When a Claimant is involved in an accident, they may have to purchase alternative suitable accommodation due to their injuries. This evidently comes at an additional capital cost, but the method for compensating a Claimant for this cost has been criticised for some time. However, on 9 October 2020 the Court of Appeal handed down its judgment in Swift v Carpenter which changed the legal approach and restored clarity to this area of law.
Mrs Swift was involved in a road traffic accident in 2013 and suffered serious injuries including a below knee amputation of her left leg. In August 2018, the High Court awarded Mrs Swift £4,000,000 damages, but, although it was agreed that her existing home was not suitable, she did not receive the £900,000 she needed to fund the capital costs of accommodation suitable for her disability.
The previous legal position
Before Swift, the Court was bound by a 30 year old case Roberts v Johnstone. The rationale for this case was that the Claimant could not be awarded the full capital cost of special accommodation, because then they would be acquiring an appreciating asset. Property generally increases in value with time, and so awarding the Claimant the full capital cost would result in a windfall to the Claimant’s estate.
To avoid this windfall, the Court came up with a method which meant that the Claimant would purchase the special accommodation themselves, and then they would be compensated for the lost return on the capital that they had to invest to purchase the property. To calculate this, the capital difference of the property was multiplied by the lifetime multiplier and the discount rate.
The discount rate before 2017 was 2.5%, therefore, pre 2017 this calculation would produce an award but one which often was less than the capital cost of the property. However, the discount rate changed to -0.75% in 2017 and then to -0.25% in 2019. If the Roberts v Johnstone method were applied to current negative rates, Claimants would be required to pay back money to the compensator! Whilst it was accepted by all that a new approach was needed, the question of which method to adopt was hotly debated by insurers and claimant representatives. Various decisions in the lower Courts attempted to find justice for both sides with varying results.
Swift V Carpenter  EWCA Civ 1295
In Swift v Carpenter the Court of Appeal has provided clarity and a road map to enable all parties to adopt a scientific approach to calculating the appropriate award
Judges will have to follow the Swift method in cases where new accommodation has to be purchased as a result of injury., unless it is successfully appealed in the Supreme Court.
The new approach accepts that the injured Claimant is entitled to the capital cost of the special accommodation minus the value of the reversionary interest. A reversionary interest means that the interest will revert to the owner when the agreement expires. The Court decided that this should be based on a discount rate of 5% and a special mathematical formula is then applied based upon the Claimant’s life expectancy.
Claimants will still have to make a contribution towards the additional costs of the capital needed to buy their new property, but the amount of contribution will strike a better balance between what is realistic and affordable for the Claimant and what is fair to compensators.
Mrs Swift will now receive more than £800,000 as opposed to the original proposition of nil. Many Claimants will welcome this judgment as it will result in a significant increase in their damages. This said, it may not apply to every case, especially those with a lower life expectancy. Irwin LJ stated that “There may be cases where this guidance is inappropriate. However, for longer lives, during conditions of negative or low positive discount rates, and subject to particular circumstances, this guidance should be regarded as enduring.”