Personal Injury Damages / Awards – High Court Guidance

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Guidance for Personal Injury Damages where management is required

In the judgement delivered on 15 October 2014 in the case of Gray v Richards,[1] the High Court of Australia clarified the principles for awarding Willett v Futcher [2] damages, or costs for the purposes of fund management, to injured plaintiffs who as a result of their personal injuries are left with impaired capacity to manage his/her own affairs.

The appellant/plaintiff Rhiannon Gray suffered a traumatic brain injury in a motor vehicle accident days before her 11th birthday.  The parties were able to agree to a compromise in August 2011 to the sum of $10 million.  It was agreed that the respondent would also pay an amount to be assessed at a later date, to cover expenses associated with managing the primary settlement (“the fund management costs”).

The question which the High Court had to decide was two-fold.  Firstly, the Court was asked whether the fund management costs, if it was added to the primary settlement sum of $10m as one larger lump sum, included costs which constituted the cost of managing the additional fund management costs itself.

Secondly, the Court was asked whether the fund management costs included costs to manage the future income of the managed fund.

The decision of the NSW Court of Appeal on the first question was to disallow the award on the principles in Todorovic v Waller:- [3]

“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.”

The Court of Appeal opined that the extension to cover cost of managing the fees to manage the fund would be unreasonable.  Further, the Court of Appeal considered that the method of calculation such as principle requires was unacceptably uncertain.

The High Court considered the following principle from Willett v Futcher:- [4]

“An administrator must be appointed. The administrator must invest that fund and act with reasonable diligence. It follows that the administrator will incur expenses in performing those tasks. The incurring of the expenses is a direct result of the defendant’s negligence. The damages to be awarded are to be calculated as the amount that will place the plaintiff, so far as possible, in the position he or she would have been in had the tort not been committed.”

The Court held that the appointment of the Trust Company was reasonable and absent of any evidence to suggest fees were charged outside the market.  Therefore, where the appellant was to receive one lump sum once and for all, it was reasonable to include the costs of managing the whole of the lump sum which includes as a component the costs of fund management itself.

The High Court also held that “the common law does not permit difficulties of estimating the loss in money to defeat an award of damages.”  Further, it held that the theoretical difficulty with the calculation was dispelled in practice by the evidence at Trial.

As to the second question, the High Court found in favour of the respondent.

The Court held that the discount rate now set at five per cent under s127 of the MACA, which is reflected in Queensland legislation, takes into consideration the costs of managing any income.

Further, the Court noted that as in Todorovic, the second principle operates on the assumption that the lump sum will be exhausted at the end of the plaintiff’s life expectancy and that an assumption that the fund will continue to earn in excess of drawings from the fund would be erroneous and contrary to the third of the Todorovic principles.

In practice, this case is authority for plaintiff solicitors when seeking Willett v Futcher damages to include costs of managing the entire funds- which includes the component that is for fund management itself.

Further, the case is authority that the judiciary is generally reluctant to disturb the appointment of a particular trustee or find against the reasonableness of a particular trustee’s costs, so long as the costs are more or less reflective of market.

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[1] [2014] HCA 40.
[2] (2005) 221 CLR 627.
[3] (1981) 150 CLR 402 at 412.
[4] (2005) 221 CLR 627 at 643.