Hong Kong Personal Injury Brief - March 2017 edition

Welcome to the March 2017 edition of the Personal injury and fatal accident brief.

UK slashes Discount Rate for injury cases

In the United Kingdom, the statutory discount rate used to calculate future loss awards for injury claims has been significantly reduced from 2.5% to minus 0.75%, sending shockwaves through the compensator community.  This change will become effective on 20 March 2017 and is expected to dramatically increase damages, especially in cases involving catastrophic personal injury and serious clinical negligence claims.

Unlike the United Kingdom, Hong Kong does not have a statutory discount rate to calculate personal injuries awards.  The prevailing approach in Hong Kong is set out in Chan Pak Ting (2013), which provides that three different rates may be applied, depending on how long the Plaintiff’s future needs are expected to last for.  The relevant rates are 2.5% (for loss > 10 years), 1% (for loss between 5 and 10 years) and minus 0.5% (for loss < 5 years).  UK’s new rate of minus 0.75% is even more generous than Hong Kong’s highest rate of minus 0.5%.

While there has been discussions by stakeholders on whether Hong Kong should follow the UK path of statutory discount rates, this is unlikely to be passed into law very soon.  On the other hand, now that UK has substantially reduced the discount rate, it is possible that the current approach under Chan Pak Ting may be challenged in an appropriate case.  The Personal Injuries Judge specifically allowed for discount rates to be reviewed from time to time if economic conditions change.  If interest rates and investment returns continue to be depressed, there is a chance that discount rates would be reduced downwards.  However, whether minus 0.75% is appropriate to Hong Kong is arguable given that economic conditions in the United Kingdom are different from those in Hong Kong, especially since the Brexit vote and the expectation that interest rates will rise in the long term.

For a more in-depth analysis of the implications of the changed discount rate in the United Kingdom, please see the article Discount rate reduction after 16 years.