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Court of Appeal upholds High Court decision regarding real rate of return

AUTHOR(S): Sharon Daly, April McClements
PRACTICE AREA GROUP: Commercial Litigation and Dispute Resolution, Insurance and Reinsurance
DATE: 25.02.2016

On November 5 2015 the Court of Appeal delivered its much-anticipated judgment in Russell v Health Service Executive, (1) which considered the 'real rate of return' discount which would be applied to an injured plaintiff's future care costs. The Health Service Executive (HSE) had appealed the High Court decision (2) of Judge Cross in light of the prevailing economic climate. The High Court had held that the real rate of return discount to be applied in respect of the plaintiff's future care costs should be reduced from 3% to 1%. The appeal was heard by a three-judge Court of Appeal in July 2015. The judgment, which was delivered by Judge Irvine, upheld the High Court decision. It is understood that the HSE will appeal the Court of Appeal decision to the Supreme Court.

The Court of Appeal decided that the plaintiff – a nine-year-old boy who suffered brain damage at birth – was entitled to have his damages calculated on the basis that the lump-sum award could be invested in the most risk averse manner reasonably available. The court also held that public policy has no part to play in the assessment of damages for injured plaintiffs. On that basis, the court must consider the calculation of a future financial loss to the plaintiff, regardless of the economic consequences that the award may have on the defendant, the insurance industry or public finances.

The Court of Appeal also used the opportunity when delivering judgment to remind the government that a system to allow for periodic payment orders (3) was long overdue and must now be implemented. The court emphasised that Ireland must catch up with jurisdictions which have addressed this "fundamentally flawed and unjust system" by the introduction of legislation to permit awards to be made by way of periodic payment orders. The court noted that such legislation "would have removed all of the risks central to these proceedings".

In light of this judgment, when quantifying future losses in personal injury actions, future care costs may now be discounted by only 1%, and all other future pecuniary losses discounted by 1.5%. The effect of the decision is that underwriters will now be ordered to pay out higher lump-sum damages awards in a wide range of injury actions in which there are significant claims for future care and pecuniary costs. As a result, there is likely to be a knock-on effect which will see underwriters having to increase premiums to cover the upward reserves that will have to be maintained.

For further information on this topic please contact April McClements or Sharon Daly at Matheson.

This article originally appeared on the International Law Office website on February 23, 2016.

Endnotes
(1) (2015) IECA 236.
(2) Russell v HSE (2014) IEHC 590.
(3) For further information please see "Periodic payment orders on horizon for catastrophically injured plaintiffs".

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