August 16, 2018

Accommodation claims and negative discount rates

The recent judgment handed down by Mrs Justice Lambert in Swift v Carpenter [2018] EWHC 2060 (QB) marks only the second occasion on which the Court has been asked to consider accommodation claims in the context of negative discount rates.

In the present case, the claimant suffered serious lower limb injuries in a road traffic accident and her claim included an accommodation element, where it was claimed that the suitable accommodation would cost £900,000 more than the accommodation which the claimant had previously been living in.

The claimant proposed four alternative models for recovering this loss:

  • The first method proposed was based on an interest-only mortgage. The claimant submitted that a basic internet search revealed an annual interest rate of 3.8%. Applying this percentage to the sum of £900,000 and multiplying by the claimant's life expectancy using a discount rate of -0.75% produced a final figure of £1.89m, thus presenting the claimant with a significant windfall. This approach was plainly wrong, and was rightly dismissed by the Court.
  • In the alternative, it was suggested that periodical payments could be used to fund the additional annual costs of an interest-only mortgage over the claimant's life-time. Whilst this would have the effect of limiting payments to the claimant's lifetime, it would result in a significant overpayment if the claimant lived to her full life-expectancy. This approach was therefore also rejected by the Court.
  • The third alternative was to utilise the Roberts v Johnstone formulae but substituting the discount factor for the purposes of calculating the loss. Counsel for the claimant suggested that the appropriate discount factor should be 2%.
  • The fourth option, which was dismissed out of hand by the Court, was that the defendant should be asked to meet the private rental costs of £48,000 p.a. over the claimant's life-time, which, aside from the fact that the claimant did not want to live in rented accommodation, would plainly have resulted in a gross over-payment of damages.

Thus the only realistic option open for consideration was the third method, effectively a "modified" Roberts v Johnstone calculation. The claimant submitted that it could never have been the intention of the Court of Appeal to have devised a formula that resulted in a nil award, and on that basis, the discount factor should be modified. However, Mrs Justice Lambert noted that the formula had never been perfect, citing examples of cases where full restitution could not be achieved due to reduced life expectancy, contributory negligence or claims which had settled on a compromise basis. The formula, was therefore "imperfect" but Mrs Justice Lambert was in no doubt that she was bound by Roberts v Johnstone and therefore she made no award in respect of the additional capital costs of a property purchase.

Following on from JR v Sheffield Teaching Hospitals University NHS Foundation Trust this judgment therefore provides further clarity and certainty in respect of accommodation claims and reaffirms that even though Roberts v Johnstone is far from perfect, it remains good law and should continue to form the basis upon which future accommodation claims are calculated.