What happens when a director or business owner dies and a claim for dependency is made?
In fatal accident claims expert solicitors in this area have to consider whether the driving force behind a business, a sole trader or director in a limited company for instance is killed due to the fault of another and the surviving partner wishes to claim for dependency due to loss of income from the business and or capital losses. Even more conflicting is can a dependency claim be made in such circumstances where the business is unaffected by the death or even is more profitable following the death?
Two recent court decisions in England and Wales, though distinct in their factual backgrounds, provide inherent uncertainties in fatal accident claims litigation involving a business. The cases, Chouza v Martins and Others [2021] EWHC 1669 (QB) and Steve Hill Ltd v Witham [2021] EWCA Civ 1312, illustrate the unpredictable nature of legal outcomes. Chouza highlights the risk that a judge, after hearing the evidence, may accept the majority of a claimant’s case. In contrast, Steve Hill Ltd demonstrates how a significant change in circumstances, even after a trial but during an appeal, can destabilise the foundation of a claim.
The thrust of the arguments is that a dependency claim is fixed at the date of death. It is assumed that whatever happens after death is irrelevant to the court to calculate a dependency claim. As an example, if, say, a widow re-marries after death, the court will not take that into account should the Defendant argue that her dependency award should be reduced as she will gain from services and financial support from her new husband.
This notion that dependendcy is fixed at the time of death is often referred to in the case of Welsh Ambulance Services NHS Trust v Williams [2008] EWCA Civ 81, at Para 50 (per Smith L.J.):
‘…The dependency is fixed at the moment of death; it is what the dependents would probably have received as a benefit from the deceased, had the deceased not died. What decisions people make afterwards is irrelevant. The only post death events which are relevant are those which affect the continuance of the dependency (such as the death of the dependent before trial) and the rise (or fall) in earnings to reflect the effects of inflation’.
With the above principle in mind the two decisions below are considered.
Chouza v Martins and Others, brief facts
The Chouza case arose from a tragic road traffic accident, resulting in the death of a 50-year-old Spanish national who left behind a wife and four children. The deceased had operated his own business in Spain but had encountered financial difficulties. Subsequently, he began working for another company, Andeona, as a construction plant operator and HGV driver. The claim sought €995,601 in future financial dependency, while the Defendant argued for a much lower figure of €254,078.
Mr Justice Martin Spencer ultimately ruled overwhelmingly in favour of the Claimant, awarding €824,088. This decision illustrates the challenges defendants face when contesting claims put forward by the claimant. The Defendant contended that it was highly improbable that the deceased would have continued to earn €250 per day net from Andeona as an employee. However, the judge was convinced by the evidence of Andeona’s managing director, Ms Magdalena, who stated:
“I don’t know what the future would have held if the deceased had survived, but we would have paid whatever it took to keep him on because he was such a valued contributor to the company.”
The judge departed from the conventional dependency percentages of 75% (or 66% if there were no dependent children, see our webpage, Loss of Dependency Calculation re Empress Motors), instead awarding 85% / 70%, based on the deceased’s minimal personal expenses.
Steve Hill Ltd v Witham (foster children claim)
In contrast, the Steve Hill Ltd case involved an appeal concerning the assessment of damages in a fatal mesothelioma claim. The deceased, along with his wife, who was a nurse, had fostered two children with special needs. Under the fostering agreement, one parent had to remain at home to care for the children, and the couple decided that the deceased would fulfil this role. When the deceased became seriously ill, his wife, the Claimant, had to leave her job, losing her full-time career upon his death.
The original judgment found that the Claimant’s dependency on her husband’s services had been lost, valuing this loss as the cost of replacement care, i.e., the value of the services her husband provided. The Defendant’s appeal against this aspect of the decision was dismissed, with Nicola Davies LJ stating that the Claimant had lost the benefit of her husband’s caregiving, and thus could legitimately claim the cost of securing equivalent services. However, the appeal succeeded on a new ground. Since the trial, the children had been removed from the Claimant’s care, fundamentally altering the circumstances.
The Court of Appeal, applying the principles from Ladd v Marshall [1954] 1 WLR 1489, admitted this new evidence, as it was credible, highly relevant, and could not have been obtained with reasonable diligence before the trial. The Court concluded that to exclude this evidence “would affront common sense, or a sense of justice,” and remitted the case back to the trial judge for re-evaluation in light of these developments.
Is there really a conflict with between the two dependency claims?
Whilst it is often cited as two conflicting decision, the reality of the situation in Steve Hill was, taken into account as fostering children is not permanent. There are many factors that may change when people foster children and indeed following the death of the husband, the children were removed in any event from the family. This case can therefore be distinguished from Chouza.
What about loss income and capital generation from a business?
In the case of Paramount Shopfitting Company Ltd v Rix Mr. Rix passed estate made a claim for mesothelioma compensation at 60 after years of building MRER Ltd into a successful business. The High Court was tasked with determining the financial dependency of his widow, Mrs. Rix, following the admission of liability. The central issue was whether Mrs. Rix had a dependency and how it should be quantified—whether based on the income Mr. Rix would have continued to generate or the cost of replacing his role as Managing Director. Indeed the deceased’s sons continue to run the business which continued to be profitable and indeed made greater profits post death. It was noted that Mrs Rix inherited Mr Rix’s shares in the business. The court at first instance allowed the claim for dependency.
The Defendant appealed and argued that Mrs Rix suffered no loss. The business continued and was profitable. She did not suffer any financial loss as she derived income from the business as before. Further the defendant argued that the continued company profits were wrongly treated as the claimant’s share of profits as if they belonged to the deceased.
The Court of Appeal found that Mrs. Rix, despite her involvement in the business as a director and recipient of a salary and dividends, was financially dependent on her husband. The judge adopted a practical approach, basing the claim on the income Mr. Rix would have earned had he lived, without reducing the award for her ongoing income or the company’s improved financial position after his death. Indeed the Court found that she had lost the benefit of his earnings from the skill, energy and hard work he would have given to the business. The court also restated that what happened with the business after his death was irrelevant (see Welsh Ambulance Case above). The court was content that a distinction could be made here between the income from his labour and the income generated from a passive capital asset:
“Income is only derived from capital if it is identifiable as having been received without the labour and services of the deceased. In short, it is passive. On the facts of this case, there was no identifiable element of the profits which was not touched by the management of Mr Rix.”
In addition the Court of Appeal found that the claim was not limited to the cost of replacement of services in Cape Distribution v O’Loughlin (2001] EWCA Civ 178, reliance upon deceased’s inteligence, hard work and flair. The Court was entitled to look at all the profits and earnings of the business. The court provided guidance:
- The question to be addressed is what is the extent of the dependants’ loss based upon a reasonable expectation of pecuniary benefit from the continuance of the life of the deceased;
- The assessment is dependent upon the facts of the particular case;
- Capital assets which the dependants had the benefit of during the deceased’s lifetime and continued to enjoy following the death are not taken into account either as part of the dependency or as a deduction from it;
- The question for the court is how much loss has arisen because the deceased is no longer alive and able to work, and how much of the deceased’s income was derived solely from capital which the dependants have inherited;
- The dependency is fixed at the moment of death, it is what the dependants would probably have received as benefit 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;
- The damages awarded under the FAA can be greater than would be justified upon a strict view of the dependants’ loss.
The case illustrates the challenges in distinguishing between income generated from the deceased’s labour versus capital and the need for careful examination of business affairs in future claims of this nature.
In Summary
When a business owner or director dies, dependency claims can become complex, particularly when assessing whether the surviving partner suffers financial loss if the business remains profitable or even thrives after the death. Two recent cases, Chouza v Martins and Steve Hill Ltd v Witham, highlight the uncertainties in such claims. In Chouza, the court accepted a high dependency claim despite the deceased’s financial difficulties, while in Steve Hill, the appeal succeeded due to significant changes in circumstances after the trial. The Paramount Shopfitting v Rix case further underscores the complexities, as the Court of Appeal ruled that a widow’s dependency claim was valid despite the business’s continued profitability after her husband’s death. The court emphasised that dependency is assessed at the time of death, with income from the deceased’s labour distinguished from capital income. These cases illustrate the challenges in fatal accident claims involving businesses, particularly in distinguishing between income from labour and passive capital assets.
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