The Medical Negligence team at Mayo Wynne Baxter frequently deal with claims involving brain damage sustained at birth as a result of the hospital’s negligence. Such claims usually take many years to reach settlement negotiations, at which point we carefully consider all the possible heads of damage that may be claimed from the Defendant in order to maximise the compensation paid to our client.
Negotiations will often include a claim for specially adapted accommodation to meet the needs of the Claimant, who may require single storey accommodation with wide spaces and accessibility for their wheelchair. There may be a need for additional accommodation for professional carers, and space to store equipment, or a separate therapy room.
Background to accommodation claims
It has long been established that where a Claimant needs specially adapted accommodation as a result of the negligence of a Defendant, they are not given the full capital cost of the property because to do so would give them a windfall over and above proper compensation. It is assumed that a Claimant would ordinarily have used their earnings to purchase a property in any event, and the Claimant’s loss of earnings is also compensated for in the claim. It is also assumed that the value of the property would increase over the Claimant’s lifetime, resulting in a windfall to their estate upon their death.
The decision in Roberts v Johnstone QB 878 sought to address this issue. Alliott J. considered himself bound by an earlier authority, George v Pinnock, which established that the capital cost of a new house could not be awarded as compensation. The Court of Appeal agreed but refined his application of it and held that the Claimant would have to “borrow” other parts of the compensation (for example compensation for pain and suffering or loss of earnings) in order to pay for a property and, had he not needed to do so, such sums would otherwise have been invested and provided him with an annual investment income of which the Claimant was effectively being deprived. The compensation was therefore based upon the loss of interest on the extra money that the Claimant must invest in order to pay for the required accommodation. The loss of interest was calculated using a multiplier based upon life expectancy, and assuming a net rate of return of 2.5% per annum.
At that time the rate of interest adopted by the courts was a healthy 7 - 9 per cent net but in a different climate of low interest rates the rationale became increasingly difficult to justify. Despite a number of reviews of this position it has remained unchanged. In 1999 the Law Commission concluded that “in most cases” the Roberts approach was “inappropriate”. In 2011 the Injury Committee of the Civil Justice Council reported to the Ministry of Justice on the question. The majority felt there was a case for reform; even the dissenting members described it as “imperfect perfection”.
Change to the discount rate
Last year the Lord Chancellor exercised her power to revise the discount rate used in the calculation of future losses in personal injury claims from 2.5% to -0.75% (see MWB blog 15.03.17). This had the result of dramatically increasing the multipliers in such cases. Applying a minus discount rate not only produces a nil figure for the costs of accommodation but also produces a theoretical liability upon the Claimant to pay money to the Defendant. This is because, with a negative rate of return upon investments, not only would the money equal to the capital costs of property no longer be producing any income, it would in fact be reducing in value.
It is helpful to look at an example to see the true extent of the impact of the discount rate. Imagine a 20 year old female Claimant with an unimpaired life expectancy. The life multiplier at a discount rate of 2.5% is 32.97 and at a discount rate of -0.75% is 94.99.
Cost of suitable property £600,000 £600,000
Less price of home Claimant
would otherwise have bought £100,000 £100,000
Difference £500,000 £500,000
x multiplicand (2.5% or -0.75%) £12,500 -£3,750
x multiplier (32.97 or 94.99) £412,125 -£356,213
The problems arising from the change in discount rate are readily apparent. It simply cannot be right that a badly injured Claimant owes the Defendant money for the privilege of needing appropriate housing.
JR v Sheffield Teaching Hospitals NHS Foundation Trust
The Claimant in JR v Sheffield Teaching Hospitals NHS Trust had significant accommodation needs arising from severe spastic cerebral palsy. JR had been cared for by his parents in inadequate accommodation for over 20 years and a claim was made for alternative accommodation. The need for such accommodation was not in issue; the question was whether and to what extent there was a loss.
The judge recognised that there had been numerous criticisms and attacks on the Roberts v Johnstone approach. However, he was bound by Roberts v Johnstone and, given the negative discount rate, he had to consider the return on a risk free investment as representing JR’s loss. On the evidence (and discount rates) there was thus no loss.
The Claimant tried to argue that awarding no sum would require him to use capitalised sums from other heads of damage, thus depriving him of monies intended to compensate him for other losses and that solution meant that he would not recover his full loss. The Judge rejected that argument, reminding the Claimant that “this submission ignores the long accepted consequence of the Roberts v Johnstone approach. JR in the long run will recover his full loss because his estate will have the benefit of the full value of the accommodation.” He did however go on to add that there was an urgent need to “find a proper solution to the accommodation conundrum“.
It is important to note that this did not mean that the accommodation claim was zero. £840,000 was awarded under this head of damages. This included the costs of converting and adapting a property to the Claimant’s needs, increased running costs (for life), and relocation costs.
There has been extensive discussion since the discount rate decision as to the effects on accommodation claims and alternative methods of ‘filling the gap’ for Claimants. There can be little doubt that in the current climate the higher courts will need to revisit the approach to housing claims. It may be that the Roberts v Johnstone approach is departed from entirely. What then are the other possible options to fairly meet this need?
- The Claimant makes no claim for the capital cost of the property but claims for adaptations and increased running costs.
Although this solves the problem of the Defendant having to fund the total purchase of a property, it still leaves the issue of betterment as the Claimant and his estate would benefit from the increase in value of the property. Furthermore, the initial capital would have to be borrowed from other heads of damage.
- Full recovery of capital sum required for purchase and adaptation with the Defendant either owning the property or having a charge on the property to recover its capital on the death of the Claimant.
The difficulty with this option is that it envisages an on-going relationship between the Claimant and Defendant, which most Claimants wish to avoid. What happens if the Claimant wants to move?
There is also the issue of any increase in the value of the property; who gets the benefit of the appreciating asset? Should the NHS profit from owning a portfolio of properties housing injured Claimants?
A further issue arises in that the Claimant’s family often provides significant levels of care and, as such, they tend to reside in the Claimant’s house. Therefore there is inherent uncertainty as to what would happen to family members once the Claimant has passed away.
- A claim for the cost of borrowing to fund the property purchase (essentially the interest element of the cost of a mortgage). In reality, the propensity of interest only mortgages has declined in recent years as lenders tighten their lending criteria. Lenders also seek to establish how the capital loan is to be repaid at the end of the mortgage term. Therefore it may be difficulty to secure a lender in these circumstances.
- Full rent paid for a suitable property on the basis of a periodical payment order. There are unlikely to be many residential landlords willing to rent out a property for the duration of the Claimant’s lifetime and who would be content for significant adaptations to be made to the property. The Claimant would also have to give credit for the lifetime cost of renting a smaller property which they would have incurred but for the Defendant’s negligence.
Permission has been granted for an appeal in the JR v Sheffield case and the judge recommended that the appeal be expedited. Even with expedition, it would take some time for the Court of Appeal's original decision in Roberts v Johnstone to be overturned: technically this could only be done by the Supreme Court. As no evidence was put before the judge in JR as to an alternative approach, it may not be the best case for Claimants to test the point.
Furthermore, the discount rate is the subject of a government consultation, which closed on 11 May 2017, and further developments in this area should be expected.
In order to maintain, and ensure that the maximum amount of damages is recovered in the future for accommodation claims, it is vital that Claimants are appropriately advised in respect of that by specialist clinical negligence lawyers, such as our experienced team at Mayo Wynne Baxter.