Personal Injury Awards – Higher Multipliers for Future Losses? An Update

In our February 2013 Client Alert, we reported that on 7 February 2013 Mr Justice Bharwaney handed down a judgment in respect of the discount rate to be applied to calculations for future losses in personal injury cases (“the Justice Bharwaney Ruling”). To recap, he ruled that there should be three different discount rates to cater for plaintiffs with different periods of future needs, as follows:

(1) -0.5% for plaintiffs with needs not exceeding 5 years.

(2) 1% for plaintiffs with needs not exceeding 10 years.

(3) 2.5% for plaintiffs with needs exceeding 10 years.

The lowering of the discount rate will result in higher multipliers for future losses and therefore higher awards of damages in personal injury cases.

The Defendants in two of the cases in question appealed the Justice Bharwaney Ruling to the Court of Appeal. However, the cases have recently settled and the appeals abandoned. The question now, therefore, is what is the current position as regards the discount rate to be applied in calculations for future losses? Arguably, the decision in Chan Pui Ki (confirming a discount rate of 4.5%), being a Court of Appeal decision, prevails over the Justice Bharwaney Ruling, which is a Court of First Instance decision and therefore, although highly persuasive, is not binding. As Mr Justice Bharwaney said in his judgment of 16 October 2012 (detailed in our 19 October 2012 Client Alert), he was clearly bound by the Court of Appeal decision in Chan Pui Ki, which had held that the actuarial and economic evidence that had been admitted by the trial judge had failed to prove or demonstrate that the assumption of a net rate of return of 4.5% was wrong for Hong Kong.

On the other hand, it may be argued that Chan Pui Ki decided that the 4.5% discount rate should apply unless and until there had been a significant change in the economic climate. The Court of Appeal in Chan Pui Ki said that the question was whether the evidence had shown that an assumption of a 4.5% discount rate in Hong Kong was wrong, thereby suggesting that a significant change in economic circumstances should entitle a party to re-open the debate about what discount rate should apply. In his judgment of 16 October 2012, Mr Justice Bharwaney stated that he was satisfied that on the evidence, there had been a substantial change in the economic landscape since the Court of Appeal decision in Chan Pui Ki, such that he should permit economic evidence to be adduced to test whether the assumption of a net rate of return of 4.5% remains valid today. The Justice Bharwaney Ruling also acknowledges that in these volatile economic times, a further review of the discount rate may be necessary if economic conditions change again.

The position is unlikely to be completely clear until the matter is tested again in Court and the Court of Appeal has ruled on the same.