Chatwin v Lowther

For a self-employed claimant, “compensation for earnings lost” in Schedule 2 to the Social Security (Recovery of Benefits) Act 1997 is not confined to lost net profit. It may include earnings that would have been available to meet a business expense remaining payable after trading ceased. The usual measure remains after-tax profit after deducting expenses saved. A business that would merely have continued making a loss ordinarily produces no loss of earnings, but a continuing liability can supply the additional factor. The rent-related award therefore fell within the statutory head and was subject to benefit deductions.

Janice Lowther, an insurance broker, was unable to work after a road accident and closed her business. She remained liable for rent under the business lease and recovered damages representing five-sevenths of the settlement paid to her landlord.

The county court treated the award as compensation for destruction of the business and declined to attribute it to the Schedule 2 head of compensation for earnings lost. Cox J dismissed the defendant’s appeal. The Court of Appeal granted permission for a second appeal to determine whether the award represented lost earnings, turnover, or net profit for the purposes of the 1997 Act.

Appeal allowed by a majority. Wilson J and Brooke LJ held that the rent-related award was compensation for earnings lost within Schedule 2 to the Social Security (Recovery of Benefits) Act 1997. Hale LJ dissented and would have dismissed the appeal.

1. The statutory phrase was not limited to lost net profit. For a self-employed person, gross fees or commissions may be earnings even though most are ordinarily absorbed by business expenses.
2. The usual measure of self-employed loss of earnings is the after-tax profit that would have been generated, after allowing for expenses saved by the cessation of work. The principle that expenses of earning lost income are deducted was reflected in Lim Poh Choo v Camden Health Authority [1980] AC 174.
3. That usual measure does not exclude earnings which would have been used to meet a business expense that remained payable. Russell v Town and County Bank (1888) 13 App Cas. 418 was used to explain profit as the surplus of receipts over necessary expenditure.
4. A business that would merely have continued making a loss ordinarily gives rise to no recoverable loss of earnings, because depriving a claimant of the opportunity to make a loss causes no loss. Here, the continuing rent liability was the additional factor. The award restored the claimant to the position she would have occupied by using five-sevenths of her earnings to meet rent.
5. Hale LJ considered that the statutory context favoured a net-income or “like for like” approach. She was concerned that the majority’s interpretation could allow the claimant to retain both the award and income-replacement benefits. The majority rejected that construction and allowed the appeal.

There was no order for costs in the Court of Appeal. The respondent was ordered to pay the appellant’s costs below. Permission to appeal was refused.

1. Court of Appeal (Civil Division): On second appeal, the Court allowed the defendant’s appeal by a majority in [2003] EWCA Civ 729. There was no order as to costs in the Court of Appeal; the respondent was ordered to pay the appellant’s costs below. Permission to appeal was refused.
2. High Court (Queen’s Bench Division): Cox J dismissed the defendant’s appeal from part of the county court order on 18 December 2002.
3. Romford County Court: HHJ Paynter-Reece awarded damages for the rent settlement but declined to specify the award as attributable to the Schedule 2 head of compensation for earnings lost.