In a judgment handed down on 18 January 2021 in Head v The Culver Heating Co Ltd [2021] EWCA Civ 34, the Court of Appeal unanimously allowed an appeal against the decision of HHJ Melissa Clarke dismissing the Claimant’s ‘lost years’ claim. The judge had dismissed the claim on the basis that the Claimant’s income derived from his successful family business, the profitability of which would continue after his death such that there was no loss. In the Court of Appeal, however, Bean LJ (with whom Males and Andrews LJJ agreed) held that the Claimant’s income was the product of his hard work and flair as opposed to a return on passive investment, such that it should be treated as earnings rather than investment income and was thus recoverable in the ‘lost years’ claim.

The Court of Appeal’s judgment can be read here. The first instance decision is available here.

Factual and Procedural Overview

The Claimant was born in 1958. He was exposed to asbestos by the Defendant in 1974-79 and again briefly in 1980-81. He went on to found and manage his own heating and ventilation company, Essex Mechanical Services Ltd (“EMSL”). In December 2017, he began to experience symptoms of mesothelioma, which was formally diagnosed in March 2018. He commenced proceedings against the Defendant in the High Court in September 2018. On 28 November 2018, Master Gidden entered judgment for damages to be assessed and made an order for an expedited trial in the specialist mesothelioma list.

The trial was heard before HHJ Melissa Clarke on 11-12 April 2019. Judgment was handed down on 14 May 2019: see [2019] EWHC 1217 (QB). As above, the lost years claim was dismissed. The judge refused the Claimant’s application for permission to appeal.

On 18 July 2019, dealing with the Claimant’s renewed application to the Court of Appeal, Simler LJ refused permission to appeal on the papers. The Claimant accordingly made an application under CPR 52.30, whereby the Court of Appeal has jurisdiction to re-open a final determination in exceptional circumstances and to avoid real injustice: see Taylor v Lawrence [2003] QB 528. On 17 July 2020, Simler LJ granted that application. (In his leading judgment allowing the appeal, Bean LJ described the application as “perhaps the most striking one I have seen during six years’ service in this court“: see [6]).

The Claimant sadly died in November 2019 – after the first instance decision but before his CPR 52.30 application had been determined. His widow, as executrix of his estate, was appointed to carry on the appeal by an order of Master Bancroft-Rimmer dated 11 February 2020. 

The Judge’s Findings of Fact Regarding EMSL

The judge made a number of undisputed findings of fact as to the Claimant’s establishment of, and role within, EMSL. These are quoted at length by Bean LJ in the Court of Appeal at [8]. In particular, the judge held that the Claimant was “the driving force behind the business“; that he was responsible for its increase in profitability since 2014; and that his intention, but for his mesothelioma, would have been to work full time until age 65, reducing to about 80% from ages 65 until 70, and then maintaining a ‘front of house’ presence working at about 50%, no longer taking a salary although continuing to receive dividends on his shares. The judge also held that it was more likely than not that the profitability of EMSL would not diminish following the Claimant’s death and that his estate would continue to have the benefit of income from capital in the form of dividends payable on his shareholding in EMSL. 

The Lost Years Claim at First Instance

The Defendant’s argument, as summarised by Bean LJ at [28], was as follows:

  1. the Claimant has not proved that the profitability of EMSL will diminish after his death;
  2. the dividend income of his estate will thus be the same as his dividend income would have been had he lived;
  3. his personal living expenses (£42,827) exceeded his salary (£27,911); and
  4. there is therefore no loss at all. 

This was accepted by the judge. Interpreting the decision of McCullough J in Adsett v West [1983] QB 826, she held that “the real distinction … is not between earned income and income from capital but from income which is lost on death and income which survives death” (quoted by Bean LJ at [26]). 

The Appeal to the Court of Appeal

The Claimant appealed on seven grounds, which were set out by Bean LJ at [13]. Ground 1 related to the judge’s alleged misunderstanding of the expert accountancy evidence. At [28]-[29], Bean LJ held that it was unnecessary to resolve this issue considering his conclusions on Grounds 2-7, which were interlinked and related to the proper legal approach to lost years claims.

Bean LJ’s reasoning at [30]-[34] can be summarised as follows:

  1. The proper distinction, applying Adsett, is between loss of earnings from work and loss of income from investments. There will be a claim for loss of earnings in the lost years in the former category, but not in the latter.
  2. The paradigm example of a case in the latter category is a mesothelioma victim who, after a few years in the insulation industry, won the National Lottery and then lived off investments before being diagnosed. He would have no claim for loss of earnings in the lost years. The Claimant in Adsett was not quite as extreme an example, but his shareholdings and the dividend income which they generated were not the fruits of his own labour: the shareholdings had been gifts from his father, and the award in that case was accordingly correctly limited to what he was paid for his work.
  3. Similarly, a mesothelioma victim who had by the time of his diagnosis retired from work would have no loss of future earnings, though there may be a claim for loss of pension. Indeed, had the Claimant here (prior to his diagnosis) decided to cease all active involvement in EMSL and retire, whilst retaining his shareholding in the company, then he would have had no loss of earnings claim.
  4. The Claimant’s case was different to these examples, however, and fell into the former category. He was paid a modest salary by EMSL, the level of which was fixed for reasons of tax efficiency and did not reflect the value of his work. Indeed, at the time of the Claimant’s death “all the income which he and his wife received from the company (save for [a] 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.” In reaching this conclusion, Bean LJ referred to Cavanagh J’s decision in Rix v Paramount Shopfitting Co Ltd [2020] EWHC 2398 (QB).

The appeal was accordingly allowed and remitted to the Senior Master for an assessment of damages (in which connection Bean LJ noted at [35] the relevance of the Claimant’s plan to reduce his workload into his mid-to-late seventies). 

Comment

In Rix, Cavanagh J was considering a financial dependency claim by a widow under the Fatal Accidents Act 1976. That distinction aside, and as noted by Bean LJ at [27], the facts were broadly similar to those in Head. At [66]-[67], Cavanagh J stated as follows:

“Whilst there will no doubt be cases in which it is difficult to differentiate between capital or income-generating assets, which are unaffected by the deceased’s death, and which continue to provide an income after death, and the income from the work and skill of the deceased, this is not such a case. In my judgment it would be wrong to regard Mr and Mrs Rix’s shareholding in the family business at the time of his death as being an income-generating asset, independent of the work and labour of Mr Rix himself. It is clear that, until very shortly before his death, Mr Rix remained the prime mover in the business. He was primarily responsible for its health and prosperity, as a result of his flair, energy and hard work. The business was still expanding, having just moved into new premises. He was the person with the contacts and the know-how. … In the present case, the reality was that the income that Mr and Mrs Rix earned, both from salary and from dividends, was the result of Mr Rix’s hard work and flair. This is not a case in which 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. If that had been the case, then the earnings would not have been part of Mrs Rix’s financial dependency.“

By its decision in Head, the Court of Appeal has applied this same reasoning to lost years claims.

This decision thus achieves certainty (in that it confirms that the proper distinction is between loss of earnings from work and loss of income from investments) and consistency (in that the same analysis is applied to both financial dependency and lost years claims). That said, the precise division between the two categories is likely to generate further argument. Finally, those on both sides of the litigation fence will now need to turn their minds to the evidence to be adduced in such cases – whether in a financial dependency or lost years context – in order to (as the case may be) maximise or minimise the sum awarded.

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