In a radical departure, the Attorney-General’s Chambers is proposing the introduction of a new no fault liability scheme (NFLS) to replace the existing fault based liability system for persons involved in motor-vehicle accidents.
According to statistics from Royal Malaysian Police Website, there is a high incidence of accident cases in Malaysia and the uptrend is alarming. The number of motor accidents reported are as follows:-
2001 265,416 cases
2002 279,711 cases
2003 298,653 cases
2004 326,815 cases
2005 328,264 cases
2006 341,252 cases
Further, statistics obtained from the Federal Court on Insurance Claims filed in Sessions and Magistrates Court for the period July 2005 to June 2006, reveals that there are almost 37,267 insurance claims pending before the Session courts throughout Malaysia while as at 1st July 2006, there are approximately 11,800 insurance claims still pending in the Magistrates courts in Malaysia.
The attractiveness of the proposed NFLS according to the Attorney General’s Chambers is that, the proposed scheme would provide benefits to all who was involved in the accident regardless who was at fault or had caused the accident. Also, under the NFLS payment of benefits will be prompt upon the production of specified documents such as the medical and police reports. Another feature is the initial minimum payment of benefits with the balance of benefits being paid within a specified time frame.
Thus in brief, what the NFLS provides is the prompt compensation to all persons who have suffered injuries and losses regardless of who caused the accident and even better without going to court. It is this selling point which would be attractive to the average person.
Should NFLS is implemented, it is said that the scheme will be administered by a body similar to the SOCSO.
THE PRESENT SYSTEM
The public perception (and lawyers whose area of practice does not include personal injury litigation) is that the personal injury claim practice is highly lucrative. Not surprising when, the Director of National Consumer Complaints Centre, Mr Darshan Singh in a letter to Malaysiakini (October 10, 2007) welcoming the proposed NFLS claimed that:-
“ The current system has been plagued by many abuses. Accident victims are shortchanged at every level before the award amount reaches them. And when the award does reach them, a bulk of it goes towards professional fees. They are at the mercy of lawyers-be it plaintiffs or defendants-who cash in on the misery of these victims.
High contingency fees are charged although the lawyers Practice & Etiquette Rules clearly forbid the charging of contingency fees. Touts prey on accident victims. Police and medical reports are manipulated in order to shift fault and inflate injuries. Complaints have been received that interest is charged on monies advanced to the victims.
To digress a little, this ass-brained view is lopsided and made without acknowledging and recognising the shortcomings and the pitfalls lawyers in personal injury claim faces or even the present system.
For a start let’s stop associating touts with accident lawyers. It can be safely said touting is prevalent in every area of practice be it personal injury claims or conveyancing. Strangely it is the lowly accident tout who gets the name but never the lawyer who canvases work by arranging a night out and a hooker for the corporate client.
What is conveniently ignored is the fact that in most accident cases, the victim becomes financially strapped and can ill afford medical specialist consultation of even pay for the reports. In most cases it is the lawyer who forks out these payments. Other incidentals include like payments for witnesses and the Investigation Officer. Some times clients don’t even have money for transport to come to court. So is it wrong in such circumstances to charge contingency fees, which I believe should be permitted. No one complains the easy money estate agents make by merely introducing the parties. Aren’t their fees excessive when comparing the extent of their work and liabilities.
With regard to the award, on the contrary it is the lawyers who are at the mercy of their clients. Unlike yesteryears, the insurance awards are made in tee name of the client and not in the name of the law firm. Tales of absconding clients after receiving the money is aplenty.
So when compared to the no win no fees, the high risk and expenditures incurred it is only fair that the lawyers fees are reflective in the lawyers contingency fees of 20% to 25%. The client just provides the case, the rest lies on the shoulder of the lawyer.
The adage it is always prudent to engage the brain before exercising the mouth continues to hold truth.
Coming back to the issue, on paper, NFLS does look like an attractive scheme. But is it?
Tort law has two primary objectives. The first being to compensate parties who have suffered loss. Thus, the injured party obtains compensation for his injury and suffering, loss of amenities, medical expenses, loss of earnings and earning capacity. Where the injury causes incapacity, he can claim for cost of domestic help, nursing care, future cost of medical care and surgery. The second objective is to provide incentives to the potential tort-feasor not to and avoid causing acts which causes loss. NFLS on the other hand, removes the need to provide cause and instead so long as it can be proven loss has incurred, compensation is paid regardless of the fault.
THE MODEL
The Attorney General Chambers in proposing the NFLS states that the objectives of the scheme are to achieve the following goals:-
Community responsibility
Comprehensive entitlement
Appropriate rehabilitation
Fair and expeditious relief
Payment of benefits during interim period.
These objectives clearly mirror the five principles advocated by New Zealand’s Woodhouse Commission 1967. The Woodhouse Commission’s recommendation of a complete overhaul of the existing common law system and replacing it with a new no fault.
Justifying the abandonment of the tort system in favour of the new system, Sir Owen Woodhouse said:-
“Just as the test of fault against standards of reasonable care was becoming confused with standards of near perfection, so did the final result depend too often upon the fortuitous assessment of the evidence or the fortuitous skill of the attorney…It all seemed not only expensive but wasteful to the point of extravagance, as was demonstrated so clearly by the high proportion of funds which never reached the injured persons in respect of whom they have been collected. And there was the affliction of protracted delays”.
The Woodhouse Commission’s report and finding lead to the New Zealand government enacting the Accident Compensation Act of 1972 which came into effect on April 1, 1974. Expressing his support and confidence, the then New Zealand Prime Minister Geoffrey Palmer said that in the previous system, damages tended to overcompensate less serious injuries and that the process of adjudication was a lottery and that there were strong incentives to maximize misery. Trading the tort system for a no fault system according to Geoffrey Palmer would now mean;-
“More victims are paid, they do not have to prove fault from which massive savings results and overall, everyone is better off. It is true that claims that every individual victim will be financially better off cannot be convincingly made. However, judged in the broad spectrum, the reforms provide a better set of arrangements than tort”.
Essentially, the enactment of the Accident Compensation Act 1972 abolishes the right to sue for personal injury caused by accidents. Infact s.394 of the Accident Insurance Act 1998 codifies the no fault scheme. It provides:-
“no person may bring proceedings independently of this Act whether under any rule of law or any enactment in any court in New Zealand, for damages arising directly or indirectly out of (a) Personal injury covered by this Act or (b) Personal Injury covered by former Acts.”
Under the ACA 1972 twenty four hour coverage for accident and injuries was provided for the entire New Zealand population. Despite, the enactment of a number of acts in the preceding years to perfect the scheme, the essential features established under the predecessor act has remained.
The administration of the scheme under the ACA was delegated to the newly established Accident Compensation Commission (later changed to Accident Compensation Corporation). Funding for injury compensation was derived from three distinct funds created under ACA, namely an earner’s account, funded by levies on employers and self employed individuals, motor vehicle accident account, funded by levies on owners of motor vehicles and a supplementary account subsidized by the government. ACC is able to fund these programs by collecting premium payments from all citizens of New Zealand at government regulated rates. The money collected by the government is then assigned to the funds maintained by ACC.
MAKING A CLAIM
In making a claim, the claimant must first lodge a complaint with the ACC and provide all relevant documents. Within two months of being lodged, the ACC must investigate the claim and notify the claimant of its decision or notify the claimant that it requires an extension of time to investigate. Ultimately within nine months of the claim being lodged ACC must notify the claimant of its decision. A claimant may apply within three months of the ACC’s decision apply to the ACC for review of any decision of the ACC under the Code of ACC Claimants’ Rights. Once ACC has received an application seeking review, ACC must appoint as many independent reviewers as necessary to assess the appeal. Following the hearing, the independent reviewer has twenty eight days to make a decision. A claimant may appeal a review decision to the District Court and a party dissatisfied with its decision can appeal to the High Court followed by an appeal to the Court of Appeal.
CRITICISM
In 1996, The New Zealand Business Roundtable after undertaking a research on accident compensation concluded that “the introduction of a state monopoly, no fault accident compensation scheme in New Zealand has been a huge mistake” and argued the introduction of choice and compensation into accident insurance.
A letter appearing in the New Zealand Herald sums up:-
“ More than 20 years have elapsed since New Zealanders were duped into accepting the ‘no fault’ accident compensation scheme. Initially, the new scheme may have appeared attractive enough – if only because of the propaganda expounded in its favour. However on almost all counts, it has proved to be an abysmal failure.
Cost has continued to escalate rapidly and now consume a considerable proportion of nation’s wealth. On the other hand, the meanness of the benefits conferred bears absolutely no resemblance to the principles of compensation.”
DON’T TINKER THE PRESENT SYSTEM BUT RECTIFY SHORTCOMINGS
One is inclined to believe that the push for changes must have come from the insurers. Under the present fault based system, the courts decide the awards while insurers decide the premiums. In view of the escalating claims and the rising awards, insurers are in a hopeless position of being unable to control their claims, cost and income. The NFLS thus must come as manna from heaven, albeit in this case from Putrajaya.
Proponents and advocates of the NFLS are quick to list out all the deficiencies and shortcomings under the present system and that includes as always heaping blame on lawyers. The question is whether NFLS on the other hand, if implemented conclusively benefit the claimant and not the insurers? What is the guarantee that claimants would not be short-changed?
Why the haste in proposing changes without first doing a detail study to find out the shortcomings and the weakness of the present system. Even if there are weaknesses and shortcomings, the question is, what are the measures taken to simplify personal injury litigation and court procedures and also reduce waiting time? Strange as it seems is the fact that the Attorney General Chambers is prepared to implement a radical scheme without first attempting to reform the present system.
Further, since the insurance companies are alarmed with some of the awards handed down by the court, has the Attorney General’s Chambers done any study on the awards handed down by the courts? It is a known fact that some judges in personal injury claims are over generous in their awards. One judge was nick-named “santa claus” for being extremely generous to the Plaintiff and another Judge in making the award goes to the extent in allowing the cents in the claim.
In advocating the NFLS, the sweetener is the payment of the claim in the shortest time but what is not revealed is that in return, the claimant may not be able to claim loss of earnings, future surgeries, cost for domestic help or even nursing care? Aren’t the accident victims being shortchanged here? The claimant is not even told that he faces the real possibility that the awards under the NFLS will be considerably less that what he could obtain under the present system.
Since, the awards are made expeditiously; it is also possible that the awards will be below the levels awarded to accident victims presently. Corrective justice requires full and fair compensation for loss attributed to the wrong and it is unfair to limit the compensation paid to those injured by fault below the levels that would be awarded in a successful civil action for compensatory damages.
Next, under the NFLS, the scheme would be administered by a body similar to SOSCO Board. Judging from the New Zealand’s experience with ACC, claimants under the NFLS can also be put to considerable time, should they reject the quantum awarded. So the delay in obtaining the awards under the present system is also present under the NFLS. There is no guarantee it would not occur here. Claimants under the NFLS, more often than not reluctantly accept the award in the end simply to bring finality to the matter. At least under the present system, there is a choice and more importantly it is his own considered choice. The claimant can if he is prepared vigorously pursue his claim.
Then there is the question of how the Board is going to be funded. In New Zealand, a proportion of money in the ACC is injected by the government and in New Zealand, on a number of occasions due to costs over-runs, the ACC needed urgent injection of funds from the government. For example, in 1986 ACC faced massive cost blowout when compensation expenditures rose more rapidly than levy incomes and to cope with the shortfall, ACC had to draw on its accumulated reserves, which meant the reserves which were to last for the next 4-5 years becoming almost depleted. The New Zealand government had to step in and the government reaction was to increase the levies which in some cases rose up to 500%.
That could occur here too. A mismanaged Board could easily run into financial difficulties requiring government help and bailout. The money advanced has to be recovered somehow and naturally it will be recovered by the payment of higher and increased levies. The Board would never lose. It is the public who will. In the worst case the Board there is no guarantee that the Board itself will sooner or later be hived off and privatised.
Also, there is a possibility that the Board would face increased payouts. NFLS would not deter careless conduct and instead inevitably see a rise in accidents. In New Zealand, during the first year NFLS was introduced , the number of accidents reported jumped by 400%.
To succeed, the Board formed to administer and manage the scheme, has to be efficient, accountable and transparent - all hallmarks in New Zealand. In New Zealand there is efficient monitoring of the ACC- even then the ACC went through financial turmoil’s in the 1980’s. Malaysia, lets admit it, on the other hand, falls way short in these aspects. If the Board is money making, corporate sharks would circle it and edge the government to privatise it and in privatisation crazy Malaysia, it’s not impossible for this Board to be hived off and privatised. Naturally and inevitably, the beneficiary will definitely not be the consumer.
In short, before we consider NFLS, it is advisable a holistic study be conducted on the present system. Identify, rectify and remedy the weaknesses and the shortcoming, not rushing to implement a scheme which the citizens have not been properly informed or educated. Don’t tempt the public with the simplistic temptation of expeditious payment of awards and payment without fault or liability while not revealing the compromises the citizen must be accept in a NFLS. Has the present system been a complete failure? Definitely not. So why the rush and in whose favour is the new system being implemented for?
The views contained herein are solely the author’s as are all errors and omissions if any. The author acknowledges the input of participants of Lunchtime Roundtable - the highly opionated talkshop.
