In Swift v Carpenter the Court of Appeal departed from the approach set out in the case of Roberts v Johnstone.
"...that approach is no longer capable in modern conditions of delivering fair and reasonable compensation to a claimant." [Irwin LJ @ §204]
It gave guidance as to the methodology which is to be used in its place to calculate a claimant's entitlement to the additional capital cost of special accommodation. It is clear that this guidance is meant to be of wide application.
“for longer lives, during conditions of negative or low positive discount rates, and subject to particular circumstances, this guidance should be regarded as enduring.” [Irwin LJ @ §210].
The Court decided that the "windfall" to a claimant that Roberts v Johnstone had sought to avoid could, in effect, be regarded as the present value of the notional reversionary interest ("RI") in the additional cost of purchase.
The notional market value of the RI is property price x (1+X%) to the negative power of the life expectancy where X is the investment yield that would be sought by an investor.
The use of a negative in the power of the life expectancy can be avoided by expressing the calculation as property price divided by (1+X%) to the power of the life expectancy. The result is the same.
The Court of Appeal heard evidence on the issue of the appropriate rate of return (X) and adopted a "deliberately cautious" figure of 5%. The value of the RI increases as life expectancy decreases so the formula does not provide an answer to cases of short life expectancy. It may however encourage the emergence of a real market for such interests.
The inital input required from the Ogden Tables relates to life expectancy if that has not been fixed by clinical opinion, agreement or a judicial finding. The overall approach is conventional:
It would be possible at this point to calculate the value of the reversionary interest by inputting the life expectancy at trial into a 5% column of Ogden 8, table 35 (previously Ogden 7, Table 27) then multiplying the discount figure produced by the additional capital cost of the accommodation. However Table 35 only goes up to 3% at present. No doubt a 5% column will be added rapidly.
Even in the absence of a table the calculation is not difficult; it does not require further reference to the Ogden Tables and can be performed on any scientific calculator or spreadsheet. Raising a number to a power on a calculator simply requires the use of the exponent key (generally marked by ^ , capital E, or xy). A scientific calculator is available on any Android or Apple mobile phone (just open the calculator app and turn the phone sideways to the horizontal); alternatively use an online calculator.
The calculation for the award of damages for the cost of purchasing a suitable property in the Appellant’s case was:
Taking these values as an example, finding the RI using a calculator requires the following steps: