Russell v HSE: “the frailty and injustice of the lump sum system of compensation”

06 Nov 2015

The Court of Appeal of Ireland held, on 5 November 2015, that it would not alter personal injury discount rates of 1.5% and 1% set down by the High Court in December 2014 (on which we reported here). Before then, the prevailing single discount rate had been 3%, following the 2003 case Boyne v Dublin Bus. Currently, the Irish courts do not have power to make periodic payment orders and the Court’s views of the limitations inherent in the lump sum approach are illustrated by the above phrase, taken from the conclusion to the sixty-two page judgment handed down yesterday.

The decision of the Court of Appeal in Russell v HSE (Appeal 2015/49) brings about - subject to any further appeal - a significant reduction in the applicable discount rate(s). The associated increase in multipliers for claims for future pecuniary loss is likely to have an adverse impact on insurers and other compensators with exposure to serious injury claims in Ireland. This inevitable consequence was signalled by the Court, which stated that “It is undoubtedly the case that any modification of the discount rate in the present case, if applied across the board, will result in a general increase in the size of awards for future pecuniary loss”.

It may therefore be worth repeating the somewhat understated reference to the Russell case in the Central Bank of Ireland’s Macro-Financial Review, published in June 2015: “A recent High Court judgement, reducing the assumed discount rate from 3 percent to 1 per cent, could increase the cost for insurers of meeting future high-value claims and may lead to increased premiums.”

The detailed analysis of the rate adopted by the High Court was followed by the Court of Appeal. In summary, an appropriately low risk rate of return was held (on the evidence) to be 1.5%. This would apply to claims for future pecuniary loss generally, but a further reduction of 0.5%, to 1%, should be made for future care. This adjustment reflected the likely difference between wages and prices inflation.

For those with experience of the equivalent debate in the UK, the decision of the Court of Appeal in Russell will resurface many of the principles articulated in the line of cases and government materials following the decision of the House of Lords in Wells v Wells in 1998. As in Wells, the decision in Russell rests on a policy of providing plaintiffs with 100% compensation. It emphasises that the plaintiff is not in the same position as an ordinary prudent investor and - rather bluntly - states that “it is not the function of the court to conduct an enquiry as to what the plaintiff is likely to do with their award for the purpose of deciding the level of the award.” In addition, it refuses to take account of the effect of awards on the State’s resources or insurance premiums, which, in the words of the Court, are “Policy matters … for the Oireachtas” [The Irish legislature]. The Court of Appeal dealt more eloquently with this aspect than it might be thought that the first instance judge had done, given his remarks that “Arguments on ‘public policy’ such as this are, in my view, more suited to the lounge bars of golf clubs than to courts of law."

In a further reference to the legislature, the Court of Appeal urges it to bring to an end what it characterises as the potentially unjust manner by which it is obliged to make awards for future losses in catastrophic injury claims. It should be noted that a draft Bill to this effect is already before the relevant Oireachtas Committee for pre-legislative scrutiny.

Although The Irish Times reported the decision under the headline Ruling means higher damages for victims of catastrophic injuries at the time of writing, there does not appear to have been any formal reaction from insurers in Ireland. According to the newspaper, the case is expected to be appealed to a seven judge Supreme Court.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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