1. This morning the Lord Chancellor announced that the discount rate would be revised from 2.5% to -0.75%. This clearly has major implications for the calculation of future losses and will lead to much higher awards and settlements than we have seen before. There are also major implications for the calculation of damages for accommodation where this is required as a result of negligently caused injury. Roberts v Johnstone is dead.
The decision in Roberts v Johnstone
2. Since March 1988 and the decision in Roberts v Johnstone [1989] Q.B. 878; the cost of future accommodation has been calculated on the basis of compensation for the loss of use of capital required by the purchase of a more expensive property. In Roberts the Court of Appeal held that appropriate compensation would be calculated on the basis of an assumed rate of return of 2%. In 2001 the Lord Chancellor exercised his power under the Damages Act 1996 to set the discount rate at 2.5% and this figure has been used for R v J calculations ever since.
R v J doesn’t work with a negative interest rate
3. It is a statement of the obvious to say that R v J does not work with a negative interest rate. Claimants using an R v J calculation would be paying money back to the defendant.
It was time for a change anyway
4. For many years claimants have been arguing that the R v J calculation is outdated in an era when house prices are so much greater and where a low multiplier (e.g. in cases of limited life expectancy) would not produce a large enough capital sum to fund the purchase of a property. Today’s announcement cuts through these arguments. R v J was only ever intended as a pragmatic fudge, once it ceases to be pragmatic it simply disappears as an option.
So what are the alternatives?