Healthcare Law Update: Gill Russell v HSE - The “Real Rate of Return” Judgment
09 November 2015
On Thursday, 5 November 2015, the Court of Appeal delivered its much anticipated Judgment in the case of Gill Russell v HSE in relation to the “real rate of return”. The real rate of return is the investment return that a Plaintiff is assumed to obtain should he invest his lump sum settlement award. Simply put, the higher the real rate of return applied to a lump sum, the lower the award, and vice versa.
The Judgment, delivered by Ms Justice Irvine, effectively upholds the High Court judgment of Mr Justice Cross, which reduced the applicable real rate of return from the traditional 3% to between 1 and 1.5%. The impact of the Judgment on the quantum of lump sum settlement awards is hugely significant. The State Claims Agency has estimated that the application of a 1 - 1.5% real rate of return would increase the cost of meeting medical negligence claims by circa €100 million per annum. It will have a similarly significant effect on private insurers and on medical negligence and non-medical negligence personal injury awards.
What “Real Rate of Return” Now Applies?
The Court held that the applicable real rate of return depends on the head of damage concerned:
- Cost of future non-wage related care, i.e. aids & appliances/ancillary needs: 1.5% real rate of return;
- Cost of future wage related care, i.e. nursing care: 1% real rate of return; The differential reflects a further downward adjustment to account for future wage inflation relevant to this head; and
- Future loss of earnings: 1.5% real rate of return - potentially, see below.
A very short and theoretical case study of a 20 year old Plaintiff with a life expectancy of 71 provides a snap-shot illustration of the significance of this Judgment. An award for care costs of €6.2 million under the old 3% regime would become an award for €9.5 million using the new 1% rate.
To What Types of Cases Does it Apply?
While Gill Russell is a very seriously catastrophically injured Plaintiff, and these are medical negligence proceedings, the impact of the Judgment will be felt well beyond catastrophic injury medical negligence cases, and will likely apply to:
- Medical negligence and non-medical negligence personal injury awards;
- Catastrophic and non-catastrophic injury cases: Commentary in the wake of Justice Cross’ initial judgment suggested that the judgment may only apply to extremely seriously catastrophically injured Plaintiffs, as Gill Russell undoubtedly is. This is because they would be considered to be especially risk averse, and therefore uniquely entitled to invest their award in the safest, and lowest-yielding, investment products available. It was argued that a Plaintiff with less serious injuries may be treated as an ordinary prudent investor who could invest in a more commercial way, and bear the risk that the market presents. However, Ms Justice Irvine did not accept that argument and commented that “most injured Plaintiffs enjoy no such comfort”. While every case will be treated on its own facts, the apparent implication is that the lower real rates of return will apply to most Plaintiffs so long as they can show that they will genuinely rely upon the award for their day to day requirements, and that they do not, for instance, have an alternative source of income that they can fall back upon should the investment of their award go wrong; and
- Loss of Earnings Claims: At the High Court, Justice Cross indicated that a Plaintiff with a claim for future financial loss confined to loss of earnings might be treated as less risk averse than a Plaintiff who has a claim for the cost of future care. Ms Justice Irvine did not accept this proposition and stated that while there may be arare case where a particular Plaintiff may not need their earnings to survive on a day to day basis and might thus be in a position to take risks with their investment, “most Plaintiffs do not fall into that category”. While this is an obiterand therefore non-binding aspect of the judgment, the implication is that, in most cases, the rate of return applicable to future loss of earnings will be 1.5%, regardless of whether the Plaintiff is catastrophically injured or not.
What was the Basis for the Court’s Approach?
While it is a very detailed 62 page Judgment, the essence of the decision can be summarised as follows:
- The Plaintiff is entitled to have his damages calculated on the basis that he should be entitled to pursue the most risk averse investment reasonably available to meet his needs; he is not in the same position as the ordinary investor, who has income and has surplus funds to invest;
- The court must consider the calculation of future financial loss on a 100% basis regardless of the economic consequences that the award may have on the Defendant, on the insurance industry or on the public finances. Public policy has no part to play in the assessment of damages of this nature;
- How the Plaintiff will probably invest, or how the Courts Service will probably invest on behalf of a minor/Ward of Court, is irrelevant to the Court’s considerations: “However, a Plaintiff is equally entitled to take their award to Las Vegas or place it on a horse in the Grand National in the hope that they may enhance it. But it is no function of the Court to conduct an enquiry as to what the Plaintiff is likely to do with their award for the purpose of deciding the level of the award”; and
- There is more than sufficient evidence to support the findings of the High Court Judge that the 1.5% and 1% rates of return referred to above were appropriate.
Criticism of the Oireachtas
The Court took the opportunity to renew its criticism of the Oireachtas for its failure to legislate to introduce a system of Periodic Payment Orders which “would have removed all of the risks central to these proceedings” and, while mindful of the separation of powers, it urged the Oireachtas to legislate. The court also referenced the existing ministerial power, via Section 24 of the Civil Liability and Courts Act 2004 which has not yet been utilised, to prescribe the discount rate that will apply in these cases. However, any hope that this mechanism might resolve these matters once and for all seems misplaced, as the court recognises its own jurisdiction to apply a rate different to that prescribed if it is satisfied that injustice would result from its application. Were the Minister to fix any such rate that is materially different to those approved in this Judgment, the strong implication is that the courts may exercise their discretion to apply their own rates.
While the Judgment provides some certainty to the calculation of lump sum awards, it is an expensive certainty for Defendants and indemnifiers, who remain caught in the crossfire between the judiciary and the Oireachtas. It is likely that this Judgment will increase the pressure further still on the Government to legislate for Periodic Payment Orders, heads of which legislation were drafted earlier this summer. This judgment may be appealed to the Supreme Court so this matter may not be yet at an end.
For more information, please contact a member of our Healthcare Law team.
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