This post was written by Harry Steinberg QC.

Yesterday morning, little more than a month after the hearing, the Court of Appeal handed down judgment in Paramount Shopfitting Company Ltd v Rix [2021] EWCA Civ 1172. It is the latest in a series of decisions about how the courts should assess loss of income where mesothelioma hits a family business.

Facts

Mr Rix contracted mesothelioma as a result of the defendant’s negligence and died aged 60. He had been the founder and driving force of a successful joinery business. The judge, Cavanagh J, described him as a “… remarkably talented and dedicated businessman.” He and his wife held 80% of the shares between them and their two sons held the remaining 20%. The business consistently generated a gross annual profit of more than £300,000, but they retained most of the profit within the business to enhance its value. 

The family business continued to thrive after Mr Rix’s death and generated greater profits in the subsequent years

Mrs Rix claimed as his widow and dependant. She contended that her loss of financial dependency under s.3 of the Fatal Accidents Act 1976 was her share of the annual income to which they would jointly have been entitled had Mr Rix lived (basis 1). Alternatively, she claimed by reference to replacing the cost of his services to the business (basis 2). The defendant contended that there was no loss since the family business had been more profitable after Mr Rix’s death and she had inherited his shares and retained her own. 

The Judge’s decision 

The trial judge, presented with these alternatives, decided that there was a loss of dependency and held that basis 1 was the appropriate method of calculation. The business was not a ‘money generating beast’ and the income was derived from Mr Rix’s efforts – his skill and acumen – and not from a capital asset. 

Grounds of appeal

The Defendant was permitted to appeal on three grounds. First, the Judge was wrong to assess the loss of dependency by reference to all the profits which accrued to Mr and Mrs Rix without regard to whether those profits survived his death and continued to accrue. Secondly, the Judge was wrong to treat Mrs Rix’s shareholding as if it had belonged to Mr Rix. Finally, the Judge was wrong not to deduct Mrs Rix’s surviving income from her shares in the calculation of the loss. 

On appeal

The Court of Appeal unanimously dismissed all three grounds of appeal.

Nicola Davies LJ, giving the lead judgment, held that the earlier authorities, Wood v Bentall [1992] PIQR 332, Cape vO’Loughlin [2001] EWCA Civ 178 and Welsh Ambulance Services NHS Trust & Anor v Williams [2008] EWCA Civ 81, did not establish a principle that a business should be treated as a capital asset which will continue to produce a flow of income regardless of the death of the prime mover and driving force. 

On the facts, there was ‘no identifiable element of the profits which was not touched by the management of Mr Rix’. The loss was the income that would have been generated by Mr Rix’s services to the business, irrespective of the fact that the business retained the capital assets. It was therefore logical to treat the whole profit available to Mr and Mrs Rix as earned income and part of the financial dependency. Accordingly, there was no sound objection to basis 1 and the first ground of appeal was dismissed. 

The second ground of the appeal – that the Judge should not have treated Mrs Rix’s share as if it belonged to Mr Rix – was dismissed on the basis that it is established by authority that the Court must look at what the underlying reality of the situation. It appears, curiously, that the defendant relied on Ward v Newall [1998] 1 WLR 1722, which on the face of it seems to be directly contrary to defendant’s argument. 

The final ground of appeal was dismissed on the basis that the finding that the income of Mr and Mrs Rix – whether in the form of salary, dividends or profits – was wholly attributable to Mr Rix’s endeavours and earning capacity. This left no room for any deduction for income that would survive his death. Any such deduction would also contravene the principle that dependency is fixed as at death. 

Discussion

The outcome was a resounding success for the claimant and a decisive statement about how the Courts should treat claims of this type in the future. 

The decision is of considerable general importance. Where the injured party in a mesothelioma case has a fixed or regular income, the assessment of ‘financial dependency’ is essentially basic arithmetic. But, increasingly often, in cases such as Rix and Head v Culver (on remarkably similar facts), the loss is both more substantial and controversial. The central difficulty is how to disentangle that part of the profit which is derived from the residual value of the shares, which may be bound up in the company assets or intangible factors such as the goodwill and the existing customer base. 

The Court of Appeal recognised that, in principle, it is necessary to distinguish between loss of income derived from services and income derived from a capital asset. As Staughton LJ pithily put it in Wood, you cannot claim for the loss of the eggs if you have inherited the goose. 

But that principle, until now at least, has been difficult to apply. 

The Court of Appeal did not opt for the quasi-compromise position represented by basis 2 and the cost of replacing Mr Rix’s services (although, it should be remembered, the defendant rejected this approach too). Instead, the Court of Appeal tackled the question of how to assess this type of loss head on. 

Underhill LJ identified the problem with precision: 

“The real question is how that distinction works in the case of a small or medium-sized business with substantial assets, where the deceased (typically, but not necessarily, the founder) is not only the owner but the main person whose work and decisions generate the profits and thus the income which he takes out of the business and which the wife enjoys.” (para 76)

In a key passage, at para 60, Nicola Davies LJ answered the question as follows: 

“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.”

Underhill LJ found the answer lay in the old decision of Staughton LJ in Wood in which Staughton LJ held that, in assessing the loss in this situation, the court had to decide how much of the deceased’s was ‘derived solely from capital’. Applying this reasoning, Underhill LJ held: 

“I take that to mean that it is irrelevant that the capital has in one sense made the earning of the income possible.  The income is only “derived from capital” if it is identifiable as having been received without the husband’s services – in short, if it is passive.”   

Nicola Davies LJ, at para 54(iv), used the same language in articulating the core principles. 

The Court of Appeal has seemingly come up with a practical solution which is to give the injured party, rather than the tortfeasor, the benefit of the doubt. Valuable cases are rarely decided by the burden of proof, but if the only income that is it be deducted is that which is ‘derived solely from the capital’ then it rests with the defendant to prove that which falls into this category. 

This is consistent with (a) the Court of Appeal’s recognition that damages under the fatal accidents act may be greater than would be justified on a strict view of the dependants’ loss (para 54vi) and (b) the fairwind principle which gives the benefit of the doubt to the injured party where the tort makes the future uncertain. 

This blogpost by David Green considers Calver J’s judgment in Moutarde v (1) SIG Logistics (2) Transplastix [2021] EWHC 1670 (QB).

The case was an appeal from a decision of Master Rowley, on a short, discrete issue: when the parties settled all heads of quantum in a mesothelioma case at the door of court in the minutes before an assessment of damages hearing was due to begin, and the hearing was used only to approve a Tomlin order and to determine one question of the incidence of costs for that day: had the case settled “at trial”, giving rise to a 100% success fee, or before trial, giving rise only to a 27.5% success fee?

Negotiations over settlement had continued literally outside the court until approximately 20 minutes before the assessment of damages hearing was due to begin. The cost of immunotherapy for the claimant (a living mesothelioma victim) was apparently the source of most of the contention.

Counsel (Aliyah Akram of 12KBW for the Claimant; Jayne Adams QC for the Defendant) were able to agree a Tomlin order in respect of virtually all contested issues. But the Defendant wanted an order that the Claimant should pay the Defendant’s costs of the trial date, on the grounds that failure to achieve agreement until that late stage was caused by the Claimant’s unreasonableness.

Counsel therefore went before Stewart J at the appointed time for the assessment of damages and presented the Tomlin order for approval, and asked him to adjudicate the sole outstanding costs issue. He did so in very brief terms and in the Claimant’s favour, leaving the order in the Tomlin order (that the Defendant pay the Claimant’s costs, to be assessed) untouched.

In the Senior Courts Costs Office, Master Rowley was invited by the Claimant to find that the matter had concluded at trial, within the meaning of the former CPR r45.15(6) (which continues to apply to mesothelioma claims), because the listed assessment of damages hearing had in fact opened, and had been used to determine an outstanding issue of costs which the parties had been unable to agree.

Master Rowley did not agree with the Claimant’s submission on this point. In his judgment the success fee system was provided to compensate claimants for going to a contested trial where there was a significant risk that they might lose; this wasn’t the case here. The matter would have already met with “success” within the meaning of the CFA before the hearing began, for instance. But in any event, the incidence of costs is a matter which (at least in theory) has to be determined at the conclusion of every hearing. The mere making of a costs order could not, without more, cause a hearing to become a “final contested hearing”.

On appeal, the Claimant relied on obiter observations of Wilson LJ in Thenga v Quinn [2009] EWCA Civ 151, that a final contested hearing referred to a hearing of the substantive claim, “albeit probably […] including a hearing referable to a disputed claim for an award of costs in principle”.

Calver J had no difficulty in dismissing the appeal. The wording of the former CPR r45.15(6) refers to the final contested hearing of “the claim”, and the claim is the claim for damages for breach of duty – i.e. the substantive claim. By the time the hearing before Stewart J had opened, that claim had already been completely compromised. “The claim” did not encompass a claim for costs to be paid by or to either party, once the substantive claim was already disposed of.

Were this otherwise: a 100% uplift would become payable even if there was a trivial dispute about costs left after the conclusion of the substantive claim. There would be an incentive for claimants to leave small matters outstanding, in order to recover their 100% success fees.

On its face this is a sensible decision which – Thenga notwithstanding, which Calver J disapproved – accords with the thrust of the decisions on the opening of final contested hearings from the pre-2013 days when success fee recovery was widespread. It does, however, mean that claimants and defendants need to be clearsighted about the consequences of settling, or not settling, as the day and hour of the final contested hearing looms nearer.

Samuel Cuthbert discusses the judgment of Master Davison in  Smith v W Ford & Sons (Contractors) Ltd [2021] EWHC 1749 (QB) which reasserts the convention that costs budgeting does not apply to cases in the Asbestos List. 

Background

There is a convention that cost budgeting is disapplied for cases in the Asbestos List. This is captured in the White Book commentary at 3DPD 5.3 as follows:

“The convention of dispensing with costs budgeting in asbestos disease cases has been reinforced by the introduction of PD 3E paragraph 2(b) which indicates that in all cases where there is limited or severely impaired life expectation (five years or less remaining) the Court will ordinarily disapply costs management.”

In this case, the Defendant had made an application to displace this convention and impose costs budgeting. Master Davison’s judgment, given ex tempore on that point in the course of the CMC, has wider application for cases in the Asbestos List.

The Judgment

Master Davison dismissed the Defendant’s application and dispensed with costs budgeting. The Master held that the convention that budgeting be dispensed with reflects the fact that matters typically need to progress very quickly in the Asbestos List. Both case management and final hearings are often listed comparatively soon after the issue of the Claim Form. Further, the Asbestos Masters do not distinguish between mesothelioma, asbestosis cases, and fatal cases for the purposes of listing. All such cases are listed for CMC very quickly, despite the differences in life expectancy in those categories of cases. Such listing arrangements cannot accommodate costs budgeting. 

Master Davison’s judgment takes the Defendant’s three arguments in turn. 

First, the fact that the case in hand was a deceased case was not significant. No distinction was made on that ground because of the administrative burden it would impose and its potential effect on living cases. 

Second, the fact that this case was a heavily contested trial was also not sufficient to take the case out of the ordinary. Heavy contest is characteristic of lots of asbestos cases, and the expert evidence in such case is also often complex. 

Third, in relation to the Defendant drawing attention to the benefits of costs budgeting across the board, Master Davison held at [9]:

“[…] these factors were considered corporately by the Asbestos Masters and by the senior judiciary who devised the present system and approved the convention that costs budgeting should not usually apply. The factors that are generally in favour of costs budgeting were judged to be subordinate to the factors that I have mentioned.” 

Two further observations were then made in relation to this. The Defendant had not produced any evidence to demonstrate that costs in asbestos cases are disproportionate or inadequately controlled. The Defendant could not therefore displace the convention of dispensing with costs budgeting. Moreover, Master Davison observed that QB Masers, Chancery Masters, and Costs Judges do not agree with the Defendant’s position that costs budgeting controls costs better. He did not recognise the Defendant’s dichotomy that imposing costs budgeting represents tight controls of costs in contrast to the ‘free-for-all’ that ensues without it. 

Comment

This is a notable judgment for asbestos practitioners. As is evident from the opening line of Master Davison’s judgment, it is handed down with the approval of the other Asbestos Masters. Its restatement of the reasons for the convention in favour of displacing costs budgeting in the Asbestos List may head off similar challenges in the future.

Master Davison held at [5] that the listing arrangements cannot accommodate costs budgeting and stated: “And I would add that they cannot accommodate too many debates, or contested hearings, about whether costs budgeting should or should not apply”. The Master’s comment at [9] that this hearing was not the appropriate forum for debates about “complex and somewhat sensitive” issues, speaks to the special considerations that underly the need for an Asbestos List. Practitioners need no reminding of the particular difficulties faced by litigators on this list, the existence of the ‘Show Cause’ procedure, expedited timetabling and case management by specialist Masters serve to meet these difficulties. It is hard to see how cost budgeting can be accommodated within this schema, it is suggested that the Master’s decision is therefore the right one.