Comment: Accommodation; Discount or Dilemma?
Will the likely change in the discount rate for personal injury losses affect the way in which the Courts deal with the calculation of accommodation claims in serious personal injury cases? Written by Fletchers Solicitors’ Senior Solicitor, Trevor Ward
Roberts v Johnstone (1989) has been a problem for quite some time and not necessarily because of the recent change to the discount rate in March 2017. The current negative discount rate means that the normal Roberts v Johnstone calculation becomes unworkable; it leads to a calculated nil or to a negative figure for the injured party’s claim for the capital cost of the purchase contribution to the required property. Courts have recently commented on how inappropriate the calculation is (JR v Sheffield Teaching Hospitals 2017 and Manna v Central Manchester Teaching Hospital 2017).
The problem has always been the conflict between the payment by the tortfeasor for an asset that is likely to increase in value (not always) and therefore, create a windfall for the injured party during his/her lifetime (or more likely his/her estate on their death) and a calculation of some description that is related to an index that allows for the future increase in value to be sufficiently moderated so as to provide compensation in the form of the required property but which neither under or over compensates the Claimant. Practically, the answer has been for the Claimant to use other heads of loss awards to upfront the necessary purchase cost and has that ‘repaid’ over his lifetime by the Roberts v Johnstone calculation and the retention of interest in the acquired property and its increased value.
This dilemma has always been even more problematic when one is dealing with a Claimant who has a short life expectancy or who has not obtained judgement for 100% of their compensation. The calculations become more difficult to work practically.
Claims for additional losses relating to increased running costs, costs of adaptations and removals and furnishings of course do not fall within the problematic calculation.
For those of us who have had or have a mortgage, we know the cost of house borrowing generally changes over time with interest rates, the changes in the market, supply and demand and the economic and political circumstances of the time. In reality, this is no different for injured people.
The Roberts v Johnstone calculation fixed a rate by reference to mortgage interest rates applicable at the time with a sprinkle of ‘fairness’ and practicality added. It created an artificial method of ‘one size fits all’ for calculations of this head of loss and became the norm for a period.
Times change, interest rates change, property prices change, PPOs have been introduced for certain heads of loss, yet the value for PSLA damages have largely not kept up with the pace of such value increases (notwithstanding aged old Law Commission recommendations).
So where does the answer lie; not so far with the judiciary. Cases that may have argued the point and alternatives have either not had the evidence within them to argue or have not yet reached (or been allowed to reach) the Higher Courts for determinative decisions. Out of Court settlements have not been widely publicised and, of course, in any event each case turns on its own facts at settlement.
So where doe the answer lie?
- Rental with rental payments by PPO. Possible, but the rental market is difficult, often short lived and generally unsecure.
- Tortfessor buys the property outright for the Claimant and the Claimant gives credit for the cost of avoided borrowing by use of other heads of loss damages e.g. PSLA, and earnings? Possible.
- Tortfeasor buys the property and provides a life interest to the Claimant to occupy with his/her family reclaiming the property on the Claimant’s death. Possible, but requires the tortfeasor to carry and manage a property portfolio. Who has the increased value in the property and whose is and for what benefit is the obligation to maintain the property?*
- As 3 above, but the increase in value to the property is divided between the provider and those that have maintained it during the Claimant’s lifetime.
- A Commercial third party funder buys the property, interest payments are made by the tortfeasor on commercial rates under a PPO of sorts and the property is used and maintained for life by the Claimant on suitable terms. Possible but there are no known funders in the market yet.*
*One should not forget we are often dealing with close families here; the death of the injured party and the turmoil that may be created by the reversion of the property interest to the original purchaser may be in itself traumatic and not something that we as a society wish to burden those families with.
A change in the discount rate may just fudge the Roberts v Johnstone issue for a bit longer. An alternative method needs to be found. Previous accommodation issue resolutions over time have taken on board the social and economic circumstances of the time. It is not beyond the wit of injury lawyers, financial advisers and commercial lawyers to come up with an answer and a series of workable precedents and options going forward. Heads need to come together. The time is ripe!