This article was originally published in the autumn 1999 issue of the Expert Witness.
In Duncan v. Baddeley, Alberta Court of Appeal ruled that claims for loss of earnings were to be permitted under the Survival of Actions Act. Since that time, two trial court decisions have commented on the method by which this claim is to be assessed – Duncan v. Baddeley (Justice Doreen Sulyma) and Brooks v. Stefura (Justice Paul Belzil). In this note, I will argue that, although these two decisions clarify many of the outstanding issues in this area, a number of crucial problems remain unresolved.
Issues Clarified
The Duncan and Brooks trial decisions provided clear signals concerning the elements of the Court of Appeal decision that would be given greatest weight. In particular, two paragraphs from the latter decision were quoted by both Sulyma, J. and Belzil, J.
[37] The flaw in the “lost saving” approach is that it is heir-centred, not victim-centred. It asks what the heirs lost, not what the victim lost. But the suit here is not for the loss to the estate, it is a suit by the victim for his loss, a claim that by operation of statute survives his death and can be made by his estate for him. Worse, it has the air about it of an attempt to undermine the statute. As a result of this flaw, the approach will fail to take into account what has been called “discretionary” spending, like holidays and entertainment and other “treats.” It will also fail to take into account gifts to children and spouses, and thereby underestimate even an heir-centred award.
[42] In sum, Ms. Taylor in her excellent submission persuades me to accept in large the “available surplus” approach accepted by the U.K. Court of Appeal in Harris v. Empress Motors; Cole v. Crown Poultry Packers, [1983] 3 All E.R. 561, and adopted by the British Columbia Court of Appeal in Semenoff et. al. v. Kokan et. al. (1991) 4 B.C.A.C. 191; 84 D.L.R. (4th) 76. But it seems to me that it follows that a further deduction should be for expected income tax…
Lost Savings
In Galand, the Court of Appeal had directed that in Survival of Actions Act cases the estate was to be compensated for the value of the deceased’s (after-tax) income net of “personal living expenses.” Following Galand, some defendants argued that, as all expenditures could be considered to be directed to personal living expenses, the only portion of an individual’s income that would remain after deduction of those expenses was savings. Hence, the Survival of Actions claim was simply for lost savings.
Both Belzil, J. and Sulyma, J. concluded that the Court of Appeal decision in Duncan v. Baddeley required that “personal living expenses” were to be something less than total expenditures on consumption; and that the Survival of Actions claim was to be for something more than “lost savings.”
Available Surplus
In particular, that “something more” was to be calculated by deducting the “available surplus,” as calculated in Harris, from total after-tax income.
Justice Sulyma clarified that the “available surplus” approach was to be employed in the following manner. First, determine the deceased’s expected marital status and expected number of children. Second, estimate the percentage of the after-tax income of the deceased that would have been spent on: items specific to the deceased; and the percentage that would have been spent on items common to all members of the family (often called “indivisibles.”) Third, divide the indivisibles figure by the number of individuals in the family. Finally, deduct the sum of that figure and the figure for the deceased’s expenditures on him or herself from after-tax income. The result is the “available surplus,” that is, the amount to be compensated.
As an example, assume that it has been determined that a deceased male would have married and had two children. Assume also that evidence has been led to indicate that, of his after-tax income, 20 percent would have been spent on items that benefited the deceased alone (for example, expenditures on food and clothing) and that 30 percent would have been devoted to indivisibles. One quarter of the latter, or 7.5 percent, would be attributed to the deceased. Hence, it would be concluded that 27.5 percent of the deceased’s after-tax income would have been devoted to his maintenance and the estate would be compensated for the remaining 72.5 (= 100 – 27.5) percent, (the available surplus).
Two Technical Issues
At least two “technical” issues remain unresolved. First, the court has not turned its mind to the question of how to vary the available surplus over the individual’s lifetime. For example, if it has been assumed that the deceased would have had two children, it would seem reasonable to reduce the available surplus once the children left home. The general assumption is that, for a couple without children, 30 percent of family income is devoted to items that benefit one partner alone and 40 percent is devoted to indivisibles. Hence, once a couple’s children have left home, the available surplus should be assumed to fall from 72.5 percent to 50 percent (= 30 + (0.50 x 40)).
Second, it might be argued that the appeal court’s ruling that the available surplus was to be more than “lost savings” implied that all of the deceased’s expected “savings” should be included in the award. As a significant portion of the indivisibles represents purchases of capital assets, such as the family home, it might be argued that expenditures on those purchases are “savings.” As such, they should not be deducted from the award. This issue has not been resolved.
Two Conceptual Issues
In addition, the Court of Appeal decision in Duncan raises two conceptual issues that have not, as yet, been dealt with satisfactorily. First, that decision concludes both that the award should be something more than lost savings and that the available surplus approach is to be used. But, in certain circumstances, the latter approach yields results that are identical to the lost savings approach.
In particular, assume that the deceased was not married and that evidence has been led to suggest that he or she would never have married. In that case, the available surplus approach requires that all of the individual’s expenditures on personal items, plus all of his or her expenditures on indivisibles, be deducted from after-tax income. But the residual from that calculation is simply the individual’s savings. Does the Court wish us to compensate this individual’s estate for his/her savings, after explicitly rejecting the lost savings approach? The answer is not clear.
Second, note that the Court of Appeal ruled that the lost saving approach was flawed, in large part, because it “… will fail to take into account what has been called ‘discretionary’ spending, like holidays and entertainment and other ‘treats,’ … [and because it] … will also fail to take into account gifts to children and spouses.” [para. 37]
The simplest interpretation that can be given to this wording is that expenditures on holidays, entertainment, and other “treats” are not to be deducted from the estate’s claim. That is, if the lost saving approach is flawed because holidays, entertainment, and other treats are excluded, it surely must follow that, in the non-flawed approach, those items are to be included.
But the available surplus approach excludes these expenditures from the claim. The percentage of income that is devoted to expenditures exclusively for the benefit of the deceased includes expenditures that the deceased would have made on holidays, entertainment, etc. And the available surplus approach explicitly deducts expenditures made for the sole benefit of the deceased. Again, the Court ruling is found to be internally inconsistent.
Conclusion
The long saga that was initiated with the Court of Appeal ruling in Galand continues. Although the recent trial court decisions in Duncan and Brooks provide some clarification concerning the manner in which Survival of Actions Act claims are to be calculated, many issues remain to be resolved. Further rulings, perhaps from the Court of Appeal, will be required before a clear picture emerges.
