No way round the discount rate

Cooke v United Bristol Healthcare NHS Trust; Shepherd v Stibbe and others; Page v Lee CA TLR 24 October

Damages for personal injuries have long taken the form of a single lump sum payment assessed at the date of trial. That sum must include compensation both for the claimant’s pretrial losses and the losses which he would sustain in the future, notably the cost of future care. How is the element of future loss to be arrived at? The effect of accelerated payment and the effect of inflation are both accommodated by treating the multiplier not simply as a number representing the claimant’s life expectancy, but rather as a number which, when applied to the multiplicand, would represent the cost of buying an appropriate annuity to meet the relevant loss over the predicted period. First, the multiplicand remains the figure proved as representing the loss at current prices at the date of the trial. Inflation and acceleration are built into the multiplier, and the mechanism for doing that required that a rate of interest be arrived at as the notional return to be earned on the lump sum over the period in question. That rate of interest is known as the discount rate. In Wells v Wells [1999] 1 AC 345, the House of Lords favoured the ascertainment of the discount rate by reference to the rate of return on index-linked Government stock, under which the sum invested was guaranteed to bear a return, at the maturity rate, representing the percentage increase in the retail price index. Subsequently, the Lord Chancellor, by the Damages (Personal Injury) Order 2001, fixed the discount rate at 2.5% applying in particular, the principles laid down in Wells.