Page v Plymouth Hospitals NHS Trust
| Jurisdiction | England & Wales |
| Judge | Mr Justice Davis |
| Judgment Date | 20 May 2004 |
| Neutral Citation | [2004] EWHC 1154 (QB) |
| Court | Queen's Bench Division |
| Date | 20 May 2004 |
| Docket Number | Case No: Q4/TLQ/0132 |
[2004] EWHC 1154 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Davis
Case No: Q4/TLQ/0132
Mr Andrew Spink QC and Miss Cara Guthrie (instructed by Wolferstans) for the Claimant
Mr Michael de Navarro QC and Miss Mary O'Rourke (instructed by Bevan Ashford) for the Defendant
Hearing dates: 5 th and 6 th May 2004
Judgment Approved by the court for handing down.
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Davis J:
Introduction
Callum Page was born by emergency caesarean section on the 21 st December 1996 at a hospital in Plymouth controlled and managed by the Plymouth Hospitals NHS Trust. His Apgar score was 0 after 1 minute. Thereafter there were incidents of fits and hypoxic ischaemic encephalopathy. It was subsequently identified that he had predominantly dyskinetic quadriplegic cerebral palsy; and he also has severe motor developmental impairments. His intellectual capacities, however, are unimpaired.
On the 15th January 2001 proceedings were issued on his behalf against the Defendant Trust. It was said that his injuries were caused by the negligence of the Defendant's employees at the hospital. Liability has since been admitted. Quantum is in dispute, and a trial on the issue of quantum is scheduled for the end of 2004.
On any view, the projected amount of damages is likely to be very substantial. The claim currently is for a sum in excess of £5 million. A counter-schedule put in on behalf of the Defendant proposes a figure of around £2.25 million. For the purposes of the hearing before me, the Defendant has been prepared to proceed on the assumed basis that the award of damages will not be less than £2 million.
Although there is a dispute as to life expectancy, it is agreed that it is significant. The Claimant puts it to the age of 74.4 years and proposes a life multiplier of 33.5The Defendant currently puts life expectancy to the age of 63.7 years and proposes a life multiplier of 30.51. Callum is now, of course, 7 years old.
As part of the claim for damages the Claimant seeks damages for the projected costs (in the form of investment advice and fund management charges) for the investment management of his award; and has relied on two reports of Mr Rowland Hogg FCA for that purpose. The Defendant disputes the Claimant's entitlement to such an award. It seemed to the parties that the matter could appropriately be dealt with as a preliminary issue; and in the event a trial of such issue was directed by the Master by Order dated 13 th January 2004. The issue is rather compendiously worded. It reads as follows:
"Whether the Claimant (who is seven years old and has cerebral palsy, but whose funds are not anticipated to be placed under the control of the Court of Protection on his obtaining majority) is entitled to recover, as part of his damages, the predicted costs of investment advice and fund management charges incurred in the management of his award, which will exceed £2m, or whether such a claim is inadmissible."
It is that issue which has come on for trial before me. The hearing lasted 2 days. The Claimant was represented by Mr Spink QC and Miss Guthrie. The Defendant was represented by Mr de Navarro QC and Miss O' Rourke.
I was told that the issue debated before me has wider implications. The issue has generated acute differences of opinion amongst those specialising in personal injury litigation and advice: as seems to be borne out also by differing view points advanced by eminent textbooks in this field. It also appears that the correct resolution of this issue could have a significant impact on the size of total awards in cases of this nature. In the present case, for example, Mr Hogg has calculated that the sum needed to cover the cost of managing the investment of the Claimant's damages for future loss at nearly £530,000 on an award of £2,500,000; and nearly £930,000 on an award of £5,000,000. Mr de Navarro has made it clear that, if there is to be a full trial on this matter, these figures are disputed root and branch; but it is, all the same, an indication of what claimants may seek to claim in cases such as this.
I should add that counsel before me were agreed that the preliminary issue before me did not extend to the administration costs of the High Court's involvement (through the Public Trustee's Office) in managing the Claimant's affairs while he was under 18: although the issue would extend to the fees of any brokers that the High Court may retain to advise on investment of the award. I should also observe that counsel before me asked me to proceed, for the purposes of this preliminary issue, on the footing that "investment advice and fund management charges" were to be taken to include, and not to be differentiated from, actual transaction costs: and no separate legal argument as to transaction costs was advanced before me. I think this worth pointing out, since one can see some possibility for differentiation; but I proceed on that agreed footing, as asked, for the purposes of this preliminary issue.
The Legal Background.
To explain how this point has arisen it is necessary to go into some legal background.
The fundamental principle is this. The object of an award of lump sum damages is as nearly as possible to provide full compensation for the injury which a claimant has suffered: that is, to place the injured party as nearly as possible in the same financial position that that party would have been in but for the tort. The aim is to award such a sum of money as will amount to no more and no less than the net loss. It is acknowledged that this principle may necessarily have to operate in a rough and ready way and there may well be imprecision in the result in individual cases. But that, nevertheless, remains the object: see Wells v Wells [1999] 1 AC 345.
For very many years, the conventional approach involved the court calculating the net annual loss, typically comprising in the usual case as its principal elements the projected loss of future earnings and the cost of future care. To that (the multiplicand) there is applied the multiplier, calculated by reference to the number of years the loss is projected to last, adjusted to reflect contingencies and also adjusted to allow for the fact that the claimant will be receiving the lump sum award and will have it available to him earlier than otherwise would have been the case.
For a long time courts proceeded on the assumption that the discount to be applied in calculating the multiplier, reflecting what was called "the real rate of return" on investment after tax, was to be between 4% and 5%. The real rate of return was projected as the return after inflation: it being assumed that appropriate investment by the reasonable claimant would be in a mixed portfolio (essentially of equities, cash and gilts) which would cover anticipated inflation. The measure of the discount rate to be applied was thus the rate of return reasonably to be expected on the sum if invested so as to enable a claimant to meet the whole amount of his loss during the period which had been taken for it by the expenditure of income and capital. Further, as put by Lord Hope of Craighead in Wells v Wells at p 391 B-D:
"The assumptions to be made at the stage of selecting the discount rate are simply these. First, it is to be assumed that the lump sum will be invested in such a way as to enable the plaintiff to meet the whole amount of the losses or costs as they arise during the entire period while protecting the award against inflation, which can thus be left out of account. Secondly, it is to be assumed that that investment will produce a return which represents the market's view of the reward to be given for foregoing the use of the money in the meantime. This is the rate of interest to be expected where the investment is without risk, there being no question about the availability of the money when the investor requires repayment of the capital and there being no question of loss due to inflation"
A full exposition of the history of, and rationale for, the courts' approach to the application of an appropriate discount rate can be found in the Court of Appeal's judgment in Wells v Wells [1997] 1 WLR 652; [1997] PIQR Q1: as well as in the speeches in the House of Lord's decision.
In 1981, index-linked gilt-edged stock (ILGS) was introduced by the government as a marketable security. During the 1980's a body of opinion held that the discount rate should preferably be calculated by reference to the yield on ILGS. However the traditional approach, on the footing of presumed investment in a mixed portfolio (including equities), continued to hold sway in the courts. In 1994 a working party chaired by Sir Michael Ogden QC strongly advocated the adoption of the ILGS discount rate as the basis for the appropriate multiplier in place of the customary 4% to 5%. That recommendation in essentials was followed by the Law Commission in its own recommendations in the Law Commission Report No 224.
In Wells v Wells (and two related cases) the first instance judges were prepared to depart from the traditional approach in fixing the appropriate multiplier. They adopted a discount rate by reference to ILGS. In essence, their reasoning was that (applying the fundamental principle) the question was not whether it would be prudent for a claimant to invest in equities but whether investment of the award in ILGS would achieve the necessary object of compensation with greater precision: and in their view investment in ILGS would do...
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...very large sums of money. This goes far beyond mere investment advice, and in my view is not caught by the principle stated in Page v Plymouth Hospitals NHS Trust [2004] 3 All ER 367 and in Eagle v Chambers (No 2)(CA) [2004] 1 WLR 3081. In the latter case the essential reasoning of the Cour......
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