The formula set out in Roberts v Johnstone to calculate accommodation claims by injured people “no longer achieves fair and reasonable compensation”, the Court of Appeal ruled today.
In a major boost for claimants, Lord Justice Irwin said in Swift v Carpenter that it was not acceptable for modern property prices and a negative discount rate to leave claimants with no damages under this head, even if there was a long-term danger of them receiving a windfall.
“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.”
The judge observed that there were instances accepted in the law when a measure of over-compensation was unavoidable, although that would not necessarily be the case with accommodation claims.
Given that the value of property generally increases over time, there has always been a concern that providing the claimant with the full capital value of accommodation may, in theory, result in a windfall to the estate at the time of their death.
Since Roberts, decided in 1989, a claimant’s accommodation claim has been calculated by multiplying the capital cost of the property by the prevailing discount rate, and then applying the appropriate life multiplier.
However, the negative discount rate of -0.25% (-0.75% at the date of the trial) led to a nil award for Charlotte Swift, who suffered leg injuries leading to a below-knee amputation after a road traffic accident in 2013.
Mrs Justice Lambert found she needed £900,000 to fund the capital costs of larger accommodation required as a result, but that she could not award it because of Roberts.
Irwin LJ, with whom Lady Justice Nicola Davies and Lord Justice Underhill agreed, rejected the argument that Roberts was binding authority from the Court of Appeal, and binding on the House of Lords as per the 1996 ruling in Thomas v Brighton Health Authority.
“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.”
Having decided that it should do this, Irwin LJ ruled that a market valuation was the best way to establish the current value of a reversionary interest which would not mature for many years.
“However, in response to the limited existing market and the other evidence given, I have reached a deliberately cautious view as to the appropriate discount at 5%.”
He went on to reject the respondent’s suggestion that it was inappropriate to apply the Ogden table 28 multiplier to life expectancy when calculating the amount to be deducted in respect of the windfall.
“The court has reached a decision on the appellant’s life expectancy. It seems to me appropriate to treat that decision as a term certain for the calculation.”
Irwin LJ also accepted the submission of the Personal Injuries Bar Association – which intervened in the case – that the court’s guidance “should not be regarded as a straitjacket to be applied universally and rigidly”.
He explained: “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.”
As a result, he quashed Lambert J’s decision. “In my view the appropriate award, applying a 5% discount rate, and therefore taking the value of the reversionary interest to be £98,087, would be damages of £801,913.”
Ms Swift’s solicitor, Grant Incles, a partner at Leigh Day, said: “The decision itself is the best and most thorough examination of a problem that has vexed legal practitioners for decades, and so enormous credit must go to the judges in the Court of Appeal for taking it by the horns in the way that they did and to Derek Sweeting QC and James Arney of counsel, and the expert witnesses, for enabling them to do so.
“I am so pleased with the result; I only wish it wasn’t at such a personal cost to Charlotte, who has had to bear the process for over seven years of her life.”
Ms Swift said the case had been “both incredibly stressful and upsetting” and noted how the defendant insurance company fought her “every step of the way”.