The Court of Appeal have now handed down the long-awaited decision in Swift v Carpenter. Rather than go into the judgment in great detail, which has already been done at great lengths elsewhere, Gemma McGungle uses this update to provide an overview, alongside a worked example to assist in what, at first glance, doesn’t necessarily appeal to the mathematically illiterate among us.
Summary of the Appeal Findings
- Roberts v Johnstone is no longer binding; “no longer capable in modern conditions of delivering fair and reasonable compensation”
- Damages calculated on the basis of the additional capital cost of the purchase minus the present market value of the reversionary interest in the property.
- The present market value of the revisionary interest is calculated using a “deliberately cautious” figure of a 5% annual rate of return over C’s life expectancy;
- The guidance will rarely be departed from; only “in response to really significant changes”, for example in short life expectancy cases.
The New Calculation
There are 2 methods for calculating the reversionary interest. Here I provide worked example of what I consider to be the simplest method prior to the Ogden Table 35 being updated to account for the 5% discount rate.
Capital Sum x 1.05 to the power of – life expectancy:
New Property Price £600,000
Existing Property Price £150,000
Life Expectancy 20 years
Capital Sum: £600,000 – £150,000 = £450,000
Reversionary Interest: £450,000 x 1.05-20 = £169,600.27
Net Damages £280,399.73
There is a link within this article to a very simple Excel document that I have produced to do the sums for you. Using the a scientific calculator on an iPhone however, the calculation to get from net capital sum to reversionary interest is as follows:
£450,000 ÷ 1.05
The link to download the Excel spreadsheet is here: Swift v Carpenter Calculator
Gemma McGungle is a member of the Civil and Personal Injury department in chambers. If you have any queries about this or any other related subject, please feel free to contact us on our usual contact details and we will be delighted to assist you.