Swift v Carpenter [2020] EWCA Civ 1295: A Quick Guide

9 Oct, 2020
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Swift v Carpenter [2020] EWCA Civ 1295: A Quick Guide

SUMMARY:

  1. The Court departed from the Roberts and Johnstone approach, on the basis that it no longer achieves fair and reasonable compensation for the claimant on cardinal tortious principles.
  2. The Court found that if a reasonable and workable alternative could not be found, the claimant should be awarded the full capital value of the incremental sum required.
  3. Unfortunately (for Claimants) such an alternative was found, in the form of a discount to reflect the reversionary interest. After hearing expert evidence, the court cautiously valued this at 5%. The life multiplier should be applied in the usual way.
  4. The guideline will not be appropriate in every case, and exceptions will apply. However, in cases with a long life expectancy during conditions of negative or low positive discount rates, this guidance should be considered “enduring”.

The Problem

The issue is well-known to all of us: the approach in Roberts v Johnstone [1989] QB 878 to award lost return on the capital which must be invested in additional property purchase, combined with the current negative discount rate results in nil award and injustice to claimants.

The facts of the appeal

Ms Swift was injured in a collision on the 31st October 2013. She was required to undergo an amputation of her left lower leg and significant disruption of the structure of the right foot. The judge at first instance found the additional capital cost of special accommodation would be £900,000 more than the value of Ms Swift’s existing home. She declined to make any award as she was bound by the approach in R v J.

Issues On Appeal

  1. Is the Court of Appeal bound by the decision in Roberts v Johnstone
  2. If the court can re-examine the approach, should the court award the full capital value of the incremental sum required?
  3. If not, should the court award that sum but reduced to reflect the value of the notional reversionary interest (i.e. the “windfall”?) How should the court reach a conclusion as to the value of the reversionary interest?

Is the Court bound by Roberts v Johnstone?

The Court found that Roberts v Johnstone does apply to this case, but in the form of authoritative guidance, given in the specific conditions prevailing at the time of the decision. (As an aside, it will be interesting to see whether this judgment opens the door for future arguments in other spheres that precedent is not in fact precedent, but merely “authoritative guidance” based on prevailing conditions!)

The Court found that if the guidance in Roberts and Johnstone is demonstrated to now be ineffective in achieving the object of the relevant principles of law, namely full compensation without over-compensation, then it can be revisited and altered.

As a result, Court of Appeal concluded that the formula in Roberts v Johnstone no longer achieves fair and reasonable compensation for an injured claimant. It is not reasonable to award nil damages on the basis that, if all the relevant predictions hold good, there will arise a windfall to the claimant’s estate. The degree of conjecture, complexity and uncertainty of outcome preclude the view that this approach can be regarded as providing full and fair compensation.

Whilst the Court recognised the need to avoid a windfall to the claimant’s estate if at all possible, this was not the overriding consideration. It should be considered only if it could be achieved without prejudice to the cardinal principle of fair and reasonable compensation. To withhold all damages for the purpose of avoiding an eventual windfall puts a secondary principle before a primary principle.

If the court can re-examine the approach, should the court award the full capital value of the incremental sum required?

Considering the Court’s conclusion above, the answer to this question depended on whether a valid and reasonably workable approach can be reached to establishing the current value of the windfall and making deductions accordingly. However, they were ultimately persuaded by the notional reversionary interest analysis below, and therefore answered this question in the negative.

If not, should the court award that sum but reduced to reflect the value of the notional reversionary interest (i.e. the “windfall”?)

The Court acknowledged that a fair and reasonable approach to valuation is inevitably based on many fixed assumptions, for example the assumed future return on the assets concerned. The Court rejected any valuation based on rental yield, on the basis that the property would be lived in for a long future period by the Claimant. Instead, the Court found that the “return on investment” is the discounted future capital value of the incremental sum invested in the property. Of course, this is also fraught with difficulty: it is dependent on the uncertainty of predicting future property values.

It is rare that the windfall will arise other than at the claimant’s death. It was agreed between the parties that the proper approach was to establish as best as possible the value of the reversionary interest in the incremental part of the property to be purchased.

How should the court reach a conclusion as to the value of the reversionary interest?

The Court acknowledged that the existing market in reversionary interests is very small.  However, they ultimately concluded that a market approach must in principle be the correct way to value a reversionary interest.  The market value of a reversionary interest in this case, and the majority of personal injury cases, represents the current value of a long-term, and uncertain-term, investment.

The Court took a cautious approach, by adopting the lowest individual return on investment seen in practice by the only expert with experience in the field.  This resulted in a discount rate of 5%.

However, the Court also accepted that this guidance should not be applied rigidly. There may be circumstances where the guidance is inappropriate. Claimants who have sustained a significant limitation of their damages by reference to the “windfall”, may seek to recoup that shortfall by selling the reversion.  That is perhaps more likely to arise in cases of shorter life expectancy, where the valuation of the reversion will, by definition, be larger, and the reduction in damages greater.  It may well be that the development of an expanded market will over time give a better evidence base from which a revision of the discount rate may be considered.

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.

Article by: Jennie Oborne

 

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