The Court of Appeal handed down their judgement on 9 October 2020 following the hearing of the appeal in Swift v Carpenter on 23-25 June 2020.
The Court of Appeal held it was not bound by the formula set out in Roberts v Johnstone, in place since 1989 as this does not result in fair compensation for Claimants.
In place of the Roberts v Johnstone formula which was based on the discount rate, damages for accommodation will now be calculated by reference to the additional cost of the new property less the present market value of the reversionary interest.
At first instance, Mrs Justice Lambert accepted the Claimant had a reasonable need for alternative accommodation following a road traffic accident in which she sustained injuries resulting in a below knee amputation of her left leg and serious injury to her right foot. The increased capital costs of the required accommodation were £900,000. However, due to the negative discount rate in place at the date of trial and bound by the decision in Roberts v Johnstone she made no award but did give permission for the Claimant to appeal the decision.
The issues for the Court of Appeal were:
- Whether they were bound by Roberts v Johnstone?
- If not, should they depart from Roberts v Johnstone?
- If they should depart from Roberts v Johnstone what alternative is a fair and reasonable method of calculating compensation?
On the first issue the court held Roberts v Johnstone was authoritative guidance only. This meant the Court of Appeal was entitled to revisit the guidance. On whether they should depart from that guidance they held the Roberts v Johnstone formula no longer achieved fair and reasonable compensation and they should depart from this method.
A number of new methods for the calculation were considered including whether to award the full capital value of the reversionary interest or whether to reduce the capital award to reflect the notional revisionary interest value. The Court of Appeal decided on the latter approach.
The Court held an appropriate rate for the reversionary interest was a more cautious rate of 5% than the return usually sought by investors in this market.
One constructive finding for insurers is the Court of Appeal’s comment that there may be cases where the guidance is inappropriate, leaving open an argument on the appropriate award, for example in cases involving a short life expectancy. However, the Court did hold the guidance should only be revisited in the event of significant changes, and rarely by a first instance court.
The decision is not unexpected but will be disappointing for insurers who will be required to pay significantly more for accommodation claims, particularly at times when a negative discount rate is in force. The court have arrived at a formula that appears simple but does not reflect the true loss to the Claimant and overcompensates Claimants in many ways.
Appendix: Example Calculation using figures from Swift
Reversionary interest = (Price of new property – Price of existing property) x 1.05 (to the power of the Claimant’s life expectancy taken from Ogden Table 1 or 2)
Cost of the property now required: £2,350,000
Value of the Claimant’s existing property: £1,450,000
Capital shortfall: £2,350,000 – £1,450,000 = £900,000
Claimant’s life expectancy per Table 2: 45.43 years
Value of the reversionary interest: £900,000 x 1.05 -45.43 = £98,087 *
Damages award = £900,000 – £98,087 = £801,913
For any further information regarding this matter please speak to your contacts at Plexus Law:
Julia Archer, Associate
T: 01 61 245 7929 | E: firstname.lastname@example.org
Philip D’Netto, Partner
T: 0161 244 6915 | M: 07970 318 434 | E: email@example.com