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There is an often-cited axiom originating from a 1789 letter of Benjamin Franklin – “The only two certainties in life are death and taxes” which till today, in a broad sense, holds true, albeit with some added flavour of modern society. In today’s word, while more of an assumed probability rather than certainty, most would not argue if we added a couple more such as inflation, and with the advances in modern medicine, greater life expectancy. With these two additional ‘certainties’ of life, global trends also quite predictably moved towards longer working lives and higher retirement ages, plausibly to cope with the increased inflation and cost of retirement which is a natural result of greater longevity.
These modern trends, whether certainties or probabilities, have had a large impact on how we all go through life and make our decisions, be it our career choices, whether we start a family or even seek to do so, how we spend our money, how much we need to save for retirement and when we choose to retire – this will likely continue to have strong influences on our life choices.
At times, and regrettably more often than one would hope, such choices are either involuntary made for us or taken away altogether; an accident ends a life or results in a permanent disability. In that unfortunate event, how can the law and the legal system aid the victim in obtaining fair and just compensation when in this modern day and age, there seem to be less certainties in life and more possibilities rather than probabilities.
In this article, we bring you through the evolution of this formidable task and the historical attempts at completing it, and how Singapore has now taken what should be considered an optimistic and triumphant step towards preventing under-compensation of victims in personal injury and death claims.
The circumstances necessitating a personal injury and / or death claim are almost always inevitably tragic in nature, and the unfortunate outcome also typically more than devastating to the victim and / or his / her loved ones and dependents. In an unfortunate moment, the open future possibilities and endeavours of a person come to a grinding halt, either through death, or partial / total disability.
The purpose of the law and the legal system in personal injury and death claims is to provide a fair and just quantum of compensation, ideally equal to the amount that the victim had actually suffered and that the victim would have enjoyed if he / she had lived his / her life to its extant fulfilment. In the case of the latter, what would the victim have earned had he / she not suffered the injury or robbed of his / her life. This is commonly referred to as loss of future earnings and which is also commonly estimated through the use of a multiplier which is applied to the victim’s annual income at the time that the personal injury is sustained. The multiplier takes into account two main competing components – the first is a forward multiplication the victim’s present annual income (estimating present value of future income), but at the same time a discount rate on the lump sum future income since it was, in a sense, received early without having to work all the years into the future (discount on accelerated receipt). If it is beginning to sound more and more complex, that is precisely because it is.
At the very heart of this formidable task is the realisation that this is actually an attempt to predict the future – this, regrettably, is an impossibility. Yoda said – “Difficult to see. Always in motion is the future”. The best we can do is to go through the possibilities and / or probabilities, taking into account the realities of our modern world, and come up with the best way to determine what would have happened in the future. Thereafter, based on this hypothetical putative future, determine the best estimated quantum of compensation to award the victim; even then, this approximation, by its very definition, is not exact – the victim could be under-compensated and we would never know.
Such is the nature of this impossible task – but nevertheless, a Herculean labour worth undertaking, even in the face of inevitable imperfection. And it is such a task that was indeed undertaken by many before us including that of many tireless proponents in Singapore as well.
Initially, the use of a multiplier as an instrument to estimate loss of future earnings was a simple and useful tool that did not present much difficulty in application, mostly because people retired early (smaller range and thus lower incidence of calculation error) and the usual economic indicators of taxes and inflation were relatively more stable. It was, to put it plainly (though not without risk of oversimplification), a simpler time.
However, in the aftermath of World War II and the large structural changes to the world political and economic order in in the late 1940s to 1960s, it became apparent that times were changing, and so was the world and the people living in it.
In 1973, the Royal Commission on Civil Liability and Compensation for Personal Injury was established under the chairmanship of Lord Pearson. This United Kingdom (“UK”) royal commission came to be more commonly known as the Pearson Commission. After half a decade of arduous work, the Pearson Commission released its report in 1978.
Amongst many other important recommendations, the report of the Pearson Commission had recommended that in the assessment of a victim’s loss, a larger, fuller account be taken to factor in the effects of tax and inflation. Practically, in estimating loss of future earnings, this would mean that significant changes would have to be made to the calculation of the multiplier, and in particular the effects tax and inflation would have on the discount rate to be applied.
However, in providing a lump sum amount of compensation, the same fundamental problem of estimating inflation over large number of years, which essentially still was largely a matter of conjecture, would still present a debilitating presence in its practical application. Interestingly, the attempt to “inflation-proof” compensation sums to victims could have resulted in an over-generous quantum being awarded depending on the wages earned at the point of the accident; for example, an above-average wage earner would likely benefit disproportionately (over-compensated), while a below-average earner could conversely suffer from under-compensation.
In a nutshell and in admittedly grossly oversimplified terms, the UK came to adopt a maximum multiplier of 18 (years) based on the assumptions of an estimated working age of 25, the retirement age of 60, and a discount rate of somewhere between 4 to 5%. The actual approximation of the multiplier from 0 to 18 would still be an exercise of estimation based on the circumstances of each victim which one could consider more of an art rather than a science.
Predicting the future and quantifying the same was and still is no simple task.
Following from the Pearson Commission and its report, the UK made a concerted and multi-disciplinary inter-professional effort to develop actuarial tables to assist the courts in determining and applying the most appropriate multiplier to a victim’s annual income to reach the best approximation of his / her loss of future earnings. An actuarial table compiles and presents the probability of an individual (split by sex due to differing life expectancies of males and females) surviving a particular year of age based on the statistics that calculate their remaining life expectancy at particular age. In a sense, using actuarial science and statistics proved to be a rather useful tool in predicting the future, and from there, quantifying a victim’s loss of future earnings from that predicted future.
The Ogden Tables were developed based on UK mortality data which accounted for the positively changing trends in life expectancy and modern medicine. However, like all other things, the Ogden Tables themselves were limited by the mortality data it was based on, including the limitations and imperfections of data collection, as well as the state of actuarial science itself. In other words, there was a long way to go.
Closer to home, the experience of Singapore proved to be quite different. For a nation in its infancy, it did not have the luxury of an established systems of statistics and data collection and / or centuries of experience in collecting and analysing data. It was only in the 1970s that such capabilities began to expand significantly with the establishment of the National Statistical Commission and adoption of a decentralised statistical system in 1972 and the enacting of the Statistics Act and Census Act in 1973. Even then, it could be considered as just the beginning.
In a way, the use of actuarial science would have been less feasible or effective when the Ogden Tables were first developed and published in 1984. Quite understandably, Singapore’s experience post the Pearson Commission differed greatly from that of the UK, just like many other countries and jurisdictions with their unique histories and cultures, but she did take cue from the multipliers used by the UK.
Over the course of time and many cases of personal injury that were heard before the Courts, Singapore had come to adopt a multiplier range of 0 to 16, based on similar discount rates but instead with a retirement age of 55. A significant precedent bank based on the multiplier range of 0 to 16 would slowly be amassed with each case before the Courts, where a judge had the unenviable task of somehow finding the right multiplier that would represent the best estimate of a victim’s loss of future earnings. With each case, the reference to previous applications of the multiplier grew more and more entrenched, while the underlying assumptions (such as the average working age, retirement age and / or discount rates) become more and more out of touch with modern reality – the discernment of this, while on the surface consciousness of all actors involved (judges, lawyers, experts, insurers and victims alike) had not reached the levels of true comprehension and actual assimilation.
In 2014, the case of Lai Wai Keong Eugene v Loo Wei Yen [2014] 3 SLR 702 (“Eugene Lai”) was heard before the Court of Appeal – this would prove to be a watershed moment for Singapore. The facts of Eugene Lai were not too dissimilar to the cases before it – tragic circumstances led the victim to suffer catastrophic injuries that rendered him paraplegic; his need for compensation could not be understated. The exact same problem of estimating the victim’s loss of future earnings presented itself, and the Courts looked to the conventional approach of adjusting the bank of legal precedents to fit the specific factual matrix of the case.
The case, while not particularly remarkable in terms of the legal complexity, still went before the apex Court of Singapore because the victim’s lawyers felt that the victim was being unfairly undercompensated as a result of the old assumptions that underpinned the multiplier range of 0 to 16 were, by then, outdated. Our Mr Anthony Wee (“Anthony”) had hoped to convince the Court of Appeal to depart from the conventional approach in favour of a more updated application of real time economic factors, and this formed the main thrust of his spirited submissions.
Anthony highlighted two main things to the Court of Appeal that showed the multipliers used in past cases were outdated and in need of modern revision. The first was that the retirement age used in the multiplier was based of that of the 1970s and 1980s which was 55 – this was clearly no longer the case. The second was that the inflation and interest rate environments had changed significantly, especially after the Great Recession in 2007 to 2009 when the United States Federal Reserve embarked on an unprecedented and unconventional monetary policy in quantitative easing, essentially flatlining short term interest rates at close to zero. Put in simple and understated terms, the world had changed quite a bit since the 1970s and 1980s.
Ultimately, despite Anthony’s spirited submissions, the Court of Appeal declined to depart from the conventional approach. In coming to its decision, the Court of Appeal noted that at the end of the day, there would be no guarantee that the economic factors present in 2014 would continue to hold true. For example, the Court of Appeal opined that the low interest rate environment in 2014 was not guaranteed to persist, especially given the United States’ movement towards tapering its quantitative easily policy. In fact, this has been proven true some 8 years later today in 2022. Quite correctly, the Court of Appeal did appreciate that we could only speculate on what would happen in the future, and it really did not matter who was the one doing it – it would still be speculation and an attempt to predict the future.
However, the Court of Appeal did agree with Anthony that the state of the law back in 2014 was unsatisfactory and that there was scope for reform. More importantly, the Court of Appeal declined to disturb the then methodology with drastic changes to the discount rate because it felt that such a pivotal task was not to be undertaken by the Courts alone, i.e., it was inappropriate and perhaps too presumptuous to think that judges alone had the knowledge and expertise to decide this for the entirety of society. This was undoubtedly the correct call.
The Court of Appeal stated that this task rightfully should only be undertaken after careful and rigorous study, with input and mastery of subject matter experts and numerous stakeholders involved, and therefore the matter would correctly “fall within the institutional competence of the Legislature”. Put another way, the burden of the impossible task would be best shouldered by a combined cooperative effort, rather than any singular person or entity, much like the multi-disciplinary inter-professional effort that culminated in the Ogden Tables in the UK.
Very quickly after the case of Eugene Lai, the Chief Justice appointed a committee in June 2014 to comprehensively and laboriously review the compensation framework regime for victims of personal injury and / or by extension their dependants in the case of death. Thus, the Personal Injury Damages Committee was convened. Quite fittingly, Anthony was appointed a member of this committee.
The gauntlet of this impossible task had now been taken up and the mere technicality of impossibility would not deter their efforts.
4 years later, the Personal Injury Damages Committee published its report on 2 March 2018.
One of the key recommendations of the Personal Injuries Damages Committee was that Singapore should look into developing actuarial tables to assist the Courts in the assessment of damages. From this recommendation, the PIRC was formed under the auspices of the Supreme Court of Singapore and the Monetary Authority of Singapore (“MAS”).
The chairperson of the PIRC was Mrs Hauw Soo Hoon who was a former Executive Director of the Insurance Supervision Department of MAS. She was joined by the combined representatives from the MAS and practitioners from the Singapore Actuarial Society, the General Insurance Association, the Life Insurance Association, the Law Society of Singapore and numerous other respectable independent actuarial consultants and Court representatives.
Anthony was a member of one of the subcommittees in the PIRC, but as was quite obvious, he was only one of the numerous contributors to the cause. The experience of Eugene Lai, though at that point in time seemingly unsuccessful, did reveal itself to be a fruitful one, mostly in paving the way for reform but also in part proving the Court of Appeal right that certainly more expertise and effort than just Anthony and the 3 esteemed judges in the Eugene Lai case was needed, at the very least to provide a more holistic perspective and assessment.
The dream team of the PIRC had been assembled and the law and compensation system could only move forward towards fairer compensation to victims.
On 29 May 2020, the PIRC published its final report and it was accepted by the Chief Justice Sundaresh Menon on 8 July 2020. This paved the way for the development and publishing of the Actuarial Tables for use by the Courts in Personal and Injury Death Claims.
In the first version of the Ogden Tables published in 1984 was simple in structure, and over the years the UK updated and improved these tables – now the Ogden Tables are in their eighth edition published in 2020.
The Actuarial Tables are in essence Singapore’s answer to the UK’s Ogden Tables, but customised specifically for Singapore. Additionally, at least for Singapore’s purposes, the seminal Actuarial Tables could be considered an improvement on the eighth edition of the Ogden Tables.
First, instead of using a single discount rate which could prove to be too rigid to account for the complexities of human behaviour and everyday life, the PIRC instead used a yield curve which arguably is more representative of how money in the real world would be invested. This yield curve accounts not just for the different types of assets that would normally constitute a diversified portfolio, it also accounts for the expected investment returns for this composite mix and how they would perform over different periods of time. Translated into what this means in real life: it means that if you were ever confused about equities, bonds, mutual funds, etc and the different risk levels associated with them, now the yield curve would assume that your future self was reasonably knowledgeable on all of this and your future earnings would have been adequately invested by a reasonably competent future you. Already, this makes it seem less likely a victim would be under-compensated.
Secondly, the yield curves have embedded into them adjustments for inflation based on the historical average annual price inflation in Singapore, but controls for over-adjustment by limiting its effect such that the resulting discount rate for any term does not turn negative. What this means is simply that accounting for inflation would prevent over-compensation, but controlling this correction ensures that at the very least, there is as low a probability as possible that under-compensation occurs; under-compensation being the larger evil here.
Thirdly, the Actuarial Tables included a factor that accounts for mortality improvement of 2.6% per annum for both genders. This means that the victims of tomorrow would not be punished for living longer due to the advancements in modern medicine.
Lastly, and possibly most importantly, is the recognition by the PIRC that this is just the starting point. The above attempts (which are already amongst many others) at including adjustment factors are also still limited by the availability of data in Singapore. The future, at best, will remain an unknown, with almost a definite certainty that there would be a need to update the Actuarial Tables. The very recognition of this shows that the lessons of the Eugene Lai did not go unlearnt.
Predicting the future was always an impossible task, at least based on our current technological state and understanding of space and time.
One could say that this impossible task was never completed and that would probably be correct. Nonetheless, it is worth celebrating the culmination of an attempt, where the attempt at the very least, provides some very real and practical comfort and hope in what typically and necessarily would be tragic circumstances.
In the future, the continual effort to ensure the Actuarial Tables remain updated would be undertaken by a committee headed by a Supreme Court judge and / or Registrar as appointed by the Chief Justice, and comprising of representative from key institutions and industry leaders such as the MAS, the General Insurance Association, Singapore Actuarial Society and the Law Society of Singapore.
In the end, an impossible task is met with an endless endeavour, up until at least technology renders time travel and seeing the future possible. In that event, the natural effort would then be to try to prevent each and every original set of tragic circumstances from occurring in the first place, which in a sense would be yet another endless endeavour worth undertaking. Either way, the experience spanning the last 8 years which has culminated in the Actuarial Tables in Singapore has at least shown that there will likely be people who would gladly take up that gauntlet.
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