DOYLE V WALLACE (1998)

The claimant was badly injured in a road accident and was unable to work.
She had been planning to train as a drama teacher if she could get the
necessary qualification. And if not she planned to get a clerical job.

Her income would have been substantially higher as teacher than as a

clerk, but at the time of the accident it was too early to know whether she
would have obtained the necessary qualification.

The trial judge found that she had a 50% chance of qualifying as a drama
teacher, and calculated the damages for loss of future earnings on the
basis of an income.

Once the court has the net annual loss figure, it adjust that sum to take
into account factors which might have altered the claimants original
earnings, such as promotion prospects and the figure that they reach as a
result of doing so is called the multiplicand.

The court then takes the number of years that the disability is likely to
continue (which may be the entire claimants life) and reduces this
number by taking into account what are called the contingencies of life,
the fact that, even if the accident had not happened, the claimant might
not have lived or worked until retirement age.

At this stage, the court has before it the annual amount that will
compensate the claimant, and the number of years for which this amount
should be payable. However, simply to multiply the first figure by the
second would actually over-compensate the claimant. For example, annual
loss of 10,000 to be payable over 20 years, simple multiplication to these
figures gives us 200,000.

But a claimant does not actually need a lump sum of 200,000 to produce
an annual income of 10,000 over 20 years, because the assumption is
that the lump sum is invested and so makes more money during the 20
years, with the result that the claimant would end up over-compensated.

To avoid this, the court the court assumes that the investment will earn a
particular rate of return (discount rate) and reduces the lump sum to one
which, on the basis of the assumed rate of return, will provide the right
rate of compensation. The figure arrived at is called the multiplier, and the
multiplicand multiplied by the multiplier gives the sum necessary to
compensate the claimant for loss of future earnings.

The rate of return on investments that the court assumes is very

important which the higher the assumed rate of return the smaller the
lump sum. And if for some reason the claimant in practice is unable to
achieve this rate of return they will be under-compensated.

Until now, courts generally assumed a rate of interest of 4-5% per year.
This practice was criticised by among others, the Law Commission in its
1995 report Structured Settlements and Interim and Provisional Damages
(Law Com No 224). It said that the assumed rate relatively sophisticated
understanding of investments which few claimants would possess, and so
many claimants were likely to end up under compensated.

The commission recommended that the court should use as their guideline
the return given to investors on investment called an Index Linked
Government Security (ILGS) which would give a more accurate picture of
the kind of returns claimants could hope to get on their lump sum.

The Damages Act 1996 responded to this recommendation by providing

that the Lord Chancellor can prescribe a rate of interest for the purposes
of calculating multipliers, and in June 2001 the rate was set at 2.5%.

To appreciate how important the precise figure is, it might help to know
that if we take for example a 20 years old man who is awarded a
multiplicand of 70000 the difference between the damages paid with a
discount rate of 2% and the amount paid with one of 2.5% would be
225,400.

1. What is the legal principal for this cases?

2. What is mean by investment in this cases?
3. Is there any formula to assume the annual rate or the compensation that
the claimants will get?
4. What the importance of discount rate?
5. Can give a simple synopsis for this cases?
6. How the court predict the annual amount for the plaintif?
7. What is mean by account factors that might altered claimants earning
in this cases?