PY v RJS [2014] NSWCATGD 24 | Case summary

What did the Tribunal have to decide? 6The issues for the Tribunal were: (1)Is Mrs JMN incapable of managing her affairs? (2)Is there a need for another person to manage Mrs JMN's affairs and is it in her best interests for a financial management order to be made? (3)If so, who should be appointed financial manager? (4)Is Mrs JMN incapable of managing her affairs? 7A person's capability to manage his or her affairs was considered by Campbell J in the NSW Supreme Court in Re GHI (a protected person) [2005] NSWSC 581. Campbell J affirmed the approach enunciated in PY v RJS [1982] 2 NSWLR 700 by Powell J, at paragraph 7: "It is my view that a person is not shown to be incapable of managing his or her own affairs unless, at the least, it appears: that he or she is incapable of dealing, in a reasonably competent fashion with the ordinary routine affairs of man; and that by reason of that lack of competence there is shown to be a real risk that either he or she may be disadvantaged in the conduct of such affairs; or that such moneys or property that he or she may possess may be dissipated or lost ... it is not sufficient in my view merely to demonstrate that the person lacks the high level of ability needed to deal with complicated transactions or that he or she does not deal with even simple or routine transactions in the most efficient manner..." 8Young J in H v H (unreported) NSW Supreme Court 20 March 2000, in dealing with the capacity test as it has been enunciated in NSW, said that dealing with the "ordinary affairs of man" does not simply mean being able to go to the bank and draw out housekeeping money. Most people's affairs, his Honour said, "are more complicated than that, and the ordinary affairs of mankind involve at least planning for the future, working out how one will feed oneself and one's family and how one is going to generate income and look after capital. Accordingly, whilst one does not have to be a person who is capable of managing complex financial affairs, one has to go beyond just managing household bills." 9It should be noted that the relevant time for considering whether a person is incapable of managing his or her affairs is not merely the day of the hearing but the reasonably foreseeable future (McD v McD (1983) 3 NSWLR 81 at 86). 10The Tribunal had the opportunity to consider evidence obtained during the course of Mrs JMN's compensation claim regarding the extent of her impairment arising from the motor vehicle accident, as well as medical records and assessments from the period after the accident. This includes:

Discharge Summary from public hospital in Queensland, dated 10 March 2010;
Neuropsychological report dated 30 March 2010 from Mr Z, Clinical Neuropsychologist, brain injury service provider;
Letter to Dr Y dated 6 July 2010 from Dr X, Director of Rehabilitation and Aged Care Services;
Letter to Dr X dated 16 December 2010 from Dr W, Consultant Neuropsychiatrist;
Letter to Ms V of an insurance company, dated 14 January 2011 from Ms U, Rehabilitation Coordinator, brain injury rehabilitation service provider;
Letter to the Registrar, Supreme Court/District Court of Queensland dated 11 May 2012 from Dr T, Clinical Neuropsychologist;
Letter to the Registrar, Supreme Court/District Court of Queensland dated 2 March 2013 from Dr T;
Letter to the Court dated 29 August 2013 from Dr T. 11This material confirms that as a result of a motor vehicle accident in January 2010, Mrs JMN suffered a closed head injury with a left subarachnoid haemorrhage, as well as serious injuries to her left leg. Mrs JMN sustained some cognitive impairment as a result of this, as well as adjustment disorder, although this is reported as less of a feature than her brain injury. The evidence suggests that she has improved over time. 12The most recent comprehensive assessment of Mrs JMN's cognition was by Dr T, who states that Mrs JMN continues to have a significantly impaired memory, as well as low average processing speed, attention, problem solving and mental flexibility. Dr T was specifically asked to address the questions of whether Mrs JMN has the capacity to provide legal instruction, and also whether she has the capacity to manage a large settlement sum. In response to these questions, Dr T opines that Mrs JMN would likely be able to give legal instructions provide that the matter had been clearly explained to her, allowing for her limitations. However Dr T states that Mrs JMN's capability to manage a large sum of money could be "...compromised by her memory and cognitive problems. Because of her forgetfulness she could be taken advantage of by unscrupulous persons." Dr T concluded that Mrs JMN would require assistance to handle a large settlement sum. 13At the hearing the Tribunal explored with the parties whether Mrs JMN had shown any further improvement since this assessment was performed in 2012. Ms KTT said that her understanding is that Mrs JMN has "plateaued" since this assessment was performed. She said that her observation of Mrs JMN is consistent with Dr T's assessment, particularly in regard to Mrs JMN's vulnerability to exploitation. Ms KTT said that Mrs JMN would often propose things she wanted to do with the money, such as giving her brother $400,000 to buy a unit. She said that because of her memory problems, Mrs JMN had to be reminded repeatedly that this compensation money was to provide for her own needs. Ms KTT observed that Mrs JMN could be "resistant to understanding." 14Mrs JMN said that she still has "big" memory problems. She feels that she wants to just "forget" about the money and have someone else look after it for her because she thinks that if she has the money she will want to send large sums as gifts to her family. 15Mr EUN said that his wife is an intelligent woman. Since the accident, whilst she is able to manage day to day finances, he does not think that she is able to concentrate to make decisions about larger sums, or to plan ahead. He also feels that she would be vulnerable to giving the money away to others. He said that she would be able to talk with a financial manager about what to do with the money, but that it would be better for her if the control of the money was with someone other than her. 16The Tribunal observed Mrs JMN to be a thoughtful and insightful young woman, who was well able to express her wishes. However the neuropsychological evidence as well as her evidence and the evidence from those who know her well, indicates that she has limitations in her memory and concentration which make her particularly vulnerable to her money being dissipated or "lost" by being given to others. 17On this basis, given the reality of her financial situation, the Tribunal was satisfied that Mrs JMN is incapable of managing her financial affairs.

Who should be appointed financial manager? 23In appointing a financial manager, as in making all other orders under the Guardianship Act, the Tribunal must act with the interests of the person concerned as the paramount consideration and in accordance with the other principles set out in section 4 of the Guardianship Act. 24Section 25M of the Guardianship Act provides that, if the Tribunal makes a financial management order, it may appoint a suitable person to manage the person's estate or may commit the management of the estate to the NSW Trustee and Guardian. 25In Holt & Anor v Protective Commissioner (1993) 31 NSWLR 227, the Court said that the dominant consideration in making orders about financial managers was the welfare of the person. The President of the Court of Appeal emphasised the Court's broad discretion in deciding who should be financial manager but also set out possible considerations as to the competing advantages of the Protective Commissioner and a family member as the manager of an estate. The NSW Trustee and Guardian now exercises the role of the Protective Commissioner. 26There was no proposal in this application that a private person such as a family member be appointed as financial manager. Mr EUN said that he was not willing to take on this role, and Mrs JMN said that she would not want him appointed in any event. 27Instead, in this case, the options before the Tribunal were the appointment of a licensed trustee company, specifically AET Ltd, as a private manager, or committing the estate to the NSW Trustee and Guardian. The suitability of a private trustee company such as AET Ltd to be appointed as a financial manager has been the subject of some judicial attention in recent times. This is in part because a private financial manager (as opposed to the NSW Trustee and Guardian) is generally required to undertake their responsibilities without any remuneration. However a private trustee company, such as AET Ltd charges fees for the performance of its duties as financial manager. 28Section 115 of the NSW Trustee and Guardian Act 2009 (NSW) allows the Supreme Court and the NSW Trustee and Guardian to authorise the payment of fees to a private financial manager. Orders made by the Supreme Court (Re Managed Estates Remuneration Orders [2014] NSWSC 383), provide guidance to the NSW Trustee and Guardian when making a decision about whether to authorise the payment of fees to a private financial manager. These orders include that "In accordance with established principles, any such remuneration must be limited to an amount that is just and reasonable in the context of the particular estate; and the NSW Trustee must be satisfied, inter alia, that it is in the best interests of the managed person that the remuneration be allowed." 29The proposal before the Tribunal in this application, was that AET Ltd be appointed as manager of Mrs JMN's estate, and that they would engage financial planning company A to provide financial advice and to invest that part of the estate which remains after the purchase of a house for Mrs JMN. This is estimated to be $800,000. A letter from the financial planning company A to Mrs JMN dated 10 March 2014 provides the proposed investment strategy. It is not necessary for the Tribunal to detail the investment strategy, except to note that it aims to provide for for a net weekly "income" for living expenses, care and treatment, of $600 a week to Mrs JMN ($32,000 a year). 30What is of significance to the Tribunal however are the fees that Mrs JMN will likely incur, and the relationship between AET Ltd and financial planning company A, noting that AET Ltd, and not financial planning company A is the proposed financial manager. In CC v RAM [2012] NSWSC 1555, White J considered a very similar situation, with AET Ltd proposed as financial manager, with the proposal that they would then contract with financial planning company A to give advice and manage the investment of the money. White J noted that whilst a person who is appointed as manager of another person's estate can seek advice and assistance of others, it is not possible for them to delegate the management of the estate to a third party. Given this, the Tribunal was keen to understand the role that AET Ltd would take in managing Mrs JMN's money, as opposed to the role financial planning company A would take, as well as the corporate relationship between the two organisations. In relation to this, the Tribunal noted that the correspondence to Mrs JMN was from financial planning company A and not AET, and that the correspondence did purport to "speak for" AET Ltd to some extent. 31In response to questions from the Tribunal, representative from AET Ltd explained that AET Ltd is a wholly owned subsidiary of IOOF Holdings Ltd. AET is the second oldest trustee company in Australia, formed in 1888, and it specialises in estate management and trustee functions. He said that there is no corporate connection between AET Ltd and financial planning company A, which is a wholly owned subsidiary of financial planning company B, although they operate at "arms length" from financial planning company B. He said that AET engages financial planning company A in each case separately, and that this is not automatic. However financial planning company A does tend to be AET Ltd's "starting point" when contracting with a financial advice company because they have specialisation and experience in this area, and a sound investment approach. He said that not all of their clients have financial planning company A as their financial advisor, but most do, and those that do not are people who already had their money invested elsewhere before signing up with AET Ltd, and there was no purpose in shifting to financial planning company A. 32In relation to the role that AET Ltd plays as financial manager, as opposed to the role that the financial planning company plays, the representative from AET Ltd said that AET Ltd contracts with the financial advisor (financial planning company A), and supervises their performance. If they do not perform to meet Mrs JMN's needs AET Ltd would remove and replace them. He described that AET Ltd's job for Mrs JMN was to "have her back" and act in her best interests. AET Ltd also manages that part of Mrs JMN's estate that is not invested in financial products, such as the purchase of the house, which is not part of financial planning company A's role. 33In CC v RAM, White J stated, in relation to financial managers seeking remuneration: [5] Although it has not hitherto been a requirement of applications for the appointment of a professional financial manager, from now on the proposed financial manager should provide an undertaking to the Court that any payment or other reward that might be paid to it by a third party as a result of the investment of the protected person's estate in a financial product will be accounted for to the protected person's estate. The same undertaking should be provided from an adviser retained by the financial manager who would itself owe fiduciary obligations to the protected person. If either a financial manager, or an adviser retained by a financial manager to act for a protected person, were to receive such a reward by investing in particular financial products for the protected person, they would be placed in a position of conflict between their duty to the protected person and their personal interest. Hitherto the Court has acted on the assumption that any such conflict would be disclosed on the application for the appointment of the financial manager. I have no reason to doubt that that assumption is justified. However, having had occasion to consider the question on a different application (GDR v EKR [2012] NSWSC 1543), I do not consider that it should remain a matter of assumption. [6] The proposed financial manager and adviser should expressly state that their only reward will be way of the remuneration disclosed to the Court. 34The representative from AET Ltd said no fees or commissions are paid by financial planning company A to AET Ltd. The fees charged to Mrs JMN by AET Ltd and financial planning company A are completely separate, and are fully disclosed in the letter from financial planning company A to Mrs JMN. The representative from AET Ltd explained that this shows that AET Ltd charges a one off, initial upfront fee of $7,500 plus GST. They then charge an ongoing annual fee of .66% (plus GST) of the value of the portfolio, which only includes the value of Mrs JMN's investments, and not her other assets such as her home. The fees are charged for acting in a management and supervisory role. 35The representative from AET Ltd said that financial planning company A charges a one off initial advice fee of $3,300 and an ongoing "client services fee" of $4,100 a year. There are also a number of annual fees which are paid to financial planning company C, a wholly owned subsidiary of financial planning company A and superannuation company A, and which are based on a % of the value of the investments. The representative from AET Ltd said that the fees charged to Mrs JMN are the only income derived by AET [Ltd] and financial planning company A in relation to their functions with her estate. He said that there is no conflict of interest and that AET Ltd has been appointed as financial manager by the Supreme Court many times - estimating they have about 120 clients in NSW where the Supreme Court has made the appointment. He is well aware that AET Ltd's entitlement to fees is dependent on approval of the NSW Trustee and Guardian, but he said that AET Ltd has had no difficulties with such authorisation in the past. 36The representative from AET Ltd said that in combination, the ongoing aggregate fees charged by AET Ltd and financial planning company A (1.72% of the investment portfolio + private manager fee for NSW Trustee and Guardian) compare favourably with the fees charged by the NSW Trustee and Guardian (1.6% per annum, comprising 1.1% management fees, and .5% investment fee). However, based on the NSW Trustee and Guardian website, the NSW Trustee and Guardian's establishment fee in the first year (1%, capped at $3,300) is much lower than the fees charged by AET and financial planning company A, which total $10,800. The NSW Trustee and Guardian fees also exclude the value of the person's home. Based on information on the website, the NSW Trustee and Guardian private manager's fees consist of a $300 per annum accounts fee, plus an income fee of 4% of the net income, capped at $2,000. By the Tribunal's calculations on an investment amount of $800,000 and an income amount of $32,000, in years after the first year, the difference in total fees between the propose private management arrangement and management by the NSW Trustee and Guardian would be about $2,500. 37The representative from AET Ltd said that the benefit that Mrs JMN would have from her affairs being managed by AET Ltd as opposed to the NSW Trustee and Guardian, is that AET Ltd is able to provide a more personal service. He explained that their practice is to visit people in their homes twice a year, the full cost of which is included in their management fees. A client has a particular person to contact who is very accessible on the phone and able to spend time discussing a person's affairs with them. 38Mrs JMN said that she wanted AET Ltd to be her financial manager. She had met with them and she liked the idea of having a personal relationship with the financial manager, so she knows who she can speak to if she has a question or if she needs something. Mrs JMN said that she did not know much about the NSW Trustee and Guardian, but that she understood that because of their size, they were not able to offer this kind of personal service. 39Mr EUN agreed that the one on one personal service offered by AET Ltd was more suitable for his wife, because she runs the risk of becoming confused if she has to speak to too many different people. 40Ms KTT said that she was not familiar with the NSW Trustee and Guardian, but that in her experience in Queensland, clients generally benefited from the more individual and accessible service of a private trustee company, as opposed to the Queensland Public Trustee. Ms KTT also noted that a significant amount had been included in the compensation payment specifically for management and administration costs. She was unsure whether the insurer could or would seek to recover any of this if it were not spent on management and administration costs as anticipated. 41The Tribunal carefully considered all of this evidence, bearing in mind he views expressed by White J referred to earlier. In particular the Tribunal noted the evidence from the representative from AET Ltd regarding:

the absence of any corporate connection between AET Ltd and financial planning company A;
the independence of AET Ltd's decisions about contracting with financial advisors;
the evidence regarding the comparative fees charged by the private management proposal and the NSW Trustee and Guardian; and
that the only financial reward to AET Ltd or financial planning company A is by way of the fees paid by Mrs JMN and not through any commissions or fees paid by others. 42The Tribunal also had particular regard to Mrs JMN's expressed preference for AET Ltd to be appointed as her private financial manager, on the basis that this will enable her to establish a more personal relationship with the financial manager, and also Mr EUN's agreement with this proposition. 43The Tribunal also had regard to the evidence that a significant sum was included in the settlement specifically for fees associated with management and administration. 44On the basis of all of this evidence, the Tribunal was satisfied that Australian Executor Trustees Ltd is a "suitable person" to be appointed as financial manager for Mrs JMN subject to the authorities and directions of the NSW Trustee and Guardian and should be appointed.

PY v RJS

At a glance

Court

Decision date

Before

Source

Judgment (7 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (6)