England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/10/2006

The Honourable Mr Justice Owen :

1. On 3 June 2003 Michael Frederick Wolfe, the deceased, who was born on 4 January 1954, sustained fatal injuries in a road traffic accident. He died on the following day in the Neurological Unit at the Queen Elizabeth Hospital, Birmingham, when his life support machine was switched off. His death has had a devastating effect upon his close-knit family. His widow, Linda Theresa Wolfe, claims damages on behalf of his estate, and on behalf of his dependants. Liability for his death has been admitted on behalf of the defendant.
2. The persons for whose benefit the action is brought are

i) the claimant, who was born on 4 March 1953, and was aged 50 at the date of death,

ii) Suzanna Jill Goring, the daughter of the deceased who was born on a 24 July 1974, and was aged 28 at the date of death,

iii) Joanna Elaine Wolfe, the daughter of the deceased who was born on 16 July 1976 and was aged 26 at the date of death,

iv) Lucy Ann Wolfe, the daughter of the deceased, who was born on 16 September 1979 and was aged 23 at the date of death,

v) Cloe Linda Wolf, the daughter of the deceased, who was born on 2 February 1982, and was aged 21 at the date of death.

3. The claim to a dependency on behalf of Suzanna is not pursued.
4. There has been some measure of agreement between the parties. The heads of claim upon which there has been agreement are set out in the schedule annexed to this judgment. But two heads of damage remain in issue; general damages for loss of amenity, and the dependency.

General damages for loss of amenity

5. The deceased survived the accident in which he sustained fatal injuries for 30 hours. He was unconscious throughout that period, and in consequence it is common ground that there can be no claim for pain and suffering. But it is accepted on behalf of the defendant that his estate is entitled to damages for loss of amenity for that period. Both parties acknowledge that such an award will be modest. In my judgment the appropriate award is £750.

The dependency

6. There are two elements to the dependency claim, firstly what can conveniently be described as the earnings dependency, and secondly the services dependency.

The earnings dependency

7. At the time of his death the deceased ran a business, Kingsley Cross Country, an independent garage specialising in the sale and maintenance of Land Rovers and Range Rovers, in partnership with the claimant. The claimant did not play an active role. The business had been established in 1985. By June 2003 it had 12 employees in addition to the deceased. They included the claimant's eldest daughter, Suzanna, who worked as a receptionist/administrator, her husband Shaun, who ran the Parts Department, and Phillip Kemp, who was the workshop manager. The deceased oversaw all aspects of the business and had sole responsibility for the purchase and sale of vehicles. As the claimant put it in her evidence "he was the key to the business. He ran the majority of the business in his head". Similarly Mr Kemp said that the deceased was central to the business, "everything revolved around him." It is common ground that he maintained his family from the profits generated by the business. Since his death his wife and family have continued to run Kingsley Cross Country, which in October 2003 was incorporated as a limited company.
8. There are three issues in relation to the earnings dependency, first the annual maintainable profit of the business at the date of the death of the deceased, secondly whether the claimant must give credit for post death profits of the business, and thirdly as to the percentage of the annual maintainable profit that represents the dependency.

The annual maintainable profit

9. The claimant adduced expert evidence from a chartered accountant, Mr R. M. L. Perry, as to the maintainable profits of the business had the deceased not lost his life. It appears that the defendant instructed an accountancy expert, but did not serve expert evidence.
10. Mr Perry came to the conclusion that the annual maintainable profit of the business was £65,192. The accounting year for the business ended on 31 December, and Mr Perry based his assessment on both the figures for the most recent complete year, 2002, and for the nine month period ending 30 September 2003. His assessment involved a projection of vehicle sales for 2003 based on the 2002 figures.
11. It was submitted on the behalf of the defendant that Mr Perry's methodology is unsound, and that his assessment does not fairly reflect the true profitability of the business. Mr Bate-Williams advanced two principal criticisms. First he argued that Mr Perry ought not to have based the projected vehicle sales on the 2002 figures, as purchases of vehicles were down for the six months preceding Mr Wolfe's death. As to that Mr Perry pointed out that it is not solely the number of vehicles that is important, but also their value. Secondly the new workshop opened in May 2003, and it is reasonable to assume that the deceased would have been heavily involved in fitting it out in the early part of 2003, which would have had an effect on vehicle sales in the early part of the year. It is equally reasonable to assume that once the new workshop was functioning, Mr Wolfe would have been able to concentrate on sales and to make up any lost ground. I am satisfied that Mr Perry was justified in projecting vehicle sales at the same level as in 2002.
12. Secondly Mr Bate-Williams pointed to the fluctuations in operating profits revealed in the accounts. In 1997 the operating profit, in round terms, was £36,000, in 1998 £34,000, in 1999 £23,000, in 2000 £55,000, in 2001 £33,000, and in 2002 £63,000. He argued that given such fluctuations, the appropriate approach would have been to take an average over a period of years. In cross-examination Mr Perry accepted that as a general proposition, where the accounts of a business reveal fluctuations in profitability, it is appropriate when predicting future profitability, to take an average over a period of years. But both in his supplementary report dated 14 September 2006 and in cross-examination, Mr Perry explained why he had decided not to do so in this case. First he said that it is necessary to consider whether there are reasons for the fluctuations, and if so whether they are likely to recur. In this case he was able to identify reasons for the fall in profitability in 2001. It was an unusual year in a number of respects. The deceased was heavily involved in the construction of a new workshop, which inevitably had an impact upon the time that he could devote to the business. Secondly the profit and loss account showed expenditure on 'Repairs and maintenance', 'computer running costs', and 'Legal and professional fees' of approximately £16,000 more than in 2000. In 2002 the expenditure under such heads fell back to the 2000 levels.
13. That was a specific illustration of the second point made by Mr Perry, namely that it may be misleading to look solely to the profit and loss account; and that the annual gross profit percentage is a more secure guide to the profitability of the business. The point was illustrated by Appendix III to his report dated 27 February 2006 which showed that gross profit in 2000 was £185,444, in 2001 £179,234, and in 2002 £185,796, the gross profit percentage for those years being 16.1%, 14.3%, and 16.3%, whereas the net profit percentage for those years was 4.8%, 2.6%, and 5.5%.
14. The third point upon which Mr Perry placed reliance was that in 2002 the deceased engaged the services of a management consultant, Mr Symonds, as he felt that the business should be doing better than it was. Mr Symonds reported on 15 December 2002, and identified a number of steps that could be taken to improve financial control of the business. According to Mr Kemp, Mr Symonds subsequently reported on a number of occasions; and there is evidence that the deceased was implementing his recommendations. Mr Perry considers that it is reasonable to assume that in consequence profitability would have improved had the deceased lived.
15. In my judgment Mr Perry was fully justified in his decision to base his assessment of the annual maintainable profit on the 2002 figures taken with those for the period of nine months up to 30 September 2003 for the reasons summarised above.
16. Mr Bate-Williams also sought to persuade me that the figure for the annual maintainable profit ought to be further discounted on the basis of increased competition, there now being seven competitors in the area, and that the business is likely to be adversely affected by the increasing concern as to the environmental impact of four-wheel-drive vehicles and by a discriminatory road tax regime. As to the local competition, the claimant did not accept that it is adversely affecting the business. She pointed out that their trade as a specialist business is "not just local". As Mr Perry put it, the business occupies "a niche within a niche", and that that is a strength of the business rather than a weakness.
17. As to environmental considerations, the business of Kingsley Cross Country was limited almost exclusively to Range Rovers and Land Rovers. The claimant told me, and I accept, that her husband had little interest in foreign vehicles. Furthermore much of the business involved sales to farmers and those involved in country sports, who regard their four-wheel-drive vehicles as work vehicles. She gave evidence that the market at which Kingsley Cross Country aims, has not been affected by environmental concerns. In the light of her evidence, I reject the argument that there ought to be a discount to reflect local competition and environmental considerations.
18. The final point taken by Mr Bate-Williams on the behalf of the defendant is that had the deceased had survived, it is likely that Mr Kemp would have remained with the business and in due course would have become a director. He submits that that would have had an effect upon the profits available to the deceased and his family.
19. Mr Kemp and the deceased were close friends. They had worked together in the business since its inception. It was clear from his evidence that Mr Kemp held the deceased in the highest regard. It was also clear that the deceased was very loyal to Mr Kemp. As Susanna Goring said in evidence "he was very loyal to those who had been with him a long time". That was demonstrated by his decision, taken contrary to the claimant's advice, to make Mr Kemp a partner in the business in April 2002. The claimant told me that she twice advised her husband that he shouldn't make Mr Kemp a partner, but that he felt that Mr Kemp had worked hard in the business and he wanted to say 'thank you' in some way. Mr Kemp gave evidence that this was something that the deceased had promised him for many many years. But the engagement of Mr Symonds, the management consultant, in December 2002 resulted in a cooling of the relationship, as he identified the repair side of the business as the problem area. Mr Kemp accepted that his relationship with the deceased "had cooled for a little while". He added that he and the deceased had "rebuilt some bridges", but that his relationship with the claimant was never restored.
20. In December 2002 Mr Kemp resigned from the partnership. He explained in evidence how and why that came about. He said that there was an occasion when he and the deceased were together in a vehicle away from the business premises. He knew that something was troubling the deceased. They discussed the partnership; and the deceased told Mr Kemp that he was concerned that if they fell out he, Mr Kemp, might do something untoward, and secondly that if the business was to fail, Mr Kemp could lose his home. Mr Kemp told the deceased that it if he was uncomfortable with it (the partnership), he, Mr Kemp, would sign it back. But the deceased then went on to say that he intended to make the business into a limited company, and that when it was on its feet he didn't see any reason why Mr Kemp, Linda (the claimant) and possibly Susie (Suzanna Goring) should not become directors. I accept Mr Kemp's account of their conversation, but I also accept his evidence that the deceased "didn't like to hurt anyone's feelings". Furthermore I am satisfied that the deceased did not mention the conversation to his wife and family, no doubt because he knew that they would have been strongly opposed to such a proposal. Given that the deceased asked Mr Kemp to relinquish his partnership, however difficult it must have been for him to do so, and given the strong views as to Mr Kemp's shortcomings as a manager forcefully expressed in evidence by the claimant and by Suzanna Goring, I have come to the conclusion that it is unlikely that Mr Kemp would have been made a director of the company. I consider that the indication that he gave to Mr Kemp was a characteristic attempt to soften the blow of having to ask him to withdraw from the partnership.
21. It follows that I accept Mr Perry's analysis and conclusions and assess the deceased's net annual income at £42037.

Credit for post death profits of the business The law

22. Mr Dean submits that any potential financial benefit to the claimant to be derived from the business should be disregarded in assessing the dependency. He acknowledges that it is well established that where a wife was working before the death of her husband, so that her earnings were contributing to the family pool, and she has continued to work after his death, her earnings fall to be taken into account, but submits that that is an exception to the general rule. He relies upon the decision of Cumming-Bruce J, as he then was, in Howitt v Heads [1973] QB 64 as authority for the proposition that save in those circumstances a widow's prospect of employment should be excluded from consideration. In Howitt v Heads Cumming-Bruce J. posed the question of the "correct approach in a Fatal Accidents Act case to the situation of a widow who has an earning capacity which she will probably use after a fairly short period of years" (page 69). He then observed that as far as he knew there was no explicit authority in the English cases. Having referred to two Australian cases, Carroll v Purcell (1927) 35 A.L.J.R. 384 and Goodger v Knapman [1924] S.A.A.R. 347, in which the court held that the widow's earning capacity was not to be taken into account in diminution of damages, he held at page 70:

"I agree with the principle enunciated in those cases and I followed them. I therefore make no deduction in respect of the widow's capacity to earn, even though I am satisfied as a matter of probability that she will fairly soon be obtaining a significant degree of financial independence… As a result of the Act of 1971 I have to close my eyes to what may be reality and close my mind to the financial consequences for the widow of prospects of remarriage. This in many cases inevitably introduces an element of unreality to the assessment of real loss of the widow. It would not, having regard to the statute, be right for me to express any view at all on what the prospects of remarriage are in this case. In consequence that one element of reality has to be left out of account as I form my view of the widow's future prospects. And, as a result of the view that I have formed following the Australian cases, I am of the opinion that I must also exclude from my calculation any advantage that the wife may in future derive from remuneration as a consequence of her own intention to return to work, which in the present case means that I exclude another factor which is a reality in future life of this lady."

23. But in Cookson v Knowles [1977] QB 913 Lord Denning MR remarked obiter "we are not so sure about this". I consider the reservation expressed by Lord Denning to have been well founded. In assessing a dependency claim under the Fatal Accidents Act the task of the court, simply stated, is to assess whether, and if so to what extent and for what duration those on whose behalf the claim to a dependency is brought, would have been financially dependent upon the deceased. It is now commonplace for both husband and wife to work and to contribute to the family pool. In the case of a claim brought on behalf of a widow it will frequently be necessary to consider whether she would in any event have worked after the death of her husband, although she might not have been working at the date of death. Many wives stop work for a period whilst their children are young, intending to return to work at a later stage. If the court is satisfied on the evidence that a widow intended to return to work had her husband survived, and that her earnings would have contributed to the family pool, then her prospective earnings will be taken into account in assessing the dependency. All will turn on the facts of the individual case. But the proposition derived by Cumming-Bruce J from the Australian cases, namely that any advantage that the wife may derive from remuneration as a consequence of her own intention to return to work must be disregarded, does not in my judgment represent the law in this jurisdiction.
24. I turn then to the evidence. As I have already indicated the claimant did not play an active role in the business prior to her husband's death. She herself ran a small business making and decorating cakes, called "Cakes of Distinction". The claimant says in her witness statement that in its heyday the business had a turnover of nearly £28,000; but in 2003 it was just over £9,000 and she suffered a trading loss of over £3000. She described the business as a hobby as well as a job; and I am satisfied that the financial rewards were modest, and did not make a material contribution to the family pool. Secondly Mr and Mrs Wolfe's family home was a substantial property, part of which had formerly been run as a nursery. It had been their intention in due course to open a garden centre, using the greenhouses on the site. Following his death she and her children decided to fulfil that ambition, and in March 2004 opened for business as Wolfie's Garden Centre. Sadly the business did not succeed, and the nursery closed after trading for only 18 months. There were no earnings from that business to be taken into account in assessing the dependency.
25. The claimant has continued to run Kingsley Cross Country with the active involvement of her daughter Suzanna and Suzanna's husband. They are concentrating on the parts and servicing sides of the business as they do not have the capital to stock the forecourt. Such sales as are made are predominantly on commission, and are therefore far less profitable than sales of vehicles purchased by the business. Furthermore they do not have the contacts within the farming and shooting community from which the deceased derived much of his business. They are determined that the business should succeed, but it is struggling. In 2004 there was an operating loss of £56,000, in 2005 just under £40,000; and in 2006 the loss is likely to be of the order of £25-30,000. Thus although the trend is in the right direction, the deficit continues to accumulate. The claimant says in her witness statement that "there is a flicker of light at the end of the tunnel", and Mr Perry considers that provided that the company's bankers continue to support it, it could run into profit in 3-4 years. But by that time the deficit is likely to be of the order of £125,000; and in his view it will be 5-6 years before the company earns the funds to meet that deficit.
26. Thus if the business does survive, it will be many years before the claimant derives any benefit from it other than the modest directors fees that she currently receives.
27. In those circumstances should any future financial benefits that the claimant may derive from the business be taken into account in diminution of the dependency? In my judgment they should not. Had her husband survived she would have continued to be supported by him from the profits generated by the business, but she would not have played any active role. She is now involved in the running of the business on a full time basis. Should it return to profitability, any financial benefit that she may receive will have been earned by her. Her position is quite different from that of a widow, who would have continued working, or at some future date returned to work, and contributed to the family income pool. If the claimant is obliged to give credit for future financial benefits from the business, she will not have been compensated for the loss of her dependency upon her husband.
28. It is not therefore necessary to address the supplementary argument advanced on behalf of the claimant, namely that the earnings that the claimant derives, and may in future derive, from the business amount to a benefit within the meaning of section 4 of the Fatal Accidents Act 1976, and must therefore be disregarded. I simply observe that it is not an argument that I find persuasive.

The percentage of the annual maintainable profit that fairly represents the dependency

29. Mr Dean submits that as the deceased was supporting not only his wife, but three of his daughters at the time of his death, it would be appropriate to take 75% of the net profit of the business as the dependency for a period of five years from the date of death, then reducing to 66.66% on the basis that the children's dependency would by then have come to an end. It is accepted on behalf of the defendant that three of the daughters were dependent upon the deceased, but only to a very limited extent; and it is therefore submitted that it would be fair and reasonable to work to a figure of 66.66% for the whole period of dependency.
30. It is therefore necessary to consider the nature of the dependency in more detail. The claimant was wholly dependent upon the deceased. Each of the dependent daughters gave evidence which was unchallenged. The deceased provided each of them with cars that he taxed, insured and serviced, and with mobile telephones. He also assisted each of them financially. In Joanna's case, he assisted her on several occasions with her council tax and rent as well as giving her money for her food and utility bills. He also helped with the maintenance of her children following her divorce, bought her a fridge and wardrobes, carpeted her house, and paid for a decorator. He also carried out a number of DIY tasks for her. As to Lucy, he helped her with household expenses, bought her a washing machine, tumble drier and wardrobes, and put up mirrors, shelves and pictures for her. As to Cloe, he paid her council tax and rent as well as giving her money for food and utility bills. He also paid for her son's pre-school in the sum of approximately £200 per term. She estimates that at the date of his death she received an average of £200 per month from him.
31. It is clear from the evidence before me that the deceased was a man who was utterly devoted to his family, and that he provided substantial financial support for them whenever it was necessary. There was no evidence to suggest that he had extravagant personal tastes or spent much upon himself. In those circumstances I am satisfied that the claimant's submission is well founded, and that it would be appropriate to divide the dependency into two periods to reflect the fact that he would have continued to provide substantial support for his daughters for some years. For the first period the multiplicand will be 75% of the annual profits of the business, for the second period 66.66%. It is reasonable to assume that the daughters' dependency would have continued to date and for a further 2-3 years.

The services dependency

32. As was submitted on behalf of the claimant, the deceased was plainly an inveterate handyman. The evidence of the claimant and her daughters was supported by that of Mr Kemp who said that he was always doing jobs at his home. The result of some of his work is illustrated in the photographs produced by the claimant. The claimant now has to rely on her daughter's partners to do DIY in the home for her, pay others to do such work, or leave the tasks undone. Mr Dean invited me to assess the annual value of the services dependency at £1500. In his skeleton argument Mr Bate-Williams submitted that in the absence of documentary evidence showing expenditure incurred since the death of the deceased on tasks which he would otherwise have carried out, the claim to a services dependency cannot be maintained. But in his closing submissions he acknowledged the validity of the claim; and suggested a figure of the order of £1000 per annum.
33. I am satisfied that the deceased was unusually active in his work in the home, and that a figure of £1500 per annum fairly reflects the value of the services dependency.

Multipliers

34. The deceased was aged 49 at the date of death. The multiplier for the earnings dependency is agreed at 12.5, 3.35 to date and 9.15 for the future loss. As to future loss the multiplier for the first period (see paragraph above) will be 2, and for the second 7.15.
35. The appropriate full life multiplier taken from the current edition of the Ogden tables is 22.08. The claimant accepts that it should be reduced for the future services dependency. I am satisfied that provided he enjoyed good health, the deceased would have been active until well into his 70's. In my judgment the appropriate multiplier for the services dependency is 17, again 3.35 to date, and 13.65 for the future.

Apportionment

36. There will be an award of £5,000 to each of the dependent daughters in accordance with the proposal advanced on behalf of the claimant.

Periodical payments

37. Finally I have consider the number CPR part 41.6 / 7 whether a periodical payments order or a lump sum is a more appropriate form for all part of the claimant's damages. I am satisfied that in all circumstances a lump sum is the appropriate form of damages.