England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SOUTHAMPTON COUNTY COURT
MR RECORDER BARRIE
Claim No. 4SO06480

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/04/2008

Lord Justice Pill :

1. This is an appeal against a decision of Mr Recorder Barrie sitting at the Southampton County Court on 11 May 2007 in a claim for damages for personal injuries. Judgment was given for Mr Paul Morgan (the "claimant") in the sum of £44,329.12, including interest, against his employers UPS Limited (the "defendants"). Liability to pay damages had been admitted and the issue was as to the appropriate amount. The defendant submits that the award was too large.
2. The claimant sustained his injury on 2 October 2001 while employed as a warehouseman. When trying to save himself following a trip, he sustained what the judge described as a "nasty" fracture to his left wrist. The claimant was 26 years old at the time of the accident and 32 at the date of the trial. He is left handed.
3. The awards for pain, suffering and loss of amenity (£16,500) and for items of special damage (£4,750.14) are not challenged. The defendants challenge a total award of £22,800 for loss of earning capacity. That sum was made up of two components, £12,800 for what the judge called "future earning capacity" and £10,000 for what he called "Smith v Manchester damages" (Smith v Manchester Corporation [1974] 17 KIR 1). The defendants submit that, as the case was put to the court, it was not open to the judge to make an award for loss of earning capacity. The judge has, in any event, duplicated that award with the Smith v Manchester award. The claimant's application for permission to cross-appeal against the size of the Smith v Manchester award was refused on a consideration of the papers and has not been pursued.
4. The claimant was away from work until February 2002 when he returned to light duties with the defendants. During the period of absence, the claimant had two operations on the wrist. He had a third operation in February 2003 to remove a fixation plate which had been inserted. A further operation on the wrist was conducted in September 2005. He gave up working for the defendants in the summer of 2003 for reasons unconnected with the injury and was dismissed in October 2003. A modest award for loss of earnings while the employment with the defendants continued is not contested. No award was made for other loss of earnings to the date of trial.
5. The claimant's case was that he had planned to set himself up in business as a car mechanic. With a potential colleague, he planned to set up the business when the case was over and he had some working capital to make a start. Covert video surveillance had shown the claimant to be working, on two occasions, in the spring of 2005, as a mechanic on various vehicles. The surveillance also showed that the claimant was not as disabled as he had claimed to be.
6. There was an agreed medical report dated 12 January 2007. It provided:

"We agree based on our experience of many similar injuries that we have dealt with that a full return to work is usual, with avoidance of heavy manual labour or repetitive tasks in a factory setting. We can see no reason why Mr Morgan should have any significant loss of function for all normal every day activities. We agree that in the long term Mr Morgan is at risk from developing a post-traumatic arthritis as a result of his injury since the joint lining was injured. We agree that on the basis of our own clinical examination and the radiographs taken that that risk is between 5% and 10%. We agree that the time that any arthritis develops is not likely to occur for 10 to 15 years from the date of this discussion. We agree that in the event of Mr Morgan requiring surgical treatment this would probably affect his ability to work for approximately six months. He will improve no further and deterioration is unlikely. We agree that Mr Morgan is fit to work full time as a mechanic. We agree that he is likely to require assistance in heavy tasks. We agree Mr Morgan is not fit to undertake heavy manual work nor to work in an environment requiring repetitive use of the hands and wrists, e.g. in a food processing plant. We agree he is able to work full time in a driving job which may involve lifting. He is able to carry out lighter manual work and clerical work on a full time basis."

7. The claimant's credibility was seriously under challenge at the trial and the judge's findings were mainly unfavourable to him. The judge accepted that since leaving the defendant's employment, the claimant had been working as a mechanic for family and friends in a small scale way. The work for one customer, Mr Carter, had been documented. The judge found that the claimant was paid for such work, though he denied it. The judge found that the claimant "does not seem to want to engage with the tax authorities or indeed the benefit paying authorities". There was evidence that he had a City & Guilds qualification in mechanical work. The judge found the claimant's credibility to have been "undermined".
8. The claimant's mother gave evidence the judge found to be truthful. The claimant had been trying to build up a customer base for a business as a mechanic. The work he had done was not on a very large scale.
9. The judge found that the claimant had, since leaving the defendants, worked for two to two and a half days a week as a mechanic and had a "genuine aspiration" to establish himself as a self-employed mechanic. The judge stated, at paragraph 42:

"I am very unsure about it being a realistic intent . . . He does not strike me as a natural entrepreneur or business man. He does not strike me as a person with a burning ambition to succeed and to earn as much money as he can . . . I have no reason to think that he really understands the complexities of what would be involved in setting up a business, having to deal with things on the basis that there is paperwork, invoices, accounts, premises, maybe employees. There is nothing to show to me that the extra income from having more jobs that he might achieve if he set himself up as it were properly and formally in business would exceed the extra costs that he would have to incur in premises and tools . . ."

10. In his amended schedule of loss, the claimant sought a sum of £12,800, calculated as a continuing loss until his business was established, and £15,000 for disadvantage on the labour market. That was expressed to be on the basis that he was "unable to undertake heavy mechanical work due to his injury" and that he had "a future vulnerability in respect of the risk of osteoarthritis". In their counter-notice, the defendants claimed that the claimant would not have "worked consistently as a mechanic and will therefore contend that any disadvantage on the labour market is minimal". As appears from the judgment, the defendants conceded at the hearing that a Smith v Manchester award was merited.
11. The judge dealt with the issue as follows:

"44. So I turn to the question of future loss, and as I say the claim that Mr Morgan puts forward is first of all for 12 months continuing loss and net loss after taking account of what he will earn from Mr Carter, but on the basis that he will then have established a successful business with Mr Archer. The Defendant denies that any claim of that kind can be made out, but agrees that in principle the injury that Mr Morgan has suffered merits a Smith v Manchester award. I agree that the injury that Mr Morgan has suffered merits a Smith v Manchester award. The true kind of claim that this piece of legal jargon means is a claim which arises when an injured person is still in secure permanent employment, like Mrs Smith who worked as a cleaner in a local authority home in Manchester. She I think also had a wrist injury, and the court was told by her employer that they would keep her as long as they could, having caused her to injure her wrist. The court accepted that there was a risk because no job is wholly secure – a risk that if she lost her job for any reason she might find it more difficult to get another cleaning job at the same rate of pay, difficulties that would be made greater by the effects of her continuing symptoms. There is a Smith v Manchester element to this case, although Mr Morgan's hope is that he will be self-employed so some of the risks of being made redundant and businesses going bust and so on might be a bit less for him.

45. I also think there are other employment related disadvantages for the future which do not have the same area of uncertainty as the true Smith v Manchester award. I think the accident injury to his dominant wrist will make it more difficult for Mr Morgan to get established in a proper mechanic's business or to expand his existing rather informal business. I hope he is right that he and Wayne Archer will make a cracking go of a business where Mr Archer can do the heavy work. But it is very early days and who knows what may happen. He will certainly need a tolerant and well matched partner to do some of the physical work of a mechanic or he will need to incur the cost of having an employee to do the heavy physical work, which makes it more of a challenge to set up a successful business from the start. It means a need for much more turnover to cover those costs. Or he might need to spend more than he otherwise would have done on hoists and power tools that will help. At a cost there are lots of ways of assisting with manual handling tasks which a mechanic starting up in a business usually would not bother with. Secondly, or perhaps alternatively, if he does not incur those costs Mr Morgan continues to be quite restricted in the scope of the work that he can offer to do for his friends and family and contacts, because he cannot do the big jobs if they involve really heavy lifting. Thirdly, there is a risk of arthritis in future. If he is self-employed there is nobody to pay him sick pay while he has treatment, and he may have further restrictions on the scope of the work that he can do. So those are a range of earning related problems for the future which in my judgment genuinely affect this Claimant and will for the rest of his working life time have an impact on his earning capacity, a fairly modest impact but a discernible one nonetheless.

46. I have been troubled by the fact that none of these problems is identified in the schedule of the claim, and I have wondered to myself therefore whether it would be right for me to make any award in respect of them in a case where contention has run so high. But all of these matters that are identified arise from the evidence which certainly has been available to everybody throughout. But I do think that I should give weight to the schedule in terms of limiting any claim of this character to the amount that is claimed in the schedule. I do not think I would have awarded significantly more in any case, but I do start with a figure slightly more. The upshot of that is this, that I am prepared to make an award to Mr Morgan for impairment of his future earning capacity of £12,800 which covers the range of difficulties that I have identified. I do that even though I reject the claim for future loss of earnings on the basis on which it is put forward in the schedule. I also think as I have said that there is a genuine Smith v Manchester claim to be made here. This is always a head of damage that has to be addressed by feel rather than by mathematics. In his chosen field of work of vehicle mechanics I think that Mr Morgan has a minor but lasting problem that he would have to declare if he ever decided to go for the security of employment, and it would make it more difficult for him to find work. He may be thrown on the labour market for any number of reasons. I am also aware of the potential reduction in his capacity that may come with arthritis in 15 years or so time. I take a broad view of the sort of level of earnings that I think he might achieve, and the upshot of that is that I make an award of Smith v Manchester damages of £10,000."

12. The grounds of appeal are that the judge awarded future loss of earnings on a basis which had not been pleaded or argued and that the claim for future loss was covered by a Smith v Manchester award.
13. I do not accept the first of those submissions. Loss of earning capacity featured in both the claimant's pre-trial schedule and in the defendant's. The evidence, including the medical evidence and the evidence of the claimant's mother, kept open that possibility. The claimant's concession that he should have been able to bring any continuing financial loss to an end in one year did not remove that possibility. While the alternative case considered by the judge should certainly have been pleaded more fully, the judge was entitled to consider it. A loss of earning capacity having been claimed, it would in this case have been too strict a view to confine the claimant to his loss of earnings during the first year.
14. Having said that, I have misgivings, with respect, about the Recorder's reasoning. He was not prepared to award the sum of £12,800 on the basis claimed but, starting, he said, with a figure slightly higher, he awarded the same sum for loss of earning capacity. To that he added what he regarded as a genuine Smith v Manchester claim which he assessed at £10,000. Putting the best construction I can on it (though it was not put specifically in this way), the Recorder's approach must have been that the claimant would be:

a) self-employed as a mechanic in regular employment;

b) earning less because of his injury; and

c) entitled to a further sum to protect against an unsuccessful business

I assume that by Smith v Manchester the Recorder did mean disadvantage on the labour market if the claimant's business did not succeed. There was no need to label it Smith v Manchester, a label appropriate to different facts, but if it is merely a question of labelling, there need be no problem.

15. My first difficulty is in reconciling the approach of the Recorder in the later paragraphs with his earlier findings about the claimant's aptitude and appetite for the type of work he said he would do (paragraph 42). The later paragraphs appear to assume a good aptitude and appetite for work. However, while it is difficult to reconcile the two approaches, I have concluded that the Recorder must be taken not to have overlooked his earlier findings when making his later ones.
16. The second difficulty, and the submissions on behalf of the defendants concentrated on this point, is that the Recorder has awarded the same damages twice, first, for loss of earning capacity and then for Smith v Manchester, for what, in the circumstances, was a single loss and has virtually doubled what would have been an appropriate award.
17. The approach to the assessment of damages for future loss of earnings will vary with the situation of the particular claimant. What is often called a Smith v Manchester award is a response to a situation in which the claimant has a partial disability but is in regular employment. The approach was analysed in this court in reserved judgments in Moeliker v A Reyrolle & Co Ltd [1976] ICR 253. Of Smith, Browne LJ, giving the leading judgment, stated that it "laid down no new principle of law". He added:

"This head of damage generally only arises where a plaintiff is at the time of the trial in employment, but there is a risk that he may lose this employment at some time in the future, and may then, as a result of his injury, be at a disadvantage in getting another job or equally well paid job."

18. At page 262 E, Browne LJ, posed the question:

"Where a plaintiff is in work at the date of the trial, the first question on this head of damage is: What is the risk that he will at some time before the end of his working life lose that job and be thrown on the labour market?"

Browne LJ cited Davis v Taylor [1974] A.C. 207, Chaplin v Hicks [1911] 2 KB 786, Otter v Church, Adams, Tatham & Co [1953] Ch. 280 as well as Smith. Browne LJ analysed the situation and stated, at page 263 E:

"I do not think one can say more by way of principle than this. The consideration of this head of damages should be made in two stages. 1. Is there a "substantial" or "real" risk that a plaintiff will lose his present job at some time before the estimated end of his working life? 2. If there is (but not otherwise), the court must assess and quantify the present value of the risk of the financial damage which the plaintiff will suffer if that risk materialises, having regard to the degree of the risk, the time when it may materialise, and the factors, both favourable and unfavourable, which in a particular case will, or may, affect the plaintiff's chances of getting a job at all, or an equally well paid job."

19. Among the relevant factors, when considering the second issue, as stated by Browne LJ, is the nature of the disability. Further, "the court will have to make the usual discounts for the immediate receipt of a lump sum and for the general chances of life". Shaw LJ and Stephenson LJ agreed with the statement of the general principles applicable. Stephenson LJ referred to the double speculation involved and to the "speculative" nature of this head of damage. The analysis was approved by Lord Fraser of Tullybelton, giving the judgment of the Privy Council in Chan Wai Tong v Li Ping Sum [1985] AC 446. Smith and Moeliker established that damages for disadvantage in the labour market may be awarded even when a claimant is in employment, a proposition that, until those decisions, may have been in doubt.
20. The principle was considered in this court in Cornell v Green (unreported 20 March 1998). Stuart Smith LJ stated:

"The Smith v Manchester element is designed to compensate a plaintiff who is in employment for handicap in getting a new job if he loses his present one and for longer than normal periods out of work between jobs because of his disability. It is not as a rule awarded to cover continuing partial loss of earnings."

21. Robert Walker LJ, having mentioned the distinction sometimes made between damages for loss of earning capacity and damages for future loss of earnings, stated:

"There seems to be a corresponding lack of uniformity in the use of the shorthand expression Smith v Manchester damages. It may be used, and it is arguably most aptly used, for the situation described by Browne LJ in Moeliker where the plaintiff had been able to resume his previous job at the same remuneration but possibly with diminished prospects of promotion, and certainly with diminished prospects of ready and satisfactory alternative employment if, for whatever reason, his current employment comes to an end."

Robert Walker LJ described that as the "classic" Smith v Manchester situation. It was "basically a matter of choice of terminology".

22. Considering the facts in Cornell, Robert Walker LJ stated:

"This appeal, although nothing like so clear cut as the case of permanent incapacitation which I have mentioned, can only be called a Smith v Manchester case if that expression is used, and some would say misused, in a wide sense. It seems to me that in this case the judge, having unsurprisingly preferred the accountancy evidence put forward by the defendant to that put forward by the plaintiff, moved too abruptly, in the judge's words:

". . . to the conclusion that the only safe way in which to deal with the loss of future earnings is to compensate the plaintiff with a Smith v Manchester award."

The judge seems, with respect, not to have sufficiently considered what he meant by that or how he was to go about the process of assessment in what was certainly not a classic Smith v Manchester situation."

23. In my judgment, the same criticism applies in the present case. Having correctly set out the Smith v Manchester principle in paragraph 44, he described a conventional approach to loss of earning capacity, in paragraph 45, including disadvantage on the labour market. He made an award for it in the first part of paragraph 46. He described it as "impairment of future earning capacity". That was said to cover "the range of difficulties that I have identified". Those difficulties, set out in paragraph 45 of his judgment, include "risk of arthritis in future" and a "range of earning related problems for the future". To quantify as a capital sum those earning related problems, on the present facts, inevitably involves consideration of disadvantage on the labour market. In a separate exercise the Recorder then made a further substantial award for what he called Smith v Manchester, which appears to be his label for disadvantage on the labour market. To consider disadvantage on the labour market under two quite separate headings: "loss of earning capacity" and "Smith v Manchester" inevitably risks double counting on the present facts. The risk of arthritis, for example, is again considered under the heading Smith v Manchester in paragraph 46.
24. The situations in Smith and Moeliker were far removed from that in the present case. Smith and Moeliker are directed to situations in which a claimant is in regular employment.
25. The Recorder's task was to assess, given the claimant's attributes, a capital sum to represent the current value of what he was likely to earn as compared with what he would have earned but for his injury. That was the question to be answered. There could be no comparison with the pre-accident work record because the claimant had decided to embark on a new and separate venture. The claimant was not in employment. He had aspirations to set up as a self-employed mechanic. He had given up his employment with the defendants voluntarily. No question of applying a multiplier to a multiplicand arose.
26. It was necessary to assess whether the business venture would be a success, how successful it would be and how much more successful it would have been but for the modest disability. I accept that it would also be necessary to assess what would happen if the venture did not succeed and to express, as a capital sum, the consequences of the disadvantage the claimant would suffer on the labour market, by reason of his disability, if he sought other work.
27. The Recorder's approach to loss of earning capacity/or loss of earnings gives rise to justifiable concern that he has double counted. Very sensibly, however, neither party seeks a re-trial, mindful amongst other things of the additional costs involved. Accordingly, this court should consider, on the basis of the medical evidence and the Recorder's findings of fact at his paragraphs 45 and 46, whether the award is sustainable.
28. The claimant was 32 years old at the time of the trial. I have referred to his intentions. He has a small, but significant, disability as a result of the accident which affects the range of work he can do. There is a small risk of post-traumatic arthritis in the long term. A total award of £22,800 was in the circumstances generous, in my view, by way of capitalising prospective future loss. Not without hesitation, however, I have come to the conclusion that it is not so generous that the court should interfere with it. Given the judge's findings, it is a tenable overall award.
29. It will be clear that, in my judgment, the fair assessment of damages for future loss is likely to be enhanced if awards called Smith v Manchester are confined to situations such as those in Smith v Manchester and Moeliker, as analysed in Moeliker. Disadvantage in the labour market is a factor in assessing damages for loss of earning capacity/future loss of earnings which will very frequently arise when there is a continuing or prospective disability. It takes many forms, including those considered in Smith and in Moeliker where a claimant is in employment. To put it in a separate compartment labelled Smith v Manchester, whatever the circumstances, is likely to lead to the errors of approach which occurred in Cornell and, in my view, in the present case. The Defendants cannot complain of an award for disadvantage on the labour market in circumstances such as the present but can expect it to be adequately reasoned.
30. I would dismiss this appeal.

Lord Justice Sedley :

31. I too would dismiss this appeal. In my judgment there was nothing wrong with the recorder's apportionment of future loss between ongoing loss of income and prospective handicap on the labour market. The difficulty has arisen only from the terminology he used.
32. The first element, which he quantified at £12,800, he called loss of earning capacity. That was not quite accurate: the sum, albeit necessarily an estimate, represented what the claimant would now be able to earn but for the injury, an element more conventionally called future loss.
33. The second element of £10,000 the recorder correctly called a Smith v Manchester award – a sum designed to cover the risk that in the remainder of his working life the claimant would find it harder than he otherwise would have done to find or to hold down other jobs. Such an award is in its nature speculative. The claimant may never be out of work again. Or he may find himself repeatedly shut out of jobs requiring more strength in his dominant hand than he now has. The court cannot know: it can only make an educated guess which is bound to result in either over- or under-compensation; but to make no award at all for this reason would be a greater injustice to the claimant than a speculative award is to the defendant.
34. There is nothing in the principle set out in Moeliker v Reyrolle and the other cases cited by Pill LJ  which confines an award of this kind to claimants who are already back in equally remunerative employment. Such claimants have no other claim for future loss, but the risk they face on the labour market in the unforeseeable future is exactly the same risk as they would face if (as turned out to be the case with the claimant) they were now back at work with lower earnings or (as he had claimed was the case) are not yet back at work at all. The first may be the classic Smith v Manchester situation, but the others are in legal principle no different.
35. While there remains some unease in my mind at how the recorder arrived at his figure for future loss, that is not what this appeal is about. Like Pill LJ I think he arrived in the end at a defensible amount composed of two legally proper elements. I do not think that he has awarded the same damages twice.

Sir Peter Gibson :

36. I agree with my Lords that this appeal should be dismissed. I agree with Pill LJ for the reasons he gives that the appellant's first ground of appeal based on a pleading point should be rejected. I add a few words of my own on the second and main point argued on this appeal.
37. The Recorder has awarded £12,500 "for impairment of [Mr Morgan's] future earning capacity" and £10,000 as "Smith v Manchester damages". The way in which the Recorder has described those two elements of his award gives some support to the appellant's complaint that there has been double counting in respect of the same loss in circumstances which are not what Robert Walker LJ in Cornell v Green described as the classic Smith v Manchester situation, viz where the injured claimant continues in his previous employment but with diminished prospects of promotion and of alternative employment if his current employment ends.
38. However, I agree with Sedley LJ that the Recorder was properly seeking to award compensation to Mr Morgan for two distinct elements of loss. The first represents the additional earnings which, but for the restrictions caused by the injury, Mr Morgan is, and for the future would be, earning. The second represents the loss not immediately reflected in his earnings but which arises from the risk that it will be more difficult to obtain alternative employment equally well remunerated if he finds himself back on the labour market. It was not disputed at the trial that there should be a Smith v Manchester award in the circumstances of this case. The total sum awarded by these two elements, whilst generous, is not so extravagant as to allow this court to interfere.
39. Accordingly I too would dismiss this appeal