GDR v EKR

Judgment 1HIS HONOUR: This is an application for a declaration that the defendant, EKR, is incapable of managing her affairs and an order that her estate be subject to management pursuant to the NSW Trustee and Guardian Act 2009 (NSW). I am satisfied that in due course that declaration and order should be made. 2EKR sustained injuries in a road traffic accident on 29 March 1999 when she was a young child. She commenced proceedings in the District Court in relation to the injuries she suffered. Those proceedings were resolved by way of a settlement that was approved by the District Court. EKR is entitled to settlement moneys in excess of $2 million. I am satisfied on the medical evidence that she is not capable of managing her affairs, nor capable of managing the ordinary routine affairs of man or woman. 3The plaintiff is EKR's father. He also seeks an order that management of her estate be committed to Ability One Financial Management Pty Ltd ("Ability One Financial Management"). The issue on the application is whether that company should be appointed as financial manager. I have made an interim order appointing the NSW Trustee and Guardian as receiver and manager of the defendant's estate. 4Ability One Financial Management is not a trustee company. It is a wholly owned subsidiary of Ability One Pty Limited ("Ability One"). Mr Grant White is the chief executive officer of Ability One. He deposed that that company was incorporated in 1998 and provides financial and life planning services on behalf of persons who receive a significant settlement sum as the result of a catastrophic personal injury. He deposed that it acts under licence from Charter Financial Planning Limited ("Charter"), a subsidiary of AXA. Charter audits the activities of Ability One every six months and independently approves all financial plans prepared by Ability One's financial planners. The fee payable to Charter is paid from fees charged by Ability One and is not an additional fee. Ability One acts as a corporate authorised representative of Charter. Charter holds a financial services licence. In November 2009 Ability One Financial Management was incorporated as a wholly owned subsidiary of Ability One. The sole activity of Ability One Financial Management is to undertake tasks of a financial manager pursuant to an appointment by a court or the Guardianship Tribunal. 5I had reservations concerning the application. I gave an interim judgment stating as follows: "2 On the materials filed I am not presently satisfied that an order ought to be made appointing Ability One Financial Management Pty Ltd to be manager of the defendant's estate. 3 There is no evidence as to whether Ability One Financial Management Pty Ltd holds a financial services licence. Prima facie, and subject to any submission that might be made to the contrary, I would have thought that such a licence would be required. 4 Secondly, it appears that if appointed financial manager, Ability One Financial Management Pty Ltd would propose to charge an establishment fee and an ongoing management fee. The NSW Trustee and Guardian and trustee companies have a statutory entitlement to charge fees (NSW Trustee and Guardian Regulation 2008; Corporations Act 2001 (Cth), s 601TBA). Ability One Financial Management Pty Ltd is not a licensed trustee company. Subject to any submissions that may be made, I should have thought that a private manager is not entitled to payment of remuneration (as distinct from reimbursement of expenses) out of the estate of a protected person unless the Court (or in limited circumstances, the NSW Trustee and Guardian) so orders (NSW Trustee and Guardian Act, s 115; The Lady Mary Cope's Case (1677) 2 Ch Cas 239; 22 ER 926; Ex P Femor; In the matter of Errington (1821) Jac 404; 37 ER 903; Re Westbrook (1848) 2 Phil 631; JJK v APK (1986) Aust Torts Reports 80-042 at 67,881; G v B (Supreme Court of New South Wales, Powell J, 27 May 1992, unreported)). 5 In the last case, Powell J said that 'It is contrary to long established practice ... to appoint a private manager with remuneration, and such a manager will be appointed only where absolutely necessary.' 6 I note that in 2010 an associate judge appointed Ability One Financial Management Pty Ltd as financial manager of a protected estate. It does not appear that any reasons were given for the appointment. I am also informed that the company has been appointed as financial manager by the Guardianship Tribunal on ten occasions between 8 March 2010 and 23 May 2011. I do not know on what basis those appointments were made. 7 It is not clear from the information provided as to whether Ability One Pty Ltd would charge for the service of investing the defendant's assets, or otherwise providing services to Ability One Financial Management Pty Ltd on behalf of the defendant. I infer from paragraph 20 of Mr White's affidavit that Ability One Pty Ltd does charge fees for its services. It is not clear whether this is in addition to the fees Ability One Financial Management Pty Ltd would seek to charge as deposed to in paragraph 58 of his affidavit. 8 There is no evidence as to the investment strategy Ability One Financial Management Pty Ltd or Ability One Pty Ltd proposes. 9 Rule 57.5(1)(c) of the Uniform Civil Procedure Rules requires affidavits of at least two persons as to the fitness of the proposed manager. The affidavits of Messrs Meyers and White, who are officers of the proposed manager, do not satisfy this requirement. The affidavits of fitness of the proposed manager must be by persons who are not the manager's agents. 10 I will receive any further evidence or submissions that either the plaintiff or Ability One Financial Management Pty Ltd may wish to make as to whether I should appoint that company as financial manager. If it is not appointed financial manager, the plaintiff should consider whether he would wish a trustee company or the NSW Trustee and Guardian to be appointed, and if the former, to obtain the necessary consent." 6I have since received further evidence and submissions. I have received submissions not only from the plaintiff, but from Ability One Financial Management. The plaintiff's submission is that the express preference of the family members significantly favours the appointment of Ability One Financial Management. The plaintiff's solicitor, Mr Levenson, recommended Ability One to the plaintiff. The plaintiff has met with Mr White of Ability One. The plaintiff is impressed by the proposals made on behalf of Ability One and considers that they offer a practical, sensible and personalised approach to management. Ability One has agreed to cap its fees to the amount which was allowed in the settlement of the defendant's claim for damages as a sum for financial management. Mr Levenson and another solicitor, Mr Tanner, have provided testimonials as to the integrity and expertise of Ability One and Ability One Financial Management and their directors. 7The further evidence provided addressed the issues raised in the first interim judgment. I received the proposed investment plan, which raised a further issue as to conflicts of interest and duty. 8In the course of its submissions in response to my first interim judgment, Ability One Financial management proposed the following orders: "2. Pursuant to section 41(1)(a) of the Act, that the estate of the protected person to be subject to management under the NSW Trustee and Guardianship Act 2009 ('the managed estate'). 3. The plaintiff's costs be paid from the estate of the protected person. 4. Pursuant to section 41(1)(b) of the Act, that Ability One Financial Management Pty Ltd ACN 113553 852 ('Ability') be appointed as manager of the estate of the Defendant ('the management'). 5. That the Registrar of the District Court of New South Wales pay to Ability (subject to paragraph 8 below) all funds held on behalf of the protected person, being the net proceeds of the settlement funds together with any interest accrued in proceedings No 2010/227750. 6. Pursuant to section 68 of the Act, that Ability give such security to the NSW Trustee and Guardian in respect of the management of the managed estate as the NSW Trustee and Guardian determines appropriate ('the security'). 7. Pursuant to sections 64 and 65 of the Act, that: (a) the managed estate be held on trust by Ability for the Defendant; (b) any funds held on trust by Ability pursuant to Order 7(a) above, be held in a separate designated account in the name of 'Ability One Pty Ltd ATF Ebony Ritchie'. 8. Pursuant to section 64(1) of the Act, that Ability be authorised to exercise the functions set out in section 16(1)(a) to (y) (inclusive) of the NSW Trustee and Guardian Act 2009 when acting in its trust capacity with respect the managed estate. Supervision Orders 9. Pursuant to section 64(3) of the Act, that: (a) Ability submit to the NSW Trustee and Guardian annual accounts in a form prescribed or approved by the NSW Trustee and Guardian; (b) Subject to any further direction or authority issued to Ability by the NSW Trustee and Guardian, that Ability not make expenditures from the managed estate of greater than $10,000 without the prior approval of the NSW Trustee and Guardian; (c) the management otherwise be subject to such supervision by (and reporting to) the NSW Trustee and Guardian in relation to the affairs of the managed estate, as the NSW Trustee and Guardian directs in writing to Ability. (d) That any commission paid by to any advisor of the managed person as the result of an investment in any financial product is to be rebated to the managed estate. 10. That Ability provide a copy of these orders to the NSW Trustee and Guardian. Remuneration Orders 11. Pursuant to section 115(1)(b) of the Act, that Ability be entitled to remuneration from the managed estate in respect of: (i) an establishment fee in relation to the managed estate; and (ii) a management fee in relation to the managed estate, calculated and paid in accordance with the schedule of fees annexed and marked 'A', subject to: (iii) prior authorization and approval by NSW Trustee and Guardian of that establishment fee and the schedule comprising Annexure 'A'; (iv) order 12(b). 12. Pursuant to section 115(1)(b) of the Act, that: (a). Ability be entitled to reimbursement of any expense and establishment fee to be charged to Ability by Ability One Pty Ltd for services it provides to Ability, subject to prior approval by the NSW Trustee and Guardian; (b). Ability's total entitlement to remuneration under order 11 and reimbursement under order 12(a) above, is capped at (and must not exceed) $396,000 over the lifetime of the protected person. 13. Liberty to restore the proceedings to the Protective list of the Court for any orders necessary to give effect to these directions." 9After I raised further issues about the need for a financial services licence and the existence of a potential conflict between Ability One Financial Management's duty and interest, it proposed a modification of those orders. I deal with that below.