Head v The Culver Heating Co Ltd

In a lost-years claim, the court must distinguish earnings from work from income generated by investments. Income produced by a claimant’s own labour, skill and active management of a business remains earnings from work even if extracted as dividends or retained profits. Tax-efficient allocation between salary and dividends does not determine the real loss. Where the claimant planned to reduce work gradually, the assessment must reflect the changing proportion attributable to work and investment income. Income from a genuinely passive investment is not lost earnings.

Michael Head brought a mesothelioma claim after occupational asbestos exposure. The High Court awarded agreed damages and £95,000 for pain and suffering, but assessed his lost-years claim at nil. The claim concerned income from a family heating and ventilation company in which Mr Head was managing director and the driving force behind the business.

Mr Head died after the first-instance judgment, and his widow continued the appeal as executrix. The central issue was whether company income received through salary, dividends and retained profits represented earnings from Mr Head’s work or investment income which would survive his death.

Bean LJ gave the judgment of the court, with Males LJ and Andrews LJ agreeing.

1. Permission and reopening. The refusal of permission was exceptionally reopened under the principle in Taylor v Lawrence and Civil Procedure Rules 1998, rule 52.30, because it was necessary to avoid real injustice. Permission to appeal was granted.
2. Nature of the lost-years loss. The relevant distinction is between earnings from work and income from investments. The approach in Adsett v West [1983] QB 826 was properly understood as distinguishing work-generated earnings from returns on passive capital. It did not require surviving income to extinguish a lost-years claim whenever that income continued after death.
3. Economic reality. Following the approach in Ward v Newalls Insulation [1998] 1 WLR 1722, the court must assess the claimant’s real loss of earnings or earning capacity. Mr Head’s modest salary was fixed for tax-efficiency reasons and did not represent the full value of his work. The income which he and his wife received from the company, subject to a deduction for his wife’s contribution, was the product of his hard work, skill and business relationships. It was not merely a return on a passive investment. The reasoning in Rix v Paramount Shopfitting Co Ltd [2020] EWHC 2398 (QB) supported that conclusion.
4. Future phases. During the period when Mr Head continued to work, company income had to be assessed pro rata as earnings from work. As his sons assumed increasing responsibility, the share attributable to their labour would reduce his own earnings. Once he ceased work, income from shares retained by him would be investment income. The assessment concerned income and earning capacity personally lost by Mr Head, not replacement costs incurred by the company.
5. The High Court therefore erred in assessing the lost-years claim at nil. The appeal was allowed, that part of the judgment was set aside, and the claim was remitted, absent agreement, to the Senior Master of the Queen’s Bench Division or another nominated Master for assessment. The assessment was to follow the staged approach set out above and the requirement of fair, evidence-based compensation identified in Gammell v Wilson; Furness v B & S Massey Ltd [1982] A.C. 27.

• Court of Appeal (Civil Division): Permission was granted after the earlier refusal was reopened under the principle in Taylor v Lawrence and rule 52.30 of the Civil Procedure Rules 1998. The appeal was allowed and the lost-years assessment was remitted: [2021] EWCA Civ 34.
• High Court of Justice, Queen’s Bench Division: Her Honour Judge Melissa Clarke awarded agreed damages and £95,000 for pain and suffering, but assessed the lost-years claim at nil.