The discount rate in transition

Published: 04/03/2019 | News

By Peter Savory, Pupil Barrister

The discount rate review, instituted as part of the Civil Liability Act 2018 (see Amelia Highnam’s article titled ‘Civil Liability Act 2018 is passed‘), has already closed its initial consultation period. Any resulting change in the rate is required to be announced no later than 6th August 2019. But what of cases that straddle a rate change, whether because the rate change is between trial and handing down of judgment or, potentially more difficult, a first instance judgment was at one rate and a subsequent appeal at another?

Statute is silent on how courts and lawyers are to address this question. The 2017 change, legislated for in the Damages (Personal Injury) Order 2017, offers no transition provisions. The accompanying explanatory memorandum is also silent. The latter does however note “This power has previously been exercised only once, in 2001 (see the Damages (Personal Injury) Order 2001 (S.I. 2001/2301)). Before this time the rate was set by the courts themselves.” Moving from a positive to a negative rate in 2017 (and it is widely thought that the next change will reverse this) gave both claimants and insurers considerable pause.

The Damages Act 1996 provides for a challenge to the discount rate at s.1(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 is it more appropriate in the case in question.

However in Warriner v Warriner [2002] EWCA Civ 81, heard immediately after the 2001 rate change, an application to introduce actuarial evidence of a different rate was rejected, it being held it would only be “very exceptional” cases to which the provision could apply.

Marsh v Ministry of Justice [2017] EWHC 1040 (QB) tackled the discount rate changing between trial and the handing down of judgment and also heard arguments as to a delay in trial, it being suggested the losses having arisen during a positive discount rate period was important. A decision was sought under the Damages Act provisions. It was held that the rate that applied to damages was that applicable at hand-down, in other words the new negative discount rate: “The application of the new rate is simply the operation of law. It is no more serendipitous than the fact that the old rate pertained for many years to the benefit of defendants generally.”

The Judicial Committee of the Privy Council recently handed down judgment in Cadet’s Car Rentals v Pinder [2019] UKPC 4, a case primarily concerning the correct use of the Ogden Tables (three different courts produced three different calculations of loss). On appeal from the Bahamas, where the matter had been heard twice whilst the discount rate was 2.5%, it came before the Board in October 2018 under the latest rate. Noting in their judgment that the lower courts viewed the Ogden Tables as persuasive only and suggesting that future consideration may wish to be given to locally derived actuarial tables, nevertheless the Board made their appellate calculations based on the ‘old’ 2.5% rate. Perhaps surprisingly no mention was made in oral submissions to the Board of the latest negative discount rate, the judgment simply noting the change without further comment. Whilst non-binding, Pinder would appear to provide support for the contention that appeals post a discount rate change are to be decided at the rate which pertained at the date of the original trial.