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‘Lost years’: Court of Appeal overturns High Court decision to decline award of damages

  • 26 January 2021 26 January 2021
  • UK & Europe

  • Insurance & Reinsurance

In a unanimous decision the Court of Appeal has ruled that the High Court was incorrect in failing to award a Claimant no damages for a 'lost years' claim. The Claimant’s appeal was granted. The Claimant's income was found to be the product of his hard work and not the result of a passive investment, meaning that the Claimant could make a claim for loss of earnings in the lost years.

‘Lost years’: Court of Appeal overturns High Court decision to decline award of damages

Head v The Culver Heating Co Limited [2021] EWCA Civ 34

Background

The Claimant, Mr Head, founded his own company, EMSL after working for the Defendant. Whilst working for the Defendant the Claimant was exposed to asbestos. He was later diagnosed with mesothelioma and pursued a claim for damages.

The Claimant had claimed over £4.4 million for ‘lost years’.  The basis of such a claim is that a party is entitled to recover any financial losses they will suffer after their death if the accident / incident has reduced their life expectancy. Claims for 'lost years' commonly cover loss of earnings and loss of pension, although claims can be brought for all forms of lost pecuniary benefits.

In response to the claim, the Defendant had argued there should be no award at all, relying upon the case of Adsett v West. The principal issue was whether it was relevant that a significant part of Mr Head’s earnings, namely his dividend income, would continue due to the profitability of the company.

The trial judge agreed with the Defendant, and held that the principles of Adsett applied. The trial judge held that the profitability of the company was likely to continue after Mr Head’s death, and therefore, there was no loss.

The Claimant was initially refused permission to appeal but a further application to appeal was successful. The Claimant died after the High Court judgment and his widow was appointed to continue his appeal.

Appeal

The Claimant submitted seven grounds of appeal, specifically:

  1. The expert accountancy evidence had been misunderstood.
  2. The judge failed to assess what the Claimant had personally lost by the diminution of his life expectancy.
  3. The dividend income or retained profits was not included in the assessment of what had been lost.
  4. The judge was wrong to treat the Claimant's dividend income from EMSL as if it were the yield from a passive investment.
  5. The Claimant's loss of earnings capacity was not properly assessed.
  6. The judge erred in finding there was no loss to the Claimant because he could gift his shares in EMSL upon his death.
  7. The judge failed to look at the reality of the situation per Ward v Newall's Insulation.

Judgment

The Court of Appeal found that the Claimant was entitled to succeed on his appeal grounds 2-7 and therefore it was unnecessary to consider the first ground.

The judgment highlighted the House of Lords decision in Pickett v British Rail Engineering Ltd [1980] as "the foundation of the modern law." In this case it was held that "it would be grossly unjust to the plaintiff and his dependants were the law to deprive him from recovering any damages for the loss of remuneration which the defendant's negligence has prevented him from earning during the "lost years".

The Court of Appeal referred to the recent decision of Rix v Paramount Shopfitting Co Ltd  noting that the facts were similar to the index case, although Mrs Head worked for the business whereas Mr Rix's wife did not. The court in Rix found the income earned by Mr and Mrs Rix was "the result of Mr Rix's hard work and flair" and it was not the case that the income at issue "was the investment return on a passive holding in a business, which would continue to yield the same income irrespective of the deceased's capacity for work."

In this instance, the Claimant was paid a modest salary by EMSL. It was accepted by the trial judge this did not reflect the value of his work and was fixed to be tax efficient. Lord Justice Bean found it did not make sense to say the salary was the full extent of the Claimant's earnings, and that the rest of his income from EMSL at the time of his death was, and would have continued to be, income from capital rather than earnings from work.

Lord Justice Bean agreed with the finding in Adsett that "the distinction properly to be drawn is between loss of earnings from work and loss of income from investments." All of the income that the Claimant and his wife received was as a result of his hard work and not a passive investment, with the Claimant being free to dispose of the income however he chose. The nature of a lost years claim "requires assessment of the value of the earnings or earnings capacity which the claimant personally has lost". The Claimant would have remained the driving force within the company but for his untimely death. He would have continued to work until 65, gradually reducing his working hours. Only once he finished work altogether would his income be entirely from investments.

The Claimant's appeal was therefore allowed with the case to be remitted for an assessment of the lost years damages claim.

What can we learn?

  • In his judgment Lord Justice Bean drew the distinction between a retired claimant and a working claimant, noting that if a claimant is retired at the point of the mesothelioma diagnosis there would be no loss of future earnings. However, in this case Mr Head was "the driving force" within the company and would have remained in this position for some time but for his untimely death.
  • The Court of Appeal agreed with Lord Justice Cavanagh's analysis in Rix, stating that at the time of Mr Head's death "all the income which he and his wife received from the company (save for the small deduction in respect of Mrs Head's work) was the product of his hard work and flair, not a return on a passive investment."
  • Lord Justice Bean noted that the claimant in Adsett had shareholding income which was not generated from the fruits of his own labour, the shareholdings had been gifts from his father. Therefore in Adsett "the gross figure for the loss of earnings claim was properly limited to what he was paid for his work."

End

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