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Is There a Fourth Way to Assess Future Loss of Earnings? - Geoff Owen, Greenwoods Solicitors

09/10/14. Once upon a time there was the Smith v Manchester award. If the claimant returned to work but with a disability which put him at a substantial and not speculative or fanciful disadvantage on the open labour market, he would receive an award, often linked to so many months’ or years’ net earnings, depending on the level of risk. For example in Hindmarch v Virgin Atlantic (2011) the allowance was the equivalent of a year’s net pay.

Prior to Ogden 6, the Smith award was also relevant in a more serious case involving a claim for continuing, partial loss of earnings. John Smith (not his real name) was seriously injured. But for the accident he would have earned £25,000 p.a. net. Following the accident he eventually returned to work at a reduced level of £15,000. If the adjusted multiplier* was 18.13, the defendant would argue that John’s loss was:

(£25,000 x 18.13): £453,250 less (£15,000 x 18.13): £271,950,a net loss of £181,300. However, to reflect John’s injured state a Smith award of (say) three year’s net earnings would have been be allowed in addition, a total of £226,300.

[* For comparative purposes the same adjusted multiplier is used for both the pre and post Ogden calculations.]

Then came Ogden 6, now Ogden 7 which offers a two part approach to this calculation. The claimant could now argue that John’s loss was as follows:

Part 1: John’s earnings but for the accident £25,000 x 18.13 = £453,250. As in the previous example, the adjustment to the ‘base’ multiplier is derived from Table A of the Ogden Tables. 

Part 2: John’s post accident earnings £15,000 x 9.89 = £148,350. The adjustment here comes from Table B and reflects the fact that John now has a disability.

It can be seen that this produces a net loss of (£453,250 - £148,350): £304,900.

The defendant will probably resist the use of the approach in Part 2. It has been successfully argued in a number of cases that when the true nature of a claimant’s disability is taken into account, the Ogden Part 2 approach risks over compensation, unless re-adjustments are made (see for example Connor v Bradman (2007) and Hunter v MOD (2007)). However, in Davison v Leitch (2013) the judge applied both Parts 1 and 2 to the letter. The defendant will certainly argue that if Part 2 is used, there should be no Smith award, as this methodology takes into account any disadvantage on the open labour market.

So, in summary, we had two options. The claimant goes back to work with no claim for partial future loss of earnings but receives a Smith award to reflect any existing or predicted disadvantage on the open labour market; or he will suffer a continuing partial loss and to a greater or lesser extent the second Part of Ogden 7 is applied. If there was no evidential basis for adopting either of these but the judge felt it appropriate to compensate the claimant for the possibility he might suffer loss of earnings in the future, his third option was to pluck a lump sum figure out of the air: a Blamire award (see Hiom v Wm Morrison Supermarkets Plc (2010)).

That was before Billett v MOD (2014) EWHC 3060 (QB).The claimant was 29 at the date of the assessment of damages. The defendant admitted liability to pay him 75% of the damages caused by a non-freezing cold injury sustained while taking part in military exercises. The judge made the following findings:

- The claimant had a continuing vulnerability to cold weather affecting his feet but not (as alleged) his hands

- The claimant had not left the army because of his condition but for family and other reasons. He had taken up a job offer with a haulage company within a week of leaving the armed forces. He was not, therefore, suffering a continuing partial loss of earnings.

The claimant’s schedule of loss was set out on alternative bases. First that the judge should adopt the multipliers produced by following Ogden 7 Parts 1 and 2 as illustrated above. This would have produced a difference of 10.41 between the two multipliers. Failing that the judge should make a Smith award of three times net earnings.

The judge accepted ‘that if (the claimant) loses his work at (the haulage company), he will have more difficulty finding other work than he would have done if he was medically free to take any job’. Despite the apparent security of the present job ‘there is clearly a risk that for one or other of a variety of reasons the claimant may find himself looking for work in the future and this is a risk for which he is entitled to be compensated’.

It is from this point that Billett takes an unusual course. The judge calculated that in the previous tax year the claimant had earned a figure of £21,442, which was close to what he had earned to date in the current tax year. He took that figure as the loss the claimant would sustain ‘for each full year when (he) is not in employment because of his restricted ability to work’. Applying the multiplier from Part 2 of an Ogden calculation produced (£21,442 x 10.41): £223,211. Allowing three times £21,442 as a Smith award would have produced £64,326. The judge rejected both approaches.

He held that having left the army of his own volition the claimant would probably be earning at or about the same level as he was. Any disadvantage would arise only if he had to leave a job, as his search for further work would be longer than would otherwise be the case. The claimant would be looking for work on the open labour market on several occasions throughout his working life. The judge found that he was ‘awarding damages for the risk of unemployment, and working on the basis that there will be a total loss of wages in that period…(The claimant’s) condition qualifies as a disability…., but only just …I have concluded that I should use the multiplier/multiplicand method but that my multiplier will be substantially reduced for contingencies other than mortality to reflect the minor nature of the disability’.

This the judge achieved by taking, for Part 2 of his calculation, the mid-point between the Table A and Table B adjustment factors, resulting in an adjustment factor of 0.73. He accepted that ‘(t)here is little logic in this approach, except that it gives a figure which appears to me to reflect fully the loss sustained by the claimant, but to do so in a way which does not obviously overstate that loss’ With a state pension age of 68 the unadjusted multiplier was 24.29. The Ogden Part 1 adjusted multiplier was (24.29 x 0.92): 22.35. The Ogden Part 2 multiplier was (24.29 x 0.73):17.73. However, these multipliers were not applied in the same way as the John Smith example above. Instead the judge took the claimant’s estimated current earnings of £21,442 and multiplied that figure by (22.35 – 17.73): 4.62 to produce an award of £99,062.04.

The heading to this article poses the question ‘is this a fourth way to assess future loss of earnings’? The writer thinks not. This claimant was deemed to be back at work and earning to his full potential, something that the judge found that he would achieve other than when out of work and searching for fresh employment. The case clearly did not lend itself to the two Part Ogden approach illustrated by John Smith’s case. We may also rule out a Blamire award, as the judge had sufficient evidence of earnings not to be required to assess a random lump sum. Surely, despite the judge’s views, this case fits squarely with a Smith v Manchester award. The judge’s concern was to evaluate the risk to this claimant over the 39 years between the assessment of damages and his state retirement age. The judge held that his ‘career path with this injury will be different only to the extent that if he has to change jobs, this will involve a longer search for work than would otherwise be the case’. Could that not have been achieved by awarding a higher than usual Smith award, rather than ‘fiddling’ with Ogden 7? Four times net earnings would have been £85,768; and five times £107,210. It can be seen that the actual award was slightly lower than the average of these figures.

Geoff Owen
Greenwoods Solicitors

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