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Assessment of Damages for Fund management

Case summaries of some assessments for managing damages award. Contact David Kidd at kiddlrs@optusnet.com.au for more and to trial his outstanding national damages publication.

In Ehlefeldt v Rowan-kelly 1/5/09 [2009] NSWSC 331 Hoeben J awarded $1,017,000 under this head in the case of a 33y.o. woman suffering hypoxic brain injury and who was also assessed at 100% of the most extreme case. Such award was assessed in relation to an investment fund of $5m over 50 years.

 

The proper approach to the assessment of fund management fees discussed by Martin J in Waller v McGrath & Anor 19/6/09 [2009] QSC 158 in the case of a 12 y.o. (20 at judgment) suffering serious brain injury. “The defendants should not be obliged to pay, in addition to management microsoftcrmsolutions.com fees charged by the fund administrator, further sums representing fees that the administrator proposes to charge for the investment of its allocated administration and management fees. See Lewis (by his litigation guardian P Osborn) v Bundrock & Anor [2008] QSC 189”@125. The use of straight line amortisation approved. But see appeal at Waller v Suncorp Metway Insurance Limited 16/2/10 [2010] QCA 17  [55 MVR 95] where appeal allowed in this respect and allowance for case management was increased.

 

In L F Bell as litigation guardian for DC Bell v Pfeffer & Anor 3/8/09 [2009] QSC 209 Dutney J considered “whether in calculating future management and investment fees, the correct starting point is the amount actually received by the Administrator which was $3,509,743.13 on the basis of a straight line amortisation at 5% over a life expectancy of 62 years” @5.  Dutney J considered such approach was appropriate. The amount received by the Administrator had diminished since the Court award.

 

In Gray v Richards 16/8/11 [2011] NSWSC 877 (59 MVR 85) McCallum J considered the “perceived incongruity between the inexact calculation of damages [for ‘fund management on fund management’] generally and the exactitude of a calculation that, theoretically, must be repeated to infinity” @29. He favoured the use of approximation. Concerning damages for management of fund including fund income, McCallum J was “satisfied that the allowance for fund management costs should be calculated on the assumption that the relevant fund includes returns on investment of the fund” @55. The decision of Rottenbury not followed. Statutory discount rate of 5% adopted. In this case a 10 y.o. with a life expectancy workhospitality.com.au of over 60 years was significantly disabled and received a verdict of ten million dollars. Held “that the plaintiff’s claim for the future cost of managing the fund management component of her damages award be allowed … [and] that the plaintiff’s claim for the future cost of managing income earned upon the investment of the fund at an assumed rate of 5 per cent be allowed” @73. Various cases considered. Appeal allowed in part from this decision and related decisions on 2/12/13 in Richards v Gray [2013] NSWCA 402 [66 MVR 16]. McCallum J was correct in finding that it was not appropriate to make any deduction from the fund for the purpose of the calculation of fund management costs as it was speculative as to when certain payments would need to be made. McCallum J erred by allowing compensation for additional fees caused by the accretion of income to capital [137-143] and in granting compensation for fund management on fund management [144-148]. “[T]he calculation of the amount to cover fund management on fund management involves either speculation as to the performance of the fund in any given year, or assumptions as to the rate of dissipation of the fund management award which in all probability will bear little relation to reality” @147. Held it was “reasonable to award an amount for fund management fees on the basis of those charged by The Trust Company” @159. $1,495,000 awarded R in respect of fund management fees. See also case note at NSW – MACA s127. Appeal allowed in part 15/10/14 in [2014] HCA 40 [68 MVR 304] where the High Court considered “whether an incapacitated univisstasofttech.com plaintiff is entitled to recover costs associated with managing that component of damages which has been awarded to meet the cost of managing the lump sum recovered by way of damages … [and secondly] whether an incapacitated plaintiff is entitled to recover costs associated with managing the predicted future income of the managed fund” @5. Both these questions had been answered in the negative by the COA. COA found to have erred in its answer to the first question, but not the second. The discount rate prescribed by s 127 of the MACA does not imply a statutory requirement that the fund should achieve a net future earnings rate of five per cent. Nor does it imply that the award of damages must be supplemented in order to sustain such an income, net of the expenses incurred in achieving it. Section 127 assumes, as does the second of the Todorovic v Waller principles, that the return from the fund takes into account the cost of generating that return. The discount rate does not assume that the fund will produce an annual net income at an equivalent rate or imply that a lump sum award must be adjusted to ensure that result. The discount rate is a conceptual tool deployed for the purpose of arriving at a lump sum reflecting the present value of future losses” @63-64. “[T]he cost of managing the income generated by the fund is not an integral part of the appellant’s loss consequent upon her injury. One could view that cost as an integral part of that loss only if one were to assume that the income of the fund will, in fact, be reinvested in the fund and thereby swell the corpus under management. That assumption cannot be made, given that drawings from the fund may exceed its income. Further, that assumption should not be made, given that to do so would be contrary to the third of bazoesoft.com the Todorovic v Waller principles” @66.

 

In Best … v Greengrass 29/3/12  [2012] WADC 44 Wager J allowed P’s claim for management fees on management fees. See from paragraph 269.

 

In Wood v McKenzie 3/6/13 [2013] NSWDC 89 D “contended that the quantum to be managed and the associated fund management cost would be affected http://www.achaten-suisse.com/ by a number of factors. First, the superannuation aspect of the compensation award might be invested in a separate superannuation fund. Second, a substantial amount would be deducted for solicitor/client costs. Third, the plaintiff might contribute a substantial lump sum to the purchase of a future residence (the plaintiff’s partner indicated that the couple might ‘downsize’). Fourth, moneys might be expended on overseas travel (although the plaintiff’s partner was doubtful that she could manage the plaintiff on a trip of any magnitude). Finally, the funds might run out by the time that the plaintiff attained the retirement age of 67 years. Similar arguments were considered and rejected in Gray v Richards (No 2) [2011] NSWSC 1502 (under appeal). Justice McCallum noted that a funds manager has an obligation to manage a fund so that it lasts for a plaintiff’s lifetime and the Court should be slow to pre-empt the decisions of a trustee charged with the prudential management of a large sum of money. She noted that the payment of capital costs (in that case – house modification) was speculative. She could not confidently predict the impact on the fund of the future deduction of solicitor/client costs. Consequently, she was not satisfied that it was appropriate to deduct any sum from the verdict for the purpose of calculating future fund management costs. The circumstances of the present case are not relevantly distinguishable” @68-69 per Murrell SC DCJ. See also Richards v Gray appeal at Managing Fund – General principles.

 

See Patterson v Khalsa (No. 3) 27/9/13 at ‘Most extreme case – Example of 100%’ where mid-wife negligent and baby suffered cerebral palsy, quadriplegia and moderate intellectual disability. Five million to be managed for 59 years.

 

See Hulanicki v Walton 24/4/15 [2015] ACTCA 14 where fund management on fund management allowed.