The appeal is essentially a test case to challenge Roberts v Johnstone and its formula, which has led to nil awards for capital costs of accommodation ever since negative discount rates came into play.
The key questions for the appeal:
- Was the Court of Appeal bound by the decision in the House of Lords in Roberts, and by the application of the decision in Wells v Wells tying the Roberts calculation to the prevailing discount rate?
- If the Court of Appeal had jurisdiction to depart from Roberts, what is a fair and reasonable method of calculating compensation for i. this Claimant and ii. that can be of universal application going forward?
*For the purposes of this note, it is taken as a given that the Court of Appeal is likely to find that it is not bound by Roberts / Wells v Wells
The opportunity has now opened up for the Court to find a new approach. For the sake of brevity we shall not summarise all the alternative approaches postulated, suffice to say that the suggestions of defendants paying rental costs, PPOs to meet the annual costs of borrowing, or taking charges over properties have and will all be considered unjust or impractical.
The Appellant's primary case before the Court of Appeal was for the full capital cost of the alternative accommodation. That is an unlikely outcome. The Appellant's secondary case was for full capital value minus the market value of the reversionary interest in the property.
The Respondent's primary case was that Roberts is binding. Again, that is an unlikely outcome. Their secondary case was that the loss should be valued by reference to life and reversionary interests in the property, using a different discount rate to that set by the Lord Chancellor.
Therefore, there is some alignment in the parties' secondary cases on a 'reversionary interest model' and, further, the intervener PIBA, also submitted that this model was the appropriate basis upon which to assess compensation.
We consider that the Court is likely to accept a reversionary interest model which values the accommodation claim on the basis of a deduction from damages for the full capital cost of the new accommodation to reflect the value of a reversionary interest in the property.
This potentially deals with the ‘windfall’ problem, in that the value of the windfall can be identified and deducted from the damages award. It is also compatible with a ‘clean break’ model of compensation, and has the attraction of allowing a 'formula' calculation to be applied to the full capital cost.
Once the reversionary interest is valued (and deducted from damages), a Claimant could cover any shortfall in their ability to purchase the alternative accommodation with either a) funds raised from other lump sum damages, or b) funds raised from selling the reversionary interest on the open market.
The Court of Appeal heard expert evidence relating to three approaches as to how to value a reversionary interest and how to utilise that valuation in these circumstances, and the question will be, if it does favour this model, how will it translate into a formula? We will be providing further guidance on this point in the near future.
For more information please contact Giles Kellner.