Blackburn v Pearl Foods Pty Ltd [2008] VSC 334 (5 September 2008)

ALLEN RONALD BLACKBURN (by his Administrator STATE TRUSTEES LIMITED)	Plaintiff

and

PEARL FOODS PTY LTD	Defendant

JUDGE:	HARGRAVE J
WHERE HELD:	Melbourne
DATE OF HEARING:	22 August 2008
DATE OF JUDGMENT:	5 September 2008
CASE MAY BE CITED AS:	Blackburn v Pearl Foods Pty Ltd
MEDIUM NEUTRAL CITATION:	[2008] VSC 334

GUARDIANSHIP AND ADMINISTRATION – Plaintiff injured at work – Plaintiff with a disability – Proceeding brought by administrator of plaintiff’s estate – Compromise of proceeding – Settlement sum payable to plaintiff with a disability – No allowance made in the settlement sum for the cost of managing the plaintiff’s affairs – Whether administrator or Senior Master should manage the settlement sum – Guardianship and Administration Act 1986 (Vic) s 66(3) – Diver v Diver [2007] VSC 146; (2007) 16 VR 318 considered – Willett v Futcher [2005] HCA 47; (2005) 221 CLR 627 considered.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms K. McMillan QC and Mr S. Marantelli	State Trustees Limited Legal Branch

For the Defendant	No appearance

1 The plaintiff is 57 years old. He was injured in an industrial accident in 2001 at premises owned by the defendant. The plaintiff’s injuries include an organic brain injury, which is likely to have a long-term affect on his ability to work. Accordingly, he is likely to receive weekly Workcover payments until his 65th birthday. The plaintiff’s medical and like expenses are also payable by the Victorian Workcover Authority under s 99 of the Accident Compensation Act 2005 (Vic). Further, the plaintiff has been paid a lump sum for non-economic loss pursuant to s 98C of that Act.

2 In 2004, State Trustees Limited (“State Trustees”) was appointed administrator of the estate of the plaintiff, pursuant to s 43 of the Guardianship and Administration Act 1986 (Vic) (“the Act”).

3 As administrator of the plaintiff’s estate, State Trustees arranged for this proceeding to be commenced on his behalf. Having regard to the plaintiff’s statutory entitlements, the plaintiff’s claims are limited to damages for pain and suffering.

4 On 12 September 2007, the administration order was reassessed by the Victorian Civil and Administrative Tribunal. The tribunal made an order continuing the administration until no later than 30 September 2010, at which time the administration order will be further reassessed. Relevantly, the reappointment order is in the following terms:

Having reassessed the administration order the Tribunal makes the following order:

The Tribunal is satisfied that the represented person has a disability; is unable by reason of that disability to make reasonable judgments about their estate; and needs an administrator.

(i) 3.3% in respect of Centrelink or Department of Veterans’ Affairs pensions; and

For any services provided to the estate State Trustees Limited or its subsidiary STL Financial Services Limited is entitled to remuneration at a rate not exceeding the amount set in the scale of charges lodged with the Treasurer and published in the Government Gazette.

5 At a Court ordered mediation in May this year, the proceeding was settled, subject to approval of the compromise by the Court, for the sum of $90,000 together with costs and the right of the plaintiff to retain all of his statutory entitlements, including the lump sum payment of $68,180 for non-economic loss pursuant to s 98C of the Accident Compensation Act.

6 Counsel representing the plaintiff at the mediation prepared an opinion summarising the relevant facts and the risks facing the plaintiff if he proceeded to trial. Counsel concluded that the agreed compromise was reasonable and adequate.

7 Based upon counsel’s opinion, an application was made to a Master of this Court to approve the compromise. The Master ordered that the compromise be approved. However, the Master refused the application made by State Trustees that the settlement sum be paid to it as administrator of the plaintiff. Instead, the Master ordered that, subject to any further order, the Senior Master invest the settlement sum for the benefit of the plaintiff. The plaintiff has appealed against that part of the Master’s order. The appeal raises an issue of principle, and one of discretion. I will deal with the issues separately.

8 Although the appeal is a hearing de novo, the short reasons given by the Master raise an issue of principle which is capable of general application. In these circumstances, it is appropriate to consider whether the Master correctly interpreted the applicable law, and to provide direction for future cases raising the same or similar issues.

9 A similar approach was taken by the Court in Diver v Diver.[1] In that case, I considered whether a sum payable in settlement of a claim by a person with a disability for further provision out of a deceased’s estate, pursuant to Part IV of the Administration and Probate Act 1958 (Vic), should be managed by the Senior Master or by the administrator appointed under the Act. I held that the Court has a discretion, arising in the exercise of its inherent jurisdiction and expressly conferred by s 66(3) of the Act, to order that the settlement sum remain in Court and be managed by the Senior Master or to allow s 66(3)(b) to operate according to its terms. Section 66(3) of the Act provides:

(3) If in any civil proceedings before a Court it is adjudged or ordered that money be paid to a person with a disability (whether or not that person is a party to a cause or matter) the money –

(b) unless the Court otherwise orders is to be paid out to the administrator (if any) of the estate of that person or State Trustees.

10 The scheme of s 66(3) is straightforward. In the first instance, the sum which is ordered to be paid to a person with a disability is to be paid into Court under paragraph (a). That is what the Master ordered. Second, unless the Court otherwise orders under paragraph (b), that sum is to be paid out to the administrator (if any) of the person with a disability, or to State Trustees. Accordingly, a discretion is given to the Court, at the time of ordering that money be paid to a person with a disability, to order that the money not be paid out to the administrator.[2] In this case, the Master exercised that discretion and ordered that the money be invested by the Senior Master until further order.

11 In Diver v Diver, I considered the circumstances in which the discretion falls to be exercised in a case such as the present where, prior to the settlement agreement made on behalf of a person with a disability, an administrator has been appointed under the Act.[3] For the reasons there stated, I held that, as a general rule, money payable under a Court order to a person with a disability should be paid to his or her administrator. There must be something about the circumstances of a particular case to justify the Court, in the exercise of its discretion, departing from the general rule.[4] However, the discretion is not fettered by a requirement that special or exceptional circumstances be shown.[5]

12 In his brief reasons for ordering that the Senior Master invest the settlement sum for the benefit of the plaintiff, the Master apparently took the view that my decision in Diver v Diver has no application to the circumstances of the present case, with the result that the settlement sum which has been paid into Court should not be paid to State Trustees.

13 Although it is not clear, it appears that the Master held that the decision of the High Court in Willett v Futcher[6] either deprived him of any discretion or mandated that his discretion be exercised by ordering that the settlement sum not be paid out to State Trustees. The Master’s reasons in this regard were as follows:

In this proceeding, the Court approved a settlement for the plaintiff to receive the sum of $90,000.00 for pain and suffering only. The settlement did not allocate a specific amount to encompass the fees of the administrator. It is common for an amount to be set aside to meet administration fees in an award for damages in accordance with the principle described in Willett v Futcher. However, in Victoria, as distinct from other states, the Senior Master administers an award for damages when the plaintiff is an infant or incapable of managing his or her own affairs. Management fees are not allowed for in any settlement, nor sought by plaintiffs from defendants, due to the role of the Senior Master.

If a fund is administered by an administrator, such as State Trustees Limited, then an amount should have been provided to cover this expense. The settlement fails to do this. Thus, in accordance with Willett v Futcher, the amount of $90,000.00, which has been paid into Court, should not be paid to the administrator.

Whether the amount outstanding is $9,000,000.00 or $90,000.00, the principle remains the same. In particular, when smaller amounts are paid in full settlement for a claim of damages, the impact may be more immediate on the plaintiff.

In Diver v Diver, it was held that the Court had a discretion as to whether funds should be paid into Court, or out to an administrator. Diver v Diver does not apply to the present case, as it appears that Willett v Futcher was not put before Hargrave J when Diver v Diver was determined. Diver v Diver did not involve damages for personal injury but concerned a provision from a deceased estate. (citations omitted).

14 Willett v Futcher concerned quantification of damages, in circumstances where the relevant settlement agreement provided for payment to the plaintiff of “the sum of $3,850,000 (inclusive of statutory refunds) plus costs plus trustee Administration and Management Charges”.[7]

15 In these circumstances, the High Court[8] identified the central issue on appeal in the following terms:

The central issue in the appeal is what kinds of costs of managing the damages awarded to the 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 to be allowed to that person.[9]

16 That question was posed in the context of the particular settlement agreement in issue, which contained an agreement by the respondent to pay “trustee Administration and Management Charges”.

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.[10]

18 Willett v Futcher did not concern the issue of who ought to administer a settlement fund. There is nothing in Willett v Futcher to suggest that the Court’s discretion, arising in the inherent jurisdiction of the Court and under s 66(3) of the Act, is abrogated or fettered in any way.

19 In the course of their reasons in Willett v Futcher, the High Court stated that a plaintiff who is incapable of managing his or her affairs by reason of a defendant’s negligence is entitled to recover damages to compensate for the expense of having others manage his or her affairs.[11] With this principle in mind, the Master stated that, because the Senior Master administers awards of damages in Victoria when the plaintiff is an infant or incapable of managing his or her own affairs, the practice in Victoria is that “[m]anagement fees are not allowed for in any settlement, nor sought by plaintiffs from defendants, due to the role of the Senior Master.” I accept that this is the general, perhaps invariable, practice in Victoria. However, this does not mean that the Court has no discretion as to who should manage damages awards made in favour of plaintiffs incapable of managing their own affairs. Of course, where the plaintiff is incapable of managing his or her affairs by reason of the defendant’s negligence, the fact that the agreed settlement does not include an amount to compensate the plaintiff for the costs of managing his or her affairs, will be a powerful discretionary consideration. I turn to consider the question of discretion in this case.

20 The Master also based his decision upon the exercise of his discretion. The Master’s reasons were as follows:

Even if Diver v Diver were to apply here, the decision of the Court would remain the same. The discretion would be exercised so that the settlement monies would remain in Court. If the settlement funds were directed to State Trustees Limited, $4,050.00 (4.4 percent capital commission) would be deducted from the $90,000.00 damages, with further administration fees of 1.1 percent per annum. However, if the settlement sum remains in Court, then commission fees and administrative fees are not levied. The Senior Master, who administers the funds, does not charge administrative fees. All that is recovered are costs of administering the fund. No profits are made.

The Court has been informed that a house will be purchased for the plaintiff with the settlement sum. If a house is purchased for the plaintiff, a saving in the vicinity of $4,500.00 will be made if the funds remain in Court. In the circumstances, this saving is significant.

21 From these reasons, it appears that the Master took two factors into account in the exercise of his discretion. First, the fact that State Trustees would charge approximately $4,500 more than the Senior Master in the management of the settlement sum. Second, the significance of a “saving” of this amount in the context of a settlement sum of only $90,000 and the proposal to purchase a house for the plaintiff. However, it is apparent from reading the Master’s reasons as a whole that he was heavily influenced by the fact that the settlement sum does not include any amount to compensate the plaintiff for the costs of managing his affairs. This is evident from the opinion given by counsel which was relied upon by the plaintiff to justify approval of the compromise. Accordingly, the Master was correct when he stated that the settlement sum “did not allocate a specific amount to encompass the fees of the administrator”.

22 It was submitted on behalf of State Trustees that the facts relevant to the exercise of the discretion in this case are contained in the affidavit of Ian Turner, a consultant in the Personal Financial Solutions Division of State Trustees, who currently has the care and conduct of the financial and legal affairs of the plaintiff. Mr Turner has deposed to the following relevant matters:

(1) Although the plaintiff has an organic brain injury, he is not totally unable to manage his own affairs. For example, his Workcover weekly payments are paid directly into his bank account and, with the assistance of his carer, he manages to pay his ordinary bills.

(2) Mr Turner has met with the plaintiff on a number of occasions and considers that he has established a good relationship with the plaintiff and his carers. Further, he believes that the plaintiff trusts him to manage his affairs.

(3) Mr Turner has also dealt with the plaintiff’s carer on a number of occasions and established a working relationship with her.

(4) The plaintiff has informed Mr Turner that his major concern is to purchase a property of his own. This will enable him to move out of his present accommodation, in a caravan park. In this regard, Mr Turner has spoken with the plaintiff’s advocate and established a professional relationship with her. They have discussed the plaintiff’s needs. In Mr Turner’s view, it may be feasible to purchase a modest property in rural Victoria for the plaintiff by using the funds presently managed by State Trustees on the plaintiff’s behalf, the settlement sum, and borrowing a small amount (to be serviced from the plaintiff’s weekly Workcover entitlements). In written submissions filed by counsel for State Trustees, the purchase of a house for the plaintiff was described as likely to occur in the near future if control of the settlement sum is transferred to State Trustees.

(5) Mr Turner has been informed that the Senior Master does not manage the funds under his control without costs. Instead, the Senior Master invests the various funds under his control, and from the gross income pays all the costs of obtaining investment advice and managing the investments. The Senior Master then apportions the net income amongst the beneficiaries of the funds pro-rata according to the respective amounts held on their behalf. In written submissions, counsel for State Trustees submitted that the average charge made by the Senior Master is 0.5% per annum on the funds invested. On the basis that the funds were invested for one year only, it was acknowledged that the charges of State Trustees would be approximately $4,590 more than those of the Senior Master.

(6) Mr Turner has deposed to the obligation upon him, as administrator, to prepare a budget and to look after the interests of the plaintiff, including making decisions about his accommodation. Mr Turner has expressed a concern that, if the settlement sum is to remain with the Senior Master, he will be obliged to make applications on behalf of the plaintiff for funds and this will result in an unnecessary duplication of work. In all the circumstances, Mr Turner has expressed the opinion that it would be more efficient for State Trustees to manage all of the funds on behalf of the plaintiff.

23 It was submitted on behalf of State Trustees that, there was nothing about the circumstances of this particular case which justified the Master departing from the general rule that the settlement sum should be paid by the Senior Master to State Trustees as the plaintiff’s administrator. Reliance was placed upon the following matters:

(1) State Trustees has been validly appointed with all of the powers of an administrator under the Guardianship and Administration Act 1986 which are broader than those of the Senior Master in the circumstances.

(2) State Trustees’ remuneration has been approved by the Victorian Civil and Administrative Tribunal.

(3) State Trustees has been in office since September 2004 and is familiar with the plaintiff’s needs.

(4) There was no reason to believe that State Trustees would not manage the settlement sum prudently and efficiently.

(5) State Trustees was already administering a fund on behalf of the plaintiff and it is practicable, particularly in view of the amount of the funds and the purpose for which the plaintiff wished the funds to be used, for State Trustees to administer all of the funds of the plaintiff.

(6) The fact that State Trustees’ approved fees and commissions exceeded those of the Senior Master’s Office should not be given too much weight.

(7) State Trustees is an experienced and professional trustee company well used to dealing with the type of administration that the plaintiff's administration presents.

(8) The appointment of State Trustees is for a finite period and is overseen by the Victorian Civil and Administrative Tribunal.

24 I do not accept the submissions made on behalf of State Trustees. They give no weight to the fact that, in calculating the settlement sum, no allowance has been made for any expenses associated with managing the plaintiff’s affairs. That situation is the result of the practice in Victoria to which the Master referred. Accordingly, if the settlement sum is paid to the administrator the plaintiff will incur compensable expenses for which no provision has been made in the negotiated settlement. In my view, this is the decisive discretionary factor in all the circumstances of this case.

25 Furthermore, the availability of an extra $4,500 or thereabouts has the capacity to determine whether a particular property is able to be purchased on behalf of the plaintiff. As the Master said, that is a very strong discretionary factor. If a prudent case is put to the Senior Master for the purchase of a property, I have no doubt that the Senior Master will deal on its merits with an application to release the settlement sum held under his management. If the Senior Master allows the settlement sum to be used for this purpose, there will be no further role for the Senior Master to play and any possible inefficiencies or duplication of costs will cease.

26 The Master’s order that the Senior Master invest the settlement sum for the benefit of the plaintiff was made subject to any further order. If circumstances change, the Court can make whatever order is appropriate in the circumstances as they then apply.

27 Nothing I have said should be taken as determining how the discretion should be exercised in any future case. Each case must depend on its own facts. However, where a plaintiff who is incapable of managing his or her affairs by reason of a defendant’s negligence is entitled to be paid an award of damages or agreed settlement sum, and the award or agreed sum contains no allowance to compensate the plaintiff for the expense of having others manage his or her affairs, that fact will always be a very strong discretionary factor. Where the award or settlement sum does include an allowance for the expense of managing the plaintiff’s affairs, the factors to be considered in the exercise of the Court’s discretion, which arises under its inherent jurisdiction as informed by s 66(3) of the Act, may include, but are not limited to, the guidelines set out in Diver v Diver.[12]

Supreme Court of Victoria

Blackburn v Pearl Foods Pty Ltd [2008] VSC 334 (5 September 2008)