Russell v HSE – Court of Appeal upholds High Court decision regarding the real rate of return
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On 5 November 2015, the Court of Appeal delivered its much anticipated judgment in Russell v HSE(1), a case which considered the “real rate of return” discount which would be applied to an injured plaintiff’s future care costs. The HSE had appealed the High Court decision(2) of Mr Justice Cross in which he held the real rate of return discount to be applied in respect of the plaintiff’s future care costs should be reduced from 3% to 1%, in light of the prevailing economic climate. The Appeal was heard by a three-judge Court of Appeal in July 2015. Judgment was delivered by Ms Justice Irvine and upheld the High Court decision. It is understood that the Court of Appeal’s decision is to be appealed by the HSE to the Supreme Court.
In coming to its decision, the Court of Appeal decided that the plaintiff, a nine year old boy who suffered brain damage at birth, was entitled to have his damages calculated on the basis that the lump sum award could be invested in the most risk averse manner reasonably available. The Court also held that public policy has no part to play in the assessment of damages for injured plaintiffs. On that basis, the Court must consider the calculation of a future financial loss to the plaintiff, regardless of the economic consequences that the award may have on the defendant, the insurance industry or the public finances.
Ms Justice Irvine also used the opportunity when delivering judgment to remind the Government that a system to allow for periodic payment orders(3) was long overdue and must now be implemented. The Court emphasised that Ireland must catch up with the jurisdictions who have addressed this “fundamentally flawed and unjust system” by the introduction of legislation to permit awards to be made by way of periodic payment orders. The Court noted that such legislation “would have removed all of the risks central to these proceedings”.
In light of this judgment, when quantifying future losses in personal injuries actions, future care costs may now only be discounted by 1% and all other future pecuniary losses by 1.5%. The impact of the decision is that underwriters will now be ordered to pay out higher lump sum damages awards in a wide range of injuries actions in which there are significant claims for future care and pecuniary costs. As a result, there is likely to be a knock on effect which will see underwriters having to increase premiums to cover the upward reserves that will have to be maintained.
(1) (2015) IECA 236
(2) Russell v HSE (2014) IEHC 590
(3) For further information on periodic payment orders please read a recent Matheson article - Periodic payment orders
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