The law has changed to ensure victims of serious injuries can receive fair compensation for extra accommodation costs.
The landmark Swift v Carpenter decision, made by the Court of Appeal on 9 October 2020, means that claimants in cases of personal injury and cases of medical negligence will receive fair and reasonable compensation for special accommodation required as a result of their injuries.
Swift v Carpenter overturns previous case law which, combined with changes in the economy, effectively cancelled out such compensation.
For example, if someone is left wheelchair-bound by an accident, they may need to leave their current home and buy a property on one floor, with larger rooms to allow movement. Previously, claimants would receive no money to cover this change; but this ruling means the extra cost of the accommodation will now be fairly compensated.
The ruling says that the claimant should be awarded the full additional costs of accommodation, minus the value of reversionary interest (see Q&A below).
Compensation should restore a claimant’s financial situation to where it would have been without the incident.
To achieve this, lawyers and judges consider two basic principles:
The problem with property compensation is that real estate is likely to increase in value.
This means that, if a claimant is awarded the full capital costs for new property, the increase in value could create a windfall for their estate.
This led to a 1989 decision by the Court of Appeal in Roberts v Johnstone, a medical negligence case. The Court ruled that the compensation would be equivalent to the amount of income the claimant could have expected if they had put the cost of extra accommodation in risk-free investments.
From 2001-2017, the rate sat at 2.5% – already low enough to seem unreasonable in many cases.
Then, in 2017, the Chancellor reduced the rate to -0.75%, and to -0.25% in 2019. Suddenly, calculations led to negative results (revised to zero, as otherwise the claimant would owe the defendant money – obviously absurd).
The decision made sense given changes in the economy, but it meant that claimants were left with, no compensation for the different accommodation they needed. They had to take money from other parts of their compensation – money set aside for things like equipment, care, and loss of earnings.
The case of Swift v Carpenter, heard by the Court of Appeal in June 2020, concerned a woman who had lost a leg as a result of a car accident that wasn’t her fault.
In August 2018, Ms Swift was awarded £4m in damages. But, due to the calculations detailed above, she would not receive the £900,000 the Court had calculated she would need to buy the larger accommodation she needed.
She took her case to appeal.
The Court of Appeal heard evidence from experts including economists and actuaries. On the basis of that evidence, it decided not to follow the decision in Roberts v Johnstone.
Lord Justice Irwin stated: ” . . . that approach is no longer capable in modern conditions of delivering fair and reasonable compensation to a claimant.”
Using the new calculation method, the Court of Appeal awarded Ms Swift a lump sum of £801,913.
The £98,087 revisionary interest value was calculated using life expectancy and a discount rate of 5% (see this table in the Approved Judgement document PDF).
What this outcome means
The Swift v Carpenter ruling ushers in a sensible, up-to-date method of compensating for extra accommodation. It hugely improves a matter that legal professionals have long recognised as deficient.
Although the Court left the door open to possible future changes to this guidance, it will likely only be revisited in the wake of significant change to wider circumstance (which is what made the previous guidance inappropriate).
The Court also emphasised the importance of negotiations that lead to settlement in personal injury cases. Nicola Davies, L.J., called these negotiations an “integral part of such litigation”. The new guidance should make these discussions easier, as both parties will have a more sensible starting point.
So, overall, this decision puts the courts back on track to reach that core goal: to restore victims’ circumstances to what they would have been if the injury had never occurred.
What is a discount rate?
When the victim of a life-changing injury is awarded a lump sum in compensation, the amount is altered using a ‘discount rate’. This rate is calculated using several factors: the interest the claimant can expect to earn by investing the compensation, their expenses, tax, and inflation. The aim of the discount rate is to avoid over-compensation or windfalls.
What is a reversionary interest?
A reversionary interest is when the original owner of an asset can claim it back once the recipient no longer needs it – it ‘reverts’. It is often used in trust law.
In this kind of case, it would not be reasonable for the defendant to retain a reversionary interest. It would force a relationship between the two parties, almost certainly undesired. It would also mean some regulatory responsibility on the part of the defendant – again, not ideal.
The Swift v Carpenter decision reflects this by using the market valueof the reversionary interest, calculated for the time of the claimant’s death using life expectancy and a set discount rate.
Pinney Talfourd are experts in Accidents and Personal Injury. Please do not hesitate to contact us should you wish to discuss anything further.
This article was written by Stephen Green, Partner in the Accidents and Personal Injury Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of October 2020.