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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Phillips v Holliday & Anor [2001] EWCA Civ 1074 (6 July 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1074.html Cite as: [2001] EWCA Civ 1074

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM GREAT GRIMSBY COUNTY COURT
HIS HONOUR JUDGE P CLARKE

		Royal Courts of Justice Strand, London, WC2A 2LL Friday 6th July 2001

LORD JUSTICE WALLER:

1. On 21 July 1997 the claimant was working on a building site when scaffolding on which he was standing collapsed. He fell some six feet and was injured. The most serious injury was the crushing of the 8th thoracic vertebra. Liability was at one time in issue but ultimately judgment was entered against the defendants and on 11 September 2000 His Honour Judge P Clarke assessed damages. He awarded (a) general damages for pain, suffering and loss of amenity at £14,000; (b) special damages in relation to loss of earnings up until the trial at £22,209; and (c) future loss of earnings general damages at £62,137.
2. The defendants do not seek to challenge the general damages for pain and suffering. They do seek to challenge both the special damages relating to loss of earnings up until the trial and the damages in respect of future losses.
3. Permission to appeal was refused by the judge. The defendants were then late in putting in their application for permission to appeal to this court. Sedley LJ refused their application for an extension of time and permission to appeal. Robert Walker LJ then adjourned the renewed application to the full court with appeal to follow if permission was granted.
4. It is that renewed application which came before us. Mr Sephton QC persuaded us that there was sufficient merit in the appeal for permission to appeal to be granted. He indeed persuaded us that the merits were such that an extension should be granted for that purpose. In the result we heard the appeal.
5. The defendants, through Mr Sephton, accept that the claimant was injured and accept the finding of the judge that the injury affected the claimant's ability to work both from the time of the accident up until trial, and from the date of trial until the claimant retired at 65. It should be stressed that at the trial the defendants did not accept that the judge should make this finding. They were asserting that the claimant was a malingerer and that his earning capacity had not been affected in any substantial degree by the accident that had occurred.
6. By their notice of appeal the appellants wished to argue that albeit the claimant had been injured, as found by the judge, the past loss of earnings and future loss of earnings should have been assessed by the judge as nil on the basis that the claimant had simply failed to prove any loss. That stance was somewhat modified by Mr Sephton in the course of his oral submissions. He submitted that the judge should have found that the claimant could not prove any loss of earnings as between the date of the accident and the date of trial. But he accepted that albeit once again the claimant could not establish with any certainty future losses, it would have been appropriate for the judge to have made a Smith v Manchester award compensating the claimant for his disability in the labour market. Indeed Mr Sephton accepted that a substantial sum could have been awarded on this basis --perhaps as much as £50,000.
7. What then gave rise to the problems? The answer lies in the way in which the claimant conducted his business and the evidence available in relation thereto. The claimant's wife was the sole shareholder in a company Elegance (Grimsby) Limited (the company). It was through that company that the claimant was remunerated. Indeed the judge found that the claimant was "in law an employee of the company". (see transcript 5A). But the judge found that although the claimant's wife was the sole shareholder and the only director of the company, it was the claimant who obtained contracts and organised the workforce both before the accident and after the accident. Before the accident in addition to obtaining the contracts and organising the workforce he played a full part in the actual painting and decorating operations.
8. After the accident the judge found that the claimant could and did undertake the managerial and administration duties almost immediately. The judge also found that the claimant's ability to undertake full manual work was limited by the injuries he suffered. The judge found that the claimant was capable of undertaking such work but that he only did so "in extremis" and he found that "otherwise his role is limited to obtaining work for the company and performing a supervisory or managerial role on site".
9. It was the claimant's case that the accident had caused him to lose earnings as between the date of the accident and the trial, and that it would cause him to lose earnings for the future until he retired.
10. The claimant originally advanced his claim for pre-trial losses on the basis that before the accident the company had been paying him wages of £500 per week. It was not the suggestion of the claimant, at least when he came to give evidence, that that payment had been received over many months or years; it was his evidence that for the three weeks or so prior to the accident that was the remuneration that he received. His evidence was that the company was started up by his wife in 1993; that he was employed as "estimator, contracts manager, and experienced painter and decorator"; and that sub-contractors were employed when necessary. His evidence was further that by June 1997 business had improved and, so he said, that by June/July 1997 the "cash flow" was such that he was receiving £500 per week. The thrust of his case was that it was through his expertise as a decorator that contracts were obtained and that it was now unlikely that the business would continue to take off if his wife was able to continue it at all.
11. Mr Parry, an accountant instructed by the defendants, demonstrated by his report that there was no evidence to corroborate the assertion of the claimant that he had been paid £500 per week. Indeed according to Mr Parry, the company, on such accounts as were available, would have been unable to fund such a payment. Furthermore, Mr Mould the accountant instructed on his behalf did not support the claimant's assertion. In the result not surprisingly the judge rejected the claimant's assertion that he had been paid £500 per week.
12. It was common ground between the accountants that the underlying accounting and payroll records of the company were of such poor quality that they could not be relied upon as a means of quantifying any claim. The judge accepted that the records of the company could not be relied on.
13. However, despite the inadequacies of the records, Mr Parry in his report had suggested an alternative calculation for loss of earnings. That calculation appears from paragraph 50 to paragraph 59 of his report. In essence Mr Parry took an average of the claimant's total earnings as recorded in P11's and P60's. Those documents had been prepared by accountants acting at the time for the company and the claimant. They represented the years 1995/96, 1996/97 and 1997/98. Mr Parry assessed the average earnings as £62 per week net. He then made a deduction in respect of sums which the claimant should have been allowed for performing the work of administrator, supervisor and driver, although as he himself noted the records of the company did not show precisely what was paid to him. That suggested to Mr Parry that a possible calculation could be based on a loss of £2,500 per annum.
14. Mr Parry had however also, when dealing with the question whether the records supported a payment of £500 to the claimant at any time, analysed the remuneration which the claimant might have received during the year 1997/98 alone i.e. the year when the accident took place. The P11 and P60 for that year recorded total earnings for the claimant of £5,910. The documents also recorded sick pay received for the period from the date of the accident until February 1998. It did not record weekly earnings either for the 16 weeks from 4 April 1997 to the date of the accident, or for the 8 weeks from 2 February 1998 to the 4 April 1998. Mr Parry in paragraph 16 of his report thus said in the above context, that if £1,600 (sick pay) was deducted from £5,910 (the total earnings), the maximum average weekly pay for the 16 weeks prior to the accident was equivalent to £269. This assumed no earnings in the period 2 February to 4 April 1998. It also assumed level earnings for the 16 weeks and no increase for example in the last 3 weeks of that period. This last factor was supported by the level National Insurance charges for those 16 weeks. (see paragraph 20).
15. Mr Mould, the accountant instructed by the claimant to respond to Mr Parry, also produced a report. He had access to documents for the 1999 year which by the time he reported were in existence. In his report he suggested first that it was unrealistic to look at the claimant's earnings alone since the company was really run as a business for the benefit of the claimant and his wife. He suggested that it was more appropriate to approach the matter on the basis of a business run as a 50/50 partnership. On this basis for the year 1996/97 the claimant's share of "the business" averaged £5,154 per annum. He noted that the draft accounts for the year ending 30/6/99 showed that the claimant had managed to pick up more profitable work in spite of his inability to work manually. The claimant had also indicated to Mr Mould that the current year 30/6/00 was showing similar levels (see paragraph 3.7). However Mr Mould felt that the records of the company were such that it was not possible to put forward any appropriate basis for calculating the claimant's losses. Mr Mould thus suggested that the proper basis of calculation was on the basis of earnings that the claimant could have made if the claimant had been employed outside the company and by some other employer. Mr Mould relied on a letter received from a Mr Dent stating that he would unhesitatingly employ the claimant in his (Mr Dent's) own business and that he would expect the claimant to earn between £300 to £400 per week. On that basis Mr Mould's calculations were based on a sum of £350 per week, from which a deduction was made for the actual earnings (see schedule 2 page 118). It is not absolutely clear to me how the actual earnings were calculated. Although the schedule at page 118 says "per P11", there is a note which says "based on information provided by (the claimant) for 1999/00". Since the figures of £3,704.27 and £3,000.40 are not, so far as I can see, taken from the P11's for the years ending April 1998 or April 1999, the calculations must represent what the claimant could have taken from the business.
16. The accountants were asked to prepare a joint statement on certain assumptions. Those assumptions are set out in Appendix 1 of the interim report. It is relevant to set out that Appendix:-

" Scenario (assuming rate of return of 2%)

1 2 3 4

Interpretation

A

B(i) (Sch 1) 151 490 868 983

b(ii) (Sch 1) 105 342 605 684

C (Sch 2) 1,319 4,287 7,977 191,651

Scenario (assuming rate of return of 3%)

1 2 3 4

Interpretation

A

B(i) (Sch 1) 151 490 868 983

B(ii) (Sch 1) 195 342 605 684

C (Sch 2) 1,319 4,287 7,977 173,714

Notes

Interpretation A = Mr Phillips is an employee of the company earning amounts in line with company records. It is agreed that no losses arise under this interpretation.

Interpretation B = Mr Phillips regarded as owner of the company. The only loss arises in company profits for the year to 30 June 1998 with the average profits for the previous two years. Mr Phillip's entitlement being

(i) 100% of profits

(ii) 50% of profits

Interpretation C = Mr Phillips would have secured more lucrative employment earning £350 gross per week (paragraph 3.14 to Mr Mould's report) compared to actual earnings per company records

Scenario 1 assumes loss continues for a period of 6-10 weeks (8 weeks used above)

Scenario 2 assumes loss continues for a period of 6 months (26 weeks)

Scenario 3 assumes loss continues to 8 June 1998 (period of 46 weeks)

Scenario 4 assumes loss continues to retirement at age 65. (It is agreed under interpretation B that the loss would be restricted to 52 weeks only)".

17. The only scenario now relevant is Scenario 4. But it is of relevance to stress first that the joint opinion on the basis of Interpretation A was that no losses would be suffered on any of the four scenarios. This I understand to be on the basis that the record showed earnings for 1995/96 to be £3,227; 1996/97 to be £3,200; 1997/98 to be £4,310; 1998/99 to be £3,000.40; and for 1999/00 to be £5,023.20. It takes no account of the possibility of there being a rise in income for the period immediately preceding the accident in July 1997 and no account of the fact that that rise might have been maintained or even increased in the period up to April 1998 or thereafter but for the accident. As regards Interpretation B only minimal losses would be suffered on the basis of any of the four scenarios. But again no account is taken of the possibility that if the claimant had been able to maintain his position as a manual worker and maintain the momentum which he suggested was commencing as at the date of the accident, the profitability of the company after the accident might have been greater. It was thus only on the basis of Interpretation C that the accountants would jointly have assessed the damages in very substantial figures.
18. Paragraph 16 and 17 of that joint opinion are also worth quoting:-

"16. Mr Mould does add that if the Claimant could earn between £300-£400 per week elsewhere (Appendix 3 to Mr Mould's report) he was likely to be earning that working for the company. As the company records are considered so unreliable Mr Mould considers it appropriate that this weekly gross sum should be the starting point for the assessment of loss, not what is in the payroll records nor in the accounts of the company.

17. Mr Parry's view is that the Claimant's wife's limited involvement in the business indicates that her shareholding may have been an arrangement of convenience and that the earnings from the business should be regarded as the Claimant's, although it will be a matter for the Court to determine whether it is appropriate to set aside the formal arrangement in that way. The annual accounts are the best available indication of the profitability of the business and these show it has improved since the accident. The profits now derived from the company exceed £350 per week which Mr Mould suggests the Claimant could earn as an employee elsewhere. The household income would therefore have been less than actually received if the Claimant had left the company for employment elsewhere. The company is currently sufficiently profitable to pay the Claimant £350 per week and pay his wife an income".

19. There are, as it seems to me, certain points to be made on the above paragraphs. First, the claimant is seeking to prove, as between the dates of the accident and the trial, actual losses either of earnings from the company as an employee or profits that he would have received from the company. The foundation of such a claim must be that which he was earning or taking as profits immediately prior to the accident by reference to the records of that company. If someone runs their business through a company the court should not assume that for example cash has been paid which has not gone through the books or is not shown on documents prepared for the taxation authorities. It follows that Mr Mould's approach is not supportable. To prove the loss for the period accident to trial by reference to the profitability or otherwise of the company requires a calculation of what was earned pre-accident and what was earned post-accident whilst still operating through the company.
20. The second point to make is that the above said, the fact that the claimant has made a success of the business as an administrator and supervisor does not mean either that he might not have been more successful if able to do much of the manual work himself or that he should not be compensated for the disadvantage that he may be in in the labour market by virtue of his inability to carry out manual work.
21. The problems that faced the judge can I think be put in this way. First, the claimant had suffered a serious injury which was likely to effect his ability to work which would in turn affect the ability of the company to pay him and/or the ability of the company to make profits which could be distributed. Second, the records of the company were unreliable, and even if the more serious charges of malingering were not made out, the claimant had sought to suggest that he could not do any work after the accident and produced records which he said supported that view, whereas, as the judge found, he was in fact able to carry out the administration soon after the accident. Thus to find even a starting point for what the claimant had earned before the accident and a starting point for what he was earning or taking home by way of earnings or profits after the accident, was on any view difficult. Third, it was simply inappropriate to calculate losses of earnings while the claimant was employed by the company on a basis that he was not i.e. by reference to the calculation favoured by Mr Mould.
22. How did the judge approach the matter? The judge was attracted by paragraph 16 of Mr Parry's report. That paragraph as indicated was in a section concerned with disproving that £500 per week was a possible figure for earnings prior to the accident. What it suggested was that as a maximum all that the claimant could have earned for the 16 weeks prior to the accident was £269 per week. During the cross-examination of the claimant the judge put that figure to the claimant, and the claimant, who was clearly in difficulties so far as asserting that £500 per week was his earnings, accepted gratefully the invitation that that was the appropriate figure. The judge on that basis held that £269 per week was a figure that the claimant earned as an employee.
23. As the sort of figure that a painter and decorator could earn the judge was further shown the new earnings survey as at April 1998 which showed that a nationwide average figure in the trade was £290.
24. It was on the basis of those two figures that the judge was persuaded that the claimant's earnings per week were £280 gross. It seems to me that it was illegitimate when seeking to assess what money the claimant was earning either by salary or profits to go beyond the records of the company. There may be some force in the point that it should not be surprising to find that the claimant is earning through a company close to what a painter and decorator would earn if employed by a sizeable company independently, but that is as far as the survey could go.
25. The judge then had to deal with the fact that the claimant had worked in a managerial capacity after the accident. How then should that fact be reflected in this estimate of damages? One would think that if the claimant was able to spend more time on the administration side of the business, and if the business as was suggested by the claimant was growing, then profits would increase as in fact they did. The paragraph of the joint statement quoted above supports that.
26. However, so far as the judge was concerned, he was persuaded by Mr Seabrook, on behalf of the claimant, simply to calculate the appropriate deduction both from the figures for losses between accident and trial and for future losses, figures taken from the company's account as payments to the claimant. So far as pre-trial losses are concerned he took those sums without amendment. As regards future losses he reduced the multiplicand in the following terms:-

"In these circumstances, I reduce the multiplicand contended for by Mr Seabrook from £5,897 per annum by way of partial future loss to £3,750 representing about one third of his pre-accident value to the company. The multiplier is agreed at 16.57, making a total figure for future loss of £62,137."

27. Mr Sephton has made various criticisms of the approach of the judge. First, Mr Sephton submitted that it was inappropriate simply to treat the claimant as an employee of the company. He submitted that the appropriate course for the judge was to take the claimant and the company as one. As already indicated there is great force in that criticism, particularly in a situation in which there is no defined employment contract as between a company and an employee and the company is a family company. It is unrealistic to rely on the figures for wages as being the only benefit which someone in the position of the claimant would obtain. It is well recognised that in situations of self-employment or employment through a family company the court will award a claimant damages by reference to the overall position. The court regards as unattractive any technical argument that a loss may have been suffered not by the claimant but by a company (see generally paragraph 1575 of McGregor on Damages 16th ed).
28. Accepting the general force of those arguments, some allowance must of course be made for what the claimant's wife could draw from the company in her own right. But in any event the claimant, as it seems to me, cannot complain if the matter is looked at overall in that the company records did not show him being paid a salary at the rate of £269 per week, and it is only if an assumption is made that other profits were distributed to him that that figure could be supported. This equates with his own use of language in relation to what he received immediately prior to the accident as a result of "cash flow".
29. Second, Mr Sephton criticised the judge for taking the figure of £269 as a starting point. In this criticism he is less secure as I see it. The criticism is sound if the judge were taking £269 as the salary of the claimant as an employee of the company. Once however that weakness is exposed and that figure must be taken as the sum which the claimant is obtaining from the business because the "cash flow" allows him to do so, the criticism is less well-founded. There was evidence from the claimant himself that a figure in the region of £269 was what he was taking from the business immediately prior to the accident. Mr Sephton when invited by the judge to try and beat the claimant down in relation to that figure, did not take up the invitation (see page 17 of the transcript).
30. Thirdly, Mr Sephton criticised the judge for taking the figures which he did as the appropriate figures which were earned as an administrator or which should have been earned as administrator. On this criticism again Mr Sephton is on stronger grounds. Once the judge has taken £269 as the money drawn out of the business he should be seeking to deduct a similar figure so far as mitigation was concerned. A similar figure would not be that which was recorded in the books as salary of the claimant but would include that which he took out of the business. But that said it seems clear that the accounts showed a worsening position in the year following the accident (see paragraph 6 of the joint report). The profits then picked up, but if the company would be having to pay painters to do the work the claimant could otherwise have done, it is likely that the profitability was not as great as it should be. If the figure of £269 were made a net figure of say £200, and if a deduction is made in accordance with the figures shown in the schedule to Mr Mould's report (page 118) as those which he should have earned as an administrator, then on my calculation one reaches a figure of £18,748 as the loss between accident and trial. With the above factors in mind that seems to me a reasonable estimate of the claimant's loss in that period. This does not seem to me to be a case like Ashcroft v Curtin [1971] 1 WLR 1731 CA in which the Court of Appeal felt driven to hold that the records of a business were such that there was simply no basis for making a calculation. This is a case where albeit it is difficult to make a calculation the starting point is there and the court should strive to make a proper deduction in order to reach an appropriate figure.
31. I accept that the above calculation can be said to be open to criticism but some loss was clearly suffered on the judge's findings following the accident. It is not unfair to take the figure of £269 as a starting point and it is then a question of calculating the appropriate deduction. The fact that it is difficult should not cause the court to shrink from making the best effort at a calculation.
32. What however about future losses? Following the judge's approach with my variation of the starting point, the multiplicand would be £5,377 (£10,400 -£5,023) which would be reduced by a third on the basis that the claimant is capable of and will engage in physical work to some extent. That produces a figure of £3,585 which applying a multiplier of 16.57 would produce a figure of £59,398. The judge then made no additional award for the claimant's disadvantage in the labour market under Smith v Manchester.
33. The judge can be criticised for viewing the calculation that he did as an assessment relating to future loss of earnings as opposed to future losses both from earnings and profits from the company. It is not truly loss of salary with which the court is concerned. By being able to spend more time on administration and supervision it seems at least that the business has improved from the pre-accident position. It might however have improved further if the claimant had been able to do more manual work and there is no doubt that if the business does not flourish the claimant is at a serious disadvantage in the labour market. The claimant is entitled to damages to reflect both aspects. Mr Sephton was inclined to accept that a substantial Smith v Manchester award would have been appropriate. Strictly that award would only cover the disadvantage in the labour market, but Mr Sephton's suggested figure of £50,000 was I am sure intended to cover all aspects.
34. Despite the criticism that can be made of the judge, the question is whether the figure reached on the above basis is the appropriate figure. In my view the figure of £59,398 in fact reflects an appropriate sum covering the aspects required including Smith v Manchester. I say including Smith v Manchester for this reason. The court is faced with the uncertainty of whether the business will continue when loss of earnings from the business is what the claimant must be compensated for, or whether the business might at some stage collapse, when it is the claimant's disadvantage in the labour market for which he should receive compensation. By taking a multiplier of 16.57 and compensating on a full loss of earnings basis the judge is right in saying that nothing further need be added for the Smith v Manchester element. However, in assessing the reasonableness of the award, and in particular the multiplier used, it is fair to take into account that the claimant will be at a disadvantage in the labour market if the business were to collapse. Once again no real criticism can be made of the starting point of £269 gross per week as money which the claimant was taking out of the business as at the time of the accident. The next question is what deduction should be made for the fact that money will still be paid out to the claimant albeit his role will be that of administrator and the manual work that he can do will be much more limited. The judge's assessment seems reasonable. The further question would be whether there should be added on something for the fact that if the business does not succeed the claimant will be at a disadvantage in the labour market. The answer is no if the multiplier of 16.57 is used, but it should be recognised that the award does contain an element to protect against the disadvantage in the labour market if the business were to collapse at some stage earlier than at the end of the claimant's working life. The calculation performed has thus some logic to it, and since it produces a reasonable result it seems to me that it should be confirmed.
35. I would thus allow the appeal to a limited extent substituting the figure of £18,748 for £22,209 for pre-trial losses, and £59,398 for £62,137 for future losses.

LADY JUSTICE HALE:

36. I agree.

LORD JUSTICE ALDOUS:

37. I also agree.
ORDER: Appeal allowed to a limited extent, substituting the figure of £18,748 for £22,209 for pre-trial losses, and £59,398 for £62,137 for future losses; interest to stay as ordered below; no order for costs, save detailed assessment of the Claimant's costs. (Order does not form part of approved Judgment)