The High Court has rejected an application to adjourn the computation of damages for future losses pending review of the discount rate in Love v Dewsbury 19.11.10. In a case where Kennedys was instructed by insurers, Mr Justice O’Brien confirmed that the High Court was required to apply the law as it stood.

Following judgment in Helmot v Simon (unreported) 12.01.10 it was apparent that the Lord Chancellor had indicated that he might reconsider whether it was appropriate to change the discount rate of 2.5 per cent. Sumption, J.A. held in the case of Helmot that the correct discount rate to apply was minus 1.5 per cent for the Claimant’s lost earnings and the cost of employing his carers.

It was subsequently reported on 9 November 2010 that the Lord Chancellor had agreed to review the discount rate for personal injury claims, in response to a threat of judicial review by the Association for Personal Injury Lawyers (APIL). The Lord Chancellor has stated, however, that it will be necessary to undertake the review before it is decided whether the discount rate should be reduced or increased, or whether it should remain at 2.5 per cent and cannot agree to APIL’s request that the discount rate should be reduced. In the meantime, it is understood that the Association of British Insurers (ABI) has responded formally to the announcement that there will be a review.

Background

The court was required to assess damages in an action by the Claimant against the Defendant arising from a road traffic accident. The Claimant, aged 17 at the time of the hearing (and who was six years old at the time of the accident), had been a passenger in a vehicle which was hit by a car travelling on the wrong side of the road. The Claimant sustained a head injury of moderate to severe range and developed a number of physical difficulties including poor coordination and petit mal epilepsy. He also sustained psychological difficulties which included an adjustment order for several years after the accident (resulting in mixed anxiety and mood disturbance) and exacerbation of a weakness in some language based skills.

The prognosis, particularly in respect of precisely how the Claimant will eventually function in society when an adult, remains uncertain and was a contentious point between the parties.

Judgment was entered for damages to be assessed on 22 November 2006. Due to the uncertainty of the prognosis, an order was made in November 2008 for the parties to provide updated quantum evidence at the end of 2009 and the matter was listed for trial beginning 15 November 2010.

At the hearing, the Defendant argued that the variable nature of the Claimant’s future care needs meant that a conventional lump sum award was appropriate. Neither party had been able to identify a suitable product available (or likely to become available) on the UK market which would provide security for an award of periodical payments. The Defendant’s insurers have been in “run off” for a significant period. It was agreed that a lump sum award was appropriate in this particular circumstance.

An issue arose as to whether it was appropriate for the High Court not to apply the discount rate of 2.5 per cent, applicable to lump sum payments of damages under the Damages Act, 1996 and adjourn the computation of damages for future losses.

The Claimant argued that a change in the discount rate would lead to a very substantial increase in the multipliers. He invited the Court to put off the question of what is the appropriate multiplier in this case until after the Lord Chancellor has reviewed the discount rate. In the alternative, the Claimant invited the Court to decide the issue on the basis of the current discount rate giving the Claimant the right to reapply to the Court for a variation in the Court’s Order should the discount rate be altered after the review.

The Defendant argued that a review of the discount rate may not result in an adjustment to the rate. Accordingly, it would be wholly inappropriate for the resolution of claims to be delayed for what may be an extended period, when there is a clear provision as to the rate to be applied.

Decision

O’Brien J determined it was not for him to change the law. The High Court was required to determine the law as it stood and the Claimant had not produced any evidence to show that there were “exceptional circumstances” not to apply the standard discount rate as it stood (as confirmed in Warriner v Warriner [2002]).

The discount rate had been known when the claim was issued and as it proceeded, but no application had been made to adjourn the case. Accordingly, an adjournment of those aspects of the claim affected by the discount rate was inappropriate.

O’Brien J held that to adopt the Claimant’s alternative suggestion of allowing the right to reapply should the discount rate be altered would “leave the matter in limbo. To do so would be to move the goalposts just before the final whistle blows with indefinite time added on.”

The Claimant was given permission to appeal.

Comment

The fact the Lord Chancellor had stated his intention to carry out a review of the discount rate only days before trial was a potential windfall for the Claimant. However, in the absence of an application either to adjourn or to argue that the circumstances of this case should be considered "exceptional"; insurers can take some comfort that the law remains as we know it. Further comfort can be taken from the fact that a timetable for review has not been set and it is unlikely to be completed promptly. The review will reflect the ‘expected’ rates of return not historical ones.

However, whilst clarification has been provided at the present time, if and when a timetable for review does commence, we may find claimants’ solicitors making tactical applications to adjourn or stay their clients’ cases.

Kennedys intends to make detailed submissions to the Lord Chancellor as to the appropriate level of the discount rate.