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Excerpt from Duncan v. Baddeley, [1999] A.J. No. 107 (Alta. Q.B.) (QL).

[1999] A.J. No. 107 (QL) (Alta. Q.B.) [Sulyma J., Judicial District of Edmonton].

[1] This case comes before me as an assessment of damages. Dean Anthony Duncan ("Dean Duncan") was killed at age 16 in a motor vehicle accident. At the time of his death he was a high school student, unmarried, and with no dependents. By a judgment dated April 8, 1997, and reported at 196 A.R. 161, the Alberta Court of Appeal (leave to appeal refused [1997] S.C.C.A. No. 315.) significantly changed the way that Alberta Courts and Alberta lawyers considered ss. 2 and 5 of the Survival of Actions Act, R.S.A. 1980, c. S-30. They held in this case that the claim of Dean Duncan for loss of earning capacity survived his death.

[2] The Court of Appeal noted that the experts who testified at the trial of this action in the first instance, 161 A.R. 357, had not approached the claim in the way suggested by their reasons and accordingly directed a new trial. My task is to determine the appropriate method of calculating the claim as it was articulated by the Alberta Court of Appeal. That includes assessing the appropriate methods of calculating the cost of future expenses and income tax and discount factors to be deducted from pre-accident expected earnings of Dean Duncan over his working life. The parties have two completely different approaches to methodology and to the appropriate expenses and other deductions.

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[7] What is not agreed between the parties is the meaning of "available surplus" as that term is used by the Alberta Court of Appeal in its judgment, or the method of calculating expenses and other discounts to be deducted.

[8] The plaintiff submits that based on the directions of the Court of Appeal, to which I will later refer, and employing the "available surplus" approach to assessment, I should proceed in the following manner:

1. Determine the present lump sum value of the expected gross income of Dean Duncan over the working life we predict he would have had but for the accident;
2. Deduct from the gross income calculation the income tax that would likely have been paid by Dean Duncan appropriate to the level of predicted income, in order to determine the present lump sum value of his expected after tax income;
3. Deduct from the estimated "after tax" income a further amount to reflect Dean Duncan's expected expenditures for his personal living expenses over his pre-accident working life expectancy; and
4. Deduct a further amount to reflect the contingencies inherent in predicting Dean Duncan's life and earnings into the future.

[9] The defendant states that the proper approach to calculating the loss, including available surplus, is as follows:

1. Calculate lost savings, past and future;
2. Calculate the available surplus by taking into account Dean Duncan's employment and "state of life". Determine which items of family expenditure were not necessarily required to allow Mr. Duncan to maintain and enjoy the standard of living that we predict he would have earned and remove those from the predicted total expenditures of Dean Duncan. One arrives at a percentage representing spending that could be classified as discretionary or available surplus. It is significant that in items classified as discretionary or available surplus are recreation and expenditures such as gifts and contributions to the family. The applicable percentage of available surplus is then deducted from each of the categories past disposable income; pre-judgment interest on the past disposable income; and from the present value of the future disposable income. The total that remains in each category is the available surplus;
3. Calculate the value of capital assets of enduring value that would have been in existence at the date it is predicted Dean Duncan would have died, but for the tortious act. This value ought to be reduced for contingencies.

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[11] A major difference between the parties in interpreting the Court of Appeal judgment and its articulation of the concept of "available surplus" is whether the deduction for future living expenses is merely a deduction for the victim's proportionate share of family or shared living expenses. This is the position taken by the plaintiff. The Defendant submits it must be assumed Dean Duncan would have provided the necessities of life to his prospective children and these items of expense must also be deducted.

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[14] The Plaintiff notes that the "available surplus" approach was adopted by the British Columbia Court of Appeal in Semenoff et al. v. Kokan et al. (1991) 84 D.L.R. (4th) 76, which involved a claim by a plaintiff, newly married, but with no children, which claim included loss of income during the "lost years". The Court of Appeal approached its assessment on the basis that the plaintiff and his wife would have had two children, stating at p. 80:

Gordon Semenoff married Valerie Semenoff about two months before the tragedy. There are no children of the marriage, but we are asked to assume that there would have been at least two children. It would not be right to assume the childless state would have continued and the assumption we are asked to make appears reasonable.

[15] Further, in Semenoff, after setting out the analysis in Kemp and Kemp regarding a married man with two children, Hutcheon J.A. for a unanimous Court of Appeal, held at pp. 80-81:

[Plaintiff s counsel] has submitted that the defendant, with the burden of proof on him, has produced no evidence to support a deduction. We know, however, that in this hypothetical calculation living expenses must be present. In the absence of precise figures, I think that we are justified in accepting the conventional deduction of 33% discussed in Harris.

[16] The Defendant argues that this approach is "heir-centered", in contrast to "victim-centered". It fails to distinguish between personal injury claims, which this is, and dependency claims, which this is not. He states that if one employs the Harris methodology of simply calculating assumed income less a proportionate share of family expenses, what remains is not the deceased's available surplus; rather what remains is the deceased's available surplus plus the amount that we can assume that the deceased would have spent on even basic necessities for his family. This method of calculation of damages not only over-compensates the loss but it does so by focussing on the expenses required by hypothetical dependents who can never, and will never, bring a dependency claim. In short, by following this methodology, the Court would be compensating not only the deceased's claim but also a dependency claim, which was never claimed and which will never arise.

[17] The Defendant submits that the Court of Appeal in referring to the decisions of Harris and Semenoff only accepted the approach defined as "available surplus" in large. He states that it is clear from a review of those decisions that there were no statistics or data for those Courts to rely upon, apart from the "conventional deduction" in each case. If our Court of Appeal was endorsing the percentage deductions applied in Harris and Semenoff, it would have been very simple for the Court to say so. It did not. The Court in Harris simply made a deduction predicated on the inverse of the dependency deduction and the court in Semenoff simply followed the Harris rationale. It did so in the absence of reliable evidence. If our Court of Appeal was endorsing such an arbitrary approach, there would have been no need for expert evidence on such points, something the Court clearly called for by directing a new trial of this action.

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[20] I will first deal with which of the two approaches to valuation is the appropriate one. I find I must choose one approach in whole over the other as they were not, after cross-examination was effected, or otherwise, amenable to being reconciled. Rather, they are mutually exclusive.

[21] The methodology proposed by the Plaintiff is that which is most consistent with the directions of the Court of Appeal, with the purpose of this award and with the principles of awards in this area of the law. It is significant that the award is to compensate Dean Duncan for loss of earnings. It is significant that Justice Kerans specifically stated in his reasons in this case that lost savings is not a correct method of assessment of what a person earns in his lifetime.

[22] He also rejected basic necessities as the only deduction for living expenses. Although the Defendant's position regarding his statement is that the Court was directing expenses be taken into account in addition to savings, I do not read that qualification into Justice Kerans' rejection of the lost savings approach. The trial judge had determined that the effect of Toneguzzo was to limit an award to a calculation of the present value of loss of expected life savings of a victim. Justice Kerans clearly rejected that proposition. Yet that is the starting point and whole basis for the methodology suggested by the Defendant.

[23] In my view, Justice Kerans, in rejecting the "lost savings" approach, accepted the traditional approach to calculating the future loss of earnings of any victim with a shortened life expectancy. That is, first assess pre-accident expected earnings and then deduct from such earnings (in a case such as this) income taxes and "personal living expenses" of the victim for the years he won't live and earn income. The reason for the deductions is that had he lived he would not have retained that money in his pocket. Indeed, this is well recognized as an appropriate deduction for victims with a shortened life expectancy. It is regularly referred to in case law as a deduction for living expenses saved by the victim during his "lost years", which are the years after his projected date of death.

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[25] I see no room in the comments of Mr. Justice Kerans for utilizing lost savings as a premise of quantification. Further, Mr. Justice Cote, at p. 174 of the appeal in this case, notes this claim is no different than that of a victim who is alive at trial. As I have already stated, such an award is calculated on the basis of future earnings as the loss, and not future savings from such earnings.

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[27] Finally, Mr. Justice Belzil in Brooks v. Stefura (ital supra) assessed the claim of the estate of the deceased as a loss of earnings net of obligations calculated as a present value over the deceased's working lifetime. He did not take into account the predicted value of savings as a starting point or at any point in his assessment.

[28] Thus, the Plaintiff's approach to calculation is at law preferable as being consistent with other damage assessments for persons, who, although alive at the time of the assessment, are predicted to die within a determined number of years. There are many assessments of such losses reported in the case law and Toneguzzo is only one of such. Dube (Litigation Guardian of) v. Penlon (1994), 21 C.C.L.T. (2d) 268 (Ont. Gen. Div.); Brown (Next Friend of) v. The University of Alberta (1997), 197 A.R. 237 (Alta. Q.B.); and Granger (Litigation Guardian of) v. Ottawa General Hospital [1996] O.J. No. 2129 (Ont. Gen. Div.) were cited by the Defendant and all assessed loss of future earnings as I have described. As this is a calculation of the same loss and the same "lost years" factor, it ought to be consistent.

[29] Factually, the Plaintiff's method of calculation is preferable as it calculates lost income after contemplated personal expenditures. This is the loss that the Court of Appeal has determined is recoverable.

[30] The Plaintiff's method is also preferable factually because patterns of consumption are easier to predict, based on available statistical evidence, than are patterns of savings. This method is less speculative than utilizing a lost savings approach and is to be preferred since valuing lost earnings for a person not yet in an income stream is already a speculative exercise.

[31] The Defendant continued to argue that this method of assessment over-compensates the estate and is "heir-based". The Plaintiff in response notes that two of the "prongs" in the Defendant's expert Mr. Smith's methodology are themselves "heir-based" as they involve calculating the present value of what would be left (presumably to heirs) at the time of Dean Duncan's death, those being savings and capital assets. I agree this takes away from the strength of the Defendant's argument on this point and I have already found the Plaintiff's method more properly reflects the victim's damages. I do not find it to be "heir-based" at all.

[32] The next issue I must determine is whether "available surplus" is a figure determined by deduction of the deceased's share of future family living expenses or something more. The Defendant argues that over-compensation can result if "available surplus" does not include further deductions.

[33] His argument is assisted by the decision of Mr. Justice Belzil in Brooks v. Stefura. Mr. Justice Belzil did not confine deductions of expenses to living expenses of the deceased. He made further deductions for future obligations he found the deceased would have incurred had he not died. However, in doing so he stated a significant factor in the case before him was the presence of a dependency claim which had to be first deducted from the gross value of the estate. The deduction necessarily contained a factor of known expenditure on the dependant children and spouse. Further, he made other deductions factually on finding that it was probable the deceased would have fathered more children than he already had, and on the basis of evidence that prior to his death the deceased had made a number of purchases of items such as motorcycles and electronic equipment, which in turn required bank financing. On that basis Justice Belzil found it highly probable that, but for the deceased's death, he would have continued the same lifestyle which would have entailed incurring debts. He found this to be over and above ordinary family debt and, it was on these facts he found an 80% reduction against future earnings to be appropriate.

[34] The deceased Brooks was 37 years old at the time of his death, had an employment, income and expenditure history and dependents. Dean Duncan, a teenager at the time of his death, had none of the above. Thus, I am not faced with a dependency claim and I cannot find the deceased would have fathered more children than a statistical average. Further, there is no evidence of a particular lifestyle from which I could conclude Dean Duncan would have incurred future debt obligations of the kind in Brooks beyond those attributed statistically to him or beyond those expenses attributed to him by the statements in Harris and Semenoff. On that basis I decline to expand lost years deductions in this case in the manner adopted by Mr. Justice Belzil, the evidence does not support it. ...

[37] I find I am bound by the statements of Justice Kerans, who in turn does accept Harris and Semenoff and the relevant quotes that would limit the deduction to Dean Duncan's personal living expenses only, including the following statement of Mr. Justice Kerans at p. 172:

In my view, the law requires that we calculate the expenses that the victim would have incurred in earning the kind of living that we predict he would earn.

[My emphasis]

[38] And, the principles articulated by O'Connor, L.J. in Harris at p. 575: . . . (3) Any sums expended to maintain or benefit others do not form part of the victim's living expenses and are not to be deducted from the net earnings. [My emphasis]

[39] And further at pp. 575-76:

I think one can say in relation to a man's net earnings that any proportion thereof that he saves or spends exclusively for the maintenance or benefits of others does not form part of his living expenses. Any proportion that he spends exclusively on himself does . . . I also reject the "savings only" solution because I do not think it is possible to say that money spent on others should be reckoned as a part of a man's living expenses in the same sense required by the House of Lords.

[40] In making those comments and commenting on the "available surplus" approach, Lord Justice O'Connor was not treating the deceased as an eternally single man. It is also clear from the quote that money spent on others, which must include children and spouses, is not reckoned as the victim's living expenses.

[41] If there is merit, in some cases, to expanding the deduction, in my view it ought to be dealt with as a contingency.

[42] On this basis, I accept the Plaintiff's expert Ms. Brown's deduction of 35 percent from net earnings for personal living expenses. Mr. Smith did not do a calculation of the value of personal living expenses on the appropriate basis and I therefore only have Ms. Brown's evidence on this issue.

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[45] In my view the Court of Appeal did not intend to and did not change the conventional compensation for future loss of income in all personal injury cases. Rather, the Court was distinguishing a claim such as this one, where "lost years" are in issue and compensation is net of saved expenses and including tax as a certain expense. I find no fault with the Plaintiff's method of taking tax off gross income and then applying the living expenses deductions to that method of taking tax off gross income and then applying the living expenses deductions to that amount. I further cannot find, as was submitted by the Defendant, that Justice Kerans was necessarily approving a discount of 50 to 70 percent on after tax income. This is particularly so as he directed appropriate and new evidence on all aspects of the newly articulated claim.

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[47] I find that the risk of de-indexing [income tax] is one that ought to be dealt with as a contingency.

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[49] I have accepted Ms. Brown's method of calculation of this loss as correct, and Mr. Smith provided no calculation that reflects this method. I find the present value of Dean Duncan's gross income, had he lived, to be the sum of $1,006,500.00. This sum includes all agreed pre-trial income. I apply a deduction of 28 percent for income tax factors against his gross earnings and that results in a value of $724,680.00. This includes all pre-trial amounts of loss of income but does not include pre-judgment interest. I then accept 35 percent deduction from net earnings for personal living expenses, resulting in $471,250.00. Again, I stress that I accept this amount or percentage as it was the only calculation in evidence done on the appropriate basis. I then further apply the 5 percent deduction for contingencies and find the sum of $447,687.50 to be the value of Dean Duncan's loss before pre-judgment interest and before any further deduction for contingencies.

[50] Both parties did hindsight calculations of the percentage of deduction for living expenses as against earnings that was finally represented by their valuations. They compared those percentages to those mentioned by Mr. Justice Kerans in the Court Of Appeal and Mr. Justice Belzil in his decision in Brooks v. Stefura. I did not find the percentages alone or the comparisons to be helpful. I find the Plaintiff has done the only accurate assessment according to law of Dean Duncan's loss and, that is, in my opinion, the only issue that I ought to determine.

[51] I must, however, consider whether there should be a discount against the award to the plaintiff for contingencies not agreed upon but found to reflect a probable event. In that regard, Mr. Justice Kerans stated at p. 170:

But the task of the judge is to assess the chances of each possible future twist in each of the contingencies posed by the experts, and not to ask if he is satisfied any one twist has been proven.

And further at p. 172:

Additionally, in this case, there should be a discount for the chance that the victim would not receive the optimal award calculated by the plaintiff's actuary.

[52] In my opinion, this discount would most likely be applied to the portion of the actuary's calculations that are premised on predictions of the deceased's future education and thereafter employment and income. This type of evidence is necessarily speculative where the deceased is an infant or is youthful. However, I am not faced with such speculative evidence in this case as the parties reached an agreement on income.

[53] I find it probable that Dean Duncan's living expenses could have varied from the statistical average. As was pointed out by Justice Kerans, living expenses will vary with the kind of employment and the state in life of the victim. The parties had agreed to an income amount on which to calculate gross earnings but did not lead evidence that would assist in determining what kind of employment would lead to that income. As expenses can vary with the many kinds of employment which could achieve the annual income attributed to Dean Duncan, I discount the award of $447,687.50 by an additional 5 percent to reflect this contingency and to reflect the comment of Justice Kerans that there should be a discount for the chance that the victim would not receive the optimal award calculated by the Plaintiff's actuary. The contingency of the risk in assuming a constant factor as a tax deduction is also accounted for in this percentage and in the contingency percentage agreed on between the parties.