Gunn and Wass, ‘Full restitution and the risk-free discount rate’

Introduction
… There was also a request for clarification over the Bill’s re-definition of 100% compensation. Both have been ignored (not rebutted) as the Bill, largely in its original form, makes its way through the debates and committee stages of Parliament. This is important because the Bill relies upon the over-compensation of claimants on a risk-free PIDR and, if over-compensation does not follow from the evidence presented, then there is no premise from which to pursue the purpose of the Bill. This paper presents two types of evidence in relation to the premise of the Bill, the over-compensation of claimants under the alternative definition of full restitution: the first is at an empirical level and the second is at a theoretical level. The ordering reflects the focus of the Inquiry on the empirical evidence collected and presented by one of the promoters of the Bill, the MoJ. The paper is organised as follows: we start with the case law context for the principle of full restitution and its delivery via the assumption of a risk-free discount rate. This is followed by a description of index linked government stock (‘ILGS’), the financial instrument that makes the assumption of a risk-free discount rate possible. We evaluate the evidence on claimant investment behaviour presented in support of the Bill before moving to investigate the conceptual basis for the Bill’s premise, that it is logically possible that a risk-based discount rate can deliver 100% compensation. In drawing together these evidence streams we conclude that the proposition contained within the Bill, that a risk-based discount rate delivers full restitution, is theoretically untenable and empirically doubtful. There is a choice between full restitution and a retreat from the risk-free assumption. It is not possible to have both …

€ (Westlaw)

Ian Gunn and Victoria Wass, ‘Full restitution and the risk-free discount rate’ [2018] Journal of Personal Injury Law 248.

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