High value interim payment applications with a negative discount rate
The end of 2017 saw the handing down of two judgments on applications for interim awards for future accommodation. In Flanagan (by his litigation friend, Green) v Battie, the claimant sought funds to enable him to undertake a trial of independent living. In Porter v Barts Health NHS Trust, the claimant sought an award which would enable her to purchase a suitably adapted property.
Both claimants relied on the second limb of the ‘test’ set out in Eeles v Cobham Hire Services – i.e. that there was a real, reasonable and immediate need for the property and that the court could be confident that the trial Judge would wish to award a larger capital sum than usual, commonly referred to as a Stage 2 application.
Prior to March 2017, damages for future accommodation were of course calculated according to the method set out in Roberts v Johnstone. Since the revision of the personal injury discount rate in March 2017 to -0.75% this approach has been rendered a nonsense as it results in a nil award.
It had been hoped that the appeal in JR v Sheffield Teaching Hospitals NHS Trust would clarify the way forward. However, as discussed in our previous article here, this matter was settled prior to the appeal. On approving the settlement, Jackson LJ observed 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…”.
Given that damages available to the Court on interim payment applications are always to be calculated as at the notional trial date, Flanagan and Porter provided opportunities for the Court to speculate on the likely outcome of the Roberts v Johnstone issue and to provide a practical approach for significant interim payments for accommodation whilst the discount rate remains negative.
In deciding Flanagan, Master Davison somewhat sidestepped some of the issues which arise on interim payment applications for a new property, suggesting instead that a solution to the Roberts v Johnstone conundrum will have to be found sooner rather than later.
The Claimant sustained catastrophic injuries when he was knocked from his bicycle by the Defendant motorist. Primary liability was not in issue but there was a significant risk that any final award made by the Court would be reduced by 25% for contributory negligence for failure to wear a cycle helmet.
At the time of the application the Claimant lived in a residential care centre which was said to be providing insufficient rehabilitation for his needs. The Claimant sought an interim payment of £500,000 to enable him to rent a private property, in which he could be cared for and provided with a range of therapies. He thus needed to persuade the Court that the £500,000 sought was no more than a reasonable proportion of the likely amount of the final judgment.
The Claimant invited the Court to find that at trial he would be awarded a sum of “at least six figures” for future accommodation. This was argued on the basis that, as summarised by Master Davison:
“…legislation sometime in the new year is expected to increase [the discount rate] and most observers expect that increase to place it in the range 0% to 1%… it could confidently be expected that by the time of the trial the courts, or legislation, or both would have addressed this problem. It was not at all likely that claimants would be left in a position where they were routinely under-compensated in respect of accommodation costs”.
The Defendant argued that the Court was bound by Roberts v Johnstone and accordingly could only properly find the Claimant would be awarded ‘nil’ for future accommodation at trial. Further, having failed to justify the multipliers and multiplicands used within the Schedule of Loss, the Claimant was inviting the Court to enter into unjustifiable “educated guesswork”. The Defendant also contested that this was a Stage 2 case.
Master Davison was satisfied that the Claimant had succeeded in meeting the requirements of Eeles, and appeared to be prepared to assume that Roberts v Johnstone would be corrected in due course, commenting that the law in this area was in a “doubtful state”. Indeed, he held that “given the present state of the law on Roberts v Johnstone awards, the claimant cannot be criticised for opting to rent. In practical terms, that is his only option”.
The ink had barely dried on Master Davison’s judgment when the decision of His Honour Judge Curran, sitting as a High Court Judge in Porter v Barts Health NHS Trust, was published.
The Claimant, who suffered from severe cerebral palsy, alleged that her disability was caused by the management of her birth by the Defendant Trust. Liability had been compromised on the basis that the Defendant was liable to pay 80% of her full damages. Quantum was hotly disputed.
The Claimant sought £1,900,000 for the purchase and adaptation of a property. She had previously been awarded an interim payment of £500,000, some of which remained unspent.
As in Flanagan, the Claimant succeeded in persuading the Court that Eeles was satisfied. As to the question of how a future award for accommodation should be calculated, the Judge held:
“As has been widely commented, since the decision to move to a negative interest rate, it is obvious that it is no longer possible for any form of award to be based upon the Roberts v Johnstone principle. As William Davis J said in the case of [JR],
“I consider that the editor of McGregor [on Damages] was quite correct when he opined that a fair and proper solution should be found to the conundrum of providing a claimant with the means to purchase special accommodation. He also was correct when he suggested that a negative discount rate would mean that the approach in Roberts v Johnstone would lead to a nil award.””
The Judge went on to note that:
“Many suggestions for an appropriate solution to the problem created by the change in rate have been made in professional literature since February of this year. These include basing awards of damages for accommodation upon mortgage costs to be paid by PPO, or by an award of capital for purchase of a suitable house to be occupied by the claimant upon the basis only of a life interest with a reversion to the defendant. Alternatively, funds provided by the defendant might be used by the claimant to buy such a house subject to a charge in favour of the defendant. In the still further alternative, it has been suggested that a variation on the Roberts v Johnstone method might provide a solution to the problem if the notional loss of investment income approach was replaced by the notional cost of mortgage interest.
Only very passing reference was made in argument to the problem as it will arise in this case if and when the assessment of damages listed for October 2018 proceeds to a hearing. None of the suggested possibilities for solution of the problem mentioned above was canvassed at the hearing of the application. Whilst reference was made to the existence of draft proposals by the government, it was rightly submitted that the court could not speculate as to what might happen in respect of such proposals to deal with the discount rate in the future. The Eeles approach had to be taken upon the basis of matters standing as they do today.”
The Claimant proposed two bases by which her accommodation claim could be valued: either by way of capitalised rental costs, or on the basis of the cost of alterations, adaptations, acquisition and running of the property etc. Noting that the Claimant had not pursued the first option with much enthusiasm, the Judge cited dicta from Oxborrow v West Suffolk Hospitals NHS Trust  EWHC 1010 (QB), in which Tugendhat J concluded that rental was a wholly impractical solution for a severely disabled individual.
Contrary to first appearances, this is not inconsistent with Master Davison’s approach in Flanagan: rental may well be appropriate for a trial of independent living, but not as a life-long solution.
Rejecting submissions from the Defendant that some form of ‘like for like’ calculation should be undertaken, the judge granted Miss Porter’s application, finding that the purchase and adaptation of the relevant property represented the only viable solution for her needs.
In neither judgment did the Court find that a nil award for future accommodation at trial was likely. These are the first judgments (that we know of) in which the Court has been prepared to assume that Roberts v Johnstone will be reinstated or that another solution will be found before trial which ensures that the Claimant receives an award in respect of their capital expenditure. It remains to be seen whether others will follow this approach in 2018, not least given the current speculation that the discount rate issue may not be resolved this year.