Accommodation Claims: Swift v Carpenter

Increasing dissatisfaction with the method of compensating an injured claimant for the additional cost of purchasing suitable accommodation costs has been a source of tension and uncertainty for claimants and defendants for some time. Today the Court of Appeal handed down its judgment in Swift v Carpenter on the issue of how the additional cost of acquiring suitable accommodation for injured claimants should be compensated. The issue came before LJs Underhill, Irwin and Davies on appeal from Mrs Justice Lambert.

Mrs Swift had suffered serious injuries in a road accident including a below knee amputation of her left leg. It was agreed that her existing home was not suitable and it was reasonable for her to move to a suitable property which was assessed as being likely to cost £2.35m At first instance, Mrs Swift was awarded £290,000 in general damages and an overall award of£4,098,051. She sought a capital sum of £900,000 to meet the additional cost of purchasing a suitable property but no award was made. The court was bound by the decision in Roberts v Johnstone [1989] QB the effect of which was to compensate by applying the prevailing discount rate for accelerated receipt to the purchase price to give an annual multiplicand to which the multiplier would be applied. In 1989 it was considered wrong to award the Claimant the full capital cost of special accommodation as to do so was to provide an unjustified windfall to the Claimant who would be acquiring an appreciating asset. At that time the property market was such that it was considered that any elements of inflation and risk would be secured by the rising value of property.

It has been recognised for some time that this approach created difficulty for Claimants who need to fund the capital purchase of a property. The position became more acute when in 2017 the Lord Chancellor lowered the discount rate from 2.5% to minus 0.75% meaning that as a matter of logic there could be no entitlement to any award for the purchase price of a property. Mrs J Lambert was asked to consider four alternative formulae, none of which linked the calculation of the multiplicand to the current discount rate. However, she found that she was bound by Roberts v Johnstone and made no award in respect of the additional cost of £900,000 associated with the purchase of special accommodation. She highlighted the question of whether the approach was now fit for purpose and referred to the need for “scavenging from damages allocated to other losses” as an inherent consequence of Roberts v Johnstone.  A point  not lost on the Court of Appeal.

The Court of Appeal has found that the Roberts v Johnstone approach no longer achieves fair or reasonable compensation for an injured claimant. In the lead judgement, LJ Irwin accepted that Roberts v Johnstone applied but found that the court was entitled to take a different approach as the formula was to be regarded only as “authoritative guidance” given in the specific conditions prevailing at the time. If that guidance could now be demonstrated to be ineffective then the court found that it can revisit and alter it. The Court of Appeal concluded that the guidance was no longer appropriate and it should now alter it. They did so after hearing evidence from economists and actuaries and finding that it is no longer a “safe prediction” that property prices will rise and that it was unreasonable to assume that there will be a suitable market to allow for equity release to fund their annual needs later in life. It also found that a “cash-flow model” requiring the investment of such a significant proportion of damages in a property purchase “does damage to the integrity and coherence of the court’s overall approach to compensation.”

None of the alternative models mooted at first instance had proved appropriate.  As to the key question of the  windfall, LJ Irwin did not consider that the risk of a windfall to a claimant’s estate after their death was sufficient justification for withholding payment of the capital sum needed to fund a purchase albeit that it should be avoided if at all possible. Whether it was possible to reduce the lump sum to reflect the value of such a windfall depended on finding a workable approach to the valuation of “the present value of a notional right to receive the windfall amount at the assumed date of the claimant’s death”.

It was agreed by the parties that the proper approach was to value the reversionary interest in the incremental part of the property to be purchased. This was far from straightforward but having considered a number of alternative approaches LJ Irwin favoured a market valuation (even though the market was small) and opted for discount rate representing a rate of return of 5% per annum.

The practical effect in Mrs Swift’s case, is to provide an award based on the full value of the additional cost of the property of £900,000 and to discount this by £98,087 to give a net award of £801,913.

It was recognised that the value of the reversionary interest will be high in cases where the life expectancy is short and LJ Irwin said that in those cases “it may be that different considerations and arguments could be applied” but no further guidance was given.

The result will be welcomed by claimants who in many cases will in most cases will now receive a substantial enhancement to their damages awards. For the NHS, Medical Defence Organisations and Insurers this will represent a very significant additional cost. However, whilst the difficulty of achieving a fair result is not to be underestimated, in cases where the life expectancy is short, there will be a sense that all is not resolved and that the windfall argument for the Claimant may tip the balance too far the other way leaving the door open for claimants to argue for the full capital sum. An application for permission to appeal to the Supreme Court has been made.