Catastrophic injury cases: discount rates in Ireland to remain at 1% and 1.5%

The Minister for Justice has accepted the recommendations of an expert group that there be no change to the discount rate in catastrophic injuries cases in Ireland. The discount rate will continue at 1% for future care costs and 1.5% for future financial loss.

The Minister has indicated that work is underway on drafting regulations to officially set the discount rate at these levels. 

The Minister’s announcement, and the anticipated introduction of the relevant regulations, brings long-awaited and welcome certainty to plaintiffs and defendants involved in catastrophic injury litigation.

What is the discount rate?

The discount rate is the rate used by the courts in catastrophic injury cases to determine the size of a lump sum award that is necessary to compensate a plaintiff for future loss.

The rates of 1% and 1.5% were upheld by the Court of Appeal in the 2015 case of Russell v Health Service Executive. The Court in that case also held that a plaintiff should not be regarded as an “ordinary prudent investor” for the purposes of calculating the likely return on investment from a lump sum, but rather should be considered “more risk averse” than an “ordinary prudent investor”. 

Recommendations accepted by the Minister for Justice

The Minister has accepted the expert group’s recommendations that:

1. The 1% or 1.5% discount rates should not be changed. The group found that there is no material evidence to change either the discount rate of 1% (future care costs) or 1.5% (future financial loss). This recommendation is based on where inflation-linked bond yields stand at present.
2. Plaintiffs in catastrophic injury cases should be considered as having a risk averse profile.
3. The discount rate should be kept under review. The group recommended that an expert group should meet at least every three years to reassess the discount rate.
4. A trigger mechanism should be introduced. A trigger mechanism will enable a review of the discount rate if there is a marked change in economic circumstances or the rate is successfully challenged in the courts. The Minister is considering the most appropriate way in which the trigger mechanism can be brought into operation.

The checks and balances that will now come into play with the discount rate being regularly reviewed by an expert group should curb the proliferation of cases that are taken to challenge the discount rate and the uncertainty that this causes for plaintiffs and defendants.

Periodic Payment Orders (PPOs)

The Minister also published a report on the indexation rate for periodic payment orders (PPOs).

PPOs are an alternative to single lump sum payments to catastrophically injured people, providing for an ongoing annual payment over the lifetime of the injured person. PPO legislation, though commenced in 2017, died on the vine of the 2019 High Court decision in Hegarty, which found that PPOs using the previous legislative indexation (Harmonised Index of Consumer Prices (HICP) alone) would lead to under-compensation of plaintiffs.

The Minister has now accepted an expert group’s recommendations that, in the short term:

• The PPO indexation rate should be based on a combination of the Harmonised Index of Consumer Prices (HICP) and Annual Rate of Change (ARC) in nominal hourly health earnings.
• The amount of a yearly periodic payment payable should be based on a PPO indexation rate comprising 80% of average Annual Rate of Change in nominal hourly health earnings added to 20% of the HICP.

Work is also underway on drafting regulations to implement these recommendations. The regulations, once introduced, will reflect a more dynamic approach to calculating PPOs in terms of assessing future inflation and healthcare costs. These regulations will facilitate a revised PPO scheme which will provide an alternative settlement option to lump sum awards, increasing the options available to plaintiffs to ensure that their future care needs are fully met.

Related items:

• The personal injury discount rate in Scotland: expect a single rate
• Imminent second Call for Evidence on personal injury discount rate in England and Wales expected
• Government response to Personal Injury Discount Rate Call for Evidence: an overview and next steps
• Personal injury discount rate in England and Wales: exploring the options
• Personal injury discount rate: a global snapshot