Impact of Financial Dependency Fixing at the Date of Death in Fatal Claims: Rix v Paramount Shopfitting Company Ltd [2020] EWHC 2398 (QB)

Dealing with claims for loss of financial dependency can be a very technical exercise, especially when the factual background is complex. The recent case of Rix v Paramount Shopfitting Company Ltd [2020] EWHC 2398 (QB) was testament to this.

Rix concerned a deceased contracted mesothelioma, who was exposed to asbestos at work in the 1970s, as an apprentice carpenter/shopfitter. He died in 2016, aged 60.

The claimant (widow) advanced a claim against her husband’s former employer, under the Law Reform (Miscellaneous) Provisions Act (LRMPA) 1934, and the Fatal Accidents Act (FAA) 1976.  Liability was admitted, though elements of quantum remained in dispute.

Last year, the High Court dealt with issues regarding the eligibility and quantification of the claimant’s claim for financial dependency, in light of the fact that the deceased had, thanks to his ‘skill and acumen’ built a successful, profitable business, succeeding his death.

Gross profit in the years to 2014 and 2015 was reported as £380,173 and £335,593, respectively. By comparison, in the years to 2016, 2017, 2018 and 2019, gross profit stood at £444,572, £640,365, £480,206 and £556,292, respectively. Likewise, post-death turnover figures were on an upward trajectory.

The defendant contended that the financial dependency claim was invalid because the deceased’s business had thrived, even after his death. Whilst the defendant averred that it would make so sense to conclude that the claimant had suffered any financial injury because, in purely financial terms, she was better off than when her husband was alive (larger shareholding and increased revenue), the claimant maintained that it would be ‘odd’ for a dependant to be classified in law as having suffered no financial loss when their breadwinner was no longer alive.

The defendant also argued that the claimant was under a misconception in quantifying her claim either (a) by reference to the deceased’s share of the annual income from the business, had he lived, or alternatively (Basis 1), or (b) by reference to the deceased’s annual value of services to the business, were they to incur the cost of employing a replacement Managing Director (Basis 2).

Having appraised the relevant authorities of Wood v Bentall Simplex Limited [1992] PIQR 332 (CA); Cape Distribution Ltd v O'Loughlin [2001] EWCA Civ 178; and Welsh Ambulance Services NHS Trust & Anor v Williams [2008] EWCA Civ 81, Mr Justice Cavanagh put together an 8-point list of factors to consider when assessing financial dependency:

(1) The question whether there has been a loss of financial dependency, and, if so, how much, is a question of fact;

(2) The courts will take a realistic and common-sense approach to these questions;

(3) There is no hard-and-fast or prescriptive approach to the determination, or quantification, of loss of financial dependency;

(4) There is a difference between an income-producing asset, such as a rental property or an investment, on the one hand, and a business which was benefiting from the labour, work, and skill of the deceased, on the other. Where the value of an income-producing asset is unaffected by the deceased's death, there is no financial loss or injury as a result of the death, and so there is no claim for loss of financial dependency in relation to it under section 3. Where, however, the deceased worked in a business that benefited from his or her hard work, the dependants will have lost the value of that hard work as a result of the deceased's death and so will have a financial dependency claim;

(5) The question whether a dependant has suffered a loss of financial dependency, for the purposes of the FAA, section 3, is fixed and determined at the date of death;

(6) It follows from the fact that the loss of financial dependency is fixed at death that, in a "work/skill" case, the existence of the right to claim loss of dependency, and the value of the loss, is not assessed by reference to how well the business has been doing since the deceased's death;

(7) Moreover, a dependant cannot by his or her own conduct after the death affect the value of the dependency at the time of the death; and

(8) Therefore, even if the business is now thriving and doing better than ever, the law will treat there as having been a financial injury and so a loss of financial dependency’.

Applying this criteria to the present case, the judge found that the claimant, as a dependant of the deceased, had suffered a loss of financial dependency, notwithstanding that the business was more profitable after death than before. It was the husband’s ‘skill, energy, hard work, and business flair’ that was responsible for its success, which had produced an income for the family. This income would have continued had the husband stayed alive and continued to manage the business. Regardless, case authorities confirmed that financial dependency is ‘fixed at death’, thus rendering business health thereafter as irrelevant (Williams explicitly states that ‘the existence of, and value of, a dependant's financial dependency is not affected by any increase in profitability in the business’. This made logical sense to Cavanagh J, who stated that an opposing decision would incentivise the ‘perverse’ notion that damages would be greater for a deteriorating business.

Having failed to sway the court that the prosperity of the business post-death circumvented the dependency claim, counsel for the defendant posited 3 additional grounds to distinguish Rix from Wood, O'Loughlin and Williams. These were unsuccessful for the following reasons.

Firstly, the fact that the dependant’s shareholding at the date of death produced a return did not mean that this could be categorised as an income-generating or capital asset, with the effect of thwarting financial dependency. The earnings at issue were not the investment return on a ‘passive holding’ a business, which would have continued to yield the same income irrespective of the deceased’s capacity for work.

Secondly, the fact that the deceased’s business was operated through a limited company, of which the dependant was a director and shareholder, did not detract from the underlying reality that he was generating income for both of them and this was distributed though their salaries and dividends. Although a dependant is not entitled to claim for loss of their own earnings [Burgess v Florence Nightingale Hospital for Gentlewomen [1955] 1 QB 349], it was wrong to treat the dependant’s continuing shareholding and director's salary as her own income.

Thirdly, the fact that the dependant was not the sole shareholder did not affect the claim.

Having approved the claimant’s claim, Cavanagh J moved on to discuss whether it should be calculated using Basis 1 or Basis 2.

The principles guiding this exercise were (1) that there is no prescriptive rule about the quantification of financial dependency, (2) that it is necessary to separate income derived from capital from income derived from labour and (3) that dependency fixes at the moment of death.

In the cases of O’Loughlin, Williams and Grant v Secretary of State for Transport [2017] EWHC 1663 (QB), courts have consistently applied the Basis 2 approach to quantify the loss of financial dependency.

However, in each of these cases, there was a common feature, namely that the claimed loss of dependency was not easily labelled as either income from capital assets, or income from labour. The line was grey, essentially, and this made Basis 1 ‘unsuitable’.

Juxtaposing Rix against previous decisions, it was clear to the High Court Judge that the financial dependency claim was concerned only with income generated by the deceased’s labour. Thus, he was not obliged to take the same approach, with Basis 1 being a ‘suitable’ option.

On account of the fact that there was ‘only very limited evidence’ to assist with the cost of hiring the deceased’s successor, it actually proved easier to assess the likely profitability of the business had the deceased not passed away. Basis 1 was more likely to lead to a ‘fair and accurate figure’ for loss of financial dependency than Basis 2.

Accordingly, the claimant’s claim was valued at 70% of the estimated profit of the business (to give the total joint income), minus one-third [it is standard practice for two-thirds of a husband's earnings to be treated as his spouse’s financial dependency upon him – see Harris v Empress Motors [1984] 1 WLR 212 and Coward v Comex Houlder Diving Ltd [1988] 7 WLUK 215].

Using this method, the claimant was awarded (per annum):

  • £75,108 (for the period from 20/04/16 to 30/06/19);
  • £64,616 (for the period from 01/07/19 to 20/05/21);
  • £67,460 (for the period from 21/05/21 to 20/03/22); and
  • £64,612 (for the period from 21/03/22 onwards).

Full text judgment can be accessed here.