Page v. Sheerness Steel Company Ltd [1998] UKHL 27

House of Lords

Between

PageAppellant

Sheerness Steel Company LtdRespondent

Before

Lord Lloyd of Berwick

Lord Steyn

Lord Hope of Craighead

Lord Clyde

Lord Hutton

Date 16 July 1998

LORD CLYDE

My Lords,

Introduction

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.

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.

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.

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.

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.

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.

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.

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] AC 807

, 826.

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.

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.

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.

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 Court of Appeal has held not. They have reverted to the traditional 4 to 5 per cent. with the consequential reduction in the sums awarded.

The argument

Mr. Leighton Williams Q.C. and Mr. Coonan Q.C. for the defendants pointed out that those who receive large awards are likely to be given professional investment advice. All but one of the accountants called as experts at the three trials gave as their opinion that lump sum awards should be invested in a mixed portfolio of 70 per cent. equities and 30 per cent. gilts. This is what the ordinary prudent investor would do. For experience shows that equities provide the best long-term security. Thus Mr. Topping, the accountant called on behalf of the defendant in Wells v. Wells , produced a table which showed the real rate of return on equities to 31 December 1992 on an investment made on 1 January in each year from 1973 to 1992. In only two of those years has the return been less than 4 . 5 per cent. net of tax. If the ordinary prudent investor would invest substantially in equities, it was to be assumed that the plaintiffs would do the same.

The point is put well in the following passages from the judgment of the Court of Appeal

[1997] 1 WLR 652

, 677.

Mr. Leighton Williams went so far as to argue that it was the plaintiff's duty to invest in equities in order to mitigate his damage.

But the matter is not quite so simple as that. It now appears that Mr. Topping's figures, which are reproduced in the Court of Appeal's judgment, and are an important link in the chain of reasoning, are misleading. Mr. Topping has failed to observe that his figures are extracted from a table in the B.Z.W. Equity-Gilt Study in which all the income is assumed to be reinvested. But in the case of these plaintiffs the income is, ex hypothesi, assumed to be spent year by year. Unfortunately Mr. Purchas and his experts failed to spot this error at the trial, although it seems obvious enough now. So Mr. Topping was not cross-examined on the point.

Mr. Purchas sought to fill in the gap by producing tables from the updated B.Z.W. (now Barclays Capital Equity-Gilt Study), showing the net real return on equities without reinvesting the income. He hoped to demonstrate that the real return on equities is little, if anything, above the return on I.L.G.S., especially if one takes into account the difference in the cost of investment advice, which might amount to as much as 1 per cent. per annum. But Mr. Leighton Williams and his experts were unable to agree Mr. Purchas's figures. So I say no more about them, save that the difference between the two sides does not appear to be all that great. On Mr. Purchas's figures the average annual return net of tax on a 20-year investment in equities over the period 1960-1997, without reinvesting the income, was 3 . 4 per cent. On Mr. Topping's revised calculation the figure was 4 . 12 per cent.

The inability of the experts to reach agreement on the figures is not, in the end, of great consequence. For the problem with equities lies elsewhere. Granted that a substantial proportion of equities is the best long- term investment for the ordinary prudent investor, the question is whether the same is true for these plaintiffs. The ordinary investor may be presumed to have enough to live on. He can meet his day-to-day requirements. If the equity market suffers a catastrophic fall, as it did in 1972, he has no immediate need to sell. He can abide his time, and wait until the equity market eventually recovers.

The plaintiffs are not in the same happy position. They are not "ordinary investors" in the sense that they can wait for long-term recovery, remembering that it was not until 1989 that equity prices regained their old pre-1972 level in real terms. For they need the income, and a portion of their capital, every year to meet their current cost of care. A plaintiff who invested the whole of his award in equities in 1972 would have found that their real value had fallen by 41 per cent. in 1973 and by a further 62 per cent. in 1974. The real value of the income on his equities had also fallen.

So it does not follow that a prudent investment for the ordinary investor is a prudent investment for the plaintiffs. Equities may well prove the best long-term investment. But their volatility over the short term creates a serious risk. This risk was well understood by the experts. Indeed Mr. Coonan conceded that if you are investing so as to meet a plaintiff's needs over a period of five years, or even 10 years, it would be foolish to invest in equities. But that concession, properly made as it was on the evidence, is fatal to the defendants' case. For as Mr. Purchas pointed out in reply, every long period starts with a short period. If there is a substantial fall in equities in the first five or 10 years, during which the plaintiff will have had to call on part of his capital to meet his needs, and will have had to realise that part of his capital in a depressed market, the depleted fund may never recover.

While therefore I agree with the Court of Appeal that in calculating the lump sum courts are entitled to assume that the plaintiff will behave prudently, I do not agree that what is prudent for the ordinary investor is necessarily prudent for the plaintiff. Indeed the opposite may be the case. What the prudent plaintiff needs is an investment which will bring him the income he requires without the risks inherent in the equity market; which brings us back to I.L.G.S.

There are currently 11 stocks available, issued at various dates between July 1981 and September 1992, and maturing at various dates between 2001 and 2030. They are criticised by Mr. Leighton Williams on a number of investment grounds.

First it is said that if index-linked stocks are sold before maturity they will suffer like other securities from the vagaries of the market. True. But it misses the point. The assumption is that the stocks will not be sold before maturity. For it is to be assumed that stocks will be purchased with maturity dates which match the plaintiff's future needs over the period covered by the award. Since the plaintiff will be holding all the stocks to maturity, there is no risk (or minimum risk) of him having to sell before maturity at depressed prices.

Secondly, it is said that there are gaps in the maturity dates. Thus there is no stock maturing in 2002, 2005, 2007, 2008 or 2010. Nor is there any stock maturing later than 2030. As for the gaps, they may be filled by new issues. According to the Debt Management Report for 1998-1999 issued by H.M. Treasury, the authorities are committed to a minimum annual level of 2 . 5 billion index-linked stock in 1998-1999 and for the foreseeable future thereafter; and the aim is to maintain liquidity "in all maturity areas across the curve". But even if gaps remain, there is no problem. The plaintiff will be assumed to purchase enough stock maturing in 2001 to cover his needs for that year as well as 2002. And so on.

As for the period after 2030, again there is no reason to suppose that there will not be further issues. But even if there are not, the plaintiff knows that he will have an inflation-proof lump sum at that date which will reflect his needs for the rest of his life more accurately than any other available investment. Mr. Owen put it well during argument: the court now has at its disposal a tool for calculating damages which enables it to assume a stable currency until at least 2030.

Thirdly, it was pointed out that the inflation-proofing of I.L.G.S. is based on movements in the retail price index, whereas nursing costs have, historically, risen faster than the R.P.I. This may be true. But it is hardly a point which helps the defendants. If account were to be taken of this factor it would be an argument for rounding up the lump sum rather than rounding down.

The Court of Protection

I have left to last the argument on which the defendants placed the greatest reliance, and which weighed heavily with the Court of Appeal. Two of the three plaintiffs are patients. Their affairs are being administered by the Court of Protection. One of the witnesses called for the defence was Mr. Bruce Denman, who is in charge of the investment branch of the Public Trust Office dealing with Court of Protection cases. His evidence was that in the case of a long term investment for an individual patient the portfolio would consist of about 70 per cent. U.K. equities with the balance in gilts and cash. The Court of Appeal said that they were "strongly influenced" by the policy of the Court of Protection.

But in the case of short term investment (five years or under) the policy of the Court of Protection is very different. The Fact Sheet published by the Court of Protection shows that in such a case "very little risk is acceptable." Equities should be excluded altogether. This corresponds with the expert evidence in the present case, and with Mr. Coonan's concession. What is not explained in the policy statement is why risk is any more acceptable in the long-term than in the short term. I can understand an argument that in the case of a long term fund the equities will have had time to recover after a fall such as occurred in 1972 and October 1987. But as already explained it may by then be too late. The gilts may have been sold and the cash may all have been spent.

In the end it comes back to the question of risk. Ex hypothesi equities are riskier than gilts. That is the very reason why the return on equities is likely to be greater. The plaintiffs say that they are not obliged to bear that extra risk for the benefit of the defendants. Others like them, with fixed outgoings at stated intervals, take the same view as to prudent investment policy. So the plaintiffs are not alone. Thus Mr. Prevett's evidence was that, since index-linked stocks have been available, it has become the general practice for closed pension funds to be invested in I.L.G.S., so as to be sure of being able to meet their liabilities as they fall due. I would not be surprised to find others in the same position, but on a smaller scale, taking the same view, such as school governors investing a prepaid fees fund. The Court of Appeal rejected this part of Mr. Prevett's evidence, but without giving any very satisfactory reason, other than the need for an investment which affords some flexibility in view of the inevitable uncertainty in estimating the multiplicand. I agree, of course, that there is bound to be some uncertainty in fixing the multiplicand. But that does not seem to me to be a good reason for introducing an unnecessary uncertainty in fixing the multiplier. Two wrongs may make a right. But they are just as likely to make a double wrong.

As for the Court of Protection's current policy, it may be that they feel obliged to invest in equities so long as the sums available for investment are calculated on the basis of a 4 . 5 per cent. return. In spite of the risks, it may be the only way of making the money go round. But it does not tell us how large the fund should have been in the first place. In a letter written since the decision of the Court of Appeal Mr. Bruce Denman records the advice given by the Lord Chancellor's Honorary Investment Advisory Committee to the Master of the Court of Protection in the event of awards being calculated by reference to the return on I.L.G.S. The advice is given in guarded terms. He should "seriously consider" a minimum-risk index-linked portfolio. The master has accepted this advice. It is at least clear, therefore, that the present policy is not set in stone.

Recommendations

I turn next to the commentators and textbook writers. It was the Working Party under the chairmanship of Sir Michael Ogden Q.C. which blazed the trail. In the introduction to the first edition of the Actuarial Tables published in 1984, Sir Michael Ogden refers to the then recent introduction of index-linked government stocks in 1981. They had already become an established part of the investment market. Sir Michael describes the advantages of I.L.G.S. in the following paragraph, at p. 8:

In the second edition published in 1994 Sir Michael Ogden repeats the views expressed in the introduction to the first edition:

A little later he says:

The third edition of the Ogden Tables was published in April 1998, after the decision of the Court of Appeal in the present case, but before the hearing in the House. Sir Michael anticipates a fourth edition when the decision of the House is made known, and when the Lord Chancellor has had an opportunity to fix the rate of return under section 1 of the Damages Act 1996 . Sir Michael will then be able, as he says, to retire from the task which he was first asked to undertake 15 years ago, and which he has performed with such conspicuous success.

The Court of Appeal expressed their concern at departing from the recommendation of the Ogden Working Party but added that the Working Party suffered from the disadvantage that the membership did not include any accountants or investment advisers. The plaintiffs challenged the truth of that observation; but in any event I would not regard it as weakening the force of the Working Party's recommendation.

In between the first and second editions of the Ogden Tables, the Law Commission published Consultation Paper No. 125 on Structured Settlements and Interim and Provisional Damages, to which there was a large response from a variety of sources, including investment advisers. The consultation paper led to Law Commission Report No. 224 (1994) (Cm. 2646). The following passages are relevant:

This is a very strong recommendation indeed. Once again the Court of Appeal expressed concern at departing from such a recommendation, but commented that the recommendation was based on implicit assumptions as to the objective to be achieved, which they did not accept.

There is a sustained criticism of the Court of Appeal's decision in Kemp and Kemp: The Quantum of Damages vol. 1, para. 6-003/9-6-003/13, and in David Kemp Q.C.'s article in 1997 L.Q.R. vol. 113 at p. 195. I have derived much assistance from Mr. Kemp's commentary, for which I am grateful.

In the current edition of McGregor on Damages , 16th ed. (1997), Mr. Harvey McGregor Q.C. hazarded a guess that the House would endorse a rate somewhat less than the Court of Appeal's 4 . 5 per cent. but would not adopt the I.L.G.S. rate. In Mr. McGregor's view that would have been the right solution, because he regarded it as highly unlikely that a plaintiff with substantial damages would invest it all in I.L.G.S. He would be more likely to accept investment advice, and end up with a portfolio largely of equities. This would lead to over-compensation, if equities continue their upward progression.

For reasons which I have already given I would not agree with this approach. The suggestion that plaintiffs with a substantial award of damages are likely to invest in a portfolio consisting largely of equities is not supported by the research carried out for the Law Commission: see their Report No. 225 para. 10.2. In any event what an individual does with his damages is a matter for him. If he invests in equities, he may be lucky and end up by being over-compensated. But the question is whether his damages should be calculated on the basis that he is obliged to invest in equities.

Apart from McGregor on Damages , we were not referred to any other commentary or textbook which disagrees with the recommendations of the Ogden Working Party and the Law Commission.

The authorities

I turn last to see whether the approach which I favour is inhibited by any previous decision of the House. Early cases, such as Taylor v. O'Connor [1971] A.C. 115, are not of any real assistance, since they were decided before the advent of I.L.G.S., the collapse of the equity market in 1972, and the rapid inflation which lasted until the end of that decade. By the time Cookson v. Knowles

[1979] AC 556

was decided the theory that one could protect an award of damages against inflation by investing in equities had been exploded. If protection was to be had at all, it was by the higher rates of interest available on fixed interest securities.

Wright v. British Railways Board [1983] 2 A.C. 773 is an important authority, although not directly in point on the present issue. The question in that case was what is the appropriate rate of interest to award on general damages for the period between the date of service of the writ and the date of judgment. The Court of Appeal in Birkett v. Hayes [1982] 1 W.L.R. 816 had awarded 2 per cent. The House declined to interfere with that rate. Lord Diplock's speech is important for a number of reasons. It was the first and, so far as I know, the only occasion on which he has expressed himself on the subject of I.L.G.S. He pointed out, at p. 783, that the "rate of interest accepted by investors in index-linked government securities should provide a broad indication of what is the appropriate rate of interest to be awarded" for non-pecuniary loss. It provided "powerful confirmation" for the rate of 2 per cent. adopted by the Court of Appeal in Birkett v. Hayes .

Lord Diplock's use of I.L.G.S. in Wright v. British Railways Board convinces me that if I.L.G.S. had existed at the time of Cookson v. Knowles Lord Diplock would have been the first to see that they provided the answer for which he was looking.

Wright v. British Railways Board is also important because of Lord Diplock's observation, at p. 784, that guidelines as to the rate of interest for economic and non-economic loss should be simple to apply, and broad enough to allow for the special features of individual cases. Such guidelines are not to be regarded as rules of law or even rules of practice. They set no binding precedent, and can be altered as circumstances alter. It follows that a new approach to setting the appropriate discount rate, differing from that adopted in Mallett v. McMonagle and Cookson v. Knowles , does not have to be justified under the 1966 Practice Statement. Lord Salmon made the same point in Cookson v. Knowles at p. 574.

Mr. Leighton Williams rightly relied on Lim Poh Choo v. Camden and Islington Area Health Authority

[1980] AC 174

. It is the strongest authority in his favour. At p. 193, Lord Scarman acknowledged the wisdom of Lord Reid's dictum in Taylor v. O'Connor that it would be unrealistic to ignore inflation in calculating lump sum damages for future loss. He nevertheless held that it was "the better course" to disregard inflation in the great majority of cases. Among the reasons he gave was that it was inherent in any lump sum system of compensation, and just, that the sum be calculated at current market values, leaving plaintiffs in the same position as others who have to rely on capital for their support. To attempt to protect them against inflation "would be to put them into a privileged position at the expense of the tortfeasor, and so to impose upon him an excessive burden, which might go far beyond compensation for loss."

No doubt it was this passage which the Court of Appeal had in mind when they said that it was necessary "to hold the balance evenly between both sides." I have to say that I do not find Lord Scarman's reasoning persuasive. If the object of an award of damages is to put the plaintiff in the same position as he would have been in if he had not been injured by the negligence of the defendant (as was common ground) then one ought, in principle, to get as near as one can to the wages which he would actually have earned but for the injury and the cost of the needs which he will actually incur. In other words, one ought so far as possible to take account of inflation, as Lord Reid had said.

What then did Lord Scarman mean by saying that this would put the plaintiff in a privileged position in comparison with others who have to rely on capital for their support? Once the lump sum has been calculated and paid, he is in exactly the same position as others, such as those who have saved or inherited a lump sum. But in calculating the sum his position is in no way comparable. For the plaintiff is entitled to be protected against future inflation at the expense of the tortfeasor; otherwise he does not receive full compensation. The others are not so entitled. It is only in that sense that the plaintiff is in a privileged position. I cannot for my part see anything unjust in requiring the defendant to compensate the plaintiff in full, however burdensome that may prove. Lord Scarman recognised this himself when he said, at p. 187:

Conclusion

My conclusion is that the judges in these three cases were right to assume for the purpose of their calculations that the plaintiffs would invest their damages in I.L.G.S. for the following reasons:

(1) Investment in I.L.G.S. is the most accurate way of calculating the present value of the loss which the plaintiffs will actually suffer in real terms.

(2) Although this will result in a heavier burden on these defendants, and, if the principle is applied across the board, on the insurance industry in general, I can see nothing unjust. It is true that insurance premiums may have been fixed on the basis of the 4 to 5 per cent. discount rate indicated in Cookson v. Knowles and the earlier authorities. But this was only because there was then no better way of allowing for future inflation. The objective was always the same. No doubt insurance premiums will have to increase in order to take account of the new lower rate of discount. Whether this is something which the country can afford is not a subject on which your Lordships were addressed. So we are not in a position to form any view as to the wider consequences.

(3) The search for a prudent investment will always depend on the circumstances of the particular investor. Some are able to take a measure of risk, others are not. For a plaintiff who is not in a position to take risks, and who wishes to protect himself against inflation in the short term of up to 10 years, it is clearly prudent to invest in I.L.G.S. It cannot therefore be assumed that he will invest in equities and gilts. Still less is it his duty to invest in equities and gilts in order to mitigate his loss.

(4) Logically the same applies to a plaintiff investing for the long term. In any event it is desirable to have a single rate applying across the board, in order to facilitate settlements and to save the expense of expert evidence at the trial. I take this view even though it is open to the Lord Chancellor under section 1 (3) of the Damages Act to prescribe different rates of return for different classes of case. Mr. Leighton Williams conceded that it is not desirable in practice to distinguish between different classes of plaintiff when assessing the multiplier.

(5) How the plaintiff, or the majority of plaintiffs, in fact invest their money is irrelevant. The research carried out by the Law Commission does not suggest that the majority of plaintiffs in fact invest in equities and gilts, but rather in a building society or a bank deposit.

(6) There was no agreement between the parties as to how much greater, if at all, the return on equities is likely to be in the short or long term. But it is at least clear that an investment in I.L.G.S. will save up to 1 per cent. per annum by obviating the need for continuing investment advice.

(7) The practice of the Court of Protection when investing for the long term affords little guidance. In any event the policy may change when lump sums are calculated at a lower rate of return.

(8) The views of the Ogden Working Party, the Law Commission and the author of Kemp and Kemp in favour of an investment in I.L.G.S. are entitled to great weight.

(9) There is nothing in the previous decisions of the House which inhibits a new approach. It is therefore unnecessary to have resort to the 1966 Practice Statement.

Consequences

Once it is accepted that the lump sum should be calculated on the basis of the rate of return available on I.L.G.S., then an assessment of the average rate of return at the relevant date presents no problem. The rates are published daily in the Financial Times . A table of average rates for the period June 1990 to December 1994 is included in Kemp and Kemp at para. 8-068. No doubt the table will be brought up to date from time to time.

The average gross redemption yield in June 1995 when Mr. Prevett gave his evidence was 3 . 78 per cent. If one takes the average over the previous six months it was 3 . 8 per cent., and if over the previous 12 months it was 3 . 83 per cent. The equivalent figures for November and December 1995 when Collins J. and Dyson J. gave judgment were marginally lower at 3 . 53 per cent. and 3 . 52 per cent. There must then be a deduction for tax on income. In his valuable appendix to the judgment below, Thorpe L.J. scorns the assumption of a 25 per cent. flat rate of tax as "crude, unrealistic and favourable to plaintiffs." I agree. In the first place it ignores the impact of allowances and tax bands. Secondly, it assumes a constant rate of income throughout the period to be covered, whereas in reality the income element in the annual draw-down will reduce and the tax-free capital element will increase as time goes by. The Duxbury Tables attempt a much more accurate calculation of the incidence of tax. Figures put before us show that on a fund of £1 million invested to produce 3 per cent. over 20 years the actual incidence of tax would be no more that 15 . 37 per cent.

It is not altogether clear how Judge Wilcox arrived at his 2 . 5 per cent. as the appropriate discount on an average gross return of 3 . 8 per cent. If he deducted tax at 25 per cent., he would have arrived at 2 . 8 per cent. net, not 2 . 5 per cent. But for reasons already mentioned 25 per cent. is certainly too high, quite apart from the fact that it is no longer the standard rate of tax. Judge Wilcox's figure of 2 . 5 per cent. cannot stand.

In its place I would substitute 3 per cent., which is the net discount rate adopted by Collins J. and Dyson J., representing a deduction of 14 per cent. for the impact of taxation on a gross return of 3 . 5 per cent. This sounds about right. I appreciate that such an approach is less precise than what is available by using the Duxbury Tables, which was Thorpe L.J.'s preferred approach. On the other hand it is important to keep the calculations simple as well as accurate, as Thorpe L.J. was the first to recognise. So far as the three appeals currently before the House are concerned I would regard 3 per cent. as the appropriate net return. It follows that the award in Wells v. Wells will have to be recalculated on that basis.

Guidelines

Section 1 of the Damages Act 1996 provides:

The section came into force on 24 September 1996, but no rate has yet been prescribed. Lord Mackay of Clashfern, the previous Lord Chancellor, was said to be awaiting the decision of the Court of Appeal in the instant cases. It goes without saying that the sooner the Lord Chancellor sets the rate the better. The present uncertainty does not make the settling of claims any easier.

In the meantime it is for your Lordships to set guidelines to replace the old 4 to 5 per cent. bracket. There is something to be said for a bracket, since it allows some flexibility in exceptional cases, as where, for example, the impact of higher-rate tax would result in substantial under-compensation. Thus on an award of £2 million higher rate tax payable over the first half of a 20-year period would alone amount to nearly £75,000. But the majority of your Lordships prefer a single figure. I do not disagree provided it is subject to the same flexibility as is to be found in section 1 (2) of the Damages Act .

What then should the figure be? The average gross redemption yield on I.L.G.S. has fallen steadily over the last year. In May 1997 it was 3 . 68 per cent., by May 1998 it was only 2 . 8 per cent. Less tax at, say, 15 per cent., this would give a net return of 2 . 38 per cent. Logically, therefore, we should take 2 . 5 per cent. as the guideline figure, since the assumption is that the plaintiff will purchase in the market at that price. The higher-yielding stock is no longer available. If therefore the calculation is done at 3 per cent. instead of 2 . 5 per cent., he would be substantially under-compensated.

But since it is undesirable that the guidelines should be changed too often, it may be better that the average gross return should be ascertained over a period of months rather than on a particular day; and since, as I have said, the average return has been falling over the last year, one would expect the average return over that period to be higher than the current return. Such proves to be the case. Over the last six months and 12 months to March 1998 the average return has been 3 . 02 per cent. and 3 . 28 per cent. respectively. These figures justify a guideline rate of return of 3 per cent. net rather than 2 . 5 per cent., and this is the rate which I would propose for general use until the Lord Chancellor has specified a new rate under section 1 of the Damages Act .

I would not, however, accept that the average should be taken over as long a period as three years. For if the rate of return had been falling steadily over the whole period (in fact this has not been the case) it would work very unfavourably to the plaintiffs; and vice versa if it had been rising steadily over three years. A year would seem to be the best compromise period. Once the net return has been established to the nearest 0 . 5 per cent., it is a simple enough matter to find the correct multiplier from the Ogden Tables.

Wells v. Wells

I come now to the miscellaneous points. They do not call for extensive discussion, since they were argued only briefly. The underlying question is whether the defendants in each case succeeded in showing that damages awarded by the judges at first instance in respect of any particular head of damage (see George v. Pinnock [1973] 1 W.L.R. 118 per Sachs L.J. at 126) are outside the appropriate bracket (see Every v. Miles [1964] C.A. Trans. No. 261 per Diplock L.J.; Kemp and Kemp para. 19-006), or else represented a "wholly erroneous estimate", whether due to mistake of law or a misapprehension of the facts: see Pickett v. British Rail Engineering Ltd.

[1980] AC 136

per Lord Wilberforce at 151, and Lord Scarman at 172.

As already mentioned Judge Wilcox awarded Mrs. Wells £120,000 for pain and suffering. The Court of Appeal reduced the figure to £100,000. On behalf of the defendant it is said that the case falls at the upper end of the moderately severe brain-damage bracket as described in the Judicial Studies Board Guidelines 2nd ed. (1994) (£77,500 to £95,000), and not within the most severe brain-damage bracket (£105,000 to £125,000). Mrs. Wells is severely disabled, and will remain so for the rest of her life. But I agree with the Court of Appeal that the sum of £120,000 awarded by the judge falls well above the bracket for her type of case. The Court of Appeal was therefore right to intervene for the reasons set out convincingly in their judgment, which I need not repeat. As for Cunningham v. Camberwell Health Authority [1990] 2 Med.L.R. 49, on which the plaintiff relied, Mr. Leighton Williams pointed out that the plaintiff in that case was 12 years younger than Mrs. Wells, and it looks as though her injuries may have been rather more serious. In any event the award in that case may have been on the high side. I would uphold the Court of Appeal's figure of £100,000.

On the other hand I am unable to agree with the Court of Appeal's reduction in Mrs. Wells's life expectancy from 15 years to 10 years. Dr. Peter Harvey's evidence was that her life expectancy is not affected by her present condition in view of the intensive care which she now receives. He would therefore predict a normal life expectancy for a woman of her age, namely, 20 years. Mr. Alan Richardson, on the other hand, predicted a life expectancy of 10 years, or 13 at the most.

The judge expressed his conclusion as follows:

The Court of Appeal fastened on the judge's preference for Mr. Richardson's evidence, and held that he was therefore wrong to split the difference (if that is what he did) by taking 15 years. But this is to misunderstand the judge's approach. Even though he preferred Mr. Richardson's evidence, he was not obliged to accept the lower of his two figures uncritically. Nor was he obliged to reject Dr. Harvey's views out of hand. In arriving at a life expectancy of 15 years the judge took all the medical evidence into account, and all the other evidence besides. In my view the Court of Appeal should not have interfered. I would therefore restore the judge's figure of 15 years' life expectancy.

The third point relates to the multiplicand. The Court of Appeal rightly rejected a number of Mr. Leighton Williams's criticisms of the judge's findings. But in one respect they found his criticism justified. At the time of the trial the care regime consisted of a residential carer and a day carer by day, and the residential carer and a night carer by night. Miss Teresa Gough, who gave evidence at the trial for the defendant, urged strongly that a night sleeper could be substituted for the night carer, with a saving of £10,539 per year. But the judge preferred the evidence of Mrs. Statham and Mrs. Clarke-Wilson, who had, as he put it, "the direct hands-on experience." If, as they said, Mrs. Wells needed to be seen three times a night, then Miss Gough accepted that that was a task for a night carer rather than a night sleeper.

In my view the Court of Appeal was right to scrutinise the individual items which went to make up the multiplicand. Since the effect of reducing the rate of discount will be to increase the multiplier in every case, it is all the more important to keep firm control of the multiplicand. Plaintiffs are entitled to a reasonable standard of care to meet their requirements, but that is all. Having said that, however, and having heard all that Mr. Leighton Williams had to say, I am not persuaded that the Court of Appeal was entitled to substitute their own view of the evidence to that formed by the judge. They gave no reason other than it was another instance of the judge over-providing. I would therefore restore the judge's finding under this head.

Thomas v. Brighton Health Authority

The agreed medical evidence was that the plaintiff has a life expectancy to the age of 60. Collins J. held, however, that he ought to reduce the arithmetical multiplier by about 20 per cent. "to cater for the hazards of life in such cases." In the result he took a multiplier of 23. The Court of Appeal agreed with the judge's approach but started from a different starting-point. With a 4 . 5 per cent. discount rate the arithmetical multiplier came to 20. Reduced by 15 per cent., rather than 20 per cent., they arrived at a multiplier of 17.

Was it correct for the judge and the Court of Appeal to reduce the arithmetical multiplier, and therefore, in effect, override the expectation of life agreed by the doctors? Mr. Owen submitted that there could be no rational basis for applying a further discount for "contingencies," since the doctors had already taken account of all the contingencies that might affect the plaintiff, such as the increased risk of accident, chest infection, and so on. The only reason given by the judge was that the courts had "tended to reduce multipliers by about 20 per cent." The Court of Appeal took the same line.

I can see no answer to Mr. Owen's argument. The inevitable result of reducing the multiplier to 17, as Mr. Havers Q.C. pointed out, will be that the plaintiff's damages will run out when he is 39. He will have nothing to cover his needs for the remaining 21 years of his life.

Mr. Havers conceded that there is room for a judicial discount when calculating the loss of future earnings, when contingencies may indeed affect the result. But there is no room for any discount in the case of a whole life multiplier with an agreed expectation of life. In the case of loss of earnings the contingencies can work in only one direction--in favour of the defendant. But in the case of life expectancy, the contingency can work in either direction. The plaintiff may exceed his normal expectation of life, or he may fall short of it.

There is no purpose in the courts making as accurate a prediction as they can of the plaintiff's future needs if the resulting sum is arbitrarily reduced for no better reason than that the prediction might be wrong. A prediction remains a prediction. Contingencies should be taken into account where they work in one direction, but not where they cancel out. There is no more logic or justice in reducing the whole life multiplier by 15 per cent. or 20 per cent. on an agreed expectation of life than there would be in increasing it by the same amount.

It follows from what I have said that I do not agree with the discount which McCullough J. allowed in Janardan v. East Berkshire Health Authority [1990] 2 Med.L.R. 1. In that case the plaintiff, aged five at the time of trial, had a life expectancy to 55. This indicated a multiplier of just under 20 by reference to a 4 . 5 per cent. discount rate. McCullough J. held that a discount was required to allow for the possibility that the plaintiff might not survive to 55. I do not accept this; and it may be that McCullough J. would not have accepted it either, if he had not felt constrained by previous authority. Left to himself, he said, he would have taken a whole life multiplier of 17 . 5 to 18. But the multiplier chosen by the Court of Appeal in Croke v. Wiseman [1982] 1 W.L.R. 71 and by the House in Lim Poh Choo v. Camden and Islington Area Health Authority

[1980] AC 174

required him to choose 17 instead. But this meant, as Mr. Havers pointed out, that the plaintiff in Janardan's case would have run out of damages at the age of 33, although he was expected to live to 55.

In Hunt v. Severs

[1994] 2 AC 350

the plaintiff had a life expectancy of 25 years. The appropriate multiplier by reference to a 4 . 5 per cent. discount rate was 14 . 821. But the judge reduced this figure to 14 because 14 seemed more in line with the multiplier applied in other comparable cases. The Court of Appeal, correctly in my view, substituted a multiplier of 15, as being the nearest round figure to 14 . 821. Sir Thomas Bingham M.R. observed that an allowance for contingencies may sometimes be appropriate. But he continued:

But the House disagreed. Lord Bridge of Harwich said, at p. 365:

I have some difficulty with this passage. The plaintiff's life expectancy was not derived from any tables. It was the agreed life expectancy of this particular plaintiff, taking her individual characteristics into account. I cannot for my part see what further room there was for "life's manifold contingencies." The whole point of agreeing a life expectancy, if it can be done, is to exclude any further speculation. With respect therefore I prefer the approach of Sir Thomas Bingham M.R. and the Court of Appeal.

The explanation for the different approach of the House in Hunt v. Severs may be a continuing hesitation to embrace the actuarial tables. I do not suggest that the judge should be a slave to the tables. There may well be special factors in particular cases. But the tables should now be regarded as the starting-point, rather than a check. A judge should be slow to depart from the relevant actuarial multiplier on impressionistic grounds, or by reference to "a spread of multipliers in comparable cases" especially when the multipliers were fixed before actuarial tables were widely used. This may be the explanation for the relatively low multiplier chosen by the House in Lim Poh Choo's case.

For the reasons I have given, I consider that the Court of Appeal in the present case were wrong to substitute a multiplier of 17 for the judge's 23. But the judge himself was also too low. The appropriate multiplier derived from the tables on the agreed life expectancy was 26 . 58.

I can deal with the second of the two miscellaneous points in Thomas v. Brighton Health Authority quite shortly. In October 1990, 15 months after the plaintiff's birth, and five years before the trial, the plaintiff's parents moved into a larger house. They needed more space, because of his disability. The additional cost was some £60,000 which they raised by way of a mortgage. The question is how the additional cost should be reflected in the award of damages.

Obviously the plaintiff is not entitled to the additional capital cost, since the larger house is a permanent addition to the family's assets. It will be there, and could be realised, at the end of the period covered by the award. How then should this head of damages be calculated? Should it be the interest on the mortgage? or interest calculated in some other way?

The answer to this question, described in Kemp and Kemp as "a satisfactory and elegant solution," was provided by the Court of Appeal in Roberts v. Johnstone [1989] Q.B. 878. It is to be assumed that the plaintiff will pay for the additional accommodation out of his own capital. It is further to be assumed that the capital input will be risk-free over the period of the award, and protected against inflation, by a corresponding increase in the value of the house. What the plaintiff has therefore lost is the income which the capital would have earned over the period of the award after deduction of tax.

But the lost income is not to be calculated by reference to a normal commercial rate of interest. For interest, as Lord Diplock explained in Wright v. British Railways Board at p. 781, normally includes two elements, "a reward for taking a risk of loss or reduction of capital," and "a reward for foregoing the use of the capital sum for the time being." Since the capital input in the new accommodation is free of risk, or virtually free of risk, it is only the second of the two elements of interest that the plaintiff has lost, namely, the "going rate" for forgoing the use of money. The Court of Appeal in Roberts v. Johnstone took 2 per cent. as the "going rate." This was the figure originally chosen by Lord Denning M.R. in Birkett v. Hayes, and accepted by Lord Diplock in Wright v. British Railways Board . Birkett v. Hayes and Wright v. British Railways Board were both cases of non-pecuniary loss, but the point is the same.

Both sides accept that the correct approach is that adopted by the Court of Appeal in Roberts v. Johnstone . The only question is how that approach should be applied. Collins J. arrived at the "going rate" by taking the average return on I.L.G.S. as the best possible indicator of the real return on a risk-free investment over the period of the award. In other words, he took the same discount of 3 per cent. net of tax as he had taken for the calculation of future loss. The Court of Appeal disagreed. They took the "conventional rate" of 2 per cent., pointing out that Stocker L.J. had not tied his 2 per cent. to the return on any particular form of investment.

It is true that there is no reference to I.L.G.S. in Roberts v. Johnstone . But in Wright v. British Railways Board Lord Diplock chose the return on I.L.G.S. as the first (and in my view simpler) of the two routes by which courts can arrive at the appropriate or "conventional" rate of interest for foregoing the use of capital. At that time the net return on 15-year and 25-year index-linked stocks was 2 per cent. I can see no reason for regarding 2 per cent. as sacrosanct now that the average net return on I.L.G.S. has changed. The current rate is 3 per cent. This therefore is the rate which should now be taken for calculating the cost of additional accommodation. It has two advantages. In the first place it is the same as the rate for calculating future loss. Secondly it will be kept up to date by the Lord Chancellor when exercising his powers under section 1 of the Damages Act . On this point I would restore the order of Collins J.

Page v. Sheerness Steel Co. Plc.

The judge took a loss of earnings multiplier of 20 . 28, which he reduced by 8 . 65 per cent. to 19 in order to take account of the substantial risk that the plaintiff would not have continued working until the age of 62. The Court of Appeal took a multiplier of 14 including a discount of 17 . 9 per cent., on the ground that there was merit in Mr. Leighton Williams' submission that the discount should be at least 12 . 5 per cent. But the judge had already said that he was giving a larger discount than average, because of the nature of the plaintiff's work. There was no need for the Court of Appeal to intervene.

The judge took a whole life multiplier of 24 based on a rate of return of 3 per cent. net on a normal life expectancy. The Court of Appeal started with a multiplier of 19 and reduced it to 17. For the reasons already mentioned there was no justification for a discount on the whole life multiplier. I would therefore restore the judge's multiplier of 24 as the correct starting-point.

But as the plaintiff is currently being looked after by his wife, the judge sensibly and correctly split the multiplier in two. He applied a multiplier of 12 to the additional cost currently incurred while Mrs. Page is the prime carer, and the same multiplier for the further costs when she is no longer able to act as the prime carer. There is no dispute on that score.

Part of the current cost of care is to provide the services of an "enabler," that is to say, "someone who will take the plaintiff out of the house, stimulate his interest in sporting and other activities and generally seek to motivate him and improve the quality of his life." Mrs. Gipson said that four sessions a week would be appropriate, but the judge reduced this to three sessions or 12 hours a week for the reasons he gave, and calculated the damages on the basis of a 52-week year. The Court of Appeal accepted that the cost of an enabler was justified, but reduced the period from 52 weeks a year to 40 weeks, on the ground that there would be breaks in the period of employment, as when the plaintiff is on holiday. It may be that some account should have been taken of holiday periods. But the judge's estimate was not so far wrong as to justify the Court of Appeal's interference.

Nor was there any sound reason for increasing the discount on damages for loss of pension rights from 10 per cent. allowed (reluctantly) by the judge in the light of Auty v. National Coal Board [1985] 1 W.L.R. 784 to 15 per cent. allowed by the Court of Appeal.

Finally Mr. Purchas argued that there ought not to be a reduction for the proceeds of permanent health insurance, on the ground that the plaintiff has contributed 4 . 5 per cent. of his earnings to the scheme. Mr. Purchas sought to distinguish Hussain v. New Taplow Paper Mills Ltd. [1988] A.C. 514 on that ground. The judge did not accept Mr. Purchas's argument. He dealt with this point at some length and his views were upheld in the Court of Appeal. In my view they were right.

For the reasons I have given I would allow all three appeals.

LORD STEYN

My Lords,

I confine my observations to the principal issue about the discount rate to be applied.

The conventional rate

It has for many years been settled practice, endorsed by decisions of the House of Lords, that the lump sum to be awarded in a personal injury action for the present value of a plaintiff's future losses of earnings, and the present cost of his future expenses, ought to be determined by using in the calculations a discount rate of 4 to 5 per cent. The rationale was that there was no other practicable basis of calculation that is capable of dealing with so conjectural a factor as inflation with greater precision: Cookson v. Knowles

[1979] AC 556

, 571G, per Lord Diplock; see also the earlier and subsequent decisions of the House of Lords in Mallett v. McMonagle [1970] A.C. 166 and Lim Poh Choo v. Camden and Islington Area Health Authority [1980] A.C. 74. The question before the House is whether this practice should now be modified in changed economic circumstances by adopting a discount figure assessed by reference to index-linked government securities, the suggested figure being 3 per cent.

The importance of the issue

The importance of the issue is shown by a comparison of the awards of the three trial judges, who relied on index-linked government securities to fix the discount rate, and the figures substituted by the Court of Appeal, who used the conventional rate. Ignoring for present purposes that in Wells v. Wells the trial judge adopted a discount rate of 2 . 5 per cent. the use of a 3 per cent. discount rate instead of 4 . 5 per cent. would increase the awards by very roughly the following sums: © 1998 Crown Copyright

Margaret Wells £108,000

(a 58 year old nurse)

Page £186,000

(a 28 year old steelworker)

Thomas £300,000

(aged 6 years)

These figures show the impact of the reduction of the discount rate in cases where damages are calculated over many years. But, since a judicial decision ought to take into account general as well as particular consequences, it is important to realise that the proposed modification of the discount rate would lead to an enormous general increase in the size of awards for future losses. Nobody has ventured a prediction of the likely cost. The sums involved would undoubtedly be huge. The implications of a modification of the conventional rate for the insurance industry would be considerable. Inevitably, it would be reflected in increased premiums. The one certain thing is that if the right decision is to make the suggested modification of the discount rate the public would by and large have to pay for the increase in awards.

The premise of the debate

The premise of the debate was that as a matter of law a victim of a tort is entitled to be compensated as nearly as possible in full for all pecuniary losses. For present purposes this mainly means compensation for loss of earnings and medical care, both past and future. Subject to the obvious qualification that perfection in the assessment of future compensation is unattainable, the 100 per cent. principle is well established and based on high authority: Livingstone v. Rawyards Coal Co. (1880) 5 AppCas 25 , 39; L im Poh Choo v. Camden and Islington Area Health Authority [1980] A.C. 175, at 187E, per Lord Scarman. The technique employed to achieve this result is to provide an annuity of an annual amount equivalent to the streams of future losses of earnings and cost of future expenses: Hodgson v. Trapp

[1989] AC 807

, per Lord Oliver of Aylmerton, at 826D-E.

". . . most other compensation systems, especially social security systems (and in other countries, worker's compensation laws) generally reject the 100 per cent. principle. Our own social security system generally pays benefits well below the full amount of lost earnings. Similarly, the New Zealand Accident Compensation Act provides for benefits of 80 per cent. of lost earnings; and the Australian Committee of Inquiry recommended benefits equal to 85 per cent. of lost earnings. Moreover, in most compensation systems there are minimum loss qualifications. Thus, no social security benefits are payable in this country for the first three days' loss of earnings; no criminal injuries compensation benefits are payable if the compensation would amount to less than £1,000, and so on. " . . . the Court, which, . . . is dealing with probabilities when fixing the multiplier, can and should pay regard to the high probability that the plaintiff will invest prudently" "The 6 per cent. gross yield conventionally assumed in the multiplier/multiplicand method is probably currently too high. The rate of yield from I.L.G.S. is perhaps too low, although if expressed as 3 per cent. net it is only marginally below the current Duxbury assumption of 4 . 25 per cent. gross or 3 . 18 per cent. net were 25 per cent. to be deducted for tax." "If you are looking to have no risk, then the advice to the Court would have to be to use index-linked gilts because they are the only vehicle of that nature that will guarantee you a return over and above whatever inflation is. That we know can fluctuate dramatically."

It must not be assumed that the 100 per cent. principle is self evidently the only sensible compensation system. Judges have to a limited extent tried to control the size of awards for pecuniary losses in personal injury cases. Thus judges have in practice imposed a limit of 18 years in fixing a multiplier and, having done their sums in the context of the facts of a case, they have resorted to the so-called judicial discount for uncertainties. The first tendency is illustrated by McIlgrew v. Devon County Council [1995] P.I.Q.R. 66, at 74, per Sir John May, and the second by the judicial discount applied in the case of Thomas. Moreover, the 100 per cent. principle has been criticised by commentators, notably in Atiyah's Accidents, Compensation and the Law , 5th ed. (1993) edited by Peter Cane, 1993. About the hundred per cent. principle Professor Atiyah states (at 131):

Clearly, such arguments are stronger in the case of loss of future earnings than in respect of the cost of future medical care. Rhetorically, Professor Atiyah asks "why should different accident victims be compensated for the same injury on a scale which varies according to their previous level of earnings?" and "if . . . two people are killed in similar accidents, what justification is there for compensating their dependants at different rates?": at pp. 127-129. The author gives two main reasons for rejecting the 100 per cent. principle. The first is the cost involved. The second is that it reduces the victim's incentive to return to work. The second consideration is not relevant to the appellants in the present appeals but may arguably be relevant in other personal injury cases. Not only do these arguments contemplate a radical departure from established principle, but controversial issues regarding resources and social policy would be at stake. Such policy arguments are a matter for Parliament and not the judiciary.

Leaving to one side the policy arguments for and against the 100 per cent. principle, there is a major structural flaw in the present system. It is the inflexibility of the lump sum system which requires an assessment of damages once and for all of future pecuniary losses. In the case of the great majority of relatively minor injuries the plaintiff will have recovered before his damages are assessed and the lump sum system works satisfactorily. But the lump sum system causes acute problems in cases of serious injuries with consequences enduring after the assessment of damages. In such cases the judge must often resort to guesswork about the future. Inevitably, judges will strain to ensure that a seriously injured plaintiff is properly cared for whatever the future may have in store for him. It is a wasteful system since the courts are sometimes compelled to award large sums that turn out not to be needed. It is true, of course, that there is statutory provision for periodic payments: see section 2 of the Damages Act 1996 . But the court only has this power if both parties agree. Such agreement is never, or virtually never, forthcoming. The present power to order periodic payments is a dead letter. The solution is relatively straightforward. The court ought to be given the power of its own motion to make an award for periodic payments rather than a lump sum in appropriate cases. Such a power is perfectly consistent with the principle of full compensation for pecuniary loss. Except perhaps for the distaste of personal injury lawyers for change to a familiar system, I can think of no substantial argument to the contrary. But the judges cannot make the change. Only Parliament can solve the problem.

The basis of the conventional rate

Although decisions of the House of Lords adopted the 4 to 5 per cent. discount rate, those decisions did not single out equities as the appropriate investment vehicle justifying that rate. Negatively this is clear from a study of the judgments in Mallett, Cookson and Lim Poh Choo . Moreover, although the issue in Wright v. British Railways Board [1983] 2 A.C. 773 was different, Lord Diplock's discussion in the context of Cookson of government stock as giving the "going rate" makes clear that he did not have in mind equities as the appropriate investment vehicle: 781G-782C. But in the present cases the Court of Appeal, relying on general observations in earlier decisions about prudent investment and the need for advice, has sought to justify a rate of 4 to 5 per cent. on the basis of plaintiffs investing in a spread of equities.

The changed economic landscape

In 1981 the government introduced index-linked government securities which are tied to the retail price index and hence protected against inflation. In 1982 these forms of financial instrument became freely available to individuals. Since that date a market in such instruments has developed and expanded. This has radically altered the investment scene. It is now practicable for a plaintiff to protect himself against inflation by investing in index-linked government securities. This form of investment guarantees that the sums invested will retain their real value. It is tailor-made for investors who want a safe investment: see Bootle, Index-Linked Gilts , 2nd ed., (1991), 94-104. It is in practical terms a virtually risk-free investment guaranteeing a return based on the market's view of inflationary trends. In its reports published in 1984 and 1994 the Working Party chaired by Sir Michael Ogden Q.C. recommended that in future the discount rate should be based on availability of an investment in index-linked government stock. The Working Party observed that whereas in the past a plaintiff had to speculate by investing in equities, or in a basket of equities and gilts or a selection of unit trusts, he need speculate no longer if he buys index-linked government stock. After in depth research the Law Commission took a similar view: Law Com., No. 224, para. 2.28. This is the changed landscape in which three trial judges felt free to depart from the conventional rate of 4 to 5 per cent.: see Mr. Kemp's full and helpful discussion and analysis: Discounting Compensation for Future Loss, (101) 1985 L.Q.R. 556 and (113) 1997 L.Q.R. 195; Kemp and Kemp, The Quantum of Damages , looseleaf edn., 1997, Vol. 1, para. 6-003 et seq.

The critical issue

In a careful judgment Hirst L.J., giving the judgment of the Court, held that a plaintiff should be treated in the same way as an ordinary investor. In one sense one can quibble and say that the ordinary investor is a rather elusive figure. For my part I regard the concept as meaningful: by its use Hirst L.J. indicated that he declined to have regard to the special circumstances of plaintiffs who must be compensated in respect of future consequences of the injuries they suffered. That is a perfectly rational position to adopt. And it is one which counsel for the respondents urged on the House. In short they argued that it would be wrong to put such a plaintiff in a privileged position. That, they argued, would not be holding the scales fairly between the two sides. On the supposition that the plaintiff must be treated like an ordinary investor, counsel for the respondents argued that in determining the discount rate the Court of Appeal was right to proceed on the basis that a plaintiff should invest in a diversified portfolio of shares, gilts, unit trusts, and so forth.

It is necessary to consider how this issue should be approached. Hirst L.J. said ([1997] 1 W.L.R. 677):

The Court of Appeal assumed that such plaintiffs have in the past usually invested in a portfolio of equities. The only evidence was the Law Commission's research which yielded the answer that the majority of plaintiffs are "risk-averse" and tend to deposit their damages with banks and building societies: Law Com. 225, para. 10.2, Table 1001, at pp. 162-164. More importantly, the court cannot be expected to investigate what plaintiffs, who are not a homogenous group, will or will not do with their damages. The correct approach is to concentrate on the objective question, namely what is the type of investment that plaintiffs can reasonably be expected to make.

My Lords,

the Court of Appeal have also approached the inquiry in the objective way required. But the Court of Appeal have assumed that the same investment policy would be suitable for all investors, regardless of any special needs. The premise that plaintiffs, who have perhaps been very seriously injured, are in the same position as ordinary investors is not one that I can accept. Such plaintiffs have not chosen to invest: the tort and its consequences compel them to do so. For plaintiffs an investment in equities is inherently risky, notably in regard to the timing of the investment. The annuity method contemplates sales of capital from time to time. With equities there is the risk that planned sales of capital will have to be made during a slump, thereby eroding capital and depleting the fund. As the Ogden Working Party observed, it is not difficult to draw up a list of blue chip equities or reliable unit trusts which have performed poorly, or, in some cases, disastrously. The stock market slump of 1973 took substantially more than a decade to recover. Less dramatically, a slump in equities in December 1993 would have caused a loss of 10 per cent. (subsequently recovered) in a single year. The truth is that stock markets are seldom tranquil for long. Periodically, they rise and fall quite unexpectedly. Typically, by investing in equities an ordinary investor takes a calculated risk which he can bear in order to improve his financial position. On the other hand, the typical plaintiff requires the return from an award of damages to provide the necessities of life. For such a plaintiff it is not possible to cut back on medical and nursing care as well as other essential services. His objective must be to ensure that the damages awarded do not run out. It is money that he cannot afford to lose. The ordinary investor does not have the same concerns. It is therefore unrealistic to treat such a plaintiff as an ordinary investor. It seems to me entirely reasonable for such a plaintiff to be cautious and conservative. He does not have the freedom of choice available to the ordinary investor. If a comparison is to be made--and in this field all comparisons are inexact--the position of plaintiffs are much closer to elderly, retired individuals who have limited savings which they want to invest safely to provide for their declining years. Such individuals would generally not invest in equities. But for plaintiffs the need for safety may often be more compelling. In any event, it seems to me difficult to say that an investment in index-linked securities by plaintiffs would be unreasonable . After all, life companies are now accustomed to investing their annuity funds in index-linked gilts to meet index-linked annuities. Similarly, when the only liabilities of a pension fund are to pay index-linked pensions, the pension fund will invest entirely in index-linked government securities. Plainly insurers and pension fund managers, in so investing, are acting prudently. In these circumstances one cannot realistically say that an injured plaintiff who invests in index-linked government securities is acting imprudently. I therefore share the views of the Ogden Working Party and the Law Commission that it is reasonable for such a plaintiff to take the safe course of investing in index-linked government stock. From this it follows that the discount rate ought to be fixed on this assumption.

The satellite issues

It is possible for me to deal with the satellite issues quite briefly. First, there was much controversy about the real return on equities. Both sides put their case too high. For my part I am content to approach the matter on the basis that a diversified portfolio of equities would yield over a substantial period a better return than index-linked government securities. But I am not satisfied that even on this basis, and ignoring the availability of index-linked government securities, a net rate as high as 4 . 5 per cent. was justified. Bearing in mind the surprisingly high cost of advice that would be needed by a plaintiff to invest in a portfolio of equities my view is that the Court of Appeal took a rather optimistic view. Secondly, my impression is reinforced by the instructive Appendix on the Duxbury Tables prepared by Thorpe L.J. He observed:

This observation goes a considerable way towards undermining the reasoning in the judgment of the Court of Appeal. That Thorpe L.J. should be a party to both texts is not surprising: compromises are an inevitability in appellate judging. Thirdly, much was made of the fact that the Court of Protection presently works on a discount rate based on an investment in a diversified portfolio of equities. The Court of Protection acts on the basis that the damages are currently calculated by using a 4 to 5 per cent. rate and that it must try to achieve this net real rate even if it involves taking some risks. What the Court of Protection will do if the House adopts a discount rate based on investment in index-linked government securities is uncertain. It is putting it too high to say, as Hirst L.J. did, that even if the rate is modified the Court of Protection "would probably stick to their normal investment strategy of setting up a segregated portfolio [(of equities)]" The witness from the Court of Protection in fact said:

The past practice of the Court of Protection does not assist on the principal issue, and its future decisions are uncertain and, in any event, are a matter for its independent judgment. Fourthly, the Court of Appeal accepted an argument on behalf of the defendants that an investment in index-linked government securities was not risk-free. That is a proposition that would surprise the market: being government backed such stock is surely virtually risk-free. The principal point made was the alleged lack of availability of appropriate issues of index-linked government securities. This is unrealistic. According to the Debt Management Report 1998-99, Treasury (1997), the U.K. central government marketable sterling debt stood at £308 billion at the end of February 1998, of which £59 billion (including accrued interest) was in index-linked gilts. In the Government's remit to the National Savings and Debt Management Office, the target proportions of index-linked gilts as a proportion of all gilt sales is 25 per cent. In presently foreseeable circumstances the issue of index-linked government securities must be regarded as an integral and permanent feature of the investment scene. Moreover, if the Lord Chancellor in acting under his powers under section 1 of the Damages Act 1996 were to be guided by the unanimous judgment of the House, and accept index-linked government securities as the best guide to the appropriate discount rate, this would no doubt be an added reason for the Government to ensure that appropriate index-linked government securities are issued.

The guideline

My Lords,

until the Lord Chancellor takes action under his statutory powers it is essential that there should be a firm and workable principle. It should be general and simple in order to enable settlement negotiations and litigation to be conducted with the benefit of a reasonable degree of predictability of the likely outcome of a case. While acknowledging an element of arbitrariness in any figure, I am content to adopt about 3 per cent. as the best present net figure. For my part I would derive that rate from the net average return of index-linked government securities over the past three years. 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 re-open the debate in advance of a decision by the Lord Chancellor. The effect of the decision of the House on the discount rate, together with the availability of the Ogden Tables, should be to eliminate the need in future to call actuaries, accountants and economists in such cases.

Tax

The rate of 3 per cent. takes into account tax at standard rates. But counsel for the plaintiffs argued that the rate should be lowered for individuals subject to higher rates of tax. The position is that index-linked government securities are free of capital gains tax held for more than a year. My understanding is that an unusually high proportion of returns from index-linked government securities comes from capital gains rather than income: see Bootle , op. cit , 99. But the income is taxable. For my part I am content that the position regarding higher tax rates should remain as Lord Oliver of Aylmertonin Hodgson v. Trapp [1989] 1 A.C. 807, at 835B, described it, viz. that in such exceptional cases plaintiffs would be free to place their arguments for a lower rate before the court.

The effect on the appeals

On the principal point I would uphold the judgments of Dyson and Collins JJ. in the cases of Page and Thomas. In Wells His Honour Judge Wilcox adopted a discount rate of 2 . 5 per cent. by reference to index-linked government securities. This award should be altered so as to reflect a 3 per cent. discount rate. The necessary adjustment in the calculation of damages can readily be agreed between the parties.

The remaining points

I agree with the speech of my noble and learned friend Lord Lloyd of Berwick on the remaining points in the case.

I would allow the appeal.

LORD HOPE OF CRAIGHEAD "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."

My Lords,

The plaintiff in each of these three cases sustained very serious injuries of the kind which are normally classified as injuries of the maximum severity. The circumstances of each case are entirely different. But they all raise a common question which is of great importance to the assessment of damages generally.

The law requires that an award of damages must take the form of a single lump sum award which takes account of all the elements of future loss as well as all the loss for the past. The inevitable delay in the provision of compensation for past losses can be made good by the award of interest at an appropriate rate on those elements of the lump sum which relate to the past. The payment as part of the lump sum of losses to be incurred in the future gives rise to a different problem. A discount must be given for the fact that money is being paid now for a loss which will not arise until some date in the future. The rate to be applied in calculating that discount will affect the amount of the total sum to be paid as damages. In the majority of cases a difference of a point or two in the rate of discount will not have a very large impact on the total award. But in cases where the injury is one of maximum severity, and in any other case where the element of future loss forms a major part of the award, a difference of a point or two in the rate of discount will make a very great difference to the result. It may make all the difference between the adequacy and the inadequacy of the award as compensation for the losses which the plaintiff will sustain.

It has often been said that the assessment of damages is not an exact science--that all the law can do is to work out as best it can, in a rough and ready way, the sum to be paid to the plaintiff as compensation for the loss and injury. There remains much truth in these statements, despite the important advances which have been made in the search for greater accuracy. 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 to award such sum, within the broad criterion of what is reasonable and in line with similar awards in comparable cases, as represents the court's best estimate of the plaintiff's general damages. Nor can the accuracy which can usually be achieved in the assessment of past loss of wages and of other past losses and expense which fall under the broad heading of special damages be matched when it comes to the future. The court cannot say precisely what will happen. It can only proceed by means of assumptions. The calculations which it then makes will involve the use of arithmetic as the multiplier is applied to the multiplicand. To that extent the exercise will give the impression of accuracy. But the accuracy of the result achieved by arithmetic will depend on the assumptions on which it has been based. In making these assumptions the court must do the best it can on the available evidence.

Nevertheless the object of the award of damages for future expenditure is to place the injured party as nearly as possible in the same financial position as he or she would have been in but for the accident. The aim is to award such a sum of money as will amount to no more, and at the same time no less, than the net loss. As Lord Oliver of Aylmerton said in Hodgson v. Trapp

[1989] AC 807

, 826D:

The annuity approach requires that, once the necessary assumptions have been made, the calculation of the award will result in an amount which matches as accurately as possible the sum required over the entire period of the assumed loss. Whatever policy reasons there might have been for regarding it as acceptable that there may be less than a full recovery in regard to wage loss--and I should make it clear that I do not subscribe to that policy - there can be no good reason for a shortfall in the amount required for future care or to meet all the other outlays which have been rendered necessary by the disability. The calculation should make the best use of such tools to assist that process as are available.

Some of the assumptions which have to be made in the assessment of future loss are made at the stage of arriving at the multiplicand for each head of the claim. The selection of the right multiplier requires that further assumptions be made, so that the calculation can be related to the period of the annual loss or expense which is to be compensated for. The general point of principle which is raised in all three cases relates to the final stage in the selection of the multiplier. This is the choice of the interest rate, which represents the discount for the payment now of a lump sum to compensate for loss to be sustained over a period of years in the future.

The measure of the discount is the rate of return which can reasonably be expected on that sum if invested in such a way as to enable the plaintiff to meet the whole amount of the loss during the entire period which has been assumed for it by the expenditure of income together with capital. It was suggested for the defendants in the course of the argument that the plaintiff was under a duty to minimise the loss to be borne by the defendants by investing the lump sum prudently, that is to say with a view to obtaining a reasonable return for it. The duty to invest prudently was an important part of the reasoning which was designed to show that this meant a duty to invest in equities, and that the discount rate to be applied was that appropriate to the return to be expected on equities. But I do not think that the duty to minimise loss has anything to do with the selection of the appropriate discount rate. The stage at which the duty to minimise loss is to be applied is at the earlier stage when the court has to identify the amount of the annual sum to be compensated for and the period over which it is to be compensated. That exercise is over and done with when the time comes to select and apply the discount rate.

The assumptions to be made at the stage of selecting the discount rate are simply these. First, it is to be assumed that the lump sum will be invested in such a way as to enable the plaintiff to meet the whole amount of the losses or costs as they arise during the entire period while protecting the award against inflation, which can thus be left out of account. Secondly, it is to be assumed that that investment will produce a return which represents the market's view of the reward to be given for foregoing the use of the money in the meantime. This is the rate of interest to be expected where the investment is without risk, there being no question about the availability of the money when the investor requires repayment of the capital and there being no question of loss due to inflation.

In the past it does not appear to have been too difficult to find a sufficiently reliable guide to the rate of return to be expected by the application of these principles. It was thought that a rough and ready approach could be taken, and it was generally accepted that the rate to be applied was the rate of interest which could be obtained on the lump sum during periods of stable currency. Mention was made of the use in practice of the interest rates of 4 per cent. to 5 per cent. in times of stable currency by Lord Diplock in Mallett v. McMonagle [1970] A.C. 166, 176 and by both Lord Diplock and Lord Fraser of Tullybelton in Cookson v. Knowles

[1979] AC 556

, 571 and 576-577. In O'Brien's Curator Bonis v. British Steel Plc. 1991 S.C. 315, 320 I referred to an early example in Scotland of the use of the same two interest rates. That was the case of McKechnie v. Henderson (1858) 20 D. 551, where the sheriff said that he had arrived at the conclusion that the sum which he proposed to award for future wage loss was a reasonable compensation having regard to the yield which could be obtained on that sum at 4 per cent. and at 5 per cent. per annum.

It seems unlikely that the yield which was being used 140 years ago was related to the return which was to be expected from what we would now understand by investment in equities. It was more probably related to the rates of interest which were currently available in the market for depositing the money in a bank. In modern times interest rates have had to provide for inflation as well as a return by way of a reward to the lender or depositor. So the rate of interest which he can obtain is not a reliable guide to the rate to be obtained in times of stable currency. But the fact that index-linked government securities ("I.L.G.S.") are now available to the ordinary investor has altered the position fundamentally. In my opinion it would be wrong for the court to fail to take account of this form of investment. Indeed there are good grounds for regarding it as the most reliable guide to the return which, after allowing for inflation, a person who forgoes the use of his money by placing it in a secure investment can expect to receive. Both capital and income are protected against inflation, the investment is secure because it is underwritten by the Government and after one year the capital gain which is obtained by index-linking is tax-free.

This form of investment is, it should be added, not entirely without risk. The prices at which I.L.G.S. are available on the market from time to time rise and fall according to the market's expectation of the future pattern of inflation as against the movement of interest rates. If they are bought and sold in the short term these price movements may result in a gain or a loss of capital. In the long term however, particularly if held to the redemption date, they produce a return which is inflation-proof and can be relied upon. The same cannot be said, to the same degree of confidence, of investment in equities.

There is much to be said for the view that a better return can be obtained by the ordinary investor who invests his money in equities. But the rises and falls in the market value of equities are unpredictable both as to their timing and as to their amount. Further problems are presented by the cost of investment advice and by the possible impact of capital gains tax if reliance has to be placed on the capital gains which can be achieved to deal with inflation and to supplement the income return by way of dividend. Moreover the plaintiff who is receiving the amount of his future loss in the form of a lump sum is not an ordinary investor. The amount awarded under each head of his claim is calculated on the assumption that this part of his loss will have to be met entirely out of the relevant portion of the lump sum. So in his case the only form of investment which could be described as a prudent investment is one which will as nearly as possible guarantee the availability of the money as and when it is required. He cannot afford to wait until the market moves in his favour, or to sustain the loss of capital which would result if he was forced to sell at a price which did not match the inflation rate. In any event the discount rate is to be selected not by forecasting what the plaintiff will actually do with the money but by identifying the return which the market will give for forgoing the use of capital. The availability of I.L.G.S. provides the best guide to what is required. It is the best tool for this exercise which is available.

The strongest arguments which were advanced against the use of I.L.G.S. were their inflexibility and the possible lack of their availability in the long term. It was said that the precise calculations which this form of investment assumed left nothing over to meet the possibility that the plaintiff might survive for longer than had been assumed or might need to meet costs over a longer period. Reference was also made to the fact that the longest dated I.L.G.S. which is currently available will mature in 2030, which is too soon to meet the entire period of James Thomas's assumed lifespan. I think that there is no force in either of these objections. As for the first, the whole exercise is carried out upon an assumption that the period of the loss and the amount of it throughout that period has already been ascertained by the court. The only question is the rate of the discount for paying that amount in the form of a lump sum. It may be that in practice the plaintiff will decide to invest part of the award in equities to meet the risk of a shortfall in the long term, but that is a matter for the plaintiff not for the court. As for the second point, the evidence strongly favours the view that I.L.G.S. will continue to be issued for the foreseeable future in view of their utility in the market where a secure form of investment is required for inflation-linked claims.

For these reasons I consider that the conventional discount rate of 4 to 5 per cent., which the Court of Appeal held was appropriate having regard to the return to be expected from investment in equities, can no longer be regarded as appropriate. The discount rate should now be more closely related to the return to be expected from investment in I.L.G.S. As to what that rate should be, I think that there are three points which should be made. First, I think that it would be wrong to link the discount rate too precisely to the figures showing the average gross redemption yield on I.L.G.S. which are published each day in the financial press. These figures fluctuate almost daily, albeit within a relatively narrow band. Frequent changes in the discount rate are undesirable. In the interests of maintaining a reasonable element of stability to assist settlements, a broad view needs to be taken having regard to the range of figures over a substantial period. Secondly, a figure should be selected which will match the rates of interest on which the multipliers in the Ogden Tables are based, as the admissibility and relevance of the information contained in these Tables is now generally recognised. This means that the figure should be expressed to no greater a degree of accuracy than one-half of a decimal point. Thirdly, the rate should be one which has regard in a general way to taxation on the index-linked income return on the investment, after the appropriate allowances, up to and including the standard rate. This is to avoid the need for further calculations to take account of this factor, which can ordinarily be assumed to have been taken care of. The impact of higher rate tax on particular awards in exceptional cases should be dealt with in the manner described by Lord Oliver of Aylmerton in Hodgson v. Trapp [1989] 1 A.C. 807, 835D-E.

In my opinion the evidence as to the average gross redemption yield for the last three years on I.L.G.S. with lives over five years, assuming an inflation rate of 5 per cent., indicates that for the time being 3 per cent. is the appropriate rate of net return to be expected from the investment of the sums to be awarded to the plaintiffs as damages for their future pecuniary loss. Adjustments may have to be made to that rate in the light of significant changes in the yield on I.L.G.S. in the future. But these adjustments and the timing of them should now be left to the Lord Chancellor and, for Scotland, the Secretary of State for Scotland in the exercise of the power which was conferred on them by section 1 of the Damages Act 1996 . I would apply the rate of 3 per cent. to the awards in each of the three cases which are before the House. This means that on this point I also would uphold the judgments of Dyson J. and Collins J. in the cases of Page and Thomas, and that I would alter the multiplier of 12 . 5 applied by His Honour Judge Wilcox in Wells v. Wells , which appears to have assumed a discount rate of 2 . 3 per cent., to the appropriate multiplier at a discount rate of 3 per cent. for the period of 15 years which he took as the period of the plaintiff's life expectancy.

On the remaining points I agree with the speech by my noble and learned friend Lord Lloyd of Berwick which I have had the benefit of reading in draft. I would make the same order as he has proposed.

LORD CLYDE

My Lords,

It has for a long time been a settled rule that in respect of any one cause of action a plaintiff, if he sues for damages, must sue in one action for all his loss, whether it be past, present or future, and whether it be certain or contingent. The rule is established both in England and in Scotland. No doubt it has some practical advantages. It puts some termination to litigation, an end which must be in the public interest. It conclusively severs any continuing obligation on the defendant towards the plaintiff, so that the former may regard the episode as closed and the latter is left free to dispose of his award as he may choose. But the finality which is achieved by the adoption of the rule carries with it an inevitable element of imprecision, particularly in respect of those elements in the claim which relate to periods in the future. A structured settlement may to some extent enable that problem to be overcome; but that solution can only be achieved by consent of the parties. It is not, however, suggested in the present case that the traditional method of calculating the award on the basis of a lump sum should be departed from, and the arguments for and against such a development have not been explored.

The purpose of the award for an injured plaintiff is, in so far as a sum of money can do so, to put him as nearly as possible in the same position as he was in before he was injured. One has to accept that the calculation will not altogether be exact, but one has to do the best one can to achieve as close an approximation as may be possible. The tendency over recent years has been to pursue with increasing sophistication a greater degree of particularity and precision. For quantifiable past financial loss that object may be achieved with some accuracy. In respect of pain and suffering money can only be a conventional medium of compensation and the assessment of it to cover the past and the future must necessarily be imprecise and open to differences of view. But the accumulation of precedent and experience and the careful analysis of the nature and effects of particular injuries can go a long way towards establishing levels of award which may be generally recognised and accepted as reasonable in particular circumstances. If necessary those levels may be open to adjustment or even correction from time to time by those courts which are best qualified to review what must in essence be a factual assessment of the kind sometimes referred to as a jury question. In relation to future pecuniary losses and expenses the uncertainties in the calculation are at their most severe. Here particularly means have been devised to minimise the imprecision. But despite the development of detailed tables and actuarial calculations there will always remain an element of uncertainty in prediction which may only in a rough and ready way satisfy the desire that justice should be done between both parties. The problem of sufficiently providing for the future care of the very severely disabled plaintiff gives rise to particular concern, since any inadequacy of the award in that respect could be particularly serious.

One clear principle is that what the successful plaintiff will in the event actually do with the award is irrelevant. As Lord Fraser of Tullybelton observed in Cookson v. Knowles

[1979] AC 556

, 577D it is for the plaintiff to decide how the award is to be applied. Whether he is proposing to invest it or spend it, or, more particularly, exactly how he is going to invest it or spend it, does not affect the calculation of the award. No distinction is recognised here between misers and spendthrifts. While it may be evident that there are certain ways in which he could prudently invest the award and other ways in which he could be imperilling his own future comfort by his employment of the award, the quantification of the sum to which he is entitled in compensation takes no account of the course which he may in the event choose to adopt.

"The true method of expression I think is that in calculating damages you are to consider what is the pecuniary sum which will make good to the sufferer, so far as money can do so, the loss which he has suffered as the natural result of the wrong done to him." "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 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." " . . . it would, I think, be quite unrealistic to refuse to take it into account at all."

The lump sum award which has to be made is in most cases a composition of several distinct elements. Each requires to be assessed as a single sum and the total represents the compensation. But while in the course of the exercise the judge's task may involve an exercise of a discretion based on his experience coloured by the particular facts of the case, the totality of the elements should not be a matter open to increase or modification merely on account of a feeling that the total seems unduly large or small. If each of the elements has individually achieved the best approximation possible to the proper compensation for each particular aspect of the claim, then the total figure should correspondingly represent the best assessment possible for the total claim. If at the conclusion of the exercise the judge is uneasy at the total result he should not seek to make any overall adjustment in either direction to the total award to meet his unease; he should return to reconsider each element in the calculation and secure that there is no need for revision at that level.

The present appeals are concerned with the calculation of lump sums in respect of future recurring expenses and losses which have been brought about as a result of the injuries which the respective plaintiffs have sustained. It is common ground that that lump sum in each case may be seen as funding a notional annuity from which both capital and income may be derived sufficient to secure the appropriate annual amounts over the likely future period or periods to which they relate. In practice the sum is calculated as the product of a multiplier representing an appropriate number of year's purchase and a multiplicand representing the amount of the annual loss or expense. The assessment of the latter will necessarily depend significantly on the facts of the particular case. But it calls for careful calculation particularly in relation to claims for future expenses incurred by the plaintiff, such as nursing care, where there may be a number of contingencies which ought to be reflected in the figure or the figures selected.

The exercise of calculating the lump sum which will produce the annual figure proceeds upon certain assumptions which strive to achieve a precision but necessarily involve an element of artificiality. One assumption is that the plaintiff will live for an expected number of years, no more and no less. The period will be based on an actuarial calculation, modified or not to meet any special considerations appropriate to the particular case. It will no doubt be the best approximation which can be achieved by such methods, but nevertheless the assumption may not eventually turn out to have been correct. Then again it is to be assumed that the whole of the income will be consumed each year, that it will be sufficient for its purpose and that there will be neither accumulation nor reinvestment throughout the whole of the period. Further it is to be assumed that constantly throughout the period in addition to the income a balancing sum of capital is being used each year to make up the annual amount required so that the capital will steadily decrease and will eventually be exhausted at the end of the period. It may well be that this is not the way in which the plaintiff will in fact deploy the award but these are the hypothetical requirements which the notional annuity requires to meet. The question is not one of asking what the ordinary prudent investor would do but rather what form of investment will most nearly secure the notional annuity able to meet these hypothetical requirements. Such an investment may well not be one which an ordinary investor would choose, but the exercise is not concerned with an ordinary investor nor indeed, as I have already observed, with any intentions of the particular plaintiff. Thus the general duty on a plaintiff to minimise his or her loss is not relevant to the calculation of this notional annuity. That duty relates to the nature and extent of the items which he or she may claim as arising from the injury. It does not extend to the way in which he or she may dispose of the award. The present exercise is simply concerned with the quantification of loss after it has been established as a reasonable loss flowing from the injury.

In order to calculate the appropriate capital sum which will secure such an annuity one has to ascertain the appropriate rate of return which is appropriate for such a notional annuity. That depends upon the choice of investment to be adopted. Here one can only look to the markets for a solution. Between the rival suggestions put forward in the present appeals, namely investment in equities or investment in index-linked government stocks, it seems to me plain that the latter are the preferred choice. The problem which has been of concern in past years of meeting the risk of inflation, a problem which cannot reasonably be wholly disregarded for the future, is substantially met by the nature of an index-linked investment. A confident understanding of the performance of equity investments was made more difficult by the belated realisation that some of the more important tables intended to show the performance of equity investments proceeded on an assumption that the income would be annually reinvested, which did not meet the hypothesis of the notional annuity. There remained a lack of agreement on any precise analysis on a basis closer to the requirements of the present study. However it could be readily concluded from the material before us that, despite considerable fluctuations in certain years, over the longer term the equity market could survive the effects of inflation. But it is also evident that its volatility in respect both of income and of capital makes it a less likely investment to satisfy the requirements of the notional annuity than the government-backed stocks, which, while they may not be completely immune from the effects of inflation, can at least minimise those effects and more constantly hold their value. For the purpose of the exercise on which one is engaged here it seems to me that the continuity of demand from the investment cannot be met by an investment which may recover in the long term but is subject to very considerable fluctuation in the intervening years. It was, in my view quite properly, recognised by counsel for the third respondent that the index-linked stocks were to be preferred for a short-term investment, which he put at about 10 years. But once that is accepted it is not easy to see what particular merit remains in a preference for equity investments in respect of a longer period. The situation of a closed pension fund does not seem to me to provide too remote a comparison with the fund assumed to provide the hypothetical annuity and it appears that investment of such a fund in index-linked government stock is in practice not an unreasonable course to adopt. It was suggested that the present issues of index-linked government stock could not cover all the various periods which might be required in different cases. But the shortfall on an early maturity could reasonably be supposed to be covered by a cash investment from the remaining proceeds of the notional investment and in any event it may well be that future issues of index-linked stock will be made so that a greater variety of periods can be covered more precisely.

On this approach the problem which was raised of the need to allow for the costs and charges involved in the management of an investment portfolio substantially disappears. There is certainly no likelihood of costs and charges being regularly involved on the scale which would probably apply to the management of a portfolio of equities. The assumption would be that the index-linked investment would be held to maturity. In relation to such investments such costs and charges as there would be may for practical purposes be ignored.

While the risk of future inflation can be substantially overcome for the purpose of the notional annuity by investment in index-linked government securities, one other uncertainty of a general application remains and that is the future incidence of taxation. The levels of future taxation, let alone the tax thresholds and tax allowances, cannot be predicted with any certainty. Higher rates of tax may or may not be applicable to the receipts of the notional annuity. In my view one can only take a broad approach to this problem and proceed upon an allowance which embodies an appropriate modification of the ordinary level of tax. Of course in particular cases where the incidence of income tax can be shown to be out of the normal range for one reason or another an appropriate adjustment may be made. The calculation cannot be exact and some rounding off should be acceptable.

In principle I agree with your Lordships that the Court of Appeal erred in preferring what has come to be seen as the usual rate of 4 . 5 per cent. based on the equity market. Two questions arise. One is 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 per cent. net. More than one route was presented to us which could justify that result but the one which particularly commended itself to me was a calculation of the average rate on index-linked government stock over the past three years net of tax.

The other question is whether in the three particular cases before us the rates adopted by the judges who heard them should be accepted. In my view the material before them in each of the three cases was sufficient to support the rate of 3 per cent. which still seems to me appropriate today. I would accordingly agree with the calculations in the cases of Page and Thomas. So far as the case of Mrs. Wells is concerned, I consider that the judge made too generous an allowance for tax and that the deduction from the gross rate which he took should be reduced so as to round off the rate also at 3 per cent. The damages will require to be recalculated to allow for that correction.

It can be inferred from the result which the evidence in the present appeals has produced that in the past awards in respect of future losses and expenses may well have been unduly low. The figures brought out in the present cases may seem high in comparison but they seek to represent a fair compensation for the particular heads of claim to which they relate and underline the severity of the consequences which may be caused to the future lives of particular individuals who have suffered loss and expense as a consequence of negligent conduct.

On the particular points which were raised in relation to the claims I agree entirely with the views expressed by my noble and learned friend Lord Lloyd of Berwick. The appeals should in my view be allowed and the cases remitted for the necessary adjustment of the awards.

LORD HUTTON

My Lords,

In these three cases each appellant sustained very grave injuries by reason of the negligence of the respective defendants. The fundamental principle which governs the assessment of the damages to which each appellant is entitled is that an injured plaintiff should recover full compensation. In Admiralty Commissioners v. S.S. Valeria (Owners) [1922] 2 A.C. 242, 248, Lord Dunedin stated:

The injuries caused to the appellants have left each of them so gravely and permanently incapacitated that they will require constant nursing care for the remainder of their lives and they are entitled to compensation for the future costs of such care. James Thomas sustained his injuries at the time of his birth and was aged six at the time of the trial. Mr Page was aged 24 at the time of the accident at work that injured him and was aged 28 at the time of trial. Therefore, in addition to receiving compensation for the cost of future nursing care, James and Mr. Page were also entitled to recover compensation for the wages or salary which they would have earned for many years in the future if their earning capacity had not been taken away by their injuries. At the time of the road accident in which she sustained her injuries, Mrs. Wells was aged almost 58. She was therefore close to retirement from her work as a nurse and it was agreed between the parties that she had a working life of 2 . 5 years from the date of the trial.

Under our present system of law the compensation to which each appellant is entitled must, unless the parties agree otherwise, be paid in a lump sum and there is no power for the courts to award periodical payments. Therefore each appellant must receive a lump sum to provide compensation for the annual cost of lifetime nursing care and for the loss of future earning capacity. The method adopted by the courts to calculate such compensation was described as follows by Lord Oliver of Aylmerton in Hodgson v. Trapp

[1989] AC 807

, 826D:

The multiplier which the courts apply to the annual cost of nursing care and the annual loss of earning capacity to produce the lump sum of compensation is determined by reference to the respective periods in the future for which the cost will be incurred and the loss will be sustained, but discounted to allow for the immediate receipt of the lump sum rather than the receipt of periodical payments over a number of years. The discount is assessed by reference to the assumed rate of return on the lump sum when invested, so that the higher the rate of interest assumed the smaller the multiplier.

Two principal questions have been debated in this appeal. One question is whether allowance should be made for future inflation to take account of the fact that in future years the cost of nursing care will rise and that the earnings of the plaintiff would have increased. The other question relates to the rate of interest which the courts should assume the capital sum awarded will earn in order to arrive at the multiplier.

In judgments given in this House in the decade between 1970 and 1980 it was held that the courts should not make allowance for inflation in the assessment of future loss. In the last of these cases, Lim Poh Choo v. Camden and Islington Area Health Authority

[1980] AC 174

, 193D, in a speech in which the other members of the House concurred, Lord Scarman said:

But it is important to recognise that this approach was not based on the view that the risk of inflation should be ignored. In Taylor v. O'Connor [1971] A.C. 115, 130A, referring to future inflation, Lord Reid said:

"Certainly it is right to have regard to the prospect of continuing inflation as an important factor in the situation, but I do not think a mere increase in the multiplier is a suitable method for protecting against inflation, though it achieves something. I think protection against inflation is to be sought by investment policy, and the lump sum of damages should be assessed on the basis that it will be invested with the aim of obtaining some capital appreciation to offset the probable rise in the cost of living." "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." "The Working Party concluded that the following arguments could not be faulted. The Courts seek to put the wage earner, or, if he has been killed, his dependant, into the same financial position as if the accident had not happened. Investment policy, however prudent, involves risks and it is not difficult to draw up a list of blue chip equities or reliable unit trusts which have performed poorly and, in some cases, disastrously. Index-Linked Government Stocks eliminate the risk. Whereas, in the past, a Plaintiff has had to speculate in the form of prudent investment by buying equities, or a 'basket' of equities and gilts or a selection of unit trusts, he need speculate no longer if he buys Index-Linked Government Stock. If the loss is, say, £5,000 per annum, he can be awarded damages which, if invested in such stocks, will provide him with almost exactly that sum in real terms." "In summary therefore, the advantages of calculating the discount rate on the basis of the I.L.G.S. are that inflation is taken care of precisely and not in a rough and ready way, and the net return is the actual net return on investments rather than a net return that it is assumed by the court is enjoyed on notional prudent investments made at a time of stable currency." "An attempt to build into [lump sum compensation] a protection against future inflation is seeking after a perfection which is beyond the inherent limitations of the system." "There is one matter that I should like to emphasise, namely that in my view it is impossible to lay down any principles of law which would govern the assessment of damages for all time. We can only lay down broad guidelines for assessing damages in cases where the facts are similar to those of the instant case and where economic factors remain similar to those now prevailing." "It is perhaps incorrect to call this rule a rule of law. It is better described as a sensible rule of practice, a matter of common sense." "We share the views of the majority of those who responded to us, that a practice of discounting by reference to returns on I.L.G.S. would be preferable to the present arbitrary presumption. The 4-5 per cent. discount which emerged from the case law was established at a time when I.L.G.S. did not exist. I.L.G.S. now constitute the best evidence of the real return on any investment where the risk element is minimal, because they take account of inflation, rather than attempt to predict it as conventional investments do. Capital is redeemed under I.L.G.S. at par and index-linked to the change in the Retail Price Index (R.P.I.) since issue. Income remains constant in real terms, rising with increases in the R.P.I. There is no premium available for risk because there is no risk." "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 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 tortfeasor, and so to impose upon him an excessive burden, which might go far beyond compensation for loss." "where any injury is to be compensated by damages, in settling the sum of money to be given for reparation or damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation." "In strictness perhaps this court should not declare the rate at which discounts should be effected, but should leave that to the discretion of the courts of trial, as was done in Hawkins v. Lindsley (71.) However, it is most desirable that awards of damages should be predictable, so that settlements may be facilitated, and the task of the courts eased. Moreover, while general economic circumstances remain as they are, there is no compelling reason why one judge should select a discount rate different from that selected by another. In the interest of securing uniformity throughout Australia this court should therefore do what it has held that a Supreme Court of one State may not do, and that is to make an arbitrary ruling regarding interest rates of general application. "We consider that in future the courts in Australia, in States where the question is not governed by statute, should, in assessing damages, arrive at the present value of a future loss by discounting at a fixed rate which will be applied in all cases and which will in itself reflect the effect of notional tax on notional income from the invested fund."

The approach that allowance should not be made for inflation in assessing future loss was based on the view that prudent investment of the capital sum awarded would protect the plaintiff against the effects of inflation. In Taylor v. O'Connor at page 142H, Lord Pearson said:

And in Cookson v. Knowles

[1979] AC 556

, 571H, Lord Diplock said:

See also per Lord Fraser of Tullybelton at page 577C.

The principal submission advanced in this appeal on behalf of the appellants is that the issue for the first time in 1981 by the Government of Index-Linked Government Securities (I.L.G.S.) has changed the economic background against which the courts assess damages for future loss. If a plaintiff invests the damages awarded to him in I.L.G.S. the interest paid to him each year will rise in accordance with the Retail Price Index as will the payment made on maturity. Therefore the appellants contend that the court should now fix the multiplier by reference to the net return of about 3 per cent. per annum on I.L.G.S. rather than by following the conventional approach of taking a multiplier by reference to a net return of 4 to 5 per cent. per annum from a mixed basket of equities and gilts. Such an approach has the consequence, as shown in the present cases, of increasing the multiplier with a resultant very large increase in the damages.

The appellants advanced two principal arguments in support of their submission. The first is that fixing the multiplier by reference to the return on I.L.G.S. ensures with much greater precision that over the years ahead the plaintiff will receive the annual sum which he requires to pay for nursing costs and to compensate him for the wages which he would have received. The second submission is that an assessment of damages based on the return on I.L.G.S. protects the plaintiff against the risks inherent in investment in equities, such risks being much greater than the risks in investing in I.L.G.S. These arguments on behalf of the appellants mirror the arguments succinctly stated in the introduction to the 1984 Report of the Working Party chaired by Sir Michael Ogden Q.C. at page 8:

These arguments were accepted by the judges in the High Court who tried the respective actions, and in the case of Mr. Page [1996] P.I.G.R. 26, 36 Dyson J. stated:

The approach adopted by this House in Lim's case and the cases preceding it was influenced to a large extent by the recognition that at those times, when I.L.G.S. did not exist, there was no way in which a court could, with accuracy, estimate the rate of inflation in future years and make an assessment of the allowance which should be made for it in the assessment of damages. In Cookson v. Knowles at page 571H, after stating that:

"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"

Lord Diplock concluded that statement by saying:

"and no other practical basis of calculation has been suggested that is capable of dealing with so conjectural a factor with greater precision."

And in Lim's case at page 193E, Lord Scarman said:

Moreover the speeches in those cases made it clear that the House was not laying down that allowance should not be made for inflation as a principle of law which would continue to govern cases for all time. In Cookson v. Knowles at page 574A, Lord Salmon stated:

And in Lim's case at page 193E, after stating that the law appeared to be settled that, save in exceptional cases, the risk of inflation should not be brought into account in the assessment of damages for future loss, Lord Scarman said:

Therefore, in the changed circumstances where damages can now be invested in I.L.G.S. which will protect against future inflation, I consider that it is open to this House to consider whether the approach adopted in earlier cases should now be changed and the multiplier should be fixed by reference to the return on I.L.G.S.

The argument now advanced on behalf of the appellants is, in essence, the same as the argument succinctly stated in paragraph 2.28 of the Report of the Law Commission No. 224 issued in July 1994:

This is a powerful argument, and I turn to consider the submissions advanced against it by the respondents.

One of those submissions is that in assessing damages, the court should assume that the plaintiff will invest the damages prudently and that, when he receives a large sum, the plaintiff will take competent investment advice and that advice will be that it would be prudent to invest in a mixed basket of equities and gilts. Closely linked to this submission is the further submission that the court must hold a fair balance between the plaintiff and the defendant, and that the plaintiff is entitled to no better protection against inflation than others who have to rely on capital for future support and who seek to protect themselves against inflation by investing in equities.

These submissions were accepted by the Court of Appeal and were the grounds on which the appeals of the defendants were allowed: see

[1997] 1 WLR 652

, 675H, 677A. Support for these submissions and for the grounds of the Court of Appeal's decision is to be found in the speech of Lord Scarman in Lim's case (cited by the Court of Appeal) where he said at pp. 193G and 194A:

My Lords,

I consider that the introduction of I.L.G.S. providing an income which is protected against inflation has changed the problem which Lord Scarman was addressing in Lim's case and that the passages from his judgment cited above should not prevent your Lordships from holding that it is now appropriate to make allowance for the risk of future inflation by fixing the multiplier by reference to the rate of return on I.L.G.S. I think the reality is that the appellants in the present cases are not in the same position as other persons who have to rely on capital for future support. Unlike the great majority of persons who invest their capital, it is vital for the appellants that they receive constant and costly nursing care for the remainder of their lives and that they should be able to pay for it, and any fall in income or depreciation in the capital value of their investments will affect them much more severely than persons in better health who depend on their investments for support. Moreover, a plaintiff who claims damages for loss of future earnings should, in my opinion, not be placed in the same position as a person who relies on capital for his future support. Such a plaintiff, but for the injuries which have taken away his earning capacity, would have been better protected against inflation by the rise in his wages in future years than the person who has to rely on a sound investment policy to protect him in the years ahead. In Livingstone v. Rawyards Coal Co. , 5 App.Cas. 25, 39, Lord Blackburn stated:

I consider that an award assessed by reference to the index-linked return on I.L.G.S. will give protection against inflation closer to the protection which would have been given by the rise in the plaintiff's wages, and will give better effect to the principle stated by Lord Blackburn, than will an award assessed by reference to the return on equities.

Moreover I think that a plaintiff, as gravely injured as these appellants, who seeks advice as to the investment of his damages is entitled to receive guidance as to the degree of risk involved in investing in I.L.G.S. as compared to investing in equities, and having regard to the necessity of ensuring that income and capital will always be available to pay for his nursing costs, I consider that a plaintiff who decides to invest his damages in I.L.G.S. by reason of the reduced risk could not be said to be investing in a manner which was imprudent or unreasonable.

On behalf of the first and third respondents it was also submitted that there should not be a departure from the conventional approach to the multiplier based on an assumed return of 4 to 5 per cent. per annum because a plaintiff is under a duty to act reasonably and to mitigate his loss. This duty extended to prudent investment of his damages, and prudent investment required an investment in a mixed basket of equities and gilts. I have already given my reasons for not accepting the submission that it is imprudent for a gravely injured plaintiff to invest in I.L.G.S. to ensure the payment for future nursing care. I further consider that the concept of mitigation of damages does not apply to the investment of the damages after they have been awarded by the court. The duty to mitigate applies at an earlier stage in the process when the trial judge assesses what the damage suffered by the plaintiff has been and whether the plaintiff could reasonably have reduced the extent of his damage. But once the judge has assessed the damage his duty is to award full compensation. In the present cases there is nothing that the appellants could do to reduce the extent of the nursing care that they will require in the future or to reduce the amount of the loss they will suffer from the extinction of their future earning capacity.

The respondents further relied on the point that the Court of Protection had not followed the policy of investing in I.L.G.S. and that its approach had been to invest in a portfolio comprising a substantial proportion of equities. But I consider that this point is of little weight because the investment of damages in the past by the Court of Protection has been made on the basis of the courts assuming a rate of 4 to 5 per cent. and what the Court of Protection may do in the future is uncertain. I also consider that there is little weight in the argument that I.L.G.S. may not be available for the full period during which a plaintiff must receive an income. I think it is most unlikely that I.L.G.S. will not continue to be issued. Accordingly I have reached the conclusion that under the present principles which govern the assessment of compensation and having regard to the availability of I.L.G.S., the appellants are entitled to compensation assessed by taking a discount rate based on the return on I.L.G.S. The return on I.L.G.S. fluctuates but the schedules of the month end returns during the past three years show a net average return of about 3 per cent. Therefore I consider that this rate should be adopted as the rate to arrive at the multiplier in the present cases in place of the conventional discount rate of 4 . 5 per cent. applied by the Court of Appeal.

Accordingly I would uphold the judgments of Dyson J. and Collins J. in the cases of Mr. Page and James Thomas in taking a discount rate of 3 per cent. In the case of Mrs. Wells , where it appears that His Honour Judge Wilcox took a discount rate of about 2 . 5 per cent., I would alter the discount rate to 3 per cent.

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 I.L.G.S. 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. There is support for this course in the judgment of the High Court of Australia in Todovoric v. Waller (150) C.L.R. 402 where Gibbs C.J. and Wilson J. stated at page 423:

I would make no alteration in the discount rate for higher rates of tax save that, as Lord Oliver of Aylmerton stated in Hodgson v. Trapp at page 835B, it would be open to plaintiffs in very exceptional cases to contend that a higher multiplier should be taken.

The consequence of the present judgments of this House will be a very substantial rise in the level of awards to plaintiffs who by reason of the negligence of others sustain very grave injuries requiring nursing care in future years and causing a loss of future earning capacity, and there will be resultant increases in insurance premiums. But under the present principles of law governing the assessment of damages which provide that injured persons should receive full compensation plaintiffs are entitled to such increased awards. If the law is to be changed it can only be done by Parliament which, unlike the judges, is in a position to balance the many social, financial and economic factors which would have to be considered if such a change were contemplated.

In respect of the other individual points arising in the three cases I am in agreement with the speech of my noble and learned friend Lord Lloyd of Berwick, which I have had the advantage of reading in draft.

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