Fair and reasonable compensation? Landmark ruling overturns position on accommodation claims
15th October 2020
The highly anticipated case of Swift v Carpenter  EWCA Civ 1295 has now been considered by the Court of Appeal and a decision was handed down on 9 October 2020.
It was held that a Claimant’s award for the purchase of a new, more expensive property following a successful claim for negligence should fall outside of the standard damages award.
The landmark decision overturned the previously binding case law on this topic, namely Roberts v Johnstone, which it was decided by the Court of Appeal “no longer achieves fair and reasonable compensation” for claimants.
The assessment of yester-year: Roberts v Johnstone
The case of Roberts v Johnstone was decided in 1989. It set out to challenge the issue of the “windfall” effect on a Claimant’s estate upon their death, when the full capital cost of an appreciating asset, property, would be received. To rectify this, Judges devised a formula for the calculation of damages in accommodation claims whereby Claimants were required to fund the purchase of more expensive properties themselves, from their damages award, but were then compensated for the lost return on the capital invested in order to make the house purchase.
The long established formula is calculated by multiplying the capital cost of the property by the prevailing discount rate, and then applying the appropriate life multiplier. Prior to 2017, the Roberts v Johnstone method produced an additional financial award for the Claimant however, in 2017 the discount rate changed and for the first time was a negative figure, of -0.75% before being further amended to -0.25%. The negative discount rate meant that no additional financial sum was payable to Claimants for the capital purchase of a property under the Roberts v Johnstone formula.
The assessment of accommodation claims has been a source of controversy for some time, with Claimants arguing that even before the negative discount rate was introduced they were effectively being undercompensated, having to “borrow” from their lump sum damages awards for the purchase price of a new property which better suited their needs, but which would not have been required save for the index event which formed the basis of their claim.
Challenging the position: Swift v Carpenter
On 31 October 2013 Charlotte Swift suffered severe injuries as a front seat passenger in a road traffic collision. As a result of the collision, the Claimant underwent an amputation of her left lower leg and had significant injuries to the right foot, with ongoing symptoms and restrictions in her mobility.
The Claimant was awarded a lump sum damages award in the sum of £4,098,051. Due to her extensive injuries and associated mobility issues, the Claimant required a larger, more expensive property than that which she currently owned. The additional cost of the new property was assessed to be £900,000.
The Court at first instance held that it was bound by the decision in Roberts v Johnstone and as such, the Judge made no award for the additional capital cost of the new property.
What happened next?
Mrs Swift challenged the decision. Permission was granted for her to appeal the ruling so that the Court of Appeal could consider the position with reference to the existing case law in this area.
The Claimant argued that she was not bound by the decision in Roberts v Johnstone because, under current conditions and in particular with reference to the negative discount rate, such an approach was contrary to the fundamental principle of fair and reasonable compensation for those injured by another’s negligence.
The parties were permitted to adduce evidence from a wide variety of experts to assist the Court in reaching a decision. Expert evidence was heard from economists, actuaries, mortgage experts and experts in the valuation of reversionary interests in property.
Creation of a new method for quantifying accommodation claims as a result of Mrs Swift’s appeal was not a straight forward task. The Claimant advanced four proposed methods by which the Judge could deal with the additional funds required to “bridge” the difference in cost between her current home and the adapted home which was now required. Potential methods were considered but were dismissed by the parties as not being viable including a lump sum or Periodical Payments Order award based on the cost of an interest only mortgage; a loan from the compensator; and shared ownership.
So, what has changed?
The Court of Appeal recognised the balancing act between avoiding a “windfall” and ensuring fair and reasonable compensation. Roberts v Johnstone applied to the Swift case but was described as “authoritative guidance” only.
The ruling described the case of Roberts v Johnstone as no longer representative of fair and reasonable compensation in cases of personal injury. Further, it was said that “it cannot 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 will arise a windfall to the claimant’s estate.”
The Court of Appeal held that Mrs Swift should be entitled to the additional capital cost of the new property, minus the value of the reversionary interest in the property. The correct approach was to use the market value of reversionary interest. Taking a “cautious” lower level of return to reflect the small size of the market and the uncertainties of life expectancy which underpinned the rate of return, the Court held that the appropriate rate was 5%.
In his ruling Lord Justice Irwin said he accepted that his guidance should ‘not be regarded as a straitjacket to be applied universally and rigidly’, however, in cases where there is a longer life expectancy and during conditions of negative or low positive discount rates, and subject to particular circumstances, this guidance should be regarded as enduring. The Court has left open the possibility that a different approach may be required for short life expectancy cases, where the value of the reversionary interest, and therefore the deduction to the additional capital sum, will be much greater. However, LJ Irwin clarified that “it will rarely, if ever, be right for that guidance to be departed from by a first instance Court.”
In practice, the milestone decision in Swift will mean a notable increase in damages for cases involving accommodation claims. Claimants will no doubt welcome this shift in the legal landscape, and its considerable impact upon their compensation award. Defendants, however, must now take into consideration an additional financial risk in cases in which often very significant awards are already likely. Our view is that this decision represents something of a missed opportunity to come up with a comprehensive and fair solution to the problem of compensating for accommodation costs. No help is given in determining what is a short life expectancy case, is it 10 years, 15 years, 20 years or more ? Also perversely the smallest deduction from the award to the Claimant occurs in respect of the longest life expectancy cases when it is likely there will have been substantial capital appreciation in respect of the property, hence producing the largest ‘windfall’ to the Claimant.
Although not yet indicated, it is possible that the case of Swift will be the subject of a further appeal, this time to the Supreme Court.
For further information, please get in touch.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.