Accommodation claims – where do we stand after Swift v Carpenter?

On 9 October 2020 the Court of Appeal handed down Judgment in Swift v Carpenter [2020] EWCA Civ 1295. This article sets out the decision in Swift and considers where we are now.

The Problem

It has long been argued that compensating a Claimant for the capital cost of accommodation is not just as it results in a windfall to the Claimant’s estate upon death. In 1988 in Roberts v Johnstone the Court of Appeal laid down a method for calculating damages; Claimants would purchase properties for themselves but would be compensated for the lost return on the capital that they had to invest in order to make the purchase.  The calculation was the difference in capital (between the pre and post injury accommodation) multiplied by the discount rate and the Claimant’s lifetime multiplier.

Whilst Claimant’s were often left having to ‘borrow’ damages from other heads of loss to fund purchases a positive discount rate always produced an award. The difficulty arose when a negative discount rate was introduced ( -0.75% in 2017 rising slightly to -0.25% in 2019) as the Roberts v Johnstone calculation gave a negative result.

The issue was considered in JR v Sheffield Teaching Hospitals NHS Trust in which the High Court determined that Roberts v Johnstone applied and therefore the appropriate award was nil.  The decision was appealed but the claim settled before the matter was heard by the Court of Appeal.

The Facts

On 31 October 2013 Mrs Swift sustained serious injuries, including a left below knee amputation and significant damage to her right foot, whilst a passenger in a road traffic accident. Mrs Swift’s claim for damages included a claim for appropriate accommodation. At Trial the Judge (Mrs Justice Lambert) found that the capital cost of the required accommodation would be £900,000 however, as she was bound by Roberts v Johnstone, she declined to make any award.

The Appeal

Mrs Swift appealed the decision on the basis that the law as stated in Roberts v Johnstone was, as a result of the negative discount rate, not consistent with the fundamental principle of fair and reasonable compensation. She advanced 4 alternative formulae to determine the damages she should be awarded:

  1. The cost of an interest only mortgage;
  2. That the annual cost of an interest-only mortgage with borrowing of £900,000 should be defrayed by a matching Periodical Payment Order;
  3. The Roberts v Johnstone formula should be adopted but with an alternative rate of return;
  4. The cost of renting special accommodation.

The insurer argued that the Court was bound by Roberts v Johnstone.

Court of Appeal Judgment

The appeal was granted, and Mrs Swift awarded £801,913 representing the capital cost of £900,000 reduced by the value of the reversionary interest which was assessed as £98,087 using a 5% discount rate based on a life expectancy of 45.43.

In his Judgment Lord Justice Irwin concluded that “in the context of modern day property prices and a negative discount rate, the formula in Roberts v Johnstone no longer achieves fair and reasonable compensation for an injured claimant.”  He considered that it cannot be deemed reasonable to award no damages in respect of an established need. Lord Justice Irwin did however recognise the need to avoid a windfall to the Claimant’s estate if it could be achieved without prejudice to the overriding principle of fair and reasonable compensation. He concluded that the appropriate approach was to apply a discount to the capital sum and adopted a reversionary interest figure of 5%.

The Court of Appeal acknowledged that this approach would not always be appropriate. Lord Justice Irwin explained that the “guidance should be enduring” for longer lives, during conditions of negative or low positive discount rates, and subject to particular circumstances. Lord Justice Underhill went further; stating that a different approach may be required in cases of shorter life expectancies.

Where are we now?

The Court of Appeal’s Judgment has provided some clarity in a hotly contested area, but, as it only dealt with facts relevant to the Claimant, it has not provided an answer for all scenarios. The key question surrounded whether any award achieved fair and reasonable compensation for the Claimant. At present it seems that the reversionary interest approach will be applied in cases with a longer life expectancy but there is still uncertainty as to what constitutes a short life expectancy and what the appropriate award would be in those cases to ensure fair and reasonable compensation.

The insurer has sought permission to appeal to the Supreme Court.