‘Lost years’ loss of earnings – Substance over form

In Head v The Culver Heating Co Limited [2021] EWCA Civ 34 the Court of Appeal has clarified the approach to claims for ‘lost years’ loss of earnings from a business owned and operated by the claimant. The Court held that the substance of earnings mattered over their form such that dividend income was, on the facts, properly part of the loss of earnings claim.

Background

Mr Head (and after his death, his widow on behalf of his estate) claimed for damages arising from mesothelioma caused by exposure to asbestos whilst working for the Defendant. Liability was admitted and the key head of loss in issue was the amount of damages for ‘lost years’ loss of earnings.

The key issue between the parties was whether it was relevant that a significant part of Mr Head’s earnings prior to his death was dividend income from his company, which was (on the facts) likely to survive his death.

HHJ Clarke held:

1. Adsett v West [1983] Q.B. 826 applied; therefore,
2. Because the dividend income expected to accrue to Mr Head’s estate was greater than the net income expected had he survived, there was no loss.

Judgment

In short, the Court applied the principle in Adsett,distinguishing the result on its facts. Per Bean LJ at [30] (echoing McCullough J in Adsett) the relevant principled distinction in these cases is between ‘loss of earnings from work’ and ‘loss of income from investments’. This distinction was explained further by the Court, by reference to three examples:

1. A victim of mesothelioma who, after a few years in the insulation industry, won the National Lottery and then lived off investments – No loss of earnings claim
2. Mr Adsett, who died in an RTA and who had both: earnings from working for his father’s company and dividend income from shareholdings in that company gifted to him by his father – Loss of earnings limited to earnings for work (subject to his expected net income being greater than the continuing dividend income)
3. A hypothetical Mr Head who had retired to an Honorary President position, taking his dividend income but doing no work – No loss of earnings claim

The Court then juxtaposed the position of the real Mr Head. He took a ‘very modest’ salary, which HHJ Clarke had accepted was for tax reasons only and not a valuation of his work. The Court referred to Ward v Newalls [1998] 1 WLR 1722, where tax-efficient ‘sleeping partners’ in a business were ignored in calculating the claimant’s loss of earnings, to support the position that it was the reality of the situation that was more important. As such, it was relevant that significant proportions of the business’s profits were earned by Mr Head’s effort and were for him to do with as he wished. By contrast, when Mr Head’s son took over the business, he would expect to receive a greater proportion of the profits commensurate with his increased proportion of the work.

Therefore, Mr Head could properly claim for the dividend income from the business as part of his loss of earnings claim, with one caveat. As it was accepted by HHJ Clarke that Mr Head would have reduced his working hours proportionally from age 65 onwards, then a correlative proportion of his earnings would be treated as the product of investment in the company  rather than work (and hence irrecoverable).

Article by Samuel Irving, a Pupil of Farrar’s Building.

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