Helmot v Simon 07.03.12
Privy Council dismisses appeal against decision of Guernsey Court of Appeal allowing discount rates of minus 1.5% for earnings related losses and 0.5% for other future losses.
If the approach set out in this judgment were to be applied by the English courts, it would significantly increase claimants’ damages. However, the English courts are not bound by this decision and the applicable discount rate remains at 2.5%, pursuant to the Damages Act 1996 and fixed in June 2001 by the Lord Chancellor.
By way of example, a future care claim of an 18 year old man assessed at £100,000 per annum when applying a 2.5% discount would produce a lump sum award for this head of loss of £3,252,000 (multiplier: 32.52). With a discount rate of minus 0.5% this increases the claim to £5,822,000 (multiplier: 58.22): an increase of £2,570,000. When applied to a portfolio of 100 catastrophic injury cases the potential increase in global reserves is staggering.
This decision will however reinforce the pressure on the Lord Chancellor to review the discount rate. It is anticipated the MoJ will issue a consultation paper on the issue, to be published before Easter.
Insurers can take some comfort that, at this stage, the law remains as we know it. However, once a timetable for consultation is available, we may find claimants’ solicitors making tactical applications to adjourn or stay their clients’ cases, pending review of the discount rate. Such an attempt was rejected by the High Court in November 2010 in the case of Love v Dewsbury, where we represented the Defendant. It remains to be seen whether the courts would maintain this approach once a consultation paper has been issued.
We await to see the publication of the MoJ consultation and the final approach the Lord Chancellor takes and whether he bows to claimant pressure to reduce the discount rate.
We intend to make detailed submissions to the Lord Chancellor as to the appropriate level of the discount rate.
Manuel Helmot, who was then aged 28, sustained very serious injuries in November 1998 when he was struck by a car driven by the Defendant whilst he was riding his bicycle. Liability was not in dispute. The injuries included severe brain injury, partial loss of vision and loss of control of his right arm. He will require specially adapted accommodation and 24-hour care for the rest of his life. The key issue raised by the claim was the appropriate discount rate to be applied, there being no statutory discount rate in Guernsey.
At first instance, the Royal Court applied a discount rate of 1% and awarded the Claimant damages of over £9m.
In a landmark ruling in September 2010, the Guernsey Court of Appeal overturned this decision and instead applied a discount rate of minus 1.5% to the Claimant’s largest future losses, care and loss of earnings, and a 0.5% discount rate for all non-earnings related future losses. The reduced discount rates increased the Claimant’s damages by £5m, to approximately £14m.
The Guernsey Court of Appeal accepted the net return on index-linked gilts in 2010 of 1.13%. A further 0.5% was deducted to allow for the agreed difference between UK and Guernsey rates of inflation, to arrive at a real net of return of 0.63%. This was rounded down to 0.5% and was applied to all the Claimant’s non-earnings related future losses.
In respect of future care and loss of earnings, the Guernsey Court of Appeal applied a further discount rate of 2% to the discount rate of 0.5%, to compensate the Claimant for the increase in average earnings over and above the rate of inflation.
The Court accepted, like the English Court of Appeal in Tameside & Glossop Acute Services NHS Trust v Thompstone , that earnings rose faster than the RPI and the margin was 2% and likely to persist in the future.
Giving the leading judgment in the Privy Council, Lord Hope confirmed:
- English common law has persuasive force in Guernsey in areas not governed by Guernsey statutes or customary law, in much the same way as it has in Scotland. That is not to say however that English law will be applied without an inquiry as to whether the underlying conditions in the respective jurisdictions are truly comparable.
- One important difference is that s.2(1) of the Damages Act 1996, which provides for orders for periodical payments to be made, has no direct application in Guernsey. It is open to the parties to agree to structure the damages, but a court cannot make an order in this regard that can be enforced without further recourse to the courts.
- Accordingly, it is the way English law dealt with such cases before the 1996 Act was enacted that should be referred to for guidance.
Privy Council decision
The Privy Council unanimously dismissed the appeal against the Guernsey Court of Appeal:
- The discount rate of 2.5% fixed by the Lord Chancellor has no current evidential basis and the proper course is to disregard this rate altogether.
- If the evidence shows inflation will affect different heads of loss in different ways and the differential is capable of being evaluated, the Court should not close its mind to using different discount rates for different heads of loss.
- In principle there can be no objection to a “discount” rate operating to increase a lump sum, if this is necessary to ensure the lump sum will continue to be large enough to meet losses to be incurred in the future.
- The Court of Appeal was right to intervene and substitute the discount rates it had, on the grounds these figures had been established by the evidence.
- It hoped legislation would be introduced in Guernsey to enable the court to order the payment of damages by means of periodical payments.