DEDUCTIONS TO LOSS OF EARNINGS IN PERSONAL INJURY CASES IN MALAYSIA : MISCONCEPTIONS OF THE ONE-THIRD RULE

DEDUCTIONS TO LOSS OF EARNINGS IN PERSONAL INJURY CASES IN MALAYSIA : MISCONCEPTIONS OF THE ONE-THIRD RULE

PERSONS ENTITLED TO LOSS OF EARNINGS

A plaintiff who is under the age of sixty (60) and was receiving earnings by his own labour or other gainful activity at the time when he was injured may be awarded with damages for loss of future earnings [see Section 28A (2) (c) (i) Civil Law Act 1956 (“the Act”)]. All elements in Section 28A of the Act should be proved before an award for loss of earnings can be made (see Looi Gnan Peng v. Bay Tong Hai [2005] 1 CLJ 685).

CALCULATION FOR LOSS OF EARNINGS

a. Multiplier (the number of years of purchase)

Section 28A (2) (d) (i) of the Act provides that if the plaintiff or claimant was thirty (30) years of age or below, the number of years of purchase would be 16 and Section 28A (2) (d) (ii) provides that if the plaintiff or claimant is between thirty-on (31) and fifty-nine (59) years of age when he was injured, the formula for calculating the number of purchase years is 60 – (age at time of accident) then divide it by two (2). For example a person aged 45 years old would have 7.5 purchaser years [(60 – 45 = 15) then 15/2 = 7.5 years).

b. Multiplicand (total amount of annual earnings)

Typically this is the annual salary or remuneration of the plaintiff plus EPF contributions (if any) minus living expenses which are proved or admitted and income tax. Calculation of the total loss of future earnings would be the multiplier directly multiplied with the multiplicand. For pre-trial loss of earnings, these are special damages and can be claimed based on the actual loss suffered.

DEDUCTION OF LIVING EXPENSES

Section 28A (2) (c) (iii) of the Act that states : -

“(2) In assessing damages under this section:

(c) in awarding damages for loss of future earnings the Court shall take into account:

(iii) any diminution of any such amount as aforesaid by such sum as is proved or admitted to be the living expenses of the plaintiff at the time when he was injured;”

This provision clearly states that in assessing the award for loss of future earnings, the Court shall only take into account any diminution of such sum as is proved or admitted to be the living expenses of the plaintiff at the time when he was injured.

The provision is also mandatory in the sense that the Court must only take into account an amount that has been proved or admitted. The Court has no discretion to make assumptions or take judicial notice on what the ordinary sum is for the living expenses of a plaintiff. Therefore if the Defendants fail to prove the living expenses of the plaintiff and if it is not admitted by the plaintiff, there can be no deduction of any amount as living expenses of the plaintiff (see Marappan Nallan Koundar & Anor v. Siti Rahmah Ibrahim [1989] 1 MLJ 99; Harcharan Singh Saudagar Singh v. Hassan Ariffin [1990] 2 MLRH 2083; Abdul Ghani Hamid v. Abdul Nasir Abdul Jabbar & Anor. [1995] 4 MLH 182).

However, there have been instances whereby counsels have argued and the Courts have allowed, albeit arbitrarily, for a deduction in absence of any proof or admission. This is contrary to the clear unambiguous provision of the Act (see Ibrahim Ismail & Anor V. Hasnah Puteh Imat & Anor and Another Appeal [2003] 1 MLJ 525).

IS THERE A ONE-THIRD RULE?

In practice, some counsels would consistently argue that one-third of the claimant’s or deceased’s living expenses ought to be deducted from the total amount of loss of earnings to be awarded for either (a) living expenses or (b) contingencies, vicissitudes of life and accelerated payment, or both. In respect to the latter, the correct legal position is that no deductions can be made for contingencies, vicissitudes of life and accelerated payment. This is because Parliament has already provided for a fixed statutory multiplier taking into account contingencies, vicissitudes of life, accelerated payment and other factors (see Ibrahim Ismail & Anor V. Hasnah Puteh Imat & Anor and Another Appeal [2004] 1 MLJ 525).

On the other hand, in respect to living expenses, only living expenses which are proved by the Defendant, or admitted by the plaintiff can be deducted as explained in the preceding section. Absence of which, the claimant is entitled to the full sum of loss of earnings without deduction. It is important to point out at this juncture that there is no automatic one-third deduction to a plaintiff’s earnings to account for living expense. Although it has been practiced by the Court in some cases and advocated by some, such a rule does not exist in any written law. Any deduction to a plaintiff’s living expenses must be exercised judicially, reasonably, and with adequate evidence to support such a deduction (see Muhammad Yassein Zuliskandar V.?Kerajaan Malaysia & Ors. [2018] MLJU 2185 for the application of the one-third rule in respect to medical costs and expenses).

When dealing with a living claimant as opposed to a dependency claim under Section 7 of the Act, the deduction must only be made to living expenses incurred in earning an income. It would make no sense to make similar amount of deductions for a living claimant and loss of support or contributions by a dependent in a dependency claim as a living claimant would still incur ordinary living expenses save those costs that may be expended in trying to make a living. These would include petrol, parking, and other type of expenses directly related to making a living. This view was endorsed in the case of Tey Chan & Anor v. South East Asia Insurance Bhd [1993] 3 MLJ 760.

Income Tax Deductions

Some cases have made income tax deductions to loss of earnings of the plaintiff (see Yaakub Foong v. Lai Mun Keong & Ors [1986] 2 MLJ 317). However, to make income tax deductions on behalf of the plaintiff that would ultimately benefit the defendant in an action rather than Government seems non-sequitur.

Some further review and examination of this issue is required by the Court to determine whether Court ought to make deductions for tax, in particular the fairness and purpose of doing so. There may also be tax exemptions which the plaintiff could benefit from but is which is preemptively removed from the equation by the Court in some cases. The question whether the Plaintiff should be entitled to make the income tax contribution himself out of the award whereby tax reliefs could be utilized ought to be considered.

CONCLUSION

It may be convenient to some for automatic deductions to be made to loss of earnings of a plaintiff without proper consideration of the facts and evidence. However, the practice is abhorrent, contrary to the law and against principles of natural justice. Arbitrary use of the one-third rule without proper justification should be avoided. Instead, there must be legally sound and coherent grounds for making deductions to the loss of earnings of a plaintiff in personal injury cases.