Should courts discard the rule that reduces an accident victim’s compensation by 33%?

Do courts have the power to reduce damages under the ‘1/3 Contingency Rule’?

For the longest time the courts have been cutting down damages in accident cases.

They point to a rule called the ‘one-third contingency deduction rule’.

They justify it by saying that the deduction is for ‘contingencies, and the vicissitudes of life’.

So, if an accident victim was entitled to damages of RM100K, the courts would only award RM66.6K.

They deduct RM33.3K.

This is because courts say they ‘have a discretion’ to assume – arbitrarily – that there is ‘one chance in three that something might happen in future that may disentitle the victim to full damages’.

How do the courts divine this information?

Do trial judges have the ability to gaze into the future?

Are our courts Time Tunnels?

To understand how it all started, we need to return to first principles.

What is a ‘tort’?

A ‘tort’ is a civil wrong.

If you crashed into John, you’d be guilty of the tort of negligence. That is a civil wrong.

John can sue you for compensation.

If John loses a hand in the accident, obviously he can’t demand you give him yours! It may not be genetically compatible. You will also find it rather inconvenient.

So courts award monetary damages instead.

How should a trial judge calculate compensation?

What is the aim of awarding damages?

How much a guilty party must pay was decided in an old case called  Livingstone v. Rawyards Coal Co [1880].

There, Lord Blackburn said that the aim of compensation was to put the victim: –

‘… into as good a position as if no wrong had been committed’.

Lump sum or instalments?

Again, the trial court will always award damages in one lump sum.

The court won’t allow a defendant to pay compensation in instalments.

Some Malaysian courts have been doing it recently. That is not right.

The House of Lords decided that the quantum of the awards must be decided ‘once and for all’, because ‘there must be finality to litigation’: Mulholland [1971].

Pre-trial damage is easy to assess. It is easy to prove what happened in the past.

Assessing ‘post trial damages’ is more difficult.

It is for ‘future loss’.

When a court tries to guess what losses a victim could suffer in the future, uncertainty creeps into its calculation.

To overcome this problem the courts in England used a formula.  We copied that formula into Malaysian law. Here is the formula:-

Multiplier x Multiplicand

The ‘multiplier’ is the number of years during which John is likely to endure loss. It represents that period in the future that John would have earned an income. The ‘multiplicand’ is the amount of nett income John earns in a month.

The English Position

What the English courts did was then to reduce that sum a little further. They reduced it for what they called ‘contingencies of life other than death’ (e.g. because the victim might have been unemployed or ill).

The word ‘contingency’ – as you might have guessed – means some future event that may, or may not, occur.

Usually the English courts cut awards down by 4.5%. But in the House of Lords case of Wells v. Wells [1999] 1 AC 345] the judges only cut the award down by 2.5%.

Any sum awarded is then reduced to take account of the fact that John receives a lump sum than can then be invested.

Ogden Tables

However for over 36 years England has switched to ‘Ogden Tables’.

In 1982, a joint working party of lawyers and actuaries was set up. Sir Michael Ogden QC led it. Its task was to produce tables specifically geared to help assess future monetary loss in accident cases. These were rates calculated by a study of scientific data, by reference to the life expectancy of people in different age groups.  The data involving persons suffering from different medical ailments was also factored in.  There were separate tables for men and women.

They came to be known as ‘Ogden Tables’.

The Ogden Tables give actuarially accurate multipliers, applying various discount rates, according to the age of the claimant and the date of the trial: Burrows: ‘Remedies for Torts & Breach of Contract’ 2009,].

By 2000 the Ogden Tables had enjoyed 4 editions. The Tables continue to be amended.

However in Wells v. Wells, Lord Lloyd said that a judge

‘… should not be a slave to the tables.

He said that

‘… the table should now be regarded as the starting point, rather than a cheque. A judge should be slow to depart from the relevant actuarial multiplier.’

Despite these pronouncements, the courts in England, in practice, rarely depart from the Ogden Tables.

The disastrous 1975 and 1984 amendments to the Civil Law Act

In guessing what will happen in the future, Malaysian judges are not without help. Over and above the UK formula, Parliament intervened to help them through sections 7, 8 and 28A of the Civil Law Act 1956.  These amendments repeated the UK formula, but added major structural changes.  These amendments were enacted in 1975 and 1984, respectively.

The amendments were nothing short of disastrous. It is an insurance company’s dreams fulfilled.

The amendments limited a victim’s compensation to a ridiculously low amount. Parliament drew two Red Lines. One was at the age of 31. The other was at 54.

Anyone who fell below the age of 31 was assumed to be worth only 16 years of working life. Those whose ages fell between 31 and 54 existed in a sliding scale of income, from 15.9 to zero years. That scale represented their economic usefulness to themselves and their dependents. The victim became reduced to a number in a scale, a statistic. Anyone who was above 55 was economically useless to themselves or their dependents.

It curdles one’s blood just to read it. This legislative injustice sits on the statute books to this day. It is a blot on the nation’s  conscience.

These sections belie this great truth: A man’s worth lies not in his age, but in his knowledge, skill, ability and his commitment  to his family and to his nation.

The Two Assumptions the Amendments made

In enacting these sections, Parliament made two fundamentally flawed assumptions.

First, if John who was 55 or older older, the court must rule that he was incapable of earning any gainful income.

The second proposition was that if John was 30 and below, the court must rule he will only have 16 years of earning capacity.

Let’s apply the Parliamentary formula – see where that gets us:

Use John as an example.  But change his age to 55.

So if John died in an accident as CEO of Microsoft, his family would get nothing as loss of future earnings.  His family would get a meagre – but fixed -amount of RM10,000.00 as  ‘bereavement expenses’ and funeral expenses as well.

It is statistically accepted that in Malaysia an average male has a life expectancy of 74, and women, 76.

Judges retire at 66. This week the Deputy Minister of Law proposed that that should be extended to 70. Some while ago at least three judges who exceeded the age of 66 were brought back into the Judiciary under Article 122(1A) of the Federal Constitution. That is 12 years longer than what the Civil Law Act allows.

The Prime Minister is 93. His legal adviser is 77. If either of these men are injured in a car accident, they wouldn’t, under the Civil Law Act, get one red cent in compensation!

That is the irony of it.

The only way this formula could be changed is if the new Pakatan Harapan Government takes pity on its citizens and increases the retirement age from 55 to 65 for men and women.  This would be consistent with their current life expectancy.

What if we change John’s age at the time of the accident?

If we use the Second proposition, and if John had been 30 at the time of the accident, then the court must assume that he is only capable of having an income for a fixed period of 16 years.  Isn’t that odd?

Those 16 years were called ‘years of purchase’ – whatever that meant!

If John was between the ages of 31 and 54 – then the ‘years of purchase’ were to be calculated by deducting from the number 55 John’s current age – and then, dividing the resulting figure by two.

So if John was 40 years of age at the time of the accident, then the correct way to apply the formula would be: –

55 – 40 = 15 (years).

The number 15 has to be further divided by 2.  Thus:

(15 /2) = 7.5 (years).

That would represent the ‘multiplier’ or the ‘years of purchase’.

Now, assume that John’s ‘nett’ income is RM1,000.00 per month.

So the correct calculation of damages for John would be:-

7.5 years X 12 (to convert it to months) X RM1,000.00

= 90 (months) X RM1,000.00

= RM90,000.00

But wait!  The actual damages payable is only RM60K

In a series of cases courts have argued that in accident cases they can deduct a sum equivalent to 1/3 of the sum awarded.

So the amount of compensation that John would get is to reduce 100% damages by 1/3 so that final ration is only two-thirds. Thus: –

RM90,000.00 X (2/3) = RM60,000.00.

Why do the courts do this?

They say that this is because they have a discretion …

‘… to deduct a sum for contingencies, or other vicissitudes of life and accelerated payment at common law’: Takong Tabari v Government Of Sarawak [1998] 4 CLJ 589 [CA].

This case is a sad story.

Jeffrey was Takong Tabari’s husband. In February 1990, he died in a gas explosion in Miri.  Tabari sued the State Government of Sarawak.  She asked damages for herself, her dependent children, and for Jeffery’s aged parents. The trial judge granted RM270,000.00  as damages but deducted one-third for ‘contingencies, vicissitudes of life, and accelerated payment.’

That left Tabari with only RM180,000.00.

Tabari appealed.

She argued that the High Court judge was wrong to reduce any damages awarded.

Over the years Malaysian cases have repeated this principle, e.g. (1) Bujang Mat [2004], (2)  Dass Darmalingam [2009], (3) Wong Kwan Kay [2015] CA.

These and other – earlier – common law cases give no valid reason why this 1/3 was the right ratio to be deducted from damages.

Why not 25%?

What about 10%?

Or 7.215%?

Which ratio is preferable? 

Why is the one more rational than the other?

No one can say – and so far, no judge has said anything.  It is time someone did.

When you argue this way before the judges, it bewilders them.

The best answer they can come up with is:

‘Because someone else higher up said so, and I am bound by that precedent.’

Does that sound familiar?

This lack of reasoning is troubling.

Now, Tabari took a clever argument. She pointed to sections 28A and  7(3)(iv)(d) of the amended Act. She said those sections had already replaced the common law principle of ‘one-third contingency rule.’

The Court of Appeal disagreed. They pointed to the majority judgement in Chan Chin Min v. Lim Yok Eng [1994].  They relied on it to approve the ‘One-Third Deduction Rule’.  Now, Chan  was a Supreme Court case. In Chan, Peh Swee Chin and Mohamed Dzaiddin SCJJ ruled that the courts ‘had the discretion to reduce’  awards. They reduced the multiplier from 16 to 6, even though the victim was less than 30 years of age. So, there, their argument was based on section 7(3) of the Act.  They said section 7(3)  only dealt with ‘loss of support’ and not ‘loss of earnings’. They thought the phrase ‘loss of support’ dealt with claims where unmarried children died in accidents, and where parents made claims for losing the financial support of such children; as opposed to Tabari’s ‘dependency claim’ – which is one where a wife makes a claim for dependents. Here Tabari had made the claim for herself and her children.

The Supreme Court missed something huge.  It missed the phrase ‘loss of earnings’. That sits quietly in the latter part of section 7(3)(iv).  Even a later Court of Appeal case missed that whale

One judge stood against this majority argument.  It was Edgar Joseph Jr SCJ.

His dissenting judgement deserves deeper study.

Because of these amendments, Edgar SCJ said judges had ‘no discretion’ to change the parliamentary formula of 16 years by using common law principles. Even the Supreme Court Judges, he said could not …

‘… rewrite the statute, or brush aside explicit statutory provisions, and select, in the exercise of [their] discretion, a suitable multiplier.’

It was one of the very few times in his life he would use bold lettered words to bring home a crucial point.  He quoted the words of a famous a US judge, Cardozo J:-

‘… we are not at liberty to revise while professing to construe.’

 [Sunprinting & Publishing Association v Remington Paper and Power Co [1923]

For good measure Edgar drew strength from the words of another US judge, Sutherland J, who said:-

‘… the judicial function is that of interpretation; it does not include the power of amendment under the guise of interpretation’: [West Coast Hotel Co v. Parrish [1937].

Two points: for the first time, a  Court of Appeal case overruled the Supreme Court case of Chan Chin Min. It had never been done.  Gopal Sri Ram JCA in Ibrahim Ismail v. Hasnah Puteh [2004]  approved of Edgar’s dissenting judgement. He thought it deserved ‘great respect’.  He said the majority judgement was wrong.  So therefore, even the 1998 Court of Appeal decision in Takong Tabari, which relied on Chan Chin Minis, since 2004, no longer good law.  Ibrahim Idris  swept away  Takong Tabari’s foundational argument that the court had a right, in common law, to change or reduce parliamentary formulae.

Second, in the face of scientific data alone, the majority decision in Chan Chin Min and Takong Tabari  are now suspect. These cases now stand on infirm ground.  Edgar SCJ’s  dissenting judgement has stood the ravages of time, and has forced the courts to come down on the side of science.

Third, what was the average lifespan of a person in 1975, when these amendments to the CLA were made? What are they now, 43 years later?

Big difference!

A further argument to blunt Tabari

Two arguments should have been taken in Tabari.

They weren’t

First, the lifespan of an average man is 74. That of a woman is 76.

Against this, because Parliament had formulated 54 years by as the maximum age, and it can  safely be assumed that Parliament had already granted a substantial discount to the multiplier.

This is because 74 minus 55 is 19 ‘years of purchase’.

The number 19 divided by 74 (lifespan) is equivalent to 25.67%.

The number 19 divided by 55 (statutory retirement age) is 34.55%.

So Parliament had already given a discount of 25% to 34.5%.

So, the courts did not have any power to override parliament and on their volition grant a ‘double deduction’.

Second, parliament’s insertion of secs. 7 and 28A in the CLA  was a clear legislative displacement of the common law rule of ‘One Third Discount’.

When Parliament reduced the gainful employment age of a man or woman to 54 it was implicit that it had already taken the one third rule into consideration.

In light of these considerations, the Court of Appeal decision in Takong Tabari, and the Supreme Court’s majority decision in Chan Chin Min are difficult to reconcile with established legal principles.

If Ogden Tables are not 100% accurate, what about the 1/3 rule imposed without scientific data?

Despite all that detailed study made over the Ogden Tables, in 1985 in a case called Auty v. National Coal Board Lord Justice Oliver famously said:-

‘… the prediction of an actuary can only be a little more likely to be accurate (and will almost certainly be less entertaining) than those of an astrologer:’[1985] 1 AER 930, 939]

Now, if the scientifically and actuarially calculated Ogden Table rates attracted the trenchant criticism of a judge in 1985, then on what basis are Malaysians courts using the ‘one-third rule’ without a shred of mathematical or scientific proof?

On what basis are courts cutting down 33% from the final damages they award?

There is no reason for our judges to continue to use this long-dead common law principle.

It went out of fashion in England as far back as 1982.

The correct approach

The correct approach in Malaysia should be to amend the ss. 7  and  28A  of the  Civil Law act 1956. They create more problems than they solve. This is because, as was said in the beginning, the purpose of compensation is to put a victim in a position as if there was no accident: Livingstone v  Rawyard Railawy.

These are my suggestions:

First, Parliament has to, by appropriate amendments, increase the age of retirement from 55 to 65.

Second, the Malaysian courts should fall back on the UK Ogden Tables. We don’t have to re-invent the wheel. UK improves it every so often. We should just follow suit. Not blindly, but with wisdom.

Third, we must completely jettison this idea of the ‘one-third contingency’ rule.

Otherwise, accident victims and their families, and people like John – people like you – will be short-changed.

And insurance companies will continue to experience a windfall which they have enjoyed for the last 43 years.

The only parties that benefit from these sections are the insurance companies.

Not accident victims.

Most of the people who fall victim to road accidents are the poor and needy.

If they could afford a BMW, they’d enjoy greater protection – for any chance of injury in a luxury car is that much smaller.

These people cannot afford the protection of a Volvo or a BMW.

So the law has to protect them.

It is not difficult.

All it needs is sheer will power.

The will power of the new government.

 Will Parliament look into it?

While waiting for parliamentary intervention, will the courts abandon these oppressive rules?

 

[The author expresses his gratitude to Mr Thayalan Moorthy for his assistance].

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