JUDGMENT [No 3] - Funds management.
1 KIRBY J: On 26 June 2009, I gave judgment in favour of the plaintiff, reserving the issue of funds management (Thomas v Shaw [2009] NSWSC 510, paras [312]-[315]). The matter was then mentioned on a number of occasions, in the hope that the parties could agree on an appropriate amount. Ultimately they were not able to agree, although each did consent to the issue being dealt with on the basis of written submissions, annexing any evidentiary material relied upon.
2 Cameron will not turn 18 years until January 2012. On the application of the defendant (and subject to a small advance) a stay order was made, pending an appeal. The plaintiff's submissions assume, for the purposes of a calculation, that the appeal process will be complete by July 2010 (PS 11.12.09, para [7]). Assuming the verdict is then paid (with interest) and that $800,000 is invested with the New South Wales Public Trustee, the cost in terms of fees payable to the Trustee before Cameron turns 18 years, will be $13,342.00 (PS para [10]).
3 The defendants suggested that no allowance should be made in respect of this period. Their submissions were in these terms: (DS 10.12.09, para [3])
"3. The plaintiff's current legal incapacity is as a result of his age, not as a result of any injuries suffered by him in the accident. The defendant therefore should not be required to pay any amount for funds management prior to the plaintiff obtaining the age of 18. This would be consistent with the way in which similar 'infants' claims are settled in, and dealt with, by this Court."
4 However, that submission overlooks the principles conveniently set out in the judgment of Gummow J in Nominal Defendant v Gardikiotis (1995) 186 CLR 49, which are reproduced in para [312] of my judgment of 26 June 2009. The plaintiff's award should include that sum.
5 However, there was a further issue, namely, the plaintiff's likely incapacity to manage his affairs after the age of 18 years. The principal judgment included findings on the injuries and disabilities suffered by Cameron. The injuries include brain damage (paras [271] to [279]). His ability to plan, organise and follow through has been significantly impaired (para [122]). When at school he chose his friends unwisely (para [153]). Associate Professor Reid believed, and I accept, that he will experience significant vulnerability during the transition from adolescence to adulthood (para [223]). Associate Professor Quadrio, in her report of 4 December 2009, which accompanied the plaintiff's submissions (PS 11.12.09), identified the incapacity arising from the plaintiff's injuries in these terms:
"2. These are detailed in my earlier reports, essentially a complex of depression post traumatic stress disorder and frontal lobe syndrome. More specifically in terms of the questions now asked, there are symptoms of irritability, impulsivity and impaired judgment that are particularly relevant and in my view would render him not capable of managing his affairs at present."
6 How long is the incapacity likely to last? Associate Professor Quadrio, in the same report, stated that there is continuing maturation of the frontal lobe up to the age of 25 years as the myelination of the brain in males is not complete until that age. She added the following statement, in response to a question posed by the plaintiff's solicitors, which I accept:
"4. If the incapacity will be assisted by increasing maturity at what age is it probable that he will become capable of managing his affairs?
It is difficult to be precise about an age, however, as explained above, maturation of the frontal lobes continues up to age 25 in males so it is likely that there will be improvement in function over that time simply on the basis of maturation. That process together with expert therapeutic intervention may assist Cameron to reach an adequate level of function by that age so that he would be capable of managing his affairs at that time."
7 The plaintiff sought a number of quotes from bodies who manage funds, including The Public Trustee. There was significant variation in the amount quoted, the highest being $146,979.00 (PS 2.10.09, attachment). Using the cheapest alternative, the plaintiff made the following submission: (PS 11.12.09)
"11. Thereafter the cost of the investment of say $800,000 (assuming any interest is dispersed to the plaintiff) over a period of 7 years deferred for 1.5 years is as follows:
a. $800,000 x 1.75% x 7 years/52 weeks using 5% multiplier = $83,299 deferred for 1.5 years say 2 years = $75,553."
8 The plaintiff therefore claimed the aggregate of this sum and the fees likely to be payable before Cameron turns 18 (a total of $88,895.00).
9 The defendant made the following submissions on the issue of the plaintiff's incapacity:
"4. ... the plaintiff may still have some organisational difficulties and need some assistance and/or advice in relation to managing his financial affairs. The evidence suggests that these difficulties may last until the plaintiff is about 25 years of age."
10 Pausing there, it is not accurate, I believe, to suggest that the plaintiff's "difficulties may last until the plaintiff is about 25 years of age". Rather, his incapacity to manage his affairs, in terms of s 77(1)(c) of the Civil Procedure Act 2005, will probably cease at about that time. The defendants submitted that the proper approach was as follows: (DS 10.11.09)
"5. It is the defendant's submission that when the plaintiff attains the age of 18 years he will not need a formal 'Fund Manager' but rather will need some assistance and advice in relation to investment and management of his affairs.
6. It is the defendant's submission that at this stage his damages should be paid to his tutor for investment by her on his behalf until he reaches the age of 25.
7. It is submitted that if such an order was made then the following amounts should be allowed by way of 'funds administration/financial advice' on the plaintiff's behalf to cover professional advice and assistance etc in relation to the investment and management of those monies:
a. Advice from an accountant or financial planner of 15 hours per year for 7 years at $250.00 per hour (multiplier 309.4 = $22,312.49). That amount is deferred for 2 years (multiplier 0.907) = $20,237.43.
b. Allowance of $1,000.00 per year for the tutor and for her expenses etc (multiplier 309.4 = $5,949.99). That amount is deferred for 2 years (multiplier 0.907) = $5,396.65.
8. Accordingly it is submitted that in all the circumstances the Court would make a lump sum allowance for funds management/financial advice in favour of the plaintiff in the sum of $25,634.08."
11 The approach ultimately taken by the defendants was, to some extent, encouraged by me in discussions with the parties on 16 October 2009, where I said this: (T 2)
"HIS HONOUR: I must say, if I can, this is really thinking aloud, can I just say this. The first point, so far as incapacity is concerned, I would have real concerns about a young person with these disabilities and whose judgment, on the evidence, is seriously impaired getting his hands on the money before he gained some maturity. I think I said exactly that in the judgment. That's the first point.
The second point is, and I do think he needs assistance, he certainly is entitled to until he is 18, and I think after 18, I put the time, say 25, I think he definitely needs assistance. But more than assistance, he needs a bit of instruction about how to handle such money because he is impulsive, from memory, and has the other characteristics which are described.
Leave all that aside. Having said that, having read the material provided by these various organisations, I have to say I reel with some horror at the size of the fees compared to the amount at stake. It just seems completely disproportionate."
12 I added: (T 2: 16.10.09)
"What I had in the back of my mind, based on my own experience, my children having inherited a small amount from their grandmother, it was invested I think with Perpetual Trustee in their share fund. One of these share funds, and it grew enormously. They went oversees many times on the corpus of it. I think the price for that was a one off 2 percent fee from the amount. In other words, 2 percent of whatever the corpus is. In this case, $800,000 odd. We are talking of something less than $20,000."
13 The submissions from the defendants include some of these aspects, but not others. They do not include the entry fee charged by Perpetual Trustee. Nor did the defendants make available, as part of their submissions, the actual charges of investment companies such as Perpetual Trustee. Although not in evidence, on checking their actual fees, I find that my recollection (as stated above) was either in error or out of date (http://www.perpetual.com.au/investment_funds/fund_profiles.aspx). The various Perpetual funds charge "up to 4%" entry fee, nil exit fee and an annual management cost of between 1.75% and 1.95%, depending upon the fund.
14 Notwithstanding my original reaction, on reflection it appears that the claims by the plaintiff are appropriate and should be included in the verdict ($88,895.00).