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Swift v Carpenter: Court of Appeal decision


James Arney KC appeared as sole counsel in the quantum trial in 2018, and was led on this appeal by Derek Sweeting KC, instructed by Grant Incles of Leigh Day & Co.

This case involved re-consideration of the mechanism for assessing the loss to a claimant of having to fund the purchase of special alternative accommodation. The previous mechanism, derived from the decision in Roberts v Johnstone [1989] QB 878, was challenged as being “unfit for purpose”, both by reason of the current negative discount rate which produced a nil valuation in all cases, and more generally. In this long-awaited landmark decision, the Court of Appeal has held that Roberts v Johnstone does not give full and fair compensation and should be replaced. Instead a new mechanism has been created, based upon calculating the “market value” of the notional reversionary interest (using a +5% investment rate), which is to be deducted from the full capital value of the increased cost of the special accommodation. This decision impacts on the vast majority of high value personal injury claims, significantly increasing the awards that claimants will achieve.

Mrs. Swift secured ~£4.1m for amputation and other injuries at a contested quantum trial before Lambert J in 2018. The judge found that Mrs. Swift needed to acquire special accommodation costing £900,000 more than her existing home, but awarded nil damages under that head of loss, finding herself bound to do so by the Roberts v Johnstone formula. The narrow scope of the appeal challenged that nil finding, for which Lambert J granted permission to appeal.

As acknowledged in the judgment, there has long been widespread concern as to the effect of the Roberts v Johnstone approach, intensified by (though not limited to) the negative discount rate producing a nil award.

This was the first time that these concerns had been fully considered by the Court of Appeal, previous challenges being compromised. The Personal Injuries Bar Association were granted permission to intervene. Mrs. Swift’s appeal was initially listed for hearing in July 2019, but was adjourned for evidence to be procured from economists, actuaries, mortgage experts and experts in the valuation of reversionary interests. The Court of Appeal ultimately heard submissions and live evidence from several of these expert disciplines, over 3 days of video link hearing in June 2020.

Mrs. Swift’s first challenge was to persuade the Court of Appeal that it had the power to revisit its own previous decision in Roberts v Johnstone, having regard also to the House of Lords decision in Wells v Wells [1999] 1 AC 34.

As to whether it should exercise any such power, Mrs. Swift needed to demonstrate that the Roberts v Johnstone did not meet the objective of fair and reasonable compensation, and that a workable alternative could be devised which addressed the desire to avoid conferring a windfall on the Claimant’s estate on her death.

Practical implications

This decision will impact negotiations and awards in all large personal injury cases in which accommodation claims are presented. For years this issue has been shrouded in controversy, with settlement figures regularly departing from the strict position of a nil award. This decision brings clarity and certainty.

The new mechanism, presumably to be called a “Swift v Carpenter” award, will cause schedules to be revised and settlement expectations to be revisited.

In longer life cases, claimants will recover the majority of the “full capital value”. Mrs. Swift (with life expectancy at 45.43 years) recovered 89.1%. Using the paradigms put before the Court in this appeal as examples, a 30-year life expectancy gives recovery at 76.86%, but a 7-year life expectancy would produce an award at just 28.93%.

Practitioners wanting to understand the new approach will be informed by the following:

Calculation for the award of damages for the cost of purchasing a suitable property in the Appellant’s case

  • Cost of the property now required as per the judgment of Lambert J: £2,350,000
  • Value of the Claimant’s existing property per Lambert J: £1,450,000
  • Capital shortfall: £2,350,000 – £1,450,000 = £900,000
  • Claimant’s life expectancy per Table 2: 45.43
  • Value of the reversionary interest: £900,000 x 1.05 -45.43 = £98,087
  • Damages award: £900,000 – £98,087 = £801,913

The Court’s award is consistent with using a +5% column from Table 35 of the 8th Edition of the Ogden Tables. It is anticipated that the applicable +5% discount rate tables will soon be made available to assist practitioners’ calculations.

Query whether the reference to “longer life cases” leaves open the possibility that a different solution may be preferable in short life cases. Such claimants may still suffer a significant shortfall which potentially prevents them from purchasing the special accommodation they are adjudged to need, unless they are actually able to sell the reversionary interest to bridge the shortfall.

Also, the +5% rate used in the new formula may be subject to future evolution as a more robust market for reversionary interests potentially develops in response to this decision. For now, however, the guidance given and formula/rate used in this appeal are expected to be applied at first instance, and to “endure”.

The Court’s decision

Firstly, the Court of Appeal held that it had the power to intervene. Whilst Roberts v Johnstone applied, it did so as “authoritative guidance…in the specific conditions prevailing at the time of the decision”. Where such guidance was now ineffective in achieving full compensation without over-compensation, then the Court of Appeal can revisit and alter such guidance.

The Court concluded that the Roberts v Johnstone formula does not provide full, fair or reasonable compensation.

The Court rejected the Respondent’s cash-flow approach, which had attempted to use actuarial analysis and predictions of future house price growth to contend that Mrs. Swift was unlikely to suffer any loss.

The Court held that a workable alternative could be achieved by assessing the notional value of a reversionary interest in the increased value of Mrs. Swift’s home, and deducting this from the additional sum required to leave the net value of Mrs. Swift’s life interest.

The Court preferred a “market valuation” of the reversionary interest, settling on a +5% discount rate as reflecting the investment return that an investor would seek.

The guidance now given in Swift v Carpenter is expected to be “enduring”, particularly in long life cases during conditions of negative or low discount rates.

For Mrs. Swift, the outcome is that she recovers £801,913, in addition to the ~£4.1m award at first instance.

The decision costs issues, and on the Respondent’s application for permission to appeal, have been deferred for 14 days.

Case details:

This appeal was heard remotely by the Court of Appeal, Civil Division. The Judges were: Lord Justice Underhill (Vice-President of the Court of Appeal); Lord Justice Irwin and Lady Justice Nicola Davies DBE.

The date of judgment was 9 October 2020.

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James Arney KC

Call 1992 | Silk 2021

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