Head v The Culver Heating Co Ltd

In a lost years claim, the recoverable loss is the claimant’s future earning capacity, less saved living expenses. The assessment is personal to the claimant. It is not limited to salary or sums actually extracted as dividends.

Where a company’s profits reflect the claimant’s work, skill and business activity, the relevant proportion of those profits may represent earning capacity rather than investment income. Artificial distinctions between salary, dividends and undistributed profits should be avoided. The assessment should reflect the claimant’s likely reduction in work and eventual retirement.

Living expenses may be deducted globally where the award represents one overall loss. Interest ordinarily follows the conventional personal injury approach, and Part 36 consequences may be refused where their imposition would be unjust because of late evidence.

The claimant, as executrix of Michael Head’s estate, pursued damages for the earning capacity lost through his premature death from mesothelioma. Liability had been admitted and the original assessment included no award for the lost years claim: [2019] EWHC 1217 (QB).

The Court of Appeal allowed the claimant’s appeal and remitted the assessment: [2021] EWCA Civ 34. It held that the assessment should distinguish earning capacity generated by work from income generated by passive investment, and should take account of Mr Head’s changing work pattern.

The issues on remission concerned the profits to be included, the likely reduction in work and retirement, rental income, living expenses, tax assumptions, interest and the consequences of a Part 36 offer.

1. Basis of assessment. The court applied the Court of Appeal’s judgment. The lost years claim concerns the value of Mr Head’s personal earning capacity, not the cost to EMSL of replacing him. Salary, extracted dividends and retained profits should not be artificially separated. The relevant question is what part of the company’s funds reflected Mr Head’s work, skill and business activity, as opposed to passive investment income.
2. Profits and work pattern. The appropriate starting point was Mr Head’s salary together with 90% of EMSL’s profits after directors’ salaries and corporation tax, subject to a deduction reflecting Mrs Head’s contribution. The figure was reduced to 80% between ages 65 and 70, 50% between 70 and 75, and 25% between 75 and 80. No loss of earning capacity was allowed after the assumed retirement age of 80. The court found that Mr Head would have reduced his shareholding and drawings as his sons assumed greater responsibility.
3. Other deductions. Rental income was excluded because investment income was not part of the lost earning capacity calculation and the issue had not been explored at trial. Living expenses were deducted at £3,584 per month, rather than by applying a percentage. The assessment was made globally, because the award represented one overall loss and the living expenses could properly be deducted from total earning capacity.
4. Consequential issues. Mrs Head was treated as retiring when Mr Head reached 70. Her work was treated as generating a continuing annual replacement cost of £12,000. Her salary of £45,000 and state pension were included for tax purposes. The 2018 accounts were used for the sons’ salaries because later figures reflected an accelerated transfer of responsibility.
5. Interest and Part 36. Interest was awarded on the past-loss element at half the special account rate, with no interest on future loss. The judgment rate under section 17 of the Judgments Act 1838 was inappropriate. Part 36 consequences were refused because the claimant’s late evidence materially improved her position and it would be unjust to allow her to obtain sanctions dependent on that evidence.
6. Damages for the lost years claim were assessed at £2,444,310, with interest of £1,195. Judgment was entered for the claimant in the total sum of £2,621,786.10 inclusive of interest.

• Court of Appeal allowed the claimant’s appeal against the original assessment and remitted the lost years claim for reconsideration: [2021] EWCA Civ 34.
• High Court (Queen’s Bench Division) applied the remitted principles, assessed the claim and entered judgment for £2,621,786.10 inclusive of interest.