Supreme Court New South Wales Medium Neutral Citation: Gray v Richards (No 2) [2011] NSWSC 1502 Hearing dates: 25 November 20111 December 2011 Decision date: 08 December 2011 Before: McCallum J Decision: Plaintiff's application for the future cost of fund management by a private fund manager allowed. Fund management costs allowed on the whole amount of the verdict without deductions. Catchwords: DAMAGES - motor vehicle accident - plaintiff incapable of managing her affairs as a result of defendant's negligence - future fund management costs - whether plaintiff entitled to such costs at the higher rates charged by a private fund manager - whether any sum should be deducted from the verdict for the purpose of the calculation Legislation Cited: Corporations Amendment Regulations 2005 (No. 1). Motor Accidents Compensation Act 1999 NSW Trustee & Guardian Regulation 2008 Uniform Civil Procedure Rules 2005 Cases Cited: Arthur Robinson (Grafton) v Carter (1968) 122 CLR 649 Dasreef Pty Limited v Hawchar [2011] HCA 21 Gray v Richards [2011] NSWSC 877 Government Insurance Office of NSW v Rosniac (1992) 27 NSWLR 665 Griffiths v Kirkemeyer (1977) 139 CLR 161 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Mortimer v Burgess (1997) 25 MVR 463; Nimh Heip Tran by his Tutor Thi Lien Kieu Le v GIO (unreported, NSW Supreme Court, 9 August 1994) The Nominal Defendant v Martin (1997) 26 MVR 474 Stocovaz v Fung [2007] NSWCA 199 Todorovic v Waller (1981) 150 CLR 402 Tu Tran v Dos Santos (No. 2) [2009] NSWSC 336 Willett v Futcher [2005] HCA 47; (2005) 221 CLR 627 Category: Principal judgment Parties: Rhiannon Leigh Gray by her Tutor Kathleen Anne Gray Corey Edward Richards Representation: Counsel A Morrison SC with I McGillicuddy (plaintiff) P Deakin QC with B Kelleher and K James (defendant) Solicitors Shine Lawyers (plaintiff) TL Lawyers (defendant) File Number(s): 2009/338685 Publication restriction: None Judgment 1These are proceedings for negligence arising out of a motor vehicle accident in which Rhiannon Gray sustained an extremely severe traumatic brain injury. The defendant's liability is admitted. A hearing to assess damages commenced before me on 1 August 2011. On the third day of the hearing, the parties reached agreement as to all components of damages claimed by the plaintiff except for the future cost of fund management. 2On 5 August 2011, Hoeben J approved the settlement, which provided for damages agreed in the sum of $10 million exclusive of fund management costs. After deduction of amounts payable to the Health Insurance Commission, Centrelink and the CTP insurer, the agreed part of the verdict will be $9,934,198.33. 3On 16 August 2011, I gave rulings as to the principal issues in dispute concerning the claim for fund management costs: see Gray v Richards [2011] NSWSC 877. At the request of the parties, I reserved two issues for later determination (see [15] of the judgment): (a) the rate of fees at which the final calculation of future fund management costs should be undertaken; (b) whether any sum should be deducted from the proposed verdict as being likely to be paid out early in the life of the fund. 4This judgment determines those issues. Context in which the issues arise 5There is no dispute that the plaintiff is unable to manage her affairs as a result of the defendant's negligence and that she is entitled to some award for the future cost of fund management. 6The plaintiff claims an amount calculated by reference to the fees indicated by her chosen private financial manager, The Trust Company Limited. The defendant contends that the prescribed fees payable to the NSW Trustee under the NSW Trustee and Guardian Regulation 2008 are significantly less than those charged by private managers and that the plaintiff's award should be assessed on the basis of those lower fees. 7At the time I heard the issues determined in my earlier judgment, there was a substantial dispute between the parties as to whether the fees of the NSW Trustee are in fact as low as the defendant contends. Specifically, the plaintiff disputed that the fees prescribed in the Regulation disclose the whole cost of fund management borne by clients of the NSW Trustee. The plaintiff's expert actuary, Mr Plover, understood the Annual Report of that office to reveal the existence of indirect costs in the order of 0.5% per annum incurred by clients in addition to the fees prescribed in the Regulation. The defendant's expert, Mr Watt (a Chartered Accountant with considerable forensic accounting experience) disputed that conclusion. 8The parties sought an opportunity to adduce further expert evidence directed to that issue. The hearing of the two reserved issues was stood over to allow that to occur and also to abide the determination of an application in the Protective List of the Equity Division brought by the plaintiff's mother seeking the appointment of a manager of the plaintiff's affairs. 9On 2 September 2011, White J made orders in those proceedings pursuant to s 41 of the NSW Trustee and Guardian Act 2009 declaring the plaintiff to be a person incapable of managing her affairs and ordering that her estate be subject to management under the Act. On the application of the plaintiff's mother, his Honour appointed The Trust Company as manager of the plaintiff's estate and ordered that the proceeds of settlement and the amount of any judgment in these proceedings be paid to The Trust Company in its capacity as manager of the plaintiff's estate. 10Meanwhile, the experts exchanged a series of supplementary reports and conferred as to the further issues raised. A joint report dated 21 November 2011 was provided to the Court and on 25 November 2011, the experts gave further concurrent evidence. The result of those exchanges is that, in light of further information received, Mr Plover has accepted that his earlier understanding of the Annual Report was wrong. Accordingly, the dispute as to the extent of any additional costs of having a fund managed by the NSW Trustee (beyond the fees prescribed in the Regulation) has been substantially narrowed. Mr Plover maintains that clients of the NSW Trustee incur some indirect costs in addition to the fees prescribed in the regulation but accepts that those costs do not exceed 0.05%. 11The evidence of the experts on the issues that remain in dispute is considered below. Whilst maintaining different opinions as to the approach the Court should take on those issues, the experts agreed on the following figures: (a) if future fund management fees are allowed at the rates prescribed for the NSW Trustee, the appropriate award on the agreed part of the verdict is $1,286,000; (I note that the figure reached independently by Mr Watt was $1,284,000. Although Mr Watt stood by that figure in his evidence, he had agreed to the higher figure in the joint report as a compromise. I consider it appropriate to take the agreed figure recorded in the joint report.) (b) that, if the additional indirect costs identified by Mr Plover are allowed (an approach rejected by Mr Watt), the appropriate award on the agreed part of the verdict is $1,392,000; (c) that, if future fund management fees are allowed at the rates indicated on behalf of The Trust Company, the appropriate award on the agreed part of the verdict is $2,499,000. 12In each case, the agreed figures are discounted to present value at the rate of 5% in accordance with s 127 of the Motor Accidents Compensation Act 1999. Reserved reasons for admitting Mr Plover's reports 13As already explained, the further expert material served by the parties developed into a conversation which culminated in an acknowledgment by Mr Plover that his original understanding of the Annual Report of the NSW Trustee was wrong. The plaintiff nonetheless tendered all of the reports that had been served since the earlier hearing. To the extent that those reports recorded opinions subsequently abandoned or revised, the plaintiff did not rely upon that material to prove the opinions expressed but only on the basis that Mr Plover's subsequent reports did not make sense without it. I admitted that material limiting its use accordingly, in accordance with s136 of the Evidence Act 1995. That ruling applied to pages 1 to 9 of Mr Plover's report dated 14 October 2011 with the exception of section 3.1 on page 5. 14The balance of the report (section 3.1 on page 5 and pages 10 to 15) was pressed as being admissible without limitation, as was Mr Plover's report dated 16 November 2011. I admitted that material over objection by the defendant. In order to avoid detaining the experts (who were waiting to give evidence while the admissibility of their reports was argued), I reserved my reasons for that ruling. My reasons for admitting the material are as follows. 15Mr Deakin submitted that the opinions expressed by Mr Plover in the parts of his reports to which I have referred were speculative and did not emanate from his skill as an actuary. He submitted that the Court should accordingly not take the course suggested on behalf of the plaintiff (of admitting the totality of the material for convenience and addressing its proper use in submissions), but should reject the reports in their entirety. 16Mr Deakin relied in that respect on the recent decision of the High Court in Dasreef Pty Ltd v Hawchar [2011] HCA 21, in which the Court emphasised (at [42]) that a failure to demonstrate that an opinion expressed by an expert is based on his specialised knowledge is a matter that goes to the admissibility of the evidence, not its weight. 17Mr Deakin submitted that the evidence did not satisfy the second of the two requirements set out in the joint judgment in Dasreef at [32] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ, as follows: To be admissible under s 79(1) the evidence that is tendered must satisfy two criteria. The first is that the witness who gives the evidence "has specialised knowledge based on the person's training, study or experience"; the second is that the opinion expressed in evidence by the witness "is wholly or substantially based on that knowledge". The complaint which Dasreef made at trial, on appeal to the Court of Appeal and on appeal to this Court was that Dr Basden did not express an opinion about the numerical or quantitative level of exposure to respirable silica encountered by Mr Hawchar in working for Dasreef that was an opinion based on any specialised knowledge Dr Basden had that was based on his training, study or experience. 18In considering those requirements, the Court reiterated (at [37]) what was said by Heydon JA in Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at [85] where his Honour explained that, in order to be admissible, the "expert's evidence must explain how the field of 'specialised knowledge' in which ... [he] is expert by reason of his "training, study or experience" and on which the opinion is 'wholly or substantially based' applies to the facts assumed or observed so as to produce the opinion propounded". 19As acknowledged in Dasreef at [37], that requirement can in some cases be met very quickly and easily. Mr Plover's field of specialised knowledge is that he is an actuary. His training or study includes the attainment in 2009 of the status of a Fellow of the Institute of Actuaries of Australia. His professional experience includes calculations of life expectancies and values of future payments to individuals. He has experience in the preparation of economic loss reports since 2002. The defendant did not dispute that he has specialised knowledge in that field. 20In the parts of the report of 14 October 2011 objected to by the defendant, Mr Plover expresses opinions as to the possibility of future changes in the fees currently levied by the NSW Trustee. In section 3.1 of the report, Mr Plover expresses the following opinion: I note, however, that this fee basis is highly sensitive to reviews and restructures. The cap on management fees is not legislated and could potentially be removed at any time. Prior to 2004, the management fee was uncapped. In 2004, a cap of $50,000 was introduced and in 2009 this cap was reduced to $15,000. These alterations are very significant and current fee structures may not be representative of long-term operations. This issue is discussed further in section 4.1. 21In section 4.1 and following, Mr Plover identifies other respects in which, in his opinion, the continuity of the present fee structure of the NSW Trustee is uncertain. He refers to aspects of a review by the Independent Pricing and Regulatory Tribunal (IPART) of the fee structure of the former Office of the Protective Commissioner (known as the OPC, now merged in the Office of the NSW Trustee). In section 5 of the report, he expresses opinions based on those matters as to the likelihood of future increases in the fund management fees presently charged by the NSW Trustee. 22I admitted that material because I considered that the application of Mr Plover's field of specialised knowledge as an actuary to the material identified in his report, so as to produce the opinions expressed, was manifest. To put the matter in terms of the joint judgment in Dasreef , I was satisfied that the opinions expressed were wholly or substantially based on Mr Plover's specialised knowledge of the projection of future cost. The role of an actuary, as I understand that field of specialty, extends to the identification and quantification of risks of future variations to present costs for the purpose of making adequate but not excessive provision for such costs in the future. 23Separately, Mr Deakin submitted that the assumptions on which Mr Plover's opinions were based were speculative and inconsistent with the uncontested evidence of Mr Bernard Farrell, the Director of Finance and Client Funds Management at the NSW Trustee. I was not satisfied that was a reason for excluding the evidence. 24The importance of considering whether there is or will be proof of the facts and assumptions on which opinion evidence is based is discussed in the separate judgment of Heydon J in Dasreef . His Honour expressed the view at [108] that s 79 of the Evidence Act 1995 does not abolish the common law proof of assumption rule, which holds that if the assumptions on which an opinion is based are not proved, the opinion evidence is irrelevant (the joint judgment does not expressly address that issue). However, his Honour also noted that the Court may find the opinion relevant if evidence already tendered, taken with further evidence to be admitted at a later stage, makes it reasonably open to make a finding that the assumptions exist: s 57(1) of the Evidence Act 1995. 25For the reasons explained below, I did not think Mr Farrell's evidence left Mr Plover's opinions without any evidentiary foundation for the assumptions on which it was expressly based. The facts and assumptions on which the opinions were based included the statements made by IPART in a published report, Mr Plover's reading of the NSW Trustee and Guardian Act and the short experience of the changes effected by that Act. Plainly the force of his opinions must be measured against the reliability of those assumptions. That assessment necessarily includes careful consideration of the views of Mr Farrell as to the sustainability of the present fee structure. That assessment informs the weight of the opinion evidence, not its admissibility. 26The quantification of future costs is inherently speculative to a certain degree. Actuaries are thus prone to the accusation of overstatement or understatement, depending on the purpose of the relevant quantification. Plainly, I will need to take into account the inherent difficulty of the task of future cost projection in my assessment of the weight to be given to all of the evidence on that issue. I was nonetheless satisfied that Mr Plover's reports satisfied the test stated by Heydon JA in Makita and reiterated in Dasreef . 27Mr Deakin accepted that my ruling as to the report dated 14 October 2011 would govern Mr Plover's further report dated 16 November 2011. Onus of proof 28The parties disagreed as to the onus of proof and the test to be applied in determining the appropriate rate at which fund management costs should be awarded. Dr Morrison SC, who appeared with Mr McGillicuddy for the plaintiff, noted that the Court has already made orders (in the Equity Division proceedings) appointing The Trust Company as manager of the plaintiff's estate and ordering that the amount of any judgment in these proceedings be paid to The Trust Company in that capacity. In those circumstances, he submitted that the issue to be determined by me is whether, in choosing The Trust Company as manager of the estate, the plaintiff has failed to mitigate her loss. Dr Morrison submitted that the evidentiary and legal onus to show that the costs claimed are unreasonable thus rests on the defendant. 29Mr Deakin QC, who appeared with Mr Kelleher and Ms James for the defendant, submitted that it is for the plaintiff to prove her loss. He submitted that the onus rests with her to establish that the amount claimed should be allowed as damages for "the reasonable management fees of administering and managing the compromise sum", citing Willett v Futcher [2005] HCA 47; (2005) 221 CLR 627 at [6]. 30I have reached the conclusion that the proper approach is to determine the issue on the premise that the plaintiff bears the onus of proving that the costs claimed are reasonable costs of fund management in all the circumstances. Whilst plainly I should pay due regard to the fact that The Trust Company has been appointed manager of the plaintiff's estate by order of this Court, I do not think the making of that order was determinative as to that component of the plaintiff's claim, as to which she has carried the onus from the outset. Matters remaining in dispute between the experts 31A great deal of the further hearing time was taken up with objections and cross-examination in respect of the further evidence of the experts. Upon analysis, however, what remained in dispute between them at the conclusion of the hearing was within a relatively narrow compass. 32It was submitted on behalf of the defendant that the plaintiff's expert, Mr Plover, was an unreliable witness whose evidence should not be accepted. Some of the particular submissions made in that respect are considered below. By way of general observation, I would remark that, in my assessment, the expert evidence in these proceedings reflected well on both experts and was in some respects a good advertisement for the processes provided for in Division 2 of Part 31 of the Uniform Civil Procedure Rules 2005. 33The issue as to whether the fees prescribed for the NSW Trustee in the regulation disclosed the true cost of such fund management was first raised by Mr Plover at the earlier hearing based on his reading of the Annual Report of the NSW Trustee. The intervening exchanges between the experts, although at times tortuous and confrontational, ultimately distilled a small number of issues in a way that was helpful to the Court. The fact that Mr Plover acknowledged that he had been wrong in his original understanding, rather than reflecting adversely on his reliability as an expert witness, was in my view the measure of a successful process. Far from accepting the criticisms levelled on both sides, I would commend both experts for engaging constructively in that process, maintaining their opinions robustly where they saw fit, whilst each making appropriate concessions to the views of the other where appropriate. 34The remaining issues to be determined arising from the expert evidence are: (a) whether there are "indirect costs" incurred by clients of the NSW Trustee, additional to the direct fees prescribed in the Regulation, which ought properly to be included in any allowance for the reasonable costs of fund management by the NSW Trustee; (b) the degree of uncertainty as to the continuity of the present fee structure of the NSW Trustee; (c) whether the calculation of fund management costs should have been undertaken on a post-tax basis (the figures agreed by the experts, set out above, were calculated on a pre-tax basis). Whether future fund management should be calculated on a post-tax basis 35The third issue may be disposed of briefly. In the joint report, Mr Watt's opinion was recorded as follows: the deduction for income tax purposes of certain of the fund management costs incurred by the plaintiffs is a valid reason to quantify those costs on a post tax basis. To ignore the saving in income tax paid on assessable income as a result of the deduction of these expenses would, in Mr Watt's opinion, have the potential to overcompensate the plaintiff for the after tax costs (for the same reasons that loss of future earning capacity is compensated for on a post-tax basis). 36The plaintiff submitted that such an approach is wrong in law, citing Todorovic v Waller (1981) 150 CLR 402 at 409 where, in an introduction to the several judgments in that case, the High Court explained what the 3% discount rate denotes: 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. 37The plaintiff submitted that it should be inferred (having regard to the context in which the statutory discount rate of 5% was introduced) that the issue of taxation is taken into account in that rate. Although that statement in Todorovic refers only to tax on income from investment of the sum awarded, Dr Morrison submitted that, by the same reasoning, the statutory discount rate should be taken to comprehend considerations of taxation generally. 38As already noted, the figures agreed to by the experts in their joint report are discounted to present value. In my view, it would be inconsistent with the reasoning in Todorovic to quantify discounted fund management costs on a post-tax basis in the manner proposed by Mr Watt. Indirect costs 39The remaining expert issues are more difficult. The starting point of Mr Plover's evidence on the vexed issue of indirect costs was to observe that commercial fund managers are subject to enhanced fee disclosure obligations under the Corporations Amendment Regulations 2005 (No. 1). Those regulations require commercial managers to disclose their indirect costs, that is, fund management costs which, although not deducted directly from a client's account, are in fact fees incurred (indirectly) by the client. The result of those enhanced disclosure obligations is that the completeness of the fee basis of commercial fund managers is "not in dispute" (report dated 16 November 2011 at paragraph 8) and can be readily ascertained. 40The NSW Trustee, being a public trustee, is not subject to those disclosure obligations. Mr Plover is firmly of the opinion (which accords with common sense) that public trustees nonetheless do have indirect costs which have an impact on the return to clients. Mr Plover thus sought to quantify such costs for the NSW Trustee so as to provide a proper comparator with the cost of management by a commercial manager. 41The opinion expressed by Mr Plover at the earlier hearing based on his reading of the Annual Report was that, in addition to the prescribed fees, clients of the NSW Trustee pay an additional 0.5% by way of indirect costs as a result of the fact that the NSW Trustee outsources the financial management of its clients' funds to another entity, the State Street Financial Advisors (as explained below, he has since resiled from that opinion). 42The defendant served an affidavit sworn by Mr Farrell refuting Mr Plover's conclusion. Mr Farell's evidence was uncontested. Mr Farrell stated that there are 3 types of fees levied on clients directly managed by the NSW Trustee: (a) an establishment fee of 1% for the first year only, capped at $3,300; (b) an annual management fee of 1.1% of "chargeable assets" capped at $15,000 per annum; (c) an investment fee of 0.5% charged to the various investment funds held by the NSW Trustee. 43Mr Farrell further stated that there are no additional fund management fees. He said that the only other charge levied on investments is the cost of bank and Austraclear fees, which are borne by the fund and therefore indirectly by clients of the NSW Trustee. He stated that in 2010-2011, those costs totalled 0.013% of the value of the total funds under management in that fund. 44Mr Plover prepared his further report dated 14 October 2011 after receiving that affidavit. In his further report, Mr Plover attempted to quantify the indirect costs of the NSW Trustee using material obtained by the plaintiff on subpoena. He concluded that an assessment of the cost of fund management for clients of the NSW Trustee should include an allowance of between 0.293% and 0.533% per annum for indirect costs. However, after reviewing a further affidavit sworn by Mr Farrell and a further report from Mr Watt, both dated 3 November 2011, Mr Plover revised his opinion so as to exclude one of the items (the largest) on which that opinion was based. Mr Plover was careful to explain how his original understanding arose and how he had been persuaded by the provision of additional material to a different understanding. 45Whilst abandoning one of the components of the indirect costs he had identified, Mr Plover maintained his opinion that some allowance should be made for indirect costs. He noted by reference to paragraph 30 of Mr Watt's report dated 3 November 2011 that, for the three financial years ending 30 June 2006, 2007 and 2008, the financial statements of the OPC revealed a difference between the gross and net return on assets attributable to clients. Those results reinforced Mr Plover's opinion that some additional amount for indirect costs ought to be allowed, since they demonstrated the incorrectness of the contention that the only fees borne by clients in those years were the direct fees fixed by the Regulation. 46Ultimately, the experts agreed on an appropriate allowance for indirect costs should they be compensable (see paragraph 27 of the joint report). The agreed figure was based on the existence of three items not included in the prescribed fees. The three items were bank fees, Austraclear fees and/or transfers to the NSW Trustee's reserve fund. However, the experts disagreed as to whether those items constitute a compensable cost of future fund management. 47Mr Plover contends (in effect) that, regardless of the internal treatment of those amounts, they represent a reduction to net investment return to clients of the NSW Trustee and so are compensable. 48Mr Watt gave several reasons for not allowing such costs. As to the first two items, Mr Watt had calculated the impact of bank and Austraclear fees as a percentage of assets attributable to clients of the former OPC over a longer period than that referred to in Mr Farrell's first affidavit (see paragraph 13 of Mr Watt's report dated 3 November 2011). He concluded that such fees are not capable of precise calculation. That was his first reason for not allowing them. He noted further that, according to the evidence of Mr Farrell, they have a negligible impact on net client distributions. 49Mr Watt also expressed the opinion that, because plaintiffs in general do not receive compensation for future bank and like charges, even though they are likely to incur such costs, it is not necessary to make specific allowance for them. He suggested that the allowance of such costs amounted, in effect, to an adjustment to the discount rate of 5%. 50The third item in the agreed figure in the joint report related to Mr Plover's identification of amounts transferred from the NSW Trustee's Interest Suspense Account (which holds interest and capital realisations from assets of the Common Fund) to the Reserve Fund. Mr Plover regarded those transfers as equating to an indirect cost to clients. Mr Watt disagreed. He relied in that respect on the evidence of Mr Farrell, who stated that, rather than there being any cost to clients due to transfers to the Reserve Fund, the fund has been and continues to be used to increase the interest pool available to clients, since it earns substantial interest each year. Mr Watt expressed the view that the Reserve Fund "sits on the balance sheet" of the Common Fund and thus regarded transfers to the Reserve Fund merely as balance sheet transfers rather than as costs to clients. Mr Plover's response was that returns from the Reserve Fund are less than the amounts transferred to that fund. 51Leaving aside those different opinions, the experts agreed that if an allowance should be made for indirect costs (meaning bank and Austraclear fees as well as reserve fund transfers), the allowance should be 0.05% per annum. 52I confess I have not found this issue easy to determine. As to bank and Austraclear fees, the plaintiff submitted that Mr Watt's opinion (that no allowance should be made for bank and Austraclear fees because all plaintiffs incur such fees) was inconsistent with the decision of the High Court in Willett v Futcher at [51]. There, the Court said: The damages to be awarded are to be calculated as the amount that will place the plaintiff, as far as possible, in the position he or she would have been in had the tort not been committed. That requires comparison with the position the plaintiff would have been in without the award by the lump sum for damages. It does not, as the distinction adopted by White J supposes, require or permit comparison with the position that the plaintiff would have been in had the disabling injuries not been sustained but the plaintiff nonetheless had a lump sum to invest. That comparison is irrelevant and inept. In the ordinary course a person who is not injured will not have to husband a large sum of money over a long period of time in such a way as to insure an even income stream but the complete exhaustion of the fund at the end of the period. [emphasis in original] 53I accept the submission that Mr Watt's point is inconsistent with that statement. In my view, the fact that all plaintiffs will incur bank fees is no answer to the point that the plaintiff will incur such fees (and accordingly suffer a reduction in the value of the damages awarded) as a result of the defendant's negligence. 54Conversely, however, the effect of Mr Farrell's evidence seemed to be that such fees do not in fact have more than a negligible impact on returns to clients of the NSW Trustee, due to the way in which the various funds are managed. Further, there may be force in Mr Watt's suggestion that such fees fall within the class of future offset intended to be comprehended within the statutory discount rate of 5%. The purpose of fixing such a rate, which is to a degree arbitrary, is to approximate the net impact of a variety of future imponderables capable of affecting the adequacy of a particular fund, and so obviate the need for the kind of complex and detailed evidence that has been given in this case. 55As to transfers to the Reserve Fund, as I understand the dispute, it comes down to a difference of characterisation. Mr Farrell says that, since the funds are a transfer from an account that dates back to 1941 and has not been added to for many years, he does not see how they can be characterised as an indirect cost to clients of the NSW Trustee. Mr Watt says essentially the same thing in regarding them as merely balance sheet transfers. Mr Plover says they are amounts which reveal a deduction to net investment return to clients of the NSW Trustee, and so should be characterised as indirect costs. 56Although there is logic in Mr Plover's reasoning, after much deliberation on this issue I have ultimately not been persuaded that the agreed figure of 0.05% represents a reliable quantification of compensable indirect costs incurred by clients of the NSW Trustee. It seems clear enough from the three years' earlier financial statements of the OPC that some indirect costs were incurred by clients during those years. Much has changed since then. The present difficulty is that, in the absence of enhanced disclosure obligations of the kind that apply to commercial fund management, Mr Plover's efforts have been unsuccessful in revealing a figure for indirect costs on which I can confidently rely in respect of the present management of funds by the NSW Trustee. 57Since I have decided to award fund management costs at the rates of a private trustee (for the reasons explained below), it is not necessary to decide this issue. In case my conclusion on that issue is wrong, I indicate that, had I been satisfied that the appropriate rates were the rates charged to clients of the NSW Trustee, I would not have been satisfied that I could properly award any sum for indirect costs. Uncertainty as to the present fee structure? 58In his report dated 14 October 2011, Mr Plover identified a number of matters which in his opinion pointed to uncertainty as to the continuity of the present fee structure of the NSW Trustee beyond the short to medium term. He said: In conclusion, while all fund manager fee bases contain future uncertainty, I believe that the level of future uncertainties present in the NSW T&G current fee basis is so high that it would not be prudent to use it when calculating values of long-term fund management. 59Mr Plover pointed to a number of matters to support that conclusion. His opinion was summarised in the joint report as follows: 55. Mr Plover is of the opinion that, while any calculation of future events has a large element of uncertainty, it is critical to address any concern that an established sum is understated or overstated, and to attempt to adjust it accordingly. 56. Excerpts from page 3 of the September 2008 IPART's review (referred to by Mr Plover in his reports dated 14 October 2011 and 16 November 2011) recommend that a more cost-reflective NSW T&G fee structure ought to be considered in a future fee review. 57. Examining Ms Gray's circumstances: she has a high degree of impairment and is therefore likely to have higher than average service needs. This fact is not reflected in the temporary, capped management fee of the NSW T&G she has a higher than average net worth and therefore any removal or relaxation of the current, temporary fee caps will result in substantial increases in her costs of management under the concept of "affordability funding", her large awarded sum is likely to preclude her from benefiting from the current and future subsidies that may be implicit in the current NSW T&G fees structure 58. It is therefore Mr Plover's view that, applying the current fee and cost structure of the NSW T&G is highly likely to understate the future fund management costs to Ms Gray. Consequentially, a suitable assessment of Ms Gray's investment costs can only be established by allowing a large range of uncertainty in future potential fee regimes (as Mr Plover has attempted to do in paragraph 29 [sic: 30] above). 60Mr Plover's reliance on the IPART review included his conclusion from that review that the current fee structure (including the $15,000 cap on the annual management fee of 1.1% in 2009) is temporary. He placed considerable emphasis on the expectation that a further review by IPART will see the introduction of "a more cost-reflective structure in the future". 61The defendant noted that the IPART review related to the OPC before its merger with the NSW Trustee which, according to the uncontested evidence of Mr Farrell, has seen increased efficiencies and economies of scale. 62The defendant submitted that Mr Plover's opinion as to what may happen in the future of the NSW Trustee based on IPART's review of the OPC was "utterly speculative". It was further submitted that the opinion was inherently illogical: if, as Mr Plover believes, there exists uncertainty as to whether the NSW Trustee's fee structure may be the subject of a recommendation by IPART for change in the future, it necessarily follows that there is uncertainty as to what the outcome of any such recommendation might be. The defendant submitted that it was inherently illogical for Mr Plover, whilst acknowledging uncertainty in that respect, to venture the opinion that the true cost of fund management by the NSW Trustee is likely to be higher than presently asserted in the prescribed rates. 63I do not accept that the position adopted by Mr Plover was inherently illogical. What Mr Plover purported to do, in the application of his expertise, was to identify risks and possibilities and to express his opinion as to the likely path of events on the basis of those risks and possibilities. It does not follow from his concession that the future is uncertain that any such opinion is merely guesswork. Mr Plover explained his reasons for thinking that the fees charged by the NSW Trustee will probably increase, but accepted that this was a matter of his judgment (T304-305 and 309-310). 64Mr Watt's opinion on this issue was summarised in the joint report as follows: 59 Mr Watt is of the opinion that the issue of uncertainty requires speculation about the future which is a matter for legal submissions and a determination by the Court rather than a matter for expert opinion. Suffice to say that in Mr Watt's opinion the fee structure of the NSWT&G as it currently stands: (a) is well documented in the legislation and the various factsheets and other publications of the NSWT&G; ` (b) is understood by all parties; (c) has been in place for a number of years albeit with several adjustments to the cap placed on the management fee (it is worth noting that, historically, the adjustments to the cap on the management fee have effectively lowered the annual management fee cost to those clients of the OPC / NSWT&G with larger balances). 65Due weight must be given to the evidence of Mr Farrell which, as already noted, was uncontested. Mr Farrell noted that the process for any change in the fee structure involves considerable work and a large degree of research, community consultation and benchmarking with other States. He noted that IPART was not due to revisit the issue until at least 2014. 66Mr Farrell further stated: financial results since the merger combined with the availability of funds from the Public Trustee Interest Suspense Account indicate the current level of government subsidies is sufficient for the NSWTG to maintain the current fee structure for a good number of years. 67It 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. 68Separately, Mr Plover relied upon his reading of sections 106 and 109 of the NSW Trustee and Guardian Act , which prompted him to the conclusion that the NSW Trustee has an unfettered discretion to charge indirect costs of the kind discussed above in the future. I think it would be undesirable for me to express a concluded opinion on the proper construction of that legislation in a proceeding of this kind and in the absence of the NSW Trustee as a party. It is perhaps enough to observe that, if the legislation confers the discretion contended for on behalf of the plaintiff, Mr Farrell's uncontested evidence supports the conclusion that the NSW Trustee does not presently exercise that discretion as a method of meeting the indirect costs of fund management. 69It is of course impossible to know with any certainty what the course of the future will be on that issue. A degree of speculation is inherent in the task of quantifying future costs over such an extended period. The assumption adopted on behalf of the defendant (that the fees will remain constant) is equally speculative. The task is to do the best I can, weighing those competing predictions. 70I 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. 71To a small degree, that conclusion has informed my conclusion as to the next issue. What is the proper allowance for fund management fees? 72There are other considerations that must be taken into account in determining the proper allowance. As already noted, I do not think the fact that the Trust Company has been appointed as the manager of the plaintiff's estate is determinative of the reasonableness of the amount claimed on that account, but plainly it is relevant. It indicates, at the very least, that the Trust Company is an appropriate manager of the estate. 73Separately, evidence adduced on behalf of the plaintiff explained that the choice of a private manager was informed, in part, by prior difficulties encountered by the plaintiff's mother in dealing with the NSW Trustee. Without descending to the detail of that evidence, it amply explained Mrs Gray's preference to engage a private trustee. In my opinion, her decision in that respect was entirely reasonable. The defendant does not contend otherwise but takes issue only with the plaintiff's entitlement to be compensated for the full cost of that choice. 74The parties did not identify any earlier decision in which the Court has had to determine a disputed claim for the cost of a private manager by a person whose estate is subject to management under the NSW Trustee & Guardian Act . Dr Morrison drew my attention to a number of decisions in which the cost of a private manager has been allowed. However, in each of those, there was doubt as to whether the plaintiff was sufficiently disabled as a result of the defendant's negligence as to be declared incapable of managing his affairs under the relevant protective legislation: see Mortimer v Burgess (1997) 25 MVR 463; The Nominal Defendant v Martin (1997) 26 MVR 474. 75The defendant invited the Court to adopt the same approach as was adopted by Smart AJ in Tu Tran v Dos Santos (No. 2) [2009] NSWSC 336. In that case, the plaintiff sought an amount of $108,828 as the cost of having a fund of $1.2 million managed by ANZ Trustees as a private manager under the OPC. The defendant submitted that the allowance should be limited to $82,300, being the cost of having that fund managed by the OPC (at [43]). 76However, those figures were not properly comparable. The defendant's figure (evidently the subject of evidence before Smart AJ from Mr Watt, the defendant's expert in this case) did not make any allowance for future earnings on the fund or for inflation. The plaintiff's figure evidently made allowance for both earnings and inflation but at different rates. It allowed for assumed earnings of 7.65% (apparently based on existing rates) but also assumed inflation at the 3% discount rate prescribed in Todorovic . Neither is consistent with the approach I have taken in this case (see my earlier judgment especially at [55] and [73]) but more importantly for present purposes, it must be recognised that the figures presented to Smart AJ did not compare like with like. 77In determining the claim, his Honour took into account the particular difficulties faced by the plaintiff's tutor, including the fact that the plaintiff would not be able to confer directly with the trustee because of his injuries; the fact that the his brother and mother were Vietnamese and had poor English; and the fact that there would be difficult choices to be made for the plaintiff because his verdict was to be reduced by 60% for contributory negligence. His Honour appears to have accepted (at [49]) that a private manager may be better placed to meet those difficulties. 78His Honour concluded (at [51]): Given the circumstances of the tutor and the plaintiff I can well understand the preference submitted on behalf of the plaintiff [to engage a private manager]. I have to weigh the lesser financial burden of fund management by the OPC and the need for the fund manager to be able to spend time with those acting on behalf of the plaintiff and others (including the nursing home) to resolve the difficulties which are likely to arise. While financial considerations are important, there are also other factors. In all the circumstances, I allow $98,000.00 for the costs of fund management. That represents the reasonable cost of funds management and does not include services the defendant should not be required to meet. 79It may be noted that the sum allowed by his Honour was just over the half-way point between the amount proposed by the plaintiff and the defendant. As already noted, however, those figures were not properly comparable. 80In the circumstances, I confess it is not clear to me which aspect of the reasoning of Smart AJ the defendant intended to commend for my adoption. His Honour awarded more than the cost calculated at the rates prescribed for the OPC. Smart AJ was evidently persuaded in that respect by the higher level of personalised service commanded by the particular case. 81Conversely, upon analysis, a factor evidently contributing to his Honour's refusal to allow the whole amount claimed by the plaintiff was the fact that part of the need for a higher level of personalised service was the complexity of meeting the plaintiff's needs from a fund that had been substantially reduced on account of the plaintiff's contributory negligence. No such issue arises in the present case. All of the fund management services required by the plaintiff are due to the negligence of the defendant. 82In the present case, I am satisfied, having due regard to the orders made by White J, but also on the strength of the evidence before me, that the tutor's choice of a private manager was entirely reasonable. In those circumstances, I accept, as submitted by Dr Morrison, that this is not a case for "splitting the difference" as Smart AJ did in Tu Tran . 83The plaintiff invited the Court to consider that there may be a range of fund management costs, all of which are fair and reasonable. Dr Morrison relied in that respect on the decision of the Court of Appeal in Stocovaz v Fung [2007] NSWCA 199 at [37] per Handley AJA, Hoeben J agreeing. 84Stocovaz was concerned with the cost of repairing a Mercedes Benz, as to which, unsurprisingly, the evidence revealed a range. Mr Deakin submitted that the decision should be confined to its particular field and is unsuitable to be applied in the present case, where the services required by the plaintiff are available from a public trustee who is not driven by any profit motive. 85Mr Deakin submitted further that the extent of the difference between the plaintiff's figure and the defendant's figure for fund management in the present case is so great as to point to the conclusion that the amount claimed by the plaintiff is unreasonable. To that submission may be added the observation that none of the cases that have been drawn to my attention have involved an allowance for fund management costs in the order of those now claimed, which slightly exceed 25% of the fund to be managed. 86That 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. 87Mr Deakin reminded me of the statement of Barwick CJ in Arthur Robinson (Grafton) v Carter (1968) 122 CLR 649 to the effect that the plaintiff is entitled not to what is ideal but to what is reasonable to satisfy her requirements. In all the circumstances, the plaintiff has satisfied me that, in the particular circumstances of this case, her claim for the cost of fund management by The Trust Company is reasonable and should be allowed. 88Mr Deakin noted that the only evidence before the Court is a statement of indicative rates (see letter dated 17 August 2010 from the Trust Company to the plaintiff's solicitor, Ms Henderson). The letter expressly states that no allowance has been made in the rates indicated for a reduced management fee or percentage charge applicable against the value of a freehold residence (I apprehend such allowance would routinely be made by analogy with the concession in the rates charged by the NSW Trustee that the annual management fee of 1.1% applies only to "chargeable assets"). 89Separately, Mr Deakin noted that there is no evidence that The Trust Company will in fact charge the rates indicated in the present case and would not take the engagement in what is plainly a large estate for any lesser rate. In my earlier judgment at [37], I gave leave to the plaintiff to adduce further evidence directed that issue. I do not know whether that issue was overlooked in the flurry of further expert evidence or whether the absence of evidence on that issue reflects a choice. I do not think that I should speculate on that issue. Since the parties have asked me not to make final orders in this judgment (given the need for further calculation) I think I should hear the plaintiff further on that issue. Quantum of the fund 90The second issue reserved from my earlier decision is whether, for the purpose of calculating the fund management component, any sum should be deducted from the proposed verdict as being likely to be paid out early in the life of the fund (and thus unlikely to attract ongoing management fees). 91The defendant submitted that the following sums should be excluded from the calculation of the fund: (a) the sum of at least $200,000.00 representing additional solicitor and client costs (being the amount of such costs identified by the plaintiff at the approval hearing before Hoeben J on 5 August 2011); (b) $373,000.00 or alternatively at least $200,00.00 representing the past Griffiths v Kerkemeyer damages payable to the plaintiff's mother. In his reasons for approval of the settlement at [15], Hoeben J stated that he would be prepared to recommend to the trustee that such an amount be paid out to the plaintiff's mother "in due course"; (c) an amount to represent the likely cost of house modification and the installation of a swimming pool. The defendant relied upon the fact that, in the particulars of damages handed up by the plaintiff during the hearing before the case was settled, there was an agreed figure for that item of $512,500.00. Acknowledging that the agreed sum included an allowance for recurring costs, the defendant submitted that a reasonable proportion of that amount to be taken out of the fund would be approximately half, namely, $250,000.00 for the capital cost of a house and a swimming pool. 92Separately, the defendant submitted that no allowance should be made in the calculation of future fund management costs for the management of those parts of the verdict that reflect past loss (the non economic loss and past Griffiths v Kerkemeyer damages). The defendant acknowledged, however, that its submission on that issue was addressed in my earlier judgment at paragraphs [62] and [63]. It is not necessary to consider that issue further. 93It should be noted that, by order 7 made by White J on 2 September 2011, the amount of the judgment in these proceedings in favour of the plaintiff must be paid to The Trust Company in its capacity as manager of the plaintiff's estate. The defendant did not seek any order of this Court that any part of the money to be recovered on behalf of the plaintiff be paid directly to any person other than the manager. 94The consequence of those matters is that the whole of the initial fund of $9,934,198.33 must be paid to The Trust Company and accordingly any pro rata initial fee will be calculated on the whole of that amount. 95The plaintiff submitted that it is a matter of pure speculation whether or when any of the payments identified by the defendant will be made. It was noted that the manager has an obligation to manage the fund so that it lasts for the remainder of the plaintiff's life where her agreed life expectancy is 67 years. Mr Plover gave evidence that, on the fiction of regular drawings, there would be an annual drawdown of $500,000. The future cost of fund management would only be reduced if draw-downs early in the life of the fund exceeded $500,000 per year. Dr Morrison submitted that prudent management of the fund would oblige the trustee to prevent that from occurring. 96The plaintiff relied on the approach taken by the Court of Appeal in Government Insurance Office of NSW v Rosniac (1992) 27 NSWLR 665. Dr Morrison noted that, in Nimh Heip Tran by his Tutor Thi Lien Kieu Le v GIO (unreported, NSW Supreme Court, 9 August 1994) at pages [2] to[4], Carruthers J felt bound by the decision in Rosniac to include in the fund all elements apart from some out of pocket expenses. 97In my view, the approach contended for by the plaintiff is appropriate and carries the support of the weight of authority. The decision in Rosniac , if not binding, provides commanding support for the view that the Court should be slow to pre-empt the decisions of a trustee charged with the prudential management of a large sum of money that is required to meet the needs of a severely disabled plaintiff over a lengthy period of time. 98It may be acknowledged that the solicitor/client component of the plaintiff's costs is likely to be paid within the next one to two years but it is not possible for me to predict with any confidence whether that will carry the expenditure of the fund over the critical $500,000 point in any individual year. The likelihood of payment of capital costs for house modification and a swimming pool is speculative, in my view, as is the question of when and whether any payment might be made to the plaintiff's mother for past Griffiths v Kerkemeyer damages. I am not satisfied that it is appropriate to deduct any sum from the verdict for the purpose of calculating future fund management costs. Orders 99The parties invited the Court to make a direction upon publication of these reasons requiring the parties to undertake the necessary calculations to give effect to the judgment and to bring in an appropriate form of order. I make that direction. 100I note that the defendant submitted that the orders made should include an order under section 79 of the Civil Procedure Act in the following terms: That of the total verdict of $X million, it is noted that I have allowed $Y million as fees payable to the trustee. 101It was submitted that such an order should be made, explicitly noting the component of the fund allowed by the Court for future fund management costs, because it is important that the Trust Company know what are the components of the fund. 102I am not persuaded that it is either necessary or appropriate to make an order in those terms. The verdict will not otherwise give separate articulation to any allowance for future expenses. I see no reason why the future cost of fund management should be treated differently. Mr Deakin's submissions on that issue reflected his disagreement with my earlier judgment at [24] where I stated that the payment to the manager of the fund management component of the damages award is not made by way of payment in advance to be held by the manager beneficially on account of his future fees. 103I will hear the parties as to costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 December 2011