Changes in Accommodation Cost Calculations

Clinical negligence claims vary hugely between the nature of injury, the extent of the injury and the extent of the effect on the claimant for years to come. Serious injuries, for example at birth or a lower limb amputation, can result in high levels of compensation to allow for the care needs and adaptations the claimant will require for the rest of their life.  Sarah Ratcliffe explains.

One aspect which must often be considered with these types of cases is accommodation. If negligence confines the claimant to a wheelchair for the rest of their life for example, they most likely will need new or vastly altered accommodation to allow them to live as easily and independently as possible. Such things are obviously not cheap, and come under a great deal of scrutiny and argument during negotiations.

Long-standing principle of negligence claims

The long-standing principle of negligence claims is that the compensation awarded should put the claimant back in the position they were before the negligence. The full cost of new, adapted accommodation would arguably be a windfall to the claimant – it would likely be more expensive than they would otherwise have been able to afford and on their death, the capital value would pass into their estate as a significant asset. The case of Roberts v Johnstone in 1988[1] developed the idea that rather than compensate the claimant for the cost of buying an adapted house less the proceeds of sale of their existing house, they should be compensated for the loss of the net income which that capital sum would have generated had it been invested. This loss was calculated by multiplying the capital difference between the properties by a rate of 2.5% which was set by the Lord Chancellor and represented the real rate of return, and then multiplied again by a life multiplier. The life multiplier represents the period of likely future loss and is calculated taking into account a number of factors, such as gender, retirement age and life expectancy.

This calculation was not ideal as it often meant that claimants had to use compensation meant for other aspects of their claim (such as lost earnings or care needs) to assist with the cost of purchasing adequate property, but it was at least some form of solution. It also worked reasonably well as long as the discount rate remained at 2.5%. However, in 2017, the government decided to change the discount rate to -0.75%. This had a significant effect on compensation awards because as a negative figure, future loss claims suddenly increased. In 2019 it was increased slightly to -0.25%.

The change to a negative discount rate figure meant that the Roberts calculation no longer worked, as you arrived at a negative compensation figure for accommodation costs. The approach followed by the judge in the case of JR v Sheffield Teaching Hospitals Trust in 2017[2] was therefore to award the claimant nothing for their accommodation costs. This decision was appealed, but settled out of court before the appeal could be heard.

Claimants left in limbo

Claimants have therefore been left in limbo since the change to a negative discount rate, in relation to compensation for accommodation. This has placed a huge strain on many claimants who have had to use their own money and borrow from other parts of their compensation to ensure they have suitable accommodation.

The case of Swift v Carpenter[3] therefore provides a very welcome decision. The claim had been brought by Ms Swift who had undergone a lower limb amputation following a road traffic accident caused by negligence. Although the judge at first instance followed the approach set out in JR, awarding the claimant nothing for accommodation, he accepted that there were problems with this method, and permission was given to appeal.

In a judgment passed down in October 2020, the Court of Appeal unanimously found in favour of the claimant, and agreed that she should be awarded damages for her accommodation. However, they could no longer follow the approach in Roberts, and the need to avoid a windfall still existed. The Court decided that the best approach was to deduct the windfall from the full value of the additional capital cost of the accommodation.

In order to do this, the court had to try work out what the value would be of the future interest on the property at the time of the claimant’s death (known as the reversionary interest). After detailed consideration of economic expert evidence, the court decided to apply a discount rate to the claimant’s life expectancy, of 5%.

In practical terms involving some complicated maths, the court deducted the price of Ms Swift’s previous property from the cost of her adapted property (which equalled £900,000), applied the rate of 5% to this figure (resulting in £98,087) and deducted this from £900,000. This awarded Ms Swift just over £800,000 in damages for her accommodation.

Lord Justice Irwin pointed out that this calculation would be beneficial for cases involving claimants with longer life expectancies, and also in conditions where there is a low or negative discount rate. However it will not be applicable in all circumstances, and it remains to be seen what solution will be reached should the discount rate increase to a positive figure again, or the best course of action to take when a claimant has a shorter life expectancy. However, for now, it at least provides claimants with a solution which arguably is reasonably fair to all parties.

[1] Roberts v Johnstone [1988] 3 WLR 1247

[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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