damages for personal injury: non-pecuniary loss - Law Commission

2.50 Support for the current practice generally rested on the view that the reasoning
underlying it is sound, and that it represents a workable compromise. A higher rate
to discourage delay by defendants would be unfair. It is often claimants who delay.
They would be encouraged to do so by a punitive rate of interest. In any event it is
a myth that the 2 per cent rate of interest is an incentive to defendants to delay.
2.51 Those in favour of the net rate of return on ILGS gave a range of reasons for their
view. Positive support for the ILGS rate tended to be on the basis of the arguments
put forward in the consultation paper. The 2 per cent rate was seen as out of touch
and arbitrary. Consultees who supported the award of interest at a higher rate than
ILGS essentially did so on the basis that this would encourage defendants to settle
cases.
2.52 Particularly in view of the lack of consensus amongst consultees on this issue, and
certainly the lack of enthusiasm or persuasive argument for a much higher rate of
interest, it seems to us that the main question in relation to the rate of interest on
damages for non-pecuniary loss is whether it should be based on ILGS rates. In
Wells v Wells 46
the House of Lords supported the recommendation in our Report
on Structured Settlements and Interim and Provisional Damages 47
that ILGS rates
be used in the calculation of future pecuniary loss. Their Lordships held that 3 per
cent should be the guideline rate upon which discounts are based, subject, of
course, to a different rate being specified by the Lord Chancellor under section 1
of the Damages Act 1996. 48
It would seem to follow that if the rate of interest on
damages for non-pecuniary loss should be based on ILGS rates, the actual rate
adopted should be 3, rather than 2, per cent.
2.53 As we have said above, 49
the argument of principle for increasing the rate of
interest on damages for non-pecuniary loss to 3 per cent is that ILGS provides the
best evidence of the loss to the claimant through being kept out of his or her
damages for non-pecuniary loss.
2.54 There is a counter-argument of principle. As we have also said above, 50
in theory
interest should only be awarded on damages for past non-pecuniary loss. Since
interest is awarded on the whole sum of damages for non-pecuniary loss (and we
do not recommend that this be changed), it may be argued that, even if ILGS is
the right starting point, the ILGS rate should be discounted. This would be a
source of injustice where the claimant was awarded damages for past nonpecuniary
loss only. However, the magnitude of that injustice would most probably
be slight, given that in such circumstances the sum of interest involved is very
46 [1998] 3 WLR 329.
47 (1994) Law Com No 224.
48 Or, in the absence of action by the Lord Chancellor, to there being a significant change in
economic circumstances justifying a new guideline by the courts. See [1998] 3 WLR 329,
355 (Lord Steyn) & 370 (Lord Hutton). Lord Hope at 360 stated that adjustments and the
timing of them should now be left to the Lord Chancellor and the Secretary of State for
Scotland, in the exercise of the power conferred on them by section 1 of the Damages Act
1996.
49 See para 2.46 above.
50 See paras 2.33, 2.37 & 2.45 above.
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