Brief facts

1. The Appellant (Claimant, Manuel Paul Helmot) was struck on the head whilst cycling by a car driven by the Respondent (Defendant, Dylan Smith). He suffered severe brain injury, personality change, partial loss of vision and limb movement. It was agreed his life expectancy was reduced by five years and he would require adapted accommodation and 24 hour care for the remainder of his life. Liability was admitted and the claim proceeded to trial on quantum only.

First instance judgment

2. The Jurats of the Guernsey Royal Court had to consider the appropriate discount rate to apply to the Appellant’s future loss. The Royal Court applied a discount rate of 1% to all the Appellant’s future losses. The Jurats used, as their starting point, the rate of return set by the Lord Chancellor for index-linked gilts and then adjusted it to reflect changes in the net return that had taken place in the nine year period since the setting of the discount rate in 2001.

3. The Jurats accepted the net return achievable on a discount rate of 2.5% in 2001 in Guernsey was 2.18% whilst the net return in 2010 was 1.13%. This equates to a reduction since 2001 of 1.05%. The Jurats deducted 1.05% from the Lord Chancellor’s discount rate of 2.5%, which represented the decline of net yields on index linked gilts since 2001. This reduced the discount rate to 1.45%.

4. A further 0.5% was deducted from 1.45% reducing the discount rate to 0.95%. This reduction represented the amount by which Guernsey RPI exceeded UK RPI. This produced a net rate of return to a Guernsey resident of 0.95% and the Court rounded the Appellant’s discount rate to 1%. The Appellant was awarded damages of £9,337,852.27.

Court of Appeal judgment

5. Both parties appealed to the Guernsey Court of Appeal.

6. The Appellant challenged the 1% discount rate as too high and argued:

i. The Lord Chancellor’s rate in Guernsey is irrelevant and should not have been used by the Jurats as a starting point. The Jurats should have adopted the current Guernsey net return of 1.13% as a starting point and reduced this by 0.5% to reflect the higher rate of inflation in Guernsey. This should have produced a net return of 0.63%, which should have been rounded down to 0.5%. This should have been applied to all future losses excluding care and loss of earnings.

ii. The 0.5% discount rate should have been reduced by a further 2% representing the increase in the rate of earnings inflation over UK RPI tracked by index-linked gilts. This further adjustment would produce a net rate of return of minus 1.5%.

7. The Respondent argued the Jurats should not have merely used the Lord Chancellor’s discount rate as the starting point but as fixing the appropriate discount rate in Guernsey.

8. The Guernsey Court of Appeal held:

i. The rate of return set by the Lord Chancellor of 2.5%, pursuant to the Damages Act 1996, is irrelevant in Guernsey. The question of the applicable rate of return is a fact to be decided on evidence.

ii. The Jurats should have used the rate of return of index linked gilts in 2010, namely 1.13% net return, and deducted the difference between UK and Guernsey rates of inflation to arrive at a net return of 0.63% which should have been rounded down to 0.5%. This discount rate should apply to all non-earnings related future losses.

iii. The rate by which earnings inflation exceeds RPI is 2% and it is likely that over the long term this would persist. Accordingly, the appropriate discount for earnings related losses, namely care and loss of earnings, was minus 1.5%, deducting 2% from the Guernsey net rate of return of 0.5%.

9. The Court of Appeal’s judgment increased the Appellant’s damages by almost £5,000,000. By way of illustration, a discount rate of 2.5%, applying Ogden Table 1 at age 40 produces a multiplier of 25.79 whilst a 0% discount rate produces a multiplier of 43.52. This increase in the multiplier of 17.73 if applied to an annual care claim of £100,000 would increase the Appellant’s future care by £1,773,000 from £2,579,000 to £4,352,000. This is based on a discount rate of 0% and not even minus 1.5%.

10. Will this Guernsey judgment, which has no application in the English courts, now prompt the Lord Chancellor to revisit the current discount rate of 2.5% set in June 2001 and will he exercise his power pursuant to the Damages Act 1996?

11. Will the Lord Chancellor, like the Guernsey Court of Appeal, consider applying one discount rate for all future losses or distinguish earnings related losses? We are now accustomed to using different indices for future losses paid by way of periodical payments, with RPI for non-earnings related losses, ASHE median for earnings and ASHE 6115 for care and case management. If different indices can be used, why not different discount rates?

12. If the Lord Chancellor does not exercise his power to reconsider the appropriate discount rate we anticipate the courts will be asked to revisit this issue. Any reduction in the discount rate will significantly increase damages payable to claimants.