UKPC 5
Privy Council Appeal No 0064 of 2011
DYLAN SIMON (Appellant)
MANUEL PAUL HELMOT
(By his next friends and guardians ROSEMARY HELMOT and KENNETH RAYMOND JORDAN) (Respondent)
From the Court of Appeal of Guernsey
JUDGMENT DELIVERED BY
7 March 2012
Heard on 25 January 2012
Alistair Schaff QC
(Instructed by Alan Taylor & Co)
James Dingemans QC
(Instructed by Mourant Ozannes)
The assessment of future loss in English law
Developments since Wells v Wells
The position in Guernsey
The evidence of the respondent's expert witnesses
"i) The starting point in assessing the discount rate for Guernsey should be yields from ILGS and I consider that the appropriate yield before tax is 1.25% (January report para 5.16),
ii) after allowing for Guernsey tax this would be reduced to 1% (para 5.19),
iii) higher inflation in Guernsey than in the UK reduces this to 0.5% (para 5.24) which is my proposed basic discount rate (para 5.30),
iv) for earnings-related losses there should be an additional allowance for the faster growth rate of earnings compared with prices. I propose a deduction of 2% to minus 1.5% (para 5.33) as the discount rate for such losses, which include future costs of care."
"(i) What is the likelihood and extent of any divergence between the inflation rates in Guernsey and the United Kingdom;
(ii) What is the extent of the likely future gap between the growth of Guernsey average earnings and Guernsey inflation."
He summarised his overall conclusions in paras 33-34 of his report of 13 October 2006. They were as follows:
"33. Based on general theoretical principles and observations over recent years, assuming that the monetary link with the UK is retained, I would regard ½ % p a on average as the best working assumption for the extent that Guernsey inflation might exceed UK inflation over periods of 15 years or more. But there will be considerable variation from year to year. It would be possible for the average gap to be zero, or even slightly negative. A gap as large as 1% would be possible, but not likely.
34. I would regard 2% on average as the best working assumption for the excess of Guernsey average earnings growth over Guernsey inflation over periods of 15 years or more. But again there will probably be considerable variation from year to year. The average figure could be as low as 1% or as high as 3%."
In an Addendum Report of 15 May 2009 he said that more recent published data from the UK and Guernsey had done little to alter the picture that he had painted in his report of October 2006, and that he stood by the general conclusions that he had reached then.
"i. the yields that he has calculated on ILGS;
ii. in the UK earnings inflation has been historically at a greater rate than price inflation;
iii. the restricted statistical evidence available suggests historical earnings inflation in Guernsey is running at a greater than Guernsey price inflation;
iv. the method followed by Mr Hogg in calculating the three year yields on ILGS is in accordance with the method set down in Wells."
In para 3.10 he said that Mr Hogg had correctly calculated the average yields on ILGS for one year and the three year averages. In para 3.11, as to the adjustment to be made for tax, he acknowledged that differences as to the adjustment that might be made to reflect Guernsey tax would, in all probability, not alter the 1% ILGS yield as calculated by Mr Hogg. In that situation, as those parts of Mr Hogg's reports that were the product of his own work were not in dispute, the answers that Mr Bootle and Mr Daykin gave to the questions that they had been asked to consider were critical to the choice of the discount rate.
The judgment of the Royal Court
"199. In conclusion, the Court sets the discount rate in the current case by starting with the Lord Chancellor's rate of 2.5%, deducting 0.5% for the difference between UK RPI and Guernsey RPI and deducting a further 1.05% to allow for the reduction in the return on ILGS. Then, rounding to the nearest 0.5%, the Jurats arrive at a figure of 1% as the discount rate to assume in the present case."
The Court of Appeal
Earnings related losses
"Duxbury calculators are based on an iterative computation, seeking the amount which if invested to achieve capital growth and income yield (both at assumed rates and after income tax on the yield and CGT on the realised gains) could theoretically be drawn down in equal inflation-proofed instalments over a period (usually, but not always, the estimated actuarial life expectancy of the recipient) but would be completely exhausted at the end of the period."
"Lord Denning appeared, however, to think - or at least to hope - that there exists machinery in the Rules of the Supreme Court which may be adapted to enable an award of damages in a case such as this to be 'regarded as an interim award'  QB 196, 220. It is an attractive, ingenious suggestion - but, in my judgment, unsound. For so radical a reform can be made neither by judges nor by modification of rules of court. It raises issues of social, economic and financial policy not amenable to judicial reform, which will almost certainly prove to be controversial and can be resolved by the legislature only after full consideration of factors which cannot be brought into clear focus, or be weighed and assessed, in the course of the forensic process. The judge—however wise, creative, and imaginative he may be - is 'cabin'd, cribb'd, confin'd, bound in' not, as was Macbeth, to his 'saucy doubts and fears', but by the evidence and arguments of the litigants. It is this limitation, inherent in the forensic process. It is this limitation, inherent in the forensic process, which sets bounds to the scope of judicial law reform."
"both … were new procedures devised by judicial discretion, without precedent, to make the regular law function more effectively … and they have both now been subsumed in procedural legislation."
"We believe that the availability of structured settlements as a remedy in personal injury cases in the United Kingdom should not now be seriously questioned. Though it has been said that their development has been somewhat 'in the shadow of the law', we believe that the advantages clearly outweigh any disadvantages, and that the availability of structuring is a useful option which can benefit plaintiffs, particularly given the high incidence of cases that are settled."
"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 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. Lump sum compensation cannot be a perfect compensation for the future. An attempt to build into it a protection against future inflation is seeking after a perfection which is beyond the inherent limitations of the system. While there is wisdom in Lord Reid's comment (Taylor v O'Connor, at p 130) that it would be unrealistic to refuse to take inflation into account at all, the better course in the great majority of cases is to disregard it. And this for several reasons. First, it is pure speculation whether inflation will continue at present, or higher, rates, or even disappear. The only sure comment one can make upon any inflation prediction is that it is as likely to be falsified as to be borne out by the event. Secondly, as Lord Pearson said in Taylor v O'Connor, at p 143, inflation is best left to be dealt with by investment policy…."
"so far as the Jurats intended to discard more generally the 'economic theory' advanced by the plaintiff's experts, they were I think overlooking the fact that any analysis of the expected future behaviour of prices and earnings and the relationship between them is bound to depend on economic theory. They were also disregarding evidence which was powerful, consistent and unchallenged, on issues on which their own experience of Guernsey society was unlikely to be of much assistance."