Swift v Carpenter : a help for housing in injury claims?

13 October 2020

1. Imagine the scene: Mrs X suffers catastrophic life-changing injuries after an accident. As a result, her house is no longer suitable for her living needs and she needs alternative accommodation (perhaps a bungalow rather than a house spread over multiple storeys), so that she can maintain a lifestyle as normal as possible.

2. As a matter of principle, this ought to be recoverable as a head of loss, and since 1989, there has been formula used to calculate those losses arising out of the capital difference between the old property (i.e. the property the Claimant owns already, which is no longer suitable for their post-injury needs) and the new property (i.e. the alternative accommodation), and the costs of conversion or adaptation of the property which are necessary as a result of the injury.

Roberts v Johnstone : solution or hidden problem?
3. The formula used for calculating such losses, which comes from the decision in Roberts v Johnstone [1], was the Court of Appeal’s attempt at ensuring an award can be made that is equivalent to the lost income that would have been achieved if the capital had been invested as a ‘risk free’ investment rather than being spent on property that would have been unnecessary but for the Defendant’s negligence.

4. The formula arrived at in Roberts v Johnstone was : capital difference x discount rate x lifetime multiplier (using the relevant Ogden table).

5. One flaw in the formula that was potentially unforeseen was the inclusion of the notional discount rate in the formula, which only became apparent when the discount rate became negative in March 2017; use of a negative sum in the formula inevitably led to the calculation showing a nil loss to the Claimant (or, conceivably, a credit owing to the Defendant, although no one has mooted that the Claimant ought to give the Defendant any such credit).

6. This was due to come back to the Court in the form of the 2017 appeal in JR v Sheffield Teaching Hospitals NHS Foundation Trust [2], however this matter settled before the Court was able to consider the matter. On 9 October 2020 the long-awaited judgment was handed down in Swift v Carpenter [3], which hopefully now helps to deal with the anomaly that comes from using the Roberts v Johnstone formula.

7. The Court found that they were not bound by Roberts v Johnstone, as it provided ‘authoritative guidance given the prevailing conditions at the time’, rather than precedent (jurists, make of that what you will), and that the formula used no longer achieves fair and reasonable compensation for claimants.

Swift v Carpenter : a new way around?
8. On 31 October 2013, the Claimant, Ms Swift (then aged 39), was a front seat passenger in a vehicle driven by the Defendant, Mr Carpenter. The vehicle was involved in a road traffic accident, the result of which was the Claimant suffered life-changing injuries, including a below knee amputation of her left leg and significant injuries to her right leg.

9. As a result of the injuries she sustained, the Claimant’s property was no longer suitable for her needs. Her property was valued at £1.45 million, and the property she contended she needed was worth £2.35 million. This left her in the region of £900,000 out of pocket.

10. At the time of trial, the Claimant was expected to live until 89.1 years of age, which, when using Ogden Table 2, gave a multiplier of 55.02 when using the -0.75% discount rate (the tables have since been updated earlier this year). Unfortunately, the trial judge, Lambert J, found that she was bound to use the Roberts v Johnstone formula and made no award for the accommodation capital costs, as the formula resulted in a negative figure. A number of alternatives to Roberts v Johnstone were mooted, but none gave rise to an appropriate method to calculate damages. The judge gave the Claimant permission to appeal to the Court of Appeal.

11. The Court of Appeal heard expert evidence, including from experts in reversionary interests after Irwin LJ suggested such an alternative methodology at an interim hearing. Those experts advised the court that investors in the reversionary interests market look for a yield in the region of 6.2% to 7%.

12. The Court concluded that the Claimant should be entitled to the additional capital cost of the property less the value of the notional reversionary interest in the property, and that the correct approach is to use the market value of that reversionary interest (despite this being a very small market).

13. In this context, the ‘reversionary interest in the property’ is essentially the value attributed to the windfall to the Claimant’s estate upon their death, based on the assumption that the property will increase in value over the remainder of the Claimant’s lifetime. Two of the experts, Mr Daykin and Ms Angell, agreed:

“If capital is awarded to the claimant for additional accommodation costs, or even if it is loaned to them for their lifetime (or any shorter period), then the defendant will in principle have a reversionary interest in the house (or part of the house) that the capital is used to purchase. This would crystallise on the death of the claimant or possibly earlier when they vacate the property if, for example, they move into a care home or hospital in later life.

The practicality of taking into account the defendant’s reversionary interest will depend on whether suitable assumptions can be determined to calculate the value in a way which is fair to both claimant and defendant, which could be by way of the Court setting the assumptions or by simulating a market value, to the extent that a robust set of underlying assumptions can be inferred from the market in such interests.”

14. The Court noted the evidence in respect of annual returns sought by investors, however found that a more cautious approach was necessary and applied a notional yield of 5%. This 5% was arrived at by Irwin LJ through taking into account a number of factors, including :

a. The lowest individual return seen in practice by the Intervener’s actuarial expert, Mr Watson (who was also the only expert with experience in the reversionary interests market), was 5%;
b. The need for approximate mid-point between the ‘fair and reasonable’ valuations tendered by both the Intervener’s and the Defendant’s actuarial experts, is somewhere near 5%; and
c. Consideration of the balance between the Claimant’s life expectancy (at some 48 years) and the much shorter life expectancy of most life tenants involved in the reversionary interests market.

15. The formula used to calculate the award was: D = (P-B) – R, where :

a. ‘D’ means the award of damages;
b. ‘P’ means the value of the new property;
c. ‘B’ means the value of the property owned but for the Defendant’s negligence;
d. ‘R’ means the value of the reversionary interest, which in turn was calculated as : R = (P-B) x 1.05¬-L; and
e. ‘L’ means the predicted life expectancy with reference to Ogden Table 1 (for males) or 2 (for females).

16. In Ms Swift’s case, this meant :

a. R = (£2.35million – £1.45million) x 1.05-45.43 = £98,087; and
b. D = (£2.35million – £1.45million) – £98,087 = £801,913.

17. It is interesting to point out that if the 1.1% figure suggested by the Defendant was used, R would have been £547,516; conversely, if the Claimant’s maximum figure of 7% was used, R would have been £41,623.

18. The Court acknowledged that there may be cases where this formulation is inappropriate, and that it may need to be revisited where a particular case presents a very short life expectancy.

19. Fundamentally, this decision marks a return to the days of claimants receiving awards aimed at accommodation claims. Awards under this new method will likely be substantial and represent a significant proportion of the required capital purchase cost, as the outcome for Ms Swift demonstrates.

20. It is not the outcome desired by either claimant or defendant representatives, however: claimants will still have to fund the shortfall (which in cases involving older claimants, will potentially be in the hundreds of thousands of pounds), and defendants are unlikely to be satisfied with reliance on the incredibly small reversionary interests market as a method by which to calculate damages.

21. Notably, in the Court of Appeal, the Defendant sought to suggest that a yield of 1.1% would be appropriate, and the Court’s decision to take a ‘cautious approach’ and set the notional yield at 5%, notwithstanding the Intervener’s expert giving evidence that the sought-after yield is 6.2% to 7%, is not as high as claimants would ideally prefer. Both of those sets of figures would massively inflate (for defendants) or deflate (for claimants) the value of R.

22. Given that the reversionary interests model will not satisfy some claimants (for example, those with a much shorter life expectancy but for the negligence), nor will it satisfy many defendants (who now have to compensate potential claimants considerably more), this is unlikely the last heard about this particular issue and it is likely that further litigation will be inevitable.

23. In any event, this may not be the last we hear of Swift, given that the Defendant has allegedly sought leave to appeal to the Supreme Court.

Michael Allin
13 October 2020

[1]  Roberts v Johnstone [1989] QB 878
[2]  JR (A protected party by his mother and litigation friend) v Sheffield Teaching Hospitals NHS Foundation Trust [2017] EWHC 1245 (QB)
[3]  Swift v Carpenter [2020] EWCA Civ 1295

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