Personal injury discount rate: a global snapshot

The recently closed Ministry of Justice (MoJ) call for evidence considers different models for setting the personal injury discount rate (PIDR) in other jurisdictions including Hong Kong, the Canadian province of Ontario and Jersey which set different rates based on the duration of the award, in addition to the heads of loss approach adopted in the Republic of Ireland. Below, we consider each of these jurisdictions in more detail.

Hong Kong - three discount rates

Unlike in England and Wales, Hong Kong does not have a statutory PIDR to calculate personal injuries awards. Rather, the prevailing approach is set out in Chan Pak Ting [2013], which provides that three different rates may be applied, depending on how long the plaintiff’s future needs are expected to last for:

If a claimant’s needs are less than 5 years, the discount rate is -0.5%.
If their needs are more than 5 years, but less than 10 years, it is 1%.
If their needs are more than 10 years, it is 2.5%.

When setting these rates, the judge observed that the aim is for fair compensation, not ‘perfect’ compensation. It was also accepted that a review of the rates should be considered if economic conditions changed.

As a result of the new rates, there was a marked increase in estimated damages, especially in relation to higher value cases. Nonetheless, on the whole defendants welcomed the new rates as there had been an across-the-board assumption that the rates would all be negative.

Whilst the discount rates have been in use for 10 years, there has been very little disagreement over the rates. In practice, the discount rates have been relatively easy to use and have not resulted in parties ‘gaming’ the system.

On 25 April 2018, the Law Reform Commission of Hong Kong (LRC)’s Sub-committee released a consultation paper to invite public views on whether the court should be given the power to make periodical payment orders (PPOs). The LRC published its report ‘Periodical Payments for Future Pecuniary Loss in Personal Injury Cases’ on 19 January 2023, recommending that the court be given, by way of legislation, the power to make PPOs in relation to future pecuniary loss in personal injury cases as soon as practicable.

Republic of Ireland – dual rate based on heads of loss

The current position in the republic of Ireland is that the judiciary sets the discount rate, although this jurisdiction does have legislation in place which allows the Justice Minister to set the rate. There is also legislation in place for PPOs but this is generally not used.

In the last 20 years, the discount rate has only changed twice. The rate was set at 3% in 2003 in the case of Boyne v Bus Átha Cliath. The Court of Appeal in the case of Gill Russell v HSE [2015], ruled that the discount rate should be reduced to between 1 and 1.5% depending on the head of damage, namely:

1% for pecuniary loss.
1.5% future care costs.

As has been the case in Hong Kong, the PIDR model has not resulted in ‘gaming’ of the system or contention regarding the application of the rates. As in England and Wales, the principle in Ireland is 100% compensation.

Ireland use the Irish Life Tables as opposed to the Ogden Tables. Further, every case requires actuarial evidence on future loss calculations and occasionally there is also economic evidence.

Whilst a consultation launched by the Department for Justice and Equality in 2020 sought views on how to set the rate, there has not yet been a published response.

Jersey - two separate discount rates

A statutory process for setting and reviewing the discount rate was introduced by the Damages (Jersey) Law 2019. Jersey has two single discount rates, namely:

0.5% if, at the time the first court order in an action for damages is made, future pecuniary loss is expected to be incurred for a period not exceeding 20 years; or
1.8% if, at the time the first court order in an action for damages is made, future pecuniary loss is expected to be incurred for a period exceeding 20 years. Interestingly, this rate cannot be set lower than 0%.

The legislation adopted the assumption that claimants adopt a ‘low risk’ not a ‘very low risk’ strategy to investment, aligning Jersey with the methodology introduced in England and Wales by the Civil Liability Act 2018.

Ontario - dual rate

The Canadian province of Ontario has had a dual rate system in place since 1999. This consists of a short-term rate which is currently 0.05% and a long-term rate which is currently 2.5%, with the switching point period fixed at 15 years.

To date, the short-term rate has changed 16 times whilst the long-term rate has remained the same. The Ontario Superior Court has departed from the prescribed discount rates on occasion, for example, in response to expert evidence that future healthcare costs were expected to rise higher than the rate of general inflation over the duration of the damages award.

Interestingly, a Sub-committee to the Canadian Rules Committee recommended in its 2020 draft report a return to a single rate. In its 2021 report, the Sub-committee again expressed its support for returning to a single rate but also recognised that:

The Civil Rules Committee might wish to consider an alternative approach in which the present two-tiered system is maintained. If that were to be done, we would suggest that the post-15 year discount rate be reduced from 2.5% to 1.0 percent.

Comment

The continued reflection on and consideration of the current personal injury discount rate (PIDR) system is an important part of ensuring a fair, efficient and modern civil justice system in England and Wales. As such, consultation is an important part of this process to ensure stakeholders have the opportunity to engage with the Government.

On that basis, we therefore support and welcome the call for evidence on exploring the option for a dual/multiple rates more widely which fulfils the Government’s commitment in 2019 to seek additional views and evidence on this.

However, while at this stage of the Government’s review the purpose of the call for evidence was to simply explore the options of dual/multiple discount rates, in the absence of specific proposals or recommendations on what the rate(s) may be, it is very difficult to put forward a preferred model. To a certain extent, stakeholders are considering the various PIDR models in a vacuum. We would therefore welcome the opportunity for the options to be explored further by way of specific proposals, in order to consider which mechanism is most appropriate, be that a single rate, dual or multiple rates.

Read other items in Healthcare Brief - July 2023