Whether specific allowances, such as for Court of Protection fees, future care costs, and other heads of loss, are reasonable and properly quantified.

Arguments of the Parties

Appellants' Arguments

• The conventional discount rate of 4-5% remains sound and should not be replaced by the ILGS-based rate.
• The plaintiff should be assumed to invest prudently in a diversified portfolio including a substantial proportion of equities, not solely in ILGS.
• ILGS investment is not risk-free due to gaps in availability, market fluctuations, and maturity limitations, making it unsuitable as a universal benchmark.
• The Law Commission's research supporting ILGS is based on limited empirical data and is insufficient to justify a change.
• The courts should continue to apply conventional multipliers and discount rates, reflecting prudent investment and established case law.
• Specific challenges were raised against the quantum of awards in each case, including life expectancy estimates, injury and suffering awards, care costs, and multipliers applied.

Respondents' Arguments

• Damages for future losses should be based on the assumption that the plaintiff is entitled to invest the award taking minimum risk, i.e., in ILGS.
• The correct test is whether investment in ILGS achieves the necessary compensation with the greatest precision, not whether it would be prudent to invest in equities.
• ILGS provide a risk-free, inflation-protected return, ensuring the plaintiff is fully compensated over the future period.
• Equities are inherently risky and can result in negative returns, as historical data shows, which undermines their suitability as a benchmark.
• The multiplicand properly incorporates probabilities and contingencies, so the multiplier stage should be a precise mathematical calculation based on risk-free returns.
• The Ogden Tables and Law Commission reports support the use of ILGS-based discount rates and should be adopted by the courts.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court affirmed the fundamental principle that damages must be compensatory, aiming to place the plaintiff as nearly as possible in the position they would have been absent the injury. It rejected the respondents' propositions that damages should be fixed on the assumption that the plaintiff is entitled to invest the award with minimum risk solely in ILGS, and that the multiplier selection is a mere mathematical exercise independent of probabilities.

The Court emphasized that the plaintiff is in no special category different from an ordinary prudent investor and that the court must assume a prudent investment strategy incorporating a diversified portfolio including a substantial proportion of equities. The evidence of the appellants' experts, supported by the investment policy of the Court of Protection and statutory trustee investment rules, was preferred. The Court found that ILGS investments, while less risky, have practical limitations such as gaps in availability, maturity cut-offs, and market fluctuations, making them unsuitable as the sole benchmark for discount rates.

The Court also held that both the multiplicand and multiplier stages involve assessments of probabilities and contingencies, including mortality and employment risks, and that the multiplier is not a purely mathematical figure but a judicial estimate informed by actuarial data and expert evidence.

Regarding the individual cases, the Court conducted detailed reviews of life expectancy, injury severity, and future care needs, adjusting awards accordingly. It reduced life expectancy and injury awards in the first case, adjusted discount rates in the second case, and recalculated multipliers and discounts in the third.

The Court accepted the admissibility of the Ogden Tables as a useful check but rejected the parts advocating ILGS as the appropriate discount rate. It also allowed claims for Court of Protection legal costs where justified, reversing the trial judge's refusal in the first case.

In an appendix, the Court discussed the Duxbury computer-assisted method for calculating capital sums for future dependency, recognizing its advantages over the conventional multiplier/multiplicand and Ogden methods, especially for large awards, and recommended interdisciplinary review for future reforms.

Holding and Implications

The Court ALLOWED the appellants' appeals on the general point of principle.

Specifically:

• In Case 1, the damages award was reduced by approximately £532,173 to £1,086,959, with an order for repayment plus interest at 4.5%.
• The cross appeal by the respondent in Case 1 succeeded only in relation to the award of Court of Protection fees.
• In Cases 2 and 3, the appeals were allowed, setting aside the trial judges' orders, with the respondents' cross appeals dismissed.
• Costs and applications for leave to appeal to the House of Lords were adjourned.

The decision reinforces the continued validity of the conventional approach to discount rates in personal injury damages, rejecting the adoption of ILGS-based multipliers as a new standard. It confirms that damages are to be calculated assuming prudent investment in a diversified portfolio, including equities, and that judicial discretion and assessment of probabilities remain central to the process.

No new precedent was set beyond clarifying these principles and endorsing the conventional approach. The Court also highlighted the potential for improved calculation methods, such as the Duxbury approach, recommending interdisciplinary review for future reform.