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The recent signpost House of Lords ruling in the cases of Page v Sheerness Steel Co, Wells v Wells and Thomas v Brighton Health Authority, has had a dramatic impact on personal injury litigation.
The ruling gives important new guidelines on calculating lump-sum damages for future loss of earnings and cost of care. Awards will inevitably go up as personal injury lawyers re-evaluate how they make calculations.
The ruling centred on discounts given by judges to ensure that any future interest earned on lump-sum awards does not result in over-compensation. Courts have traditionally allowed discounts of 4 to 5 per cent based on the interest it is anticipated a lump sum would earn if invested in "mixed baskets" of gilts and equities. But High Court judges in the three test cases broke tradition and used the lower, but more accurately assessable, interest rates that would be available if awards were invested in Index Linked Government Stock (ILGS).
The Law Lords overturned a previous Court of Appeal ruling against the High Court judges and held that they were right to assume plaintiffs would invest in ILGS and were entitled to higher sums to compensate for lower interest.
The Lords held that the discount rate should be taken at 3 per cent across the board in determining the multiplier for future losses and include Roberts v Johnstone damages which compensate for the cost of additional accommodation.
The first dramatic example of the ruling's effect came in a recently-settled quantum dispute involving a seven-year-old boy who suffered oxygen starvation at birth. Bromley Health Authority had already been found liable in court and, just before the new ruling, agreed a £1.6m settlement. But because of the ruling, Bromley paid an extra £300,000.
Dorothy Briffa and Amanda Garner-Patel of London firm Dawson & Co, who represented claimant Oscar Brock-Hollinshead, say Bromley's decision is an excellent example of the new ruling's importance. Briffa and Garner-Patel say that "up to now discount rates have frequently led to protracted negotiation and argument".
"The Lords' decision has completely done away with this. Most importantly this decision will result in substantially higher awards to plaintiffs in personal injury cases. The wider implications for the insurance market are that premiums are very likely to increase as a result."
The boy's claim was that due to medical negligence he suffered oxygen starvation at birth leading to irreversible brain damage. He cannot stand or walk without help and his communication abilities are extremely limited although his intelligence is regarded as normal.
The boy was a severely growth-retarded foetus in a breech position and it was argued that doctors should have realised his vulnerability before delivery and advised his mother to have a Caesarean section. Had this happened, it is believed he would have suffered no ill-effects.
Medical evidence was not tested in court because the boy won his case on an issue of fact. The judge found that the mother had not been advised by the medical team to come into hospital on the day of his birth and was instead sent from the hospital's antenatal clinic back home where the son was born an hour or two later.