Richards v Gray - [2013] NSWCA 402

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Richards v Gray [2013] NSWCA 402
Hearing dates: 29-30 April 2013
Decision date: 02 December 2013
Before: Bathurst CJ at [1], Beazley P at [162], McColl JA at [163], Basten JA at [164], Meagher JA at [241]
Decision:
1. Appeal allowed in part.
2. Set aside order (1) entered on 16 December 2011 and, in place thereof, give judgment for the plaintiff in the sum of $11,424,000.
3. Each party file and serve within 14 days his or her primary submissions with respect to appropriate orders as to the costs of the trial and the costs of the appeal, such submissions not to exceed 10 pages.
4. If there have been offers of compromise relied upon by the parties, the submissions should be accompanied by an affidavit annexing the relevant material.
5. Each party should have a further period of 14 days to reply to the principal submissions of the other party, such replies not to exceed 5 pages.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: DAMAGES - award - measure of damages - personal injuries - negligence causing incapacity to manage own affairs - cost of fund management - whether certain amounts should be taken into account for the calculation of fund management costs.
DAMAGES - cost of fund management - principles in Todorovic v Waller (1981) 150 CLR 402 - whether an allowance should also be made in respect of managing the sum awarded for fund management costs.
DAMAGES - cost of fund management - whether an allowance should also be made in respect of managing income earned by the fund during the existence of the fund.
DAMAGES - cost of fund management - whether fund management fees should be allowed at rates charged by a private trustee or at the rates of the relevant public trustee.
Legislation Cited: Civil Liability Act 2002 (NSW), s 5D
Civil Procedure Act 2005, ss 77, 79
Corporations Act 2001 (Cth), ss 601RAA, 601RAC, 601RAE, 601TAA, 601TAB, 601TBA, 601TBB, 601TBE, 601TDC, 601TDD; Pt 1.1A; Ch 5D, Div 4
Corporations Regulations 2001 (Cth), r 5D.1.04, Sch 8AA, Sch 8AC
Mental Health Act 2007
Motor Accidents Compensation Act 1999, s 127
Motor Vehicles (Third Party Insurance) Amendment Act 1984
NSW Trustee and Guardian Act 2009, ss 38, 41, 111, 115
NSW Trustee and Guardian Regulation 2008, cll 37, 38; Pt 4
Protected Estates Act 1983
Trustee Companies Act 1964, s 18
Cases Cited: Bacha v Pettersen (Supreme Court of New South Wales, 20 September 1994, unreported)
Best v Greengrass [2012] WADC 44
Brindall v McDonald (Court of Appeal, 11 March 1985, unreported)
Buckman v M & K Napier Constructions Pty Ltd [2005] NSWSC 546
Campbell v Nangle (1985) 40 SASR 161
Commonwealth v Blackwell [1987] HCA 44; (1987) 163 CLR 428
Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588
GDR v EKR [2012] NSWSC 1543
Gell v Gell [2005] NSWSC 566; 63 NSWLR 547
Government Insurance Office of New South Wales v Rosniak (1992) 27 NSWLR 665
Griffiths v Kerkemeyer (1977) 139 CLR 161
Haywood v Collaroy Services Beach Club Limited [2006] NSWSC 566
Lewis v Bundrock [2008] QSC 189; [2009] 1 Qd R 524
Morris v Zanki (1997) 18 WAR 260
Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49
Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625
Rosniak v Government Insurance Office (1997) 41 NSWLR 608
Rottenbury v Rottenbury [2007] NSWSC 215
Tchadovitch v Tchadovitch [2010] NSWCA 316; (2010) 79 NSWLR 491
Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402
Treonne Wholesale Meats v Shaheen (1988) 12 NSWLR 522
Wells v Wells [1999] 1 AC 345
Willett v Futcher [2005] HCA 47; (2005) 221 CLR 627
Texts Cited: Luntz, Assessment of Damages for Personal Injury and Death (4th ed, 2002, Ch 2, sec 7)
Category: Principal judgment
Parties: Corey Richards (Appellant / Cross Respondent)
Rhiannon Gray by her Tutor Kathleen Anne Gray (Respondent / Cross Appellant)
Representation: Counsel:
P J Deakin QC, B A P Kelleher, K James (Appellant / Cross Respondent)
Dr A S Morrison SC, I J McGillicuddy (Respondent / Cross Appellant)
Solicitors:
T L Lawyers (Appellant / Cross Respondent)
Beilby Poulden Costello (Respondent / Cross Appellant)

File Number(s): 2012/9520
Publication restriction: No
Decision under appeal

Jurisdiction:

9111

Citation:

Gray v Richards [2011] NSWSC 877
Gray v Richards (No 2) [2011] NSWSC 1502
Gray v Richards (No 3) [2012] NSWSC 344

Before:

McCallum J

File Number(s):

2009/338685

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 2003 the respondent suffered severe injuries including a traumatic brain injury as a result of a motor vehicle accident. The respondent, as a consequence of the accident, is a person who has significant disabilities and requires constant care.

Through her mother as tutor, the respondent brought proceedings against the appellant claiming his negligence was the cause of her injuries. The proceedings were compromised and a judgment in the sum of $10 million with an amount for the costs of administering the verdict sum was awarded to the respondent. The proceedings the subject of the appeal concerned the amount to be awarded to the respondent for the costs of managing the judgment sum of $10 million.

It was not in dispute before the primary judge that the amount awarded to the respondent should include an allowance for fees incurred in managing the award of damages. However, the parties disagreed in respect of four issues that were relevant to the quantum of the amount awarded for fund management fees:

first, whether in calculating fund management fees an allowance should be made not only in respect of the fees necessary to manage the $10 million verdict, but also a further amount to manage the funds set aside for that purpose. This was referred to as "fund management on fund management";

second, whether the fund management fees should not only include an amount to manage the capital of the fund, but also a further amount to manage income derived from the fund. This was referred to as "fund management on fund income";

third, whether components of the verdict should not be accounted for when calculating the fund management fees on the basis they would be paid out early in the life of the fund. These amounts were for additional solicitor and client costs, past Griffiths v Kerkemeyer (1977) 139 CLR 161 damages, and house modification and swimming pool costs; and

fourth, whether fund management fees should be based on rates charged by The Trust Company Limited or the lower fees charged by the NSW Trustee and Guardian.

The primary judge found in favour of the respondent in relation to all four issues.

The primary judge gave a further judgment in relation to applications as to costs. Both the appellant and the respondent by cross-appeal challenged this judgment.

The issues for determination on the appeal were:

(i) whether the amount awarded for fund management expenses should include an amount for fund management on fund management;

(ii) whether the amount awarded for fund management expenses should include an amount for fund management on fund income;

(iii) when calculating the amount awarded for fund management expenses, whether certain components should be deducted from the corpus of the verdict;

(iv) whether fund management expenses at the rates of The Trust Company or the rates of the NSW Trustee were reasonable, the latter being lower; and

(v) the issue of costs, both in the proceedings below and on the appeal.

The Court held, allowing the appeal in part:

In relation to (i):

1. It is not appropriate to extend the principle by which fund management expenses are awarded to a plaintiff who is incapable of managing his or her award of damages by reason of their injuries to in turn cover fees for managing that fund. Additional amounts should not be awarded on the assumption that fees will also be paid on the amount set aside for fund management expenses or on the basis that fund management expenses will also need to be managed: [145]-[146] (Bathurst CJ); [162] (Beazley P); [163] (McColl JA); [200] (Basten JA); [241] (Meagher JA).

2. The calculation of the amount for fund management on fund management involves speculation and it is not for the court to speculate as to every possible circumstance but rather to give fair compensation: [147] (Bathurst CJ); [162] (Beazley P); [163] (McColl JA); [241] (Meagher JA).

Government Insurance Office of New South Wales v Rosniak (1992) 27 NSWLR 665 considered.

In relation to (ii):

3. The claim for fund management on fund income should not be allowed. The claim appears contrary to s 127 of the Motor Accidents Compensation Act 1999 as the discount rate assumes a rate of return that accounts for the costs of earning income; consideration of income earned on a fund will require reference to matters for which use of a discount rate was intended to avoid; there will be income tax consequences; and, it cannot be said with certainty that the exclusion of an award for fund management on fund income will operate unfairly: [138]-[143] (Bathurst CJ); [162] (Beazley P); [163] (McColl JA); [241] (Meagher JA).

Government Insurance Office of New South Wales v Rosniak (1992) 27 NSWLR 665; Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49; Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625; Commonwealth v Blackwell [1987] HCA 44; (1987) 163 CLR 428 considered. Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402 applied.

4. Although the result may underestimate the likely cost of fund management, the disadvantage of engaging in such speculative exercises, as an exception to general principle, means that it should not be adopted: [202]-[206] (Basten JA).

In relation to (iii):

5. It is not appropriate to make any deduction from the fund for the purpose of calculating fund management expenses as there is no reason to suggest that the whole of the fund would not initially be available for investment and, further, the timing of the relevant payments remains a matter of speculation: [127]-[134] (Bathurst CJ); [162] (Beazley P); [163] (McColl JA); [241] (Meagher JA).

Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49 considered.

6. The principle with respect to calculating the corpus is to reduce the amount of the damages awarded by the amount of existing legal liabilities. In the present case there should have been a reduction of $200,000 for solicitor/client costs incurred at the time of approval of the settlement: [208]-[213] (Basten JA).

Government Insurance Office of New South Wales v Rosniak (1992) 27 NSWLR 665 considered.

In relation to (iv):

7. The power of the Court and the NSW Trustee and Guardian to approve fees payable is preserved: [154]-[157] (Bathurst CJ); [162] (Beazley P); [163] (McColl JA); [241] (Meagher JA).

8. The question is what is reasonable compensation in the circumstances. It is reasonable in the present case to award fund management fees based on the rates charged by The Trust Company rather than the NSW Trustee, taking into account the fact that The Trust Company's fees are competitive, the concerns of the respondent's mother regarding the NSW Trustee and the fact that the judge who approved the appointment was aware of the fee differential: [158]-[159] (Bathurst CJ); [162] (Beazley P); [163] (McColl JA); [241] (Meagher JA).

Morris v Zanki (1997) 18 WAR 260; Willett v Futcher [2005] HCA 47; (2005) 221 CLR 627 considered.

9. The question is what, making an informed estimate on the basis of current practice, would be an appropriate basis for calculating the likely cost of fund management over the life of the fund. It is established principle that what a plaintiff does with their award is immaterial and that should not be abandoned because a fund manager has already been appointed: [215]-[218] (Basten JA).

Best v Greengrass [2012] WADC 44 considered.

10. The percentages of fees calculated on the initial sum were 15.1% (The Trust Company) and 10.2% (NSW Trustee). Rather than undertaking precise calculations, it is appropriate to adopt a figure of 12.5%: [219]-[222] (Basten JA).

In relation to (v):

11. The parties are to make further submissions as to costs in accordance with directions. However, a preliminary view is that it was appropriate for the primary judge to award part or all of the costs for a particular period, in the absence of manifest error the Court would be loathe to interfere with the primary judge's evaluative assessment and no precise apportionment of costs is appropriate: [223]-[240] (Basten JA).

Judgment

BATHURST CJ:

Background

The facts underlying this appeal are relatively straightforward, although the issues raised are of some complexity.

Ms Rhiannon Gray (the respondent) suffered severe injuries including a traumatic brain injury as a result of a car accident in which she was involved in 2003. As a result of her injuries she has a significant intellectual disability and requires constant care.

The respondent, through her mother as tutor, brought proceedings against the appellant claiming his negligence was the cause of the loss suffered by her. The proceedings were compromised and a judgment in the sum of $10 million (the verdict) together with an amount to be determined for the costs of administering the verdict was entered in favour of the respondent. The proceedings the subject of this appeal relate to the amount to be awarded to the respondent for the costs of administering the verdict.

It was not in dispute that having regard to the respondent's disabilities the verdict after payment of certain out of pocket expenses was to be paid to a manager to be held as part of a protected estate. Section 77 of the Civil Procedure Act 2005 empowers the court to order that the whole or any part of the verdict be paid to such person as a court may direct, including if the person is a protected person, to the manager of that person's estate. Section 79 of that Act requires the manager to hold and apply such funds as part of that person's estate. Section 41 of the NSWTrustee and Guardian Act 2009 (Guardian Act) empowers the Supreme Court to declare that a person is incapable of managing his or her affairs and by order appoint a suitable person as manager of the estate or commit the management of the estate to the NSW Trustee and Guardian (NSW Trustee).

On the application of the respondent's mother, White J sitting in the Protective List of the Equity Division made orders pursuant to s 41 appointing The Trust Company Limited as manager of the respondent's estate and that the proceeds of the settlement and the amount of any judgment in respect of fund management costs be paid to The Trust Company.

It was common ground between the parties that the damages to be awarded to the respondent should include an allowance for fees incurred in managing the verdict (the fund management fees). However, the parties were in dispute in respect of four issues which were relevant to the quantum of the fund management fees.

The first issue was whether in calculating the fund management fees an allowance should be made not only in respect of fees calculated as necessary to manage the verdict but also an amount to manage the funds set aside for that purpose. It was not disputed by the appellant that any funds awarded for fund management fees would also require management. However, the appellant disputed that an additional allowance should be made for this fact. This was described in the proceedings as the "fund management on fund management" issue. For convenience I will refer to it in the same fashion.

The second issue was whether the fund management fees should include not only an amount to manage such of the capital of the fund as existed from time to time, but also an amount required to manage the income derived from the fund during its existence. This issue was referred to in the proceedings as "fund management on fund income".

Contrary to the appellant's contention, the primary judge found that an allowance should be made both for fund management on fund management and for fund management on fund income.

The third issue was whether an amount of $650,000 of the verdict should not be taken into account for the purpose of calculating fund management fees. It was common ground that the amount which would be paid to The Trust Company was $9,929,000. However, the appellant contended that in calculating the allowance for fund management fees, $650,000 of this amount should not be included. The amount comprised first, $200,000 for additional solicitor and client costs; second, $200,000 being past Griffiths v Kerkemeyer (1977) 139 CLR 161 damages which the judge who approved the settlement stated he would be prepared to recommend be paid out to the respondent's mother; and third, $250,000 for the costs of house modification and a swimming pool. The appellant submitted before the primary judge that these amounts should be excluded as they would be paid out early in the life of the fund and therefore would not be subject to ongoing fund management fees. The primary judge rejected this submission.

The fourth issue was whether the calculation of fund management fees should be based on the rates charged by The Trust Company or those charged by the NSW Trustee which were somewhat lower. The appellant contended for the latter, the respondent the former. The primary judge found in favour of the respondent on this issue.

The appellant contends in this appeal that the primary judge erred in her conclusion on all four issues.

The reasoning of the primary judge

The primary judge considered the matter in two judgments. The first dealt with the fund management on fund management and fund management on fund income issues. The second, delivered after White J had made his orders in the Protective List, dealt with the remaining two issues.

The primary judge expressed the opinion that it was difficult to fault the logic of the respondent's claim for an allowance for fund management on fund management, as the award for fund management fees would of itself give rise to future fund management expenses.

Her Honour also concluded that since the fund management fees must be discounted to present value at the statutory rate of 5%, it followed that the sum would have to be invested to ensure a net return approximating the discount rate.

The primary judge referred to the statement of Meagher JA in Government Insurance Office of New South Wales v Rosniak (1992) 27 NSWLR 665 at 698 (Rosniak (No 1)) to the effect that an award in respect of such an amount would constitute unwarranted double counting. She stated that this was incorrect as s 79 of the Civil Procedure Act requires that the proceeds of the verdict be held on trust by the manager and applied as part of the protected estate with the manager being paid periodically. She stated that she did not consider herself bound by what was said by Meagher JA as the matter was not addressed in the judgments of the other members of the Court.

Her Honour considered a number of conflicting first instance judgments in relation to the issue. In Bacha v Pettersen (Supreme Court of New South Wales, 20 September 1994, unreported) fund management on fund management expenses were allowed, whereas in Buckman v M & K Napier Constructions Pty Ltd [2005] NSWSC 546, followed in Haywood v Collaroy Services Beach Club Limited [2006] NSWSC 566 and Lewis v Bundrock [2008] QSC 189; [2009] 1 Qd R 524, such claims were rejected. Her Honour preferred the reasoning of Hunter J in Bacha to the other authorities.

It was critical to her Honour's reasoning that having regard to the intellectual disabilities suffered by the respondent, the cost of fund management was a recognised head of future loss. She considered that in these circumstances it was difficult to see why the repetitive and ever-diminishing nature of the calculation of an allowance for fund management on fund management should preclude the grant of such an award.

So far as fund management on fund income was concerned, the primary judge stated that the claim relied on what she described as five uncontroversial propositions. First, the common law requirement that damages be quantified as a lump sum representing compensation once and for all; second, the need in that context to have regard to the time value of money; third, that the rate at which a future loss is discounted to find its present value reflects a prediction as to earnings over time; fourth, the imposition in the assessment of damages for personal injuries of a fixed discount rate in lieu of an entitlement to adduce evidence of the actual rate appropriate in the particular case; and fifth, that earnings will be required to be returned to the manager and applied as part of the estate.

The appellant submitted before the primary judge that the approach mandated by Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402 (Todorovic v Waller) was that as damages are assessed on a once and for all basis and the court generally speaking is not concerned with what a plaintiff does with his or her award, it was not appropriate to take into account what might be earned on the fund in calculating the fund management fees. The appellant also submitted before the primary judge that taking one matter into account, namely any increase in the fund as a result of interest received, ignored a host of other variables which could affect the capital amount and if all such variables were taken into account the purposes of s 127 of the Motor Accidents Compensation Act 1999 (the Act) would be subverted.

The primary judge rejected this submission, stating that the respondent's argument rested on the existence of a mandatory discount rate which quelled uncertainty by the device of a statutory assumption as to future earnings. Her Honour stated that to take such income into account did not subvert s 127 of the Act, but rather invoked the very assumption implicit in the discount rate. She stated that in her opinion the real question was not whether income should be taken into account in the calculation of fund management fees, but whether the appropriate method of doing so was to adopt what she described as that "assumption", namely, the rate of interest of 5% which she concluded was implicit in the fixed discount rate.

The primary judge expressed the view that the capacity of the fund to earn income was critical to its adequacy. In these circumstances she accepted that the income would become part of the managed fund and, accordingly, would also incur fund management fees. She accepted the proposition that it must follow that if income was excluded from the calculation of such fees, there would be a shortfall in damages allowed on that account and consequently insufficient money to manage the respondent's damages.

In reaching this conclusion her Honour declined to follow the decision of Hislop J in Rottenbury v Rottenbury [2007] NSWSC 215. She suggested that the arguments accepted by Hislop J misapprehended what is denoted in a fixed discount rate and overlooked the fact that income would be earned and added to the fund.

In these circumstances the primary judge concluded that it was logical and consistent to undertake the calculation of fund management fees on fund income by reference to an assumed earning rate of 5%. She stated that was governed by two principles. The first was that even if some part of the award represented past loss and general damages, the fiction of uniform drawings was the appropriate assumption. The second was that a consistent approach should be adopted in the calculation of all components of damages. Her Honour stated that a consistent approach found support in the judgment of Clarke JA in Treonne Wholesale Meats v Shaheen (1988) 12 NSWLR 522. She recognised that a majority of the Court of Appeal adopted a different approach in Rosniak (No 1), but said that the decision was an example of a case in which the principle of consistency "was rejected as potentially operating unfairly to the plaintiff". In the result she concluded that the claim for fund management on fund income should be allowed on the basis of an assumed earning rate of 5%.

In her second judgment the primary judge rejected the appellant's contention that fees for management of fund income should be deducted on a post-tax basis as inconsistent with the reasoning in Todorovic v Waller.

The remaining two issues were dealt with by the primary judge in her second judgment. By that time The Trust Company had been appointed the manager of the respondent's estate.

In considering whether or not it was reasonable for the respondent to recover fund management fees on the basis of fees charged by The Trust Company rather than the NSW Trustee, her Honour dealt with the evidence of Mr Corey Plover, an actuary engaged by the respondent. Mr Plover concluded that the level of uncertainty surrounding the fee of the NSW Trustee was so high that it would be unreasonable to use them in calculating long term management fees. Mr Plover based his view on a report of the Independent Pricing and Regulatory Tribunal (IPART) of September 2008, which recommended that a more cost-reflective fee structure should be considered in a future review. Mr Plover also based his view on the respondent's circumstances, namely, that she had a high degree of impairment and was likely to have higher than average service needs; that any removal of the fee cap would have a substantial effect on her costs of management; and, that under the concept of affordable funding, her large award was likely to preclude her from benefiting from current and future government subsidies.

Mr Bernard Farrell, the Director of Finance and Client Funds Management for NSW Trustee, deposed that the NSW Trustee's fees could only be changed as a result of the government accepting a recommendation of the IPART. He said there was no expectation of a review until 2014. Mr Farrell also rejected Mr Plover's contention that there were hidden charges in the NSW Trustee fee structure and stated that since the merger of the Office of the Protective Commissioner and the Public Trustee to form the NSW Trustee, "the current level of government subsidies is sufficient for the [NSW Trustee] to maintain the current fee structure for a good number of years".

It should be noted that the IPART Report of September 2008 related to the Office of the Protective Commissioner which in 2009 was merged with the Public Trustee to form the NSW Trustee.

The conclusion of the primary judge on this evidence was as follows:

"[67] It is critical to the determination of this issue to note that the positions of Mr Plover and Mr Farrell are not mutually exclusive. It may well be that the funds currently available are sufficient for the Trustee to maintain the current structure for 'a good number of years'; it may also be that a recommendation for increased fees will be made and implemented at some point after 2014. Mr Farrell expressly places his confidence as to the present structure, in part, on the availability of funds from the Interest Suspense Account. It does not seem inherently unlikely that the IPART would, at some point in the not too distant future, consider a more cost-reflective structure to be more appropriate. In my view, the concerns identified by Mr Plover on that issue are substantiated by cogent reasoning and accord with common sense. Based on the evidence of Mr Farrell, I accept that possibility is probably small but I do not consider it to be 'utterly speculative' in all the circumstances.

In the result, her Honour concluded that the evidence showed there was a small but appreciable risk that the appellant's assumption that the existing fee structure of the NSW Trustee would continue for 67 years would produce an underestimate of the true future costs of funds management by that entity. She said that to "a small degree" this finding informed her ultimate conclusion that it was appropriate to assess fund management fees on the basis of fees charged by The Trust Company as distinct from the lower fees charged by the NSW Trustee.

The primary judge emphasised that while it was plainly relevant, she did not think the fact that The Trust Company had been appointed as manager was determinative of the issue.

In an affidavit filed in the Protective List proceedings the respondent's mother deposed that difficulties she had had with the NSW Trustee in the past was the reason she sought an order that a private trustee be engaged as the manager of her daughter's affairs. Her Honour accepted this evidence. Her conclusion on this issue was in the following terms:

"[86] That said, each case must be considered on its own facts. The plaintiff's disability falls at the high end of the range. She is extremely disabled and has a lengthy life expectancy. Her mother's reasons for choosing the more personalised services of a private manager are compelling. The Equity Division of this Court has endorsed that choice. Mrs Gray's prior experience of the Office of the NSW Trustee further demonstrates that it was reasonable of her not to accede to the cheaper alternative offered by the State."

In these circumstances she said the claim for fund management based on the fees of The Trust Company was reasonable and should be allowed.

In relation to the quantum of the fund, her Honour noted that the whole of the initial fund was to be paid to The Trust Company. She seemed to accept the submission that the manager would not permit the outgoings sought to be deducted if the total of any deductions for the fund in a given year exceed $500,000. This figure was based on Mr Plover's notional amount of drawings on the fiction of uniform drawings over the life of the fund. Her Honour said that in these circumstances it was speculative as to when such payments would be made. She therefore declined to make any deduction from the fund for the purpose of calculating fund management fees.

The submissions on appeal

As I indicated the appellant challenged the conclusion of the primary judge on each of the four issues referred to above.

It is not necessary to set out the grounds of appeal. Further, as both the grounds of appeal and the submissions on the additional allowances for fund management on fund management and fund management on fund income to some extent overlap, it is convenient to deal with them together.

(a) The parties' submissions on the first and second issues - The additional allowances in respect of fund management fees

The appellant submitted that the fundamental error which infected the reasoning of the primary judge was that she equated the prescribed discount rate with income which might be earned from investment of the verdict. He submitted that there was no justification to be found in the Act for this course and that it was inconsistent with Todorovic v Waller. He referred to the public statement made by the High Court at the time it gave its judgment in that case to the effect that the discount rate is intended to make appropriate allowances for inflation, for changes in rates of wages generally or of prices and for tax either actual or notional on income from investment of the sum awarded. The appellant also emphasised that the damages awarded were awarded on a once and for all basis.

The appellant noted that this approach had been consistently followed by the courts, referring in particular to Commonwealth v Blackwell [1987] HCA 44; (1987) 163 CLR 428, Rosniak v Government Insurance Office (1997) 41 NSWLR 608 (Rosniak (No 3)) and Rottenbury supra, the latter two cases involving claims for fund management expenses. He submitted that in these circumstances there was no justification for her Honour's doubts as to "whether the High Court's statements in Todorovic were intended to be construed as prohibiting the consideration of future earnings in an appropriate case". He submitted there was no justification for treating fund management expenses as falling into a different category from other future expenses as a result of the respondent's injuries. In this context the appellant referred in particular to what was said by McHugh J in Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49 at 61.

The appellant submitted that it was erroneous for the primary judge to adopt the approach of Mr Plover in calculating the income on which fund management expenses were to be assessed. He referred to Mr Plover's admission that the purpose of his calculations was to unwind the discount rate and submitted that the approach adopted by the primary judge wrongly nullified the discount rate laid down by Parliament.

The appellant submitted that the discount rate was intended to be of general application to all personal injuries cases where a lump sum calculation of future losses was required, and further, that the discount rate was intended to take into account a number of factors incapable of precise calculation including inflation, changes in wages and prices and tax upon income generated by the notional investment of the sum awarded. He submitted that no further allowance should be made for these factors, contending that the fact that the fund was able to generate earnings was taken into account in the calculation of the discount rate.

In relation to fund management on fund management, the appellant relied on the statement of McHugh J in Nominal Defendant v Gardikiotis supra at 61-62, to the effect that if the plaintiff incurs expenses in investing monies that is the plaintiff's choice; as it occurs after the plaintiff has received fair compensation, it is not a factor to take into account if the plaintiff is to receive a full indemnity.

The appellant submitted that this approach was consistent with that of Meagher JA in Rosniak (No 1). He pointed out that when the matter was referred back to Badgery-Parker J his Honour applied Meagher JA's approach, and further, that the amount awarded by Badgery-Parker J was affirmed on appeal in Rosniak (No 3). The appellant submitted that her Honour was bound to follow this approach and erred in declining to do so.

The appellant also submitted that as a matter of statutory construction the terms of s 127 were clear in requiring the discount rate to be applied and in implicitly prohibiting any attempt to circumvent or unwind it, which he submitted the respondent's expert and the primary judge purported to do.

Finally in his written submissions, the appellant submitted that if the Court was entitled to take income derived from the fund into account in calculating the fund management allowance, it should take into account the tax deductions which would be received in respect of such payments.

Senior counsel for the appellant submitted at the hearing that the experts accepted that the correct approach was that once the amount of the corpus is determined it is assumed that for the rest of the injured person's life there will be a regular annual drawdown out of the corpus to provide funds, and further, that the allowance made each year will reduce the fund to zero at the end of the person's life expectancy. He accepted there was artificiality in this approach but submitted that it was mandated by Rosniak (No 1).

Senior counsel for the appellant submitted by reference to a table provided by Mr Plover that if an assumed rate of earnings is taken into account the annual drawings available to the appellant increase from $150,000 to $504,000, submitting that "the moneys available to her are exponentially increased". He pointed out there would still be $9 million available to the respondent after 25 years. He stated that in these circumstances the respondent would receive fund management expenses on a gross figure of $33 million which was wrong in principle. He submitted it produced an uplift to the respondent which could not have been intended when Parliament introduced the 5% discount.

Senior counsel for the appellant also submitted that even if as a matter of principle fund management on fund income could be allowed, there was no evidence to assess the rate of earnings which would be obtained and what offsets would be available.

It was also submitted on behalf of the appellant at the hearing that apart from varying the discount rate to 5%, s 127 of the Act did not alter the principles laid down in Todorovic v Waller. It was submitted there was nothing in the statute to justify the conclusion of the primary judge that there was a statutory assumption that the fund would earn income at the rate of 5% per annum. It was put that if that submission was accepted there was nothing to justify the primary judge assuming that rate of earnings and there was no evidence to support a finding that the fund would in fact earn income at a constant rate of 5%.

Senior counsel for the appellant also submitted that the discount rate took into account income as well as inflation and tax on income. He submitted that income thus being taken into account in that fashion, it was inappropriate to make an additional allowance for the cost of earning it.

In relation to fund management on fund management, senior counsel for the appellant placed considerable reliance on what was said by Meagher JA in Rosniak (No 1). However, he was unable to explain why Meagher JA said that the inclusion of this amount constituted double counting.

The respondent submitted that the primary judge was correct in acknowledging that the discount rate represented the net earning capacity of the fund over time. She submitted that the 5% discount rate is based upon notional real interest and earnings over the life of the fund taking into account the effect of investment return, notional taxes, inflation and other expenses.

The respondent submitted that the primary judge was correct in concluding that the amount for fund management itself would need to be invested to earn a net return approximating the discount rate and therefore would also need to be managed and as a result would incur management fees.

In relation to fund management on fund management, the respondent submitted that the primary judge was correct in observing that The Trust Company was not allowed to remove the amount awarded for fund management from the funds under management and treat it as an upfront payment. She noted that the appellant conceded at first instance that the portion of damages identified as fund management costs should be included in the total amount as part of the funds under management. The concession in fact was that the primary judge was bound to proceed on that assumption.

The respondent noted that Mr David Watt, an expert accountant engaged by the appellant, agreed that unless fund management fees were calculated on the head of damage allowed for fund management, there would be a shortfall and the fund would not have the projected 67 year life expectancy of the respondent. She also noted that Mr Watt had acknowledged that the calculation was not difficult.

The respondent submitted that Todorovic v Waller was not a case about funds management. The respondent accepted that other amounts payable in respect of future losses should be calculated at the "statutory" discount rate but emphasised that the costs of funds management was a component of future loss. In these circumstances she submitted that the discount rate did not include the costs of fund management. She submitted that once it was accepted that this head of loss needed to be managed it followed that an allowance should be made for the costs of management.

In relation to fund management on fund income, the respondent submitted that it was necessary to identify the total capital on which such fees would be levied. She submitted that once it was accepted that management fees would be charged on income, it was appropriate to include such fees in the amount of damages.

The respondent submitted that Todorovic v Waller established that the discount rate equals the earnings rate after deductions and that in the absence of a clear intention to the contrary, the earnings rate should equal the discount rate. The respondent submitted that this was consistent with the approach in Rosniak (No 1), in which Meagher JA noted at 698 that a rate of 5% ought be chosen in all cases as the appropriate figure for calculating the investment return. The respondent submitted that there was no challenge to the reasoning of Meagher JA on this point.

So far as Meagher JA's comment on double counting in Rosniak (No 1) was concerned, the respondent submitted that it only related to fund management on fund management. Further, she submitted his Honour's reference to double counting was incorrect and should not be followed.

The respondent also submitted that it was inappropriate to take tax into account as it had already been taken into account in both the discount rate and the investment rate. She said that further consideration of taxation would in fact involve double counting.

At the hearing senior counsel for the respondent acknowledged that the discount rate assumed a rate of a return on the funds after tax and inflation but submitted that it did not include the cost of fund management. He also submitted the costs of managing the fund set aside for the purpose of meeting fund management costs had itself been discounted. He submitted that in those circumstances allowance had to be made for management of that fund to produce the 5% return said to be implicit in the discount rate otherwise there would be a shortfall.

In relation to fund management on fund income, senior counsel for the respondent again submitted that if allowance was not made there would be a shortfall. He submitted that that was inevitable when the bulk of the fee was calculated on annual rests.

(b) The parties' submissions on the third issue - Deductions from the fund prior to calculation of fund management fees

The appellant submitted that in calculating fund management fees the Court's task was to calculate the fund at the commencement of its investment. He submitted the amounts for solicitor and client costs, Griffiths v Kerkemeyer damages and the house and swimming pool modifications referred to in a schedule of damages should be deducted as in all likelihood they would be paid out prior to investment of the fund.

The appellant referred to the statement by the trial judge who approved the settlement that he would recommend at least $200,000 be paid to the respondent's mother as Griffiths v Kerkemeyer damages, as forming the basis on which this Court could confidently conclude that the amount would in all likelihood be paid out prior to the investment of the fund. He made similar submissions in relation to the other claimed deductions.

At the hearing senior counsel for the appellant referred to the statement of Mahoney JA in Rosniak (No 1) at 688 to the effect that the court must initially determine whether any components of the judgment should not be included in the fund, which will depend on whether any of the amounts would not be available for investment by the Protective Commissioner and so available to derive income.

Senior counsel for the appellant was unable to point to any evidence that the fund would not be available for investment, stating that the amounts in question might be there for a year or two years but would not be available for the life of the fund.

The respondent pointed to the fact that The Trust Company and the NSW Trustee both charge an annual management fee on the capital sum of the fund. She submitted that the fee would be charged on the whole amount paid in.

The respondent referred to the fact that Mahoney JA in Rosniak (No 1) pointed to the responsibility of the Protective Commissioner to maintain the fund to satisfy its purpose and that there was no basis to be satisfied in the present case that any major components would be expended totally or substantially before investment.

The respondent submitted that solicitor and client costs can only be determined after finalisation of the litigation when party and party costs can be assessed. She pointed out that this was yet to occur. She also pointed out that although Hoeben J who approved the settlement said he would make a recommendation in respect of Griffiths v Kerkemeyer damages, that should be considered with regard to the manager's obligation to maintain the fund. Finally she submitted that there was no evidence when any money would be allocated for house modification or a swimming pool.

(c) The parties' submissions on the fourth issue - The choice of manager

The appellant's submissions on this issue were based on the assumption that the primary judge was correct in her conclusion on the three issues to which I have referred above. In these circumstances he pointed out that the difference in fees was $865,000, The Trust Company's fees comprising 21.7% of the fund and the NSW Trustee's 12.9% of the fund.

The appellant contended that the primary judge erred in two respects. First, in reliance on the evidence of Mr Plover and second, having regard to the significant differential, it would be unreasonable to impose the burden of The Trust Company's fees on the appellant.

Mr Plover gave evidence as to the likelihood of the fee structure of the NSW Trustee remaining the same and, in particular, of the likelihood of the cap on fees charged by that organisation remaining in place. The appellant submitted that Mr Plover's evidence in this respect should not have been admitted as he had no personal knowledge of the workings of the NSW Trustee, and further, that his opinions were not wholly or substantially based on his expertise in circumstances where he was attempting to predict the current and future operations of that organisation.

So far as the question of fees was concerned, the appellant submitted that what the respondent was entitled to receive from the appellant by way of funds management fees was not what was ideal for satisfying her needs but what was reasonable for such purposes. He submitted that whilst the respondent might be entitled to choose her fund manager, she could not be entitled to be indemnified for the costs of a private fund manager in circumstances where the NSW Trustee's fees were significantly lower.

At the hearing senior counsel for the appellant submitted that there was nothing to suggest that the services of The Trust Company and the NSW Trustee were not comparable. He acknowledged that the reasons given by the respondent's mother for preferring The Trust Company were not challenged but stated that otherwise there was no material difference in the service provided. He submitted in these circumstances that reasonable costs should be assessed by reference to the capped fee of the NSW Trustee. He submitted that the position was not affected by the fact that The Trust Company had been appointed by White J sitting in the Protective List of the Equity Division, pointing out that the appellant was not entitled to be heard at the hearing of those proceedings.

In relation to the evidence of Mr Plover, senior counsel for the appellant submitted that even if it was admissible it was contradicted by the unchallenged evidence of Mr Farrell to which I have referred above.

The respondent pointed out that r 38 of the NSW Trustee and Guardian Regulation 2008 provided for the following fees:

"The prescribed fees payable to the NSW Trustee in respect of the management of estates of managed persons are as follows:

(a) for the management of an estate:

(i) for the first year - 2.1% of the value of the estate, and

(ii) for every subsequent year - 1.1% of the value of the estate,

(b) for the management of an investment for a managed person in a common fund - 0.5% per annum of the value of the investment..."

The respondent accepted that the NSW Trustee's management fees are currently capped but pointed out that that cap is not prescribed by the Regulation. She submitted that without the cap the management fee based on the Regulation would total $3,728,000, well in excess of that charged by The Trust Company.

The responded pointed to the evidence of Mr Plover to which I have referred above. In particular she referred to the fact that the NSW Trustee operated with the benefit of government subsidies, that the IPART had concluded in its 2008 Report that the current level of government subsidies was unsustainable and had recommended a fee for service structure, but that it should be deferred until the Office of the Protective Commissioner had enhanced its accounting and management systems. She submitted that this was in the process of occurring with the formation of the NSW Trustee following the merger of the operations of the Office of the Protective Commissioner and the Public Trustee.

The respondent also placed particular reliance on the opinion of Mr Plover to the effect that her higher than average needs could not be serviced within the temporary capped management fee of the NSW Trustee, that the removal of the cap would involve a substantial increase in her management fee and her large awarded sum would likely preclude her from the benefit of government subsidies under the concept of affordable funding. She submitted that in those circumstances it was open to the primary judge to accept that there was an element of uncertainty in applying the current fee structure of the NSW Trustee to the respondent's life expectancy of 67 years.

Further, the respondent submitted that The Trust Company's fees were reasonable as they were in the same range as other private trustees and managers.

The respondent also submitted that the appellant's approach overlooked the critical needs of a catastrophically brain-injured person. Reference was made to the evidence of the respondent's mother as to her belief that the NSW Trustee could not provide the appropriate level of service. It was submitted the evidence of the respondent's mother was not challenged.

At the hearing senior counsel for the respondent also relied on the affidavit of the respondent's solicitor, Ms Kate Henderson, in support of the proposition that it was reasonable to engage the services of The Trust Company in the circumstances of the present case.

Consideration

The experts retained by the parties reached agreement on the amount needed for fund management fees assuming an initial fund of $9,929,000 lasting for a period of 67 years. The agreement is as follows:

(a) Fees on initial sum only: Trust Company $1,495,000 15.1% of the Fund; NSW Trustee $1,014,000 10.2% of the Fund.

(b) Fees on initial sum and earnings (fund management fees on income): Trust Company $1,825,000 18.4% of the Fund; NSW Trustee $1,184,000 11.9% of the Fund.

(c) Fees on initial sum and fees on fees (fund management on fund income): Trust Company $2,034,000 20.5% of the Fund; NSW Trustee $1,196,000 12% of the Fund.

(d) Fees on initial sum and fees on earnings and fees on fees: Trust Company $2,151,000 21.7% of the Fund: NSW Trustee $1,286,000 12.9% of the Fund.

(a) The basis of the calculations

Notwithstanding the agreement between the experts, it is important in considering the issues to understand the basis upon which they reached their conclusions.

Unlike the usual position in which future losses and expenses are calculated and then discounted back to what might loosely be described as a present day value, it was necessary in the present case to work back from the discounted figure which was the subject of the verdict. The manner in which that was done can be shown from the three tables I have annexed to this judgment. The first two tables were annexed to a report of Mr Plover of 5 August 2011 which was tendered in the proceedings. Table 1 shows calculations for the amounts required in respect of management fees for The Trust Company on the basis that fees are allowed only in respect of the verdict. Table 2 shows calculations for The Trust Company in circumstances where fees for fund management on fund income are also allowed. The figures in the tables do not reflect the amounts ultimately arrived at by the experts on this issue as they start from a different base ($9,934,000 as distinct from $9,929,000), assume The Trust Company fees on a different basis to that ultimately agreed upon and assume the fact that the fund will be exhausted in 66 years rather than 67 years. Nonetheless they demonstrate the methodology.

The first column in Table 1 assumes the fund will be depleted by equal amounts in current dollar terms over the period in question. It is implicit in that assumption that the return on the fund over the period of its existence will be sufficient to make those payments at current dollar values over the life of the fund. The second block in Table 1 under the heading "Fees" sets out the total management fees. The management fees and the MER (the management expense ratio), again expressed in current dollar terms, are based on the capital standing to the credit of the fund from time to time. 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.

The third block in Table 1 represents the discounting of the fees so calculated. The net present value factor represents the discounted value of a current year dollar in future years at a discounted rate of 5%. The method of calculation of the discounted amount does not need to be dealt with in any detail (the discounted amount is calculated on the assumption that fees are payable over the year in question and calculated by reference to a formula 1÷(1+r)n, where r is the discount rate or rate of return and n is the year for which the calculation is being undertaken).

It has to be borne in mind that it is inherently unlikely that what is assumed in this table will in fact occur. It is unlikely that the fund will be diminished at a regular rate, much less that the rates of interest and rate of return from the fund will remain constant. What is effectively assumed in the adoption of such a discount rate is that over time the return that is inherent in it will be achieved.

Table 2 contains a calculation on the assumption that management fees on earnings (fund management on fund income) is included. The amount available at the commencement of the fund is the same as in Table 1. It also assumes that the fund including interest will be completely expended over the period of 66 years. Interest is calculated at the rate of 5% on the fund, the assumption used as the basis of calculation is that the drawings are spread over a year. The fund management fee is calculated on the amount standing to the credit of the fund from time to time, taking into account accretions to it by way of income earned. The management fee is again discounted at a rate of 5%.

Once again the table is unlikely to reflect reality. It assumes that drawings on the fund will occur at a constant rate, which is inherently unlikely. As Basten JA pointed out in argument, it is probable that in the early life of the fund income will accumulate and the fund in dollar terms may increase in value until the demands on it and the effects of inflation lead to its diminution. On the other hand, there could be an early diminution of the fund which would lead to it being necessary to attempt to manage the fund so that it does in fact last its projected lifespan.

Equally it is inherently unlikely that the fund would earn a constant rate of 5%. Interest rates and yields on safe investments will vary from time to time having regard to the rate of inflation. Although the discount rate is applied on an annual basis to produce the present value of future losses and expenses, it does not follow in fact that the rate of return inherent in the discount rate will be earned on a constant annual basis.

It was in this sense that Mr Plover stated in par 3.2 of his report of 5 August 2011 that the additional amount of management fees provided for on this scenario did not arise as a result of "reinvestment of investment earnings", but rather, as an "unwinding of the discount rate implicit in the assessment of the initial capital sum and emerges independently of any presumed investment rate of return". Contrary to the appellant's submission, it does not seem to me that in those circumstances the concept of unwinding the discount rate referred to by Mr Plover means that it is being ignored or subverted. Rather, the same discount rate is simply being applied to a different figure. The question in issue is whether it is appropriate to include income in that fashion to produce the figure from which the discounted amount is calculated.

As Mr Plover did not prepare a separate table showing calculations for fund management on fund management fees alone, it is convenient to use a table annexed to the report of Mr Watt of 27 June 2011 to demonstrate the methodology adopted in this calculation. Schedule 11 to that report, which is produced as Table 3 to this judgment, is a calculation of the additional amount necessary to cover fund management fees on damages awarded for fund management costs based on an initial fund of $10 million and the NSW Trustee's rates. I emphasise this is only an example used for explaining the method of calculation. As Mr Watt explained in section 5 of his report, the schedule is based on his calculation of fund management costs on the amount awarded for fund management by rerunning his calculation of damages for funds management using multiple iterations. Mr Watt stated in his report that the ability to rerun the calculation multiple times enabled him to calculate the amount of damages that would provide the respondent with fund management fees on damages awarded for fund management costs (that being fund management on fund management).

The opening figure in Table 3 of $11,082,830 is comprised of the initial assumed amount of the fund being $10 million, together with the amount of $1,082,830 shown at the conclusion of Table 3 as being the net present value of total fund management fees. Although the model which Mr Watt used to produce this calculation was not in evidence, this figure was presumably derived from the multiple iteration process to which he referred. The fund is assumed to be reduced at a constant rate, management fees are calculated on the decreasing balance and then discounted. The same comments can be made in relation to this table as I made in respect of both Tables 1 and 2.

(b) The relevant principles

Because at least the first three issues raised in the appeal depend on the principles to be applied in assessing the appropriate measure of damages for future economic loss and expenses, it is convenient to deal with these principles prior to addressing the specific questions that have been raised.

The starting point is s 127 of the Act which provides as follows:

"(1) Where an award of damages is to include compensation, assessed as a lump sum, in respect of damages for future economic loss which is referable to:

(a) deprivation or impairment of earning capacity, or

(b) loss of expectation of financial support, or

(c) the value of future services of a domestic nature or services relating to nursing and attendance, or

(d) a liability to incur expenditure in the future,

the present value of the future economic loss is to be qualified by adopting the prescribed discount rate.

(2) The prescribed discount rate is:

(a) a discount rate of the percentage prescribed by the regulations, or

(b) if no percentage is so prescribed-a discount rate of 5%.

(3) Except as provided by this section, nothing in this section affects any other law relating to the discounting of sums awarded as damages."

The provisions of s 127 relevantly provide damages referable to loss of earning capacity or a liability for future expenses to be discounted at the prescribed rate. In that context the issue which arises for consideration is whether or not fund management on fund income and fund management on fund management can be classified as a liability to be incurred in the future, their present value to be calculated by reference to the proscribed discount rate or, alternatively, are in fact costs which are taken into account in discounting the sum awarded for fund management fees.

It does not seem that s 127 alters the common law so far as recovery of damages is concerned, apart from varying the 3% discount rate laid down by the High Court in Todorovic v Waller to a rate of 5%. So much was made clear by the Second Reading Speech to the Motor Vehicles (Third Party Insurance) Amendment Act 1984 that introduced the predecessor to s 127 of the Act, which stated as follows:

"...Another amendment in this legislation is the provision to restore the discount rate applied by courts in the third party accident claims to the level operating in New South Wales prior to the High Court's decision in Barrell Insurance v. Pennant Hills Restaurant. In the decision Todorovic v. Waller the High Court recognized that the amount of damages paid in the present for losses to be incurred in the future, must be discounted to prevent the plaintiff from being over-compensated. There are real advantages which the present possession of a lump sum award confer upon a person whose earnings would otherwise have been received over a period. The discount rate is the formula applied by the courts to take into account factors such as the ability to earn interest on the lump sum by prudent investment.

As honourable members may be aware, the principle behind compensation for negligently inflicted injuries is that the injured party should receive compensation in a sum which, so far as money can do, will put him in the same position as he would have been if the tort had not been committed. The court awards such a sum as will, so far as possible, make good to the injured person the financial loss which he or she has suffered, and probably will suffer, as a result of the wrong done for which the defendant is responsible. Before the Barrell case, the New South Wales Court of Appeal applied discount rates of between 5 per cent and 7 per cent to awards of loss of future earnings and sums awarded, to cover likely future payments for medical and other services. In the Barrell case the High Court was divided as to the most appropriate discount rate to be applied in these cases, and it was not until the matter had been further argued in the case of Todorovic v. Waller that a rate was determined. In that case, the members of the High Court were divided as to the appropriate discount rate to be applied, with certain justices favouring a figure of 5 per cent.

However, in the interest of securing uniformity in this important area of the law, the court reached a compromise, making an arbitrary ruling regarding discount rates and selected the figure of 3 per cent. Two of the justices indicated that the law relating to the assessment of damages for personal injury is far from satisfactory, and that the direction for reform depends on views as to social policy that can be formed only by the legislatures. This legislation will operate to restore the position to that previously accepted in this State as being the most appropriate in all the circumstances. If, in future, the rate of inflation or the rates of interest available on investments change to such an extent that the statutory discount rate is no longer appropriate, provision has been made for an alteration by regulation. In this way, the Government will be able to ensure that the discount rate maintains a direct relevance with the circumstances of the day."

Thus, the section in my opinion neither altered nor limited the areas in respect to which damages could be claimed, or altered what was stated in Todorovic v Waller to be the purpose served by the discounting of such damages.

Awards for damages for future economic loss were discounted well prior to the decision in Todorovic v Waller. However, prior to the decision in Todorovic, disagreement had arisen in respect of the appropriate discount rate to be adopted and to the extent that future variation in wages or prices could otherwise be taken into account.

In Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625, the appellant suffered loss as a result of incurring liability to make ongoing workers' compensation payments to an injured worker in circumstances where the respondent had negligently failed to effect insurance against such liability. The workers' compensation legislation as it existed at the time provided for indexation of compensation payments in proportion to increases in the average minimum weekly wage payable to adult males for a full week's work (an index published by the Australian Statistician). The issue before the High Court was whether the Court of Appeal was correct in awarding a lump sum based on the projection of such increases. The Court rejected that claim, saying that indexation was to be taken into account in calculating the appropriate discount. Barwick CJ said the discount rate should be 5%, Gibbs, Mason and Wilson JJ held that the claim should be discounted at a rate of 2%, whilst the minority (Stephen, Murphy and Aickin JJ) held there should be no discount.

In the course of his judgment, Mason J made the following remarks at 678 and 680-681:

"In substance the United Kingdom approach to the assessment of damages for personal injury is to ignore the element of inflation and to assume the existence of two of the characteristics of a stable economy, (a) a continuation of existing nominal wage rates, and (b) low interest rates appropriate to such an economy. It has been thought that by taking an approach which is adapted to the fiction that we have a stable economy the plaintiff's damages will be fairly assessed, it being for the plaintiff to counter the effects of inflation as best he can by pursuing a suitable investment policy. The use of a low interest rate in the selection of the multiplier excludes one of the principal characteristics of inflation, the prevalence of high rates of interest. The consequence of this is that, if inflation continues, the plaintiff will be able to invest his verdict at a higher rate of interest than that on which the verdict was based. Conversely, if inflation does not continue, the verdict will have been calculated on an interest rate which will approximate the prevailing rate.

...

We are left then with the question whether the selection of a discount rate should be based on rates of interest appropriate to a stable economy or on the real rate of interest as established by evidence of past experience. For the moment I put to one side the element of taxation on the investment income produced by the verdict. The adoption of a low rate of interest reflective of a stable economy is supported by the recent United Kingdom decisions. However, its weakness is that it also reflects an element of inflation for even in times of a stable economy inflation has generally proceeded at 2 to 3 per cent. The adoption of a 4 to 5 per cent interest rate appropriate to such an economy therefore throws up an element of inflation, though not at such an unacceptable level as that reflected by current interest rates. The adoption of the real interest rate would have an obvious advantage. Unfortunately it also has disadvantages. One such disadvantage is that the statistical and other information relating to past experience which is available to me does not establish that there is a steady real rate of interest in Australia or that, if there be such a rate, what it happens to be. The parties did not direct their attention to this question and the Court has therefore not had the benefit of evidence and expert opinion upon the matter.

In this unsatisfactory situation I would adopt a discount rate of 2 per cent as a fair approach to the problem raised by this case - one which does more justice to the plaintiff than the adoption of a 4 per cent or 5 per cent rate appropriate to a stable economy reflecting a moderate level of inflation. In expressing this view I am not to be taken as saying that it should necessarily apply to all personal injury cases. I am conscious of the special nature of this case and the imperfect materials which have been made available to us. Accordingly, subject to an examination of the question of taxation, I would apply a discount rate of 2 per cent."

These passages make clear what has been accepted in subsequent cases; the discount rate is not an estimation of interest the plaintiff will earn from time to time from the investment of his or her damages. Rather, it is to take account of at least inflation in a stable economy whilst recognising that in times of high inflation the plaintiff will be able to obtain higher rates of return.

Todorovic v Waller dealt with the issue in a case directly concerned with personal injury. The Court prior to delivering judgment made the following well-known statement:

"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, is 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."

In their joint judgment, Gibbs CJ and Wilson J at 412 set out what they described as fundamental principles in the assessment of damages:

"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. Secondly, 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; the court cannot order a defendant to make periodic payments to the plaintiff. Thirdly, 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."

Their Honours at 414 described the purpose of discounting as "to find a present equivalent for all future pecuniary loss". Their Honours rejected the admissibility of evidence of inflation in considering that issue, making the following remarks at 420:

"We have already given reasons for adhering to the settled doctrine which requires the Court to reject evidence of inflation. Such evidence would be purely speculative, it would tend to prolong trials, and would introduce an additional element of uncertainty into awards. The only practicable alternative, if inflation is to be considered, is by taking it into account in fixing the discount rate. In the absence of evidence, that can only be done by an intuitive recognition that the chosen discount rate bears a just relation to the impact of inflation."

After dealing with the question of notional tax on investment earnings, their conclusion was in the following terms at 423-424:

"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. 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' incomes fall in Australia. Now that the effect of inflation has become more apparent, it seems right to make a further moderate downward adjustment to the rate. Our own choice would be to adopt a discount rate of 4 per cent, but all that we have said indicates how arbitrary any choice must be and for that reason it is necessary for individual members of the Court to adjust their views in the interests of achieving a final and authoritative decision. We therefore concur in the view, to which we understand a majority of the Court is prepared to subscribe, that until this Court otherwise decides, a discount rate of 3 per cent should in future be applied and that no further allowance should be made for notional tax."

Brennan J at 466 emphasised the fact that discounting, whether and however it is done, offers no guarantee that an amount of damages will prove to be precisely right. He stated at 467 that the object of the calculation is to arrive at a figure which fairly represents the present value of the plaintiff's future net losses. His conclusion was in the following terms at 478-479:

"Perhaps it is desirable to recapitulate those factors: the continuance of the practice of making a calculation of future net earnings losses based on current net earnings adjusted for savings in expenditure during a span of years discounted for the possibility of losses caused otherwise than by the defendant's tort, the economic history of the past twenty years showing the relationship between average earnings and the long term bond rate earlier mentioned, the comparative incidence of income tax upon gross earnings and yields on investments, and the advantages to be derived from present possession of a capital sum in comparison with an entitlement to payment of moneys over a period where the capital sum represents the present value of the aggregate of those payments. I would anticipate that the generality of awards assessed on the footing of a 3 per cent discount rate are likely to be within the appropriate limits of a sound judicial discretion.

In the ordinary course of personal injury litigation, no evidence should be given or economic material received with a view to establishing a discount rate other than 3 per cent. None of the factors material to the selection of a discount rate is an issue for consideration by the tribunal of fact in a personal injuries action. It would unduly encumber the hearing of such an action to investigate Australian economic history, and if some future period throws up a substantially different comparison between average earnings and yields on secure investments, the relevant facts can be brought to the attention of this Court and the Court might then be asked to consider whether 3 per cent ought to be retained as the appropriate rate.

Nor should evidence be admitted in an endeavour to show that a discount rate other than 3 per cent can be supported in a particular case by measuring the immeasurable factors (tax and advantages from possession of a capital sum). These factors are taken into account in selecting a discount rate not because they have been shown to represent accurately the circumstances of each case, but because it is necessary to bear them in mind in selecting a basis by reference to which Australian courts may assess damages which will give comparable compensation in comparable cases being as fair to plaintiff and defendant as the uncertainties of the future and the limited ability of courts to receive evidence about them permit."

Aickin J also emphasised the inherently speculative nature of the calculation: Todorovic v Waller at 457-458, 459.

A number of matters emerge from this case which are of importance. First, the discount rate is designed to take into account both the effect of inflation and notional tax on investment income. Second, the discount rate to be applied is not based on an assumption by the court that in each and every year of the life of the fund income at the assumed discount rate will be earned. Third, generally speaking, a court is not concerned with what a plaintiff will do with the damages awarded. The appellant understandably placed reliance on these matters.

The effect of Todorovic v Waller was summarised by Mason CJ, Wilson, Toohey and Gaudron JJ, in Commonwealth v Blackwell supra in the following terms at 435:

"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: Gibbs C.J. and Wilson J. [at 413-414]; Mason J. [at 442-443]; Aickin J. [at 460]; Brennan J. [at 466-467, 477-478]. That conclusion was reached notwithstanding evidence of extraordinary fluctuations during the seventies in both inflation and interest rates. The settled doctrine which had required courts to reject evidence of future inflation was adhered to because it would be purely speculative, would tend to prolong trials and would introduce an additional element of uncertainty into awards. It was recognized that some allowance must be made to counter the effect of tax on the income produced by investment of the lump sum but that the speculative elements in such a task defied any pretence at precision."(Citations omitted)

See also Tchadovitch v Tchadovitch [2010] NSWCA 316; (2010) 79 NSWLR 491 at [46]-[53]; Rosniak (No 3) at 614-615.

These cases, in my opinion, demonstrate that the discount rate applied in respect of damages awarded is referable to the matters referred to in s 127(1)(a)-(d) of the Act and was designed to take into account the effect of inflation and notional tax on income earned from the fund. Neither the Act nor the cases to which I have referred lend support to the proposition that for all purposes a constant rate of diminution to the fund is to be assumed or that interest will be earned at a constant rate throughout the life of the fund, although these assumptions underpin the calculation of the discount rate. By contrast, the cases recognise that in times of high inflation the plaintiff will be protected by the high interest rates and yields that can be earned, as compared to a time of relatively low inflation. The discount rate takes account of this factor as well as notional tax on investment.

(c) Fund management costs

As I have indicated, as a general matter the court is not concerned with what a plaintiff does with his or her verdict. That generally speaking would deny any entitlement to an amount of damages as compensation for the costs of managing the fund. However, an exception has developed at least in cases where the injured plaintiff has been held intellectually incapable of managing the fund as a result of his or her tortiously inflicted injuries. Notwithstanding, issues have arisen as to the manner of assessment of those damages.

The third objection seems to be quite simply that the value of the fees will be large. The cost will depend upon the rate at which the charge is levied, the size of the fund and the number of years for which the fund must be managed. It will also depend upon a matter to be addressed below, namely whether the fund should be assumed to reduce at a steady rate, or whether, taking account of income earned in the early years the rate of reduction will be slow in the early years and greater in the later years. Assuming a steady rate of reduction and that the fund is to last for 50 years, the cost of management will be the average amount in the fund (that is half the total) multiplied by 1% and by the number of years. This may be represented as J = D + Cfm, where J is the amount of the final judgment, D the damages other than the fee, and Cfm the cost of fund management. On the parameters set out above, Cfm will be the sum of a series the first item being 1/100 x J/2 x 50, which = J/4. The first iteration will produce a further sum calculated as 1/100 x J/4 x 50, which = J/8. Further iterations will give amounts which in total (without discounting to present value) will approximate 50% of D, or 33% of the judgment.

The calculation proposed by the appellant uses D instead of J; where D is $10m, the result will be that Cfm (without discounting to present value) will approximate 33% of D, rather than 50%.

McCallum J accepted the logic of the plaintiff's calculation. No doubt with a managed investment portfolio, the manager will commonly be entitled to recoup its fees from the corpus and will, in that sense, have been managing its own future fees. However, there is a policy question whether a limit should be placed on the amount to be awarded for this head of loss. The liability of the defendant is not necessarily dictated by a particular means of calculating the cost of managing her award. In principle, the plaintiff should reasonably be required to offer the fund manager prepayment of fees by transferring the equivalent of a satellite fund, notionally set aside for that purpose, calculated by reference to the corpus of the main fund.

(d) should the fund include an amount for income?

The second matter addressed by McCallum J in her first judgment was whether an amount should be included in the fund, for the purpose of assessing management costs, as reflecting income derived from the investment of the fund. She recorded the plaintiff's submission as being that if such income were to be included, "the calculation should be undertaken at an assumed earnings rate of 5 per cent to reflect the statutory discount rate": at [16] and [39]. The defendant's submissions were that "if the potential swelling of the fund by returns on investment were to be taken into account, then all variables would have to be taken into account, subverting the purpose of section 127 of the Motor Accidents Compensation Act": at [46]. The trial judge dismissed that argument on the basis that the Court was not asked to calculate the "actual income the fund will earn" but to adopt "the device of a statutory assumption as to future earnings": at [47]. She then stated at [48] that the discount rate "is the assumed earnings rate". The trial judge accepted that approach, relying on the assumption said to underlie the discount rate, namely that the fund would earn income and at the discount rate.

The argument below, and in this Court, proceeded on the basis that the prescription by s 127 of the Motor Accidents Compensation Act of a discount rate reflected the exercise undertaken in Todorovic. Whether or not that is so, it is not accurate to describe a discount rate as an earnings rate or even a net earnings rate. A discount rate of 5% would imply a net earnings rate of approximately 5.26%; an interest rate of 5% would attract a discount rate of 4.74%.

There are other difficulties: by describing the discount rate as an allowance for "net earnings" it is necessary to ask, net of what? If the cost of the fund manager were assessed according to the value of the fund, on what basis is the fund to be valued, and at what intervals? Are unrealised capital gains to be taken into account, or only realised gains? In the latter case, what assumptions are made about the incidents of taxation, if any? Further, for the purpose of calculating the discount rate, though not necessarily for the purpose of calculating the cost of the fund manager, the intended benefit to be offset is the increase in value of the award after allowance for inflation. The need for that allowance flows from the fact that both income and expenditure are measured, in assessing damages, according to figures current at the time of judgment. If the size of the award does not increase by more than the rate of inflation (covering the cost of living, increase in wages and the cost of major expenses such as medical treatment) then no discount should be required. Furthermore, a realistic discount rate should take into account the kind of investments which are likely to be appropriate to a severely disabled plaintiff: see Wells v Wells.

To adopt the statutory discount rate as an assumed basis for increasing the value of the fund, in order to calculate the costs of the fund manager, is to adopt an arbitrary figure. Further, the calculation appears to have been justified on the basis of an assumption of "uniform drawings and depletion of the fund to zero on the last day of the term": at [51]. That assumption may well be appropriate for some purposes, but it will provide a very imperfect basis for calculating income.

While it is true that a discount in order to quantify present value of future payments assumes that the investment will appreciate over time, it does not follow that the calculation of the value of the fund from time to time should be adjusted on an arbitrary basis to reflect that assumption. Assuming steady repayments, a graph of the size of the fund over time would not involve a straight line diminution, but rather a line which bulges at the top and diminishes rapidly towards the end (rather in the way that a mortgage repayment chart will commence with payments which are comprised largely of interest and a small amount of capital and will finish with payments which involve a small component of interest and a large element of capital).

As a matter of fact, there may also be a difficulty with the assumption that drawings will be at a steady rate. A seriously disabled plaintiff may incur heavy capital expenditure immediately after obtaining an award, which would render the attempt to increase the size of the fund on account of income invalid. The principle that the Court should not be concerned with the manner in which the plaintiff will use the award, requires that these matters be disregarded in calculating the amount in the fund from time to time. Although the result may be to underestimate the likely cost of fund management, the disadvantage of engaging in such speculative exercises, by way of an exception to general principle, means that it should not be adopted by this Court.

(e) deductions from award

On the basis that the amount of the damages has been settled, the remaining question is whether there should be any deductions from the corpus of the fund. The appellant argued that certain amounts which were to be paid out of the damages immediately they were approved should have been deducted from the corpus before calculating the cost of fund management. These amounts were:

(a) $200,000 representing the difference between party and party and solicitor and client costs;

(b) $200,000 payable to the plaintiff's mother for past domestic services, and

The appropriate principle with respect to calculating the corpus is to reduce the amount of the damages awarded by the amount of existing legal liabilities. Otherwise, in accordance with the principle that the Court is not concerned what the plaintiff does with her award, it is inappropriate to speculate in that regard, even though in the case of a tutor or guardian, owing fiduciary duties to the plaintiff, it would be reasonable to assume that amounts reasonably necessary to be expended forthwith will be expended. Apart from any effect on the establishment fee (which will be a minimal sum overall) the proper assumption (if somewhat arbitrary) is that the corpus will be reduced by a steady amount over the life of the fund. As a practical justification, the likelihood that there may be greater expenditure in the first few years may be offset by the fact that higher income will be earned in those years.

Applying the relevant principle, there should have been a reduction for the amount of costs already incurred and payable, but not with respect to the other amounts. By their nature, past gratuitous domestic services (provided by the plaintiff's mother) were accompanied by no legal liability, nor did the anticipated early expenditure for capital expenses involve any extant legal liability.

From a proposed judgment (disregarding fund management costs) of $10 million, as approved by Hoeben J, deductions of $66,000 appear to have been made for repayment of Centrelink payments, an advance for the purchase of a motor vehicle and Medicare costs. Hoeben J identified the total deduction as approximately $266,000, of which $200,000 was attributed to solicitor/client costs. Calculations of the corpus of the fund should have been reduced by the full amount of $266,000, as envisaged by Hoeben J. That would have given a figure of $9,734,000.

The appellant sought to argue for a more expansive approach to deductions, based on the reasoning of this Court in Rosniak. In Rosniak at 699, Meagher JA stated:

"[Senior counsel for the appellant] also submitted that there should be included in the 'deductibles' from the 'fund' any sums allowed in respect of past care, but I do not see why. There was no evidence from the respondent that she had any intention to repay such moneys to the providers of the past care, and it is not entirely clear that the Protective Commissioner would be empowered to do so."

That approach would not have permitted a deduction on account of past gratuitous domestic services. The amount contained in the schedule of damages for the plaintiff in this case was $373,000, as to which Hoeben J noted that he would have been prepared to recommend to the trustee an immediate payment to the plaintiff's mother of $200,000. Foreshadowed approval of a possible disbursement does not create a liability in the trustee to make a payment which may or may not be sought.

Nevertheless, the calculation in Rosniak did allow reduction for two amounts, one involving purchase of outstanding property interests ($210,000) and "swimming pool modifications" ($200,000): p 694D. Kirby P referred to those items at 674-675, but did not consider the principles by which such deductions were appropriate. It is not entirely clear how they were dealt with in the calculation undertaken by Mahoney JA. Meagher JA did not discuss why they should be allowed. Further, the discussion in Rosniak was premised on the need to calculate the costs of fund management by reference to the annual income of the fund. In that case the timing of any major expenditure may have taken on a different significance to the current practice of calculating such fees. To the extent that a principle was identified, it was simply that any calculation of the cost of fund management should be undertaken by reference to amounts which will in fact be paid to the trustee. Accordingly, the only additional deduction beyond those accepted by the parties in the present case is the amount of $200,000 for solicitor/client costs already incurred at the time of approval of the settlement.

(4) Calculations

Both parties made calculations as to how the various fees operated: not all the assumptions were entirely clear. For example, the fees appear to have been calculated on the assumption that there would be no purchase of freehold property; the offer of a reduced fee by The Trust Company was conditioned on the absence of a plan to purchase freehold property "in the short or medium term". However, The Trust Company also proposed to charge a minimum annual fee of $16,500 (at a rate of 0.55% per annum) which implied that the fund would notionally never drop below $3 million.

Although the trial judge did not ultimately calculate the appropriate fee on the basis of those charged by the NSW Trustee, she gave careful consideration to the actuarial evidence of Mr Plover for the plaintiff, stating at [70]:

"70 I am persuaded by the evidence of Mr Plover that there is a small but appreciable risk that the assumption adopted on behalf of the defendant (that the existing fee structure of the NSW Trustee will continue for 67 years) would produce an underestimate as to the true future cost of fund management calculated by reference to the fees of the NSW Trustee."

The only relevance of that finding appears to have been to inform a conclusion as to whether the tutor's choice of a private manager was reasonable: at [82] and [86]. However, the question was not whether the plaintiff would pay a particular manager a particular amount, but rather what, making an informed estimate on the basis of current practice, would be an appropriate basis for calculating the likely cost of fund management over the life of the fund.

In accordance with established principle, what the plaintiff did with her award was immaterial. Evidence that she was likely to fritter it away was as irrelevant as evidence of what she (or in this case her tutor) proposed to do by way of fund management. That principle should not be abandoned because, as a matter of chronology, a fund manager had in fact been appointed, with Court approval, prior to a final judgment in the damages claim. Nor was the approval irrevocable. In principle, evidence of the fees which would have been charged by The Trust Company was admissible as a basis for assessing reasonable costs in the market, unless as a matter of principle a different approach should have been adopted. The first question is whether, as asserted by the appellant, the costs recoverable from the defendant should have been restricted to the costs charged by the NSW Trustee, which were regulated.

In Best v Greengrass [2012] WADC 44, Wager DCJ, sitting in the District Court of Western Australia, was invited to determine a similar question by reference to the costs charged by the National Australia Trustees ("NAT"), an organisation which apparently managed many trusts on behalf of brain injured people in that State, and those charged by ANZ Trustees Ltd: at [270]-[272]. On a fixed corpus of $2.4 million, the NAT fund management fee was 20.4% of the corpus and that of ANZ, 13.8%. Judge Wager adopted a sum that "recognises the plaintiff's preference for NAT but that is reasonable in the circumstances", adopting a figure of 19%: at [289]. The judge appears to have relied upon the reasoning of McCallum J in Gray v Richards (No 2) - at [287] - in giving weight to the plaintiff's preference for a particular trustee, but in fact did not adopt either proffered figure. She was entitled to take the latter approach, although it was not appropriate to take account of the future intention or preference of the plaintiff.

In the present case, assuming a corpus of $9.934 million, and a life expectancy of 67 years, the experts accepted that, calculating fees on the initial sum only, the respective percentages were 15.1% (The Trust Company) and 10.2% (NSW Trustee). If allowance were to be made for the inclusion of fees in the corpus, the disparity increased to 20.5% (The Trust Company) and 12.0% (NSW Trustee). The approach accepted above does not permit the inclusion of fees in the corpus on which the fees are calculated. Nor did it accept the corpus was $9.934m.

To seek to assess likely changes in legislation and the market for financial services with respect to managed estates is to engage in speculation. It is also to engage in speculation as to what the plaintiff (or, more accurately, her tutor) will do with the funds in the future. Whether or not a plaintiff who obtains an award of damages on the basis of a high estimate of future fees will then switch to a cheaper option once the award has been paid, or will make some other change over the course of the plaintiff's life is not a fruitful area for inquiry. The proper course is to adopt what may be considered a reasonable fee, having regard to the services available and the needs of the plaintiff.

It would almost certainly be preferable if there were a fixed basis upon which to calculate the costs of fund management, even if the result was to a degree arbitrary. That is not, however, a matter for this Court to determine. Because it is inappropriate to allow either the cost of the fund manager or a separate element for income to be included in the corpus to be managed, the appropriate differential in the present case lies between 10.2% and 15.1%. Those figures will not be significantly affected by reducing the corpus to $9.734m.

The disparity between the two figures could reflect a number of factors, including the level of service provided, the likelihood that the private trustee company will seek to derive a profit from its activities, whilst the government authority may well be subsidised. On the other hand, the fact that The Trust Company sought to adopt a minimum annual fee of $16,500 suggests that the failure to cap its fees in early years may give rise to unreasonable profits in those years. Given the size of the particular fund in the present case (which is likely to be between $10m and $11m) it is appropriate to err on the conservative side. Rather than undertake precise calculations, it is appropriate to adopt a figure of 12.5% of the fund as defined as the rate for calculating the fee.

(5) Costs of trial

The first judgment of McCallum J was delivered on 16 August 2011, following four days of hearing, which had concluded on 8 August. The appellant did not resist an order that it pay the plaintiff's costs of the trial up to that time.

The second tranche of the hearing occurred on 25 November and 1 December 2011, the second judgment being delivered on 8 December 2011. A substantial issue addressed in that hearing was a question as to the proper quantification of the fees charged by the NSW Trustee. The plaintiff sought to establish, through expert evidence of Mr Plover, that properly understood those fees were of the same order as the fees charged by The Trust Company. It failed in that regard. The appellant sought an order that the plaintiff pay its costs either for that period, or with respect to that issue. In the alternative, it sought an order that there be no order as to the costs of the parties incurred during that period.

For her part, the plaintiff sought an order that her costs incurred between 28 October and 11 November 2011 should be paid on an indemnity basis because of failures by the appellant to comply with directions of the Court as to the times within which evidence was to be filed. McCallum J noted the defendant's response to that claim that the delay was "largely if not wholly a result of the sheer complexity of the task in reviewing the financial operations of the NSW Trustee & Guardian": Gray v Richards (No 3) [2012] NSWSC 344 at [36]. She accepted that submission and declined to order indemnity costs.

With respect to his application, the appellant submitted that the affidavit obtained from Mr Farrell (referred to above) and served on 19 August 2011, should have put the position beyond doubt. Although the trial judge treated that date as significant, she did not think it was "unreasonable" for the plaintiff to persist in her investigation of the issue thereafter. Nevertheless, McCallum J considered that part of the cost of having done so should lie with the plaintiff. In the end she ordered that "the defendant pay the plaintiff's costs of the proceedings except for half of the plaintiff's costs from 19 August 2011 to 8 December 2011". She adopted the period rather than the issue as the basis for assessment, to avoid the potentially difficult task for an assessor to differentiate between costs incurred on different issues: at [32].

The appellant has challenged the failure to make an order in the terms it originally sought in respect of that issue; the plaintiff has, by a cross-appeal, challenged the reduction of costs recoverable by her for the period from 19 August until 8 December 2011.

An affidavit of the appellant's solicitor, dated 31 January 2012, estimated that its costs of responding to the allegation that there would be undisclosed fees and charges incurred if the NSW Trustee were used to administer the fund, were at least $170,000.

Shortly after filing its notice of cross-appeal, the plaintiff apparently decided that it was necessary to seek leave to cross-appeal and filed a summons for that purpose. The appellant did not oppose a grant of leave, were that necessary.

In his written submissions, the appellant noted that the evidence and submissions dealing with the costs judgment were "voluminous and complex" and proposed that all costs issues be deferred until this Court had determined the substantive issues: written submissions, par 102-106. While it is true that a variation of the approach adopted by the trial judge will itself give rise to a different outcome with respect to costs, the proposition that the Court will tolerate some expansive and voluminous paper war in respect of costs should not be entertained. In the end, the parties agreed that costs should be dealt with by way of written submissions, following delivery of the principal judgment. Despite that, the plaintiff put in a further written submission (with leave) following the hearing, on 3 May 2013. Directions will be appropriate to allow that course to be completed, but given the apparent propensity of the parties (or at least their lawyers) to incur costs, it is convenient to indicate the Court's preliminary view at this stage so that the parties have an indication as to how the matter might best be approached and possibly resolved by agreement.

So far as the circumstances as they arose before the trial judge are concerned, three points should be made. First, there is no reason to interfere with her conclusion that it would be desirable to avoid any assessment on an issue-by-issue basis. Awarding part or all of the costs for a particular period was an appropriate course to take.

Secondly, the assessment made by the trial judge of the reasonableness of the respective approaches of the parties was informed, not only by full knowledge of the material submitted by the parties and the positions taken in the course of the hearing, but by her assessment of the significance of particular issues in the proceedings. That the trial judge acted on that basis is clear from the reasons given in her third judgment: in the absence of manifest error, this Court would be loathe to interfere with that evaluative assessment.

Thirdly, no precise apportionment of costs is appropriate. The adoption of a broad brush approach is not to be dismissed because the parties, through their own efforts, have incurred significant costs in the course of the litigation.

Any reassessment of costs must now take into account the fact that the outcome on substantive issues has changed. The outcome has demonstrated why the attempts at factual precision as to the likely costs of fund management, to be incurred over a period of 67 years, were misguided. Further, attempts to speculate as to what changes might occur in the future were also misguided. Given the outcome of the appeal in this Court, and on the basis that the Court would not otherwise interfere with the order made by the trial judge in the circumstances which confronted her, an appropriate variation could now be to require either that each party to bear his or her own costs of the proceedings from the date of the first judgment, namely 16 August 2011, or that the plaintiff pay the defendant's costs for that period. On that basis the cross-appeal would be dismissed and the appeal, so far as it concerned the costs order made by the primary judge, would be allowed consequentially on the appellant's success on the substantive issues.

(6) Costs in this Court

With respect to the issue concerning the basis for calculating the cost of fund management, the appellant has been successful in identifying error on the part of the trial judge. With respect to the amounts to be included in the corpus for the purpose of calculating the cost of the fund management, the appellant has been successful in excluding any calculation on account of income earned on the fund and in seeking to exclude from the corpus the costs of fund management.

With respect to deductions from the fund, the appellant has been partly successful and partly unsuccessful, although the issue was not a significant one in terms of the time consumed on appeal.

It should also be recognised that the case was treated as a test case to establish relevant principles and, to the extent necessary, to reconsider and refine the approach adopted in GIO v Rosniak. It should be recognised that the appeal is not ultimately of any concern to the individual appellant, but has a broader concern for the appellant's insurer, which will take the benefit or bear the cost of the outcome, with flow-on effects for other cases. The interests of the respondent are entirely her own personal interests. Nevertheless like any other party, she had (and may have taken) such opportunities as were available to avoid further litigation.

Having been unsuccessful in her cross-appeal and largely unsuccessful in resisting the appeal, the respondent must bear part of the costs of the appellant. An appropriate proportion may lie in the range of 50%-80%.

Given these indicative parameters, the parties should be able to deal with the question of costs succinctly in writing. To that end, the Court should make the following directions:

(1) Each party file and serve within 14 days his or her primary submissions with respect to appropriate orders as to the costs of the trial and the costs of the appeal, such submissions not to exceed 10 pages.

(2) If there have been offers of compromise relied upon by the parties, the submissions should be accompanied by an affidavit annexing the relevant material.

(3) Each party should have a further period of 14 days to reply to the principal submissions of the other party, such replies not to exceed 5 pages.

The parties have leave to apply jointly for an extension of time for compliance with these directions on the ground that discussions directed to settling the appropriate orders for costs are taking place.

MEAGHER JA: I agree with the reasons of and orders proposed by Bathurst CJ.

**********

Attachment - Tables (PDF)

Decision last updated: 03 December 2013

Medium Neutral Citation:	Richards v Gray [2013] NSWCA 402
Hearing dates:	29-30 April 2013
Decision date:	02 December 2013
Before:	Bathurst CJ at [1], Beazley P at [162], McColl JA at [163], Basten JA at [164], Meagher JA at [241]
Decision:	1. Appeal allowed in part. 2. Set aside order (1) entered on 16 December 2011 and, in place thereof, give judgment for the plaintiff in the sum of $11,424,000. 3. Each party file and serve within 14 days his or her primary submissions with respect to appropriate orders as to the costs of the trial and the costs of the appeal, such submissions not to exceed 10 pages. 4. If there have been offers of compromise relied upon by the parties, the submissions should be accompanied by an affidavit annexing the relevant material. 5. Each party should have a further period of 14 days to reply to the principal submissions of the other party, such replies not to exceed 5 pages. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	DAMAGES - award - measure of damages - personal injuries - negligence causing incapacity to manage own affairs - cost of fund management - whether certain amounts should be taken into account for the calculation of fund management costs. DAMAGES - cost of fund management - principles in Todorovic v Waller (1981) 150 CLR 402 - whether an allowance should also be made in respect of managing the sum awarded for fund management costs. DAMAGES - cost of fund management - whether an allowance should also be made in respect of managing income earned by the fund during the existence of the fund. DAMAGES - cost of fund management - whether fund management fees should be allowed at rates charged by a private trustee or at the rates of the relevant public trustee.
Legislation Cited:	Civil Liability Act 2002 (NSW), s 5D Civil Procedure Act 2005, ss 77, 79 Corporations Act 2001 (Cth), ss 601RAA, 601RAC, 601RAE, 601TAA, 601TAB, 601TBA, 601TBB, 601TBE, 601TDC, 601TDD; Pt 1.1A; Ch 5D, Div 4 Corporations Regulations 2001 (Cth), r 5D.1.04, Sch 8AA, Sch 8AC Mental Health Act 2007 Motor Accidents Compensation Act 1999, s 127 Motor Vehicles (Third Party Insurance) Amendment Act 1984 NSW Trustee and Guardian Act 2009, ss 38, 41, 111, 115 NSW Trustee and Guardian Regulation 2008, cll 37, 38; Pt 4 Protected Estates Act 1983 Trustee Companies Act 1964, s 18
Cases Cited:	Bacha v Pettersen (Supreme Court of New South Wales, 20 September 1994, unreported) Best v Greengrass [2012] WADC 44 Brindall v McDonald (Court of Appeal, 11 March 1985, unreported) Buckman v M & K Napier Constructions Pty Ltd [2005] NSWSC 546 Campbell v Nangle (1985) 40 SASR 161 Commonwealth v Blackwell [1987] HCA 44; (1987) 163 CLR 428 Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 GDR v EKR [2012] NSWSC 1543 Gell v Gell [2005] NSWSC 566; 63 NSWLR 547 Government Insurance Office of New South Wales v Rosniak (1992) 27 NSWLR 665 Griffiths v Kerkemeyer (1977) 139 CLR 161 Haywood v Collaroy Services Beach Club Limited [2006] NSWSC 566 Lewis v Bundrock [2008] QSC 189; [2009] 1 Qd R 524 Morris v Zanki (1997) 18 WAR 260 Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49 Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Rottenbury v Rottenbury [2007] NSWSC 215 Tchadovitch v Tchadovitch [2010] NSWCA 316; (2010) 79 NSWLR 491 Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402 Treonne Wholesale Meats v Shaheen (1988) 12 NSWLR 522 Wells v Wells [1999] 1 AC 345 Willett v Futcher [2005] HCA 47; (2005) 221 CLR 627
Texts Cited:	Luntz, Assessment of Damages for Personal Injury and Death (4th ed, 2002, Ch 2, sec 7)
Category:	Principal judgment
Parties:	Corey Richards (Appellant / Cross Respondent) Rhiannon Gray by her Tutor Kathleen Anne Gray (Respondent / Cross Appellant)
Representation:	Counsel: P J Deakin QC, B A P Kelleher, K James (Appellant / Cross Respondent) Dr A S Morrison SC, I J McGillicuddy (Respondent / Cross Appellant) Solicitors: T L Lawyers (Appellant / Cross Respondent) Beilby Poulden Costello (Respondent / Cross Appellant)
File Number(s):	2012/9520
Publication restriction:	No
Decision under appeal	Jurisdiction: 9111 Citation: Gray v Richards [2011] NSWSC 877 Gray v Richards (No 2) [2011] NSWSC 1502 Gray v Richards (No 3) [2012] NSWSC 344 Before: McCallum J File Number(s): 2009/338685