What’s the issue?
Injured Claimants who have a need for different accommodation brought about by their injury, and who are not in rented accommodation, are entitled to claim the cost of more suitable accommodation (often alongside the cost of making suitable adaptations). In the most part, that accommodation tends to be more expensive than the accommodation already owned by the Claimant.
Historically, Claimants have not just simply been awarded the difference in value, because to do so would be to compensate not only the Claimant, but to additionally benefit the estate of the Claimant with a windfall it would not otherwise have had. This windfall of course assumes a national house price growth.
Roberts v Johnstone  Q.B. 878 – Court of Appeal
The Court of Appeal balanced the competing concerns and decided that the approach should be to award a sum equivalent to the loss of income which would be achieved if the capital used from the Claimant’s proceeds to purchase the new property had been invested in risk-free investments. The Defendant should pay a sum annually to compensate the Claimant for having to invest more money in property than would otherwise have been the case.
This approach required an assumed rate of interest on the total capital expenditure to calculate an annual figure, to which was applied a lifetime multiplier. The Court of Appeal’s approach was endorsed by the House of Lords as “an elegant solution” (Wells v Wells  1AC 345).
Although initially the rate was set at the same rate as interest on general damages (i.e. 2%), since 1999 the rate has been pegged to the “prevailing discount rate” which is set by the Lord Chancellor under s.1 Damages Act 1996. Until 2017, the rate had been 2.5%. In 2017, it changed to -0.75% (as it was at the time of trial in Swift) and now stands at -0.25% (as also at the time of appeal in Swift). The change in the “prevailing discount rate” in 2017 caused the mathematical calculation set out in Roberts v Johnstone to produce a negative figure, i.e. a nil loss.
Calls for change
There has been widespread call for change, although understandably, those calls have not been universal. The “imperfect but pragmatic” award when the discount rate was positive has been tolerated – in the absence of industry-wide agreement, the status quo seemed certain. But in the world of a negative discount rate, it was inevitable this matter would have to be determined by the Court of Appeal, or the Supreme Court.
You can read the full post on our Civil Law Blog here.