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Seriously injured claimants often find themselves in a position where their current property is no longer suitable for their needs. More space is needed to facilitate extensive aids and equipment, or rooms for resident carers. The existing property may be extended; attracting claims for building costs, extensions, survey/architect’s fees and costs of additional furnishing.
If this is not an option, alternative accommodation will have to be purchased. However, awarding the full capital costs of additional accommodation would result in the twofold effect of providing a windfall for the claimant’s estate and leading to unacceptable over-compensation.
Back to basics – Roberts v Johnstone
Historically, a Roberts calculation is used to determine the accommodation claim. The Roberts calculation allows the claimant a 2.5% tax free yield on purchase of a suitable property, to represent the annual loss of investment. This 2.5% being the old discount rate. This figure is then multiplied by the claimant’s life multiplier.
Following the Lord Chancellor’s dramatic reduction in the personal injury discount rate, from 2.5% to minus 0.75% in March 2017, the formulation in Roberts has come under widespread attack from a spate of claimant solicitors. Their complaint is because this invariably leads the claimant shy of 100% compensation.
Adoption of the new, negative multiplier generates a nil Roberts award and a significant shortfall against the costs of acquiring the property needed during the claimant’s reduced lifespan. Albeit that it affords a windfall for the estate to those without a reduced life expectancy.
Two steps forward, one step back
The accommodation conundrum came before the courts in the case of JR v Sheffield Teaching Hospitals NHS Trust [2017]. This case was pleaded at £28 million due to the significant accommodation needs arising from severe cerebral palsy. The court found itself bound by Roberts and thus granted a ‘nil’ award.
Permission to appeal was granted to the claimant on the issue of future accommodation and to the defendant in relation to the award for ‘lost years’. However, the appeal was compromised in the eleventh hour, as an offer of £800,000 was accepted. This figure was the costs of accommodation as determined by the judge, minus a reasonable valuation for the accommodation that the claimant would have purchased or rented uninjured.
Food for thought
As the law stands we are no further forward. A potential claimant could be awarded the full capital sum for purchase of the accommodation plus renovation and adaptation costs, with the defendant having either a life interest in the property or a charge on the property to recover capital on the death of the claimant. This does not however resolve the issue as to whether the defendant would be able to recover any profit made on the capital costs of the property, or what would happen if the claimant wished to move house.
In JR the judge suggested a commercial interest only mortgage paid by a Periodical Payment Order (PPO) or lump sum agreement. Unfortunately further evidence was not put forward to support this argument. An alternative suggestion would be for full rent to be paid on a suitable property via a PPO order. Another option would be to assess the notional costs of a mortgage interest to replace the notional loss of investment income. However, rental costs, even over a relatively short lifetime, may be in excess of the purchase cost, so unlikely to be an attractive option. A bigger question to ask is whether, as a result of litigation, you would want to own property?
Comment
This conundrum continues to evolve as a recent judgement in Swift v Carpenter [06.07.2018] provided a clear and unambiguous judgment bound by the imperfect Roberts v Johnstone formula, and permission to appeal on this point has been granted.
The law, for now, appears clear on the point…That is until the discount rate is expected to elevate back to a positive figure, and the potential outcome of the appeal, which we hope will unravel these issues and provide certainty once and for all. In the meantime, we recommend applying Roberts v Johnstone and watching this space.
Read other items in Personal Injury Brief - November 2018
Related items:
Repairing the discount rate for fairer compensation
Disapplying the UK discount rate for foreign claimants
Progress at last: Civil Liability Bill brings promise of certainty on discount rate and whiplash reform
United Kingdom