[PI – QUANTUM – Interest on PSLA] Birkett v Haynes

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*816 Birkett v Hayes and Another

1976 B. No. 169

Court of Appeal

18 March 1982

[1982] 1 W.L.R. 816

Lord Denning M.R. , Eveleigh and Watkins L.JJ.

1982 Feb. 8, 9, 10; March 18

Interest—Award of damages—Personal injury cases—Sum for pain, suffering and loss of amenities—Appropriate rate of interest on award

In an action for negligence in respect of personal injuries suffered as a result of a road accident, the plaintiff was awarded damages, after a reduction of 25 per cent. because she had not been wearing a seat belt at the time of the collision, of £224,747. The total award included a sum of £30,000 for pain and suffering and loss of amenities, with interest from the date of service of the writ to the date of trial, a period of 4 2/3 years, at the rate of interest of the short term investment account, which amounted to over £16,000, subsequently reduced by 25 per cent.

On appeal by the first defendant against the award of interest: —

Held, allowing the appeal, that since the award of general damages was calculated taking into account the effect of inflation during the period from the date of service of the writ until the date of trial, interest awarded on those damages to compensate the plaintiff for being kept out of the capital *817 sum during that period should be low to avoid injustice to the defendant by over-compensating the plaintiff; that interest at 2 per cent. was the appropriate rate and should be regarded as a guideline for the rate for interest on general damages in personal injury cases in future (post, pp. 820E, H — 821A, C–E, 822G–H, 823D–E, 824H — 825B).

Pickett v. British Rail Engineering Ltd. [1980] A.C. 136, H.L.(E.). applied .

Jefford v. Gee [1970] 2 Q.B. 130, C.A. and Cookson v. Knowles [1977] Q.B. 913, C.A. ; [1979] A.C. 556, H.L.(E.) considered .

Per curiam . In deciding the period for which interest should be awarded all the circumstances of the case should be taken into account. Where, for instance, the plaintiff was responsible for unjustifiable delay in bringing the action to trial, interest for a period shorter than the time from the date of service of the writ to the date of trial should be awarded (post, p. 825A–B, D–G).

Order of Michael Davies J. varied.

The following cases are referred to in the judgments:

The following additional cases were cited in argument:

APPEAL from Michael Davies. J.

The first defendant, Brian Hayes, appealed against the award of interest on general damages to the plaintiff, Sandra Elizabeth Birkett, in an action in which she claimed damages for negligence in respect of personal injuries sustained in a road accident. The trial judge awarded interest at the short term investment account rate for the period from the date of service of the writ to the date of trial. The grounds of the appeal were that the guideline for the awarding of interest laid down in Jefford v. Gee [1970] 2 Q.B. 130 was not appropriate in the economic conditions currently prevailing and should be changed; that where general damages were awarded on the scale for figures current at the date of trial interest should be awarded at a rate appropriate to times of stable currency; and that an award of interest on general damages at*818 rates of interest currently prevailing did not provide fair compensation for the plaintiff but over-compensated the plaintiff and penalised the defendant.

The facts are stated in the judgment of Lord Denning M.R.

Representation

  • Piers Ashworth Q.C. and Peter Ripman for the first defendant.
  • Mark Potter Q.C. and Michael Baker for the plaintiff.

Cur. adv. vult.

LORD DENNING M.R.

March 18. The following judgments were read.

It was a tragic accident. It happened on February 23, 1975. The plaintiff was in the passenger seat. Her husband was driving. She was not wearing her seat belt. There was a collision with another car. She was thrown forward and upward. She received a devastating head injury. Her brain suffered a grave and profound shock. She has ever since been in hospitals or in homes. It has left her with a “behaviour disorder.” Whereas before the accident she was exceptionally able, intelligent and attractive, now she behaves so strangely that she needs constant attention. She tires out everyone who tries to look after her.

On May 10, 1976. the plaintiff by her next friend issued a writ claiming damages for negligence. The action did not come on for trial for 4½ years. The judge was Michael Davies J. He gave judgment on January 19, 1981. He assessed the total damages as £299,663, but he reduced them by 25 per cent. because she was not wearing her seat belt, thus giving judgment for £224,747. No question has arisen on that award except as to one item. That is as to the damages for pain and suffering and loss of amenities. The judge said of it:

“The plaintiff’s life has been virtually ruined; and she knows it. Apart from her disability, including the loss of the enjoyment of her work and most of the pleasurable activities of life, she has lost her happy marriage — and I repeat, she knows it. At my invitation counsel suggested what the bracket should be. Mr. Potter submits £25,000 to £30,000; Mr. Ashworth submits £20,000 to £30,000. In my judgment this is clearly a case for an award at the top of the bracket, and I award the sum of £30,000.”

In addition, the judge awarded interest on that sum of £30,000. He awarded it from the date of the service of the writ, May 10, 1976, to the date of trial, January 19, 1981. That is, for 4 2/3; years. He took the rate of interest allowed by the court on short term investment account — that may be 9 per cent. or 10 per cent. or even more. It came to over £16,000. That is, in all, £30,000 plus £16,000. Reduced, of course, by 25 per cent. to £12,000, as she was not wearing a seat belt.

The guidelines in Jefford v. Gee

The question in this case is as to that award of interest of £16,000. In Jefford v. Gee [1970] 2 Q.B. 130 we gave a guideline as to the interest on the item for pain and suffering and loss of amenities. We said that it should be awarded from the date of the service of the writ until the date of trial. This is what I said, speaking for the court, at p. 147: *819

“In the words of Lord Herschell in London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] A.C. 429 , 437, interest should be awarded ‘from the time of action brought at all events.’ From that time onwards it can properly be said that the plaintiff has been out of the whole sum and the defendant has had the benefit of it. Speaking generally, therefore, we think that interest on this item (pain and suffering and loss of amenities) should run from the date of service of the writ to the date of trial.”

Looking back at it now, I feel that guideline was an error. It treats the item (for pain, suffering and loss of amenities) as accruing due at the date of service of the writ: whereas it does not. It is more like the item for cost of future care or for loss of future earnings in which interest only runs from the date of trial. But still the guideline has stood since 1971, and, as I will show, it is now too late to alter it.

Meanwhile, however, we made an attempt to alter it. It was in Cookson v. Knowles [1977] Q.B. 913 .

The alteration in Cookson v. Knowles

In the succeeding years we met with racing in flation. So in Cookson v. Knowles [1977] Q.B. 913 in one single judgment we altered the guideline. I said, at p. 921:

“The plaintiff thus stands to gain by the delay in bringing the case to trial. He ought not to gain still more by having interest from the date of service of the writ. We would alter the guideline, therefore, by suggesting that no interest should be awarded on the lump sum awarded at the trial for pain and suffering and loss of amenities.”

That judgment was given on July 29, 1977. Our view was given immense support by the Report of the Royal Commission on Civil Liability and Compensation for Personal Injury (Cmnd. 7054) eight months later, in March 1978. The reasoning (c. 16, paras. 747 and 748) is so compelling that I venture to set it out in full:

“Nevertheless, we agree with the Law Commission’s conclusion, and with the rule in Cookson v. Knowles , that no interest should be awarded on non-pecuniary damages. As we have pointed out elsewhere, in present economic conditions an investor may well be unable to do more than maintain the real value of his investment, once tax and inflation are taken into account, if indeed he can manage to do this. To award no interest on non-pecuniary damages may therefore be at least as favourable as the award of interest at a market rate on damages for past pecuniary loss. A more important justification, however, lies in the conventional nature of non-pecuniary damages. We do not think that it would be appropriate to subject essentially arbitrary figures to detailed financial calculations. If an attempt were to be made, allowance would have to be made for inflation in selecting the appropriate interest rate. It would also, strictly speaking, be necessary to apply interest at the half rate only to that part of the damages relating to non-pecuniary loss before trial, assessed on the scale current at the date of injury. This would all be highly artificial.

“We recommend that the rule in Cookson v. Knowles that no interest should be awarded on damages for non-pecuniary loss should stand; and that it should be applied in Scotland and Northern Ireland.”

*820

Cookson v. Knowles was taken to the House of Lords , but no view was expressed on this point: see [1979] A.C. 556 , 573 per Lord Diplock:

“The question of damages for non-economic loss which bulks large in personal injury actions, however, does not arise in the instant case. It has not been argued before your Lordships and I refrain from expressing any view about it.”

The overruling of Cookson v. Knowles

In Pickett v. British Rail Engineering Ltd. [1980] A.C. 136 the House of Lords did consider the point. They overruledCookson v. Knowles . In doing so they made no mention of the Report of the Royal Commission or the reasoning in it. In deference to the decision of the House of Lords in Pickett v. British Rail Engineering Ltd. [1980] A.C. 136 , Mr. Ashworth felt bound to concede that we were bound to give some interest on the award of damages for pain and suffering and loss of amenities. But he contended that we were free to determine what should be the rate of interest. He pointed to one or two indications that this might be varied according to the circumstances of the case. In Cookson v. Knowles [1979] A.C. 556 , 579E–F, Lord Scarman said it might depend on “currently prevailing financial conditions.” And the Royal Commission said, in paragraph 747, that “allowance would have to be made for inflation in selecting the appropriate interest rate.” I turn, therefore, to consider the relevant considerations on this point.

The method of assessment

The important thing to notice is that the judge assessed the figure of £30,000 (for pain and suffering and loss of amenities) on the value of money at the date of the trial on January 19, 1981 — and on the plaintiff’s condition at that date. Everyone accepted that this was the right way of doing it. The figure for pain, suffering and loss of amenities is always assessed at the date of the trial. The judge then has before him the full story up to that date, and the outlook for the future. This plaintiff’s condition may have deteriorated more than expected, or it may have improved. The judge has to award compensation for the past, and also for the future pain, suffering and loss of amenities. The future that lies ahead, beyond the date of trial, is often of more consequence than the past. The judge awards a lump sum at the date of trial to cover all.

Apart from inflation

If the currency had remained stable from 1976 to 1981, and the plaintiff’s condition had remained unchanged, neither improved nor deteriorated, I should have thought that the award in 1976 would have been — not £30,000 — but only £20,000, or thereabouts. I can see no reason why that £20,000 should be any different from a contract debt. Suppose that the plaintiff was owed a debt of £20,000 due in May 1976, but judgment was only given in January 1981. The plaintiff would get interest only on £20,000 for those 4 2/3 years. The interest would have been about £8,000. She would only have got £28,000 at the trial. She would not get £30,000.

The effect of inflation

But the currency did not remain stable from 1976 to 1981. There was racing inflation. So that the plaintiff in 1981 received £30,000. I can see no *821 possible justification for giving her interest on that inflated figure for the 423 years — when she would not be given it on an admitted debt of £20,000 due at the date of the service of the writ. Taking Lord Herschell’s words: she was not kept out of £30,000 for those 423 years. She was only kept out of £20,000. Nor did the defendants get the benefit of the use of £20,000.

The effect of tax

Even if she is to be regarded as having been kept out of £30,000 from the date of the service of the writ (May 10, 1976) she may — or may not — have invested it on short term investment account. If she had invested it, she would have had to pay tax on the interest she received from it. But now, if interest is awarded her on £30,000 from the date of the service of the writ, for 4 2/3 years, she gets the interest without deduction of tax and without having to pay tax on it. Alternatively, she might not have invested it, but spent it in other ways. In that case she would have got no interest at all.

Conclusion

All these considerations convince me that, if interest is to be awarded from the date of the service of the writ (as Pickett’s case [1980] A.C. 136 compels), then that interest should be very low indeed. There is nothing to guide us but the feeling of what is fair. You must remember that she is getting the £30,000 assessed at the date of trial, and also she is getting interest on it over the preceding 4 2/3 years. Having discussed it with my brethren, I would Put the interest at 2 per cent. and recommend it as a guideline for future cases.

EVELEIGH L.J.

Section 3 (1) of the Law Reform (Miscellaneous Provisions) Act 1934 reads:

“In any proceeding tried in any court of record for the recovery of any debt or damages, the court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment: … “

Section 3 (lA) of the Law Reform (Miscellaneous Provisions) Act 1934 (as inserted by section 22 of the Administration of Justice Act 1969 ) provides:

“… the court shall exercise that power so as to include in that sum” (i.e. the judgment for damages) “interest on those damages or on such part of them as the court considers appropriate, unless the court is satisfied that there are special reasons why no interest should be given in respect of those damages.”

In Jefford v. Gee [1970] 2 Q.B. 130 the Court of Appeal laid down guidelines as to the appropriate rate of interest and in so far as damages for Pain and suffering and loss of amenities was concerned, that rate was said to be the rate allowed by the court on the short term investment account, taken as an average over the period for which interest is awarded. That period in relation to such general damages was held to be from the date of service of the writ to the date of trial.

In Cookson v. Knowles [1977] Q.B. 913 in relation to Jefford v. Gee *822

[1970] 2 Q.B. 130 Lord Denning M.R. said, at p. 921C: “At that time inflation did not stare us in the face. We had not in mind continuing inflation and its effects on awards.” He went on to say that as awards were assessed on the current value of money as at the date of judgment the plaintiff would receive a larger sum than he would have done at the date of the writ and said, at p. 921D:

“We would alter the guideline, therefore, by suggesting that no interest should be awarded on the lump sum awarded at the trial for pain and suffering and loss of amenities.”

However, in Pickett v. British Rail Engineering Ltd). [1980] A.C. 136, the House of Lords held that as interest on general damages was awarded for the purpose of compensating a plaintiff for being kept out of the capital sum between the date of the service of the writ and judgment the Court of Appeal erred in not awarding such interest and the order of the trial judge should be restored. It is therefore clear in the present case that the plaintiff was entitled to interest, for there were no special reasons why it should not be given. The change in the value of money was not a special reason, for it affected everyone alike.

In Pickett’s case [1980] A.C. 136 the argument was concerned only with the question whether interest was recoverable. Concentrating as they did upon this vital issue, counsel had agreed the rate of interest between themselves. The House of Lords did not consider it. Consequently, while in the present case there is an entitlement to interest, that rate is such “as the court considers appropriate.” What is appropriate must be determined in the light of all the relevant circumstances at the date of the trial.

While inflation does not amount to a special reason for the court to refuse to award interest, it does not follow that the inflationary element which exists in the relevant current interest rates is not a factor to consider when determining the appropriate rate of interest.

In Pickett’s case Lord Wilberforce said, at p. 151:

“Increase for inflation is designed to preserve the ‘real’ value of money: interest to compensate for being kept out of that ‘real’ value. The one has no relation to the other. If the damages claimed remained, nominally, the same, because there was no inflation, interest would normally be given. The same should follow if the damages remain in real terms the same.”

Lord Wilberforce is saying that the two objectives are separate, but he does not say that current rates of interest have no relation to inflation. Moreover, he does not say what the compensatory rate of interest shall be.

It cannot be disputed that current rates of interest today have a large inflationary element. This element was adverted to in Cookson v. Knowles [1979] A.C. 556 , where Lord Diplock said, at p. 571: “Inflation is taken care of in a rough and ready way by the higher rates of interest obtainable as one of the consequences of it …” If damages were assessed on the basis of the value of the pound at the date of the writ, then there would be an overwhelming case for the award of interest at rates which carry an inflationary element. Such rates would seek, albeit imperfectly, to achieve two objects, namely to preserve the value of the award and to compensate for the late receipt of the money. In my opinion, however, it cannot be right to apply such interest rates to an award which already takes into account the need for preserving the value of money. We must look for some other rate of interest.

*823

There have been various statements giving reasons for the award of interest. In many we find a reference to the defendant wrongfully withholding the money from the plaintiff. Thus in London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] A.C. 429 , 437 Lord Herschell, L.C. said:

“… I think that when money is owing from one party to another and that other is driven to have recourse to legal proceedings in order to recover the amount due to him, the party who is wrongfully withholding the money from the other ought not in justice to benefit by having that money in his possession and enjoying the use of it, when the money ought to be in the possession of the other party who is entitled to its use.”

However, I do not think it is right in determining the rate of interest to proceed upon the basis that a defendant should be penalised. Indeed, I do not understand Lord Herschell to be suggesting this. There are many cases where the plaintiff does not wish to have his damages assessed as quickly as possible. The medical reports may be uncertain. His prospect of employment may be difficult to determine. There are a number of reasons where neither side is anxious to proceed expeditiously. On the other hand, it is fair to say that the plaintiff has not had the money, while the defendant has had the advantage of not having been compelled to pay. It seems to me that we should seek to discover a rate of interest which will compensate the plaintiff in recognition of the fact that a sum of money in respect of general damages should be considered, over the relevant period, as existing for his benefit.

That sum of money might have been thought to be the value of the award at the date of the writ with interest rates which counter inflation or the value at the date of the judgment with interest rates less the counter-inflationary element. However, Pickett’s case [1980] A.C. 136 tells us that it is upon the award at the date of judgment that interest must be based and therefore the lower rate of interest is appropriate.

In Cookson v. Knowles [1979] A.C. 556 Lord Diplock in relation to the calculation of fatal accident damages said, at p. 571:

“In times of stable currency the multipliers that were used by judges were appropriate to interest rates of 4 per cent. to 5 per cent. whether the judges using them were conscious of this or not.”

The Judgments Act 1838 , now repealed, provided for interest at 4 Per cent. At the time of Jefford v. Gee [1970] 2 Q.B. 130the court regarded 6½per cent. as appropriate. In retrospect one can discern the early signs of inflation. I therefore think that we should start by assuming a true earnings rate of interest of 4 per cent.

At the time that Jefford v. Gee [1970] 2 Q.B. 130 was decided an award of interest was taxable in the hands of the plaintiff. The Finance Act 1971 removed the liability for tax. In British Transport Commission v. Gourley [1956] A.C. 185 it was held that in assessing damages for loss of earnings the plaintiff’s liability for tax on those earnings should be taken into account. In awarding interest on general damages at a true earnings rate, we are seeking to compensate the plaintiff for the loss of the money which his award could have earned. This would indicate that the principle in Gourley’s case [1956] A.C. 185 should apply. On the other hand, the sums payable as interest will be relatively small and it will generally be *824 undesirable to add to the expense of litigation by seeking to achieve a precise determination of the plaintiff’s actual loss. Most plaintiffs will be paying tax at the basic rate. Some would not have invested the money at all. Others might have skilfully used it in interest free stock.

In awarding interest the judge is exercising a discretion. In the great majority of cases the plaintiff could have proceeded with greater dispatch; and yet it may well be wrong to deprive him of interest particularly as the defendant will have had the use of the money. I therefore think that we should approach this matter upon the basis that the court should arrive at a final figure which will be fair, generally speaking, to both parties.

It is not a fair basis upon which to award interest to assume that the defendant should have paid the proper sum (and this means the exact sum) at the moment of service of the writ. It is true that he must be paid some interest from that date because a sum of money was due to him. Unlike the case of a claim for a fixed money debt, no one can say exactly how much. The plaintiff does not have to quantify his demand and yet in most cases he is in the best position to evaluate his claim. The defendant may not have the material upon which to do so. He may not have had the necessary opportunity for medical examination. The plaintiff may not have given sufficient details of his injuries for anything like an estimate, as opposed to a guess, to be made of the value of the claim.

Moreover, in many cases the plaintiff’s condition will not have stabilised. We all know that the picture at the date of trial can be very different from that which was given at the date of writ. It is nobody’s fault as a rule, but simply a reflection of the difficulty in forming an accurate medical opinion. There may be an unexpected change for the worse. In this case the interval after service of the writ will help to ensure a proper figure for damages which will be greater than that which the plaintiff would have obtained at the time of the writ. On the other hand, if his condition has improved and his award is less in consequence, this will mean that the defendant has been saved from the possibility of paying more than he should have done. These considerations show that, while it is right to regard the plaintiff as having been kept out of an award, we should not regard it as necessarily resulting in a loss to him of 4 per cent of the judgment sum. I appreciate that against this argument it may be said that the judgment sum is the true figure to work on and that any lower figure, inflation apart, which might have been awarded at an earlier trial, would have been unfair to the plaintiff because, as we now know, the claim was really worth the sum now awarded. However, to award interest on this sum as though it were a debt is to call upon a defendant to pay interest upon a figure that was never demanded and which at the date of the writ is usually sheer guesswork. These considerations lead me to the conclusion that what I call the true earnings rate of interest, namely 4 per cent., if appropriate to a debt, is too high when applied to general damages.

Moreover, the recipient of interest at 4 per cent. will generally pay tax of at least 30 per cent. and therefore, after tax, the net interest is only 2.8 per cent.

As the plaintiff does not pay tax on the interest on general damages and as I regard 4 per cent. gross as too high, we must look for a net figure below 2.8 per cent. There was evidence in this case that to very select bodies, such as pension funds, two recent government stock issues which are index Linked had all been taken up. The actual interest rate which these produced of course fluctuates according to the figure at which *825 the stock stands after issue but the evidence was that around 2 per cent. was enough to attract investors. National savings index-linked certificates also produce only a very low rate of interest.

These considerations lead me to regard the figure of 2 per cent. as appropriate for interest on an award of general damages. I would further say that I respectfully agree with the comments which Watkins L.J. has told me he proposes to add.

WATKINS L.J.

For the reasons provided by Lord Denning M.R. and for those just given by Eveleigh L.J., I agree that (1) the appeal should be allowed so that the rate of interest awarded to the plaintiff on general damages will be 2 per cent., and (2) in future all awards of general damages should bear the like rate of interest.

I would add a reference to section 22 of the Administration of Justice Act 1969 which in amending section 3 of the Law Reform (Miscellaneous Provisions) Act 1934 provides that the court shall exercise its power to award interest on damages or on such part of the damages as the court considers appropriate, unless the court is satisfied that there are special reasons why no interest should be given in respect of those damages.

Clearly these provisions confer a discretion on the court to decide what part of an award of damages shall carry interest, the rate of that interest and the period for which it should be given. That discretion has now to be exercised so as, following the decision in Pickett’s case [1980] A.C. 136 , to award interest on general damages in personal injury cases at, following the guidelines now laid down by this court, the rate of 2 per cent. and, having regard to the circumstances of the case, for the period deemed to be appropriate.

Usually this period will run from the date of the writ to the date of trial, but the court may in its discretion abridge this period when it thinks it is just so to do. Far too often there is unjustifiable delay in bringing an action to trial. It is, in my view, wrong that interest should run during a time which can properly be called unjustifiable delay after the date of the writ. During that time the plaintiff will have been kept out of the sum awarded to him by his own fault. The fact that the defendants have had the use of the sum during that time is no good reason for excusing that fault and allowing interest to run durinsg that time.

LORD DENNING M.R. I would like to add one word after hearing Watkins L.J.’s judgment. It means that there can be an addition to the guideline. The interest, even at 2 per cent., should not necessarily be awarded for the whole period from the date of the service of the writ. The period may be reduced considerably: and only awarded for a lesser time according to the circumstances of the case.[Reported by SUSAN DENNY. Barrister-at-Law]

Representation

  • Solicitors: Hexlall Erskine & Co.; Mowll & Mowll, Canterbury.

Appeal allowed. No order as to costs.

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