United Kingdom House of Lords Decisions

Die Mercurii 24° Maii 1978

Parliamentary Archives,
HL/PO/JU/4/3/1325

HOUSE OF LORDS

COOKSON (WIDOW)

(Original Appellant and Cross Respondent)

v.

KNOWLES

(Original Respondent and Cross Appellant)
et & contra

Lord Diplock
Viscount Dilhorn
Lord Salmon
Lord Fraser of Tullybelton
Lord Scarman




Lord Diplock

my lords,

In the instant case the Court of Appeal, speaking through Lord
Denning M.R., has laid down guide lines for the assistance of judges upon
whom there falls the task of assessing damages in cases brought under the
Fatal Accidents Act 1976. These complement some earlier guide lines
for the assessment of damages in personal injury cases which had been laid
down by the Court of Appeal in Jefford v. Gee [1970] 2 QB 130. The trial
in Jefford v. Gee had taken place at a time when the relevant statutory
provision empowering courts to award interest on damages was section 3 of
the Law Reform (Miscellaneous Provisions) Act 1934. By the time the
appeal was heard that section had been amended by section 22 of the
Administration of Justice Act 1969.

As was correctly stated by Lord Denning M.R. in Jefford v. Gee, the
effect of the amendment was not to alter the principles which the court should
apply when awarding interest on damages in cases where it decided to do so.
What the amendment did was to oblige the court to award interest in all
actions for personal injuries or fatal accidents unless it was satisfied that there
were special reasons why no interest should be given.

The section as amended gives to the judge several options as to the way
in which he may assess the interest element to be included in the sum awarded
by the judgment. He may include interest on the whole of the damages or
on a part of them only as he thinks appropriate. He may award it for the
whole or any part of the period between the date when the cause of action
arose and the date of judgment and he may award it at different rates for
different parts of the period chosen.

The section gives no guidance as to the way in which the judge should
exercise his choice between the various options open to him. This is
all left to his discretion; but like all discretions vested in judges by statute
or at common law, it must be exercised judicially or, in the Scots phrase
used by Lord Emslie in Smith v. Middleton 1972 S.C. 30, in a selective and
discriminating manner, not arbitrarily or idiosyncratically—for otherwise
the rights of parties to litigation would become dependent upon judicial
whim.

It is therefore appropriate for an appellate court to lay down guide lines
as to what matters it is proper for the judge to take into account in deciding
how to exercise the discretion confided to him by the statute. In exercising
this appellate function, the court is not expounding a rule of law from
which a judge is precluded from departing where special circumstances exist
in a particular case; nor indeed, even in cases where there are no special
circumstances, is an appellate court justified in giving effect to the preference
of its members for exercising the discretion in a different way from that
adopted by the judge if the choice between the alternative ways of exercising
it is one upon which judicial opinion might reasonably differ.

If a discretion to differentiate in an award of interest on damages between
one component of the full amount of the award and another is to be
exercised judicially, this calls for an analysis of the nature and manner of
assessment of the different kinds of loss and injury sustained in personal
injury and fatal accident cases. Such an analysis was undertaken by the




2

Court of Appeal in Jefford v. Gee. Although it was an action for personal
injuries by a living plaintiff, the judgment of the court dealt also with fatal
accident cases, though this could only be obiter.

The instant case is a typical fatal accident case. There are no special
features about it that distinguish it from the general run of fatal accident
cases so far as concerns awarding interest on damages. The deceased, the
husband of the plaintiff, was killed in a motor accident in December 1973.
He was then aged 49 and was in steady work as a wood-work machinist.
Had he lived it would have been sixteen years before he reached the age of
65 when he would have qualified for a retirement pension and, in the ordinary
course, might have been expected to cease working. The plaintiff was aged
45 and it was held by the Court of Appeal and is now common ground
that her dependency at the date of death can be taken as £1,614 a year and
that by the date of the trial in June 1976 the dependency as it would have
been by then can be taken as £1,980 a year, owing to increases in wages
during the two and a half years that had elapsed since December 1973.

The judge assessed damages by applying to the dependency at the date
of trial which he had reckoned at £2,250 per annum a multiplier of eleven
years purchase. This comes to £24,750. He awarded interest on the whole
of that amount from the date of death until the date of judgment at 9%,
the short term investment rate. This came to an additional sum of £5,412.
In so doing, he was following the guide lines for fatal accident cases laid
down obiter in Jefford v. Gee.

On appeal, the Court of Appeal varied those guide lines. They held
that for the purpose of awarding interest on damages the damages should be
divided into two parts, one assessed by reference to the assumed dependency
during the period between the date of death and the date of trial, and the
other by reference to the assumed future dependency from the date of
trial onwards. On the former part, interest should be awarded at half
the short term investment rate, but on the latter part in respect of future
dependency no interest should be allowed. The court also took occasion,
though this could only be obiter, to vary the guide lines for personal
injury cases laid down in Jefford v. Gee by holding that damages for
non-economic loss. i.e. pain and suffering and loss of amenities should be
assessed on the scale at which such damages were currently being assessed
at the date of trial, but that no interest should be allowed on
this part of the damages. Both these changes were said to be required by
reason of the increase in the annual rate of inflation since the decision in
Jefford v. Gee.

My Lords, in general I agree with the judgment of the Court of Appeal in
the instant case and, except in one respect, with the reasoning of that
judgment and of the earlier judgment in Jefford v. Gee. Two separate
though related questions are involved in the appeal to your Lordships' House.
The first is whether and, if so, how should the prospect of continued
inflation after the date of trial be dealt with in assessing the capital sum
to be awarded by way of damages in fatal accident and personal injury
cases. The second is whether in such actions, where there are no unusual
circumstances, interest should be awarded on the whole or part of that
capital sum and, if the latter, on what part.

When the first Fatal Accidents Act was passed in 1846, its purpose was
to put the dependants of the deceased, who had been the bread-winner of
the family, in the same position financially as if he had lived his natural
span of life. In times of steady money values, wage levels and interest
rates this could be achieved in the case of the ordinary working man by
awarding to his dependants the capital sum required to purchase an annuity
of an amount equal to the annual value of the benefits with which he had
provided them while he lived, and for such period as it could reasonably be
estimated they would have continued to enjoy them but for his premature
death. Although tins does not represent the way in which it is calculated
such a capital sum may be expressed as the product of multiplying an
annual sum which represents the "dependency" by a number of years'




3

purchase. This latter figure is less than the number of years which
represents the period for which it is estimated that the dependants would
have continued to enjoy the benefit of the dependency, since the capital sum
will not be exhausted until the end of that period and in the meantime so
much of it as is not yet exhausted in each year will earn interest from which
the dependency for that year could in part be met.

The number of years' purchase to be used in order to calculate the capital
value of an annuity for a given period of years thus depends upon the rate
of interest which it is assumed that money would earn, during the period.
The higher the rate of interest, the lower the number of years' purchase.
Thus to give an illustration that is relevant to the instant case, the capital
value of an annuity for the full sixteen years which would have elapsed
if the deceased had lived to work until he was sixty-five would require the
eleven years' purchase adopted as multiplier by the judge at an assumed
interest rate (whether he worked it out or not) of 43/4%; whereas it would
need only seven years as multiplier if the assumed interest rate were 12%.

Today the assessment of damages in fatal accident cases has become
an artificial and conjectural exercise. Its purpose is no longer to put
dependants, particularly widows, into the same economic position as they
would have been in had their late husband lived. Section 4 of the Fatal
Accidents Act 1976 requires the court in assessing damages to leave out of
account any insurance money or benefit under national insurance or social
security legislation or other pension or gratuity which becomes payable to
the widow on her husband's death, while section 3(2) forbids the court
to take into account the re-marriage of the widow or her prospects of
re-marriage. Nevertheless, the measure of the damages recoverable under
the statute remains the same as if the widow were really worse off by an
annual sum representing the money value of the benefits which she would
have received each year of the period during which her husband would have
provided her with them if he had not been killed. This kind of assessment,
artificial though it may be, nevertheless calls for consideration of a number
of highly speculative factors, since it requires the assessor to make assump-
tions not only as to the degree of likelihood that something may actually
happen in the future, such as the widow's death, but also as to the
hypothetical degree of likelihood that all sorts of things might happen in
an imaginary future in which the deceased lived on and did not die when
in actual fact he did. What in that event would have been the likelihood
of his continuing in work until the usual retiring age? Would his earnings
have been terminated by death or disability before the usual retiring age
or interrupted by unemployment or ill-health? Would they have increased,
and if so, when and by how much? To what extent if any would he have
passed on the benefit of any increases to his wife and dependent children?
Would she have gone out to work when the children had grown older
and made her own contribution to the family expenses in relief of his?

Looked at from a juristic standpoint, it may be accurate to say, as did
the majority of the High Court of Australia in Ruby v. Marsh (1975) 6 ALR
385, that the entirety of the damage is sustained by the widow at the
moment that her husband dies; but what she loses then is only the expectancy
of the benefits which he would have provided for her in future years if
he had lived. Looked at realistically her loss of the benefit for each year
is not suffered until the year in which it would have been received; and at
the date of death the present value of that future loss is such a sum as
would grow to the money value of the benefit if it were invested at
compound interest at current rates until the year in which it would have
been received.

So if it be assumed that apart from any other factors, owing to future
rises in the general level of wages consequent on monetary inflation, the
value in inflated currency of the benefits provided to his wife by the
deceased would have progressively increased if he had lived it would be
possible by this means to calculate the total capital value at the date of
death of the deceased of yearly sums of amounts which did not remain
constant but varied from time to time or increased progressively for each
successive year during the term of the annuity.




4

As regards any such assumption for the period after the trial, it can only
be conjectural, since it involves in addition to the prospects of continuing
monetary inflation, the various speculative factors particular to the deceased
which I have previously mentioned. For the period between the death and
trial, however, there will be some hard facts available which reduce, though
they cannot eliminate, reliance on conjecture. Thus if it can be proved,
as it was in the instant case, that if the deceased had continued in good
health in his existing employment for the two-and-a-half years that had
elapsed between his death and the date of trial his wages would have risen
by some 27% (which represents a rate of 10% per annum compound over
the two-and-a-half years) and the judge feels justified on the evidence in
assuming a likelihood, which however necessarily falls short of certainty,
that the dependency during that period would have increased proportionately,
there is a relatively firm foundation on which to base an assessment of the
value of the benefits lost by the widow up to the date of trial.

I agree therefore with that part of the decision of the Court of Appeal
that holds that, as a general rule in fatal accident cases the damages should
be assessed in two parts, the first and less speculative component being an
estimate of the loss sustained up to the date of trial, and the second
component an estimate of the loss to be sustained thereafter.

In so deciding the Court of Appeal assigned as the reason for assessing
the damages in two parts not the greater reliability of the assessment of the
loss suffered by the widow during the period up to the date of trial, but
the fact that only by this method does one obtain as a starting point for
estimating the loss to be suffered by the widow in future years after the
trial, a figure for " the dependency " greater than that existing at the date
of death by an amount that reflects the influence of inflation on the general
level of wages since the deceased's death. It is at this point in the reasoning
that with respect 1 part company with them.

What they in fact did was to assess the annual dependency during the
two-and-a-half years up to the trial at the mean figure of £1,797 accepted by
the court as applicable during that period. For the remaining period of
dependency after the dale of trial they applied a multiplier of 8 1/2 years
purchase (viz. the judge's 11 years minus 2 1/2 to the figure of £1,980 to which
they accepted the dependency would have risen by the date of the trial.
By calculating the future dependency in this way and using a figure 27%
higher than the dependency at the date of death, they considered that
eil'ect would be given to the increase in the general rate of wages owing to
inflation which had actually occurred between the date of death and the
date of trial; but apparently they did not think that their calculations made
any allowance for the possibility of continuing inflation thereafter. In this,
they were in my view mistaken.

In Mullen v. McMonagle [1970] A.C. 166 when the rate of inflation
was running at an average rate of 3 to 3 1/2% per annum, I suggested that
its effects could be offset, to some extent at any rate, by prudent investment
in buying a home, in growth stocks or in short term high interest yielding
securities; and I went on to give some examples of the effects of interest
rates upon the capital value of annuities. High rates are obtainable in
times of inflation because the interest sought by a lender represents not
only what he would require in times of stable currency for foregoing the
use of his money for a year, but also an additional sum that is sufficient
to restore to him in depreciated currency the buying power which his
money represented when he lent it.

I had supposed that what 1 myself had said in 1970 and Lord Pearson

had repeated in 1971 in Taylor v. O'Connor [1971] A.C. 115 at p 143 that

the rate of inflation could be largely offset by prudent investment policy,

would no longer hold good once inflation was proceeding at rates as high

as those that have been current in the last three or four years. This has

proved to be the case with investment in equities and growth stocks; but,

as has been demonstrated by arithmetical tables produced by the respondent,

it has not been so in the case of investment in fixed interest bearing

securities at any rate if the rate of tax on the dependant's gross income is




5

low. The rate of return on these securities between the dates of death and
trial has been of the order of 14% gross; thus giving to an investor in the
tax bracket which would have been applicable to the plaintiff in the instant
case a net return of 12%. This is the relevant type of investment which
is to be assumed for the purpose of calculating the present value of an
annuity. At this net rate of interest the multiplier of 11 years' purchase
adopted by the judge and split into 2 1/2 and 8 1/2 years by the Court of Appeal
is sufficient to provide an annuity for the whole period of 16 years of a
constant amount between 55% and 60% greater than the annual sum found
by the Court of Appeal to be the dependency at the date of death and some
24% greater than the assumed dependency at the date of trial.

So far as inflation and increasing wages would affect dependency in future
years, however, the effects are progressive. If allowance is to be made for
future inflation a more relevant calculation would be of the capital cost
of an annuity which increased from one year to another throughout the
period. In the instant case the product of 11 years' purchase of a sum of
£1,614 which was found by the Court of Appeal to be the dependency at
the date of the deceased's death would produce at an assumed net rate
of interest of 12% a capital sum sufficient to purchase an annuity starting
at £1,614 and increasing by £180 in each successive year throughout the
whole period of 16 years. For the first two-and-a-half years between death
and trial this gives figures which are not very far off what the evidence
showed to be the actual rate of increase of wages during that period in
the kind of work in which the deceased had been employed. They take
three years instead of two and a half to reach £1,980. For the remaining
13 1/2 years which would have elapsed before the deceased would have reached
normal retiring age the capital sum would provide for continuing annual
increases of the same amount rising in the last year to a dependency of
£4,314. Since the annual rise is constant and inflation operates at a com-
pound rate this calculation provides for diminishing rate of future inflation.
On the other hand it makes no allowance for the various hazards of working
life that may have ended, interrupted or reduced the earning power of the
deceased before he reached normal retiring age of 65.

My Lords, calculations such as these are artificial, but so is the measure
of damages called for by the Fatal Accidents Act 1976. The kinds of
security with which the calculations are concerned are not typical of the
way in which a dependent widow (who will have other sources of income
as well) is likely to invest the damages she receives; but they represent the
kinds of security most appropriate for providing the annuity upon the
capital cost of which the assessment of damages in fatal accident cases has
to be based. They demonstrate that even in periods of inflation much
higher than those contemplated at the time of Mallett v. McMonagle and
Taylor v. O'Connor, the greater part of its effect upon the real value of
damages recovered in respect of future annual loss would be counteracted
by a compensating increase in interest rates.

Quite apart from the prospects of future inflation, the assessment of
damages in fatal accidents can at best be only rough and ready because
of the conjectural nature of so many of the other assumptions upon which
it has to be based. The conventional method of calculating it has been to
apply to what is found upon the evidence to be a sum representing " the
dependency", a multiplier representing what the judge considers in the
circumstances particular to the deceased to be the appropriate number of
years' purchase. In times of stable currency the multipliers that were
used by judges were appropriate to interest rates of 4% to 5% whether
the judges using them were conscious of this or not. For the reasons I
have given I adhere to the opinion Lord Pearson and 1 had previously
expressed which was applied by the Court of Appeal in Young v. Percival
[1975] 1 WLR 17 at 27-29, that the likelihood of continuing inflation after
the date of trial should not affect either the figure for the dependency or
the multiplier used. Inflation is taken care of in a rough and ready way
by the higher rates of interest obtainable as one of the consequences of



6

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

I turn then to the question of interest on the two components in the
award of damages; the loss of the dependency sustained by the widow up
to the date of trial, and the future loss of the dependency after that date.
I can deal with the matter shortly, for I agree with the result reached by
the Court of Appeal. Once it has been decided to split the damages into
two components which are calculated separately, the starting point for the
second component, the future loss (which I will deal with first), is the
present value not as at the date of death but at the date of the trial of an
annuity equal to the dependency starting then and continuing for the
remainder of the period for which it is assumed the dependency would have
enured to the benefit of the widow if the deceased had not been killed.
To calculate what would have been the present value of that annuity at
the date of death, its value at the date of trial would have to be discounted
at current interest rates for the two-and-a-half years which had elapsed
between the death and trial. From the juristic standpoint it is that dis-
counted amount and no more to which the widow became entitled at the
date of her husband's death. Interest on that discounted figure to the date
of trial would bring it back up to the higher figure actually awarded. To
give in addition interest on that higher figure would be not only to give
interest twice but also to give interest on interest.

On the other hand the first component of the total damages, the loss
of dependency up to the date of trial, is in respect of losses that have
already been sustained over a period of two-and-a-half years before the
award is made. Had her husband lived the widow would have received
the benefit of the dependency in successive instalments throughout that
period. A rough and ready method of compensating her for the additional
loss she has sustained by the delay in payment of each instalment (which
ranges from two-and-a-half years to none) is that adopted by the Court of
Appeal, viz. to give interest for the whole of the period but at half the
short term investment rate upon the mean annual amount which represents
the assumed dependency during that period. Looked at from the juristic
standpoint the justification for giving interest at only half the current rate
is that the amount that the widow became entitled to at the date of her
husband's death in respect of the instalments of the dependency which
would have enured to her benefit up to the date of trial, would be the
present value of each successive instalment as at the date of death. To
calculate that value the nominal amount of the first instalment after the
death would not need to be discounted at all, that of the median instalment
would need to be discounted at current interest rates, but for half the period
only between date of death and trial while that of the last instalment would
need to be discounted at current interest rates for the whole of the period.
The discounted figure for the sum of the instalments which represents their
present value as at the date of death would thus be less than the sum
actually awarded by an amount which represents the discount at current
rates of interest on the nominal amount of each instalment for a period
which over all the instalments averages approximately half the period
between the date of death and trial. So, in effect, interest for half the
period has already been included in an award of the sum of the nominal
amounts of the instalments due up to the date of trial. To give interest
on the sum of the instalments for the whole of that period instead of only
half would be to give interest twice. This may be avoided either by
halving the period for which interest is given at current rates or by giving
interest for the whole period at half the current rates, as suggested by the
Court of Appeal.

To summarise:

For the reasons I have given, which follow largely upon the arithmetical
basis for the assessment of damages which is called for by the provisions
of the Fatal Accidents Act 1976 I consider that

1. In the normal fatal accident case, the damages ought, as a general
rule, to be split into two parts:




7

1. the pecuniary loss which it is estimated the dependants have
   already sustained from the date of death up to the date of trial
   (" the pre-trial loss "), and

2. the pecuniary loss which it is estimated they will sustain from
   the trial onwards (" the future loss ").




2. Interest on the pre-trial loss should be awarded for a period between
   the date of death and the date of trial at half the short term interest
   rates current during that period.

3. For the purpose of calculating the future loss, the " dependency "
   used as the multiplicand should be the figure to which it is estimated the
   annual dependency would have amounted by the date of trial.

4. No interest should be awarded on the future loss.

5. No other allowance should be made for the prospective continuing
   inflation after the date of trial.

I would dismiss this appeal, and the respondent's cross appeal

[The instant case is concerned with damages in fatal accident cases only
but the Court of Appeal took occasion to deal also though obiter with
damages in personal injury cases and your Lordships have been invited to
follow suit. It is evident that what I have earlier said about the effect of
the prospect of continuing inflation on the assessment of damages for future
loss of the dependency in fatal accident cases would apply pari passu to
claims for loss of future earnings (or earning power) in personal injury
actions; what I have said about awarding interest on the two components
of the total claim to damages in fatal accident cases, would also apply to
claims for loss of earnings in personal injury actions, where the corresponding
first component is the loss of earnings up to the date of trial claimed under
the head of special damage. The question of damages for non-economic
loss which bulks large in personal injury actions, however, does not arise
in the instant case. It has not been argued before your Lordships and I
refrain from expressing any view about it.]

Viscount Dilhorne

MY LORDS,

I have had the advantage of reading in draft the speeches of my noble
and learned friends Lord Diplock and Lord Fraser of Tullybelton. I
agree with them and would dismiss this appeal and the cross appeal


Lord Salmon

MY LORDS,

I agree that this appeal and the cross appeal should both be dismissed broadly on the
grounds stated
by my noble and learned friend Lord Diplock and for the detailed reasons
given by my noble and learned friend Lord Fraser of Tullybelton with which
I completely concur.

There is one matter that 1 should like to emphasise, namely that in my
view it is impossible to lay down any principles of law which will govern
the assessment of damages for all time. We can only lay down broad
guide lines 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. For example, it was at one time regarded as
axiomatic that, in assessing damages in cases of death, for loss of earnings,
or maintenance, it could safely be assumed that if a substantial part of the
sum awarded was invested in equities, the plaintiff would be amply
protected against inflation because this would be balanced by the rise in
equities which would automatically follow inflation. This theory which



8

was regarded by most financial experts as being beyond doubt is now
exploded. But it has not made much difference because sums awarded as
damages, if invested in Gilts, now produce interest up to the rate of 14%
a year. And so, although in assessing damages the courts still use about
the same multiplicand and multiplier as formerly, the result, by chance,
is much the same. Just as the price of equities ceased to keep pace with
inflation so, one day, may the interest rates of Gilts. I entirely agree with
Lord Reid when he said in Taylor v. O'Connor [1971] A.C. at p.130 A that
in assessing damages it would "be quite unrealistic to refuse to take it
" (inflation) into account at all." Inflation, however, is only relevant in
so far as it increases wages. Wages may keep pace with inflation or they
may lag behind or overtake it. If inflation ceases, as it might, to increase
interest rates just as it has failed to increase the capital value of equities,
yet it increases the rate of wages, the whole basis of assessing damages for
loss of wages or maintenance will have to be reconsidered; and the instant
case will become as outdated as Jefford v. Gee [1970] 2 OB 130.

Lord Fraser of Tullybelton

MY LORDS,

Three question are raised in this appeal. The first relates to the basis on
which damages under the Fatal Accidents Act 1846 to 1959, and now under
the Fatal Accidents Act 1976, ought to be assessed, and in particular whether
it should be similar to the basis used for assessing damages for personal
injuries. The second is whether the prospect of future inflation should be
taken into account in assessing damages under the Acts and, if so, how
that should be done. The third question relates to the principles on which
the discretionary power of the court to award interest on the principal sum
of damages under the Acts ought to be exercised. The questions are
separate but to some extent are related to one another.

On the first question the most important point is whether the damages
ought to be assessed as at the date of death or as at the date of trial. In
strict theory 1 think there is no doubt that they should be assessed as at the
date of death, just as in theory they are assessed at the date of injury in a
personal injury case. But the damages awarded to dependants under the
Fatal Accidents Acts for loss of support during what would (but for the
fatal accident) have been the remainder of the deceased person's working
life have to be based on estimates of many uncertain factors, including the
length of time during which the deceased would probably have continued
to work and the amount that he would probably have earned during that time.
The court has to make the best estimates that it can having regard to the
deceased's age and state of health and to his actual earnings immediately
before his death, as well as to the prospects of any increases in his earnings
due to promotion or other reasons. But it has always been recognised,
and is clearly sensible, that when events have occurred, between the date of
death and the date of trial, which enable the court to rely on ascertained
facts rather than on mere estimates, they should be taken into account in
assessing damages. Thus if a dependant widow has died between the date
of the injured man's death and the date of the trial or if (before the Fatal
Accidents Act 1976 section 3(2) became law) she had remarried, the fact
would be taken into account, just as medical evidence of facts relating to
the injuries of an injured person up to the date of trial is taken into account
in preference to prognosis made immediately after the accident. Similarly
if the rate of wages paid to those in the same occupation as the deceased
person has increased between the date of death and the date of trial
the increase is rightly taken into account in assessing damages due to his
dependants under the Fatal Accidents Acts. Assessment of damages in
this way requires the pecuniary loss to be split into two parts, relating
respectively to the period before the trial and the period after the trial, in
the same way as it is split in a personal accident case. To that extent the
same method of assessment is used in both classes of case.




9

The loss of support between the date of death and the date of trial is the
total of the amounts assumed to have been lost for each week between those
dates, although as a matter of practical convenience it is usual to take the
median rate of wages as the multiplicand. In a case such as this, where the
deceased's age was such that he would probably have continued to work
until the date of trial, the multiplier of this part of the calculation is the
number of weeks between the date of death and the date of trial. That is
convenient, although it is strictly speaking too favourable to the plaintiff,
because it treats the probability that, but for the fatal accident, the deceased
would have continued to earn the rate for the job and to apply the same
proportion of his (perhaps increased) earnings to support his dependants
as if it were a certainty. I mention that in order to emphasize how
uncertain is the basis on which the whole calculation proceeds. That was
the method employed by the Court of Appeal, which calculated the
dependency at date of death as £1,614, and at date of trial
as £1,980, giving a median of £1,797 per annum as the multiplicand for
the period of 2 1/2 years between the two dates.

For the period after the date of trial, the proper multiplicand is, in my
opinion, based upon the rate of wages for the job at the date of trial.
The reason is that that is the latest available information, and, being a hard
fact, it is a more reliable starting point for the calculation than the rate of
wages at the time of death. The appropriate multiplier will be related
primarily to the deceased person's age and hence to the probable length
of his working life at the date of death. In the present case the deceased
was aged 49 at the date of his death and the trial judge and the Court of
Appeal used a multiplier of 11. That figure was not seriously criticised
by Counsel as having been inappropriate as at the date of death, although
I think it is probably generous to the appellant. From that figure of 11, the
Court of Appeal deducted 24; in respect of the 2 1/2 years from the date of
death to the date of trial, and they used the resulting figure of 8 1/2 as the
multiplier for the damages after the date of trial. In so doing they departed
from the method that would have been appropriate in a personal injury
case and counsel for the appellant criticised the departure as being
unfair to the appellant. The argument was that if the deceased
man had had a twin brother who had been injured at the same time as the
deceased man was killed, and whose claim for damages for personal injury
had come to trial on the same day as the dependant's claim under the
Fatal Accidents Acts, the appropriate multiplier for his loss after the date
of trial would have been higher than 8 1/2. On the assumption, which is
probably correct, that that would have been so, it does not in my opinion
follow that the multiplier of 8 1/2 is too low in the present claim under the
Fatal Accidents Acts where different considerations apply. In a personal
injury case, if the injured person has survived until the date of trial, that is
a known fact and the multiplier appropriate to the length of his future
working life has to be ascertained as at the date of trial. But in a fatal
accident case the multiplier must be selected once and for all as at the date
of death, because everything that might have happened to the deceased
after that date remains uncertain. Accordingly having taken a multiplier
of 11 as at the date of death, and having used 2 1/2 in respect of the period up
to the trial, it is in my opinion correct to take 8 1/2 for the period after the
date of trial. That is what the Court of Appeal did in this case.

I pass to the second question, which is whether the award should be
increased to make allowance for inflation after the date of trial. What is
relevant here is not inflation in general, but simply increases in the rate of
earnings for the job in which the deceased person would probably have
been employed. The reason for the increase is irrelevant. There would
be no justification for attempting to protect dependants against the effects
of general inflation, except to the extent that they might reasonably expect
to have been protected by increases in the deceased person's earnings. At
first sight it might seem reasonable that the award for the period after the
date of trial should be increased in some way " to allow for inflation in
" the future ". But I am satisfied that an increase on that ground would
not merely be impossible to calculate on any rational basis, but would



10

also be wrong in principle. The measure of the proper award to a widow
(who is generally the main dependant and to whom alone I refer, brevitatis
causa) is a sum which, prudently invested would provide her with an annuity
equal in amount to the support that she has probably lost through the death
of her husband, during the period that she would probably have been
supported by him. The assumed annuity will be made up partly of income
on the principal sum awarded, and partly of capital obtained by gradual
encroachment on the principal. The income element will be at its largest
at the beginning of the period and will tend to decline, while the capital
element will tend to increase until the principal is exhausted. The
multipliers which are generally adopted in practice are based on the assump-
tion (rarely mentioned and perhaps rarely appreciated) that the principal
sum of damages will earn interest at about 4 or 5%, which are rates that
would be appropriate in time of stable currency, as my noble and learned
friend Lord Diplock pointed out in Mallett v. McMonagle [1970] A.C. 166,
176 D. But in time of rapid inflation the rate of interest that can be earned
by prudent investment in fixed interest securities tends to be high, as
investors seek to protect their capital and also to obtain a positive rate of
interest. At the date of the trial in this case (May 1976) it was possible to
obtain interest at a rate of approximately 14% in gilt edged securities, and
so long as inflation continues at its present rate of approximately 10%,
experience suggests that the interest element in the widow's assumed
annuity will be appreciably higher than the 4 or 5% on which the multiplier
is based. What she loses by inflation will thus be roughly equivalent to
what she gains by the high rate of interest, provided she is not liable for a
high rate of income tax. In that sense it is possible to obtain a large
measure of protection against inflation by prudent investment, although the
theory that protection was to be had by investment in equities is now
largely exploded. I have referred to the " assumed " annuity because of
course the widow may not choose to apply her award in the way I have
mentioned; it is for her to decide and she may invest it so as to make a
profit or she may squander it. But the defendant's liability should be
calculated on the basis of an assumed annuity. In the normal class of case,
such as the present, where the widow's annuity would be of an amount
which would attract income tax either at a low rate or not at all, I
respectfully agree with the statement of my noble and learned friend in
Mallett, supra at 176C that the courts in assessing damages under the
Fatal Accidents Acts should leave out of account the " risk of further
" inflation, on the one hand, and the high interest rates which reflect the
" fear of it and capital appreciation of property and equities which are
" the consequence of it, on the other hand." It follows that in my opinion
the Court of Appeal came to the right conclusion in Young v. Percival [1975]
1 W.L.R. 17. I do not consider that anything I have said is inconsistent
with the view expressed by Lord Reid in Taylor v. O'Connor [1971] A.C.
115, 130 A to the effect that it would be " quite unrealistic to refuse to take
" it [inflation] into account at all." The fact is that, as was demonstrated
from tables shown to us, inflation and the high rates of interest to which
it gives rise is automatically taken into account by the use of multipliers
based on rates of interest related to a stable currency. It would therefore be
wrong for the court to increase the award of damages by attempting to make
a further specific allowance for future inflation.

In exceptional cases, where the annuity is large enough to attract income
tax at a high rate, it may be necessary for the court to have expert evidence
of the spendable income that would accrue from awards at different levels
and to compare the total annuity with the amount of the lost dependency
having regard to the net income (after tax) of the deceased person. Whether
in such cases it might be appropriate to increase the multiplier, or to allow
for future inflation in some other way would be a matter for evidence in
each case.

With regard to the third question, the purpose of awarding interest on
damages is to compensate the plaintiff in so far as he has been kept out
of money which was due to him before the award is made. Interest is not
awarded as a punishment to the debtor for withholding the money, although



11

any unjustifiable delay on his part would be a reason for making the award
just as unjustified delay by the plaintiff in claiming it might be a reason for
refusing to make an award, see General Tire & Rubber Co. v. Firestone
Tyre & Rubber Co. Ltd. [19751 1 W.L.R. 819, 836 H (Lord Wilberforce)
841 E (Lord Salmon).

The powers and duties of the court in respect of awarding interest on
damages are now regulated by subsection (1) of section 3 of the Law Reform
(Miscellaneous Provisions) Act 1934 and the new subsection (1A) added by
section 22 of the Administration of Justice Act 1969. The latter subsection
provides that where damages are awarded in respect of inter alia a person's
death (as in the present case) the court shall exercise its power to order
payment of interest " on those damages or on such part of them as the
" court considers appropriate, unless the court is satisfied that there are
" special reasons why no interest should be given in respect of those
" damages ". The section evidently leaves a wide measure of discretion
to the court and it gives no indication of the special reasons that should
weigh with the court in deciding whether to order payment of interest or
not. It is a matter for the discretion of the court, and your Lordships'
House can only provide guide-lines as to the principles on which the
discretion should be exercised. But some guide-lines are required in order
that the discretion may be exercised with reasonable consistency.

The Court of Appeal, having split the damages into two parts, pre-trial
and post-trial, gave interest on the former part at half the appropriate rate
and gave no interest on the latter part. That was in line with the decision
in Jefford v. Gee [1970] 2 QB 130 which was a case of personal injuries.
In my opinion the Court of Appeal made its award of interest on correct
principles. The only argument to the contrary that seems to merit considera-
tion is to the effect that interest ought to have been given on the post-trial
damages as well as on the pre-trial damages, on the ground that the whole
sum of damages was due at the date of death and ought in theory to have
been paid then. An argument to that effect prevailed with the majority
of the High Court of Australia in Ruby v. Marsh (1975) 132 C.L.R. 642 on
a construction of section 79A(3)(b) of the Supreme Court Act 1958 of
Victoria. Section 79A is in terms broadly similar to those of section 1A
of the English Act of 1934, as amended by the Act of 1969, and in so far
as the decision in Ruby, supra, turned upon considerations that would apply
to the English legislation, I would respectfully prefer the view of the
minority. The realistic view seems to me to be that damages for the period
after the date of trial are compensation for a loss of dependency which
the plaintiff has not suffered at that date and that she is therefore being
compensated for future loss. This part of the compensation ought, in
theory, to be discounted because it is being paid in advance, but the
information that was put (without objection) before the House showed
that, in this case, it had not been effectually discounted. The realistic
view has hitherto prevailed both in England—see Jefford v. Gee, supra—and
in Scotland where similar, though not identical, statutory provisions apply.
In Macrae v. Reed and Mallick Ltd. 1961 S.C. 68 (a case of personal
injuries) Lord Patrick at page 77 said " What can never be justified, in
" my opinion, is an award of interest on loss which the pursuer has not yet
" sustained at the date of the trial from a date anterior to the Lord Ordinary's
" interlocutor...." and in Smith v. Middleton 1972 S.C. 30 (a claim by a widow
in respect of the death of her husband) Lord Emslie (the Lord Ordinary as
he then was) expressed his general agreement with Lord Patrick's opinion
in Macrae. I am of the opinion that the Court of Appeal rightly awarded
interest on the damages in respect of the period before the date of trial,
and rightly declined to award interest on the damages for the period after
the date of trial.

I would dismiss this appeal and the cross appeal.




12

Lord Scarman

MY LORDS,

I have had the advantage of reading in draft the speeches of my noble
and learned friends Lord Diplock and Lord Fraser of Tullybelton. I agree
with them and would dismiss the appeal and the cross appeal. I add only one
comment. In so
far as this appeal is concerned with the award of interest pursuant to
section 3 of the Law Reform (Miscellaneous Provisions) Act 1934 as amended
by section 22 of the Administration of Justice Act 1969 neither the Court
of Appeal nor your Lordships' House can do more than indicate guidelines
for the exercise of a judicial discretion conferred upon judges by statute.
Judicially-indicated guidelines should not be treated as though they were
a rule of law. They are to be followed unless the particular circumstances
of a case, (which in the present context must include any change from
currently prevailing financial conditions), indicate that they would be
inappropriate. The fact that the Court of Appeal has considered it appro-
priate in this case to revise the guidance it gave in Jefford v. Gee [1970]
2 Q.B. 130 illustrates, if I may respectfully say so, the legally correct
approach to guidelines declared by an appellate court for the exercise by
judges of a discretion conferred by statute.

310657 Dd 353246 140 5/78