Bruce & Anor v LM Investment Management Limited & Ors [2021] QSC 203

SUPREME COURT OF QUEENSLAND CITATION: Bruce & another v LM Investment Management Limited & others [2021] QSC 203 PARTIES: RAYMOND EDWARD BRUCE AND VICKI PATRICIA BRUCE (applicants) v LM INVESTMENT MANAGEMENT LIMITED (IN LIQUIDATION) ACN 077 208 461 IN ITS CAPACITY AS RESPONSIBLE ENTITY OF THE LM FIRST MORTGAGE INCOME FUND (First respondent) AND THE MEMBERS OF THE LM FIRST MORTGAGE INCOME FUND ARSN 089 343 288 (Second respondent) AND ROGER SHOTTON (Third respondent) FILE NO/S: 3383 of 2013 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court of Queensland DELIVERED EX TEMPORE ON: 13 August 2021 DELIVERED AT: Supreme Court at Brisbane HEARING DATE: 13 August 2021 JUDGE: Callaghan J ORDER: 1. The remuneration of David Whyte, as the person responsible for ensuring FMIF is wound up in accordance with its Constitution of the period of 1 November 2020 to 30 April 2021 be fixed in the amount of $1,383,829.15 (inclusive of GST). 2. That David Whyte’s costs of and incidental to this application, be costs in the winding up of the FMIF, to be paid out of the assets of the FMIF. -- 1 of 6 -- 2 CATCHWORDS: CORPORATIONS – WINDING UP – GENERALLY – OTHER MATTERS – where application brought by court appointed receiver of investment fund for remuneration Corporations Act 2001 (Cth) s 425, s 601NF Bruce and Another v LM Investment Management Limited and Others [2020] QSC 317, cited COUNSEL: D de Jersey QC for the applicant SOLICITORS: Tucker & Cowan for the applicant [1] Mr David Whyte seeks remuneration for work that he has done in his capacity as a court appointed receiver of the scheme known as the LM First Mortgage Income Fund (FMIF). [2] These reasons must be viewed in the context of the reasons given in Bruce and Another v LM Investment Management Limited and Others,1 delivered 15 October 2020, and the further unreported ex tempore decision of 26 March 2021, which was given following the most recent application of this kind made by Mr Whyte. [3] Once again there is evidence of compliance with the orders made on 15 October 2020. [4] No interested party has appeared to contest anything said in those submissions, nor to oppose the application. [5] That said, Mr Whyte draws attention to the fact that five emails have been received by members. I summarise, paraphrase and moderate when I record that they take a negative view of this application. Mr Whyte has responded, individually and appropriately. [6] Further, LM Investment Management Limited (in liquidation) has, in correspondence “maintained a general objection” to Mr Whyte’s remuneration. Properly, Mr Whyte has exhibited this correspondence in his material. 1 [2020] QSC 317. -- 2 of 6 -- 3 [7] Receipt of the document in this way draws attention to some of the curiosities that attend an application of this nature. It is neither direct evidence nor submission, but the rules of evidence are not strictly to be observed. I have not attempted to define with precision the status of the document, but as will be apparent below I have considered its contents. [8] The evidence received includes the affidavit of Mr Whyte. As I noted in the 15 October decision at [5] to [17], authority suggests that the Court ought not “gainsay the oath” of a Court appointed receiver such as him. However, authority also insists that I must nevertheless determine the question of whether his claim is fair and reasonable for myself and irrespective of the fact that there is no contradictor. There is no “definitive approach” to this exercise. [9] Even if there is no requirement for adherence to the strict rules of evidence, the reality is that the application must be determined on the materials before the Court. The reliability of that evidence would, in more conventional proceedings, be tested by cross examination. That procedure would often be preceded by some form of disclosure and, commonly, be performed with the benefit of advice from an independent expert retained for that purpose. Nothing like that is possible here, and so there has been no cross examination, by the Court, of the Court appointed receiver. [10] There has, however, been scrutiny of his evidence by reference to the considerations articulated in s 425(8) of the Corporations Act. They are, as I have previously determined, engaged and I have approached the application by considering whether they have been addressed appropriately. Mr de Jersey QC, for Mr Whyte, has addressed them specifically in his submissions. I remain conscious also of the principles that have been articulated in authorities through which, as Mullins J (as her Honour then was) observed in the course of a previous application of this nature, the words “proportionality” and “reasonableness” echo. For all of that, there is no real independent measure of “reasonableness” apart from judicial impression. [11] Mr Whyte’s claim is structured according to the five categories said to be endorsed by the Australian Restructuring Insolvency and Turnaround Association (ARITA). [12] The largest part of his claim falls into the category deemed as “assets”. $799,205.00 is claimed under this heading. All bar about $7,000 of that is attributed to work that -- 3 of 6 -- 4 has been done for the purposes of litigation against the former auditors of the FMIF. I have allowed, previously, that this litigation is attended by considerable complexity. That proposition is established by reference to the length of the current statement of claim (137 pages) and defence (246 pages). [13] In any case it is supported by Mr Whyte’s evidence as to the work that has been done in advancing it. Mr Whyte has been advised that this work is necessary if the claim is to succeed, but it is not straightforward. To illustrate, the case demands consideration of five expert reports one of which is over 2000 pages long. That is just one item taken from a list that contains a dozen more examples of the work that has been undertaken. The costs involved in the tasks undertaken for this purpose, as identified by Mr Whyte in his affidavit, are portentous. However, there remains the possibility that $200 million in damages may be awarded [14] It is under this heading that the abovementioned “objection” has been registered. The concerns expressed in the correspondence are accompanied by an acknowledgement that there would be “delight” if these proceedings were successful. The complaint remains, however, that there has been insufficient disclosure of information that would allow for assessment as to the reasonableness of the expenses being incurred by the litigation. [15] In the course of the hearing I expressed my related concern about the accuracy of Mr Whyte’s projections – both to members and in the materials relied upon in this application – to the effect that this matter will go to trial in the first half of next year. Especially was this so because the estimate of its length has increased (since the last application of this nature) from eight to twelve weeks. [16] I am not, at this point, on the basis of concern about the accuracy of such forecasts (or what they might say about the way in which the litigation is being managed) prepared to decline the application – or any part of it – for this reason. Given the point reached in the process of litigation, there is enough in the material to create the requisite “impression”. [17] However, increased relevance to such issues may emerge. I regard it as open, under the heading of “reasonableness”, to have regard to the way in which the receiver is engaging with other interested parties (cf. s 425(8)(d),(i),(f) and (l) of the -- 4 of 6 -- 5 Corporations Act). In particular, it is also open to have regard to the manner in which relevant information is shared with those who might gain a benefit if the litigation is successful or lose one if it is not. There are of course limitations upon the extent to which a litigant may wish to publish, in advance, information about the basis for and development of their case. There remains much that can and should be explained, in plain English, to all those who share an interest in its success or failure, and to the Court in any future application of this kind. In this context expectations will develop as the litigation progresses. [18] At present the principal way in which such information is communicated is in the form of the reports that Mr Whyte has sent to the members of the Fund. The preparation of those reports was part of the work for which the next largest amount, $337,440.50 is claimed – it falls under the heading “Creditors”. The reports are exhibited to Mr Whyte’s affidavit and although, as I have just noted, such reports may be subject to a different type of scrutiny in the future, for the purposes of this application, I have again read that which Mr Whyte has sworn about other information that he has provided to members and the logistical issues that were involved in doing that. [19] Additional affidavit material addresses the balance of his claim, which is attributable to sums calculated for the purposes of the remaining three categories. The amounts involved are “objectively large”, but not in comparison with the amounts sought under the headings already mentioned. In any event, there is evidence that substantiates the amounts claimed. [20] It is again the case that, abiding by the suggestion made by Mullins J in a previous application, Mr Whyte has involved an experienced liquidator who reviewed a portion of the evidence (by reference to a specific period chosen at random) and interviewed Mr Whyte’s staff where he felt it necessary to do so. The limitations to such a review are self-evident, but it nonetheless supports Mr Whyte’s claim, which has been substantiated. [21] It follows that upon application of the aforementioned principles to the unchallenged evidence that is before me, I am prepared to order that for the period of receivership from 1 November 2020 to 30 April 2021, the remuneration of David Whyte, as the -- 5 of 6 -- 6 person for responsible for ensuring that the FMIF is wound up in accordance with its constitution, be fixed in the amount of $1,383,829.15 (inclusive of GST). [22] For these reasons I am prepared to order: 1. The remuneration of David Whyte, as the person responsible for ensuring FMIF is wound up in accordance with its Constitution of the period of 1 November 2020 to 30 April 2021 be fixed in the amount of $1,383,829.15 (inclusive of GST). 2. That David Whyte’s costs of and incidental to this application, be costs in the winding up of the FMIF, to be paid out of the assets of the FMIF. -- 6 of 6 --