Gray v Richards (No 3)
[2012] NSWSC 344
•13 April 2012
Supreme Court
New South Wales
Case Title: Gray v Richards (No 3) Medium Neutral Citation: [2012] NSWSC 344 Hearing Date(s): 29 March 2012 Decision Date: 13 April 2012 Jurisdiction: Before: McCallum J Decision: Defendant ordered to pay the plaintiff's costs of the proceedings except for half of the plaintiff's costs from 19 August 2011 to 8 December 2011 Catchwords: COSTS - whether successful plaintiff should pay unsuccessful defendant's costs of a discrete issue on which plaintiff was unsuccessful - whether alternatively she should be deprived of her costs of that issue - whether defendant should pay indemnity costs in respect of a period during which he was in default of directions of the Court Legislation Cited: NSW Trustee & Guardian Regulation 2008 Cases Cited: Gray v Richards [2011] NSWSC 877
Gray v Richards (No 2) [2011] NSWSC 1502
Rosniak v Government Insurance Office (1997) 41 NSWLR 608
Government Insurance Office v Rosniak (1992) 27 NSWLR 665
Rosniak (No 2) (Court of Appeal, 29 October 1992, unreported)Texts Cited: Category: Costs Parties: Rhiannon Leigh Gray by her Tutor Kathleen Anne Gray (plaintiff)
Corey Edward Richards (defendant)Representation - Counsel: Counsel:
A Morrison SC with I McGillicuddy (plaintiff)
P Deakin QC with B Kelleher (defendant)- Solicitors: Solicitors:
Shine Lawyers (plaintiff)
TL Lawyers (defendant)File number(s): 2009/338685 Publication Restriction:
JUDGMENT
These are proceedings for negligence arising out of a motor vehicle accident in which the plaintiff sustained an extremely severe traumatic brain injury. The defendant admitted liability. Shortly after the commencement of a hearing to assess damages, the parties reached agreement as to all components of damage claimed by the plaintiff except for the future cost of fund management. A settlement exclusive of those costs was approved by the Court (per Hoeben J) on 5 August 2011.
On 16 August 2011, I determined the principal issues in dispute concerning the claim for future fund management costs: see Gray v Richards [2011] NSWSC 877. At the request of the parties, I reserved two issues for later determination (identified at [15] of the judgment).
On 8 December 2011, after further hearing, I determined the two reserved issues: see Gray v Richards (No 2) [2011] NSWSC 1502. Orders reflecting the determinations made in the two judgments were entered on 15 December 2011. The orders entered that day expressly reserved the question of costs. This judgment determines the costs of the proceedings.
Defendant's application
Subject to one matter, the defendant does not dispute that the plaintiff is entitled to an order for costs in her favour, as contemplated by r 42.1 of the Uniform Civil Procedure Rules 2005. That rule provides:
42.1 General rule that costs follow the event
Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
The defendant submitted that the Court should make a different order in respect of the costs of an issue raised by the plaintiff's expert, Mr Plover, concerning the fees charged by the NSW Trustee & Guardian. It was submitted that this was a "dominant or severable issue" in my judgment given on 8 December 2011 which consumed the overwhelming part of the time and costs involved in the further hearing. It was further submitted that the allegation raised by Mr Plover was unsustainable and ultimately unsuccessful and that the plaintiff's persistence in maintaining the allegation warranted departure from the general rule.
The order sought by the defendant was that, as and from 8 August, or alternatively 16 August 2011, the plaintiff pay the defendant's costs. Alternatively, it was submitted that there should be no order in favour of the plaintiff for her costs of the proceedings from those dates.
A separate alternative claim in the defendant's written submissions was that the costs of the issue should be borne by the plaintiff's solicitors in accordance with the decision of the Court of Appeal in Lemoto v Able Technical Pty Limited [2005] NSWCA 153. However, neither party addressed that contention in oral submissions. If maintained, that issue will have to be determined separately.
The defendant's written submissions referred to a series of authorities in which a successful party has been ordered to pay the costs of an unsuccessful party on a discrete issue. In argument, the defendant considered it necessary to take the Court to only one of those: Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at p 615 per Mason P and Laguillo v Hayden Engineering Pty Ltd [1978] 1 NSWLR 306 at p 308 (the latter only in passing).
The decision in Rosniak relied upon by the defendant on this issue was the second appeal in those proceedings. To avoid confusion, I note that it was the decision in the earlier appeal, Government Insurance Officev Rosniak (1992) 27 NSWLR 665, which was relied upon in respect of the issues determined in my two earlier judgments in these proceedings. That decision is often referred to as Rosniak (No 1), although not cited as such in the New South Wales Law Reports, for obvious reasons. Confusingly, there is also a decision cited as Rosniak (No 2) (Court of Appeal, 29 October 1992, unreported), which is not the second appeal but a second judgment in the first appeal.
In Rosniak (No 1), the Court ordered a re-trial as to damages. How that came to be the order of the Court is explained in the judgment in the second appeal (the judgment reported in 41 NSWLR 608, at 611 C).
When the proceedings were remitted to Badgery-Parker J for recalculation of the damages after the first appeal, his Honour regarded himself bound by the judgment of Kirby P in Rosniak (No 1) to allow the parties to call actuarial and economic evidence as to the discount rate to be applied to the plaintiff's future loss, notwithstanding the decision of the High Court in Todorovic v Waller (1981) 150 CLR 402.
However, following argument at the conclusion of the case, Badgery-Parker J held that he was bound to apply the discount rate of three per cent mandated by Todorovic v Waller. His Honour also ordered the successful plaintiff to pay the costs of that discrete and severable issue on which the plaintiff had failed. Further, his Honour ordered that those costs be paid on the indemnity basis, holding that the plaintiff, properly advised, should have known that she had no success on the Todorovic v Waller issue.
The Court of Appeal upheld that decision: at 614 G per Mason P; Clarke AJA agreeing at 627 G; Meagher JA dissenting as to the award of costs on the indemnity basis at 627 D. The learned President noted (at 614 G) that, if the plaintiff wished to pursue her challenge to Todorovic v Waller based on the actuarial material in question, the challenge had to be taken to the High Court. Noting the plaintiff's submission that the Court of Appeal had endorsed the whole enquiry in Rosniak (No 1) and Rosniak (No 2), the President described the costs decision as "a borderline case", but was not persuaded that Badgery-Parker J had erred in the exercise of a discretion which was his.
In his dissenting judgment, Meagher JA endorsed the view that he and Kirby P had "as good as encouraged" the plaintiff's solicitors to take the course of laying the groundwork for a High Court challenge to the three per cent discount rate prescribed in Todorovic v Waller. His Honour was of the view that to award indemnity costs would penalise the plaintiff for behaving appropriately. His Honour does not appear to have disapproved the costs order except to the extent that costs were awarded on the indemnity basis. It thus appears that the Court unanimously declined to intervene with the trial judge's exercise of his discretion to order the otherwise successful plaintiff to pay the costs of the discrete challenge to the discount rate.
The decision in Rosniak is not squarely on all fours with the present case. As observed uncontroversially in the dissenting judgment of Meagher JA, the plaintiffs' solicitors in that case must have known that their challenge to the discount rate laid down in Todorovic v Waller would fail at all levels before reaching the High Court. In the present case, there was less certainty as to the outcome of the issue on which the plaintiff was unsuccessful. Further, whereas in Rosniak the issue on which the plaintiff was unsuccessful sounded in a reduction in the amount of damages awarded, that was not the position in the present case. It is appropriate to explain those two considerations by reference to some of the detail of the case.
In my first judgment, I determined that the plaintiff's claim for the future cost of managing the fund management component of her damages award should be allowed. I further determined that the plaintiff's claim for the future cost of managing income earned upon the investment of the fund at an assumed rate of five per cent should be allowed.
In that judgment, I said:
8.However, there is a discrete dispute as to whether the fees prescribed in the Regulation disclose the whole cost of management of a fund by the NSW Trustee. The plaintiff's expert actuary, Mr Plover, reads the recent annual reports of that entity as disclosing (in a footnote) the existence of a further cost of management amounting to 0.5 per cent per annum of the fund under management. That cost was described by the expert witnesses as a "managed expenses ratio" or MER. There is no occasion for the Regulation to address that cost because it is a private fee charged to the NSW Trustee and Guardian by the entity to which (as Mr Plover reads the relevant material) all of the NSW Trustee and Guardian's fund management is outsourced.
9.The parties sought an opportunity to adduce further evidence directed to that issue. It was agreed during the hearing before me that the appropriate rate should in any event be determined after the identity of the manager appointed by the Protective Division Judge is known.
I deferred until after the conclusion of the Protective List proceedings the following issues:
(a)the rate of fees at which the final calculation should be undertaken (which may require the Court to determine whether the fees prescribed for the NSW Trustee and Guardian represent the whole cost of fund management by that entity);
(b)whether any sum should be deducted from the proposed verdict as being likely to be paid out early in the life of the fund.
In Gray v Richards (No 2), I determined the first issue in favour of the plaintiff. The contest concerning that issue was whether the plaintiff should be allowed the cost of fund management by a private trustee, The Trust Company. The defendant submitted that the cost of fund management should be allowed only at the lower rates charged by the NSW Trustee & Guardian. However, there was a substantial dispute as to what those charges were. The defendant submitted that the fees were readily ascertainable as those prescribed under the NSW Trustee & Guardian Regulation 2008. The plaintiff contended that the fees prescribed in the Regulation do not disclose the whole cost of fund management borne by clients of the NSW Trustee & Guardian. Undoubtedly, the litigation of that issue absorbed a substantial amount of both preparation and hearing time. I accept that it is likely to have generated substantial costs.
Ultimately, I did not find it necessary to decide that issue. I said (at [57]):
57.Since I have decided to award fund management costs at the rates of a private trustee (for the reasons explained below), it is not necessary to decide this issue. In case my conclusion on that issue is wrong, I indicate that, had I been satisfied that the appropriate rates were the rates charged to clients of the NSW Trustee, I would not have been satisfied that I could properly award any sum for indirect costs.
The reason it was not necessary to decide that issue was that I was satisfied that, in all the circumstances of the case, the claim for the cost of fund management by the private trustee, The Trust Company, was reasonable and should be allowed, notwithstanding the substantial difference between those rates and the rates prescribed for the NSW Trustee & Guardian under the Regulation: at [87]. In summary, the considerations which led me to that conclusion were twofold. First, I accepted, on the strength of the evidence of Mr Plover, that there was a small but appreciable risk that the assumption adopted on behalf of the defendant (that the existing fee structure of the NSW Trustee & Guardian would continue for 67 years) would produce an underestimate as to the true future cost of fund management by that entity. That conclusion informed my determination to a small degree: at [70] to [71].
More importantly, the uncontested evidence of the plaintiff's mother and her solicitor as to the mother's reasons for choosing a private manager persuaded me that the claim was reasonable and should be allowed: at paragraphs [72] to [87].
Accordingly, the plaintiff was ultimately unsuccessful in respect of a substantial and costly part of her case, but the resolution of that issue did not affect the outcome of the claim in that it did not sound in any reduction in the amount of damages awarded.
In those circumstances, an important factor in the exercise of my discretion is the reasonableness of the plaintiff's having persisted in the allegation that the fees disclosed by the NSW Trustee & Guardian did not represent the true cost of fund management borne by clients of that entity.
As noted in my earlier judgment, the issue began with the allegation that the fees presently prescribed in the Regulation fail to disclose an additional MER of 0.5 per cent or other indirect costs. That allegation was based on Mr Plover's reading of the annual report of the NSW Trustee & Guardian and his experience of the different disclosure regime for private trustees.
The way in which the issue evolved and the complexity of its resolution are set out in my second judgment at paragraphs [39] to [57]. The chronology of the steps taken by the parties in addressing that issue is set out in detail in both parties' written submissions as to costs and in a chronology of those events provided on behalf of the plaintiff.
An important step in the chronology is the fact noted on behalf of the defendant that, on 19 August 2011, he served an affidavit of Bernard Farrell of the NSW Trustee & Guardian setting out the current fee structure of that entity. The evidence of Mr Farrell was ultimately uncontested and Mr Plover's initial contention (as to an additional MER of 0.5 percent) was abandoned. In his affidavit, Mr Farrell had "strenuously refuted" Mr Plover's allegations as to the additional 0.5 per cent MER. He said "the reference to fees of 0.5 per cent on page 28 of the NSW Trustee & Guardian Annual Report refers to the fees charged by the NSW T & G".
Dr Morrison on behalf of the plaintiff noted that Mr Farrell had not, in that paragraph, squarely addressed the specific concern held by Mr Plover that the additional MER arose from the outsourcing of fund management to other entities. What followed was a substantial amount of investigation and the exchange of a number of further expert reports.
On any analysis, the determination of the true cost of fund management by the NSW Trustee & Guardian was complex. In my view, there was a great deal less certainty as to the outcome of the issue on which the plaintiff was unsuccessful than was the case in Rosniak. The difference between the rates prescribed in the Regulation relied upon by the defendant and the rates of the private trustee chosen by the plaintiff was substantial, so it was an important issue in the plaintiff's claim.
Ultimately, I have not been persuaded that the plaintiff should be ordered to pay the defendant's costs of that issue, in all the circumstances explained above. In particular, I have had regard to the fact that the plaintiff was ultimately successful in her claim for the cost of fund management at the higher rates charged by The Trust Company and my assessment that the issue was a complex one which was important to the plaintiff's claim and warranted some investigation.
However, I do think there is force in the defendant's alternative contention that the plaintiff should not be awarded all of her costs of the second round of the hearing. I do not think that she should be deprived of all of the costs of that hearing for the period identified in the order sought by the defendant. The plaintiff ultimately enjoyed substantial success on the issues determined in the second round.
In the interests of simplifying (and thereby reducing the costs of) any assessment of the costs in question, I do not think it is desirable to make a costs order that would require an assessor to differentiate between the costs incurred for different issues. In my view, doing the best I can, the appropriate course is to allow the plaintiff only half of her costs after 19 August 2011, the date on which Mr Farrell's affidavit was served, until the date of my second judgment.
After the service of Mr Farrell's affidavit, as I have indicated, I do not think it was unreasonable for the plaintiff to persist in the investigation of the issue. Conversely, however, that was a point from which the issue might equally have been given up, in the interests of a just, quick and cheap resolution of the proceedings. Whilst I would not criticise the plaintiff's decision to persist with the point, I think it is reasonable to let part of the cost risk of having done so lie with her.
Plaintiff's application
The plaintiff submitted that her costs incurred between 28 October 2011 and 11 November 2011 inclusive should be paid by the defendant on an indemnity basis on the grounds of the defendant's alleged continual breach of the Court's orders during that period and the absence of any proper explanation to the Court for those breaches. It was submitted that the plaintiff was put to additional and unreasonable expense and cost caused solely by the defendant's breaches and their failure promptly to re-list the matter when the breaches occurred.
The detail of the breaches in question is set out in the written submissions of the plaintiff and need not be repeated here. It is enough to observe that there were several unexplained delays which amounted to breaches of directions of the Court.
The defendant's response is that the delay which occurred in his being in a position to finalise his evidence was "largely if not wholly a result of the sheer complexity of the task in reviewing the financial operations of the NSW Trustee & Guardian". It was submitted that there has been no unreasonable delay or any relevant misconduct of the kind considered in Oshlack v Richmond River Council (1998) 193 CLR 72.
Having regard to my conclusion that the question of the true fees incurred by clients of the NSW Trustee & Guardian was complex and warranted some investigation by the parties, I regard that as an acceptable explanation for the delay. There is some force in the plaintiff's contention that the defendant ought to have taken steps himself to have the proceedings re-listed. No doubt his failure to do so exacerbated the plaintiff's frustration in dealing with the delays. I am not persuaded, however, that the defendant's recalcitrance in that respect amounts to misconduct such as to warrant an award of costs on the indemnity basis.
Accordingly, the order of the Court is that the defendant pay the plaintiff's costs of the proceedings except for half of the plaintiff's costs from 19 August 2011 to 8 December 2011.
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