Accommodation Claims and Negative Discount Rates

Note for Claimants*

  1. On 20th March 2017 the discount rate changed from 2.5% to -0.75%. The life multiplier for a 7 year old child with a life expectancy to age 60 changed overnight from 29 to 65, more than doubling the capital value of a future loss claim.
  2. This good news brought an as yet unresolved problem for accommodation claims. For nearly 30 years, since March 1988, the standard approach to valuing the cost of accommodation was that set out by the Court of Appeal in Roberts v Johnstone. If you were living in a house worth £200,000 and you needed to move to a house costing £500,000 the court would not give you the ‘windfall’ of the additional capital, £300,000. Damages are supposed to run out on the day you die but the asset would survive you. Instead you were entitled to compensation for the loss of the use of the additional capital. The discount rate was used to assessed the annual value of the loss. Therefore where the required capital sum was £300,000 the annual value (multiplicand) would be £7,500. This would be multiplied by the life multiplier, so using the figures above, £7,500 x 29 would give an R v. J award of £217,500.
  3. There were many problems with R v J. The biggest was in cases of limited life expectancy where the award would be far too small to fund the purchase of a property. There were ways around this, including a claim for the cost of adaptations which were awarded in full. Therefore in a case with limited life expectancy you would achieve a bigger award by buying a small house and spending a lot on adaptations than by buying a bigger house and spending very little on adaptations.

  4. Roberts v Johnstone is now dead. With a discount rate of zero or less there is no multiplicand. That leaves the question whether a claimant can recover damages for accommodation?
  5. The only decided case on the point is JR v Sheffield, a decision of Mr Justice William Davis at the end of May 2017. He awarded the claimant £7.9 plus periodical payments of £293,117 for care and case management. The claimant suffered injury at birth leaving him with cerebral palsy. By the time of trial he was 24 and with a life expectancy to age 70. The life multiplier was 54. If the care and case management is capitalised the full value of the award is £23.7m which is probably a little over double what would have been recovered had the trial taken place a year ago.
  6. Davis J held that the costs of a suitable property would be about £900,000 with adaptation costs of £400,000 and increased running costs of £7,000 p.a. He awarded the adaptation costs and increased running costs but gave nothing for the cost of the accommodation itself.
  7. It is very important to appreciate that Davis J has not shut the door on accommodation claims. On the contrary he says at paragraph 48:

“I consider that the editor of McGregor was quite correct when he opined that a fair and proper solution should be found to the conundrum of providing a claimant with the means to purchase special accommodation.”

  1. He held that where no alternative evidence was available on which to calculate the loss arising from the purchase of accommodation he was bound by R v J and had to make a nil award. He said it would clearly be wrong to award the full capital cost of the accommodation. He speculated that the position might have been different had he had evidence of borrowing costs because then he might have been able to follow George v Pinnock, see paragraph 48:

“I have no evidence which would enable me to consider some other approach. For instance, given the current cost of borrowing, it might have been possible to say that the interest element on an appropriate mortgage (say £600,000 as the cost of a property less the amount of general damages) over a 25 year term would provide a reasonable figure, the cost of the annual mortgage interest being the alternative method of assessment suggested in George v. Pinnock. It was rejected in Roberts v. Johnstone because the rate of mortgage interest at that time was so high that an award on the that basis would result in full recovery of the capital cost of the accommodation. That is no longer the case. However I have no evidential basis for using such a calculation and none was put forward.”

  1. He also suggested that a solution might be for a defendant to take a reversionary interest in the property provided, which would then have enabled him to award the full capital cost without the problems of windfall. See paragraph 48:

“In other cases prior to the change in the discount rate it has been suggested that a defendant could take a reversionary interest in the property purchased in which event providing the full capital cost would not involve any windfall benefit; rather it would simply provide the claimant with the accommodation needs for his lifetime. This solution (so it is said) would remove the imperfection inherent in Roberts v. Johnstone. It certainly is superficially attractive but no such solution was proposed here and again I have no evidence which allows me to adopt it.”

What practitioners need to do

  1. It is very likely that this issue will be canvassed again at trials over the coming months and you need therefore to keep an eye on what is happening. It is very unlikely that we will have a concensus for several years however because whatever solutions are found at first instance are likely to be subject to appeal. The guiding principle for solicitors should therefore be to maximise your options.
  2. In terms of evidence therefore I suggest you need the following:
    • Evidence from an IFA or mortgage expert on the historic and future cost of borrowing. You also need a practical work up of a borrowing scenarii specific to your case. Some judges might be attracted to using the ‘notional’ cost of borrowing which is why you need general figures. William Davis J was canvassing a much more specific proposal based on actual borrowing costs in respect of a proportion of the property purchase with the balance being funded by general damages. It is worth exploring with your advisers just how feasible it would be to actually obtain a loan and at what loan to value i.e. how much deposit would be required. I anticipate considerable difficulty in finding any lender willing to lend to a personal injury claimant with no conventional income – perhaps they can be persuaded that a periodical payment order would be sufficient guarantee. The important thing is to explore the options and get evidence.
    • Evidence from the accommodation expert as to the notional rental value of the property. This was not canvassed in JR but may provide a way of calculating the value of the accommodation – although, unless life expectancy is very limited, this is likely to lead to a figure significantly higher than the capital cost and I suspect will therefore be unattractive to the court.
    • Evidence from the claimant’s deputy as to the options of purchasing the property but with a reversionary interest being granted to the Defendant. The Deputy may in turn need to seek advice from a property lawyer (solicitor or counsel). It is easy to see why the judge was at least superficially attracted to this solution. It avoids the element of fiction inherent in other proposals and the reversionary interest avoids the problem of a windfall. It is a little messy for the NHS in that it gives that body an unwanted property portfolio and an ongoing relationship with the claimant but is that a good enough reason not to adopt this solution. The overall cost to the NHS is likely to be less than other solutions (other than a nil award) and since PPOs are likely the argument that it creates an ongoing relationship between claimant and defendant is not a strong one, there would be such a relationship anyway.
  3. Where you have directions in place already you need to go back to the Master to ask permission to obtain such additional evidence. I have been before Master Cook to argue this and he has accepted that following the decision in JR the real problem is having a trial without sufficient evidence to enable options to be canvassed. It is likely to become clearer over time what evidence is required but in the meantime it is difficult for a defendant to object to the sort of evidence outlined above being obtained. I have heard that Master Roberts is taking a similarly pragmatic approach.

*This note is intended as a general guide and should not be relied on for specific advice in a particular case. Please do feel free to ring or email to discuss any specific issue or case.