When one hears the term “personal injury lawsuit,” certain damages will come immediately to mind, including loss of income or earning capacity and general damages. All these damages are important in helping a client return to a normal life as much as possible.
At the same time, these are not the only potential fees payable. In certain cases, where a structured settlement is not chosen or mandated by the courts, gross-up and management fees may be awarded. While seemingly minor, they can significantly benefit a personal injury plaintiff. Below, we will discuss these fees andtheir importance .
Gross-Up
Certain damages might not be taxable but interest earned from investing such damages will be taxable. The Court calculates the gross-up to “offset any liability for income tax on income from investment of the award.”[1] Counsel could see how this would be useful for their personal injury clients.
When calculating the award, the Court assumes that the entire award will be invested as “fixed income securities and determine the rate to be assumed for future inflation in accordance with the following formula:
g rounded to the nearest 1/10 per cent where,
g = (1 + i) / (1 + d) – 1
“i” is the average of the value for the last Wednesday in each month of the nominal rate of interest on long-term Government of Canada bonds (Series V121758, formerly Series B113867), as published in the Bank of Canada’s Weekly Financial Statistics for the period starting on March 1 and ending on August 31 in the year before the year in which the trial begins;
“d” is,
(a) for the 15-year period that follows the start of the trial, the greater of,
(i) the average of the value for the last Wednesday in each month of the real rate of interest on long-term Government of Canada real return bonds (Series V121808, formerly Series B113911), as published in the Bank of Canada’s Weekly Financial Statistics for the period starting on March 1 and ending on August 31 in the year before the year in which the trial begins, less ½ per cent, and
(ii) zero, and
(b) for any later period covered by the award, 2.5 per cent per year for each year in that period.[2]
As one could imagine, this calculation involves difficult math and specialized knowledge.
Management Fees
Obtaining a large amount of money is a short timespan can both be challenging at the best of times.
Some personal injury plaintiffs including those who have experienced serious, life-changing injuries, may experience particular challenges in managing money carefully. Thus, Courts will mandate a management fee if “a plaintiff has been awarded a significant sum of money and will require assistance to administer the assets, usually as a result of the injury forming the basis of the lawsuit.”[3] The benefits to the plaintiff of a Court awarding a management fee are clear.
For the Court to award a management fee, plaintiffs must demonstrate the need for a management fee.[4] Sometimes, there might be agreement between plaintiffs and defendants as to the need for a management fee but disagreement as to costs.[5] Evidence about the costs associated with investing is crucial in determining whether or not a management fee should be awarded and what it should amount to.[6] A forensic accountant could provide such evidence.
[1] RRO 1990, Reg 194, Rules of Civil Procedure, r 53.09.
[2] RRO 1990, Reg 194, Rules of Civil Procedure, r 53.09 (1)(a).
[3] Tahir v Mintoff, 2019 ONSC 7298 at para 214.
[4] Ibid at para 216.
[5] Ibid at para 215.
[6] Ibid at para 217.
