Hodgson v Trapp [1988] UKHL 9

House of Lords
Between
HodgsonAppellantTrappRespondent
Before
Lord Mackay of ClashfernDate 21 November 1986
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Mr. Justice Taylor of the 8th day of May 1987 complained of in the said Appeal be, and the same is hereby, Varied by reducing the quantum of damages and the interest payable thereon to the extent indicated in the penultimate paragraph of the speech of the Lord Bridge of Harwich and the concluding sentence of the speech of the Lord Oliver of Aylmerton: And it is further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice to do therein as shall be just and consistent with this Judgment.Cler: Parliamentor:

Judgment: 10.11.88

HOUSE OF LORDS

HODGSON (RESPONDENT)

v.

TRAPP AND OTHERS (APPELLANTS)

AND HODGSON

(A PATIENT SUING BY HER HUSBAND AND NEXT FRIEND

KEITH ELLIOT HODGSON) (RESPONDENT)

v.

TRAPP AND OTHERS

(APPELLANTS) (PETITIONS CONSOLIDATED BY ORDER DATED 21 NOVEMBER

1986)

(ON APPEAL FROM THE QUEEN'S BENCH DIVISION OF THE

HIGH COURT OF JUSTICE)

Lord Chancellor Lord Bridge of Harwich Lord Brandon of Oakbrook Lord Oliver of Aylmerton Lord Goff of Chieveley

LORD MACKAY OF CLASHFERN

My Lords,I have had the advantage of reading in draft the speeches to be delivered by my noble and learned friends, Lord Bridge of Harwich and Lord Oliver of Aylmerton. I agree with both speeches and for the reasons given in them I too would allow the appeal on both grounds.

LORD BRIDGE OF HARWICH

My Lords,On 4 March 1982 the respondent plaintiff sustained catastrophic injuries in a road accident for which the appellant defendants admit liability. At the time of the accident the plaintiff was aged 33, a wife and mother and a woman of many talents and wide-ranging interests. It is unnecessary for the purpose of any issue arising in this appeal to describe in detail her pathetic condition as a result of the accident. It was graphically summarised by Taylor J.:
"[She] has been reduced to a vegetative existence. Her physical activity is minimal. Mentally she functions at the

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level of a young child. She is wholly dependant on others and will permanently remain so."The judge awarded damages, inclusive of interest, in the sum of £431,840. The defendants now appeal from that award directly to your Lordships' House pursuant to the judge's certificate under section 12 of the Administration of Justice Act 1969 and by leave of the House. The appeal raises issues with respect to the judge's assessment of the elements included in the aggregate award as follows:

Cost of care to date of trial

£ 53,871

Future cost of care

£154,000

Future loss of earnings

£ 75,123

Two distinct points of law arise for determination. First, in assessing damages to meet the expenses, past and future, of providing for the appropriate care of the plaintiff, the judge made no deduction in respect of the attendance and mobility allowances payable to the plaintiff pursuant to sections 35 and 37A of the Social Security Act 1975. He rightly held himself bound to disregard those allowances pursuant to the decisions of the Court of Appeal in Bowker v. Rose, The Times, 3 February 1978, Court of Appeal (Civil Division) Transcript No. 164 of 1978, C.A., and Gohery v. Durham County Council, (Unreported) on 26 April 1978, Court of Appeal (Civil Division) Transcript No. 236 of 1978, C.A. On the first point the present appeal is an invitation to the House to reverse those decisions. Secondly, having assessed the multiplicands for future cost of care and future loss of earnings and indicated that he considered multipliers of 13 and 11 respectively to be appropriate, the judge increased the multipliers to 14 and 12 to take account of the incidence of higher rates of taxation likely to be attracted by interest on the capital sum of his award. This was the course approved by the Court of Appeal in Thomas v. Wignall [1987] Q.B. 1098 and the correctness of that decision is also now called in question.The basis of the statutory entitlement to attendance allowance under section 35 of the Act of 1975 is that the claimant is so severely disabled physically or mentally that he requires, by day, frequent, by night, prolonged or repeated, attention in connection with his bodily functions, or continual supervision to avoid substantial danger to himself or others. Thus the allowance is clearly intended to meet, in whole or in part, the necessary cost of care of a person as severely disabled as the plaintiff in the instant case, irrespective of the cause of the disability. The basis of entitlement to mobility allowance under section 37A is that the claimant is unable or virtually unable to walk but is in such a condition as to permit him to benefit from enhanced facilities for locomotion. Here again, the allowance is intended, subject to a point of detail which I must consider later, to contribute to the cost of care of a person who, like the plaintiff, cannot walk, in so far as that cost is incurred in providing means to alleviate the hardship of immobility.It is necessary first to consider Daish v. Wauton [1972] 2 Q.B. 262. That was a case where the plaintiff, a boy of five, suffered severe injuries in an accident for which the defendants admitted partial liability. The boy was likely to spend the rest of

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his life in a National Health Service institution. In awarding a single global sum for general damages the trial judge substantially discounted the element representing future loss of earnings on the ground that the plaintiff's earnings would have been mainly spent in maintaining himself, whereas in the event he would be maintained by the State. The Court of Appeal increased the award to take full account of future loss of earnings on the ground that the benefit of free maintenance in a State institution was to be disregarded.In Bowker v. Rose the trial judge, in awarding damages in respect of the cost of care of a severely incapacitated plaintiff, had declined to make any deduction in respect of attendance and mobility allowances payable under the Act of 1975. The leading judgment in the Court of Appeal affirming the judge's award was delivered by Roskill L.J. Having referred to passages from the speech of Lord Reid in Parry v. Cleaver [1970] AC 1 and from the judgment of Windeyer J. in National Insurance Co. of New Zealand Ltd, v. Espagne (1961) 105 CLR 569 , to both of which I shall have to refer later, he concluded that the key to the question whether the allowances were to be deducted lay in discerning the purpose of the legislation under which the allowances were payable:
"In my view," he said, "we should look at the relevant section and ask what is the purpose of this legislation. Is it a benefit conferred by the State upon the individual, so that the individual shall receive it when the event occurs which entitles him to it, irrespective of the cause of that event and irrespective of what other compensation he may receive to compensate him for his loss?"
On further consideration of the authorities, and in particular Daish v. Wauton [1972] 2 Q.B. 262, Roskill L.J. answered his own question in the affirmative. Having recited the argument in favour of deduction of the allowances in mitigation of damage, he concluded:
"I would reject the argument both in principle and on authority. I reject it in principle because I think that to give effect to it would be to ignore the purpose of this part of the relevant social security legislation. I would reject it on authority because I think that to accept it would fail to follow - as it is our duty in this court to follow - the decision in Daish v. Wauton."
Gohery v. Durham County Council (Unreported), another case involving attendance allowance, had been decided at first instance before the decision of the Court of Appeal in Bowker v. Rose, but came before the Court of Appeal some two months later. The court inevitably held themselves bound by Bowker v. Rose, though Ormrod L.J. expressed a doubt, with which I am inclined to agree, as to whether that decision followed necessarily from the earlier decision in Daish v. Wauton [1972] 2 Q.B. 262.An ironic twist is added to the story by the enactment of section 5 of the Administration of Justice Act 1982, which reverses the effect of Daish v. Wauton, but does not touch the point at issue in the present appeal.

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My Lords,it cannot be emphasised too often when considering the assessment of damages for negligence that they are intended to be purely compensatory. Where the damages claimed are essentially financial in character, being the measure on the one hand of the injured plaintiff's consequential loss of earnings, profits or other gains which he would have made if not injured, or on the other hand, of consequential expenses to which he has been and will be put which, if not injured, he would not have needed to incur, the basic rule is that it is the net consequential loss and expense which the court must measure. If, in consequence of the injuries sustained, the plaintiff has enjoyed receipts to which he would not otherwise have been entitled, prima facie, those receipts are to be set against the aggregate of the plaintiff's losses and expenses in arriving at the measure of his damages. All this is elementary and has been said over and over again. To this basic rule there are, of course, certain well established, though not always precisely defined and delineated exceptions. But the courts are, I think, sometimes in danger, in seeking to explore the rationale of the exceptions, of forgetting that they are exceptions. It is the rule which is fundamental and axiomatic and the exceptions to it which are only to be admitted on grounds which clearly justify their treatment as such.The classic heads of exception to the basic rule are:(1) moneys accruing to the injured plaintiff under policies of insurance for which he has paid the premiums: Bradburn v. Great Western Railway Co. (1864) L.R. 10 Ex. 1; and(2) moneys received by the plaintiff from the bounty or benevolence of third parties motivated by sympathy for his misfortune: Redpath v. Belfast and County Down Railway [1947] N.I. 147. The reasoning relied on by courts in support of other exceptions has, I think, invariably been based on the application to a greater or lesser degree by analogy of the same reasons as are thought to justify the primary exceptions. These reasons were fully examined by Lord Reid in Parry v. Cleaver [1970] AC 1 , 14. I ventured myself to suggest in Hussain v. New Taplow Paper Mills Ltd. [1988] A.C. 514, 528A, that the common sense of the two primary exceptions was obvious and I do not resile from that view. The difficulty, which has been widely recognised, is to articulate a single precise jurisprudential principle by which to distinguish the deductible from the non- deductible receipt. As Lord Reid said in Parry v. Cleaver [1970] A.C. 1, 13:
"The common law has treated this matter as one depending on justice, reasonableness and public policy."
I hope I may be forgiven for repeating an observation I made in Hussain v. New Taplow Paper Mills Ltd. [1988] A.C. 514, 528:
"Given the inevitable divergencies of judicial opinion as to what justice, reasonableness and public policy require, it is not surprising that courts in different common law jurisdictions should sometimes have solved similar problems in this field in different ways."
In Hussain it was necessary to examine the extent to which the analogy of the insurance exception to the general rule against double recovery could be pressed. Your Lordships now have to examine the question how far it is appropriate to treat statutory benefits as analogous to the proceeds of voluntary benevolence intended to alleviate the plight of the victims of misfortune.

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The main support for the view that statutory benefits in aid of those in need should be disregarded in assessing damages as being a form of "public benevolence" comes from a passage in the speech of Lord Reid in Parry v. Cleaver [1970] AC 1 and from some observations of Windeyer J. In National Insurance Co. of New Zealand Ltd, v. Espagne 105 C.L.R. 569.In Parry v. Cleaver Lord Reid said, at p. 14:
"So I must inquire what are the real reasons, disregarding technicalities, why these two classes of receipts are not brought into account. I take first the case of benevolence. I do not use the work 'charity' because, rightly or wrongly, many people object to it. I know of no better statement of the reason than that of Andrews C.J. in Redpath v. Belfast and County Down Railway [1947] N.I. 167, 170. There the company sought to bring into account sums received by the plaintiff from a distress fund. Andrews C.J. said that the plaintiff's counsel had submitted
'that it would be startling to the subscribers to that fund if they were to be told that their contributions were really made in ease and for the benefit of the negligent railway company. To this last submission I would only add that if the proposition contended for by the defendants is sound the inevitable consequence in the case of future disasters of a similar character would be that the springs of private charity would be found to be largely if not entirely dried up.'
It would be revolting to the ordinary man's sense of justice, and therefore contrary to public policy, that the sufferer should have his damages reduced so that he would gain nothing from the benevolence of his friends or relations or of the public at large, and that the only gainer would be the wrongdoer. We do not have to decide in this case whether these considerations also apply to public benevolence in the shape of various uncovenanted benefits from the welfare state but it may be thought that Parliament did not intend them to be for the benefit of the wrongdoer."The case of Espagne 105 C.L.R. 569 concerned a question whether an invalid pension paid to a blind person under complex statutory provisions which involved a substantial discretionary element was to be taken into account in assessing the general damages and damages for loss of earnings awarded to the plaintiff for injuries including the loss of his sight. The decision, as I read the judgments, turned largely on the unusual provisions of the statute in question which both Menzies and Windeyer JJ. subjected to exhaustive examination and analysis. The passage from the judgment of Windeyer J. on which particular reliance was placed by Roskill L.J. in Bowker v. Rose The Times, 3 February 1978, Court of Appeal (Civil Division) Transcript No. 164 of 1978, C.A., is at pp. 599, 600 as follows:
"In assessing damages for personal injuries, benefits that a plaintiff has received or is to receive from any source other than the defendant are not to be regarded as mitigating his

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loss, if:(a) they were received or are to be received by him as a result of a contract he had made before the loss occurred and by the express or implied terms of that contract they were to be provided notwithstanding any rights of action he might have; or(b) they were given or promised to him by way of bounty, to the intent that he should enjoy them in addition to and not in diminution of any claim for damages. The first description covers accident insurances and also many forms of pensions and similar benefits provided by employers: in those cases it is immaterial that, by subrogation or otherwise, the contract may require a refund of moneys paid, or an adjustment of future benefits, to be made after the recovery of damages. The second description covers a variety of public charitable aid and some forms of relief given by the State as well as the produce of private benevolence. In both cases the decisive consideration is, not whether the benefit was received in consequence of, or as a result of the injury, but what was its character: and that is determined, in the one case by what under his contract the plaintiff had paid for, and in the other by the intent of the person conferring the benefit- The test is by purpose rather than by cause."It is important, however, to note the cautionary words, not cited in the judgment of Roskill L.J. in Bowker v. Rose, which Windeyer J. added immediately following the passage cited above. He said, at p. 600:
"Nevertheless it is not, I think possible, to enunciate an exhaustive rule for all parts of this vexed topic. And the questions that arise can never be determined in the abstract. Each must depend on the terms of the particular contract, pension scheme, charitable benefaction or statute governing the benefit conferred."
Whatever may be the position with regard to discretionary statutory pensions of the kind with which the High Court of Australia was concerned in Espagne 's case 105 C.L.R. 569, when I turn to consider statutory benefits for the relief of various forms of need which are payable as of right to those who fulfil the qualifying conditions, I find the concept of "the intent of the person conferring the benefit" a somewhat elusive one. Statutory benefits of the kind in question come either directly from the pocket of the taxpayer or from some fund to which various classes of citizens make compulsory contributions. The legislation providing for the benefits is prompted by humanitarian considerations directed to meeting certain minimum needs of the disadvantaged, irrespective of their cause. It is, of course, always open to Parliament to provide expressly that particular statutory benefits shall be disregarded, in whole or in part, and section 2 of the Law Reform (Personal Injuries) Act 1948 is the most familiar instance where it has done so. But in the absence of any such express provision, where statutory benefits are payable to one whose circumstances of qualifying need arise in consequence of a tort of which he was the victim, I can certainly discern no general principle to support Lord Reid's tentative opinion "that Parliament did not intend them to be for the benefit of the wrongdoer."

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As regards statutory benefits intended to relieve purely financial hardship, it is now settled that unemployment benefit is to be taken into account as mitigating loss of earnings occasioned by wrongful dismissal: Parsons v. B. N. M. Laboratories Ltd. [1964] 1 Q.B. 95; affirmed by this House in Westood v. Secretary of State for Employment [1985] A.C. 20. In delivering a speech in the latter case with which the rest of their Lordships adjudicating agreed, I observed, at p. 43:
"I do not see any analogy at all between the generosity of private subscribers to a fund for the victims of some disaster, who also have claims for damages against a tortfeasor, and the state providing subventions for the needy out of funds which, in one way or another, have been subscribed compulsorily by various classes of citizens. The concept of public benevolence provided by the State is one I find difficult to comprehend."
Parsons v. B. N. M. Laboratories Ltd. [1964] 1 Q.B. 95 was followed by the Court of Appeal in Lincoln v. Hayman [1982] 1 W.L.R. 488, in holding that supplementary benefit paid to the plaintiff in a personal injury action was to be set off against his loss of earnings in assessing special damages. Counsel for the respondent in this appeal did not challenge the decision in Lincoln v. Hayman. He sought instead to distinguish it on the ground that payments from public funds to provide the indigent with a minimum acceptable level of subsistence are essentially different in kind from payments to meet the needs of those suffering from particular disabilities. I am unable to see any rational basis for this distinction.In the end the issue in these cases is not so much one of statutory construction as of public policy. If we have regard to the realities, awards of damages for personal injuries are met from the insurance premiums payable by motorists, employers, occupiers of property, professional men and others. Statutory benefits payable to those in need by reason of impecuniosity or disability are met by the taxpayer. In this context to ask whether the taxpayer, as the "benevolent donor," intends to benefit "the wrongdoer" as represented by the insurer who meets the claim at the expense of the appropriate class of policy holders, seems to me entirely artificial. There could hardly be a clearer case than that of the attendance allowance payable under section 35 of the Act of 1975 where the statutory benefit and the special damages claimed for cost of care are designed to meet the identical expenses. To allow double recovery in such a case at the expense of both taxpayers and insurers seems to me incapable of justification on any rational ground. It could only add to the enormous disparity, to which the advocates of a "no-fault" system of compensation constantly draw attention, between the position of those who are able to establish a third party's fault as the cause of their injury and the position of those who are not.A separate and subordinate point was raised on behalf of the plaintiff in relation to mobility allowance. It was submitted that the allowance was intended exclusively to meet the cost of providing transportation for the claimant whether by invalid carriage, car or otherwise. The only specific item of damages included in the judge's award to the plaintiff referrable to the

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provision of transportation for the plaintiff in that sense was a sum of £2000 for additional expenditure on a family car. It is submitted that this limits to £2000 the amount that may be deducted from the plaintiff's damages in respect of mobility allowance. I am unable to read the phrase "enhanced facilities for locomotion" in section 37A(2)( b ) of the Act of 1975 in the narrow and restricted sense necessary to support this submission. There is no doubt that the plaintiff qualifies for the full mobility allowance on the footing that her condition permits her to benefit from such enhanced facilities. The facilities may take a variety of forms and would certainly include whatever outings are provided for her by those who care for her. I see no reason why the whole of the mobility allowance should not be regarded, just as the attendance allowance, as available to meet the cost of her care generally and thus as mitigating the damages recoverable in respect of the cost of that care.It follows in my opinion, that Bowker v. Rose The Times, 3 February 1978, Court of Appeal (Civil Division) Transcript No. 164 of 1978, C.A. and Gohery v. Durham County Council (Unreported) 26 April 1978, Court of Appeal (Civil Division), Transcript No. 236 of 1978, C.A. were wrongly decided and should be overruled.On the second point raised by the appeal relating to the multipliers used by the judge in assessing future loss of earnings and future cost of care, I have had the advantage of reading the speech of my noble and learned friend, Lord Oliver of Aylmerton, and I entirely agree with it.These conclusions have the following effect on the quantum of damages awarded under the relevant heads in dispute. The aggregate of attendance and mobility allowances received by the plaintiff to date of trial, £9,671, is to be deducted and reduces the award for cost of care to date of trial to £44,180. The judge's estimate of the annual future cost of care, £11,000, falls to be reduced by the annual aggregate of the allowances at the agreed figure of £2,792. The resulting multiplicand, £9,208, multiplied by 13 instead of 14, gives the figure for future cost of care of £119,704. The reduction of the multiplier applied to future loss of earnings from 12 to 11 reduces the award under this head to £68,856. The interest element in the award of damages will also require consequential adjustment.I would allow the appeal by reducing the judge's award of damages to the extent indicated.

LORD BRANDON OF OAKBROOK

My Lords,I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Bridge of Harwich and Lord Oliver of Aylmerton. I agree with both speeches and for the reasons given in them I would allow the appeal by reducing the damages awarded by the judge to the extent indicated by Lord Bridge of Harwich.

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LORD OLIVER OF AYLMERTON

My Lords,The tragic factual history which has given rise to this appeal has been fully rehearsed in the speech of my noble and learned friend, Lord Bridge of Harwich. As regards the first grounds of appeal relating to the question of mobility and invalidity allowances, I entirely agree with everything that has fallen from my noble and learned friend.The second ground of appeal raises a quite distinct issue which arises in this way. It was agreed at the trial before Taylor J. that the respondent had suffered a continuing loss of salary of £3,267.77 per annum and there was, in addition, an assessed loss of £3,000 per annum in respect of free-lance work in which the respondent had engaged prior to the accident. To these multiplicands Taylor J. applied a multiplier of 11, which is not challenged. That figure, however, he increased to 12 in order to take account of the fact that the income likely to be produced from conventional investment of the sums awarded would attract income tax at the higher rate, a course which had been approved by the Court of Appeal in Thomas v. Wignall [1987] Q.B. 1098. Similarly in relation to the prospective costs of nursing care and attendance, the learned judge adopted a multiplicand of £11,000 to which he applied a multiplier of 13, which again is not challenged. To that, however, he again added a further one year in order to take account of the incidence of taxation at the higher rates. The appellants do not challenge the general proposition that the prospective incidence of higher-rate income tax may, in exceptional circumstances, be a factor which can legitimately tip the scales in favour of selecting a multiplier at the higher end of the conventional scale. They do, however, challenge the correctness of an approach which involves, after the calculation of the appropriate multiplier in accordance with the conventional scale, the making of a specific addition to the multiplier in order to take account as a separate and individual feature, of the higher taxation rates which may be attracted by the income likely to be produced by the investment of a very substantial award. The same point arises in relation to the future costs of the Court of Protection, agreed at £850 per annum, to which, for the same reason, the judge again applied an increased multiplier of 14.The point arose directly for decision in Thomas v. Wignall [1987] Q.B. 1098, a case in which the total sum awarded was just short of £680,000, which included sums of £435,000 for future care and £39,000 for loss of future earnings. The trial judge, Hutchison J., had taken a life expectancy of 28 years and a multiplier of 14, to which he had added a further year to take account of the effect which higher taxation would have on the income from such a large award. This was challenged on appeal on the grounds that such an addition was both wrong in law and unsupported by evidence. In the Court of Appeal, the leading judgment was delivered by Nicholls L.J. and the ratio of his approach, with which Sir John Donaldson M.R. concurred, is encapsulated in the following passage (pp. 1104-1105):

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"Higher rates of income tax are a fact of life. In general, the larger an individual's income, the greater is the percentage of it which goes in tax. Further, all the signs are that a taxation system having this broad effect will continue to exist in this country for the foreseeable future, although the figures and the percentages will vary from time to time. Thus, other things being equal, taxation bears and will continue to bear more heavily on the income of a large award of damages than on the income of a small one. In percentage terms, the net yield after tax of a substantial fund is likely to be lower than the net yield after tax of a small fund the income whereof is subject to little or no tax.
"Hence, and still speaking in general terms, there is, in this respect, a material distinction from the outset between a very large award and a comparatively modest one. In principle one would expect that distinction to be taken into account by the court when determining the amount of the award. Take two examples, at opposite ends of the spectrum. In one the court is concerned with assessing the amount of an award to make good an income loss of £3,500 per annum, or to provide for annual expenditure at that rate. In the other, the facts are the same save that the income loss or expenditure is £35,000 per annum. If 14 were the appropriate multiplier in the first case, in my view it would be wrong, and import an inflexible rigidity neither justifiable nor necessary, if the court were not able to make some adjustment to the multiplier in the second case to reflect the increased incidence of tax."
Lloyd L.J. dissented. In his view, in the absence at least of expert evidence that the discount rate allowed for in the conventional multiplier was insufficient to allow for the incidence of taxation, the general principle laid down by this House in Lim Poh Choo v. Camden and Islington Area Health Authority [1980] A.C. 174 as regards allowance for future inflation applied equally to future taxation which, like inflation, is covered by the ordinary discount rate of 4-5% on the basis of which the multiplier is selected. That, the appellants submit, is the correct approach and one which is inherent in the decision of this House in Lim's case.My Lords,the question can, I think, only be answered by a consideration of the principles behind the exercise upon which the court is called upon to embark in assessing damages in a case such as the present. The underlying principle is, of course, that damages are compensatory. They are not designed to put the plaintiff, or his estate in the event of his death, in a better financial position than that in which he would otherwise have been if the accident had not occurred. At the same time, the principle of making a once-for-all award necessarily involves an assessment both of the probable duration and extent of the financial disadvantages resulting from the accident which the plaintiff will suffer in the future and of the present advantage which will accrue to him from payment in the present of a capital sum which he would not otherwise have and which represents his future income loss. In the making of that assessment, account has also to be taken of a number of unpredictable contingencies and in particular that the life expectancy from which the calculation

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starts may be falsified in the event by supervening illness or accident entirely unconnected with the event for which compensation is being awarded. Such an assessment cannot, therefore, by its nature be a precise science. The presence of so many imponderable factors necessarily renders the process a complex and imprecise one and one which is incapable of producing anything better than an approximate result. Essentially what the court has to do is to calculate as best it can the sum of money which will on the one hand be adequate, by its capital and income, to provide annually for the injured person a sum equal to his estimated annual loss over the whole of the period during which that loss is likely to continue, but which, on the other hand, will not, at the end of that period, leave him in a better financial position than he would have been apart from the accident. Hence the conventional approach is to assess the amount notionally required to be laid out in the purchase of an annuity which will provide the annual amount needed for the whole period of loss. The process cannot, I think, be better described than it was in the speech of Lord Diplock in Cookson v. Knowles [1979] AC 556 . He was there concerned with a claim under the Fatal Accidents Act and, in particular, with the extent to which future inflation ought to be taken into account in assessing damages under the Act, but his description of the approach to and method of assessment of damages is equally applicable to claims for future loss of earnings and future expenses by the injured party himself. Lord Diplock said, at pp. 567-568:
"When the first Fatal Accident Acts was passed in 1846, its purpose was to put the dependants of the deceased, who had been the bread-winner of the family, in the same position financially as if he had lived his natural span of life. In times of steady money values, wages levels and interest rates this could be achieved in the case of the ordinary working man by awarding to his dependants the capital sum required to purchase an annuity of an amount equal to the annual value of the benefits with which he had provided them while he lived, and for such period as it could reasonably be estimated they would have continued to enjoy them but for his premature death. Although this does not represent the way in which it is calculated such a capital sum may be expressed as the product of multiplying an annual sum which represents the 'dependency' by a number of years' purchase. This latter figure is less than the number of years which represents the period for which it is estimated that the dependants would have continued to enjoy the benefit of the dependency, since the capital sum will not be exhausted until the end of that period and in the meantime so much of it as is not yet exhausted in each year will earn interest from which the dependency for that year could in part be met.
"The number of years' purchase to be used in order to calculate the capital value of an annuity for a given period of years thus depends upon the rate of interest which it is assumed that money would earn, during the period. The higher the rate of interest, the lower the number of years' purchase. Thus to give an illustration that is relevant to the instant case, the capital value of an annuity for the full 16 years which would have elapsed if the deceased had lived

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to work until he was 65 would require the 11 years' purchase adopted as multiplier by the judge at an assumed interest rate (whether he worked it out or not) of 4 3/4 per cent.; whereas it would need only seven years as multiplier if the assumed interest rate were 12 per cent."Then, after providing some calculations related to the award in that particular case in the light of interest rates then currently obtainable, Lord Diplock continued, at pp. 571-572:
"My Lords, calculations such as these are artificial, but so is the measure of damages called for by the Fatal Accidents Act 1976. The kinds of security with which the calculations are concerned are not typical of the way in which a dependent widow (who will have other sources of income as well) is likely to invest the damages she receives; but they represent the kinds of security most appropriate for providing the annuity upon the capital cost of which the assessment of damages in fatal accident cases has to be based. They demonstrate that even in periods of inflation much higher than those contemplated at the time of Mallett v. McMonagle [1970] A.C. 166 and Taylor v. O'Connor [1971] A.C. 115, the greater part of its effect upon the real value of damages recovered in respect of future annual loss would be counteracted by a compensatory increase in interest rates.
Quite apart from the prospects of future inflation, the assessment of damages in fatal accidents can at best be only rough and ready because of the conjectural nature of so many of the other assumptions upon which it has to be based. The conventional method of calculating it has been to apply to what is found upon the evidence to be a sum representing 'the dependency', a multiplier representing what the judge considers in the circumstances particular to the deceased to be the appropriate number of years' purchase. In times of stable currency the multipliers that were used by judges were appropriate to interest rates of 4 per cent. to 5 per cent. whether the judges using them were conscious of this or not. For the reasons I have given I adhere to the opinion Lord Pearson and I had previously expressed which was applied by the Court of Appeal in Young v. Percival [1975] 1 W.L.R. 17, 27-29, that the likelihood of continuing inflation after the date of trial should not affect either the figure of the dependency or the multiplier used. Inflation is taken care of in a rough and ready way by the higher rates of interest obtainable as one of the consequences of it and no other practical basis of calculation has been suggested that is capable of dealing with so conjectural a factor with greater precision."It is, I think, important to bear in mind that this passage was not intended to be prescriptive for the future but merely to describe and analyse the result of an approach to the problem of compensation which has come conventionally to be adopted by the courts and which has been found over the years to produce a substantially just result. In an area in which, as Lord Diplock observed, the conjectural nature of the exercise necessarily renders the computation at best rough and ready, it is not to be expected

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that the process will or can be precise or entirely logical. So far as taxation is concerned, for instance, there is already a degree of illogicality in the process even as regards the incidence of standard-rate tax. The decision of this House in British Transport Commission v. Gourley [1956] AC 185 compels the court, in determining the amount of the plaintiff's actual loss of earnings to which the multiplier is to be applied, to take account specifically of the income tax which, if the plaintiff had continued to work, he would actually have had to pay upon his annual salary. Yet your Lordships have not been referred to any case - and I have certainly found none - in which the court has taken any specific account of the fact that if the amount of the award is invested, standard rate tax will, in many cases, be payable upon the income produced by the investment. So that it may fairly be said that the tax-paying plaintiff suffers tax twice, first by having the notional tax deducted from his earnings for the purpose of computing the award and then again by suffering the actual tax which is deducted from the income earned by the award. Indeed, on this analysis logic would demand that, in the case of a plaintiff with a substantial private income or a wealthy spouse, the award would require to be increased in order to compensate for the increased rate of tax payable on its income by reason of the existence of these other resources which may or not be permanently available. This is yet a further illustration of the complications and difficulties which arise if one seeks to take account, as if the computation were an exact science, of individual factors which are themselves imponderable.Now, of course, in the assessment of what an injured party has lost and of what is required to compensate him, the incidence of the higher rates of taxation may appear in the equation in three different ways. In the first place, the injured person's current and likely future earnings lost as a result of the accident may be of an amount which by itself attracts higher rates of tax in the fiscal regime current at the date of assessment. This presents no difficulty. What the court is required to do is to assess the net amount of the loss in accordance with the principles enunciated in Gourley 's case [1956] AC 185 . Secondly, the injured person may already be possessed of other resources quite unaffected by the accident which, either alone or when added to the earnings lost as a result of the accident, would result in the lost earnings being subjected to higher rate tax. In calculating the actual loss of earnings, it is, as I understand it, the normal practice to look at the plaintiff's actual tax position and to treat the earnings lost as forming the top slice of his income (see Lyndale Fashion Manufacturers v. Rich [1973] 1 W.L.R. 73). But even here the authorities speak with a somewhat uncertain voice on the extent to which other sources of income are to be taken into account. That they fall to be taken into account to some extent seems clear from the speeches of Lord Goddard (p. 208) and Lord Reid (p. 214), in Gourley 's case [1956] AC 185 , but Lord Goddard was at pains to point out the unscientific nature of the exercise and suggested (p. 209) that possibly less (even, perhaps, very little) regard should be paid to income from disposable investments, which could be sold or transferred at any time, than to permanent and less readily realisable sources of income. For my part, I entertain some doubt whether it can be right in calculating the injured person's net loss of earnings for the future, to take into account higher rate tax currently payable

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on income to which he or his wife is entitled from independent resources on the assumption that he or she will continue to be possessed of them indefinitely. Since, however, the point has not been argued, I express no concluded view upon it. Thirdly - and it is with this situation that the instant case is concerned - the application to the net loss and to future expenses of the conventional formula may produce a capital sum of such proportions that, if it is assumed now to be invested in ordinary income-bearing securities, its net income will, at current tax rates, be subjected to higher rates of tax on the assumption either that the present fiscal regime continues unaltered or that it is altered to the disadvantage of the taxpayer. What is said by the respondents is an echo of the majority judgments in Thomas v. Wignall [1987] Q.B. 1098. The purpose of an award of damages is to compensate the injured party for his net loss as a result of the accident. If the calculated sum required for that purpose is of such an amount that the income likely to be produced by it will attract a high rate of tax it follows that a smaller proportion of the annual loss or expense will be capable of being met from income, that a higher proportion will therefore have to be met from capital and that, accordingly, the Hanger of the fund being exhausted before the end of the period for which it is calculated to endure will be correspondingly increased. That risk ought, therefore, to be met by an increase in the sum which would otherwise be awarded and that can most conveniently be done by a modest increase in the multiplier. The appellants' answer to this is that it rests upon the unproven and unprovable assumptions first, that the current tax regime will either remain unchanged or will be altered to the disadvantage of the respondent as a taxpayer and secondly, that the effect of higher rate tax is not in any event capable of being counteracted by a careful investment policy. Future taxation, the appellants argue, is as much an imponderable as future inflation. Indeed the two go hand in hand for, in the ordinary way, inflation results in a corresponding increase in actual interest rates, so that, apart from the incidence of tax the disadvantage of an increased cost of living can be expected to be substantially met by an increased actual income. If, therefore, it is wrong, as the authorities establish that it is, to increase an award to allow for inflation, it follows that it is equally wrong to increase it to allow for the possibility of future taxation. Both are, the appellants argue, already embraced in and covered by the conventional multiplier.My Lords,the question has been touched upon in a number of cases prior to Thomas v. Wignall [1987] Q.B. 1098. In Taylor v. O'Connor [1971] A.C. 115, a Fatal Accidents Act case, the question in issue was whether the trial judge, who had adopted a multiplier of 12, had manifestly awarded too much. The impact of taxation on the calculation, whilst not directly in issue, was adverted to by all the members of the committee. It is not, however, possible to derive a consistent theme from the speeches either as to the extent to which tax should be taken into account or, if taken into account, how it should be allowed for. Lord Reid expressed the view, at pp. 128-129, that damages ought to be increased to allow for taxation, although he would have done it by an increase in the multiplicand. His view at that time, however, was that future inflation should also be taken into account - a view which conflicts with subsequent authority in this House. Lord Morris of Borth-y-Gest (at p. 133) appears also to have thought that tax

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should be taken into account but again by way of increasing the multiplicand. Lord Guest (p. 136) was of the view that the prospect of inflation did not justify an increase in the award but that a higher multiplier could be justified by uncertainty as to the incidence of tax. Viscount Dilhorne (p. 139) thought it inappropriate to increase the award to cover inflation, but would have increased the multiplicand to provide for tax.Finally, Lord Pearson (p. 144) thought that inflation ought to be left to be met by investment policy, but catered for by assuming a low net yield from the fund. On the other hand, he thought also (p. 143) that it would be right to cater for the incidence of graduated income tax by an increase in the multiplier.All of these views were obiter and none can be taken as authoritative and it has to born in mind that they were expressed in a case in which the only question was whether the trial judge's award was manifestly too high and at a time when there had been no authoritative pronouncement on the extent to which future inflation was to be taken into account..In Young v. Percival [1975] 1 W.L.R. 17, it seems to have been assumed that increased interest rates would be a sufficient counterbalance to the disadvantages of inflation regardless of the incidence of standard rate tax, but there does not appear to have been any consideration in that case of the effect of higher rate tax. In Cookson v. Knowles [1979] AC 556 , this House held that it would be wrong for the court to make a further specific allowance for inflation in an award of damages. The reason is that inflation, because of the high rate of interest to which it gives rise, is automatically taken into account by the use of multipliers based on rates of interest related to a stable currency (per Lord Fraser of Tullybelton at p. 577). Lord Fraser went on, however, to express the view that inflation might possibly be taken into account as justifying an increase in the award in very exceptional cases where the evidence established that the impact of higher rate taxation would render the assumed annuity inadequate, in which event the problem might be dealt with by an increase in the multiplier.Cookson v. Knowles [1979] AC 556 preceded by only a few months the decision of the Court of Appeal in Lim 's case [1979] Q.B. 196. In that case the trial judge had increased the multiplier in order to provide for future inflation, a course which the Court of Appeal endorsed, on the ground that, having regard to the fact that he had had expert evidence as to the incidence of taxation, he was justified in treating the case as exceptional by reference to Lord Fraser of Tullybelton's speech in Cookson v. Knowles. The Court of Appeal's decision was reversed by this House [1980] A.C. 174 where it was again affirmed that no allowance ought to be made for future inflation, although there was no specific mention in the speech of Lord Scarman of higher taxation rates as a specific ingredient of inflation. Lord Scarman said, at pp. 193- 194:
"The trial judge said he made allowance for future inflation in the multiplier for cost of future care and in the multiplier for loss of future earnings. The Court of Appeal, in holding that he had made no mistake in principle, relied

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upon a recent decision of this House, Cookson v. Knowles [1979] AC 556 In that case, Lord Diplock, at p. 571, made the comment that future inflation 'is taken care of in a rough and ready way' because the conventional multipliers applied by judges assume a rate of interest of 4 to 5 per cent., whereas actual rates of interest are much higher. Lord Fraser of Tullybelton, at pp. 577-578, added the comment that 'in exceptional cases, where the [assumed] annuity is large enough to attract income tax at a high rate ... it might be appropriate to increase the multiplier, or to allow for future inflation in some other way . . .' My Lords, I do not read these passages in the speeches in that case of my noble and learned friends as modifying the law in any way. "The law appears to me to be now settled that only in exceptional cases, where justice can be shown to require it, will the risk of future inflation be brought into account in the assessment of damages for future loss. Of the several cases to this effect I would cite as of particular importance Taylor v. O'Connor [1971] A.C. 115 and Young v. Percival [1975] 1 W.L.R. 17. It is perhaps incorrect to call this a rule of law. It is better described as a sensible rule of practice, a matter of common sense. Lump sum compensation cannot be a perfect compensation for the future. An attempt to build it into a protection against future inflation is seeking after a perfection which is beyond the inherent limitations of the system. While there is wisdom in Lord Reid's comment (Taylor v. O'Connor at p. 130) that it would be unrealistic to refuse to take inflation into account at all, the better course in the great majority of cases is to disregard it. And this for several reasons. First, it is pure speculation whether inflation will continue at present, or higher, rates, or even disappear. The only sure comment one may make upon any inflation prediction is that it as likely to be falsified as to be borne out by the event. Secondly, as Lord Pearson said in Taylor v. O'Connor, at p. 143, inflation is best left to be dealt with by investment policy. It is not unrealistic in modern social conditions, nor is it unjust, to assume that the recipient of a large capital sum by way of damages will take advice as to its investment and use. Thirdly, it is inherent in a system of compensation by way of a lump sum immediately payable, and, I would think, just, that the sum be calculated at current money values, leaving the recipient in the same position as others, who have to rely on capital for their support to face the future.
"The correct approach should be, therefore, in the first place to assess damages without regard to the risk of future inflation. If it can be demonstated that, upon the particular fact of a case, such an assessment would not result in a fair compensation (bearing in mind the investment opportunity that the lump sum award offers), some increase is permissible. But the victims of tort who receive a lump sum award are entitled to no better protection against inflation than others who have to rely on capital for their future support. To attempt such protection would be to put them into a privileged position at the expense of the tortfeaser, and so to impose upon him an excessive burden, which might go far beyond compensation for loss."

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In the light of the reversal by this House in Lim 's case [1980] AC 174 , of the Court of Appeal's decision that provision should be made for future inflation in the light specifically of the tax position, it is arguable that the question raised by this appeal and that raised in Thomas v. Wignall [1987] Q.B. 1098 is already concluded against the respondents by that decision. That, indeed, was, as I read his judgment, the view of Lloyd L.J. in Thomas v. Wignall.It is, however, the case that there is no authority which deals specifically with the question of the extent to which higher rate tax simpliciter ought to be taken into account as an element in itself divorced from inflation and that matter has been argued before your Lordships on the basis that the question remains open. For my part I am certainly content to deal with it on that footing, because I see some intellectual difficulty in the bare assertion that a careful investment policy may be assumed to be capable of dealing both with future inflation and with higher rate taxation. The two considerations do in fact pull in opposite directions. What is said about inflation is that it is generally accompanied by increased interest rates. Since the capital sum arrived at on the notional annuity-purchase basis is reached by assuming interest rates very much below actual rates the argument is that any decrease in the value of the fund and any increase in living costs due to inflation can be compensated by the increased yield which correspondingly reduces the need to resort to capital. But if one assumes the continuation of graduated higher tax rates, increased yield means simply that a greater proportion of the income is absorbed in tax and the investment policy has therefore to perform the double duty of maintaining the capital value of the fund and of providing sufficient realisable capital gains to compensate both for increased taxation and for higher living costs. This may, of course, be possible, but it is by no means self- evidently practicable. I approach the problem, therefore, on the footing that, as regards the question of an allowance specifically for higher rate taxation, such authority as there is provides at best no more than guidance. That guidance seems to me however to point strongly against the making of any such specific allowance.There are, I think, four considerations which have to be borne in mind at the outset. First and foremost is the fact that the exercise upon which the court has to embark is one which is inherently unscientific and in which expert evidence can be of only the most limited assistance. Average life expectations can be actuarially ascertained, but to assess the probabilities of future political, economic and fiscal policies requires not the services of an actuary or an accountant but those of a prophet. Secondly, the question is not whether the impact of taxation is a factor legitimately to be taken into account at all but to what extent, if at all, it is right to treat it as a separate, individual and independent consideration which justifies the making of additional provision conditioned not by the loss sustained but by the way in which the provision made for that loss is assumed to be dealt with by the recipient. Thirdly, what the court is concerned with is the adequacy of a fund of damages specifically designed to meet the loss of future earnings and the cost of future care. It cannot, I think, be right in assessing the adequacy of that fund to take into account what the plaintiff may choose to do with other resources

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at his command, including any sums which he may receive by way of compensation for other loss or injury. If he chooses, for instance, to retain other sums awarded to him for, for example, loss of amenity or pain and suffering, and to supplement his income by investing them so as, incidentally, to put himself into a higher tax bracket, that cannot, in my judgment, constitute a legitimate ground for increasing the compensatory fund for loss of future earnings and future care. That fund must, in my judgment, be treated as a fund on its own for the purposes of assessing its adequacy. Fourthly, it must not be assumed that there is only one way in which the plaintiff can deal with the award and there has, I think, to be borne in mind Lord Diplock's analysis of the underlying basis of the method by which the multiplier is selected. In practice, of course, the probability is that the plaintiff who receives a high award will treat the fund as a capital fund to be retained and invested in the most advantageous way. But the award has been calculated by reference to the cost of purchasing an appropriate annuity; and since the fund is at his complete disposal it is open to the plaintiff actually so to apply it either in whole or in part. If that were done, the capital proportion of each annual payment, calculated by dividing the cost of the annuity by the life expectation of the annuitant at the date of purchase, would be free from tax and the balance alone would be taxable. It is, I suppose, conceivable that that proportion could attract tax at the higher rate but it would require a very large annuity before a significant additional fiscal burden was attracted.I am, as I have said, content to deal with the question raised on the footing that the answer is not already subsumed in the answer given by this House in Lim 's case [1980] AC 174 to the allied question of whether specific allowance should be made for inflation. The principle, however, appears to me to be much the same. That tax will be levied is, no doubt, as Benjamin Franklin observed, one of the two certainties of life, but the extent and manner of its exaction in the future can only be guessed at. It is as much an imponderable as any of the other uncertainties which are embraced in the exercise of making a just assessment of damages for future loss. The system of multipliers and multiplicands conventionally employed in the assessment takes account of a variety of factors, none of which is or, indeed, is capable of being worked out scientifically, but which are catered for by allowing a reasonably generous margin in the assumed rate of interest on which the multiplier is based. There is, in my judgment, no self-evident justification for singling out this particular factor and making for it an allowance which is not to be made for the equally imponderable factor of inflation. Essentially the question is whether the discount provided by the assumption of interest rates of from 4 to 5 per cent. applicable to a stable currency, upon which the conventional multipliers are based, is likely, because of the rates of tax payable on income above a certain figure under the current fiscal regime, to prove to be so ungenerous in comparison to the actual net return from the fund as to produce a shortfall. Mr. Ashworth has put before your Lordships figures which demonstrate that, in practice, this simply has not happened and, of course, recent fiscal changes have shown the falsity of any necessary assumption that higher rates of tax will remain unreduced. Mr. Ashworth's figures were in fact based upon the supposition that the relevant income to be considered was that arising from the total global sum of damages. But, as I have

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already mentioned, what your Lordships are concerned with is the adequacy of the specific sums awarded for future loss of earnings and for future support and it cannot be right that the adequacy or inadequacy of that provision should be linked to what a plaintiff chooses to do with damages awarded under other heads. On this footing, your Lordships are concerned in the instant case with an aggregate fund of, in round figure, £240,000, without taking into account the reductions in the multiplicand proposed in the speech of my noble and learned friend, Lord Bridge of Harwich. Invested at 8 per cent. (the assumption made in counsel's tables) this produces an income of £19,200 per annum gross. Personal allowances would reduce the taxable element of this to something less than £17,000, a figure which is below the starting point for the higher rate of tax in the year 1987 in which judgment was delivered. On this analysis, therefore, the problem of higher rate tax did not in fact arise. If one takes into account the reduction in the multiplicand for future care referred to in the speech of my noble and learned friend, Lord Bridge of Harwich, the case is a fortiori. The additions made to the multipliers by the judge was therefore, in any event, unjustified. I should add, in addition, that I am not persuaded that it was by any means self-evident in Thomas v. Wignall [1987] Q.B. 1098 that the incidence of higher rate tax would have resulted in a deficiency in the fund. There is certainly no indication in the report that the court had before it any evidence to that effect.In my opinion, the incidence of taxation in the future should ordinarily be assumed to be satisfactorily taken care of in the conventional assumption of an interest rate applicable to a stable currency and the selection of a multiplier appropriate to that rate.Both in Cookson v. Knowles [1979] AC 556 and in Lim 's case [1980] AC 174 this House was prepared to envisage that there might be very exceptional cases, where it could be positively shown by evidence that justice required it, in which special allowance might have to be made for inflation and, inferentially, for tax. Such cases are not, I suppose, impossible, although for my part I do not find it easy to envisage circumstances in which evidence could satisfactorily establish that which is inherently uncertain. It would, I think, be extremely undesirable that trials of personal injury cases should be encumbered with evidence from actuaries and accountants directed to demonstrating the unprovable as scientific fact for the purposes of an exercise which is, in its very nature, incapable of being scientific. Moreover, I cannot think that such evidence would in the end be of any real assistance to the trial judge in making his assessment. Tax is merely one of the many imponderables that are taken care of in the conventional method of assessing damages. There may, I suppose, be cases - although, again, I cannot for my part readily imagine one arising in an exercise in its nature imprecise - where the considerations pointing to the selection of one of two possible multipliers are so finely balanced that the future incidence of taxation may be taken into account as one, but only one, of the factors which might properly tip the balance in favour of selecting the higher rate rather than the lower, but the course sanctioned in Thomas v. Wignall [1987] Q.B. 1098 of making a specific addition on account of this factor alone is, in my judgment, as incorrect as would be a specific addition to cover the risk of future inflation. The dissenting view on this point of Lloyd L.J. in that case was,

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in my opinion, correct. I would accordingly allow the appeal on this ground as well as upon the ground canvassed in the speech of my noble and learned friend, Lord Bridge of Harwich, with the consequential reductions to which he has referred. In addition, the reduction to 13 of the multiplier of 14 applied to the agreed Court of Protection costs will result in the award under this head being reduced from £11,900 to £11,050.

LORD GOFF OF CHIEVELEY

My Lords,I have had the advantage of reading the speech of my noble and learned friends, Lord Bridge of Harwich and Lord Oliver of Aylmerton, and I would allow the appeal on both grounds.

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