Case No: QBENF 2000/0102/A2
 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QBD (Wright J.)
Royal Courts of Justice
Strand, London, WC2A 2LL

Tuesday 4 April 2000

B e f o r e :

LORD JUSTICE STUART-SMITH
LORD JUSTICE MUMMERY
and 
LORD JUSTICE TUCKEY

	TESSEL MEIKE MEREL VAN OUDENHOVEN	Respondent	
	- and -		
	GRIFFIN INNS LIMITED	Appellant	

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(Transcript of the Handed Down Judgment of
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Richard Methuen QC & Susan Rodway (instructed by  Messrs Badhams for the Appellant)
Dan Brennan QC & Sydney Chawatama (instructed by  Messrs Irwin Mitchell for the Respondent)
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Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice Stuart-Smith:

Introduction

1.	This is the judgment of the court.  This appeal raises the question of the effect on the compensation of an award of future loss of earnings of foreign tax rates substantially higher than those incurred in the United Kingdom.

The Facts
2.	At the beginning of 1991 the claimant was a civil engineering student following an M.Sc. course at the Technical University of Delft in Holland.  On 1 March of that year she visited the defendant’s public house in Great James Street, London.  She was sitting at a table, when for some unexplained reason, a large blackboard, used for displaying details of the menu, fell on her head, striking her edge-on in the parietal region of the skull.  Liability was not in dispute; but at the trial there was an acute conflict as to the consequences of the injury.  The defendants maintained that it had had little or no effect.  The claimant’s case on the other hand was that it had had serious consequences, particularly in relation to her earning capacity.  Her case was that she had been a very high-flyer who would have earned very substantial earnings.  In effect the judge accepted the claimant’s case, although he did not take such a generous view of the claimant’s loss of earnings as had been contended for on her behalf.  She was 31 at the time of the trial.

The judge’s award
3.	Wright J., in a judgment given on 12 March 1999, awarded a total sum of £1,203,508 by way of damages and interest.  We are concerned with only two elements of this award, namely the figure for general damages of £35,000 for pain, suffering and loss of amenity, and £969,335 for future loss of earnings.  By her cross-appeal the claimant challenges the award for general damages.  We will deal with that later in this judgment.  The appeal relates to the award of future loss of earnings.  It is worth noting that there is no claim for future care.  The defendants contend that the amount of the award in this respect should have been £716,163, a difference of £253,172.  In calculating the sum for loss of future earnings, the judge adopted the discount rate of 3% laid down in Wells v Wells [1999] AC 345.  By her cross-appeal the claimant submits that the discount rate should have been 2% and not 3%.

The way the claim for future loss of earnings was originally presented
4.	In the claimant’s Schedule of future loss it was contended that the claimant would have worked to 65.  This the judge accepted.  An overall multiplier of 21.03 was taken from the Ogden Tables, based on a 3% discount rate, and this was applied to various projected multiplicands over different future periods; the multiplicands were based upon the earnings or projected earnings of a comparator.  Credit was then given for the claimant’s projected earnings at the rate of 49,000 guilders per annum (about £15,000) over the whole period, from which was derived the annual loss.  This, after conversion to Sterling, provides a figure of £1,107,538.35.  There was no claim for enhancement due to Dutch tax.

5.	At the trial, however, the claimant introduced the evidence of a Mr Groot, who was neither a tax expert nor an accountant, but described himself as an expert at presenting reports on loss of earnings and cost of future care.  He said that tax rates in Holland reached 60% and there was an annual wealth tax of 0.7%.  He put forward calculations which purported to show that the claim for future loss of earnings was £3.4 million.  The judge plainly rejected Mr Groot’s calculations.

How did the judge reach the figure of £969,335?
6.	The judge reached this figure by two stages, both of which are criticised by Mr Methuen QC who appeared for the appellants.  First he was referred to a case called Biesheuvel v Birrel [1999] P1QR. Q40.  In that case the claimant was also Dutch.  Although it is not possible to detect from the judgment in that case the precise amount of the award for loss of future earnings and cost of care, it is clear that it was very large indeed, being in the region together of £7-8 million.  In that case Eady J., considering that the case fell within the very exceptional category referred to by Lord Oliver in Hodgson v Trapp [1989] AC 400 at p435B, increased the multiplier by 35.58% to take account of the high rates of income tax in Holland and, at least so far as the cost of future care, the annual wealth tax.  There was an appeal in the Biesheuvel case which was settled.  The terms of settlement are not known.

7.	In the present case Wright J. was persuaded by the claimant’s then counsel, Mr Owen QC, to apply a similar uplift to the starting multiplier of 21.03 thereby increasing it to 28.52, to take account of tax, seemingly on the basis that the claimants in the two cases were of similar age and expected to work until 65.  By applying this uplift the judge reached a figure of £1,615,559.00.

8.	The judge then discounted this figure by 40% to arrive at his final award of £969,335.  He did so for three main reasons.  First he made a 25 % discount on the comparative earnings of the comparator on the basis that although the claimant was a high flyer, the comparator was quite exceptional.  Secondly he considered that 49,000 guilders understated the claimant’s residual annual earning capacity; and thirdly he was not satisfied that the claimant would have continued until 65 in a highly stressful and well-paid job.  Neither party in this appeal has criticised the 40% deduction for these matters, which were well within the scope of the judge’s decision.  But Mr Methuen submits that the 40% should have been deducted before and not after any enhancement to take account of tax.  This, with all respect to the judge, must plainly be right, because it is impossible to calculate the effect of taxation without first establishing the size of the fund.  Indeed Mr Brennan QC, who appeared for the claimant in this court, did not seek to maintain the contrary.  Applying the 40% discount before any enhancement for tax, one reaches the figure of £716,163.

9.	The same error underlies the judge’s solution of simply adopting the same enhancement that Eady J. used in the Biesheuvel case.  It would seem obvious that the impact of tax is not the same on a fund of £7 million as it is on £700,000.  This is very clearly demonstrated, so far as English tax is concerned, by the table which was produced by Mr Dickerson in the case of Warren v Northern General NHS Trust, which for convenience we reproduce here:

NET RATES OF RETURN
Portfolio						3.53%
                            £							    %
     50,000						3.530
		   100,000                                                              3.530
		   250,000						3.441
		   500,000						3.233
		   750,000						3.142
		1,000,000						3.092
		1,250,000						3.044
		1,500,000						2.978
		1,750,000						2.916
		2,000,000						2.862
		2,250,000						2.816
		2,500,000						2.776
		2,750,000						2.742
		3,000,000						2.713
		3,250,000						2.687
		3,500,000						2.665

10.	Nothing daunted, Mr Brennan submitted that the Biesheuvel uplift was nevertheless relevant and by an extraordinary coincidence exactly right, because the high rates of tax in Holland cut in at a relatively low figure.  This solution had all the appearance of a rabbit emerging from the conjuror’s hat; but unlike the conjuror, Mr Brennan was unable to explain it to the court and did not produce any calculations to support it.

Dutch wealth tax
11.	It is far from clear that the wealth tax of 0.7% which is currently in force in Holland applies to an award of lost future income.  A passage in the judgment of Eady J. in Biesheuvel (at pQ49 last sentence before paragraph (f)) suggests that it does not.  In any event we were told by Mr Methuen that this tax is very likely to be abolished in January 2001 as a result of legislation currently going through the Dutch Parliament.  It appear that income tax rates are also likely to be reduced; but a reduction in income tax rates would, unlike an abolition of wealth tax, also affect the multiplicand.  In our judgment there is no satisfactory evidence that the wealth tax is a factor that should be taken into account in considering whether this is a very exceptional case justifying some enhancement of the multiplier.

12.	In our judgment in Warren’s case we set out the relevant law to be considered where it is contended that there should be an uplift in the multiplier to take account of tax.  Having rejected the Biesheuvel uplift as being unsustainable, the respondent was obviously in difficulty since, although it was clear that the higher rate of Dutch tax compared with English tax would have a greater impact than English tax, what that impact was we did not know.  Mr Methuen submitted that that was the claimant’s misfortune or the error of her advisers, and the appeal should be allowed without more.

Further evidence: the impact of Dutch tax
13.	In the event that we decided that there was no evidence before the judge to justify his conclusion that this was an exceptional case, Mr. Brennan applied to put in further evidence in the shape of a report from Mr. Ken Chalk of Deloitte and Touche.  This report was designed to show among other things that Dutch tax did in fact substantially affect the award for future loss of earnings.  It also contended that there was an error in the calculation of the original multiplicands because the claimant’s assumed actual earnings had been taken net of Dutch tax when they should have been gross.  

14.	The defendants objected to the admission of any further evidence.  Mr. Chalk’s report was not agreed.  They had obtained a report from Mr. Frenkel of Frenkel Topping which we were asked to admit if any further evidence was to be considered.  

15.	It was apparent from Mr. Chalk’s report that it had been prepared on a number of incorrect assumptions and would therefore have been of no benefit to the claimant without substantial amendment.  We therefore put Mr. Brennan to his election: we would either admit Mr. Frenkel’s report or we would not admit any further evidence.  He chose the first option and made submissions to us based on Mr. Frenkel’s report.  

16.	Before considering this report it is convenient first to deal with the point about the error in the multiplicands.  By the reduction of 40% from the figures put forward by counsel on behalf of the claimant at the end of the trial the judge was reflecting a number of uncertainties.  This broad brush approach is not and cannot be criticised. We do not think it is now possible for the claimant to re-open the exercise.  There is no way of knowing whether the judge would have made the same or a greater reduction if the figures before him had been higher. We conclude that the multiplicands taken by the judge should stand.

17.	This means that if the judge had not enhanced the multiplier to take account of Dutch tax he would have awarded £716,215 for future loss of earnings based upon a multiplier of 21.03.  Mr. Frenkel has taken this sum and subjected it to a “Duxbury” calculation in order to compare the effects of UK and Dutch tax taking the Wells discount rate of 3.53% gross per annum.  These calculations show that, applying UK tax, the fund would be exhausted just over three years before the end of the 34 year period to the claimant’s assumed retirement age.  Applying Dutch income but not wealth tax, the fund would be exhausted about three years earlier.  To make up the difference between the effect of UK tax and this Dutch tax a sum of about £50,500 would be required.

18.	Mr. Brennan submitted that in order to make good the difference a further substantial amount would have to be provided.  This suggestion does not withstand analysis.  Mr. Frenkel’s calculation compares the amount of UK tax with the amount of Dutch tax for each year and then calculates the sum required to make up the difference.  Once the difference has been made up in this way there is no further difference.

19.	The effect of Mr. Frenkel’s calculations is that to make up the difference the fund and therefore the multiplier would have to be increased by about 7% to 22.5.  Mr. Brennan submits that these figures are significant.  Unless corrected the adverse effects of Dutch tax will be that the claimant is substantially under compensated.  This is therefore an exceptional case.

20.	Before considering these submissions further we think two general observations should be made.  Firstly, the Duxbury calculation is a very useful way to calculate and in this case to compare the effect of tax.  But it does not take account of mortality which is taken into account in the Ogden Tables by which the multiplier is determined (in this case Table 14).  Nor is it necessary to do such a calculation in order to apply Wells.  From Wells itself it is clear that the Duxbury calculation was only used as a check to ensure that the reduction from 3.5% gross to 3% net was approximately right and was one “which has regard in a general way to taxation”.  (Lord Hope at page 393 D.)  The reason for this is obvious.  As Lord Oliver said in Hodgson -v- Trapp at p834B:
"That tax will be levied is no doubt as Benjamin Franklin observed, one of the two certainties of life.  But the extent and manner of its exaction  in the future can only be guessed at."

21.	Secondly, it is common ground following Wells that the court is not concerned with what the claimant will actually do with the money which is to be awarded when fixing the multiplier in the ordinary case.  But if a claimant is saying that his or her case is exceptional it must surely be right to examine all the circumstances of that claimant’s case to see whether it truly is exceptional.  Thus, in the case of a foreign claimant who is saying that his or her case is exceptional because of the incidence of foreign tax the court is bound to look, in general terms at least, at whether there are corresponding advantages in the country concerned.  For example, could the money be invested in the equivalent of ILGS producing higher yields?  How does the level of indirect taxation and the cost of living compare with that of the UK?  In this case the only information which we have is that Dutch income tax is higher than UK tax.  Does this fact alone mean that this is an exceptional case?  

22.	We do not think so.  An award of £716,215 to an English claimant in February 1999 would not in anyway be exceptional.  Based on the table set out in paragraph 9, the net rate of return would be more than 3%.  A discount rate of 3% would be more than adequate.  In this case the net rate of return taking account of Dutch taxation will be less but not substantially so.  The return falls within the range contemplated in Wells when the House opted for a single discount rate rather than a bracket.  As in the case of Warren we do not think the impact of tax so reduces the rate of return as to justify taking a lower discount rate so as to increase the multiplier.  We reach this conclusion on the basis of the Duxbury calculation.  If, however, one adds to this what we have said about this calculation and the limited information  we have about the claimant’s circumstances, we have no doubt that she has failed to show that her case is exceptional.

The cross-appeal
23.	Should the discount rate be reduced from 3% to 2%?  For reasons which we have given in Warren, the answer is no.  In fact there is even less justification in this case because judgment was given in March 1999, which is only 8 months after the decision in Wells.

24.	Should the general damages be increased?  In the case of Heil v Rankin and other cases (Court of Appeal 23 March 2000), the five-judge court held that there should be an increase in general damages of awards over £10,000.  The increase is not a linear one, but increases somewhat more steeply at the higher end and is shown by a parabola on the diagram in the judgment.  It appears to us that the award of £35,000 should on this basis be increased to £38,000, an increase of 8.5%.  Mr Methuen submitted that there should in fact be no increase, because the appeal on this point was substantially out of time and no argument on this ground was raised in the court below.  Since the appeal was already on foot, and permission to cross-appeal on general damages has been given, we are prepared to allow the cross-appeal on this point, without prejudice to the question of costs.  That does not mean that claimants who are now out of time for appealing, should be given permission   to appeal awards which were made prior to the decision in Heil v Rankin. 

25.	For these reasons we allow the appeal and reduce the sum awarded for future loss of earnings to £716,163.  We allow the cross-appeal to the extent of increasing the award of general damages from £35,000 to £38,000.

Order: Appeal allowed. Cross appeal allowed to the extent judgment be entered for £954,716.  Appellant to have costs of Appeal to be set off against damages and the costs. The Claimant’s Application to advice further evidence dismissed with costs.  Costs below be varied so Claimants has 6/7ths of costs. No order as to costs of cross appeal.  A Legal Aid Assessment.
(Order does not form part of the approved Judgment)