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Tom Marshall"In determining the return to be expected from the investment of a sum awarded as damages for future patrimonial loss in an action for personal injury the court shall... take into account such rate of return as may from time be prescribed..." (Damages Act 1996 section 1(1)). The rate currently prescribed in both Scotland and England & Wales is 2.5%. This rate has been prescribed since 2002. The intention is that the injured party will be able to invest the sum awarded for future losses, drawing down the annual amount needed to meet the particular losses, for the entire period, usually the remainder of the injured person's life, leaving nothing at the end of the period.

At the time the rate was prescribed, it was a reasonable approximation, if erring on the conservative, of the rate required to balance the gains which might be made from investing the damages in low risk investments and the losses suffered as a result of inflation. Now, with inflation outstripping the returns from low risk investments, the 2.5% rate means that damages awarded on that basis will not last for the full period. The chairman of the working party responsible for the Ogden Tables drew attention to this problem in the introduction to the 7th edition.

In the case of Tortolano v Ogilvie Construction Limited, the pursuer recently attempted to amend, shortly before proof, to aver that the prescribed rate of return was now out of date and that accordingly the court should apply a different rate. On October 10, 2012 the Lord Ordinary, Lord Brodie, ruled that the proposed amendments were irrelevant and will not be allowed to proceed to proof.

Section 1(2) of the 1996 Act states “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.” Lord Brodie held that the prescribed rate was an irrebuttable presumption of fact, leaving the court with no alternative but to apply it. He held that section 1(2) of the 1996 Act only permitted another rate to be applied if something about the case itself, as opposed to cases in general, pointed to that other rate.

The discussion in Tortolano focussed on the words “in the case in question”. On the face of it Lord Brodie was correct that this suggests any variation from the prescribed rate is only justified if there are some circumstances peculiar to the case in question pointing to another rate. However, there are several aspects of section 1 which do not appear to have been examined.

Looking at section 1(1), first of all, we see that the question it is directed to answering is “the return to be expected from the investment of a sum to be awarded as damages for future patrimonial loss”. That is but one part of the process which the court has to consider in awarding damages for future patrimonial loss. The fundamental principle which must be applied is that the pursuer, so far as possible, should be left no worse off financially than he would have been without the injury.

It is easy to demonstrate that there can be an enormous difference in the amount of damages which someone in Mr Tortolano’s position will receive for future loss, depending on the rate of return which is applied. Mr Tortolano is 23 years old. The multiplier for a whole life loss for a 23 year old man based on a 2.5% rate of return in Table 1 of the Ogden Tables is 31.41. If the rate is 1% the multiplier is 46.63, if it is 0% it is 63.94 and if it is -1.5% it is 112.17. In the recent case of Helmot v Simon 2012 UKPC 5, the Privy Council approved the decision of the Guernsey Court of Appeal (where the 1996 Act does not apply), which used rates of return of -1.5% for earnings related losses and 0.5% for other losses in the case of a 28-year-old man who suffered catastrophic injuries when knocked off his bicycle.

Where the period of future loss is relatively short, say for example where a 75 year old has died of mesothelioma leaving a widow with loss of support, the differences in multipliers, depending on the rate of return, are not nearly so pronounced. However, even in such cases applying a more appropriate rate might increase awards by up to 50%.

The second aspect of section 1 of the Damages Act 1996 is that the court is instructed to “take into account” the prescribed rate. This clearly provides the court with an element of discretion, based on the evidence, otherwise the court would have been instructed to “apply” the rate in question. Accordingly, even before considering whether another rate should be applied in terms of section 1(2), the court ought to be able to consider what is the appropriate measure of the pursuer’s future loss, taking into account that the sum is to be invested, and that the government has prescribed the 2.5% as a rate which has to be taken into account.

Turning to section 1(2) itself it is very difficult to imagine case specific circumstances in a personal injury action which would lead, by themselves, to another rate being more appropriate. In other types of damages claims, future losses may be more easily determined by reference to what the pursuer would undoubtedly have earned, for example from the rental of a building now destroyed by fire. The Damages Act 1996 section 1 does not apply to such claims. The pursuer in the example would not be restricted to future loss based on a 2.5% rate of return.

In personal injury cases, where the future losses will almost invariably be of the same character namely earnings, pensions, services and the costs of care, the same considerations in valuing these losses in future will apply in every case. If that is so, then it becomes impossible to conceive of circumstances in which section 1(2) would ever apply. That suggests a purposive interpretation of section 1(2) permitting the court to take account of a different rate of return as well as or in place of the prescribed rate if it is necessary to achieve the overarching principle of leaving the pursuer financially no worse off.

The UK and Scottish governments are currently jointly consulting on the way in which the the rate should be prescribed in future. The consultation ends on October 23, 2012. No doubt no change in the existing rate will be announced until after the consultation is over and actual proposals are made.

  • Tom Marshall is a solicitor advocate and partner in Thompsons, specialising in fatal and personal injury claims arising from exposure to asbestos. He is the president of the Society of Solicitor Advocates.
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