CASE NOTE: LHS v First-Tier Tribunal & CICA Judicial Review before Mr Justice Jay – Judgment 21st April 2015

Mon, 18 May 2015

Adam Farrer, member of No5 Chambers, was led by James Eadie QC (Blackstone Chambers) acting for the Criminal Injuries Compensation Authority (“CICA") (instructed by Treasury Solicitor) in relation to the Claimant’s challenge to the correct discount rate to be applied to future losses under the 1990 Criminal Injuries Compensation Scheme.  Laura Begley and Grahame Aldous QC of 9 Gough Square acted for the Claimant.  An order was made anonymising the Claimant’s identity.

The sad background to the case is that in 1992 when LHS was 3 years old he suffered a severe brain injury as a result of drinking a quantity of methadone.  He was left significantly disabled in terms of his physical, neurological and neuropsychiatric condition.  As a result he requires 24-hour care and supervision and will do so for the rest of his life.  His life expectancy is to the age of 85. 

In March 1993 an application was made to the CICA for compensation under the 1990 Scheme.  In March 2012, the First Tier Tribunal assessed the Claimant’s award in the sum of £5.2 million. However, the Claimant challenged the appropriate discount rate to be applied to future loss multipliers.   The award of £5.2 million was assessed on the basis of a 2.5% discount rate, with the discount rate issue being adjourned to be heard in September 2012 (after the Privy Council’s decision in Simon v Helmot (2012) UKPC 5).  This issue had been raised by a number of applicants in other similar high value CICA pre-tariff cases.  The application was effectively a test case to determine the correct discount rate for the outstanding pre-tariff CICA cases under the 1990 Scheme. 

The Claimant relied on expert actuarial evidence in relation to the correct discount rate to be applied. The Claimant’s expert was of the opinion that the Lord Chancellor’s current 2.5% rate would not achieve full compensation for the applicant in that the award would be exhausted by his 48th birthday.  Rather, due to the prevailing economic conditions the discount rate should be:

a)      0.0% for categories of loss that are likely to go up in line with UK retail price inflation, such as items of equipment to be purchased; and

b)      Minus 1.5% for losses likely to go up with earnings, including the costs of employing personal carers. 

If this argument succeeded the effect of applying these rates on the award of £5.2 would be to increase it to over £16 million.  The Defendant did not obtain expert evidence in relation to what the appropriate rate should be in the event that the Lord Chancellor’s rate did not apply.

The issue in the case turned on the correct interpretation of paragraph 12 of the 1990 Scheme.  This provides that; “Subject to the other provisions of this Scheme, compensation will be assessed on the basis of common law damages and will normally take the form of a lump sum payment…”

The Claimant relied on the decision in Simon v Helmot (2012) UKPC5, where the Privy Council held that because the Damages Act 1996 did not apply in Guernsey it was necessary to apply the common law principle of full compensation and set a discount rate based on the available expert evidence.  In this case this resulted in discount rates of 0.5% for future losses that were not earnings related and -1.5% for earnings related future losses.

In September 2012 the First Tier Tribunal rejected the Claimant’s argument. It accepted the CICA’s arguments that the correct interpretation of paragraph 12 of the 1990 Scheme (“compensation will be assessed on the basis of common law damages…”) was that the FTT should seek to follow the general principles of compensation used by the courts to quantify pecuniary and non-pecuniary damages so as to provide broad equivalence to rather than identity with quantification of damages recoverable in a personal injury claim before a civil court.  The FTT held that custom and practice in CICA cases included the adoption of the Lord Chancellor’s discount rate.  Other relevant factors were legal certainty, fairness to applicants who had concluded their claims and the fact that the 1990 Scheme was an ex gratia compensation scheme funded by the public. 

The Claimant challenged the FTT decision and Mr Justice Collins granted permission for the judicial review proceedings. 

The case was heard by Mr Justice Jay on 27th March 2015.  Judgment was given on 21st April 2015.  Mr Aldous QC argued on behalf of the Claimant that the FTT’s decision as to the interpretation of paragraph 12 of the 1990 Scheme was irrational and wrong in law.  The Claimant argued (in summary based on the principles of Simon v Helmot) that as the Damages Act 1996 does not apply to the 1990 Scheme the Lord Chancellor’s 2.5% discount is irrelevant.  In the absence of the Lord Chancellor’s rate the FTT must look to the common law to determine the discount rate.  The common law requires evidence to determine the rate and the Claimant’s expert evidence was unchallenged as to the appropriate rates to be applied in this case.  It was argued that to determine full compensation the correct comparator required the FTT to have capitalised the award into the sum that would have been awarded to a hypothetical claimant in a civil court by way of a periodic payment order.

Mr Eadie QC argued that the 1990 Scheme should be interpreted flexibly, not as a statute.  Further, that the Scheme was only concerned with lump sum awards (PPO’s are not available under the Scheme), so the correct comparator was a claimant in a civil court receiving a lump sum.  In this event the courts have consistently applied the Lord Chancellor’s 2.5% rate and attempts to depart from this approach have all failed, see for example Warriner v Warriner (2002) 1 WLR 1703 and more recently Harries (A Child) v Harries and Stevenson (2012) EWHC 3447 QB.  Mr Eadie argued that as a result of this the words; “on the basis of common law damages…” in paragraph 12 of the Scheme sets out an approach of broad equivalence to that which would be achieved by a civil court making a lump sum award.

Mr Justice Jay dismissed the Claimant’s arguments and held as follows:

a)      In summary, the Claimant’s submissions are directed to the irrelevance of statute and the systematic unfairness of the Lord Chancellor’s set 2.5% rate.

b)      There is no authority directly bearing on the true construction of paragraph 12 of the 1990 Scheme.

c)      The 1990 Scheme is a practical document designed to be applied without elaborate complexity.  The objective of the Scheme is to achieve a similar level of financial outcome for a victim of a crime of violence compared to a victim of a tortfeasor with a civil claim.  Thus construed the only means by which this outcome may be attained is by applying the Lord Chancellor’s rate, because that is the rate systematically applied by the civil courts.

d)      The broad equivalence principle requires the identification of the correct comparator to enable like to be set against like.  Paragraph 12 of the Scheme requires a lump sum award.  Therefore the Claimant’s argument that the correct comparator is the notional capitalised PPO that a civil court might award is wholly strained and artificial because there is no provision for a PPO under the Scheme.

e)      The application of the Lord Chancellor’s rate by the civil courts in cases where lump sum awards are made does not violate the full recoverability principle, the same logic must therefore apply to paragraph 12 of the Scheme.   The courts have consistently rejected all attempts to revisit the Lord Chancellor’s 2.5% rate on the basis that it is too low.

f)       The reasoning in Helmot v Simon only avails the Claimant if paragraph 12 of the Scheme is to be interpreted as requiring the CICA and FTT to conceive itself as a civil court and apply the principles of common law on that premise.  This is a fiction that is not required by the Scheme.  By contrast paragraph 12 of the Scheme is a signpost to whichever methodology happens routinely to be applied by the civil courts.

g)      The true construction of paragraph 12 of the Scheme requires the application of the discount rate in force for the civil courts at the time of assessment.  Accordingly, the basis of assessment of common law damages requires the application of the methodology a civil court would adopt to a comparable lump sum damages claim.

Jay J. refused the Claimant permission to appeal.  The Claimant is, however, pursuing an application for permission to appeal.

The case report reference is (2015) EWHC 1077 (Admin).

Written by Adam Farrer, member of No5 Chambers Personal Injury Group for PIBULJ - The UK's leading PI Journal.

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