The Hon. Mr Justice Owen :
- On 26 August 2003 the claimant, who was then 42 years of age, consulted the defendant, a plastic surgeon, with a view to seeking his advice as to minor plastic surgery to her nose and dark circles under her eyes. In the event the defendant proposed more radical plastic surgery involving a replacement of pre-existing breast implants, and a minimal access cranial suspension (MACS) facelift with further surgery to the forehead and eyes. The surgery was carried out 3 days later at BUPA Methley Park Hospital in Leeds.
- On 29 January 2007 the claimant issued a claim for damages for personal injury and consequential loss alleging that the surgery had been carried out negligently. Shortly before the date fixed for trial of the issue of liability, liability was admitted; and on 22 May 2009 judgment was entered for damages to be assessed.
- The negligent surgery has had serious consequences both physical and psychological. It caused permanent damage to the claimant's right facial nerve, resulting in an abnormal spontaneous facial movement, known as jactitation, which presents as an abnormal grimace, and is exacerbated by fatigue or stress. As a result of the surgery to her breasts, her left breast is now higher than the right, and is an odd shape with unsightly lumpy scarring. The physical injuries have resulted in a prolonged adjustment disorder with features of anxiety and depression.
- The Physical Injuries
There is no issue between the parties as to the nature and extent of the damage caused by the negligent surgery. Mr Colin Rayner, the consultant plastic surgeon instructed on behalf of the claimant, considers that in the course of the operation on 29 August 2003 the main branches of the right facial nerve were damaged, the damage being caused by excess pressure or traction on the nerve resulting in the fibres beyond the level of obstruction, i.e. towards the mouth, dying off within the main trunk of the nerve. He adds that with such an injury the axons are able to re-grow beyond the point of obstruction, but may do so in an incomplete or random way, which explains the symptoms of hemifacial spasm. Neurological testing undertaken in January 2007 by a consultant in clinical neuro-physiology, Dr V.P. Misra, confirmed a right facial neuropathy with the branch to the nasalis and orbicularis oris (i.e. muscles by the side of the nose and around the mouth) being the most severely affected. He also found that the branch to the orbicularis oculi (the muscle around the eye) is affected, and the branch to the frontalis (the forehead muscle) being mildly affected.
- The operation resulted in a complete right-sided facial palsy with the following symptoms:
i) inability to move the right side of the forehead,
ii) inability to close the right eye and excessive watering of the eye,
iii) weakness of the right cheek,
iv) absent movement on the right side of the mouth,
v) drooping of the right angle of the mouth,
vi) inability to control food when eating on the right side.
- At the same operation the pre-existing bilateral breast implants were exchanged for new implants of a different shape, and placed in a different position, behind the pectoralis major muscle. Immediately on recovery from the operation the claimant noted that the left breast implant was too high, and that the appearance of her breasts had changed significantly
- On 1 October 2003 the defendant carried out revisional surgery to the claimant's face, eyes and left breast. Canthoplexies were performed to her lower eyelids; the buccal branch of the facial nerve on the right was explored; the zygomaticus major muscles on both sides were re-sutured and the breast implant on the left side re-sited.
- There was a gradual but incomplete recovery of the weakness of the right side of the face over a period of about 18 months. But as the movement and tone of the facial muscles recovered, abnormal and distressing symptoms of facial twitching began to develop. Over time it became more pronounced and widespread over the whole of the right side of the claimant's face.
- When examined by Mr Colin Rayner on 14 November 2009, the claimant complained of the following symptoms:
"i) right-sided facial twitching,
ii) an odd sensation on the right side of the face, which can occur at any time but not usually when the face is twitching,
iii) a frozen feeling and sensations of contractions around the right eye and spontaneous irritation in the nostrils radiating up to the central forehead. She needs to use drops for her eyes as they feel dry.
iv) In order to compensate for the forced contraction of her right eye, she tends forcibly to close her left eye.
v) She has a painful spot on the left side of her cheek.
vi) She experiences a sagging sensation relating to the right eyebrow weighing on the right eyelid."
- As to her breasts she complained to Mr Rayner that they are unequal in shape; the left breast being higher than the right, and that the left breast is very uncomfortable. She also told him that she was now aware of the presence of the implants, whereas that had not been the case with regard to the original implants
- Mr Rayner observed that the facial twitching was evident throughout his consultation, but varied in intensity becoming less noticeable as she became the more relaxed. He found that at its most extreme the twitching consisted of multiple forcible closure of the right eye with regular and forcible contractions of the right cheek and a displacement of the right side of the mouth. That is an accurate description of what I observed during the course of the trial. The twitching was virtually constant, which is understandable given the stress that she was under both when giving evidence, and when listening to the evidence given by others as to the contrast between her condition before and after the surgery.
- As to the claimant's breasts, I have seen up-to-date photographs, and as Mr Percival, the consultant plastic surgeon instructed on behalf of the defendant, observed in his report of 8 November 2010, there is an obvious asymmetry. The experts agree that the left nipple is approximately 1 cm lower than that on the right, secondly that there is bulging of the left upper pole when compared to the right, thirdly that there is some tethering of the lower pole around the scar of the left breast. Such features will be permanent, although the experts agree that the breast asymmetry could be improved surgically.
- The Psychological Impact of the Physical Injuries
The psychological impact has been profound. As in the case of the physical injury, there is no issue between the experts either as to the nature and extent of her psychiatric symptoms, or as to the prognosis.
- In his first report, dated 10 January 2007, Dr Rosen, instructed on behalf of the claimant, diagnosed a Depressive Disorder of moderate severity lasting for 12 15 months and associated with features of an Adjustment Disorder, which has persisted to date, albeit fluctuating in severity. In his report of 19 May 2009, Professor Trimble, instructed on behalf of the defendant, diagnosed a Depressive Disorder which had developed about 6 months after the operative procedures, the claimant still being symptomatic when he assessed her. They agree in their joint report that the claimant has presented at her various psychiatric assessments with depressive and anxiety symptoms, although they differ to some extent in the diagnostic labels that they attach to her symptoms. They also agree that her psychological condition falls into the moderate range of severity, and that her psychological condition was probably caused by the consequences of the cosmetic surgery in August 2003.
- They agree that a course of cognitive behavioural therapy (CBT) is indicated after the settlement of the claim, and that her depressive and anxiety symptoms should improve with the resolution of the claim and treatment. But they also agree that chronicity of symptoms generally reduces the response to psychological treatment, and that her response to treatment is likely to be limited if, as will be the case, the physical symptoms persist. They acknowledge that it is probable that she will not fully recover her previous personality and that her loss of confidence will persist. As Professor Trimble puts it "
it is likely that with her view that she has been damaged, her depressive symptoms will remain for the foreseeable future." They conclude their joint report in the following terms:
"The experts agree that the settlement of her claim and the provision of treatment should improve the claimant's depressive and anxiety symptoms. However, loss of confidence is likely to persist and she is at risk of further depressive symptoms associated with stress.
The favourable prognostic factors are a previously well-adjusted personality and an absence of earlier psychiatric illness. The unfavourable factors are the duration of her condition, the impact of physical and psychological problems on her career and continuing facial symptoms."
- The Issues
The principal issues between the parties are the assessment of general damages for pain suffering and loss of amenity, and secondly the claim for loss of earnings, both past and future. Each require a comparison of the claimant's personality and abilities pre and post the negligent surgery. It is therefore necessary first to consider her background and achievements up to August 2003.
- The claimant was born on 8 October 1961. She was brought up in a mining village in mid-Glamorgan, leaving school at the age of 16 with 5 'O' levels. After leaving school she attended college, completing her first year of a City & Guilds course in hair and science. But she had greater ambition than a career in hairdressing and decided to investigate a career in the civil service. She eventually secured a position as a clerical assistant in the DHSS in South Wales; but it was her ambition to achieve promotion to clerical officer and to pursue her career in London. That ambition was rapidly realised, and in 1981 she moved to London to work as a clerical officer in the Communications Department at the Parliamentary Offices. Her success in that role was such that after approximately 3 months she was invited to interview for a position in the Ministerial Offices, a position that she secured, working in the Cabinet Office for junior ministers. After 8 weeks she was seconded to the office of the Secretary of State for Employment and after a short period was transferred to that department as a permanent member of the Secretary of State's office. She was then promoted to acting executive officer and was offered a place on the civil service fast track scheme for high achievers. But whilst considering that offer, the claimant found that she was pregnant having married in April 1984. She therefore felt obliged to decline the offer, and in 1985 went on maternity leave, her child, Christopher, being born on 4 June 1985. The claimant did not return to her post as her child turned out to have special needs.
- The rapidity of the claimant's rise within the civil service, notwithstanding her limited qualifications, demonstrates both her ability and her commitment to her career.
- The claimant again became pregnant, albeit unintentionally, in 1986; and her second child, Stephanie, was born on 21 June 1987. But she and her husband had drifted apart, and he left soon after Stephanie's birth.
- The claimant did not return to full time employment until 1994. But in the meantime she both trained and began to work as a fitness instructor, work that gave her the flexibility to care for her children. In 1991 she met her current husband, Peter Johnson.
- In about 1993 the claimant decided to embark upon a new career, and approached Eli Lilly, the manufacturers of Prozac. Her reason for doing so was that employment by Eli Lilly would both provide her with a career and with the opportunity to learn more about medication that might assist her in managing her son. Her initial approach to Eli Lilly was rebuffed as she was not a graduate. She therefore targeted Innovex UK, a company involved in the sale and distribution inter alia of pharmaceutical products, and the main contract sales supplier to Eli Lilly. She approached Innovex UK and secured a position as a field sales executive sub-contracted to Eli Lilly and working as part of an Eli Lilly field based sales team. Eventually she was offered a position by Eli Lilly as a Territory Manager, South East in 1995, being promoted in 1997 to Regional Hospital Manager.
- In 1997, and whilst still working for Eli Lilly, the claimant began researching companies engaged in sales of software for the business and financial markets sectors, and came across SAP, a business management system. 'SAP' is the name applied both to the software and to the company that developed and marketed it. One of the witnesses called by the claimant, Julian Johnson, who is now employed by SAP in a senior executive role, described SAP as the world's largest business software company. The claimant could see that as a product SAP was accelerating up the global software sales league, and determined to secure a job selling SAP services, ie the installation, development and maintenance of SAP systems. To that end she set about learning all that she could about the product.
- She then approached Interim Technology, the UK subsidiary of a US company, and persuaded the company to engage her on the strength of her assurances, based on her investigation of the SAP market, that she would be able to achieve partnership status for Interim Technology with SAP. She achieved that objective rapidly, and established a substantial SAP practice for Interim Technology, subsequently re-branded as Spherion. In January 2000 she was appointed Sales Director at a salary of £100,000 per annum plus £50,000 guaranteed bonus. In late 2000 Spherion UK's managing director, Michael Winwood, was recalled to the parent company in the United States, and his role was offered to the claimant. But she declined the offer as in the meantime she and her husband had set up their own company, Bishop Cavanagh Ltd (BCL) which was incorporated on 20 May 1998. In December 2000 she resigned from Spherion to devote herself to the development of BCL.
- During her 3 years at Spherion the claimant established a SAP consultancy practice employing over 300 consultants. Her success was reflected by an increase in remuneration from an initial basic salary of £16,000 per annum to earnings of £180,000 plus commission.
- BCL
Following a 3 month period of 'gardening' leave from Spherion, the claimant became actively engaged in developing BCL in March 2001. The draft business plan that she prepared in January 2001 focused on two core services to be provided by BCL, namely SAP and Globus T24, a software product developed by Temenos for the banking sector. Her plan was that her husband would continue to deliver recruitment services in banking, his area of expertise, until the end of 2001 at which the point the company would move into consultancy, offering a comprehensive portfolio of services and products. The claimant's third witness statement contains a lengthy and very detailed account of the development of the business. The principal features are that in 2001 the claimant secured contracts with Deloitte LLP, Kimberley Clark, Xansa (a British technology and outsourcing business), Premier HR (a leading SAP supplier in the Human Resources Management Field), CA group and SAP consulting. In 2002 she secured a partnership with Temenos and added IBM, Toyota, Barclays Bank, Plaut Consultancy, Shrouders, HBS, Heineken and Frank Roberts bakery to the company's client list. In 2003 she signed a contract with HBS Business Services. By May 2003 she had secured preferred supplier status with SAP, Temenos and IBM.
- For the year ending 31 March 2002 the company had a turnover of £2,197,358 and a gross profit of £420,473. In 2002 the company's accounting year was changed to year end 31 December. For the 9 months ending 31 December 2002, the company had a turnover of £2,618,294 and a gross profit of £782,666. For the 12 month period ending 31 December 2003 the turnover rose to £3,143,549 with a gross profit of £868,811.
- Having established BCL in the market, the claimant decided to take a break from the company between 9 July 2003 and 3 September 2003 to spend time with her son Daniel, who had been born on 16 July 1998. It is her case that by that point Bishop Cavanagh Ltd was on the verge of substantial expansion and greatly increased profitability. It was then her and her husband's intention in due course to sell the company.
- The summary of the claimant's career set out above is based upon the account given in her detailed witness statements, in particular the third. But having heard the claimant under cross-examination for a considerable period, I have no reason to doubt her reliability as a witness to past events. On the contrary she impressed as a woman of high intelligence with a remarkable recall for detail. There was no challenge of substance to her account of what on any view was a remarkable career for a woman from a modest background leaving school at the age of 16 with minimal qualifications. Furthermore her account of her career at Spherion and in the development of BCL up until the summer of 2003, was borne out by the highly impressive witnesses called on her behalf. Their evidence is of particular importance in demonstrating her outstanding capabilities and in throwing light upon what happened both to her and to BCL in the aftermath of the surgery in August 2003.
- Michael Winwood is now the President of Technisource a company with over 60 offices across the United States and approximately 6,000 employees, which provides technology recruiting and staffing, technology solutions and management services. In 1997 he became Managing Director of the UK operations of Spherion, having been transferred to the United Kingdom because the UK operation was felt not to be developing as expected. In 2000 he returned to the United States to become senior vice president of Global Strategy at Spherion.
- Mr Winwood met the claimant in 1997, when he hired her to assist with Spherion's UK SAP practice. When he arrived in the United Kingdom he reviewed Spherion's SAP practice, and found it to be virtually non-existent. He was then faced with a decision as to whether or not to continue to operate in the SAP field. He decided to do so, mainly because he had hired the claimant who was confident of making sales in that area. His confidence in her was justified in that she was successful in placing consultants in SAP work within weeks of joining Spherion, and the SAP business expanded rapidly, becoming the fastest growing part of Spherion's business.
- Mr Winwood says in his witness statement that the claimant appeared to have a natural affinity with the SAP product and demonstrated clear sales leadership. He describes her as a driven individual who had clearly invested a considerable amount of time and effort in understanding the SAP product and the organisation of SAP itself, observing that "this made her a formidable force in IT consulting sales that both SAP the vendor of the product and its clients duly recognised." He confirmed her evidence that she rapidly achieved partnership status for Spherion with SAP, making it easier for Spherion to generate further revenue streams. Her performance was such that she soon moved into the management structure of Spherion UK, becoming the head of SAP.
- Mr Winwood also confirmed that when Spherion Corporation wanted him to return to the United States having stabilised the UK operation, he suggested that the claimant should replace him as Managing Director of Spherion UK. His evidence is that the starting point in the negotiations with her was a salary of approximately £175,000 per annum plus 80% bonus together with the other elements of a senior executive pay package. When she turned down the offer, it was increased to a basic salary of approximately £200,000 plus a bonus of up to 80% of the basic salary.
- In cross examination Mr Choo-Choy QC took Mr Winwood to Spherion UK's turnover figures for the years 1996 2001, which showed a peak of £15.1m in 1999 and then a decrease in 2000 and 2001. Mr Winwood said that such a decrease was not unique to Spherion. At that point there was a weakening in the market for such services which did not start to recover until 2002. But he added that her departure was a 'hit' to the SAP practice as she was its key driver, and said in his witness statement that "I would certainly have expected Spherion to have done significantly better than it actually did in 2000 and 2002 which was a difficult time for the company."
- His witness statement also contains his view as to her future prospects based on her performance at Spherion. He says that he expected her "to go off and achieve great things", having earlier commented that he had met a number of outstanding individuals in his career, and that she was one of them. He expected her to be successful in her own company saying that "in turnover terms I would have expected Penny to have been able to achieve a £30m - £50m turnover after about 10 years of being established." He adds that in IT terms that is a medium sized business. He further says that had she decided to stay with Spherion, it is perfectly plausible to suggest that she could be running a £50m operation well inside a 5 year period, and that it is "extremely likely" that she would have carried on up the senior management track of Spherion Corporation. He considers that by 2010 she would probably have reached a vice president or senior vice president position in the company, which would have attracted remuneration of the order of 600,000 US$ p.a.
- Finally he says that once the claimant had left Spherion he would have been prepared to bring BCL in on Spherion contracts, if appropriate opportunities had presented themselves.
- A different perspective was provided by Leon Sadler, who was contracts manager for SAP UK when the claimant joined Spherion in 1997. Mr Sadler is now the vice president of professional services at FICO, (Fair Isaac Corporation) an American corporation that invented, developed and operates credit risk scoring systems. Mr Sadler is currently responsible for FICO's consultancy business which generates a turnover of approximately 60m US$. He has a staff of 350 individuals reporting directly to him.
- When contracts manager for SAP UK his role was to identify suitable resources both for SAP UK and for clients. He explains that SAP ran contracts to install SAP products both directly, and via third parties such as Accenture, Deloitte, IBM and other large consultancies. SAP had a core of SAP staff, but in servicing contracts their staff had to be supplemented by external contractors, and BCL became an approved supplier.
- When he first met the claimant in 1997, she impressed as "customer focused, driven, nothing was too much trouble and she delivered as required." As to her move from Spherion to her own company, he comments that it was rather irrelevant for him as to who she worked for, his relationship was personal to her.
- Mr Sadler moved on to work for IBM, being responsible for their sales of SAP support services for North East Europe. He confirms that as with SAP UK, BCL achieved partnership status with IBM, commenting that it was unusual for that to be achieved by a small company, but that that was in keeping with his assessment of what he expected the claimant to achieve.
- He further explains that at IBM he was in a position directly to influence decisions on where support services to an annual value of several million euros were to be sourced. As BCL was an approved supplier, the IBM door was open for further work. But he says that her full potential was never realised as contact from her from late 2003 onwards effectively ceased. He says that had she remained available to him post September 2003, he would have expected to place maintenance resource requirements with her with a value of 2 - 3 million euros a year. Beyond that level BCL would have needed to be a larger company. But he added that once approved by IBM, a company can expect to continue to receive new contracts continuously provided that the work continues to be of an appropriate professional standard.
- Mr Sadler introduced the claimant to IBM, Accenture, and HBS. He says that with his endorsement more opportunities became available to her, and her contract base should have increased in size. He expected her to have 'grown' her company in size, and been able to assist him with larger prospects as time went by. He also says that he thought so highly of her that whilst he was at SAP UK he offered her a job.
- Mr Sadler also gave evidence as to the market in SAP services. He points out that the IBM market in SAP in 2003 was massive as IBM was the world's largest SAP provider doing many hundreds of millions sterling of work worldwide. He would have expected a company run by the claimant to run service contracts of millions of euros a year.
- He concludes his witness statement by emphasising how rare the claimant's talents were in the SAP business, being the only individual from a small company of whom he was aware who had managed to obtain a partnership with SAP and IBM in a comparatively short period of time. He describes her as an exceptional individual with rare ability whom he would have expected by 2010 to be running a company with a large turnover specialising in SAP. He was also aware that BCL provided both SAP and Temenos T24 services to the banking sector, a rare and highly sought after combination, which, so far as he was aware was not offered by any other organisation in 2003.
- One of the companies to whom Mr Sadler introduced the claimant, was Kimberley Clarke. I heard evidence from Robert Barbiaux who from 1999 2008 was responsible for IT for the Kimberley Clarke Corporation in Europe, the Middle East and Africa. In 2001 he was responsible for the implementation of SAP for Kimberley Clarke. He explains that the problem presented by the introduction of SAP was that the company did not have the in-house skills to undertake the task, and therefore needed external assistance to install the system. BCL became one of the suppliers of SAP contractors on the recommendation of Mr Sadler.
- Mr Barbiaux explained that the claimant's approach was to maintain customer relations on a long term basis, and that she used very experienced contractors, enabling her to supply a more consistent service than some of her competitors. His description of her is illuminating:
"Penny listened to the brief, discussed it, added comments which were given due consideration and worked to achieve a situation where Kimberley Clark was going to receive value for money by obtaining the right skill set with the right requirements. Penny was assertive, aggressive at business and she was a good reader of people and one of only two individuals in this area of business. I have encountered individuals in the IT industry who were exceptional. Penny was one of those individuals."
- By 2003, and after two years experience of working with the claimant, he had expected to carry on working with her throughout his time at Kimberley Clark, and would have involved her in the 'roll outs' of the product in various countries including North America provided she was able to offer a service in those jurisdictions. He believed that BCL would continue to grow, an assessment based on his knowledge of her abilities and his belief in her consultancy model. But as he put it "the Penny I knew in 2003 simply disappeared from view" and "for all intents and purposes the creative, proactive side of Bishop Cavanagh disappeared." He recalled seeing someone from BCL after she disappeared from view, but said that he "was simply not memorable".
- I also heard evidence from two witnesses who at material times were employed by Deloitte. George Elkington, a partner of Deloitte, worked with the claimant between 1998 and 2003. Deloitte was then heavily engaged in SAP work. When he first met her he was looking for good quality resource providers in SAP, as he had found the resource market poorly provided for by low quality companies. He found her to be "highly competent, professional, thoughtful and incisive and above all she did not waste my time." In contrast he found other equivalent organisations to be inferior.
- Deloitte's requirement for SAP consultants dipped in 2003 due to a restructure of its business model; but Mr Elkington says that there was no reason for the claimant not to have continued providing Deloitte with resources, and expanding to supply to Deloitte on a global basis. He emphasised that his business relationship was with the claimant rather than with the company whom she represented.
- Mr Elkington says that in the middle of 2003 or thereabouts the claimant simply disappeared; but that had she continued "as the face of Bishop Cavanagh", he was in no doubt that the relationship between them would have continued to flourish.
- The second witness from Deloitte was Brian Johnson, who first met the claimant when she was working for Spherion and he was a commercial director at Deloitte. In 2000 he left Deloitte and went to work for Plaut Consulting where he worked with Ian Wyrley-Birch, who also gave evidence.
- Mr Johnson, echoing the evidence given by a number of other witnesses, said in his witness statement that it was irrelevant to him whether she worked for Spherion, BCL or another organisation, "my relationship was with Penny not with whoever happened to employ her." He says that during the entire time that he worked with her at Spherion and BCL, she never failed to provide him with good quality staff, delivering a quality solution which never fell short of his high expectations. It was he who had recommended her to Mr Elkington. He says that he would describe her service as a Rolls Royce service in an industry which tended to provide a mediocre service, a point that he amplified in cross examination saying that to obtain a good resource was incredibly difficult, and that he wanted to work with someone whom he knew and trusted.
- Similar evidence as to the claimant's abilities was given by Ronald Hunt, now the vice president of Capgemini, one of the main providers of consultancy services in the United Kingdom. But from 2000 2006 he was employed by IBM. He met the claimant in 2003 when he was responsible for a large SAP contract in Sweden for Erikson, the mobile phone company. The contract was worth approximately 20m euros a year. He found that he needed additional resources and the claimant was recommended. She made an immediate and highly favourable impression upon him. In due course he recommended BC for IBM partner status. That was a key to future development of the business relationship with IBM. He says in his witness statement that he also recommended her for other IBM projects "because individuals of Penny's calibre were simply in short supply and consequently there were not enough of them to go around."
- He says that he was not aware of another company in the market place which had such strong leadership and undertook both SAP and Temenos work, and expressed a view as to the prospects for the company based upon his experience of working with her. He thought it a reasonable proposition that BCL could reach a 100m euro turnover per annum simply by maintaining its standards, and that in the short term he expected the company to have a turnover of 25m 30m euros. Not only would he have expected her business relationship with IBM to continue, but says that in his role at Capgemini, he would have considered her "a good asset" saying that had she maintained contact with him "the opportunities were there for phenomenal growth."
- His relationship with the claimant came to a halt in 2003. He said that he did not know what had happened to her, but knew that something must have happened as "the Penny that I knew would not have let our relationship dwindle." In fact in 2004 he attempted to introduce her to John Blackburn, his immediate superior at IBM, who had responsibility across IBM for all contracts, and therefore had the ability to influence her involvement in all areas of IBMSAP products across Europe. He arranged a meeting but she failed to turn up.
- BCL as at July 2003
By July 2003 the claimant had established business relationships with a number of key clients, IBM, Kimberley Clark, Schroders, SAP consulting, Plaut, Xansa, Deloitte and Barclays. She was the inspiration and driving force behind BCL, and was clearly a business woman of outstanding ability and driving ambition, who had made a deep impression on a number of individuals in senior managerial positions with whom she had come into contact during her three year career at Spherion and in the period of little more than two years between becoming actively involved in developing the business of BCL in March 2001 and beginning her sabbatical in July 2003. She was fully justified in her belief that BCL was on the brink of further expansion into a potentially lucrative market.
- The effect of the injuries on the business of BCL
A number of the witnesses to whom I have referred gave evidence as to how their relationship with the claimant terminated abruptly in 2003/2004. But others were able to give evidence as to the difference between her engagement with the business both pre and post the negligent surgery. Tim Hogarth joined Spherion in 2000 as business development manager reporting directly to the claimant. His view of her is encapsulated in two short sentences in his witness statement:
"Penny was and remains the best saleswoman I have seen operate
I never saw her fail to close a deal, I never saw her fail to gain a client. "
- In 2002 Mr Hogarth joined BCL as business development manager. He had done well at Spherion under the claimant and had no reason to think that he would not do well at BCL. But he went on to say that problems arose when the claimant did not return after her sabbatical. He says that she was not contactable by telephone or by e-mail and stopped popping into the office. By the start of 2004 he considered that SAP was going nowhere, and was concerned that he was not going to be able to earn any commission without her being active in the company. He points out that although business development manager, he could not sell at board level as she could and did. He describes her as having been the 'heart and soul' of the company, the driving force, but that when she returned in 2004 "the person who reappeared in the office was not somebody I knew". In his written statement he gives a graphic description of the change:
"The person in 2004 came into the office quietly, she would not announce her arrival, she would not speak to people. She would go into her own office sit down and shut the door. If you went to her with any opportunity she would pass them on to someone else to deal with and close.
If you wanted to discuss any strategy with her regarding any issues, she would make no real comment about what you said and then fob you off. The spark had simply gone, it was like the lights were out and nobody was at home. In comparison to the individual you had seen before it was a shocking contrast."
- In due course Mr Hogarth decided to leave BCL, a decision that, as is clear from his witness statement, was due to the change in the claimant and the effect that it had had upon the business of BCL.
- Similar evidence was given by Svetlana Kropp who first encountered the claimant in about 2000/2001 when the claimant placed her as a consultant undertaking SAP work. In her witness statement she describes the claimant as being "driven, ambitious, proactive, on the ball and targeted." A personal friendship developed between them.
- Ms Kropp lost contact with the claimant in 2003 saying that she "simply disappeared." But in 2004 she was approached by BCL and was engaged as a relationship manager, to develop the relationship with IBM on the Erikson account. But she found that the claimant was a recluse who did very little, did not socialise, kept herself away from people, took a back office role and was not driving the company forward in the manner that Ms Kropp knew that she had done before her effective disappearance from the business in 2003.
- A revealing insight into the effect of the injuries on the business of BCL was given by Julian Johnson, another of the witnesses called on behalf of the claimant. Between January 2007 and July 2008 Mr Johnson was employed by SAP as Senior Vice-President EMEA (Europe Middle East Africa) of its Banking Business. He met the claimant in 2007 when looking for a "boutique services organisation" that could help SAP to grow its banking business. BCL and the claimant were recommended to him as a unique company that would be capable of providing SAP banking services in Northern Europe. He carried out due diligence on BCL and found that it was the only company of those that he considered that met the criteria that he had set for the due diligence exercise. He therefore arranged to meet the claimant, and was suitably impressed. But it was in the follow up meetings that problems began to appear. At the second meeting with BCL he expected to meet both the claimant and her husband, but the claimant did not appear, which he found strange. More significantly in late 2007 an opportunity arose with an existing client, the Bank of Belarus, and Mr Johnson arranged a joint meeting with the bank's executive team and with the claimant and her husband. It had been his intention that BCL would join SAP as a partner on the project, which he expected to have started in the first quarter of 2008. But on the day of the meeting neither the claimant nor her husband appeared. Their failure to appear severely damaged BCL's reputation with the bank, and the project did not proceed.
- A further insight into the change in the claimant was provided by the evidence of Christine Davies, a personal friend. They had met when Mrs Davies was 26, and the claimant 19. She too moved to London where they continued to see a great deal of each other. Mrs Davies describes their relationship as being as close as sisters. But from about September 2003 she stopped hearing from the claimant, whereas they used to call each other several times a week. Mrs Davies thought that she had said or done something wrong and kept trying to get in touch with her; but the claimant would either not return her calls or say that she was ill or busy with work. She next saw the claimant in 2004 and noticed that she looked different. The claimant said that she had Bells Palsy; but it was not until the end of 2008 that the claimant rang her and told her what had happened to her, and that her solicitor would be contacting her to give a statement as to how she had been before the accident.
- Mrs Davies describes the change in the following terms:
"Penny before August 2003 was a very happy, friendly, bubbly personality. She had a lot of confidence, she was very generous and would help me solve any problem I had. After her surgery she was completely the opposite, it scared me how much this surgery and the experience has traumatised her to the extent that I do not even recognise her emotionally."
- It is also clear from the evidence of both the claimant and her husband that the effect of her injuries, both physical and psychological, have imposed very considerable stress upon their relationship. Their marriage has survived; but the claimant said in evidence that she is no longer a wife to her husband. He says that she is now a completely different person and that their marriage is not what it used to be. They no longer go out together as they used regularly to do, and have become detached from the close knit group of friends whose company they used to enjoy.
- General Damages
There are a number of elements to the claim for general damages for pain suffering and loss of amenity.
1. The pain and distress suffered in the aftermath of both the negligent and remedial surgery;
2. The facial disfigurement;
3. The disfigurement of the left breast;
4. The psychological damage.
- As to the first, in the immediate aftermath of the negligent surgery the claimant was unable to close her right eye and had to tape it shut at night. She also suffered stinging in the eye, blurred vision and photophobia. She was shocked and deeply depressed at the poor outcome. On recovery from anaesthesia following the remedial operation on 1 October 2003, she was told by the defendant that the result was 'perfect' and that no nerves had been damaged. But when she looked in the mirror she was horrified to see that her right eye and lips still drooped, and became acutely distressed. On 16 October she had an emergency appointment at BUPA Gatwick, because her left breast was leaking puss and blood, soiling her clothing. The puss and debris was evacuated by a plastic surgeon in an acutely painful procedure.
- The facial disfigurement
The result of the damage to the facial nerves is described at paragraphs 9 and 10 above. The abnormal facial movement, which is uncontrollable and of which she is acutely self conscious, amounts to a very considerable cosmetic disability. She also suffers abnormal sensations on the right side of the face and around the right eye, and the sagging sensation in the right eyebrow.
- In this context Mr West QC, who appeared for the claimant, invited my attention to chapter 7(B) of the 10th edition of the JSB Guidelines on the Assessment of General Damages. I take account of the guidance that it affords; but it is important to note that the suggested bracket for awards of damages for facial disfigurement take account of the degree of psychological reaction.
- The deformity of the left breast
I have described the current position at paragraph 11 above. In addition to the obvious asymmetry, the breast feels abnormal, and the claimant has begun to experience both episodes of sharp pain and intense aching in the breast. In August 2010 Mr Rayner, the consultant plastic surgeon instructed on her behalf, reported that "she does not like her breast being touched and for a long period of time did not have any sexual relationship with her husband
their physical relationship is improving but she has lost enjoyment in this aspect of her life as well".
- The Psychological Consequences
The psychological impact of the injuries has been devastating. The claimant was formerly a confident, happy and outstandingly successful woman with a full and rewarding family and social life. I have considered the degree to which the injuries, and their psychological consequences, have undermined her confidence and ability to operate in the commercial world, but they have also have a very considerable impact upon her relationship with her husband and on their social life. She continues to suffer symptoms of depression and anxiety, which may improve when this litigation is brought to a close. CBT may also assist; but the prognosis is guarded, given the period for which her psychiatric condition has persisted.
- Mr West placed reliance upon chapter 3 of the JSB Guidelines, submitting that taking full account of the factors identified at chapter 3(A) the psychological damage in this case falls at the upper end of the 'Severe' bracket. I accept that viewed in isolation the psychological damage would fall within that bracket.
- He also argued that in assessing the psychological impact, I should take account of the relationship of trust existing between the claimant and the defendant, that being one of the factors specifically identified at chapter 3(A)(vii) of the JSB Guidelines. I accept that the relationship between a clinician and his patient is a relationship of trust; and I am satisfied that the claimant's reaction both to the negligent operation and to the attempt at remedial surgery, was in part the result of her view that he had broken the trust that she had reposed in him. That is a factor that I have taken into account in arriving at my assessment
- Conclusion
I have come to the conclusion that the appropriate award for general damages is £80,000. I do not consider that it is appropriate to break that figure down between the elements that have weighed in the assessment. As I have already observed, compensation for a facial disfigurement will depend to a considerable extent upon its psychological consequences. Thus whilst it is helpful to consider the JSB guidelines as to both facial disfigurement and psychiatric injury, they are so closely related in this case that a separate assessment would be inappropriate.
- Loss of earnings - past and future
The assessment of the claimant's loss of earnings, both past and future, gives rise to a number of issues:
a) The proper approach in law;
b) The validity of the projections upon which the claim is advanced;
c) The claimant's residual earning capacity;
d) Multipliers.
- The proper approach in law
The claimant's primary case is that but for the negligent surgery the turnover of BCL would have increased rapidly and dramatically. She contends that by 2013 the company would have had a turnover of the order of £170 million per annum, that at that level of turnover her 50% share of the post-tax net profits would have yielded approximately £4 million per annum, and that thereafter she would have continued to enjoy a share of profits at that level until at least the age of 66 had the business not been sold. On that basis her claim to past and future loss, including interest on past loss, would amount to a figure of about £66 million.
- The alternative scenario advanced on her behalf is that but for the index event, the claimant and her husband would have sold BCL by 1 January 2008, but that she would have remained involved in the business at least until trial, with an earnings package equivalent to that offered by Spherion in 2000/2001 uplifted to current values. That approach would have valued the claim at £50 65 million depending on the valuation of the business at point of sale. But that scenario was not seriously pursued at trial.
- The defendant now broadly accepts that the claimant has been denied the chance of expanding the business of BCL in the manner in which she might have been able to but for the injuries, but takes issue with the projected increase in turnover upon which the claimant relies.
- The parties agree that the claim is to be approached on the basis of the loss of a chance. But it is important to be clear as to what that means in this context. I am assisted in that regard by the analysis of Patten LJ in Vasiliou Hajigeorgiou Neutral Citation No. [2010] EWCA Civ 1475:
"21. In the classic loss of a chance case the most that the claimant can ever say is that what he (or she) has lost is the opportunity to achieve success (e.g. in a competition (Chaplain v Hicks [1911] 2QB 786) or in litigation (Kitchen v Royal Air Force's Association [1958] 1WLR 563). The loss is by definition no more than the loss of a chance and, once it is established that the breach has deprived the claimant of that chance, the damage has to be assessed in percentage terms by reference to the chances of success. But there will be other loss of chance cases where the recoverability of the alleged loss depends upon the actions of a third party whose conduct is a critical link in the chain of causation. The decision of this court in Allied Maples Group Ltd., v Simmonds & Simmonds [1995] 1WLR 1602 has established that causal issues of that kind can be determined upon the basis that there was a real and substantial chance that the relevant event would have come about.
22. To that extent the Allied Maples approach may assist a claimant by providing an alternative way of putting his case on damage which avoids the possibility of total failure inherent in the judge being asked to decide whether, on the balance of probabilities, the causal event would have occurred. But caution needs to be exercised in identifying the contingency which is said to represent the loss chance. The loss of a chance doctrine is primarily directed to issues of causation and needs to be distinguished from the evaluation of factors which go only to quantum."
- An increase in BCL's turnover would obviously have been dependent not only upon the claimant's actions, but upon the decisions of third parties to whom the claimant would have sought to sell BCL's services. I therefore consider that it is appropriate to adopt the Allied Maples approach, and it follows that the first question to consider is whether there was a real and substantial chance that turnover would have increased, and if so to what extent. Secondly, and depending upon the degree of certainty with which I can arrive at a conclusion as to level of turnover that could have been achieved had the claimant continued actively to be involved in selling BCL's services, it may be necessary to consider whether the resulting notional financial benefit to the claimant should be discounted to reflect the risk of not achieving that level of turnover.
- I should add that whilst the defendant now accepts that the consequences of the negligent surgery are such that the turnover of BCL is less than would have been achieved but for the injuries, it is submitted on behalf of the defendant that the claimant's projections of turnover are highly speculative, and that in those circumstances it is not appropriate to assess the claimant's loss by the conventional multiplier/multiplicand method, but rather to assess a lump sum on Blamire principles (Blamire v South Cumbria HA 1993 PIQR Q1 CA) to cover past and future loss of earnings. That is a point to which I shall return after considering the second issue, the validity of the claimant's projections.
- The validity of the claimant's projections as to the turnover of BCL
The claimant's accountancy expert, Ms Baring, has compiled a schedule of projected turnover (see paragraph 3.7 and Appendices 3 and 4 of her report dated 5 August 2010).
| Year |
Turnover £M |
| 2003 |
6,031 |
| 2004 |
26,01 |
| 2005 |
40,500 |
| 2006 |
68,548 |
| 2007 |
92,893 |
| 2008 |
112,972 |
| 2009 |
138,162 |
| 2010 |
155,151 |
| 2011 |
168,761 |
| 2012 |
169,835 |
| 2013 |
170,477 |
- The above figures are derived from the claimant's third witness statement which as I have already observed is of considerable length. Paragraphs 369 to 925 contain an analysis of opportunities for the development of BCL that the claimant contends were lost between July 2003 when she began her sabbatical, and October 2009 when BCL went into liquidation. That analysis was in turn derived from her close examination of BCL's records. The remaining paragraphs, 926 to 1,229, contain the claimant's estimate of the returns that would have been generated had the business opportunities that she identified been secured, calculated by estimating the number of consultants that would have been placed by BCL and the daily rates at which they would have been charged out. It is important to note that the projections are of turnover for BCL's consultancy business, not for the recruitment business originally started by Mr Johnson.
- The defendant's case is that the claimant's projections are wholly unrealistic, not as a consequence of deliberate exaggeration on her part, but because she is hopelessly over optimistic as to what could have been achieved. It is submitted that on an objective basis her projections are not tenable.
- There are a number of factors to be considered in assessing the reliance to be placed upon the claimant's projections. The first is the question of whether she would have been able to meet the demands that would have been made upon her by such a rapid and massive expansion of the business.
- Her projections are advanced on the basis that she would personally have translated the opportunities that she identified into contracts. The whole thrust of her third witness statement is that the development of the business was dependent upon her expertise, sales flair, and ability to establish personal relationships with clients. That was endorsed by a number of the witnesses called on her behalf who emphasised that their business relationship was with her as an individual rather than with the company whom she represented. But that inevitably raises the question of whether she would have been able to carry the burden of developing the business in the manner that she postulates. Some indication as to the answer to that question is to be found in her own evidence. At paragraph 339 of the third witness statement she explains her reasons for taking a sabbatical, namely that she had been working long and unsustainable hours during 2002 and in the first half of 2003, was beginning to get tired, "burnt out" as she described it in evidence, and furthermore felt guilty for not spending time with her youngest child. BCL had by then engaged Nigel and Helen Connolly, Helen Connolly having previously worked for the claimant as an SAP consultant at Spherion, and her husband Nigel having been sales manager for the Intelli Group, a consulting SAP partner. The claimant considered that given their combined experience it would be safe for her to take a few months off. But the first point to be made is that the pressure on the claimant of developing the business, together with her wish to devote more time to her youngest child, was such as to lead to the decision to take a sabbatical. I recognise that the claimant attributes the need to take a break from the business at that point to the intense demands upon her in establishing BCL's consultancy practice. But it seems to me to be highly unlikely that the pressures on her would have decreased to a significant degree had the business developed as rapidly as she now contends that it would have done, given the degree to which on her own account it was dependant upon her. That inevitably raises a question as to whether she would in fact have been able to sustain such an intensive involvement.
- Secondly it is clear that the expansion of the business would necessarily have required the introduction of management structures and the expansion of management staff. It would also have required delegation by the claimant of some of her responsibilities. As was submitted on behalf of the defendant in closing submissions, the running of substantial parts of a much larger business (particularly a business that operated in different countries) by other managers would have been inevitable if the business had expanded in the manner that the claimant postulates. The point is borne out by the claimant's evidence. At paragraphs 324 327 of her third witness statement she says that she had begun 2003 by starting to draft management support documents, and that management recruitment had got off to a good start in January of that year with the recruitment of Nigel and Helen Connolly, adding that she needed Nigel Connolly to sell SAP contracts in her place so as to enable her to concentrate on senior management and procedures. It is therefore clear that the expansion of the business would have depended to some extent on the recruitment of managers who could perform to the claimant's high standards. But much of the claimant's analysis of the business opportunities that she claims were lost, is directed to a detailed critique of the failings on the part of the managers who were recruited. Her own evidence demonstrates the difficulty in recruiting managers of the requisite calibre. By way of example both Nigel and Helen Connolly proved unsatisfactory and had to be dismissed, Nigel Connolly in particular having proved to be incapable of selling BCL's services. Furthermore her argument that had she been actively involved in the business she would have been able effectively to supervise the managers, fails to take adequate account of the need to delegate some of her functions if the business had expanded in accordance with her projections. As she acknowledged by the steps that she took in early 2003, she could not run the business without effective managerial support.
- I therefore consider that the problems inherent in the necessary delegation of responsibilities by the claimant, and the need to establish an appropriately staffed management structure, inevitably raise a question as to whether all the business opportunities identified by the claimant could in reality have been successfully pursued.
- The third factor to be considered in assessing the validity of the claimant's projections is whether there would have been a capacity constraint, to adopt the phraseology used by Mr Choo-Choy. The servicing of contracts on the scale postulated by the claimant would have involved a dramatic increase in the number of consultants required by BCL. The defendant's legal team have calculated that with a projected turnover of £170.5 million as at 2013, the number of fully employed consultants assumed by the claimant's calculation is approximately 1,290, a figure arrived at by dividing the turnover by the number of days during which consultants can work in a year, and the daily rate at which the claimant has suggested they could be charged out. Moreover that figure excludes the large number of 'bench' consultants who would be required to provide the necessary flexibility in covering contracts, or would need to be available for training purposes. That figure has to be set against the figure of 35 consultants employed by BCL in 2005, the year of its peak turnover.
- The claimant asserts that a significant factor in the development of the BCL business was that the company supplied consultants of a high standard, giving the company a marked advantage over the competition. That was corroborated by witnesses called on her behalf. But she does not address the difficulty of finding such a large number of high quality consultants. In this context Mr Parry, the defendant's accountancy expert, pointed to the following passage in SAP (UK) Ltd's audited accounts for 2007:
"In light of the ever increasing competition for highly qualified talents in the IT industry, there can be no absolute assurance that we will continue to be able to attract and retain key performers over the long term, despite the attractive benefits SAP offers
"
The difficulty in attracting and retaining consultants of the requisite quality is also demonstrated by the large number of consultants who joined then left BCL during the period 2003 2009.
- I am satisfied that there would have been a capacity constraint upon the development of the company, a constraint that serves further to undermine the claimant's projections.
- Mr Choo-Choy invited me further to test the validity of the claimant's projections by considering:
a) the claimant's projections contained in her business plan of February 2003,
b) The performance of BCL's competitors,
c) The evidence from actual or prospective clients of BCL.
- The February 2003 Business Plan
In her business plan prepared in February 2003 the claimant set out projections for turnover for 2003 2005. They are set out in the following table against the actual turnover for those years and the projections upon which the claim is based.
| Year |
Claimant's projected turnover |
Actual BCL turnover |
Projected
Turnover per
01-Feb 03 business plan |
| 2003 |
6,031,449 |
3,143,549 |
3,200,000 |
| 2004 |
26,100,515 |
5,350,127 |
4,800,000 |
| 2005 |
40,499,970 |
6,412,782 |
6,900,000 |
- A comparison of the figures is illuminating. The actual turnover achieved during those years is close to the 2003 projections, whereas her current projections for 2004 and 2005 are 440% and 487% higher than the 2003 projections. As was conceded on behalf of the defendant, it is reasonable to suppose that had the claimant been able to maintain and develop client relationships during 2004 and 2005 to a greater degree than she was able too, the actual turnover figures for 2004 and 2005 would have been greater. But it is unlikely to have been significantly greater bearing in mind her evidence that much of the turnover in 2004 and 2005 was the result of pipeline business originating from 2003, and that client development work done in one year takes some months to feed through to actual turnover. Mr Choo-Choy concedes that turnover for 2004 and 2005 might have been 20% 30% higher than the February 2003 projections, but not 400% 500% higher. I find that analysis persuasive, not least because it is reasonably to be assumed that the projections that the claimant made in February 2003 were based upon a realistic assessment of the prospects for the development of the business.
- I am reinforced in that conclusion by the telling point made by the defendant's accountancy expert, Mr Parry, in relation to the 2003 figures. Actual turnover in 2003 was £3.1 million. Thus it follows from her current projection that she claims that her absence for the last four months of 2003 resulted in lost sales of the order of £2.9 million, in other words that but for her absence for four months, turnover for the year would have been almost doubled. In my judgment that is plainly unrealistic and serves further to undermine the degree of confidence that can be placed on her projections.
- In her evidence the claimant explained that the February 2003 business plan was the product of much thought and research, but in cross examination sought to diminish the weight to be attached to the contemporaneous projections by asserting that she had not fully appreciated the potential of BCL's business at that point, in particular the potential for SAP business from IBM. But as submitted by Mr Choo-Choy, that assertion is not persuasive for a number of reasons. By February 2003 she had been involved in selling SAP consultancy services since joining Spherion in September 1997, and was well aware of the potential of the SAP market. That was why she was prepared to refuse the offer to take over as managing director of Spherion in order to set up BCL's consultancy business. Moreover she had established a business relationship with IBM whilst at Spherion, and in her 2001 business plan had targeted IBM as a client of BCL by 2002, a target that she achieved. As she said at paragraph 271 of her third witness statement:
"In 2002 we worked with numerous SAP clients. The main ones were IBM, Deloitte, Frank Roberts Bakery, Barclays, Toyota and Xansa. We had wanted twelve clients by the end of 2002; in fact we had 21 including IBM which we viewed as a platinum account."
Thus the suggestion that in February 2003 she was unaware of the potential of the IBM account is difficult to reconcile with her own evidence. Furthermore the IBM sales projections are but a part of the claim projections (albeit a substantial part per Mr Parry whose analysis of the claimant's IBM sales projections indicate that they represented between 25% and 50% of the total loss sales for which she contends for the period 2003 to 2013). A failure to appreciate the full potential of the relationship with IBM cannot therefore explain the massive discrepancy between the contemporaneous projections for the years 2003 2005 and those now advanced.
- Comparison with Competitors
I accept that BCL was uniquely placed in the market given the combination of consultancy services that it was able to provide. But a comparison of the performance of companies providing services that overlapped to a greater or lesser degree with those provided by BCL affords a further means of testing the projections upon which the claim is based.
- The claimant adduced in evidence a witness statement from Alexander Dembitz, who describes himself as a "serial entrepreneur and business owner" who buys and sells commercial businesses. One of his acquisitions was Sofgen Holdings Ltd which he describes as "a commercial rival
a major rival to Bishop Cavanagh". That was confirmed by Peter Johnson who gave evidence that "2001 2005/6 Sofgen were exactly like us
our direct competitors" In fact in 2005/2006 Mr Dembitz considered purchasing BCL. Sofgen was established in 1999, and is now made up of a group of 15 companies based in several jurisdictions, with some 286 employees and 227 consultants. By 2006 its turnover was US$5.8 million (cf BCL's turnover of £5.8 million in 2006) and by 2009 had risen to US$22 million. Its projected turnover for 2010 was US$31 million, equating to about £20.7 million. Approximately US$2.2 million of its turnover related to non-consulting business. Thus its IT consulting revenues for 2010 were estimated to be about US$28.8 million or £19.2 million. By contrast the claimant has projected a turnover for BCL of £255.2 million for 2010, approximately 8 times greater than Sofgen's IT consulting revenues.
- A further witness called on behalf of the claimant was Ian Wyrley-Birch who founded the Birchman Group Ltd (TBG) in early 2003. By 2010 it had about 600 employees and operated in eleven offices in nine countries. His evidence was that when TBG was established it would have been "partly in competition with Bishop Cavanagh", there would have been "a fair element of competition between [TBG] and Bishop Cavanagh". In his witness statement he acknowledged that the range of services offered by TBG is broader than that offered by BCL. But in his oral evidence he confirmed that about 80% of TBG was SAP based. By 2009 TBG's turnover had grown to £24 million with a forecast turnover for 2010 of about £30 million. Thus the forecast turnover for its SAP business in 2010 was £24 million (80% of £30 million), a figure about 6.5 times less than the claimant's projected turnover for BCL for 2010 of £155.2 million.
- At paragraphs 3.10 3.12 of her first report Ms Baring identified a number of other IT consultancy and recruitments companies as the fastest growing and most profitable award-winning UK companies operating in BCL's sector (several of which operate in the SAP field). Mr Parry's analysis of such companies shows that all had turnover as at 2009 or 2010 in the range of £5.5 22 million. He made two further points about Ms Baring's selection, first that it does not include companies with a turnover with less than £6.5 million and fewer than 50 employees, as such companies are only obliged to lodge abbreviated accounts and the relevant data is not therefore available. Secondly, and as Ms Baring accepted in the course of cross examination, a number of the companies identified by her suffered from periods of stagnation or reduction in turnover.
- The exception to the £5.5 22 million range was Red Commerce, a SAP recruitment business, which had a turnover of £46.6 million in 2010 (down from £51.5 million in 2009). But as noted by Ms Baring, Red Commerce was the subject of a management buy out in 2005, and was thereafter backed by a private equity partners. Mr Parry demonstrates that most of the company's growth in turnover occurred after the buy out, and that following the buy out the private equity founders acquired control of the company with a 68.5% equity stake, leaving only one of the original founders with an 8.3% equity stake in the business.
- It was submitted on behalf of the claimant that the closest comparator is Axon Group PLC, described by Ms Baring at paragraph 3.8.2.b of her report as a "possible competitor, role model". Axon had a turnover of £50.2 million in 2003 rising to £204.5 million in 2007 when it was taken over. At that point it was, per its annual report and accounts 2007 "the largest consultancy in the world focused exclusively on the provision of SAP services and solutions for its customers" and "the dominant SAP services provider in the UK market." But it is submitted on behalf of the defendant that its value as a comparator is very limited as it was established in 1994 and was floated on the London stock exchange in 1999. By 2003, when BCL was turning over £3.1 million, its turnover had reached £50.2 million. The claimant asserts in her third witness statement (para. 902) that when considering longer term options, "We could for instance have considered a sale en masse or continued aiming to become blue chip company like Axon." Whilst the latter was a laudable aspiration, I consider that Axon is a much less reliable guide to BCL's prospects than Sofgen or TBG for the reasons advanced on behalf of the defendant, in particular the disparity in size between Axon and BCL, and the injection of capital on its floatation in 1999.
- Mr Parry put forward IT Human Resources Plc (ITHR) as a valid comparator, as it started trading in 1999 and is an IBM partner company. It grew rapidly, and by y/e 31 March 2010 had a turnover of £25 million. But it is a recruitment company operating a different business model from BCL; and I do not therefore consider that it assists.
- The evidence as to actual or prospective clients of BCL
Mr Choo-Choy submits that not only is there no independent corroboration of the claimant's projections, either by her accounting expert, who was not invited to subject them to analysis, or from the witnesses who were called on her behalf, but that a close examination of the business relationship with a number of actual or perspective clients serves further to undermine the projections upon which the claimants seeks to rely. To support his argument Mr Choo-Choy subjected the three principal business relationships relied upon by the claimant to support her claim that business opportunities were lost, namely IBM, Kimberley Clark and Deloitte, to close analysis.
- IBM
The claimant has projected lost sales to IBM (as summarised in Appendix 4 to Ms Baring's report) starting at £720,000 in 2003 rising to £7,920,000 in 2004, to £12,40,000 in 2005, to £15,840,000 in 2006, to £17,160,000 in 2007, to £21,120,000 in 2008, to £28,380,000 in 2009, to £37,290,000 in 2010 and then peaking at £46,420,000 per annum from 2011 onwards. If further IBM projects and maintenance contracts in which the claimant also contends that BCL would have been involved are taken into account, the annual figures increase to £9,644,138 in 2004 to £63,664,137 in 2013 (see Mr Parry's analysis at Appendix 6 to his report).
- Some general support for the claimant's projects is to be found in the evidence of Mr Hunt, who said in his witness statement
"
it was a reasonable proposition that the company could reach 100 million euros turnover per annum simply by maintaining its standing.
In the short terms I expected Bishop Cavanagh to have a turnover of about 25 30 million euros
She could handle say ten 3 million euro contracts a year without massive expansion in her company'e support structure.
Thereafter there are other factors which clearly apply, such as the ability for her to attract or train quality management."
- But Mr Choo-Choy poses the question as to what hard evidence there is as to lost sales to IBM, and submits that there is little if any evidence of loss of any concrete opportunity during the years 2003 2007. He bases that submission upon the following evidence.
- In 2004 BCL signed a substantial contract for the supply of sub-consultants to IBM Sweden in connection with a project for Erikson, the contract being for an initial duration of ten months from July 2004 to May 2005. Mr Hunt confirmed in evidence that IBM would have wanted to assess BCL's performance throughout the Erikson contract before awarding it further substantial work. He left IBM in July 2005 by which time he believed that BCL had completed the contract, and confirmed that IBM was pleased with BCL's work. But it appears from an IBM Sweden e-mail dated 27 May 2007 to BCL that BCL's involvement with IBM in the Erikson project continued after Mr Hunt's departure, at least until 30 June 2007. That was confirmed by Mr Sadler who joined IBM from SAP (UK) in mid 2005, and who was the IBM bid manager for the Erikson project. He also gave evidence that he had placed such business as he had available with BCL before he left IBM in 2007. As was noted in the IBM Sweden e-mail of 27 May 2007, IBM did not renew the Erikson contract with BCL. Neither Mr Hunt nor Mr Sadler were able to assist as to the reasons that led to that decision. There is no evidence independent of the claimant that the decision was any way due to the fact that she was not able to engage with IBM. Nor did the claimant give any evidence as to how she would have retrieved the situation given that neither Mr Hunt nor Mr Sadler remained at IBM at that point. I should add that the claimant suggested at paragraph 497 of her third statement that BCL's relationship with IBM failed to blossom because IBM was unhappy about Simon Stroud, one of BCL's principal SAP consultants, leaving the project. But as Mr Choo-Choy pointed out, that suggestion was not supported by the evidence of Mr Hunt or Mr Sadler, nor did it feature in the e-mail of 27 May 2007.
- I am therefore satisfied that an analysis of the evidence of BCL's relationship with IBM, independent of that given by the claimant, demonstrates that her projections of lost sales to IBM are decidedly over optimistic.
- Kimberley Clarke
Mr Choo-Choy submitted that as in the case of IBM, the lost sales to Kimberley Clarke were wildly over estimated by the claimant. Again his argument was based upon a close analysis of the evidence independent of that given by the claimant. She has projected lost Kimberley Clarke sales of £1,320,000 for each of 2003, 2004 and 2005, rising to combined UK/US lost sales of £5,280,000 in 2006 and £14,280,000 in each of 2000 and 2008 and then continuing at a level of £10,320,000 for each of the years 2009 to 2013.
- The first and most important point that he makes is that the relationship of BCL with Kimberley Clarke was transformed after 2006 by the conclusion of a long term outsourcing contract between Kimberley Clarke and Cognizant, a large US Corporation which as at January 2007 had a global work force of 38,000 employees. As the Kimberley Clarke press release dated 16 January 2007 indicates, the outsourcing contract, which was for an initial 5 year term with two further one year extension options, covered "an array of SAP
and customised software applications including strategic planning, product management, supply chain planning and execution, sourcing, sales and marketing, data exchange and compliance, enterprise management and customer management." The driver behind this global outsourcing contract was Kimberley Clarke's search "for a partnership that would deliver cost savings by world wide outsourcing".
- The claimant called Mr Barbiaux (see paras 44-6 above) who from 1999 to 2008 was responsible for IT for Kimberley Clarke in Europe, the Middle East and Africa. But in addition to the evidence summarised in those paragaphs, Mr Barbiaux gave evidence that his ability to place Kimberley Clarke business with BCL would have existed "through [to] 2006", but beyond that date Kimberley Clarke's external requirements for consultants, including SAP consultants would have been met predominantly by Cognizant. The claimant sought to meet the point by suggesting in the course of her evidence that had she been involved in the business at that time, she would have attempted to form a partnership with a bigger player, such as IBM or Accenture, to win the outsourcing contract from Kimberley Clarke. But as Mr Choo-Choy submitted, that is pure speculation. Mr Barbiaux's evidence was that there was a competitive process which involved a pre-selection of 20 25 candidates followed by a short list of 5 primary bidders one of which was Cognizant. There is no evidence before me as to the bid process and the candidates involved such as to enable me to assess BCL's prospect of winning the outsourcing contract in partnership with another party.
- It follows that there is no sound basis upon which I can properly conclude that BCL would have continued to derive benefit from sales to Kimberley Clarke after 2007.
- As to lost sales prior to the outsourcing contract, Mr Barbiaux said in his witness statement that "Kimberley Clarke's SAP project effectively started in 2000 and demand for resources peaked in 2001/2002 before starting to drop back in 2003 in the UK and Western Europe
". He amplified the point in his oral evidence explaining that Kimberley Clarke took a break from installation from SAP systems in 2004 for a period of about 6 8 months. As Mr Choo-Choy observed, that evidence of itself renders the claimant's assertion of a loss of Kimberley Clarke sales of £1,320,000 in each of 2003 and 2004 untenable. As to 2005 and 2006, it is unclear on the evidence either what business BCL was doing with Kimberley Clarke or what further opportunities would have been available to be pursued had the claimant been involved in the business.
- Thus as in the case of IBM, the independent evidence demonstrates that the claimant's projections are untenable.
- Deloitte
The claimant projects lost Deloitte sales of £240,000 in 2003 gradually rising to £6,182,000 in 2008 and later years. But again it is submitted on behalf of the defendant that such projections are seriously overstated. Reliance is placed upon the evidence of Mr Elkington (see paras 47-9 above) who said that there was a restructuring of Deloitte in the second half of 2003 lasting six to seven months which caused a hiatus in its business. Accordingly there is no basis for the claim of lost Deloitte sales in 2003 after the claimant began her sabbatical. Thereafter the claimant's projections are based in part upon the premise that BCL's relationship with Deloitte would have extended beyond the United Kingdom to foreign based Deloitte entities. There was general support for that proposition in the witness statement of Mr Elkington as noted at paragraph 48 above. Yet in cross-examination Mr Elkington could not recall any occasion when he had recommended BCL or sought to generate work for BCL from non-UK Deloitte entities. Nor does the claimant suggest in her third witness statement that he did.
- Yet again the claimant's projections do not stand up when tested against the independent evidence.
- Mr Choo-Choy made similar points in relation to a number of other actual or prospective clients. So far as the Temenos business was concerned the claimant estimated loss of sales to UBS in the range of £715,000 to £1,144,000 between 2006 and 2013. She contends that her relationship with UBS foundered because of a high turnover of consultants; but the evidence shows that by October 2006, UBS had decided "
to take their T24 solutions back in house", and gave notice of termination of their services agreement with BCL. There is nothing in the relevant documentation to support the suggestion that the UBS business could have been retrieved had the claimant been actively involved in the business.
- In the light of my conclusions as to the position with regard to IBM, Kimberley Clarke, Deloitte and UBS, it is not necessary further to consider this line of argument. The position is clear. The claimant's projections do not provide a sound basis upon which to assess her past and future loss of earnings.
- In my judgment the claimant's projections are the product of her intense disappointment at the devastating consequences of her injuries so far as the business of BCL is concerned. She has understandably become preoccupied by what might have been, which has affected her judgment as to what could and would in reality have been achieved. In that regard the comparison between her projections of February 2003 and those advanced in support of the claim is telling. In February 2003 the claimant was making a rational prediction of future performance based upon her intimate knowledge of the market and upon performance up to that date. Mr Choo-Choy was right to accept that in advancing the projections upon which the claim is based, the claimant was not deliberately exaggerating her case. But it is clear to me that she has persuaded herself that BCL's prospects were far better than can realistically be justified
- Conclusions as to lost turnover
How then is such loss to be assessed? It is accepted on behalf of the defendant that turnover would have increased had the claimant been actively engaged in the business. Accordingly, and adopting the Allied Maples approach, it is necessary to determine the level to which there was a real and substantial chance that it would have increased by 2010. In his closing submissions Mr Choo-Choy advanced a range of £10-25 million as an entirely realistic projection, suggesting that it would be appropriate to proceed on the basis that on the balance of probabilities there would have been a turnover of at least £10 million per annum by 2010, and a real and substantial chance of achieving a higher level.
- I consider that the performance of Sofgen and the Birchman Group provide a sound foundation upon which to base my judgment as to the turnover that would have been achieved by 2010. Neither is an exact fit as in addition to its SAP practice, BCL provided a consultancy service in Temenos. But SAP consultancy represented over 90% of Sofgen's business by 2010, 80% of the Birchman Group business by the same date. Sofgen was established in 1999, about the same time as BCL, the Birchman Group in early 2003. In 2010 Sofgen's IT consultancy revenues were about £19.2 million, the Birchman Group's SAP turnover £24 million.
- I am satisfied that had the claimant been fully involved in the business of BCL between 2003 and the beginning of 2011, there was a real and substantial chance that the business would have achieved a turnover of not less than £25 million per annum. I derive support from that figure not only from the performance of Sofgen and the Birchman Group, but also from the figures for turnover for the IT consultancy and recruitment companies identified by Ms Baring as the fastest growing and most profitable award winning UK companies operating in BCL's sector. Whilst the range of turnover for such companies as at 2009 and 2010 was £5.5 22 million, I have no doubt that under the claimant's guidance, BCL would have been at least at the top of that bracket, given the claimant's unique abilities and the range of services that BCL could provide. I also derive support for my conclusion from the evidence from Mr Winwood, Mr Sadler and Mr Hunt (paragraphs 34, 40-42 and 55 above respectively) as to the turnover that they would have expected the claimant to be able to generate.
- The next question is whether that figure should be discounted to reflect the risk of not achieving that level of turnover. In my judgment it should. Ms Baring demonstrates in her analysis of the fastest growing UK companies operating in BCL's sector, that such companies may experience a reduction or stagnation in turnover. The point is also demonstrated by Mr Winwood's evidence as to the downturn of Spherion's turnover in 2000/1 (see paragraph 33 above). Secondly the growth of the company to the postulated level of turnover would have required a substantial expansion of the company's workforce and management, an expansion which would have carried the inherent risks that I have addressed at paragraph 85 above. Thirdly it has to be borne in mind that BCL's performance would have been dependent upon that of the claimant, and that her decision in 2003 to take a sabbatical was driven to a considerable degree by the pressure of running the business.
- Bearing those factors in mind, I have come to the conclusion that it is reasonable to discount the projected figure for turnover for 2010 to £20 million.
- The accountancy experts agree that it is reasonable to assume net profit at 10% of turnover. I accept their judgment. It follows that for 2010 there would have been a net profit of £2 million to be shared equally between the claimant and her husband, provided that there had not in the meantime been a dilution of their share holdings.
- It is submitted on behalf of the defendant that there would likely to have been a dilution of their shareholdings if BCL had expanded to such an extent that it was generating an annual turnover at the level of £20 million. Mr Choo-Choy bases his submission upon the evidence from Ms Barling that some 40% of the fastest growing IT companies that she examined had venture capital backing. Secondly he relied upon the evidence of Mr Wyrley-Birch that there had been a 40% dilution in shareholding in TBG as a result of new management/equity partners being introduced to the business. Thirdly he pointed to the case of Red Commerce in which private equity partners had acquired a controlling 68.5% stake in the business. Fourthly he placed reliance upon the claimant's own evidence. When questioned on the subject of the award of share options to Simon Strode, she confirmed that she considered it important to incentivise senior employees with shares in the company. Mr Choo-Choy also drew attention to the evidence of BCL's share option scheme for employees, and in particular to the presentation on the subject given by Steve Hearn during a 2005 company event.
- In my judgment it is reasonable to assume that there would have been some dilution of the share capital by virtue of share options granted to employees. I am not persuaded that it would have been as high as in the case of TBG, not least because I formed a very clear impression that the claimant and her husband had the strongest interest in maintaining their earnings at the highest level, and that whilst recognising the need to incentivise their staff, would not have been prepared to give away as much as 40% of the company. I have come to the conclusion that it is reasonable to assume that their share holding would have been reduced to 80% of the issued share capital. The dilution of the claimant's shareholding would probably have occurred over a period; and in my judgment it is reasonable to take the mid-point of the period between the claimant's injury and the date of judgment as the point from which the claimant's loss of earnings should be calculated at 40% rather than 50% of net profit.
- It follows that the claimant's loss of earnings both past and future must be calculated by reference to gross earnings in 2010 of £800,000. I shall require the assistance of the accountancy experts in translating that into a net figure.
- As to past loss I shall also require the assistance of the accountancy experts. For the purposes of their calculation they should assume a turnover of £3.2 million for 2003 rising to the figure of £20 million for 2010. They should also assume a linear rise over that period.
- As will have been apparent from the conclusions which I have already arrived, I am not persuaded that it is appropriate to adopt the Blamire approach. Future loss can be calculated by the conventional multiplier/multiplicand approach.
- Multipliers
There remains only the question of the multiplier. It is submitted on behalf of the claimant that she would have worked in and derived income from BCL until the age of 66. The defendant disagrees, arguing that it is typical for successful entrepreneurs to retire early and that a retirement age of 60 would be more realistic. Some support for the defendant's argument is to be derived from the evidence that it had been the intention of the claimant and her husband to grow the business to the point at which it could have been sold, and that they had in fact entered into negotiations with Mr Dembitz in 2006. But against that is the evidence that the claimant was an ambitious and driven woman, who would no doubt have sought other fields in which to take full advantage of her considerable abilities, had the business been sold. In my judgment the competing arguments can be fairly balanced by taking a retirement age of 63. Again I invite agreement between the parties as to the appropriate multiplier.
- The claimant's case was originally advanced on alternative bases, namely a claim based on her share of lost profits of BCL, and alternatively the lost capital value of the business on the assumption that it would have been sold by 1 January 2008. As I have observed at paragraph 76 above, the second alternative was not seriously pursued at trial. In his closing submissions Mr West sought to argue that in addition to the lost profits claim, there was a claim for the residual value of the business at the point of the claimant's projected retirement. That had not formed part of the claim up to that point, nor had it featured in the claimant's written closing submissions. In response Mr Choo-Choy submitted that the argument was misconceived, as the loss of profits claim was advanced on the premise that the claimant would withdraw the entirety of her share of profits from the business until retirement, whereas had the claim been advanced upon the basis there would have been a residual value in the business at point of retirement, then account would have to have been taken of the probability that the claimant and her husband would have invested their profits in the business in order to enable it to grow, and that the loss of profits would therefore have had to have been discounted to make allowance for such re-investment. In my judgment the argument advanced by Mr Choo-Choy was well founded. I reject the additional claim for the residual value of the business at the notional point of retirement.
- Residual earning capacity
Ms Baring advances an illustrative figure of half-time working at a gross salary at £20,000 per annum. But it is submitted on behalf of the defendant that that is a gross understatement of the claimant's present earning capacity. The injuries sustained by the claimant have not affected the level at which she functions intellectually, her memory, her analytical ability or her business experience. Her performance under cross examination demonstrated exceptional powers of concentration and of memory. It is clear that she functions intellectually at a very high level and continues to have the potential to deploy her outstanding abilities in the business context. That would suggest a substantial residual earnings capacity; and in that regard I bear in mind the salary that she was offered by Spherion in 2000. But account has to be taken of the deep seated psychological consequences of the injuries. As I have already indicated, the prognosis is guarded. Unless she makes a full recovery, and unless she recovers some vestige of her former self confidence, the prospect of engagement in business activities that involve face to face contact with others is limited. Thus whilst I accept that she has a residual earning capacity, and if free of psychiatric symptoms could perform at a high level, such earning capacity must in my judgment be heavily discounted to reflect the uncertain prognosis, and in particular to reflect the risk that there may be periods when she is unable to work on a full time basis. In all the circumstances I consider that it is reasonable to work to a gross figure of £40,000 per annum. Again, I invite agreement between the accountancy experts as to the appropriate net figure to be deducted from the multiplicand. The start date for the calculation of residual earning capacity will be one year from the date of judgment, that being the period within which the claimant can reasonably be expected to be in a position to earn at the level that I have indicated.
- BC Direct
The final dispute between the parties is whether the claimant's dividends from her shareholding in BC Direct should be deducted from the multiplicand for future earnings. BC Direct is the recruitment business that has continued to be run by the claimant's husband since BCL went into liquidation. The claimant has a 25% shareholding in BC Direct; and it is submitted on behalf of the defendant that her net income of £98,000 per annum, based on the operating profit of £800,000 per annum, should be deducted from the multiplicand. The defendant's reasoning is that the recruitment element in BCL's business forms part of the projection of BCL turnover, and that if such a deduction is not made there will be an element of double recovery. I do not agree. As I observed at paragraph 82, the projections advanced by the claimant were of turnover for the consultancy business, and my conclusions as to the turnover that would have been achieved but for the claimant's injuries are also limited to the consultancy business. The claimant does not play an active part in the recruitment business, and the dividends that she receives as a result of her shareholding are no different from those that she might receive as a result of any other investment. I therefore reject the argument that a deduction should be made from the multiplicand for future loss to reflect income to be derived from her shareholding in BC Direct.
- Special Damage
A number of heads of loss have been agreed. Three remain in issue, gym membership, books/cd's and care. In my judgment the sums claimed under each head are properly recoverable. The first and second are plainly attributable to the injuries; and I have no hesitation in assessing the value of the care provided by the claimant's husband in the sum claimed of £5,000
- Finally I direct that the parties prepare a schedule to be annexed to this judgment setting out the consequences of the conclusions at which I have arrived, supplemented by the further information that I have directed should be sought from the parties' accountancy experts, so as to arrive at the final judgment figure inclusive of interest.
ADDENDUM
- Following the distribution of paragraphs 1 136 of my judgment in draft, and the invitation to the parties and their accountancy experts to prepare a schedule setting out the consequences of the conclusions at which I had arrived, I heard written and oral submissions on a number of further issues to which preparation of such a schedule gave rise.
- Interest on Past Loss
In calculating interest on past loss the claimant has adopted the conventional approach (see Jefford v Gee (1970) 2QB 130) namely to calculate interest at half the Special Investment Account Rate from 29 August 2003 to the date of judgment. But it is submitted on behalf of the defendant that the Jefford v Gee approach is not appropriate on the facts of this case as it does not take account of the increase in the loss sustained, which is to be calculated by reference to an increase in turnover from 3.2m for 2003 to £20m for 2010. The defendant's accountant has factored such increase into his calculation of interest by calculating interest on an annual basis at the full rate from the mid-point of each year in which loss was sustained.
- The principle upon which interest is awarded is to compensate the claimant for being kept out of the money that she would have been entitled to receive. To award her interest at half the rate on the total loss sustained would have been appropriate had her loss remained constant or increased to a modest degree over the period in question. But given the very substantial increase in the annual loss, to calculate interest on the Jefford v Gee basis would be to over-compensate the claimant; and accordingly the approach taken by the defendant is in my judgment correct.
- The Incidence of Taxation
A number of issues have emerged between the parties as to the proper approach to the incidence of taxation. In their original calculations both accountancy experts calculated net dividends by allowing for income tax on dividends for 2010 onwards at 36.1% of dividend received, i.e. the current top rate of tax on dividends. But the claimant's expert has now revised her approach to calculation of net dividends, both past and future, on the basis that the claimant would have been advised to defer the majority of dividends whilst the current tax rate persisted, and has assumed a future change of tax regime such that the maximum dividend tax rate would be reduced to 25% from 2013 onwards. Her assumption is based upon statements made in the House of Commons by the Chancellor of the Exchequer in relation to income tax when introducing the March 2011 Budget. He did not make any express reference to the tax on dividend income, but with regard to income tax said -
"I am clear that the 50 pence tax rate would do lasting damage to our economy were it to become permanent. That is why I regard it as a temporary measure."
- At paragraph 4.4b of their joint statement of 17 January 2011 the accountancy experts agreed that it was for the claimant and her husband to decide how and when to take their income from the business, and that historically they had taken a combination of salary and dividends. Mr West QC argues, and I accept, that it is reasonable to assume that the claimant and her husband would have taken and followed expert advice as to how to minimise their liability for tax. But the issue to be resolved is whether allowance should be made for tax on dividend income at the current rate, or whether the calculation should be based upon the statement made by the Chancellor. Unless I am persuaded that the latter should apply, the question of deferral of dividends does not arise.
- The first point to be made is that the assessment of damages is not a precise arithmetical exercise. As Lord Goddard observed in British Transport Commission v Gurley [1956] AC 185, which established that the incidence of taxation is to be taken into account in the assessment of damages for personal injuries, such damages are awarded as compensation not restitution (see page 208), that "it has always been laid down that damages cannot be a perfect compensation" (page 209) and in his suggested direction to a jury at page 209 that:
"No-one can foresee where the tax will go up or down, and I advise you not to speculate on the subject but to deal with it as matters are at present."
It is to state the obvious to observe that changes to the tax regime cannot be reliably predicted, and that in consequence the standard approach is to calculate future loss of earnings by reference to current rates of taxation. The inevitable but unavoidable consequence is that in the event of subsequent changes in the tax regime, a claimant will have been either under or over-compensated.
- Secondly the statement made by the Chancellor upon which the claimant seeks to rely does not begin to lay the evidential foundation for a departure from the standard approach. His statement was no more than an expression of future intent couched in general terms. Whether a future Parliament will modify the taxation regime in accordance with the Chancellor's assertion that the top rate of income tax is a temporary measure, will depend upon a number of factors, in particular the economic health of the country, the state of the budget deficit and the life of the current government. To rely upon the Chancellor's statement would be a speculative exercise, and would not provide a sound basis for calculating future loss.
- It follows that in my judgment the accountants should not assume that the top rate of tax on dividend income will reduce to 25% by 2014, and should therefore carry out the necessary calculations on the basis of the current tax regime.
- The same point arises in relation to the second issue under this head, namely the rate at which allowance should be made for corporation tax in calculating the net profit of BCL. Under the current tax regime corporation tax is levied at 26%, and in his budget speech in March 2011 the Chancellor proposed a reduction in the rate of corporation tax to 23% by 2014 saying-
"So I can today announce that from April this year corporation tax will be reduced not just by 1% as I previously announced but by 2%. And it will continue to fall by 1% in each of the following three years taking out corporation tax rate right down to 23%."
But again I do not consider that his expression of future intent can provide a sound basis upon which to calculate BCL's projected net profit. The accountants should apply the current rate of corporation tax.
- The third issue is whether in making their calculations the accountants should assume that the claimant will receive earned income other than that from BCL. The defendant's accountancy expert makes that assumption, and accordingly calculates future loss of earnings by reference to the top rate of tax. The claimant submits that there is no evidential foundation for that assumption, and that the calculation of lost earnings should be carried out on the basis that the claimant would not have been in receipt of any other earned income. As is implicit in my conclusions as to residual earning capacity (see paragraph 133) the calculation should not be made upon the assumption on that the claimant would have received other earned income.
- Multipliers
There are two issues between the parties as to multipliers. The first relates to the multiplier for lost career earnings. The issue between the parties is whether the multiplier for which the claimant contends, which is based upon the actuarial tables contained in the 6th edition of the Ogden Tables, should be discounted for contingencies other than mortality.
- Section B of the 6th edition of the Ogden Tables introduced a new and more sophisticated methodology for a deduction for contingencies other than mortality based upon further research (see section B paragraph 28). Under the proposed new methodology multipliers for loss of earnings derived from the actuarial tables are multiplied by a factor determined by reference to the appropriate table (see tables A-D) to allow for the risks of periods of non-employment and absence from the workforce because of sickness (see paragraph 33). The research upon which the new methodology is based demonstrated that the discount for such contingencies is affected by employment status, disability status and educational attainment, hence the range of discount factors contained in tables A-D.
- But as is clear from section B paragraphs 31 32, the proposed methodology simply provides a framework for consideration of a discount to the actuarial multiplier to reflect contingencies other than mortality, and its application will be case sensitive.
- The question is whether, on the facts of this case, allowance ought to be made for the contingencies taken into account in section B, namely the risk of periods of non-employment, absence from the workforce because of sickness, and, per paragraph 40, the interruption of employment for bringing up children and caring for other dependents.
- In the light of the claimant's remarkable career prior to the negligent surgery, the risk of periods of non-employment can be regarded as negligible. Secondly, and given that but for the surgery, the claimant would have been continuing to run a business in which she was a principal shareholder, periods of sickness would have been unlikely to have affected her income. The same applies to any demands upon her time caring for her youngest child, who is now 13 years of age.
- It follows that in my judgment and on the particular facts of this case it is not appropriate to make any further discount to the actuarial multiplier by application of table C.
- The second issue under this head is as to the proper approach to residual earning capacity. The claimant contends that the multiplier should be adjusted by one year in accordance with paragraph 133, but further submits that it is appropriate to adopt the methodology proposed in the 6th edition of the Ogden tables by applying table D (Loss of Earnings to Pension Age 60 (Female Disabled Not Employed GEA)) giving a multiplier of 1.54. But as in the case of future loss of earnings, it is necessary to consider whether it is appropriate to apply that approach on the particular facts of the case. My judgment as to the claimant's future earning capacity is based upon her previous career and upon her continuing disability, both cosmetic and psychological. As can be seen from paragraph 133, in arriving at my conclusion I took account of the relatively uncertain prognosis and of the risk that there may be periods when she is unable to work on a full-time basis. In those circumstances the multiplier for residual earning capacity should not be discounted by reference to table D. The net annual figure is to be deducted from the multiplicand, and accordingly the multiplier will be the same as for the projected loss of earnings, less one year.
- Conclusion
There will therefore be judgment for the claimant in the sum of £6,190,884.92, made up as set out in the schedule annexed to this judgment.
Johnson v Le Roux Fourie
Appendix to Judgment
| Head |
Sum |
| PSLA |
£80,000 |
| Interest on PSLA |
£6,842.74 |
| Total PSLA (inc Interest) |
£86,842.74 |
| |
|
| Past Special Damages |
|
| Miscellaneous Losses |
£17,160 |
| Lost Earnings |
£1,733,482 |
| Sub-Total |
£1,750,642 |
| Interest on Miscellaneous Losses @17.3% |
£2,968.18 |
| Interest on Lost Earnings |
£149,880.00 |
| Total Interest |
£152,848.18 |
| Total Past Losses (inc Interest) |
£1,903,490.18 |
| |
|
| Future Special Damages |
|
| Miscellaneous |
£27,500 |
| Lost Earnings |
£4,173,052 |
| Total Future Losses |
£4,200,552 |
| |
|
| Grand Total |
£6,190,884.92 |
