by David Cowan BSc, BArch, RIBA, Chief Executive, Cowan Architects
Compensation in any life-changing personal injury case aims to provide a fund that runs out on the day the claimant dies. An impossible task, one would think, but all the same the ultimate aim for all such compensation packages.
This philosophy, however, falls apart in one circumstance – assessing the appropriate compensation that is required for someone who needs to move to a larger and more expensive house to accommodate their needs.
The problem lies in the large capital sums required and the fact that on the claimant’s death the enhanced value of the property creates “wind fall” profit for the estate.
This goes against a basic tenet of the law which endeavours to ensure that there is no ‘profit’ from a Court award (because a property purchase is an asset with value, rather than an expense) - but only to award enough to meet the needs of the claimant for as long as the claimant requires – and no longer.
In any compensation claim, the prime piece of case law affecting housing is still Roberts v Johnstone, a 1989 House of Lords judgement which establishes the convention for the calculation of compensation for the additional accommodation needs of claimants with severe disabilities. In this, their Lordships considered it appropriate to award an annual sum based on the loss of interest that the claimant would suffer if they had to use their own money from the award to fund their housing requirements. The compensation is currently based on 2.5% per annum of the additional capital required, because the courts assume that if the money were invested elsewhere, the claimant would achieve a real net rate of return of 2.5% per annum. This annual amount is then multiplied by a figure which is determined by the number of years for which the property will be required (ie the claimant’s life-expectancy). Their Lordships concluded that it was inappropriate to award a capital sum calculated as the difference in cost between the existing property (where the claimant and/or parents live) and the new house (required to meet the claimant's changed needs) since this would provide a windfall profit to the claimant's estate.
The introduction of Periodical Payments (used extensively since Eeles v Cobham Hire Services to protect the claimant from the inflation of annual costs such as care) has altered the balance. While the benefit to the claimant is that even if periodical payments prove not to meet precisely 100% of the claimant’s need, he can be certain they will provide a very high proportion of it, year in, year out during his lifetime, the downside is that in the absence of a lump sum there is no longer a sizeable fund to raid.
There are a number of other circumstances where the Roberts v Johnstone formula is problematic especially for a claimant faced with a short life expectancy. The expert can happily advise that a 65 year old claimant or a severely disabled child move to a more suitable bungalow but the reality is that while their needs are similar the shortened life-expectancy of the pensioner could give them only 10% of the money that they require to purchase a suitable new home. The problem is compounded because house prices are now much higher than they were in 1988, particularly in the South East. The result is that in these circumstances the Roberts v Johnstone calculation produces only a fraction of the sum required to purchase the accommodation which claimants need. The remainder of the purchase price is then normally taken from compensation intended to cover other needs such as loss of earnings, therapies, equipment and even care. The consequence is that this money cannot be used for the purpose intended by the parties or the Court when the award was made and some of the claimant’s needs are left unmet.
Conventionally, it was necessary to raid some, or all, of an award for general damages to meet the capital needed for the property. This solution means that
general damages will not remain available as an accessible contingency fund. Likewise, the award for future loss of earnings, which is also a potential source of capital for property, does not necessarily remain intact.
Given there is a consensus that Roberts v Johnstone does not always provide the best solution, it is necessary to consider what alternatives are available. The main ones include:
Option 1 – Full funding by the defendant.
Option 2 – Defendant purchases the house.
Option 3 – Claimant rents a property.
Option 4 – Defendant pays mortgage costs.
In all the options there are pros and cons. In the full funding option, the defendant provides the funds to purchase the property and would have their interest
There are two possible variants. In one, any wind fall profit at the death of the potential claimant is ignored on the basis that the State is refunded its existing costs through the additional Inheritance Tax levied (although this would not go to the NHS). In the other, the defendant’s interest is recorded so that they can be refunded their investment on the claimant’s death. Problematically, the claimant has to live in a house owned by the organisation responsible for their condition and their family becomes potentially homeless when they die.
In the second option, the defendant purchases the house and undertakes the adaptations. Cowan Architects has worked on a number of house purchases and adaptations for claimants in these circumstances, and I’m aware that this has been authorised by a number of insurers. However, it again reinforces the on-going relationship with the defendant and would create a considerable drain on NHS funding if there were no commercial borrowing available as an alternative.
In Option 3, the claimant could rent a property with the defendant paying the rent. This was used in Ryan St George v The Home Office but relies on the acquiescence of the landlord to the alterations to their property as well as an extended lease to protect the involvement of both parties when they have
undertaken considerable and costly adaptations.
The last option offers the claimant a capital sum for a deposit and the defendant pays the mortgage for the remainder of the claimant’s lifetime. The property is
the claimant’s on death and therefore the claimant’s estate is still left with a windfall either through the loan being paid off with a repayment mortgage or an
increase in value leaving an asset to the family.
A couple of years ago, I was a member of an informal working party that prepared a report on funding ‘Short Life-expectancy’ cases submitted to the Civil Justice Council, we concluded that there were potential advantages for both claimant and defendant in investigating the different options dependent on the individual circumstances. It is interesting to note that in a 2009 claim in the Ipswich area the claimant was able to re-purchase the property originally purchased for the eponymous Sandra Roberts. This property had originally been sold to them for just under £40,000 in 1989 and was resold for a figure closer to £350,000 in 2009. In this particular case, if the defendant had purchased the property, there would have been a surplus that could then have been reinvested in the Health Service.
One can understand the claimants preferring to distance themselves from the defendant, but a potential benefit of a continuing relationship between the two parties is the intelligence that already adapted properties are coming to the market. A ‘recycling’ of such properties could reduce the on-going expense of constantly adapting new properties and subsequently re-instating them to their pre-adaptation state in order to maximise value.
Whilst the principle established in Roberts v Johnstone was that the additional cost to the claimant of purchasing a suitable property over and above their existing living expenses should be recompensed, the concept of a deduction for preexisting family living costs has been eroded by a series of judgements.
In Iqbal v Whipps Cross Hospital, the family were in receipt of housing benefit and the Judge concluded that if the state was already making the contribution to the family's living there was little point in moving it from one departmental budget to another. In consequence there was no deduction to take account of the family's current living expenses.
Also, as the law currently stands, the basic structure of Roberts v Johnstone has only limited application to those claimants who are below the age of consent or
without mental capacity. The situation has been further developed by the property being purchased entirely by a Trust in the claimant’s name where they are either a minor or without capacity and there has been considerable legal argument as to the appropriateness of any deductions and whether it is correct for the parents to live in effect for free.
I appeared as a witness in the case of Whiten v St Georges Healthcare NHS Trust where the Judge recommended that the ultimate property to be purchased for Leo was to be entirely at the defendant's expense and that, as the property was Leo’s and given the disruption to their lives that the family had already suffered, it was reasonable for them to live at no cost in the new property. While it may be considered that they could be asked to pay “rent” to live in his home, this was unenforceable, and could lead to him ending up ‘out of pocket’. She concluded that up until the age when he would, uninjured, have acquired his own property, there should be no deductions.
In more recent 2015 decisions in both Robshaw v United Lincolnshire Hospitals NHS Trust and Ellison v University Hospitals of Morecombe Bay NHS Foundation Trust, the presiding judge reinforced this interpretation of the law, allowing the totality of all the claimant’s housing costs, up to an age when they would have lived independently as an adult, to be paid by the defendant, bringing in a deduction for their “uninjured” living costs only after that age.
In conclusion, there are a number of alternative proposals that have been floated, based on either the defendant providing funds to purchase the home outright or through various funding options as touched on above. While it is fair to say that Roberts v Johnstone is not necessarily equitable in all cases and there is likely to be some adjustment to the approach in the future, there are a number of potential solutions that will, for now, be more appropriate than the others in differing sets of circumstances. It remains interesting to see how this conundrum develops and it will be necessary for all interested parties to keep a close eye on new judgements to see how it evolves.