In brief - High Court allows appeal in part from NSW Court of
On 15 October 2014, in the case Gray v Richards  HCA 40, the High Court
unanimously allowed, in part, an appeal from the NSW Court of
Appeal, which held that Ms Gray was not entitled to recover a head
of damage in respect of the costs associated with managing a lump
sum damages award.
The High Court held that the Court of Appeal had erred in
deciding that no allowance should be made for the cost of managing
the fund management damages, but was correct in deciding that no
allowance should be made for the cost of managing the fund's
predicted future income.
General principles - when are damages not awarded for funds
It is well established that once a plaintiff receives an award
of damages, he or she may use it as they wish. (See Todorovic v Waller  CLR 402 at 412.) This is why
we have a system which awards damages for future medical expenses,
but does not compel a plaintiff to use their damages to fund any
medical expenses in the future.
An obligation to manage damages awards appropriately by use of a
funds manager or otherwise is not imposed, regardless of the
plaintiff's capacity to manage the award or the size of the
award. If the injury suffered had no impact on the plaintiff's
intellectual abilities, no damages for funds management expenses
will be awarded. (See Nominal Defendant v Gardikiotis  186 CLR 49 at
When are damages awarded for funds management expenses?
In Gray v Richards, Ms Gray sustained a traumatic brain
injury in a motor vehicle accident. She sustained a significant
intellectual impairment and required constant care, retaining no
prospects of future employment. Liability was conceded by Mr
Richards and the claim settled for $10 million, excluding funds
management expenses which were left for judicial determination.
Richards conceded that his negligence had caused Ms Gray's
incapacity to manage her own funds. The High Court confirmed that a
plaintiff is entitled to damages for funds management expenses
where the incapacity to manage funds arises from the negligence of
On what damages are funds management expenses allowed?
In this case, funds management expenses were allowed on the $10
million settlement sum.
The questions posed to the court were whether funds management
expenses would be allowed:
on the damages awarded for fund management expenses; and
on the predicted income to be earned by the managed funds.
The High Court answered yes to the first question, finding that
funds management expenses are one component of the loss consequent
upon the injury suffered and, as such, a plaintiff is entitled to
damages for the cost of managing that component.
The second question is more complex.
Cost of managing income derived from investing settlement
Ms Gray submitted that the cost of managing income derived from
investing her settlement monies should also attract damages for
funds management expenses.
The High Court found that section 127 of MACA "assumes...
that the return from the fund takes into account the cost of
generating that return".
The High Court rejected the notion that the discount rate
assumes "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 latter, the High Court indicated, is
not a compensable loss.
In so concluding, the High Court considered that to award funds
management expenses on predicted income involves an assumption that
the damages would be invested to generate income. This, the High
Court found, would be inconsistent with the Todorovic v
Waller principle that a person may do what they wish with any
award of damages they receive.
Obtaining evidence to determine funds management expenses
In practice, damages for funds management expenses will only be
awarded in cases where the plaintiff's incapacity to manage
their own funds was caused or contributed to by the negligence of
the defendant. This is a head of damages that will need to be
carefully considered and assessed in claims where intellectual
impairment is suffered.
When determining the total damages on which damages for fund
management expenses are allowed, damages for fund management
expenses must be included. Evidence will need to be obtained from
the public trustee and private trustees to determine what comprises
a reasonable amount to manage the funds under management in any
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