UK & Europe
Insurance & Reinsurance
By Section 3(1) of the Fatal Accidents Act 1976 (FAA) “…such damages, other than damages for bereavement, may be awarded as are proportioned to the injury to the dependents….” Rix v Paramount is the latest in a number of Court of Appeal decisions dealing with the claims for losses following on from or in anticipation of the death of men who have founded and built up their own successful businesses.
The late Mr Rix died at the age of 60 on 20 April 2016 from mesothelioma contracted from asbestos exposure when working for the defendant as an apprentice carpenter/shop fitter during the 1970s. After leaving the defendant’s employment in 1977, the deceased had built up a business installing and repairing kitchens and bathrooms, undertaking joinery work and manufacturing granite worktops. The business came to be run through a company, MRER Limited, in which he and his wife each held a 40% shareholding, with their two sons each holding 10% each.
Following the deceased's death, the widow inherited his shareholding so that she owned 80% of the shares at the time of the trial. The sons continued to work in the business, one taking over as managing director. Both turnover and gross profit continued to grow, year on year, despite the deceased’s death.
At first instance, Mr Justice Cavanagh, purporting to take "a realistic and common-sense approach" on the particular facts of the case, found the annual value of the financial dependency claim, for the years in which the deceased would have continued to work full-time in the business, to be £75,108 for the period from 20 April 2016 to 30 June 2019, £64,616 for the period from 1 July 2019 until 20 May 2021, £67,460 from 21 May 2021 to 20 March 2022, and £64,612 thereafter. The basis of these calculations was the claimant’s share of the annual income that it was found she and the deceased would have taken from the business if he had lived, based on expert evidence from an accountant instructed on the claimant’s behalf. It was emphasised that these figures were arrived at by taking income that was derived from labour as opposed to from capital. No discount was made to reflect that the claimant continued to receive an income from the business, or the company's improving financial performance since the deceased's death. The judge decided that the “practical reality” was that the salary and the dividends that the widow received were entirely the result of the deceased’s labours.
The Court of Appeal, in unanimously dismissing the appeal, set out six principles identified from the authorities as to the approach to the assessment of damages to be awarded under section 3. These included:
• “The dependency is fixed at the moment of death, it is what the dependents would probably have received as benefits from the deceased had the deceased lived. Post death events are irrelevant, save for those which affect the continuance of the dependency and the rise or fall in earnings to reflect the effects of inflation;” and
• “The damages awarded under the FAA can be greater than would be justified upon a strict view of the dependants’ loss.”
According to Lord Wright in The House of Lords in Davies v Powell Duffryn Associated Collieries Ltd , the ‘damages proportioned to the injury’ for which provision is now made by section 3(1) are “a hard matter of pounds, shillings and pence, subject to the element of reasonable future probabilities.” A refusal to take any account of post-death events appears to contradict what Lord Wright stated in Davies, whilst awarding greater damages than is justified seems to be in direct conflict with the clear wording of section 3(1).
The defendant’s accountancy expert in Rix prepared calculations on the basis that the widow was only entitled to the difference between her actual income since the deceased’s death and the income she would have received if he had survived. On this basis, he calculated that there was no loss of financial dependency. There is no suggestion that the claimant’s expert disagreed as regards this. It is contended that a “realistic and common-sense approach" on the facts of the case should have led to the inevitable conclusion that there was no basis for damages for a loss of financial dependency. That was the “practical reality.”
Knauer v Ministry of Justice  was a case in which the claimant sought to recover damages from the Ministry of Justice for his late wife’s death from mesothelioma, including damages for loss of dependency under the FAA. The combined judgment in the Supreme Court in that case of Lord Neuberger and Lady Hale (with whom the other Law Lords agreed) opened with this clear statement of principle:
“It is the aim of an award of damages in the law of tort, so far as possible, to place the person who has been harmed by the wrongful acts of another in the position in which he or she would have been had the harm not been done: full compensation, no more but certainly no less.” It is perhaps unclear how the second of the two principles highlighted above as referred to in Rix can be said to fit with that foundation stone of the law of damages in tort.
It would seem desirable for the decision in Rix to proceed to be considered by the Supreme Court, or perhaps to revisit the case for legislative amendment of the FAA. Until then defendants will require carefully to scrutinise the factual basis for each claim, examining in each case the extent to which the deceased really was the force behind the revenue generated by the business. The approach of the Court of Appeal in Rix, as in Head v Culver Heating Co, means that defendants will have their work cut out in demonstrating that the income in dispute results from a capital investment rather than the fruits of the deceased’s ongoing labour.
Permission is being sought to appeal the judgment of Head v Culver and Rix has been referred to in support of the appeal.
Written by Partner Simon Morrow and Associate Annoushka Khadem.
*This content was written by BLM prior to Clyde & Co*