Warren v Northern General Hospital N.H.S. Trust (No. 2)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE STUART-SMITH |
| Judgment Date | 04 April 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0404-10 |
| Docket Number | Case No: QBENF 2000/0100/A2 |
| Court | Court of Appeal (Civil Division) |
| Date | 04 April 2000 |
[2000] EWCA Civ J0404-10
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QBD (Mr Robert Smith QC
sitting as a Deputy Judge of the High Court)
Lord Justice Stuart-smith
Lord Justice Mummery and
Lord Justice Tuckey
Case No: QBENF 2000/0100/A2
Stephen Irwin QC & Robin Oppenheim (instructed by Messrs Irwin Michell for the Appellant)
Philip Havers QC & Mary O'Rourke (instructed by Messrs Trowers Hamlins for the Respondent)
Introduction
This is the judgment of the court. The appeal raises the question whether the court should alter the discount rate, set by the House of Lords in Wells v Wells [1999] 1 AC 345 (judgment delivered on 16 July 1998), at 3%, and if so to what new rate. A further question also arises whether the impact of taxation on the fund is such that, even if the general rate is not altered, it should be in this case.
The facts
Luke Warren was born on 14 November 1991 at the Northern General Hospital in Sheffield. Unfortunately there was inappropriate delay when foetal distress became evident. In the result he suffered severe post natal asphyxia which resulted in very severe disability due to cerebral palsy. On 25 February 1999 the defendants admitted liability to compensate the claimant. The trial on quantum was heard by Mr Robert Smith QC, sitting as a deputy judge of the High Court. On 26 January 2000 he gave judgment for the claimant for a total sum of £3.1 million. Of that sum £135,000 was in respect of pain, suffering and loss of amenity. The amount in respect of that is the subject of an appeal heard by the Court of Appeal consisting of five judges, and has now been increased to £175,000.
The major elements to the award were the cost of future care, increased recurring costs resulting from the disability and loss of future earnings. It is unnecessary for the purpose of this appeal to break these elements down. The judge found that the fund for investment to take care of these future expenses and lost income was £2.5 million.
The claimant's expectation of life was until the age of 55, leaving 47 years unexpired for the future post-trial. Taking a discount rate of 3.0% the judge applied the appropriate Ogden table multiplier to the various multiplicands for future loss of earnings and costs of care. The judge rejected the submission made on behalf of the claimant that he could and should reduce the discount rate because of the change in economic circumstances since the decision in Wells v Wells. He concluded that although the average gross yield of Index Linked Government Securities (ILGS) over the three year period to trial was 2.8% (with a net yield of 2.5%) as compared with the average gross yield of 3.53% (net 3.0%) at the time of Wells v Wells, he was precluded by the decision of their Lordships in that case from reconsidering the rate prior to the Lord Chancellor setting a new rate under the Damages Act 1996; secondly he held that even if he was not so precluded, he would not alter it.
The Appeal
By his appeal the claimant challenges the judge's decision on both these points. Further, by an amendment to the grounds of appeal it is contended that the incidence of tax requires an uplift in the multiplier or lower discount rate in order to provide just compensation to the claimant.
The Court of Appeal held that courts should continue to apply discount rates of 4 to 5 % for the calculation of future loss and expenditure which had been the rate consistently applied by the courts since Mallett v McMonagle [1970] AC 166. This being the net rate of return from prudent investment of a fund. The House of Lords allowed the claimants' appeals in the three linked cases. Their Lordships held:
"…..that the purpose of an award of damages in tort was to make good to the injured plaintiff, so far as money could do so, the loss that he had suffered as a result of the wrong done to him; that in awarding damages in the form of a lump sum the court had to calculate as best it could the sum that would be adequate, by drawing down both capital and income, to provide periodical sums equal to the plaintiff's estimated loss over the period during which that loss was likely to continue; that the injured plaintiff was not in the same position as an ordinary prudent investor and was entitled to the greater security and certainty achieved by investment in index-linked government securities, in respect of which the current net discount rate was 3 %."
The Damages Act 1996`
Section 1 of this Act provides:
"(1) In determining the return to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury the court shall,……take into account such rate of return (if any) as may from time to time be prescribed by an order made by the Lord Chancellor.
(2) Subsection (1) above shall not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question."
It seems clear that once the Lord Chancellor sets a rate, or one or more rates, the courts will apply that to the generality of cases, subject to the power of the court in a particular case, for good reason applying a different rate.
The Lord Chancellor has not yet set a rate under the Act. But he has issued a consultation paper, by coincidence two or three days before this appeal was heard. The paper calls for responses by 31 May 2000. It is said that it is the Government's intention to set a rate before the summer recess.
Can the court set a rate different from 3.0 %?
All their Lordships in Wells v Wells considered that the appropriate rate was 3%, although Lord Lloyd of Berwick would have preferred a bracket. Three members of the House of Lords clearly stated that the rate should not be altered until the Lord Chancellor set a rate under the Act (Lord Lloyd at p376A, Lord Hope of Craighead at p393F and Lord Clyde at p397F). What Lord Clyde said was:
"……what rate should be adopted at least for the immediate future, pending a reconsideration of the problem by the Lord Chancellor. In that regard there are clear advantages in the recognition of a single formula which can be universally adopted for the calculation of recurring losses and expenses over any future tract of time. While simplicity may carry with it the risk of imprecision that risk should be offset by the advantage of saving the time and expense which might otherwise be spent in the necessity for elaborate inquiry with expert witnesses. A conventional formula may seem artificial but now that detailed calculations and tables founded on reasonably reliable bases are available full advantage ought to be taken of them. The certainty of the result should produce economies in achieving agreement and settlement which should outweigh any rough edges of imprecision. Of course such a formula should not be seen as set in stone. It can serve as a general guide, open to modification and adjustment to meet the demands of particular cases. I would favour a rate at the present time of 3 % net."
Mr Irwin QC, on behalf of the Appellant, submitted that in that passage Lord Clyde was not saying that the rate should be 3 % until the Lord Chancellor set a rate. That submission is too subtle for us. Mr Irwin further submitted that these statements were not necessary for the decision and not binding. We do not agree. The House clearly considered it was part of their decision to lay down guidelines. It is part of the guideline to say for how long it should operate or how it should be altered. Even if it was not part of the decision, we do not feel free to depart from an opinion so clearly expressed by the majority of the House.
Mr Irwin relies on the speeches of Lord Steyn and Lord Hutton. At p388E the former said:
"While this figure of about 3 per cent should not be regarded as immutable, I would suggest that only a marked change in economic circumstances should entitle any party to reopen the debate in advance of a decision by the Lord Chancellor."
Lord Hutton at p404H said:
"I further consider that in order to promote and facilitate settlements and to simplify the assessment of damages in actions which come on for trial the rate of 3 per cent taken by this House in the present appeals should be applied in other cases notwithstanding fluctuations in the return on ILGS until the Lord Chancellor prescribes a different rate pursuant to his power under section 1 of the Damages Act 1996 or unless there is a very considerable change in economic circumstances."
Mr Irwin submits that the substantial drop in the gross return from 3.53% at the time of Wells v Wells to 2.84% at the time of trial on ILGS is just such a very considerable change in economic circumstances. He seeks to reinforce this submission by comparing the monthly, yearly and three-yearly averages in the gross rate between that prevailing at the time of Wells v Wells to that in February 2000, being the last month for which the figures are available. They are as follows:
Monthly Monthly Yearly 3 yearly average
Wells v Wells 2.85%3.28%3.53%
Feb....
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