Briefing Note on the Discount Rate applying to Quantum in Personal

Briefing Note on the Discount Rate

applying to Quantum in Personal Injury Cases:

Comparative Perspectives

Prepared for:

Ministry of Justice

Prepared By:

Dr. Duncan Fairgrieve, Senior Research Fellow in Comparative Law

Dr. Jean-Pierre Gauci, Research Fellow in Public International Law

British Institute of International and Comparative Law

Table of Contents

Introduction .......................................................................................................................... 4

Methodology ........................................................................................................................ 4

Comparative Law Perspectives ............................................................................................ 5

Personal Injury Damages Awards ........................................................................................ 5

Application of Discount Rate(s) ............................................................................................ 7

Decision-maker as regards the Discount Rate ..................................................................... 7

Process for setting the relevant discount rate ....................................................................... 8

Concrete Application of Discount Rates ............................................................................. 10

Conclusion ......................................................................................................................... 13

Annexes .............................................................................................................................. 14

Annex 1 .............................................................................................................................. 15

Annex 2 .............................................................................................................................. 19

Annex 3 .............................................................................................................................. 25

Annex 4 .............................................................................................................................. 36

Annex 5 .............................................................................................................................. 41

Annex 6 .............................................................................................................................. 48

Annex 7 .............................................................................................................................. 57

Executive Summary

This briefing note examines the discount rate applying to quantum in personal injury claims from a

comparative law perspective focusing on Australia, Canada, France, Germany, Hong Kong, Ireland, Spain

and South Africa. These jurisdictions represent common and civil law jurisdictions, a diverse geographical

spread as well as a range of approaches and rates. The research highlights the great variety of approaches

adopted in adjusting damages awards to take account of investment opportunities. The decision maker as

regards the discount rate is the legislator in some cases, the judiciary in others and a hybrid solution involving

both in others. In some jurisdictions, whilst the rate is set through primary or secondary legislation, the court

is empowered to vary it in the interests of justice, though this rarely occurs in practice. There is also

considerable variety in the methodology for setting the rate including which institutions are involved in the

process and what considerations are taken into account. In practice, the discount rates applied vary

considerably across the various jurisdictions from 6% in the Australian State of Victoria to -0.5% for parts of

payments in Hong Kong and -0.75% in the case of the UK. Beyond the rate itself, there is also variance as

to whether a single rate applies to all personal injury claims or whether different rates apply depending on

the type of claim, or the type of loss; as well as whether a single rate applies for the full period or whether

different approaches are adopted depending upon the period of time covered by the award. It would seem

that these determinations are influenced by a range of factors including economic factors, the availability of

various financial instruments as well as broader policy factors such as a desire to avoid exponential increase

in the cost of insurance.

Introduction

About The British Institute of International and Comparative Law

1. The British Institute of International and Comparative Law (BIICL) is a leading independent

research centre and charity whose remit is to develop and advance the understanding of

international and comparative law in the UK and around the world, and to promote the

rule of law in national and international affairs. BIICL is unique in the UK and one of the

foremost bodies of its kind around the world. The Institute is renowned for its applied

research, events, training and publications.

Scope of the Briefing Note

2. The British Institute of International and Comparative Law has been commissioned by the

UK Ministry of Justice to undertake a comparative study of the discount rate applying to

quantum in personal injury cases. The objective of the work is to examine in respect of a

selected group of jurisdictions the issue of how the overall award of personal injury

damages is adjusted to take account of accelerated receipt of damages and the associated

investment opportunities. In undertaking this work, particular focus will be placed upon the

methodology and procedure relating to the setting of the discount rate, as well as the

institution responsible for deciding upon the exact level of this adjustment.

3. In the United Kingdom, when damages are awarded for future loss, the award is adjusted

to take account of the effect of the claimant being able to invest the money before the loss

or expense for which it is awarded has actually occurred. For example, in the case of a birth

injury where brain damage has resulted, damages for the future loss – for example, future

care costs – may be awarded for a very long future period, effectively a lifetime, and the

accelerated receipt of sums to cover loss for that period means that the money can be

invested and accrue value for a number of years before the claimant would actually require

the money to meet those costs. The value of the lump sum is therefore adjusted by a factor

that represents the appropriate rate of return on investing the award. This is what is known

as the “discount rate”.

Methodology

4. This Briefing Note examines the issue of the discount rate applying to quantum in personal

injury cases from a comparative law perspective, focusing on the following jurisdictions:

Australia, Canada, France, Germany, Hong Kong, Ireland, Spain, South Africa. These

jurisdictions were selected, within the relevant time constraints and availability of

information, to ensure the representation of common and civil law jurisdictions, a diverse

geographical spread, and to illustrate a range of approaches and rates internationally.

5. In undertaking the study, the comparative law position is based primarily on the findings of

reports prepared by external national rapporteurs, chosen through BIICL contacts for their

The term of ‘discount rate’ is used throughout this Briefing Note though, in light of the use of a negative discount rate, the

term ‘adjustment rate’ might be a better suited term. See comments of Lord Hope in Simon v Helmot [2012] UKPC 5, at [14.]

specific expertise in the field. Research regarding the situation in the United Kingdom,

France and Germany has been undertaken in-house by Senior Research Fellows at the

Institute who have expertise in this field.

6. The national rapporteurs prepared national reports on the basis of a questionnaire

produced by the BIICL research team (and provided in Annex 1), composed of a series of

questions which each expert was asked to address in compiling their report. Reference will

be made to the relevant national reports in this Briefing Note, which are also included in

Annexes 2 – 7 below, as follows: Annex 2: Report by Professor Mark Lunney dated 8 April

2017 concerning Australia; Annex 3: Report by Shane C. D’Souza and Ralph Fenik dated

10 April 2017 concerning Canada, Annex 4: Report of Dr. Felix Chan dated 6 April 2017

concerning Hong Kong, Annex 5: Report by Orla Keane, David Strahan and Grace-Ann

Meghen of Arthur Cox concerning Ireland, dated 4 April 2017, Annex 6: Report by Johan

de Waal, dated 19 April 2017 concerning South Africa and Annex 7: Report by Dr. Maria

Paz García Rubio and Dr. Marta Otero Crespo dated 8 April 2017 concerning Spain.

7. Given the limited time frame for the research, this report is focused primarily on the

adjustment of damages awards to reflect the effect of investment opportunities and not on

adjustments for other issues including mortality, labour market risks and other

contingencies. The research also does not provide in-depth analysis of the basis for

damages or the approach to quantum applied in the countries examined.

8. It should be noted that BIICL provides legal research and information but does not in any

way provide legal advice. This Briefing Note cannot thus be relied upon as legal advice,

and the comparative law conclusions herein are predominantly based upon the information

contained in the aforementioned national reports.

Comparative Law Perspectives

9. As will be observed from the national reports below (in Annexes 2 – 7), a great variety of

solutions can be found in the various jurisdictions in quantifying future loss as well as in the

methodology of the adjustment made to lump sum damages awards. This is perhaps not

surprising given that the exercise of assessing damages for future loss is itself a difficult and

speculative one; it was thus observed by Lord Oliver in the case of Hodgson v Trapp, that it

was a task which “requires not the services of an actuary or an accountant but those of a

prophet.”

Indeed, as Lord Steyn remarked in Wells v Wells, “perfection in the assessment

of future compensation is unattainable.”

Despite this, it is nonetheless possible to identify

some tentative comparative law trends in light of the results of the reports of the national

rapporteurs.

Personal Injury Damages Awards

10. It is worth stating at the outset that a common point of the jurisdictions studied is that the

[1989] 1 AC 807, at 833.

[1999] 1 AC 345, at 383

objective of damages in tort law / delict in these systems is to provide restitutio in integrum,

thereby restoring the injured party to the position in which he or she would have been

absent the tort.

Although restitutio in integrum is the declared goal, the rules which have

been adopted to achieve this have nonetheless diverged, and this is very much the case, as

will be seen, in respect of the discount rate in personal injury cases.

11. Another preliminary point of commonality is that lump sum payments for damages awards

are generally the norm in the jurisdictions examined.

Whilst periodic payments are

available in theory in many jurisdictions, they continue in general to be an under-utilised

option and are often applied only with the consent of the parties involved. Australia is

illustrative in this respect. Statutory provisions in the Australian States of South Australia and

Western Australia do provide for the use of periodic payments in limited circumstances.

But Professor Mark Lunney notes however that “a leading text comments that there are no

reported cases in which the power to make such an award has actually been exercised.”

In Ireland, there are no Court Rules or (as yet) statutory basis for periodic payments and

these are made on an ad hoc basis by the courts and generally only where all parties to

the proceedings agree.

12. Even in Germany, where payment by annuities is generally the rule, the approach has

differed in practice. In this jurisdiction, where compensation is in principle provided by

payment of an annuity under section 843(1) of the German Civil Code, the injured person

may only demand a lump sum payment where there is a compelling reason for doing so

(sec. 843(3) BGB). In practice, however, the payment of damages by lump sum is a frequent

occurrence, for instance in the case of involvement of an insurer. The approach is similar

in another continental jurisdiction, France. Although the French trial judge in civil matters

has entire discretion as to whether periodic payments or a lump sum would be the most

adequate remedy,

it is in practice much more common for lump sums to be awarded. As

is noted in the standard text on the topic, L’Evaluation du Préjudice Corporel, “[i]n practice

it is very rare for the whole of the damages … to be paid through periodic payments.”

13. There is however evidence of movement towards greater consideration of periodic

payments in some of the countries examined. In Ireland, a Bill is currently making its way

through the legislative process with the stated purpose of empowering the courts, to make

consensual and non-consensual periodic payment orders to compensate injured victims in

cases of catastrophic injury where long-term permanent care would be required.

In Hong

Kong, the Law Reform Commission of Hong Kong has recently set up a committee to

explore the possibility of introducing the option of periodical payments.

14. The current reliance in law and practice on lump sum payments for personal injury damages

necessarily thereby raises the issue of how the accelerated receipt of a lump sum award of

See for example the Report on Canada by Shane C. D’Souza and Ralph Fenik dated 7 May 2017, paragraph 2.

See below though for the position in Germany.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 4.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 7.

Report of Orla Keane, David Strahan and Grace-Ann Meghen dated 4 April 2017, paragraph 9. See below for

ongoing reforms in Ireland.

Cass 2, 13 June 1979, Bull Civ 1979.II.N°178, page 124.

M.Le Roy, J-D, Le Roy, F.Bibal, L’Evaluation du Préjudice Corporel (20th Edn, Paris, LexisNexis, 2015) para 195.

The Civil Liability (Amendment) Bill 2017.

Report of Dr. Felix Chan dated 6 April 2017, paragraph 7.

damages to compensate recurring heads of future loss is adjusted to take account of the

associated investment opportunities. It is this issue which was the focus of the research

undertaken, and to which we will now turn.

Application of Discount Rate(s)

15. In all the jurisdictions examined in this research, a discount rate (or adjustment rate) is

applied to lump sum payments so as to take account of the accelerated receipt of amounts

recovered as compensation for future recurring loss. Full details of the ways in which the

various systems proceed with such an adjustment is provided in the national reports found

in the annexes. Procedures and methodologies vary greatly, and the resultant approach to

the discount applied is also varied. In this section, we will identify some comparative law

themes arising from that analysis.

Decision-maker as regards the Discount Rate

16. A first point to consider relates to the designation of the primary decision-maker in respect

of the application of a discount rate. Different decision-makers can be found in the various

jurisdictions studied, but three broad approaches can be identified as to how the discount

rate may be set.

17. In many jurisdictions, the institutional decision-maker is the legislator, and thus the discount

rate is set through legislation. In Australia, for instance, the basis for the application of the

discount rate is statutory in all but one State.

This is similarly the case in the majority of

Canadian provinces.

In these circumstances, the relevant statute sets a specific discount

rate which is then applied by the Courts.

Within these jurisdictions, differences may

however arise. In those countries where there is a federal constitutional structure, then the

decentralised States / Provinces may have competence in this sphere (such as in the case

of Australia and Canada), in which case this results in an additional layer of complexity,

with different processes (and rates) applicable across different States / Provinces. Another

related model is where statute appoints a member of the executive to determine the

appropriate rate. This is the case in the United Kingdom

and Spain,

where a member of

the executive has been statutorily empowered to set the relevant rate.

18. A second approach leaves the decision on the discount rate entirely in the hands of the

Report of Professor Mark Lunney dated 8 April 2017, paragraph 7.

Notably the Canadian provinces of British Columbia, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick,

Nova Scotia, and Prince Edward Island, and the Northwest Territories and the territory of Nunavut. See further Report

by Shane C. D’Souza and Ralph Fenik dated 10 April 2017, paragraph 5.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 8.

Damages Act 1996.

The discount rate is set according to an actuarial formula: see Report by Dr María Paz García Rubio and Dr Marta

Otero Crespo dated 15 April 2017, paragraph 9.

judiciary,

so that the trial judge is empowered to make findings as regards both liability

and quantum. This is the case in Hong Kong, Ireland, South Africa as well as the Canadian

provinces of Alberta and Newfoundland and Labrador and the Yukon Territory. Such a

court-centered process gives rise to a variety of different possibilities in terms of the

methodology applied by the court to reach the discount rate, which we will discuss below.

19. A third approach is a hybrid situation allowing for a combination of the above. In Ireland,

despite the option given to the Minister for Justice to set the rate by Section 24 of the Civil

Liabilities and Courts Act, the current practice is that the rate is determined by the courts

(and indeed no discount rate or actuarial tables have been prescribed). In the Canadian

Province of Ontario, where despite the fact that the bifurcated discount rate is set by

regulation, Shane C. D’Souza and Ralph Fenik note in their national report that “an Ontario

Court has the discretion to depart from the prescribed discount rate if justified by the

evidence and circumstances.”

In Spain, the statutory provision is for injuries caused by

road traffic accidents however the Courts, using general principles including those of

equality, equity and legal certainty, have applied the same approach to other personal

injury claims.

However even here the Courts have clearly articulated that the established

scales are not binding in cases that fall outside the limited scope for which they were

intended. The Court therefore plays a strong role in the setting and application of the

discount rate.

Process for setting the relevant discount rate

20. An additional consideration is the actual procedure for setting the discount rate. These

patterns are again quite diverse, and to a certain extent dependent upon the identity of the

decision-maker.

21. In those jurisdictions where the competence for setting the discount rate is statutory, then a

number of issues may arise as to how exactly the rate is reached by the legislator. In some

jurisdictions, the actual level of the discount rate can specifically be set by statute. In

Australia, the rate to be applied is primarily to be set by secondary legislation, with a default

rate set in the initial primary legislation. However, Professor Mark Lunney has noted that

the default rate has remained applicable in all those Australian States adopting a statutory

approach: “No jurisdiction has altered the rate by secondary legislation so the default figure

operates in all jurisdictions.”

22. In other jurisdictions, the legislation may not have provided for a specific figure and instead

the methodology for reaching the required rate has been specifically prescribed in the

relevant legislation. Spain is a good example of this approach. In this jurisdiction, the

discount interest rate is set following an elaborate actuarial basis.

The actual variable was

used to set the scales included in the legislation, but is in practice calculated by the

Note that in the US, the presence of juries in civil cases means that it is the jury which plays a predominant role in

determining damages awards, and this thus makes it very difficult to study methodologies as to quantum. In Canada,

there are jury trials for civil matters, though they are significantly rarer than in the US.

Paragraph 8. Though they recognise that this in practice rarely occurs.

Report by Dr María Paz García Rubio and Dr Marta Otero Crespo dated 15 April 2017, paragraph 2.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 8.

See Report by Dr María Paz García Rubio and Dr Marta Otero Crespo dated 15 April 2017, paragraph 9.

Directorate-General of Insurance and Pension Funds, a body under the auspices of the

Ministry of Economy and Competitiveness.

In the Canadian Province of Ontario, Shane

C. D’Souza and Ralph Fenik explain that the bifurcated discount rate is “set annually by the

Attorney General, following receipt of advice from the Civil Rules Committee, a body which

is composed of 29 members predominantly drawn from the judiciary, but which also

includes representatives of the Court services administration as well as the private bar.”

23. In those jurisdictions where the Courts are empowered to set the relevant rate, then the

approach is equally varied. Across the jurisdictions, the Courts have adopted different

methodologies for arriving at the relevant figure. First, according to what is often known as

the conventional approach to the quantification of recurring future loss, the courts proceed

in applying the standard multiplicand / multiplier approach with, in general, the latter

multiplier being adjusted so as to apply a discount. This was the traditional approach under

English law.

24. Second, in other jurisdictions, there has been an evolution away from the strict adherence

to the conventional approach, with it being accepted that the courts can examine statistical

data in determining the approach to recurring future loss, in particular as to the adjustment

that should be made to the lump sum, for instance in determining what is a realistic rate of

return to take into account. Thus, the national rapporteurs for Ireland, Keane, Strahan and

Meghen of Arthur Cox have noted that in setting the discount for accelerated receipt, the

judges accept that the claimant can adopt “the most risk averse investment reasonably

available.”

In other systems, such a modified conventional approach has also led the

courts to take into account statistical analysis by tailoring the rates and the approach to

different time periods over which the loss is to be calculated. This is the case in Hong Kong,

where the national reporter Dr Chan indicates that the basic approach to the quantification

of recurring future loss includes the multiplicand / multiplier approach with the latter being

determined in accordance with the actuarial tables, but with an adjustment made to the

lump sum to take account of accelerated receipt. He thus notes that the “discount rate is

the annual net rate of investment return in excess of inflation that a claimant is assumed to

achieve on the lump-sum award”, and that in the leading Hong Kong decision of Chan Pak

Ting (No.2),

the judge set 3 different discount rates, reflecting the investment choices of

each class of investors as driven by their specific needs and goals.

25. Third, there are also jurisdictions in which the courts have undertaken a much more

ambitious reappraisal of the approach to assessing future harm, which is heavily reliant

upon statistical and actuarial evidence provided by experts. This evidence-based approach

is reflected in the Privy Council’s decision in Simon v Helmot,

concerning a claim

originating in Guernsey, Channel Islands. The Privy Council adopted earlier House of Lords

methodology of compensation for future losses and brought it up to date, upholding the

decision of the Guernsey Court of Appeal that, on the facts of that particular case, the

The current interest rate is 3.5 %.

Paragraph 6.

See e.g. Wells v Wells [1999] 1 AC 345 (House of Lords).

Report of Orla Keane, David Strahan and Grace-Ann Meghen dated 4 April 2017, paragraph 15.

[2013] HKC 365

The rates were 2.5% for needs exceeding 10 years, 1% for needs exceeding 5 years but not exceeding 10 years, and

-0.5% for needs not exceeding 5 years.

[2012] UKPC 5.

discount rate should be -1.5% for earnings-related losses and 0.5% for other future

losses. This approach requires extensive use of expert evidence. In South Africa, the courts

also rely upon actuarial principles and calculations to reach the discount rate,

rejecting

the idea of the judge making a round estimate of an amount which seems fair and

reasonable as “entire guesswork” and a “blind plunge into the unknown.”

The use of

actuarial principles by the courts was recently confirmed by the Supreme Court of Appeal

(second highest Court in South Africa) in RAF v Sweatman.

26. Over and above these differences in process, most countries have in place measures for

review of the discount rate. The approach here again differs somewhat across jurisdictions.

In those countries where there is a statutory basis to discount rates, there can be a formal

procedure for review such as in Spain, where a monitoring committee has been formally

established with a mandate to undertake a periodical review, and which can theoretically

give rise to the Directorate-General of Insurance and Pension Funds revising the technical

actuarial basis and discount rate.

27. Revisions to the discount rate should be distinguished from amendments to the methodology

for setting the discount rate. For instance, in Ontario the method for setting the rate is

established by law and therefore whilst the Attorney General revises the rate annually,

revisions to the methodology will necessarily require legislative action.

Concrete Application of Discount Rates

28. We have examined in broad terms the identity of the decision-maker and the process for

setting the discount rate across the different jurisdictions, and will now turn to examine the

different levels of discount rate found in the various jurisdictions. As with the previous

aspects, there is also considerable divergence in how the rate is applied in practice.

29. The variances discussed throughout this briefing paper have a real impact on the actual

discount rates applied. Indeed, it is striking from the different national reports that there is

a broad range of rates, ranging from 6% in the Australian State of Victoria (for motor vehicle

and workplace accident victims)

to 3.5% in Spain,

to -0.5% for claims not exceeding 5

years in Hong Kong,

and to -0.75% in the case of the United Kingdom. These variances

have considerable practical impact on the size of damages awards, and relate to a different

series of applicable factors.

Though note the limitations on how far the statistical evidence will be used to take account of individual

circumstances : Report by Johan de Waal, dated 19 April 2017, paragraph 16.

Southern Insurance Association Ltd v Bailey NO 1984 (1) SA 98 (A) at 113F – 114A. See further Report on South

Africa by Johan de Waal, dated 19 April 2017.

2015 (6) SA 186 (SCA). See Report by Johan de Waal, dated 19 April 2017, paragraph 10.

Report by Dr María Paz García Rubio and Dr Marta Otero Crespo dated 15 April 2017, paragraph 10.

Report by Shane C. D’Souza and Ralph Fenik dated 10 April 2017, paragraph 10.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 8. And it is 5 per cent for other accident victims.

Report by Dr María Paz García Rubio and Dr Marta Otero Crespo dated 15 April 2017, paragraph 9.

Report by Dr Felix W.H Chan dated 06 April 2017, paragraph 14.

Unitary or diversity

30. In some jurisdictions, a single, unitary rate has been adopted. This is often the case where

the rate has been set by the legislator or by the executive. Simplicity has thus dictated that

a single rate is applicable, and this is the case under the current approach in the UK. It has

also been the case where the courts have been given the task of setting the discount rate.

At common law, the courts in Australia have set a single rate in order to further legal

certainty, applying in the case of Todorovic v Waller,

a unique discount rate of 3% for

future economic losses in personal injury cases, though in practice this only applies to one

Australian jurisdiction (the Australian Capital Territory).

31. In other countries, a single rate has been rejected in favour of a more nuanced approach

by means of a bifurcated or tripartite approach, thereby allowing for a number of different

rates to apply. Thus, as we have seen above, a bifurcated approach has been adopted in

the Canadian state of Ontario, and a tripartite approach was adopted in the leading Hong

Kong decision of Chan Pak Ting (No.2),

where the judge set 3 different discount rates,

reflecting the investment choices of each class of investors as driven by their specific needs

and goals.

32. In other jurisdictions, a degree of discretion is allowed in respect of the relevant discount

rate level. This is also the case in the Canadian Province of Ontario, where despite that fact

that the bifurcated discount rate is set by regulation, Shane C. D’Souza and Ralph Fenik

note that “an Ontario Court has the discretion to depart from the prescribed discount rate

if justified by the evidence and circumstances.”

In France, despite sectoral legislation and

a plethora of guidelines,

the Supreme Courts have always underlined that the trial judge

exercises broad discretion in setting the multiplier applicable to reach a lump sum.

33. Finally, there are jurisdictions in which a full statistical approach to the assessment of future

harm has been adopted, which is heavily reliant upon statistical and actuarial evidence

provided by experts. As we have seen above, this is notably reflected in the Privy Council’s

approach in the decision of Simon v Helmot.

Applicable factors

34. Where a single rate has not been applied, then a number of different factors can be

identified as having influenced the approach of the courts.

35. First, whilst in many jurisdictions the discount rate applied is the same across the broad

range of personal injury claims, in some other jurisdictions a more fragmented approach

(1981) 150 CLR 402.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 7.

[2013] HKC 365. See: Report of Dr. Felix Chan dated 6 April 2017.

Report by Shane C. D’Souza and Ralph Fenik dated 10 April 2017, paragraph 8. Though they recognise that this in

practice rarely occurs.

See generally M.Le Roy, J-D, Le Roy, F.Bibal, L’Evaluation du Préjudice Corporel (20th Edn, Paris, LexisNexis, 2015)

paras 198 – 200.

Cass 2, 18 Oct 1995, Bulletin 1995 II N° 248 p. 145; CE 4 Dec 2009, N°309521.

[2012] UKPC 5.

has arisen, with the rate depending on the circumstances of the injury. Australia is a good

example of this phenomenon, with a plethora of different rates applying in different States

and for different types of accident. An excerpt from Professor Lunney’s survey of the different

rates reveals that “[i]n Victoria, the rate for motor vehicle and workplace accident victims is

six (6) per cent but is five (5) per cent for other accident victims. In Queensland, the rate is

five (5) percent for all accident victims. In Tasmania, it is five (5) per cent for non-workplace

accident victims and three (3) per cent for workplace accident victims.”

36. Second, in some jurisdictions, the rate varies according to the type of loss sustained, in

particularly whether this relates to earning or non-earning related losses. In some countries,

the discount rate thus applies exclusively to earnings related losses. In others, as is the case

in Ireland, a different rate applies to earnings related losses (1.5%) as opposed to non-

earnings related losses (1%).

This also applies in several Canadian provinces where the

rate for future wage loss is lower than the rate for future care. In Quebec for instance, the

rate for wage loss is 1% whilst that for future care (goods) is 3.25%. Some jurisdictions do

not create such a distinction. For instance, in Hong Kong, Dr Chang notes that in Chan Pak

Ting (No. 2) the Court held that “the economic data of Hong Kong show that the difference

between price inflation and wage inflation (from 2001 to 2012) was only 0.43%, which was

not substantial enough to justify separate discount rates for earnings-related and non-

earnings related losses.”

37. Third, the relevant time period may constitute a relevant factor in terms of the level of the

adjustment applied to a lump sum. In the Canadian Province of Ontario, where the rule is

set by Regulation, the discount rate differs depending upon the relevant time period

concerned, with a bifurcated rate varying between the first fifteen years and any years

thereafter. In the Canadian Province of Ontario, Shane C. D’Souza and Ralph Fenik explain

that “[t]he rate applicable to damages in the 15 years following the start of the trial is the

greater of either (a) zero, or (b) the average return rate on a prescribed day for specific

long-term Government of Canada real return bonds, less ½ per cent and rounded to the

nearest 1/10 per cent…The rate applicable to losses after 15 years from the start of the

trial is 2.5% per year for each year in that period.”

In Hong Kong, Dr Chan explains that

the judge in Chan Pak Ting (No.2) accepted that different time periods of investment were

relevant, relating to needs exceeding 10 years, those exceeding 5 years but not 10 years,

and those not exceeding 5 years, and that these “set 3 different discount rates, reflecting

the investment choices of each class of investors as driven by their specific needs and

goals.”

Report of Professor Mark Lunney dated 8 April 2017, paragraph 8. (footnotes removed)

Report of Orla Keane, David Strahan and Grace-Ann Meghen of Arthur Cox, dated 4 April 2017, paragraph 17.

Report of Dr. Felix Chan dated 6 April 2017, paragraph 18.

Report by Shane C. D’Souza and Ralph Fenik dated 10 April 2017, paragraphs 7 - 8. See also paragraph 11 on the

likely trajectory moving forward.

Report of Dr. Felix Chan dated 6 April 2017, paragraph 12.

Conclusion

38. The comparative analysis in this Briefing Note reveals a number of trends and differences

across the jurisdictions both in terms of the level of the discount rate, the process and basis

for setting that rate and the methodology and frequency of its review. It is particularly

striking that the level of the discount rate across the representative countries is so different.

It is thus tempting to ask why this is so? Whilst it is difficult to draw definitive comparative

law conclusions on the basis this short Briefing Note, undertaken on the basis of a limited

number of jurisdictions in a limited time-scale, it is perhaps possible to make some tentative

comments.

39. First, it is possible to identify particular contextual factors in certain jurisdictions which have

played a role in shaping the overall approach to the discount rate in personal injury cases.

This can relate to particular economic factors in the jurisdiction concerned. Such an example

can be found in Hong Kong, where as noted above,

the economic data has shown that

price differential between price and wage inflation has been relatively low, which has meant

that there was no need to make a difference between specific types of loss for the purpose

of the discount rate. As the national reporter, Dr Chan noted, the economic data showed

that the average differential between price and wage inflation was relatively low, and thus

the court held that this was “not substantial enough to justify separate discount rates for

earnings-related and non-earnings related losses.”

A different approach was adopted in

Ireland, however, in which the Irish Court of Appeal held in the decision of Gill Russell (a

minor) v Health Service Executive

whereas the discount rate should be 1.5% for future loss,

but that in respect of the “claim for future care”, “the rate was reduced to 1% to take account

of the extent to which wage inflation was likely to exceed the Consumer Price Index over the

course of [the claimant’s] lifetime.”

40. Another contextual factor is related to the availability of various financial instruments in

particular jurisdictions. In certain jurisdictions, there would appear to be no equivalent of

the Index Linked Government Securities (‘ILGS’) which were introduced into the UK in the

1980s, and allowed for a stable rate on return whilst protecting a claimant against inflation.

This is certainly the case in Hong Kong, as noted by the National Reporter,

and thus

without the presence of government index-linked bonds, the courts are thus deprived of a

ready financial instrument allowing for a stable rate of return whilst protecting a claimant

against inflation.

41. Second, it is important to take into account the issue of policy factors underpinning certain

decisions as to discount rates. At first glance, that might seem a surprising position, given

that the ostensible reason for applying a discount to lump sums is the desire simply to take

See paragraph 29 above.

See paragraph 36 above.

Report of Dr. Felix Chan dated 6 April 2017, paragraph 18.

Gill Russell (a minor) suing by his mother and next friend Karen Russell v Health Service Executive [2015] IECA 236.

Report of Orla Keane, David Strahan and Grace-Ann Meghen of Arthur Cox, dated 4 April 2017, paragraph 17.

Report of Dr. Felix Chan dated 6 April 2017, paragraph 17. A similar reason of the lack of inflation-proof

investment products was cited in Singapore as a reason for the reluctance to move away from the conventional

approach to discount rates : see Lai Wai Keong Eugene v Loo Wei Yen [2013] SGHC 123, at [75.]

account of investment opportunities associated with accelerated receipt, so as to avoid over

compensation.

That however does not lead to a merely mathematical process. In fact,

what transpires is that the setting and use of such a discount rate is not solely a mechanical

process or mathematical equation, but is also a process which is also swayed by policy

concerns. Thus, in certain jurisdictions, the recognition of the overall importance of legal

certainty is recognised, and that may well have played a role against the adoption of a full

actuarial or statistical approach which can lead to complex evidential issues and associated

increase in litigation costs. In Australia, where the discount rate at common law is 3%,

Professor Lunney notes that “a primary driver” of the majority in the leading case was “to

promote uniformity in the discount rate given the discrepancy that had arisen between the

rate chosen in different state courts.”

In England and Wales, the adoption of a single rate

by the Lord Chancellor was said to be underpinned by the desire “to promote certainty and

because it would be easy to apply in practice.”

42. Other factors are also relevant, and as a counterpoint to any suggestion that the approach

to discount rates is merely a neutral application of figures, the comments of Professor Mark

Lunney in the report on Australia are revealing. Professor Lunney observes that that the

setting of the level of discount rate in Australia -as no doubt must apply in other systems-

represents a balance between competing considerations, resulting in a “compromise

between a discount that accurately reflects the real rate of return a tort plaintiff might obtain

if investing in reasonably safe investments and one that takes into account the fact that too

low a rate of return might have adverse consequences on the provision and cost of liability

insurance.”

The complex interface of those competing considerations might therefore be

one explanation for the noticeable reluctance of certain legislatures and executives in shying

away from setting a rate due to the controversial policy ramifications.

Annexes

 Annex 1: Questionnaire

 Annex 2: Australia Report

 Annex 3: Canada Report

 Annex 4: Hong Kong Report

 Annex 5: Ireland Report

 Annex 6: South Africa Report

 Annex 7: Spain Report

See Report of Professor Mark Lunney dated 8 April 2017, paragraph 6; Report of Orla Keane, David Strahan and

Grace-Ann Meghen of Arthur Cox, dated 4 April 2017, paragraph 26; and Report by Dr María Paz García Rubio and

Dr Marta Otero Crespo dated 15 April 2017, paragraph 6.

Report of Professor Mark Lunney dated 8 April 2017, paragraph 10.

See the comments in Simon v Helmot [2012] UKPC 5, at [20].

Report of Professor Mark Lunney dated 8 April 2017, paragraph 15.

Professor Mark Lunney has noted that, despite the fact that the discount rate to be applied is primarily to be set by

secondary legislation, the default rate found in primary legislation has remained applicable in all those Australian

States adopting a statutory approach: “No jurisdiction has altered the rate by secondary legislation so the default figure

operates in all jurisdictions.” (Report of Professor Mark Lunney dated 8 April 2017, paragraph 8.)

Annex 1

Questionnaire

____________________________________________

Comparative law research concerning

the discount rate applying to quantum in personal injury cases:

Questionnaire for National Rapporteurs

____________________________________________

Introduction

1. The British Institute of International and Comparative Law has been commissioned by the

UK Ministry of Justice to undertake a comparative study of the discount rate applying to

quantum in personal injury cases. The study will examine specifically, in respect of a selected

group of jurisdictions, the issue of how the overall award of damages to compensate

recurring heads of future loss is adjusted to take account of accelerated receipt of damages

and the associated investment opportunities. Particular focus will be upon the methodology

and procedure, as well as the institution responsible for deciding upon the exact level of

this adjustment.

Application of the discount rate to Lump Sum Payments

2. An amount for future financial losses is often included in compensation for tort / delict, such

as future care and/or future lost earnings. Across different jurisdictions, the rules for the

calculation of quantum in respect of such losses can vary, but in English law, as in many

other common law systems, such compensation is calculated by applying a “multiplier” to

an annual amount of financial loss (the "multiplicand") so as to take account of that future

loss (though in certain civil and common law jurisdictions a very different approach is

adopted, such as by means of a tariff system).

The Situation in the United Kingdom

3. In the United Kingdom, when damages are awarded for future loss, the award is adjusted

to take account of the effect of the claimant being able to invest the money before the loss

or expense for which it is awarded has actually occurred. For example, in the case of a

birth injury where brain damage has resulted, damages for the future loss – for example,

future care costs – may be awarded for a very long future period, effectively a lifetime, and

the accelerated receipt of sums to cover loss for that period means that the money can be

invested and accrue value for a number of years before the claimant would actually require

the money to meet those costs. The value of the lump sum is therefore adjusted by a factor

that represents the appropriate rate of return on investing the award. This is what is known

as the “discount rate”.

Recent developments in the UK and context for this research

4. On 27

February 2017, the Lord Chancellor announced a change in the personal injury

discount rate as it applies to England and Wales. The new rate is minus 0.75%. The Lord

Chancellor is empowered to set the rate under section 1 of the Damages Act 1996, and

the courts must take into account the rate set when settling the size of lump sum damages

awards for future pecuniary loss caused by a personal injury. When the Lord Chancellor

made her announcement of the new rate she said she would consult on whether the method

for setting the discount rate should be changed. The current survey is undertaken within the

context of that consultation.

Issues to be covered by National Rapporteurs

5. We envisage that the following issues should be addressed in the report of National

Rapporteurs :-

a) On what basis are personal injury damages awards assessed in your jurisdiction?

6. National Rapporteurs should give a very brief overview of the approach to the award of

damages for personal injuries in their jurisdiction. It should be explained (briefly and only

in general terms) whether the award is meant to compensate fully for the losses suffered as

a result of the injury and how the assessment of future loss in personal injuries cases is

undertaken in the jurisdiction. Is this undertaken by means of the award of a lump sum? If

so, is the multiplicand/multiplier approach used in setting the lump sum? If so, briefly

explain how the multiplicand and multiplier are calculated. If not, please indicate briefly the

main differences.

7. It would also be helpful if National Rapporteurs could indicate whether instead of a lump

sum for future loss it is possible for periodical payments to be awarded for personal injury

damages in their jurisdiction so that the defendant or, for example, its insurer pays the

expected losses at the times they are planned to occur in a series of inflation protected

payments. If so, it would be useful to have a brief description of the circumstances in which

periodical payments can be awarded. How, if at all, is the erosion of monetary value taken

into account (e.g. are periodical payments index-linked)? It would be helpful also to have

an indication from the rapporteurs on the extent to which the option of periodic payments

is in fact taken up.

b) Application of a discount rate, or rates, to lump sum awards

8. National Rapporteurs are asked to confirm whether in their jurisdiction lump sum awards

are adjusted to take account of accelerated receipt i.e. an adjustment is made to an award

for the effect of the claimant being able to invest the money before the loss or expense for

which it is awarded has actually occurred.

9. National Rapporteurs should explain how the award is so adjusted. How is the adjustment

rate (“discount rate”) determined? Does it relate to a specific rate of return on capital? Is

reference made to a particular financial instrument / or alternatively to central bank figures?

If not, what are the relevant factors / parameters for defining how the rate is set? Is

allowance also made for the effect of inflation (e.g. is a “real’ rate of return set)?

10. In undertaking the adjustment, is any distinction made between different types of harm,

such as between earnings and non-earnings related losses, or when the loss is expected to

occur? If so, National Rapporteurs are asked to provide a very succinct explanation of the

relevant types of loss, and how the method of adjustment/discount rate is calculated for

each type of loss.

11. It would be helpful if a word could be included about whether contingency deductions are

made for other factors such as risk of premature death or illness or labour market hazards

or the impact of taxes or otherwise? Please also indicate if different rules apply to losses

sustained over different time periods in the future.

c) Details concerning the process for setting the relevant discount rate

12. Another concern for us is to know more about the actual process of setting the discount

rate. Who is responsible for determining the relevant level of the discount rate referred to

above? Is the rate in question fixed by the executive, an independent body, or instead

determined by the courts? What is the legal basis for this process?

13. If there is a court-based procedure by which the judge sets the relevant discount rate, are

guidelines (or actuarial tables) provided to guide the judge in this process? If so, by whom?

If a broad discretion is accorded to judges in undertaking this exercise, is it possible to give

a steer as to how the judge exercises this discretion (with, if possible, reference to

judgments)? Which factors are relevant? Are the parties in litigation expected to provide

evidence on this issue in order to assist the judge?

14. If the discount rate is instead set by the Executive / or an independent body, what is the

relevant procedure for setting the discount rate? How frequently are reviews undertaken?

What factors are taken into account by the Executive / or an independent body in

undertaking the review?

15. The aforementioned issues in this section are closely related to those in the previous section,

and National Rapporteurs might want to answer these issues in a combined response.

National Report & Timings

16. We would like to ask you to prepare a short report responding to the series of issues

above. At this stage, we require simply a brief description of the relevant legal rules as

they currently stand and it is not necessary for any critical appraisal to be given of those

rules.

17. Given the MoJ consultation deadlines, we would need your report by 7 April 2017.

18. BIICL will then produce a comparative law report based on the country reports provided by

the National Rapporteurs.

Duncan Fairgrieve

Jean-Pierre Gauci

British Institute of International and Comparative Law, London

20 March 2017

Annex 2

AUSTRALIA

Professor Mark Lunney

A) On what basis are personal injury damages awards assessed in your jurisdiction?

1. This report is concerned with damages awards in tort claims in Australian jurisdictions. It

does not consider awards of compensation under no-fault workers compensation or motor

vehicle accident schemes. Such schemes usually award future economic loss by way of

periodic payments so discount rates are largely irrelevant in such schemes.

2. Personal injury damages awards in Australia are the province of state jurisdictions. Although

damages can be awarded in the exercise of a federal jurisdiction (for example, for a cause

of action created by a federal statute), these damages are awarded either by adopting the

damages regime of the state in which the court exercising federal jurisdictions sits or by

federal legislative damages regimes that mirror in essential characteristics the law of the

states.

3. The primary means by which compensation is paid for personal injury suffered as a result

of a tort is a once-and-for-all lump sum award.

Although there is now significant

differences between Australian jurisdictions in the calculation of the lump sum (through caps

and thresholds), the lump sum itself is common throughout Australia.

4. There are very few exceptions to lump sum awards in personal injury actions. Statutory

provisions in South Australia and Western Australia provide for periodic payments in limited

circumstances

but a leading text comments that there are no reported cases in which the

Professor Mark Lunney is a Professor in the School of Law at the University of New England in Australia. Previously he

held posts at the School of Law, King’s College London and the College of Law at the Australian National University.

He has written extensively on the law of torts in both England and Australia (e.g Tort Law: Text and Materials (OUP, 5

edn, 2013) (with Ken Oliphant) and The Law of Torts in Australia (OUP, 5

edn, 2012) (with Kit Barker, Peter Cane

and Francis Trindade).

Todorovic v Waller (1981) 150 CLR 402.

In South Australia, periodic payments can be awarded as a form of interim damages but the provision allows for

such payments to be made ‘until further order’ although the provision seems to assume a final order being made:

Supreme Court Act 1935 (SA) s 30B. In Western Australia the power lies only in motor vehicle accidents: Motor Vehicle

(Third Party Insurance) Act 1943 (WA) s 16. In both jurisdictions the periodic payment can be reviewed on an

application by the parties (or in Western Australia on the court’s own motion) but no guidance is given as to how the

review should be conducted. In New South Wales, a general power is given to the court to make ‘one or more

payments’ on an interim basis which would include some form of periodic payment: Civil Procedure Act 2005 (NSW) s

82. Again, it is clear the provision contemplates a lump sum award being made as the interim payments are not to

exceed ‘a reasonable proportion of the damages that, in the court’s opinion, are likely to be recovered by the plaintiff’

(s 82(5)).

power to make such an award had been exercised.

Structured settlements – which usually

provide a mix of lump sum and periodic payments – can be ordered by a court in all but

one Australian jurisdiction

but only with the consent of the parties. In some jurisdictions

provisional

or interim

damages are available but these do not change the fundamental

nature of the underlying lump sum award.

5. Broadly, damages for future loss are assessed by using the multiplicand/multiplier method.

As in English law, the multiplicand is based on the net annual loss that the plaintiff will suffer

post-trial as a result of the tort. The multiplier is multiplied by a figure that is based on the

length of time for which the loss will be suffered but the actual figure used reflects a discount

that is applied to awards of damages relating to future economic losses. The amount so

calculated is then adjusted (usually downwards) by a percentage for contingencies, the

primary one being that the plaintiff may have suffered the losses in future even in the tort

had not occurred.

b) Application of a discount rate, or rates, to lump sum awards

6. Australian courts take account of the investment possibilities given to a plaintiff by receiving

a lump sum award which covers losses that will be incurred post-trial. At common law, this

was affirmed by the High Court of Australia in 1981 where a majority held that some form

of discount on damages awarded to compensate future losses was required to prevent the

plaintiff from being overcompensated.

7. Although in practice the discount is reflected in the multiplier that is chosen, the multipliers

themselves are based on the particular discount rate that is chosen by which the award is

to be reduced. At common law, the amount of the discount is three (3) percent.

However,

the common law discount only applies in one Australian jurisdiction (the Australian Capital

Territory). In all other jurisdictions the discount rate is set by statute. Moreover, in some

jurisdictions the discount rate is set separately for workplace and motor vehicle accident

plaintiffs than for other accident victims. In all Australian jurisdictions, the discount applies

generally to any future economic losses. In practice, the discount primarily affects claims

R Balkin & J Davis, Law of Torts (Lexis Nexis, 5

edn, 2013) 378.

The Australian Capital Territory.

These awards are available only in relation to dust or asbestos related diseases in South Australia, New South Wales,

Victoria and Tasmania: Dust Diseases Act 2005 (SA) s 9; Dust Diseases Tribunal Act 1989 (NSW) s 11A; Asbestos Diseases

Compensation Act 2008 (Vic) s 4; Civil Liability Act 2002 (Tas) s 8B. Provisional damages are awarded when there is a risk

that the plaintiff may suffer a dust or asbestos-related condition as a result of the tort which has not manifested itself by the

date of trial. Damages are awarded on the basis that the condition will not occur with leave given to the plaintiff to return to

court at a later date to seek additional damages if the condition does materialise. Awards are only available for contracting a

new condition, not an increase in severity of an existing condition. There are considerable limitations attaching to these

awards (e.g. that only one further application for additional damages may be made in relation to each condition specified in

the award: see Asbestos Diseases Compensation Act 2008 (Vic) s 5; Dust Diseases Tribunal Rules (NSW) Reg 5).

Interim awards of damages are made where the defendant’s liability is established but it is ordered that quantum be

assessed at a later date. In the interim period between the liability judgment and the quantum judgment, interim damages can

be awarded in a number of Australian jurisdictions (see n 2, above).

Todorovic v Waller (1981) 150 CLR 402.

Ibid.

for future loss of earning capacity but it can apply to any economic loss to be incurred post

trial (such as claims for the cost of future caring services).

8. The current discount rates are as follows. In New South Wales, the discount rate is five (5)

per cent for all accident victims.

In Victoria, the rate for motor vehicle and workplace

accident victims is six (6) per cent but is five (5) per cent for other accident victims.

Queensland, the rate is five (5) percent for all accident victims.

In Tasmania it is five (5)

per cent for non-workplace accident victims and three (3) per cent for workplace accident

victims.

In Western Australia the rate is six (6) per cent for all accident victims.

In South

Australia the rate is five (5) percent for all accident victims.

In the Northern Territory the

rate is five (5) per cent for accident victims who have a claim in tort.

Where federal

legislation provides a damages regime for personal injury, the discount is also five (5) per

cent.

Almost all of these provisions are in the form that the rate to be applied is a rate

prescribed by secondary legislation but that in the absence of such legislation the rate is set

at the amount described above. No jurisdiction has altered the rate by secondary legislation

so the default figure operates in all jurisdictions. Once the rate has been set by primary or

secondary legislation, courts have no power to set an alternative rate.

9. Discount rates are set on the basis that they reflect the ‘real rate of return’ that a plaintiff

could expect if the component of the damages award relating to future economic losses

was invested. In Australia, this means that the discount takes into account the impact of any

personal taxation on income derived from the lump sum and also the effects of inflation.

10. It is extremely difficult to give a simple answer as to how the discount rate is set. In Todorovic

v Waller, a primary driver of the decision of the majority of the High Court of Australia was

to promote uniformity in the discount rate given the discrepancy that had arisen between

the rate chosen in different state courts. Individual members of the court were influenced by

the then current assumptions about rates of return from various investments which makes

the judgements of limited use in determining an appropriate rate today but all recognised

Civil Liability Act 2002 (NSW) s 14; Motor Accidents Compensation Act 1999 (NSW) s 127; Workers Compensation Act 1987

(NSW) s 151J.

Transport Accident Act 1986 (Vic) s 93(13); Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) s 345; Wrongs

Act 1958 (Vic) s 28I.

Civil Liability Act 2003 (Qld) s 57 (which refers to Civil Proceedings Act 2011 (Qld) s 61); Workers Compensation and

Rehabilitation Act 2003 (Qld) s 306L. Motor accidents are covered under the general civil liability legislation.

Civil Liability Act 2002 (Tas) s 28A. Motor accidents fall under this provision. Workplace accidents are governed by the

common law rate: Mercer v Allianz Australia Insurance Ltd (No. 2) [2013] TASSC 35, [68] per Blow CJ.

Law Reform (Miscellaneous Provisions) Act 1941 (WA) s 5. Motor and workplace accidents fall under this provision.

Civil Liability Act 1936 (SA) ss 3, 55; Return to Work Act 2014 (SA) s 94.

Personal Injuries (Liabilities and Damages) Act 2002 (NT) s 22. Workplace and motor vehicle accidents are the subject of no

fault schemes.

Competition and Consumer Act 2010 (Cth) s 87Y.

Todorovic v Waller (1981) 150 CLR 402.

that any figure chosen was essentially a matter of judgement. Perhaps the best general

guidance was given by Gibbs CJ and Wilson:

It would seem to accord with the general approach of the common law that

the rate should be that produced by reasonably safe investments - such

investments as a prudent man in the position of the plaintiff, very much

concerned to preserve his capital, but not over cautious, would make - such

investments as loans issued by public authorities such as electricity

commissions and water boards, or debentures issued by large well-

established industrial companies.

11. Statutory provisions setting discount rates provide no detail on when or how any

regulation setting the rate should be determined. Apart Western Australia, which

refers to the Governor making an order-in-council determining the rate ‘on the

recommendation of the Attorney General’

, the process is left entirely unregulated.

12. The best evidence obtainable for reasons behind the rates set lies in the evidence to

and recommendations of ad-hoc reports of bodies entrusted with reviewing aspects

of civil law. In 2002, the Ipp Panel was commissioned to report on ways in which

liability under the law of negligence could be reduced in response to what was widely

perceived to be an insurance crisis. In that context, the Panel recommended that the

common law rate of 3% was the preferred rate. Despite evidence that statutory rates

were set at 5% or higher, the Panel thought a 3% discount appropriate in light of

evidence from the Australian Government Actuary that a realistic after-tax rate might

be 2-4%.

Subsequent tort reform legislation did not adopt this recommendation.

13. It is difficult to generalise but it may fairly be said that there have been two phases in

statutory reform of the discount rate. The first reflected the view that the actual returns

on investments were sufficiently high to justify an increase in the discount rate beyond

3%.

The second and most recent phase recognises that the choice of a discount rate

is a balance between fairness to the individual plaintiff and the impact of greater

damages awards in individual cases on insurance premiums if a lower discount rate

is chosen.

Ibid, 415.

Law Reform (Miscellaneous Provisions) Act 1941 (WA) s 5(2).

D Ipp et al, Reform of the Law of Negligence: Final Report (Commonwealth of Australia, 2002) para 13.106.

See the comments on the Acting Tasmanian Attorney General on introducing legislation in 1986 to increase the

discount rate to 7 percent, referring to a plaintiff investing ‘at something like 15%’: Tasmanian Hansard, House of

Assembly, 26 November 1986, 4511. For similar views in Western Australia see the comments of the Premier of

Western Australia in 1986 introducing legislation increasing the discount rate to 6% suggesting that 6% was an

appropriate rate in the economic circumstances (Western Australian Hansard, Legislative Assembly, 17 June 1986,

299).

14. A good example of this second phase is the report of the Victorian Competition and

Efficiency Commission, Adjusting the Balance: Inquiry into Aspects of the Wrongs Act

1958, published in February 2014.

Using data on yields on 10 year Commonwealth

bonds, the Commission thought that the rate of 5% was too high and could be

reduced to 4%.

However, it did not make this one of its recommendations to

government because, while the figure chosen should represent a real rate of return,

it was also necessary to consider the effect of changes in the discount rate on the cost

of insurance premiums. Given that a discount rate of 5% was widely adopted in

Australian jurisdictions and that evidence presented to it from insurers that premiums

would rise if a 4% discount rate was chosen, the potential for an unduly adverse

impact on insurance premiums — up to eight per cent for medical indemnity

premiums – and the greater inconsistency between discount rates across Victorian

personal injury Acts if 4% was introduced under the Wrongs Act, led the Commission

to make no recommendation in this area.

15. As evidenced by the Victorian report, the discount rate in Australia seems to be set by

reaching a compromise between a discount that accurately reflects the real rate of

return a tort plaintiff might obtain if investing in reasonably safe investments and one

that takes into account the fact that too low a rate of return might have adverse

consequences on the provision and cost of liability insurance.

Whether the first

phase described above was ever entirely based on market conditions may be

doubted, but in the second phase the increase in the discount rate for non-workplace

and motor vehicle accidents to the level applying in those categories through tort

reform legislation in the early 2000s was a direct response to concerns from the

insurance industry. These concerns as to the availability and price of insurance

continues to play a role in determining as to the appropriate discount rate.

16 As is apparent from the above, while the factors that influence the setting of the rate

are known, the mechanism for determination is much more ad-hoc. When

opportunities for reviewing the discount rate arise, the battle lines drawn are

predictable: the insurance industry suggests decreases in the rate will raise premiums

while plaintiff advocates note the unfairness of setting a rate which does not reflect

market conditions.

As the question is decided in each jurisdiction in Australia,

Adjusting the Balance: Inquiry into Aspects of the Wrongs Act 1958: Final Report (State of Victoria, 2014).

Ibid, Ch 5.3.

Ibid, Ch 5.4.

See the comments of the New South Wales Government, Response to the Legislative Council General Purpose

Standing Committee No. 1 Inquiry Report into Personal Injury Compensation Legislation

(https://www.parliament.nsw.gov.au/committees/DBAssets/InquiryReport/GovernmentResponse/5450/Govt%20Respon

se%208%20June%202006.pdf), June 2006, 6: ‘As the Government sees it, the task is to strike a balance between the

rights of the injured person to compensation, and the ability of the rest of the community to pay for that compensation.’

Adjusting the Balance: Inquiry into Aspects of the Wrongs Act 1958: Final Report (State of Victoria, 2014), Ch. 5.4.

See also Legislative Council of New South Wales, General Purpose Standing Committee No. 1, Personal Injury

Compensation Legislation, 28 February 2006:

https://www.parliament.nsw.gov.au/committees/DBAssets/InquiryReport/ReportAcrobat/5450/Final%20Personal%20Inj

insurers are also able to argue that reducing the rate in one jurisdiction would mean

it would be ‘out of line’ with rates in other jurisdictions.

Given that primary or

secondary legislation is required to change existing rates so that the decision is

essentially political, this creates something of a stasis in the absence of compelling

evidence to change the status quo.

This may well explain the dearth of legislative

change to rates once initially established. Moreover, the availability in Australia of a

variety of no-fault benefits payable to accident victims in workplace and motor vehicle

accidents – where periodic payments are the norm – mean that the discount rate may

be less significant in practice, albeit that it highlights the disparity between the

treatment of accident victims depending where the accident took place.

Date: 8

April 2017

ury%20Report%208%20Dec%202005.pdf, Ch. 16, finding that the 5% discount rate was too high and suggesting a

rate of 3% be adopted.

See the response of the New South Wales Government to the recommendation made in the report by General

Purpose Standing Committee No. 1, above n 19, that in no other jurisdiction was the prescribed rate less than 5%.

Cf. Discount Rate Reduction (Miscellaneous Acts Amendment) Bill 2017 (NSW), a private members bill to reduce the

discount rate in New South Wales for all accidents to 3%. Despite the coincidence, the member introducing the bill

made no reference to contemporary debates on the issue in the United Kingdom.

Annex 3

CANADA

Shane C. D’Souza and Ralph Fenik

(A) On what basis are personal injury damages awards assessed in your jurisdiction?

General Damages Principles

1. A plaintiff has the onus of proving her damages with cogent fact and expert evidence if

liability is established. The plaintiff may be entitled to pecuniary damages (such as past

care, future care, past and future loss of income, loss of support, out of pocket expenses),

non-pecuniary damages (general damages, statutory damages for family members), and

rarely, punitive damages. With respect to future care costs,

a plaintiff must prove that the

proposed expenditure is medically justified and reasonable given the plaintiff’s specific

limitations, and that the quantum sought is fair to all parties.

Personal Injury Damage Awards

2. Currently, awards of damages are, subject to any liability apportionment, intended to

provide full compensation for losses sustained. In general terms, compensation is

predicated on the principle of restitutio in integrum.

3. The assessment of future losses is determined by a multiplier/multiplicand methodology.

Specifically, a discount factor is applied to the annual future needs to calculate the present

value (i.e. lump sum) required to satisfy the future financial loss.

4. Based on expert evidence led by the parties at trial, or on consent, the Court makes

contingency adjustments for both mortality and morbidity in calculating damages.

Shane C. D’Souza is a Litigation Partner at McCarthy Tétrault LLP, a full service Canadian law firm. Ralph Fenik, FCIP

is the President of McKellar Structured Settlements, a market leading company in Canada that specializes in arranging

structured settlements.

The cost of medical care or treatment, rehabilitation services or other care, treatment, services, products or

accommodations that is incurred at a time after judgment.

Milina v. Bartsch, [1985] B.C.J. No. 2762, at paras. 198-200 (S.C.), aff’d. [1987] B.C.J. No. 1833 (C.A.); See also

Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229.

Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229 (SCC); Thornton v. School District No. 57 (Prince George)

et al., [1978] 2 S.C.R. 267 (SCC); and Arnold v. Teno, [1978] 2 S.C.R. 287 (SCC).

(b) Application of a Discount Rate to lump sum amounts

5. In Canada, the provinces of British Columbia, Saskatchewan, Manitoba, Ontario, Quebec,

New Brunswick, Nova Scotia, and Prince Edward Island, and the Northwest Territories and

the territory of Nunavut each use a discount rate that is set by statute or regulation; whereas

the provinces of Alberta and Newfoundland and Labrador and the Yukon Territory have no

statutory discount rate, and instead require that expert evidence, of economists and

actuaries, be lead to allow the Court to determine the discount rate applicable in a given

action. Appendix “A” herein briefly summarizes the discount rate applied in various

Canadian provinces and territories.

6. For instance, since 2000, Ontario has used a statutory discount rate, the present formula

for which is set out in Rule 53.09 of the Rules of Civil Procedure

(see Appendix “B”). The

Rule 53.09 discount rate is bifurcated (depending on the period to which the damages

relate) and set annually and by the Attorney General, following receipt of advice from the

Civil Rules Committee, a body which is composed of 29 members predominantly drawn

from the judiciary, but which also includes representatives of the Court services

administration as well as the private bar.

7. The rate applicable to damages in the 15 years following the start of the trial is the greater

of either (a) zero, or (b) the average return rate on a prescribed day for specific long-term

Government of Canada real return bonds, less ½ per cent and rounded to the nearest 1/10

per cent (see Rule 53.09(1)(a) in Appendix B). The choice of this 15-year “select” period

is reflective of the duration of these long-term Government of Canada real rate of return

bonds, for which there is a sufficiently liquid market that their yields are, generally, reliable.

Nevertheless, the negative ½ per cent adjustment in the formula acknowledges that these

bonds have more limited marketability (than do other Government of Canada bonds),

given that they are primarily the domain of institutional investors, which likely has the effect

of reducing their prices and increasing their yields somewhat.

8. The rate applicable to losses after 15 years from the start of the trial is 2.5% per year for

each year in that period (see Rule 53.09(1)(b) in Appendix B). Ontario’s 2.5% fixed rate is

an attempt to reflect the long-term real rate of return. (During the period from 1950 through

2000, the annualized real rate of return on conventional Canadian bonds was 2.5%.

This information is currently as of March 31, 2017.

The Civil Rules Committee has the mandate to make recommendations to the Attorney General for rules in relation

to civil practice and procedure. The committee members include judges, lawyers, representatives of court services and

members of the private bar. See

https://www.attorneygeneral.jus.gov.on.ca/english/courts/civil/civil_rules_committee.php

Dimson, Elroy, Paul Marsh, and Mike Staunton. Triumph of the Optimists: 101 Years of Global Investment Returns, p.

80. Princeton University Press, 2002.

Rule 53.09 ensures that the applicable discount rate is objectively determined, without the

need for expert evidence. However, an Ontario Court has the discretion to depart from the

prescribed discount rate if justified by the evidence and circumstances, albeit this is rarely

done because of the obvious difficulty associated with arguing against the collective wisdom

supporting the prescribed rate.

9. In Ontario, discount rates based on Rule 53.09 are published online by the Attorney

General.

(See Appendix “C” for statutory discount rates in Ontario since their inception in

2000.)

10. For amendments to the methodology of Rule 53.09(1)(a), or generally to Rule 53.09,

Section 66(2)(p) of the Courts of Justice Act

allows the Civil Rules Committee, subject to

the approval of the Attorney General, to make rules for the Ontario Court of Appeal and

the Ontario Superior Court of Justice in respect of the discount rate, and Section 66(4) of

the Courts of Justice Act

requires that the Civil Rules Committee review the discount rate

rule at least once every four years. The quadrennial review of Rule 53.09 is undertaken by

a subcommittee of the Civil Rules Committee, which Subcommittee receives submissions

from, among others, economists, actuaries, and the personal injury bar as part of forming

its recommendations with respect to any amendments to Rule 53.09. The last such review

of Rule 53.09 was conducted in the spring of 2013, and at that time the possibility for

negative discount rates during the 15-year “select” period did not form part of the

Subcommittee’s deliberations. Given changes in the economic environment over the course

of the ensuing 4 years as well as the now several decade long continuation of historically

low interest rates, it is likely that the Subcommittee will consider the possibility of negative

discount rates when it meets again in 2017, and, potentially, may recommend amending

the methodology of Rule 53.09(1)(a) to eliminate the 0% floor.

11. For the Subcommittee, however, to recommend the amendment of the 2.5% fixed real rate

of return presently prescribed by Rule 53.09(1)(b) for awards of future pecuniary losses

more than 15 years following the start of a trial, an extraordinarily persuasive body of

evidence would need to establish that the long-term real rate of return has permanently

diverged from its historical norm of 2.5%.

12. Several provinces use differing discount rates for calculating the present value of future care

versus future income loss, with the rate for future wage loss currently being somewhat lower

than the rate for future care (See Appendix “A”).

https://www.attorneygeneral.jus.gov.on.ca/english/courts/civil/pecuniary_damages.php

R.S.O. 1990, C.43.

13. At the discretion of the Court, and if a structured settlement is not used, the award of future

care damages may include a gross-up for future taxation on the investment of the lump

sum representing future pecuniary damages (See Rule 53.09(2) in Appendix “B”). Such a

gross-up is, of course, not required when a structured settlement providing tax-free periodic

payments is purchased. As with discount rates, in Ontario, the gross up rates based on Rule

53.09 are published online by the Attorney General.

Periodic Payments in Personal Injury and Medical Malpractice Cases

14. The provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Nova

Scotia, and Quebec each have statutory provisions allowing for Court-ordered periodic

payments.

15. In Ontario, the Court assesses damages as a lump sum but has the discretion to order

periodic payments. The regime for awarding period payments in personal injury cases is

different than that in medical malpractice cases.

16. In personal injury cases, the Court may order a defendant to pay all or part of the damages

award periodically in two circumstances. First, on consent of all parties. Second, on request

of the plaintiff that an amount be included in the award to offset any income tax liability

from investment income derived from the award, unless ordering periodic payments in lieu

of an award to offset income tax is not in the best interests of the plaintiff.

100

The plaintiff’s

best interests must be assessed by also considering the defendant’s ability to fund periodic

payments, whether the plaintiff has an alternative available to her that is better able to meet

her interests than periodic payments by the defendant, and whether a periodic payment

scheme is practicable in the circumstances.

101

The Court may revise its order if the affected

parties agree to subject the order to the Court’s future review.

102

17. In medical malpractice cases, when damages are higher than the prescribed amount,

currently $250,000, the Court shall, on a motion by any party, order that the damages for

the plaintiffs’ future care costs be satisfied by way of periodic payments.

103

Periodic

payments are made from an annuity contract

104

(a) issued by a life insurer, (b) designed to

https://www.attorneygeneral.jus.gov.on.ca/english/courts/civil/pecuniary_damages.php

An action for personal injuries alleged to have arisen from negligence or malpractice in respect of professional

services requested of, or rendered by, a health professional who is a member of a health profession as defined in the

Regulated Health Professions Act, 1991 or an employee of the health professional or for which a hospital as defined in

the Public Hospitals Act is held liable.

100

Sections 116(1)(b) and (2), Courts of Justice Act, R.S.O. 1990, C.43.

101

Section 116(3), Courts of Justice Act, R.S.O. 1990, C.43.

102

Section 116 (4), Courts of Justice Act, R.S.O. 1990, C.43.

103

Section 116.1(1), Courts of Justice Act, R.S.O. 1990, C.43.

104

Section 116.1(2), Courts of Justice Act, R.S.O. 1990, C.43.

generate a tax-free stream of payments, and (c) that includes protection from inflation to a

degree “reasonably available in the market for such annuities”.

18. The first two requirements are not controversial. Structured settlement products are sold by

several life insurance companies in Canada. The last requirement often leads to a dispute

between the plaintiff and defendant about the appropriate indexation rate necessary in the

circumstances. Plaintiffs typically seek structured settlements indexed to the Consumer Price

Index (“CPI”). Defendants typically seek structured settlements indexed at a fixed rate

between 1-3%. Before expanding on this debate, some background about structured

annuities in Canada is necessary.

Basics about Structured Annuities

19. There are three main components to a structured annuity: (a) the premium, (b) the duration

or term, and (c) the indexation rate. The premium is the actual purchase amount going into

the annuity, or the cost of the annuity. The duration is the length of time over which the

periodic payments are made. The duration of an annuity could either be for a “fixed” term

or a “lifetime”. A lifetime annuity will continue to make payments as long as an individual

is alive. A fixed-term annuity would pay for a specified defined period of time (e.g. 10

years). In most cases, a lifetime annuity includes a minimum guaranteed number of

payments, meaning that all of the guaranteed payments must be made regardless of

whether the beneficiary is alive. If the beneficiary dies before the termination of the

guarantee period, the remaining guaranteed payments will continue tax-free to the estate

of the beneficiary.

20. Indexation rate is a cost of living adjustment that may be built into the annuity to protect

against future inflation. There are three kinds of annuity indexation. Payments can be level

payments (no indexation), which means that the amount of the periodic payments will stay

the same over the course of the term. Alternatively, an annuity can be indexed either at a

fixed percentage (such as 1%, 2%, 3%, etc.) or a variable amount linked to CPI.

21. Ontario’s legislature has granted the Courts the flexibility to determine the appropriate

indexation rate for a structured settlement. The option of explicitly requiring settlements to

be indexed to the CPI was raised before the Standing Committee on Justice Policy in

September 2006. The transcript of this discussion confirms that the current provision is

intended not to “tie the hands of the courts”.

105

The Court relies on evidence (from fact or

expert witnesses) to assist it in determining the appropriate indexation rate in the

circumstances.

105

Ontario, Legislative Assembly, Debates, 12 September 2006 (Jim Simpson), online:

http://www.ontla.on.ca/committee-proceedings/transcripts/files_html/2006-09-12_JP023.htm.

Fixed Indexation vs. Variable Indexation

22. Returning to the indexation rate debate referenced earlier, in determining what annuity is

“reasonably available” in the market of annuities, the Court will consider the extent to which

they are offered and their purchase price.

106

All life insurance companies offer fixed-rate

annuities. Fixed rate annuities are the overwhelming product of choice for protecting an

individual from inflation.

23. Only a few life insurance companies in Canada offer “CPI-linked” annuities. The “CPI-

linked” annuities available in the market do not reflect decreases in the event of deflation.

They are based on the September to September Statistics Canada CPI “all Canada all items”

figure. This represents the aggregate increase of the total basket of goods (i.e. all of the

goods and services listed on the Statistics Canada website

107

) for all of Canada.

The CPI

figure does not necessarily reflect the change in price for any particular basket or category

of goods related to future care costs. For example, the January 2017 to February 2017 “all

items” CPI increased by 0.2% but the CPI for health and personal care decreased 0.2%. In

other words, the CPI for “health and personal care” (a large component of future care

damages) is lower than “all items” CPI.

24. As a practical matter, CPI-linked annuities are rarely purchased. According to the sales

data of McKellar Structured Settlements Inc. (“McKellar”), a market leading company that

specializes in arranging structured settlements, which brokered over 60% of the structured

settlements purchased in Canada from 2009-2014, during said period McKellar brokered

over 4,000 structured settlements of which only 2 were CPI-linked annuities. CPI-linked

annuities are rarely purchased because they are expensive relative to other products,

namely, annuities with fixed indexation rates.

106

Sandhu (Litigation Guardian of) v. Wellington Place Apartments, 2006 CarswellOnt 2387 (S.C.J.); aff’d. 2008

ONCA 215 at paras. 17-18.

107

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/cpis01a-eng.htm

APPENDIX A: SUMMARY OF DISCOUNT RATES IN CANADA

DISCOUNT RATES APPLICABLE FOR

TORT CASES - ACROSS THE

COUNTRY PROVINCE /TERRITORY

ITEM

SOURCE

DISCOUNT RATE

British Columbia

Future Care

Law and Equity Act, s. 56(2)(b)

2.0%

Future Wage Loss

Law and Equity Act, s. 56(2)(a)

1.5%

Alberta

Future Care & Wage Loss

No mandatory discount rate

Saskatchewan

Future Care & Wage Loss

Queen’s Bench Rules, Rule

284B(1)(b)

Manitoba

Future Care & Wage Loss

Court of Queen’s Bench Act s.

83(1) and 83(2)

Ontario

Future Care & Wage Loss

Rule 53.09 (Ontario Rules of Civil

Procedure)

0% for first 15 years,

2.5% thereafter for

trials as of January 1,

2017

Quebec

Future Wage Loss

Civil Code

Regulation under Article 1614

Future Care (goods)

3.25%

Future Care (services)

New Brunswick

Future Care & Wage Loss

Rules of Court, N.B. Reg. 82-73,

Rule 54.10(2)

2.5%

Nova Scotia

Future Care & Wage Loss

Civil Procedure Rules, Rule 70.06

Prev Rule 31.10(2)

2.5%

PEI

Future Care & Wage Loss

Rules of Civil Procedure, Rule

53.09(1)

2.5%

Newfoundland and Labrador

Future Care & Wage Loss

No mandatory

discount rate

Northwest Territories

Future Care & Wage Loss

Judicature Act, R.S.N.W.T. 1988,

c. J-1, s. 57(1)

2.5%

Nunavut

Future Care & Wage Loss

Judicature Act, S.N.W.T. 1998, c.

J-1, s. 56(1)

2.5%

Yukon

Future Care & Wage Loss

No mandatory discount rate

APPENDIX B: Rule 53.09, Rules of Civil Procedure (Ontario)

CALCULATION OF AWARDS FOR FUTURE PECUNIARY DAMAGES

Discount Rate

53.09 (1) The discount rate to be used in determining the amount of an award in respect

of future pecuniary damages, to the extent that it reflects the difference between

estimated investment and price inflation rates, is,

(a) for the 15-year period that follows the start of the trial, the greater of,

(i) the average of the value for the last Wednesday in each month of the real rate of

interest on long-term Government of Canada real return bonds (Series V121808,

formerly Series B113911), as published in the Bank of Canada’s Weekly Financial

Statistics for the period starting on March 1 and ending on August 31 in the year

before the year in which the trial begins, less ½ per cent and rounded to the nearest

1/10 per cent, and

(ii) zero; and

(b) for any later period covered by the award, 2.5 per cent per year for each year in that

period.

Gross Up

(2) In calculating the amount to be included in the award to offset any liability for income

tax on income from investment of the award, the court shall,

(a) assume that the entire award will be invested in fixed income securities; and

(b) determine the rate to be assumed for future inflation in accordance with the

following formula:

g rounded to the nearest 1/10 per cent where,

g = (1 + i) / (1 + d) – 1

“i” is the average of the value for the last Wednesday in each month of the nominal rate

of interest on long-term Government of Canada bonds (Series V121758, formerly Series

B113867), as published in the Bank of Canada’s Weekly Financial Statistics for the

period starting on March 1 and ending on August 31 in the year before the year in which

the trial begins;

“d” is,

(a) for the 15-year period that follows the start of the trial, the greater of,

(i) the average of the value for the last Wednesday in each month of the real rate

of interest on long-term Government of Canada real return bonds (Series

V121808, formerly Series B113911), as published in the Bank of Canada’s

Weekly Financial Statistics for the period starting on March 1 and ending on

August 31 in the year before the year in which the trial begins, less ½ per cent,

and

(ii) zero, and

(b) for any later period covered by the award, 2.5 per cent per year for each year in

that period.

Transition

(3) This rule, as it read on December 31, 2013, continues to apply with respect to actions

in which the trial commenced before January 1, 2014.

APPENDIX C: Ontario Statutory Discount Rates Since Inception

Ontario Discount Rates For

Both Future Care and Wage Loss

YEAR

15-YEAR PERIOD FROM

THE START OF THE TRIAL

(SELECT REAL RATE),

pursuant to Rule

53.09(1)(a)

THEREAFTER ULTIMATE

REAL RATE

(FIXED RATE),

pursuant to Rule 53.09(1)(b)

2000

3.00%

2.50%

2001

2.75%

2.50%

2002

2.50%

2003

2.50%

2004

2.25%

2.50%

2005

1.50%

2.50%

2006

1.00%

2.50%

2007

0.75%

2.50%

2008

0.75%

2.50%

2009

0.75%

2.50%

2010

1.25%

2.50%

2011

0.50%

2.50%

2012

2.50%

2013

-0.50% (amended effective

January 1, 2014 to allow real

rates during the said 15-year

period no lower than 0%)

2.50%

2014

0.30%

2.50%

2015

0.30%

2.50%

2016

2.50%

2017

2.50%

Date: 07 May 2017

Annex 4

HONG KONG

Dr Felix W.H. Chan

Associate Professor

Faculty of Law, University of Hong Kong

(A) On what basis are personal injury damages awards assessed in Hong Kong?

1. The multiplicand-multiplier approach is adopted in ascertaining the lump-sum awards.

Periodical payments are not available in Hong Kong.

2. Hong Kong applies the English common law principles laid down by the House of

Lords (now known as the UK Supreme Court) in Wells v Wells [1999] 1 AC 345. In

awarding damages in the form of a lump sum, the court had to calculate as best it

could the sum that would be adequate, by drawing down both capital and income, to

provide periodical sums equal to the claimant’s estimated loss over the period during

which that loss was likely to continue.

3. Hong Kong does not have the equivalent of the UK Damages Act 1996. Assessment of

personal injury damages in Hong Kong is governed purely by common law principles.

4. Hong Kong has its own set of actuarial tables (the latest edition is Personal Injury Tables

Hong Kong 2016: Tables for the Calculation of Damages, Sweet and Maxwell 2016).

The tables were jointly prepared by a research team funded by the Hong Kong Research

Grant Council. The members of the research team are:

 Neville Sarony QC, a respected and experienced personal injury practitioner in

Hong Kong.

 Felix W.H. Chan, Associate Professor of the Law Faculty, University of Hong

Kong.

 Wai-sum Chan, Professor of Finance, Chinese University of Hong Kong. He is

a Fellow of Society of Actuaries.

 Johnny S.H. Li, Fairfax Chair in Risk Management at the University of Waterloo,

Canada. He is a Fellow of Society of Actuaries.

Dr Felix W.H. Chan (together with N. Sarony QC, WS Chan and JSH Li) is a contributor to the latest edition

of Personal Injury Tables Hong Kong 2016: Tables for the Calculation of Damages (Sweet and Maxwell).

He is qualified as a solicitor in Hong Kong, England and Wales, and practised in the shipping department of

JSM Norton Rose (now JSM Mayer Brown) before entering academia. When he was in private practice, he

acted for shipping companies, cargo insurers and Protection & Indemnity Clubs in disputes ranging from bill of

lading claims to personal injuries on board.

5. The 2016 edition is based on the revised Hong Kong mortality projections by the Hong

Kong Census and Statistics Department (Hong Kong Population Projections 2015-

2064), under which there is an increase in life expectancy. Whether a new edition is

needed in the future will depend on the next mortality projections to be issued by the

Hong Kong Government. It is estimated that on average, a new edition is needed in

every 5 or 6 years.

6. The actuarial tables are judicially accepted as the starting point in Hong Kong, just as

the Ogden Tables are accepted as the starting point in the UK. (Bharwaney J. in Chan

Pak Ting (No.1) [2012] HKCFI 1584

and Chan Pak Ting (No.2) [2013] HKCFI 179;

confirmed by the HK Court of Appeal in Chan Wai Ming v Leung Shing Wah [2014]

HKCA 318

and Hussain Kamran v Khan Amar [2016] HKCA 455).

Periodical payments

7. Periodical payments are not available in Hong Kong. The Law Reform Commission of

Hong Kong has recently set up a committee to explore the possibility of introducing

periodical payments in the future. Details of this law reform sub-committee can be found

on this website: http://www.hkreform.gov.hk/en/members/personalinjury.htm

(b) Application of a Discount Rate to lump sum awards

8. Lump sum awards are adjusted to take account of accelerated receipt

9. Hong Kong does not have the equivalent of Damages Act 1996. Assessment of personal

injury damages in Hong Kong, including the determination of the discount rate, is

governed purely by common law principles.

10. In England and Wales, the discount rate of 4 - 5% was set in Cookson v Knowles [1979]

A.C. 556. The same discount rate of 4 - 5% was followed in Hong Kong until 2013.

11. In Chan Pak Ting (No.2) [2013] HKCFI 179, Bharwaney J. departed from the

conventional discount rate of 4.5% per annum (set by the House of Lords in Cookson v

Knowles and endorsed by the Hong Kong Court of Appeal in Chan Pui Ki v Leung On

[1996] HKCA 678;

[1996] 2 HKC 565).

Chan Pak Ting (No.1) [2012] HKCFI 1584 http://www.hklii.hk/cgi-

bin/sinodisp/eng/hk/cases/hkcfi/2012/1584.html

Chan Wai Ming v Leung Shing Wah [2014] HKCA 318 http://www.hklii.hk/cgi-

bin/sinodisp/eng/hk/cases/hkca/2014/318.html

Hussain Kamran v Khan Amar [2016] HKCA 455 http://www.hklii.hk/cgi-

bin/sinodisp/eng/hk/cases/hkca/2016/455.html

Chan Pui Ki v Leung On [1996] HKCA 678 http://www.hklii.hk/cgi-

bin/sinodisp/eng/hk/cases/hkca/1996/678.html

12. Having examined Hong Kong’s economic conditions, he set 3 different discount rates,

reflecting the investment choices of each class of investors as driven by their specific

needs and goals.

13. The discount rate is the annual net rate of investment return in excess of inflation that a

claimant is assumed to achieve on the lump-sum award. To calculate the real rate of

return, net of price inflation, the Hong Kong Court employed the changes in the

Composite Consumer Price Index (“CPI”) as the proxy for price inflation, as it covers

approximately 90% of all households in Hong Kong.

14. For needs exceeding 10 years, he set a discount rate of 2.5% per annum by taking an

“average” portfolio of: (1) 10% in time deposits; (2) 70% in high quality bonds; and (3)

20% in high quality blue-chips which qualify as “widows and orphans” stock. For needs

extending beyond 5 years but not exceeding 10 years, the court set a discount rate of

1% per annum, by taking a portfolio of: (1) about 15% in time deposits; (2) 85% in HK

Government Exchange Fund Notes and high quality bonds. For needs not exceeding 5

years, a negative discount rate of -0.5% per annum was set, following the Privy Council’s

decision in Simon v Helmot [2012] UKPC 5 (an appeal from Guernsey Court of Appeal)

that there was nothing wrong in principle to set a negative discount rate. The portfolio

is: (1) about 20% in time deposits; and (2) 80% in Hong Kong Government Exchange

Fund Notes.

15. Bharwaney J. in Chan Pak Ting (No.2) [2013] HKCFI 179 (at [82 & 99]) gave a brief

explanation as to the thinking behind adopting a three-fold set of discount rates. He

pointed out that given current economic conditions at that time in Hong Kong, the

investment choices of the reasonable victim of a tort must be driven by the duration of

his future needs. A plaintiff with long term needs will not invest all his damages into

short term bank deposits whilst a plaintiff with short term needs will not invest all his

damages into long term bonds. A plaintiff with needs not exceeding 5 years should

invest in highly liquid assets, while a reasonable plaintiff with future needs extending

beyond 5 years ought to invest his award of damages for future loss not only in EFNs,

but also in high quality bonds. A plaintiff with needs extending beyond 10 years ought

to include an equity content ranging from 10-30% of the award of damages made in

respect of future losses. The volatility of the stock markets and the risks of loss of capital

can be offset by an investment strategy to hold such stocks, which pay dividends, for the

long term.

16. Bharwaney J. cited Ontario of Canada as an example of a jurisdiction with different

discount rates. The rate prescribed in Ontario under Rule 53.09(1) of the Ontario Rules

of Civil Procedure at that time was a rate of 0.5% for the initial 15 years, and 2.5% after

the initial 15 years.

17. It should be noted that Hong Kong does not have the equivalent of I.L.G.S. in the UK.

Although Hong Kong iBond are similar to I.L.G.S. in that the interest was adjusted in

accordance with inflation (with the minimum return rate set at 1%), there is a sharp

distinction between HK iBond and I.L.G.S.. For HK iBond, the principal would be repaid

in full on maturity without adjustment based on inflation. The HK court in Chan Pak Ting

(No.2) [2013] HKCFI 179 (at [65]) excluded iBond as a possible investment vehicle for

plaintiffs because the iBond market in Hong Kong was still in its infancy.

Distinction between earnings and non-earnings losses

18. In Chan Pak Ting (No 2) [2013] HKCFI 179 (at [39]), the economic data of Hong Kong

show that the difference between price inflation and wage inflation (from 2001 to 2012)

was only 0.43%, which was not substantial enough to justify separate discount rates for

earnings-related and non-earnings related losses.

Other contingency deductions

19. Contingency deductions are also made for other factors. The Hong Kong actuarial

tables “do not take account of the other risks and vicissitudes of life, such as the

possibility that the claimant would for periods have ceased to earn due to ill-health or

loss of employment.” (quoted from paragraph 19 of the Explanatory Notes to the 7

Edition of the UK Ogden Tables). The principles regarding the UK Ogden Tables are

equally applicable in Hong Kong. The relevant evidence, including expert evidence,

can be submitted to prove matters related to ill-health or loss of employment.

20. As explained in the response to Q9 above, different discount rates apply to losses

sustained over different time periods.

21. The discount rates are set by the judges in Hong Kong by applying the common law

principles. As explained above, Hong Kong does not have the equivalent of the UK

Damages Act 1996. Hence, the actual process is similar to that used in in Simon v

Helmot [2012] UKPC 5 (an appeal from Guernsey Court of Appeal).

22. Judges in Hong Kong can take into consideration the “changed economic landscape”

(Wells v Wells [1999] 1 AC 345 per Lord Stern) in setting and adjusting the discount

rates. Economic evidence prepared by economists and actuaries are admissible and

given due weight in the process.

23. The discount rates have been substantially adjusted in 2013 (conducted by Bharwaney

J. in Chan Pak Ting (No.1) [2012] HKCFI 1584 and Chan Pak Ting (No.2) [2013] HKCFI

179). Unless there are drastic changes in Hong Kong’s economic landscape, it is

anticipated that there will not be substantial changes in the near future.

24. Before the substantial adjustment of the discount rate in Chan Pak Ting in 2013, the

Hong Kong courts simply followed the 4-5% discount rate indicated in Cookson v

Knowles [1979] AC 556. This is due to the Hong Kong Court of Appeal’s decision in

Chan Pui Ki v Leung On [1996] HKCA 678 that affirmed the conventional 4-5% discount

rate indicated in Cookson v Knowles.

25. Because actuarial tables were not judicially recognised in Hong Kong before 2013, it

was not very meaningful for the litigants to discuss about the discount rates before 2013

in any event. The multipliers were simply chosen “on impressionist grounds, by reference

to a spread of multipliers in comparable cases” (per Lord Lloyd of Berwick in Wells v

Wells [1999] 1 AC 345.)

26. However, actuarial tables gained formal judicial recognition in Chan Pak Ting in 2013.

The same case provides the Hong Kong court with an opportunity to develop the

common law principles regarding the setting and adjustment of discount rates in the

Hong Kong context.

Date: 6 April 2017

Chan Pak Ting (No.2) [2013] HKCFI 179 http://www.hklii.hk/cgi-

bin/sinodisp/eng/hk/cases/hkcfi/2013/179.html

Annex 5

IRELAND

Orla Keane - Arthur Cox

David Strahan - Arthur Cox

Grace-Ann Meghen - Arthur Cox

***

(A) On what basis are personal injury damages awards assessed in your jurisdiction?

1. All personal injury claims in Ireland (except for cases involving medical negligence

claims under the Montreal and Warsaw Conventions, and claims in admiralty) must be

submitted to the Injuries Board

for assessment before proceedings can be issued. The

Injuries Board is an independent statutory body set up under the Personal Injuries

Assessment Board Act 2003. When the Injuries Board was first established in 2004, it

published a “Book of Quantum”, which provides guidelines for the assessment of

compensation to which an injured person may be entitled, in the context of certain

specific injuries. The Book of Quantum

was updated in 2016. However, not all types of

injuries are covered by the Book of Quantum. In assessing damages, the Court must

have regard to the Book of Quantum but it is not bound by it.

2. Upon receipt of an application, the Board sends each defendant a written notice

requesting that they consent to an assessment being made of the claim

. If the

defendant consents, or fails to respond within 90 days, the Board will assess the claim.

The Board will then inform all parties of the assessment amount. If both parties accept

the assessment, the Board will issue an Order to Pay to the defendant(s). If one or both

parties reject the assessment the Board will issue an authorisation to commence

proceedings.

Orla is a partner in the Litigation and Dispute Resolution Group. Her practice focuses on healthcare –

contentious and advisory. She has advised the Mental Health Commission, the State Claims Agency, the HSE,

the Irish Blood Transfusion Scheme, the Medical Defence Union, Medtronic and other clients (public and

private). She has represented clients in all Courts, in statutory and non-statutory inquiries and at the Dental /

Medical Council. She has a vast experience in judicial review proceedings and has advised a number of State

Agencies on various administrative law and corporate governance matters. She also has a wealth of

experience in relation to independent reviews of adverse incidents. She lectures on various issues in relation

to healthcare.

David is a senior associate in the Litigation and Dispute Resolution Group. His practice has a particular focus

on Insurance based litigation and dispute resolution concerning professional indemnity policies, property

damage, D&O policies, employers’ liability and public liability. David also advises across a range of areas

including financial services and banking disputes, insurance disputes and technology disputes. He has

considerable experience in managing large scale commercial disputes before the Irish Commercial Court and

in international arbitrations under the International Chamber of Commerce. David has also represented a

number of life insurance companies in hearings before the Financial Services Ombudsman.

***

Grace-Ann Meghen is an associate in the Litigation & Dispute Resolution Group advising across a range of

insurance, healthcare, and commercial disputes.

Section 3(d) of the Personal Injuries Assessment Board Act 2003.

http://www.injuriesboard.ie/eng/

http://www.injuriesboard.ie/eng/How-to-make-a-claim/compensation-calculator/

Section 22 of the Civil Liability and Courts Act 2004

Assessment of the claim under section 20 of the Act of 2003.

3. It is then up to the plaintiff to bring their claim in the appropriate court, having regard

to the likely damages that they might be awarded at trial. Those cases not within the

remit of the Injuries Boards can issue proceedings immediately. The following jurisdiction

limits apply in respect of the Irish Courts:

a. Civil claims with a monetary jurisdiction of €15,000 are dealt with in the

District Court;

b. Claims up to €60,000 (€75,000 in non-personal injury proceedings) are

dealt with in the Circuit Court; and

c. The High Court has an unlimited monetary jurisdiction.

4. Damages are calculated and awarded by a Judge sitting alone and are assessed on the

basis of putting the plaintiff back into the position they were in prior to the cause of

action, insofar as this is possible, by awarding compensation. Damages are divided as

follows:

(a) General damages (Non-economic Damages) – pain and suffering to

the date of determination; and pain and suffering into the future.

Case law has established a ‘cap’ on the amount of general damages

which can be awarded. This is currently set at €450,000

(b) Special damages (Pecuniary Damages) – these include:

(i) medical expenses;

(ii) loss of earnings (past and future);

(iii) nursing care (past and future);

(iv) maintenance of equipment.

5. In awarding damages for pecuniary loss, the objective of the court is to provide the

plaintiff with full (100%) compensation for all of his or her probable future pecuniary

loss. Pecuniary loss is assessed by an actuarial calculation by determining the cost and

the frequency with which it will recur, the age and the life expectancy of the plaintiff. The

actuary will determine in capital terms the value of a € per week of loss, based upon the

above criteria of age and life expectancy and the rate of return on investment income.

In the case of catastrophic injury, future losses may relate to the cost of future care and

loss of earnings.

6. In assessing loss of future earnings, loss of earning capacity is based on what the plaintiff

would have earned rather than what he could have earned.

7. The usual method of calculation in assessing future care is to identify the “multiplicand”

(the annual net cost of future care), which is multiplied by the “multiplier”. The multiplier

This cap relates to catastrophic injuries eg. cerebral palsy or paraplegia.

is derived from annuity tables and can be actuarially calculated based upon life

expectancy.

8. A court may also award:

(a) aggravated damages, where the plaintiff suffers further injury due to:

1. the manner in which the wrong was committed; and/or

2. the conduct of the defendant after the commission of the wrong;

and/or

3. the defendant’s conduct in the defence of his action, including

the trial

and

ii. exemplary damages where, given the nature of the wrong in question

and the manner of its commission, a court wishes to mark its disapproval

of a defendant’s conduct.

Lump Sum v. Periodic Payments

9. In the vast majority of cases the assessment of future loss in personal injuries cases is

undertaken by means of the award of a lump sum. There are no court rules or statutory

basis which provide for periodical payments to be awarded for personal injury damages

in Ireland. Periodical payment orders are made on an ad hoc basis by the courts and

generally only where all parties to the proceedings agree.

10. In 2010, the Working Group on Medical Negligence and Periodic Payments was

established which published its first report

, detailing proposals for draft legislation on

periodic payments, in October 2010.

11. In 2015, a general scheme of a Civil Liability (Amendment) Bill 2015

was published

by the Minister for Justice, Equality and Law Reform, the expressed intent of which was

to provide for damages to be awarded in the form of periodic payments to persons

suffering catastrophic injuries.

12. On 13 January 2017, the Civil Liability (Amendment) Bill 2017

was published. The Bill

is currently at Committee Stage. The stated purpose of the Bill is to empower the

http://courts.ie/Courts.ie/library3.nsf/(WebFiles)/5CEEA19C4A5959BC802577DC0055C9F4/$FILE/Medical

%20Negligence%201.pdf

http://www.justice.ie/en/JELR/CivilLiabilityAmendmentBill2015.pdf/Files/CivilLiabilityAmendmentBill2015.pdf

http://www.justice.ie/en/JELR/Civil_Liability_(Amendment)_Bill_2017.pdf/Files/Civil_Liability_(Amendment)_B

ill_2017.pdf

courts, as an alternative to lump sum awards of damages, to make consensual and non-

consensual periodic payments orders (PPOs) to compensate injured victims in cases of

catastrophic injury where long term permanent care would be required.

13. The Bill contains the following provisions:

i. Where a court awards damages for personal injuries to a plaintiff who

has suffered a catastrophic injury, the court may order that the whole or

part of such damages (which relate to future medical treatment; future

care; the provision of aids and appliances associated with the medical

treatment; and, where the parties consent in writing, damages in respect

of future loss of earnings) be paid in the form of periodic payments.

ii. In deciding whether or not to make a PPO, the court shall have regard

to a number of factors including the amount of any payments proposed

to be made to the plaintiff and the form of the award preferred by the

parties and the reasons therefor.

iii. A PPO shall provide for the amount of a payment under the order to be

adjusted annually by reference to the Harmonised Index of Consumer

Prices as published by the Central Statistics Office or such other index as

may be specified.

iv. The index and its suitability for the purposes of the annual adjustment of

the amount of payments provided for under PPOs will be reviewed by the

Minister for Justice, Equality and Law Reform.

v. The award of damages by way of PPO is only allowed in cases where a

plaintiff has suffered catastrophic injuries.

“Catastrophic injury” is defined as meaning “a personal injury which

is of such severity that it results in a permanent disability requiring the

person to receive life-long care and assistance in all activities of daily

living or a substantial part thereof”. “Activities of daily living” are

defined as including activities such as dressing, eating, walking,

washing and bathing.

vi. The courts are empowered to make provision in a PPO for a ‘stepped

payment’. This allows the courts, where it is anticipated that there will be

changes in a plaintiff’s circumstances during his or her life which are

likely to have an effect on his or her needs, to make provision in a PPO

that a payment under the order shall, from a specified date, increase or

decrease by a specified amount.

(B) Application of a Discount Rate to lump sum payments

14. The real rate of return is the annual percentage return realised on an investment, which

is adjusted for changes in prices due to inflation or other external effects. The real rate

of return is very much case law driven and is determined by the courts.

15. The courts have stated that the plaintiff’s damages are to be calculated on the basis that

he or she should be entitled to pursue the most risk averse investment reasonably

available to meet his or her needs.

16. Since the decision of Finnegan P. in Boyne v Dublin Bus

the real rate of return, which

it was assumed an injured plaintiff would obtain, was 3% on the investment of any such

sum awarded to them in respect of future pecuniary loss. This was challenged in the

High Court case of Gill Russell (a minor) v Health Service Executive

and the court held

that the real rate of return should be reduced from the traditional 3% to a rate of return

of between 1% and 1.5%. That decision was upheld by the Court of Appeal

. The State

sought leave to appeal to the Supreme Court

, but this was refused.

17. In its decision, the Court of Appeal stated that “any court considering a claim for future

pecuniary loss must be concerned to ensure that a plaintiff will be able to invest their

lump sum in a manner that will provide them with the money they would have had but

for the defendants negligence or as in the present case the cost of meeting their tortuously

inflicted future needs despite the likely impact of inflation on their award over the period

of the loss, because if they are not so protected they will not receive full compensation.”

The Court of Appeal further noted however that, up to the time of the High Court's

decision, Irish judges did not take any special steps to seek to ‘inflation proof’ awards

of damages for pecuniary loss. The Court of Appeal concluded that the real rate of

return to be applied was 1.5% in respect of the plaintiff’s outstanding claims for future

pecuniary loss, with the exception of his claim for future care where the rate was reduced

to 1% to take account of the extent to which wage inflation was likely to exceed the

Consumer Price Index over the course of his lifetime.

18. The Court of Appeal upheld the High Court’s decision that the real rate of return should

be set on the assumption that the plaintiff is entitled to invest the award in the most risk

free investment strategy as is available. The Court of Appeal also held that the plaintiff

should not be treated as an investor who has income and surplus money to invest. The

Court acknowledged that plaintiffs are “entitled to take their award to Las Vegas or place

it on a horse in the Grand National in the hope that they may enhance it”. However, it

said that it is not the function of the Court to enquire into a plaintiff’s intentions with

regard to the award. If the Court did this, the amount of compensation payable to two

plaintiffs with the exact same claim, “one wise and one foolhardy”, might be different.

The Court concluded that the reduction of the rate was necessary to enable the plaintiff

Boyne v Dublin Bus [2003] 4 I.R. 47

Gill Russell (a minor) suing by his mother and next friend Karen Russell v Health Service Executive [2014]

IEHC 590

Gill Russell (a minor) suing by his mother and next friend Karen Russell v Health Service Executive [2015]

IECA236

Gill Russell (a minor) suing by his mother and next friend Karen Russell v Health Service Executive [2017]

IESCDET 10

to meet his future needs without him having to take unnecessary risks to achieve that

end. To expect and indeed oblige him to take such risks would, in the Court’s view, be

both unjust and unacceptable. It is not yet clear whether these rates (1% and 1.5%) will

apply only to catastrophic injuries.

19. We refer you to no. 4 above. In the Court of Appeal’s decision in Gill Russell (a minor)

v Health Service Executive, the court stated that, in calculating the plaintiff’s claim for

future pecuniary loss, allowance had to be made for any inflation in excess of ordinary

inflation that would likely affect any particular expense to which he may be exposed over

the period of the loss. The Court of Appeal noted that the cost of the plaintiff’s care over

future years was at issue. It stated that if wage inflation in the care sector was likely to

exceed ordinary inflation then an adjustment in the real rate of return was required to

meet that extra cost. Accordingly, the court concluded that the real rate of return was to

be reduced from 1.5% to 1% in respect of the plaintiff’s claim for future care to take

account of likely wage inflation over the course of his lifetime.

20. There are no contingency deductions, as such, in Ireland. However, in any given case

involving catastrophic injury, medical experts will give evidence regarding the life

expectancy of the plaintiff on behalf of each party and actuaries will then calculate the

amount of damages required based on the medical evidence provided.

21. With regard to labour market hazards, the case of Reddy v Bates

established that the

present value of future loss of earnings, as calculated using actuarial techniques and the

best estimate of probable actual losses in the future, should be reduced to take account

of a degree of uncertainty as to whether a plaintiff would be employed continuously for

the period assumed by the calculations. However, this remains at the discretion of the

Court in each case.

22. Section 24 of the Civil Liability and Courts Act 2004 provides that the Minister for Justice,

Equality and Law Reform “may” prescribe the discount rate that applies for the purposes

of the assessment of damages in respect of future financial loss. However, section 24

also provides that the court has jurisdiction to apply a different discount rate to that

prescribed if it is satisfied that the application of the prescribed rate would result in

injustice being done.

23. Section 23 of the Civil Liability and Courts Act 2004 states that the Minister for Justice,

Equality and Law Reform “may” prescribe actuarial tables for the purpose of their being

referred to by the courts when assessing damages in personal injuries actions in respect

of future financial loss and it further states that a court in a personal injuries action shall,

in assessing damages in respect of future financial loss, refer to such actuarial tables (if

any) as are prescribed. However, no tables have been prescribed to date. The current

practice is that the discount rate is determined by the courts.

Reddy v Bates [1984] ILRM 19

Court Based Procedure

24. As noted in no. 7 above, Section 23 of the Civil Liability and Courts Act 2004 states that

the Minister for Justice, Equality and Law Reform may prescribe actuarial tables for the

courts to refer to when assessing damages in personal injuries actions in respect of future

financial loss, however, no tables have been prescribed to date.

25. The Court of Appeal decision in Gill Russell (a minor) v Health Service Executive will

apply in cases going forward. The courts are unlikely to engage in any further

consideration of this unless there is a material change in the economic environment.

Prior to the Court of Appeal’s decision in Gill Russell (a minor) v Health Service Executive,

a rate of 3% had been applied since 1996. Prior to 1996, there was only one reported

decision of the High Court, which set a rate of 2.5%.

26. In Gill Russell (a minor) v Health Service Executive, the Court of Appeal noted that “the

purpose…of fixing the discount to which the defendant is entitled by reason of the upfront

lump sum payment is to eliminate the possibility that the plaintiff might be

overcompensated”. It further stated that the High Court had been correct in determining

that the assessment of the real rate of return is to be made on the assumption that the

plaintiff should be entitled to invest his award in as risk free an investment strategy as is

available.

27. In making its determination, the Court of Appeal considered a number of factors,

including:

• The Plaintiff as an investor;

• Investment strategies for the Plaintiff;

• Inflation;

• Currency Risk;

• Lack of Diversification; and

• Volatility in the Equity Market.

The parties to the litigation provided evidence, and called expert witnesses in respect of

same, in relation to these factors.

Date: 4 April 2017

Cooke v Walsh [1983] ILRM 429

Annex 6

SOUTH AFRICA

Johan De Waal, Chambers, South Africa

With

N Kambaran and R Omardien

(A) On what basis are personal injury damages awards assessed in your jurisdiction?

1 The South African courts, unlike those in United Kingdom, place considerable weight

on actuarial evidence and it is rare for a damages claim for personal injury or death

to be settled in or out of court without the benefit of an actuarial report.

For this

reason, I have decided to compile this report with the assistance of Messrs Nilen S.

Kambaran and Riyadh Omardien of ARCH Actuarial Consulting in Cape Town.

Mr Kambaran has been the signing actuary for ARCH Actuarial Consulting’s

reports relating to personal injury and other lump sum compensation claims in

South Africa for the past 10 years, in more than 10 000 individual matters.

2 ARCH Consulting and myself have placed reliance on two works of Robert J Koch,

who is both a lawyer and an actuary and who specialises in claims for compensation

for personal injury and death. The two works are:

2.1 Reduced Utility of a Life Plan – by R.J. Koch 1993, Chapter 8 (hereafter

“Koch Reduced Utility”);

2.2 Damages For Personal Injury And Death: Legal Aspects Relevant to

Actuarial Assessments – by R.J. Koch – South African Actuarial Journal 11

(2011) 111–33 (hereafter “Koch SAAJ”).

3 The structure of this report is as follows:

3.1 I first deal with the issue of whether and when lump-sum payments are used

in damages claims for personal injury.

3.2 In the next part, I deal with the question of how and by whom the discount

rates are determined.

Koch SAAJ at p.112, para 1.6

4 In the context of the South African law of delict, and subject to the (limited) statutory

interventions described below, a claimant in a personal injury matter who proves

the other elements of the Acquilian action (unlawfulness, fault and causation) is

entitled to be compensated for:

4.1 The full pecuniary loss suffered in respect of past and future medical and

other expenses such as adjustments to vehicles and the home;

4.2 The full pecuniary loss for past and future loss of earnings, and

4.3 Compensation for pain and suffering as a result of an injury caused.

5 A dependant who lost a breadwinner has a similar claim against the wrongdoer for

future loss of support.

USE OF LUMP-SUM PAYMENTS

6 In terms of the “once and for all principle” which forms part of South African

common law, the default position in personal injury law is that the plaintiff is entitled

to a lump-sum payment, which is an estimate of the present value of his or her

future loss in respect of income, medical expenses or support.

7 This principle obliges the Court to award then and there (and consequently to assess

and quantify) in one and the same proceeding any claim for damages proved to

have been suffered by a plaintiff. This exercise must be performed no matter how

difficult it is for the Court to peer into the future when assessing for instance future

hospital or medical expenses – nothing may be left over in order to see how things

turned out.

8 The limited exceptions to the once and for all rule are the following:

The Compensation for Occupational Injuries and Diseases Act

8.1 The Compensation for Occupational Injuries and Diseases Act 130 of 1993

(COIDA) governs the Workmen’s Compensation Fund, and abolishes the

common law claim which a worker would have against his or her employer

in exchange for a limited statutory claim against that fund.

COIDA

provides for a temporary and permanent disability benefit for workers and

a family support benefit. The common law once and for all rule is changed

in the following way:

RAF v Arendse NO 2003 (2) SA 490 (SCA)

COIDA provides for compensation in the case of disablement and death resulting from injuries or diseases

suffered in the course of employment. Employers must pay for cover of their employees.

8.1.1 In respect of future loss of earnings:

 Where the disability is assessed at more than 30%, a

pension is payable. The pension, which is a periodic

payment, in the case of a 100% disabled worker, is set at

75% of pre-accident earnings with a set maximum and

minimum. Workers with lesser degrees of disablement

(i.e. less than 100% but still more than 30%) receive

proportionally less, i.e. a worker with a 50% permanent

disablement will receive a maximum of 50/100 of pre-

accident earnings.

 In the case of disablement of less than 30%, a lump sum

is payable. The lump sum is 15 times the monthly income

subject to a minimum and a maximum. A worker with a

30% disablement receives the full lump sum and those

with a lower percentage receive proportionately less, i.e.

in the case of a 15% disablement, the lump sum is

reduced by multiplying the amount he or she would have

received by 15/30.

 The spouse of a deceased worker is entitled to (1) a once-

off lump sum payment equivalent to twice the monthly

pension that the worker would have received if

permanently and 100% disabled and, in addition (2)

monthly payments of 40% of the deceased’s entitlement

(premised on 100% disabled). The benefit ceases with

the death of the spouse.

 Children under the age of 18 are entitled to a monthly

payment of 20% of the deceased’s entitlement (assessed

if 100% disabled). The child’s payment ceases when the

child turns 18 or completes his or her studies (the latter

only if it could reasonably be expected that the employee

would have contributed to the maintenance of the child

during his or her studies) or upon death or marriage

before the age of 18. The above is subject to an

exception: children over the age of 18 who are unable to

earn an income due to physical or mental disability

continue to qualify for the benefit.

8.1.2 In respect of future medical expenses COIDA provides for the

payment of medical expenses “necessitated” by an accident or

disease but generally such only payable for a period of two

years from the date of an accident or the commencement of a

disease. If, in the opinion of the Director-General, further

medical aid will reduce the disablement from which the

employee is suffering, the cost of such further aid may be paid.

A medical tariff applies.

Road Accident Fund

8.2 In South Africa, a statutory system of compensation for the victims of road

accidents came into force in 1946. The system has been under review ever

since. Over the decades, the government appointed no less than 9

commissions to review the system, including its funding, management and

levels of compensation. Current, the system is govern by the Road Accident

Act 56 of 1996 (amended by Act 15 of 2001, Act 43 of 2002 and the

Amendment Act 19 of 2005), which is premised on the common law but

subject to modifications. The intention is to abolish the common law in toto

and to replace same with a system of no-fault defined and limited benefits.

Draft legislation has been published for comment. In terms of the current

system, the RAF Act:

8.2.1 Obliges the plaintiff to accept an undertaking in respect of

future medical expenses and accommodation in a hospital or

nursing home.

These expenses are paid under the

undertaking as and when the cost is incurred – and such

payments are not discounted, except for merit apportionments

where applicable.

8.2.2 Provides for instalment payments for past and future loss of

income or loss of support by agreement.

This is however for

practical purposes irrelevant as such agreements are never

entered into.

To be called the Road Accident Benefit Scheme.

Section 17 of the RAF Act was substituted by s 19 of the Road Accident Fund Amendment Act 19 of 2005,

which came into force on 1 August 2008. The relevant portions of the section read as follows:

‘(4) Where a claim for compensation under subsection (1) —

(a) includes a claim for the costs of the future accommodation of any person in a hospital or nursing

home or treatment of or rendering of a service or supplying of goods to him or her, the Fund or

an agent shall be entitled, after furnishing the third party concerned with an undertaking to that

effect or a competent court has directed the Fund or an agent to furnish an undertaking, to

compensate —

(i) the third party in respect of the said costs after the costs have been incurred and on proof

thereof; or

(ii) the provider of such service or treatment directly, notwithstanding section 19(c) or (d), in

accordance with the tariff contemplated in subsection (4B);

Section 17(4)(b) of the RAF Act

(B) Application of a discount rate to lump sum awards

9 As we hopefully made clear above, there is a need for a discount rate in all personal

injury cases in respect of claims for a future loss of earnings, except:

9.1 Future loss of earnings and future medical expenses in respect of

occupational injuries and diseases as COIDA replaces the once and for all

rule with defined payments.

9.2 Future medical expenses in respect of injuries caused by road accidents as

the RAF Act as that statute compels the injured person to accept an

undertaking from the RAF that the expenses (or a portion thereof if the

injured person was partly to blame for the accident) will be paid as when

they arise. A tariff also applies to these payments.

10 The discount rates are not legislated but actuarially determined with reference to

actuarial principles. The South African courts have rejected the idea of the judge

making a round estimate of an amount which seems to him or her to be fair and

reasonable as “entire guesswork” and a “blind plunge into the unknown”.

The use

of actuarial principles have recently been confirmed by the Supreme Court of

Appeal (second highest Court in South Africa) RAF v Sweatman 2015 (6) SA 186

(SCA) in the following terms:

“[7] This court thus approved the use of actuarial calculations based on

whatever evidence is available. In this matter, following the approach of

actuaries over decades, Mr Morris used the assessments of industrial

psychologists as to the career path likely to have been followed by

Ms Sweatman, her probable remuneration, prospects of promotion, working

life span, retirement and other factors that might have affected her income

stream over the years. He then calculated the present estimated value of the

future income that she would have earned, taking into account the net

capitalisation rate, which in turn has regard to the expected investment return.

From the amount calculated he made deductions on the basis of future

inflation rates, for taxation and likely changes in the rates of taxation, and,

importantly, took into account accepted life tables reflecting mortality rates.

[8] The second step taken was to ascertain what difference the injury and

disability arising from the collision made to Ms Sweatman: to determine the

estimated present value of her future income stream in her injured and

disabled state. Once that calculation had been done the two amounts were

adjusted, having regard to the contingencies of life: any factor that would

influence her life and earning capacity — the hazards of life. The amount

calculated in respect of the income stream in the injured state was then

Southern Insurance Association Ltd v Bailey NO 1984 (1) SA 98 (A) at 113F – 114A:

deducted from the amount she would have earned but for the injury, and that

represented the estimated present value of Ms Sweatman’s loss.”

11 The parties, and not the Court, is responsible for each choosing their own actuary

which may be called to provide expert testimony regarding the quantification of any

aspect of the loss suffered by the plaintiff, including the net discount rate.

12 I now turn to deal with these aspects in greater detail.

13 In matters involving lump sum compensation, the setting of the net discount rate

(NDR, also called the net capitalisation rate) is the interest rate for discounting offset

by the allowance for inflation.

14 In the United Kingdom, the NDR is set by the Justice Ministry, but in South Africa the

NDR basis is not set by any particular body – the actuary is free to decide the basis

in each matter, subject to actuaries’ professional codes of conduct, and an Advisory

Practice Note 701 (Delictual and Other Matters). These documents do not however

specify how NDRs are to be devised other than that the concepts in relevant

documents should be borne in mind.

15 The rate of interest / discounting to allow for could be approached from two main

angles:

15.1 Allowance for the expected net rate of return that the claimant may earn on

the lump sum awarded, given an investment portfolio with an appropriate

level of risk.

This expected will affect the extent to which the lump sum

does in fact compensate the claimant by accurately extinguishing future

losses, thereby reducing the risk of both over- and under- compensation.

15.2 Allowance for the disutility of delay, i.e. a pure time-money preference,

since compensation will always involve removing the delay the claimant

would have experienced between date of award and dates of future

expected losses.

16 In South Africa, both of these approaches are regarded to be problematic if they

were considered to be attempts to take into account each claimant’s particular

circumstances. Time horizon of loss, investment ability, life stage, and anticipated

The level of risk mainly relate to the idea that people who need more liquidity (e.g. older or poorer) will

optimise their investment strategy with lower-risk / lower-expected-return investments compare with their

younger richer counterparts who can invest in higher-risk/higher-expected-return strategies since they can

afford short-term volatility.

taxation and investment expenses would all have to be considered in each matter.

Even the most exhaustive analysis for any particular matter could not claim to yield

the single correct basis to apply.

17 Therefore in practice, the same basis is generally applied by a South African actuary

to all matters, regardless of circumstances.

(D) Future loss of earnings

18 Historical analysis

shows that the minimum-risk real rate of return (minimum-risk

investment returns less allowance for CPI inflation) has been in the order of 2.5%

p.a. in South Africa. This is applied in respect of loss of earnings claims.

19 We should make clear that the rate is not cast in stone but rather the result of the

economic climate of South Africa – it varies around the 2.5% mark and is currently

closer to 2.4%, even though it was closer to 2.8% a few weeks ago. But the vast

majority of lump sum compensation legal matters involving lost earnings in South

Africa are settled with plaintiff and defendant agreeing on an NDR of 2.5% p.a.

The reason for this is simply that most actuaries in this field use exactly 2.5%. Even

if this exact rate is not used, a very similar rate would be used and the range is

between 2.5% and 2.7%.

20 A 2.5% p.a. NDR for future loss of earnings is generally supported by yield curve

analysis – the common actuarial practice of comparing the current market yields

of fixed interest versus index-linked SA government bonds, in order to assess the

market’s expectations of future Consumer Price Index inflation, and the minimum-

risk rates of return currently available on the market.

21 By way of example, if general (non-promotional) earnings inflation was projected

to be on average 1% p.a. higher than CPI inflation, and the claimant’s future

investment returns were projected to be 1% p.a. higher than the market-expected

minimum-risk rates of return, then a current yield curve analysis would suggest a

2.5% p.a. NDR for future earnings-related loss calculations.

22 To conclude, in South Africa 2.5% p.a. is used as a standard NDR for future

earnings-related losses, with very little deviation from this.

Because actuaries set

the rate, this technically means that the rate can change in every case but in practice

Koch The Time Value of Money at pp. 143 to 144 and 148

Market yields are directly related to market prices , and can be sourced daily from the Johannesburg Stock

Exchange (JSE).

Components of loss subject to escalation at rates other than earnings inflation, such as the cost of future

expected medical procedures, tend to have a different NDR applied, and here there is more variability between

the different actuaries.

there have not been matters where the net discount rate has been contested - since

the standard 2.5% (or thereabouts) is used.

(E) Future medical expenses

23 Earnings related losses are those related to services provided by people and are

expected to increase in line with “general earnings inflation”. The discount rate for

most calculations is 2.5%, as explained above.

24 As inflation of medical expenses is expected be higher than the inflation of earnings

(currently and historically in SA), the net discount rate relating to medical expenses

is often set to be lower by actuaries than the net discount rate relating to lost

earnings.

25 For future medical/other expense capitalisation calculations the discount rates used

by South African actuaries has varied with the lowest net discount rate used being

0% (a few years ago) – the current lowest medical inflation NDR being used now is

about 1%.

26 Arch Consulting has noted one explicit instance of a negative net discount rate being

used in relation to medical expense inflation (almost a decade ago) but never in

relation to earnings inflation – although sometimes industrial psychologists or other

sources of prospective earnings information may specify relatively high annual

increases in earnings which would effectively (even if only implicitly) have the same

effect as having a negative net discount rate.

(F) Allowance for promotions

27 Allowance for promotions and other real increases in earnings is almost always

made explicitly by actuaries, and not implicitly. In other words, the computation of

the NDR stands separate from the allowance for promotions.

(G) Adjustment for contingencies

28 Risks and uncertainties associated with projected income streams – such as

allowance for periods of unemployment, saved travel costs from not having to go

to work, and chance of accidents or illness interrupting projected income – are

allowed for through the application of simple general contingency deductions to the

results of the actuary’s calculations, and not by adjusting the NDR. These much less

scientific adjustments can often have a much larger effect than a, say, 1% p.a.

change in the discount rate, especially for older people with fewer years of

discounting.

CONCLUSION

29 The discount rate in South Africa is set with reference to expert testimony from

actuaries and applies to all personal injury claims for future pecuniary losses other

than a few exceptions created by statutes where periodic payments are permissible.

30 The rate for loss of earnings claims has stabilised and it invariably agreed at

between 2.5% and 2.7%. For future medical expense, the discount rates used by

South African actuaries has varied with the lowest net discount rate used being 0%

(a few years ago) – the current lowest medical inflation NDR being used now is

about 1%.

31 A negative rate has generally not been used in South Africa, other than in an isolated

instance in respect of future medical expenses.

Date: 19 April 2017

Annex 7

SPAIN

Dr María Paz García Rubio

Dr Marta Otero Crespo

(Universidade de Santiago de Compostela)

(A) On what basis are personal injury damages awards assessed in your jurisdiction?

1. Personal injuries in Spain are compensated and determined according to provisions

of the Annex to the Act on civil liability and motor vehicles insurances (Legislative

Royal Decree 8/2004), of 29 October, of 2004, as amended by Act 35/2015, of 22

September, and which came into force on 1 January 2016.

This Annex contains a

Scale or Tariff system, known as Baremo.

2. Technically, this regulation set out by the Baremo has a limited scope of application,

as it is circumscribed to the compensation of damages suffered in motor vehicles

accidents. In this context, the Baremo is mandatory and binding on judges in respect

of injuries resulting from road traffic accidents. However, the absence of any other

scale system when assessing personal injury damages, led to the Spanish Courts to

apply the first version of the Baremo as a guidance document in order to assess

personal injury damages in general, especially since 2006.

In fact, the Spanish

Supreme Court (Civil Chamber) sanctioned its general application to other tort cases

falling outside the scope of injuries caused by road traffic accidents. In this regard,

the Civil Court justified the standard application of the former Baremo – as a non

binding instrument- to the assessment of damages in other scenarios on general

principles such as the principle of equality or the principle of equity (Supreme Court

decision of 9 December 2008, Civil Chamber –case: work accident)

and even the

principle of legal certainty (Supreme Court decision of 15 October 2012, Civil

Chamber- case: death of a minor caused by electric shock).

3. It should be noted that apart from the Civil Courts, Criminal, Administrative and

Labour Courts also applied the previous Baremo, again, as a guidance document

when solving cases involving personal injury claims.

4. Furthermore, the Additional Disposition 3 to the Act 35/2015 states that this new

Baremo would serve as a guide to a future scale system in the health sector (medical

malpractice cases). The Spanish Senate (the Health and Social Services Commission)

is currently debating this new compensation scheme.

Act 35/2015, of 22 September, Official State Journal of 23 September 2015, available at

https://www.boe.es/diario_boe/txt.php?id=BOE-A-2015-10197 - in Spanish.

See Supreme Court decision (Civil Chamber) of 10 February 2006 (RJ 2006/674). Case: death caused by

the fall of a garage door.

RJ 2008/6976.

RJ 2012/9345.

Check the Health and Social Services Commission debates

http://www.senado.es/web/actividadparlamentaria/iniciativas/detalleiniciativa/index.html;jsessionid=4JL4Ykt

(b) Application of a discount rate to lump sum awards

5. Taking these data into account, it can be stated that under Spanish law, the Baremo

establishes the general regime on the assessment of personal injury damages.

6. The new Baremo is not an update of the previous rules and scales. In fact, it is an

extensive and far- reaching reform of the system established in 1995,

inspired by

the basic principle of full compensation as it aims at restoring the victim to a situation

as similar as possible to the one prior to the damaging event and furthermore

requires evaluating and assessing each head of damage separately. In this regard,

the new Baremo distinguishes three types of damages: (1) basic personal damages,

(2) specific personal damages and (3) material losses (see below). Those damages

caused under special circumstances and not falling under the rules and limits of the

Baremo, might be compensated as well as exceptional damages. However, the

Baremo does not address what happens when the damages suffered by the victim

are over the limits set out by the scale system. Additionally, it should be noted that

according to its rules, an unjustified enrichment of the injured parties/ victims is

prohibited.

7. In general terms, compensation under this Baremo scheme takes into account any

personal, family, social and economic circumstances of the victim, including those

related to the loss of income and loss or diminution of earning capacity. To this end,

a new Title IV is inserted in the regulation of 2004, divided into two different

chapters: Chapter 1, on general provisions and definitions, and Chapter 2, on rules

for the assessment of bodily harm, distinguishing three different situations:

compensation for death (Table 1), compensation for sequelae or permanent injuries

(Table 2), and finally, compensation for temporary injuries (Table 3).

8. In each of these 3 situations, a correlative distinction is made amongst ‘basic

personal damages’ (Tables 1.A., 2.A and 3.A), ‘specific personal damages (Tables

1.B, 2.B and 3.b.)’ and ‘material losses’ (including actual damage -damnum

emergens- and lucrum cessans, Tables 1.C., 2.C. and 3. C.). This category of

‘material losses’ includes future losses, as per damnum emergens (for instance, in

case of permanent injuries, anticipated expenses for future healthcare or future care

or help provided by third-parties are incorporated) and lucrum cessans. In this

regard, a new actuarial model is set out for the compensation of lucrum cessans,

establishing two factors: the multiplicand and the multiplier, which will determine the

sum awarded. These factors are also applicable to quantify the anticipated expenses

for future care or help provided by third parties as well (damnum emergens).

YyXQnN2TQbJm5TvrJQP22qdC77MhvhYG9tbhQKnJJSCtB!-

1571990532?legis=12&id1=661&id2=000389. Please note that in 2011, the Final Provision 5 to the Act

36/2011, of 10 October, on Labour Proceedings also announced a new Scale system for personal injury

damages applicable to work accidents and professional diseases. However, the Spanish legislator never

approved this Baremo.

See Act 30/1995, of 8 of November, available at https://www.boe.es/buscar/doc.php?id=BOE-A-1995-

24262.

9. In case of death (Articles 61 ff.) the lucrum cessans is the net loss suffered by those

economically dependent on the deceased, considered then as injured parties

(typically, spouses, children under the age of 30, ascendants, descendants, relatives

and siblings). In this regard, the calculation of such loss of future earnings (lucrum

cessans), is determined by a multiplicand and a multiplier. It should be noted that

regarding the multiplicand, there are special rules for unemployed victims and for

those who are exclusively, entirely or partly, responsible for maintaining the

household (see Articles 83- 85). Once the multiplicand is identified, the

corresponding multiplier is set taking into account the coefficient resulting from

combining the following factors (Articles 86 ff.): the net income of the injured party

is multiplied by a factor, which consists of the following variables: (a) the injured

party rate (10% for the injured party alone (minimum), 60% for the spouse, 30% for

the children and 20% for others), (b) the entitlement of the victim to statutory

pensions, (c) the duration of financial dependency, (d) the risk of death and the (e)

discount interest rate which takes inflation into account. These factors are calculated

according to the technical actuarial basis established by the Ministry of Economy and

Competitiveness. These technical actuarial basis have been published by the

Directorate- General of Insurance and Pension Funds, depending body of the

Ministry of Economy and Competitiveness, and the interest rate is 3.5%.

10. Regarding the review process of the discount interest rate, it should be highlighted

that the Final Disposition 1 to the Act 35/2015 imposes on the Ministry of Justice

and the Ministry of the Economy and Competitiveness the constitution of a

Monitoring Committee.

This Monitoring Committee, established in October 2016,

must issue a Report within 3-year period from the entry into force of the new Baremo

analysing the legal and economic repercussions of the system and the updates ex

Article 49.1. (See below), along with the suggested measures to improve the system.

In light of this Report, the Directorate- General of Insurance and Pension Funds shall

promote the adequate adjustments and the corresponding revision of the technical

actuarial basis (which consequently may determine a revision of the discount rate, if

deemed necessary).

11. II. In case of sequelae or permanent injuries (including psychological and physical

damage, organic and sensorial injuries and aesthetic damage, Articles 93 ff.), the

compensation amount will include future losses such as foreseeable expenses

regarding future medical assistance, prosthesis and orthotics, home and hospital

rehabilitation, changes required for home adaptation and the resulting costs for

mobility, compensation for the cost of care or assistance provided by a third party

(family member or a professional care service). In this latter case, a multiplicand and

Available at:

http://www.dgsfp.mineco.es/direcciongeneral/JuntaConsultiva/Documentos/JCOrden21102016/Publicidad%

20Bases%20Tecnicas%20JCSFP.pdf

Upon proposal of the Directorate- General of Insurance and Pension Funds.

a multiplier are of application and the final compensation amount is the result of

multiplying the cost of the care services with the values for the relevant injured party

that is based on the following factors: (a) the right of the injured party to get help

and care from a third party, (b) the duration of the need of such help and care, (c)

the increase of such needs according to the age of the injured party, (c) the risk of

death and (d) the discount interest rate that takes inflation into account (see above).

12. In these cases of permanent injuries, the lucrum cessans includes the loss of earning

capacity and in particular, the net loss or diminution of income from the victim’s

work. Compensation for lucrum cessans is then calculated on the basis of the victim’s

net income or an estimate of the value of their dedication to housework or earning

capacity for those under 30 years old. It also takes into account the severity of the

inability to carry out the work as absolute, total or partial permanent disability

(multiplicand). The model is similar to the one described above: the victim’s net

income serves as a basis or, statistical figures in the case of minors and victims who

are responsible for the household. Then, this value is multiplied by a coefficient that

is the result of the following factors (multiplier, Article 132): (a) the entitlement of the

victim to public allowances for absolute, total or permanent disability, (b) length of

the damage, (c) risk of death according to the degree of disability and, finally, (d)

the discount interest rate, which takes inflation into account. Again, these factors are

calculated according to the technical actuarial basis established by the Ministry of

Economy and Competitiveness (see above). If the victim was exclusively dedicated to

housework, 25% uplift is applied to the final compensation award (Article 132.5).

13. On the review process of the Baremo (including the discount rate), see above and

the final section of this report.

14. III. Finally, in case of temporary injuries (Articles 134 ff.), the following patrimonial

damages are recoverable: medical sanitary expenses, prosthesis, orthotics, aid and

equipment and other expenses such as the increase of mobility costs, family

members’ travel expenses, etc.

15. In this case, lucrum cessans consists of the net loss or temporarily diminution of

income from work, or in case of dedication to housework, of an estimation of such

dedication when unable to perform. It should be noted that compensation for loss

or diminution of dedication to household tasks is incompatible with compensation

for expenses incurred by the replacement of such tasks.

16. Under Spanish law, claimants recover damages by way of a lump sum award.

However, Article 41 establishes that at any time, the parties or the judge at the

request of either of them may agree for the total or partial replacement of the lump

sum for a life annuity in favour of the victim. In these cases, the lump sum is turned

into an annuity following Table TT1 (it determines how to calculate the conversion).

See

http://www.dgsfp.mineco.es/direcciongeneral/JuntaConsultiva/Documentos/JCOrden21102016/Publicidad%

20Bases%20Tecnicas%20JCSFP.pdf at p. 51.

17. In any event, the judge may determine the abovementioned substitution, at least

partially, when the injured parties are minors or persons with disability and the judge

considers that this measure protects their interests in a more effective way.

18. Article 42 sets out the calculation of the life-long annuity. The total amount has to

be calculated so that it corresponds to the compensation resulting from the Baremo

system based on the technical actuarial standard coefficients for the conversion

between income and capital (Table TT1). The resulting annuity is subject to annual

adjustments following the public pensions revaluation rate, determined by the

General State Budget Act.

19. The equivalent annual annuity amount is calculated dividing the capital amount by

an actuarial coefficient, which takes into account, the duration, the risk of death of

the victim or injured party and the discount interest rate, which takes inflation into

account (see above).

20. This annual annuity may be fractioned in shorter periods as well (months or other

time periods).

21. In any case, once the final compensation amount is fixed, this could only be re-

examined under two specific circumstances: firstly, in case of a substantial alteration

of the circumstances taken into account to set the compensation in the first place or,

secondly, when additional and unexpected damages arise (Article 43).

22. According to Article 49, the Baremo tables will be updated at the beginning of each

year in accordance with the public pensions revaluation rate (determined by the

General State Budget Act – see Article 49 paragraph 1).

However, the lucrum

cessans and compensation for help provided by third parties must be updated

following the corresponding technical actuarial basis. Furthermore, the Table on

expenses for future care would be updated, if necessary, in accordance with the rules

for the provision of healthcare services (Article 49 paragraph 2). The Directorate-

General of Insurance and Pension Funds (Ministry of Economy and Competitiveness)

is the responsible institution for the publication of the updated compensation

schemes (Article 49 paragraph 3).

23. The Final Disposition 1 to the Act 35/2015 imposes on the Ministry of Justice and

the Ministry of the Economy and Competitiveness the constitution of a Monitoring

Committee.

This Committee, created in October 2016, is the responsible for the

Please note that the General State Budget Act 2016 has been prorogued for 2017. On the pensions

revaluation rate for 2017, see Royal Decree 746/2016, of 30 December, which establishes a revaluation rate

of 0,25% for 2017. Text available at: https://www.boe.es/boe/dias/2016/12/31/pdfs/BOE-A-2016-

12605.pdf.

As mentioned above, upon proposal of the Directorate- General of Insurance and Pension Funds.

required updates according to Article 49.1 (see above).

Furthermore, it must issue

a Report within 3-year period from the entry into force of the new Baremo analysing

the legal and economic repercussions of the system and the updates ex Article 49.1.,

along with the suggested measures to improve the system. In light of this Report, the

Directorate- General of Insurance and Pension Funds shall promote the adequate

adjustments and the corresponding revision of the technical actuarial basis (see

above).

Date: 8 April 2017

See the Order issued by both Ministries:

https://www.dgsfp.mineco.es/sector/documentos/legislacion/2016/Orden%20Comisi%C3%B3n%20de%20Se

guimiento.pdf.