Thinking | 1 December 2020
Despite Court dissolving trust fund, Plaintiff not required to pay back unused trustee fees
Levi Saunders was nine years old when he suffered an acquired brain injury after he was involved in a motor vehicle accident on 3 August 2008. On 28 February 2014 (at the age of 15), the claim was resolved (by way of compromise application) and judgment entered for $7,000,000 plus trustee fees for $1,268,813. The settlement sum was placed in trust with Perpetual Trustee Company Limited (Perpetual). The fees were estimated for his life expectancy as the medical evidence at the time did not anticipate he would recover to the extent that he could manage his own affairs, even after reaching 18 years of age.
Mr Saunders subsequently made a significant recovery. The State Administrative Tribunal (SAT) made orders on 6 February 2018 declaring that Mr Saunders was unable to make reasonable judgments and his mother was appointed administrator of his estate, with Perpetual as limited administrator. The orders were reviewed (as planned) at a hearing on 9 April 2019, and the SAT determined that there was no evidence to rebut the presumption that every person shall be capable of making reasonable judgements and managing their own affairs – s4(3) of the Guardian and Administration Act 1990 – and therefore revoked the 2018 orders.
Mr Saunders, through his next friend, subsequently filed an application to dissolve the court trust and revoke the appointment of Perpetual. It proceeded to a hearing before His Honour Judge Gething. Perpetual had charged $470,526 in trustee fees and there was a ‘residue’ of $798,287 from the amount ‘allocated to trustee fees in the judgment’. The Insurance Commission of Western Australia (ICWA), on behalf of the negligent driver Mr Turner, asserted that Mr Saunders would be unjustly enriched if he were to keep the residual trustee fees. Mr Saunders argued that once damages were assessed and judgment entered, that was the end of the matter.
Ultimately, his Honour Judge Gething determined that the Court could dissolve the trust but that there was no basis to order Mr Saunders to repay the unused portion of the judgment sum that was allocated to trustee fees.
There is no express power in the Rules of the Supreme Court 1971 (RSC) or District Court Rules 2005 to dissolve a trust created pursuant to RSC Order 70 Rule 12. His Honour Judge Gething adopted the reasoning of Heenan J in Cadwallender v Public Trustee and held that the District Court has the power to dissolve a trust. His Honour was satisfied by the medical evidence put before him that the reason for the trust had ceased, as Mr Saunders was now capable of managing his own affairs and it should be terminated. The trust had been established and anticipated to be in place for the remainder of his life expectancy, as opposed to the age of 18.
Judgment was entered with liberty to apply. Judge Gething determined that by ordering Mr Saunders to repay a portion of the judgment sum was a change of the nature or substance of the main orders and therefore not within the scope of ‘liberty to apply’.
ICWA sought to rely on the decision of Deputy Commissioner of Taxation (NSW) v Chamberlain. In that case, there was a clerical error in the Writ of Summons regarding the amount sought to be recovered. The respondent perceived the error, took advantage and settlement was processed. Proceedings brought by the applicant were successful on the basis that there had been a mistake and the respondent acted unconscionably. In relation to the subject claim, Judge Gething found that there was no evidence of fraud in the entering of the judgment and therefore no contractual principles could be relied on to seek repayment of the sum. Judge Gething suggested that the appropriate course for ICWA was to commence separate proceedings asserting that there was a basis in equity to set aside the settlement agreement which underpinned the judgment.
Judge Gething did not accept the argument that Mr Saunders would be unjustly enriched on the basis that it was a common law claim, the remedy was the payment of money (not setting aside of a contract) and the third factor (circumstances having changed) was not a recognised category of unjust enrichment relying on the principles in Gamser v The Nominal Defendant.
Judge Gething offered further comments at the end of his judgment (noting the unique circumstances of the application). His Honour suggested that insurers consider providing an indemnity for trustee fees and charges for the duration of the court trust.
Another issue raised was that a significant portion of the trust was placed into a superannuation fund. The first issue was that a significantly reduced amount was being managed by Perpetual despite the fact that Perpetual had been paid to manage the entire sum ($7,000,000). The second issue was that Perpetual no longer had control over those funds placed into superannuation, which was at odds with the reason the trust was created initially, because the money with the superannuation fund could have been withdrawn by Mr Saunders without reference to Perpetual or the Court.
This case highlights that insurers need to consider taking steps to review the way in which they resolve claims involving court trusts. It may be that insurers consider including a provision in any settlement agreement or judgment (compromise application) to reserve rights to seek repayment of fees should the plaintiff be found at a later date to be capable of managing their affairs and the trust being dissolved.
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