Roberts v Johnstone: Dead or Alive?

April 20, 2017

By Catherine Howells

In our brave new world of a negative discount rate (with a consultation process to review it already in place) how are seriously injured Claimants to receive fair compensation to meet their housing needs?  Are Claimants going to be left owing Defendants sums to enable them to buy suitable accommodation? On a pure mathematical calculation of accommodation costs, based on established principles laid down in Roberts v Johnstone this would appear to be the case. Of course, this offends against the principles of tortious compensation where a Claimant should be restored, as well as possible, to their pre-accident condition.  Many PI lawyers have been scratching their heads as to what the future will hold for calculating this head of loss. Many consider the Roberts model to be an unsatisfactory one.

Going back to first principles, what is the appropriate approach to calculating accommodations claims on the current law?

First principles: what is the purpose of this head of loss?

  • The Claimant has the need for suitable accommodation
  • The Claimant is not entitled to “profit” from his/her injury
  • If the Claimant were awarded the capital cost of alternative accommodation, there would be a profit
  • The Claimant (or family) would retain a capital asset
  • This would remain intact at the date of the Claimant’s death and represent therefore a windfall to his/her estate. (George v Pinnock)

In Roberts at first instance, Alliott J. considered himself bound by an earlier authority, George v Pinnock which established that the capital cost of a new house could not be awarded as damages.  The Court of Appeal agreed but refined his application of it and held that a Claimant was entitled to a sum equivalent to, effectively, a loss of income from the capital expended on the purchase. The damages represented the difference between the loss of income or notional outlay by way of mortgage interest and the cost of accommodation but for the accident.  At that time the rate of interest adopted by the courts at that time was a healthy 7 per cent to 9 per cent net. In a different climate of low interest rates the rationale became increasingly difficult to justify (or explain to clients and their families). Despite a number of reviews of this position it has remained unchanged.  The Law Commission (1999) concluded that “in most cases” the Roberts approach was “inappropriate”. In 2011 the Injury Committee of the Civil Justice Council reported to the Ministry of Justice on the question. The majority felt there was a case for reform, even the dissenting members described it as “imperfect perfection”.

How has this “imperfect” solution worked in practice?

Pre-discount rate change:

Assume a female Claimant is 20 at the date of settlement and has an unimpaired life expectancy. The life multiplier (broadly) at 2.5% is 32.97 and at -0.75% is 94.99.

2.5% -0.75%
Cost of suitable property £600,00 £600,000
Less price of  home Claimant would otherwise have bought £100,000 £100,000
Difference £500,000 £500,000
x  (multiplicand 2.5/-0.75%) £12,500 -£3750
X life multiplier (32.97/94.99) £412,125.00 -£356,212.50

This cannot be the correct or justifiable approach: a badly injured Claimant cannot owe the Defendant for the privilege of needing appropriate housing.  As such, it is inevitable that either a different approach to carrying out a Roberts calculation should be adopted or a new approach to meeting housing needs should be found.

Differing Roberts calculations

Remember: we are trying to compensate a Claimant for the loss of income on the investment of the capital sum which may sound simple but is fiendishly difficult to solve. In Roberts reliance was placed on Wright v BRB (Lord Diplock):“In times of stable currency the rate of interest obtainable on money invested in Government stocks includes very little risk element. In such times it is, accordingly, a fair indication of the ‘going rate’ of the reward for temporarily foregoing the use of money. Inflation, however, when it occurs, exposes all capital sums of money that are invested temporarily in securities of any kind instead of being spent at once on tangibles to one form of risk, amounting to a certainty, that upon realising the security there will be some reduction in the ‘real’ value of the money received for it, whatever kind of risk the security selected for investment may attract”

The rate itself however is not sacrosanct. In Wells v Wells  (1999) in discussing the appropriate discount rate it was stated: “But in Wright v. British Railways Board Lord Diplock chose the return on I.L.G.S. as the first (and in my view simpler) of the two routes by which courts can arrive at the appropriate or “conventional” rate of interest for forgoing the use of capital. At that time the net return on 15-year and 25-year index-linked stocks was 2 per cent. I can see no reason for regarding 2 per cent as sacrosanct now that the average net return on I.L.G.S. has changed. The current rate is 3 per cent. This therefore is the rate which should now be taken for calculating the cost of additional accommodation. It has two advantages. In the first place it is the same as the rate for calculating future loss. Secondly it will be kept up to date by the Lord Chancellor when exercising his powers under section 1 of the Act of 1996.”
Possible different approaches, whilst still applying Roberts principles therefore may include (1)Applying  a different  (positive) rate to multiplicand (2)Applying a different rate to life multiplier (3)A PPO instead?

There is logic in selecting a 2% rate of interest to calculate the multiplicand.   This is the rate adopted in calculating the interest on general damages (which is meant to compensate the Claimant for being out of their capital sum for this period). This was the approach taken in essence in Roberts: 2% was then recognised as being a broad-brush calculation.

How would that look in practice? Using the same worked example set out above:

Cost of suitable property £600,000


Less price of home Claimant would otherwise have bought £100,000
Difference £100,000
Multiplicand @ 2% £10,0000 per annum


Applying a different discount rate to the life multiplier?

In theory, it may be logical to argue that accommodation is a discrete and separate head of loss and the vagaries of the housing market mean that it should be approached differently from other heads of future loss. If we were to apply a -0.75% discount rate multiplier to a 2% loss on the above figures the head of loss would look like this:

Multiplicand @ 2% £10,000 per annum
X life multiplier  @ -0.75% 94.99
Roberts v Johnstone £949,900

This approach however produces a figure well in excess of the purchase price of £600,000 and therefore arguably offends against the authorities (giving the Claimant a windfall). There are some intrinsic problems in applying different rates for different parts of the claim: if we start unwrapping the single discount rate and taking a different rate for one head, it undoubtedly undermines a single negative discount rate. It should be remembered that the Lord Chancellor has set a single discount rate for all heads of loss and there is no authority to support departing from this. However, there is, I would argue, logic to this approach and it might well be the basis of the least objectionable method of calculation until there is more clarity on the subject.

A stand-alone PPO for accommodation?

In principle there is no reason why the Roberts award could not be in the form of an RPI-linked PPO (perhaps its purest form?). There would then be an annual payment for life to meet the Claimant’s loss of use of his capital. However, to avoid the risk of “over-compensation”, would the court seek to cap the award when the accumulated payout reached the capital sum upon which the annual loss is calculated (akin to applying an insurance policy limit)?  A Roberts calculation is in fact a capitalised annual loss so a PPO model might work. An RPI-link would preserve the spirit of what was envisaged in the precedent cases, i.e. to remove the effects of inflation on the loss of use element of the award by reference to ILGS, which are RPI-linked.  Rising property values would be expected to deal with the effects of inflation, and compensate for risk, on the additional capital tied up.   This is a logical alternative argument that could be presented in current cases.

The future

There can be little doubt that in the current climate the higher courts will need to revisit the approach to housing claims. It may be that the Roberts approach is departed from entirely. What then are the other possible options to fairly meet this need?

Interest free loan?

This transfers the burden of capital deprivation from claimant to defendant. The only capital that the claimant would tie-up is either the value of an existing home, or that which he would have owned but for the accident. Therefore, the claimant is put in the position of being able to deploy all of the remaining capital available to meet needs and wishes during his lifetime. However, in a case where there is a short life expectancy the interest-free loan route will require sale of the property to repay the loan on death of the claimant. If the property value rises there is bound to be a windfall to the estate (unless the claimant is able to release equity which can then be applied during his lifetime.) What if the property value has fallen, leaving insufficient capital to repay the loan? From a defendant’s perspective, there is an obvious cash-flow disadvantage in having to pay out more capital up-front, and a (new) credit risk in the potential for default.

Interest only mortgage backed by a PPO?

Whilst interest rates are low, it remains the case that commercial borrowing costs on a mortgage significantly exceed the current discount rate. This alternative puts the claimant in the same position as an interest-free loan from the defendant: the interest cost will be covered by periodical payments, i.e. there is no net financing cost to the claimant and in respect of the additional capital tied-up in property. However, the defendant has the additional cost of commercial borrowing as compared with an award under Roberts, but no credit risk on a default (as this transfers to the lender).

However there are significant obstacles to this model. There is a restricted supply of mortgage products that carry a lifetime fixed rate, or linkage to a suitable measure (either of which would be necessary preconditions to make a PPO workable), and higher costs attaching to these products.

A poor credit history for the Claimant may preclude access to borrowing. The accommodation claim would have to be based on an actual property, with an actual mortgage offer, both of which are time sensitive. A Claimant would therefore have to know, at the time of the claim, which house they intended to buy. Further there is traditionally institutional aversion to arrangements that are unusual and could potentially have adverse reputational risk for a lender (such as having to evict the family of a disabled child who has died in order to seek repayment of the mortgage). What mortgages would be available in reality? They may not be at an attractive rate. Finally, there may be real legal issues where the claimant lacks capacity and the Deputy is party to a mortgage.

Defendant to provide all of the additional capital?

This option has the advantage of being simple but causes a windfall to the Claimant upon death (the very issue in George and Roberts). What if the Claimant undertakes to repay any windfall (secured by a charge against the property)? However, this approach is unlikely to be popular with Defendants as it imposes a potentially significant up-front payment. However, given that the problems caused by Roberts are most acute in short life expectancy cases, adoption of this solution in those cases would mean defendants suffering the additional cash flow for a far shorter period, simply transferring the burden of loss and risk.

Rent covered by a PPO?

This was the approach adopted by consent in the case of St George v Home Office: It enabled the parties to resolve a very significant difference of opinion on life expectancy, and the claimant to continue living in an area of London, with his family and friends, where capital values of property would have precluded the traditional approach. However, in practical terms this may be a difficult option to realise. The supply of suitable rented accommodation is limited. If adaptations are required to make a property suitable, private sector landlords may be unwilling to let.

Where does this all take us?

In simple terms: there is no easy solution. What is probable is that the Roberts approach will be challenged. Alternative presentations of a Roberts calculation (using perhaps 2% for the multiplicand and -0.75% for the multiplier, whilst capping the claim at the capital value of the property) might be the most workable and logical solution within the current system.

In negotiations parties will need to be creative to find a workable solution to this very real problem.

Catherine Howells (with thanks to Ian Gunn (PFP), Amanda Yip QC and William Waldron QC for their input)

George v Pinnock