Manuel Mathieu v Tony Martin Hinds, Aviva Plc [2022] EWHC 924 (QB)
Background
The Claimant was injured when he was aged 29. At the time of his injury he was studying for a Masters’ degree in Fine Art at Goldsmiths College, London. He was crossing a road in Lewisham at a pedestrian crossing when he was struck by a moped ridden by the First Defendant which he had stolen earlier that day. The moped was insured by the Second Defendant, but the First Defendant was not insured to ride it. The Claimant sustained a serious brain injury in the accident. The Second Defendant admitted liability and judgment was entered for the Claimant with damages to be assessed.
The Claimant lived in Canada and was a successful artist despite his injuries however his output as a successful artist was curtailed by his fatigue and headaches that resulted from his head injury. The schedule of loss assessed the total losses as being over £33.5 million (£33,617,057). These losses were mainly loss of income from sales of pictures he was unable to produce because of the restriction on his productive working life The Defendant’s counter-schedule allowed losses for general damages and special damages to a total of £49,500 and no future loss of earnings or any other future losses.
Issues
The Judge, Mrs Justice Hill, identified the issues as follows:
(i) Whether the impact of the Claimant’s injuries on his daily life is as extensive as he claims;
(ii) Whether the Claimant has mitigated his loss by refusing to undertake certain treatment;
(iii) Whether any damages to reflect lost income should be awarded gross to reflect the prospect of the Claimant being taxed on them;
(iv) Whether the Claimant’s injuries have hampered his artistic productivity and if so to what extent;
(v) Whether any award to reflect a suffer a shortfall in artistic productivity and thus income should be quantified using a multiplicand/multiplier approach or a ‘ Blamire ‘ approach; and
(vi) Whether the Claimant should be awarded provisional damages in relation to the chance of developing dementia due to his brain injury.
Most of these issues were very fact sensitive to the case and are typical of issues arising in personal injury claims, but the issue of particular interest of more unusual application was whether damages should be awarded gross to reflect the prospect of damages being taxed in Canada to an extent that they would not be taxed in the UK for a Claimant living in the UK.
Answer to the questions other than the tax question
By way of background to the tax question considered below the answer to the other questions was:
(i) The Judge did not accept the Defendant’s suggestion that the Claimant had deliberately understated his symptoms prior to 2019 and found instead that: “I accept the Claimant’s evidence that he initially struggled to accept the impact of this devastating injury and that it was only in late 2019 that he began to accurately describe the daily effects on him. He has been clear and consistent in his accounts since then.”
(ii) In terms of the allegation the Claimant had failed to mitigate his loss by taking amitriptyline medication the Judge found: “On balance, in my view, it is entirely understandable for him to decline medication which might generate two side-effects of which he is particularly fearful: further drowsiness that is likely to dull his creativity and further cognitive decline in the form of dementia that would be likely to have the same effect. Indeed, from my assessment of him it is hard to imagine two side-effects he would be less willing to tolerate. Given the focus on his art this is an understandable position for him to take.”
(iii) The tax question – see below
(iv) The Judge found in respect of the Claimant’s estimates of his reduction in productivity: “Overall, I consider that the Claimant had at all times done his best to answer a very difficult question, namely how much art, and of what sort, could he produce if he did not suffer the symptoms he does. In the most recent variation of his productivity model, he reduced his claim, which adds further weight to my view that his approach has throughout been honest and reasonable”.
(v) On the issue whether the award should be multiplier/multiplicand based or a Blamire award the Judge found the multiplier/multiplicand approach was required and carefully calculated the past and future losses on a specific year by year basis with two periods for future losses on a multiplier/multiplicand basis..
(vi) In respect of whether there should be an award of provisional damages the Judge carried out an extensive review of the authorities relating to provisional damages and concluded there should be a provisional damages award for the risk of epilepsy but not for the risk of dementia.
The Taxation Issue
The Judge pointed out that in English law the principle that damages to reflect lost earnings should be awarded net of tax is derived from BTC v Gourley [1956] AC 185 where the House of Lords found loss of income should be awarded on a net basis as the personal injury award would not be subject to income tax.
The Claimant alleged that in Canada the Claimant would be taxed on any loss of income awarded to him by the English Court. The Judge described how:
“However, there was no evidence before the court as to how, and if so to what extent, any damages awarded to the Claimant in London would be taxed at a federal or local level in Canada. The parties had been unable to agree to instruct a single joint expert on the issue. Each side then took the view that the other bore the burden of proof on the point for the legal reasons discussed below and so declined to instruct their own expert. It is perhaps unfortunate that this issue was not resolved before the trial commenced, given the sums of money potentially involved.”
The Judge resolved the absence of evidence about the tax position in Canada to find that, in the absence of evidence, it would not be right to only award net loss of earnings. The Judge explained the position as follows:
“In addressing this question, I have found it helpful to revert to the context of the Gourley decision. McGregor on Damages (21st Edition), paragraph 18-003 states that:
”The presence of two factors was necessary to set the stage for the problem which was posed for their Lordships’ decision in Gourley’s case: (1) the sums for the loss of which the damages awarded constitute compensation would have been subject to tax; and (2) the damages awarded to the claimant would not themselves be subject to tax.
For there cannot be any reason for taking tax into account in calculating damages given in compensation for a loss which would never itself have been taxed; this would let in a taxation where no taxation would have been, which would be unfair to the claimant. Equally there cannot be any reason for taking tax into account in calculating the damages if the damages themselves will then be taxed in the same manner as the loss compensated would have been taxed: this would result in a double taxation, equally unfair to the claimant”.
Gourley factor (1) is present in this case: any damages awarded to the Claimant are to compensate him for income on which he would otherwise have been taxed. The precise level of that taxation remained a little unclear to me. The Second Defendant relied on a Combined Federal & Quebec Tax table to assert that the relevant rate would be 53.31%. At one point the Claimant argued for a broad-brush 50% rate but then appeared to accept the 53.31% rate. However, this table appears to reflect the marginal tax rate applicable to individual personal income (with potential variations for the calculation of tax on dividends on capital gains), whereas Mr Stanbury’s report dated 4 October 2021, paragraph 3.05, suggested that the Claimant is liable to pay Corporation Tax on his pre-tax profits and Income Tax and Social Security deductions based on his post- tax profits. For me to seek to resolve this issue would also appear to fall foul of the Bank Mellat principle that an English court should not undertake its own research into questions of foreign law.
However, in respect of Gourley factor (2), there is simply no evidence as to whether or not the damages awarded to the Claimant will themselves be subject to tax.
In terms of what this lack of evidence means for the calculation of the Claimant’s award, having considered the competing arguments, I prefer Mr Huckle’s submissions. In my view, as a matter of English law, the Wood Mitchell principle applies. That principle is to the effect that the Gourley or Rought netting exercise is not undertaken unless it is “clear beyond peradventure” that the damages in question will not be taxed in future.”
The Judge recognised her approach could result in over-compensation to the Claimant and concluded this was preferable to under-compensation:
“I therefore conclude that the awards to the Claimant to reflect lost income should be made on a gross basis. I appreciate that the impact of this decision is that the Claimant may receive more by way of grossed up damages than he ultimately pays in tax. However, this seems to me the inevitable consequence of Wood Mitchell (which specifically recognised the injustice of the reverse scenario, namely a claimant being under-compensated through a net award on which they were later taxed) and the absence of tax law evidence before the court.”
The Award of Damages
The award made with provisional damages for epilepsy was as follows:
| 1. | General damages for pain, suffering, injury and loss of amenity | £66,580 |
| 2. | Interest on general damages | £4,267.78 |
| 3. | Past lost income | £978,906.58 |
| 4. | Other past losses | £4,123.00 |
| 5. | Interest on special damages adjusted for Interim Payments of £5,000 (10/8/17) + £ £45,000 (31/5/20) | £11,905.18 |
| 6. | Future lost income | £2,108,909.10 |
| 7. | Other future losses | £4,050.00 |
| Total | £3,178,741.64 |
