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Injury Liability Gazette
cost to cover the fund management was unacceptably
uncertain and it involved speculation of the performance
of the fund. He indicated that to provide further funds
would result in the plaintiff being over compensated.
The court concluded that the plaintiff’s claim with
respect to the fund management on fund income issue
should not be allowed as s 127 of MACA does not
mandate a 5% net return over the life of the loan:
‘The discount rate assumes a rate of return
sufficient to provide the injured plaintiff with a fair
and just compensation for the claimed loss. The
return is assumed to take into account the costs
of earning income would include any fees payable
as a consequence. The Court would inevitably be
speculating as to what income would be derived
from the fund from time to time.’
Decision of the High Court
The plaintiff appealed this decision.
Issue 1: Fund management fees on
fund management damages
The plaintiff’s principle contention was that the Court
of Appeal’s decision was a departure from the first
principle in
Todorovic v Waller
[1981] HCA 72
(that
is, that the damages should place the plaintiff in the
same position) producing a shortfall in damages. The
shortfall was argued by the plaintiff as unavoidable
having regard to s 79 of the
Civil Procedure Act 2005
(NSW) (
CPA
) as both fund management damages and
fund income must be managed as part of the plaintiff’s
estate.
The court agreed and indicated the cost of managing
fund management fees is not separate and distinct
from assessing the present value of the plaintiff’s
future outgoings. The expenses are an integral cost
of fund management. The incurring of the expense is
as a direct result of the defendant’s negligence and
damages are to be calculated as the amount that will
place the plaintiff so far as is possible, in the position
he or she would have been had the tort not been
committed.
The court indicated that s 127 of MACA invites an
assessment of the present value of
all
future outgoings
based on the evidence. This encompasses
all
of the
management expenses.
Issue 2: Fund management on fund
income
In relation to the second issue, fund management
of fund income, the plaintiff argued the Court of
Appeal erred in concluding that the potential costs of
managing fund income were covered by the discount
rate prescribed by s 127 of MACA.
The court held that the plaintiff’s challenge should
not be accepted as the cost of managing the income
generated by the fund is not an integral part of the
plaintiff’s loss consequent upon her injury.
The discount rate prescribed by s 127 of MACA does
not imply a statutory requirement that the fund should
achieve a net future earnings rate of 5%. The discount
rate does not assume that the fund will produce an
annual net income at an equivalent rate or imply that
a lump sum award must be adjusted to ensure that
result.
The legislature selected the discount rate having
regard to inflation, changes in wage and prices and
the costs of managing that income. It is a tool for
the purpose of arriving at a lump sum reflecting the
present value of future losses. It is the conceptual tool
best suited to determine what is fair and reasonable
compensation for that loss or expense. The law
equates with fair compensation for those losses or
expenses irrespective of what the plaintiff intends to do
with that sum. It is meant to take into account income
from investment of the sum awarded and no further
allowance should be made for these matters.
Decision
The plaintiff’s challenge to the decision of the Court
of Appeal on the first question was upheld (the cost
of managing the management fees). Her challenge on
the basis of the second question was rejected (the cost
of managing the future income).
