Willett v Futcher

[2004] HCATrans 525

[2004] HCATrans 525

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B15 of 2004

B e t w e e n -

BELINDA ANN WILLETT (AN INFANT BY HER LITIGATION GUARDIANS DEBORAH ANN WILLETT AND PATRICK WILLETT)

Applicant

and

DUDLEY D. FUTCHER

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 3 DECEMBER 2004, AT 12.53 PM

Copyright in the High Court of Australia

MR T. MATTHEWS:   If the Court please, I appear for the applicant.  (instructed by Quinlan, Miller & Treston)

MR D.B. FRASER, QC:   If the Court please, I appear for the respondent with my learned friend, MR M.P.KENT.  (instructed by McInnes Wilson)

MR D.C. RANGIAH:   If the Court please, I appear for the Public Advocate seeking leave to appear as amicus curiae.  (instructed by the Public Advocate)

GUMMOW J:   Yes, Mr Matthews.

MR MATTHEWS:   The applicant does not oppose the grant of such leave to the Public Advocate.

GUMMOW J:   Well, we will see if we need that after we have heard from Mr Fraser, which we will do in the first instance. 

MR MATTHEWS:   Your Honour.

GUMMOW J:   Yes, Mr Fraser.

MR FRASER:   Thank you, your Honour.  I should mention that the respondent does not oppose the grant of leave to Mr Rangiah’s appearance either.  The issue at hearing was stated in the appeal record at page 8, about line 215, your Honours.  I mention this because it seems as though there is some point made as to the distinction in approaches taken between Justice White, and members of the Court of Appeal, but at page 8, paragraph [7], her Honour identified that the issue was a question of principle as to:

whether the cost to Belinda of obtaining suitable investment advice and other ancillary charges . . . ought be borne by the defendant as an aspect of the damages ordered to be paid –

Then there is a further description as to the issue between the parties.  On appeal, the way in which the matter was stated was that the record, at page 34, and there, their Honours, in paragraph [14], identified the statement of principle by her Honour, and went, on the next page, on page 35, in paragraph [15], to identify what they regarded as the correct principle, that is, a need which has been created as a direct consequence of the defendant’s wrong, and they made the observation:

However, as we will endeavour to show –

and I will let your Honours read that.  May I perhaps start by addressing one aspect of our learned friend’s application which we must disagree with.  At page 49 of the record our learned friends, at about line 1792 submitted that:

the South Australian Full Court [did not] consider it necessary to further dissect the services of the trustee manager in Campbell v Nangle -

We respectfully point out that at page 193 of that reference, the Chief Justice specifically drew attention to the distinction between management and investment advice and this was a passage which was picked up by Justice White, and that appears in the record as well.  I will not take the Court to that.

GUMMOW J:   While we are on decisions of co-ordinate intermediate courts, one of the complaints that is made at page 50, for example, of the submissions, line 1860, is that the Queensland court did not look at Morris v Zanki 18 WAR 260 in the Western Australian Full Court - I think at 286 and following.

MR FRASER:   That case is in our learned friend’s bundle of authorities.

GUMMOW J:   Yes.

MR FRASER:   We submit that, in fact, the decision is consistent.  If we can take you to page 295E of the reasons of the court, where the court held:

Those costs are compensible because they are directly referable to the disability suffered as a result of the accident.  What is not compensible is a cost that is not necessarily incurred but which results from the exercise of a choice by a plaintiff as to how to invest those damages.  The fact of the creation of the trust fund and the necessity to incur management costs are what gives rise to the entitlement . . . But they are reasons associated with the respondent’s apprehension of the prospects for better capital and income returns and with the convenience of his family.  That is a matter of choice, not necessity. 

Now, appreciating that when one speaks of choice here, it must be accepted that Belinda, the applicant, has no effective choice, but it is choice in the sense of identification of what services will be availed of, because can I then take you to the next point where we disagree with the applicant’s submissions.  That is the submission which is at appeal book page 50, at about line 1830, paragraph 22 of our learned friend’s outline, where it said:

The obvious and unchallenged corollary to paragraph 24 of Mr Gallagher’s affidavit and p. 43 of Exhibit “A” thereto (the financial management plan), was that any lesser sum of fees and charges must have an adverse impact on one or more of the necessary underlying assumptions, each of which are essential to the object of the trust imposed by the Court appointment of Perpetual as administrator -

But at appeal book record 47 the contrary appears.  Indeed, it said, and this is something that we understand to be the basis of the additional fees which are sought - this is at the top of the page in subparagraph (vi):

The fees that will be charged to the trust are appropriate to the level of service that will be provided.  There are no undisclosed commissions.  The fees will not adversely impact on the valued of the trust fund or the income available to meet the Plaintiff’s needs.

So the distinction which is sought to be made, by our learned friend’s submission which I have earlier taken you to, is really a distinction that is not borne out by the evidence.  What the evidence disclosed was that for a very modest fee secured investments could be obtained giving rise to, for example, the long-term government bond rate of 5.35 per cent.

But what is proposed by the applicant, and what was proposed at trial, was to incur additional fees, and if I could take you to page 15 of the record, where Justice White identified what was involved, the additional fees which are going to be incurred are designed to give a return on the fund at a level of increase of 25 per cent better than the rate which will be yielded by Commonwealth Government bonds, and the expenses involved are expenses which, that is, accepting that after the expenses have been incurred, if one does the calculation based on the yields which are set out in the appeal book at page 15, towards about line 550, your Honours.

So the point that we make is, it may be that in some cases the applicant or plaintiff may suffer an additional loss because of the imposition of duties upon a trustee, but in this case that is not going to occur on the evidence.  What has been described as management fees are really additional expenses to maximise the return and as the Court of Appeal identified, those expenses are not necessary as part of the discharge of the trustee’s duties.

GUMMOW J:   That gets to the issue I suppose, does it not?

MR FRASER:   Yes, your Honour.

GUMMOW J:   What do you mean by necessary and what do you mean by duty?

MR FRASER:   Well, the duty which is described, and it is in the statute which has been put before the Court and is actually extracted in the reasons in the Court of Appeal’s judgment at page 35 of the appeal book:

to “exercise the care, diligence and skill, a prudent person engaged in that profession, business or employment would exercise in managing the affairs of other persons” –

The point that the Court of Appeal made, we submit, is a valid on.  When the trustee goes beyond the extent of those obligations and introduces expert specialist consultants, incurring considerable expense in doing so, they are doing that because they are going beyond what they are obliged to do under the Trusts Act in a way in which they will seek to enhance the fund which will be available.

As has been identified in our outline, the categories of fees (a) and (b), which were described by Justice White and in the Court of Appeal, are the categories which were particularised as comprising those trustee obligations.  We set it out in our outline, your Honours, at page 53 of the record, towards the bottom, “The discretionary portfolio management fee includes the following specific services:  the decision making and fiduciary obligations undertaken by Perpetual to act as administrator as defined by the Guardianship and Administration Act2000; the elevated duty of care of a professional trustee including” - and I will let your Honours read that, and over the page.

So those activities which are implicit in the role of a trustee were described in the evidence, in the particulars and, we submit, in her Honour’s findings, Justice White’s findings at trial level, as being included in categories (a) and (b), which is what the applicant has been compensated for.  So our submission is that although there might, at first glance, be perhaps a point of distinction between the approach of the Court of Appeal and the approach of Justice White, on the evidence that is a distinction without any practical difference, and that was recognised in the Court Of Appeal.

GUMMOW J:   And, what do you say respecting the decision of the Supreme Court in Western Australia?

MR FRASER:   We submit that the passage we took you to demonstrates that the component of fees which are within this additional discretionary range are to be regarded as the exercise of a choice.

GUMMOW J:   Yes, thank you.  Yes, Mr Rangiah.  We have read your material.  What attitude are you taking to the grant of special leave, that is the real question?

MR RANGIAH:   My client does not adopt any particular position towards the grant of special leave, that is, whether it should be granted or not.  My client’s principal concern is really with the respondent’s submissions and, in particular, the submission that fees which are incurred with a view to either maintaining or increasing the real value of the trust fund ought not to be allowed.  That is my client’s principal concern.

GUMMOW J:   And what is the nature of its concern, are you saying they should be allowed or not be allowed or sitting on the fence?

MR RANGIAH:   Should be allowed, your Honours.  The Court of Appeal ‑ ‑ ‑

GUMMOW J:   So in substance, your substance on that aspect of any rate, you are supporting the applicant for leave, is that not right?

MR RANGIAH:   Well, no.  The respondent seems to, on one hand, suggest that there are aspects of the Court of Appeal’s decision, which are incorrect, and Justice White’s position should be preferred, but on the other hand, seems to suggest that the Court of Appeal got the result right in the end.

GUMMOW J:   Yes, very well.  We will hear from the applicant.  Yes, Mr Matthews.

MR MATTHEWS:   Thank you, your Honour.  Might I respond specifically to two of the matters raised by my learned friend, Mr Fraser.  First is the reference by him to the submission made at paragraph 22 of the applicant’s outline at page 50 of the application book, and his reference back to page 47 of the application book, and subparagraph (vi) ‑ ‑ ‑

GUMMOW J:   Yes.

MR MATTHEWS:    ‑ ‑ ‑ which is an extrapolation from paragraph 24 of Mr Gallagher’s affidavit filed before her Honour the learned trial judge by reason of the order made by Justice Byrne sanctioning the compromise, which appears at page 3 of the application book, back on 24 December 2002.

GUMMOW J:   Yes.

MR MATTHEWS:   It was plain to all concerned, including Perpetual, and for that matter, the Public Trustee, who was by this order granted liberty to take part in the trial of the question or determination of the management fees and charges to be allowed, that there would be added to the fund a sum by way of damages in respect of the reasonable management fees to be incurred.

Thus, one must take Mr Gallagher’s deposition in paragraph 24(vi) of his affidavit in the context of a knowledge by him that the trust fund to which he was referring, as being calculated to diminish in a straight line over the agreed life expectancy of the applicant to zero over 59 years, would include the sum by way of management fees for which he was contending on his calculations, just as the Public Trustee’s calculations, which surprisingly resulting in a present value of actual management fees over Belinda’s lifetime, some $25,000 in excess of Perpetual’s, two had in mind the fact that there would be a sum added to the trust fund.  That is one of the underlying calculations.

So it is trite, with respect, to refer to that paragraph in Mr Gallagher’s affidavit as a suggestion that his own evidence is against the necessary corollary to the unchallenged evidence as to what the underlying assumptions are.  A lesser sum than the evidence disclosed as would be charged over the life of the fund, including the lump sum for the present value, must have the effect highlighted by Chief Justice King in Campbell v Nangle, of diminishing either the corpus of the fund, the life of the fund, or the level of requirement of service, that can be provided by the manager.

The second point I wish to specifically answer is that to which Mr Fraser referred towards the end of his submissions orally here today, and that is in relation to what the Trusts Act actually provides.  The joint judgment of their Honours in the Court of Appeal had the cursory summary of the legislation, to which Mr Fraser has taken your Honours.  If you go to the applicant’s case and legislation bundle that has been provided ‑ ‑ ‑

GUMMOW J:   Page 218.

MR MATTHEWS:    ‑ ‑ ‑ to page 230, top right corner, your Honours. 

GUMMOW J:   Yes.

MR MATTHEWS: Part 3, which commences on page 229 of our bundle, deals with investments under the Trusts Act (Qld). Section 23 of the Act provides for the preservation of law and equity, and without the limitation of the rules or principles thereof, prescribes four duties on a trustee by subparagraph 2(a) to (d), including particularly relevant here, (b) and subparagraph (d). Then the cursory summary contained in their Honours’ reasons for judgment in the Court of Appeal really must be taken to task when one considers the actual matters that Parliament has said are those to which a trustee must have regard in exercising the power of investment in section 24.

GUMMOW J:   Yes.  What is the particular passage in the Court of Appeal?

MR MATTHEWS:    This is where they summarise what they say is the power of the trustee under the Trusts Act, at application book page 35, paragraph [19] of their Honours’ joint reasons.

GUMMOW J:   What is the criticism of paragraph [19]?

MR MATTHEWS: The point is, your Honours, that they ignore quite plainly, the prescription by section 24(2) of the Trusts Act that a trustee must have in mind, in exercising the powers in section 23, the obtaining of independent and impartial investment advice and has the power to pay, out of trust funds, for that external, independent, impartial advice - page 232 of the bundle.

GUMMOW J:   Yes, I see.

MR MATTHEWS:   And is empowered by subsection 1(n) to pay:

the cost (including commissions, fees, charges and duties payable) –

on proposed investments, which are the external brokerage fees and the like, to which both Mr Gallagher and the Public Trustee’s evidence from senior officials of that commercial entity deposed.

The real point here is, with respect, that the respondent has not challenged the four matters raised by the applicant in part IV of her summary of argument, which are the four matters going to the grant of special leave in this case.  It seems from what my learned friend, Mr Rangiah, has said, that the Public Advocate’s position, if it is granted leave to appear, is to support the contentions of the applicant that the Court of Appeal has fallen into error in attempting to undertake this notional, and that is the word that their Honours use at application book page 36, notional dissection of the nature and content of the services to which the fees and charges are to be rendered over the next 59 years.

The notional dissection is, in my respectful submission, quite illusory when one has regard to the principle enunciated by this Court in Gardikiotis.  If I am wrong about that, then this Court must revisit

Gardikiotis and make claim what the - to the appellate courts of the States, who now diverge us, it is clear just what ‑ ‑ ‑

GUMMOW J:   One of the points about Gardikiotis is that we sent it back to the Court of Appeal to work it out in detail, and we do not know what happened, as it were, so there was a loose end in that sense.

MR MATTHEWS:    It seems to be a loose end if the applicant’s contentions are wrong as to the true effect of that case.

GUMMOW J:   Yes.

MR MATTHEWS:    And it seems that the true effect for which we contend is that adopted by the Court of Appeal in Western Australia at least.

GUMMOW J:   Yes, thank you, Mr Matthews.  Yes, Mr Fraser.  Is there anything more you wish to add?

MR FRASER:   Just simply one point, your Honours, and that is that the point of the reference to the evidence about why the fund would not be affected is really to emphasise the position that what is sought by the applicants here extends to damages which will not be compensatory in nature.  The returns which are contemplated by the exercise which was not allowed will be greater than the expenses, and for that reason, that offends the basic principle of assessment of damages.

Our position perhaps may have been a little misunderstood.  We accept, and we apprehend that the trial judge in the Court of Appeal plainly accepted that expenses associated with the management of the plaintiff’s affairs and the fund, at the level of trusteeship required, are recoverable as damages because they are costs which would otherwise erode the fund, which the plaintiff is awarded.

But to take up what was said in terms of asserting that the feature that the trustee can take additional advice and then go on to spend additional sums to get greater rewards, in our submission, would offend the compensatory principle, and on that may we just mention finally that reference to page 193 in the judgment of Chief Justice King in Campbell v Nangle, where what his Honour said was this, at the top of the page:

Damages are assessed upon the basis of a discount rate which assumes investment in secure investments.  A highly skilled investment manager is not required to make and manage such investments.  In my view the proposed fresh evidence would not be relevant and should therefore not be admitted.

We apprehend that in Gardikiotis those statements of principle were accepted by the Court.  We have provided the references in our outline.  In our submission to accept the proposition now being advanced in the guise of asserting that this is a need that the plaintiff has, this is a need which goes beyond the need created by the defendant’s negligence, and it is an exercise which would involve in an increase of returns beyond that which the basis of the assessment contemplated.  Thank you, your Honours.

GUMMOW J:   Yes, thank you.  We think there should be a grant of special leave in this matter, gentlemen.  We are anxious to clarify, if we can, the position of the Public Advocate on the hearing of the appeal.  Would there be any opposition from the parties to a grant now of leave to appear through the provision of written submissions?

MR MATTHEWS:   There would be no objection by the appellant to that course, your Honour.

GUMMOW J:   Yes, that would save some costs, I think, Mr Rangiah.  What about the respondent?

MR FRASER:   We have no objection to that course, your Honour.

GUMMOW J:   Yes.  Is there anything you want to say about that, Mr Rangiah?

MR RANGIAH:   No, your Honours.

GUMMOW J:   The effect of what we are saying is that you would have a grant now of leave to provide written submissions as amicus curiae in the Full Court appeal ‑ ‑ ‑

MR RANGIAH:   Yes, I understand, your Honours.

GUMMOW J:   But there will be no requirement of any personal attendance.

MR RANGIAH:   Yes, thank you, your Honour.

GUMMOW J:   Is that understood?  And this will be a one day matter, I would think.

MR MATTHEWS:   I think so, your Honour, yes.

GUMMOW J:   Yes.  We will adjourn until 2.00 pm. 

AT 1.21 PM THE MATTER WAS CONCLUDED