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Lee, Michael J --- "Damages in dependency" [2019] PrecedentAULA 20; (2019) 151 Precedent 19


DAMAGES IN DEPENDENCY

By Michael J Lee CA

At common law, families of a person killed as a consequence of the negligence of another were unable to claim for compensation. As Lord Ellenborough stated in Baker v Bolton (1808) 170 ER 1033:

‘In a civil court, the death of a human being could not be complained of as an injury’.

Then came the dawn of the industrial age with increased levels of accidents and death, notably from railway and transport accidents. In 1846, as a result of the endeavours of Lord Campbell, the United Kingdom Parliament passed what was known as the Fatal Accidents Act 1846, which provided that dependants could claim damages for the death of a family member.

Similar legislation spread and was enacted in other common law countries. All jurisdictions across Australia provide a legislative framework for the basis of such action.[1]

GENERAL PRINCIPLES

Put simply, a person is entitled to bring a claim for the damages for a loss of benefits they reasonably expected to obtain had a deceased lived. Further, the death was as a consequence of the negligence of the defendant.

Notably, only one proceeding can be brought on behalf of all dependants and no compensation is available for grief or suffering resulting merely from the death, with the exception of South Australia and the Northern Territory.[2]

These cases are distinct from a personal injury claim for nervous shock, whereby a dependant suffers a recognisable psychiatric illness, beyond a normal grief reaction, and brings a claim for their own losses arising from their injury.

WHO ARE THE DEPENDANTS?

All jurisdictions across Australia have legislation which defines who is a dependant in an action.[3] Generally speaking, dependants include a spouse, children and parents of the deceased, but it should be noted that the definition varies considerably across the jurisdictions. Regardless of the definition, a dependant must ultimately be a person who had a reasonable expectation of benefitting from the deceased.

As an example, an adult child of a deceased parent may fit the definition of a dependant, however she/he would need to establish that there was an expectation of financial or other benefit in order to be compensated. A common example relates to children with disabilities who reside with their parents.

WHAT BENEFITS CAN BE COMPENSATED

As previously noted, non-pecuniary losses such as grief are unable to be compensated. So what can be compensated? In Public Trustee v Zoanetti,[4] Dixon J stated:

‘In ascertaining the pecuniary loss resulting from his death there must be taken into consideration, on the one side, the reasonable expectations of benefit upon which the claimant would have been entitled to rely, had his life not been brought to an end, and, on the other side, the pecuniary benefits, arising on his death, to which the claimant had a reasonable expectation, whether as of right or otherwise.’[5]

The two major components of reasonable expectations of benefit are:

(i) loss of expected financial benefits; and

(ii) loss of expected benefits from the provision of domestic/parental services.

LOSS OF EXPECTED FINANCIAL BENEFITS

A dependant is entitled to claim for the loss of the reasonable expectation of financial benefits they were entitled to rely upon but for the death of the deceased.

The basic methodology of assessing a loss of dependency is set out in a number of legal decisions.

According to McHugh J in the decision of De Sales v Ingrilli:[6]

‘In most cases, the starting point of the inquiry will be the income of the deceased at the time of death and how much of that income went to the benefit of the relatives. Unless the income of the deceased was very high, the evidence showing the relatives' benefit at the time of death will probably be determined by taking the deceased's income and deducting an amount to cover the cost of the deceased's food, clothing and personal expenditure.’[7]

In the decision of French v QBE Insurance (Australia) Limited & Ors,[8] Fryberg J undertook an assessment based on a methodology being:

‘Loss of support is determined by subtracting the amount for personal expenditure from the amount of after-tax income.’[9]

In the decision of Norris v Routley,[10] Harrison J made the following comments under the heading ‘General principles – accounting for losses and gains resulting from death’:

‘40 Generally speaking, the deceased’s income is calculated (after deducting tax and work-related expenses) and “set-off” against the amount that the deceased would have consumed, such as the amounts that would have been spent on the deceased’s food, clothing, general living and personal expenses, and medical treatment.
41 The general principle in such cases is that all of the losses should be ascertained and then “set off” against the deceased’s own consumption costs. In circumstances where a deceased’s consumption costs exceed the total losses claimed by a plaintiff, no loss will have been sustained.’

So while the approach should involve ascertaining the precise nature of benefits (for example, housing benefits and other expected financial benefits) the courts have, generally speaking, undertaken assessment of the loss of financial dependency suffered as a result of the death of the deceased using the following basic methodology:

(iii) Estimate the ongoing level of earnings that the deceased would have derived but for their death (that is, the deceased’s notional earnings); and

(iv) Deduct from the amount estimated at (i) above an allowance for the amount that the deceased would have spent on themselves (that is, their personal consumption).

The remaining amounts are assumed to be available for the benefit of the dependants.

Notional earnings

In relation to the deceased’s notional earnings, the usual principles of assessing losses apply. Accordingly, it is necessary to ascertain the level of earnings the deceased would have derived but for their death. This may involve taking account of such things as potential career progression.

Personal consumption

Personal consumption relates to expenditure on items which the deceased would have spent exclusively on themselves as opposed to expenditure which was for the benefit of their dependants. Examples of personal consumption include, but are not limited to, the deceased’s expenditure on food, alcohol, tobacco, clothing, personal hygiene, hobbies, general living expenses (for example, mobile telephone and entertainment) and medical costs, etc.

The preferred approach is to estimate the deceased’s personal consumption having regard to their personal habits. However, in many instances, it is difficult to establish an accurate measure of the deceased’s actual personal consumption at the time of death, let alone what their intended personal consumption would have been into the future.

In the absence of any reliable information, the courts have approached the issue by rule of thumb or statistics. An example of the use of statistics is contained in Professor Harold Luntz’s text Assessment of Damages for Personal Injury and Death.[11]

The table is labelled a ‘Dependency Percentage’. However, in essence the dependency percentage is 100 per cent less the deceased’s personal consumption (as a percentage of income). For example, a dependency percentage of 66 per cent implies that the deceased’s personal consumption equates to 34 per cent of the income.

It is not the intention of this article to examine the shortcomings in tables that have historically been relied upon,[12] other than to note the following:

(v) The survey data in those tables is based on summarised results and is over 17 years old;

(vi) The methodology assumes that households consume all of their income no matter the size of the household income and do not save;

(vii) The consulting actuarial firm that prepared those tables has now abandoned its support for the tables;

(viii) The tables produce results which, in a great many instances, are difficult to comprehend; and

(ix) Professor Luntz has advised that it is his intention to replace his old table with the table contained within the chapter entitled ‘Personal Consumption Percentages in Australia – Current Tables for 2018’ in the upcoming 5th edition of the Assessment of Damages for Personal Injury and Death.

In relation to item (iv) above, the matter of Norris v Routley[13] is particularly relevant.

Briefly the facts were as follows. Mr Norris suffered from liver disease and died on 31 May 2011. His treating specialist, Dr Routley, accepted that his negligent failure to refer Mr Norris for a liver transplant, or otherwise to arrange a liver transplant in a proper or timely manner, was a cause of Mr Norris’s death.

At the time of Mr Norris’s death he was a full-time stay-at-home father and worked casually as a gardener and landscaper. He did the majority of the housework and was the primary carer of the Norris’s two sons. At the time of Mr Norris’s death, his wife, Dr Norris, was in the process of establishing her own specialist medical practice, and it was intended that had Mr Norris not passed away he would have commenced working as Dr Norris’s practice manager.

The case therefore was concerned with the assessment of damages, and independent financial experts were engaged by each party to assist the court.

In assessing the loss of financial dependency each expert adopted the ‘dependency percentages’ as outlined in Professor Luntz’s 4th edition text.

What became apparent was that the focus on ‘dependency percentages’ meant that the reports prepared by the experts did not consider the personal consumption as a weekly amount nor the reasonableness or otherwise of the amount. Instead the losses (or as noted below, the ‘benefits’) from Mr Norris’s death were calculated.

Essentially the court found that while Mr Norris would have earned up to $1,172 after tax per week, his personal consumption would have been up to $3,885 per week. In other words, Mr Norris would have spent $3,855 per week on items such as food, alcohol, tobacco, clothing, personal hygiene, hobbies, general living expenses (for example, mobile telephone and entertainment) and medical costs, etc.

As a result, it was concluded that the family would have financially benefitted as a result of his death. Further, that ‘benefit’ was to be offset against any loss of domestic/parental services. Ultimately the dependants of Mr Norris were awarded $21,757.

The deceased’s wife, Dr Norris, argued on appeal among other things:

• New evidence existed (namely the publication of ‘Personal Consumption Percentages in Australia – Current Tables for 2015’ which Professor Luntz would incorporate into the 5th edition of his text).

• The evidence demonstrated that the amount attributed to Mr Norris’s personal consumption adopted in the primary judgment was overstated by up to $2,755 per week.

• The primary judge ignored the evidence of Mr Norris’s frugal habits and modest tastes.

The Court of Appeal dismissed the appeal and Payne JA noted:

‘41 While the further evidence here in issue is undoubtedly credible and probative, the appellant did not establish that the evidence could not have been discovered with reasonable diligence.’
‘45 The fact that an expert, even an eminent expert such as Professor Luntz, has changed his position in a matter of significance in a case, after that case was concluded, is not of itself sufficient to demonstrate special circumstances. This is especially so where, as here, the basis of Professor Luntz’s change of position was academic work by Mr Lee that was available, and it seems known at least at a high level, to the expert for the appellant who gave evidence before the primary judge at the time he gave that evidence.’
‘92...There was no specific evidence led of what proportion of the expenditure was attributable to any particular member of the family. Similarly, there was no evidence about the family’s practice with respect to retained and unspent income, expenditure of anticipated superannuation funds or any plans for saving for retirement.’

Even though Dr Norris did not succeed on her appeal, what is apparent is that even the use of statistics should only be a starting point. Personal consumption should be adjusted up or down to take account of the deceased’s personal habits and evidence in the form of statements as to personal consumption is important. It is imperative that information about the deceased’s personal habits is provided to the expert, in the instructing letter, as the basis for the assumptions the expert will be asked to make.

Other measures of financial loss

While the general methodology applies, in most instances there are other measures of damage in which a loss of financial dependency may manifest.

Examples include matters which involve children of separated parents. In such cases, the loss of financial dependency may be limited to the value of child support that would have been provided by the deceased to the child(ren). In the matter of NSW Insurance Ministerial Corp v Willis[14] the Court of Appeal considered unusual circumstances where the losses exceeded the value of support provided by the deceased.

Other potential matters include ‘reverse’ dependency claims where the parents of the deceased may have expected to have been financially dependent on their child. This is particularly the case in many Asian and Middle East countries where there is a cultural (and sometimes legislative[15]) obligation that children will provide for their parents during their retirement.

LOSS OF DOMESTIC / PARENTAL SERVICES

As previously noted, in addition to a loss of financial dependency, in cases where the deceased provided domestic/parental services to the dependants those benefits are compensable.

So what can be claimed? The decision of Nguyen v Nguyen[16] provides guidance.

Briefly, in Nguyen the deceased’s husband and two children brought a claim for the value of the housekeeping services lost as a result of the deceased’s death. It was argued by the defendant that where services provided by the deceased were not replaced or intended to be replaced, no damages should be payable.

In response Dawson, Toohey and McHugh JJ noted:

‘A husband claiming for the loss of housekeeping services by reason of the death of his wife may have no need of those services in that he may be able to perform them himself. But if he has suffered the loss he is entitled to recover for it and, as Gibbs J pointed out in Seymour, at p230, it does not matter whether he intends to use the damages to replace the services or not.’[17]

Accordingly, the loss is based on the expected services and resulting benefits. Unlike a claim for domestic assistance made in a personal injury claim, the loss is not based on needs created subsequent to the death of the deceased nor what has actually occurred.

What is the appropriate measure of rate for the services that would have been provided? In Nguyen, Deane J suggested that commercial rates are not to be treated as ‘the invariable yardstick of the assessment’. Justices Dawson, Toohey and McHugh suggested commercial rates may only be ‘a starting point in assessing the plaintiff’s loss’.

In some jurisdictions there have been statutory modifications in relation to the number of hours and the hourly rate to adopt.[18]

An example is ss141B(3)-(7) of the Motor Accident Compensation Act 1999 (NSW) which provide a cap on the number of hours and a rate at which services are to be calculated. However, the Motor Accident Injuries Act 2017 (NSW) does not place any limit in a wrongful death action in respect of services.

Also, the decision of Coote v Kelly; Northam v Kelly[19] seems to suggest that the Civil Liability Act 2002 (NSW) precludes damages for a loss of services in a dependency claim. In this regard, the court would appear to have construed s15 of the Civil Liability Act 2002 (NSW) (in particular ss15(1) and (2)) as not being able to be satisfied in a wrongful death claim as the services would have been provided had the deceased not been injured. It should be noted that damages were provisionally assessed on the basis that the plaintiff failed on liability.

PROSPECTS OF REMARRIAGE

As previously noted, in a dependency claim the pecuniary losses and gains must be considered.

One such issue relates to the prospects of a spouse remarrying or repartnering and whether a discount should be taken into account for any financial benefits that might accrue from that relationship.

The High Court considered the issue in De Sales v Ingrilli.[20] In that case Gaudron, Gummow and Hayne JJ stated:

‘If the relationship is reflected in marriage, or if there is relevant legislation creating rights between de facto partners, the property rights of the partners will no doubt loom large in that assessment. Likewise, if there is evidence that a surviving spouse (or de facto spouse) intends, at the time of trial, to establish such a relationship with an identified person, account may be taken of evidence of the probable financial consequences of that relationship. In each case, however, it would be wrong to assume that the financial consequences revealed in evidence will inevitably continue.’[21]

Justice Kirby stated:

‘... in a wrongful death case, ordinarily, no deduction should be made on account that a surviving spouse or domestic partner will remarry or form a new domestic relationship of economic significance.’[22]

Some jurisdictions have subsequently legislated the effect of De Sales and others have modified it. One such example is s19(2) of the Wrongs Act 1958 (Vic) which provides that no discount (even if a spouse or domestic partner have remarried or repartnered) should be taken into account. Another example is s68 of the Civil Proceedings Act 2011 (Qld) which provides no discounts in relation to children. This is in keeping with the reasoning of Dawson, Toohey and McHugh JJ in Nguyen.

ACCELERATED BENEFITS

‘Accelerated benefits’ relate to circumstances where a dependant obtains a benefit from the early receipt of assets as a result of death which they may have derived later or in some circumstances would never have received.

The process is twofold and factual in nature. The first step in assessing any accelerated benefit involves determining if there has been an acceleration of ownership of assets. The second step involves determining if there has been a benefit conferred from the accelerated ownership of those assets. Generally speaking, if both steps exist then amounts are considered accelerated benefits and the present value of the net benefit is deducted from the overall level of losses. It should be noted that some jurisdictions limit the level of accelerated benefits that can be taken into account[23] and in the Northern Territory no benefits are to be taken into account.[24]

The key ‘test’ is whether the dependants have derived a benefit. The test is the substance of the circumstances as opposed to form. For example, if a holiday house had been used for family holidays and continues to be used in the same manner, then no benefit has been conferred as the asset is continuing to be used as it previously had been. However, if the holiday house was now being used as a rental property, then a benefit has been conferred and an accelerated benefit should be taken account of. For other examples the decision of Black v Walden[25] provides some good guidance.

OTHER ITEMS NOT TO BE TAKEN INTO ACCOUNT

Dependants’ earnings

In Carroll v Purcell[26] it was argued that as the surviving spouse had returned to work the increase in earnings should be deducted from the loss of dependency. In response Dixon CJ, Kitto, Taylor and Windeyer JJ stated:

‘Such a direction would clearly have been erroneous and could not be supported for the wages which the plaintiff earned and received were no more and no less than the reward for her labour.’[27]

Other items

Most jurisdictions provide legislative exemptions[28] of benefits which may have been obtained by dependants. Examples of items that should not be taken into account include the following:

• Insurance payouts;

• Superannuation funds;

• Pensions; and

• Gratuities.

The family home and furniture are also exempt.[29]

Also, it is important to remember that loss of dependency cases are not personal injury cases, thus statutory repayments to Centrelink and Medicare do not apply (although they would apply if a nervous shock claim is brought by the dependants).

APPORTIONMENT OF DAMAGES

As previously noted, only one proceeding can be brought on behalf of the dependants. Accordingly, the damages assessed need to be apportioned among the various dependants. In my experience no hard and fast rule exists in apportioning the damages. It may be necessary for each dependant to have separate representation.

In the matter of Kuhlewein v Fowke,[30] the court took the approach that the dependency of an adult was approximately twice that of a child. Accordingly, as an example for a household with two children the apportionment would be 50 per cent for the surviving spouse and 25 per cent for each child.

In relation to a loss of parental services, an argument exists that any past losses may relate to a surviving spouse whereas any future losses should be apportioned (on the basis that they may not be provided).

LEGISLATIVE CAPS

Following the Ipp review[31] and the introduction of the various restrictions on damages it is important to consider a claim for loss of financial dependency in the context of how the legislative restriction is drafted.

In this regard, most Civil Liability Acts (or their equivalents) place a cap on the damages. However, as an example, s12(2) of the Civil Liability Act 2002 (NSW) places a cap where the ‘claimant's gross weekly earnings would (but for the injury or death) have exceeded an amount that is three times the amount of average weekly earnings at the date of the award’. In the decision of Taylor v Owners Strata Plan No 11564,[32] the plurality interpreted the section as not a cap on the deceased’s earnings but instead on the earnings of the claimant (or person bringing the action).

CONCLUSION

Given that compensation in loss of dependency cases relates to the loss of reasonably expected benefits, significant value can be added to cases if care and attention is paid to obtaining detailed evidence of the deceased’s spending habits and likely changes in future employment and earnings. A well-reasoned report, with supporting evidence, from a forensic accountant can be useful in quantifying damages in claims involving death.

Michael J Lee CA is a Chartered Accountant and director of Vincents Chartered Accountants forensic accounting – insurance litigation unit. He has over 21 years’ experience as a forensic accountant. His primary area of expertise is the calculation of economic loss resulting from personal injury and death.

He has a particular interest in matters relating to dependency claims and is the co-author of ‘Personal Consumption Percentages in Australia – Current Tables for 2018’. He has also prepared Assessments for many overseas clients. PHONE (07) 3228 4091 EMAIL mlee@vincents.com.au.


[1] Civil Law (Wrongs) Act 2002 (ACT), Compensation to Relatives Act 1897 (NSW), Compensation (Fatal Injuries) Act (NT), Civil Proceedings Act 2011 (Qld), Civil Liability Act 1936 (SA), Fatal Accidents Act 1934 (Tas), Wrongs Act 1958 (Vic) and Fatal Accidents Act 1959 (WA). Note that in all jurisdictions other than NSW these actions are known as ‘dependency claims’. In NSW they are called ‘compensation to relatives claims’.

[2] Compensation (Fatal Injuries) Act (NT), s10(3)(f) and Civil Liability Act 1936 (SA), ss28-30.

[3]Civil Law (Wrongs) Act 2002 (ACT), s23; Compensation to Relatives Act 1897 (NSW), s4; Compensation (Fatal Injuries) Act (NT), s4; Civil Proceedings Act 2011 (Qld), s62; Civil Liability Act 1936 (SA), s24; Fatal Accidents Act 1934 (Tas), s3; Wrongs Act 1958 (Vic), s17(2); Fatal Accidents Act 1959 (WA), Sch 2.

[4] [1945] HCA 26; (1945) 70 CLR 266.

[5] Ibid, 276.

[6] [2002] HCA 52.

[7] Ibid, 96.

[8] [2011] QSC 105.

[9] Ibid, 247.

[10] [2015] NSWSC 883.

[11] H Luntz, Assessment of Damages for Personal Injury and Death, 4th ed, LexisNexis Butterworths, 2002.

[12] For a detailed discussion see the paper entitled ‘Personal Consumption Percentages in Australia - Current Tables for 2018’ which can be found at <http://vincents.com.au/personal-consumption-rates.pdf> .

[13] [2015] NSWSC 883.

[14] (1995) 35 NSWLR 668.

[15] For example, Constitution of the People's Republic of China, the Marriage Law of the People's Republic of China and the Law of the People's Republic of China on the Protection of Rights and Interests of the Aged.

[16] [1990] HCA 9.

[17] Ibid, 14.

[18] Civil Liability Act 2003 (Qld), s59A and Wrongs Act 1958 (Vic), s19A.

[19] [2016] NSWSC 1447.

[20] [2002] HCA 52.

[21] Ibid, 78.

[22] Ibid, 161.

[23] As an example see Fatal Accidents Act 1934 (Tas), s10(1)(b).

[24] Compensation (Fatal Injuries) Act (NT), s10(4)(g).

[25] [2008] NSWCA 108.

[26] [1961] HCA 81.

[27] Ibid, 5.

[28] Civil Law (Wrongs) Act 2002 (ACT), s26; Compensation to Relatives Act 1897 (NSW), s3(3); Compensation (Fatal Injuries) Act (NT), s10; Civil Proceedings Act 2011 (Qld), s70; Civil Liability Act 1936 (SA), s24(2aa); Fatal Accidents Act 1934 (Tas), s10(1); Wrongs Act 1958 (Vic), s19 and Fatal Accidents Act 1959 (WA), s5(2).

[29] Horton v Bryne (1956) 30 ALJ 583.

[30] [2000] QSC 404.

[31] D Ipp, ‘Final Report of the Review of the Law of Negligence’ (2002).

[32] [2014] HCA 9.


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