After assessing damages against Kroppmanns and Currie in an action arising out of a motor vehicle accident, the trial judge issued supplementary reasons to deal with the tax gross-up and management fees. Townsend had already received partial payment and spent part of it purchasing a house and paying legal fees. The trial judge deducted the capital expenditure and the legal fees in calculating management fees and the tax gross-up. He also reduced the fee award by 50% to account for a predicted increased return, assumed to result from the investment counselling for which the management fee award was granted. In British Columbia, the discount rates are fixed by the Law and Equity Regulation and a four-level classification for calculating management fees is regularly applied by the courts. The Court of Appeal unanimously held that the evidence did not support the reduction of the award for management fees and that management fees and the tax gross-up were to be calculated in relation to the full amount of damages awarded, without deducting Townsend's legal fees and the capital investment.
- Does a plaintiff's decisions regarding how to use their damages affect the award of items such as management fees?
Deschamps, writing for a unanimous court, rejected the appellant's argument; she will not increase the discount based on the fact that management fees were awarded. She holds that the whole point of the legislature setting discount rates was to take considerations like this out of the court's hands. She also finds that to reduce the damages because the plaintiff had spent money on a house would defeat the very purpose of ensuring full compensation. The principle of finality (Andrews) demands a clean break between the parties; allowing repeated revisiting of the evidence every time money is spent would be inconsistent with this principle.
Legislated discount fees must be strictly followed, including in the calculation of tax gross-ups and management fees.
A tax gross-up is awarded as the plaintiff is going to have to pay tax on the capital gains earned by the award, thus the amount received in damages might be much less than how much is "awarded". Therefore, the court must award them more than the basic calculation of the award so that it will equal the awarded amount after tax.