The Court of Appeal recently handed down its long-awaited judgment in Swift v Carpenter  EWCA Civ 1295. The judgment provides guidance as to how parties and judges at first instance should calculate claims for accommodation following injury.
Importantly, the Court of Appeal found that it was not bound by its earlier authority of Roberts v Johnstone which it deemed to be unfair in a time of low interest rates and a negative discount rate.
The guidance in Roberts v Johnstone is based upon the premise that what is to be compensated is the cost to the claimant of devoting more capital to accommodation not the cost of the accommodation itself because that is an asset which retains its value and will result in a windfall to the claimant’s estate upon his or her death.
The Roberts v Johnstone solution requires the court to multiply the increased capital required to buy the alternative accommodation by a percentage discount rate (which for the majority of the time since that authority was handed down was set at 2.5% but has recently been made negative, initially at -0.75% and now at -0.25%). Now that the discount is negative, the overall result is also negative.
The facts of the case were straightforward: the claimant sustained serious injuries leading to a below knee amputation of the left leg in a road traffic accident in 2013. She was awarded damages in excess of £4 million but was not awarded anything for the capital costs of accommodation. The judge at first instance, Mrs Justice Lambert, concluded that she was bound by Roberts v Johnstone which (rather unexpectedly) resulted in a nil award. The claimant was given permission to appeal to the Court of Appeal.
In a nutshell, the Court of Appeal held as follows:
- It was not bound by Roberts v Johnstone. The solution in that authority represented “authoritative guidance” as to how the courts should comply with the “legal principle” of fair and reasonable compensation but not overcompensation.
- The guidance in Roberts v Johnstone no longer achieves fair and reasonable compensation. It was held that it could not be regarded as full, fair and reasonable compensation to award nil damages in respect of a large established need, on the basis that, if all relevant predictions hold good over many decades to come, there would arise a windfall to a claimant’s estate.
- The damages to be awarded must be calculated by awarding the additional capital cost of the new property less the present market value of the reversionary interest in that property.
- The present market value of the reversionary interest must be calculated using an annual rate of return of 5% over the claimant’s life expectancy.
In the case of Mrs Swift, this results in the following:
- The value of the property required: £2,350,000
- The value of the property the claimant owned: £1,450,000
- Difference between the above: £900,000
- The lifetime multiplier: 45.43 (derived from Table 2)
- Reversionary interest: £98,087 (£900,000 x 1.05-45.43)
- Damages: £801,913 (£900,000 – £98,087)
The Court of Appeal held that the guidance in Swift v Carpenter should be regarded as “enduring” although the court accepted that such an approach may not be suitable in all claims. Specific reference was made to cases involving short life expectancies which may attract “different considerations and arguments”.
Samuel is a member of the civil team at Lincoln House Chambers. He is, of course, content to provide further advice or guidance to solicitors on the authority and its implications.