Varying the Guideline Discount Rate

Warren v Northern General Hospital Trust (CA TLR 10 April)

The appeal raised the question whether the court should alter the discount rate of 3% in calculating a claimant’s future pecuniary loss set by the House of Lords in Wells v Wells ([1999] 1 AC 345), and if so to what new rate? The House of Lords clearly considered that the rate they had set of 3% should not be altered until the Lord Chancellor set a new rate under s1(1) of the Damages Act 1996, even though this was on the assumption that the Lord Chancellor would set a rate in the near future, which he had not done. The court did not feel free to depart from an opinion so clearly expressed by the majority of the House of Lords, even if it was obiter. In any event, the need for certainty to facilitate settlements, coupled with the undesirability of extensive evidence from accountants, actuaries or economists with a view to persuading courts to change the rate militated strongly against any court seeking to do so before the Lord Chancellor had acted under the 1996 Act. In any event should the discount rate be lowered or the multiplier increased to take account of the impact of taxation on the claimant’s award? The reduction in the rate of return of index linked Government securities alone was not a sufficient change of economic circumstances to justify a change in the discount rate, even if the court were free to do so. The fact that the net return from such securities on a compensating fund of between about £1.25 million and £3.5 million would be reduced within 0.5% of the norm of 3% through the impact of higher rate tax, did not make it an appropriate case for uplift or for reduction of the discount rate, particularly where the court knew that the fund would be managed by a reasonable and prudent investor, such as the Court of Protection, who would invest to produce higher returns than those obtained from index linked Government securities.