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Cite as: [1979] AC 556, [1978] UKHL 3

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JISCBAILII_CASE_TORT

    Die Mercurii 24° Maii 1978

    Parliamentary Archives,
    HL/PO/JU/4/3/1325

    HOUSE OF LORDS

    COOKSON (WIDOW)

    (Original Appellant and Cross Respondent)

    v.

    KNOWLES

    (Original Respondent and Cross Appellant)
    et & contra

    Lord Diplock
    Viscount Dilhorn
    Lord Salmon

    Lord Fraser of Tullybelton
    Lord Scarman


    Lord Diplock

    my lords,

    In the instant case the Court of Appeal, speaking through Lord
    Denning M.R., has laid down guide lines for the assistance of judges upon
    whom there falls the task of assessing damages in cases brought under the
    Fatal Accidents Act 1976. These complement some earlier guide lines
    for the assessment of damages in personal injury cases which had been laid
    down by the Court of Appeal in Jefford v. Gee [1970] 2 QB 130. The trial
    in Jefford v. Gee had taken place at a time when the relevant statutory
    provision empowering courts to award interest on damages was section 3 of
    the Law Reform (Miscellaneous Provisions) Act 1934. By the time the
    appeal was heard that section had been amended by section 22 of the
    Administration of Justice Act 1969.

    As was correctly stated by Lord Denning M.R. in Jefford v. Gee, the
    effect of the amendment was not to alter the principles which the court should
    apply when awarding interest on damages in cases where it decided to do so.
    What the amendment did was to oblige the court to award interest in all
    actions for personal injuries or fatal accidents unless it was satisfied that there
    were special reasons why no interest should be given.

    The section as amended gives to the judge several options as to the way
    in which he may assess the interest element to be included in the sum awarded
    by the judgment. He may include interest on the whole of the damages or
    on a part of them only as he thinks appropriate. He may award it for the
    whole or any part of the period between the date when the cause of action
    arose and the date of judgment and he may award it at different rates for
    different parts of the period chosen.

    The section gives no guidance as to the way in which the judge should
    exercise his choice between the various options open to him. This is
    all left to his discretion; but like all discretions vested in judges by statute
    or at common law, it must be exercised judicially or, in the Scots phrase
    used by Lord Emslie in Smith v. Middleton 1972 S.C. 30, in a selective and
    discriminating manner, not arbitrarily or idiosyncratically—for otherwise
    the rights of parties to litigation would become dependent upon judicial
    whim.

    It is therefore appropriate for an appellate court to lay down guide lines
    as to what matters it is proper for the judge to take into account in deciding
    how to exercise the discretion confided to him by the statute. In exercising
    this appellate function, the court is not expounding a rule of law from
    which a judge is precluded from departing where special circumstances exist
    in a particular case; nor indeed, even in cases where there are no special
    circumstances, is an appellate court justified in giving effect to the preference
    of its members for exercising the discretion in a different way from that
    adopted by the judge if the choice between the alternative ways of exercising
    it is one upon which judicial opinion might reasonably differ.

    If a discretion to differentiate in an award of interest on damages between
    one component of the full amount of the award and another is to be
    exercised judicially, this calls for an analysis of the nature and manner of
    assessment of the different kinds of loss and injury sustained in personal
    injury and fatal accident cases. Such an analysis was undertaken by the


    2

    Court of Appeal in Jefford v. Gee. Although it was an action for personal
    injuries by a living plaintiff, the judgment of the court dealt also with fatal
    accident cases, though this could only be obiter.

    The instant case is a typical fatal accident case. There are no special
    features about it that distinguish it from the general run of fatal accident
    cases so far as concerns awarding interest on damages. The deceased, the
    husband of the plaintiff, was killed in a motor accident in December 1973.
    He was then aged 49 and was in steady work as a wood-work machinist.
    Had he lived it would have been sixteen years before he reached the age of
    65 when he would have qualified for a retirement pension and, in the ordinary
    course, might have been expected to cease working. The plaintiff was aged
    45 and it was held by the Court of Appeal and is now common ground
    that her dependency at the date of death can be taken as £1,614 a year and
    that by the date of the trial in June 1976 the dependency as it would have
    been by then can be taken as £1,980 a year, owing to increases in wages
    during the two and a half years that had elapsed since December 1973.

    The judge assessed damages by applying to the dependency at the date
    of trial which he had reckoned at £2,250 per annum a multiplier of eleven
    years purchase. This comes to £24,750. He awarded interest on the whole
    of that amount from the date of death until the date of judgment at 9%,
    the short term investment rate. This came to an additional sum of £5,412.
    In so doing, he was following the guide lines for fatal accident cases laid
    down obiter in Jefford v. Gee.

    On appeal, the Court of Appeal varied those guide lines. They held
    that for the purpose of awarding interest on damages the damages should be
    divided into two parts, one assessed by reference to the assumed dependency
    during the period between the date of death and the date of trial, and the
    other by reference to the assumed future dependency from the date of
    trial onwards. On the former part, interest should be awarded at half
    the short term investment rate, but on the latter part in respect of future
    dependency no interest should be allowed. The court also took occasion,
    though this could only be obiter, to vary the guide lines for personal
    injury cases laid down in Jefford v. Gee by holding that damages for
    non-economic loss. i.e. pain and suffering and loss of amenities should be
    assessed on the scale at which such damages were currently being assessed
    at the date of trial, but that no interest should be allowed on
    this part of the damages. Both these changes were said to be required by
    reason of the increase in the annual rate of inflation since the decision in
    Jefford v. Gee.

    My Lords, in general I agree with the judgment of the Court of Appeal in
    the instant case and, except in one respect, with the reasoning of that
    judgment and of the earlier judgment in Jefford v. Gee. Two separate
    though related questions are involved in the appeal to your Lordships' House.
    The first is whether and, if so, how should the prospect of continued
    inflation after the date of trial be dealt with in assessing the capital sum
    to be awarded by way of damages in fatal accident and personal injury
    cases. The second is whether in such actions, where there are no unusual
    circumstances, interest should be awarded on the whole or part of that
    capital sum and, if the latter, on what part.

    When the first Fatal Accidents Act was passed in 1846, its purpose was
    to put the dependants of the deceased, who had been the bread-winner of
    the family, in the same position financially as if he had lived his natural
    span of life. In times of steady money values, wage levels and interest
    rates this could be achieved in the case of the ordinary working man by
    awarding to his dependants the capital sum required to purchase an annuity
    of an amount equal to the annual value of the benefits with which he had
    provided them while he lived, and for such period as it could reasonably be
    estimated they would have continued to enjoy them but for his premature
    death. Although tins does not represent the way in which it is calculated
    such a capital sum may be expressed as the product of multiplying an
    annual sum which represents the "dependency" by a number of years'


    3

    purchase. This latter figure is less than the number of years which
    represents the period for which it is estimated that the dependants would
    have continued to enjoy the benefit of the dependency, since the capital sum
    will not be exhausted until the end of that period and in the meantime so
    much of it as is not yet exhausted in each year will earn interest from which
    the dependency for that year could in part be met.

    The number of years' purchase to be used in order to calculate the capital
    value of an annuity for a given period of years thus depends upon the rate
    of interest which it is assumed that money would earn, during the period.
    The higher the rate of interest, the lower the number of years' purchase.
    Thus to give an illustration that is relevant to the instant case, the capital
    value of an annuity for the full sixteen years which would have elapsed
    if the deceased had lived to work until he was sixty-five would require the
    eleven years' purchase adopted as multiplier by the judge at an assumed
    interest rate (whether he worked it out or not) of 43/4%; whereas it would
    need only seven years as multiplier if the assumed interest rate were 12%.

    Today the assessment of damages in fatal accident cases has become
    an artificial and conjectural exercise. Its purpose is no longer to put
    dependants, particularly widows, into the same economic position as they
    would have been in had their late husband lived. Section 4 of the Fatal
    Accidents Act 1976 requires the court in assessing damages to leave out of
    account any insurance money or benefit under national insurance or social
    security legislation or other pension or gratuity which becomes payable to
    the widow on her husband's death, while section 3(2) forbids the court
    to take into account the re-marriage of the widow or her prospects of
    re-marriage. Nevertheless, the measure of the damages recoverable under
    the statute remains the same as if the widow were really worse off by an
    annual sum representing the money value of the benefits which she would
    have received each year of the period during which her husband would have
    provided her with them if he had not been killed. This kind of assessment,
    artificial though it may be, nevertheless calls for consideration of a number
    of highly speculative factors, since it requires the assessor to make assump-
    tions not only as to the degree of likelihood that something may actually
    happen in the future, such as the widow's death, but also as to the
    hypothetical degree of likelihood that all sorts of things might happen in
    an imaginary future in which the deceased lived on and did not die when
    in actual fact he did. What in that event would have been the likelihood
    of his continuing in work until the usual retiring age? Would his earnings
    have been terminated by death or disability before the usual retiring age
    or interrupted by unemployment or ill-health? Would they have increased,
    and if so, when and by how much? To what extent if any would he have
    passed on the benefit of any increases to his wife and dependent children?
    Would she have gone out to work when the children had grown older
    and made her own contribution to the family expenses in relief of his?

    Looked at from a juristic standpoint, it may be accurate to say, as did
    the majority of the High Court of Australia in Ruby v. Marsh (1975) 6 ALR
    385, that the entirety of the damage is sustained by the widow at the
    moment that her husband dies; but what she loses then is only the expectancy
    of the benefits which he would have provided for her in future years if
    he had lived. Looked at realistically her loss of the benefit for each year
    is not suffered until the year in which it would have been received; and at
    the date of death the present value of that future loss is such a sum as
    would grow to the money value of the benefit if it were invested at
    compound interest at current rates until the year in which it would have
    been received.

    So if it be assumed that apart from any other factors, owing to future
    rises in the general level of wages consequent on monetary inflation, the
    value in inflated currency of the benefits provided to his wife by the
    deceased would have progressively increased if he had lived it would be
    possible by this means to calculate the total capital value at the date of
    death of the deceased of yearly sums of amounts which did not remain
    constant but varied from time to time or increased progressively for each
    successive year during the term of the annuity.


    4

    As regards any such assumption for the period after the trial, it can only
    be conjectural, since it involves in addition to the prospects of continuing
    monetary inflation, the various speculative factors particular to the deceased
    which I have previously mentioned. For the period between the death and
    trial, however, there will be some hard facts available which reduce, though
    they cannot eliminate, reliance on conjecture. Thus if it can be proved,
    as it was in the instant case, that if the deceased had continued in good
    health in his existing employment for the two-and-a-half years that had
    elapsed between his death and the date of trial his wages would have risen
    by some 27% (which represents a rate of 10% per annum compound over
    the two-and-a-half years) and the judge feels justified on the evidence in
    assuming a likelihood, which however necessarily falls short of certainty,
    that the dependency during that period would have increased proportionately,
    there is a relatively firm foundation on which to base an assessment of the
    value of the benefits lost by the widow up to the date of trial.

    I agree therefore with that part of the decision of the Court of Appeal
    that holds that, as a general rule in fatal accident cases the damages should
    be assessed in two parts, the first and less speculative component being an
    estimate of the loss sustained up to the date of trial, and the second
    component an estimate of the loss to be sustained thereafter.

    In so deciding the Court of Appeal assigned as the reason for assessing
    the damages in two parts not the greater reliability of the assessment of the
    loss suffered by the widow during the period up to the date of trial, but
    the fact that only by this method does one obtain as a starting point for
    estimating the loss to be suffered by the widow in future years after the
    trial, a figure for " the dependency " greater than that existing at the date
    of death by an amount that reflects the influence of inflation on the general
    level of wages since the deceased's death. It is at this point in the reasoning
    that with respect 1 part company with them.

    What they in fact did was to assess the annual dependency during the
    two-and-a-half years up to the trial at the mean figure of £1,797 accepted by
    the court as applicable during that period. For the remaining period of
    dependency after the dale of trial they applied a multiplier of 8 1/2 years
    purchase (viz. the judge's 11 years minus 2 1/2 to the figure of £1,980 to which
    they accepted the dependency would have risen by the date of the trial.
    By calculating the future dependency in this way and using a figure 27%
    higher than the dependency at the date of death, they considered that
    eil'ect would be given to the increase in the general rate of wages owing to
    inflation which had actually occurred between the date of death and the
    date of trial; but apparently they did not think that their calculations made
    any allowance for the possibility of continuing inflation thereafter. In this,
    they were in my view mistaken.

    In Mullen v. McMonagle [1970] A.C. 166 when the rate of inflation
    was running at an average rate of 3 to 3 1/2% per annum, I suggested that
    its effects could be offset, to some extent at any rate, by prudent investment
    in buying a home, in growth stocks or in short term high interest yielding
    securities; and I went on to give some examples of the effects of interest
    rates upon the capital value of annuities. High rates are obtainable in
    times of inflation because the interest sought by a lender represents not
    only what he would require in times of stable currency for foregoing the
    use of his money for a year, but also an additional sum that is sufficient
    to restore to him in depreciated currency the buying power which his
    money represented when he lent it.

    I had supposed that what 1 myself had said in 1970 and Lord Pearson

    had repeated in 1971 in Taylor v. O'Connor [1971] A.C. 115 at p 143 that

    the rate of inflation could be largely offset by prudent investment policy,

    would no longer hold good once inflation was proceeding at rates as high

    as those that have been current in the last three or four years. This has

    proved to be the case with investment in equities and growth stocks; but,

    as has been demonstrated by arithmetical tables produced by the respondent,

    it has not been so in the case of investment in fixed interest bearing

    securities at any rate if the rate of tax on the dependant's gross income is


    5

    low. The rate of return on these securities between the dates of death and
    trial has been of the order of 14% gross; thus giving to an investor in the
    tax bracket which would have been applicable to the plaintiff in the instant
    case a net return of 12%. This is the relevant type of investment which
    is to be assumed for the purpose of calculating the present value of an
    annuity. At this net rate of interest the multiplier of 11 years' purchase
    adopted by the judge and split into 2 1/2 and 8 1/2 years by the Court of Appeal
    is sufficient to provide an annuity for the whole period of 16 years of a
    constant amount between 55% and 60% greater than the annual sum found
    by the Court of Appeal to be the dependency at the date of death and some
    24% greater than the assumed dependency at the date of trial.

    So far as inflation and increasing wages would affect dependency in future
    years, however, the effects are progressive. If allowance is to be made for
    future inflation a more relevant calculation would be of the capital cost
    of an annuity which increased from one year to another throughout the
    period. In the instant case the product of 11 years' purchase of a sum of
    £1,614 which was found by the Court of Appeal to be the dependency at
    the date of the deceased's death would produce at an assumed net rate
    of interest of 12% a capital sum sufficient to purchase an annuity starting
    at £1,614 and increasing by £180 in each successive year throughout the
    whole period of 16 years. For the first two-and-a-half years between death
    and trial this gives figures which are not very far off what the evidence
    showed to be the actual rate of increase of wages during that period in
    the kind of work in which the deceased had been employed. They take
    three years instead of two and a half to reach £1,980. For the remaining
    13 1/2 years which would have elapsed before the deceased would have reached
    normal retiring age the capital sum would provide for continuing annual
    increases of the same amount rising in the last year to a dependency of
    £4,314. Since the annual rise is constant and inflation operates at a com-
    pound rate this calculation provides for diminishing rate of future inflation.
    On the other hand it makes no allowance for the various hazards of working
    life that may have ended, interrupted or reduced the earning power of the
    deceased before he reached normal retiring age of 65.

    My Lords, calculations such as these are artificial, but so is the measure
    of damages called for by the Fatal Accidents Act 1976. The kinds of
    security with which the calculations are concerned are not typical of the
    way in which a dependent widow (who will have other sources of income
    as well) is likely to invest the damages she receives; but they represent the
    kinds of security most appropriate for providing the annuity upon the
    capital cost of which the assessment of damages in fatal accident cases has
    to be based. They demonstrate that even in periods of inflation much
    higher than those contemplated at the time of Mallett v. McMonagle and
    Taylor v. O'Connor, the greater part of its effect upon the real value of
    damages recovered in respect of future annual loss would be counteracted
    by a compensating increase in interest rates.

    Quite apart from the prospects of future inflation, the assessment of
    damages in fatal accidents can at best be only rough and ready because
    of the conjectural nature of so many of the other assumptions upon which
    it has to be based. The conventional method of calculating it has been to
    apply to what is found upon the evidence to be a sum representing " the
    dependency", a multiplier representing what the judge considers in the
    circumstances particular to the deceased to be the appropriate number of
    years' purchase. In times of stable currency the multipliers that were
    used by judges were appropriate to interest rates of 4% to 5% whether
    the judges using them were conscious of this or not. For the reasons I
    have given I adhere to the opinion Lord Pearson and 1 had previously
    expressed which was applied by the Court of Appeal in Young v. Percival
    [1975] 1 WLR 17 at 27-29, that the likelihood of continuing inflation after
    the date of trial should not affect either the figure for the dependency or
    the multiplier used. Inflation is taken care of in a rough and ready way
    by the higher rates of interest obtainable as one of the consequences of

    6

    it and no other practical basis of calculation has been suggested that is
    capable of dealing with so conjectural a factor with greater precision.

    I turn then to the question of interest on the two components in the
    award of damages; the loss of the dependency sustained by the widow up
    to the date of trial, and the future loss of the dependency after that date.
    I can deal with the matter shortly, for I agree with the result reached by
    the Court of Appeal. Once it has been decided to split the damages into
    two components which are calculated separately, the starting point for the
    second component, the future loss (which I will deal with first), is the
    present value not as at the date of death but at the date of the trial of an
    annuity equal to the dependency starting then and continuing for the
    remainder of the period for which it is assumed the dependency would have
    enured to the benefit of the widow if the deceased had not been killed.
    To calculate what would have been the present value of that annuity at
    the date of death, its value at the date of trial would have to be discounted
    at current interest rates for the two-and-a-half years which had elapsed
    between the death and trial. From the juristic standpoint it is that dis-
    counted amount and no more to which the widow became entitled at the
    date of her husband's death. Interest on that discounted figure to the date
    of trial would bring it back up to the higher figure actually awarded. To
    give in addition interest on that higher figure would be not only to give
    interest twice but also to give interest on interest.

    On the other hand the first component of the total damages, the loss
    of dependency up to the date of trial, is in respect of losses that have
    already been sustained over a period of two-and-a-half years before the
    award is made. Had her husband lived the widow would have received
    the benefit of the dependency in successive instalments throughout that
    period. A rough and ready method of compensating her for the additional
    loss she has sustained by the delay in payment of each instalment (which
    ranges from two-and-a-half years to none) is that adopted by the Court of
    Appeal, viz. to give interest for the whole of the period but at half the
    short term investment rate upon the mean annual amount which represents
    the assumed dependency during that period. Looked at from the juristic
    standpoint the justification for giving interest at only half the current rate
    is that the amount that the widow became entitled to at the date of her
    husband's death in respect of the instalments of the dependency which
    would have enured to her benefit up to the date of trial, would be the
    present value of each successive instalment as at the date of death. To
    calculate that value the nominal amount of the first instalment after the
    death would not need to be discounted at all, that of the median instalment
    would need to be discounted at current interest rates, but for half the period
    only between date of death and trial while that of the last instalment would
    need to be discounted at current interest rates for the whole of the period.
    The discounted figure for the sum of the instalments which represents their
    present value as at the date of death would thus be less than the sum
    actually awarded by an amount which represents the discount at current
    rates of interest on the nominal amount of each instalment for a period
    which over all the instalments averages approximately half the period
    between the date of death and trial. So, in effect, interest for half the
    period has already been included in an award of the sum of the nominal
    amounts of the instalments due up to the date of trial. To give interest
    on the sum of the instalments for the whole of that period instead of only
    half would be to give interest twice. This may be avoided either by
    halving the period for which interest is given at current rates or by giving
    interest for the whole period at half the current rates, as suggested by the
    Court of Appeal.

    To summarise:

    For the reasons I have given, which follow largely upon the arithmetical
    basis for the assessment of damages which is called for by the provisions
    of the Fatal Accidents Act 1976 I consider that

    1. In the normal fatal accident case, the damages ought, as a general
    rule, to be split into two parts:


    7

    1. the pecuniary loss which it is estimated the dependants have
      already sustained from the date of death up to the date of trial
      (" the pre-trial loss "), and

    2. the pecuniary loss which it is estimated they will sustain from
      the trial onwards (" the future loss ").


    1. Interest on the pre-trial loss should be awarded for a period between
      the date of death and the date of trial at half the short term interest
      rates current during that period.

    2. For the purpose of calculating the future loss, the " dependency "
      used as the multiplicand should be the figure to which it is estimated the
      annual dependency would have amounted by the date of trial.

    3. No interest should be awarded on the future loss.

    4. No other allowance should be made for the prospective continuing
      inflation after the date of trial.

    I would dismiss this appeal, and the respondent's cross appeal

    [The instant case is concerned with damages in fatal accident cases only
    but the Court of Appeal took occasion to deal also though obiter with
    damages in personal injury cases and your Lordships have been invited to
    follow suit. It is evident that what I have earlier said about the effect of
    the prospect of continuing inflation on the assessment of damages for future
    loss of the dependency in fatal accident cases would apply pari passu to
    claims for loss of future earnings (or earning power) in personal injury
    actions; what I have said about awarding interest on the two components
    of the total claim to damages in fatal accident cases, would also apply to
    claims for loss of earnings in personal injury actions, where the corresponding
    first component is the loss of earnings up to the date of trial claimed under
    the head of special damage. 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.]

    Viscount Dilhorne

    MY LORDS,

    I have had the advantage of reading in draft the speeches of my noble
    and learned friends Lord Diplock and Lord Fraser of Tullybelton. I
    agree with them and would dismiss this appeal and the cross appeal

    Lord Salmon

    MY LORDS,

    I agree that this appeal and the cross appeal should both be dismissed broadly on the
    grounds stated
    by my noble and learned friend Lord Diplock and for the detailed reasons
    given by my noble and learned friend Lord Fraser of Tullybelton with which
    I completely concur.

    There is one matter that 1 should like to emphasise, namely that in my
    view it is impossible to lay down any principles of law which will govern
    the assessment of damages for all time. We can only lay down broad
    guide lines for assessing damages in cases where the facts are similar to
    those of the instant case and where economic factors remain similar to
    those now prevailing. For example, it was at one time regarded as
    axiomatic that, in assessing damages in cases of death, for loss of earnings,
    or maintenance, it could safely be assumed that if a substantial part of the
    sum awarded was invested in equities, the plaintiff would be amply
    protected against inflation because this would be balanced by the rise in
    equities which would automatically follow inflation. This theory which

    8

    was regarded by most financial experts as being beyond doubt is now
    exploded. But it has not made much difference because sums awarded as
    damages, if invested in Gilts, now produce interest up to the rate of 14%
    a year. And so, although in assessing damages the courts still use about
    the same multiplicand and multiplier as formerly, the result, by chance,
    is much the same. Just as the price of equities ceased to keep pace with
    inflation so, one day, may the interest rates of Gilts. I entirely agree with
    Lord Reid when he said in Taylor v. O'Connor [1971] A.C. at p.130 A that
    in assessing damages it would "be quite unrealistic to refuse to take it
    " (inflation) into account at all." Inflation, however, is only relevant in
    so far as it increases wages. Wages may keep pace with inflation or they
    may lag behind or overtake it. If inflation ceases, as it might, to increase
    interest rates just as it has failed to increase the capital value of equities,
    yet it increases the rate of wages, the whole basis of assessing damages for
    loss of wages or maintenance will have to be reconsidered; and the instant
    case will become as outdated as Jefford v. Gee [1970] 2 OB 130.

    Lord Fraser of Tullybelton

    MY LORDS,

    Three question are raised in this appeal. The first relates to the basis on
    which damages under the Fatal Accidents Act 1846 to 1959, and now under
    the Fatal Accidents Act 1976, ought to be assessed, and in particular whether
    it should be similar to the basis used for assessing damages for personal
    injuries. The second is whether the prospect of future inflation should be
    taken into account in assessing damages under the Acts and, if so, how
    that should be done. The third question relates to the principles on which
    the discretionary power of the court to award interest on the principal sum
    of damages under the Acts ought to be exercised. The questions are
    separate but to some extent are related to one another.

    On the first question the most important point is whether the damages
    ought to be assessed as at the date of death or as at the date of trial. In
    strict theory 1 think there is no doubt that they should be assessed as at the
    date of death, just as in theory they are assessed at the date of injury in a
    personal injury case. But the damages awarded to dependants under the
    Fatal Accidents Acts for loss of support during what would (but for the
    fatal accident) have been the remainder of the deceased person's working
    life have to be based on estimates of many uncertain factors, including the
    length of time during which the deceased would probably have continued
    to work and the amount that he would probably have earned during that time.
    The court has to make the best estimates that it can having regard to the
    deceased's age and state of health and to his actual earnings immediately
    before his death, as well as to the prospects of any increases in his earnings
    due to promotion or other reasons. But it has always been recognised,
    and is clearly sensible, that when events have occurred, between the date of
    death and the date of trial, which enable the court to rely on ascertained
    facts rather than on mere estimates, they should be taken into account in
    assessing damages. Thus if a dependant widow has died between the date
    of the injured man's death and the date of the trial or if (before the Fatal
    Accidents Act 1976 section 3(2) became law) she had remarried, the fact
    would be taken into account, just as medical evidence of facts relating to
    the injuries of an injured person up to the date of trial is taken into account
    in preference to prognosis made immediately after the accident. Similarly
    if the rate of wages paid to those in the same occupation as the deceased
    person has increased between the date of death and the date of trial
    the increase is rightly taken into account in assessing damages due to his
    dependants under the Fatal Accidents Acts. Assessment of damages in
    this way requires the pecuniary loss to be split into two parts, relating
    respectively to the period before the trial and the period after the trial, in
    the same way as it is split in a personal accident case. To that extent the
    same method of assessment is used in both classes of case.


    9

    The loss of support between the date of death and the date of trial is the
    total of the amounts assumed to have been lost for each week between those
    dates, although as a matter of practical convenience it is usual to take the
    median rate of wages as the multiplicand. In a case such as this, where the
    deceased's age was such that he would probably have continued to work
    until the date of trial, the multiplier of this part of the calculation is the
    number of weeks between the date of death and the date of trial. That is
    convenient, although it is strictly speaking too favourable to the plaintiff,
    because it treats the probability that, but for the fatal accident, the deceased
    would have continued to earn the rate for the job and to apply the same
    proportion of his (perhaps increased) earnings to support his dependants
    as if it were a certainty. I mention that in order to emphasize how
    uncertain is the basis on which the whole calculation proceeds. That was
    the method employed by the Court of Appeal, which calculated the
    dependency at date of death as £1,614, and at date of trial
    as £1,980, giving a median of £1,797 per annum as the multiplicand for
    the period of 2 1/2 years between the two dates.

    For the period after the date of trial, the proper multiplicand is, in my
    opinion, based upon the rate of wages for the job at the date of trial.
    The reason is that that is the latest available information, and, being a hard
    fact, it is a more reliable starting point for the calculation than the rate of
    wages at the time of death. The appropriate multiplier will be related
    primarily to the deceased person's age and hence to the probable length
    of his working life at the date of death. In the present case the deceased
    was aged 49 at the date of his death and the trial judge and the Court of
    Appeal used a multiplier of 11. That figure was not seriously criticised
    by Counsel as having been inappropriate as at the date of death, although
    I think it is probably generous to the appellant. From that figure of 11, the
    Court of Appeal deducted 24; in respect of the 2 1/2 years from the date of
    death to the date of trial, and they used the resulting figure of 8 1/2 as the
    multiplier for the damages after the date of trial. In so doing they departed
    from the method that would have been appropriate in a personal injury
    case and counsel for the appellant criticised the departure as being
    unfair to the appellant. The argument was that if the deceased
    man had had a twin brother who had been injured at the same time as the
    deceased man was killed, and whose claim for damages for personal injury
    had come to trial on the same day as the dependant's claim under the
    Fatal Accidents Acts, the appropriate multiplier for his loss after the date
    of trial would have been higher than 8 1/2. On the assumption, which is
    probably correct, that that would have been so, it does not in my opinion
    follow that the multiplier of 8 1/2 is too low in the present claim under the
    Fatal Accidents Acts where different considerations apply. In a personal
    injury case, if the injured person has survived until the date of trial, that is
    a known fact and the multiplier appropriate to the length of his future
    working life has to be ascertained as at the date of trial. But in a fatal
    accident case the multiplier must be selected once and for all as at the date
    of death, because everything that might have happened to the deceased
    after that date remains uncertain. Accordingly having taken a multiplier
    of 11 as at the date of death, and having used 2 1/2 in respect of the period up
    to the trial, it is in my opinion correct to take 8 1/2 for the period after the
    date of trial. That is what the Court of Appeal did in this case.

    I pass to the second question, which is whether the award should be
    increased to make allowance for inflation after the date of trial. What is
    relevant here is not inflation in general, but simply increases in the rate of
    earnings for the job in which the deceased person would probably have
    been employed. The reason for the increase is irrelevant. There would
    be no justification for attempting to protect dependants against the effects
    of general inflation, except to the extent that they might reasonably expect
    to have been protected by increases in the deceased person's earnings. At
    first sight it might seem reasonable that the award for the period after the
    date of trial should be increased in some way " to allow for inflation in
    " the future ". But I am satisfied that an increase on that ground would
    not merely be impossible to calculate on any rational basis, but would

    10

    also be wrong in principle. The measure of the proper award to a widow
    (who is generally the main dependant and to whom alone I refer, brevitatis
    causa)
    is a sum which, prudently invested would provide her with an annuity
    equal in amount to the support that she has probably lost through the death
    of her husband, during the period that she would probably have been
    supported by him. The assumed annuity will be made up partly of income
    on the principal sum awarded, and partly of capital obtained by gradual
    encroachment on the principal. The income element will be at its largest
    at the beginning of the period and will tend to decline, while the capital
    element will tend to increase until the principal is exhausted. The
    multipliers which are generally adopted in practice are based on the assump-
    tion (rarely mentioned and perhaps rarely appreciated) that the principal
    sum of damages will earn interest at about 4 or 5%, which are rates that
    would be appropriate in time of stable currency, as my noble and learned
    friend Lord Diplock pointed out in Mallett v. McMonagle [1970] A.C. 166,
    176 D. But in time of rapid inflation the rate of interest that can be earned
    by prudent investment in fixed interest securities tends to be high, as
    investors seek to protect their capital and also to obtain a positive rate of
    interest. At the date of the trial in this case (May 1976) it was possible to
    obtain interest at a rate of approximately 14% in gilt edged securities, and
    so long as inflation continues at its present rate of approximately 10%,
    experience suggests that the interest element in the widow's assumed
    annuity will be appreciably higher than the 4 or 5% on which the multiplier
    is based. What she loses by inflation will thus be roughly equivalent to
    what she gains by the high rate of interest, provided she is not liable for a
    high rate of income tax. In that sense it is possible to obtain a large
    measure of protection against inflation by prudent investment, although the
    theory that protection was to be had by investment in equities is now
    largely exploded. I have referred to the " assumed " annuity because of
    course the widow may not choose to apply her award in the way I have
    mentioned; it is for her to decide and she may invest it so as to make a
    profit or she may squander it. But the defendant's liability should be
    calculated on the basis of an assumed annuity. In the normal class of case,
    such as the present, where the widow's annuity would be of an amount
    which would attract income tax either at a low rate or not at all, I
    respectfully agree with the statement of my noble and learned friend in
    Mallett, supra at 176C that the courts in assessing damages under the
    Fatal Accidents Acts should leave out of account the " risk of further
    " inflation, on the one hand, and the high interest rates which reflect the
    " fear of it and capital appreciation of property and equities which are
    " the consequence of it, on the other hand." It follows that in my opinion
    the Court of Appeal came to the right conclusion in Young v. Percival [1975]
    1 W.L.R. 17. I do not consider that anything I have said is inconsistent
    with the view expressed by Lord Reid in Taylor v. O'Connor [1971] A.C.
    115, 130 A to the effect that it would be " quite unrealistic to refuse to take
    " it [inflation] into account at all." The fact is that, as was demonstrated
    from tables shown to us, inflation and the high rates of interest to which
    it gives rise is automatically taken into account by the use of multipliers
    based on rates of interest related to a stable currency. It would therefore be
    wrong for the court to increase the award of damages by attempting to make
    a further specific allowance for future inflation.

    In exceptional cases, where the annuity is large enough to attract income
    tax at a high rate, it may be necessary for the court to have expert evidence
    of the spendable income that would accrue from awards at different levels
    and to compare the total annuity with the amount of the lost dependency
    having regard to the net income (after tax) of the deceased person. Whether
    in such cases it might be appropriate to increase the multiplier, or to allow
    for future inflation in some other way would be a matter for evidence in
    each case.

    With regard to the third question, the purpose of awarding interest on
    damages is to compensate the plaintiff in so far as he has been kept out
    of money which was due to him before the award is made. Interest is not
    awarded as a punishment to the debtor for withholding the money, although

    11

    any unjustifiable delay on his part would be a reason for making the award
    just as unjustified delay by the plaintiff in claiming it might be a reason for
    refusing to make an award, see General Tire & Rubber Co. v. Firestone
    Tyre & Rubber Co. Ltd.
    [19751 1 W.L.R. 819, 836 H (Lord Wilberforce)
    841 E (Lord Salmon).

    The powers and duties of the court in respect of awarding interest on
    damages are now regulated by subsection (1) of section 3 of the Law Reform
    (Miscellaneous Provisions) Act 1934 and the new subsection (1A) added by
    section 22 of the Administration of Justice Act 1969. The latter subsection
    provides that where damages are awarded in respect of inter alia a person's
    death (as in the present case) the court shall exercise its power to order
    payment of 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 ". The section evidently leaves a wide measure of discretion
    to the court and it gives no indication of the special reasons that should
    weigh with the court in deciding whether to order payment of interest or
    not. It is a matter for the discretion of the court, and your Lordships'
    House can only provide guide-lines as to the principles on which the
    discretion should be exercised. But some guide-lines are required in order
    that the discretion may be exercised with reasonable consistency.

    The Court of Appeal, having split the damages into two parts, pre-trial
    and post-trial, gave interest on the former part at half the appropriate rate
    and gave no interest on the latter part. That was in line with the decision
    in Jefford v. Gee [1970] 2 QB 130 which was a case of personal injuries.
    In my opinion the Court of Appeal made its award of interest on correct
    principles. The only argument to the contrary that seems to merit considera-
    tion is to the effect that interest ought to have been given on the post-trial
    damages as well as on the pre-trial damages, on the ground that the whole
    sum of damages was due at the date of death and ought in theory to have
    been paid then. An argument to that effect prevailed with the majority
    of the High Court of Australia in Ruby v. Marsh (1975) 132 C.L.R. 642 on
    a construction of section 79A(3)(b) of the Supreme Court Act 1958 of
    Victoria. Section 79A is in terms broadly similar to those of section 1A
    of the English Act of 1934, as amended by the Act of 1969, and in so far
    as the decision in Ruby, supra, turned upon considerations that would apply
    to the English legislation, I would respectfully prefer the view of the
    minority. The realistic view seems to me to be that damages for the period
    after the date of trial are compensation for a loss of dependency which
    the plaintiff has not suffered at that date and that she is therefore being
    compensated for future loss. This part of the compensation ought, in
    theory, to be discounted because it is being paid in advance, but the
    information that was put (without objection) before the House showed
    that, in this case, it had not been effectually discounted. The realistic
    view has hitherto prevailed both in England—see Jefford v. Gee, supra—and
    in Scotland where similar, though not identical, statutory provisions apply.
    In Macrae v. Reed and Mallick Ltd. 1961 S.C. 68 (a case of personal
    injuries) Lord Patrick at page 77 said " What can never be justified, in
    " my opinion, is an award of interest on loss which the pursuer has not yet
    " sustained at the date of the trial from a date anterior to the Lord Ordinary's
    " interlocutor...." and in Smith v. Middleton 1972 S.C. 30 (a claim by a widow
    in respect of the death of her husband) Lord Emslie (the Lord Ordinary as
    he then was) expressed his general agreement with Lord Patrick's opinion
    in Macrae. I am of the opinion that the Court of Appeal rightly awarded
    interest on the damages in respect of the period before the date of trial,
    and rightly declined to award interest on the damages for the period after
    the date of trial.

    I would dismiss this appeal and the cross appeal.


    12

    Lord Scarman

    MY LORDS,

    I have had the advantage of reading in draft the speeches of my noble
    and learned friends Lord Diplock and Lord Fraser of Tullybelton. I agree
    with them and would dismiss the appeal and the cross appeal. I add only one
    comment. In so
    far as this appeal is concerned with the award of interest pursuant to
    section 3 of the Law Reform (Miscellaneous Provisions) Act 1934 as amended
    by section 22 of the Administration of Justice Act 1969 neither the Court
    of Appeal nor your Lordships' House can do more than indicate guidelines
    for the exercise of a judicial discretion conferred upon judges by statute.
    Judicially-indicated guidelines should not be treated as though they were
    a rule of law. They are to be followed unless the particular circumstances
    of a case, (which in the present context must include any change from
    currently prevailing financial conditions), indicate that they would be
    inappropriate. The fact that the Court of Appeal has considered it appro-
    priate in this case to revise the guidance it gave in Jefford v. Gee [1970]
    2 Q.B. 130 illustrates, if I may respectfully say so, the legally correct
    approach to guidelines declared by an appellate court for the exercise by
    judges of a discretion conferred by statute.

    310657 Dd 353246 140 5/78


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