Wells v Wells

JurisdictionEngland & Wales
JudgeLORD LLOYD OF BERWICK,LORD STEYN,LORD HOPE OF CRAIGHEAD,LORD CLYDE,LORD HUTTON
Judgment Date16 July 1998
CourtHouse of Lords
Page
(Appellant)
and
Sheerness Steel Company Limited
(Respondents)
Wells

(Suing by her Daughter and Next Friend Susan Smith)

(Appellants)
and
Wells
(Respondent)
Thomas

(Suing by his Mother and Next Friend Susan Thomas)

(Appellant)
and
Brighton Health Authority
(Respondents)

[1998] UKHL J0716-2

Lord Lloyd of Berwick

Lord Steyn

Lord Hope of Craighead

Lord Clyde

Lord Hutton

HOUSE OF LORDS

LORD LLOYD OF BERWICK

My Lords,

1

Introduction

2

There are before the House appeals in three actions for personal injuries, all raising the same question, namely, the correct method of calculating lump sum damages for the loss of future earnings and the cost of future care. Negligence was admitted in all three cases.

3

In Wells v. Wells the plaintiff, a part-time nurse, aged nearly 58, was very severely injured in a traffic accident when she was travelling as a passenger in a car driven by her husband. She suffered serious brain damage. As a consequence she is no longer capable of working, or caring for herself or her family. She will require care for the rest of her life. The judge, His Honour Judge Wilcox, awarded her £120,000 for pain and suffering. The total award, including loss of future earnings and cost of future care on a life expectancy of 15 years, came to £1,619,332. The Court of Appeal reduced the figure for pain and suffering to £100,000 and substituted a life expectancy of 10 years 3 months. They arrived at a total of £1,086,959. The main reason for the sharp reduction was that the Court of Appeal took a discount rate of 4.5 per cent. in calculating the lump sum for future loss, whereas the judge had taken 2.5 per cent.

4

In Thomas v. Brighton Health Authority the plaintiff was six years old at the date of the trial. He sues by his mother and next friend. He was injured before birth by the maladministration of a drug intended to induce labour. He suffers from cerebral palsy, and is very severely physically handicapped. The judge, Collins J., awarded £110,000 for general damages. The total award on a life expectancy to the age of 60 came to £1,307,963. The Court of Appeal reduced the figure to £994,592. The reason was the same as in the case of Wells v. Wells, save that Collins J. took a discount rate of 3 per cent., not 2.5 per cent. The judge took the same rate of 3 per cent. in arriving at a figure of £72,592 for additional housing costs. The Court of Appeal reduced this item by taking the conventional rate of 2 per cent.: see Roberts v. Johnstone [1989] 1 Q.B. 878. The reason why the Court of Appeal took a rate of 4.5 per cent. for discounting future loss, but only 2 per cent. for the cost of additional housing will appear later.

5

In Page v. Sheerness Steel Co. Ltd. the plaintiff, then aged 24, was working in a steel mill alongside a cooling bed when a white-hot steel bar buckled and struck him in the head. It entered the right side of his skull, penetrated his brain and emerged on the left side. A workmate cut the bar short. The plaintiff then pulled the bar out with his own hands. He was conscious throughout. It is hard to imagine how he could still be alive. Dyson J. awarded £80,000 for general damages. The total award, including loss of future earnings to a normal retiring age of 62 and the cost of future care on a normal life expectancy came to £997,345.64. The judge took the same discount rate as Collins J., namely, 3 per cent. The Court of Appeal substituted an award of £702,773.20. The reason for the reduction was the same as in the other two cases.

6

A number of separate points arise in relation to the individual cases. They would not by themselves have justified leave to appeal. However, the point which is common to all three appeals is of considerable importance, both for the plaintiffs themselves and for the insurance industry in general. It is convenient to deal with that point first.

7

It was common ground between all parties that the task of the court in assessing damages for personal injuries is to arrive at a lump sum which represents as nearly as possible full compensation for the injury which the plaintiff has suffered. This is not therefore the place to discuss other methods of compensation, such as the structured settlement. By section 2(1) of the Damages Act 1996 a court may make an order for the whole or part of the damages to take the form of periodical payments, provided the parties agree. This was in accordance with the recommendation of the Law Commission Report No. 224 Cm. 2646 "Structured Settlements and Interim and Provisional Damages". I note that the Law Commission recommended that in the absence of agreement there should be no judicial power to impose a structured settlement for the reasons which they set out in paragraphs 3.37-3.53 of their Report.

8

It is of the nature of a lump sum payment that it may, in respect of future pecuniary loss, prove to be either too little or too much. So far as the multiplier is concerned, the plaintiff may die the next day, or he may live beyond his normal expectation of life. So far as the multiplicand is concerned, the cost of future care may exceed everyone's best estimate. Or a new cure or less expensive form of treatment may be discovered. But these uncertainties do not affect the basic principle. The purpose of the award is to put the plaintiff in the same position, financially, as if he had not been injured. The sum should be calculated as accurately as possible, making just allowance, where this is appropriate, for contingencies. But once the calculation is done, there is no justification for imposing an artificial cap on the multiplier. There is no room for a judicial scaling down. Current awards in the most serious cases may seem high. The present appeals may be taken as examples. But there is no more reason to reduce the awards, if properly calculated, because they seem high than there is to increase the awards because the injuries are very severe.

9

The approach to the basic calculation of the lump sum has been explained in many cases, but never better than by Stephen J. in the High Court of Australia in Todorovic v. Waller [1981] 37 A.L.R. at 498 (see Kemp and Kemp Quantum of Damages vol. 1, para. 7-010), by Lord Pearson in Taylor v. O'Connor [1971] A.C. 115, 140, and by Lord Oliver of Aylmerton in Hodgson v. Trapp [1989] A.C. 807, 826.

10

The starting-point is the multiplicand, that is to say the annual loss of earnings or the annual cost of care, as the case may be. (I put so-called Smith v. Manchester damages on one side). The medical evidence may be that the need for care will increase or decrease as the years go by, in which case it may be necessary to take different multiplicands for different periods covered by the award. But to simplify the illustration one can take an average annual cost of care of £10,000 on a life expectancy of 20 years. If one assumes a constant value for money, then if the court were to award 20 times £10,000 it is obvious that the plaintiff would be over-compensated. For the £10,000 needed to purchase care in the 20th year should have been earning interest for 19 years. The purpose of the discount is to eliminate this element of over-compensation. The objective is to arrive at a lump sum which by drawing down both interest and capital will provide exactly £10,000 a year for 20 years, and no more. This is known as the annuity approach. It is a simple enough matter to find the answer by reference to standard tables. The higher the assumed return on capital, net of tax, the lower the lump sum. If one assumes a net return of 5 per cent. the discounted figure would be £124,600 instead of £200,000. If one assumes a net return of 3 per cent. the figure would be £148,800.

11

The same point can be put the other way round. £200,000 invested at 5 per cent. will produce £10,000 a year for 20 years. But there would still be £200,000 left at the end.

12

So far there is no problem. The difficulty arises because, contrary to the assumption made above, money does not retain its value. How is the court to ensure that the plaintiff receives the money he will need to purchase the care he needs as the years go by despite the impact of inflation? In the past the courts have solved this problem by assuming that the plaintiff can take care of future inflation in a rough and ready way by investing the lump sum sensibly in a mixed "basket" of equities and gilts. But the advent of the index-linked government stock (they were first issued in 1981) has provided an alternative. The return of income and capital on index-linked government stock ("I.L.G.S.") is fully protected against inflation. Thus the purchaser of £100 of I.L.G.S. with a maturity date of 2020 knows that his investment will then be worth £100 plus x per cent. of £100, where x represents the percentage increase in the retail price index between the date of issue and the date of maturity (or, more accurately, eight months before the two dates). Of course if the plaintiff were to invest his £100 in equities it might then be worth much more. But it might also be worth less. The virtue of I.L.G.S. is that it provides a risk-free investment.

13

The first-instance judges in these appeals have broken with the past. They have each assumed for the purpose of the calculation that the plaintiffs will go into the market, and purchase the required amount of I.L.G.S. so as to provide for his or her future needs with the minimum risk of their damages being eroded by inflation. How the plaintiffs will in fact invest their damages is, of course, irrelevant. That is a question for them. It cannot affect the calculation. The question for decision therefore is whether the judges were right to assume that the plaintiffs would invest in I.L.G.S. with a low average net return of 2.5 per cent., instead of a mixed portfolio of equities and gilts. The...

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3 cases
  • Wells v Wells
    • United Kingdom
    • House of Lords
    • 16 July 1998
    ...Wells (Respondent) Thomas (Suing by his Mother and Next Friend Susan Thomas) (Appellant) and Brighton Health Authority (Respondents) [1998] UKHL J0716-2 Lord Lloyd of Lord Steyn Lord Hope of Craighead Lord Clyde Lord Hutton HOUSE OF LORDS Session 1997-98 OPINIONS OF THE LORDS OF APPEAL FOR ......
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    • Court of Appeal (Ireland)
    • 3 March 2017
    ...Government Stock (ILGS) then available in the U.K., a factor which was central to the decision of the House of Lords in Wells v. Wells [1999] 1 A.C. 345 where the House of Lords unanimously decided that the plaintiffs were entitled to have their claims for future pecuniary loss calculated b......
  • Blondell Dyer-Christopher v McBert Arthur
    • Antigua and Barbuda
    • High Court (Antigua)
    • 25 July 2022
    ...away, it is ongoing, and she now has a peptic ulcer because of the medication for her injury. 35 I agree with the principles stated in Wells v Wells 13 where “the amount of the award to be made for pain, suffering and loss of amenity cannot be precisely calculated. All that can be done is t......

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