Warriner v Warriner
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUMMERY,LORD JUSTICE DYSON,LORD JUSTICE LATHAM |
| Judgment Date | 24 January 2002 |
| Neutral Citation | [2002] EWCA Civ 81 |
| Docket Number | B3/2001/2405 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 January 2002 |
[2002] EWCA Civ 81
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(His Honour Judge Murphy: Sitting as a Deputy High Court Judge)
Lord Justice Mummery
Lord Justice Latham
Lord Justice Dyson
B3/2001/2405
MR JOHN LEIGHTON WILLIAMS and MR ANTHONY SEYS LLEWELLYN (Instructed by Beachcroft Wansbroughs, 100 Fetter Lane, EC4A 1BN) appeared on behalf of the Appellant.
MS LAURA COX QC and MS PATRICIA HITCHCOCK (Instructed by Irwin Mitchell, St Peter's House, Hartshead, Sheffield, S1 2EL) appeared on behalf of the Respondent.
Thursday, 24th January 2002
I will ask Dyson LJ to give the first judgment.
The claimant suffered serious brain damage in a road traffic accident on 20th February 1998. It is said on her behalf that she currently has a life expectancy of 46 years. Her affairs are now administered by the Court of Protection. She commenced proceedings against the defendant in 1998. The defendant has admitted liability, but quantum remains in issue.
A case management conference was held on 22nd October 2001 by His Honour Judge Murphy QC sitting as a Deputy High Court Judge. The claimant wished to rely on the expert evidence of Mr Hogg dated 19th October 2001. In his report, Mr Hogg states that in his opinion multipliers assessed on the basis of a 2.5% discount rate are unfair for claimants who are awarded large sums of damages which are expected to compensate them for future losses over a long period of time. It is his opinion that in cases such as that of this claimant, the appropriate discount rate for the quantification of future losses is 2%, and not 2.5%, the figure stated by the Lord Chancellor in the Damages (Personal Injury) Order 2001 ("the Order") that was made on 25th June 2001, and to which I shall come shortly. Mr Hogg's report was first disclosed to the defendant at the hearing of the case management conference. The judge made various case management decisions. These included an order that:
"1.Evidence from a Forensic Accountant being necessary, the parties have permission to adduce evidence from Forensic Accountants dealing with the issue of the discount rates to be applied when assessing future loss multipliers."
Mr Hogg's report was duly served on the defendant on 22nd October.
The defendant had objected to the order permitting forensic accountancy evidence in relation to the discount rate issue on the grounds that the application was too late. It was said that it was wrong to allow evidence on an issue of such great importance and complexity to be admitted so shortly before the trial, which at that time was due to start on 14th November. No objection was taken on 22nd October on the basis that the evidence should not have been admitted because it did not support a case that had real prospects of success that the discount rate should be 2% rather than 2.5%.
On 26th October, the claimant served a revised schedule of damages based on a 2% discount rate. The schedule pleads substantial sums under heads which are typical for this type of case, including claims for the cost of future care and for loss of future earnings. On the basis of a 2% discount rate, the total sum claimed is in excess of £3 million. On any view, this is a substantial claim. It was conceded on behalf of the defendant before the judge that it was worth more than £1 million.
On 29th October, an application was made to the judge on behalf of the defendant that he should reconsider his decision to permit evidence from expert accountants as to the correct discount rate. But the judge held that, since the order of 22nd October had been drawn up, he had no jurisdiction to reconsider the matter. It is clear, however, that even if he had reconsidered the matter, he would not have reached a different conclusion, since he refused the defendant permission to appeal his earlier decision. He gave these reasons for refusing permission to appeal:
"The claimant asserted that this was an exceptional case for the purposes of the discount rate to be applied. S1(2) of the Act contemplates there being exceptional cases. The difference in damages could be as much as £500,000. I gave permission for the evidence to be heard and permitted the [defendant] reasonable time for obtaining [his] own expert. Overriding principle applies."
He adjourned the hearing of the trial of quantum until February 2002. The defendant was later given permission to appeal against the decision of 22nd October by Hale LJ.
The Act to which the judge was referring was the Damages Act 1996, which so far as material provides:
"1(1) In determining the rate 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, subject to and in accordance with the rules of court made for the purposes of this section, 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."
As I have said, on 25th June 2001 the Lord Chancellor made the Order prescribing a rate of 2.5%. His reasons for selecting that figure were published on 27th June. The following day, an error in calculating the figure for the three year average yield on Index-linked Government Stock ("ILGS") which formed an important part of the Lord Chancellor's decision was brought to his attention. On 22nd July, the Lord Chancellor published fresh reasons for the figure of 2.5% based on the accurate three-year average yield.
It is necessary to refer to some passages in the Lord Chancellor's reasons. He said that he had decided to set a single rate to cover all cases:
"It will eliminate scope for uncertainty and argument about the applicable rate. Similarly, I consider it is preferable to have a fixed rate, which promotes certainty and which avoids the complexity and extra costs that a formula would entail."
He recognised that the rate would be bound to be applied in a range of different circumstances over a period of time: that was why he set the rate to the nearest half percent. He said that he had decided that he should:
"set a rate which should obtain for the foreseeable future. I consider it would be very detrimental to the reasonable certainty which is necessary to promote the just and efficient resolution of disputes (by settlement as well as by hearing in court) to make frequent changes to the discount rate. Therefore, whilst I will remain ready to review the discount rate whenever I find there is a significant and established change in the relevant real rates of return to be expected, I do not propose to tinker with the rate frequently to take account of every transient shift in market conditions."
Later he said:
"Setting a single rate to cover all cases, whilst highly desirable for the reasons given above, has the effect that the discount rate has to cover a wide variety of different cases, and claimants with widely differing personal and financial characteristics. Moreover, as has become clear from the consultation exercise (including responses by expert financial analysts to questions which I posed them), the real rate of return on investments of any character (including investments in Index-Linked Government Securities) involves making assumptions for the future about a wide variety of factors affecting the economy as a whole, including for example the likely rate of inflation. In these circumstances, it is inevitable that any approach to setting a discount rate must be fairly broad-brush. Put shortly, there can be no single 'right' answer as to what rate should be set. Since it is in the context of larger awards, intended to cover longer periods, that there is the greatest risk of serious discrepancies between the level of compensation and the actual losses incurred if the discount rate set it not appropriate, I have had this type of award particularly in mind when considering the level at which the discount rate should be set."
The Lord Chancellor then explained in some detail why he had alighted on 2.5% rather than any other rate. He took a simple average of ILGS yields at an assumed rate of inflation of 3%, and arrived at an average gross yield of 2.46%. He concluded, therefore, that the net average yield on ILGS as adjusted to take account of tax lies in the range of 2% and 2.5%. Given that the rate was to be set to the nearest 0.5%, the choice lay between 2% and 2.5%. He then explained in detail why he opted for 2.5% rather than 2%. In summary, he gave these reasons: (a) the market in ILGS was at present distorted, so that the prevailing yields were artificially low; (b) the Court of Protection, even in the wake of the decision of the House of Lords in Wells v Wells [1999] 1 AC 345 had continued to invest on behalf of claimants in multi-asset portfolios, such that real rates of return well in excess of 2.5% could be expected; and (c) it was likely that 'real' claimants with large awards of compensation would not be advised to invest solely or even primarily in ILGS, but rather in a mixed portfolio.
Finally the Lord Chancellor said this:
"Finally, in deciding that a single rate of 2.5% should have been set by me on 25 June 2001, I have borne in mind that it will, of course, remain open for the Courts under section 1(2) of the Damages Act...
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