Swift v Carpenter – the judgment explained
Swift v Carpenter [09.10.20]
The Court of Appeal have today handed down the judgment in this landmark decision, finding in favour of the appellant (the Claimant) who had challenged the decision of no award for her accommodation claim.
Here we provide a brief overview of the conclusion reached by the Court and offer our initial observations on the outcome.
Since the decision in Roberts v Johnstone , a claimant’s accommodation claim in personal injury litigation has been calculated by multiplying the extra capital cost of the post-accident property the claimant needs by the prevailing discount rate, and then applying the appropriate life multiplier. The problem now is that the negative discount rate of -0.25% means that the calculation effectively gives the claimant a nil award for the capital element of their accommodation claim.
Swift v Carpenter was one of these such cases where the Claimant required alternative accommodation as a result of personal injury and the Roberts v Johnstone calculation did not enable compensation deemed fair and reasonable. The Claimant therefore took the issue to the Court of Appeal in July 2020 to seek an alternative approach.
The Court of Appeal have settled on the reversionary interest approach where the claimant gives credit for the market value of the expected reversionary interest in the additional capital required to purchase a suitable property. This is calculated using the assumption that the notional purchaser of the reversionary interest would seek an annual return of 5% on their investment.
To calculate the value of the reversionary interest one must find the difference between the value of the property owned but for the injury and the value of the property now required and multiply that by 1.05 to the power of the negative life expectancy. This figure is then subtracted from the difference between the two properties.
For example, in Swift v Carpenter the difference between the properties is £900,000 and the life expectancy is 45.43, giving a total of £98,087. This is then subtracted from the £900,000, giving the damages award of £801.913. (You will need a scientific calculator to do this sum, as it requires putting 1.05 ‘to the power’ of the negative life expectancy figure, in this case -45.43).
Reversionary interest = (£2,350,000 - £1,450,000) x 1.05-45.43 = £98,087
Damages for accommodation claim = (£2,350,000 - £1,450,000) – £98,087 = £801,913
The Court has recognised that different considerations may apply to short life expectancy cases, leaving the door open for alternative approaches in those cases. The reason for this is because by the very nature of the calculation, the shorter the life expectancy the less the award, and consequently the more the claimant will have to use damages from other heads of loss to fund the shortfall between the current property and the property they require.
The outcome in this appeal is not unexpected and at least provides more certainty to the calculation of accommodation claims. As the market for reversionary interests increases (principally as a result of this decision) more accurate rates of return may be identified, which might lead to challenges down the line, should the 5% rate turn out to be inaccurate.