The High Court has held that claimants whose life expectancy has been reduced by an injury cannot recover loss of income for the “lost years” following their death where, as a result of surviving dividend income, there is no overall loss to the estate.

Background

In Head v Culver Heating Company Limited [2019] EWHC 127 (QB), Culver admitted liability for a mesothelioma claim. The parties were able to agree almost all heads of loss, but disagreed on the calculation of loss of income for the lost years.

The claimant, Mr Head, was a managing director of a successful company in which he held 45% of the shares. Prior to his mesothelioma diagnosis, he had decided to allow his sons to increase their responsibilities in the business, reducing his own accordingly, with a view to his eldest son eventually taking over the role of managing director. Forensic accountancy experts for both parties agreed that the business could be expected to remain successful and indeed to increase its profits after Mr Head’s death. A substantial portion of his income was therefore made up of dividends that would continue during the lost years. As a result, Culver valued Mr Head’s loss of income during the lost years at nil, whereas Mr Head put it at some £4.4m.

Culver relied on Adsett v West [1983] QB 826, in which a claimant was permitted to recover income lost due to incapacity to work, but not income from capital which survived his death and could therefore be inherited. Mr Head argued that Adsett should not apply because his lost earnings were a “reflection of his acumen, experience, skill and hard work” rather than “a passive holding in a business”.

Decision

HHJ Clarke agreed with Culver that Adsett applied. He observed that it set out a two-stage process for calculating loss of earnings for lost years:

1. The first step was to calculate the “surplus”, i.e. the earnings or earning capacity which were lost on death, less the living expenses which would have been incurred if the claimant had survived.

2. In the second step, the court had to consider whether there was an overall loss after taking into account income which survived death. The question was not whether the income was earned or produced from capital, but whether it survived or was lost at the time of death.

Applying this process, HHJ Clarke concluded that Mr Head’s salary would be lost upon his death, but on the balance of probabilities, the dividend payments would not only continue to be paid, but would grow. After deducting his living expenses, the increased dividend would be higher than the lost salary, meaning that Mr Head’s loss in the “lost years” had to be valued at nil.

This is an encouraging judgment for defendants facing loss of income claims for “lost years” due to a reduction in a claimant’s life expectancy. It makes clear that damages for loss of income will only be awarded where there is an actual overall loss to the claimant’s estate.

However, the decision implies that had Mr Head’s business been likely to struggle without his involvement, the outcome would have been different. Defendants wishing to challenge a claim for loss of income will require robust forensic accountancy evidence as to the likely prospects for future income.