Rix v Paramount Shopfitting Company Limited [2020] EWHC 2398 (QB)

In this blog John-Paul Swoboda and his pupil Cressida Mawdesley-Thomas discuss the recent High Court decision of Mr Justice Cavanagh in Rix v Paramount Shopfitting Company Limited [2020] EWHC 2398 (QB).

Rix is the latest case to consider the width and breadth of section 3(1) of the Fatal Accidents Act 1976 (“FAA”), following in the judicial footsteps of Witham v Steve Hill Ltd [2020] P.I.Q.R. Q4 and AB v KL [2020] P.I.Q.R Q1. The issues determined in this judgment were twofold: did Mrs Rix have a valid claim for a financial dependency and if so, how should that dependency be valued. Mr Rix was a businessman with acumen, flair and drive but after his death, his son had stepped into his shoes and the business was even more profitable.

The judgment provides a useful reminder of important principles to be borne in mind when dealing with section 3 FAA claims: one looks at the practical reality when determining whether there is a dependency irrespective of tax arrangements which may be used in family businesses; income derived from capital is not a valid dependency as opposed to income derived from labour; the dependency is fixed at the moment of death which makes nearly all events after death irrelevant to the calculation of the dependency; the question of whether there is a financial dependency is a question of fact meaning there is no one single prescriptive rule to determine the amount of any dependency.

Background

The Claim was brought by the widow of Mr Rix who died of mesothelioma aged 60 having been exposed to asbestos whilst working for the Defendant as an apprentice carpenter / shopfitter in the 1970s. 

After his apprenticeship, the Deceased went on to establish what would become a highly successful limited company, combining a joinery, worktops, and kitchen and bathroom fitting business. The business was still expanding in 2015, shortly before Mr Rix fell ill.

The Deceased’s Business

At the time of his death, Mr Rix owned 40% of the shares in the company.  Mrs Rix owned 40%, and their sons owned 10% each. Mrs Rix’s shareholding produced dividends, and she drew a salary, although this was not to reflect her contribution to the business but was done on accountants’ advice as it was a tax-efficient way of taking money out of the business. After Mr Rix died, Mrs Rix inherited her husband’s shareholding, to own 80% of the shares. In addition to his income from the business, Mr Rix had two small pensions. 

The Judgment

Section 3 of the FAA reads:

Assessment of damages:

In the action such damages, other than damages for bereavement, may be awarded as are proportional to the injury resulting from the death to the dependants respectively.”

The well-established meaning of this arcane language is that a dependant can recover damages if s/he has suffered pecuniary loss resulting from the death, and the pecuniary loss arises from a relationship contemplated under the Act (e.g. husband and wife).

Mr Justice Cavanagh considered the Court of Appeal authorities of Wood v Bentall [1992] PIQR 332 (CA); Cape v O’Loughlin [2001] EWCA Civ 178; and Welsh Ambulance Services v Williams [2008] EWCA Civ 81 and distilled the following principles (emphasis added):

  • The question whether there has been a loss of financial dependency, and, if so, how much, is a question of fact;
  • The courts will take a realistic and common-sense approach to these questions;
  • There is no hard-and-fast or prescriptive approach to the determination, or quantification, of loss of financial dependency;
  • 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;
  • 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;
  • 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;
  • 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

Applying the above principles, it was held that Mrs Rix suffered a loss of financial dependency, notwithstanding that the business is more profitable than it was at the time of her husband’s death.  As in Williams, her husband’s business produced an income for the family which was the result of her husband’s skill, energy, hard work, and business flair.   Although she was a director and shareholder, the reality was that it was her husband, not her, who was responsible for the success of the business. At the time of her husband’s death, she had a “reasonable expectation of pecuniary advantage from the continuance of the life of the deceased” (Pym), because if he had lived his management of the business would have continued to produce an income for her.  O’Loughlin and Williams make clear that, as the value of the dependency is fixed at death, the health of the business after the deceased’s death is irrelevant.  In particular, Williams demonstrated that the existence of, and value of, a dependant’s financial dependency is not affected by any increase in profitability in the business.  

The Defendant argued that Mrs Rix’s interest in the business is, and was at the time of her husband’s death, akin to an income-generating capital asset because it continued to thrive after Mr Rix’s death. This argument was rejected.

“It is clear that, until very shortly before his death, Mr Rix remained the prime mover in the business.  He was primarily responsible for its health and prosperity, as a result of his flair, energy and hard work.  The business was still expanding, having just moved into new premises.  He was the person with the contacts and the know-how.  Jonathan was being groomed to take over, but this plan was still at a very early stage.  As Mr Phillips put it in his submissions, MRER was not a “money-generating beast” that would generate money regardless of who was in charge of it.”

The Defendant also sought to distinguish Wood, O’Loughlin, and Williams on the grounds that Mrs Rix was both a director and shareholder in the business and therefore her dividends and salary should be treated as her own, not something she received as a result of their financial dependency on the deceased. This submission was also rejected.

“The authorities have made clear that courts should look at the practical reality in relation to financial dependence, not at the corporate, financial or tax structures that are used in family arrangements. If one looks at the practical realities, it is clear that the income that Mrs Rix received as director and shareholder was entirely the result of her husband’s work for the business.”

Mr Justice Cavanagh found that the role of the court is not to compare the income of the dependant from the family business before and then after the deceased’s death, and to award the shortfall, if any. That would be illegitimate because dependency is fixed at death, cf. Williams.

The Judge therefore went on to consider the two methods of calculating dependency advanced by the Claimant. As dependency is a question of fact which should not be determined prescriptively, the judge had to determine which methodology was most appropriate. The Claimant’s primary case was that the dependency should be calculated by reference to Mrs Rix’s share of the annual income that Mr and Mrs Rix would have received from the business if he had lived (“Basis 1”). The secondary case was that her financial dependency should be quantified by reference to the annual value of Mr Rix’s services to the business as managing director, calculated by reference to the cost of employing a replacement (“Basis 2”). 

In Wood, Williams and O’Loughlin the Court had adopted Basis 2 to calculate the dependant’s financial dependency. However, it was held that the present case could be contrasted to those cases as the financial dependency claim in this case was concerned “only with income produced by Mr Rix’s labour, skill, energy and flair, not with income produced by his capital assets, or with income produced by a mixture of capital assets and labour.” On that basis Mr Justice Cavanagh made findings as to the joint income, having had the benefit of forensic accountancy evidence, before deducting 1/3 from the joint income to determine the dependency.

Analysis

Successive cases have now shown that the Courts will look at the practical reality of a family situation prior to a deceased’s death. What ‘the practical reality’ is in any given case is likely to be determined by evidence and, as a question of fact, by the judge’s disposition. This is most striking in one aspect of this judgment which, in the authors’ opinion, could easily be determined in a diametrically opposite manner and still conform with the principles to be applied to FAA claims. The finding in question is that the income of the deceased from the business was entirely based on his labour and not on the intangible asset of the business. Whilst this was consistent with the deceased’s own evidence it does not appear to be consistent with the fact that the business has been more profitable since being run by the son, who by all accounts was ill-prepared at the time of death. Whilst the deceased’s labour was no doubt needed to grow and maintain the business (to some extent) the fact that someone, not as experienced as the deceased, could step into his shoes suggests that the deceased had, at least to some extent, created a “money generating beast”, aka a capital asset. This is not to say that Mr Justice Cavanagh was wrong in his finding but simply to emphasis the point that finding in fatal accident claims are intensely fact specific.

Results such as this will cause disquiet among some as the Claimant has been left with more than she had lost and which runs contrary to the 100% principle which is so deeply ingrained in our (PI litigators) psyche. However, this is at least in part by design of section 4 the FAA (benefits following death are disregarded).

The most controversial, or perhaps unclear, aspect of this judgment is the actual calculation of the dependency. Firstly, the learned judge used 70% of the profit from the company as the joint income (relying on expert accounting evidence) in preference to the much more familiar cost of replacement services. This approach was justified by the finding of fact the business generated profits because of the deceased’s labour, not accumulated capital, and in this way Williams, Wood and O’Loughlin were distinguished. This might be said to add an inadmissible element of guesswork to the determination of loss (though without reference to the accounting evidence this is not easy to determine). Secondly there was no deduction from the joint income to reflect the amount paid to Mrs Rix from the company (save for rental income which was agreed to be income from a capital asset). This appears incongruous with the fact she was actually paid a salary and received dividends from the company, though does perhaps reflect the reality, as found, that she was no more than a straw partner in the business. Finally, a 1/3 deduction was made (by agreement), presumably to reflect living expenses (though this is not clear), even though the judge had found that a 17.5% deduction would be appropriate for living expenses if the alternative basis were used to calculate the dependency.

Smith v Secretary of State for Transport [2020] EWHC 1954 (QB)

This post was written by Megan Griffiths.

The High Court has recently found for a claimant who was exposed to asbestos at work in the late 1950’s and 1960’s in Smith v Secretary of State for Transport [2020] EWHC 1954. The key issue in dispute was whether his exposure met the requisite threshold for a diagnosis of asbestosis: the threshold being 25 fibres per millilitre per year (“fibre years”). The judge considered Mr Smith’s lay evidence on his daily duties, documentary evidence of his employer’s use of asbestos and expert evidence on the likely levels of exposure to find that it did.

Background to claim

Mr Smith was employed by British Rail from 1956 to 1963. His work involved repairing train carriages and he alleged that he was regularly exposed to asbestos dust in the course of this work. His case was that this exceeded 25 fibre years meaning he now suffered from asbestosis. He claimed that the Defendant had breached its statutory duties under the Factories Acts to take all practicable measures to protect its employees against inhalation of substantial quantities of asbestos: s.47 of the 1937 Act and s.63 of the 1961 Act [15-16]. His secondary claim in negligence did not add to the matters in issue [17].

The Defendant denied that Mr Smith’s exposure met the fibre years threshold for asbestosis. It did however accept that if the court found Mr Smith did meet the threshold, it was in breach of statutory duty [16]. Subject to liability, quantum was also agreed.

The liability only trial took place over Skype in June 2020. Live evidence was heard from the parties’ expert occupational hygienists, with Mr Smith’s oral evidence having been given on commission in October 2019.

There were three key issues that the court decided upon at trial, with the latter two pertaining to liability.

Issue one: how should the court approach Mr Smith’s evidence, given that he suffered an stroke in 2001 that had impacted his ability to communicate?

Mr Smith gave the only first-hand evidence of his daily working habits and exposure to asbestos, in two witness statements and the evidence on commission. However, he had communication difficulties as a result of a stroke in 2001 which were apparent from the video of his evidence on commission, at one point saying “I can’t talk properly” [38]. Thornton J was concerned as to how to properly approach his evidence and asked both counsel to agree a summary of the relevant principles from the case law which is set out at [40] of the judgment. The principles are applicable to all witness evidence and helpful reading for any litigator considering how their witness’ evidence of historic events will be interpreted at trial.

Thornton J bore Mr Smith’s particular difficulties and those principles in mind when assessing his evidence. She mentioned in her judgment that having access to the transcript as well as the video of the evidence on commission was “particularly useful” in his case [43].

Issue two: to what extent was Mr Smith exposed to asbestos in the course of his work?

It was agreed that Mr Smith was exposed to asbestos when his colleagues removed ceiling panels in the carriages which released asbestos dust [8]. Documentary evidence of British Rail’s use of asbestos at the time suggested that at least some of the carriages contained high concentration blue asbestos [9]. Mr Smith did not remove the ceiling panels himself and the extent to which he was actually exposed to the asbestos dust was disputed [10].

Thornton J carefully considered Mr Smith’s evidence on the nature and levels of his exposure. She took Mr Smith’s known communication difficulties into account when coming to a view on the credibility and persuasiveness of his evidence (for example, [50 and 73]).

Although the judge acknowledged that there were some inconsistencies following cross examination, they were by no means fatal to Mr Smith’s evidence which was ultimately “clear and consistent” on the issue of his exposure [73]. In particular, Mr Smith gave unchallenged evidence of chunks of blue dust falling onto him and the floor during his work and staying there until the end of the job which supported his case [45].

Mr Smith’s evidence alongside the documentary evidence of asbestos use at that time by British Rail and the expert evidence, led Thornton J to find that Mr Smith had been exposed to asbestos dust “on a regular basis” [76].

Issue three: did that exposure meet the 25 fibre years threshold required for a diagnosis of asbestosis such that his claim succeeded?

The experts agreed that if Mr Smith’s exposure met the threshold of 25 fibre years then the correct diagnosis was asbestosis in accordance with the 1997 Helsinki criteria [2 and 11]. Therefore, the issue for the court was whether this had been met on the facts, using the experts’ estimated calculations to inform that decision [31 to 34].

Having accepted Mr Smith’s evidence on the nature and extent of his exposure, Thornton J adopted Mr Smith’s expert’s mean concentration figure to find that he was exposed to 20 to 100 fibre/ml on a regular basis and that, on the balance of probabilities, his total exposure was over the diagnostic threshold [82].

Comment

Mr Smith’s success is encouraging for claimants in historic asbestos exposure cases. This was a case where the only evidence of his daily work was from the claimant himself, without statements from colleagues or other ex-employees. Additionally, Mr Smith had communication difficulties to overcome in giving a clear account of events over 60 years ago. Notwithstanding these challenges, the judge was able to form a clear view of Mr Smith’s evidence in his favour, no doubt thanks in part to the work of his legal team in preparing clear and convincing witness statements.

Whilst the circumstances giving rise to Mr Smith’s communication difficulties are somewhat unusual, many claimants in asbestos cases are elderly and may well have unrelated communication difficulties that need to be taken into account. The passing of long periods of time and/or individual communication challenges will not prevent the right claimant from establishing the exposure required to succeed in a claim against their ex-employer, like Mr Smith was able to in this case.

Recent guidance on Diffuse Mesothelioma Payment Scheme

In this post Cressida Mawdesley-Thomas and Megan Griffiths look at DP v Topmark Claims Management Ltd (CM) [2020] UKUT 0106 (AAC), a recent decision of the Upper Tribunal on the interpretation of the Diffuse Mesothelioma Payment Scheme (“the Scheme”) introduced by the Mesothelioma Act 2014 (“the Act”). A precondition of accessing the Scheme is that a claim cannot and has not been brought against the employer or insurer “because they cannot be found or no longer exist or for any other reason”, per ss. 2(1)(d) and 3(1)(c) of the Act.  This appeal analysed the meaning of the phrase “any other reason” and found that being statute-barred did not come within its ambit.  

The Scheme 

The Scheme was introduced following a consultation in 2010 which identified the difficulties that those with diffuse mesothelioma faced as a result of the disease’s long latency period. The consultation identified that many people would not know that their exposure to asbestos at work had resulted in diffuse mesothelioma until decades after their exposure occurred. That delay would mean that their employers (and their employers’ EL insurers) may be untraceable or no longer in existence, preventing them from making a civil claim for damages. The Scheme was therefore created to specifically remedy the injustices associated with diffuse mesothelioma being a “long-tail” disease.

The issues for the Upper Tribunal and its decision

An application was made by the Appellant under the Scheme on behalf of an individual who had died of diffuse mesothelioma aged 37. The Appellant had previously consulted solicitors  with the view to bringing a civil claim prior to the expiry of the primary limitation, those solicitors declined to act on the grounds of lack of prospects. The Application under the Scheme was refused and subsequently appealed to the First-Tier Tribunal, where the appeal was itself refused. The Appellant was then granted permission to appeal to the Upper Tribunal. A second set of solicitors issued proceedings: limitation was raised as a defence by the defendant. The matter then came before the Upper Tribunal.

The central issue was whether the Appellant was entitled to compensation under the Scheme and if so, on what basis. In answering this question Upper Tribunal Judge Kate Markus QC made findings on the following:

  1. The relevant date for determination of the review / appeal;
  2. What constitutes “any other reason”; and
  3. Whether a person whose claim is statute-barred is “able to bring an action” for the purposes of the Act.

Relevant date for determination of review / appeal

It was held that the First-tier Tribunal should approach the appeal in the same way that the administrator did on review: it should take into account all relevant evidence available to it and determine eligibility in the light of the circumstances as at the date of its own determination. The First-tier tribunal did not do this and had incorrectly considered matters as they were at 24 March 2017 which was before the expiry of primary limitation. This was important to the Appellant’s case as by the time of the tribunal’s decision, limitation had expired. However, the Upper Tribunal Judge found that this error would only be material if limitation qualified as “any other reason” for being unable to bring a civil claim. 

Scheme eligibility: meaning of “any other reason

In order to claim under the Scheme as a person with diffuse mesothelioma, or as their dependant, one must fulfil the criteria set out in ss.2(1) and 3(1) respectively. The criterion in issue in DP was section 3(1)(c) (as mirrored by section 2(1)(d)): 

That no-one is able to bring a claim for damages against the employer or their insurer, “because they cannot be found or no longer exist or for any other reason”.

By virtue of section 18(3), the scheme administrator can specify what circumstances qualify under section 2(1)(d). The circumstances themselves are listed in Regulation 7(2): “…(such as being insolvent, in winding up proceedings or in liquidation) and there is no other employer or insurer who could be pursued in a civil claim”. However, this regulation does not specifically address the scope of the “any other reason” provision. 

The learned Judge addressed the meaning of “any other reason” at paragraphs 38 to 43 of her decision. Counsel for both parties agreed that the explanatory notes to the Bill were of assistance in determining Parliament’s drafting intention. Particular focus was placed on paragraph 26 which said: 

those conditions [in section 2(1)(d)] are set out in general terms because there are a number of different reasons why a person may be unable to bring proceedings … but it is very difficult to predict in advance what all those reasons may be and it would be very complex to try to do so.”

The learned Judge found that “the general words were inserted in order to guard against an unforeseen omission or to enable clarification, but not to extend the application of section 3(1)(c) to circumstances of a wholly different kind to the two specified reasons [‘cannot be found or no longer exist’]” [43]. Therefore, whilst the words were intentionally general to cover unforeseeable circumstances, these did not extend to any or all circumstances. They were intended to be limited to those relating to a tortfeasor and insurer’s inability to provide compensation and to be “coloured” by the two specified reasons (of being unable to be found or no longer existing) [43].

Whether being statute-barred rendered the applicant unable to bring a civil claim 

The learned Judge rejected the Appellant’s submission that expiry of primary limitation came within the meaning of “any other reason”. This was based in part on the fact that expiry of limitation is no bar to litigation if it is not pleaded by the defendant, and that even if it is, the claimant can raise section 33 of the Limitation Act 1980 in reply. These realities had also been recognised by the Court of Appeal in Richards v McKeown [2017] EWCA Civ 2374.  

Kate Markus QC also accepted the Respondent’s submissions that the opening words of section 3(1)(c) of the 2014 Act were concerned with the ability to bring a claim in the first place, not the merits or prospects of a claim: since limitation related to the latter not the former, issues associated with it were not intended to fall within the ambit of the provision. 

Comment

The decision highlights that the Act is aimed at remedying the ‘mischief’ caused by difficulties relating to the Defendant (such as being insolvent with no traceable insurance) as opposed to difficulties which relate to the Claimant (such as bringing a claim out of time). 

The Upper Tribunal’s interpretation of the scope of “any other reason” highlights that, whilst it is a general provision, it is not boundless. Any such reason must bear resemblance to those specified in the Act. However, the scope of the provision is still not certain: for example, the decision in DP does not address a situation where a potential defendant is solvent but in fact does not have sufficient funds to pay out a civil judgment and its insurer is untraceable. It is likely that difficult cases like this will be determined on a fact-specific basis, not least because of the complexity of predicting them in advance as recognised in the 2013 Explanatory Notes.

For legal practitioners this case also underlines the importance of bringing a civil action within the limitation period if there is a Defendant against whom a claim can be brought. It also serves as a reminder that the Scheme is not an alternative to a civil remedy where one is available: it was intended to be, and is, a scheme of last resort.