Willett v Futcher

[10]

GLEESON CJ, McHUGH, GUMMOW, HAYNE, CALLINAN AND HEYDON JJ. In July 1979, when she was about nine weeks old, the appellant, Belinda Ann Willett, suffered severe brain and other physical injuries as a result of a motor vehicle collision. In 1980 an action was commenced in the Supreme Court of Queensland on Ms Willett's behalf claiming damages from the present respondent. Many years later, when Ms Willett was aged 23, that action went to mediation. Liability was admitted. The solicitor for Ms Willett was later to swear that at that mediation "the matter resolved on the basis that the [respondent] pay to [Ms Willett] the sum of $3,850,000.00 (inclusive of statutory refunds) plus costs plus trustee Administration and Management Charges". On the day the mediation ended, counsel for the parties executed Terms of Settlement to record the settlement agreement.
Although Ms Willett was then an adult, she was unable to manage her own affairs. She was unable to make a binding agreement to settle her litigation. Application was therefore made to a single judge of the Supreme Court of Queensland for approval of the arrangement that had been struck at the mediation. On 24 December 2002, Byrne J made orders approving the compromise of Ms Willett's claim and ordered that some amounts, claimed as costs and other outgoings, be paid or satisfied out of the sum to be paid by the respondent. By the same order, Byrne J appointed Perpetual Trustees Queensland Limited ("Perpetual") as administrator in relation to all financial matters relating to the balance of the sum to be paid in settlement of the litigation after satisfaction of the sums which his Honour directed be paid. By the same order his Honour gave directions for the subsequent determination of what was described as "the sum by way of damages in respect of reasonable management fees of the administrator". It will be necessary to return to consider the terms of this order ("the compromise order") in greater detail.
The determination of "the sum by way of damages in respect of reasonable management fees of the administrator" subsequently came on for hearing before White J[1]. In the compromise order, Byrne J had ordered that the Public Trustee of Queensland ("the Public Trustee") be a party to that determination and that the Public Advocate have leave to intervene in that determination if so advised. Both the Public Trustee and the Public Advocate appeared by counsel at the hearing before White J ("the determination hearing"). Perpetual was not a party, and was not represented at the determination hearing.
At the determination hearing, evidence was tendered to establish what fees Perpetual would charge for managing the investment of the balance of the sum to be paid for the benefit of Ms Willett in compromise of her claim that would remain after satisfaction of the amounts Byrne J had ordered, in the compromise order, to be paid or allowed out of the sum paid by the respondent under the settlement agreement. Evidence was also tendered of the amounts that the Public Trustee would be entitled to charge for management of that fund if it, rather than Perpetual, had been appointed administrator.
Because both Perpetual and the Public Trustee would charge fees and incur expenses for so long as the funds remained under management, evidence was led at the determination hearing of the net present value of the expected stream of fees and expenses. The fund was assumed to be reduced to zero at the end of the period of 59 years that was taken to be the life expectancy of Ms Willett. Some aspects of this evidence about valuation were disputed but counsel for Ms Willett identified "the real contest" between her and the present respondent as being "whether all the heads or items of charge identified in the material … are recoverable". Her counsel conceded that the sum to be paid by the respondent by way of damages in respect of reasonable management fees did not have to be fixed "on the basis of the actual charges to be made by Perpetual" but that "some discounting for contingencies and vicissitudes (no more than, say, 10%) should also be applied".
Evidence which White J accepted as being reliable showed that the net present value of the fees proposed to be charged by Perpetual and the outgoings it expected to incur was $876,506 and the net present value of the fees which the Public Trustee would charge and expenses it would have incurred, if it had been appointed as administrator, was $969,336. White J concluded, however, that the amount of $180,000 should be allowed as damages for the reasonable management fees of administering and managing the compromise sum to be paid by the respondent to the administrator on Ms Willett's behalf. That sum was fixed to allow for only two categories of charge: categories of charge described as an "establishment fee" and a "discretionary portfolio management fee". Four other categories of charge ("advisory portfolio management fee", "fund manager fee", "initial brokerage fee" and "ongoing brokerage fee") were disallowed. White J held that fees falling within these four categories were not to be allowed as compensation to Ms Willett because "[t]he purpose of investment advice and decision making about investments which concerns the present determination is to maximise the return over and above the amount of compensation awarded which already has an investment strategy inherent in it". The order her Honour made was that the respondent pay to the administrator of Ms Willett's trust fund "the amount of $180,000 for the reasonable cost of managing the fund" and further ordered that the receipt of the administrator was to be a sufficient discharge for that payment.
Being dissatisfied with the order of White J, Ms Willett appealed to the Court of Appeal of Queensland seeking to have the order of White J set aside and in its place an order that the reasonable management fees in respect of the compromise sum paid to the administrator be fixed at $876,506 or such other sum as the Court of Appeal thought fit. The Court of Appeal (Davies JA, Jones and Holmes JJ) dismissed the appeal[2]. By special leave, Ms Willett now appeals to this Court.

[27]

It will be noted that s 48(1) provides that an administrator carrying on a business of or including administrations under the Guardianship Act is entitled to remuneration if the Tribunal so orders. Although s 48(1) is cast in the language of entitlement, two related negative implications must be drawn from the language[27]. First, an administrator appointed under the Guardianship Act is entitled to remuneration only if an order is made that authorises the administrator to charge for the services provided. Secondly, the amount of the charges that are levied must be determined in the manner prescribed by the order authorising the administrator to charge for services or by some subsequent order varying that authority. That is, an administrator may make no charge for remuneration (as distinct from a claim for reimbursement of reasonable expenses actually incurred[28]) without an order that authorises both making the charge and its amount. And the Act makes plain, by s 48(2), that the amount of remuneration that may be allowed is limited to the amount of commission payable to a trustee company under the Trustee Companies Act. It will be necessary, therefore, to examine the provisions of the Trustee Companies Act that limit the amount of commission that a trustee company may charge. Before doing that, however, it is necessary to deal with two other aspects of the Guardianship Act: some provisions of Pt 2 of Ch 4 which deal with particular functions and powers of administrators, and provisions which deal with what the heading to Pt 2 of Ch 11 calls the "Relationship with Court Jurisdiction".
The provisions of Pt 2 of Ch 4 of the Guardianship Act (ss 49‑55) oblige an administrator to keep records (s 49) and keep the administrator's property separate from the adult's property (s 50). If an administrator has power to invest, s 51 provides that an administrator may invest only in authorised investments (s 51(2)) but may continue investments which are not authorised if, when the administrator was appointed, the adult had the investment (s 51(3)). What are authorised investments is defined in Sched 4 as:

[33]

Because the power to invest must be exercised "honestly and with reasonable diligence to protect the adult's interests"[29] it is inevitable that management of a large fund for the benefit of a person incapable of managing their own affairs will require the administrator to consider investing the fund in a diverse range of investments and to review those investments from time to time[30]. Those obligations are made explicit by s 24 of the Trusts Act and its requirements that a trustee have regard to a large number of matters, including[31] "the desirability of diversifying trust investments" and[32] "the results of a review of existing trust investments".
Section 239 of the Guardianship Act provides that the Act does not affect the rules of court of the Supreme Court, District Court or Magistrates Court about a litigation guardian for a person under a legal incapacity. Section 240 provides that the Act does not affect the Supreme Court's "inherent jurisdiction, including its parens patriae jurisdiction". This provision of s 240 may well suffice to preserve the Supreme Court's powers[33] to sanction the settlement of a proceeding brought in the name of a person under a legal incapacity and to allow remuneration to a trustee[34]. But the exercise of power by either the Supreme Court or the District Court to sanction a settlement is expressly regulated by s 245 of the Guardianship Act. In particular, s 245 provides[35] that the Supreme Court or the District Court, sanctioning a settlement for, or ordering money to be paid for the benefit of, a person with impaired capacity, "may exercise all the powers of the tribunal under chapter 3" of the Act and that[36] Ch 3 applies to the court in its exercise of these powers "as if the court were the tribunal". One consequence of these provisions of s 245 is that, when approving a compromise, the Supreme Court or District Court may make an order allowing an administrator whose business is or includes acting as an administrator under the Act to charge remuneration, and make an order fixing the amount that is to be charged.
It is evident, then, that a number of provisions made by the compromise order were made in exercise of powers given by the Guardianship Act. In particular, the appointment of Perpetual as administrator was made pursuant to ss 12 and 245 of that Act. What the compromise order did not do, however, was to provide that Perpetual might charge remuneration for its services as administrator. The directions that were given in the compromise order for determination of the "reasonable management fees" were directions concerning the fixing of an amount to be paid by the respondent as damages. Indeed, the compromise order treated that sum of damages as standing outside the regime prescribed by the order for payment to the administrator and receipt on behalf of Ms Willett. The amount described in the order as "the settlement sum" did not include this sum of damages and the "trust fund" was the balance of "the settlement sum" after payment of the various sums for which the order provided.
At the end of the oral argument of the appeal to this Court it was suggested that the compromise order should be amended by consent in the Supreme Court to define "the settlement sum" as $3,850,000 plus the damages in respect of reasonable management fees. If that step is taken, the effect of the order will be that the damages in respect of reasonable management fees will augment the sum to be held by Perpetual, as administrator, on trust for Ms Willett. But there will still be no order permitting Perpetual to charge remuneration and no order fixing the amount of remuneration to be charged. Those are matters that could be taken up pursuant to the liberty to apply in respect of the administration of the trust fund reserved by Byrne J to Ms Willett, her litigation guardians, and Perpetual.
The amount of remuneration to be allowed to Perpetual not having been fixed in the compromise order, the assessment of the damages to be allowed on account of "reasonable management fees" required consideration of the legislation governing that subject. As noted earlier, s 48(2) of the Guardianship Act directed attention to the amount of commission payable to a trustee company under the Trustee Companies Act. As it happens, Perpetual is a company identified as a trustee company in the Trustee Companies Act and its power to charge remuneration is therefore regulated by that Act. It should be noted, however, that s 48 of the Guardianship Act applies to any administrator who carries on a business of or including administrations under that Act, not just trustee companies.

[39]

As noted already, a trustee company's entitlement to commission is "in addition to all moneys properly expended by the trustee company and chargeable against the estate". It would not be useful to attempt to give a list of all of the kinds of expenditure that would be chargeable against the estate. But one example of such an expenditure is immediately relevant. Where a trustee company engages a third party to act as stockbroker in connection with a dealing in listed securities forming part of the trust fund under administration, the brokerage chargeable on that transaction would be a sum properly expended and chargeable against the estate under administration.
Apart from expenditures of the kind with which s 41 deals, s 45 of the Trustee Companies Act makes provision for a trust company to charge fees for certain work and services. Those charges are "[i]n addition to the commission and the other moneys specified that it is entitled to receive" under s 41 and s 44. (Section 44 provides for the charging of an additional fee to carry on "any business or undertaking which belongs wholly to the estate, or in which the estate has an interest as partner". That section has no application in the present matter.) The fees that may be charged for work and services include such things as arrangement of insurances or preparation of income and land taxation returns.
How the provisions of Pt 4 of the Trustee Companies Act would apply in the present case was not explored in evidence or argument in the courts below. It was touched on in the course of argument of the appeal to this Court, but only in response to inquiries made by the Court of the parties. And for want of any evidence or consideration of these provisions in the courts below, the submissions directed to these issues during the argument in this Court were necessarily brief. In particular, there could be no comparison made between the charges which Perpetual proposed to make and a commission fixed at five per cent of capital value and six per cent of income received, together with moneys properly expended and any fees chargeable under s 45 of the Trustee Companies Act.
It is to be recalled, however, that s 59 of the Public Trustee Act contemplates that money or damages recovered or awarded in a cause or matter in which money or damages is or are claimed by or on behalf of a person under a legal disability may be paid to and held by the Public Trustee. In that event, the Public Trustee would be authorised by s 27(4) of the Public Trustee Act to charge for that administration the fees and charges fixed pursuant to that Act. At the times relevant to the present matter those fees and charges were set out in the Public Trustee (Fees and Charges Notice) (No 2) 2002 given pursuant to s 17 of the Public Trustee Act and published in the Queensland Government Gazette[40]. The evidence led at the determination hearing showed that, under that regime of fees and charges, the Public Trustee would have been entitled to charge fees having a net present value of $969,336.

[44]

The establishment fee, calculated as a percentage of the initial investment assets to be managed, was described as covering "all costs associated with establishing [Ms Willett's] account". It included preparation of a financial management plan covering such matters as making what were called "[i]nvestment recommendations". To whom such recommendations would be made was not explored.
Both the discretionary portfolio management fee and the advisory portfolio management fee were described as ongoing fees calculated as a percentage of the assets under management. The former fee was said to include "[t]he decision making and fiduciary obligations undertaken by Perpetual to act as Administrator" for Ms Willett and "[t]he elevated duty of care of a professional Trustee" but again, precisely what work this encompassed was not revealed by the evidence that was adduced. The advisory portfolio management fee was described as including fees for the provision of strategic and investment advice, provision of professional advice "by in‑house specialists" such as investment consultants, accountants and solicitors, administrative and custodial services, preparation of various reports and provision of a "Client Relationship Manager" giving "[a] personal and central point of contact for [Ms Willett], her family and care providers for all portfolio and financial matters".
The remaining categories of charge were presented by Mr Gallagher as fees charged by the managers of funds in which investments were made (underlying investment manager fees) and brokerage fees for investments in direct equity investments incurred when an investment was first made (the initial brokerage fees) or later changed (the ongoing brokerage fees). Fees charged by fund managers were said to be charged by fund managers before declaring a return to investors. Direct investment in equities was said to be a service provided to Perpetual's clients "through our broker at 0.385%".
On their face, then, the fund manager's fees were taken by the managers before payment to the investor of the return on investment in the fund; the brokerage charges appeared to be moneys expended by the administrator and chargeable against the estate. Neither appeared to be a commission allowed to Perpetual. Whether the reference to "our" brokers suggested some question of dealing between related entities that might attract a question about self‑dealing was not explored in evidence.

[49]

The Court of Appeal saw[41] the division made by White J in arriving at the figure of $180,000 as drawing a line "at the point where, in the performance of [the trustee's obligations under the Trusts Act and under general law], the trustee goes beyond the range of unassisted decision‑making which an able adult of no particular skill, training or interest in the subject would make". But as the Court of Appeal correctly pointed out[42], a necessary product of the respondent's negligence "was the appointment of a trustee [more accurately an administrator under the Guardianship Act] with statutory and other legal obligations" and the need to perform those obligations being a product of the respondent's negligence, the cost of them was properly recoverable from the respondent. Accordingly, the Court of Appeal, at least inferentially, must be taken to have rejected the distinction which White J drew.
Yet the Court of Appeal dismissed the appeal against the orders made by White J. It seems that the Court reached that conclusion on the basis that some of the services that Perpetual would provide were not necessary to discharge Perpetual's obligations under the trust of which it was appointed trustee[43]. But as the Court rightly pointed out[44], none of the evidence adduced in the determination hearing was directed to drawing such a distinction. And neither the content of the distinction nor its application is apparent from the Court's reasons. Rather, the questions posed by the Court[45] ("whether all of the services for which fees are claimed will be necessary to enable Perpetual to perform its obligations under the trust … or whether … some of them are services to be performed in the exercise of Perpetual's discretion as trustee but not necessary to discharge those obligations") were left unanswered, at least directly.
It is, therefore, unclear upon what basis the Court of Appeal reached the conclusion, as it did[46], that $180,000 was not shown to be other than a reasonable sum for the fees to be allowed as damages. Indeed, the Court's implicit rejection of the central step in the reasoning of White J is inconsistent with that conclusion. As these reasons will show, however, it is unnecessary to go beyond noticing these aspects of the decisions of the courts below.

[50]

As noted at the start of these reasons, the central issue in the appeal to this Court is what kinds of costs of managing the damages awarded to a person incapable of managing his or her own affairs, whose incapacity was caused by the defendant's negligence, are to be allowed in assessing the damages allowed to that person. The question should be answered: an amount assessed as allowing for remuneration and expenditures properly charged or incurred by the administrator of the fund during the intended life of the fund. No distinction of the kind made at first instance by White J between investment advice and other services should be drawn in assessing that amount. Because the allowance to be made is for remuneration and expenditure properly charged or incurred, the distinction drawn by the Court of Appeal between fees for services necessary to enable Perpetual to perform its obligations, and fees for services not necessary to perform those obligations, becomes inapposite. The services properly to be provided by an administrator must first be identified. And the identification of what remuneration and expenditure is properly charged or incurred, as with the identification of the amount of remuneration and expenditure properly allowed, will require close attention to the statutes governing those matters.
These conclusions follow from the general principles identified earlier in these reasons and the operation of the various statutory provisions also identified above. It is as well, however, to say a little more about the distinction drawn by White J at first instance. That distinction sought to identify the amount that would be necessary to place the appellant in the position of a person who is able to make investment decisions about the sum that is to be invested. That is, as the Court of Appeal pointed out[47], it drew the line at the point where the administrator did what would be done by "an able adult of no particular skill, training or interest in the subject" of investment. Performance of those tasks was to be allowed for, but beyond that the cost of administration was to fall on the injured appellant.
In a case, like the present, where a plaintiff must have an administrator appointed to manage his or her financial affairs because the plaintiff's incapacity to deal with those matters was caused by the defendant's negligence, the plaintiff is awarded a lump sum of damages which is to compensate the plaintiff for losses past, present and future. In a case, again like the present, where the plaintiff will never be able to manage his or her affairs and will never be able to work, the damages awarded will often include a significant allowance for future economic loss. The plaintiff can make no decision about the fund. An administrator must be appointed. The administrator must invest that fund and act with reasonable diligence. It follows that the administrator will incur expenses in performing those tasks. The incurring of the expenses is a direct result of the defendant's negligence. The damages to be awarded are to be calculated as the amount that will place the plaintiff, so 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 of a 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 inapt. 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 ensure an even income stream but the complete exhaustion of the fund at the end of the period.
Assessing what remuneration and expenses are properly charged or incurred by an administrator requires consideration of the relevant statutory limitations on those charges. It does not depend only upon identifying whether Perpetual's proposed fees and charges are less than those that the Public Trustee would be entitled to charge. As noted earlier, however, no reference was made to the relevant statutory provisions either at first instance or on appeal to the Court of Appeal and there is no evidence that would reveal how the relevant statutory limitations would apply.
The order of the Court of Appeal dismissing the appeal to that Court must be set aside. Once that Court recognised, correctly, that the reasoning of White J proceeded from a distinction that should not be drawn, the appeal to the Court of Appeal had to be allowed. But what consequential orders should have been made?
Deciding what consequential orders should have been made must take account of the nature of the proceedings from which the appeal was brought. As earlier noticed, the proceedings before White J were, and were treated by the parties as, the determination of an issue about quantification of damages as between Ms Willett and the respondent. The proceedings were not, and were not treated as, an application by Perpetual for an order allowing its remuneration or fixing the amount of that remuneration. If the proceedings had had this latter character the Court's role would have been to protect the interests of the person whose affairs were to be administered. It may well then have been appropriate to remit the matter to the primary judge to receive further evidence about what remuneration, consistent with the relevant statutory limitations on the remuneration that might be charged, was properly to be allowed. But being a contest between plaintiff and defendant about damages, not a contest about the amount to be charged against the trust fund, the better view is that the parties should be confined to the evidence adduced before White J[48]. It was in the respondent's interests to explore these matters, but it did not. It would be inappropriate to give the respondent a further opportunity to do that. It follows that the matter should be remitted to the Court of Appeal to determine, on the evidence adduced in the determination hearing, the amount of damages to be allowed.
In this Court it was argued for the appellant that the Court of Appeal's conclusion as to the correctness of the figure of $180,000 rested on the erroneous view that some of her claims involved double counting. In the circumstances it is not necessary to decide whether that argument is correct. However, the appellant is at liberty to contend to the Court of Appeal hearing the matter remitted that there is no double counting, the respondent is at liberty to contend the contrary, and the Court of Appeal is at liberty to reconsider the matter unconstrained by what the Court of Appeal has already said on that subject in support of the orders appealed from[49].

Willett v Futcher - [2005] HCA 47 - HCA 2005 case summary — Zoe

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Cases Cited (4)