piBlawg

the personal injury and clinical negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Dealing with the discount rate review

A settlement award of £7.85 million (capitalised current value) was recently agreed in the case of TBE v Royal Berkshire NHS Trust.  The award comprises a lump sum payment of £3,660,700 plus annual payments index linked to ASHE 6115 of £140,000 to age 19 and £225,000 from age 19 for life. 

 

The case involved a 10 year-old claimant, TBE (name abbreviated to protect his and his family's privacy), who has severe cerebral palsy caused by medical negligence during his birth. The award of damages will be overseen by the Court of Protection and will be used to provide TBE with the 24 hour care, equipment, therapies and accommodation he will need for the rest of his life.

  

The order giving effect to the compromise of TBE’s claim included a mechanism for reassessing the multipliers used in calculating his claims for future losses at the conclusion of the review of the discount rate announced by the Lord Chancellor on 9 November 2010. The discount rate which was set at 2.5% by the Damages (Personal Injury) Order 2001 was based on yields generated by index-linked government stock (ILGS). However the rate has not been varied since 2001 and has become increasingly unrealistic in that a 2.5% per year real and net discount rate has not been achieved since the rate was first set.

 

Accordingly it was necessary for the parties to agree and for the order to include the matters which will in due course be reassessed. In particular, it was necessary to define (1) the “future life sum” (LS)  (2)  the full life multiplier (LM) representing a term certain from Table 28  (3) the “future earnings sum” (ES”) and (4) the earnings multiplier again representing a term certain from Table 28. The intention is that once the Lord Chancellor has concluded his review and determined any new discount rate, the new full life multiplier (“NLM”) and the new earnings multiplier (“NEM”) will be recalculated by reference to Table 28 using that new discount rate.

 

To arrive at the LS it is necessary to deduct (1) general damages and interest (2) past losses and interest (3) capital expenditure and other costs in the first year (4) CRU (5) any adaptation costs and other costs associated with the immediate purchase of a property.

 

The advantage to a Claimant of adjourning the issue of the discount rate is that as a result of the review the rate may be decreased resulting in a higher multiplier for future loss. However, careful consideration needs to be given as to whether this is appropriate. For example, the multiplicand under the principles in Roberts -v- Johnstone is also calculated by reference to the discount rate. It follows that a reduction in the discount rate, whilst increasing the multiplier, will decrease the multiplicand to which that multiplier is applied.  There is also the risk that the discount rate may be increased rather than decreased. In the present economic climate this seems unlikely. However, the economy, both in this country and abroad, may look very different in say 18 months or 2 years. Clients will therefore need to be given careful financial advice before agreeing the final form of order and legal advisers would be well advised to record both what that advice is and the fact that it has been given. 

 

 

 

Comments are closed