Page v. Sheerness Steel Company Ltd

Factual and Procedural Background

The opinion consolidates three personal-injury appeals: (1) a part-time nurse (“Plaintiff 1”) catastrophically injured in a road collision; (2) a six-year-old child (“Plaintiff 2”) who sustained cerebral palsy because of negligent obstetric treatment; and (3) a 24-year-old steel-mill employee (“Plaintiff 3”) who suffered penetrating brain injuries at work. Liability was admitted in every case.

At first instance each trial judge calculated lump-sum damages for future earnings and lifelong care by adopting a discount rate based on Index-Linked Government Stock (“ILGS”). The Court of Appeal reversed that approach, substituted a conventional 4.5 % discount rate tied to equity returns, and correspondingly reduced the awards. All three plaintiffs appealed to the House of Lords (“the Court”).

Legal Issues Presented

1. What is the proper method for selecting the discount rate when converting future pecuniary loss into a lump-sum award—should the court assume investment in ILGS or in a mixed portfolio weighted towards equities?
2. Whether (and in what circumstances) courts may depart from previously accepted “conventional” rates of 4–5 % established in earlier case law.
3. Case-specific issues: correct multipliers, life-expectancy findings, future housing-cost methodology, and deductions for insurance or pension payments.

Arguments of the Parties

Plaintiffs’ Arguments

• The goal is full compensation; risk of under-compensation must be minimised.
• ILGS provide an inflation-proof, virtually risk-free vehicle that precisely matches the notional annuity courts assume when fixing damages.
• Gravely injured plaintiffs cannot tolerate equity-market volatility because annual care costs are inflexible and immediate.
• Modern actuarial material (e.g., Ogden Tables) and Law Commission research support an ILGS-based rate of about 3 % net.

Defendants’ Arguments

• Courts should assume plaintiffs will behave as “ordinary prudent investors,” i.e., hold approximately 70 % equities and 30 % gilts, giving a net real return of roughly 4–5 %.
• Plaintiffs owe a duty to mitigate loss, which entails pursuing higher-yield equity investment.
• The Court of Protection typically invests substantial damages in diversified equity portfolios, indicating that approach is prudent.
• ILGS are not entirely risk-free (limited maturities, market price fluctuations, nursing-cost inflation outstripping RPI).

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by reaffirming that damages must offer “as nearly as possible” 100 % compensation. It analysed the multiplier/multiplicand model and concluded that historic reliance on a 4–5 % discount rate was a pragmatic response to the absence of reliable inflation-proof investments. Since ILGS became widely available (1981), that rationale no longer holds.

Key analytical steps:

1. Risk Profile. Equity markets are volatile; seriously injured plaintiffs cannot defer selling in a slump because their annual care costs are non-negotiable. Early capital depletion may never recover.
2. ILGS as Benchmark. ILGS provide virtually risk-free, inflation-indexed capital and income. Therefore they are the best proxy for the “risk-free real return” assumed by the annuity model.
3. Fairness between Parties. Defendants argued a plaintiff must invest like an “ordinary” investor, but the Court held that the plaintiffs’ constrained position justifies a more cautious assumption.
4. Guideline v. Rule. Discount rates are guidelines, not rigid rules; courts may update them without invoking the 1966 Practice Statement.
5. Net Rate Selection. Average ILGS yields over the preceding 6–12 months hovered near 3.0–3.3 % gross. After an indicative 14–15 % tax allowance, a round figure of 3 % net best balances simplicity and accuracy.
6. Consistency. For ease of settlement and to avoid expert battles, a single figure (3 %) should apply generally unless the Lord Chancellor prescribes otherwise under the Damages Act 1996.
7. Case-specific Adjustments. The Court reinstated original multipliers, life-expectancy findings and care costs save for minor corrections (e.g., pain-and-suffering award for Plaintiff 1 reduced to the Court of Appeal’s £100,000; housing-cost calculation in Plaintiff 2 retained at 3 % rate).

Holding and Implications

HELD: All three appeals allowed. The appropriate discount rate for future-loss calculations is 3 % net, derived from ILGS yields. First-instance awards were largely restored, subject to recalculation where necessary on the 3 % basis.

Implications: damages in serious personal-injury cases will rise significantly; insurers and public-sector defendants must re-price liabilities; expert evidence on equity returns is generally unnecessary; the Lord Chancellor may prescribe new rates under the Damages Act 1996, but until then courts should apply the 3 % guideline.