October 2020 has seen a landmark decision that medical negligence solicitors have been waiting for. Accommodation claims have been stalled because the old, tried and tested way to calculate those claims wasn’t working anymore and the lawyers on all sides couldn’t find a way that everyone could agree on. The case of Swift v Carpenter has broken the deadlock and the decision for future accommodation claims has been made by the judges in the Court or Appeal.
Accommodation claims are a complicated problem, probably the most complicated part of valuing a medical negligence claim. The issue is that the Defendant won’t agree to an award for the whole cost of a property because over the years the Claimant is living in the accommodation the price of the property will increase and they will effectively get a windfall over time due to that increase in value. The court has agreed that this isn’t fair and looked for a way to calculate accommodation claims that didn’t give the Claimant the windfall of the increase in property prices.
In 1989 the Court of Appeal in the case of Roberts v Johnstone resolved the accommodation issue which worked for nearly 30 years. The way that this calculation was done relied on a positive discount rate which, at the time the decision was made, was 2.5%. The discount rate is a percentage used to adjust the lump sum awards for a Claimant’s future losses to account for the amount they can expect to earn by investing. The amount awarded wasn’t what the Claimant needed there and then but it was expected that they would borrow from other heads of loss such as general damages or past care, either of which wouldn’t take anything from the Claimant’s immediate needs going forward. In time inflation and property price increases would return the amount borrowed.
In 2017 the status quo was disrupted when the discount rate was changed to a minus figure (-0.75%).At the time interest rates were terrible and when money was invested the return was poor. The change in the discount rate then corrected the loss Claimant’s would suffer when they invested their compensation for future loss of earnings or care. However, when calculating accommodation claims a negative discount rate produced a minus figure giving the Claimant nothing for a property purchase. Obviously everyone agreed this wasn’t right but it took more than 3 years before the court could intervene and make a decision as to how accommodation claims should be calculated.
Lots of possibilities for the calculation were considered and we were left guessing what would be chosen. The court has now decided that deducting the “reversionary interest” would be the most fair and reasonable way. A reversionary interest refers to the increase in value of the property during the Claimant’s lifetime or the income that will be generated from the property. This is calculated by using the current market value, the number of years the Claimant is expected to live and an expected increase in value of 5% over time. This increase is then deducted from the current value. The final figure is the amount the Claimant is awarded now.
The Court of Appeal have said this new way of calculating claims should be lasting no matter the changes in interest rates or markets. It is hoped that the complications will be reduced and the Claimant will have more certainty as to what can be achieved. As with all new changes to the law this remains to be seen. For now the deadlock is broken and the backlog caused by waiting for a consensus can be cleared.
If you have suffered life changing injuries that may have resulted from medical negligence please contact us. One of our specialist solicitors would be happy to assist you.