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Roberts v Johnstone in negative discount rates: JR v Sheffield Teaching Hospitals NHS Trust

What is believed to be the first decision on the approach to Roberts v Johnstone in the era of negative discount rates was handed down this morning.

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 2o 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 Claimant argued that the 2.5% used in Roberts v Johnstone calculations was arbitrary but that was rejected by the trial Judge, William Davis J.

The Judge reviewed the law and noted that the Court of Appeal had “expressly approved the proposition that damages for accommodation costs should not represent the full capital value of the asset since that would remain intact at the claimant’s death and thereby represent a windfall to the claimant’s estate” and that as a result the Court of Appeal had considered the loss by reference to the cost of the lost income. He 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 also tried to argue that awarding no sum would require him to use capitalised sums from other heads, thus depriving him of monies intended to compensate him for other losses and that that solution meant that he would not recover his full loss, as required by Wells. The Judge rejected that argument, reminding the Claimant that “this submission ignores the long accepted consequence of the Roberts v Johnstone approach as described by Tomlinson LJ in Manna. 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“.

This is an unsurprising decision as the first instance Court had to be bound by Roberts v Johnstone. Short of ordering the Claimant to give credit for the negative figures which would be produced by following the calculation to the letter and using a negative discount rate, a nil loss was the most likely outcome.

What is interesting, however, is that it does not appear that there was any evidence before the Court as to the either alternative methods of evaluating the cost of the capital purchase or the cost of alternative funding solutions – for example, the cost of obtaining a mortgage to buy the property. Indeed, the Judge even went as far as to suggest that “it might have been possible to say that the interest element on an appropriate mortgage (say £600,000 as the cost of a property less the amount of general damages) over a 25 year term would provide a reasonable figure, the cost of annual mortgage interest being the alternative method of assessment suggested in George v Pinnock“, even though such an approach had been rejected in Roberts v Johnstone.

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. Pending this claim going to the Court of Appeal and/or pending any change in the discount rate, it seems likely that Claimants will take up the obiter offer by William Davis J to seek evidence on the cost of funding properties. What that means, for example, for purchases which have already been made out of a capitalised sum awarded by way of an interim payment, remains to be seen.

The case also dealt once more with the issue of lost years’ claims in personal injury claims – and allowed a claim in circumstances where, on balance, there would be no dependents.

Permission has apparently been granted on both the Roberts v Johnstone and lost years issues; it is understood that the Judge has urged expedition of the former.

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