07 September 2012

In the case of Anthony Tortolano v Ogilvie Construction Limited, the Pursuer’s agents sought to argue that the current discount rate of 2.5% ought not to be applied, when calculating the Pursuer’s future losses and that a rate 0.5% was more appropriate.

In rejecting the argument, Lord Brodie referred to the wording of Section 1 of the Damages Act 1996 and the Damages Act (Personal Injury) (Scotland) Order 2002 which laid down the discount rate as being 2.5%.

Section 1 (2) of the Damages Act 1996 permits the Court to adopt a different discount rate if it can be shown that it is more appropriate in the case in question. Subsequent cases seeking to invoke the power under section 1(2) have held that the discount rate should be varied in relatively few cases and only where there were ‘special circumstances’ that had not been taken into account at the time the discount rate was set. The courts have held that ‘special circumstances’ for variation would not include large personal injury awards extending over long periods since this was exactly what the Lord Chancellor had in mind when fixing the rate of return at 2.5%. The Pursuer in the Tortolano case sought to argue that the change in the economic climate since the discount rate was set by the Scottish Ministers in 2002 resulted in the rate of 2.5% no longer being appropriate and that a lower rate of 0.5% ought to be applied.

In rejecting that argument Lord Brodie considered that in order to consider whether a discount rate was “more appropriate” than that laid down by the Scottish Ministers, the Court required to consider the cases in respect of which the prescribed rate is appropriate. Lord Brodie held that the Scottish Ministers had fixed the rate of return at 2.5% and in so doing, where exacting a piece of legislation for reasons of policy. He relied upon the fact that the legislation empowered the Scottish Ministers to change the rate from time to time, and whilst the appropriate rate to be applied was currently under consideration by the Scottish Ministers, they had, to date, chosen not to alter that rate. Lord Brodie’s view was that the inevitable conclusion is that for the time being the Scottish Ministers intend that the discount rate for the generality of cases should be 2.5%. Lord Brodie considered that the Pursuer in the Tortolano case had made no attempt to set out a case which would take him out of the generality of cases and on that basis, the averments in relation to the adoption of a lower discount rate were held to be irrelevant.

Insurers will be aware of the consultation process that is currently underway in relation to ‘how the discount rate should be set?’. This invites responses on the methodology to be used by the Lord Chancellor and Scottish Ministers in deciding what the appropriate rate of return should be. Once that Consultation has concluded, consideration will no doubt be given to the appropriate level of discount rate. Whilst the Pursuer’s agents have indicated an intention to appeal Lord Brodie’s decision, at present, pending the outcome of the consultation process, and the outcome of any appeal, Lord Brodie’s decision ought to be used by insurers to rebut any arguments put forward by Pursuers’ agents that a discount rate lower than 2.5% ought to be applied.