Swift v Carpenter [2020] – Landmark decision on accommodation claims

• United Kingdom

• Litigation and dispute management
• Personal injury claims litigation

13-10-2020

The long awaited judgment in the test case for accommodation claims in personal injury claims has been handed down by the Court of Appeal.  Dismissing the long established approach formulated in Roberts v Johnstone [1989] Q.B 878, the Court of Appeal held that the correct approach was to award the claimant the additional capital cost required to purchase a suitable property, less the market value of the reversionary interest adopting an investment return of 5% per annum across the claimant’s lifetime.

Background

Under Roberts v Johnstone the cost of future accommodation was calculated on the basis of the loss of use of the additional capital required to purchase a more expensive property. As the capital tied up in the appreciating asset/property would not produce any return of investment, the claimant would be compensated for that loss. The Roberts v Johnstone approach was to multiply the additional capital cost of the required property by the applicable discount rate to produce the annual loss.  This in turn was multiplied by the claimant’s life expectancy (applying the appropriate life multiplier).

The Roberts v Johnstone calculation was an imperfect solution to a tricky problem. If claimants were simply awarded the additional capital cost of a more expensive property this would result in a “windfall” for claimants or more accurately, for their estates.  However the Roberts v Johnstone approach frequently left claimants having to ‘borrow’ money from other heads of loss, such as future care or loss of earnings, in order to afford the accommodation adaptations.  This caused particular issues in lower life expectancy cases or where part of a claimant’s damages were tied up in periodical payments. The approach was therefore widely criticised and over the years alternative options were considered, but Roberts v Johnstone remained binding.  Matters were brought to a head when the discount rate was reduced by the Lord Chancellor in 2017 to a minus figure.

Under Roberts v Johnstone, the assumed rate of interest on the additional capital required to purchase the post injury property was the prevailing discount rate set by the Lord Chancellor.  With a negative discount rate there could be no return on the capital and therefore no compensation for the loss of use of that capital. The problem is illustrated in the example Roberts v Johnstone calculations below:

Positive discount rate

• additional capital required to purchase new property = £250,000
• life expectancy multiplier = 28.20
• £250,000 x 2.5% (pre 2017 discount rate) x 28.20 =  £176,250.00
• damages for accommodation claim = £176,250.00

Negative discount rate

• additional capital required to purchase new property = £250,000
• life expectancy multiplier = 28.20
• £250,000 x -0.25% (current discount rate) x 28.20= £-17,625.00
• damages for accommodation claim = £-17,625.00

In Swift v Carpenter, the claimant suffered a below-knee amputation following a road traffic accident. As a result of her injuries, she required a property which was £900,000 more than her existing property. At first instance, the claimant was awarded more than £4 million in damages, but the judge declined to make any award in respect of the accommodation claim.  The High Court reaffirmed Roberts v Johnstone as good law, albeit not flawless. The claimant appealed.

Swift v Carpenter – the judgment

The Court of Appeal unanimously agreed that Roberts v Johnstone ‘is no longer capable in modern conditions of delivering fair and reasonable compensation to a claimant’ and that they were not bound by it. The appeal judges considered that concerns regarding over compensation should fall secondary to the overriding fundamental principle of fair and reasonable compensation. The claimant was therefore awarded the additional capital value required to purchase the property, but this was discounted to reflect the “windfall” that this created for the claimant’s estate.  The discount was based on the market value of the notional reversionary interest using a 5% investment rate.

Evidence was heard from various experts, to assist with the “market valuation” of the revisionary interest.  The court adopted a deliberately “cautious approach” of 5% in relation to the discount rate on the expected return in that market. The Court of Appeal therefore awarded the claimant £801,913, calculated as follows:

• additional capital required to purchase the new property = £900,000
• life expectancy multiplier = 45.43
• 1.05^-45.43 x £900,000 =  £98,087
• damages award =  £900,000 - £98,087 = £801,913

The Court of Appeal accepted that this guidance should not be applied ‘universally and rigidly’ as it may be inappropriate, in particular for shorter life expectancies. However, “for longer life expectancies, during conditions of negative or low positive discount rates, and subject to particular circumstances, this guidance should be regarded as enduring”

Conclusion

This judgement will not be welcomed by defendants as the approach significantly increases the value of accommodation claims.  It is perhaps no surprise then that the defendant has sought leave to appeal. Ongoing claims which involve accommodation claims will again be placed on hold until the outcome of this request is known.