Swift v Carpenter: Court of Appeal not bound by Roberts v Johnstone
9th October 2020
The Court of Appeal has today handed down judgment in Swift v Carpenter. It has held that the Roberts v Johnstone methodology was “authoritative guidance” formulated by reference to the economic conditions of the time and not binding legal principle. In light of the fact that those conditions have changed and the methodology no longer produces a “fair and reasonable” award of compensation for injured claimants, it is appropriate and necessary for the Court of Appeal to revisit the approach to assessing compensation where an injured claimant has a capital need to purchase a suitable property.
Based upon wide ranging financial expert evidence, in particular expert evidence adduced by the Personal Injuries Bar Association [“PIBA”], the Court has found that the appropriate approach in cases of “longer lives, during conditions of negative or low positive discount rates” is a reversionary interest approach. Under that approach the claimant gives credit for the “market value” of the reversionary interest in the additional capital required to purchase a suitable property. That “market value” is calculated on the basis that the notional purchaser of the reversionary interest would seek an annual return of 5% on his/her investment.
The “market value” approach was based upon expert evidence, adduced by PIBA, from Mr Brian Watson of H E Foster & Cranfield. Mr Watson is an actuary who specialises in the auction sale and valuation of financial rights and interest. The Court’s determination of the 5% rate of investment return was based, to a very significant extent, upon Mr Watson’s evidence as to the rates of return sought by investors in the reversionary interest market.
The Court expressly recognised that the reversionary interest approach itself represents guidance as to how damages are to be assessed in the current economic conditions. However, it made it plain that its guidance was intended to be “enduring” [§209], that it should provide a “clear and workable” solution to “enable practitioners to provide legally sound and practical advice” [§214] and that guidance of this type “should only be revisited in response to really significant changes, and …. it will rarely if ever be right for that guidance to be departed from by a first-instance court.” [§221].
The Court expressly acknowledged that different considerations might apply to short life expectancy cases where a different approach might need to be considered [§170, §209 and §227]. The significance of the Court’s decision for those cases is (i) it confirms that the Roberts v Johnstone methodology no longer applies, and (ii) that it is now open to the Courts to consider whether the Swift v Carpenter reversionary interest model applies in short life expectancy cases or whether an alternative approach is required for those cases.
The Court did not express any view on issue (ii) and made no finding or comment as to what would constitute a “short life expectancy” case. That said, the Court did identify Paradigm (3) – one of the three Paradigm cases considered by Court when analysing the issues – to be a short life expectancy case where the hypothetical claimant’s life expectancy was seven years.
The formula to be applied to calculate the value of the reversionary interest and therefore compensation award is as follows:
- Value of reversionary interest: R = (P – B) x 1.05-L
Where:
R = reversionary interest
P = value of property now required
B = value of property owned but for the accident
L = predicted life expectancy
- Damages award: D = (P – B) – R
Applying that calculation to Mrs Swift’s case:
P = £2,350,000
B = £1,450,000
L = 45.43 (normal life expectancy derived from Table 2)
Therefore:
- R = (£2,350,000 - £1,450,000) x 1.05-45.43 = £98,087
- D = (£2,350,000 - £1,450,000) – £98,087 = £801,913
A Note reviewing the key elements of the judgment can be found here.
Darryl Allen QC and Richard Whitehall [Deans Court Chambers], instructed by Nicola Hardy of Simpson Millar LLP, represented the Personal Injuries Bar Association, the only permitted intervener in the appeal. Darryl, Richard, Simpson Millar and Brian Watson all worked on a pro bono basis.