Rhiannon Gray by her tutor Kathleen Anne Gray v. Richards

[2014] HCATrans 199

[2014] HCATrans 199

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S111 of 2014

B e t w e e n -

RHIANNON GRAY BY HER TUTOR KATHLEEN ANNE GRAY

Appellant

and

COREY RICHARDS

Respondent

Application for special leave to appeal

FRENCH CJ
HAYNE J
BELL J
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 10 SEPTEMBER 2014, AT 10.18 AM

Copyright in the High Court of Australia

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

MR P.J. DEAKIN, QC:   Your Honours, I appear for the respondent with MR B.A.P. KELLEHER and MS K.A. JAMES.  (instructed by TL Lawyers)

FRENCH CJ:   Yes, Mr Morrison.

MR MORRISON:   Your Honours, this case is about whether a tortfeasor or, in this case, a compulsory third party insurer should bear the true cost of fund management for those who are severely intellectually disabled.  There were four issues below of which only two are the subject of this appeal, but the first is whether the appellant is entitled to the cost of fund management on fund management and the second is whether the appellant is entitled to the cost of fund management on income into the fund.  The appellant succeeded on these issues at first instance, but was overturned on these but not on the other issues by the Court of Appeal.

The appellant is a severely brain‑injured woman whose injury was suffered as a 10‑year‑old passenger in a motor vehicle in 2003.  Orders have been made in the New South Wales Supreme Court for the management of her estate for the duration of her life.  At the time of those orders that was estimated at some 67 years.  Pursuant to those orders, a fund manager has been appointed, the Trust Company Ltd, and fees will be incurred.

HAYNE J:   Just before you proceed with the development of the chronology of it, Mr Morrison, what was the power, what was the statutory route of the power to order management of the estate of the plaintiff?

MR MORRISON: Sections 77 and 79 of the Civil Procedure Act (NSW).

HAYNE J:   What, if any, other statute regulates the administration of the affairs of persons who, like this plaintiff, are unable to manage their affairs for themselves?

MR MORRISON:   I think those two provisions deal with the matter but the court, of course, retains the power both to approve the settlement and to impose such conditions as it thinks proper as part of its inherent jurisdiction.  I will give some further thought to that but the express ‑ ‑ ‑

HAYNE J:   My question is perhaps focused a little more – what if any intersection is there between the exercise of those powers and statutes like the Trustee Act, the NSW Trustee and Guardian Act and provisions of that kind?

MR MORRISON:   There is legislation in New South Wales in relation to the New South Wales organisation which took over the duties of the Public Trustee and the trustee and guardian but, in this particular case, a private fund manager was appointed and the Trustee and Guardian Act under section 41 makes provision for that and section 41 gives the court power to appoint whether it is the Public Trustee or whether it is the private fund - in this case, the private fund.  That was one of the matters which was in dispute in the Court of Appeal.  It is no longer in dispute.

HAYNE J:   No doubt the appointment of a private trustee, as distinct from the State organisation, was made for sound and demonstrated reason.

MR MORRISON:   Indeed.

HAYNE J:   But at some point in the development of the argument it may be - I do not know - that we need to consider whether the appointment of State trustee, the State trust organisation, and the fees which it would charge, if it were appointed, represent some, for want of a better expression, base case against which appointment of a private profit‑making trustee company may need to be set, whether by comparison, contrast, those are matters to which we will come.  I have interrupted you far too much.

MR MORRISON:   No, but perhaps it is convenient just to say something about that issue, even if only to put it to one side.  That was a matter which was squarely in issue at first instance.  Her Honour Justice McCallum determined that issue on the basis of evidence of a rather unfortunate experience the family had had with the Public Trustee in respect of managing funds.  They live in Armidale and the facilities available for them were manifestly inadequate.  In those circumstances, she exercised her discretion to approve the appointment of a private trustee. 

That was the subject of an appeal to the Court of Appeal, as to its reasonableness.  The principal argument was on the basis of cost.  The respondent here today lost that argument, that is, it was determined that it was open to her Honour to make the order she did and it is also to be noted that the arrangements were separately approved by an independent justice of the Supreme Court as part of the approval process.  Her Honour did not determine the approval of the settlement figure or of the arrangements herself.

So the answer is that the question of the reasonableness of fees really is not in issue here.  The fees ultimately were approved.  In fact, the appellant then because of the size of the fund was able to negotiate a lower rate.  The rate that her Honour ultimately awarded fund management damages on was the lower rate which had been negotiated on behalf of the appellant, and which was to the respondent’s advantage. 

That rate appears in the appeal book at page 456 and that is at about line 40.  It is referred to, for the reason I have expressed, as an amended fee structure and your Honours will see that there is there a one‑off establishment fee and thereafter a fee charged on the corpus of the fund, the corpus being the amount each year of the capital which is left and of whatever income has been acquired by the fund during that year.  The charge is, as your Honours can see, 0.55 per cent of the total.  That fee was expressly approved by the Court.

Now, the Trust Company Limited has the responsibility of managing the estate of the disabled person so that in an ideal world the last dollar is expended on the last day of the 67 years which are assumed to remain to her. But it is important to note that pursuant to the provisions of sections 77 and 79 of the Civil Procedure Act the appellant by law will never have any say in the management of her affairs. 

It is also important to note that the fund to be managed will be undifferentiated as between the amounts of fund management and the balance of the fund, that is, it is simply handed over as a single sum to be managed.  Can we just take the Court to the appeal book at page 74?  Commencing at about line 30, her Honour Justice McCallum said:

It’s common ground Mr, Deakin, that the amount awarded for funds management itself must be managed, isn’t it?

My learned friend said:

Your Honour, the authorities I think bind us certainly before your Honour that it’s treated as part of the corpus.  Your Honour will recall at earlier stages things like general damages were excluded and other amounts were actually excluded.  But I think it’s fair to say that your Honour is bound as the law stands at the moment to treat the total amount including such amount as part of the fund under management.

There are a couple of lines beyond that.  Now, that is also referred to in an unreported decision of Justice Hunter in the New South Wales Supreme Court - Bacha v Pettersen.  It is an unreported decision of 20 September 1994 in which Mr Justice Hunter said much the same thing at the foot of page 1 and over on to page 2 of that judgment, that is, that the fund will be undifferentiated. 

What is significant about all of this is that the fund – the amount for fund management will itself be discounted on the five per cent discount tables, that is, discounted on the assumption that it will be managed so as to be able to undertake the task of meeting the charges of the fund manager.  The five per cent discount table is mandated by the New South Wales Parliament and it will itself be subject to the fund manager’s charges on the rates that we have simply referred to a moment ago.  There will be fees charged both on the capital elements and on the income into the fund because the whole of the amount under management will be the subject of the annual charges imposed by the trustee.

GAGELER J:   You mean the income will be an accretion to the fund?

MR MORRISON:   Yes, it increases the fund.  It increases the corpus under management and to that extent becomes part of the fund and, therefore, subject to the charges.

GAGELER J:   There is no additional charge on the income as it comes into the fund?

MR MORRISON:   No, in this particular case, unlike, say, Rosniak, where it was a charge purely on income into the fund, in this particular case the fund manager charges on the total of the fund each year.

HAYNE J:   At a particular balance date.

MR MORRISON:   There was some debate about that, but the end result was that the actuary on behalf of the appellant and the accountant on behalf of the respondent took a compromise position and agreed a figure and that figure was adopted by her Honour at first instance.  I think they took the midpoint of the year.

GAGELER J:   But there is ‑ ‑ ‑

HAYNE J:   The trust company does something, what does the trust company do?  It sets its fee at 0.55 per cent of what when - of corpus at a date?

MR MORRISON:   Bear in mind that those assumptions were made at a time when the fee itself was under negotiation.  The end result is that the figure that was adopted and the assumption that stands behind it does not matter for the point of view of principle in this case.  It may matter for the individual calculation but the compromise that was adopted was a compromise at a time when there were still negotiations in relation to the rate to be imposed.  So can I sidestep your Honour’s entirely appropriate question by saying that it does not matter for the question of principle in this case.

GAGELER J:   But you did take us to page 456 and you showed us the figure, 0.550 per cent.  Really the question is just of what?

MR MORRISON:   Yes, well, of the amount annually, that is under management, that is the whole of the sum which is under management at that particular point in time and the agreement between the parties was to assume that that would be the midpoint of the year.

GAGELER J:   The whole of the capital under management?

MR MORRISON:   The whole of the amount under management is subject to the charges, that is, every amount, every last dollar that has been paid and every last dollar of income at the point at which the charge is imposed, less whatever amounts have been paid out during the previous 12 months.  Now, there has to be, of course, income into the fund.  After all, the whole point of a discount rate is the inherent assumption that moneys can be conservatively and safely invested so as to produce a return which will allow, after tax and inflation, the fund to last the distance.  That rate as we ‑ ‑ ‑

HAYNE J:   Well, discount is more than that, is it not?  Is not the discount a general reflection of time value of money?

MR MORRISON:   The High Court did not quite say that in Todorovic v Waller. Can I take your Honours to that passage? If we go to 150 CLR at 409 the Court, in the short statement which headed the case - and one can find varying views amongst the members of the Bench elsewhere, but this was a unanimous statement agreed - said this:

In an action for damages for personal injuries, evidence as to the likely course of inflation, or of possible future changes in rates of wages or of prices, in inadmissible.  Where there has been a loss of earning capacity which is likely to lead to financial loss in the future, or where the plaintiff’s injuries will make it necessary to expend in the future money to provide medical or other services, or goods necessary for the plaintiff’s health or comfort, the present value of the future loss ought to be quantified by adopting a discount rate of 3 per cent in all cases, subject, of course, to any relevant statutory provisions.  This rate is intended to make the appropriate allowance for inflation, for future changes in rates of wages generally or of prices, and for tax (either actual or notional) upon income from investment of the sum awarded.  No further allowance should be made for these matters.

We would respectfully say that clearly indicates the nature of a discount rate.  What we say in relation to that is that it becomes very clear that unless the cost of fund management upon the whole of the fund sitting there and which is subject to charges is paid, then the consequence inevitably is that there will be a shortfall which will have to be met out of the fund, leaving an amount which even on the assumption that the five per cent rate is an appropriate rate, will inevitably be inadequate for the appellant’s long‑term needs.

The example that is referred to before her Honour at first instance was that, and it is fairly relevant to this case, if the fund is approximately $10 million, the cost of fund management on that $10 million is $2 million, and they are not very far from the actual figures.  The charges, however, will be imposed not on $10 million but on $12 million and the New South Wales Court of Appeal, overturning the first instance decision, decided that we should only get the cost of managing the $10 million although the charges will be imposed on 12.

KEANE J:   But that assumes that there is no room for negotiation as to the reasonableness of the idea that that component which represents the cost of management might be the subject of some agreement ‑ ‑ ‑

MR MORRISON:   That was a matter which – yes.

KEANE J:   ‑ ‑ ‑ on the basis that while it is true that the lump sum for damages is awarded to the plaintiff for her benefit, the economic reality is that there is a component for management, which the plaintiff recovers but which reflects the time, the present value of management over time.

MR MORRISON:   Well, for reasons which we will come back to in a moment, we would say that if there was a case to be run for failure to mitigate, the respondent had to plead, had to mount that case, had to argue it and it had to be squarely raised and it was raised only in the judgment of the Court of Appeal but not even in argument before the Court of Appeal.

KEANE J:   Mr Morrison, can I just ask you about that, though?  I hear what you say about it not being a live issue and that might be the end of it.  It does not look like that was the end of it, so far as the Court of Appeal was concerned.  They seem to have come to a view about this.  But is it right to say, as both the Chief Justice and Justice Basten seem to have assumed, that there is scope for negotiation of a reasonable agreement about these matters, between those responsible for managing your client’s affairs and the trustee company, or the management company.

MR MORRISON:   The answer is yes, but that agreement has to be reached prior to the court approving the arrangements.  That is, the arrangements including the charges are negotiated and then put up for approval and a justice of the Supreme Court approved these particular arrangements in this particular case.

KEANE J:   The arrangements that were approved made it clear, did they, that there would be a management fee on management?

MR MORRISON:   We say that that is inherent in what was approved.  It was not a matter which was discussed in the approval process, but what was clear was that the 0.55 per cent would be charged upon the whole of the fund and it is inherent in what occurs that the whole of the fund will be subject to the charges.  So we say yes, and can we just add:  no one has suggested that there is a single fund manager anywhere in Australia who will undertake to manage $2 million of the fund for the next 67 years without charge, because that is what we are talking about.

HAYNE J:   If I can just get a better idea of the sequence of events.  The ultimate amount of damages was settled?

MR MORRISON:   Yes.

HAYNE J:   There was approval of that settlement?

MR MORRISON:   No.  The next step was there had to be an argument about whether or not a private fund manager and his rates were reasonable ‑ ‑ ‑

HAYNE J:   That is the point.

MR MORRISON:   That was determined by her Honour.  Then there was some further negotiation in relation to that because to some extent if you have a large sum of money you are in a better negotiating position than a smaller one, so the rate was negotiated down but the terms of the way in which the charges were levied were not altered.  That is what went up for approval and was approved.

HAYNE J:   That would be an inversion, I think, of what 20 years ago would have been seen to be the ordinary course of events – namely, compromise the action, fix upon a sum, approve the compromise, then go to court if needs be about management of the judgment sum.  You want to inject the question of management of the judgment sum as an event prior to settlement of the judgment sum, do you not?

MR MORRISON:   Settlement of the judgment sum occurred leaving fund management to one side.

HAYNE J:   I understand that.

MR MORRISON:   The settlement was exclusive of that.  So fund management remained in dispute and has remained in dispute ever since.  There was no settlement in respect of that, so those were matters which were live and for determination in argument before the court.  I am not sure if I follow where your Honour goes with the rest of that proposition.

HAYNE J:   To a destination of a kind you do not want to get to, Mr Morrison.  That is why you do not want to follow the point.

MR MORRISON:   Can I come back to your Honour’s proposition shortly?  Could we say that it is noteworthy that, at the outset, both the appellant’s actuary and the respondent’s accountant were ultimately agreed that absent an allowance for fund management on fund management and fund management on ending up in the fund, there would be a shortfall and the money would not last the distance.

HAYNE J:   Built into that there are so many assumptions of the kind reflected in the judgment in Todorovic that the proposition is one of, I think, ultimately not much content, Mr Morrison.

MR MORRISON:   Can we try and give it some content by taking your Honours to page 71 of the appeal book?  This is the evidence of Mr Watt.  The two experts were sitting together in court and giving evidence jointly.  Starting about line 24:

MORRISON:Would it be fair to say, Mr Watt, that in your calculation of the cost of fund management you discount the amount to be allowed for that future cost of fund management itself on 5% discount rates?

WITNESS WATT:The future costs are discounted, yes.

MORRISON:   But you make no provision for that sum to be managed?

WITNESS WATT:   Well I’ve made provision for that in the calculation, the alternative calculation I’ve done.

MORRISON:   But in your primary reports as distinct from the theoretical calculation, you’ve agreed today you made no provision for the allowance of future fund management to be managed, did you?

WITNESS WATT:   No I did not.

MORRISON:   So that amount has to be so managed as to secure a 5% return after tax and inflation, but there is nothing to provide for its management on your –

WITNESS WATT:   On my calculations, that’s correct.

MORRISON:   And the same really applies in respect of the earnings on the fund; that is the earnings need to be secured with relatively secure investments to use the Todorovic terminology, after tax and inflation at 5%, but there is no provision for them to be managed when they come in?

WITNESS WATT:  The earnings?

MORRISON:   Yes.

WITNESS WATT:   No.

MORRISON:   Doesn’t it follow, Mr Watt, that there inevitably will be a shortfall; that is there will be insufficient money for fund management on the approach that you propose by comparison with the size of the fund which is established?

WITNESS WATT:   No, I disagree with that.

MORRISON:   Let’s assume then these very simple figures.  Let’s assume we are dealing with $10m as the damages apart from fund management, and that the cost of fund management, on a simplistic approach, on that $10m is $2m.

The whole of the $12m goes to the fund manager.

If we put to one side any small amounts which don’t go into the fund, put aside that, on your approach the fund management is only calculated on 10 million but the charges are levied on 12; correct?

WITNESS WATT:   If the 12 million is rolled into one sum and the fund manager treats that as one sum, yes.

Then, a couple of lines further down her Honour adds:

HER HONOUR:   Well even if he doesn’t.  Even if he treats it as two separate funds.

MORRISON:   It still has to be managed.

HER HONOUR:   It still has to be managed.  The 10 and the two both have to be managed?

WITNESS WATT:   In theory, yes.

HER HONOUR:   Why in theory?  In practice they both have to be managed, don’t they?

WITNESS WATT:   If it is a sum of $2m which can’t be managed by the plaintiff alone, then theoretically, yes, it would have to be managed.

MORRISON:   But you don’t provide for its management.

WITNESS WATT:   No, I don’t.

MORRISON:   So there will be a shortfall, won’t there?

WITNESS WATT:   Well, I don’t know if you can say that that will be a shortfall.

MORRISON:   There will be, on the hypothetical basis of a 5% return after tax and inflation, $2m of the $12m that goes into the fund for which there is a set of charges, but no provision for its management; correct?

WITNESS WATT:   Correct.

MORRISON:   And there will, therefore, be a shortfall in all reasonable probability?

WITNESS WATT:   That may be one outcome.

MORRISON:   Well, it’s the most likely outcome, isn’t it?

WITNESS WATT:   It is probable, yes.

FRENCH CJ:   What assumption is made about the five per cent?

MR MORRISON:   Five per cent is the ‑ ‑ ‑

FRENCH CJ:   Is the discount rate in the statutory ‑ ‑ ‑

MR MORRISON:    ‑ ‑ ‑ is the discount rate which is imposed by statute.

FRENCH CJ:   But these questions are premised on the basis that you have to get a five per cent return, is that right?

MR MORRISON:   It would not, at least in a theoretical sense, matter whether the return was in a particular year 3 per cent or 7 per cent, whatever the amount is there are going to be charges levied on it.

FRENCH CJ:   I understand that.

MR MORRISON:   What is inherent in the discount rate, and no one could conceivably say that five per cent will be earned regularly year after year, but what is inherent in the discount rate is the assumption that the moneys will be conservatively invested but so as to return an amount to meet the discount rate.  That indeed is the point of discounting, it is because of the ‑ ‑ ‑

HAYNE J:   No, it is not.

MR MORRISON:   ‑ ‑ ‑ advantage of having the money.

HAYNE J:   No, it is not.  The point of discounting is to take account of the time value of money, and taking account of time value of money in any period probably beyond about six or seven years, certainly beyond 10 years, is wholly speculative and you have imposed on you now legislatively a particular discount rate.  Now, the chain of questioning that you took us to appeared, if I may say so, to be premised on a snapshot view of a very complex set of future financial events, that going into the fund you have 12 mil, you take no account of what is coming out, you take no account of tax, inflation, imponderables, vicissitudes or the other things that build into the projection 67 years into the future, and you say, well, the spreadsheet shows a negative result if I project it out 67 years.  What does that establish beyond the fact that the person giving the evidence has access to a spreadsheet program?

MR MORRISON:   Inevitably in estimating future loss there is a process both of calculation and of estimation, and the assumption is that whilst five per cent is the discount rate that the fund will be able to earn, on average, over time, that discount rate, otherwise the discount rate would inevitably leave a shortfall, and the assumption that we are required to make using the approach in Rosniak is that the last dollar is spent on the last day.  The assumption which is made by both accountant and actuary in doing the calculations as to the amount of fund management is the expenditure of the amounts allowed for out of the fund to produce that outcome.

Now, this is all a purely theoretical construct, but it is theoretical in the sense that there has to be money in or the fund will inevitably fail, and fail in a surprisingly quick period of time.  If you do not earn the discount rate, then inevitably there will not be enough money to last anything like the 67 years.  Now, it may be that a particular fund manager will do better or worse or may spend more money or less money, but the assumption that we have to make, and which the authorities suggest we should make, is to assume, artificial though it is, an even rate of income and an even rate of expenditure, and we would readily accept your Honour’s proposition that there is an air of unreality about it, but what is real is that there must be income into the fund and that income will earn charges.  Just to complete that passage I took your Honours to, there was one other paragraph there, at page 73 of the appeal book at line 18, and I put to Mr Watt:

The same applies in respect of charges which will inevitably be levied on the income of the fund if no provision is made for management of them but the fund charges on them, again there will be a shortfall, won’t there, in all reasonable probability?

and Mr Watt agrees, “Yes”.  Now, if you make no allowance to manage the amount for fund management and if you make no allowance to manage the income into the fund which forms a significant part of the amount that composes the fund in any given year, inevitably there has to be a shortfall.

KEANE J:   It is pretty apparent, Mr Morrison, from the passages you have taken us to that Mr Watt was resisting this idea that you see the 12 as an undifferentiated lump sum for his purposes.

MR MORRISON:   Yes.

KEANE J:   He wanted to see the 2 as separate, for some reason.

MR MORRISON:   Her Honour’s point, which she made far more ably than I could, was that, what does it matter?  Even if it were a separate fund, and the evidence strongly suggests it will not be ‑ ‑ ‑

KEANE J:   No.

MR MORRISON:   ‑ ‑ ‑ but even if it were a separate fund, it will be subject to the same regime of charges.

KEANE J:   But is it fair to say that the basis for Mr Watt’s resistance to seeing the $2 million in that undifferentiated way, that that $2 million represents the management fee, the cost of management?  That is to say, if the plaintiff did not need to have management of the damages, her damages would have been $10 million.

MR MORRISON:   Yes.

KEANE J:   And the $2 million represents the present value of the cost of the management that she has to incur.

MR MORRISON:   We say, no, it does not because it does not include the cost of managing that sum which has itself been discounted on the five per cent tables.  One has to appreciate, all amounts for future losses, including the cost of fund management, are by law discounted.

KEANE J:   And as was said in the general statement or the unanimous statement in Todorovic v Waller, that is to reflect the present value of money over time.

MR MORRISON:   Yes.  What we are dealing with is the calculation ‑ ‑ ‑

KEANE J:   Yes.

MR MORRISON:   ‑ ‑ ‑ rather than that statement of principle.  Can we just take your Honours to the appeal book at page 329 in answer to the question your Honour just asked?  This is a report by Mr Watt and which indicates the basis upon which he was being dragged reluctantly and kicking and screaming to acknowledge a shortfall.  At paragraph 14 on page 329 Mr Watt said:

In my opinion, it is not appropriate to include a calculation of earnings on the fund in determining the future value of the Fund Management Costs.  My opinion is based on the assumptions that the Plaintiff is entitled to be compensated for fees that relate to the management and investment of the initial sum only and that the Court (and the defendant) need not concern themselves with the earnings and subsequent management and investment of those earnings nor the fees associated with those tasks.

Then he goes on to say in the next paragraph that is ultimately a matter for legal debate, though clearly he had either been asked to make or had made assumptions in respect of those legal questions.  But what he is making perfectly clear is there is, in his approach, no allowance for the management of a very substantial part of the fund to be managed.

KEANE J:   He is there taking a view, or expressing a view, of the third of the principles stated by Justices Gibbs and Wilson in Todorovic v Walker.  So that is the area of debate.

MR MORRISON:   It is, and the words “initial sum only” are what are telling, because the fund management charges are not charged only on the initial fund.  The regime of charges as approved by the Supreme Court of New South Wales – a matter which is not in dispute here – is a regime under which the charges are levied annually.  May I say, with respect to their Honours in the Court of Appeal, there has been no evidence that there is any fund manager anywhere in Australia that charges on an upfront basis, or would charge, or what they would charge, because those matters were not the subject of any evidence.  But we are certainly unaware of any fund manager that charges other than on a regular annual basis, and that includes the government organisations which do these tasks as well.

The problem in charging only on the initial sum is that inevitably the allowance for fund management will be inadequate.  One can debate the extent of the inadequacy, but the inadequacy is manifest.  It is wholly artificial to allow only on part of a $12 million fund for fund management only on $10 million of it.

HAYNE J:   What makes it artificial is the discount?

MR MORRISON:   What makes it artificial?  Well, the discount rate is only part of that, your Honour, because that is only part ‑ ‑ ‑

HAYNE J:   Because otherwise you have started from the NPV, the net present value, have you not, of the outlay on management fees?  That is your starting figure.

MR MORRISON:   If we had a nil per cent discount rate your Honour would be absolutely correct – that is, in those circumstances the position would be different – but we do not; we have varying discount rates in Australia, but for the most part five per cent.  We have to live with that, and inherent in that five per cent is the proposition that the fund will earn income in order to fulfil its function.

Can we go from there to the reasoning in the New South Wales Court of Appeal and just analyse where their Honours disagreed with the propositions we are putting?  The first proposition we put is this:  that the cost of fund management is a long‑recognised head of future loss.  We simply refer your Honours to The Nominal Defendant v Gardikiotis 186 CLR 49, particularly at 54, point 9 to 55, point 3 and also, and most particularly, Willett v Futcher 221 CLR 627 at 631 and 643. The basis of the allowance of fund management is restiutio in intergrum.  That much is perfectly clear from those authorities.

His Honour the Chief Justice who wrote the judgment with which three other members of the Bench in the Court of Appeal agreed said that although there was some logic in making an award for damages for fund management on fund management it was not appropriate to do so.  His first ground for saying that was that as a matter of general principle a Court is not concerned with what a plaintiff does with his or her lump sum damages, and he referred to what was said in this respect in Todorovic v Waller, and that is perfectly true that that is exactly what that case said, but that was not a case on fund management.  The first case on fund management, we think, was Brindall v McDonald in New South Wales, which is 1985, or thereabouts, some four or so years later than Todorovic v Waller.  Then you have Shearer and you have Treonne Meats v Shaheen, Rosniak and that series of cases in which the concept was developed, and ultimately Gardikiotis and of course Willett v Futcher where this Court laid down the principles applicable.

This plaintiff, unlike a plaintiff who could determine what she did with her own money, will incur fees, which a non‑intellectually disabled person would not have to incur, and she will never by law be able to manage this money for herself.  So when his Honour the Chief Justice said the Court is not interested in what a plaintiff does with his or her own damages, the Court is intimately concerned with what a disabled person cannot do with money because they cannot have any say and must at cost employ someone to manage the fund.  The Court dealt with this quite expressly and contrary to the way in which the Chief Justice expressed himself, if we go to Nominal Defendant v Gardikiotis, Justice McHugh at page 54, at about point 9 on that page, said this:

Damages may therefore be awarded for the expense of managing a plaintiff’s verdict moneys when the plaintiff’s disabilities prevent him or her from managing those moneys and the disabilities are the foreseeable consequence of the defendant’s negligence.  Damages may also be awarded for the expense of investment advice where, as the result of the defendant’s negligence, the plaintiff is no longer able to make adequate decisions concerning his or her own financial affairs.  In both cases, damages are payable by the defendant  because the expense is the necessary product of the defendant’s negligent and is not the result of the free, informed and voluntary act of the plaintiff.  The expenses have been brought about by the loss before the plaintiff’s ability to do what that person was capable of doing before the occurrence of the tort which gives rise to the claim for compensation.

That is the very point.  If we then turn what this ‑ ‑ ‑

KEANE J:   But just before you do, his Honour goes on to say:

But a different area is reached when the plaintiff seeks damages, not for expense necessarily incurred as the result of a disability . . . but for an expense arising merely from the size of an award of damages and the exercise of a choice by the plaintiff as to how to invest those damages.

MR MORRISON:   Yes.

KEANE J:   Why is not the difficulty here a difficulty that arises from the choice of those responsible for managing the plaintiff’s affairs to accept the proposal that includes management fee on management fee?

MR MORRISON:   Can I say that, with respect, your Honour perhaps misreads what his Honour Justice McHugh was saying there.

KEANE J:   What he is saying, it seems to me, is that you need to see the third principle stated in Todorovic v Waller as being concerned, if you like, with insufficiency of connection or remoteness of damage but the idea is that if a particular loss is incurred because the plaintiff makes a decision as to how to manage his or her affairs that will be seen to be something with which the court quantifying damages is not concerned.  That is really about the scope of the third principle in Todorovic v Waller.

MR MORRISON:   I think, with respect, what his Honour was referring to there was the particular circumstances in Gardikiotis.   Mary Gardikiotis was a postal worker who had never and was never likely to handle large sums of money in her life.  I persuaded the Court of Appeal in New South Wales to award damages for fund management in that case.  Though she was in no way intellectually disabled, she was quite severely physically disabled. 

The argument that I was unsuccessful on in the High Court was in respect of a non‑intellectually disabled person, a person who was perfectly capable of managing her affairs and making her decisions but who had physical restrictions in doing so.  The case was ultimately remitted to the New South Wales Court of Appeal for determination of the issue of the physical restrictions and then resolved at that stage.  What his Honour is referring to is the fact that or the proposition that the notion that you take your victim as you find them does not extend to those who have not suffered an intellectual disability.

KEANE J:   Those who have are in a good position to establish that true compensation for their injury requires them to be compensated from loss flowing from their incapacity to manage.  Hence, in Willett v Futcher the expenses associated with management of the fund of damages are themselves recoverable. 

MR MORRISON:   Yes.

KEANE J:   But the next question is really as to the amount of that fee and to the extent that it can be said that the amount of that fee is unreasonable because, for example, a reasonable bargain between those managing the plaintiff’s affairs and the fund manager would reflect the circumstance that the component for fund management is indeed the component for fund management and exhaustive of that component that in striking that reasonable bargain they would not agree to pay management on management.

MR MORRISON:   Well, there are a number of difficulties with what your Honour has put.  First of all, that was the very question, the reasonableness of a private fund management and the reasonableness of these arrangements which were determined and determined against the proposition your Honour put, both at first instance and in the Court of Appeal.

KEANE J:   That does not seem to have deterred the Chief Justice or Justice Basten from deciding the case on that footing.

MR MORRISON:   No, no, but the proposition that it was inappropriate to allow the fees of a private fund manager was argued strenuously in the Court of Appeal and the fees of the private fund manager were allowed as appropriate by the unanimous view in the Court of Appeal.  So that it is not open now to say that in this particular case some other financial arrangement should have been entered into, both because the financial arrangement was approved by an independent justice of the Supreme Court and because the respondent lost the argument as to the reasonableness of the charges and the consequent question, should it have been the Public Trustee or should it have been the private fund manager -they lost that argument.

KEANE J:   If the case were not, as you say, foreclosed to the other side by the way in which the case was conducted, would you agree that there is scope for notions of remoteness and reasonableness in putting a limit on the sorts of bargain that a plaintiff can make or those who act for the plaintiff can make as to the costs of management and sheet them home to the defendant?

MR MORRISON:   Yes, of course, there is room for argument about that but the place for that argument is at two stages:  firstly, in the approval process to which the respondent does not have a specific role.  The appellant has to satisfy a justice of the Supreme Court that the arrangements are appropriate.  The second, however, is whether it is reasonable in the particular case to use a private fund manager instead of the public fund manager or some other private fund manager, even if the charges are somewhat higher. 

In this particular case, and perhaps unusually, there were special reasons why her Honour at first instance approved the higher charges and why the Court of Appeal said that that decision was open to her Honour and therefore correct in principle, in this particular case.  But that does not mean that in another case it might not be more reasonable that the lower fee regime would be appropriate but, having said that, the lower fee regime that was being proposed was annual charges on the whole of the sum. 

No regime was put forward under which - and the onus on a failure to mitigate case which had to be pleaded and had to be argued and evidence had to be adduced, the respondent had no evidence of any fund manager in Australia who would charge on a one‑off basis, up front or who would not levy charges on $2 million which they are required to manage for 67 years, so as to produce enough return so as to allow them to take their fees out.

KEANE J:   Yes, I do not think that the other side are seeking to mount a failure to mitigate case and I do not think they are complaining about the fact that it is a private manager rather than the Public Trustee, and I do not think they are complaining about the fact that there are these annual charges.  What, insofar as they support the judgment of the Court of Appeal, seems to be being said is the fourth principle in Todorovic v Waller says the onus is on you to show your loss and in quantifying that loss one should not take into account the loss flowing from an unreasonable bargain.

MR MORRISON:   Well, can we say that the reasonableness of the bargain was found by her Honour at first instance and approved by the Court of Appeal.  The respondent lost that argument.  It is just not open to be dealt with here.  There was no evidence of an alternative bargain which would have overcome the problem of annual fees.

KEANE J:   So, in relation to paragraph 146 in the reasons of the Chief Justice at page 598, where his Honour says:

The court is required in a case such as the present to provide what is a reasonable amount for the costs of managing the fund.  It is open to the respondent or perhaps more accurately those representing her, to choose a fund manager with the approval of the court and to negotiate the terms on which the fund manager will be paid.  The court should not, in my opinion, order additional amounts on the assumption that fees would also be paid on the amount set aside for fund management costs or indeed on the basis that in the particular case the chosen manager levies fees in such a way as to require the amount set aside for fund management to itself be managed.

MR MORRISON:   Well, can I say that there was no argument in the Court of Appeal about that issue.  That came out for the first time in the judgment.

KEANE J:   Now, I understand that.

MR MORRISON:   It was not debated.

KEANE J:   I understand that.  The question I asked you - I understand you say it is foreclosed to the other side, but as a matter of principle, apart from the circumstances of this case, it might be that one cannot give effect to the principle because of the circumstances of this case, but as a matter of principle is what his Honour says there correct?

MR MORRISON:   It could be correct if there was evidence adduced by the party which bore the onus, the respondent, that there were fund managers who were prepared to enter into such a bargain and what the bargain would be and whether it was ultimately to the benefit of the fund, but there was no such evidence.  The assumption which lay behind the whole of the calculations and, indeed, the debate at first instance was that fund managers throughout Australia, whether private or public, charge annual fees.

KEANE J:   There is no control of that, for example, by the availability of applying to the court for the court to look at the reasonableness of that particular practice.  I mean it might be that some people might think that that approach by fund managers looks a bit like gouging.

MR MORRISON:   It might also be thought that taking an amount now which is going to have to pay for work done in 67 years would be so highly speculative that the charges that would have to be levied now might well exceed the charges to be levied progressively over that 67 years, bear in mind that those charges will be ever reducing as the fund itself reduces.

The answer is we do not know because there was no evidence of any fund manager in Australia that charges on that basis, whether public or private.  There is just no evidence.  It was not debated; it was not put.  It is entirely a matter of speculation by the court, and in this particular case it is speculation which suggests a bargain could have been entered into in circumstances where they knew that the bargain that had been entered into and had been approved involved continuing charges.  So to not allow for the continuing charges inevitably made the allowance for fund management inadequate.  Can we just say that there is something said about this in Willett v Futcher 221 CLR 627 at 643. Reading from paragraph 51, their Honours said:

The plaintiff can make no decision about the fund.  An administrator must be appointed.  The administrator must invest that fund and act with reasonable diligence.  It follows that the administrator will incur expenses in performing those tasks.  The incurring of the expenses is a direct result of the defendant’s negligence.  The damages to be awarded are to be calculated as the amount that will place the plaintiff, so far as possible, in the position he or she would have been in had the tort not been committed.

It would seem that the court in Willett v Futcher was contemplating exactly the sort of regime of charges we are talking about here.  But, as I say, no one has adduced evidence of any fund manager, public or private, in Australia which would be prepared to take a sum of money now and, if so, what that sum of money would be to manage for the next 67 years.  It cannot be assumed, as the Court of Appeal seems to have assumed, that $2 million would be that sum in the absence of evidence that anyone is prepared to do it or, if they did, what the amount would be.  There was just no evidence of that.

At this stage the only evidence is that fund managers charge as they perform the services.  On the particular regime of charges of this particular organisation, that is a regime of diminishing charges over the year as the fund itself diminishes.  That does not seem inherently unreasonable or, with respect, your Honour, to be appropriately called gouging.

KEANE J:   I do not know; you have $2 million that you are getting the management of – that is, that you are getting – on the basis that that represents the net present value of what has been assessed to be the cost to the plaintiff of managing her funds, and everyone has agreed that it has been settled and the parties are proceeding on the footing that that $2 million represents that cost and the manager enters upon the arrangement on that footing.  It does seem to me to be a bit excessive for the manager to say, “Oh, and by the way, I want some more”.

MR MORRISON:   If it is disclosed ‑ ‑ ‑

KEANE J:   Bearing in mind that these extra expenses are not just its expenses.  There is the profit component as well.

MR MORRISON:   Indeed, but that is ‑ ‑ ‑

KEANE J:   People might have been forgiven for thinking that both profit component and expense were all brought to a conclusion, to a bottom line with the $2 million component. 

MR MORRISON:   The public alternative for which the respondent contended as more reasonable also charged on an annual basis.  The only difference was the level of charges and there were particular and compelling reasons in this particular case why the private management was more appropriate for this particular family in this particular location and given their unfortunate experience with the alternative.

It may be that in another case it might be possible to negotiate a different arrangement but that is not what we are dealing with here.  What we are dealing with here is the fact that the court has approved and said to be reasonable the particular level and method of charging that this plaintiff, this appellant, will inevitably have to incur.  In those circumstances, why should the respondent not bear the true cost and not an artificial construct, namely today’s charges but not the charges of next year and the year after and the year after, though we know they will be incurred.  That is the problem.  We say, that is simply manifestly unjust.  It is contrary to what this Court said in Willet v Futcher and the passage that I have just taken the Court to.  There are other reasons as well.  If we go to what Justice Basten said ‑ ‑ ‑

FRENCH CJ:   Can I just, before you do, just go back to the reasoning of the Chief Justice at 147 and the concern about speculation.  He seems to accept in 144 that logically you can fit fund management on fund management into a compensatory principle.  Then, the concern expressed in 147 is about the speculative character of the additional components which are sought and a fortiori if it is iterative.  Does that amount to a proposition that all speculation should be done, as it were, in the first component and that the first component reflects all necessary speculation?

MR MORRISON:   His Honour seems to be accepting that that would be artificial but that as a matter of policy it ought to be adopted.  Ultimately, Justice Basten expressly and the Chief Justice implicitly seemed to make their determination on a policy basis for reasons I will come back to in a moment.

FRENCH CJ:   It is not inconsistent with the conceptual framework within which Todorovic v Waller was decided, is it not?

MR MORRISON:   But it is not inconsistent with what was said in Gardikiotis and Willett v Futcher that it is the true cost that has to be met.  Could I come back to that?

FRENCH CJ:   There was a lot in that word “true”.

MR MORRISON:   There is, there is.  Could I come back to that simply because if I could just finish this point and then come to the speculation issue next.  That the only additional point I wish to put in relation to the question as to whether you could negotiate some unidentified bargain with a fund manager for a cheaper outcome, an option which simply was not available given the approval and given that it was never argued that that was available in this case, but Justice Basten at page 615 in paragraph 196 points out that supposing you did that and you paid the fund manager up front for the whole of the cost of the management, in the last sentence at about line 33:

Absent some legal arrangement which is not presently contemplated, it may tend to tie the plaintiff to the one fund manager.

Because it means that the whole of the fee is being paid up front.  If the plaintiff were to find a fund manager unacceptable for one reason or another, that is, those who are interested in her affairs are entitled to make application to the Court to change funds, there would be a whole fresh range of charges to be inflicted on the estate and the plaintiff would have lost the benefit of the amount which had been paid.

Under the fees schedule which I took your Honours to earlier, a relatively nominal amount was paid as an upfront fee.  The annual fees were the bulk of the fees to be incurred.  So there is a major difficulty about the course which the Chief Justice was proposing ‑ ‑ ‑

KEANE J:   But that difficulty did not dissuade Justice Basten from reaching the conclusion he reaches at paragraph 200, which is pretty close to the view that the Chief Justice took.

MR MORRISON:   Indeed, his Honour expressly there refers to “policy”, so that whilst the Chief Justice does not, Justice Basten makes it clear that his decision is ultimately a policy decision which appears to be on the basis that:

The liability of the defendant is not necessarily dictated by a particular means of calculating the cost of managing her award.

Well, with respect, Willett v Futcher said it is.  Willett v Futcher said, in the passage I took your Honours to a short time ago, at paragraph 51, that:

The damages to be awarded are to be calculated as the amount that will place the plaintiff, so far as possible, in the position he or she would have been in had the tort not been committed.

KEANE J:   But Willett v Futcher was not a case of management on management; it just was not.

MR MORRISON:   No, it was not discussed.

KEANE J:   So it has not decided this question.

MR MORRISON:   No, it has not, but the principle ‑ ‑ ‑

BELL J:   So, when one comes to the policy it might be that what both the Chief Justice and Justice Basten had in mind was the statement in the joint reasons of Chief Justice Gibbs and Justice Wilson in Todorovic at 413 when their Honours point out that at the end of the day, actuarial tables have their limitations and they observed at the conclusion of the first paragraph on that page:

Ultimately the process must always be one of judgment rather than calculation.

Unlike Willett v Futcher what was in issue here was a further component for the cost of managing the component that had been fixed for the Willett v Futcher component of damages.

MR MORRISON:   Indeed.  What their Honours also said at that point, in addition to saying that:

damages for financial loss likely to result from personal injury “can only be an estimate, often a very rough estimate, of the present value of his prospective loss” . . . Ultimately the process must always be one of judgment rather than calculation.

But they then go on to say:

The difficulty inherent in the assessment of damages provides no reason for the courts to shirk the task of arriving at the estimate most likely to provide fair and reasonable compensation.

HAYNE J:   Yes, go on.  Go on.

MR MORRISON:

But it may provide a reason for approaching with some caution a proposal to overturn an established method of assessment, in an ‑ ‑ ‑

HAYNE J:   There is something for everyone in Todorovic, is there?

MR MORRISON:   Well, that is so.  That is so.  Having said that, if one adopts the statement of principle in Willett v Futcher why should the appellant be short changed of damages which will necessarily be incurred – of costs which necessarily will be incurred?

HAYNE J:   Can the Supreme Court of New South Wales set the remuneration to be paid to the fund manager?

MR MORRISON:   They did so without evidence.

HAYNE J:   No, can they?

MR MORRISON:   On what basis in the absence of evidence, in the absence of debate at the Court of Appeal?

HAYNE J: No, I am asking a question of power. The Chief Justice’s reasons suggest, and on the face of it, it seems to me to be right, that section 115 of the Guardian Act would permit the court to fix the amount of remuneration. Now, is that right? That is the NSW Trustee and Guardian Act 2009, section 115.

MR MORRISON:   I cannot answer your Honour immediately but may I check ‑ ‑ ‑

HAYNE J:   Of course, but there is a very sharp knife in that napkin that you need to be aware of, that if the court can ultimately set remuneration it would be a surprising departure from history if the ultimate control of the affairs of persons who are unable to manage their own affairs did not reside in the court.

MR MORRISON: But his Honour was not purporting to exercise a power under section 115.

HAYNE J:   Exactly so, exactly so.

MR MORRISON:   Is not that the problem.

HAYNE J:   But the knife is that it would be open to the plaintiff to go to court, having appointed a manager, or having appointed, if needs be, the Public Trustee and say the fees for managing this estate will be X per cent of the corpus of $X million and zero for the purpose of managing what you say is the amount attributable management fees.  Or, as might be thought to be implicit in the striking of a particular rate with a particular commercial enterprise, which is lower than their billboard rate, that the parties then strike a bargain which reflects their estimate of what is the appropriate remuneration for the whole sum.  Now, that is the knife which lies behind the apparently innocent question you need to be aware of, Mr Morrison.

MR MORRISON:   Can I just add to that, in respect of a public trustee, the fees are governed by regulation and to that extent the court does not have that degree of control over that organisation.

HAYNE J:   It seemed to me that that was the right answer, looking at the Act.  I would be glad of any submission either side had to make about that issue.  It seemed to me that that was the final point, that the fees were fixed by regulation and the court did not have a jurisdiction thereafter to diminish those fees or even to amplify them but again.

MR MORRISON:   Yes.

HAYNE J:   What is underpinning the inquiries is this, Mr Morrison, that as you have seen in the Futcher Case, we began what we said by close examination of the statutory scheme that regulated the administration of the affairs of persons unable to manage their own affairs.  You want to come in at the problem, perhaps perfectly rightly, but you want to come in at it at the point of a question of principles of damages.  I think at some point both issues have to intersect, do they not?

MR MORRISON:   Yes, but there is also an issue of the particular case and justice for the particular individual in this case.

HAYNE J:   Yes, of course there is.  That is why we are here.

MR MORRISON:   Even if the general principle was that in another case some different arrangement might by one means or another be entered into and I, with respect, would not accept that in respect of a public organisation governed by statute and by regulation the court would have power.  But even if that were possible in another case, this case has already decided the reasonableness of this set of fees and it is not open for debate in this Court, no application having been made by the respondent for special leave to challenge the adverse finding against them in respect of the reasonableness of the private fund manager’s fees, to raise that issue afresh in the particular case.

We are dealing with what is reasonable here in respect of a regime which, as it happens, and as far as we are aware, is the only form of regime available, whether it is in respect of public or private organisations.  Now, there might be room for debate about the rates of charges, but the process of a set of continuing charges – we are unaware of any organisation which does other than charge, in this particular case, for the next 67 years.  Could I then perhaps move from there to the question of speculation because that proposition was put by his Honour the Chief Justice at paragraph 147 of his judgment.  He said:

the calculation of the amount to cover fund management on fund management involves either speculation as to the performance of the fund ‑ ‑ ‑

Yes, but in truth that is no more speculative than the calculation of all future losses.  Of necessity, all future losses are based on an estimate of likelihood rather than certainty.  To exclude the calculation of fund management on fund management on that basis would exclude the award of damages for future economic loss or for future care requirements, because inevitably there is speculation as to what the future will hold in those respects.  There is no difference in principle.  We simply say in those circumstances the court has to do the best it can on the evidence in the particular case.  Can we take your Honours to a judgment of this Court in a case called ‑ ‑ ‑

FRENCH CJ:   I was putting the question to you earlier just to tease out what may have underpinned the Chief Justice’s approach.  When you make the award for fund management, what you can call the first component, that, like any estimate of future loss, is speculative.  So there is a plus or minus in it; a big plus or minus.  The question is then whether adding on to that another component which may or may not fall within the range of error of the first component is an exercise that the court should undertake as a matter of policy, say, we are actually multiplying uncertainties here rather than undertaking a useful exercise of a compensatory component of damages.

MR MORRISON:   That is no different from the exercise a court has to undertake when it allows damages for future economic loss on the basis of a known wage rate, the prospect of future promotions, assumptions as to when the person’s earnings will cease – at what time they retire – or, in respect of care, when the person might go into a facility and would have done so in any event, so that you cut off their future care at a particular point.

All of those are matters which have to be built into the original sum.  What is not built into this original sum is the allowance for the future known expenses.  Now, the response to that is, well, how do we know what those expenses are?  The answer is that it is clearly an artificial construct but it is the best the court can do.  What the court cannot do is simply throw up its hands and say, well, it is all too difficult to know what the future will be.  It may earn more or less.  The charges might, therefore, be more or less.  There may be more or less in the fund.  The whole of the estimation of future losses is based upon estimates and assumptions but it is the reasonableness of those assumptions.

FRENCH CJ:   Well, you are not then so much talking about separate components as a component of the award for fund management which should take into account in its assessment the cost of managing the additional amount by reference to fund management.

MR MORRISON:   We know in this particular case it has not because of the express concession by Mr Watt that we took your Honours to earlier.  So, we know it does not allow adequately for the future.  A lump sum now which allowed adequately for future costs is the appropriate course, but to do that the calculation of what the future cost is has to be included.  Can we just take your Honours in that respect to Sellars v Adelaide Petroleum 179 CLR 332 at 349? At page 349 ‑ ‑ ‑

FRENCH CJ:   That just says the exercise might be hard but you have still got to do it.

MR MORRISON:   Indeed:

And, where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat an award of damages.

But the Chief Justice seemed to think that it did because it was all too speculative.  That case has been followed in numerous other cases as recently as this year in the New South Wales Court of Appeal, but notably in State of New South Wales v Moss 54 NSWLR 536 at 553 to 554 in the judgment of Justice Heydon. He said that the comments made in Sellars v Adelaide Petroleum applies clearly to personal injury cases and that seems to be undisputed from the line of authority.

So the fact that there is a degree of uncertainty as to the future is common to all heads of future loss.  It is not a basis, we would respectfully say, for refusing damages in respect of a loss.  The difficulty of estimation is clear but it is no more difficult than any other head of future loss.  The fourth reason of the – I am sorry ‑ ‑ ‑

GAGELER J:   I just at some stage want to understand the agreed figures that appear at pages 574 and 575 but at an appropriate point in your argument.

MR MORRISON:   Thank you, your Honour.  The fourth and final reason the Chief Justice gave was at paragraph 147 was that the calculation of the fund management on fund management involved multiple iterations.  Now, that reasoning, in a sense, was contrary to the evidence because whilst, as Justice Basten pointed out and Justice Basten strongly disagreed with that proposition of the Chief Justice, a small degree of rounding has to be made at the end of the day.  That is a commonplace in the estimate of future losses in any event. 

The parties in this particular case were able to agree the figures, and what is more they did not think it was any more complex than compound interest and the Chief Justice himself, in an earlier passage in paragraphs 93 and 94, had said that the head of damages could be readily calculated.  In those circumstances the fact that precision to the last cent is not necessarily possible is not the point.  The parties were quite readily able to agree the appropriate figure. 

Now, Justice Basten ultimately came down in the passage we have been to a little earlier to deciding the matter on the basis of policy.  If it ultimately comes down to a question of policy it is not immediately apparent what advantage there is in terms of policy in opposing a significant loss on a severely disabled victim instead of on the tortfeasor, or in this case, the mandatory third party insurer.  There cannot be much doubt about which is better placed to bear the loss and loss there inevitably must be if the proportion of damages set aside for fund management or for income into the fund is not managed. 

The Chief Justice’s view in respect of income into the fund recites some of the same issues, but I should go through briefly his views on that.  His view was that under section 127 of the Motor Accidents Compensation Act the discount rate is assumed to take into account the cost of earning income, which includes fees payable as a consequence.  Interestingly, Justice Basten at appeal book 609, in paragraph 181, strongly disagreed with that proposition and said:

However, 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.

We would respectfully adopt those words, but section 127 does not say what is included in the discount rate.  Section 127(3) takes us straight back to the common law, because it says that except as expressed there the law is unchanged, and the Chief Justice himself accepted that.  He said that section 127 does not alter the common law.  That is at appeal book 580, paragraph 98, and he notes that the second reading speech from 1984 when the five per cent discount rate was brought in is absolutely silent on this question.  If we go back to the common law, we go back to Todorovic v Waller and we go back to the two elements which are covered in a case which was not on fund management, inflation and taxation.

HAYNE J:   Where do we best see out of Todorovic that those are the only two matters that drive the discount?

MR MORRISON:   Well, we go back to the wording of the joint statement at the beginning of Todorovic at page 409.

HAYNE J:   Do you point to anything in the joint reasons of Chief Justice Gibbs and Justice Wilson?

MR MORRISON:   Yes.  Can I take your Honours to page 422, a little less than halfway down the page:

“The notional income from the notional investment needed to produce the notional annuity” of which Lord Diplock spoke, like “the assumed income” referred to in Cullen v. Trappell, can only mean the income taken as the basis of the calculation, namely the income produced by investment of the assumed fund at the discount rate.  The method of discounting has nothing to do with inflation.  Of course the discount rate may be adjusted to take account of inflation, but once a rate is selected the logic of the method requires it to be assumed that income at that rate will be received and that tax will be payable on it.  Thus if no discount is made there will be no allowance for tax, for the reason that it is not assumed that the fund will produced income; the fund, unaugmented by income, will provide sufficient compensation.  If it were not for the need to find the present value of a future loss, no assumption would be made that the lump sum would be invested, and although it is possible to say that if the plaintiff decided to invest he could, with prudent investments, obtain a particular rate, it is impossible to say that a particular plaintiff would or should invest the sum –

et cetera.  What that is clearly saying is that inherent in the discount rate is the assumptions as to what is included in it and inherent in the discount rate is the notion that the moneys have to be invested to produce a return.  Now, we will come to what that return might be, but it is also said at page 424 in the same judgment by their Honours the Chief Justice and Justice Wilson, starting at about point 2:

In fixing the discount rate, the fact that for so long the rates applied by the courts in Australia have been at a level of 5 per cent and above should not be disregarded.  Some downward adjustment is necessary to take account of notional tax.  The actuaries’ tables show that if the assumption is, as it must be, that the income is earned at the discount rate the necessary adjustment is quite small, particularly when the assumed income is within the range within which most employees’ income fall in Australia.

Again, the assumption that there will be income is inherent in the discount rate.

FRENCH CJ:   The nature of the exercise, of course, is indicated by the sentence which introduces that paragraph:

assessing damages, arrive at the present value of a future loss ‑ ‑ ‑

MR MORRISON:   Indeed, but what this case is all about is what that future loss is, and that future loss is not the calculation of fund management on the sum that is initially invested.  It is the calculation of fund management on the amounts which are going to be managed for the next 67 years, and that is the fundamental difference between the parties in this case.  What has not been done is to establish any way in which in this particular case, this plaintiff, this appellant, could avoid those liabilities.

HAYNE J:   I was particularly struck by what their Honours, Chief Justice Gibbs and Justice Wilson, said first at page 423, at about point 5 of the page, about notional tax being taken into account only in the broadest way, and impossible to make even a pretence of accuracy in doing so, and what their Honours said at the head of 424 that fixing the discount rate:

may seem to involve some sacrifice of accuracy in the interests of predictability, but the whole process involves so much speculation that it is impossible to pretend to accuracy.

MR MORRISON:   But one of the reasons why in that initial passage in Todorovic it is said that it is not in the future to be open to parties to adduce evidence as to what the appropriate rate might be was to provide some certainty and to avoid exactly that debate because of those difficulties; but the fact that there are uncertainties and a degree of speculation in the future is not, we would respectfully say, at common law a basis for not allowing a loss.  The only thing which is up for debate is what the extent of the loss is.  There will be a loss, and that loss is not the initial figure that was calculated.  It will be a continuing loss over the whole of the plaintiff’s assumed lifetime.

HAYNE J:   Do you accept that Justice Stephen, though, in dissent in the case, was right to say, at 430, that:

abandonment of discounting at market rates [had] destroyed the principled basis for discounting –

Because the supplementary question then becomes does not the imposition of a statutory discount rate of five per cent likewise represent an arbitrarily determined, legislatively determined, discount rate that severs the connection between imputed return after tax and inflation that may once have underpinned discounting?

MR MORRISON:   Justice Stephen, of course, was contending for a nil per cent discount rate.

HAYNE J:   Yes.

MR MORRISON:   He was not contending for a discount rate at all.  His comments have to be seen in the light of that fundamental proposition.  So he did not want to enter into the speculation, the estimation, necessarily involved in fixing a discount rate.  With respect, his dissenting view might or might not be correct, but it was not the ultimate view of the court, nor is it the view reflected in the comments made at the beginning of the judgment to which all members of the court adhered, with respect, put those views to one side.

Can I come back to the question of how you deal with the question of future income.  If his Honour the Chief Justice is correct and the five per cent discount rate includes the cost of fund management on all future heads of loss – it is not just on the small additional portion we are arguing about in this case because the respondent has not contended for that proposition – but if that is correct, and we know that in these sorts of cases the future heads of loss, principally care and then economic loss, are probably three‑quarters of the judgment sum in catastrophic injury cases, if the five per cent discount rate on all of those heads includes fund management, then fund management almost ceases to exist. 

The only thing you would get it on would be non‑economic loss or general damages and past economic loss, that would be it; because all of the great bulk of damages are for the future, and in those circumstances what is being put is manifestly inconsistent with the allowance of fund management in Gardikiotis and with what was done in Willett v Futcher.  Those cases did not endorse his Honour the Chief Justice’s proposition but it would absolutely gut the allowance of fund management.  It would be a relatively nominal sum. 

The respondent is not contending for that in this case, but the consequence of what his Honour said as his base proposition in respect of section 127 would have that consequence.  It would be inconsistent with determinations of this case, unanimous determinations in Gardikiotis and Willett v Futcher.  We just say that his Honour’s proposition cannot stand up.  More than that, the proposition for which his Honour contends is inconsistent with what was said expressly in Nominal Defendant v Gardikiotis.  Justice McHugh – his Honour refers to Gardikiotis but what his Honour seems to overlook are these words. In the judgment of Justice McHugh at pages 60 to 61:

Except in those cases where the plaintiff is under a legal disability, a court has no interest in what –

the defendant’s negligence has had on the plaintiff.  There is a word missing there but there is a word missing in the original judgment.  The Chief Justice’s comments simply miss the point.  This plaintiff will never decide what she is going to do with her damages.  She will never have any say in them and she will incur costs which a non‑disabled person would not. 

Now, let us make that comparison.  The person who has suffered severe physical disability but no intellectual disability can invest their moneys without necessarily incurring charges.  They may suffer total future economic loss but they will get exactly the same sum for future economic loss as the brain‑damaged individual will as in this case who has to have that sum managed for the future at a charge.  In other words, the most severely disabled, those who are intellectually disabled, will get no more than those who can manage their own affairs.  That is the consequence and the inevitable consequence of the proposition his Honour the Chief Justice was putting.  We say, that is wrong in principle, it is contrary to what this Court said in Gardikiotis and it is contrary to the restiutio in intergrum proposition put in Willett v Futcher.  Section 127 does not say what is included in the discount rate.  None of the second reading speeches, 1984 or 1987 or 1998, say a word about it.

There is nothing of assistance, and his Honour the Chief Justice set out the second reading speech from 1984, which is silent on the content.  What we are left with - and his Honour said that this was the case - is what is in Todorovic v Waller, and we would respectfully submit that case most clearly did not include fund management, not least because fund management was not a recognised head of damages for another four years or more.  Todorovic v Waller was not a case involving or requiring fund management, and there was no suggestion there that fund management was to be included.  We, with respect to his Honour, suggest that his Honour’s logic would be destructive of the head of damages known as fund management, expressly approved by unanimous benches of this Court in Gardikiotis and Willet v Futcher.  It is noteworthy that in respect of this aspect Justice Basten was at odds, and that is to be found at appeal book 596 at paragraph 138, and also paragraph 181.

The Chief Justice’s second reason or next reason was that the discount rate does not equate to the net earning or net earning rate.  Well, that, in a sense, is true.  Inevitably a discount rate and the assumed earnings into the fund are no more than notional estimates, in a sense speculative, but no more speculative than anything else that Malec v JC Hutton requires us to undertake, but inevitably the common law says, the fact that the task is difficult does not mean you throw up your hands and just do not award it; you do the best you can on the evidence that is available.

We know there will be a loss.  The question is the extent of the loss.  The reasonable estimate, we say, is the cost assuming that the amount allowed in the discount rate will be met by income coming in because, if it did not, the appellant is going to fall short in any event.  If her fund does not achieve five per cent on average over the next 67 years, she is going to be left with a shortfall.  Now, the fund might achieve less, it might achieve more, but it is a reasonable construct in the circumstances to allow on that five per cent on the assumption that the Parliament has said there should be a discount.  One of the bases for the discount is the assumption that moneys can be invested conservatively so as to ensure a rate of return.

Why should that not in turn be used as the basis for the calculation of that future loss?  It makes logical sense; it gives logical coherence to the process.  True it is that in Rosniak, your Honours might have noticed, that in respect of three per cent the Court there allowed five per cent, by coincidence the same as claimed in this case.  They did that because they said in order to get the three per cent you had to in fact obtain more.

Now, that may be true but we are not seeking that in this case.  All we are saying is that as a bare minimum logical coherence, the assumption forced on us by the Parliament and by the approach in Todorovic v Waller, says that if it is reasonable to assume discounting for future losses at five per cent, it is reasonable to assume income at the same rate.  Her Honour Justice McCallum’s discussion of that is, we say, very persuasive. 

There was, for the reasons we have said earlier, agreement between the experts that absent an allowance for fund management on fund management and absent an allowance for fund management on income, there would be a shortfall.  Could I give your Honours the reference to the first instance judgment in relation to the matters I have just put?  Justice McCallum discussed these matters in the appeal book at pages 476 to 477 at paragraphs 47 to 55 and paragraphs 62 to 73. 

We simply say, as her Honour said, the fund must earn income to meet the discount rate or it will not last, and that income will incur management fees.  Willett v Futcher says the true cost incurred by the injured person should be met.  We say QED we should be entitled to the true cost of fund management on income into the fund, not as the respondent submits, no allowance for income into the fund whatsoever. 

We say, ultimately, there is no rational or just reason for leaving the severely disabled to bear part, as the respondent would contend, or on the Chief Justice’s logic, most of the cost of fund management out of the fund which will inevitably, therefore, be inadequate.  We say the decision from which we appeal was inconsistent with what this Court has said both in Gardikiotis and Willett v Futcher.  The issue is one which affects most Australian jurisdictions, not quite all but most Australian jurisdictions have similar regimes in play in respect of management of moneys and the need for fund management.

HAYNE J:   You were going to tell us about how the tables worked and how the moneys were calculated.

MR MORRISON:   Yes.  The short answer, your Honour, is that at 459 we have the agreed figures.  They were agreed between the appellant’s actuary and the respondent’s accountant.  We do not have their calculations.  They were agreed.

GAGELER J:   Well, can I tell you how I infer from the Chief Justice’s description of the basis of the calculations ‑ ‑ ‑

MR MORRISON:   Yes.

GAGELER J:   ‑ ‑ ‑ the figures have been arrived at.  If this is wrong, please correct me.  If you look at the Chief Justice’s judgment at page 574, paragraph 83, the first figure there is shown for the trust company is $1,495,000.

MR MORRISON:   Yes.

GAGELER J:   Now, is that simply calculated by taking the management fee of 0.55 per cent on the projected annual balance of a fund which starts initially with $9,929,000 in it and then discounting that amount by five per cent?

MR MORRISON:    And reducing that fund at a steady rate so that the last dollar is spent on the last day.

GAGELER J:   Over the 67 years, yes.

MR MORRISON:    Over the 67 years.  The answer is yes.

GAGELER J:   Then, if you look over the page, the figure given for the trust company in subparagraph (c) ‑ ‑ ‑

MR MORRISON:   I am sorry to interrupt, your Honour.  There is also one other assumption inherent in that which I have been reminded of: it also assumes no income into the fund.

GAGELER J:   Yes.

MR MORRISON:   Yes.

GAGELER J:   Then you go over the page – page 575, paragraph (c), what is labelled there “Fees on initial sum and fees on fees”, you have described, I think, as fund management on fund management.

MR MORRISON:   Yes.

GAGELER J:   Is that figure there shown for the trust company of $2,034,000 derived by adding the $9,929,000 to the $1,495,000, assuming an initial fund then of $11,424,000, and then applying the same methodology as is used to derive the figure in paragraph (a), that is, that is you take 0.55 per cent of the projected annual balance of that fund over a period of 67 years and then discounting it by five per cent.

MR MORRISON:   Yes, your Honour.

GAGELER J:   The figure shown in paragraph (b) at the bottom of page 574, for the trust company of $1,825,000, does that start with an initial fund of $9,929,000 and then project an annual earnings rate of five per cent for that fund?

MR MORRISON:   Yes.

GAGELER J:   Then otherwise applies the same methodology.

MR MORRISON:   The same methodology.

HAYNE J:   That is five per cent net?

MR MORRISON:   Five per cent net of tax and inflation, yes.

HAYNE J:   So five per cent net in 2013 dollars, is it?

MR MORRISON:   Yes, and that is indeed where if anything the five per cent is an underestimate in the Rosniak sense but five per cent is what we have claimed.  Rosniak said in order to put it into current day dollars you need a higher figure and they chose five per cent on a three per cent discount rate, but we are contending in this case for five per cent on a five per cent discount rate, and accepting that that has some inflationary issues.

HAYNE J:   What do you say those calculations actually demonstrate?  They demonstrate calculations that are made arithmetically correctly, on assumptions that are of the kind described, but the more difficult question is – can be put variously, tendentiously it can be put as so what; but what are those calculations saying about either a course of future events or a present value of future financial occurrences?

MR MORRISON:   What they are saying is that if you take into account the cost both of fund management on the initial fund and the additional charges which we levied over the next 67 years, the total cost on the assumptions which we have just discussed and accepting that they are of necessity assumptions as all estimates of future loss are, the end result is a loss of $2,151,000, the amount that her Honour Justice McCallum awarded at first instance.

FRENCH CJ:   Paragraph (c), should the words in parentheses be, “fund management on fund management”?

MR MORRISON:   Yes.  Yes, I think that is right, and my learned junior reminds me that that is almost certainly – “income” should read “management”, that is a typo.  But what we are contending for ultimately is the figure and the orders on costs that her Honour made at first instance and we say that whilst the future is of necessity uncertain, the failure to allow for future losses is contrary to principle and certainly contradictory to restiutio in intergrum.  May it please the Court.

FRENCH CJ:   Thank you, Mr Morrison.  Yes, Mr Deakin.

MR DEAKIN:   Your Honours, could we start with the statute, which has been referred to of course by my learned friend, but we think it is a convenient starting point for the issues which he raises, as it is now accepted by my learned friend that the provisions of section 127 do apply to both arguments that he seeks to raise before your Honours.

Section 127 had its origins in section 35B, which we will be taking your Honours to a little later, which was the legislation that was introduced following the High Court’s decision in Todorovic, but there are some points that we wish to make when one looks at section 127.  The first that my learned friend has correctly put to your Honours that we embrace, namely, that it is clear from subsection (3) that the law relating to discounting, including, most particularly, the law as identified by this Court in Todorovic, is preserved and nothing that is provided for by section 127 is intended to cut across what Todorovic decided.  So we agree with my learned friend’s construction of subsection (3).

But the additional points we wanted to make are these, your Honours:  firstly, what is clear from the subparagraphs within subsection (1) is that in assessing the lump sum that is payable for all future losses, including the relevant ones in this case, the four categories that are set out in paragraphs (a) to (d) are to be treated in the same manner.  Inherent with my learned friend’s argument is that we ought to create a separate category for fund management expenses.  We submit that argument is inconsistent with the statute because all four of them are to be treated in the same way, mandated by the terms of the section, and are to be the subject of the statutory discount.

The second point is that, consistent with the language of the Court in Todorovic, the court’s task in assessing the lump sum is to calculate the present value of those losses.  That is the task that this Court has performed in this case in calculating the $1.45 million.  That is the present value of the future expenditure and that has been the subject of a discount.  The terms of this statute, echoing the language of the Court in Todorovic, make it plain that that is the court’s task and that is the completion of the court’s task when that sum is arrived at.

What my learned friend seeks to do is to add to that sum and that calculation some further components by reference to what happens to this verdict moneys after it is paid to the trustee, and that is the very thing that is prohibited by Todorovic.  It is also, in our respectful submission, inconsistent with the wording of section 127.  The present value is how the sum is arrived at.  The present value is calculated by use of the actuarial tables that have been set out and that makes allowance for everything, all factors of that feed into the discount rate, and to have regard to only some of those factors, as my learned friend invites this Court to do, is contrary to principle and contrary to what we say is mandated by the terms of the statute.

FRENCH CJ:   Does this rest upon some implied limitation on what is covered by paragraph (d):

a liability to incur expenditure in the future.

MR DEAKIN:   I think my friend accepts that that applies.  I thought at one stage, if one read his earlier submissions, he attempted to depart from that, but I think now it is plain he accepts that 127 applies, and it falls within (d) – namely, it refers to a liability to incur expenditure in the future and the court’s task is to assess the present value of that sum, and that is what has happened, and the figure is arrived at, and it is difficult.  It is not a simple calculation.  The court has to grapple with these things and it arrived at it in calculating that sum.

As my learned friend correctly points out, it is an agreed sum.  But what my learned friend seeks to do is to say, all right, there is a preliminary calculation of what the present value represents, but we are now entitled to look beyond that present value and to add to it two extra components – the cost of managing the present value and, assuming it earns income, we are entitled to also invite the court to have regard to income that that fund, including the cost of managing itself – they ask the court to accept, incurs as an expense in the future.

We submit that these are factors that are taken into account in large part in the fixing of the discount rate.  The discount rate having made allowances for all those matters, it is inappropriate for the court to have any regard to what the plaintiff does with her money, and it is also inappropriate for the court to have any further evidence adduced on what is to occur after judgment, when the factors that are feeding into those calculations have already been taken into account in the fixing of the discount rate itself, including most relevantly, of course, income.

Then it is curious, your Honours, as to why both in section 35B and in section 127 that Parliament has used the word “qualified” by adopting the prescribed discount rate.  But we submit it is quite deliberate, because it makes it plain that these are not precise mathematical calculations which one would expect to have referred to as quantified.  This is an approach laid down by this Court in Todorovic, reflected precisely in the terms of the statute, that the court’s task is to calculate the present value and qualify it, namely limit it or modify it, by reference to a discount rate.  That is what the law mandates; that is the task that the court is embarked upon, and it was ‑ ‑ ‑

HAYNE J:   Stripped of references to fees upon fees and management upon management, et cetera, the plaintiff’s case essentially is, I suspect, capable of presentation as this; this plaintiff will incur expenses in the future.  Let it be assumed there are two kinds of expenses she will incur; nursing or care expenses, and because she has been intellectually impaired, she must employ a manager of her financial affairs.  Both the manager of her financial affairs and the nurse or attendant who deals with her physical needs will charge her money for that task.  Why distinguish between the two of them?  Both are outgoings.  You arrive at a number which is the sum in today’s dollars of the expected outlay on each.  You simply sum them together and discount by five per cent.

MR DEAKIN:   That is our argument, with respect, your Honour.  We say they ought not to be distinguished.  They are indistinguishable from the example your Honours gave us, namely the cost of caring for her, and the court’s task is, as at the date of its assessment, to assess the present value of it.

HAYNE J:   Well, how then – leave aside what the experts tried to tell us, how was it that the numbers were arrived at for management fees?  Were they not the sum in today’s dollars of the expected outlays on management fees over time, taking account of the fact that the fund would vary over time?

MR DEAKIN:   The base sum was exactly that, your Honour, and that is why it should be limited to the base sum.  In the passages that your Honours were looking at ‑ ‑ ‑

HAYNE J:   What is the base sum to which you refer?

MR DEAKIN:   The first calculation of what the present value of managing the $10 million or $9.29 million was.  That is $1,495,000.  The additional amounts are what my learned friend seeks to bring in by a consideration of what will happen to the moneys after the verdict. 

FRENCH CJ:   Why is it not appropriate to recognise in assessing what is the plaintiff’s liability to incur expenditure in the future, that aspect of future charges applied by the trustee which relate to the fund as a whole including the fund management component?

MR DEAKIN:   Because one can only have regard to that, your Honour, by looking at what will happen after she receives her money and it passes to the fund manager.  The court’s task is to calculate the present value of what the reasonable cost of managing that fund is.  That is a ‑ ‑ ‑

FRENCH CJ:   It is an anterior exercise, is it not, to determine what is a liability to incur expenditure in the future?

MR DEAKIN:   Yes, it is.

FRENCH CJ:   The question is what are the appropriate considerations when you are looking to the cost of fund management?  Do you look at it only by reference to the base sum as you call it or do you look at it in a larger perspective?

MR DEAKIN:   We say, the second step is where it becomes impermissible.  The first step is the calculation of the lump sum.  It is a calculation that leads to the totality of the damages being estimated.  In this case, it was by agreement but it matters little.  It was a sum of $10 million less deductions.  The court was then called upon and the experts were then called upon to determine what was the cost of managing that sum, and they arrived at the sum of $1.495 million.

HAYNE J:   How did they get to the 1.495?

MR DEAKIN:   By looking at the same – in your Honour’s example, the same as looking at how the cost of care being provided to this plaintiff, namely, let us look at how many hours she would need per week, how much the cost of that would be, projecting it over her life and one arrives at a dollar figure representing what the present value of that future expense will be and that is exactly what the accountants have done in this case.

GAGELER J:   They have assumed an initial award – the award giving rise to the initial fund will be $9,929,000.  That is how they have arrived at the management fees of $1.45 million.  But the actual award made by the Court of Appeal is $11.414 million, is it not?

MR DEAKIN:   That is the net verdict after deductions plus the 1.495, that produces the $11 million.

GAGELER J:   So, from the beginning, management fees will be charged on – will in fact be charged, can be projected to be charged, on a higher lump sum than was assumed to arrive at the 1.45 million.

MR DEAKIN:   But the court’s task which is mandated by Todorovic and, we say, section 127 is you do it when you know what the quantum of damages otherwise payable to the plaintiff are and you say, assuming that figure, what is the present value of the future cost of managing that figure and that is the calculation that produces ‑ ‑ ‑

HAYNE J:   Well, no, no, you have just chopped out of the present value of the damages to be awarded to the plaintiff the cost of management.

MR DEAKIN:   No, the cost of management is ‑ ‑ ‑

HAYNE J:   An integer in determining the plaintiff’s damages, is it not?

MR DEAKIN:   It is but it can only be arrived at, your Honour, when the figure is ascertained, and when one ascertains the figure one does the calculation, as the experts have done, and that produces the figure of 1.495, as the Court of Appeal upheld.  It may assist your Honours, and we were going to take your Honours to this at one stage in any event, it has been referred to, and it is in fact an annexure to the Chief Justice’s judgment – the Court of Appeal’s judgment.  It is a little difficult to read that version of it.  Could we invite your Honours to turn 175, because this feeds the figures that I know Justice Gageler in particular is concerned about.

HAYNE J:   Glad you think 175 is easier to read.

MR DEAKIN:   Yes, 174.  I apologise, your Honour, if it is convenient to start with, and so your Honours understand it, it is referred to in paragraph 86 of the Chief Justice’s judgment, appeal book 576, looking at 174.  So your Honours will see there is a variation in the initial figure which we asked your Honour to bear in mind, it is 9,934, because his assumptions did not exactly reflect what the ultimate figure was, but if your Honours could bear that in mind, and as your Honours will see there in broad terms, here are the calculations of how the fees are arrived at, over the 67 years of the plaintiff’s life expectancies, and that is the calculation that we have called the base sum.  That is the amount that says, this is how much it will cost her if one looks only at the trust company fees, and there is some other calculations and matters taken into account.

HAYNE J:   Now, the base sum is not the verdict.

MR DEAKIN:   No, it is not the ultimate verdict, your Honour, but it is the verdict, moneys apart from that sum which represents the present value of managing it.

HAYNE J:   Part of the verdict.

MR DEAKIN:   Yes.

HAYNE J:   Why do you calculate management fees on part of the verdict?

MR DEAKIN:   Well, your Honours, because the tort’s task is at the date on which that figure is calculated to determine the present value, and unless one looks at what occurs after the full award is made and one looks at what occurs after judgment to the investment of the sum, for instance, your Honour cannot have any regard.  We would submit the court should not have any regard to what happens thereafter because to do so is inconsistent with what is laid down in Todorovic.

HAYNE J:   Which was not an intellectual impairment case.

MR DEAKIN:   No, it was not, your Honours.  But it did lay down, as your Honours are very much aware, a set of principles governing all personal injuries cases that have been consistently applied ever since, and we would submit that there is no good – my friend does not seek your Honours to overturn it, of course, and it does not need to be overturned because it is not, as your Honours pointed out, a fund management case.  It prohibits the very process, in our respectful submission, that my learned friend invites the Court to embark upon by looking at what happens after judgment – I am sorry, after the initial calculation of the damages, and looks at what the plaintiff does with her money, which is the other prohibition clearly laid down by the Todorovic decision.  One cannot, your Honour, make the further calculations that the plaintiff invites your Honours to make unless one looks at what she does with her money, namely invests it with a fund manager.

BELL J:   But that is accepted to be a consideration taken into account in the case of the intellectually handicapped plaintiff.

MR DEAKIN:   It is, your Honour, and that is why ‑ ‑ ‑

HAYNE J:   Because the defendant’s negligence caused her to have to do this with her money, not as a matter of choice, but had to.

MR DEAKIN:   Yes, we understand that and that distinguishes Gardikiotis.  We have no quibble with my learned friend’s submissions on that point and the point that your Honours have just made to us but it does not detract from the submission we are putting to your Honours because it necessarily follows from my learned friend’s argument that one has to look at where the money goes.  If one is limited, your Honours - with the greatest respect, if one is limited to the task of assessing the present value of what the cost of managing the $9.929 are, the answer is, it is $1,495,000.

FRENCH CJ:   But we are talking about - I mean Todorovic v Waller talks about the present value of a future loss ‑ ‑ ‑

MR DEAKIN:   Yes, yes.

FRENCH CJ:   That is the task.  The question really here is whether this component that, or so‑called component or consideration might be a better term, is something to be taken into account in assessing the liability for future expenditure which is in a somewhat different logical category.

MR DEAKIN:   Well, Todorovic says it is not to be treated any differently from economic loss but whether that is right or not ‑ ‑ ‑

FRENCH CJ:   Todorovic simply does not seem to address this kind of problem.

MR DEAKIN:   Well, it does not squarely address it, we accept, your Honour, but it is a set of guiding principles that were intended by the Court to give certainty and consistency to the law to provide a method of calculating a future loss and that same methodology is adopted in section 127.  But could we just finish what we were attempting to deal with, which is on 175 because this shows in practical terms how the plaintiff’s calculations are assumed to work if one takes into account fees on earnings, namely this assumes a five per cent return because if your Honours were to look - well, I will just take your Honours through it.

Firstly, the obvious first column is the number of years down to year 66.  Second is the fund at the start which we have pointed out is a minor discrepancy but just because he had a different figure at the time that the chart was made.  It is not relevant otherwise.  He assumes, calculating his drawings as to what will be available to the plaintiff each year, to draw it down to nil, under the fiction of regular drawdowns, that there will be $504,850 per year, and it includes in enabling that figure to be paid to the plaintiff, the five per cent that he has assumed for the purpose of his calculations which is the figures under the heading “Interest”.  So that is a five per cent figure on each of the principal sums as they exist each year.

But the point of what we want to draw your Honours’ attention to is that on this scenario, and of course the fundamental principle being the plaintiff should get no more than she has actually lost, when one looks at how this works on the assumptions that the plaintiff’s expert asks the court to make, with those drawings of $504,850 a year, after 10 years she still has $9.7 million available to her after having drawn down $5 million.  After 25 years she still has $9 million, plus a little bit, available to her, after having drawn down $12½ million, on their assumptions, and eventually, as we have pointed out, on these assumptions she will eventually have paid to her drawings totalling $33 million over the period of 66 years. 

So this is how it will work on the assumptions that the plaintiff asks the court to make.  That goes well beyond any principle of restiutio.  It goes well beyond any principle of compensatory damages.  These are the assumptions that underline and comprise this component of what my learned friend is inviting the Court to accept as payable by the defendant.

GAGELER J:   But why are the assumed drawings different in table 2?

MR DEAKIN:   Because it includes the interest component.  It includes bringing in interest each year of five per cent, and because you have the benefit of bringing in interest each year at five per cent, you have got more money available to you, which is part of our submissions.  This shows that the discount rate, having already taken into account income, you are now getting income brought into it and calculating fund management fees by assuming you do have that very income which the discount rate has already made allowances for.

So, your Honours, it shows the impermissible nature of this exercise in concrete terms in our respectful submission.  It is perfectly correct, as the Chief Justice pointed out, that the reality will probably bear very little relation to this.  There will be some years there will be more money taken out when she goes and buys a house and there will be other years where things are being met at an expense less than this.  But these are the assumptions that the plaintiff invites the Court to accept for the purposes of this award being made in her favour. 

Your Honours, could we just invite your Honours to step back a little bit?  If a solicitor had a legally disabled client who had been the beneficiary of a $10 million sum and the solicitor goes along to a fund manager and says, look, my client has got $10 million, you are going to have to do a bit of management of this because she will not be able to provide you with adequate instructions, what can you offer us?  This fund manager would say, well, we will agree to manage your funds as long as you pay us $2 million.  The solicitor might think that is a bit high.  I think Justice Keane might agree that that perhaps is regarded as somewhat high, but 20 per cent, well, if that is the going rate.  But the fund manager says two further things. 

The fund manager says and “I want it in advance so you are going to have to pay me my $2 million up front and I am going to charge you for the privilege of managing my own $2 million fees”.  That is the practical consequence of what the defendant is being held liable for in this case.  The defendant is being told you do not just have to pay funds management which is agreed as we have always accepted $1.495 million.  You have also got to pay it upfront and bring it in for the purposes of calculating how much the fund management is and you have got to pay it in advance.  We are also now going to charge you for, if we happen to earn you some money by way of income and you get some interest being paid into you, we are also going to charge you for managing the interest that we happen to earn for you.

Now, that is really, we submit, an illustration of just how unreasonable the addition of these components are because if that was a proposal that was put to a solicitor absent the presence of a tortfeasor it would be rightly regarded as quite unreasonable and why should a different conclusion arise merely because it is a tortfeasor rather than a solicitor who has $10 million to manage on behalf of a legally disabled party? 

At the time of this tort could all of that have been reasonably foreseen as a consequence in law of the defendant’s negligence?  Whether one looks at it from the principles of remoteness, whether one looks at it from the principles of reasonableness, the ultimate test is what is fair and reasonable compensation for this plaintiff for her disabling injuries?

She has her $10 million less the deductions and she has a component of her damages calculated at $1.495 million representing the costs of managing that moneys and that is the totality of her entitlements, in our respectful submission, as fair and reasonable compensation, and to do more goes beyond anything that the law has provided for at the moment.

If there is some injustice in this – how fund management may operate, it is our submission it ought to be left to Parliament to address, Parliament now addressing this issue with the prescription of a rate of discount to be applied in every case, and if there is going to be some special rule, even though all categories of future loss are covered by the section, including this particular category of loss, if there is going to be some special creature as an exception to the general principles applicable to the assessment of the present value of future losses to be allowed, then it is a matter for Parliament to allow it rather than for this Court to depart from long‑established principles that have served the law well.

Could I just return to the wording of section 127?  Your Honours will have also observed that it is now a rate fixed, in the absence of regulation, at five per cent, so Parliament can readily alter the rate to adjust for circumstances such as this or to adjust for different circumstances.  Those are matters that can be taken up with Parliament.  It does not need a whole new Act to be passed; it can now be done by regulation.  The last point is the one that we have already made – namely, subsection (3) preserves the principles laid down by this Court in Todorovic, as my friend rightly accepts.

Could we then take your Honours to just some other passages in Todorovic?  I know your Honours have read it carefully.  We were intending to read pages 23 to 24, but two members of the Court have referred to it and I do not think it is necessary for me to return to those pages.  But could we read just some words prior to those quoted by the Bench and at page 412 of the joint judgment of the Chief Justice and Justice Wilson?  I think Justice Keane has referred to these.  The four principles that we submit were clearly intended by the Court to be laid down to include all future losses, including a loss such as this, are set out on 412, the first paragraph commencing on that page, at about point 2, point 3:

Certain fundamental principles are so well established that it is unnecessary to cite authorities in support of them.  In the first place, a plaintiff who has been injured by the negligence of the defendant should be awarded such a sum of money as will, as nearly as possible, put him in the same position as if he had not sustained the injuries.

Could we just pause to emphasise “as nearly as possible”.  So it is not pretending to be a perfect science.  It is not pretending to be a precise exercise, as Justice Hayne, I think, may have quoted later from the judgment; it is a matter for judgment rather than precise ‑ ‑ ‑

HAYNE J:   It is at the foot of the page, 412:

Such calculations may sometimes give a false appearance of accuracy.

MR DEAKIN:   Yes, and could we remind your Honours of that wonderful phrase from Justice Brennan when he was sitting on the Federal Court of “spurious, but alluring specificity”.  That is really what we submit - what is sought to be done in this, as if all of these actuarial calculations are set in concrete and can be just accepted without understanding the assumptions that go into them and given all of the assumptions as the Chief Justice has pointed out in this case, the Chief Justice of the New South Wales Court of Appeal, there are so many speculative aspects to it and so many uncertainties in how one arrives at all of this.  It reinforces the view that the figures should be calculated as at a time when one knows what the amount is and that produces the present value of the loss without having regard to what happens later.  So, the principles that are set out in this passage are the first one that we have already read.  The second:

damages for one cause of action must be recovered once and forever, and (in the absence of any statutory exception) must be awarded as a lump sum –

Of course, no quibble with that -

the court cannot order a defendant to make periodic payments to the plaintiff.

It is the third and fourth that are of particular relevance to this case:

the court has no concern with the manner in which the plaintiff uses the sum awarded to him; the plaintiff is free to do what he likes with it.  Fourthly, the burden lies on the plaintiff to prove the injury or loss for which he seeks damages.

They are fundamental but we do remind your Honours of it.  Before the passage that my learned friend read to your Honours on 424, we just wanted to remind your Honour of what Justice Hayne referred to at the foot of 423 and over the page:

We consider that in future the courts in Australia, in States where the question is not governed by statute, should, in assessing damages, arrive at the present value of a future loss by discounting at a fixed rate which will be applied in all cases and which will in itself reflect the effect of notional tax on notional income from the invested fund.  To take this course may seem to involve some sacrifice of accuracy in the interests of predictability, but the whole process involves so much speculation that it is impossible to pretend to accuracy.  In fixing the discount rate, the fact that for so long the rates applied by the courts in Australia have been at a level of 5 per cent and above should not be disregarded.  Some downward adjustment is necessary to take account of notional tax.

They would have preferred three, but they compromised with other members of the Court to arrive at the – sorry, they would have preferred four, I apologise, but they compromised for the purposes of having the principles clearly established and they agreed with the 3 per cent notion.

HAYNE J:   Perhaps, Mr Deakin, after the adjournment you would be good enough to tell me whether the calculations that were put in evidence suggest that the management fees that were to be allowed in the verdict were management fees on part of the judgment rather than the whole.

Leave aside the pretended degree of accuracy of calculation that the spreadsheets and charts suggest.  In the end, is not the question this?  Because of the defendant’s negligence, the plaintiff cannot manage her own affairs.  Because she cannot manage her own affairs, her funds must be managed.  Should not management fees be allowed on the whole of the funds under management?  That is the base question.

MR DEAKIN:   I will answer it after lunch, but before your Honours adjourn, could we emphasise this, that accepting all of what your Honour has just put to us it only applies to the first issue and that is an important matter to consider because the second issue involves very, very different considerations but I will answer your Honour more comprehensively after the adjournment.

FRENCH CJ:   Yes, all right.  The Court will now adjourn until 2.15.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ:   Yes, Mr Deakin.

MR DEAKIN:   Thank you, your Honour.  Can we start with the question posed to us by Justice Hayne?  Your Honour is perfectly correct and it is an obvious proposition that the judgment sum as ultimately entered included the totality of both the figures for the non‑fund management component and the fund management component.  But, your Honours, our answer to what flows from your Honour’s proposition, which is consistent with the plaintiff’s case, is it is really a question of at what time is it appropriate for the present value of that future expense to be arrived at. 

We submit to your Honours that the time at which that task of assessing the present value of a future loss should be calculated is at the same time as all other components of the plaintiff’s damages are calculated, namely, at a time when the corpus is established and that once that process is undertaken and the present value of managing that corpus is arrived at, in this case by awarding a sum of $1.495 million, then that is an end of the matter and the Court has no further concerns with those other aspects of the matter that flow from what happens with the judgment moneys.  That is really, I think the essential answer. 

To do otherwise not only breaches what Todorovic stands for, but it also, accepting what has fallen from your Honours and what the members of the Court outlined in Todorovic, there are so many speculative and uncertain aspects of all of these calculations that to bring them back in again and to do a further calculation after the first calculation of the present value of those expenses is arrived at only perpetuates and renders even more uncertain and speculative what are the consequences in damages of the tort that the defendant has committed.

So it perpetuates inaccuracy, it perpetuates and multiplies those speculative aspects that have already been taken into account by the arbitrary means of a discount rate being fixed into direct by the judgment of the court and now by statute.  The fact that ‑ ‑ ‑

FRENCH CJ:   The correctness of all of that depends on the question of characterisation.  If one goes back to 127 as, in a sense, delineating the task are we talking about a liability to incur expenditure in the future or are we talking about something which goes to the present value of the future economic loss?

MR DEAKIN:   Yes, we accept that, your Honour.  The present value of the future economic loss, we submit, is that figure that is calculated when the components of damages are otherwise established.  Once that process is finished that is an end of the matter.  That is consistent, we say, with what everybody agrees is established by Todorovic and the fact that Todorovic did not deal with funds management, of course, because as my friend correctly points out it was not an item of damage known to the law, it does not deal with Griffiths v Kerkemeyer damages either, although, plainly section 127 now does.

But it governs the awards of all future losses and the principles should be, in our respectful submission, upheld and it circumvents both what Todorovic stands for and circumvents the statutory discount rate that 127 lays down by permitting a second or third assessment of the same amount that has already been taken into account in the calculation of the discount rate to allow for what it will cost to manage the funds management fees themselves and what it will cost on the assumption that it will earn something commensurate with the discount rate, those both being impermissible in our respectful submission.

How it actually works – and we did mean to take your Honours to this, and I apologise; we may have moved on from it.  I took your Honours to the two charts that are at 174 and 175, but could we invite your Honours to turn over the page because it is perhaps an even clearer illustration of how these figures are arrived at and it does, to some extent, cut across, I think, part of what Justice Gageler may have been understanding about what the figures actually mean.  So 176, I think, is of assistance to explain it.

What we draw attention to is these matters from 176.  Firstly, your Honours will see – and, again, there is no magic to be attached to the particular figures because they were revised in the end, but your Honours will see the methodology.  What happened is that this chart, this schedule, includes both fees on interest and fees on fees.  So this represents the totality of the plaintiff’s case as allowed by the trial judge.

Your Honours will see that moving from the $9,934,000 figure that is back on 175, one adds into it the fees themselves, which on this chart total – your Honours look to the very bottom right‑hand side – $2,481,666.  That is then added to the original figure to produce that capital sum now including the cost of managing the capital sum – namely, $12,415,666. 

Then when one looks, what is curious and interesting about this chart is that the drawings remain the same.  The same amount is assumed to be paid to the plaintiff each year for the rest of her life expectancy – namely, $504,000.  The end result therefore is there is no greater sum flowing to the plaintiff even when these amounts are included.  All that happens is that the fund management charges increase.

So there are more moneys payable by the defendant because you are including in some additional fund management charges but the drawdowns remain the same.  There are no different, altered amounts on these assumptions that are made by the plaintiff’s expert.  These are his calculations as to how this works in practice.

BELL J:   But on your accountant’s calculations, was it not accepted that there would be an insufficiency, doing the arithmetic, if one did not include the cost of administering the fund management into the figure?

MR DEAKIN:   Your Honour is perfectly correct in that if one makes all the assumptions that were included in those questions and one accepts the proposition that has been put to us and has been advanced by my learned friend, namely, that you only do all of this after the judgment sum is ascertained, then what your Honour has put to us is right, namely, that mathematically one can point to a shortfall.  If she is only being paid for $10 million in damages and the manager is managing 12, then there is going to be less money there than was provided for.

BELL J:   The only reason I raised it with you, Mr Deakin, was you were taking us to mathematical tables to make a point.

MR DEAKIN:   Yes.

BELL J:   I just was not quite ‑ ‑ ‑

MR DEAKIN:   No, I was concerned that Justice Gageler had an understanding slightly different to what this shows in relation to how these calculations are arrived at ‑ ‑ ‑

GAGELER J:   Can I just check that?

MR DEAKIN:   Yes.

GAGELER J:   As I understand it, this table at page 176 shows the methodology that goes into the figure shown in subparagraph (d) at page 575, that is:

Fees on initial sum and fees on earnings and fees on fees ‑ ‑ ‑

MR DEAKIN:   Caution needed, your Honours, because this is the original fee quotation, not the amended fee quotation.

GAGELER J:   I follow that, but you took us to it to show the methodology that goes into the paragraph (d) final figure.

MR DEAKIN:   Yes.

GAGELER J:   Right.

MR DEAKIN:   Whilst we are on ‑ ‑ ‑

GAGELER J:   Can I just ask one other question?

MR DEAKIN:   Sorry, your Honour.

GAGELER J:   We have four agreed figures.  We have three tables.  The one that seems to be missing is the one that feeds in – the table that seems to be missing is the table that would feed into the agreed figure in subparagraph (c) of page 575.

MR DEAKIN:   The Chief Justice pointed that out and he extracted one from Mr Watt’s report, and that is reproduced at 632 of the book.

GAGELER J:   Page 632?

MR DEAKIN:   Yes, which is – I am sorry, not 632, I apologise, your Honour.  Your Honour, I think it is the only one that is before your Honours.  It is at 632, but, again, it is only for the purposes of the methodology and it is done only for the rates charged by the New South Wales Trustee and Guardian.  So I think your Honour is right that there is nothing that shows the trust company’s calculations in schedule form dealing with fees on fees.

GAGELER J:   While I am detaining you ‑ ‑ ‑

MR DEAKIN:   Yes, I am always happy to assist, if I can, your Honour.

GAGELER J:   ‑ ‑ ‑ if you were to be successful on one issue but not on the other, so if you were not to be successful on the fees on fees issue, is there any agreement between the parties as to what would be the appropriate form of order?

MR DEAKIN:   Your Honour, I am sure we can reduce it to an agreed sum.  It is something that we could even hand up I think fairly briefly, but it is available to your Honours to do and I think ‑ ‑ ‑

GAGELER J:   I think I could do it, but I would prefer to have it done for me.

MR DEAKIN:   Yes.  Your Honours could take it from exhibit M because at least the alternatives are there set out.

GAGELER J:   Well, I think you could just take the figure of $9,929,000 and add to it $2,034,000, but I may be wrong.

MR DEAKIN:   I think that is right.  Your Honour, could I just consult with my other junior, who is very expert on these figures.  Your Honour’s understanding is correct so it would result in a figure added to the other components of damages of $2,034,000 in lieu of $1,495,000, and they are adjusted obviously but – well, only because we accepted that it ought to include 1,495,000 and that is the judgment sum at the moment.

GAGELER J:   Yes.

FRENCH CJ:   There are a number of possible outcomes in this case, a number of combinations, so it might be helpful if you and Mr Morrison were able to agree the forms of order for the various possible outcomes.

MR DEAKIN:   Yes, we will do that, your Honour.  I think that can certainly be done because the figures are mathematically agreed.  Related to that and a matter that has arisen more than once is my learned friend’s submission to your Honours that it is not open to us to challenge the amounts charged by the trust company.  We do not accept that at all and I am afraid I am going to have to – obliged to go back to what occurred at the hearing.  Could I preface it by saying this; the figures that were provided by the trust company were quoted as indicative rates and they were those indicative rates that produced on the plaintiff’s case of fees in excess of 25 per cent of the corpus as the fees payable to the trust company. 

Our complaint, which is why we do not accept that it was not put in issue, was that there was not sufficient evidence before the court for the court to be able to rely upon anything as far as what the trust company was actually going to charge with the management of a sum as large as this.  Those complaints are recorded in the judgment of the trial judge at page 472, firstly, of the book in paragraph 37:

A separate submission put on behalf of the defendant related to the state of the evidence as to whether the services of any of the proposed managers could be obtained more cheaply having regard to the size of the fund under management.  It is true that there was no evidence specifically directed to whether the proposed manager would accept fees at a lower rate to manage a fund of the size agreed in the settlement between the parties (including the fund management costs component).  In light of the fact that there is to be a further round of hearing in any event, the plaintiff should have leave to adduce evidence directed to that issue.

Only the plaintiff.  It was not advanced before the next judgment which is reproduced at the relevant paragraph at 514 of the book in paragraph 89, almost identical part of the page at 514:

Separately, Mr Deakin noted that there is no evidence that The Trust Company will in fact charge the rates indicated in the present case and would not take the engagement in what is plainly a large estate for any lesser rate.  In my earlier judgment at [37], I gave leave to the plaintiff to adduce further evidence directed that issue.  I do not know whether the evidence was overlooked –

and so I am going to give the plaintiff another chance, which is what in fact occurred at that point.  Then what happened after those two judgments were entered was that an approach was made to the trust company, and I think your Honours may have been already told about this aspect of it, and the fees which had previously been indicated as the indicative rate of 0.688 per cent were reduced to the figure that Justice Gageler has referred to and is established now in the evidence down to 0.55 per cent. 

That was the figure that was ultimately reflected in the orders, but until that point had been reached her Honour had found in favour of this issue on the assumption that the rates were in fact in excess of 25 per cent and 0.688 per cent and that is to be found in the two letters, firstly at 172 of the book, which is that portion of the letter from Mr Plover which sets out the calculation at about line 48:

annual management fees of 0.688%  -

that being what he assumed, and the letter itself is at 133 of the book, commencing at 132, being the letter from the trust company of 17 August 2010 which shows the establishment one‑off fee and ongoing management and investment fee of 0.688 per cent.

The final letter, which your Honours have already looked at, at 456, shows it has come down to 0.55 per cent.  That was the figure ultimately relied upon that flowed through into the court’s ultimate judgment.  But the point of it is that, firstly, we put it in issue very much and we kept telling the court that there was simply no evidence upon which it could be relied, so my friend’s submission is without foundation.

But, secondly, it really provides, in our respectful submission, a concrete illustration of how unreliable and speculative these calculations are because it really flowed from us saying repeatedly, with all due respect, to our opponents and the trial judge, “Look, there is simply no evidence upon which your Honour can rely to come to any reliable view as to what will be incurred by way of a management fee for this sum of money by this particular trustee”.  When it ultimately came to it, from a phone call, $300,000 is taken off and the percentage is reduced from 0.688 per cent down to 0.55.

So it is a concrete illustration, with respect, to show just how unreliable and speculative all these calculations are and why the policy of the law and the principles that we invite your Honours to adhere to should be:  “Look, we do a calculation based once only – at the time we calculate the present value of those losses”.  One should have no regard to what happens thereafter, in fact, because it is a construct that the court uses to assess the reasonable remuneration to a plaintiff who is disabled from being able to manage her own fees and to have any regard to what occurs thereafter with what she actually does with her money is, in our respectful submission, contrary to the statute and contrary to Todorovic.

KEANE J:   Do you accept that there is no evidentiary basis, though, for the view that no manager in Australia would agree to an arrangement that did not permit the charging of a percentage on the totality of the award, including that component which reflects management cost?

MR DEAKIN:   Could we answer your Honour in two ways?  Firstly, it is not our onus; it is the plaintiff’s onus to prove that the loss which she claimed flowing from the defendant’s negligence has been established by the evidence – and there are the letters that establish that connection.  We do not accept at all, your Honours, that there was anything we had to prove about this.  The question is:  what is reasonable in the circumstances?

My friend has sought to invoke principles of mitigation and that we wore the onus of proof on these issues.  It is not a question of mitigation, with respect.  We put it in contest and we submit it is for the plaintiff to satisfy your Honours that fair and reasonable compensation for this tortiously caused need to have her funds managed should be something in excess of what is calculated as the present value of that sum.

We say once that – I am sorry, it is repetitive, but once that calculation is arrived at, that is the end of the matter and one does not have any regard to what in fact occurs in relation to whether the money is consolidated, whether it is invested or not invested at all, let alone what it may earn by way of earnings and what fees may in fact be charged.

The whole thing may be renegotiated.  We simply do not know.  These are all speculative uncertainties.  The mechanism that the courts have devised for these sums to be calculated is a single calculation of the present value of those costs and that is done when all other items of damage are calculated and once that figure is arrived at, as the present value, that is an end of the matter.

I think I have said enough about Todorovic.  We have extracted the principles from Todorovic in our written submissions and I have given your Honours references to all of those passages from the judgments of the court that we rely upon.  I do not think it is necessary for me to take your Honours through each of those.  They are fairly summarised in the principles that we have relied on ‑ that is in paragraph 21 of our written submissions. 

Could we add to those four principles one important fifth principle that we do rely upon from Todorovic, and it is trite but nevertheless should be borne in mind, and that is the principle that the court should have consistency and predictability in principles of damages and that is a principle that we rely upon given the fact that Todorovic has been the law since 1981 and has provided certainty and predictability in relation to the assessment of all future losses in personal injuries cases and there is no justification in principle or derived from section 127 to make some special consideration arising in the case of funds management cases.

But could we just invite your Honours to turn briefly to Blackwell that we only cite in support of what the Court in that case described as the significance of Todorovic.  The facts of it are not relevant at all.  It is The Commonwealth v Blackwell (1987) 163 CLR 428 and in the judgment of four members of the Court - it was a worker’s compensation case, so of course your Honours do not need to be troubled by the facts, but at 435 in the joint judgment, 163 CLR at 435, their Honours say this:

In our opinion this approach cannot be supported.  It fails to recognize the true significance of this Court’s decision in Todorovic.  It was far more than a decision of fact based on the evidence adduced in that particular case.  It was a decision which took the unusual course of prescribing a rule of practice for future cases.  This extraordinary course was prompted by a recognition of the magnitude of the difficulty that confronted courts as they sought to provide fair and just compensation to plaintiffs in personal injury cases in respect of losses to be suffered far into the future, and by the importance of predictability in the assessment of damages.  A majority of the Court was satisfied that a plaintiff obtains an advantage when receiving present payment of a sum of money which in other circumstances would not be received until a future date -

They go on to say over the page that it is clear that what the discount rate is intended to do is to make appropriate allowance for a range of factors, which I think your Honours already will have read from Todorovic itself.  The only other case that we would wish to read to your Honours is the same judgment as my learned friend read to your Honours from Gardikiotis, Nominal Defendant v Gardikiotis 186 CLR 49, which was of course a funds management case. It has to be understood, of course, in the context that on the facts of that case there was no sufficient connection demonstrated between any incapacity to manage the plaintiff’s moneys and the tort of the defendant, so it turned on its facts to that extent.

But my learned friend quoted from part of the judgment of Justice McHugh and we rely upon some earlier passages in his Honour’s judgment dealing with, once again, general principles, not just the facts of the case.  The passage we rely upon commences at page 60 of the report within the judgment of Justice McHugh, under the heading, “The plaintiff’s contention”, about point 7, point 8 on the page:

The plaintiff contends that, because the law requires that the monetary value of future losses or expenses be discounted at an appropriate interest rate so as to reflect the present value of those losses or expenses, any expense involved in achieving that value must be taken into account.

Can we pause there?  Very closely resembling, really, in slightly different language, but the very argument that has been put to your Honours now:

Consequently, the expense of fund management had to be taken into account in this case to ensure that the notional investment of her money produced a stream of income equal to the levels assumed by the Court in calculating damages.

Exactly again what has been put to your Honours now:

The plaintiff contends that, if the expense of fund management is not recoverable as damages, she will receive less damages than the discounting procedure assumes is fair compensation.

Precisely what has been put now.  His Honour goes onto say:

However, this contention misconceives the role of a court in awarding common law damages.  Except in those cases where the plaintiff is under a legal disability –

I will come back to that –

a court has no interest in what happens to the plaintiff’s damages.  It has a duty to assess fair compensation for all the effects, physical, mental and financial, that the defendant’s negligence has had on the plaintiff.  But at common law, compensation is given on a one off basis; there are no periodic payments of compensation.  The court awards a single sum and enters judgment.  Its role is then finished.  To the inadequate extent that monetary compensation can compensate for the effects of personal injury, a court has done its duty when it makes its award of damages.  What the plaintiff does with the verdict moneys is a matter entirely for the plaintiff.

He then quotes from the joint judgment in the passage that your Honours have already been taken to, and his Honour proceeds:

The courts make assumptions about long term interest rates and use those assumptions to determine the discount rate.  The courts also make assumptions about the investment behaviour of rational investors in order to determine what present sum invested at the discount rate will fairly compensate a plaintiff for anticipated economic loss or expense.  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 if 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, 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 of the plaintiff.  When that sum is determined, then, subject to any allowance for the contingencies of life, the law will equate it with fair compensation for those losses or expenses, irrespective of what the plaintiff intends to do with that sum.  If the plaintiff incurs expenses in investing the moneys, that is the result of the plaintiff’s choice.  But that expenses is incurred after the plaintiff has received that sum which represents fair compensation for his or her damage.  The expense is therefore not a factor which must be taken into account if the plaintiff is to receive a full indemnity.

Now, in our respectful submission, unless this Court disapproves of that passage and says that no longer reflects the law, we submit that that passage is inconsistent with all of what my learned friend has put to your Honours on both of these arguments.

KEANE J:   Except for the exception where the plaintiff is under a legal disability, which is this case.

MR DEAKIN:   Yes.  No, your Honour, with respect, this case does involve legal disability but, your Honours, what his Honour, we submit, was intending to refer to, if one reads the whole of the context in which that appears, was plainly referring to there is the supervisory position of the court – namely, that the court has and is obliged to have regard to protecting the plaintiff to make sure that funds are not dissipated when it is a person that is suffering under a legal disability.  To that extent, when someone is under a legal disability, there is a supervisory – it is the parens patriae jurisdiction of the court.

But he is not saying, your Honour – and it makes no sense, with respect, when one goes on to read what his Honour says, to say that in every case where there is a plaintiff with a legal disability, none of these principles that I outline apply.  What he is saying is, in our respectful submission, that where the plaintiff is under a legal disability, there is a supervisory role that the court has; there is a protective division that is set up to make sure these funds are not dissipated.  But he is not otherwise providing for any exception to those general principles, in our respectful submission, that he sets out.

We submit that that reflects what the law does stand for and it is not of concern to the court whether or not what the assumptions assume is to occur in fact occur and, therefore, what is assumed in relation to the Trust Company managing this lady’s moneys as to what will be expended and what will be invested and what returns will be earned – none of those matters are any concern of the court.  Its task is complete, to use his Honour’s words, when it calculates the present value of all expenses, including funds management expenses.  We invoke those passages as being determinative of the issues.

Could we recommend to your Honours – I do not think I need to read to your Honours – the consideration of those passages and Todorovic v Waller.  In the judgment of Justice Hislop in Rottenbury v Rottenbury [2007] NSWSC 215, and we have given your Honours a reference to it, the relevant passages are to be found at paragraphs 52 and 53 of the judgment, which reflects really what we are putting to your Honours, but I do not think it is necessary for me to read it to your Honours.

Your Honour Justice Keane has referred to reasonableness in relation to expenses and we respectfully adopt that approach.  We submit that, whatever money is sought, the court is still primarily concerned with what is fair and reasonable compensation to award the plaintiff and to require a defendant to pay.  That was very much in issue in this case, as your Honours know, and we submit that that is the appropriate qualification to what otherwise may be claimable by a plaintiff.  We submit it determines the issue in this case when one applies it to limit the sum claimed to the 1.4 million, and it should not be supplemented by the two additional amounts which the plaintiff now seeks.

Your Honours, could I just deal with one other point in relation to what arose that we were concerned about?  My learned friend, I think, indicated to your Honours more than once that the court approved the fees that were charged by the trust company in this matter.  There is simply no evidence that that in fact occurred.  As we understood it, it has not in fact occurred, but I think we are content with it being dealt with on the basis there is no evidence that it occurred.  I think we do need to trouble your Honours by just explaining to your Honours what the sequence of events was, some of which your Honours will probably have already understood but I think it is important to trace it through.

HAYNE J:   Just before you come to that sequence of events, can I understand better what the fees are by reference to the letter at page 456 and 457?

MR DEAKIN:   Yes.

HAYNE J:   There is an establishment fee lump sum, there is an ongoing fee 0.550 per cent calculated on the corpus of the fund, is that right? 

MR DEAKIN:   Yes.

HAYNE J:   The real sting comes at 457, does it not, where there is reference to MER’s of 0.45 and then on top of it, four per cent to the State on income.  Is that right, to State trustee?

MR DEAKIN:   It is important, your Honour, to note as the Chief Justice noted that the four per cent on income is capped at $2,000.  The Chief Justice points that out ‑ ‑ ‑

FRENCH CJ:   That is done administratively, is it not?

MR DEAKIN:   It is just an administrative fee because there is a supervisory role ‑ ‑ ‑

FRENCH CJ:   There is no guarantee that caps remains.

MR DEAKIN:   That is a point but, your Honours, at the moment that is the law and that is where it is capped.

FRENCH CJ:   You say it is the law?

HAYNE J:   Not, I think, in the regulation.

MR DEAKIN:   It arises from a regulation, as I ‑ ‑ ‑

FRENCH CJ:   The capping, I thought the Chief Justice made a point that the capping was not in the regulation and not derived from regulation but maybe I have mistaken what he said.

HAYNE J:   I thought the regulation just spoke of four per cent as the fee.

MR DEAKIN:   I think what your Honour the Chief Justice is referring to was the argument about comparing the trust company with the trustee and guardian and the trustee and guardian’s fees were the subject of a fee only capped by regulation, it could change.  This one is a different creature.  I think I am right in saying that, Chief Justice.  That was the debate as to whose fees should be the measure of the defendant’s loss and this fee as I understand it in the nature of a supervisory fee – I may be wrong, of course, your Honour, but that was my recollection of it – is capped at $2,000, and so whilst it is a one off fee it does not have a drastic effect on the sort of figures we are talking about.

Could I just invite my junior to try to check that?  I hope I am not misleading your Honour, of course, but I think that was what the Chief Justice was referring to.  Could I just invite your Honours to consider what actually happened as established in the evidence?  The trial commenced on 1 August and the settlement that has already been indicated to your Honour of $10 million plus funds management but less some agreed deductions occurred on the third day. 

What then happened was, as your Honours would have expected, the settlement was then brought before a different judge, namely, Justice Hoeben, who approved the settlement on 5 August 2011, with the funds management issue then to be determined.  Separately from that, an application was made by the plaintiff for the appointment of The Trust Company as the trustee, the manager of this fund and that is the application that came on before Justice White.

The point that we want to emphasise from that is that, and my learned friend emphasised this himself in the transcript, that was an application that we were not entitled to attend even, let alone be heard on.  That is the point that he made at 93 of the appeal book at line 45, so this is on 8 August before the application before Justice White which came before him on 2 September.  At line 45 on page 93 of the book:

Yes, and I should say that in the Protective Division the defendant won’t be there and has no right of access as it is a closed court.

That of course is accepted.  So what happens when the plaintiff goes along to have her manager appointed is a very different process altogether to the court’s task, as discharged by Justice McCallum, in determining what damages are payable to the plaintiff arising from the defendant’s tort.  I think some of the points that my learned friend put to your Honours may have conflated those considerations.

We simply are not aware, nor are we allowed to be aware, of what is put before Justice White but it cannot have the effect, in our respectful submission, which seems to be what my learned friend is really saying to your Honour, of saying somehow or other there is a sanction made by the Supreme Court of New South Wales determining the reasonableness of these fees in a way that resolves the issues.  It cannot have that effect at all. 

HAYNE J:   Can I understand, what settlement was approved, settlement on the basis of $10 million plus funds management?

MR DEAKIN:   Yes.

HAYNE J:   What, funds management as to be determined according to law?

MR DEAKIN:   Yes.

HAYNE J:   So the settlement was settlement of $10 million plus a further piece of litigation?

MR DEAKIN:   I think ‑ ‑ ‑

HAYNE J:   It is a very odd, very, very odd form of approval of incapacitated person’s settlement, I would have thought, Mr Deakin.

MR DEAKIN:   It was not us that put it up, your Honour.

HAYNE J:   I understand that.

FRENCH CJ:   It is described in the chronology I see as:

Settlement approval of all heads of damage excluding fund management by Justice Hoeben ‑ ‑ ‑

MR DEAKIN:   Yes.

FRENCH CJ:   The reference to it is in Justice McCallum’s judgment, very early on in the piece.

MR DEAKIN:   Yes, she recites it having occurred.

FRENCH CJ:   That is the only record we have of it, is it?

MR DEAKIN:   We have the orders but I do not think it takes it any further.  Your Honour Justice Hayne’s point, it cannot be laid at our door of course but something almost the same did actually happen in Willett v Futcher, as your Honour will recall.  That was the basis upon which the matter resolved in Willett v Futcher.  So it is not without precedent, but – well, your Honours, we are all bound now to try to resolve as many issues as we can and it saved a lot of court’s time in dealing with all of the other damages issues.

HAYNE J:   I understand that.

MR DEAKIN:   It was agreed between the parties that that being something that was going to have to be litigated that the most convenient way of doing it, rather than spending two weeks determining other damages which were capable of agreement, we could reach an agreement on all issues other than funds management.  So, I do not of course demur from what your Honour has put to us, but it was put up to Justice Hoeben on that basis and Justice Hoeben approved it, and was invited to do so, of course, by those appearing for the plaintiff.

But I think that needs to be understood because there are separate processes at work here.  One of them is the simple assessment of damages.  One of them is the Court’s - what we would call the supervisory, the protective – supervisory role that a court has to ensure that settlements are done in a way that does protect the interests of the disabled plaintiff and the third is the protective division that appoints an actual manager to her affairs.  We are not a party to those proceedings and, of course, we are not in any way even aware of what occurs on those occasions because we are not entitled to be there.  They do need to be kept distinct and ought not to be conflated as, I think, my learned friend may have in part done.

Then, your Honours, could I then address just some particular submissions dealing with the fund management on fund management component?  I do not want to read it all to you but could we just invite your Honours to have regard to how the Chief Justice approached the matter in paragraphs 144 to 148, and I know your Honour has already read it, but in those paragraphs he identifies essentially four reasons why he would not allow that aspect of the claim.  I think, as your Honours have already noted, Justice Basten came to a similar conclusion for his own reasons, particularly in the paragraph that your Honours have already referred to as paragraph 200 of his judgment.

We do need to deal with and we now proceed to deal with the real argument about shortfall, as we have put it to your Honours, and we repeat it, I am sorry, perhaps more than I should have.  There are, on proper analysis, no reliable conclusions able to be drawn about shortfall, the court’s task having been completed at the assessment of the figure representing the present value of the future expenditure, that is, including within that is the regular drawdown that the courts have devised as the construct that is to be used to arrive at the calculation of this component of the plaintiff’s damages.

That having been arrived at, those figures having been calculated, it cannot give rise to a shortfall.  The sums have been done.  The amounts have been determined and the totality of the plaintiff’s damages, including those damages representing the present value of those future expenditures have been arrived at.  It is misleading to some extent, and perhaps reinforces the error that we submit is fundamental to my learned friend’s approach, to constantly talk about we should be awarded the funds management fees.  The Court’s task is not to award funds management fees.

The court’s task is to assess the present value of a future expense that will be incurred by the fund’s manager.  If one just looks at it and says I should get funds management fees, one could understand a gateway to my learned friend’s argument but that is not the correct analysis.  This is not a case awarding a plaintiff funds management fees, it is a case about calculating the present value of a future expense incurred by a fund manager in managing this sum of money and unless one keeps that distinction in mind ‑ ‑ ‑

GAGELER J:   You say “this sum of money”, what sum of money?

MR DEAKIN:   The sum of money calculated in relation to all heads of damages that the plaintiff is entitled to and then, having arrived at all those sums of money, one calculates the present value of what it will cost to administer it and manage it.  Unless one keeps that clear distinction in mind, it does have the capacity to lead the court into error.

HAYNE J:   Sorry, repeat the distinction, I think I slipped, repeat the distinction.

MR DEAKIN:   One simply says a plaintiff is entitled to funds management fees.  We say no, that is not strictly what the court is called upon to determine.  The court is called upon to determine what amount represents the present value of the future expense for the management of the fund.  It is that distinction which has, we submit, led to my learned friend’s error in inviting your Honours to accept this component to be added to the damages assessed as that present value we have put to your Honours has been determined in the sum of 1,495 million.

BELL J:   If you just go back to what used to be called, I think, Part 15 particulars, on page 35 of the appeal book, one sees the 37^th item in the claim for damages as the claim in respect of funds management. 

MR DEAKIN:   Yes, the “cost of fund management”.

BELL J:   Yes, one sets out the various heads of damages amongst which was included the cost of fund management.  That gives you a global figure, on one view.

MR DEAKIN:   Yes, and that is the judgment sum, in our respectful submission.  That then is the full totality of damages payable to the plaintiff and one does not take the first calculation of the present value and then add to it two further sums, which is what the plaintiff ‑ ‑ ‑

BELL J:   Save that in the figures what one did was look at all of the Part 15 particulars, absent particular 37, to give you the figure of nine point something million.  That is where the controversy is.

MR DEAKIN:   Yes, that is where the controversy is, but one cannot meaningfully calculate the fund’s management expense, it is true, until the other components are arrived at because one does not know what is the sum which the plaintiff will have the benefit of for the rest of her life the present value of managing which she is also entitled to.  So it has to – we accept it has to follow from the assessment of the other damages, but it should not be treated separately from those other components of her award which represent the present value of future expenses.

HAYNE J:   The separation to which you point is a separation perhaps reflective in the particular forms of calculation that have been provided, but can I just take you back to what seemed to me to be basic propositions?  One, the plaintiff should be allowed such sum as will compensate her for her past and future losses.  Two, among the future losses will be outgoings on a number of accounts, of which one is the cost of managing the fund that she is awarded.  Three, the plaintiff should therefore be awarded such sum as represents the total in today’s dollars of the anticipated outgoings, discounted by five per cent, to take account of matters at least including, perhaps limited to, the present receipt of money to meet future outlays; two, inflation; three, tax.  Four – and this is the point at which you, I think, join issue – the anticipated outgoings attributable to the management of the funds are to be assessed by reference to the whole of the funds – that is, the whole of the judgment sum, the whole of the verdict, that is being managed.

MR DEAKIN:   We do part from that last principle, yes.

HAYNE J:   That is the point at which you part company.  The fifth proposition is that that sum cannot be calculated – that is, the amount attributable to management of funds – because it is projecting into the future; it must be estimated.

MR DEAKIN:   We agree with the fifth one, yes, your Honour.

HAYNE J:   Four is the point at which ‑ ‑ ‑

MR DEAKIN:   Yes, it is true, your Honour; it is the fundamental departure between the parties and it is the one which the Court will have to resolve.  It is also true, of course, your Honour, that Todorovic does not squarely address it.  No one suggests it does.  But we invite the Court to adhere to the principles from Todorovic applicable in all personal injuries cases to say you do not get two or three bites at the cherry; you get one assessment of what the present value of your funds management costs are and, having arrived at that figure, that allows for all these uncertainties and speculative aspects of it.  It has been taken into account and that is the end of the matter.

That is the construct that the court has devised to enable these calculations to be done.  They should not be treating the plaintiff’s entitlement to be paid the present value of some future expenditure in relation to the funds manager and should not be treated any differently to those other components of her damages which are calculated as a single sum.  I am sorry, I am largely repetitive, but that is the point that we have been making.

HAYNE J:   I was the one who went back to the very basics.  Do not blame yourself, Mr Deakin.

MR DEAKIN:   Well, I think the very basics are important but there is no support in Todorovic, with respect, for your Honour’s fourth proposition and we submit it is contrary to what Justice McHugh says in Gardikiotis. That is where we differ from your Honour’s otherwise, of course, impeccable analysis.

HAYNE J:   Then you will come and tell me why it departs from Willett v Futcher, will you?

MR DEAKIN:   Well, your Honour, Willett v Futcher, again we submit does not address this issue.  It is really a question of what is the time at which the present value of the future loss is made.  We do not depart from anything that Willett v Futcher stands for, your Honour, and it does not address this issue, in our respectful submission, at all. 

Could we just remind your Honours that although this discount fixed at five per cent has been the law in New South Wales since 1984, in the earlier predecessor of the legislation, section 35B, and as your Honours know from that schedule of legislation that we have provided to your Honours, following Todorovic v Waller, every State brought in discount rates by statutory enactment according closely with the wording that the Court had identified in Todorovic v Waller and that has been the regime since 1981 on one view of it and certainly since 1984 in New South Wales. 

No one has ever sought to raise this argument, except for Justice Hunter’s decision in Bacha and in all other cases it has been disallowed and we would invite your Honours to adhere to all those other cases that we have given your Honours references to in which for varying reasons provided by all those different judges, they all said it should not be allowed.  We would invite your Honours to adhere to the approach of all those other cases.

FRENCH CJ:   If there were a dispute about a component of an award reflecting cost of future care ‑ ‑ ‑

MR DEAKIN:   Yes.

FRENCH CJ:   ‑ ‑ ‑ if some component of future care had been overlooked or not included in the award ‑ ‑ ‑

MR DEAKIN:   Does your Honour have some slip rule in mind or ‑ ‑ ‑

FRENCH CJ:   I am sorry?

MR DEAKIN:   A slip rule type ‑ ‑ ‑

FRENCH CJ:   No, no.  I am just saying, if there were an appeal on the basis of inadequacy of award and it was said that the damages that had been awarded provided for future care but the trial judge had erroneously overlooked incorporating an element of that award by reference to some particular aspect of future care which had been in evidence and so forth.

HAYNE J:   Allowed day shift, not 24 hour care.

FRENCH CJ:   Thank you for that, exactly.  Now, you would not be saying that that is an argument about the present value of a future loss.  It is an argument about what should have been incorporated in the element of the future loss.  Why is it wrong to say that an element of the cost of the management of the funds in the future includes the cost of managing that component of the award which reflects the major sum for the cost of future management?

MR DEAKIN:   Well, your Honour, the court of course can do that but we submit it is contrary to principle for it to do that.

FRENCH CJ:   Well, I am just having difficulty with fitting that aspect of the award into the notion of present value of future loss.  You keep saying it is really about that and it just does not seem logically to engage with that characterisation.

MR DEAKIN:   Well, your Honour, that is the correct characterisation of what the court’s task is.  There cannot be any doubt that.

FRENCH CJ:   I appreciate it is the task.  Why is this element of the award somehow inconsistent with that task?

MR DEAKIN:   No, your Honour, we submit the opposite.  We say, our approach is the one that is consistent with the court’s task.  You do not have regard to what the future in fact flows in relation to the plaintiff and what happens to her and her care requirements or her moneys.  The court’s task is to assess it on the evidence before it and arrive at a fair value for those future expenses.

FRENCH CJ:   We know that this plaintiff will incur – will have a liability to incur expenditure in the future in relation to the management of the award, including the allocation for funds management or the major allocation for funds management.  Why is this not within that framework?  I am looking at the language of section 127(1)(d) and asking whether that does not delineate the task.  You first determine the scope of the:

liability to incur expenditure in the future ‑

and then you qualify, as they say, the present value of the future economic loss having undertaken that task.

MR DEAKIN:   Because it talks about a lump sum being arrived at to calculate that figure.  That is the prefatory words to those paragraphs including (d).  You arrive at a lump sum and the lump sum is that figure that is ‑ ‑ ‑

FRENCH CJ:   The question here is what is the task that the court has to undertake in order to arrive at the lump sum before applying the discount rate?

MR DEAKIN:   I think we are being repetitive but I answer your Honour the same way as I answer consistently.  We say, the sum is that figure representing the present value of those expenses calculated in relation to those components of the damages that have been determined as payable to this plaintiff.  You say assume that represents the totality of her damages, what is her entitlement to have the present value of those damages managed by her and that produces the first sphere.  That is the end of it, and all the other imponderables and uncertainties that follow if one looks at what actually happens can be avoided. 

GAGELER J:   One thing that is certain is that the damages awarded are going to be higher than the assumed damages used to calculate that component. 

MR DEAKIN:   The judgment sum will be higher than that that represents only the other components of the award, yes, your Honour, we accept that that is obviously always going to be the case.  That is true, but it comes back to how do you assess that other component?  How do you assess that fund management entitlement?  We are going around in circles, I know, your Honours, but we adhere to what we say the authorities stand for and what we say is mandated by the terms of section 127 and there is nothing that my learned friend has pointed to to your Honours to say his argument is supported by something that appears in 127.  We have heard nothing on that count at all. 

Your Honour has asked us about Willett v Futcher.  The passage that was read to your Honours by my learned friend on page 643 in paragraph 51 is prefaced by a more general and, we submit, applicable statement of principle that we submit we adopt.  At the beginning of paragraph 51 on page 643 of Willett v Futcher 221 CLR 627 their Honours say:

In a case, like the present, where a plaintiff must have an administrator appointed to manage his or her financial affairs because the plaintiff’s incapacity to deal with those matters was caused by the defendant’s negligence, the plaintiff is awarded a lump sum of damages which is to compensate the plaintiff for losses past, present and future. 

I know that is trite but that is really what we are saying to your Honour.  It is a lump sum that is calculated by reference to those losses past, present and future and you arrive at a sum to calculate by application of those principles.

Our submission squarely accords with that statement of principle, in our respectful submission.  They are all treated the same way, past, present and future.  They are all determined and having determined them the judgment is then entered for a lump sum representing the totality of those entitlements, including the present value.  So there is nothing, we submit, contrary to our argument set out in Willett v Futcher. 

Could I then just address your Honours – I perhaps had not finished what I wanted to say on shortfall. We have already made the same points about the calculation of the present value and that the Court has no further concern. My learned friend did not squarely address your Honour on it, but I think the submissions did. We submit his reliance on section 79 is largely irrelevant.

Section 79 is - it might be a bit unkind to say it is a purely mechanical provision, but it is simply a provision dealing with what is to happen with the money after judgment and it does not entitle the plaintiff to some additional component of damages in addition to the calculation of the present value. He has also relied and repeated before your Honour his reliance upon the logic of the proposition and the Chief Justice of the Court of Appeal has said there is a logic to this aspect of the plaintiff’s claim, but we submit logic should not override principle. We invite your Honours to adhere to principle, whatever the logic of the plaintiff’s propositions might be.

Could I pass to fund management on fund income and we submit that whatever views your Honours hold about the first issue this is a much more tenuous aspect of the plaintiff’s claim and one which we submit the Court should resolutely reject.  Again, without wanting to read all of what the Chief Justice identified, he essentially identifies six reasons for why he regarded the claim as being one that should be rejected and those are contained in paragraphs 135 to 143. 

The one that we emphasise that he started with is that it is contrary to section 127 and we do put that at the forefront also of our submissions and my friend has not really put anything, we submit, to your Honours as to explain why that is not the case.  If the present value of the future economic loss is to be qualified and required to be qualified by the prescribed discount rate how can it be said in the light of the provisions of section 127 that some additional component quite separate from the judgment sum, to use your Honour’s expression in relation to the first issue, be added to the moneys payable by the defendant on the assumption which has already been taken into account, namely that the plaintiff will be able to earn income from her investment of the moneys.

GAGELER J:   Mr Deakin, I confess I actually do not understand this aspect of the claim at all.  You took us to page 175, which has the calculation of the fund management on the fund income.  Throughout, the figures shown as the fund are different from the table at page 174.  So somehow the actual size of the fund is assumed to be different.  The drawings from the fund are assumed to be different.  I do not understand that.  At page 173, line 30 – this is part of the same report – there is what I take to be a definition of this component, which I do not understand either.  It seems to be saying whatever the statutory discount rate is is what I am going to assume is the earnings of the fund.

MR DEAKIN:   That is exactly what they are saying, your Honour.  It does not matter whether in this territory it is three per cent.  You assume that it is going to earn three per cent in this territory, as has happened in the only case that has considered these issues since Gray v Richards.

GAGELER J:   On the basis of this assumption, presumably, I am going to assume that the fund will be bigger than it is otherwise assumed to be for the purpose of working out the size of the award.

MR DEAKIN:   Exactly, and that is what has happened, your Honour, on the trial judge’s approach until set aside by the Court of Appeal.

GAGELER J:   You may not be able to do this, but are the figures shown as the fund in the table at page 175 just arrived at by increasing the size of the fund at page 174 by five per cent?

MR DEAKIN:   The third column under “interest” is a calculation of five per cent interest on the starting figure of 9,934.

GAGELER J:   Does that you give the bigger fund?  Is that the explanation?

MR DEAKIN:   Yes, each year you get a bigger fund boosted by assumed earnings of five per cent and you keep charging management fees on a fund boosted each year by an assumed five per cent.

GAGELER J:   So it seems to be nothing to do with natural prediction of the future.

MR DEAKIN:   No, and no evidence of it, and unless one makes the quantum leap and says, “Look, it is very convenient to do what Mr Plover did” – let us just assume that in every State where this issue is going to be determined we are going to equate whatever the discount rate is with what it might have earned and then I am going to say that each one of those accretions each year is going to be added in and the defendant should pay the costs of managing not just the corpus but each of those accretions of assumed income.

To take your Honour back to that 175, if I can just put year one:  9,934 million.  You take out assumed drawings, which is also, of course, a complete construct because it just says what is the amount that you are going to take out each year to reduce it to zero at the end of 67 years the fiction of regular utilisation, you then add in the $484,000, which represents, as your Honour Justice Gageler has said, this assumed earning rate, and you then get the figure in the next line of 9,913.  You do the same thing then for every year thereafter with the fees then totalling $2 million.  On this graph, your Honour should understand this does not even include adding the fees in.

GAGELER J:   But why are the drawings different?  I just do not understand.  Why are the drawings different in this table from ‑ ‑ ‑

MR DEAKIN:   From 174?

GAGELER J:   Yes.

MR DEAKIN:   Because each year is boosted by five per cent earnings it is being assumed.  So the fund is being boosted each year.  That is why we drew attention to the fact that on this approach, even after 25 years and she is assumed to have been paid out in drawings over $12.5 million, she still has $9 million of the corpus left.

HAYNE J:   The drawings are different because they are the product of zeroing it at year 67.

MR DEAKIN:   Yes.

HAYNE J:   It is working backwards from zero at year 67, knowing a number going in at year one.  You have got ins and outs and a zero at the out must be.

MR DEAKIN:   Yes.  But it is different – I thought Justice Gageler’s point was that why is it different to the fees on initial sum only figure and the reason is because you are bringing in this assumed income level and it massively boosts the figure available for fees to be charged on.  It is curious that it does not seem to produce any more money for the plaintiff herself.  It simply means there is more money paid and chargeable by the manager because he has an assumed rate of income being added in which the defendant has to pay for, and we submit it is unsupportable on any view of the law as it stands and is particularly inconsistent with the terms of section 127.

I think that is probably apparent from what we have already put to your Honours, but the fees are higher under this model because each year the fund is being boosted by an assumed add on representing a five per cent figure just plucked out of the air because it happens to represent the discount rate and that means the defendant is ending up having to pay a lot more in fees to manage a notional sum that bears no resemblance to the original corpus, even accepting we are wrong on our first argument, because the notional sum that the defendant is called upon to pay much higher fund management fees on is being boosted each year by an assumed rate of earnings that represents, for convenience sake, exactly the amount of the discount, circumventing the discount that is prescribed by statute and is already taken into account in calculating the discount, no dispute about that at all.

The fact that the income is going to be available to the plaintiff is the whole background to what Todorovic establishes and what the law looks at.  It is because of the fact that the plaintiff is going to be earning income on the corpus that the discount rate is fixed at the level at which it is, so it is already taken into account and yet, on this argument, if it were to be accepted, the plaintiff is entitled to bring it in again at a rate that is commensurate with the discount rate to boost the damages payable by the defendant and we submit impermissibly. 

Again, this is again further speculation on speculation as to what is actually going to happen with this case.  There is of course no evidence that this was anything like what it was going to earn.  My learned friend referred to Rosniak and said, well, in Rosniak ‑ ‑ ‑

HAYNE J:   If you can produce a witness who will tell me what the earning rates are next year we will all be very wealthy, Mr Deakin.

MR DEAKIN:   Of course, your Honours.  Can we invite your Honours to confirm what Todorovic says which is none of this should be dealt with by evidence.  I mean, that is our submission to your Honours, but if we are going to look at post‑judgment events then it becomes completely unpredictable and uncertain. 

Now, in Rosniak, which was the decision of the Court of Appeal, my learned friend refers to the fact, well, there was five per cent allowed as income in that case but there was evidence adduced in Rosniak – and the important point of distinction from Rosniak is that in Rosniak the funds were calculated on income only.  There was no component of fund management calculated or allowed in Rosniak beyond what income was earned by the fund.

FRENCH CJ:   Well, you say the discount rate is set for a particular purpose and to translate it into a basis for an assumed income and thereby enhancement of the management fee is a misuse of it on this application of it?

MR DEAKIN:   Indeed, yes, we do, and nothing of the restiutio principles or any decision of this Court supports that quantum leap which we submit is impermissible, contrary to the statute and contrary to what we have read to your Honours from Gardikiotis, in particular that judgment of Justice McHugh.  The whole thing is based upon, we submit, an erroneous assumption that somehow or other it always should equate with whatever the discount rate is.  That in itself shows the untenable nature of this aspect of the claim. 

It is not an estimation of earnings at all.  It is an estimation of what, in arriving at a figure for fair and reasonable compensation for a plaintiff, one assumes that there will be income generated.  If it is already assumed and taken into account in what is allowed, then there is no justification for bringing it in again to boost the fund in order to claim more by way of funds management expenses.

Again, we rely upon the need for consistency.  These principles have been there for a long time.  The Act is in similar form to the 1984 legislation and there is no justification anywhere in the legislative regime, let alone in Todorovic itself, for this component to now be added to the quantum of damages payable to the plaintiff.  We have given your Honours a reference to Haines v Bendall which is fairly trite, but the plaintiff may not recover more than her actual loss, and this is really going into speculation as to what may possibly happen and, we submit, no reliable conclusions can be draw in relation to it.

Then, your Honours, just some other matters arising from submissions.  My learned friend did put to your Honours that the income will be added to the fund, but the evidence in fact was that it was only to the extent that the income was reinvested that there would be any charge at all.  So even on an evidentiary basis, the claim is not supported by the evidence, and we do not know what will in fact occur nor, as we submit the matter, should the Court have any regard to what in fact should occur, particularly as it is all based upon an assumption unsupported by evidence.  My friend has put it as high as saying it is inevitable, but we submit that, far from being inevitable, it is highly speculative, as the Chief Justice has laid down.

GAGELER J:   Is this reinvestment assumption spelt out somewhere in the evidence?

MR DEAKIN:   I am sorry, your Honour?

GAGELER J:   Have you given us a reference to where the reinvestment assumption is spelt out in the evidence?

MR DEAKIN:   I had a reference to it – I will have my junior turn it up.  The letter refers to the income – a charge on income to the extent that it is reinvested.  I will have my junior turn it up, your Honours.  Now, my friend has put a submission to your Honours that although this was a settlement case that three‑quarters of the damages were referable to future.  We accept, of course, that a very large component of the damages was referable to future expenses. 

It certainly cannot be put to your Honours that it is three‑quarters or half, we simply do not know but the point that we want to rely upon is that there is certainly and no doubt a significant component of these damages which represent past losses, medical care, all those other matters that she was too young, I think, to have very much at all in the way of economic loss but a lot of components of this global sum were referable to past losses. 

So that the rationale for all of this is not even present for a component of her damages because there has been no five per cent applied to a significant component of her damages.  So whatever the sum is it does not frankly very much matter.  When one looks at the rationale for why these amounts are being sought by my learned friend, there is no dispute that a lot of them represent past losses and to the extent to which they represent past losses, they have not suffered a five per cent discount at all. 

That, we submit, undermines much of the rationale for why the plaintiff seeks to have her damages enhanced by these two awards.  We submit, as we have put to your Honours already, that it ought to be treated in no different way to all other damages and assessed as a lump sum once the components of the damages that are to be managed have been calculated.  There are the submissions that we put to your Honours.

FRENCH CJ:   Yes, thank you.

MR DEAKIN:   I am sorry, your Honours, there was one matter.  As far as what I put to your Honours about the capping, it is dealt with by the Chief Justice at 87 on page 576 about six lines from the top:

The supervision fee is a fee charged by the NSW Trustee at a rate of 4% of the gross annual investment income of the fund.  However, the

supervision fee is capped at $2,000 and thus it is only in years 60‑66 inclusive that it is necessary for the purpose of this calculation to take account of interest.  It can be seen from the figures that the rate of interest is 5% taken from the midpoint of the year in question.

So, it is simply capped at that rate.  The regulation is reproduced at 129 of the book.  So what I think your Honour the Chief Justice put to me is correct, so I apologise.  I think it may have said that it was something that fell within the regulations.  It seems it is not covered by the regulations, so it is simply a cap at this stage as things stand.  Now, your Honours, the only other thing that we were wanting to deal with is the question that was asked of my learned friend, namely, I think particularly by your Honour Justice Hayne, the question of whether the courts in New South Wales are able to regulate or even determine the fees of private managers. 

It is a difficult case to get one’s head around, certainly at this time of the afternoon.  Could I hand to your Honours and to my learned friends copies of a decision of Justice Lindsay in the Equity Division of New South Wales in Ability One Financial Management v JB by his Tutor [2014] NSWSC 245. The answer to your Honour Justice Hayne’s question established by this case is yes. It is not really that easily absorbed because of the details of it.

Justice Lindsay has a comprehensive approach to the issue and I cannot take your Honours neatly to a single paragraph that clearly establishes it, but it was very much in controversy as to whether it could happen and the end result of the case is that Justice Lindsay determined that it could, and if we could just invite your Honours – it does deal with section 115 of the NSW Trustee & Guardian Act and the court says that by operation of that section and otherwise pursuant to its inherent jurisdiction both in its parens patraie jurisdiction and in its equitable jurisdiction that it has power to regulate costs in respect of private managers, and there is a reference to what I think Justice Basten also referred to, the Corporations Act section 601, in particular 601TBA(1).

Your Honours, I think it would not be fair to my friend and perhaps not even to your Honours, for us to try to explain it all to your Honours but I think it does deal with the issue.  If your Honours and my friends are agreeable to it, perhaps we could your Honours a very short note about derives from this judgement but I think it answers your Honour’s question at any rate in positive terms.  Thank you, your Honour.

FRENCH CJ:   Thank you.  Yes, Mr Morrison.

MR MORRISON:   Thank you, your Honour.  Just in relation to that last matter, the Ability One decision, that was a case not about a licensed trustee company but an investment management company and the question was supervision of a non‑licensed trustee.  It is a slightly different proposition.  So I just caution, one wants to be very careful about that being authority for the proposition my learned friend is advancing.

The second matter, my learned friend said that there would be a significant amount for past losses.  There was an amount for past losses and that explains the difference between the $10 million settlement and the $9.9 million and a bit, which was the amount upon which fund management was calculated because those amounts were deducted at the outset and not subject to fund management.

They were section 83 payments under the Motor Accidents Compensation Act back to the insurer which had certain obligations to pay for care and medical services, Medicare payments and the like.  But in the great scheme of things the amounts were not particularly large, even in a catastrophic injury case like this.  It was suggested that there was no evidence that income would be reinvested.  Appeal book page 164, at about line 46 – this is a report from the appellant’s actuary, and he says:

In practice, fund managers do reinvest earnings, and do charge fees on the entirety of the fund.  Under a balance of probabilities, invested funds are expected to generate a positive amount of earnings –

and then he quotes the passage from Todorovic v Waller referred to earlier:

The difficulty inherent in the assessment of damages provides no reason for the courts to shirk the task of arriving at the estimate most likely to provide fair and reasonable compensation.

There is also a passage at page 173 at line 50, which similarly says:

In practice, fund managers do charge fees on reinvested earnings, and on the entirety of the awarded sum.  Therefore, in order to indemnify the plaintiff against fees, all components should be included.

MR DEAKIN:   Could we just give your Honours a reference on that same document to 173, line 50, which was the passage I had in mind?  I am sorry to interrupt my friend, but that was what I was relying on to talk about the reinvested earnings.

MR MORRISON:   Of course, it was not open since Todorovic for us to adduce evidence as to what the fund would earn.  That has to be a matter which is assumed, but we simply say that as her Honour said at first instance, the reasonable assumption is that the fund will earn at the discount rate because otherwise there will be a shortfall.  One question that arose from the Bench related to the difference on those tables at 174 and 175, the difference between the drawings.  The difference between the drawings depends upon whether you assume there is income into the fund.  If there is no income into the fund you end up with an amount available for the injured person which is about a third of the amount which would be available if the money is invested, using the same assumptions about running the money down so the money is spent on the last day.  That is why the dramatic difference is there in the extent of the drawings. 

In relation to what was said about that passage from Justice McHugh in Gardikiotis, we simply say there is no basis for saying that his Honour was talking other than about the need for fund management to be paid properly. There is no suggestion there that he was dealing with the general supervisory responsibilities of the Court, he does not say that, and read in context it is perfectly clear he was talking about a need for fund management for those who were disabled by – and who are disabled persons within the meaning of the appropriate Act in New South Wales. We say that section 79 does require the whole sum to be paid. It does not permit the sum to be broken up. It requires simply the money to be paid to the trustee.

HAYNE J:   Just as to Justice McHugh’s judgment, it was dissenting on this respect, was it not - see page 62.

MR MORRISON:   He dissented on that aspect, but in broad terms was in general agreement with the – in Gardikiotis?

HAYNE J:   In Gardikiotis.

MR MORRISON:   He agreed that the plaintiff should not succeed in obtaining damages for fund management.

HAYNE J:   I am looking at page 62 about point 4 of the page:

The principles of just compensation require that she be indemnified for that expense –

MR MORRISON:   Yes, and he was talking in general terms.

HAYNE J:   “Should be allowed . . . matter should be remitted”.

MR MORRISON:   What he was talking about there was a different proposition.  He was talking about remitting for her physical injuries.  She had multiple sclerosis which was triggered and what he was talking about

was it being remitted to determine whether she should recover anything for the extent of her physical limitations.  He was in full agreement with the majority of the Court that she should not recover in respect of her capacity to manage the moneys generally. 

So there was no disagreement on that issue and the passage that we have been referring to was a passage in which he was expressing the same views as were expressed by the majority.  We respectfully say that if one goes back to the relatively short majority judgment, they similarly exclude from the lack of recovery those who have suffered a disability, or those who are under an existing disability.  They were the two exceptions they named.

The final matter that we simply draw attention to is this.  This case comes down to the calculation of the appropriate lump sum.  The appellant’s case is that what should be included in the calculation of the lump sum is all of the future losses as best they can reasonably be calculated.  The respondent says we should ignore some of the future losses, namely those that arise through the need for fund management.  We say that is inconsistent with principle.  It is inconsistent with what was said in Gardikiotis, and it is inconsistent with what this Court said in Willett v Futcher.  The lump sum, derived as it is on a one‑off basis, should be calculated on the whole of the future loss.  May it please the Court.

FRENCH CJ:   I have already indicated, I think, that we would be assisted by proposed agreed orders covering the various permutations, apart from appeal dismissed, I suppose.  If we can have that note within, say, seven days?

MR DEAKIN:   If your Honours please.

FRENCH CJ:   Yes, all right.  The Court will reserve its decision.  The Court adjourns until 9.45 tomorrow morning for pronouncement of orders.

AT 3.47 PM THE MATTER WAS ADJOURNED