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The ‘Real Rate of Return’ and why it matters




Gill Russell – v – HSE [2015] IEHC

The ‘Real Rate of Return’ is the actual investment return that an investor is assumed to obtain should he invest a lump sum.

The higher the real rate of return when applied to a lump sum, the lower the amount needs to be to achieve a certain target value.

In the context of awards of damages for personal injury claims, the real rate of return has an impact in those cases where damages for future loss need to be invested on behalf of an injured Plaintiff.

Traditionally, the real rate of return for such future losses was taken to be 3%.  In Gill Russell – v – HSE, Mr Justice Cross in the High Court, reduced the real rate of return to between 1 and 1.5%. While the decision applies to the specific facts of the Russell case, it may also be used in further cases of catastrophic injuries. The practical impact of this is to significantly increase the value of future awards of damages in cases involving catastrophically injured Plaintiffs.

Gill Russell suffered catastrophic injuries at birth and requires constant future care. The award in the Russell case was €13m. Had the old rate of return had been used, the award of damages would have been €9m.

The State Claims Agency estimated at the time that the cash cost of meeting negligence claims involving serious injury would rise by €100 million per annum as a result of the new formula.

The Russell case was appealed to the Court of Appeal which upheld the High Court decision. The Court of Appeal decided that the plaintiff is entitled to have his damages calculated on the basis that he should be entitled to pursue the most risk averse investment reasonably available to meet his needs, i.e., that he is not in the same position as an ordinary investor who has income and surplus funds to invest.

The Court of Appeal also held that public policy has no part to play in the assessment of damages for injured plaintiffs. On that basis the Court must consider the calculation of a future financial loss to the Plaintiff, regardless of the economic consequences that the award may have on the defendant or on the insurance industry or on the public finances.

It seems likely that the matter will now be appealed to the Supreme Court on the basis that it is a matter of public importance.