Ogden Tables and Discount Rates What are the problems with Ogden 7?

1. Ogden Tables and Discount RatesWhat are the problems with Ogden 7? Robin de Wilde, Q.C., 218 Strand Chambers and Clerksroom

2. A friendly hint People have now-a-days got a strange opinion that everything should be taught by lectures. Now, I cannot see that lectures can do so much as reading the books from which the lectures are taken. Samuel Johnson

3. Thomas Love Peacock The fancy of lords and gentlemen to lecture everybody on everything, everywhere, seems to me something very comical… I shall be glad to be cured of my unbecoming propensity to laugh, whenever I hear of a lecturing lord.

4. New readers start here

5. The Aim: Wells v Wells Lord Lloyd • "It is of the nature of a lump sum payment that it may, in respect of future pecuniary loss, prove to be either too little or too much. So far as the multiplier is concerned, the plaintiff may die the next day, or he may live beyond his normal expectation of life. So far as the multiplicand is concerned, the cost of future care may exceed everyone's best estimate… But these uncertainties do not affect the basic principle…

6. Wells v Wells [2] • “The purpose of the award is to put the plaintiff in the same position, financially, as if he had not been injured. The sum should be calculated as accurately as possible, making just allowance, where this is appropriate, for contingencies. But once the calculation is done, there is no justification for imposing an artificial cap on the multiplier. There is no room for a judicial scaling down."

7. The problem: inflation @ 3%:a wheelchair costing £1,000

8. A balancing act • So one wheelchair a year for five years costs [£1000 + £1030 + £1060 + £1093 + £1126] = £5,309 • If you don’t invest your money, you are £309 our of pocket • If you invest @ 5% after tax you are £227 in pocket

9. The solution • An investment that is linked to inflation • Index-Linked Government stock • The theory: That you can invest in ILGS, which will outstrip inflation and provide a fund that will last as long as you want. • Until 1999 the discount rate was 4½% • What does that actually mean?

10. Damages Act 1996, s.1(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… 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.

11. Setting the rate • 25th June 2001: rate set at 2½% • Loud protests at the Chancellor’s reasoning • Threats of judicial review • 27th July 2001: rate set at 2½% for entirely different but equally valid reasons

12. July 1996 – Wells v Wells – 3%

13. July 2001 –rate set at 2½%

14. April 2010 – PIBA Conference

15. September 2011

16. The other problem – mortality

17. Sir Michael Ogden

18. The wit and wisdom of Sir Michael Ogden “When it comes to the explanatory notes we must make sure that they are readily comprehensible. We must assume the most stupid circuit judge in the country and before him are the two most stupid advocates. All three of them must be able to understand what we are saying”. Ogden Tables, first edition

19. An exponential rise:£20,000 for a man aged 35 (Ogden 7)

20. Or to put that another way: • From 2½% to 2% is a 12% jump • From 2½% to 1½% is a 26%jump • From 2½% to1% is a 45% jump • From 2½% to ½% is a 67% jump • From 2½% to0% is a 94%jump

21. Which is why actuaries are insomniacs

23. The contingencies • Age • Sex • Level of education • Able-bodied or disabled? • In work or out of work?

24. Contingencies other than Mortality • Use of Tables could lead to very significant claims for relatively minor disability. • Courts and litigators have not slavishly followed the tables – see the following cases.

25. The original tribunal calculated R’s compensation first by reference to Table 9 of the Ogden tables [16.92]. • Table B gave a discount factor of 0.57, which reduced the multiplier to 9.64. • Keith J: in employment cases the Ogden tables are a starting point only since they do not take into account all the contingencies which could affect the multiplier. Rudd v Eagle Place [2009] EAT Keith J

26. Male: 18 at accident, 22 at trial • Fractured scaphoid; difficulties using his wrist, underwent surgery. Probably further surgery. Might require a full wrist fusion. • A pre-existing deformity to his right hand was not considered to be a disability. • Problems: unable to open jars or carry heavy bags; difficult to use a knife. • Future loss of earnings: £180,500 (calculated on an Ogden 6 basis). Proberts v Hoffman [2010] – settlement

27. Fatal Accidents Act claim - settlement approved • Deceased aged 31; widow and two children (7 and 15). • Claimant said that Deceased’s income would have risen in real terms. The judge found that this was “a matter of aspiration rather than expectation” and that many incidents of life and difficulties were likely to intervene over the years his studies required, but there was a significant chance that his earning potential would have increased and that an arithmetical approach should be a starting point. • Accepted that it was appropriate to rely on the Ogden Tables, Table A. Wight v Cummings [2009]

28. Discount factor of 0.91 Court rejected Claimant’s argument that there should be a discount factor of 0.96 to reflect the security and stability of X's civil service employment and his intended teaching career. Deduction from C's part-time earnings to take account of the fact that her work was less certain until her youngest child was 16 years old. Wightthe Ogden Considerations

29. Male, aged 31 at date of accident and 36 at trial • Sustained knee and back injuries in accident. All injuries resolved within two years of the accident. Off work (part-time job) for two weeks. An unrelated degenerative condition made him permanently unable to carry out full time work, gardening, DIY, housework or clean his car. • Background to damages: C claimed future loss of earnings on the basis that he was disabled within Ogden 6. • This claim dismissed by the court; C did not meet the criteria. McNair v Proudman [2010]

30. WATSON v CAKEBREAD ROBEY LTD (2009) • Live mesothelioma claim • Claimant aged 57 at the date of assessment • Life expectation of nine months • “Lost years” claim • Multiplicand of £31,439 • Table A discount factor = 0.9. Factors: • Period involved was 7.25 years • Claimant was self employed and slightly more vulnerable than if he were in secure employment Watson v Cakebread Robey [2009]Satinder Hunjan QC

31. Life expectancy had been reduced by 6.5 years • Claimant: the court should use table 28 of the Ogden tables to determine the life multiplier in order to avoid double counting factors that would reduce his life expectancy. • The Defendant argued that the court should use Table 1 of the Ogden tables. 28 only applied where reduced life expectation can be established • The medical evidence did not decide how long S would live, but by how much his pre-morbid statistical life expectancy had been shortened. • There was therefore no double counting by use of Table 1. Smith v LC Window Fashions [2009]Cranston J

32. “In my judgment Table 1 is the appropriate table to determine the multiplier. Table 1 sets out reasonable estimates of the future mortality likely to be experienced by average members of the male population. It is a statistical expectation of life figure and as such cannot tell how long any particular person will live. Table 28 is a table to be used where pecuniary loss is to be valued for a fixed period. It makes no allowance for mortality or other contingency.” Smith continued

33. Same position as in Smith • Where, in a personal injury claim, the judge had not decided the claimant's overall expectation of life, but had only decided by how much his pre-morbid statistical life expectancy had been shortened, it was appropriate to use table 1 of the Ogden tables rather than table 28 to calculate the multiplier. Crofts v Murton [2008]Judge Collender QC

34. Male Claimant: 40 at accident, 44 at trial, fractured both wrists and his right femur, injured both elbows and exacerbated a pre-existing problem with his right knee. • The injuries limited E’s walking range; he could not help fully with housework and had to hire builders to complete building and maintenance work on his house. • Able to continue as electrical engineer for the same employer. However, he had also operated his own electrical contracting business and used the profits made to supplement his salary. Following the accident he had to wind-up his business and sub-contract the outstanding work he was unable to complete. Ogden v Smith awardsEdwards v Worman [2008]

35. E argued: • Given the economic climate and • Because his employer had already enquired about sub-contracting electrical work to an identified third party– • That he was “disabled” within the meaning of the Disability Discrimination Act 1995 and • That there was a real risk that he would suffer a disadvantage on the open labour market, • His damages should be valued on an Ogden 6 basis, alternatively • A substantial Smith v Manchester award Edwards continued

36. Defendant argued • C was not entitled to those damages • He remained in his pre-accident employment which was as secure as it could be • He was provided with assistance in undertaking physical aspects of his work. Edwards continued

37. Held • There was a real risk of unemployment • E's injuries did not yet render him disabled within the meaning of the Act – but he would fall within the definition of being disabled when he underwent fusion of his wrists. • Not Ogden 6, but a Smith award of two years' net salary. Edwards continued

38. “It seems to me that lump sum awards under either Smith v Manchester or Blamire are inappropriate in the present case. A Smith v Manchester award is to compensate a claimant in circumstances where he has not lost his present job (and there is no immediate reason to believe that he might) but, if he were to do so in the future, he would suffer a disability on the labour market as a result of his injuries.” Conner v Bradman [2]

39. Conner v Bradman [3] “That is not this case. The Claimant is going to have a knee replacement operation in the next few months which means that he can no longer continue his employment with Saab. He is therefore definitely going to suffer a loss of future earnings, for the reasons explained above. A Smith v Manchester award is inappropriate in such circumstances.”

40. “Likewise a Blamire award is also inappropriate in the present case. That is a lump sum award necessitated by uncertainties as to the nature, scope and extent of any future loss of earnings. None of those uncertainties exist in the present case. The Claimant is going to work as a taxi driver because he can no longer work as a mechanic, and the Claimant will suffer a loss as a result of this change of job, for the reasons explained above.” Conner v Bradman [4]

41. Ogden 7

42. Will the discount rate change?

43. 10th November 2010 Lord Chancellor agrees PI discount rate review Agreement by the Lord Chancellor to review the discount rate, after increasing pressure from lawyers, has been welcomed by the Association of Personal Injury Lawyers (APIL).

44. Lord Chancellor agrees PI discount rate review Agreement by the Lord Chancellor to review the discount rate, after increasing pressure from lawyers, has been welcomed by the Association of Personal Injury Lawyers (APIL). Muiris Lyons: “ For years now, injured people have been undercompensated because of the previous Government’s failure to review the discount rate in light of economic changes,”

46. 1st April 2011

47. 1st April 2011 Muiris Lyons: “Over the last three years the average gross yield has been less than 1% … When the current Lord Chancellor did not respond to our request for a review, we had little option left but to indicate that we would judicially review the matter.”

48. The discount rate is a matter for the Lord Chancellor under the Act. • It is not a matter for the Ogden Working Party. • However another case Helmot v. Simon was heard in the Guernsey Court of Appeal, where there is no Damages Act 1996 and no Periodical Payments Order provision. • Evidence heard from an Actuary, a Forensic Accountant and an Economist.

49. A Startling Result! • Increased a £9.5 million award to a £14.25 million award reflecting local circumstances and the proper sum under a lump sum system. • So the problems are acute! • We have known the because of the fall in the value of the indices there was and is an advantage in having a Thompstone Award. • Chinu Patel, an Actuary, had shown this and it had been set out in Facts & Figures 2008/9.

50. What does that mean? • Increase in the Award of 50%. • Market forces ought to determine the discount rate. • The annuity rate is one indicator - the market • The Bank of England Interest Rate is another • We all know that the discount rate is wrong • Why is the Government delaying? • Government pays out a lot of damages • A Consultation Exercise due - Failed JR 16.8.2011