16 March 2012
Dylan Simon (Appellant) v. Manuel Paul Helmot by his next friends and guardians (Respondent) UKPC 5
The Privy Council handed down a landmark decision on the calculation of future losses on 7 March 2012. The Privy Council upheld the Guernsey Court of Appeal's decision to adopt, for the first time, a negative discount rate of -1.5% for calculating earnings related future loss, resulting in much higher multipliers and substantially higher lump sum awards of damages.
This decision could have a significant impact on the mechanism used to calculate damages in personal injury claims in common law jurisdictions, including Hong Kong.
The case concerned an accident in which a motor car driven by the defendant collided head-on with the plaintiff (Mr. Helmot) who was riding a bicycle. The plaintiff was a cyclist who had previously represented Guernsey at the Commonwealth Games. He suffered severe head injuries and would not be capable of undertaking any paid employment for the rest of his life.
The plaintiff brought an action against the defendant and liability was admitted leaving damages to be assessed. The matter was first decided by the Royal Court of Guernsey, where the Court adopted a reduced discount rate (the discount rate is used in arriving at the multiplier for claims for future losses) of 1% in calculating his loss of earnings and other losses. The plaintiff appealed and the defendant cross-appealed to the Court of Appeal. The Court of Appeal replaced the 1% discount rate by a discount rate of -1.5% for earnings related losses and 0.5% for other losses. This resulted in higher multiplier and increased the total award of damages by about GBP 4.5 million making a combined total of almost GBP 14 million (the highest lump sum award ever made in the United Kingdom and Crown Dependencies).
The defendant appealed to the Privy Council.
By a unanimous decision handed down by the Privy Council on 7 March 2012, the Privy Council dismissed the appeal by the defendant, and upheld the Guernsey Court of Appeal's approach in calculating losses.
The Privy Council agreed that the first and foremost consideration was that a claimant was entitled to full compensation for his or her injuries. Regarding the discount rate, the Council agreed that the discount rate can be adjusted (i.e. reduced) if the evidence shows that the rate of inflation will outpace the rate of return on capital so that the plaintiff is fully compensated. The effect of such adjustment is to increase, rather than reduce, the number of years used as the multiplier. The Council expressed that the conventional adoption of 2.5% discount rate was based on the assumption that the rate of return on capital can offset the effects of inflation which has led to a discount for the accelerated receipt of the lump sum award. However, such conventional approach may not be appropriate in light of the present economic climate.
The Privy Council's judgment is likely to have an impact in many common law jurisdictions. The courts in Hong Kong may come under pressure to make a substantial adjustment which may be reflected in much higher awards of future losses for seriously injured claimants to enable them to fund their care arrangements.
It is likely that the claimants will now seek to argue for a higher multiplier in calculating future losses in personal injury cases, especially in the light of the current low-interest environment and concerns about inflation. There is a real risk the courts may consider the adequacy of the multipliers in assessing future losses. And if the courts follow suit then insurers will need to factor this into the pricing of their policies and reserves.
As a side note, various expert (actuarial and financial) evidence including evidence from a forensic accountant, an economist and an actuary were admitted in this case to assist in the determination of the discount rates for losses. It has been argued that the use of the actuarial and financial evidence will enable the Court to make a more accurate assessment of the plaintiff's future loss. However, such an approach was rejected in the Hong Kong Court of Appeal case Chan Pui Ki (an infant) v. Leung On & The Kowloon Motor Bus Co. (1933) Ltd, where the Court of Appeal has preferred the conventional multiplier/multiplicand method. However, Chan Pui Ki was decided some time ago and judicial attitudes might have changed.
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