Calculating Accommodation Claims in a Negative Discount Rate Era: Swift v Carpenter & Anor [2020] EWCA Civ 1295

In June of this year, legal commentators began to speculate that Swift v Carpenter & Anor [2020] EWCA Civ 1295 would depart from Roberts v Johnstone [1989] QB 878, which has been the leading case authority on assessments of damages for special accommodation in serious personal injury claims for many years.[i]

When claimants sustain life-changing physical injuries that impair mobility, their pre-injury accommodation is often no longer suited to their post-injury requirements and new accommodation is sought. It is normal for new accommodation to exceed the value of the victims’ previous accommodation.

For decades, claimants have disclosed the capital value of a replacement home, but Roberts dictates that courts should only compensate claimants for the annual loss of income brought about by spending their own money on accommodation, in preference to making investments.

To calculate damages awarded for special accommodation under Roberts, the correct procedure involves multiplying the capital property cost (the difference between the value of the old and new accommodation) by the prevailing personal injury discount rate (2% in 1989) and then multiplying that figure by the multiplier for pecuniary loss of life (using Tables 1 and 2 of the Ogden Tables[ii]).

Even though moving, adaptation and running costs have always been recoverable, in order to fully fund new property purchases, claimants have often needed to supplement Roberts v Johnstone awards with damages from other heads of loss (invariably general damages, but potentially other heads of special damages if there has been a deduction for contributory negligence).

For example, under the previous 2.5% discount rate (effective up to 2017), a 51-year-old male claimant moving from a £300,000 home to a £550,000 home would have received:

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In this scenario, there would be a £110,812.50 deficit to cover the whole value of the new property.

However, this would be deemed fair, because awarding claimants the full capital cost of special accommodation would result in over-compensation by the time that the claimant died, i.e. the value of the asset would be expected to have enhanced.

Since Roberts was handed down in the 1980’s, the personal injury discount rate in England & Wales has shifted upwards to 2.5%, then downwards to (-)0.75% and then back up to (-)0.25%.

So, what impact has successive negative discount rates in recent years had on special accommodation claims?

At first blush, the issue with the Roberts approach is plainly that the multiplicand can only be generated if the assumed rate of return is at or above 0%. This was foretold in the 19th edition of McGregor on Damages (published July 2014), at paragraph 38.204 of the section on special accommodation expenses:

‘It is high time that the Roberts v Johnstone problem was tackled and a fair and proper solution found and adopted. The Law Commission looked into the matter some time ago but found it too difficult to formulate an acceptable solution and so recommended that the Roberts v Johnstone method be retained. The Ogden Working Party is fully aware that the law needs to be righted and has it in mind to investigate the issue in the near future. What could trigger action on this front is a further reduction in the discount rate, the possibility of which, as we have seen, is very much in the air. It is true that, as the discount rate lowers, the multipliers increase, but an examination of the figures in the tables in Ogden shows that the increases in the multipliers do not come anywhere near to balancing, or off-setting the effect of, the fall in the discount rate. Ironically the injured party will get more for care but less for special accommodation. Indeed should the discount rate move into the negative, which is highly unlikely but did happen in the Guernsey case in the Privy Council of Helmot v Simon, the Roberts v Johnstone method becomes unworkable; it would produce a nil award’.

Such an outcome materialised in the case of JR v Sheffield Teaching Hospitals NHS Foundation Trust [2017] EWHC 1245 (QB), wherein Mr. Justice Davis deemed himself bound to follow Roberts and the ‘proper’ consequence of doing so was to order a ‘nil award’, in respect of the cost of special accommodation.

There was ‘no foundation’ for awarding any more (or less) than a ‘zero figure’ under the Roberts formula, seeing that there was ‘no ability to obtain any positive return on a capital fund based on risk-free investment’, i.e. nothing to compensate for:

‘I consider that the editor of McGregor was quite correct when he opined that a fair and proper solution should be found to the conundrum of providing a claimant with the means to purchase special accommodation. He also was correct when he suggested that a negative discount rate would mean that the approach in Roberts v Johnstone would lead to a nil award. But I am not in a position to find "the fair and proper solution" to the problem as a whole. I am faced simply with the case of this Claimant. In his case maintaining the conventional approach would provide him with the full capital cost of the accommodation, something which clearly would be wrong’.

Even though the Roberts approach had previously been described as ‘imperfect but pragmatic’,[iii] Davis J accepted that there would be cases where, in the absence of substantial general and special damages, claimants would be left with ‘no prospect at all of obtaining special accommodation which they ought to have’ in the wake of a ‘nil award’:

‘This … only serves to emphasise the need to find a proper solution to the accommodation conundrum’.

In June of this year, an opportunity to change the status quo arose at the Court of Appeal, in Swift v Carpenter & Anor [2020] EWCA Civ 1295. The claimant in this action suffered leg injuries in a road-traffic accident (RTA), which resulted in a below-knee amputation and the need for larger accommodation, at a cost of £900,000. She was 43-years-old at the date of trial [43.58-years-old for the purpose of Ogden (7th edition)].

To cut a long story short, the outcome of Swift was that Lord and Lady Justices Irwin, Davies and Underhill unanimously overturned Lambert J’s High Court ruling,[iv] which had followed Roberts and made a ‘nil award’.

In so doing, the judges rejected the defendant’s submission that they were bound by the House of Lords’ decision in Wells v Wells [1998] UKHL 27, which followed Roberts:

‘It appears to me that the reasoning in Roberts v Johnstone was a means to an end rather than a principle, or end in itself. If there is a justified call to alter the means by which that end (fair compensation but not overcompensation) is reached, and another means is available, it appears to me this court should be ready to contemplate a change in the guidance to be given’.

Providing justification for the Court’s deviation from Roberts, Irwin LJ touched upon the ‘degree of conjecture, the complexity and uncertainty of outcome’, the ‘damage to the integrity and coherence of the court's overall approach to compensation’ and the significant constraint put on the capacity of the claimants to protect themselves from future contingencies, all of which had been symptoms of Roberts v Johnstone awards under a negative discount rate:

‘It is my view that, in the context of modern property prices and a negative discount rate, the formula in Roberts v Johnstone no longer achieves fair and reasonable compensation for an injured claimant. In my view, it cannot be regarded as full, fair or reasonable compensation to award nil damages in respect of a large established need, on the basis that, if all the relevant predictions hold good over many decades to come, there will arise a windfall to a claimant's estate. Nor is it fair or reasonable compensation to follow the Roberts v Johnstone approach on the basis that if all the same predictions hold good, there will in addition be in existence a suitable market to enable a claimant, by then elderly or aged, to release equity at a reasonable cost and without unacceptable disruption’.

By prioritising the need to avoid a windfall above the need to establish fair and reasonable compensation, Irwin LJ found that the present-day effect of Roberts is to ‘put the cart before the horse’. He therefore proposed to bring an end to this by reinstating the ‘cardinal principle’ and awarding 100% compensation.

Replacing Roberts, the Court of Appeal decided that the correct approach would be to compensate the claimant for the capital value of new accommodation, less ‘reversionary interest’, i.e. the value of the ‘windfall’ that would be accrued over a prolonged time period. This discount was based on a ‘market valuation’, but is not to be ‘regarded as a straitjacket to be applied universally and rigidly’ – per the request of the Personal Injuries Bar Association (an intervening party):

‘There may be cases where this guidance is inappropriate. However, for longer lives, during conditions of negative or low positive discount rates, and subject to particular circumstances, this guidance should be regarded as enduring’.

Taking a ‘deliberately cautious view’, the appropriate discount to be applied in Swift was based on a 5% rate, this being the lowest individual return on investment indicated by expert actuary, Mr. Brian Watson.

‘Reversionary interest’ was assessed at £98,087, yielding an award of damages for special accommodation of £801,913 – this represents a dramatic reversal from the lower court’s ‘nil award’. Unhelpfully, though, the judgment transcript did not specify exactly how the final damages award was calculated, except for the fact that the formula incorporated the capital value of the property, a 5% discount rate and an Ogden multiplier of 45.43.

Obligingly, we turn to 39 Essex Chambers and Guildhall Chambers for advice, both of which derived the correct method of calculating ‘the sum in today’s money which will grow at 5% p.a. into the value of the windfall’.[v]

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Full text judgment can be accessed here.

N.B. A week or so after judgment was handed down, the Law Society Gazette confirmed that the defendants in Swift intended to seek the Court of Appeal’s permission to take the case to the Supreme Court.[vi]

Until an appeal is heard, though, it is safe to say that awards in the vast majority of ongoing cases will increase under the ‘reversionary interest’ approach, with practitioners and insurers being urged to review current schedules and offers.

 

[i] John Hyde, ‘Swift v Carpenter: Accommodation costs dispute reaches Court of Appeal’ (23 June 2020 Law Gazette) <https://www.lawgazette.co.uk/law/swift-v-carpenter-accommodation-costs-dispute-reaches-court-of-appeal/5104735.article> accessed 1 December 2020.

[ii] 7th edition (GOV.UK) <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/930506/ogden_tables_7th_edition.pdf> accessed 1 December 2020.

8th edition (GOV.UK) <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/901871/Ogden_Tables_8th_Edition.pdf> accessed 1 December 2020.

[iii] See Tomlinson LJ, in Manna v Central Manchester University Hospitals NHS Foundation Trust [2017] EWCA Civ 12.

[iv] Swift v Carpenter & Anor [2018] EWHC 2060 (QB).

[v] Emily Formby, Shaman Kapoor and Daniel Laking, ‘FROM NIL TO £800,000:  COURT OF APPEAL DELIVERS LANDMARK JUDGMENT IN ACCOMMODATION CLAIMS’ (9 October 2020 39 Essex Chambers) <https://www.39essex.com/from-nil-to-800000-court-of-appeal-delivers-landmark-judgment-in-accommodation-claims/> accessed 4 December 2020.

Gabriel Farmer, ‘Accommodating windfalls: Swift v Carpenter’ (Guildhall Chambers) <https://www.guildhallchambers.co.uk/uploadedFiles/SwiftvCarpenterSlides.pdf> accessed 4 December 2020.

[vi] John Hyde, ‘Insurers to fight on in PI housing costs case’ (14 October 2020 Law Gazette) <https://www.lawgazette.co.uk/law/insurers-to-fight-on-in-pi-housing-costs-case/5105980.article> accessed 5 December 2020.