This article was published in BLM's healthcare update, click here to see the full edition.
The Court of Appeal delivered judgment on 5 November 2015, affirming a decision of the High Court in December 2014 which concluded that the real rate of return to be applied in relation to the calculation of large special damages loss in catastrophic injury claims, should be 1% (after allowing 0.5% adjustment for wage inflation). This will profoundly increase the level of awards in catastrophic injury claims and have a consequential impact on insurers, indemnifiers, insurance premiums and the public purse.
In reaching its conclusion the court preferred the approach adopted in the UK decision of Wells v Wells to that previously adopted in the Irish Courts by Finnegan J in Boyne v Dublin Bus. The Court concluded that:
- A plaintiff suffering catastrophic injuries which require long term provision for care, loss of earning and/or appliances and housing adaptions should not be assessed to the standard of an ordinary prudent investor
- Such a Plaintiff may choose to invest in the least risk averse investment strategy available to him, irrespective of the net cost of that strategy to the Defendant.
- The real rate of 1% will apply equally to a lifetime loss of earnings claim, for a plaintiff who cannot work again because of his injuries, but who does not require a complex annual care package.
- The court in assessing the multiplier (real rate of return) shall only consider compensation for pecuniary loss on a 100% basis and shall not consider the consequent economic burden to be placed on the Defendant or the insurance industry, or the public purse.
- Public Policy is not a factor for consideration
- The Plaintiff is not required to mitigate his loss in choosing the form of investment being argued, but should be able to pursue the least risk averse investment strategy available.
- How the Plaintiff might in reality actually invest the money once awarded, is not a consideration
- Wardship is not a consideration. The fact that long term investments managed by the wards of court are managed on the basis of a mixed portfolio and this is probably how the funds will actually be invested (with a likely greater rate of return at closer to 3%) is not a factor for consideration.
- The trial Judge in deciding that investment in ILGS was more risk averse than investment in a mixed portfolio did not err in law and was entitled to prefer the evidence of the Plaintiff’s experts. That evidence entitled the Judge to conclude that ILGS investment provides best protection against inflation, has minimal risk of devaluation from currency fluctuations as the majority of ILGS investment would be in Germany or France and furthermore, that investment in the Eurozone did not carry additional risk attached to the possibility of Eurozone break-up or differing rates of inflation between Eurozone countries. In addition, the Court concluded that the Judge was entitled to reject the Defendant’s experts assertion that investment solely in ILGS carried a risk and that diversification of investment through a mixed portfolio was preferable.
- The court rejected the proposition that equity markets were less volatile and best protected against inflation in the long term, rejected that approach to a mixed fund in Boyne v Dublin Bus and preferred the approach used in Wells v Wells preferring ILGS investment, despite that in Wells it was possible to buy the ILGS in the same country as that in which the Plaintiff resided (England), which would not be the case in Russell v HSE.
- A Defendant in challenging evidence to seek to mitigate the Plaintiff’s loss should not challenge the form of chosen investment used to reach the multiplier, but should challenges the various items of special damages which combine to form the multiplicand.
The Court concluded that the above approach does not amount to overcompensation, but nonetheless endorsed an investment approach which is the most expensive investment strategy for a Defendant to meet irrespective of the reality that in all probability the sum awarded will nonetheless be invested in a mixed portfolio and has been invested in a mixed portfolio to date.
The Court of Appeal upheld the decisions of the High Court trial Judge and rejected the appeal in relation to the calculation of the multiplier. The court will now proceed to hear argument in respect of the second prong of the Appeal yet to be heard, ie challenging the calculation of the multiplicand by the High Court judge.
In reaching the judgment the Court of Appeal expressed the limitations and unfairness to both parties arising from the absence of Periodic Payment Orders legislation in Ireland and its comparative and favourable availability in other jurisdictions. It noted that a Bill providing for PPO legislation is currently before the Oireachtas and encouraged implantation of PPO legislation.
Interestingly, the court noted that there is provision under S24 of the Civil Liability and Courts Act 2004, for the Minister for Justice to set the level of a multiplier (the real rate of return), but also noted that if a multiplier were considered by the court to be insufficient in the circumstances of a particular case, the court could still apply a different amount than that set by the Minister. Given the profound consequences of this judgment for the public purse and the insurance industry, among others, it will be interesting to see whether consideration will now be given to legislative provision of a fixed real rate of return.
It remains to be seen whether this decision by the Court of Appeal will now be appealed to the Supreme Court.