The Claimant suffered severe spastic cerebral palsy as a result of the Defendant's admitted negligence. Whilst the Claimant had resided in his parents' bungalow for over 20 years, a claim for alternative accommodation better suited to his needs was made. The need for alternative accommodation was accepted; however it was disputed whether and to what extent there was a loss.
Since the decision in Roberts v Johnstone  Q.B. 878, the cost of future accommodation has been calculated on the basis of compensation for the loss of use of capital used to purchase a more expensive property. Whilst the claimant retains an appreciating asset in the property, the capital tied up would not have produced any return of investment and so a claimant is compensated for this loss. In that case, the Court of Appeal held that compensation would be calculated on a 2% rate of return. In 2001 the Lord Chancellor set the discount rate at 2.5%. This figure has been used since, until it was changed to -0.75% on 20 March 2017.
Although Justice William Davis acknowledged the Roberts v Johnstone methodology had been criticised, he found he was bound by the decision. The Claimant's loss had to be calculated on the basis of returns of risk free investment in light of the negative discount rate. Accordingly, on the negative discount rate, there was no loss.
Following a detailed review of authorities, Davis J noted the Court of Appeal in Roberts had expressly acknowledged that accommodation cost claims should not represent the full capital value of the property since that asset remains intact at the claimant’s death and would confer a windfall to the claimant’s estate. Accordingly the Court of Appeal in Roberts calculated the loss by reference to the Claimant's lost income, which had to be followed.
The Judge held that he was obliged to consider the return on a risk free investment as representing the Claimant's loss. The only evidence available, namely the discount rate based on Interest Linked Gilts, shows that no return is possible on a risk free investment. So, there was no loss. The Court did however note there was an urgent need to “find a proper solution to the accommodation conundrum“.
In addition, David J allowed the Claimant's claims for loss of pension during the 'lost years'. It was noted that a lack of dependents did not prevent a 'lost years' claim arising.
It is understood permission to appeal has been granted on both the Roberts v Johnstone and 'lost years' issues, with the Judge urging the former be expedited.
What can we learn?
- This is an unsurprising decision by a court at first instance, as it was bound by the decision of Roberts v Johnstone.
- Had the Court followed the approach entirely, the claimant would have been ordered to give credit for the negative figure produced using the negative discount rate. A nil loss was perhaps the most likely result in the circumstances.
- Interestingly the Claimant does not appear to have adduced any evidence of other ways of assessing the cost of the property purchase or the cost of alternative funding.
- Possible alternative solutions for accommodation claims are noted below. However each of these carry their own advantages and disadvantages, and may result in overcompensation.
- Damages for the cost of a mortgage
- Damages for purchase of a property with a charge in favour of the Defendant, so it reverts to the Defendant at the end of the Claimant’s life
- Actual or assumed rental costs. Each of these alternatives
- In light of Davis J's obiter comments, it seems likely claimants will opt to adduce evidence of the cost of funding properties in the short term, despite this approach being rejected in Roberts v Johnstone:
“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 annual mortgage interest being the alternative method of assessment suggested in George v Pinnock“.
- It is expected the Roberts v Johnstone issue will reach the Court of Appeal. Whether it is listed before any fresh change in the discount rate which may make the issue moot remains to be seen.