Keoghs Insight

Author

Mike Pope

Mike Pope

Partner

T:0161 329 7144

A case of ill-gotten gains or permissible circularity?

Blogs08/04/2021

Strange outcomes that offend common sense can and do still arise. In personal injury litigation the scene can be a frequently encountered one: husband and wife are involved in a single vehicle accident where responsibility lies with the husband. He escapes serious injury but his wife does not. The motor insurer is on the hook for the award of damages to the injured wife and has to work under the illusion that the negligent husband will not benefit from the award of damages as and when the case settles. What happens in the event of the claimant’s death before settlement?

The scenario

For the sake of simplicity I will refer to them as Tommy and Gina.

Gina issues protective proceedings against Tommy just prior to limitation, at which time the parties are about to enter settlement discussions. Soon thereafter, and unexpectedly, Gina dies from a condition which has no relationship with the accident. The couple had no children, and at the date of death Gina’s claim against Tommy is worth say £250,000 (capped of course at PSLA and past losses). The claim on her death “lives on” to the benefit of the Estate under the Law Reform (Miscellaneous Provisions) Act 1934.

All appears straightforward until it is discovered Tommy is the sole beneficiary under Gina’s will. In the event the claim is continued by Gina’s personal representatives a rather curious situation will unfold: Tommy (via insurers) will pay £250,000 to the estate, which will then be obliged to pay out from the estate to Tommy, a case of circular recovery.

It is said that truth can be stranger than fiction but a similar set of circumstances arose recently on one of my cases. Were there grounds to avoid what seems at first blush unjust enrichment of the tortfeasor?

Unfortunately, there appears to be no authority on the point.

Discussion

It is well established that a tortfeasor should not be able to benefit from their own wrongdoing. By the same token, would any court seized of this matter frustrate Gina’s wishes when making her will, or for that matter the application of the law on survivorship if she died intestate?

We are all acquainted with Hunt v Severs which addressed the issue of circularity, finding no award of damages for gratuitous care provided by the defendant could be permitted. Why should the same principle not apply to the distribution of the Estate where part of all of the damages might end up in the defendant’s pocket.

Frustratingly the situation with Tommy & Gina is perhaps somewhat different. He is set to receive funds as sole beneficiary under a will (or the intestacy rules) in circumstances where the funds are not held on trust for him (Gina’s damages will form part of her estate, with Tommy only benefitting from the residual estate once it has been administered).  In this instance Tommy’s recovery of the money is not related directly to his negligence; he receives funds as a beneficiary rather than a tortfeasor.

How can we be confident this does not offend public policy in some way? 

In other circumstances the court would have no concerns at all.  For example

  • If Gina had survived, recovered her damages, and then used them jointly with Tommy or;
  • If Gina set aside the damages for a rainy day, died 20 years after settlement, and left the entire fund to Tommy as sole beneficiary. In these scenarios Tommy receives some benefit from the tort, but there is no direct relationship between the parties when he does so, and he has no specific entitlement to the damages.
  • There is of course nothing to stop the defendant voluntarily amending the Will (permitted within two years of death) in favour of other family members or good causes: if this were done the court would have no difficulty at all in reconciling the award. The discomfort arises if the defendant benefits at the end of the chain.
  • Life insurers on the death of Gina would have no grounds not to pay out under the policy even if the tortfeasor were to be the beneficiary.
  • Had a Will been made naming additional beneficiaries, would the civil court be able to intervene over the estate distribution after the award was made? There would be no jurisdiction to do so in our view. Few cases will be as clear cut as that of Gina and Tommy.
  • In the event that there were estate creditors the Civil Court could not prejudice payment of sums to which they were entitled from the estate; depending on the extent of the estate beyond the damages award, the damages could well be subject to their charge.

The Forfeiture Rule

Section 1(1) of The Forfeiture Act 1982 precludes a person who has unlawfully killed another benefitting from the killing.  This was considered recently in Amos v Mancini [2020] EWHC 1063 where a woman was convicted of causing her husband’s death by careless driving; she was set to inherit half the matrimonial home automatically by way of survivorship.  In that case the court disapplied the Forfeiture Rule, and allowed the widow to retain the estate.

However, in this example, Tommy was not responsible for killing Gina, in which case the principle is not invoked.

Conclusion

The situation between Tommy and Gina may not occur all that often. However, the scenario serves as a useful exercise to consider the defendant’s ability to recover indirectly, and the legal principles at work when doing so.

On close analysis we do not think that the court will go behind the Will or the Intestacy Rules even if there is a circular award of damages that benefits the tortfeasor. This is just one of those legal lacunas that would require statutory amendment to the 1934 Act to solve; this seems vanishingly unlikely any time soon.

For further information, please contact Mike Pope, Partner in Keoghs CIC team.