Privy Council judgment results in discount rate change

Posted: 22/03/2012

A variable discount rate now applies in Guernsey following the Privy Council decision in Helmot v Simon, dismissing the defendant’s appeal from the Guernsey Court of Appeal.

The discount rate is used to adjust the amount of damages a claimant receives when a lump sum is awarded to cover future losses. It is intended to take into account factors that will affect future investment such as inflation and interest rates.

In Helmot v Simon, the claimant sustained a severe head injury in an RTA. He recovered £13.7 million in a lump sum award. (Periodical payments are not available in Guernsey.)

The award was larger than usual because the Guernsey Court of Appeal applied a variable discount rate - 1.5% for earnings-related losses and 0.5% for other heads of loss - rather than the 2.5% rate set by the Lord Chancellor in 2001. Courts in England and Wales are bound by the 2.5% rate, whereas the courts in Guernsey are not.

Recently, the Lord Chancellor has been under pressure to review the current 2.5% discount rate. Although a reduction would be of benefit to a claimant when calculating certain heads of damage in England and Wales, such as the cost of care and therapies, many of the larger awards for care would not be affected as they are now generally received in the form of periodical payments.

A reduction in the discount rate would lead to lower awards for accommodation, because of the operation of the Roberts v Johnstone calculation, which is used to assess this head of claim. This would not be welcomed by claimants as much.

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