The Court of Appeal upheld the use of a 1.5% discount rate when calculating most of a child’s future financial losses, reducing it to 1% for future care costs to account for expected wage inflation in the care sector.
The judgment, delivered by Ms Justice Irvine on 5 November 2015, concerned damages for Gill Russell, a minor who sustained catastrophic injuries at birth. The Health Service Executive had admitted negligence. The judgment records that Russell has dyskinetic cerebral palsy affecting all four limbs, respiratory problems, epileptic seizures and double incontinence, and requires round-the-clock care.
The HSE appealed the High Court’s approach to calculating the lump sum for future losses. The dispute before the Court of Appeal concerned the rate of return assumed for investing that sum. The High Court had used a 1.5% real rate of return, based on index-linked government securities, and reduced the rate to 1% for future care costs because care wages were expected to rise faster than general inflation. The HSE argued for a higher rate based on a mixed investment portfolio that included a substantial proportion of equities.
The Court of Appeal found that a catastrophically injured plaintiff dependent on an award for future care should be assessed on the basis of access to the safest suitable investment reasonably available. It rejected the argument that Russell should be treated as an ordinary investor or that the court should calculate damages based on how he might actually invest the award. It also said the duty to mitigate losses applies when assessing the annual needs that make up the claim, not to how a plaintiff invests damages after they are awarded.
The court concluded that the evidence supported the High Court’s 1.5% rate for outstanding future pecuniary losses generally. For future care, it upheld a reduction of 0.5 percentage points to 1% to reflect expected wage inflation. It observed that using the 1% rate for non-care losses would appear inappropriate, but said no submissions had been made on that issue.
The court did not determine the amount of the annual care and related costs, known as the multiplicand. The parties had agreed that the appeal on that issue would await the decision on the discount rate. The Court of Appeal said it would hear counsel before giving directions on a hearing about those outstanding issues.
The judgment also criticised the lump-sum system for catastrophic, lifelong injuries, noting the risk that an award based on an estimated life expectancy could leave a plaintiff without funds if they outlived it, or overcompensate if they died earlier. It urged legislative reform to permit periodic payment orders.