The lump sum award which has to be made is in most cases a composition of several distinct elements. Each requires to be assessed as a single sum and the total represents the compensation. But while in the course of the exercise the judge's task may involve an exercise of a discretion based on his experience coloured by the particular facts of the case, the totality of the elements should not be a matter open to increase or modification merely on account of a feeling that the total seems unduly large or small. If each of the elements has individually achieved the best approximation possible to the proper compensation for each particular aspect of the claim, then the total figure should correspondingly represent the best assessment possible for the total claim. If at the conclusion of the exercise the judge is uneasy at the total result he should not seek to make any overall adjustment in either direction to the total award to meet his unease; he should return to reconsider each element in the calculation and secure that there is no need for revision at that level.

      The present appeals are concerned with the calculation of lump sums in respect of future recurring expenses and losses which have been brought about as a result of the injuries which the respective plaintiffs have sustained. It is common ground that that lump sum in each case may be seen as funding a notional annuity from which both capital and income may be derived sufficient to secure the appropriate annual amounts over the likely future period or periods to which they relate. In practice the sum is calculated as the product of a multiplier representing an appropriate number of year's purchase and a multiplicand representing the amount of the annual loss or expense. The assessment of the latter will necessarily depend significantly on the facts of the particular case. But it calls for careful calculation particularly in relation to claims for future expenses incurred by the plaintiff, such as nursing care, where there may be a number of contingencies which ought to be reflected in the figure or the figures selected.

      The exercise of calculating the lump sum which will produce the annual figure proceeds upon certain assumptions which strive to achieve a precision but necessarily involve an element of artificiality. One assumption is that the plaintiff will live for an expected number of years, no more and no less. The period will be based on an actuarial calculation, modified or not to meet any special considerations appropriate to the particular case. It will no doubt be the best approximation which can be achieved by such methods, but nevertheless the assumption may not eventually turn out to have been correct. Then again it is to be assumed that the whole of the income will be consumed each year, that it will be sufficient for its purpose and that there will be neither accumulation nor reinvestment throughout the whole of the period. Further it is to be assumed that constantly throughout the period in addition to the income a balancing sum of capital is being used each year to make up the annual amount required so that the capital will steadily decrease and will eventually be exhausted at the end of the period. It may well be that this is not the way in which the plaintiff will in fact deploy the award but these are the hypothetical requirements which the notional annuity requires to meet. The question is not one of asking what the ordinary prudent investor would do but rather what form of investment will most nearly secure the notional annuity able to meet these hypothetical requirements. Such an investment may well not be one which an ordinary investor would choose, but the exercise is not concerned with an ordinary investor nor indeed, as I have already observed, with any intentions of the particular plaintiff. Thus the general duty on a plaintiff to minimise his or her loss is not relevant to the calculation of this notional annuity. That duty relates to the nature and extent of the items which he or she may claim as arising from the injury. It does not extend to the way in which he or she may dispose of the award. The present exercise is simply concerned with the quantification of loss after it has been established as a reasonable loss flowing from the injury.

      In order to calculate the appropriate capital sum which will secure such an annuity one has to ascertain the appropriate rate of return which is appropriate for such a notional annuity. That depends upon the choice of investment to be adopted. Here one can only look to the markets for a solution. Between the rival suggestions put forward in the present appeals, namely investment in equities or investment in index-linked government stocks, it seems to me plain that the latter are the preferred choice. The problem which has been of concern in past years of meeting the risk of inflation, a problem which cannot reasonably be wholly disregarded for the future, is substantially met by the nature of an index-linked investment. A confident understanding of the performance of equity investments was made more difficult by the belated realisation that some of the more important tables intended to show the performance of equity investments proceeded on an assumption that the income would be annually reinvested, which did not meet the hypothesis of the notional annuity. There remained a lack of agreement on any precise analysis on a basis closer to the requirements of the present study. However it could be readily concluded from the material before us that, despite considerable fluctuations in certain years, over the longer term the equity market could survive the effects of inflation. But it is also evident that its volatility in respect both of income and of capital makes it a less likely investment to satisfy the requirements of the notional annuity than the government-backed stocks, which, while they may not be completely immune from the effects of inflation, can at least minimise those effects and more constantly hold their value. For the purpose of the exercise on which one is engaged here it seems to me that the continuity of demand from the investment cannot be met by an investment which may recover in the long term but is subject to very considerable fluctuation in the intervening years. It was, in my view quite properly, recognised by counsel for the third respondent that the index-linked stocks were to be preferred for a short-term investment, which he put at about 10 years. But once that is accepted it is not easy to see what particular merit remains in a preference for equity investments in respect of a longer period. The situation of a closed pension fund does not seem to me to provide too remote a comparison with the fund assumed to provide the hypothetical annuity and it appears that investment of such a fund in index-linked government stock is in practice not an unreasonable course to adopt. It was suggested that the present issues of index-linked government stock could not cover all the various periods which might be required in different cases. But the shortfall on an early maturity could reasonably be supposed to be covered by a cash investment from the remaining proceeds of the notional investment and in any event it may well be that future issues of index-linked stock will be made so that a greater variety of periods can be covered more precisely.

      On this approach the problem which was raised of the need to allow for the costs and charges involved in the management of an investment portfolio substantially disappears. There is certainly no likelihood of costs and charges being regularly involved on the scale which would probably apply to the management of a portfolio of equities. The assumption would be that the index-linked investment would be held to maturity. In relation to such investments such costs and charges as there would be may for practical purposes be ignored.

      While the risk of future inflation can be substantially overcome for the purpose of the notional annuity by investment in index-linked government securities, one other uncertainty of a general application remains and that is the future incidence of taxation. The levels of future taxation, let alone the tax thresholds and tax allowances, cannot be predicted with any certainty. Higher rates of tax may or may not be applicable to the receipts of the notional annuity. In my view one can only take a broad approach to this problem and proceed upon an allowance which embodies an appropriate modification of the ordinary level of tax. Of course in particular cases where the incidence of income tax can be shown to be out of the normal range for one reason or another an appropriate adjustment may be made. The calculation cannot be exact and some rounding off should be acceptable.

      In principle I agree with your Lordships that the Court of Appeal erred in preferring what has come to be seen as the usual rate of 4.5 per cent. based on the equity market. Two questions arise. One is what rate should be adopted at least for the immediate future, pending a reconsideration of the problem by the Lord Chancellor. In that regard there are clear advantages in the recognition of a single formula which can be universally adopted for the calculation of recurring losses and expenses over any future tract of time. While simplicity may carry with it the risk of imprecision that risk should be offset by the advantage of saving the time and expense which might otherwise be spent in the necessity for elaborate inquiry with expert witnesses. A conventional formula may seem artificial but now that detailed calculations and tables founded on reasonably reliable bases are available full advantage ought to be taken of them. The certainty of the result should produce economies in achieving agreement and settlement which should outweigh any rough edges of imprecision. Of course such a formula should not be seen as set in stone. It can serve as a general guide, open to modification and adjustment to meet the demands of particular cases. I would favour a rate at the present time of 3 per cent. net. More than one route was presented to us which could justify that result but the one which particularly commended itself to me was a calculation of the average rate on index-linked government stock over the past three years net of tax.

      The other question is whether in the three particular cases before us the rates adopted by the judges who heard them should be accepted. In my view the material before them in each of the three cases was sufficient to support the rate of 3 per cent. which still seems to me appropriate today. I would accordingly agree with the calculations in the cases of Page and Thomas. So far as the case of Mrs. Wells is concerned, I consider that the judge made too generous an allowance for tax and that the deduction from the gross rate which he took should be reduced so as to round off the rate also at 3 per cent. The damages will require to be recalculated to allow for that correction.

      It can be inferred from the result which the evidence in the present appeals has produced that in the past awards in respect of future losses and expenses may well have been unduly low. The figures brought out in the present cases may seem high in comparison but they seek to represent a fair compensation for the particular heads of claim to which they relate and underline the severity of the consequences which may be caused to the future lives of particular individuals who have suffered loss and expense as a consequence of negligent conduct.

      On the particular points which were raised in relation to the claims I agree entirely with the views expressed by my noble and learned friend Lord Lloyd of Berwick. The appeals should in my view be allowed and the cases remitted for the necessary adjustment of the awards.

LORD HUTTON

My Lords,

      In these three cases each appellant sustained very grave injuries by reason of the negligence of the respective defendants. The fundamental principle which governs the assessment of the damages to which each appellant is entitled is that an injured plaintiff should recover full compensation. In Admiralty Commissioners v. S.S. Valeria (Owners) [1922] 2 A.C. 242, 248, Lord Dunedin stated:

 "The true method of expression I think is that in calculating damages you are to consider what is the pecuniary sum which will make good to the sufferer, so far as money can do so, the loss which he has suffered as the natural result of the wrong done to him."

      The injuries caused to the appellants have left each of them so gravely and permanently incapacitated that they will require constant nursing care for the remainder of their lives and they are entitled to compensation for the future costs of such care. James Thomas sustained his injuries at the time of his birth and was aged six at the time of the trial. Mr Page was aged 24 at the time of the accident at work that injured him and was aged 28 at the time of trial. Therefore, in addition to receiving compensation for the cost of future nursing care, James and Mr. Page were also entitled to recover compensation for the wages or salary which they would have earned for many years in the future if their earning capacity had not been taken away by their injuries. At the time of the road accident in which she sustained her injuries, Mrs. Wells was aged almost 58. She was therefore close to retirement from her work as a nurse and it was agreed between the parties that she had a working life of 2.5 years from the date of the trial.

      Under our present system of law the compensation to which each appellant is entitled must, unless the parties agree otherwise, be paid in a lump sum and there is no power for the courts to award periodical payments. Therefore each appellant must receive a lump sum to provide compensation for the annual cost of lifetime nursing care and for the loss of future earning capacity. The method adopted by the courts to calculate such compensation was described as follows by Lord Oliver of Aylmerton in Hodgson v. Trapp [1989] A.C. 807, 826D:

 "Essentially what the court has to do is to calculate as best it can the sum of money which will on the one hand be adequate, by its capital and income, to provide annually for the injured person a sum equal to his estimated annual loss over the whole of the period during which that loss is likely to continue, but which, on the other hand, will not, at the end of that period, leave him in a better financial position than he would have been apart from the accident. Hence the conventional approach is to assess the amount notionally required to be laid out in the purchase of an annuity which will provide the annual amount needed for the whole period of loss."

      The multiplier which the courts apply to the annual cost of nursing care and the annual loss of earning capacity to produce the lump sum of compensation is determined by reference to the respective periods in the future for which the cost will be incurred and the loss will be sustained, but discounted to allow for the immediate receipt of the lump sum rather than the receipt of periodical payments over a number of years. The discount is assessed by reference to the assumed rate of return on the lump sum when invested, so that the higher the rate of interest assumed the smaller the multiplier.

      Two principal questions have been debated in this appeal. One question is whether allowance should be made for future inflation to take account of the fact that in future years the cost of nursing care will rise and that the earnings of the plaintiff would have increased. The other question relates to the rate of interest which the courts should assume the capital sum awarded will earn in order to arrive at the multiplier.

      In judgments given in this House in the decade between 1970 and 1980 it was held that the courts should not make allowance for inflation in the assessment of future loss. In the last of these cases, Lim Poh Choo v. Camden and Islington Area Health Authority [1980] A.C. 174, 193D, in a speech in which the other members of the House concurred, Lord Scarman said:

 "The law appears to me to be now settled that only in exceptional cases, where justice can be shown to require it, will the risk of future inflation be brought into account in the assessment of damages for future loss."

      But it is important to recognise that this approach was not based on the view that the risk of inflation should be ignored. In Taylor v. O'Connor [1971] A.C. 115, 130A, referring to future inflation, Lord Reid said:

 " . . . it would, I think, be quite unrealistic to refuse to take it into account at all."