The Law Society of HK and The Actuarial Society of HK 20 October 2004

Transcription

1 The Law Society of HK and The Actuarial Society of HK 20 October 2004 The Actuarial Perspectives of Personal Injury Compensation in Hong Kong Dr. F.W.H. Chan (Professional Legal Education, HKU) Dr. W.S. Chan (Statistics and Actuarial Science, HKU)

2 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 Lord Blackburn: Where any injury is to be compensated by damages, in settling the sum of money to be given you should as nearly as possible get at that sum of money which will put the person who has been injured in the same position as he would have been in if he had not sustained the wrong. (at 44)

3 Multiplicand/Multiplier approach Multiplicand: the future loss of income, and annual consequential expense. Multiplier: to discount the future pecuniary values into a present lump sum amount.

4 Taylor v O Connor [1971] AC 115 Lord Pearson: I do not think that actuarial tables or actuarial evidence should be used as the primary basis of assessment. There are too many variables, and there are too many conjectural decisions to be made before selecting the tables to be used

5 . There would be a false appearance of accuracy and precision in a sphere where conjectural estimates have to play a large part. The experience of practitioners and judges in applying the normal method is the best primary basis for making assessments.

6 Lord Brennan QC: The conventional approach when I was first at the Bar was often encapsulated by the calculation of the multiplier by which you simply divided the expected life-span by 2 and added 1 up to a maximum 16 for loss of earnings and 18 for whole of life loss! Surely an active role of the actuary in the law would have produced more sophisticated techniques than that!

7 Lee Woon Sun v Wong Kin Keung [1976] HKLR 296 Justice Huggins: I do not have their horror of such tables, but I agree that tables must remain servants and not become the masters. There are so many uncertainties involved even where tables are used that the tables do not make the assessment any more satisfactory than one made without them, but equally they need not make it any less accurate.

8 Chan Pui Ki (1995) HK Court of First Instance HK$120,900 (multiplicand) x 30 (multiplier) = HK$3,627,000.

9 Chan Pui Ki (1996) HK Court of Appeal HK$108,000 (multiplicand) x 15 (multiplier) = HK$1,620,000.

10 U.K. Ogden Tables Actuarial Tables with Explanatory Notes for Use in Personal Injury and Fatal Accident Cases by Sir Michael Ogden QC

11 Wells v. Wells (1998) The House of Lords: The Ogden tables should now be regarded as the starting point, rather than a check. A judge should be slow to depart from the relevant actuarial multiplier on impressionistic grounds, by reference to a spread of multipliers in comparable cases especially when the multipliers were fixed before actuarial tables were widely used.

12 The present role of the actuary insurance and pensions industry corporate finance investment health care derivatives public finance initiatives and major capital projects

13 Actuarial Tables for Use in PI Cases Three Groups of Tables: Multipliers for pecuniary loss for term certain Multipliers for pecuniary loss up to retirement Multipliers for pecuniary loss for life

14 Underlying Principles The court calculates precisely the proper discount for the value-of-a-lump-sum-inadvance by reference to tables. There are two types of tables. One is for pure arithmetical discount calculations and the other is for actuarial calculations. As is emphasized in Kemp and Kemp (The Quantum of Damages, September 1998, at para.8-001/1), it is important at the outset to understand the differences between them.

15 (1) Multipliers for pecuniary loss for term certain pure arithmetical discount tables show precisely what capital sum is needed to yield a given annual income for a fixed number of years at a given assumed interest rate, so as to leave nothing at the end of the period. An illustration:

16 (2) Multipliers for pecuniary loss up to retirement The term is set to the retirement age Actuarial tables take account of mortality for early receipt of a lump sum. As in the previous illustration, it can be seen that there is always the chance that the recipient might not be alive by the end of each year. If, for example, the recipient dies in the middle of Year 1, the two $1 payments originally payable at the end of Years 2 and 3 would not need to be paid out at all.

17 (2) Multipliers for pecuniary loss up to retirement An illustration

18 (3) Multipliers for pecuniary loss for life The term is set to infinity. Actuarial tables take account of mortality for early receipt of a lump sum. Medical expenses, costs of care. An illustration

19 Construction of the Hong Kong Tables A 2-year research project Using official Hong Kong Government data for mortality and mortality projections. Discount rate: Chan & Chan (2003, Law, Probability and Risk) recommended a 3.5% per annum. Other factors: Females vs Males Different assumed pension age Existing mortality vs projected mortality Outputs (38 Multiplier Tables): In book format In web format

20 ACTUARIAL FORMULAE AND BASIS

21 Mortality Assumptions

22 Chan Pui Ki s Case Revisited (Should HK Actuarial Tables have been used) Age at trial: 16.5 Discount rate: 3.5% Gender: Female Mortality: Hong Kong projected Retirement age: 60 HK$108,000 (multiplicand) x (multiplier) = HK$2,424,600 **Chan Pui Ki (CFI/1995) Multiplier 30 HK$3,240,000 **Chan Pui Ki (CA/1996) Multiplier 15 HK$1,620,000

23 Recent Cases AU HON LING [2004] 1054 HKCU 1 Justice Suffiad: As for the multiplier, I take into account that the plaintiff is now 34 years of age, whilst the work of a carpenter is not the heaviest kind of manual work, it is manual work and not of a light nature either. In all the circumstances of this case, it would be appropriate to adopt a multiplier of 14.

24 AU HON LING [2004] Multiplier calculated from Table 21: Result: Age at trial: 34 Discount rate: 3.5% Gender: Male Mortality: Hong Kong projected Retirement age: 55

25 LIMBU MUNI PARSAD [2004] 953 HKCU 1 Plaintiff: Construction worker; the ladder tilted suddenly causing the Plaintiff to fall with his back landing on the ground. Justice E. Toh: The Plaintiff is now aged 40 and at the date of the accident was aged 37 I would adopt a multiplier of 12.

26 LIMBU MUNI PARSAD [2004] Multiplier calculated from Table 21: Result: Age at trial: 40 Discount rate: 3.5% Gender: Male Mortality: Hong Kong projected Retirement age: 55

27 LEUNG KWOK KEUNG [2004] 996 HKCU 1 The Plaintiff was a passenger in a car driven by the Defendant. Justice Wright: The plaintiff was 41 at the date of accident and is 47 now. He testified that he would have retired at age 65 which I see no reason to doubt. He was in a responsible, managerial position and was a man whose skills were obviously in demand. There is no suggestion that he indulged in any especially hazardous pursuits

28 . He is a smoker. He has been treated for non insulin dependent diabetes mellitus since The claimed work multiplier of 10 is proper whilst a whole life multiplier of 16 is appropriate.

29 Leung Kwok Leung [2004] Work Multiplier calculated from Table 25: Result: Age at trial: 47 Discount rate: 3.5% Gender: Male Mortality: Hong Kong projected Retirement age: 65

30 Leung Kwok Leung [2004] Life Multiplier calculated from Table 19: Age at trial: 47 Discount rate: 3.5% Gender: Male Mortality: Hong Kong projected Result: 19.76

31 Leung Kwok Leung [2004] Paragraph 22 of the Explanatory Notes of the Actuarial Tables: Adjust the figure to take into account of contingencies and risks other than mortality. e.g. any relationship between smoking and ill health that leads to a shorter life expectancy? Arguable

32 . Thank you very much! We wish to acknowledge the support of a research grant from the Research Grants Council of the HKSAR (Competitive Earmarked Research Grant Project No. HKU7169/01H)