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Damages awards should compensate a person for all their losses arising out of an injury. Losses suffered up to the date of a trial are often much easier to determine than losses the injured person is projected to suffer in the future. For instance, the injured person might be able to establish that they will lose $10,000 in wages per year for the next 10 years, or that they will require $10,000 in treatment per year for the next ten years. In such a case, one might assume that the injured person would simply be awarded $100,000 ($10,000 x 10 years), but that is not how it works. The law presumes that an injured person will invest the damages they are awarded for future wage loss or care and see a return on that investment. On that basis, if the Court were simply to give the injured person $100,000, that person would be overcompensated by virtue of the return on that investment. The law has accounted for that through the application of discount rates which range from 1.5% to 2%. In our example, then, instead of $100,000, the injured person would get slightly less. We call that the “present value”. But what if the injured person doesn’t have the financial wherewithal to properly invest their award and get the full benefit of their compensation?
Management fees compensate an injured person for the cost of managing the money they are awarded for future wage loss and future care. They ensure that these awards are not eroded by the cost of professional management fees or injured person’s inability to invest those funds wisely.
Management fees are not awarded as a matter of course. To be entitled to a management fee, the injured person must establish that they are unable to manage their affairs or lack the knowledge to invest the funds awarded to them to produce the requisite rate of return. They must establish that investment management assistance is necessary and the cost of that assistance necessary to obtain a rate of return equal to the above-noted discount rates.
While not legislated into law, the Law Reform Commission of BC, as cited in Lester v. Alley, 2022 BCSC 121, recommends a four-level classification system for management fees:
Level 1
The plaintiff requires only a single session of investment advice and the preparation of an investment plan at the beginning of the period the award is to cover.
Level 2
The plaintiff will require an initial investment plan and a review of the investment plan approximately every five years throughout the duration of the award.
Level 3
The plaintiff will need management services in relation to custody of the fund and accounting for investments on a continuous basis.
Level 4
The plaintiff will require full investment management services on a continuous basis, including custody of the fund, accounting and discretionary responsibility for making and carrying out investment decisions. Such a plaintiff is likely to be mentally incapacitated or otherwise incapable of managing personal financial affairs.
