If you inherit the goose can you claim you are deprived of the eggs?

The High Court decision

Mr Rix (the deceased) died from mesothelioma aged 60 following exposure to asbestos early in his career. Later in his career, the deceased spent his working life building up a successful business, MRER Ltd.

Liability was admitted leaving the court to resolve quantum. The main area of controversy was the quantification of the annual value of Mrs Rix’s (the claimant) financial dependency.

By agreement between the parties, the High Court considered the following:

1 Whether the claimant had a dependency at all - the claimant contending for an income dependency and the defendant arguing that no dependency existed at all.

2 If there was indeed a dependency, how it was to be calculated - either by reference to the share of the annual income received from MRER Ltd had the deceased survived (Basis 1) or by reference to the annual value of Mr Rix’s services to the business by reference to the cost of a replacement Managing Director (Basis 2).

The deceased was described as a “remarkably talented and dedicated businessman” and was involved in all aspects of his company. The business expanded over the years with mergers and a need for larger premises, the success of which was attributed to the deceased.

The trial judge found that the claimant, despite being a director, drawing a salary and receiving a dividend, was dependant on the deceased who was the main breadwinner.

As to the quantification of the claim, the judge applied a “realistic and common sense approach”, including a share of the claimant’s annual income that would be taken from the business had the deceased lived which was based on forensic accounting evidence. The court declined to make a discount in respect of the income the claimant continued to receive after her husband’s death or the improving financial position of MRER Ltd.

Appeal

The defendant obtained permission to appeal on the following grounds:

1 That the judge erred by failing to consider if all of the company profits attributed to the claimant and deceased should be included in the dependency claim on the basis that they had continued after death.

2 The judge was wrong to treat the claimant’s entitlement to a share of profits based on her shareholding as if it had belonged to the deceased.

3 There was error in refusing to take account of the claimant’s surviving share of the profits in MRER Ltd, based on her own shareholding and director’s salary.

Decision

The Court of Appeal dismissed all grounds of appeal. In doing so, the court rejected the defendant’s arguments to ground 1 of the appeal and did not find that the cases of Welsh Ambulance Services NHS Trust v Jennifer Mary Williams [2008] or Wood v Bentall Simplex Limited [1992] established the principle that business earnings were to be considered earnings from capital. The second ground was rejected after consideration of the reality where the deceased was the full force of the business. The third ground failed given the finding of fact that all earnings were attributable to Mr Rix and his business flair and acumen.

The court reviewed the authorities to provide the approach to assessing a claim under Section 3 Fatal Accidents Act [1976] as follows:

1 The question when assessing a dependency under Section 3 is to ask what was the reasonable expectation of pecuniary benefit from the continuation of the deceased’s life.

2 Each claim is fact specific - the Court of Appeal did not rule out quantification on another basis such as the cost of replacement services where the facts supported it.

3 Capital assets which the Claimant enjoyed during the deceased’s lifetime and continue to enjoy after death are ignored.

4 The court is to determine how much is lost by the deceased who is no longer alive and able to work and how much of the income is derived solely from capital, which is inherited by the dependant.

5 Post-death events are irrelevant and the dependency is fixed at the point of death, save for those issues affecting the continuation of the dependency, such as life expectancy or changes in income to account for inflation.

6 The award of damages under the Fatal Accidents Act can be greater than a strict assessment of the dependant’s loss.

Comment

The court has imposed a practical solution by seeking to distinguish the income derived from capital and that brought about by the deceased’s labour. This is generally consistent with the earlier Court of Appeal case of Head v The Culver Heating Co Limited [2021]. However, Head may well be revisited in the Supreme Court where the passive investment/deceased’s labour dichotomy is likely to be the epicentre of any further appeal.

Whilst the combination of Rix and Head appear to bring certainty and a level of consistency between living and fatal claims, the acceptance of over compensation appears contrary to the often stated aim of compensation; placing the claimant, as far as is possible, into the position had the tortious act not occurred. It certainly seems there is an element of recovering the eggs whilst having also inherited much of the goose.

Pending any further appeal in Head, future claims will require careful consideration of the factual case presented by any claimant to establish the workings of the business. This is likely to be a challenge for those investigating similar claims and will involve more detailed investigations of the business affairs than has previously been the case.