Page v. Sheerness Steel Company Ltd

The House considered the correct method for calculating lump sum damages for future pecuniary loss (loss of future earnings and the cost of future care) where index-linked government stock is available. The court reaffirmed that the objective is full compensation and that the multiplier/multiplicand (annuity) approach should be used.

The House held that where a safe, inflation‑protected investment (index‑linked government stock) is available the lump sum should be calculated by reference to the return on such stock (subject to a tax allowance), unless special features of a case require otherwise. In the appeals the House adopted a guideline net discount rate of 3% for general use until the Lord Chancellor prescribes a rate under section 1 of the Damages Act 1996.

Three consolidated appeals concerned awards for very serious, lifelong personal injuries (Wells, Thomas and Page). Each first instance judge had calculated future loss by applying a relatively low discount rate based on the return on index‑linked government securities (I.L.G.S.); the Court of Appeal substituted the conventional higher rate (4–4.5%) associated with a mixed equities/gilts portfolio, substantially reducing the awards. Negligence was admitted in all cases.

• Nature of the claims: lump sum damages sought for future loss of earnings and the cost of future care.
• Procedural posture: appeals to the House of Lords from the Court of Appeal (see Court of Appeal judgment [1997] 1 WLR 652).
• Issues framed: (i) whether lump sums should be calculated by reference to the return on index‑linked government stock or by reference to returns on a diversified portfolio (equities/gilts); (ii) appropriate net discount rate to be applied; (iii) ancillary questions such as application of judicial discounts to agreed life expectancy and the rate for cost of additional accommodation (Roberts v Johnstone head).

The House analysed the annuity approach and the practical availability of I.L.G.S., considered prior authorities (including Lim Poh Choo, Cookson and Wright) and reviewed the commentary (Ogden working party, Law Commission). The court rejected the assumption that an injured plaintiff must be treated as an "ordinary investor" obliged to accept equity risk. Because plaintiffs often require reliable, year‑by‑year income to meet fixed care costs, the availability of a low‑risk, inflation‑protected investment means the discount should reflect the market rate for I.L.G.S., after a realistic allowance for tax.

The House concluded that a net rate of 3% was an appropriate guideline for the appeals then before it (derived from recent average gross yields on I.L.G.S. less a realistic tax allowance), that section 1 of the Damages Act 1996 empowers the Lord Chancellor to prescribe rates going forward, and that the three appeals should be allowed so that the awards be recalculated on the appropriate basis. The court also decided ancillary points: no general judicial discount should be applied to an agreed life expectancy multiplier; the Roberts v Johnstone "going rate" for additional housing costs should be aligned with the same 3% net rate.

Appeal allowed. The House held that lump sum awards for future pecuniary loss should, as a general guideline, be calculated by reference to the return on index‑linked government stock when that provides a practicable inflation‑protected investment; a net rate of 3% was proposed for general use in the present appeals (subject to Lord Chancellor prescription under section 1 of the Damages Act 1996). The court restored or adjusted first instance figures where the Court of Appeal had applied the conventional higher rate, and resolved related subsidiary issues (life expectancy multipliers and Roberts v Johnstone calculations) in accordance with that approach.

Appeals from the Court of Appeal (reported at [1997] 1 WLR 652) to the House of Lords. The House allowed the appeals and gave guidance on discounting future pecuniary losses and the use of index‑linked government stock as the basis for the multiplier.