20 June 2017

JR v Sheffield Teaching Hospital [2017] EWHC 1245 (QB). Judgment has been handed down in what we believe to be the first decision on the application of the Roberts v Johnstone formula since the discount rate was reduced to -0.75%.

The decision in Roberts v Johnstone [1989] Q.B. 878 held that the cost of future accommodation is to be calculated on the basis of compensation for the loss of use of capital required by the purchase of a more expensive property. In Roberts, the Court of Appeal held that appropriate compensation would be calculated on the basis of an assumed rate of return of 2%, however, when the discount rate was set at 2.5% in 2001, the latter figure was adopted. It remained at 2.5% from 2001 until February 2017 when the MoJ announced their decision to reduce the discount rate to -0.75%.

In JR v Sheffield Teaching Hospital [2017] EWHC 1245 (QB), the claimant suffered a catastrophic brain injury at birth. Liability was admitted and there was a considerable measure of agreement between parties in relation to some aspects of quantum. There was, however, disagreement as to the cost of accommodation. It was not in dispute that the claimant’s current accommodation, a three bedroomed bungalow, was wholly unsuited to his needs. All parties agreed that a new property must be purchased and that adaptations were likely to be required. What was not capable of agreement was the application of the Roberts v Johnstone calculation. The problem is that the introduction of the negative discount rate has the effect that the formulation in Roberts v. Johnstone produces a negative sum for accommodation.

The defendants argued that there is at present no ability to obtain any positive return on a capital fund based on risk-free investment and the result of this is that there is no need to compensate the claimant for the loss of that return. The defendant argued that the cost of the accommodation could be borrowed from the capitalised loss of earnings figure. The claimant’s solicitors, on the other hand, argued that the rate of 2.5% ought to be applied. The solicitors acting for the claimant referred the Court to McGregor on Damages which criticises the application of Roberts v Johnstone and seeks a “fair and proper solution”. The presiding judge fully agreed with that statement but took the view that his duty was not to find “the fair and proper solution” to the problem as a whole, rather, he could only look at the particular facts of this case. Whilst he was not referred to any alternative methods, he provided comment on what he referred to as “superficially attractive” methods such as awarding the claimant reversionary interest in a property which would be returned to the defendant on the death of the claimant or awarding the claimants the annual cost of a mortgage. As no evidence was put before him that would allow him to consider some alternative approach, he was unable to consider this.

In the absence of evidence as to any alternatives or likely trends, the judge’s hands were tied and he was only able to proceed on the basis of the position as it is currently. Accordingly, a nil award was made. It has to be said that the tone of the judgment appears to suggest that the judge was not particularly comfortable in making that decision and would have been open to considering suitable alternatives had that evidence been put before him.

During the discussion in court, reference was made to a situation where a double amputee was living in an upstairs flat. His earning capacity remained intact but his other needs were limited. Such a claimant would only have modest capitalised sums against which to borrow and would be unable to purchase something which was vital to him and which was a loss resulting from the breach of duty. The judge commented that this only emphasises the need to “find a proper solution to the accommodation conundrum”.

We understand that leave to appeal has been granted and that the judge has urged expedition of the appeal. In the meantime, it is likely that we will see an increase in claimant solicitors arguing for alternative methods of calculating future accommodation costs such as the cost of a mortgage, a reversionary interest in a property or actual rental costs.

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