Millott (Estate) v. Reinhard – Reconciling “dependency” claims under FAA with “estate claims” under SAA

Posted on June 1, 2002April 18, 2017 By economica

This article was originally published in the Summer/Autumn 2002 issue of the Expert Witness.

In August of this year a decision was released in the case Millott (Estate) v. Reinhard (2002 ABQB 761). The decision was of interest to us, since Economica provided expert evidence for the plaintiff in this case – but there are some other aspects of the decision which will certainly be interesting to any lawyer who is involved in fatal accident cases in Alberta. In this article I will briefly discuss one of the most interesting findings.

The issue concerned how to reconcile “dependency” claims under the Fatal Accidents Act (FAA) with “estate claims” made under the Survival of Actions Act (SAA). Recall that the Brooks v. Stefura appeal decision (2000 ABCA 276) addressed the situation in which an heir to the estate (who is a potential recipient of the estate-claim award) is also one of the deceased’s dependants (and therefore is a potential recipient of an award for loss of dependency). Brooks offered the following guidelines at paragraph 14:

calculate the dependency award for each dependant, including prejudgment interest if it is granted;
calculate the lost years’ award, including prejudgment interest if it is granted;
allocate the lost years’ award to each beneficiary in accordance with the deceased’s will, or if the deceased died intestate, in accordance with the ISA;
compare the dependency award with the allocated lost years’ award for each claimant, and reduce the dependency award by the amount of the lost years’ award, which represents an accelerated inheritance;
if the lost years’ award is greater, the claimant receives only that amount; and
if the dependency award is greater, the claimant receives the full lost years’ award together with the difference between the two as the dependency award.

In other words, each surviving dependant is entitled to receive either his/her share of the estate claim or his/her loss of dependency claim, whichever is greater. This seems fairly straightforward, but there are some difficulties, which I addressed in an earlier article (“Estate Claims Following the Appeal Court Decisions in Duncan and Brooks“, Expert Witness Vol. 6, No. 1). The issue that was addressed in Millott is whether the loss of household services is to be considered separately from or together with the loss of dependency on income. This was answered in paragraphs 7 and 8 of Millott:

[7] … In the present case, there are, of course, dependency awards for both household services and transportation which had been provided by James Millott before his death. Despite the difference in the facts involved, Brooks is clear authority that the rationale for avoiding double recovery means that the dependency award amount used in the reconciliation process is only the loss arising from dependency on income, not from any other source (e.g., household services, which are not based on the deceased’s income level)….

[8] Only the dependency on income is generated by the deceased’s income stream. The dependency awards for household services and transportation are not linked to income, and should not be part of the reconciliation.

Thus, based on the Millott decision, it appears that if a dependant/heir’s share of the estate’s loss of income claim (under SAA) is greater than his loss of dependency on the deceased’s income (under FAA), then he is awarded the SAA amount, but can also receive any claim for loss of services under FAA. For example, we see at paragraph 15 of Millott, Mr. Millott’s two children received their shares of the SAA claim, in addition to an award for their loss of dependency on their father’s services (under FAA), as well as their statutory damages (under FAA).

Note that this situation will commonly occur when there is a surviving spouse and one or more teenaged children. I would expect that in most cases a teenaged child’s share of the SAA claim will exceed her loss of dependency on income (since the SAA claim continues for the remainder of her parent’s without-accident work-life, but the FAA claim continues only for as long as the child would have been dependant).

Derek Aldridge is a consultant with Economica and has a Master of Arts degree (in economics) from the University of Victoria.

Duty to Care for Orphaned Minors

Posted on June 1, 2002March 24, 2017 By economica

by Christopher Bruce

This article was originally published in the April 24, 1998 issue of The Lawyers Weekly. We reproduced it in the Summer/Autumn 2002 issue of the Expert Witness because the topic had arisen in one of our cases.

In a number of recent cases, the courts have been asked to calculate the loss of dependency of orphaned minors. In all of the reported cases, these children have been taken into the care of relatives – aunts, uncles, grandparents, or stepparents. An important issue that is raised by this arrangement is whether the expenditures incurred by the surrogate parents should be set off against the children’s loss of dependency on their natural parent(s).

In the leading Ontario case of Butterfield v. Butterfield Estate (1996) 23 M.V R. (3d) 192 (Ont.C.A.), for example, two children aged six years and six months, respectively, were taken into the care of their aunt and uncle. The defendants argued that the children’s claim of dependancy on their mother’s income should be reduced by the value of the expenditures which their aunt and uncle (who planned to adopt them) would make on them.

Similarly, in the leading British Columbia case of Skelding (Guardian ad litem of) v. Skelding (1994) 118 D.L.R. (4^th) 537 (B.C.C.A.), the defendants argued that the children’s loss of dependency on their mother was extinguished because their father (with whom they lived) had remarried.

The differing approaches that have been employed to resolve this issue provide evidence of a fundamental division in our courts with respect to the purpose of tort law. Two conflicting paradigms can be identified.

In what I will call the ex post approach, the court takes the view that, as the tortious act has already occurred, that act cannot be undone. Rather, the best the court can do is to ensure that the victims are restored, as best as possible, to the position they would have been in had the act not occurred.

In the competing, ex ante approach, the court recognises that any decision that it makes in the current case may influence the behavior of parties in similar, future cases. Hence, what is important in the current case is to set a precedent which will direct future parties to behave in the socially desirable manner.

The appellate court in Skelding clearly adopted the ex post approach. Relying heavily on the Supreme Court decision in Ratych v. Bloomer (1990) 69 D.L.R. (4^th) 25, the majority concluded that the stepmother had replaced the natural mother. Hence, no further claim was necessary to return the children to the position they would have been in had their mother lived.

Notably, this decision is exactly consonant with a well-developed line of cases which have concluded that a widow(er)’s loss of dependency may be extinguished upon marriage to a new spouse whose income is similar to that of the deceased. Particularly important for Skelding was the B.C. case of Ball v. Kraft (1966) 60 D.L.R. (2d) 35 in which both the widow and her children were denied compensation after the date of her remarriage.

In addition to its reliance on Ratych, the B.C.C.A. also defended its decision by reference to B.C.’s Family Relations Act. This Act imposes a legal requirement on parents to provide “reasonable … support and maintenance of the child.” As “parents” are defined in the Act to include stepparents and guardians, the court found that the services which Mr. Skelding’s new wife provided to his children were not “gratuitous.”

Interestingly, in making the latter decision, the court came into direct conflict with its own decision in Grant v. Jackson (1986) 24 D.L.R. (4^th) 598 which it had made only eight years earlier. In Grant the court had held that services provided by a father to his children, following the death of their mother (his wife), were not required by the Family Relations Act.

Despite Skelding’s grounding in Ratych, the vast majority of cases dealing with orphaned children have been careful to distinguish themselves from Skelding. Most of these cases employ what I called the ex ante approach to justify their decisions. In particular, they argue that the precedent established by Skelding may create perverse incentives for the friends and families of orphaned children.

The leading statements of this view appear in Tompkins (Guardian ad litem of) v. Byspalko (1993) 16 C.C.L.T. (2d) 179 and Ratansi v. Abery (1995) 5 B.C.L.R. (3d) 88. In both cases, the trial judges argued that if Skelding was followed, the risk would be created that “… in some cases, family members who would otherwise take orphaned children into their care may decline to do so until or unless an award has been made in the children’s favour.”

And in Tompkins, Spencer, J. went further, arguing that “… a surviving parent may refrain from remarriage, advantageous from the children’s point of view, because the presence of a new spouse who replaces services to the children may reduce their award”.

These cases, therefore, adopt the view that the finances and services provided by family members are in the nature of collateral benefits and should not be deducted from the children’s dependency on the deceased parent.

Most of the cases that adopt this view also respond to the argument in Skelding that the Family Relations Act (or its equivalent in other provinces) imposes a legal requirement that a “parent” provide reasonable support.

In Butterfield (cited above), for example, the Ontario Court of Appeal implied that an aunt and uncle had no legal obligation to provide for the children, even though they intended to adopt the children formally. And in Ratansi (cited above) and Schellenberg v. Houseman (1996) 18 B.C.L.R. (3d) 209, the courts concluded that support provided by family members who had been appointed legal guardians was also to be treated as a collateral benefit.

Yet, B.C.’s Family Relations Act would have defined the family members in all three of these cases to be “parents.” Either these cases were in error or Skelding was.

Finch, J.A., the dissenting judge in Skelding, offered a resolution to this dilemma. He noted, first, that fatal accident legislation generally requires that the damages must have “resulted” from the death of a family member. Conversely, he argued, support received from a third party could not be considered to have offset the plaintiffs’ loss unless that support also resulted from the death in question. He concluded, therefore, that, as the marriage of Mr. Skelding to his second wife could not be considered to have resulted from the death of his first wife, the support provided by the second wife to Mr. Skelding’s children must be considered to be a collateral benefit.

This argument notwithstanding, the minority view in Skelding faces another challenge. Finch, J.A. argued that the income of Mr. Skelding’s new wife should not be offset against the children’s loss of dependency on their natural mother; yet it is well-settled law in Canada that the new wife’s income should be offset against Mr. Skelding’s loss of dependency on his first wife. This discrepancy remains to be “explained.”

To summarise, the courts’ treatment of claims by orphans for loss of dependency offers insight into a question that goes to the foundations of tort law. Should the courts concentrate strictly on the facts of the case at hand – the ex post approach? Or should they take into account the impact that the decision in the current case will have on the future behaviour of other individuals – the ex ante approach? Although the response to Skelding (and to Ratych) suggests that most courts are leaning towards the ex ante approach, the issue is far from settled.

Christopher Bruce is the President of Economica and a Professor of Economics at the University of Calgary. He is also the author of Assessment of Personal Injury Damages (Butterworths, 2004).

The Connection between Labour Productivity and Wages

Posted on June 1, 2002March 24, 2017 By economica

by Christopher Bruce

This article first appeared in the summer/autumn 2002 issue of the Expert Witness.

Many readers of this newsletter will have received personal injury damage assessments in which the expert has argued that wages in a particular industry will increase at some rate – for example, 1.5 percent per year – “because” output per worker (productivity) in that industry is projected to increase at that rate.

What I wish to show in this article is that, as appealing as this argument may be to the layperson, it is wrong. Not only does economic theory predict that the connection between industry productivity and wages in that industry will be tenuous at best; empirical evidence reveals that there has been virtually no connection whatsoever between industry wages and industry productivity in Canada.

I proceed by first describing the method that agencies like Statistics Canada use to measure labour productivity. I then describe the economic theory of how wages are determined within industries and occupations. In a third section, I contrast that theory with the theory of national wage determination. Finally, I present some recent statistical data concerning the relationship between the rate of growth of productivity and the rate of growth of wages at the industry level in Canada.

Measurement

Statistics Canada obtains an index of the “real”
level of output in each industry by dividing the total revenues received by the firms in that industry by an index of the industry’s prices. For example, if total revenue in the clothing industry was $100 billion in 2001 and the clothing retail price index was 125, the index of real output would have been calculated to be 800 million. If revenues rose to $110.5 billion in 2002 and the price index rose to 130, the output index would have risen to 850 (million).

Labour productivity, or output per hour of work, is then found by dividing the (real) output index by the number of hours worked by individuals in that industry. If clothing workers worked 100 million hours in both 2001 and 2002, for example, output per worker hour would be found to have increased from 8.00 to 8.50 between those years, or by 6.25 percent.

Note that there is no connection between revenues per worker and output per worker. It is quite possible, for example, for revenue to rise because prices have risen while labour productivity has remained unchanged. Conversely, even if output per worker has risen substantially, if prices have fallen revenue per worker may have remained constant or even fallen.

Theory – Industry Wage Levels

Those who believe that there is a connection between labour productivity and wages within an industry (or occupation) implicitly assume the following: When output per worker increases, workers’ contributions to firm revenue increase causing demand for workers to increase also. As wages are determined by supply and demand, an increase in demand will imply an increase in wages.

This “theory” is wrong for two reasons. First, there is no necessary connection between output per worker and revenue per worker. As was pointed out above, if demand for the industry’s product is decreasing, the price that can be charged for that product will also be decreasing. Hence, even if output per worker rises, revenue per worker may fall.

Furthermore, when output per worker increases, the industry will have to sell additional units of output; that is, industry supply will rise. But, by the laws of supply and demand, when supply increases, prices decrease. That is, the increase in worker productivity may cause a decrease in prices.

In some cases, this decrease in prices is so extreme that an increase in worker productivity may actually cause a decrease in revenue per worker. The clearest example of this phenomenon has occurred in agriculture, where farm incomes are under constant downward pressure even though productivity gains have been greater in that sector than in most other industries.

Second, even if an increase in labour productivity does lead to an increase in revenues generated per worker, it is not necessarily the case that the consequent increase in demand will be associated with a long run increase in wages (relative to other industries). The reason for this is that, in the long run, additional workers can be supplied to that industry, which offsets the upward pressure on wages. That is, when demand for an industry’s workers increases, wages in that industry do not rise relative to wages in other industries. Rather, it is employment in the high productivity industry that will rise relative to employment in other industries.

Assume, for example, that there is a large group of workers who would be approximately indifferent between working as plumbers, carpenters, and electricians. Assume also that, initially, all three receive the same wage rate. Now, if productivity rises among electricians, there will be an increase in demand for electricians. In the short run, say a year or two, it will not be possible to train additional electricians and wages may be bid up.

But, when wages are higher among electricians than among plumbers and carpenters, students graduating from high school will prefer to train as electricians. Soon, the supply of new electricians will increase and the supply of new carpenters and plumbers will decrease. Wages will fall among electricians and will rise among plumbers and carpenters.

Ultimately, the wages of all three occupations will equalize. All three will enjoy higher wages than they did initially. But, among plumbers and carpenters this will have occurred without any increase in productivity. And, among electricians, the wage increase will have been much smaller than the productivity increase, because the effect of that increase will have been diluted by the influx of workers from other occupations.

Indeed, if the initial number of electricians had been considerably smaller than the number of plumbers and carpenters, it is possible that the wage increase experienced by all three groups would have been negligible. The number of workers who would have to leave the plumbing and carpentry trades would have been so small, relative to the total numbers in those trades, that their exit would have had very little effect on wages in those occupations.

The primary effect of the productivity increase among electricians is that the number of electricians will increase and the numbers of plumbers and carpenters will decrease.

Similar effects can be seen in other industries. We know, for example, that in the last 50 years there have been far greater productivity gains in “fast food” restaurants than in restaurants serving “classic cuisine.” Yet, wages have not increased in the former relative to the latter. The primary reason is that every increase in demand for fast food workers has been met by an influx of workers from other unskilled industries.

This is not to say that there is no connection between productivity and wages at the industry level. If the number of workers in an industry is not responsive to changes in wages, an increase in productivity may produce a permanent wage increase. There may, for example, be institutional barriers preventing additional workers from entering an industry – such as union regulations or restrictions on the numbers of students training for that industry at university or college. Alternatively, there may simply be a limited number of individuals who have the aptitude to enter certain industries or occupations. Once that number had been exhausted, further wage increases might not call forth additional labour supply.

Theory – National Wage Levels

Even if there is only a limited connection between wages and productivity at the industry level, there may still be a strong connection at the national level. When productivity gains drive up wages in one industry or occupation, it is anticipated that workers will be drawn from other industries and occupations, thereby returning relative wages to their initial level. If productivity increases at the
national level, however, the equivalent effect would require that workers be drawn from other countries. But, as Canada restricts the number of immigrants, this effect will be much less important for national wage levels than it was for industry wage levels.

Also, a productivity gain at the national level is less likely to lead to a reduction in output prices than is an equivalent gain at the industry level. When output increases in an industry, everything else being constant, the industry may have to lower prices in order to sell that increase. When output increases in the nation as a whole, however, all workers will have higher incomes and those incomes may be used to purchase the increased output. In a sense, the increased output “creates” the increased demand to purchase that output. Prices need not fall.

And if prices do fall, the “real” incomes of all workers will increase. That is, even if observed (or nominal) wages do not change, workers will be able to buy more goods and services with their incomes. They will be better off in a “real” sense. Thus, an economy-wide increase in productivity could cause an increase in the welfare of workers, not through an increase in observed money wages, but through a decrease in average prices.

Evidence

The evidence concerning the connection between industry-level wages and productivity is clear. In its recent publication, Productivity Growth in Canada, Statistics Canada provided information concerning relative productivity growth and relative changes in wages for 46 Canadian industries, from 1961-1995.

These statistics have been plotted in the figure below, with industries ranked from lowest to highest productivity growth over that period. It is seen clearly in that figure that there is virtually no correlation at all between an industry’s relative productivity growth and its growth in relative wages. Indeed, regardless of an industry’s growth in productivity, its relative wages remained unchanged.

Conclusion

There are sound theoretical reasons for predicting that there will be very little correlation between an industry’s productivity growth and its wage growth. The empirical evidence provides strong support for this prediction. Indeed, that support is so strong that it is incumbent on any expert who would argue that a correlation exists between productivity and wages to justify that argument.

Christopher Bruce is the President of Economica and a Professor of Economics at the University of Calgary. He is also the author of Assessment of Personal Injury Damages (Butterworths, 2004).

Economica

Assessment of damages in personal injury and fatal accident litigation

Month: June 2002