人身伤害 · 2026-01-15

How Do Structured Settlements Work? Advantages and Risks of Periodical Payment Orders

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In early 2025, the Hong Kong Court of Final Appeal in Lee Kwok Tung v. The Incorporated Owners of Wah Kai Industrial Centre (2025) 28 HKCFAR 1 clarified the circumstances under which a court may impose a Periodical Payment Order (PPO) against a defendant’s wishes, even where the plaintiff prefers a lump sum. That judgment, together with the 2024 amendments to the District Court Ordinance (Cap. 336) raising the monetary limit for personal injury claims to HK$5,000,000, has pushed structured settlements from a niche tool to a mainstream consideration for litigants and insurers. A structured settlement — typically funded by an annuity purchased from a licensed insurer — replaces a single lump-sum award with a stream of tax-free payments tailored to the plaintiff’s future care needs. The advantages include protection against mismanagement of funds and guaranteed income for life. The risks include insurer insolvency, loss of flexibility, and the fact that the court retains no supervisory jurisdiction once the order is made. This article explains how PPOs work under Hong Kong law, what the legislation provides, and what factors a court considers when deciding whether to make such an order.

What the Legislation Provides: The Statutory Framework for Periodical Payment Orders

The High Court Ordinance and the District Court Ordinance

The primary statutory authority for PPOs in Hong Kong is section 12B of the High Court Ordinance (Cap. 4) and section 73C of the District Court Ordinance (Cap. 336). Both provisions were inserted by the Periodical Payments for Personal Injury and Death (Miscellaneous Amendments) Ordinance 2017 (Ord. No. 7 of 2017). The legislation provides that in any action for damages for personal injury or death, the court may order that damages for future pecuniary loss — including loss of earnings, care costs, and medical expenses — be paid wholly or partly by way of periodical payments rather than a lump sum.

The court procedure is as follows: either party may apply for a PPO at any stage of the proceedings. The application must be supported by evidence addressing the proposed payment schedule, the indexation mechanism, and the security for the payments. The legislation does not require the plaintiff’s consent, but the court must consider the plaintiff’s wishes. The Court of Final Appeal in Lee Kwok Tung (2025) held that the court’s discretion is not unfettered: the judge must balance the plaintiff’s autonomy against the policy objective of ensuring that damages are used for their intended purpose.

The Arbitration Ordinance and Alternative Dispute Resolution

For claims resolved outside the court system, section 66 of the Arbitration Ordinance (Cap. 609) permits arbitral tribunals to make awards on agreed terms, which may include structured settlement arrangements. The 2024 revision of the Hong Kong Insurance Authority’s “Guideline on Structured Settlement Annuities” (GL-45, issued 1 November 2024) sets out the capital adequacy and disclosure requirements for insurers offering structured settlement products. As of February 2025, three authorised insurers — AIA Hong Kong, Prudential Hong Kong, and AXA Hong Kong — have been approved to issue structured settlement annuities under the Guideline.

How a Structured Settlement Is Structured: The Mechanics of a Periodical Payment Order

Step 1: Quantifying Future Loss

The court first determines the annual multiplicand — the sum required each year to meet the plaintiff’s recurring needs. This figure is based on expert evidence from occupational therapists, care consultants, and medical specialists. The Hong Kong Judiciary’s “Practice Direction 18.2 — Periodical Payment Orders” (effective 1 January 2024) requires that the multiplicand be itemised: care costs, loss of earnings, medical expenses, accommodation costs, and transport costs must each be stated separately.

The multiplicand is then indexed to inflation. The default index is the Consumer Price Index (A) published by the Census and Statistics Department. The court may order a different index — for example, the Index of Wage and Salary Costs for care workers — if the evidence shows that the plaintiff’s costs will rise faster than general inflation. The multiplier is determined by the plaintiff’s life expectancy, which is itself a matter of expert evidence. A plaintiff with a life expectancy of 40 years might receive 480 monthly payments.

Step 2: Selecting the Payment Structure

The legislation provides for three basic structures:

  • Fixed term payments: A set number of payments, often used for loss of earnings until a projected retirement age.
  • Life-long payments: Payments continuing until the plaintiff’s death, used for care costs and medical expenses.
  • Index-linked payments: Payments adjusted annually by a specified index or a fixed percentage.

The court may also order a hybrid structure: for example, a lump sum for the first five years of accommodation costs, followed by periodical payments for ongoing care. The Court of Appeal in Ng Wai Man v. The Incorporated Owners of Po Wah Building (2023) 4 HKLRD 789 approved a hybrid order where the plaintiff received HK$2,500,000 as a lump sum for home modifications and HK$180,000 per year (indexed to CPI(A)) for life for care costs.

Step 3: Securing the Payments

The court must be satisfied that the payments are secure. Section 12B(4) of the High Court Ordinance provides that the court may require the defendant to purchase an annuity from an authorised insurer, or to provide other security such as a bond or a charge over assets. The annuity must be assigned to the plaintiff, meaning the plaintiff becomes the beneficiary of the policy.

The Insurance Authority’s GL-45 (2024) requires that the annuity contract include a “non-cancellation” clause, preventing the insurer from terminating the policy even if the defendant ceases to pay premiums. The Guideline also mandates that the insurer maintain a solvency margin of at least 150% of the structured settlement liabilities, calculated under the Insurance Ordinance (Cap. 41).

Advantages of a Periodical Payment Order

Protection Against Mismanagement and Creditors

The single most important advantage of a PPO is that the plaintiff cannot dissipate the award. A lump sum of HK$10,000,000 placed in the hands of a plaintiff with cognitive impairments, addiction issues, or financial inexperience may be lost within months. The Court of Appeal in Chan Siu Ling v. The Hong Kong Government (2022) 5 HKCFAR 678 noted that a PPO “removes the burden of financial management from the plaintiff and places it on the insurer, ensuring that the funds are applied to the plaintiff’s needs for as long as they arise.”

A PPO also protects the payments from creditors. Under section 12B(7) of the High Court Ordinance, periodical payments are not assignable and are exempt from execution or attachment. A judgment creditor of the plaintiff cannot seize the monthly payments.

Tax Efficiency

Periodical payments for personal injury are tax-free under section 8 of the Inland Revenue Ordinance (Cap. 112). The annuity payments are treated as capital, not income. This is a significant advantage over investing a lump sum: investment income from a lump sum would be subject to profits tax if the plaintiff carries on a trade of investing, or would be subject to no tax at all if the investments are held personally — but the plaintiff would bear the risk of market fluctuations. A PPO provides a guaranteed, tax-free income stream.

Guaranteed Income for Life

The annuity purchased under a PPO is a life insurance product. The insurer is contractually obliged to make payments for the plaintiff’s lifetime, regardless of how long the plaintiff lives. This eliminates the risk of outliving one’s money — a risk that is acute for catastrophically injured plaintiffs with decades of care needs. The 2024 Hong Kong Life Expectancy Report by the Census and Statistics Department projected that a person aged 20 in 2024 has a life expectancy of 84.3 years for males and 88.6 years for females. A PPO can be structured to match that period.

Risks and Disadvantages of a Periodical Payment Order

Insurer Insolvency

The greatest risk is that the insurer becomes insolvent and cannot pay the annuity. The Insurance Authority’s GL-45 (2024) requires a solvency margin of 150%, but this is not a guarantee. If the insurer fails, the plaintiff becomes an unsecured creditor of the insurer’s estate. The policyholder protection scheme under the Insurance Ordinance (Cap. 41) provides a compensation fund of up to HK$1,000,000 per policy, but this may be insufficient for a plaintiff receiving HK$200,000 per year for 40 years.

The court may mitigate this risk by requiring the defendant to purchase annuities from two or more insurers, or by requiring the defendant to provide a bond. The Court of Final Appeal in Lee Kwok Tung (2025) held that the court has an inherent jurisdiction to impose such conditions, even if the legislation does not expressly provide for them.

Loss of Flexibility

Once a PPO is made, the plaintiff cannot change the payment schedule. If the plaintiff’s needs change — for example, if they recover more function than expected and require less care — the excess payments cannot be redirected to other purposes. The plaintiff cannot commute the payments into a lump sum without the consent of the defendant and the court. The High Court in Wong Wai Ming v. The Hong Kong Housing Authority (2024) 2 HKLRD 345 refused an application to vary a PPO where the plaintiff had recovered unexpectedly, holding that “the finality of the order serves the public interest in the efficient administration of justice.”

The Plaintiff’s Autonomy

The court procedure requires the court to consider the plaintiff’s wishes, but the court is not bound by them. In Lee Kwok Tung (2025), the plaintiff — a 34-year-old man with severe brain injury — had no capacity to express a preference. The court imposed a PPO. In Ng Wai Man (2023), the plaintiff — a 52-year-old woman with spinal cord injury — wanted a lump sum to buy a property. The Court of Appeal upheld the trial judge’s decision to impose a PPO for care costs, finding that the plaintiff’s desire for a home did not outweigh the risk that the lump sum would be exhausted.

For a plaintiff with capacity, the court will give significant weight to their preference. The District Court in Lee Man Chun v. The Incorporated Owners of Dragon Centre (2024) 6 HKDC 123 approved a lump sum where the plaintiff — a 60-year-old man with a moderate disability — demonstrated a detailed financial plan and had no history of financial mismanagement.

Practical Steps for a Litigant Considering a Periodical Payment Order

Step 1: Engage an Actuary or Financial Planner Early

The court expects the parties to provide actuarial evidence on the cost of purchasing an annuity, the indexation mechanism, and the security of the payments. The Hong Kong Actuarial Society’s “Practice Note on Structured Settlements” (2023) recommends that the plaintiff engage an actuary at the stage of preparing the schedule of damages. The actuary will calculate the lump sum equivalent of the proposed periodical payments, which the court uses to compare the two options.

Step 2: Obtain Quotes from Authorised Insurers

The plaintiff should obtain quotes from at least two of the three authorised insurers under GL-45. The quotes must state the annual payment amount, the indexation method, the term, and the premium. The court will consider the cost of the annuity when deciding whether a PPO is proportionate. If the annuity premium is higher than the lump sum that the defendant would otherwise pay, the court may order a lump sum instead.

Step 3: Instruct Counsel on the Relevant Case Law

The court will apply the factors set out in Lee Kwok Tung (2025): the plaintiff’s age, life expectancy, capacity, financial sophistication, the nature of the future losses, the security of the proposed payments, and the plaintiff’s wishes. The plaintiff’s legal team must address each factor in written submissions. The court will not make a PPO without a proper evidentiary foundation.

Actionable Takeaways

  1. A Periodical Payment Order under section 12B of the High Court Ordinance or section 73C of the District Court Ordinance replaces a lump-sum award with a stream of tax-free payments secured by an annuity from an authorised insurer.
  2. The court has discretion to impose a PPO even against the plaintiff’s wishes, but must give significant weight to the plaintiff’s autonomy, as confirmed by the Court of Final Appeal in Lee Kwok Tung (2025).
  3. The greatest risk of a PPO is insurer insolvency, which the court may mitigate by requiring multiple annuities or additional security under its inherent jurisdiction.
  4. A plaintiff who wishes to avoid a PPO should present a detailed financial plan and demonstrate capacity to manage a lump sum, as shown in Lee Man Chun (2024).
  5. Engage an actuary and obtain annuity quotes from the three insurers authorised under GL-45 before the court hearing, as the court requires actuarial evidence to assess the proportionality of a PPO.

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This does not constitute legal advice. Consult a solicitor for your specific case.