Court of Appeal decides on assessing the value of accommodation claims09/10/20
In Charlotte Swift v Malcolm Carpenter  EWCA Civ 1295, the Court of Appeal has now handed down the eagerly anticipated ruling and set out a new way of assessing the value of claims for accommodation. In doing so it has departed from the long-established methodology previously laid down in the case of Roberts v Johnstone.
The case itself arises from a road traffic accident leading to the claimant sustaining serious injuries and requiring a left below-knee amputation. Damages were awarded as a lump sum and assessed at just under £4,100,000. However under the approach in Roberts v Johnstone and combined with a negative discount rate, the claimant was not entitled to recover any damages towards the purchase of specially adapted accommodation which had been valued at £900,000 more than her current property.
At first instance Mrs Justice Lambert DBE ruled she was bound by the approach set out in Roberts v Johnstone in not making any award, but granted the claimant permission to appeal and acknowledged that there was a real issue as to whether the formula used in Roberts remained fair and fit for purpose.
Following a three-day hearing in June 2020, the Court of Appeal unanimously granted the claimant’s appeal and concluded that the approach in Roberts v Johnstone “no longer achieves fair and reasonable compensation for an injured claimant” and ruled the methodology in Roberts for assessing damages in claims for accommodation was not binding on the Court.
In trying to determine how to approach this problem in the era of a negative discount rate, the Court had to balance the principles of ensuring the claimant is fully compensated for their losses whilst also trying to avoid the risk of overcompensating, which would occur if the claimant was awarded the full capital cost of accommodation as this would eventually result in a windfall to the estate.
The Court ruled the correct approach was to award the full additional capital value required to purchase the property, less the value of the reversionary interest (i.e. the value of the “windfall” that would arise on the claimant’s death). The amount to be deducted would be calculated by assessing the market valuation of reversionary interests. Whilst the market for reversionary interests was small, the evidence before the Court was that investors often looked for an average annual return of 6.1% per annum. The Court adopted a more cautious view and felt a discount rate of 5% over the course of the claimant’s predicted life expectancy was appropriate. Adopting a 5% discount rate, the Court assessed the value of the reversionary interest at £98,087 and awarded the claimant the sum of £801,913.
What the decision means for future claims
The Court of Appeal did leave some scope for the guidance to change in the future and accepted this approach may not be correct in all cases. However, it is envisaged that this new methodology should be applied in the majority of claims, particularly if the claimant has a long life expectancy.
This decision marks a departure from the established guidance in Roberts v Johnstone and will likely result in increased awards of compensation in cases where claims for accommodation are advanced.
A copy of the judgment can be found here.
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