The Gazette 1991

april 1991

g a z e t t e

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.

"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

5.8 Tax

Piers Segrave-Daly in his paper Problems Involving Death and injury Claims says:

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