In a recent case, Helmot v Simon (Guernsey Unreported Judgment, 14 September 2010), the Guernsey Court of Appeal provided a UK record for the highest personal injury compensation payment, with the claimant receiving £13.7 million in compensation for personal injuries caused by a road traffic accident. Liability was admitted by the defendant and therefore the court was only concerned with the level of compensation to be awarded to the claimant.

The key issue in this case was the level of discount rate, the assumed rate of return on an investment, on which courts base compensation awards. The discount rate of 2.5% was set by the Lord Chancellor of England and Wales in June 2001 under provisions of the Damages Act 1996. The question was whether this rate had been adopted by Guernsey law.

The court found that the discount rate of 2.5% had not been adopted by Guernsey law, either by legislation or by custom and practice, and it was therefore up to the Guernsey court to decide the appropriate rate. The claimant’s losses included earnings-related future losses and non-earnings related future losses. The court concluded that two separate discount rates were needed as in Guernsey earnings inflation exceeded price inflation, and so the earnings-related future losses part of the award of compensation was more likely to increase with inflation than the non-earnings related future losses. The court therefore applied a minus 1.5% discount rate to earnings-related future losses which included the claimant’s own loss of future earnings and the cost of employing his carers, and a 0.5% discount rate to non-earnings related future losses.

Although this decision was made by a Guernsey court, there is some unease in the market that it will lead to calls for the discount rate to be reduced in the UK, resulting in larger compensation payments.