This article was originally published in the Autumn 2001 issue of the Expert Witness.
The recent case of Rewcastle v. Sieben (9801 16002, Calgary, July 20) concerned an estate claim brought under the Survival of Actions Act (SAA). In his decision in that case, Justice Hutchinson introduced a new method for calculating the deduction for “expenses directly related to earning income.” In this article, we summarise Justice Hutchinson’s method and comment on its broader applicability.
The Decision
As is true in many fatality claims brought under the SAA, Bryana Rewcastle was a teenager when she was killed. Hence, when determining the value of her estate’s claim, Justice Hutchinson first recognised that her family status would have changed a number of times over her lifetime.
He found that from her teenaged years until her mid-twenties, she would have been single. Then she would probably have married and had children. Eventually, her children would have grown up and left home, leaving her, with her husband, a part of a two-person family.
Following a number of previous Court of Appeal decisions, Justice Hutchinson concluded that the percentage of Bryana’s income that would have been available to her would have been smaller, the larger was her family. For example, this issue was addressed in the October 2000 Alberta Court of Appeal decision in Duncan Estate v. Baddeley (2000 ABCA 277):
…Under the Harris approach, the deceased’s proportionate share of joint family expenses are included in personal living expenses. Duncan bore a one-fourth share of joint family expenses based on the trial judge’s finding that had Duncan lived, he would have had a wife and two children; had it been four children, only one-sixth of the shared family expenses would have been deducted. (Duncan [2000] at paragraph 22.)
In particular, Justice Hutchinson accepted evidence that 100 percent of her income would have been available to her when she was single, 50 percent when she was married but had no children, and 25.8 percent when she was married with two children. (The latter figure was not 25 percent as it was assumed that the children would not share in family expenditures on cigarettes and alcohol.)
He also accepted evidence that she would have been single for 6 years of her life (ages 22-27), would have been married with no children for 14 years (ages 28-30 and 51-62), and would have been married with two children for 20 years (ages 31-50). He found, therefore, that across those three stages of her life, an average of 45.4 percent of her income would have been available for expenditure on goods and services that would have benefited her.
But not all of that income would have been spent on “expenditures directly related to earning income.” Specifically, he accepted evidence that only 72.8 percent of family expenditures are spent on such items. [See Rewcastle, para. 171].
Hence, the living expenses deduction in her case was calculated to be 72.8 percent of 45.4 percent, or 33.05 percent. It is the latter figure that Justice Hutchinson deducted from the present value of Ms. Rewcastle’s lifetime after-tax income in order to obtain her estate claim.
We accept Justice Hutchinson’s general approach. However, we do question some of the specific numbers that he has employed.
Personal Expenditures
Justice Hutchinson concluded that a woman would have 100 percent of her own income available to her when she was single, 50 percent when she was married with no children, and 25.8 percent when she was married with two children.
Clearly, the 100 percent figure is correct.
We also accept that the 50 percent figure is correct. Following from Harris, the usual assumption is that the husband and wife each benefit personally from approximately 30 percent of family income and benefit equally from the remaining 40 percent. That is, total personal benefit is 30 percent plus half of 40 percent, or 50 percent.
The 25.8 percent figure is more problematic, however. The reason for this is that it is usually assumed that children consume a slightly lower percentage of family income than do adults. Thus, for example, assume (as is common) that the deceased parent’s personal expenditure would have amounted to 22 percent of family income and that expenditures common to the whole family would have amounted to 30 percent of family income (with the remaining 48 percent being divided among the other spouse and the two children).
In that case, the deceased would have benefited from 29.5 percent of the family’s income – 22 percent plus one-quarter of 30 percent.
This is a relatively minor point, however: if 29.5 percent is used instead of 25.8 percent in the Rewcastle case, the percentage of income available over Bryana’s lifetime would only have increased from 45.4 percent to 47.25 percent.
Expenditures Related to Earning Income
We have greater concern with Justice Hutchinson’s conclusion that 72.8 percent of income is devoted to items that are “related to earning income.” In particular, that figure was obtained by summing the percentages of income spent on: food, shelter, clothing, transportation, household furniture, household operation, health care, personal care, and education. (The omitted categories were: recreation, reading, tobacco and alcohol, miscellaneous, security, and gifts and contributions.)
But take just one of those categories, transportation, on which Ms. Rewcastle was assumed to spend 15.7 percent of her after-tax income. As that income was assumed to average approximately $35,000 (after tax), the assumption is that the entire $5,495 (= $35,000 x 0.157) she would spend annually on transportation would be “related to earning income.”
More specifically, as the Court of Appeal has ruled that expenditures on luxuries and on discretionary items are not to be included in the items assumed to be “related to earning income,” Justice Hutchinson’s decision requires that none of Ms. Rewcastle’s $5,495 annual transportation expenditures represented discretionary or luxury items. None, for example, would have provided her with discretionary “extras” on her automobiles or with luxury trips to sunny resorts.
Similarly, his decision requires that none of her $5,285 expenditures on food (15.1 percent of after-tax income), $7,735 on housing, and $1,785 on clothing were for discretionary or luxury items.
This assumption appears implausible to us. Surely some of her expenditures on clothing would have been for luxury goods, some of her expenditures on food would have been for restaurant meals, and part of her expenditures on housing might have paid for a main floor family room or a luxurious en suite bathroom.
If, reasonably, it is assumed that as little as 25 percent of her expenditures were for discretionary or luxury items, the percentage of her income devoted to items “related to earning income” would fall from 72.8 to 54.6, and the overall deduction for those expenditures would fall from 33.05 to 24.79 percent.
Conclusion
The Rewcastle decision has provided additional information concerning the method that is to be used to calculate losses in Survival of Actions cases. Nevertheless, some important questions, particularly those concerning the evaluation of discretionary and luxury items, remain unanswered. It is our understanding that the defendants in Rewcastle have sought leave to appeal. If they are successful, it is possible that the appellate court will resolve some of these questions.
