Calculation of Future Losses. Richard Viney Rory Badenoch 4 June 2013

Transcription

1 Calculation of Future Losses Richard Viney Rory Badenoch 4 June 2013

2 Summary This evening we intend to cover Assessing one-off losses The court s approach to continuing losses Smith, Blamire and Ogden Disability claims and recent(ish) cases Acceleration claims Tips and traps when using the Ogden Tables 2

3 Introduction Nothing in life is certain except death! 3

4 Even taxes now seem to be optional! 4

5 3 Uncertainties 3 distinct forms of uncertainty when considering future losses: Inflation and investment Unpredictability Mortality 5

6 Inflation and investment Now dealt with by the Damages Act 1996 Current discount rate 2.5% Appears politically undesirable to set more realistic rate Appears to be little opportunity to avoid the discount rate Warriner v Warriner Cooke v United Bristol Health Care 6

7 Risks For a one-off event the Court will discount loss to reflect the chances it may or may not happen Doyle v Wallace How certain does something need to be to be treated as 100%? How uncertain does something need to be to be treated as purely speculative? 7

8 Risks Assessments of continuing losses are not so straightforward as there can be numerous, if not infinite, possibilities. Herring v Ministry of Defence 8

9 Herring v Ministry of Defence 23. In any claim for injury to earning capacity based on long term disability, the task of the court in assessing a fair figure for future earnings loss can only be effected by forming a view as to the most likely future working career ( the career model') of the claimant had he not been injured. Where, at the time of the accident, a claimant is in an established job or field of work in which he was likely to have remained but for the accident, the working assumption is that he would have done so and the conventional multiplier/multiplicand method of calculation is adopted, the court taking into account any reasonable prospects of promotion and/or movement to a higher salary scale or into a better remunerated field of work, by adjusting the multiplicand at an appropriate point along the scale of the multiplier. However, if a move of job or change of career at some stage is probable, it need only be allowed for so far as it is likely to increase or decrease the level of the claimant's earnings at the stage of his career at which it is regarded as likely to happen. If such a move or change is unlikely significantly to affect the future level of earnings, it may be ignored in the multiplicand/multiplier exercise, save that it will generally be appropriate to make a (moderate) discount in the multiplier in respect of contingencies or the vicissitudes of life'. 9

10 Herring v Ministry of Defence 24. In the situation of a young claimant who has not yet been in employment at the time of injury but is still in education or has otherwise not embarked on his career, or (as in this case) one who has taken time out from employment in order to acquire a further qualification for a desired change of direction, it may or may not be appropriate to select a specific career model in his chosen field. In this connection the court will have regard to the claimant's previous performance, expressed intentions and ambitions, the opportunities reasonably open to him and any steps he has already taken to pursue a particular path. In many cases it will not be possible to identify a specific career model and it may be necessary simply to resort to national average earnings figures for persons of the claimant's ability and qualifications in his likely field(s) of activity. In other cases, however, it may be possible with confidence to select a career model appropriate to be used as the multiplicand for calculating loss. In either case, the purpose and function of the exercise is simply to select an appropriate baseline' for calculation of the claimant's probable future earnings whatever his future occupation may in fact turn out to be. Thus if the career model chosen is based upon a specific occupation (such as the police force in this case), the chance or possibility that the claimant will not in the event enter that occupation or, having done so, may leave it, will not be significant if the likelihood is that he will find alternative employment at a similar level of remuneration. 10

11 Herring v Ministry of Defence 25. These are truisms so far as the conventional approach to the assessment of injury to earning capacity is concerned. Similarly, it is a truism that the assessment of future loss in this field is in a broad sense the assessment of a chance or, more accurately, a series of chances as to the likely future progress of the claimant in obtaining, retaining or changing his employment, obtaining promotion, or otherwise increasing his remuneration. Nonetheless, such assessment has not traditionally been regarded as necessitating application of the technique of percentage assessment for loss of a chance' based on the likely actions of third parties, as articulated by Stuart Smith LJ in the Allied Maples case. In cases such as Doyle v Wallace and Langford v Hebran the court has in special circumstances felt obliged to adopt such a method in order to calculate particular aspects of the claimant's future loss claim. However, those decisions have not purported generally to replace the traditional method of adjusting the multiplier or multiplicand within the career model appropriate to the particular claimant so as to reflect (a) the likelihood of an increase in earnings at some point in the claimant's career and (b) those contingencies/vicissitudes in respect of which a discount appears to be appropriate. 11

12 Herring v Ministry of Defence 26. The cases in which the percentage loss of a chance' approach has been adopted appear to me to be those where the chance to be assessed has been the chance that the career of the claimant will take a particular course leading to significantly higher overall earnings than those which it is otherwise reasonable to take as the baseline for calculation. Thus, it was appropriate in Doyle v Wallace to assess on a percentage basis the chance that the claimant might have a remunerative career as a drama teacher rather than the more prosaic baseline activity of clerical or administrative work. Similarly, in Langford v Hebran the same technique was applied to the chance that the appellant might become a highly successful full time kick boxing champion, rather than a bricklayer with 5 fights a year at what might be called journeyman level'. In a case where the career model adopted by the judge has been chosen because it is itself the appropriate baseline and/or is one of a number of alternatives likely to give more or less similar results, then it is neither necessary nor appropriate to adopt the percentage chance approach in respect of the possibility that the particular career identified will not be followed after all. That seems to be me to be the position in this case. 12

13 Risks The approach is therefore: Assess likely future working career whether by reference to specific earnings or, particularly in the case of a young Claimant with no or limited career history, by reference to average earnings in likely fields. This can then be regarded as the baseline for loss of earnings. Adjust the multiplicand as necessary to reflect increases in income along that career path. Allow on a loss of chance basis for any lost prospects of substantial increases in income. Discount as necessary to reflect the vicissitudes of life. 13

14 Smith v Manchester, Blamire, and Ogden Disability Claims Lord Reid in Parry v Cleaver [1970] AC 1: What did the Claimant lose as a result of the accident? What are the sums which he would have received but by reason of the accident he can no longer get? Three options open to the court: Ogden Smith v Manchester Blamire 14

15 Ogden OGDEN Lord Lloyd stated Wells v Wells [1999] 1 AC 345: The [Ogden] tables should now be regarded as the starting point, rather than a check...a judge should be slow to depart from the relevant actuarial multiplier on impressionistic grounds. Copyright

16 Ogden Basic calculation is as follows: Claimant s present NET annual earnings (multiplicand) x the number of years during which the loss of earning power will last, discounted by a factor derived from the current discount rate (multiplier) From the resultant total is then deducted the amount, if any, which he is expected in the future to earn annually during the period of loss, the multiplier for which is arrived at in the same way. Copyright

17 Ogden The multiplier is therefore the figure by which an annual loss is multiplied in order to calculate a capitalised sum, taking into account accelerated receipt, mortality risks and, in relation to claims for loss of earnings and pension, discounts for contingencies other than mortality. 17

18 Ogden For the application of Ogden calculation of future lost earnings it is for the Claimant to prove: (i) that he/she is disabled? (ii) the likely pattern of his/her employment(preaccident); (iii) the likely pattern of his/her employment (postaccident). 18

19 Example: straightforward loss of earnings A 35 year old man with no GCSEs suffers a rupture of his anterior and posterior cruciate ligaments causing him to be unable to continue his work as an oil-rigger in which he earned 25,000 net per annum. He now works part time in a national rail ticket office earning 15,000 net per annum. The difference between pre and post-accident earnings is 10,000 p.a 19

20 pre-accident earnings = 25,000 per annum [0.89 Table A 20.6 Table 9]) = 458,250 post-accident earnings = 15,000 per annum 8.03 [0.39 Table B Table 9]) = 120,450 Lump sum award = 458, ,450 = 337,800 20

21 Smith v Manchester Where a Claimant is still employed but, owing to his injury, is less able to keep his job or to compete for alternative employment if he loses it. Court can make a separate award for handicap in the labour market 21

22 Smith v Manchester Smith v Manchester Ms Smith was injured at work, but continued to work for Manchester Corporation after the injury. She agreed to continue doing the same job for the same pay as long as she could, but there was a real risk she would lose her job. 22

23 Smith v Manchester Two fundamental requirements: there is a substantial risk that at some point in the Claimant s working life he/she will find him/herself on the labour market; the Claimant s disability would place him/her at a disadvantage by comparison with an able-bodied contemporary. 23

24 Smith v Manchester Nicholls v National Coal Board [1976] ICR 266 Claimant continued to work but due to reduced capabilities (less hours / lighter duties) for reduced earnings. Consequently there was also an award for lost earning capacity Should not be any overlap between the Smith v. Manchester and the actual loss awards. 24

25 Smith v Manchester Claimant does not need to be in work at the time of trial Cook v Consolidated Fisheries [1977] ICR 635 Trawlerman was going to retrain as a lorry driver. Children can receive Smith v Manchester awards. 25

26 Smith v Manchester Difficulty in Quantifying Smith v Manchester awards: Browne LJ in Moeliker v Reyrolle &Co [1977] 1 WRL 132: It is impossible to suggest any formula for solving the extremely difficult problems involved in the assessment. A judge must look at all the factors which are relevant in a particular case and do the best he can. 26

27 Smith v Manchester Foster v Tyne & Wear CC(1986) 1 ALL ER 567 The judge took the number of years of the Claimant s pre-injury earnings as the basis for the calculation - awarding 5 times the Claimant s annual salary. Typically where this method has been used the number of years taken has been lower. E.g in Moeliker it was 6 months. 27

28 Smith v Manchester Herbert v Ward [1982] Award of 50,000! However: (a) His employment was very much in the balance ; (b) He had very poor prospect of competing in the open labour market. 28

29 Smith v Manchester Problems in quantifying: Morgan v UPS Ltd [2008] EWCA Civ ,000 Smith v Manchester award; and 12,500 for impairment of future earning capacity Not clear how figure was reached The CA upheld the decision but voiced concern that there may have been some double counting. 29

30 Blamire Blamire v South Cumbria Authority [1997] PIQR Q1 CA. trial judge rejected the conventional (multiplier / multiplicand) approach because of uncertainties about: (a) what the Claimant would have earned had she not been injured (b) what over time she would now earn in her injured state, 30

31 Blamire These uncertainties were so great that Steyn LJ said inevitably one is driven to a broad brush approach. Made in a variety of circumstances when it has proved difficult to assess future and / or past earning capacity, e.g. claims on behalf of children on account of inadequate education. Essentially Blamire is used where there is no reasonable arithmetical way of calculating compensation. 31

32 The end of Smith v Manchester?: Recent Decisions Sharma v Noon Products Ltd 7/4/2011 QB (Unreported) The Claimant (unqualified engineer) sought an award of 156,000 using the Ogden 6 method of calculation Defendant contended for a Smith v Manchester award of 7,500 on the basis that if the Claimant was disabled, it was only a technical disability. Defendant also argued that as C did not have any ongoing loss of earnings the Ogden 6 method would over-compensate the Claimant. 32

33 The end of Smith v Manchester?: Recent Decisions HHJ Yelton, affirmed Ogden 6 was the conventional approach for the assessment of future loss of earnings, and rejected the use of Smith v Manchester. 33

34 The end of Smith v Manchester?: Recent Decisions However, because: a) the Claimant s injury was relatively less serious than other hand injuries, and b) the Claimant had 3 years in secure employment post-accident HHJ Yelton adjusted the Ogden 6 discount factor from 0.4 (for a fully disabled person) to 0.6. Closer to the 0.89 for a non-disabled person. What is known as a Conner adjustment. 34

35 The end of Smith v Manchester?: Recent Decisions Conner v Bradman[2007] EWHC 2789 (QB) Claimant was aware that once he had undergone knee replacement surgery he would be unable to continue his job as an autofitter. At time of trial he was working as a taxi driver 3 nights per week and his intention was to go full time The trial judge split the difference between the `disabled` Ogden discount factor of 0.49 and not disabled of 0.82 at

36 The end of Smith v Manchester?: Recent Decisions Leesmith v Evans [2008] EWHC 134 (QB) The trial judge made a small adjustment of 0.06 to the strict Ogden Six discount for a disabled person in work of 0.54 on the basis that the disadvantage suffered by the claimant was expected to be less than for the average for the claimant s peer group 36

37 The end of Smith v Manchester?: Recent Decisions The Virgin masseuses: Evans v Virgin Atlantic Airways[2011] EWHC1805 (QB) V Hindmarch v Virgin Atlantic Airways Ltd [2011] EWHC 1227(QB) 37

38 The end of Smith v Manchester?: Recent Decisions Ward v Allies & Morrison Architects [2012] EWCA Civ CA upheld the Blamire lump sum award of 30,000. Aikens LJ stating: the judge was entitled to reach the conclusion that [because] there were too many imponderables to enable him to hold, on the balance of probabilities, what the likely career pattern and earning capacity of the appellant would have been but for the accident, and what it was likely to be as result of the accident, or that she would be likely to suffer loss of earnings in the future the judge was driven to adopting the Blamire approach. 38

39 Ogden or Smith v Manchester? Which one do you use? 39

40 Example Conner Adjustment An assistant beautician aged 28 earning 15,000 net p.a, with a diploma in beauty therapy, suffers an accident at work when she picks up a pair of faulty curling tongs and suffers a burn injury to her left, non-dominant hand which results in permanent minor lack of grip strength. The injury does not prevent the claimant from carrying out any of her current work duties. However, she would have difficulties carrying out more intricate jobs. 40

41 i. but for the accident the claimant would have earned 15,000 per annum 20.1 [0.84 Table A Table 10] = 301,500 ii. the claimant will now earn 15,000 per annum [0.45 Table D Table 10] = 161,550 iii. total equals 301, ,550 = 139,950 41

42 The trial judge feels that that although the Claimant assistant beautician is technically disabled (under the terms of the Equality Act 2010) her disability is in fact only minor to moderate. Consequently he adjusts the table D multiplier of 0.45 up to 0.6 (closer to the non-disabled figure of 0.84). 15,000p.a x 14.4 [0.6 (the newly adjusted figure) x Table 10] = 216,000 Total equals 301, = 85,500 42

43 Acceleration Claims Cutler v Vauxhall Motors Ltd If a loss would have occurred in any event then no loss is suffered. Risks of mortality regarded as negligible by the Court of Appeal although the acceleration period had not ended However decision based upon inevitably of loss in any event A Claimant faced with such an argument should consider the inevitability of any loss 43

44 Periodic Multipliers Prosthetic leg 7 year replacement cycle 40 year old male 7,000 x = 185,640 44

45 Periodic Multipliers Prosthetic leg 7 year replacement cycle 40 year old male 49,000 x 3.42 = 167,580 45

46 Impaired Life 40 year old male 20 year life expectancy Table 28 multiplier = Correct multiplier =

47 Varying Multiplicand Using Table 28 to calculate multiplier for early periods: First 5 years 4.70 Next 10 years 7.84 Remainder of life The total loss on this approach would be: (4.7 x 20,000) + (7.84 x 15,000) + (13.98 x 5,000) = 281,500 47

48 Varying multiplicand Correctly calculating early multiplier First 5 years 4.70 x (26.52/27.41) = 4.55 Next 10 years 7.84 x (26.52/27.41) = 7.59 Remainder This would result in a loss of: (4.55 x 20,000)+(7.59x 15,000)+(14.38x 5,000) = 276,750 48

49 49