On 31 May 2017 we analysed the decision in JR (a protected party) v Sheffield Teaching Hospital NHS Foundation Trust (JR). The case was notable given (1) the decision on recovery under the Roberts v Johnstone formula following the change in the discount rate and (2) a permitted claim for loss in the ‘lost years’. Our news item and link to the document can be found here.

The capitalised value of the damages awarded was put at £24.3m. The claimant sustained catastrophic injuries at birth. He had very high care needs, mobilised using motorised wheel chairs and required specially adapted accommodation.

Roberts v Johnstone – additional accommodation costs

In BLM’s review of the likely effects of the discount rate change (published 28 February) we took the view that:

  1. The move to minus 0.75% discount rate did not of itself mean the R v J approach was no longer applicable

  2. However, it could not lead to a negative outcome for the formula, which resulted in a ‘credit’ against the claimant’s claim (as some suggested).

Our analysis was that given an R v J award was never meant to compensate for accommodation costs, but to compensate for the lost investment income on monies allocated to pay for alternative accommodation, where risk free investment returns were negative there could be ‘no loss’. In effect, had the claimant not had to spend money on accommodation he would not have enjoyed any investment return from risk free investments (in fact would have suffered a loss by investing that way).

In JR the judge made findings that the cost of alternative accommodation was £900,000 offset by £100,000 for the claimant’s equity in a property he would have bought anyway. However, on the issue of lost investment income on that sum, he followed the ‘no loss’ approach. The claimant did not recover any damages for the additional cost of alternative accommodation (though did for the cost of adaptations which are not within the R v J ‘lost investment income’ approach).

The claimant appealed and naturally a lot of anticipation attached to the Court of Appeal considering the basis on which additional accommodations costs should be assessed following the rate change. Initially listed for mid-2018, the appeal was brought forward to 20 October.

In the end the Court of Appeal did not consider the issues as the defendant made an offer of £800,000 (and also agreed not to appeal the ‘lost years’ decision see below). The offer was one the claimant was bound to accept as it met the full additional cost of purchasing the accommodation needed. The “appeal” hearing was therefore treated as an approval hearing.

Where does that leave Roberts v Johnstone?

Before approving the settlement Lord Justice Jackson said:

“It is clear that sooner or later this Court is going to have to grapple with the Roberts v Johnstone issues in the new world. There may be cases on the list in due course doing that. Nothing that we say today must be taken as pre-empting what this court will decide following argument…The Defendant has the luxury of choosing the case that will be argued…There can be no dispute that this settlement is favourable to JR.”

Jackson LJ was anticipating that if not resolved in JR the matter would fall to be considered in another case shortly, but he also identified that it is within defendant’s power to choose which case in which it fell to be resolved.

For now, the outcome in JR does not affect any other cases and the ‘no loss’ reasoning in the first instance decision has not been overturned. The decision by the defendant to offer the full cost of acquiring the property has no bearing on other cases.

BLM’s position also remains the same. That is that:

  • Contrary to some commentators views that “R v J is dead”, it isn’t. The loss of investment income remains the way to assess damages recoverable under the formula

  • Where risk free investment returns are negative then there is no loss

  • BUT, whereas that may provide a technical basis on which defendants can approach cases, within the context of a consensual approach to handling and resolution, and particularly where flexibility is shown around how damages should be assessed (and the discount rate), there are alternatives which can be broached between the parties to achieve a negotiated settlement.

  • BLM believes that approach to be the more reasonable approach always with the “no loss” fall back where appropriate

Divergence between R v J basis and the discount rate

The no loss approach depends on an assessment of the returns from risk free investments. The discount rate for setting multipliers is also based on risk free investment returns. It was for this reason that the House of Lords in Wells stated that the annual percentage used in the R v J formula should be pegged to the discount rate set by the Lord Chancellor under the Damages Act.

The recent outcome of the MOJ consultation and draft legislation proposing changes to the basis for setting the discount rate, now proposes a (justified) move away from the risk free rate of return basis. Although still some way to go, expectations were created by the MOJ announcement of a possible rate between 0% and 1%. That would produce between a NIL or 1% figure in the R v J ‘annual investment loss’ calculation. So perhaps some movement from the no loss position. However the decision taken in the context of the discount rate will not automatically affect the R v J approach in which the Court of Appeal set risk free investment return as the basis for calculating damages. It is just worth flagging that a change in the discount rate would not automatically change the basis for calculating damages under R v J.

The ‘lost years’ claim

As mentioned above, like the R v J point, the Court of Appeal did not consider the ‘lost years’ argument.

Our previous analysis set out the position on ‘lost years’ claims, that is claims for losses arising during a period between impaired life expectancy and normal life expectancy.

In Croke v Wiseman[1] the court took the view that where a child is concerned, the future is so speculative that it would be wrong to award damages for the ‘lost years’. A distinction was thereby drawn between claims involving children and older or adult claimants.

In JR the claimant was injured at birth but aged 24 at the time damages were assessed. The judge in JR felt able to say that this took the claimant outside the ‘child’ principle established in ‘Croke’ and awarded ‘lost years’ damages. He said he felt able to make decisions about the likelihood of dependents (the real beneficiaries of ‘lost years’ damages after the claimant’s earlier death) given the claimant’s age and demeanour.

In the absence of the Court of Appeal considering the issue, there remains arguments over the correct approach to ‘lost years’ claims for children (the rationale for this is set out in the earlier document). That said, had the Court of Appeal considered the issue it is possible they would have found themselves bound by Croke or resorted to supporting the fact based reasoning the judge employed in deciding that in this case it was possible to make the assessments that Croke said were too speculative for a young child.

For now, the Croke position remains in respect of children, but defendants need to look for arguments being advanced trying to mirror the factual approach adopted by the judge in JR. Obviously the younger the claimant the less likely it is that approach could be adopted, which was a point made by the defendants that recoverability should not depend on when damages were assessed. Like R v J, however, ‘lost years’ claims for children will need to wait for another case.