Chan Pui Ki v. Leung on and Another
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1995, No. 263 Headnote Damages for personal injuries - Guidelines for general damages for pain and suffering and loss of amenities - Increase of awards to reflect increased expectations of the average person in Hong Kong since Lau Che-ping v. Hoi Kong Ironwares Godown Co. Ltd. [1988] 2 HKLR 650 - Award of damages for loss of future earnings - The assumption in Cookson v. Knowles [1979] AC 556 that the lump sum award based on conventional multipliers would give to the victim a "real" return of 4% - 5% has not been shown to be erroneous for Hong Kong over the past 12 years - The trial judge was wrong to have abandoned the conventional approach. Where the award in the plaintiff s hands will not achieve its intended purpose - to compensate the plaintiff for lost future earnings - because of the injuries inflicted, there should be provision made in the award for investment and management advice. Observations by Court of Appeal on:
IN THE COURT OF APPEAL 1995, No. 263 BETWEEN
____________________ Coram: Hon Litton V-P, Bokhary, Mortimer, Godfrey and Ching, JJ.A. Date of hearing: 4- 7 and 10-11 June 1996 Date of handing down judgment: 19 July 1996 ____________________ JUDGMENT ____________________ Litton V -P giving the judgment of the Court: INTRODUCTION 1. The appellants (defendants) are a bus driver and the Kowloon Motor Bus Co. (1933) Ltd. The respondent (plaintiff) is a girl now aged 17 years. She was severely injured in a road accident on 22 April 1989 as a result of the bus driver's negligence when she was nearly 10 years old. It is common ground that the defendants are responsible for 80% of the loss and damage sustained. 2. After a trial lasting 18 days, on the issue of damages only, Cheung J assessed the total loss and damages at $8,023,866.13 and, taking into account the plaintiff's 20% contributory negligence, awarded the sum of $6,379,893. 3. This appeal focusses on the following heads of award:
PAIN AND SUFFERING AND LOSS OF AMENITIES 4. The courts have, over the years, had the difficult task of assessing compensation for non-pecuniary loss in personal injuries cases: that is to say, by making a monetary award for the suffering and human deprivation arising from injury, both physical and mental, sustained by the plaintiff as a result of the defendant's tortious acts. But, as Lord Morris said in West v. Shephard [1964] AC 326 at 346:
5. In Hong Kong, the Masters of the Supreme Court and the High Court Judges have, over the years, tried to do their best in making appropriate awards in cases where the amounts exceed the monetary limits of the District Court, and have built up a body of conventional awards as a result. Court of Appeal guidelines 6. In Lee Ting-Iam v. Leung Kam-ming [1980] HKLR 657 this court attempted to rationalise the awards by putting them into four categories, ranging from 'serious injury' to 'disaster' cases, emphasizing that these are merely guidelines and should be flexibly applied. In regard to the proper approach Cons JA stated at p659:
7. Four years later in Chan Wai-tong v. Li Ping-sum [1985] HKLR 176, Barker J A, delivering the judgment of a differently constituted Court of Appeal, expressed disagreement with Cons JA in Lee Ting-lam, holding that in considering damages in Hong Kong "attention should be drawn to decisions of other jurisdictions and, in particular, England". But, in the Privy Council, this statement was expressly disapproved and, at p180 Lord Fraser said:
8. At the same time the Privy Council upheld the Court of Appeal's award of $90,000 for pain suffering and loss of amenities, having regard to the material before the Court, in particular the Hong Kong Monthly Digest of Statistics, which indicated that between May 1980 (when the guidelines in Lee Ting-lam were given) and October 1983 (when the Court of Appeal gave judgment in Chan Wai-tong), a period of approximately three-and-a-half years, inflation in Hong Kong had been considerable. There was accordingly justification for the Court of Appeal to increase the range of awards in Lee Ting-lam by about 50%. 9. This left untouched the question of an upwards revision for improvements in Hong Kong's economic and social conditions, leading to enhanced expectations of life generally. 10. In Lau Che-ping v. Hoi Kong Ironwares Godown Co. Ltd. [1988] 2 HKLR 650 the trial judge had before him published material which indicated that since Lee Ting-lam in 1980 the social and economic conditions in Hong Kong had greatly improved; the statistics showed that wage payments had outstripped inflation generally since 1980. The trial judge said that dramatic developments had taken place in Hong Kong over the previous seven years and the case called for "an urgent reappraisal" of the levels of the awards in Lee Ting-Lam to reflect such developments. The Court of Appeal was accordingly urged to lift the levels of award to reflect this fact. This court took up the call and made upward adjustments to the guidelines in Lee Ting-lam, not only on account of general inflation since 1980 but also on account of the increased expectations of the average person in Hong Kong since that time. In giving the judgment of the five-man court in Lau Che-ping, Cons Acting CJ said at p.654F:
11. At the same time (at p655A) he cautioned against too frequent alterations of guidelines lest they diminished their value as a foundation upon which settlements might be negotiated. 12. This matter was revisited again by this court in Attorney-General v. Chun Yat-nam [1995] 1 HKC 218 where the guidelines were revised upwards for inflation since 1988. The judgment was given at the end of December 1994. The court made the observation that since Lau Che-ping in 1988 there had been significant changes in social and economic conditions and the expectations of the average person and family had markedly increased since that time, reflected in a substantial general rise in the level of wages over and above the rate of inflation. However, the court did not feel able then to lay down new guidelines beyond a revision for inflation since 1988, in the absence of data and full argument. 13. This brings us to the circumstances of the present case. The trial judge's approach 14. On the question of rising expectations, Cheung J received evidence from two economists: Dr Kelly Busche, a lecturer in the School of Economics and Finance at Hong Kong University, called by the plaintiff; and Dr Huang Guobo, an assistant professor in the Department of Economics and Finance at City University, called by the defendants. Dr Busche produced material over a very wide area, aimed at comparing the economic and social conditions of Hong Kong and the United Kingdom. His opinion, based upon that material, was broadly to the effect that improvements in Hong Kong's economic and social conditions over the period 1980 to 1994 had outstripped the United Kingdom. Dr Huang's opinion, based upon Dr Busche's material and other material he produced, was that the picture was confused: as regards social conditions, he produced evidence showing that in 1993 34.2% of the United Kingdom government expenditure was on social security benefits, whilst for the same period only 6.4% of public expenditure in Hong Kong was on social welfare. Dr Huang concluded that there was little evidence suggesting that Hong Kong's social conditions were as good as those in the United Kingdom. 15. The judge said that he "accepted" the evidence of Dr Busche and concluded as follows:
16. The judge then made a comparison of Hong Kong and English awards in personal injury cases, particularly with reference to the guidelines published by the Judicial Studies Board of England and concluded as follows:
17. Later on in his judgment, the judge said:
18. He concluded that the current level of awards should be increased by 50% and the following should be the awards for the various categories of injuries:
19. His justification for these revisions is expressed thus:
20. We cannot support the judge's approach. There are so many factors which go into the make-up of "economic and social conditions" that no true comparison can ever be made: particularly having regard to the vast differences in size, geographical positions, tax regime and culture of the two communities. The evidence as such must necessarily be based upon surmise, conjecture and theory. Any "finding" which the judge makes is illusory. 21. Moreover, the opinion evidence of economists, however eminent, must be treated with considerable reservation since the nature of the inquiry is itself so nebulous. On the question of comparing the two communities, all that can be said is that over the past decade or so Hong Kong's social and economic conditions have perhaps advanced at a faster pace than those in the United Kingdom, so that it can, broadly speaking, be said that Hong Kong is now comparable with other developed countries in the world such as the United Kingdom. Increased expectations in Hong Kong 22. The real question, in our judgment, is whether the expectations of the average person and family in Hong Kong have, since Lau Che-ping in 1988, risen to such an extent that this court should now revise the guidelines again, bearing in mind the fact that in Chun Yat-nam this court expressly reserved this question for later determination. 23. The evidence in the court below, accepted by the judge, was to the effect that wage increase in Hong Kong from 1988 to 1995 was about 150%. Accordingly, revising the awards in Lau Che-ping to take into account "wage inflation" alone would produce the following figures:
24. But, as Cons Acting CJ said in Lau Che-ping at p654G-H, a variation in the level of wages is only one of the factors to be considered, and the proper quantum of change is not to be found in any single feature, nor can it be measured with mathematical exactitude. So a revision based on "wage inflation" alone may do injustice to the parties. 25. When one takes into account the fact that, for the past year, general inflation has been running at about 7.5% in Hong Kong, it can be seen that whilst the judge's figures, given in October 1995, were on the high side - and wrong in principle as a direct equation with similar awards in the United Kingdom - they are not grossly excessive for awards as at the date of this judgment. 26. We would therefore affirm the judge's figures for the four categories and adopt them as the new guidelines, emphasizing yet once again that these are guidelines, not straight-jackets, and intended to be flexibly applied. There are cases, such as the present one, where the injuries are composite: physical, mental and psychological. It is the total effect of the injuries which must be assessed rather than the artificial "category" into which they fit most comfortably. 27. It must also be emphasised that, as a matter of common-sense, no community can expect an ever-rising standard of living, without stagnation and set-backs. Indeed, the more a territory like Hong Kong reaches the levels of "developed countries", the slower normally would be such rise: some of the data before the judge demonstrates that in highly developed countries like France, Germany and Japan, there has been a "deterioration" in recent years, as measured by such indices as "purchasing power parity". It would therefore be surprising if the guidelines laid down in this judgment should need revision for anything more than inflation, expressed by the various consumer price indices, for a long time to come. Effect of the accident on the plaintiff 28. The plaintiff was born on 27 May 1979. At the time of the accident she was nearly 10 years old. She was an only child. She lived with her parents in a housing estate in Shatin. Both her parents worked: he as a salesman/driver for an ice-cream company and she as a clerk. As the judge found:
29. The plaintiff was on her way to a painting class when she was knocked down. She sustained severe head injuries with skull fracture. The brain injury was complicated by a left subdural haematoma which needed urgent operative decompression. There was considerable brain swelling and she was unconscious for many days. She was in hospital for over three months and when she left she could only walk with the aid of a tripod. 30. The long term effects of her injuries can be summarised as follows:
31. Activities which most adolescent girls would take part in, such as cooking, are now effectively beyond the scope of the plaintiff. Whilst, at present, the plaintiff has the support of her parents, she will become more vulnerable as they age. 32. The judge found that the plaintiff will be virtually unemployable, except in a sheltered workshop environment where the average earnings would be about $500 per month. Her prospects of a happy marriage have been greatly diminished. 33. The judge concluded that the cumulative effect of the disabilities, physical, mental and psychological, took the case within the low range of the "disaster" category in Chun Yat-nam. He accordingly awarded damages in the sum of $1m for pain and suffering and loss of amenities. 34. Minor criticisms have been made by Mr Martin Lee QC, counsel for the defendant, concerning the judge's findings of fact: for instance, that the judge appears to have overlooked the fact that, recently, the plaintiff has been able to take part in physical education at school, and that her academic performance in 1992/93 and 1993/94 has improved, and that the very poor results of her April 1995 school examinations (taken on the eve of the trial) appear to be an aberration. Plainly, upon the evidence as we view it on paper, the judge could properly have treated this as a case of "gross disability" - at the upper end of the scale - rather than of "disaster". But the judge also had the advantage, denied to us, of hearing and seeing the plaintiff and members of her family testify. At the end of the day, we are concerned with a question of the cumulative impact of the disabilities on the life of the victim. This is a question of degree, on which reasonable minds could well differ, within a reasonable range. The judge might even have been generous in his award. Unless there is some error in principle we cannot interfere. We see no reason to disturb the judge's finding in this regard. LOSS OF FUTURE EARNINGS 35. Under this head, the judge assessed the lump sum damages payable at $3,627,000. This was achieved by taking a monthly salary of $9,300 annualised by 13 monthly payments to arrive at the yearly figure of $120,900 (the multiplicand) and then multiplied by 30 (the multiplier), thus:
The monthly sum of $9,300 36. As mentioned earlier, the judge found that the plaintiff was virtually unemployable, except in a sheltered workshop environment, where she might have expected to earn $500 per month. It is common ground that, to the extent that the judge failed to make allowance for the $500 per month, he has erred. On the basis of his own findings, the monthly figure for the computation of loss of future earnings should have been $9,300 - $500 = $8,800. 37. The figure of $9,300 per month was taken from government statistics of the "average month earnings of the clerical and secretarial workers as of September 1994" and, revised for inflation up to the date of trial, that gave the figure of $9,300 per month. The judge assumed that the earnings would not have started until the age of 18 or 20, but would have then continued uninterrupted for some 42 years, until the age of 60. He also assumed that annually, for those 42 years, the salary would in fact have increased at a "real" rate of 4.4% per annum: that is to say, whatever the general inflation rate might be during that period, the salary increase would exceed inflation by 4.4%. This increase was reflected, however, not in the multiplicand but in the computation of the multiplier, as explained later in this judgment. The thirteen months 38. It is common ground that, whatever the proper monthly figure might be, it should only have been multiplied by 12, not 13, since the "average monthly earnings" figures taken from the government statistics were computed on the basis of 13 months' salary in the first place. Mr Griffiths QC accepts that the judge erred in this regard, and the monthly earnings should have been annualised by multiplying those earnings by 12. The multiplier of 30 39. The plaintiff was 9 years 11 months old when the accident occurred. The aim of damages under this head is to compensate her for loss earnings for her entire working life by a single lump sum payment: payable upon the delivery of judgment. If she had started working at 18, the span of her working life would have been 42 years, until aged 60. As can be seen immediately, there are many imponderables in the assessment: Would she have worked at all? In what employment? Would it have been continuous and uninterrupted for 42 years? What might have been the impact on earnings by events like marriage and child-bearing? This involved, in effect, a double exercise in the art of prophecy: not only what the future holds for the plaintiff, but also what the future would have held if she had not been injured: see observations to this effect by Lord Diplock in Paul v. Rendell 34 ALR 569 at 571 (Privy Council). 40. Once the lump sum award is made, the intention is that by using the income from the lump sum together with a gradual depletion of the capital, on the anticipated date of retirement the capital would have been exhausted and the income used up. The rate at which the capital sum is depleted would depend upon the investment yield: The higher the yield, the slower the depletion. 41. It is mathematically possible to calculate the lump sum necessary to achieve this, but inherent in the calculations are the following assumptions:
42. Obviously, in the case of a plaintiff already in employment when the accident occurred, such as the plaintiff in Chun Yat-nam, the uncertainties in relation to the first three factors (particularly the first two) are much less than in the case of a 10 year old child. The question of continuing employment, and prospects for increased earnings in the future through promotion etc, would in the case of a working adult be more easily ascertained. 43. For many years the conventional method of assessing the appropriate lump sum to compensate for loss of future earnings has been to use the multiplier/multiplicand approach. As described in Kemp and Kemp Vol. 1 paragraph 6-005 (August 1995 update):
44. Crude though the method may be, it is nevertheless a realistic acknowledgement of the inherent limitations of the whole exercise. It is based upon the applied wisdom of the courts over many years. In selecting a particular multiplier, the court would be able to make comparisons with multipliers used in similar cases. As Diplock LJ observed in Every v. Miles (1964 CA No. 261, unreported, quoted in Kemp and Kemp at para 7-001), "these standards have evolved from such current consensus of damage - awarding tribunals as is manifested by the amounts they have in fact awarded in broadly comparable cases". The "consensus" in Hong Kong is formed of course by the awards made by the Masters in chambers and High Court judges in court over the years. 45. It would be wise to bear in mind that the assessment of damages for future pecuniary loss can never be a mere matter of mathematics. Whilst the assessments may become more sophisticated as the years go by, and calculations are made in an attempt to achieve greater precision, they may give a false appearance of accuracy. Some of the figures on which they are based are necessarily the result of speculation. No expert can forecast whether the plaintiff might, had she not been injured, have remained in good health until the age of 60, or got married, or remained in employment during any part of that period. Nor, for that matter, what the purchasing power of the Hong Kong dollar might be five years from now, let alone 40 years from now. Damages for financial loss likely to result from personal injury "can only be an estimate, often a very rough estimate, of the present value of his prospective loss": per Lord Reid in British Transport Commission v. Gourley [1956] AC 185 at 212. Ultimately, the process must always be one of judgment on the part of the trial judge rather than of mathematical calculation. Basic assumption of the multiplier/multiplicand approach 46. Assuming that the "lost" income stream to be compensated were for a working life of 45 years, to multiply the multiplicand by 45 and make that the lump sum award, payable forthwith at the date of judgment, would obviously be to grossly over-compensate the plaintiff. Comprised in the lump sum would be a figure representing the annual income stream in the 45th year. The present sum needed to achieve that purpose would be very small, having regard to the income that sum would earn in the ensuing 44 years. Accordingly, to do justice between the parties, there must be a discount for present payment. Because the period lies so far into the future, there must, as a matter of common-sense, be a further discount for other uncertainties: premature death, sickness, loss of employment etc. Where the victim is an infant and has never been in employment, the uncertainties ("vicissitudes of life") would obviously be greater than in the case of a young person already in employment. Thus, in awards based upon the conventional multiplier/multiplicand approach, the courts in Hong Kong, following the position in England, have regarded 20 years as the maximum multiplier to use. 47. The judge, it will be recalled, used a multiplier of 30 by abandoning the conventional assumption that the lump sum award would give a real return of about 4%. By a process of reasoning which Mr Martin Lee QC, counsel for the defendant, argues is defective, the judge arrived at a discount rate of 1.2% per annum; then taking the period to be covered by the award as 16 years to 60 years of age (because those were the only tables available to the judge) he arrived at a multiplier of 34: but discounting that by 10% "for vicissitudes of life and a further small discount to reflect the earnings which would not start till 18 or 20" the judge reached the multiplier of 30. 48. The tables used by the judge are not published anywhere. They seem to have been compiled by an actuary Mr Danny L. Quant for the purposes of this case, in accordance with a highly complex formula which counsel have not sought to explain to us. In his report under the heading "Multipliers in Hong Kong" Mr Quant said this:
49. When one turns to the "methodology" in section 3 of the report, one sees the formula, which has included in it not only an "annual rate of investment return" but an "annual rate of future earnings increases": in other words, the formula operates to compensate the plaintiff for the loss of an income stream assessed by Mr Quant to be increased year by year by a percentage he selects. 50. This is hardly a satisfactory new foundation for personal injuries litigation in Hong Kong. 51. The use of the "Quant tables" and of a discount rate of 1.2% resulted in the plaintiff being awarded an amount for future loss of earnings much greater than that which would have been given if the conventional assumptions had been made. 52. There are essentially two questions for our consideration: (1) whether the judge was right in abandoning the conventional approach: an approach explained in the leading case of Cookson v. Knowles [1979] AC 556, and (2) if the answer to (1) is yes, whether the judge was right in the approach he adopted. The second question needs no detailed consideration if the judge had clearly erred in abandoning the conventional approach. Cookson v. Knowles 53. It is necessary, first, to look at the position in England where the conventional approach is now seriously questioned in the courts. 54. Cookson v. Knowles was a fatal injuries case, but the principles for compensating future pecuniary loss are the same for non-fatal cases. There, the deceased was aged 49 and in steady employment when he was killed in a road accident. The case took two-and-a-half years to reach trial. Concerning the post-trial loss, the House of Lords held that the application of a multiplier of 8½ years purchase to the figure of dependency at the date of trial was the correct approach for computing the future loss of earnings. This was upon the assumption that the lump Stun award would provide a "real" return of 4% - 5% for the duration of the period intended to be covered by the award: At the date of the trial in Cookson v. Knowles, it was possible to obtain interest at a rate of approximately 14% in gilt edged securities, with inflation running at approximately 10% (see Lord Fraser at 577D). 55. As Lord Fraser said at 576G:
56. Lord Diplock gave judgment to the same effect at 571G. Assault on the basic assumption 57. In England, there have been many attempts since Cookson v. Knowles to demonstrate to the court that the assumed 4% - 5% real return on investments was incorrect; the "real" return is said to be somewhat lower; accordingly, the conventional multipliers should be increased, otherwise the funds representing the awards for loss of future earnings would run out before their intended span. For example, in Kemp and Kemp (June 1995 revision) para 7-007 there is this statement:
58. The trial in Cookson v. Knowles took place in May 1976 and the judgment in the House of Lords on appeal was delivered two years later. It was a time of high inflation in the United Kingdom. The assumption was that whilst the value of money depreciated, this would be more than made up for by the higher yields on investment, so that the accident victim would still obtain a real return of 4% to 5% on his investment. Was this assumption correct? 59. Almost coinciding with Cookson v. Knowles in the House of Lords was the Pearson Royal Commission Report (the Royal Commission on Civil Liability and Compensation for Personal Injury: Cmnd. 7054, March 1978), paragraph 648 of which states:
60. Five years later, Lord Diplock acknowledged the truth of this passage from the Pears on Royal Commission in Wright v. British Railway Board [1983] 2 AC 773 at 783E where he said:-
61. This was, of course, a serious matter. The object of an award of damages is full restitution, compensating the victim for all the ill effects of the injury, including loss of future earnings (however difficult that might be to assess in the case of a child). If there was clear evidence that the sums awarded in the United Kingdom as damages were not in fact lasting out in the way intended, it meant that the victims had been grossly under-compensated for very many years. 62. The English Law Commission, in its report No. 224, published in September 1994, noted that the 4% to 5% discount rate, lying at the foundation of the conventional multiplier, was too high, according to those it had consulted; it recommended the use by the courts of a discount rate which corresponded with the net return after tax as derived from investment in index-linked government securities, listed in the Financial Times under the headings "inflation rate 5 per cent" and "over 5 years": This meant, according to the author of Kemp and Kemp (see para 6-307, August 1995 revision) that, as at October 1994, a real return of 2.92% after allowing for tax at 25%, or 2.33% after allowing for tax at 40%, was possible: 4% to 5% was impossible. These are strong arguments for saying that the continued use of the conventional multipliers in England and Wales is wrong. 63. A number of High Court Judges in England have, in recent cases, broken away from the conventional approach. For example, in Thomas v. Brighton Health Authority (7 Nov. 1995, unreported) Collins J had before him an infant damaged at birth by the use of a labour-inducing drug. His reduced expectation of life was taken to be 60 years. One of the issues was what multiplier to use to compensate him for future loss of earnings. The judge identified the issue in this way:
64. The evidence before Collins J was to the effect that a net return of 4% to 5% was possible if the lump sum award were invested in equities: this meant in effect taking higher investment risks with the lump sum but would, of course, have justified the continued use of the conventional multipliers. This approach was rejected by the judge who settled for a multiplier based on a more modest discount rate of 3%. His reasoning was this:
65. Likewise, in Page v. Sheerness Steel PLC (4 December 1995, unreported) Dyson J had to consider the case of a man, aged 28 at trial who, as the result of an accident at work, became incapable of an independent life and was, of course, unemployable. One of the issues before the judge was the discount rate to be used in arriving at the multiplier for claims for future losses. Dyson J abandoned the conventional approach and, following Collins J in Thomas v. Brighton Health Authority, used the return on index-linked government securities (ILGS) as the appropriate measure for the discount rate to be applied in arriving at the multiplier. His reasoning was as follows:
Cheung J's approach 66. Encouraged, perhaps, by the assault made in England by practitioners on the conventional approach, counsel for the plaintiff led evidence before Cheung J calculated to demonstrate that, as in England, the real return on safe investments in Hong Kong has also fallen short of the assumed net return of 4% to 5% per annum. He was, however, disadvantaged to this extent: There are no index-linked government securities available in Hong Kong, to enable the kind of comparisons as in Thomas v. Brighton Health Authority and Page v. Sheerness Steel PLC to be made. 67. The judge, however, received evidence from Mr Philip T. Wyatt whose company Wyatt Co. (Hong Kong) Ltd. has conducted annual surveys of retirement fund portfolios since 1983. Based on the "median annualised return" of 258 companies, the annual rate of return from 1983 to 1994, according to Mr Wyatt, was 15.9%. If the survey had omitted the year 1994 - because, for instance, the trial had taken place a few months earlier - the rate of return would have been 19.4%. 1994, the last year, was a particularly bad year for the pension funds. Moreover, in the company's published 1994 review, the year 1982 was omitted; the median annualized return for the period 1983 to 1994 was 16.3%. Be that as it may, and taking the figure most favourable to the plaintiff - 15.9% the "real" rate of return can only be ascertained if inflation (which erodes the value of money) were taken out of the equation. It is common ground that inflation between 1982 and 1994, as measured by the consumer price index published by the Hong Kong government, was annually 8.1 %. 68. Accordingly, upon the evidence before the court, if a lump sum had been invested in the average pension fund covered by Wyatt Co. (HK) Ltd's survey in 1982, it would have achieved a "real" return of 7.8% over the period 1982-1994: That is, 15.9% minus 8.1 % = 7.8%. And if it had started in 1983, the real return would have been 8.2% (16.3% minus 8.1 %). The beneficiary in Hong Kong, unlike the position in England, would have received the income tax-free. 69. Far from demonstrating that plaintiffs generally have been under-compensated by using the conventional approach, the evidence thus far would have demonstrated the reverse. How, then, did the judge arrive at the discount rate of 1.2%? 70. The judge's computation was as follows:
Reduction of 0.7% 71. The judge's rationale for reducing the figure of 15.9% by 0.7% is put by him in this way (p35P-36C, judgment):
72. The judge's reasoning is not easy to follow. Obviously there must always be a cash reserve in the fund to enable regular payments out to be made. To achieve the objectives of the award, the capital assets in the fund will have to be realized gradually, to be ultimately depleted when the plaintiff reaches the age of 60. In the meanwhile, there could be a switching of assets, as investment decisions are made from time to time. A portfolio which is structured 66% equity, 21% bonds and 13% cash today does not necessarily mean it will always be so. In the course of realising the assets as time goes by, investments in equities will be as easily saleable as those in bonds. 73. It is difficult therefore to see why the judge concluded that "it would be more appropriate" to structure the fund in such a way as to give a lower yield, to the detriment of the beneficiary. 74. Moreover, the entire approach is flawed, for two fundamental reasons: (1) The focus of the "expert" evidence bearing upon investment yields was wrong in the court below. The real question should have been this: Has it been shown in Hong Kong, as it has apparently been shown in England, that the "real" return on conservatively-managed funds over the past 11 or 12 years is below 4% to 5%? In other words, does the evidence show that in Hong Kong the Cookson v. Knowles assumption is wrong? This is a very broad question, and does not allow for an examination of what investment strategy might or might not be adopted in any particular case. The judge's approach, focussed upon what "would be more appropriate in the present case", is wrong. The judge should never have entertained opinion evidence bearing upon this question at all. The 0.7% reduction was highly artificial. It was predicated upon an investment profile different from that of the "average investment scheme", having equities 66%, bonds 21 % and cash 13%. But who was to say that a reduction in the portfolio of equities by 16%, an increase in bonds by 19% and a decrease of cash by 3 % must necessarily have resulted in a diminution of the overall yield by 0.7%? There are equities and equities, and another expert might have come along and argued that the diminution in overall yield was by a different figure or would have resulted in no diminution at all. Shares give different dividend returns. Bonds do not have uniform yields. And what about convertible bonds issued by large corporations? Should those be in the portfolio? If evidence of this kind were permissible, personal injuries litigation would become the battle-ground of experts, and accident victims the hostages of well-meaning accountants, economists and fund-managers. One can even envisage a courtroom becoming the auction-room for competing fund-managers, each eager to "prove" that the profile of his fund is "better" than that of the rest. 75. (2) The judge was in no position to "second-guess" the investment strategy of the fund manager, far less was he in a position to direct what the fund manager should or should not do. All he could properly do was to evaluate the evidence bearing upon the yield of conservatively-managed funds over the past 11 or 12 years: and if the evidence showed that, on the average, the yield was 15.9%, then that was that. A contrived reduction of that yield by 0.7%, by an artificial re-allocation of the assets comprised in the notional fund, is not an exercise the judge should have entertained. It is of interest to note that, in the table set out on p35 of the judgment, the highest annualized return for the period 1983/94 (the longest shown in the table) was 19.8% and the lowest was 11.8%. On any view 15.9% was a reasonably conservative figure. 76. The reduction of 0.7% in the computation of the proper discount rate was misconceived. Payroll inflation 12.5% 77. It is important, again, to remind oneself of the focus of the exercise: Does the evidence show that in Hong Kong the Cookson v. Knowles assumption underlying the award of damages has been wrong? 78. It is, of course, common ground that to assess the real return on investments over the past 11-12 years the annual inflation as measured by the consumer price index must be taken into account. The figure of 15.9% would then give a net return of 7.8%: a figure comfortably above the assumed 4%-5% in Cookson v. Knowles. 79. There was evidence before the judge that for the past 12 years payroll increases have averaged 12.5% per annum: that is to say that, over the period, payroll increases have exceeded general inflation by 4.4% per annum. So much the better for the salary/wage earners over the past 12 years. But, it might be asked, what has this got to do with the real return on investments? All it means is that, for the past 12 years, wage earners have done better economically than people living on investment income. This simple proposition was apparently lost sight of in the court below. 80. Unfortunately, the judge was persuaded by counsel for the plaintiff to project the past "payroll inflation" forward as if, until the year 2039 (when the plaintiff will reach 60), payroll increase will exceed inflation generally by 4.4% per annum, and to apply this to the discount rate. This proposition has only to be stated to demonstrate its error. 81. The judge, without perhaps fully realizing it, was in fact doubly wrong in his approach. By the use of the so-called "Quant tables" to arrive at the multiplier - 34 reduced to 30 for deferred income and vicissitudes - there was already a built-in factor of payroll inflation (as explained earlier), and the judge discounted this factor again by knocking-off 4.4% after general inflation to reach his ultimate figure of 1.2%. 82. Plainly, to test the Cookson v. Knowles assumption, there was no warrant to reduce the 15.9% figure by anything more than 8.1 %, to take into account general inflation. 83. On the other hand, where payroll increases can, with some degree of certainty, be anticipated - as in the case of a plaintiff already in employment with near prospects of promotion - then this fact can and should be reflected in the multiplicand: a matter to be later dealt with in this judgment. Management and trusteeship fees 1.5% 84. The deduction of a further 1.5% from the figure of 15.9% shows how far the judge has strayed from the true purpose of the exercise. As with the deduction of 0.7%, the judge was no longer concerning himself with testing the validity of the conventional approach; he was dealing with a separate point: the hypothetical management of a notional fund in the future. His reasoning was in effect this: With a substantial lump sum award the plaintiff will need the services of investment advisers; with her intellect impaired as a result of the accident she will not be capable of managing her own financial affairs and will need to have a trustee appointed; so, the reasoning goes, provision will have to be made for the additional expenses. Whether it would be right to impose these obligations on the defendants will need examination later. What is clearly not permissible is to knock 1.5% from the discount rate to accommodate these factors. 85. At p36E of his judgment, Cheung J said:
86. Nothing in the evidence suggests that in the figures for the annualized returns on pension funds, administrative and other fees had not already been taken into account. It was never suggested in the testimony of the person who introduced that evidence, Mr Danny L. Quant, that in order to get the true figure for those returns, some such deduction needed to be made. Conclusion on multiplier 87. In making comparisons with English awards, and adopting the approach of the English courts, one factor must be borne in mind: that of taxation. Both the incidence and the rate of taxation in Hong Kong are very different from those prevailing in the United Kingdom. 88. In this regard, it is worth bearing in mind the observations of Lord Oliver in Hodgson v. Trapp [1989] 1 AC 807 at 828C-G where, commenting on Lord Diplock's judgment in Cookson v. Knowles at p572 he said:
89. In Hong Kong, unlike the situation in the United Kingdom, the income from investment is tax-tree, but the 4% to 5% return referred to by Lord Diplock in Cookson v. Knowles at p572 is subject to tax in the United Kingdom. 90. Nothing in the evidence before the judge points to the conclusion that, in Hong Kong, plaintiffs have been under-compensated for future loss of earnings by the use of the conventional multipliers over the past 12 years or so. The use of "experts" 91. In the course of the hearing we were told by counsel that recently practitioners have been at a loss as to the right approach in cases involving future loss of earnings and have increasingly relied on "experts" for assistance in advancing their respective cases. This is a trend which must stop, for it proceeds upon a fundamental misconception. 92. Experts, be they economists, accountants or other professional persons, can of course testify in a court of law as to past events, and their views and opinions can sometimes be helpful in assisting the court in interpreting data. Thus, it was perfectly proper for the judge to receive evidence from Mr Wyatt with regard to Hong Kong's economic development over the past decade or so, and to allow into evidence what has been called the MIP (the Wyatt measurement of investment performance) as a rough and ready guide to investment returns for the past 12 years or so. The object of such evidence - the only legitimate object - was to test the validity of the basic Cookson v. Knowles assumption in the Hong Kong context. If necessary both facts and opinions on such matters could have been challenged; these were therefore justiciable issues. But the opinion evidence in the court below was allowed to stray far beyond proper realms. For example the judge said at p25R:
93. This, with respect to the judge, was of no evidential weight in a court of law and ought never to have been entertained. There is no way by which the judge could have tested the validity of the assertion. Evidence of this nature, unfortunately, was allowed to be led - despite the objections of Mr Benjamin Yu QC, the counsel for the defendants - and such evidence coloured the entirety of the proceedings. 94. It is as well to remember the first of the four considerations which Lord Oliver said in Hodgson v. Trapp at 833C must always be borne in mind in these cases:
95. Mr Wyatt who testified before the judge was an economist. He was no prophet. 96. We are told by counsel that this case is regarded by the legal profession in Hong Kong as a test case and that, pending our decision, virtually all personal injuries litigation has been put on hold. Hence the request of both parties to the Chief Justice to convene a five-person court to hear this appeal. 97. As a test case it was legitimate to put expert evidence before the judge in order to probe the validity of the Cookson v. Knowles assumption in Hong Kong: and evidence indicating for instance the general rise in the standard of living over the past 10 years or so - including the fact that payroll rise has exceeded inflation consistently - has been helpful: it justified the court in revising the awards of damages for non-pecuniary loss upwards. But this is as far as the expert evidence could have properly gone. Now that the issue has been resolved by our judgment, there should be few occasions in the future when such expert evidence would still be necessary. 98. No case has been made out for a departure from the conventional approach to the assessment of damages for future loss of earnings and the pseudo-scientific method which the judge was unfortunately persuaded by counsel for the plaintiff to adopt is to be deplored. The implications for the parties - particularly the plaintiff - if such approach gained currency are disturbing. In every case the judge will have to work out for himself the appropriate discount rate, by entertaining evidence from sources over which he has no control. Both sides can of course play at this game, as is shown only too well by an unreported judgment of this court in Peter Zee v. Yau Yat Shing [Civ. App. No. 59 of 1983] quoted in the judgment below at p4:
99. We would unhesitatingly reaffirm the statement of principle above, and adopt what Mustill LJ said in Cunningham v. Camberwell Health Authority, [1990] 2 Med L.R. 49, at p53:-
100. Practitioners should also bear in mind what Lord Diplock said in the Privy Council in Paul v. Rendell 34 ALR 569:
Award for loss of future earnings 101. For the reasons given above, the judge's award for loss of future earnings must be set aside, and we must do the best we can to assess the proper amount. 102. Firstly, the multiplicand. The judge's starting figure was $8,540 per month, being the published average monthly salary of all clerical and secretarial workers of all ages as at September 1994. This was increased by the judge to $9,300 per month on account of inflation since that time. 103. Mr Martin Lee QC argues that the judge was wrong to have used this figure as the multiplicand for two reasons: (i) it failed to take into account the $500 per month the plaintiff would have earned in a sheltered workshop: a point conceded by Mr Griffiths QC for the defendants, and (ii) the figure was in any case too high, since a person like the plaintiff, of no more than average intelligence before the accident, would not have earned anything like the average salary at the beginning of her work career: it is only in the late years that the discount starts to bite deep; the first few years' amounts - if the lump sum award were broken down into annual payments - would in effect be barely discounted. So, Mr Lee argues, the multiplicand should be a considerably smaller figure: he suggested a reduction of 20% to 40%. 104. On the other hand, there is the point that, over the past decade or so, payroll increases across the board have consistently exceeded inflation. This is a factor which should be borne in mind. There was no evidence before the judge whether, for the clerical and secretarial sector, the increases over the years corresponded with the general trend, so this point must obviously be treated with some caution. And there is no certainty that this trend will persist far into the future. 105. Weighing the matter in the round, it seems to us that the arguments for increasing and decreasing the starting figure more or less cancel out. The starting figure of $8,800 per month ($9,300 - $500) can be conveniently rounded up to $9,000 per month; multiplied by 12 gives an annual figure of $108,000. This is the figure which should be used as the multiplicand. The figure of $9,000 per month contrasts very generously with what, on the evidence, the plaintiff's mother was actually earning at the date of the trial: $4,500 per month as a part-time clerk with Central Registration Hong Kong Ltd. If she had returned to work with Wing Luk Industrial Company (as she did before the accident) she would have earned about $7,000 per month. 106. Secondly, the multiplier. At the date of the judgment in October 1995 the plaintiff was 16½ years old and, according to the judge, would not have started working until 18 or 20. The award would, in effect, compensate the plaintiff for the loss of the income she might have earned from about mid-1998 (when she would be about 19) to mid-2039 (when she would be about 60). 107. In these circumstances an appropriate multiplier for the judge to have selected would have been 15. This multiplier reflects the uncertainties surrounding a plaintiff who, at the date of the trial court's judgment, was only 16½ years old and not yet in employment. 108. The award therefore works out as follows:
This sum should carry interest from 30 October 1995 at the prevailing judgment rate until payment. Investment and management advice 109. The object of the lump sum award is to compensate the plaintiff, once and for all, for the lost income stream. But, to achieve that purpose, that sum must be wisely invested. This involves a fair degree of investment and management skills: skills which, by the nature of the head injuries sustained, the plaintiff is most unlikely to acquire. It is logical to make some allowance for this in the award, as the plaintiff will clearly need to pay for such advice. 110. The argument against making any award of this kind is that which found favour with Russell J in Francis v. Bostock (unreported, 8 November 1995): that once the award is made, the plaintiff: on attaining majority, is entitled to spend it as she wishes; the defendants should not be called upon to find further moneys to assist the plaintiff in the proper administration of the award which, in itself, affords adequate compensation. 111. It is that last proposition which is questionable. The reality is that the award, in the plaintiff s hands, will not achieve its intended purpose - to compensate her for the lost income stream - unless it be wisely invested. The award for future loss of earnings is of a rather different nature from an award of general damages for non-pecuniary loss, in relation to which the argument in Francis v. Bostock would be sound. 112. The judge erred in his approach (by deducting 1.5% from the discount rate) but was correct in determining that some award should be made. 113. Exercising the best judgment we can, we have come to the conclusion that a sum of $160,000 (in effect, approximately 10% of the fund to be managed) would have been appropriate under this head. This too should carry interest at the judgment rate from 30 October 1995. FUTURE DOMESTIC HELP 114. The judge found upon the evidence that the plaintiff would not be able to lead an independent life, and would be particularly handicapped after her parents' death. She would need help with household chores. Further, she would need someone to accompany her to therapy sessions, social activity centres and to accompany her to attend sheltered workshops. 115. To arrive at the figure of $1,680,000 for future domestic help the judge took a figure of $4,000 per month which has not been seriously challenged. This gives an annual figure of $48,000. 116. What is strenuously challenged is the multiplier of 35 which the judge applied to that annual sum, yielding the figure of $1,680,000. 117. The multiplier of 35 is derived from the flawed "Quant tables", using a discount rate of between 2.7% and 1.2%. 118. Apart from the fundamental error of using such discount rate (for reasons which have been earlier explained) there is this curious feature in the judge's computation: the discount rate of 1.2% came about after deducting 1.5% for management and trusteeship fees: a factor which cannot, on any view, come into the equation under this head. 119. There is no suggestion that as things are at present, the plaintiff cannot carry on her way of life without a domestic helper. It therefore seems that the award under this head has been grossly inflated. 120. Exercising our best judgment, and being as sympathetic towards the plaintiff as possible, it is difficult to see how a multiplier representing more than 10 years' purchase can be justified. 121. The judge's award under this head should be set aside and replaced by the following:
FUTURE PSYCHIATRIC TREATMENT 122. The judge found that the plaintiff would need long term psychiatric care. He justified the award of $1,225,000 in this way:
123. The evidence before the judge focussed on two rather different areas: (1) occupational therapy to widen the range of movement, dexterity and coordination of the limbs, and psychotherapy sessions for both the plaintiff and her parents to help them to adjust to the plaintiff's handicaps; (2) long term psychiatric treatment: particularly when the plaintiff loses the moral support of her parents in the later part of her life. At the time of the trial her father was 48 and her mother 47. The evidence indicated that as the plaintiff goes into middle life, with the loss of her parents' support, she might need regular psychiatric treatment. 124. In relation to (1) above, the judge awarded the sum of $85,000, as to which there is no appeal. The appeal focusses upon the award for long term psychiatric treatment in the sum of $1,225,000 which was computed as follows: average expenditure of $35,000 per year x multiplier of 35 = $1,225,000. 125. To arrive at these figures, the judge said:
126. Where the judge said "the next 30 years" he must have been confused, because the whole focus of the evidence was upon the later part of the plaintiff's life, when she would most likely be alone, after the death of her parents. Counsel for the defendants suggested that where the judge said "the next 30 years" he probably meant to refer to psychiatric treatment beginning in 30 years' time when the plaintiff will be in her 40s. There is considerable weight in this submission. It seems improbable that, in awarding the $1,225,000 for long term psychiatric treatment, the judge could have been focussed upon the next 30 years, particularly having regard to the additional award of $85,000 which is meant to cover the expenses for the next few years, though not the next 30 years. 127. Assuming the figure of $35,000 per year to be correct, this is an expenditure which will not in fact be laid out until some distant time in the future. It will then be an expenditure for life. 128. On any view, the award of $1,225,000 must be wrong. 129. The award of $1,225,000 must be set aside and we would, exercising our best judgment, substitute for it the sum of $300,000, carrying interest at the judgment rate from 30 October 1995. CONCLUSION 130. In relation to the heads of claim under appeal summarised at the beginning of this judgment, the result of the appeal is as follows:
131. All the awards will carry interest at the judgment rate from 30 October 1995. 132. The judge's award, taking into account all the other heads of damages not under appeal, came to $8,023,866.13, reduced to $6,379,893 for contributory negligence. This is replaced by the sum of $4,051,866.13 reduced to $3,241,492.90. 133. This case took up 18 hearing days in the court below, in the course of which the trial judge entertained evidence (both written and oral) from five non-medical experts and eight medical experts. The non-medical experts comprised two actuaries (Mr Quant and Mr Baxter) and three economists (Mr Wyatt, Dr Busche and Dr Huang). It was regarded as a test case. Exceptionally, therefore, the evidence of the non-medical experts was justified, even though some of the expressions of opinion ranged far too wide. 134. Now that all outstanding issues have been resolved by this judgment, there should be no need in the future for non-medical expert evidence of that kind to be adduced. We would hope that personal injuries litigation will now be much simplified. For the foreseeable future, the only evidence of an economic nature which needs to be put before a court would be the incidence of general inflation: something which can be done by the production of the government published statistics. Occasions for opinion evidence Tom experts on economic matters should be rare indeed. 135. In this regard, we note that in a number of personal injuries cases recently, the judge in charge of the list has made interlocutory orders to the effect that the parties should "exchange actuarial and economists' reports". Plainly, such orders should now be recalled. To adopt the words of an American judge (in Doca v. Marina Mercante Nicaraguense S.A., 634 F2d, at 39): "The average accident trial should not be converted into a graduate seminar on economic forecasting". The search for delusive exactness in awards for personal injuries of the kind practised in the court below should now cease. 136. As regards the number of medical experts who have examined the plaintiff, we draw attention to what Penlington JA said in Attorney-General v. Chun Yat-nam [1995]1 HKC 218 at 233B:
137. We have entertained no submissions from counsel in relation to the plaintiff's treatment in this case and our observations therefore must be viewed with caution. As mentioned earlier the plaintiff was seen by no less than eight medical experts, some on several occasions. We question whether uncoordinated examinations by so many different persons - each, perhaps, not wholly aware of what the others were doing or had done - were in the end aimed at improving the plaintiff's condition. If the adversarial process has this kind of result then maybe it is high time for the Masters and judges of the High Court to take control of personal injuries litigation at an early stage, with a view to saving accident victims from such treatment, by severely limiting the number of expert reports, and effecting a considerable reduction in costs.
Mr Martin Lee QC & Mr Ramesh K. Sujanani (M/S Simmons & Simmons) for the 1st and 2nd Defendants/Appellants Mr John Griffiths QC & Mr Michael Winckless (M/S Wilkinson & Grist) assigned by DLA for the Plaintiff/Respondent |
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