Settlement in JR v Sheffield Hospitals: Roberts v Johnstone remains in suspended animation
Andrew Davis and Juliet Stevens consider the landscape now that the Court of Appeal will not be hearing the appeal in JR.
Last week, the Court of Appeal was expected to hear the eagerly awaited appeal from the decision of William Davis J in JR v Sheffield Teaching Hospitals NHS Trust, handed down in May 2017. Permission to appeal had been granted to the Claimant on the issue of future accommodation and to the Defendant in relation to the award for ‘lost years’.
Instead, the Court approved settlement at £800,000 for future accommodation. The £800,000 was described on behalf of the Claimant as “the cost of accommodation…minus a reasonable valuation for the accommodation that the Claimant would have purchased or rented uninjured”. It is understood that the Defendant will not be proceeding with its ‘lost years’ appeal.
A detailed summary of the first instance decision in relation to JR’s accommodation claim can be found in Andrew Davis’ article here. In essence, whilst it was agreed between the parties that the Claimant required an adapted property, costing between £700,000 and £1 million, there was fundamental disagreement as to how fair compensation was to be calculated using a -0.75% discount rate. Using a ‘pure’ Roberts v Johnstone calculation would have given rise to a negative result, or a credit owed to the Defendant.
The purpose of a Roberts v Johnstone award is to compensate claimant for a notional loss of investment income on the capital cost incurred in buying a suitable property. The conventional calculation assumed a 2.5% tax free yield, the same as the then discount rate.
William Davis J held at first instance in JR that he was bound by Roberts v Johnstone but that the calculation needed to be amended. He accepted the Defendant’s argument that the logical corollary of the new -0.75% discount rate must be that it is not possible to obtain any positive return on a capital fund based on risk-free investment. The Claimant was awarded ‘nil’ for future accommodation.
William Davis J specifically dismissed the Claimant’s submission that a ‘conventional’ Roberts v Johnstone award “capped at the capital cost of the accommodation to be purchased” would avoid a windfall to his estate. The effect of such an approach, given that claimant’s estate also benefits from the value of the (appreciated) property, would be to allow double recovery, even if deferred. An argument of similar effect was run before the Court of Appeal in George v Pinnock [1973] 1 W.L.R. 118 and rejected as having “no foundation”.
As noted in Andrew’s previous article on the topic, a key problem for the Claimant in JR was that they had called no evidence as to the cost of the investment, whether in the form of an interest-only mortgage or otherwise. It is understood that that had been remedied for the appeal.
With all of that in mind the settlement is perhaps all the more surprising. Having now seen the terms of the settlement, the Claimant has won three times over: retaining the value of the property and the majority of its purchase price, as well as avoiding an appeal on the matter of ‘lost years’. The Defendant did not obtain a charge over the property to be bought. It is unclear if such a provision (or any similar provision or clawback) was sought by the Defendant.
The Court’s task in relation to future accommodation is to make an award which ensures a claimant can live in appropriate accommodation for the rest of his life, at no extra cost to himself and without the burden of borrowing too heavily from other heads of loss to fund it but also without his estate obtaining a windfall. This is a Gordian Knot which has proved difficult to unpick and the settlement in JR does not provide a solution.
There are two practical methods by which this could be achieved, without relying on Roberts v Johnstone, which we outline briefly below.
The first would be for a claimant to obtain a commercial interest-only mortgage in respect of the difference in value of the properties the claimant would have owned but for and following the injury. The defendant could then meet those payments whether by PPO or lump sum for the claimant’s life. Benefits of this approach, which was adopted by the Civil Justice Council in its 2010 report on accommodation claims, include that it deals with the injustice for claimants who have a short life expectancy who would otherwise suffer disproportionately under a Roberts v Johnstone calculation; it also avoids the need for the defendant to pay any capital towards the acquisition of the new property. The (probably surmountable) problem, is that mortgage lenders don’t currently offer such a product.
A second approach would be for the defendant to loan the claimant the money they require to purchase a suitable property. This would be achieved by the defendant providing the necessary capital, in exchange for a charge over the property for the sum of the loan, plus interest at an index-linked rate. This neat solution, supported by the Law Commission, is hindered by one problem: the court does not have the power make such an order. Again, however, this difficulty is not insurmountable: the defendant could offer the claimant a loan/charge arrangement and put that offer before the court. It would be open to the court to rule that the offer should be accepted in reasonable mitigation of the claimant’s loss.
Of course, Roberts v Johnstone could also be used in a modified form but that would require evidence as to the appropriate yield at the given discount rate. It would of course also need the Court of Appeal’s say-so.
Other approaches include rental properties (but they face potential issues where an independent landlord is used; also there are real issues as to such matters as putting the property back into its original state / paying for dilapidations at the end of the tenancy); or insurers purchasing a property and giving a life interest to the claimant, although that has so far not proved popular. It also has its own practical issues and, again, cannot be ordered by the Court.
Roberts v Johnstone is, if not dead, then in a state of suspended animation for the time being, and an alternative solution from the Court of Appeal is urgently required. That is so even if, as is expected, the discount rate returns to positive at some point next year.
Jackson LJ observed as he approved the settlement in JR that, “It is clear that sooner or later this Court is going to have to grapple with the Roberts v Johnstone issues in the new world. There may be cases on the list in due course doing that. Nothing that we say today must be taken as pre-empting what this court will decide following argument…”.
We will just have to watch this space.
