Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 162
PD736/11	OPINION OF LORD BRODIE in the cause ANTHONY STEPHEN TORTOLANO Pursuer; against OGILVIE CONSTRUCTION LIMITED Defenders: ________________

Pursuer: Bain QC; Fitzpatrick; Digby Brown LLP

Defenders: Hanretty QC; Cowan, Solicitor Advocate; Simpson & Marwick, solicitors

10 October 2012

Introduction

[1] The pursuer in this action was born on 19 June 1989. On 21 November 2008 he was working in the course of his employment with the defenders as an apprentice plumber. He avers that on that date he suffered very serious injury as a result of an accident when the mobile working platform on which he was located toppled over causing him to fall a distance of about 4 metres. He blames the defenders for this accident and sues for damages in respect of common law negligence and breach of statutory duty. The heads of damage include continuing loss of earnings and the cost of future care and support. An eight day diet of proof has been fixed for 21 November 2012 and the subsequent days.

[2] The defenders propose to amend. Their minute of amendment was received by the court on 6 July 2012. The pursuer has taken advantage of the amendment process by, in his answers, increasing the sum sued for to £5,000,000 and including averments directed at the question of what is the appropriate discount rate to be adopted in determining the multipliers for the calculation of future losses and costs. The defenders now move to amend in terms of their minute of amendment and the pursuer's answers but under deletion from the pursuer's answers of the averments directed at the appropriate discount rate. Broadly the defenders objections are twofold: (1) the impugned averments come too late to allow the defenders to have any confidence in being able properly to meet them at a diet of proof fixed for 21 November 2012 which, at eight days, would probably be inadequate to accommodate this additional issue; and (2) they are in any event irrelevant.

[3] The pursuer seeks to insist on the inclusion of the impugned averments in the pleadings.

Statutory provisions and associated material

[4] Section 1 of the Damages Act 1996 provides, inter alia:

"1 Assumed rate of return on investment of damages.

(1) In determining the return to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury the court shall, subject to and in accordance with rules of court made for the purposes of this section, take into account such rate of return (if any) as may from time to time be prescribed by an order made by the Lord Chancellor.

(2) Subsection (1) above shall not however prevent the court taking a different rate of return into account if any party to the proceedings shows that it is more appropriate in the case in question.

(3) An order under subsection (1) above may prescribe different rates of return for different classes of case.

(4) Before making an order under subsection (1) above the Lord Chancellor shall consult the Government Actuary and the Treasury; and any order under that subsection shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.

(5) In the application of this section to Scotland-

(a) for the reference to the Lord Chancellor in subsections (1) and (4) there is substituted a reference to the Scottish Ministers; and

(b) in subsection (4)-

(i) "and the Treasury" is omitted; and

(ii) for "either House of Parliament" there is substituted "the Scottish Parliament"."

[5] The Damages (Personal Injury) (Scotland) Order 2002, SSI 2002/46 ("the Order"), which was made in terms of section 1(1) of the 1996 Act provides:

"1.

This Order may be cited as the Damages (Personal Injury) (Scotland) Order 2002 and shall come into force on 8^th February 2002

2.

This Order extends to Scotland only.

3.

The rate of return referred to in section 1(1) of the Damages Act 1996 shall be 2.5 per cent."

[6] In February 2002 the Scottish Executive Justice Department published, on behalf of the Scottish Ministers an executive note relative to the making of the Order. It was in the following terms:

"EXECUTIVE NOTE

DAMAGES (PERSONAL INJURY)(SCOTLAND) ORDER 2002 (S.S.I. 2002/46)

I. This order has been made in exercise of the power conferred by Section I of the Damages Act 1996 (1996 c. 48), as amended by the Scotland Act 1998 (Consequential Modifications) (No.2) Order 1999 (S.1. 1999/1820, articles 1(2) and 4, Schedule 2, para 126). The instrument is subject to the negative resolution procedure. It was made on 6 February, laid before Parliament on 7 February and enters into force on 8 February.

2. The order was brought into force immediately, and does not comply with the 21 day rule. This is because any delay between the making of the Order and its entry into effect would prejudice settlements of claims for damages for personal injury. This would lead to delays in the courts or in reaching settlements while one or other party sought to postpone cases so as to obtain the benefit of the new rate.

Policy objectives

3. The Order sets the rate of return (the "discount rate") to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury. The courts must take this rate into account unless a party to the action shows that another rate would be more appropriate in the case in question.

4. The objective of an award for damages for personal injury is to put the pursuer in the same position, financially, as he/she would have been if it had not been for the injury. When damages are awarded for personal injury, sometimes a one-off payment will suffice. However, if the injured person will suffer loss of earnings or need care stretching into the future, it may be more appropriate to assess damages in terms of his or her life expectancy and the losses which are expected for the future. The "discount rate" is used to determine how much cash needs to be paid at the time of the award to provide a certain level of income over a period of time. The aim in assessing damages is to provide a capital sum which can be used to yield exactly enough to cover the anticipated needs and lost earnings every year, for so long as they are expected to continue. It is not intended that the pursuer should be left with a capital sum when the period covered by the award has expired.

5. Assessment of the amount of an award is complex. It takes into account the annual cost a pursuer is likely to need, the number of years over which the losses are likely to continue and applies a discount to reflect the effects of paying the whole amount in one lump sum. The discount rate indicates how much a prudent investor should get, allowing for inflation. A high rate means that the injured person need not be paid as big a lump sum in order to achieve the desired income, and this benefits defenders. Conversely, a low rate benefits pursuers. Rather than argue at length what rate should be set in each case, it aids cases (and promotes settlements) if there is an accepted discount rate, which should be fair to both sides.

6. In the English case of Wells v Wells [1998] 3 All ER 481, the House of Lords

unanimously concluded that, in order to provide full compensation the discount rate should be taken as 3%, based on the average rate of return from investment in Index Linked Government Securities (ILGS). This was based on the assumption that the successful claimant would invest prudently, and that the prudent investor would put money into ILGS. The judgment made it clear that 3% should be used in other actions, unless there was considerable change in economic circumstances, until a rate was prescribed under Section 1 of the Damages Act 1996. The rate currently used by the courts in Scotland is the 3% laid down in Wells.

7. The general approach taken by the Executive is to set a rate which will be not need to be frequently changed, barring any major economic changes. The Lord Chancellor set the rate at 2Yz% for England and Wales in June 2001, and confirmed his reasoning for this in July 2001. The Executive accepts the reasoning, and believes that there are no particularly Scottish factors that would indicate a need for a different rate. The discount rate represents the rate of return that an award recipient can make on the financial markets. Of course, the same financial markets cover Scotland, England and Wales, so in terms of expected financial returns there is no need for a different rate. A rate of 2.5% was appropriate in June 2001 after allowing for taxation, short term supply factors affecting the ILGS rate, and the ability of pursuers to obtain a higher return in other secure investments. The all stock ILGS rates since then have risen.

Consultation

8. In setting the rate, Section 1 of the Damages Act 1996 provides that there must be consultation with the Government Actuary. His report is attached and recommends a floating rate. The Scottish Ministers believe although there is no technical reason why the rate should be set in steps of Yz%, this seems suitable both for ease of calculation and stability of the rate to promote settlements. While the Lord Chancellor must also consult the Treasury, there is no such requirement for Scottish Ministers, but they have sought the Chief Economic Adviser's advice, and his office see no reason in principle why the approach taken by the Lord Chancellor should not be followed.

9. The Executive will shortly consult interested bodies about various matters to do with damages for personal injuries, including questions about what mechanism Scottish Ministers should adopt in future changes to the rate. Consultees will include the Law Society of Scotland, the CHI, the Association of British Insurers and others concerned with all sides of personal injuries litigation.

Financial effects

10. In making their decision, Scottish Ministers were scrupulous in seeking to be fair to both defenders and to pursuers. It would have been wrong for Scottish Ministers to give consideration to their own interests as potential defenders in such cases. In reaching a decision on the rate, they did not consider the financial impact, and limited consideration strictly to what rate will be fair both to pursuers and defenders in personal injuries cases. No regulatory impact assessment was therefore prepared before they made their decision.

11. There will be a financial impact on the public sector both in devolved areas, such as the NHS, and in reserved areas, such as defence. There will also be an impact on insurers, who will bear much of the costs of increased awards against local government, business and private individuals (particularly motorists). The Lord Chancellor's Department has been

preparing an assessment for the similar order made for England and Wales in June 2001, and covering all areas, reserved and devolved. When the figures underlying this assessment become available, the Executive will prepare a Regulatory Impact Assessment for the effects in Scotland, and will present this to the Parliament."

The impugned averments

[7] What I have described as the impugned averments are in these terms:

"The House of Lords in the case of Wells v Wells [1999] 1 AC 345, approved the practice of using a 3% standard rate of return set by reference to the prevailing net yields on index-linked government securities ("ILGS"). In setting the rate at 3% the House of Lords stated that (a) the fundamental principle of any compensatory award in personal injury actions is that a pursuer should, as far as it is possible to do so, be fully compensated, (b) a pursuer should not be expected to assume investment risks in order to provide for future losses or expenses and, (c) the future losses or expenses that are being valued in each case will increase year on year in line with inflation. By virtue of Section 1 of the Damages Act 1996, the Lord Chancellor is empowered to fix a rate of return deemed to be made on investment of any lump sum award. In determining the return to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury the court is required to take account of the Lord Chancellor's rate, unless one or other party can show that a different rate is more appropriate. The Damages Act 1996 was in force at the time when Wells v Wells was decided, but the power to fix a rate of return was not exercised until three years later. On 25^th June 2001, the Lord Chancellor fixed a standard rate of return of 2.5%. The reasons given by the Lord Chancellor in fixing the rate of return as he did were published on 27^th June 2001 and 27^th July 2001. The Lord Chancellor decided upon a single rate to cover all cases, because he considered that this would be easier to apply and would be more durable. He adopted the principle, derived from Wells v Wells, that the assumed rate of return should be based on the yield of ILGS, and found that their current gross redemption yield at an assumed rate of inflation of 3 per cent was 2.46 per cent. He then reduced the "gross yield" by a discount factor of 15%. This discount factor of 15% was applied in recognition of the tax to be applied and provided the net, after tax, yield percentages. This resulted in a rate of return on ILGS net of income tax of 2.09%. The Lord Chancellor then decided that 2.09% should be rounded to a multiple of 0.5 per cent, which was the rounding multiple used in the Ogden Tables. The Lord Chancellor rounded the figure of 2.09% to 2.5%. The Scottish Ministers, by virtue of the provisions of the Damages (Personal Injury) (Scotland) Order 2002 ("the Order"), ordered that the same rate of return should apply in Scotland. The Executive Note prepared by the Scottish Executive Justice Department dated February 2002 which was published with the Order stated that the Scottish Executive accepted the Lord Chancellor's reasoning behind his setting of a 2.5% rate of return as there were no particular Scottish factors that would indicate a need for a different rate. Since 2001 the Lord Chancellor and the Scottish Executive have not reviewed the rate of return. Since 2001 there has been a marked change in economic circumstances within the United Kingdom. The rate of return set by the Lord Chancellor and the Scottish Executive is now out of date and has no current evidential basis. The Lord Chancellor's statement of 2001 no longer provides a reasoned justification for the current prescribed rate. Since 2003, the three year average yield on ILGS has declined considerably. The average yield on ILGS over the period January 2011 to January 2012 was minus 0.1%. Up to date data from the Financial Times on ILGS shows that the current level of real yields on ILGS in the market is 0.01%. The average tax deduction to the "gross yield" should be 13.19% in recognition of current day tax rates and allowances. A successful pursuer can no longer invest an award of damages in a risk free manner and achieve a 2.5% return, in excess of price inflation. Average earnings have outpaced inflation as measured by growth in the Retail Price Index over long time periods. The excess growth of earnings over inflation for the period 1980 to 2011 amounts to 1.5% per annum on average and is likely to continue at the same level in the foreseeable future. Adopting the methodology followed by the Lord Chancellor and the Scottish Ministers in 2001, and applying these to the financial conditions as at October 2012, a pursuer can only secure a net yield in ILGS of minus 0.25%. The Lord Chancellor when setting the rate of return in 2001 rounded the calculated yield up to the higher 0.5% and adopting the same approach would produce a rate of return of 0%. In relation to loss of future earnings or the cost of any care services required by a pursuer, standing the fact that earnings have consistently outpaced inflation, it is reasonable that a different rate of return is applied to future earnings, costs of care and services. The costs of care, and associated salaries as a component of care costs, increase at rates higher than inflation. The pursuer was at the outset of his working life as a skilled tradesman. He was a hard working and conscientious employee and would have progressed through his career attracting earnings at increasing rates of pay with earnings growth in excess of inflation. He is not in the same position as stock market investors. His needs for income and to meet the costs of his care mean he needs income and a portion of his capital every year. The rate of return currently set at 2.5% for general damages and earnings related damages is no longer appropriate as it is too high, does not provide the pursuer in this case with full compensation and will under-compensate him for his future wage loss claim and his future care costs claim and require him to take an investment risk to provide for future losses and expenses. In these circumstances a different rate of return should be taken into account. A rate of return for general damages of 0% and minus 1% for earnings related claims for future loss is more appropriate in this pursuer's case. Applying even a discount factor of 0.5% only to his claims for future loss of earnings and the cost of future care discloses that the current rate under compensates his claims under those headings by about 60% and 40% respectively."

Submissions of parties

The defenders

[8] Mr Hanretty, in moving to amend in terms of the defenders' minute and the pursuer's answers under deletion of the impugned averments, relied first on the consideration that if the averments were allowed to be incorporated into the record, determination of the litigation was likely to be delayed. It was thought that all issues other than the appropriateness of the discount rate could be dealt with at the eight day diet fixed for 21 November 2012 and subsequent days. If the discount rate was allowed to be put in issue, on the other hand, that would not be the case. The matter was complex, as could be demonstrated by consideration of the judgment of the Court of Appeal of Guernsey (Sumption, Jones and Martin JJA) given by Sumption JA in Helmot v Simon, 15 September 2010, unreported. It was not just a matter of looking at the current rates of return on Index Linked Gilt Securities ("ILGS") and comparing them with the rate which was assumed at the date of making the Order. Once the appropriateness of the discount rate was allowed to be put in issue a wide variety of considerations were brought into play. The pursuer's answers had been lodged on 14 August 2012. Some time had been lost due to counsel being away from business but after a consultation in September experts had been identified from four relevant disciplines: a forensic accountant, an investment analyst, an actuary and an economist. An appropriate stockbroker had yet to be identified. Reports had been instructed but were not yet available. Mr Hanretty did not go the distance of saying that the defenders could not be ready for proof on the discount rate issue by 21 November 2012 but it would be difficult. However, if a discount rate was to be included among the issues to be litigated, an eight day diet of proof would not be sufficient. The trial in Helmot v Simon (supra) (on all issues) had lasted for six weeks. Thus, by the matter of discount rate being brought forward (in what effectively was a minute of amendment at the instance of the pursuer) at a late stage, the defenders would be prejudiced in that the resolution of the litigation would be delayed.

[9] However, Mr Hanretty's more fundamental objection was that the impugned averments were clearly irrelevant and, as such, should not be allowed to be incorporated in the record. As from 8 February 2002 when the Order came into force, in determining the rate of return to be expected from investment of the sum awarded as damages (otherwise the discount rate), for future pecuniary loss in an action for personal injury, the court shall take into account the rate prescribed by the Scottish Ministers in the Order. That rate was 2.5%. Mr Hanretty accepted that the statutory formulation was not entirely without difficulty. Section 1(1) required the court to "take into account" the prescribed rate but where the prescribed rate "shall be" 2.5%, in cases where section 1(1) applied it was difficult to see what scope there was for determining a return on investment other than 2.5% over inflation, irrespective of the current realities of the market. Thus, in the generality of cases, the discount rate was to be taken as being 2.5%. If anything, that was underlined by the terms of section 1(2) which provides that section 1(1) shall not prevent the court taking a different rate of return into account if any party to the proceedings shows it to be more appropriate "in the case in question". Section 1(2) allows a departure from the prescribed discount rate but only where there was something about "the case in question" which made another rate "more appropriate". As a matter of pleading it was for the party founding on section 1(2) to aver what it was about the circumstances of the case in question which made it appropriate for a different discount rate to be adopted. Here the pursuer had failed to do that. All that Mr Hanretty had identified in the pursuer's averments which might bear on the matter were: "The pursuer was at the outset of his working life as a skilled tradesman. He was a hard working and conscientious employee and would have progressed in his career attracting earnings at increasing rates of pay with earnings growth in excess of inflation". That could be said in many cases but critically these averments provided no basis for departing from the discount rate which applied to the generality of cases. Mr Hanretty referred me to the speeches in the House of Lords in Wells v Wells [1999] 1 AC 345 with a view to reminding me of what had been the position prior to the making of the Order and the equivalent order made by the Lord Chancellor in respect of England and Wales, but also with a view to pointing to the weight attached to the value of certainty and Lord Hope's observation at 393F that once the power conferred by section 1(1) of the 1996 Act to fix a discount rate had been exercised, the timing of later adjustment should be left to the Lord Chancellor and the Secretary of State for Scotland (now the Scottish Ministers). In support of his construction of section 1(2) of the 1996 Act, Mr Hanretty also referred me to Warren v Northern General Hospital NHS Trust (No 2) [2000] 1 WLR 1404, Stuart-Smith LJ at paras 8 and 10; Warriner v Warriner [2002] 1 WLR 1703 and Cooke v United Bristol Health Care NHS Trust [2004] 1 WLR 251.

The pursuer

[10] In introducing her response to Mr Hanretty and confirming that the pursuer wished the impugned averments to be incorporated in the record as amended, Miss Bain explained that the pursuer sought to prove that the discount rate fixed by the Scottish Ministers was no longer appropriate. The route to doing so was through section 1(2). Whatever might be said about the value of certainty, if the pursuer could prove that change in economic circumstances since 2002 meant that an application at the discount rate fixed in terms of section 1(1) would produce an injustice then section 1(2) enabled the court to adopt a more appropriate rate. This was supported by what had been the approach of Dyson LJ in Warriner v Warriner supra at para 33 where he held that in deciding whether a different rate is more appropriate, the court must have regard to the reasons given by the Lord Chancellor when he fixed the rate (for England and Wales) in terms of section 1(1) at the figure he did. Consideration of these reasons indicates that in fixing the rate the Lord Chancellor had been very substantially influenced by the average return on ILGS over the previous three years. It followed that if the pursuer could show that the average rate of return on ILGS over the three years prior to proof had been materially less than the 2.46% (on an assumed inflation rate of 3%) calculated by the Lord Chancellor then the court could find it more appropriate to take into account a lower discount rate in that the evidential basis for the prescribed rate no longer existed. Miss Bain referred me to Helmot v Simon supra at paras 9 to 12 for a summary of how the Lord Chancellor had gone about fixing the rate and to paras 19 to 23 for the relevance of the Lord Chancellor's rate in circumstances where it is open to the court to adopt a different rate. The pursuer in the present case was a young man with significant deficits as a result of his injury. An application of the discount rate fixed by the Scottish Ministers in terms of section 1(1) of the 1996 Act would produce substantial injustice. It was to be borne in mind that, unlike in England, the Scottish courts did not have jurisdiction to make an award of damages which included provision for future periodical payments. The injustice to the pursuer which would arise by reason of him being undercompensated could and should be avoided by the adoption of a more appropriate rate in terms of section 1(2). Miss Bain did not accept that in order for the court to be able to exercise the jurisdiction conferred by section 1(2) "the case in question" must be shown to have characteristics not shared by all others in the generality of cases where a claim is made in respect of incremental loss extending into the future. Properly construed, section 1(2) does not provide that if the Scottish Ministers have considered a particular type of case when fixing the discount rate one was not entitled to argue, in a similar case, that another rate would be more appropriate. The matter could be tested by supposing that the Lord Chancellor or the Scottish Minister did not review the prescribed rate for 100 years. In these circumstances could it really be said that the court was powerless to consider whether a different rate might be more appropriate? The pursuer was entitled to attempt to persuade the court that it was more appropriate that his case be considered by reference to the current (rather than the historical) rate of return on ILGS. If section 1(2) was construed according to its natural meaning then the pursuer was permitted to do so. But if section 1(2) had to be construed by reference to the Lord Chancellor's reasons (which under reference to Petch and Foy v HM Advocate 2011 SCCR 199 at para 100, was not Miss Bain's preferred position) the pursuer was still permitted to do so in that the evidential basis for these reasons no longer existed.

Discussion

[11] This is an application at the instance of the defenders to be allowed to amend the pleadings. The relevant power is that conferred by Rule of Court 24.1. It is a discretionary power. No issue arises as to the exercise of that power except in relation to what I have described as the impugned averments. These averments are not found in the defender's minute of amendment but in the pursuer's answers. The defenders move that the impugned averments be not allowed to be incorporated in the record. They found on unfair prejudice consequent upon a new issue being introduced at a late stage and on fundamental irrelevancy.

[12] In my opinion there is no difference in principle as between the introduction of new averments by way of minute of amendment and allowing the introduction of new averments by way of answers to a Minute of Amendment. It may be that where averments are truly in answer then allowing their introduction will be seen as a necessary consequence of allowing the averments introduced by the Minute of Amendment. However where, as is common, a party takes an opportunity to improve his pleadings or to introduce new matters under the guise of answering a Minute of Amendment, these "answers" fall to be regarded as if they had appeared in a separate minute of amendment and therefore may be objected to on the same basis. In the event of such objection it becomes a matter for the court's discretion as to whether such answers will be allowed to form part of the pleadings. I see the impugned averments in this case as coming within this category. They seek to raise a discrete issue, that is whether it would be appropriate for the court to apply the discount rate fixed by the Scottish Ministers, which has not previously been part of the case. I took Miss Bain to accept this and equally to accept that similar considerations applied to averments sought to be introduced by way of answer as to any other averments sought to be introduced by amendment. Such considerations include the stage of the proceedings at which the amendment is proposed, any consequent difficulty to the other party in investigation and preparation and clear irrelevancy (see eg Bank of Scotland v Millward 1999 SLT 901 at 905L).

[13] The background to the contention which the pursuer now wishes to put forward is very fully rehearsed in the authorities to which I was referred. The most recent historical survey is that by Lord Hope in paras 10 to 25 of his opinion in Simon v Helmot [2012] UKPC 5, advising dismissal of the appeal from the Court of Appeal of Guernsey. However, for a concise exposition of the question as to how the element of future loss contained in a single lump sum payment of damages is to be arrived at, reference may be had to the judgment of Laws LJ in Cooke v United Bristol Health Care NHS Trust supra at paras 7 to 13. As appears from these accounts, it is uncontroversial that a pursuer or claimant should be fully compensated for his loss and damage and that includes the element of that loss and damage which relates to the future. Thus far, at least in Scotland, the mechanism for making compensation has been by means of the award of one lump sum payment. The lump sum is calculated by first determining the annual rate of loss and then, taking that as the multiplicand, applying a multiplier which is intended to reflect the period over which the loss is anticipated (typically the life expectancy of the pursuer) but also the income which investment of the lump sum may produce and the effects of future inflation. In theory, the lump sum would be drawn down to zero by, but not before, the end of the relevant period. Until relatively recently, the multiplier was usually determined by judicial intuition or, at least, the judge's "general feel for the case", albeit that this was taken to be informed by the assumption that a sum awarded in damages would, if invested, produce a real rate of return of between 4 and 5%: O'Brien's Curator Bonis v British Steel Plc 1991 SC 315 at 329 and 333. As is explained in O'Brien's Curator Bonis and the other cases to which I was referred, the assumed real rate of return on investment must be key to any calculation of the appropriate multiplier if the resultant lump sum of damages is adequately to compensate a pursuer. The higher the rate of return, the lower the multiplier, and vice versa. In Wells v Wells supra, in the absence of any rate having been prescribed in terms of section 1(1) of the 1996 Act, the House of Lords held that a lump sum of damages should be calculated on the basis of the return available on ILGS which, on the basis of a 12 month average, allowing for the incidence of tax, was taken to be 3%. When the Lord Chancellor, for England and Wales and the Scottish Ministers for Scotland, following the reasoning of the Lord Chancellor, prescribed a discount rate in 2002, they adopted the approach of making their calculation on the basis of the return available on ILGS but, for the reasons given, fixed the rate at 2.5%.

[14] It follows that the impugned averments are very relevant to the determination of an appropriate discount rate if the court can have regard to evidence led in support of them. It is sufficient to note the averments that:

"Adopting the methodology followed by the Lord Chancellor and the Scottish Ministers in 2001, and applying these to the financial conditions as at October 2012, a pursuer can only secure a net yield in ILGS of minus 0.25%."

Consideration of the judgment in Helmot v Simon supra merely goes to reinforce that conclusion. However, the judgment in Helmot v Simon was made in a jurisdiction where the Damages Act 1996 does not apply. Wells v Wells was decided before any rate had been prescribed in terms of section 1(1) of that Act. This makes a difference.

[15] As demonstrated by the judgment in Helmot v Simon supra, in the absence of a provision such as section 1 of the 1996 Act, the discount rate, that is the return to be expected from the investment of a lump sum is a question of fact. However, over a long period of years prior to the decision in Wells v Wells, in calculating damages for future loss courts proceeded upon the implicit irrebuttable presumption that the discount rate was of the order of 4 to 5%. In Wells that the discount rate was to be determined by the application of a presumption was made explicit when 3% was substituted as a "guideline". Wells was therefore an example of judicial legislation. For pragmatic reasons a matter of fact which might otherwise have had to be determined anew in every case, became subject to something of the nature of a rule of law. As Lord Lloyd explained (Wells v Wells supra at 375E) the solution arrived at by the House of Lords was intended to apply only until the Lord Chancellor exercised the power which had been conferred by section 1(1) of the 1996 Act. The Lord Chancellor did that in 2001 and the Scottish Ministers followed suit in February 2002. These were legislative acts, and appropriately so, given that the discount rate was being set for the generality of cases by reference, as it would appear from the Lord Chancellor's accompanying statement to a combination of quite complex factors with a component of social, financial and economic policy (cf the observation of Lord Scarman in relation to the problem of making allowance for future inflation in Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC 174 at 182F noted by Carnwath LJ:- Cooke v United Bristol Healthcare NHS Trust supra at para 50 and 56).

[16] Paragraph 3 of the Order legislates that the discount rate "shall be 2.5%". Whether or not I am correct in describing that as an irrebuttable presumption of fact (subject, of course, to the terms of section 1(2) of the 1996 Act) that statement is clearly intended to take the place of the pre-Wells implicit assumption that the discount rate was 4 to 5% and the Wells guideline figure of 3%. The rate prescribed by the Scottish Ministers applies to the generality of cases. I say "the generality of cases" rather than all cases because of the terms of section 1(2) which allows the court to take a different rate of return into account if a party to the proceedings shows it to be more appropriate "in the case in question". While making an order in terms of section 1(1) is a legislative act, making a decision by virtue of section 1(2) is a judicial act; it is making a decision of fact in a particular case by reference to the circumstances of that particular case. This is the point at which I would disagree with the submission advanced by Miss Bain. For Miss Bain, if consideration of a wide variety of circumstances, but particularly the current rate of return on ILGS, makes a discount rate other than 2.5% "more appropriate" then section 1(2) allows the court so to decide. According to Miss Bain, it matters not that the circumstances relied on by the party advocating a different discount rate apply equally to many or indeed all other cases. A different discount rate, on Miss Bain's approach can be more appropriate in "the case in question" even if, on the same reasoning, it would be more appropriate in every other conceivable case. I disagree. Miss Bain's construction fails, in my opinion, to give due weight to the words "in the case in question". These, to my mind, indicate that the jurisdiction conferred by section 1(2) is case specific. The general rule is prescribed by the Order made by the Scottish Ministers. That determines the discount rate to be applied unless a party can, in terms of section 1(2), show that in the circumstances of his particular case, another rate is more appropriate.

[17] I am reinforced in my construction of section 1(2) by what I would see as the uncontroversial purpose of section 1(1) and (3). That is to fix one rate or, alternatively, a number of different rates, which will be certain and which will achieve, in the opinion of the Scottish Ministers, a broadly just outcome without the need to litigate the issue of discount rate anew in every case. The purposes of certainty and avoidance of litigation would be defeated by an interpretation of section 1(2) which meant that the discount rate was up for reconsideration whenever a party took the view that he could show that one or other of the factors relied on by the Lord Chancellor (as adopted by the Scottish Ministers) when making the section 1(1) order was, for whatever reason, less than robust. Here Miss Bain is entitled to say that she is concentrating on one factor, the rate of return on ILGS, in respect of which she can demonstrate a clear and material change since 2002, but if her construction were correct she would be entitled to invite a reconsideration of the whole issue of the appropriate discount rate irrespective as to whether the factors relied on by the Lord Chancellor had changed or not. It is true that the Lord Chancellor chose to explain the reasoning behind his decision to fix the rate at 2.5% by laying a relatively full statement in the libraries of both Houses of Parliament. The Scottish Ministers published their own executive note but expressly adopted the Lord Chancellor's reasoning in that document. There is therefore material upon which a judgment may be made as to the soundness of the decision which was made in 2001 and its applicability to what may be seen as the rather different economic conditions of 2012 but the fact that the Lord Chancellor chose to give reasons, which the Scottish Ministers adopted, does not detract from the fact that it was for the Lord Chancellor and the Scottish Ministers to fix the rate, not anyone else, and that in doing so they were enacting a piece of legislation for reasons of policy. The discount rate was not stated to be 2.5% for as long as the factors identified in the Lord Chancellor's statement continued to apply. The rate was simply stated as being 2.5%. There is power to change the rate from time to time. It would appear from the defenders' averments (and the Scottish Government website) that this is currently under consideration, but as yet the rate has not been changed from what was fixed for Scotland in February 2002. The inevitable conclusion is that for the time being Scottish Ministers intend that the discount rate for the generality of cases should be 2.5%. The pursuer does not attempt to aver himself out of the generality of cases. Therefore, in my opinion, the impugned averments are irrelevant. Whether they would be irrelevant in the event of the pursuer applying for judicial review of the Scottish Minister's failure to exercise the section 1(1) power in the face of the economic changes that have supervened since 2002 is not a matter that I require to consider.

[18] I am further reinforced in my construction of section 1(2) of the 1996 Act by consideration of the decisions of the English Court of Appeal to which I was referred. It is true, as Miss Bain pointed out, that Warren was decided before the Lord Chancellor prescribed a discount rate and that Warriner and Cooke were decided shortly afterwards, but I do not see that that is critical. In Warren v Northern General Hospital NHS Trust (No 2) supra, an attempt was made to persuade the court to depart from the then guideline of 3% which had been determined in Wells. The Court of Appeal concluded that it was not free to depart from an opinion so clearly expressed by the majority of the House. Paragraph 8 of the judgment of the court is in the following terms:

"It seems clear that once the Lord Chancellor sets a rate, or one or more rates, the courts will apply that to the generality of cases, subject to the power of the court in a particular case, for good reason, applying a different rate."

That remark was obiter but I respectfully agree with it as summarising the effect of section 1(1) and (2) of the 1996 Act.

[19] An analogy can be drawn as between the procedural position in Warriner v Warriner supra and the present case. In Warriner a challenge was made to a decision by a judge at a case management conference allowing a claimant to lead evidence to the effect that the 2.5% discount rate prescribed by the Lord Chancellor was unfair to claimants who were awarded large sums of damages which were expected to compensate them for future losses over a long period of time. The rate of 2% was proposed as more appropriate. The appeal was allowed because, as appears in the rubric, where a court had to decide under section 1(2) of the 1996 Act whether a different discount rate was "more appropriate in the case in question" than the rate prescribed pursuant to section 1(1), it had to have regard to the Lord Chancellor's published reasons for fixing the rate as he did, and only if the case came into a category which the Lord Chancellor had not considered or had special features or circumstances which were material to the choice of rate and were shown from an examination of the published reasons not to have been taken into account by the Lord Chancellor might a different rate be more appropriate. Dyson LJ gave a judgment with which both other members of the court agreed. It included the following passage:

"33. We are told that this is the first time that this court has had to consider the 1996 Act, and that guidance is needed as to the meaning of "more appropriate in the case in question" in section 1(2). The phrase "more appropriate", if considered in isolation, is open-textured. It prompts the question: by what criteria is the court to judge whether a different rate of return is more appropriate in the case in question? But the phrase must be interpreted in its proper context which is that the Lord Chancellor has prescribed a rate pursuant to section 1(1) and has given very detailed reasons explaining what factors he took into account in arriving at the rate that he has prescribed. I would hold that in deciding whether a different rate is more appropriate in the case in question, the court must have regard to those reasons. If the case in question falls into a category that the Lord Chancellor did not take into account and/or there are special features of the case which (a) are material to the choice of rate of return and (b) are shown from an examination of the Lord Chancellor's reasons not to have been taken into account, then a different rate of return may be "more appropriate".

34. Miss Cox criticised the Lord Chancellor for using the phrase "exceptional circumstances" at the end of his reasons when referring to section 1(2) of the 1996 Act. So did Lord Brennan in the debate in the House of Lords on 29 November 2001 (Hansard (HL Debates), col 532) when an opposition motion that the order be revoked and a rate of 2% be substituted was rejected. It is true that the phrase "exceptional circumstances" does not appear in the Act. But, in my judgment, the Lord Chancellor must have meant by "exceptional circumstances" no more than special circumstances not taken into account by him in fixing the rate of 2.5%. If "exceptional circumstances" is understood in that way the phrase is, in my view, a helpful explanation of the meaning of the subsection.

35. If section 1(2) is interpreted in this way, it is likely that it will be in comparatively few cases that section 1(2) will be successfully invoked, at any rate as long as the 2.5% rate and the Lord Chancellor's reasons for it continue to apply. The construction that I have given to section 1(2) seems to me to accord with and promote the policy considerations to which I have already referred. A generous and open-ended interpretation of section 1(2) would undermine the policy that was clearly articulated by the Lord Chancellor in his reasons, and by the courts before that."

Both Mr Hanretty and Miss Bain referred to this passage and both submitted that it supported their respective positions, although Miss Bain did express a reservation, under reference to what Lord Emslie had said in Petch and Foy v HM Advocate supra at para 100, as to the use which might be made of the Lord Chancellor's statement in construing section 1(1) of the 1996 Act.

[19] Despite the strongly persuasive authority provided by the judgment of the Court of Appeal in Warriner, I admit to an initial resistance to the notion that a statement made by the Lord Chancellor subsequent to his making the order on 25 June 2011 might assist in the construction of a subsection of an Act of Parliament which came into force on 24 July 1996 but further consideration has removed that resistance. In a case to which section 1(2) applies, the court has to decide whether a discount rate other than that prescribed pursuant to section 1(1) is "more appropriate". That requires the court to come to a view as to what are the cases in respect of which the prescribed rate is appropriate. The terms of the Order, taken on its own, do not inform that question. The Order sets out the rate but does nothing more. However, the statement explaining the Lord Chancellor's reasoning does allow a view to be taken as to what sort of cases were in his contemplation and what therefore were not in his contemplation. If "the case in question" is one which can be shown not to have been in the Lord Chancellor's contemplation by reference to the considerations mentioned by Dyson LJ at para 33 of his judgment in Warriner then, but only then, can a party, by virtue of section 1(2), attempt to show that a different rate would be more appropriate in the particular case before the court. Miss Bain argued that if it is clear from the reasons that the Lord Chancellor assumed a particular rate of return on ILGS and if a party can show that the current rate was different then, having regard to the Lord Chancellor's reasons, as Dyson LJ said that the court must do, the court might conclude that there was no evidential basis for the prescribed rate and therefore that it should be departed from in favour of a more appropriate alternative. I disagree. To do that would be, to use the language of Laws LJ in Cooke v United Bristol Health Care NHS Trust supra at para 32, to subvert or undermine the prescribed rate which, for the reasons given there by Laws LJ, the court has no jurisdiction to do.

[21] It is accordingly my opinion that the impugned averments are clearly irrelevant to support a case that, having regard to section 1(2) of the 1996 Act, a different rate of return is more appropriate than the prescribed rate.

Conclusion

[22] Because I consider the impugned averments to be irrelevant, I shall grant the defender's motion and open up the record and allow it to be amended in terms of the defenders' minute of amendment and the pursuer's answers, subject to the deletion of the impugned averments. Had I taken a different view on the relevancy of the averments, I would have seen force in Mr Hanretty's contention that to allow these amendments to be incorporated in the record would almost inevitably mean that the proof currently fixed for 21 November 2012 could not be completed within the eight days allowed. I would also have been sympathetic to the view that the defenders may well suffer prejudice in not having sufficient time to marshall their response to the pursuer's argument on the discount rate. However, that would not have persuaded me to delete the impugned averments. I would have allowed the amendment including the impugned averments. It would seem to me that the defenders' concerns could adequately be met, either by simply discharging the proof or taking discount rate as a discrete issue to be addressed (if need be) at a diet subsequent to the diet fixed for 21 November 2012.