Gray, Rhiannon by her tutor Kathleen Anne Gray v Richards

[2014] HCATrans 109

[2014] HCATrans 109

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S311 of 2013

B e t w e e n -

RHIANNON GRAY BY HER TUTOR KATHLEEN ANNE GRAY

Applicant

and

COREY RICHARDS

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 MAY 2014, AT 10.24 AM

Copyright in the High Court of Australia

MR A.S. MORRISON, SC:   May it please the Court, I appear with my learned friend, MR I.J. McGILLICUDDY, for the applicant.  (instructed by Beilby Poulden Costello)

MR P.J. DEAKIN, QC:   I appear for the respondent in that matter with MR B.A.P. KELLEHER.  (instructed by TL Lawyers)

FRENCH CJ:   Yes, Mr Morrison.  Mr Morrison, I presume that the substantive ground on which you are seeking special leave is that set out in ground 2 in the draft notice at 172.  The other two seem to me to be argumentative and not to add anything.  Is that right?

MR MORRISON:   Yes.

FRENCH CJ:   Yes, all right.

MR MORRISON:   There are two issues, really, which are raised by the application and by the prospective appeal.  The first is whether the cost of managing damages awarded for fund management are something to which the plaintiff is entitled, and the second is whether the plaintiff is entitled to the cost of managing the income which the fund will earn over her lifetime.

FRENCH CJ:   There is this spectre of an infinite regression here.

MR MORRISON:   Which spectre was rejected by the two experts who had no difficulty in agreeing as to what the costs would be, and her Honour at first instance found no difficulty, and his Honour the Chief Justice, whilst he later talks about uncertainty, refers to the fact that there was agreement that with a trivial amount in rounding off, as Justice Basten put it, there is no difficulty about doing the calculation.

FRENCH CJ:   You say that – is it an accepted fact that absent the additional component, there will be a shortfall in terms of availability of the fund for the projected lifetime of the ‑ ‑ ‑

MR MORRISON:   Yes.  Both parties’ experts were agreed there would be a shortfall, and that is the fundamental point.  As stated by her Honour at first instance, the amounts paid for fund management are not treated separately.  They cannot be separated off in some way.  They are required by law to be managed, and the cost of that management is unavoidable.

Neither at first instance nor in the Court of Appeal did the respondent suggest that cost was avoidable.  Nor did the court raise that issue, though it emerges in the judgment of the Chief Justice.  It follows, therefore, as night follows day, that the cost of managing the allowance for fund management absent an award will lead to a shortfall which will be borne out of the estate of the brain‑injured person who is incapable of managing their affairs, and that is not restitutio in integrum.

The same, we say, applies in respect of the earnings of the fund.  The State has mandated a five per cent discount rate on the assumption those moneys were so invested as to return five per cent after tax and inflation.  If the cost of managing that income is not met, there will be a shortfall to be borne out of the estate of a severely injured person.  We examine, for a moment, the reasoning of the Chief Justice in the Court of Appeal.  As his Honour pointed out at 108, line 50 and subsequently, there was agreement between the experts as to the amounts involved; they were readily capable of calculation.  His Honour accepted there was a certain logic; page 132 of the application book:

in making an award for damages for fund management on fund management –

but thought it was inappropriate because the court was not concerned –

with what a plaintiff does with his or her damages.

This plaintiff will not be doing anything with her damages as a matter of law.  It must by law be managed and invested on her behalf.  It will be subject to charges, and we refer your Honours to sections 77 and 79 of the Civil Procedure Act which are at pages 3 and 4 of the applicant’s authorities.

BELL J:   Turning to the question of fund management on fund income, whilst the experts were agreed on the figures that might be calculated in relation to both sons, the Chief Justice at application book 130, paragraph 138 and following, concluded that the claim for fund management on fund income, as I understand the reasoning, did not involve any logical difficulty of the kind relating to the second category for which you claim.  His Honour considered that:

the discount rate assumes a rate of return sufficient to provide the injured plaintiff with fair and just compensation for the claimed loss –

As I understand it, his Honour’s conclusion in relation to the notion that one would make an allowance for fund management on fund income was to see that as inconsistent with the principles in Todorovic and with the mandate of section 127(1) of the Act.

MR MORRISON:   To which we simply say the courts, including the High Court in Gardikiotis, have consistently said that the entitlement to fund management is independent of the discount rate.  Justice Basten sets this out at page 141 at about line 40.  He says:

the approval in Gardikiotis of an amount for the cost of fund management is inconsistent with treating the cost as covered by the discount rate, in the case of a plaintiff disabled by the tortious conduct of the defendant from administering the fund.

Your Honours, the authorities do not support the proposition for which the Chief Justice contends, but we come back as well to the fundamental flaw that in respect of his suggestion at 132, about line 50, that the cost of fund management in respect of both elements might by negotiation be avoided was an issue which was not raised by the respondent who bore the onus on a failure to mitigate issue, and was not raised by the court with us to deal with in argument.

BELL J:   Again, coming back to the analysis of fund management on fund income; as I understand it, his Honour’s approach is that there is no basis for an assumption as to the actual income earned, and what is necessarily involved is a process of speculation.  I think that is the approach that one sees coming out at application book 130, paragraph 139.  As I understand it, I think the primary judge adopted the approach that one would assume the discount rate as the rate of income.  Is that correct?

MR MORRISON:   The difficulty about that is that that is not what Todorovic says.  Todorovic says that the matters which are taken into account are tax and inflation.  What happens in practice is that these moneys are placed in an undifferentiated way into the fund and are subject to the fund manager’s charges, and they are unavoidable in that respect.  Unless it can be said from Todorovic v Waller, and in a way which we say is clearly contrary to what this Court said in Willett v Futcher, in particular at paragraph 51 of the High Court judgment in that case, then there is clearly a shortfall.  Todorovic does not deal with fund management.  It is as simple as that.  It was not intended to deal with an issue ‑ ‑ ‑

BELL J:   I think that much is common ground.  As I understand it, the Chief Justice was directing attention to the principles underlying the statement.

MR MORRISON:   Yes, but the difficulty then is if the discount rate is intended for those who are perfectly capable of managing their affairs, why should the person who is incapable and who will incur an additional cost not receive some recompense?  They are in a totally different position.  When the Chief Justice says that the court is not concerned with what the plaintiff does with his or her damages, that is simply wrong.  This plaintiff will require fund management.  A quadriplegic who can manage their own

fund is in a quite different position.  This plaintiff will never have any say in how her fund is managed, and at the end of the day, it is that which leads to a major shortfall and which creates an issue which is of great concern for the most seriously disabled claimants throughout this country.  I say that with one exception, and that is South Australia, where this set of damages has, by statute, never been allowed.  With that exception, this issue has arisen in other States.  It has arisen in Western Australia; there are conflicting judgments, and there is a difference of approach yet again in Queensland.

BELL J:   What is the position in Western Australia?  Do you say they take a different ‑ ‑ ‑

MR MORRISON:   The only case that has arisen in Western Australia since this case followed Justice McCallum at first instance.  There has not been anything further since then in Western Australia.

BELL J:   Was the judge in the Western Australian case, did that judge have the advantage of the decision of the Court of Appeal in ‑ ‑ ‑

MR MORRISON:   The court had not handed down its judgment at that time.

FRENCH CJ:   This was a first instance judgment in Western Australia?

MR MORRISON:   It was a first instance judgment, yes.  But what I am pointing to is that this is an issue which is not confined to New South Wales.  It is an Australia‑wide concern.  It is an issue of general importance, and it involves the most seriously incapacitated litigants and the effect of what is being done if the discount rate is to be used to say that they are fully compensated; they are in fact being discriminated against by comparison with those who are capable of managing their affairs, unlike this plaintiff.  May it please the Court.

FRENCH CJ:   Yes, thank you.  Yes, Mr Deakin.

MR DEAKIN:   Thank you, your Honour.  Your Honour, firstly, could we make the obvious point that there is no suggestion ever in this case that this plaintiff and other brain‑damaged plaintiffs who need their funds managed do not get the full compensation the court provides for it.  That has never been argued at any stage by us.  What my learned friend is seeking to do is to have that entitlement which has never been disputed and confirmed by this Court in Willett v Futcher added to by the additional components that are the subject of this application.  That is the change in the law of damages that is really being sought in this case when one analyses the position accurately, and it appears to be the foundation of my learned friend’s whole argument before your Honours that there is a shortfall that is going to arise unless those amounts are awarded.

But can we say these matters?  Firstly, your Honour, Todorovic v Waller was not a funds management case, but it laid down and has been accepted ever since as laying down fundamental principles applicable to all damages assessments in these sorts of cases.  It is the principles that emerge from Todorovic v Waller that were applied by the unanimous decision of the Court of Appeal in this case in the respondent’s favour, and in rejection of the applicant’s argument.  Gardikiotis, which was a funds management case, particularly the judgment of Justice McHugh that your Honours have read, formed an important part in saying in applying those fundamental principles derived from Todorovic v Waller in a funds management case, these sorts of arguments are unsupportable.

The foundation of my friend’s submission is that there is going to be some shortfall.  He refers to the evidence from experts.  Both experts agree that on the assumptions which the plaintiff would have the court make, there was mathematically a basis for a calculation of a shortfall, but that was only accepted as an outcome that those mathematical calculations could support.  The point that needs to be understood about the shortfall argument, your Honours, is that it itself only arises by means of avoiding what the High Court laid down in Todorovic v Waller, namely, that once the figure is calculated by the court representing the present value of a future loss, the court has no concern with what happens thereafter.

All of the shortfall arguments rejected in the Court of Appeal necessitate a rejection of that fundamental proposition, because it is only by extrapolating events in the future that any argument about shortfall can arise.  It is no different, in our submission, than general principles of damage which would indicate – if we could give your Honours an example; let us assume damages are awarded on the basis of the plaintiff being required to attend a neurologist for an annual visit every year.  It is no more open to a plaintiff to be able to complain if she ends up having to go three times a year, or a defendant to say she was awarded for a neurological examination but she has never attended any of them, than what is really being sought to be done in this case.

The passage from Gardikiotis that is quoted by the Chief Justice, which perhaps sums it up best, is that contained in the book.  Page 126 is where it starts in paragraph 125 of the Chief Justice’s judgment, and going over perhaps principally to page 127, still within the same passage, about six lines down in that quotation:

But there is no duty on a court to ensure that a plaintiff achieves a rate of interest corresponding to the discount rate or to ensure that the plaintiff invests his or her moneys in a manner that will result in the sum awarded being periodically reduced and finally exhausted at the end of the discount period.  Use is made of a discount rate to assess the present value of future economic loss and expense because it is perceived to be the conceptual tool best suited to determine what is fair and reasonable compensation for that loss or expense.  The discounting exercise is a hypothetical construct and does not attempt to reflect –

can we emphasise that word –

anticipate or govern the future actions or intentions of the plaintiff.  It simply attempts to determine what sum represents the present value of the anticipated losses or expenses –

That is the fundamental principle.  The court’s task, as has been repeatedly confirmed, is to assess the present value of that loss.  Once it has done that, and that is what the Court of Appeal has done in this case, then that is the end of the court’s task and what thereafter happens, the court not only has no concern but can have no concern because it simply enters into the realm of unpredictable, exactly as your Honour Justice Bell pointed out, it becomes speculative as to what is going to occur, and what happens.  The mechanism which the courts have devised – the construct, to use Justice McHugh’s helpful phrase – is to assess it as the present value of a future loss.  That is the end of the court’s task.

So there is no basis, in fact, upon proper analysis, any reliable conclusions being able to be drawn about a shortfall.  What the authorities also have consistently established in this country is that one assumes that the fund, whatever its size and whatever its components may be, reduces to zero at the expected death of the plaintiff.  That very assumption, which is the key assumption for the purposes of assessment of damages, is inconsistent with any proposition of shortfall.  The assumption is that the moneys will last for the life of the plaintiff, and that is the foundation of these damages as assessed in these sorts of cases.  There is no shortfall at all, in our submission, able to be pointed to by my learned friend.

Finally, can we repeat the reasoning behind why the court adopts this construct, this method of assessment, is because of the very uncertainties and speculative aspects that the Chief Justice emphasised, and Justice Basten made reference to it also.  Although not referred to in the Court of Appeal’s judgment, your Honours will recall from Todorovic that it also opens up huge scope for evidence to be adduced on these topics with conflicting evidence between experts as to what may or may not occur after the plaintiff gets her money.  That is another very sound reason for adhering

to principle applicable to all damages cases, and to not allow some special category of entitlements to arise in the case of seriously injured plaintiffs.

FRENCH CJ:   Your argument reduces to the proposition that this is a case of correct application of established principle?

MR DEAKIN:   Indeed.  It is my friend who is trying to say some special exceptions to those established principles should be made, although Parliament has seen fit to impose a regime without any such exception.

FRENCH CJ:   You would concede that that would be a question of importance?

MR DEAKIN:   We have said, I think consistently, your Honour, that we ask for a Bench of five, so we cannot say to your Honour this matter has no relevance at all beyond the circumstances of this case.  But the importance, nevertheless, should be limited because there are fortunately only a limited number of plaintiffs who are so seriously injured to entitle them to these sorts of moneys.  But within those cases, your Honour, this has relevance and has mathematical consequences that are of importance.  We accept that.  Whether it is of sufficient general importance to warrant it, we would say not, with all due respect.

FRENCH CJ:   Thank you, Mr Deakin.

MR DEAKIN:   Thank you, your Honour.

FRENCH CJ:   All right, there will be a grant of special leave in relation to ground 2 in the draft notice of appeal at page 172 of the application book.  There is a standard schedule as to timetabling of filing of submissions which counsel should have with them.  Thank you.

MR DEAKIN:   If the Court pleases.

MR MORRISON:   If it please the Court.

FRENCH CJ:   Yes – I am sorry, the estimate would be half a day to a day, I would imagine?

MR MORRISON:   Yes, I would have thought so.

MR DEAKIN:   Yes, your Honour.

FRENCH CJ:   Yes, all right.  Thank you.

AT 10.44 AM THE MATTER WAS CONCLUDED