Deborah Head (Executrix of the Estate of Michael Head, deceased) v The Culver Heating Company Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Johnson |
| Judgment Date | 11 May 2021 |
| Neutral Citation | [2021] EWHC 1235 (QB) |
| Docket Number | Case No: HQ18A03334 |
| Date | 11 May 2021 |
| Court | Queen's Bench Division |
[2021] EWHC 1235 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Johnson
Case No: HQ18A03334
Harry Steinberg QC and Kate Boakes (instructed by Fieldfisher LLP) for the Claimant
Michael Kent QC (instructed by BML Solicitors) for the Defendant
Hearing dates: 15–16 April 2021 and 6 May 2021
Approved Judgment
Michael Head established and ran a highly successful and profitable business, Essex Mechanical Services Limited (“EMSL”). Following his death from mesothelioma on 7 November 2019 his two sons, Dale and Aaron, have continued to run the business. Before his death, he commenced these proceedings, by which he contended that the mesothelioma was due to his exposure to asbestos whilst he was employed by the Defendant from 1974 to 1979. The Defendant admitted liability. Damages were assessed by HHJ Melissa Clarke, sitting as a High Court Judge, in the sum of £176,281.10: [2019] EWHC 1217 (QB). The Judge accepted the Defendant's case that there was no net financial loss during the period of time by which mesothelioma had shortened Mr Head's life (“the lost years claim”). Following his death, Mr Head's wife, Mrs Deborah Head, was substituted as the claimant. She successfully appealed against the finding that no award should be made in respect of the lost years claim: [2021] EWCA Civ 34. That component of the claim has been remitted for re-determination in accordance with the Court of Appeal's judgment (see paragraph 37 below).
It is not disputed that the success of EMSL is attributable to Mr Head's immense hard-work and talent. The lost years claim comprises Mr Head's notional earning capacity through the vehicle of EMSL during the lost years (it being said that Mr Head would never have retired).
The Claimant contended that this claim amounted to over £4.4M. The Defendant argued that there was no loss, so the value was £0. The Defendant's argument was that dividends from EMSL will continue to be paid to Mr Head's estate following his death, that they should be treated as a return on investment capital which remains intact, rather than lost earning capacity, and that, following Adsett v West [1983] QB 826, they should not be included within the lost years claim. The Claimant was entitled to the salary that he would have drawn, but, when account was taken of the living expenses that had been saved, there was no net loss. HHJ Melissa Clarke agreed with this analysis. She did not therefore allow this element of the claim.
The Court of Appeal ( [2021] EWCA Civ 34) expressed sympathy for the judge in the light of the “absolutist” position that had been adopted by the parties, which had made more difficult an assessment that was already not straightforward (see per Bean LJ at [5]). The Court of Appeal rejected each of those absolutist positions and set out the basis on which the damages should be assessed (see per Bean LJ at [35]–[36], at paragraph 37 below).
The parties have each adjusted their previous “absolutist” positions according to what they say is the effect of the Court of Appeal's judgment. The Claimant now says this aspect of the claim is worth around £3.7M, rather than £4.4M. The Defendant says that the claim is worth around £238,000, rather than £0. As the disparity between these figures indicates, the parties disagree as to the effect of the Court of Appeal's decision and its application to the assessment of the lost years claim.
The primary issues, distilled from the parties' competing lists of issues, and presented in neutral terms, are:
(1) What falls to be included in the lost years claim. Is it limited to salary and dividend income? Or does it extend to a share of EMSL's profits insofar as these were generated by Mr Head's work?
(2) If Mr Head had not contracted mesothelioma, to what extent would he have worked less and/or handed over ownership of the company as he approached old age?
(3) Should the calculation of the lost years claim take into account rental income that Mr Head would have received?
(4) What deduction should be made for living expenses?
The resolution of these primary issues gives rise to secondary issues. The permutations (and the complexity of arguing the secondary issues on a contingent basis) were such that the parties agreed that I should, in the first instance, resolve the primary issues, and the parties would then, in consultation with their expert witnesses, formulate any secondary issues which required determination by the court. Following a court hearing on 15 and 16 April 2021 I distributed a draft judgment (comprising paragraphs 9–70 below) in respect of issues (1)-(4), and gave permission for it to be shared with the expert accountants. In the light of that draft judgment the parties formulated the following additional issues:
(5) Would Mrs Head have retired when Mr Head reached the age of 70?
(6) Would there have been a cost incurred in respect of administrative work performed by someone other than Mrs Head and, if so, what cost?
(7) For the purpose of assessing the tax consequences, should Mrs Head's salary of £45,000, and her state pension, be taken into account?
(8) What figures should be taken for the salaries of Dale Head and Aaron Head in the 2018/19 tax year?
(9) What rate of interest should be applied, and in respect of which components of the award?
(10) What, if any, orders should be made under CPR 36.17(4)?
A further hearing (conducted remotely to avoid what would otherwise have been a significant delay before a court hearing could be arranged with the attendance of all participants) took place on 6 May 2021 to deal with these secondary issues. This composite judgment addresses all of the issues raised and assesses the total amount due in respect of the lost years claim.
EMSL and Mr Head's role in it
The Court of Appeal recorded that “[t]he narrative of how Mr Head had established EMSL and the part he played in it was undisputed” – see per Bean LJ at [8]. The following passages were quoted from the judgment of HHJ Melissa Clarke. They remain undisturbed by the Court of Appeal's judgment and undisputed by the parties:
“24. Mr Head founded and has been running a heating and ventilation services business since 1987. He is currently the managing director of EMSL, a company that he incorporated in 2004.
25. There are three other directors, who are his wife, Mrs Deborah Head, and their two adult sons, Dale and Aaron, all of whom work for ESML. Mrs Head is also the Company Secretary.
29. Mrs Head works for EMSL doing administrative work relating to the Servicing Business for two days a week, one of which she often works from home. …
30. Mr Head, Dale and Aaron Head work full time for EMSL. Dale Head is 32 years old and has worked for EMSL since he was 17. Aaron is 26 years old and has worked for EMSL since he was 20, having first obtained a University degree. Dale fulfils a management role, and it is intended that he should take over as Managing Director when Mr Head is no longer able to work. Aaron works ‘on the tools’. Both were made directors of EMSL in April 2016, before Mr Head's diagnosis. Mr Head's evidence is that he appointed them because it was time.
…
32. Each of the directors takes a salary from the company. In the year ended 30 April 2018 the salaries were £45,533 for Mr Head, £46,483 for Mrs Head, £52,738 for Dale and £37,277 for Aaron. …
36. EMSL has historically not paid out all of its profits. Mr Head has chosen to leave in EMSL profits which are not extracted from the company by way of dividends declared and paid or directors' salaries. Those go to improve the net asset value of EMSL. He explained in oral evidence that the financial stability of EMSL is a key part of his management strategy and accordingly EMSL carries no indebtedness beyond trade debts.
37. It does not appear to be disputed that Mr Head is the driving force behind the business. Mr Head said in oral evidence ‘I head up the company. I built it over many years. I make the decisions in relation to the direction the company goes in. I am involved on a daily basis with it. I tender and price contracts. I negotiate with clients. I have good personal relationships with the company's clients over many years which has led to the prosperity of the company’. Mrs Head in her witness evidence said it was ‘essentially… Mike's business. He built it up from scratch. He made all the contacts and is the force behind everything’. She puts the success of the business down to Mr Head's efforts and expertise.
38. Mr Head described in his oral evidence a change in strategy in [the] direction of EMSL that he had devised and implemented in 2014: (i) to avoid external borrowings; (ii) focus on leveraging existing very close and long-standing customer relationships by entering into direct contracts with those customers rather than tendering for numerous sub-contracts; and (iii) focus on a high level of customer service, by delivering innovative solutions on time and on budget, which requires a high degree of skill in problem-solving and pricing contracts. It is the delivery of that strategy that has been his personal responsibility, rather than the execution of the work, which has been for his employees. I am satisfied that the success of that strategy is what has caused what the experts have identified as an increase in the profitability of EMSL since 2014.
39. Also not disputed is Mr Head's evidence that if he had not contracted mesothelioma, his intention would have been to work full time until 65, reducing to about 80% from 65 until 70. After 70, he intended to maintain a ‘front of house’ presence working at about 50%, continuing to maintain client relationships and acting as wise...
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