LI LAI FUN AND ANOTHER v. LEUNG YIU CHEUNG AND OTHERS

CACV253/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.253 OF 2005

(ON APPEAL FROM HCPI 697 OF 2002)

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REASONS  FOR  JUDGMENT

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Hon Ma CJHC :

1. I agree with the reasons contained in the judgment of Burrell J for allowing the present appeal.

Hon Yeung JA :

2. I also agree.

Hon Burrell J :

3. At the conclusion of this hearing we indicated that we would allow the appeal and make a revised award for loss of accumulation of wealth in the region of $132,000 with written reasons to follow.  This we now do.

4. This is an appeal against an assessment of damages in a fatal accident case.  As is usual the assessment involved a number of heads of damage.  This appeal relates to one head of damage only namely the award for loss of accumulation of wealth.  In a corrected decision handed down on 8 April 2005 Master Levy awarded the plaintiffs $2,485,068.  The Master’s original written assessment, handed down on 20 November 2004 had been for $2,585,068.  That written assessment had been a carefully reasoned and detailed judgment dealing with the different heads of damage.  Under item (4) on page 45 of the judgment she had awarded $200,000 for “Loss of accumulation of wealth”.

5. Before the order was perfected and the judgment sealed it was noticed that she had made an error in her calculations.  That error prompted a summons from the defendant inviting her to correct the error under the slip rule, Order 20 rule 11 of the Rules of the High Court.  There was no dispute between the parties that an error had been made and it was acknowledged by the Master.  The fact that the judgment had not been sealed was neither here nor there.  The slip rule may be invoked at any time.

THE ERROR

6. The error and its significance was as follows.  The fatal accident had occurred in 1999 when the deceased was 42 years old.  He had a family.  The Mandatory Provident Fund (“MPF”) was introduced into Hong Kong legislation in 2000.  One of the Master’s tasks was to assess what the deceased’s fund would have been on retirement had he continued to work.  In making the assessment she, correctly, took into account what the deceased’s own contributions to that fund would have been during the rest of his working life.  The error was that she took into account a figure equal to 10% of what he would have earned.  The correct figure should have been 5%.

7. In her corrected assessment handed down on 8 April 2005 she addressed the task anew using the correct percentage.

8. In her original decision she had assessed the combined contributions of the employer and the employee to the future MPF to be $567,000.  The revised arithmetic (using 5%) produced a figure of $357,200.  A minor 2^nd mistake in the method of calculating the true figure was also identified and corrected in the revised decision but it is of no consequence in the present appeal.  No issue is taken by the parties that the “slip rule” was properly utilized for this purpose and that the revised arithmetic resulting in the new figure of $357,200 was correct.

THE CONSEQUENCES

9. The relevance of the figure was in relation to the claim for loss of accumulation of wealth.  In that regard the Master’s next task was to answer two more questions.  Firstly, based on contributions of $357,200 made over 17 years, how much would the fund be actually worth at the time of notional retirement?  Secondly, by how much would that fund be depleted during the remainder of the deceased’s life had he survived until death by natural causes?  Both these questions are hugely speculative but they had to be addressed.  In answering both questions she did two things.  Firstly, she adopted a sensible and reasonable, but non-actuarial, approach and secondly, she adopted the same approach both in her first assessment (based on the erroneous sum resulting from a 10% contribution) and in her revised assessment based on the correct percentage.

(a)     The first assessment

10. The total contribution in her first assessment came to $567,000.  She accepted the figure taken from the plaintiffs’ revised statement of damages that this would have grown to $800,000 by the time of retirement.

11. She then assumed that this fund would have been utilized by the deceased to the extent of $500,000 during the rest of his natural life.  This was based on a broad brush assessment that the average annual call on the fund for his financial needs would be $25,000 for 20 years.  Plainly this was not intended to mean an annual figure of $25,000 from the capital, ignoring the amount by which the fund would grow with interest.  It was an averaging out over 20 years taking interest into account.

12. Two things need to be said about this.  Firstly, it was a calculation which had to be done and it flowed directly and inevitably from the assessment of the starting point of $567,000.  Secondly, it was a calculation in the plaintiffs’ favour.  Her generous assessment of depleting the fund by an average amount of only $25,000 a year meant that $300,000 still remained as a starting point for the “accumulation of wealth” head of damage, even at the notional age of 80.  She then, correctly, depreciated the sum of $300,000 by 30% for early receipt.  (That should have resulted in $210,000, but $200,000 was the figure in the judgment).

(b)     The revised assessment

13. The new, correct, starting point was $357,200.  The consequences of the adjustment had to be met.  The further consequential adjustments still come within the operation of the slip rule.  There is no merit in the argument that the arithmetic calculations should be corrected by the slip rule but the consequences of the new figure should not.

14. However, in the exercise of calculating the effect of the new figure on the final award for loss of accumulation of wealth we think that the Master fell into error in two respects.  The two errors were firstly, her selection of the figure of $650,000 as the notional size to which the fund would have grown by the time of retirement at the age of 60 and secondly, her decision to use the same figure of $25,000 per year as the average amount by which the fund would have been depleted during the remainder of his natural life.

15. The correct approach, in our judgment, would have been to calculate by reference to her original figures the factor by which the original contributions ($567,000) had increased to arrive at the notional retirement fund ($800,000).  The answer is 1.411.  In other words, $567,000 × 1.411 equals (approximately) $800,000.

16. This factor should then be applied to the corrected starting point.

17. The arithmetic approach then becomes as follows :

(1)     $357,200 × 1.411 = $504,009 (say $504,000).

This becomes the proper figure for the size of the fund at age 60.  It is not clear why the Master selected $650,000.  True, it was more generous to the plaintiffs but it does seem somewhat arbitrary.

(2)     The next calculation concerns the figure of $25,000 per year.  Using the same approach it is necessary to calculate by what factor $25,000 is a proportion of $800,000.  The answer is that $25,000 is 3.125% of $800,000.  The new calculation is therefore as follows :

                   $504,000 × 3.125% = $15,750.

Decreasing the figure for the average annual call on the fund from $25,000 to $15,750 also reflects the fact that the smaller the fund the more conservatively it would have been deployed.  This is another direct consequence from the original error.

18. Thus, the new total depletion of the fund is $15,750 × 20 = $315,000.  The amount that would remain is therefore $504,000 - $315,000 = $189,000.

19. The final calculation is to reduce this by the 30% which the Master adopted as a discount for early receipt.  $189,000 × 70% = $132,300.

20. We therefore allow the appeal to the extent that the figure for loss of accumulation of wealth should not, as a consequence of using 10% as the employee’s contribution to the MPF instead of 5%, have been reduced from $200,000 to $100,000 but that it should have been reduced from $200,000 to $132,300.

FURTHER MATTERS

21. There are two further matters which should be mentioned.

22. Firstly, both before the Master during the “revision” hearing on 24 March 2005 and before this court Mr Mohan Bharwaney for the plaintiffs attempted to argue that the Master had fallen into error in another respect as well.  He argued that in calculating the figure of $25,000 per year the Master had not fully, or at all, considered the growth of the fund as a result of interest during the retirement years.  The summons before the Master did not refer to this issue at all.  In any event, if the Master had been in error on this point (which we doubt she was) it would not have qualified as coming within the “slip rule”.  As a result it was necessary for Mr Bharwaney to apply for leave to appeal out of time.  In the course of the hearing we refused leave on the basis that the matter could have been raised at any time hitherto and that it was now far too late.

23. Secondly, it is acknowledged that by its very nature the assessment done by the Master and considered by this court is necessarily speculative and artificial.  Concluding that a man’s MPF fund will be diminishing by an average of $15,750 a year 20 to 40 years after his tragic and early death has to say the least, an air of artificially about it.  The fact is however that a calculation has to be done.  The Master approached the task with diligence and fairness.  The error was simply in failing to apply the arithmetic adjustments consistently to all the figures that emerged as a result of the correction.

COSTS

24. On the question of costs the plaintiffs have had to come to court to obtain an increase.  Albeit that the increase was less than contended for, we nonetheless make a costs order nisi in their favour.