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g a z e t t e
april 1991
to cover the now well
established
pattern
of
inflation is 3% and therefore
acted on the 5% tables"
In spite of this I have a
recollection of giving evidence
before a well known High
Court Judge who has since
retired who would not allow
figures to be given allowing for
inflation. His view was that
nobody could say what
inflation would be in the future
and therefore it was specu-
lation. It always struck me that
ignoring inflation was also
speculative in that it made
an assumption that there
never would be any future
inflation.
The problem was resolved
by the judgment of Lord
Diplock in the
Maiiett -v-
McMonagie
appeal. In his
judgment he said:
"in my view the only practi-
cable course for courts to
adopt in assessing damages
...
is to leave out of
account the risk of further
inflation on the one hand,
and the high interest rates
which reflect the fear of it
and capital appreciation of
property and equities which
are the consequence of it,
on the other hand, in
estimating the amount of
the annual dependency in
the future had the deceased
not been killed
money
should
be treated
as
retaining its value at the
date of the judgment, and
in calculating the present
value of annual payments
which would have been
received in future years,
interest rates appropriate to
times of stable currency
such as 4% to 5% should be
adopted."
This fitted in very nicely
with the practice of using 5%
and from some time in the
early 1970s calculations were
always done using an interest
rate of 5%.
In 1982 in the case of
Cooke
-v- Walsh
[1984] ILRM 208 the
appropriateness of using 5%
was called into question. For a
number of years there had
been negative real rates of
return and in particular in the
Cooke -v- Walsh
case we were
dealing with an infant whose
award would be lodged in
court and could be invested
only in Trustee Securities. Very
briefly Trustee Securities are
Government Stock and the
two major banks. The trial
Judge decided that a rate of
interest of 214% was ap-
propriate and gave him
judgement accordingly.
The case was appealed and
Mr. Justice Griffin in his
judgment in March 1984
stated:
"Having heard all evidence
given in respect of the rate
which should be accepted,
the learned trial judge was,
in my opinion, entitled to
accept and adopt the rate of
2Vi%, and this Court is not
entitled to interfere with that
finding made by him. it may
very well be that, in other
cases, a different rate may
be accepted on the evidence
given in such cases"
([1984]
ILRM 208, 216).
Since the
Cooke -v- Walsh
judgment the rate of interest
used has been altered twice,
firstly to 3% and secondly to
4%. Currently a rate of
interest of 4% is used.
Efforts are continuing in
Britain to have actuarial
evidence accepted in the
courts. The choice of a rate of
interest is however an easier
decision to make. Index-linked
securities are available to the
man in the street and,
therefore, there can be no
argument as to the real rate of
return. Index-linked securities
are not available to the public
in this country. There is one
aspect about index-linked
securities to which I would
refer. The indexing is linked to
price inflation whereas in the
majority of cases the loss
we are trying to replace is
related to wages and therefore
it is wage inflation that we
should be looking
at.
Traditionally wage inflation has
been greater than price
inflation.
5.8
Tax
Piers Segrave-Daly in his paper
Problems Involving Death and
injury Claims
says:
"despite the . . . Court
decision in the case of
Glover-v- BLN
(No. 2) [1973]
IR 432)
that income tax
should
be taken
into
account, the practice of the
High Court in the vast
majority of injury cases is
that damages for loss of
earnings are
calculated
without
taking tax into
account."
The present practice is to
take account of tax and
logically, in my opinion, no
other approach is valid.
A man who has lost £1,000
gross income in a year on
which he would have paid tax
at 30% has in reality lost only
£700. If this loss were to
continue until age 65 (say) he
would be expected to invest
whatever capital sum he
receives by way of damages
and he would be liable to tax
on the income derived from
those investments.
On the one hand an indi-
vidual's loss is not the gross
amount of income lost but
rather the net amount after
tax. The individual receives thd
net amount only. On the other
hand investment income
derived from damages is liable
to tax and the multiplier should
be based on the net amount of
interst earned after allowing
for tax. It is too simplistic,
quite apart from being
incorrect, to say that tax on
investment income cancels
out tax on income. I have
looked at the value of a loss of
income over periods of 10
years to 60 years and at rates
of interest varying from 2% %
to 5% per annum and allowing
for tax at rates of 30%, 48%
"It is too simplistic . . . to
say that tax on investment
income cancels out tax on
income."
and 53% and in all cases I find
the value of a loss of gross
income at a gross rate of
interest is always more than
100% of the value of the
net income valued at the
corresponding net rate of
interest.
It is of interest to note in the
146