The principle that a living claimant with a reduced life expectancy arising from an accident or disease can seek damages for lost income in the 'lost years' was confirmed in Pickett v British Rail Engineering Ltd. [1980] AC 136. Guidance on the assessment of such loss is available in several cases, including Adsett v West [1983] 2 All ER 985. In that case a distinction was drawn between income from earnings that would not continue after death and income from capital assets that would continue to accrue after death. The latter was not to form part of a 'lost years' claim.
Mr Head was a successful entrepreneur who built up a thriving heating/ventilation company. He was clearly the driving force behind the company. His wife and adult children were employed by the company and held shares in it. He had reached the point of considering succession and had already contemplated his sons taking eventual control. Each side had expert evidence from forensic accountants and it was agreed that after Mr Head's death the company would probably continue to thrive and produce sizable profits through the efforts of his two sons.
The question for the court was whether there was any loss arising in the lost years. The defendant case was that the company was effectively a capital asset that would continue to produce income after death. The claimant argued that this was not a case of a simple capital asset. The income that arose was partly from the ongoing effort of Mr Head; he wasn't simply sitting on shares that produced a dividend whether he lifted a finger or not.
HHJ Clarke was sitting in the High Court and she outlined her interpretation of Adsett:
"the important distinction which McCullough J draws is not between income earned from work or earned from investments, because there are cases such as this one in which those may be fluid, or not easily distinguishable, but between earnings which are lost by the claimant's death, and those which survive the claimant's death"
In other words, the important point to consider is what income would fail to survive the death, regardless of how it arose. In this case, Mr Head would lose the salary that he derived from the company but the dividend payments in respect of his shareholding would still be paid and would not reduce after death, because the business would continue to bear fruit when his role was fulfilled by others.
HHJ Clarke also endorsed the approach adopted in Adsett to calculating a 'lost years' claim when there was an element of income that did survive post death. The approach was to deduct the living expenses of the claimant from his whole income to calculate the notional loss but then offset against that loss the part of the income which survived post death.
In this case the total annual income less living expenses was less than the dividend income that would survive post death. On that basis there was no 'lost years' claim to be made.
It remains to be seen whether the decision is appealed, but the result can be compared with the position had this claim arisen post death under Fatal Accidents Act 1976. A dependency claim would have arisen on the basis that Mr Head was a clear driving force behind the business, and Mrs Head and their adult children all benefited from that. The fact that the company would continue to thrive under the sons' efforts would be disregarded and a dependency loss would likely be calculated on the notional replacement costs to the company of a manager to fill the shoes of Mr Head. See for example, Williams v Welsh Ambulance [2008] EWCA Civ 81.
Could an award have been made in this living claim on the basis of such replacement costs? The possibility was raised in the judgment but not explored because it was not pleaded and no evidence had been called to address the issue of whether a loss actually arose on that basis.
The important point here is that claims brought by a living claimant with a very limited life expectancy can be valued at a significantly different amount to a claim brought post death by dependants.
Contact
For further information please contact Daren Charlton Partner, on 0161 603 5148 or at daren.charlton@dwf.law
