UK & Europe
Insurance & Reinsurance
Following the Court of Appeal decision earlier this year in Head v The Culver Heating Co Limited to allow a ‘lost years’ claim, the High Court recently considered the valuation of that claim and other issues. The lost years claim was valued in excess of a Part 36 offer made by the Claimant in November 2020. Mr Justice Johnson then considered whether the Claimant was entitled to Part 36 benefits for beating that offer. Ultimately, the court concluded that it would be unjust because the Defendant had been prejudiced by late evidence adduced by the Claimant.
Head v The Culver Heating Co Limited  EWHC 1235 (QB)
The deceased, Mr Head, died from mesothelioma caused by exposure to asbestos during his employment with the defendant in the 1970s. At the time of his death he ran a profitable business, Essex Mechanical Services Limited (“EMSL”). Following his death his two sons continued to run the business. At first instance the judge found there was no lost years claim, however the Court of Appeal found that the deceased’s wife (the claimant) could claim for the lost years and the claim was remitted for re-determination of this aspect.
The claimant contended the value of the lost years was £3.7 million whereas the defendant argued the claim was worth around £238,000.
Mr Justice Johnson was asked to address a number of issues in respect of the lost years claim and its value.
What is included in the lost years claim?
Mr Justice Johnson found the evidence of the parties’ expert accountants did not directly assist on what should be included. The Court of Appeal had already drawn a distinction between the loss of earning capacity and loss of investment income; loss of earnings were recoverable but not a loss of investment. The deceased’s premature death meant that he lost any surplus future earning capacity that otherwise he would have enjoyed.
The claimant argued the starting point for the lost years claim should be the director’s salary that the deceased would have earned and 90% of the company profits (as “90% of the profitability of the business was attributable to his hard work”). Deductions would be made for his living expenses and to reflect the value of the claimant’s work for the business. This should then be further reduced in respect of the period when the deceased would not have worked at full capacity.
The defendant argued the Court of Appeal intended that the claim should be limited to sums actually paid to the deceased as salary or distributed dividends. The profitability of EMSL should be left out of account.
Mr Justice Johnson found that the claimant was entitled to recover a sum for the lost years on the basis identified at the first trial where HHJ Melissa Clark stated she was “satisfied that Mr Head's real loss of earnings or earning capacity includes 90% of EMSL's profits after directors' salaries and corporation tax, subject to a deduction equal to the value of Mrs Head's contribution to EMSL”. Mr Justice Johnson found this should be “subject to an adjustment to reflect Mr Head's likely subsequent work pattern, and a deduction for living expenses”.
The deceased’s input to the business
The claimant stated the deceased would never have stopped working. She described her husband as having a “different make up to most people in his attitude to work” and there was a “different frame of mind” after building a business up on your own. The defendant countered that on the balance of probabilities the deceased’s 80th birthday “would have represented a likely date for retirement”. It was common ground that by the age of 70 he would have reduced his input by 50%, and by this point his sons would have the necessary skills and experience to run the business. Mr Justice Johnson found the deceased’s input would have reduced progressively up to retirement at age 80.
Rental income and living expenses
The claimant and deceased received income from a jointly owned investment property. The claimant submitted that neither party had suggested at trial the rental income should be factored into the lost years calculation and the defendant could not now argue that it should be so as to offset any loss that may have been sustained. The judge agreed that it was “not now open to the defendant to introduce an additional factor to the calculation which has not been explored in the evidence”.
There was disagreement as to the amount that should be deducted for the deceased’s living expenses. The judge at first instance had found the deceased’s monthly expenditure on living expenses was £3,584 and Mr Justice Johnson found this was the appropriate figure to use.
It was found the claimant would have retired at 71, when the deceased turned 70. Her contribution to EMSL had been assessed at £12,000 in respect of the administrative work and Mr Justice Johnson concluded that the lost years claim should be calculated on the basis this would be a recurring annual cost.
Rate of interest
The claimant sought interest at the judgment rate of 8% on the entire lost years claim arguing that the loss had accrued by the time of the first hearing. The defendant argued no interest should be awarded in respect of future losses (the part of the deceased’s lost earning capacity that relates to the period after this judgment) and interest on past losses should be awarded at half the special account rate. The judge agreed with the defendant’s submission finding that the deceased’s earnings capacity from the date of his death to this judgment represented a past loss. The balance of the claim represents a future loss. The award of interest should therefore only be applied to past losses at half the special account rate, not the judgment rate.
Application of CPR 36.17(4)
On 13 November 2020 the claimant made a Part 36 offer to accept just under £2.25 million. The claimant had beaten this offer following Mr Justice Johnson’s findings. The claimant sought interest and costs plus an additional amount of £75,000 pursuant to CPR 36.17(4).
The claimant was entitled to orders for interest and costs and it was for the court to consider whether such orders would be “unjust”. In considering the factual background to allow the court to make that decision, it was noted that whilst the claimant’s Part 36 offer was made at a late stage in proceedings, it was still made “sufficiently in advance” of the Court of Appeal hearing and the timing of the offer “does not in itself make it unjust to impose part 36 orders.” The parties had ample information to value the claim and it would not be unjust to make such an order “because of any lack of information available to the defendant.” The claimant’s offer was also found to be a genuine attempt to settle and represented a realistic valuation of the claim.
However, the defendant submitted that the claimant adduced witness evidence on the deceased’s intentions as regards his shareholding very late, and that this should have been provided well in advance of the first High Court hearing. The claimant denied this evidence made any material difference. Mr Justice Johnson found the evidence resulted in a finding that the deceased would have reduced his shareholding in the business to reflect the gradual reduction in his involvement, and that finding was to the claimant’s “considerable benefit”. It meant that there would “be no element of investment income which might otherwise be offset against lost earning capacity.” The earlier evidence the claimant relied on would not, in itself, have resulted in that finding.
Mr Justice Johnson concluded that the defendant had been prejudiced by the late introduction of the evidence and “it would be unjust to the defendant to allow the claimant to benefit from part 36.17(4) orders that are only available because she was permitted to rely on evidence which was served late without good reason.”
The defendant had therefore discharged the burden in demonstrating that Part 36.17(4) orders would be unjust. The total award for the claimant was £2,621,786.10 inclusive of interest. The full calculation can be found at the end of the judgment here.
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