Page v Sheerness Steel Company Ltd (and consolidated appeals: Wells v Wells; Thomas v Brighton Health Authority)

The appropriate discount rate for assessing lump sums for future pecuniary loss should, as a general guideline, be tied to the market return on index-linked government securities rather than an assumed 4–5% return from a mixed equities/gilts portfolio.

In practice the House recommended a net guideline rate of about 3% pending any prescription by the Lord Chancellor. The court may apply flexibility in exceptional cases, for example to reflect unusual tax positions.

These conjoined appeals raise a common legal question about the correct method for calculating lump sum awards for future loss of earnings and future care. The appellants suffered very serious injuries and the trial judges had used rates based on index-linked government securities (I.L.G.S.). The Court of Appeal reverted to the traditional 4–5% discount rate based on a mixed investment assumption. The House of Lords was asked to decide whether the conventional approach should be retained or whether the discount should be based on the realistic, inflation-protected return available from I.L.G.S.

The House heard three appeals: Page (work accident), Wells (road traffic brain injury) and Thomas (perinatal injury). The central issue was whether a notional prudent investment for the purposes of the annuity calculation should be treated as I.L.G.S. (lower, inflation-protected rate) or a diversified equities-based portfolio (higher rate).

1. Disposition: The House allowed the appeals and concluded that the appropriate general discount rate for lump-sum awards for future pecuniary loss should be based on the return from index-linked government securities (I.L.G.S.). The House proposed a net guideline rate of about 3% pending any rate prescribed under Damages Act 1996 s.1.
2. Leading reasoning (per Lord Lloyd of Berwick): The annuity method requires an assumption about the safe market return which protects the award against inflation. I.L.G.S. provide a practically risk-free, inflation-protected return when held to maturity and are therefore the best guide to the discount rate for plaintiffs who require secure, ongoing income to meet fixed outgoings such as care. The plaintiff is not to be treated as obliged to adopt an equities-heavy portfolio; that assumption ignores the particular vulnerabilities of injured claimants who must draw down income and capital yearly.
3. Concurring opinions: Lords Steyn, Hope, Clyde and Hutton gave speeches supporting the same outcome. Each emphasised (a) the changed economic landscape since earlier authorities because of the availability of I.L.G.S., (b) the objective of providing full compensation, and (c) the prudence of adopting a single, workable guideline (about 3%) until the Lord Chancellor acts under Damages Act 1996 s.1.
4. Subsidiary legal findings: (a) Where life expectancy is agreed by medical evidence, courts should not apply an arbitrary further whole-life discount (James Thomas point). (b) For calculation of additional housing costs (Roberts v Johnstone head), the conventionally appropriate net rate should follow the same I.L.G.S.-based guideline (the House adopted 3% net). (c) Courts should scrutinise multiplicands closely; reductions in discount increase the multiplier and therefore require vigilance on the annual cost items.
5. Practical guidance: The House advised calculating a net rate from recent market yields on I.L.G.S., expressed to the nearest 0.5% for stability. Exceptional tax circumstances may justify adjustments. The Lord Chancellor's s.1 power should be used to prescribe rates going forward.
6. Orders: Appeals allowed. The three cases were remitted for recalculation of awards on the indicated basis (net 3% guideline), with other adjustments indicated in the speeches (for example restoring certain multiplicands and life expectancy findings where appropriate).

• Court of Appeal: [1997] 1 W.L.R. 652 (appeals allowed in part by substituting conventional 4–5% discount rate)
• House of Lords: Allowed appeals on principal point and remitted for recalculation on I.L.G.S.-based guideline (see [1998] UKHL 27).