Posted by Charlotte Webb, Associate
There’s no place like home – what you need to know about Swift v Carpenter
Charlotte Webb explains the importance of the Swift v Carpenter decision which was handed down today, 9 October 2020, and will have a big impact on claimants seeking compensation for accommodation.
Until 10:30am this morning, a claim for the extra accommodation costs in a personal injury or clinical negligence claim was effectively zero, leaving seriously injured claimants unable to purchase a home that was suitable for their needs.
First, a bit on the maths
The problem was that accommodation claims were calculated using the difference in property price (between what property they would have had, but for the injury, and what they require now), their life expectancy, and the “discount rate”. The claim was basically for a lost return on capital invested in the property.
The discount rate is usually applied to a lump sum received by a claimant, which historically had been a positive rate based on the assumption that the claimant would invest the lump sum and see a return on it. The rate was set at 2.5% for many years before the Lord Chancellor revised it to -0.75% in March 2017 and then to -0.25% in August 2019. This was because return on low-risk investments has not kept up with inflation for a number of years. As the rate is currently negative the calculation would of course end up with a negative value, meaning that no claim for accommodation could be made under the previous formula as the claimant would effectively end up owing the defendant money; a silly state of affairs.
Since then, claims for accommodation have been up in the air and professionals have long awaited a judgment on the matter. Many different ways of calculating the claim have been suggested, all with their own pros and cons.
Swift v Carpenter – the facts and what this means
The Court of Appeal heard the case of Swift v Carpenter in June 2020 where a number of leading experts gave evidence including economists, actuaries and the Personal Injuries Bar Association. The Court of Appeal handed down the judgment on Friday 9th October 2020.
The decision was that the claimant should be awarded the full capital value less the market value of a reversionary interest in the property. A reversionary interest is when the original owner of a property can claim their interest back once the beneficiary (the claimant in this instance) no longer requires it. It would not be practicable for the defendant to actually have an interest in the property as the defendant would not want the regulatory responsibility and the claimant would not want the ongoing relationship. This is why the market value discount is used.
The court calculated the market value of a reversionary interest at 5% per annum. In the case at hand, the extra accommodation costs that the claimant required were £900,000. Applying her life expectancy and the rate of 5% meant that the discount was £98,087 and so she would receive £801,913 for her accommodation claim, a fair and reasonable amount for the claimant to purchase the property she required.
I welcome this decision for our clients. For too long claimants have been without an appropriate formula with which to calculate their extra accommodation costs. Even before the discount rate changed to a negative value the formula was not adequate and claimants often had to use funds from other parts of their compensation award in order to purchase a suitable property.
The extra accommodation costs can come in many different forms, whether they are adaptations to a home to make it accessible if they have mobility issues or extra room in order to accommodate 24/7 care. This decision provides personal injury clients with certainty and security that they will be able to purchase a suitable home which is vital for their rehabilitation, wellbeing and fulfilment of life.
If you have any questions for our Personal Injury team about claiming compensation for a life-changing injury, please contact us today.
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