Gray v Richards [2012] NSWSC 344 | Case summary

Defendant's application 4Subject to one matter, the defendant does not dispute that the plaintiff is entitled to an order for costs in her favour, as contemplated by r 42.1 of the Uniform Civil Procedure Rules 2005. That rule provides: 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 5The defendant submitted that the Court should make a different order in respect of the costs of an issue raised by the plaintiff's expert, Mr Plover, concerning the fees charged by the NSW Trustee & Guardian. It was submitted that this was a "dominant or severable issue" in my judgment given on 8 December 2011 which consumed the overwhelming part of the time and costs involved in the further hearing. It was further submitted that the allegation raised by Mr Plover was unsustainable and ultimately unsuccessful and that the plaintiff's persistence in maintaining the allegation warranted departure from the general rule. 6The order sought by the defendant was that, as and from 8 August, or alternatively 16 August 2011, the plaintiff pay the defendant's costs. Alternatively, it was submitted that there should be no order in favour of the plaintiff for her costs of the proceedings from those dates. 7A separate alternative claim in the defendant's written submissions was that the costs of the issue should be borne by the plaintiff's solicitors in accordance with the decision of the Court of Appeal in Lemoto v Able Technical Pty Limited [2005] NSWCA 153. However, neither party addressed that contention in oral submissions. If maintained, that issue will have to be determined separately. 8The defendant's written submissions referred to a series of authorities in which a successful party has been ordered to pay the costs of an unsuccessful party on a discrete issue. In argument, the defendant considered it necessary to take the Court to only one of those: Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at p 615 per Mason P and Laguillo v Hayden Engineering Pty Ltd [1978] 1 NSWLR 306 at p 308 (the latter only in passing). 9The decision in Rosniak relied upon by the defendant on this issue was the second appeal in those proceedings. To avoid confusion, I note that it was the decision in the earlier appeal, Government Insurance Office v Rosniak (1992) 27 NSWLR 665, which was relied upon in respect of the issues determined in my two earlier judgments in these proceedings. That decision is often referred to as Rosniak (No 1), although not cited as such in the New South Wales Law Reports, for obvious reasons. Confusingly, there is also a decision cited as Rosniak (No 2) (Court of Appeal, 29 October 1992, unreported), which is not the second appeal but a second judgment in the first appeal. 10In Rosniak (No 1), the Court ordered a re-trial as to damages. How that came to be the order of the Court is explained in the judgment in the second appeal (the judgment reported in 41 NSWLR 608, at 611 C). 11When the proceedings were remitted to Badgery-Parker J for recalculation of the damages after the first appeal, his Honour regarded himself bound by the judgment of Kirby P in Rosniak (No 1) to allow the parties to call actuarial and economic evidence as to the discount rate to be applied to the plaintiff's future loss, notwithstanding the decision of the High Court in Todorovic v Waller (1981) 150 CLR 402. 12However, following argument at the conclusion of the case, Badgery-Parker J held that he was bound to apply the discount rate of three per cent mandated by Todorovic v Waller. His Honour also ordered the successful plaintiff to pay the costs of that discrete and severable issue on which the plaintiff had failed. Further, his Honour ordered that those costs be paid on the indemnity basis, holding that the plaintiff, properly advised, should have known that she had no success on the Todorovic v Waller issue. 13The Court of Appeal upheld that decision: at 614 G per Mason P; Clarke AJA agreeing at 627 G; Meagher JA dissenting as to the award of costs on the indemnity basis at 627 D. The learned President noted (at 614 G) that, if the plaintiff wished to pursue her challenge to Todorovic v Waller based on the actuarial material in question, the challenge had to be taken to the High Court. Noting the plaintiff's submission that the Court of Appeal had endorsed the whole enquiry in Rosniak (No 1) and Rosniak (No 2), the President described the costs decision as "a borderline case", but was not persuaded that Badgery-Parker J had erred in the exercise of a discretion which was his. 14In his dissenting judgment, Meagher JA endorsed the view that he and Kirby P had "as good as encouraged" the plaintiff's solicitors to take the course of laying the groundwork for a High Court challenge to the three per cent discount rate prescribed in Todorovic v Waller. His Honour was of the view that to award indemnity costs would penalise the plaintiff for behaving appropriately. His Honour does not appear to have disapproved the costs order except to the extent that costs were awarded on the indemnity basis. It thus appears that the Court unanimously declined to intervene with the trial judge's exercise of his discretion to order the otherwise successful plaintiff to pay the costs of the discrete challenge to the discount rate. 15The decision in Rosniak is not squarely on all fours with the present case. As observed uncontroversially in the dissenting judgment of Meagher JA, the plaintiffs' solicitors in that case must have known that their challenge to the discount rate laid down in Todorovic v Waller would fail at all levels before reaching the High Court. In the present case, there was less certainty as to the outcome of the issue on which the plaintiff was unsuccessful. Further, whereas in Rosniak the issue on which the plaintiff was unsuccessful sounded in a reduction in the amount of damages awarded, that was not the position in the present case. It is appropriate to explain those two considerations by reference to some of the detail of the case. 16In my first judgment, I determined that the plaintiff's claim for the future cost of managing the fund management component of her damages award should be allowed. I further determined that the plaintiff's claim for the future cost of managing income earned upon the investment of the fund at an assumed rate of five per cent should be allowed. 17In that judgment, I said: 8.However, there is a discrete dispute as to whether the fees prescribed in the Regulation disclose the whole cost of management of a fund by the NSW Trustee. The plaintiff's expert actuary, Mr Plover, reads the recent annual reports of that entity as disclosing (in a footnote) the existence of a further cost of management amounting to 0.5 per cent per annum of the fund under management. That cost was described by the expert witnesses as a "managed expenses ratio" or MER. There is no occasion for the Regulation to address that cost because it is a private fee charged to the NSW Trustee and Guardian by the entity to which (as Mr Plover reads the relevant material) all of the NSW Trustee and Guardian's fund management is outsourced. 9.The parties sought an opportunity to adduce further evidence directed to that issue. It was agreed during the hearing before me that the appropriate rate should in any event be determined after the identity of the manager appointed by the Protective Division Judge is known. 18I deferred until after the conclusion of the Protective List proceedings the following issues: (a)the rate of fees at which the final calculation should be undertaken (which may require the Court to determine whether the fees prescribed for the NSW Trustee and Guardian represent the whole cost of fund management by that entity); (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. 19In Gray v Richards (No 2), I determined the first issue in favour of the plaintiff. The contest concerning that issue was whether the plaintiff should be allowed the cost of fund management by a private trustee, The Trust Company. The defendant submitted that the cost of fund management should be allowed only at the lower rates charged by the NSW Trustee & Guardian. However, there was a substantial dispute as to what those charges were. The defendant submitted that the fees were readily ascertainable as those prescribed under the NSW Trustee & Guardian Regulation 2008. The plaintiff contended that the fees prescribed in the Regulation do not disclose the whole cost of fund management borne by clients of the NSW Trustee & Guardian. Undoubtedly, the litigation of that issue absorbed a substantial amount of both preparation and hearing time. I accept that it is likely to have generated substantial costs. 20Ultimately, I did not find it necessary to decide that issue. I said (at [57]): 57.Since 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. 21The reason it was not necessary to decide that issue was that I was satisfied that, in all the circumstances of the case, the claim for the cost of fund management by the private trustee, The Trust Company, was reasonable and should be allowed, notwithstanding the substantial difference between those rates and the rates prescribed for the NSW Trustee & Guardian under the Regulation: at [87]. In summary, the considerations which led me to that conclusion were twofold. First, I accepted, on the strength of the evidence of Mr Plover, that there was a small but appreciable risk that the assumption adopted on behalf of the defendant (that the existing fee structure of the NSW Trustee & Guardian would continue for 67 years) would produce an underestimate as to the true future cost of fund management by that entity. That conclusion informed my determination to a small degree: at [70] to [71]. 22More importantly, the uncontested evidence of the plaintiff's mother and her solicitor as to the mother's reasons for choosing a private manager persuaded me that the claim was reasonable and should be allowed: at paragraphs [72] to [87]. 23Accordingly, the plaintiff was ultimately unsuccessful in respect of a substantial and costly part of her case, but the resolution of that issue did not affect the outcome of the claim in that it did not sound in any reduction in the amount of damages awarded. 24In those circumstances, an important factor in the exercise of my discretion is the reasonableness of the plaintiff's having persisted in the allegation that the fees disclosed by the NSW Trustee & Guardian did not represent the true cost of fund management borne by clients of that entity. 25As noted in my earlier judgment, the issue began with the allegation that the fees presently prescribed in the Regulation fail to disclose an additional MER of 0.5 per cent or other indirect costs. That allegation was based on Mr Plover's reading of the annual report of the NSW Trustee & Guardian and his experience of the different disclosure regime for private trustees. 26The way in which the issue evolved and the complexity of its resolution are set out in my second judgment at paragraphs [39] to [57]. The chronology of the steps taken by the parties in addressing that issue is set out in detail in both parties' written submissions as to costs and in a chronology of those events provided on behalf of the plaintiff. 27An important step in the chronology is the fact noted on behalf of the defendant that, on 19 August 2011, he served an affidavit of Bernard Farrell of the NSW Trustee & Guardian setting out the current fee structure of that entity. The evidence of Mr Farrell was ultimately uncontested and Mr Plover's initial contention (as to an additional MER of 0.5 percent) was abandoned. In his affidavit, Mr Farrell had "strenuously refuted" Mr Plover's allegations as to the additional 0.5 per cent MER. He said "the reference to fees of 0.5 per cent on page 28 of the NSW Trustee & Guardian Annual Report refers to the fees charged by the NSW T & G". 28Dr Morrison on behalf of the plaintiff noted that Mr Farrell had not, in that paragraph, squarely addressed the specific concern held by Mr Plover that the additional MER arose from the outsourcing of fund management to other entities. What followed was a substantial amount of investigation and the exchange of a number of further expert reports. 29On any analysis, the determination of the true cost of fund management by the NSW Trustee & Guardian was complex. In my view, there was a great deal less certainty as to the outcome of the issue on which the plaintiff was unsuccessful than was the case in Rosniak. The difference between the rates prescribed in the Regulation relied upon by the defendant and the rates of the private trustee chosen by the plaintiff was substantial, so it was an important issue in the plaintiff's claim. 30Ultimately, I have not been persuaded that the plaintiff should be ordered to pay the defendant's costs of that issue, in all the circumstances explained above. In particular, I have had regard to the fact that the plaintiff was ultimately successful in her claim for the cost of fund management at the higher rates charged by The Trust Company and my assessment that the issue was a complex one which was important to the plaintiff's claim and warranted some investigation. 31However, I do think there is force in the defendant's alternative contention that the plaintiff should not be awarded all of her costs of the second round of the hearing. I do not think that she should be deprived of all of the costs of that hearing for the period identified in the order sought by the defendant. The plaintiff ultimately enjoyed substantial success on the issues determined in the second round. 32In the interests of simplifying (and thereby reducing the costs of) any assessment of the costs in question, I do not think it is desirable to make a costs order that would require an assessor to differentiate between the costs incurred for different issues. In my view, doing the best I can, the appropriate course is to allow the plaintiff only half of her costs after 19 August 2011, the date on which Mr Farrell's affidavit was served, until the date of my second judgment. 33After the service of Mr Farrell's affidavit, as I have indicated, I do not think it was unreasonable for the plaintiff to persist in the investigation of the issue. Conversely, however, that was a point from which the issue might equally have been given up, in the interests of a just, quick and cheap resolution of the proceedings. Whilst I would not criticise the plaintiff's decision to persist with the point, I think it is reasonable to let part of the cost risk of having done so lie with her.

Gray v Richards

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Judgment (4 paragraphs)

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