Image Capture asks for 'iphone to be unlocked' but when unlocked still dosnt work - issue with iOS 10 / OSX 10.8 compatibility ?
I saw a couple of other posts on this issue where they suggested deleting the plist files for image capture, i tried this but to no avail. 

In the end i upgraded from 10.8.5 to 10.10.5 and it seems to have solved the issue. Not sure if its a incompatibility issue between 10.8.5 and iOS10 or rather that image capture was corrupt and upgrading OSX fixed that, but either way issue was resolved.