Swift v Carpenter: Court of Appeal delivers its verdict
Roberts v Johnstone  QB 878 has, for the last 30 years dictated the methodology to be adopted by the courts when calculating the lump sum award for a claimant who is required to purchase alternative accommodation as a result of their injury. In basic terms it took the difference between the cost of the claimant’s accommodation before injury and the cost post-injury and allowed notional interest at the prevailing discount rate. At the time the case was decided, the discount rate was 4.5% and house prices were a fraction of what they are now (in that case the bungalow required had a purchase cost of £86,500, some £10,000 or so more than general damages). That calculation produced the multiplicand to which the appropriate multiplier was applied.
When Roberts v Johnstone was decided it was recognised as being an imperfect solution to the problem. As the Discount rate has steadily decreased, the criticisms of the decision have mounted, reaching their zenith when a negative discount rate was first set. Everyone was scratching their heads, not least because a negative discount rate would actually result in the claimant receiving no award for the cost of purchasing alternative accommodation. The difficulty was that Roberts v Johnstone was binding on the court. The much anticipated decision in Swift v Carpenter  EWCA Civ 1295 has now provided the means for the Court of Appeal to revisit the issue of how to award damages for accommodation purchase costs.
In the judgment handed down on Friday 9 October 2020, the Court of Appeal has ruled that Roberts v Johnstone is no longer capable, in modern conditions, of delivering fair and reasonable compensation to a claimant. The ‘cash-flow’ analysis said to justify that approach itself comprises such a level of conjecture, such complexity and such uncertainty of outcome that it cannot be demonstrated to achieve fair and reasonable compensation.
Having heard evidence from economists, actuaries and the claimant’s financial adviser, the court considered how best to achieve fair and reasonable, but not excessive, compensation for a claimant while avoiding, as far as possible, a “windfall” to a claimant, or more realistically to his or her estate.
The solution arrived at is by way of a market valuation and establishing the current value of a reversionary interest, which will not mature for many years. That will be calculated using a cautious assumed return of 5% based on renting the property to a tenant (as opposed to typical rates of return on the market of 6.2 to 7%). This guidance (it is not a prescribed or agreed formula) will apply to all cases where life expectancy is longer but a different approach may be merited where life expectancy is short.
In Swift where the 43-year-old claimant (who had suffered a below knee amputation) required an additional £900,000 to purchase an alternative property, this translated into a reversionary interest valued at £98,087 which was offset against the additional purchase cost to produce a damages figure of £801,913. This was based on the following formula:
R = reversionary interest
V = value of property now required
B = value of property the claimant would have owned but for the accident
L = predicted period of loss (often but not always = life expectancy) to be derived from Table 1 for a male and Table 2 for a female (as in this case; namely 45.43)
In this case the calculation is:
R = (V) £2,350,000 – (B) £1,450,000 x 1.05 – (L) 45.43 = £98,087.
This is a rather convoluted calculation (which needs a scientific calculator/smartphone or Excel). It is anticipated that there will shortly be a revised Ogden Table published with pre-calculated figures already provided. In the meantime, our version can be found by clicking here: Property-Discount-Table-Swift-v-Carpenter-Oct-2020 (4)
This decision results in additional damages to a claimant but does still leave the claimant with a shortfall in the damages which must be met by other heads of loss. The difference between this new methodology and a Roberts v Johnstone calculation is illustrated by the following graph showing the percentage of the purchase price recoverable for a female claimant of different ages with a normal life expectancy (the pattern is much the same for males):
For claimants in the prime of life, they will recover virtually all the property costs compared to around 80% with Roberts v Johnstone. The percentage recovered under Roberts v Johnstone declines with age in a fairly linear fashion. With Swift the differential between what is required versus what is recoverable increases significantly once a claimant reaches their mid-50s and beyond (i.e. as their life expectancy period decreases). The difference between a calculation using Roberts v Johnstone versus Swift varies between around 15% with the youngest claimants, peaking at around 25% for claimants aged 50 to 65 before the gap then closes again in old age.
The graph above highlights how the problem of a claimant with a short life expectancy remains, albeit the problem is nowhere near as big. Indeed one can look at this the other way around and that for such a claimant, the award of damages under the new approach is essentially double what it was under Roberts v Johnstone. Nevertheless, the court has left open the possibility of some alternative approach to be adopted for claimants with limited life expectancies and significant housing purchase costs, with this judgement having been made clear to apply to claims involving longer lives and during times of negative or lower positive discount rate applying (although whether there is really an appetite for another approach = e.g. purchase/equity release – which might not leave the claimant with much to leave to their beneficiaries is open for debate).
The Defendant has expressed an intention to appeal to the Supreme Court so this might not be the last word on the issue, if the Supreme Court does provide leave to appeal.
As matters currently stand, claimants are likely to welcome the decision. The approach to accommodation claims is not fundamentally altered though. There will still be arguments about what the claimant would have done but for the accident, what is a reasonable property to meet their needs, the adaptations required, the betterment of the property’s value as a result of such adaptations (if any) etc.
While we await news of any appeal the impact of this judgment is most likely to come to the fore through interim payment applications and especially so with any Covid related issues causing delays in the final resolution of the litigation. Claimants may therefore be all the more determined to sort out their accommodation needs at an interlocutory stage Such disputes, ordinarily focusing on the differential cost of what the Claimant reasonably requires, have often resulted in contested interim payment applications with the claimant required to satisfy the Eeles 1 and 2 tests. This decision will make a claimant’s ability to satisfy Eeles 1 or 2 rather easier.