The Duxbury calculation is used where parties or the court want to avoid on-going periodical payments, in favour of a ‘clean break’.  Instead of periodical payments, the recipient party is given a lump sum, and is expected to invest it as capital to cover their periodical needs.  The lump sum is itself exhausted over time, so that at the end of the expected needs (normally the life of the recipient) the capital is totally exhausted.  This calculation is named after the parties in the seminal English case of Duxbury v Duxbury [1987] 1 FLR 7 (CA), which has been adopted by the Hong Kong courts since C v C [1990] 2 HKLR 183. For further reading on the principles applied to Hong Kong conditions, see Felix Chan & Wai-sum Chan’s article in the May 2014 edition of the Hong Kong Lawyer.

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Although Duxbury calculations are relatively simple, they are dependent upon the appropriate discount rate, which must be determined by the court having regard to the current economic landscape, and the appropriate constituents of a reasonable portfolio.

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The discount rate is the rate of return exceeding price inflation. Therefore, the appropriate discount rate will depend upon three main factors: (1) the expected time over which it will be paid out (e.g. life expectancy); (2) the constituents of the investment portfolio that a prudent recipient should invest in; and (3) the historical performance of such a portfolio. Inflation can cause the discount rate to be negative. The High Court has set out the considerations for setting discount rates in greater detail in the personal injuries case of Chan Pak Ting v Chan Chi Kuen (No 2) [2013] 2 HKLRD 1.

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A Duxbury Calculation is an iterative calculation, which is typically used to estimate the monetary amount a person requires to support themselves for the remainder of their life, or a fixed time period (the “Capital Sum”). This is computed on the basis of the following:

1. The person would invest this amount in an investment portfolio to achieve capital growth and income from the investments, which would be used to satisfy the required expenditure;

2. The investment portfolio can be readily liquidated into cash to support the required expenditure;

3. The expenditure required is adjusted for inflation;

4. The sum is assumed to be exhausted at the end of the life of the person or a fixed time period (e.g. until a person reaches the age of 18); and

5. The investment portfolio and expenditure required is constant for the remainder of the life of the person.

 

There are several variables that must be estimated to compute a Duxbury Calculation, which include:

1. life expectancy,
2. inflation rate,
3. investment portfolio, and

4. expenditure required.

 

A person’s life expectancy is estimated using the Hong Kong Life Tables, which are produced by the Hong Kong Census and Statistics Bureau. In general, a woman of the same age will have a higher life expectancy than a man, which will result in a higher Capital Sum to account for the extra years of expenditure.