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Fees on fund income disallowed

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Gray –v- Richards [2014] HCA 40

The recent High Court decision of Gray –v- Richards has provided some certainty in a reasonably uncertain area of law. The High Court determined that the NSW Court of Appeal had erred in deciding that no allowance should be made for the cost of managing the fund management damages awarded to a Plaintiff with a traumatic brain injury. In allowing the appeal in part, the High Court agreed with the Court of Appeal that no further allowance should be made for the cost of managing the income of the fund.

At the age of 10, Ms Gray sustained a severe traumatic brain injury whilst a passenger in a vehicle. She was left with significant intellectual disability and requires constant care. On the third day of the primary hearing, the parties agreed Ms Gray was entitled to damages of $10,000,000.00 plus an amount of damages to be assessed at a later date to cover expenses associated with managing the settlement funds”(“the fund management damages”).

In 2011, the Court declared Ms Gray incapable of managing her own affairs and appointed the Trust Company Limited as manager of her estate.

At first instance, the Court determined the fund management damages at $2.2 million dollars. She was entitled to damages for the cost of managing the fund management damages and fund management fees to manage income derived from the fund management damages.

The Defendant appealed to the Court of Appeal ,which held that Ms Gray was not entitled to recover damages for the cost of managing the fund management damages or for fund management on fund income.

Ms Gray then appealed to the High Court.

The Court unanimously allowed the claim in relation to the fund management on fund management aspect but declined to allow any allowance for the costs of managing the income predicted to be earned on and reinvested as part of the fund under management.

The Court noted that “the decision of this Court in Nominal Defendant –v- Gardikiotis (1996) 186 CLR 49 and Willett –v- Futcher [2005] 221 CLR 627 refined this aspect of the operation of the third principle in Todorovic –v- Waller (1981) 150 CLR 402 so that, in a case where a Defendant’s negligence has so impaired the Plaintiff’s intellectual capacity as to put the Plaintiff in need of assistance in managing the lump sum awarded as damages,expense associated with obtaining that assistance is a compensable consequence of the Plaintiff’s injury. In such a case the, “the liability for the [managing expenses] is a loss flowing directly from the wrong and is recoverable as damages caused by the wrong”.; and, in accordance with the first and second of the principal stated in Todorovic –v- Waller, the inclusion of such a component in the lump sum award ensures that the Plaintiff receives full restitution for that harm he or she has sustained”. 

With respect to the fund management damages, the Appellant contended that the Court of Appeal decision was a departure from Todorovic –v- Waller. To disallow the components of damages was to produce a short fall in the estate equal to the cost of the trust company having to manage the fund management component of her damages and the funds income. This was said to be unavoidable having regard to the requirement of the Civil Procedure Act that both fund management damages and fund income be managed as part of the estate.

In response, the Respondent contended that recovery of the costs associated with managing the fund management damages and the income of the fund was precluded by the Motor Accidents Compensation Act.

The Court found that “the question of reasonableness of fund management expenses is not at large as a matter of judicial discretion. The Court does not make an open-ended judgment about the reasonabless of the fund management expense component of damages. The Court is not concerned to regulate the market for the provision of fund management services. The Court’s concern is to ensure that the Plaintiff’s actual loss is compensated. There is, for example, no scope for the Court to say that the amount is simply “too much” as a matter of intuition or impression if the Plaintiff has no practical ability to bargain for a lesser charge”. 

With respect to the fund management on fund income issue, the Court did not accept the Appellant’s challenge to the Court of Appeal’s findings. The cost of managing the income generated by the fund was not an integral part of the Appellant’s loss consequent upon her injury and was too uncertain. Accordingly, the High Court ordered that the Appellant’s challenge to the Court of Appeal decision on the first question should be upheld while the second question should be rejected.

The fund management damages recovered by the Appellant should allow for the cost of managing the fund managing component of the damages, but not further fees on the income of the fund.

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