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Published 7 June 2021
This recent decision provides important insights into claims for loss of income (including financial dependency, and lost years) where the main source of income is dividends on shares in a business. It also looks at the circumstances where the Court will not permit a successful claimant, who has beaten their own Part 36 offer, to receive Part 36 rewards.
Mr Head died because he had been negligently exposed to asbestos in the course of his employment as a heating engineer between 1974 and 1979 (and again in 1980-81). This caused him to develop mesothelioma in 2017 which proved fatal. Compensation was sought from his former employers.
Mr Head had, after employment, gone on to enjoy significant success in business. In 1987 he set up and was the driving force behind a company which installed and serviced commercial heating and ventilation systems. By the late 2010s the company had 15 employees and a multi-million pound turnover.
Whilst most issues had been agreed prior to trial, there was a significant question still as to the lost years claim, which had been pleaded at £4,421,683. In contrast, the Defendant allowed nil.
Mr Head’s earnings
Mr Head received a modest salary from the business; by admission this was not sufficient to meet his living expenses. The bulk of his income came from dividends paid by the business, in which he owned 90% of the shares. The Defendant argued that because Mr Head’s estate would continue to receive this dividend income, the estate would suffer no loss because of his death, and so the claim had no value. HHJ Clark in the Court of first instance agreed with the Defendant and awarded nil.
Mr Head appealed. The Court of Appeal stated that the Deceased was not viewed as a “passenger” in his business. He would have continued for some time as the driving force within the company. The fact that he took a modest salary did not reflect the value of his work and was not the full extent of his earnings from the work. The Court of Appeal stated “at the time of Mr Head’s death all the income which he and his wife received from the company (save for the small deduction in respect of Mrs Head’s work) was the product of his hard work and flare, not a return on a passive investment. Mr Head was free to dispose of that income in whatever way he chose.”
The Court of Appeal therefore held that Mr Head’s estate was entitled to claim for loss of earnings in the lost years. HHJ Clark’s assessment of the lost years claim was set aside and the lost years claim was remitted for an assessment of damages. The matter came before Mr Justice Johnson on 11 May 2021.
Please note: At the hearing before HHJ Clark, Mr Head was still alive and, therefore, his post-death earnings claim was expressed as a lost years claim. By the time the matter came before the Court of Appeal and then Mr Justice Johnson, Mr Head had passed away. However, his earnings claim still fell to be considered as a lost years claim rather than a financial dependency claim by his estate.
Mr Justice Johnson reviewed the case and heard arguments from both parties. He held that the Claimant was entitled to recover damages in respect of the lost years claim, which would reduce over time to reflect the fact that as he passed into his 70s and early 80s Mr Head would have made less of a contribution to the business.
The lost years claim was assessed at £2,444,310 plus interest. The total claim was assessed at £2,621,786.10 inclusive of interest.
The Claimant made a Part 36 offer on 30 November 2020 of £2,249,705.80 for all heads of loss. The Claimant beat that offer and would usually expect to receive Part 36 rewards such as enhanced interest and an uplift on damages. However, this was not to be.
In determining whether Part 36 rewards should apply, the Court must take into account the factors listed at CPR r.36.17(5), these being: (a) the terms of the offer (b) the stage at which the offer was made (c) the information available when it was made (d) the parties’ conduct and (e) whether the offer was a genuine attempt to settle.
The Defendant argued that the Claimant introduced evidence very late in the day. At the time it was introduced it did not appear to significantly affect the value of the claim (this effect only becoming apparent later). Furthermore, the Defendant had consented to the introduction of that evidence, despite having been entitled to oppose it.
Mr Justice Johnson noted that were it not for the Defendant’s consent, the late-served evidence could only have been relied upon if the Claimant had made and succeeded in an application for relief from sanctions. The breach (late service) was significant and there was no good reason for it. As such, if an application had been made it would have failed. It would be unjust to the Defendant to allow the Claimant to benefit from a Part 36 Order that was only available because she was permitted to rely on evidence which was served late without good reason. Therefore it would be unjust to penalise the Defendant under Part 36 for its constructive conduct.
This case shows that where the owner of a business brings significant value to it, their death does not extinguish the value of their compensation claim just because their shares pass to their estate. It therefore has relevance not only in the lost years setting, but also in fatal accidents and in ordinary loss of earnings claims.
In addition, the case highlights the range of factors that are to be considered when a party achieves an outcome which is better than their Part 36 offer. If an offer has been beaten because of evidence which would not have been admitted without the other party’s consent, then it would be unjust to penalise that other party by allowing the winner to claim Part 36 rewards.
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