Quantifying Accommodation Claims – Swift v Carpenter

The Court of Appeal has recently considered how best to value claims for damages where an injured Claimant is obliged to purchase alternative accommodation as a consequence of the injuries they suffered.

Accommodation claims – Case law

Accommodation claim calculations stem from the case of Roberts v Johnstone. This case provided a formula whereby a Claimant’s accommodation claim in personal injury litigation was calculated by multiplying the capital cost of the property the claimant now needs, by the prevailing discount rate, and then applying the appropriate multiplier. The effect was to compensate the Claimant for their annual loss of income by virtue of having spent capital (a lump sum) on the new property.

This approach prevented the Claimant’s estate potentially benefitting from a ‘windfall’, assuming that the property had appreciated in value during the Claimant’s lifetime. Although this was not an accurate calculation, it did provide the Claimant with a contribution towards the purchase without allowing a windfall/overcompensation.

However, as there is now in place a negative discount rate of -0.25%, the Roberts v Johnstone calculation ultimately gives the Claimant a nil award for their accommodation claim meaning that even more of their other heads of loss (compensation for care, equipment etc.) have to be used to pay the shortfall.

Finally, a relevant case came before the Court on this issue.

Swift v Carpenter

In Swift v Carpenter, Mrs Swift suffered serious injuries as a result of a road traffic accident, requiring amputation to her left lower leg as well as significant disruption of her right foot. She was only 39 years of age at the time of the accident and required special accommodation costing £900,000 more than her existing home. Unfortunately, following the formula provided in Roberts v Johnstone she was awarded nil damages under that head of loss.

On appeal, the Personal Injuries Bar Association was permitted to intervene. Evidence was heard from financial experts (economists and actuaries) who found that it is no longer a ‘safe prediction’ that property prices will rise and that it was unreasonable to assume that there will be a suitable market to allow for equity release to fund their annual needs later in life.

On 9th October 2020, a judgment was given making the following key points:

1. The formula provided in Roberts v Johnstone was no longer a binding authority.
2. The award for damages should seek as far as possible to avoid a ‘windfall’ to a Claimant’s estate, however primarily, the Claimant should always be awarded fair and reasonable compensation.
3. The Court determined a change to the formula for the calculation of accommodation claims which, in simpler terms, is as follows:
   1. Calculate the difference in cost between the special accommodation the Claimant now needs and the cost of the accommodation the Claimant currently resides (or would have had) had the accident not occurred;
   2. Deduct from that sum, the market value of the notional reversionary interest in the increased value of the Claimant’s home calculated by reference to the Claimant’s predicted life expectancy using a +5% discount rate.

It should be noted that most Claimants still need to borrow the reversionary interest from their compensation so they are able to purchase the special accommodation.

Irwin LJ also stressed that the 5% discount figure was guidance and not a principle to follow. It could especially be deviated from where the life expectancy is short. Should the discount rate return to a relatively high positive rate, then this judicial guidance may become inappropriate, but only time will tell.