This site uses cookies.

PI Practitioner, October 2020

16/10/20. Each issue a particular topic is highlighted, citing some of the useful cases and other materials in that area. You can also receive these for free by registering for our PI Brief Update newsletter. Just select "Free Newsletter" from the menu at the top of this page and fill in your email address.

Swift v Carpenter [2020] EWCA Civ 1295

Introduction

This judgment has been eagerly anticipated throughout 2020 by the community of high value personal injury lawyers. It provides authoritative and enduring guidance on the proper way to approach accommodation claims in personal injury matters. These heads of claim arise where a claimant requires a more expensive house in order to accommodate for their injuries.

The impact of this case on practitioners is significant. When preparing schedules of loss and counter schedules, advising clients, negotiating settlements, a new approach must be taken to accommodation claims. This will impact both future and ongoing cases, as courts will now adopt the Swift v Carpenter approach to accommodation claims.

The problem the Court of Appeal needed to solve

The courts have always found it challenging to assess what fair compensation looks like when faced with an accommodation claim. There is clearly a need for compensation which such claimants have, as they are forced to buy more expensive properties to accommodate their injuries. Yet simply awarding the difference in price between the two sets of accommodation has been viewed as problematic. This is because the claimant's estate would get a windfall on their death, owing to the increase in value of the claimant's property.

The previous authoritative approach to accommodation claims was set down in a case that is now over 30 years old, in a world where you could expect to get a return on your investment: Roberts v Johnstone [1989] QB 878. In that case, the Court of Appeal took the logical view that if you have plunged an amount of money into a more expensive property, you have foregone the ability to invest it. The court therefore assessed the loss as the notional rate of return on the additional money used to purchase the new accommodation. They calculated this at 2%. In Wells v Wells [1999] 1 AC 345, this figure was brought into line with the discount rate for the calculation of multipliers for future loss. At the time, it was 3%, which no doubt seemed fair and generous. However, recent claimants have been "killed with kindness", since in more economically turbulent times this figure has been "kept up to date", most drastically in March 2017 when it reduced from 2.5% to -0.75%. The figure is now -0.25%. The logical implication of the negative discount rate is a nil award for accommodation, because there can be no claim for damages based on a negative return. Yet a nil award in respect of a real and immediate loss cannot possibly be fair.

In reality, practitioners had long recognised the unfairness of the Roberts v Johnstone approach, in particular as applied to more recent cases. Whenever it looked like Roberts v Johnstone would be challenged, the accommodation claim would settle. The settlement would not be for £0. Such settlements may have represented fair risk based solutions between the two parties. However, they did no service to the state of the law or to future claimants, the success of whose accommodation claims would largely depend upon the competence and persuasiveness of their lawyers, rather than the operation of principled law.

The Court of Appeal's solution

Several options were touted both before the High Court and the Court of Appeal. These will now be of academic interest only. The solution which the Court of Appeal favoured, based on extensive expert witness evidence, was to return to awarding the difference in cost between the two sets of accommodation, but with one crucial modification: in order to avoid a windfall, courts now are required to calculate, and then take away, the notional value of that windfall from this sum. The court concluded that the windfall is calculated as the market value of what is technically known as the "reversionary interest" in the additional cost of the new property.

What is a reversionary interest, what is its value, and how is its value calculated?

In non-technical terms, if you arrange with me that your property is transferred to me when you die, then I have the reversionary interest in your property. That reversionary interest has present value to me, because it means when you die I will own the property. If you will likely die in 1 year, the reversionary interest has more value to me than if your life expectancy is 40 years. In other words, the value of my reversionary interest is inversely proportional to the number of years you have left to live. Just as reversionary interests have value to me, they have value to investors: as it turns out, there is a small market in reversionary interests. Investors want return on their assets. Cutting a very long story short, the Court of Appeal, cautiously on the evidence, set the percentage rate of interest per year that a notional investor would want at 5%. This 5% is authoritative for all future cases. Therefore, to calculate the value of the reversionary interest, practitioners need to apply a reduction of 5% per year for each year a claimant has left to live. The life expectancy figure used for this sum is calculated in the usual way by reference to the Ogden tables.

The following method of thinking about it helped me understand why the calculations are done in this way. Imagine you are an investor who is looking at buying a reversionary interest. You want a 5% per year rate of return on your investment. If you estimate that the property will be worth £1 million (in today's money) in 20 years, then you can find the price you would be willing to pay now by reducing that £1 million by 5% 20 times, each time representing a year. In personal injury accommodation cases, of course, the value of the property will be the value of the difference between the previous property and the required property.

For those of you who are algebraically minded, the calculation can be written down as a formula. Where A represents the additional value in the claimant's required accommodation compared to their previous accommodation, and L represents the claimant's life expectancy, the reversionary interest can be written as A x 1.05^-L. Note the minus symbol before the L, because we are reducing the value by 5% every year, not increasing it. [EDITORS NOTE: ^ denotes the exponentiation function]

Example: the claimant in Swift v Carpenter

The additional amount was £900,000. Her life expectancy was 45.43. The value of the reversionary interest was therefore £900,000 x 1.05^-45.43 = £98,087. In words rather than formulae, the function of the calculation was to reduce the £900,000 by 5% 45.43 times, each time representing a year of the claimant's life. The claimant's award for accommodation was therefore £801,913 (£900,000 - £98,087).

Example: if the Claimant in Swift v Carpenter had 30 years left to live

Here the value of the reversionary interest would have been £900,000 x 1.05^-30 = £208,240, and the total award would have been £691,760 (£900,000 - £208,239). That is to say, the £900,000 would have needed to be reduced by 5% 30 times to get the value of the reversionary interest, namely £208,240. Readers will no doubt note the dramatic difference in the accommodation award between a 30-year life expectancy and a 45-year one.

Note for practitioners

Irwin LJ emphasised that this guidance should be regarded as enduring. However, he did note that this form of calculation may not be appropriate in short life expectancy cases, and that different considerations and calculations may be applied to such instances: [171]. This is sensible, because the reversionary interest in a property that is likely to be realised relatively early will be much higher than those which are realised later. In short life expectancy cases, the reversionary interest may well be greater than half, or even close to the whole of the additional sum. This would likely render an award for accommodation otiose, as claimants tend to require a large proportion of the accommodation award in order to even obtain the property they require. Therefore if you do have a shorter life expectancy case, there will probably be more room for negotiation in how the accommodation award is to be calculated, and specialist advice on this issue may well be required. Of course, if negotiation fails, there may well be the prospect of a further case on the horizon.

Conclusion

The Court of Appeal in Swift v Carpenter have laid down authoritative guidance that is likely to stand the test of time, at least for those with a long life expectancy. In such cases, claimants can expect to recover most of the difference between the value of their previous accommodation and their required accommodation.

It is anticipated that the Ogden tables will soon be released with a 5% discount rate, which will make calculation of accommodation awards more straightforward.

Finally, it is noted that the Respondent has applied for permission to appeal. Therefore practitioners may well want to watch this space.

Paul Erdunast & Harry Peto
Temple Garden Chambers

Image ©iStockphoto.com/EmiliaU

All information on this site was believed to be correct by the relevant authors at the time of writing. All content is for information purposes only and is not intended as legal advice. No liability is accepted by either the publisher or the author(s) for any errors or omissions (whether negligent or not) that it may contain. 

The opinions expressed in the articles are the authors' own, not those of Law Brief Publishing Ltd, and are not necessarily commensurate with general legal or medico-legal expert consensus of opinion and/or literature. Any medical content is not exhaustive but at a level for the non-medical reader to understand. 

Professional advice should always be obtained before applying any information to particular circumstances.

Excerpts from judgments and statutes are Crown copyright. Any Crown Copyright material is reproduced with the permission of the Controller of OPSI and the Queen’s Printer for Scotland under the Open Government Licence.