The recent case of Head v Culver Heating Ltd will not have gone unnoticed by practitioners and bystanders alike not least of all because Johnson J in the most recent judgment on this case, handed down on 11 May 2021, increased the award for a lost years claim from nil to £2.44m.
The facts of the case
Mr Head was the founder and managing director of a heating and ventilation business that was undoubtedly a profitable business. He was the original claimant, who having being diagnosed with mesothelioma brought a lost years claim pleaded at £4.5m. In April 2019, Clarke J assessed his lost years claim at nil. In declining to take up the defendant’s invitation to make an award to somehow compensate the claimant on an alternative basis, she noted that that was not within her gift as no alternative was pleaded.
Mr Head passed away in November 2019 at which time the Court of Appeal had already refused permission to appeal. Mrs Head was substituted as the claimant in her capacity as widow and executrix of the estate of Mr Head. After a tumultuous passage through the appeal process, the Court of Appeal in a combined hearing, both granted permission to appeal and allowed the claimant’s appeal for the lost years claim to be reassessed in line with guidance issued by Bean LJ on how this should be done. That the parties were still some £3m apart upon recalculating the lost years claim is testimony to the equivocal nature of that guidance from the Court of Appeal, at the heart of which was a veiled criticism of both parties “absolutist” positions taken at first instance.
The lost years claim
On remittance to the High Court, Johnson J rightly proceeded on the basis that the Court of Appeal accepted that a lost years claim is concerned with lost earnings and therefore pure investment income which survives the death cannot form part of such a claim even though the deceased will, by definition, not be there to enjoy it. The award is concerned with the loss of that surplus of his income over and above his living expenses which the deceased would, had he lived, have been able to use as he wanted.
“...Johnson J rightly proceeded on the basis that the Court of Appeal accepted that a lost years claim is concerned with lost earnings and therefore pure investment income which survives the death cannot form part of such a claim even though the deceased will, by definition, not be there to enjoy it."
Relying upon the decision of Cavanagh J in Rix v Paramount Shopfitting Company Limited  (against which the defendant has been granted permission to appeal) Johnson J concluded that where there was an element of continued input by the founder of a business which had been built up through his efforts and flair and in which he remains the driving force, then there was no room for regarding any of the income from it as investment income. This is notwithstanding the undisturbed finding of Clarke J in April 2019 that at age 70 the then claimant’s role would be reduced to “wise counsel” to his sons who it was anticipated would take over the business in any event and “front of house”. In finding that all the profit generated by his 90% shareholding, which he also found would reduce in step with a reduction in his hours, the Judge effectively found that this was an all or nothing business, and that without the deceased it would flounder and fail. Furthermore his finding effectively awarded the deceased the same rate or value for his role age 70 onwards (as wise counsel and front of house) as when he was in his prime and undoubtedly the driving force behind the business. This appears to be the same as paying a premiership footballer in his twilight years the same as when he is at the height of his goal scoring powers.
Johnson J found that the deceased would have at the age of 80, handed over lock stock and barrel, the whole of the business to his sons, leaving himself and his wife with an unspecified income from unidentified sources which are unlikely to have covered his living expenses of some £43k per annum (this does not include Mrs Head’s living expenses), which it was found would continue to the day he would have died.
On Johnson J’s findings he would have been handing over a business that was worthless, it having no value outside of Mr Head’s input. This raises the wider question more applicable to Fatal Accident cases (such as Rix v Paramount Shopfitting Company Limited) as to how the HMRC would treat a nil valuation of a business (such as Mr Head’s or Mr Rix’s) for inheritance tax purposes. Defendants should consider seeking disclosure of probate valuations.
Johnson J saw fit not to impose on the defendant the punitive “add-ons” that came with the consequences of the claimant beating her own P36 offer made shortly before the appeal. The claimant adduced late evidence, just before the assessment of damages hearing in April 2021, which she says was necessary following various findings in the Court of Appeal judgment. This allowed a finding that the deceased would have divested himself of all his shares as he reduced his involvement thereby depriving the estate of shares that could be treated as investment income. This was not the claimant’s case at first instance.
For the moment, at least, the limited number of cases on the subject all point in one direction, namely that small and medium sized family businesses appear to have no value without the input of their founder owners. The defendant is seeking permission to appeal.
Annoushka Khadem, Associate, BLM and Michael Kent QC were instructed on behalf of the Defendant.