Bruce & Anor v LM Investment Management Limited & Ors [2020] QSC 317

SUPREME COURT OF QUEENSLAND CITATION: Bruce & another v LM Investment Management Limited & others [2020] QSC 317 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 ON: 15 October 2020 DELIVERED AT: Supreme Court at Brisbane HEARING DATE: 2 July, 15 October 2020 JUDGE: Callaghan J ORDERS: 1. The remuneration of David Whyte (“Mr Whyte”), as the person appointed pursuant to section 601NF(1) of the Corporations Act 2001 (Cth) to take responsibility for ensuring that the LM First Mortgage Income Fund ARSN 089 343 288 (“FMIF”) is wound up in accordance with its constitution, for the period of 1 November 2019 to 30 April 2020 be fixed in the amount of $989,373.55 (inclusive of GST) pursuant to paragraph 3(c) of the Orders of Justice Dalton on 21 August 2013. -- 1 of 11 -- 2 2. The Cross-Application filed by the First Respondent on 24 June 2020 (“Cross Application”) is dismissed. 3. Unless the Court orders otherwise, the orders in the following paragraphs 4 to 9 (inclusive) and paragraph 12 of this Order shall apply to all future applications by Mr Whyte for approval of remuneration pursuant to paragraph 3(c) of the Orders of Justice Dalton on 21 August 2013 (“Remuneration Application”). 4. Within fourteen days after the Remuneration Application (“the Application”) and supporting affidavit/s are served on the first respondent, LM Investment Management Limited (in liquidation) (on its own account and/or as responsible entity for the LM First Mortgage Income Fund and as responsible entity for the LM Currency Protected Australian Income Fund and as responsible entity for the LM Institutional Currency Protected Australian Income Fund) (referred to below as “LMIM”), LMIM shall file and serve on Mr Whyte: (a) A short statement summarising the grounds, if any, on which LMIM opposes the relief sought in the Application (“Short Statement”); (b) Any affidavits relied upon in response to the Application (“LMIM’s Affidavits”). 5. Within seven days after service of any Short Statement and/or LMIM’s Affidavits, Mr Whyte shall file and serve on LMIM and any other party or member who has notified Mr Whyte that they intend to appear on the hearing of the Application, any further Affidavits relied upon by Mr Whyte, in response to the Short Statement or LMIM’s Affidavits. 6. At least four business days prior to the hearing of the Application Mr Whyte shall file and serve on LMIM and any other party or member who has notified Mr Whyte that that they intend to appear on the hearing of the Application, written submissions in support of the Application. 7. At least two business days prior to the hearing of the Application, LMIM shall file and serve on Mr Whyte, any written submissions in response to the Application. 8. In the event that the timeframes in these orders are not appropriate to the particular Remuneration Application, Mr Whyte and LMIM shall confer with a view to agreeing upon consent orders varying the timeframes. -- 2 of 11 -- 3 9. Liberty to apply. 10. Mr Whyte’s costs of and incidental to the application filed 11 May 2020 and the Cross-Application filed 24 June 2020, be costs in the winding up of the FMIF, to be paid out of assets of the FMIF. 11. The First Respondent’s, LMIM’s, costs of the Applications filed 11 May 2020 and 24 June 2020 be paid from the assets of the FMIF on the indemnity basis. 12. Any future Remuneration Application be conducted as if the application is brought pursuant to section 425 Corporations Act 2001. CATCHWORDS: CORPORATIONS – WINDING UP – GENERALLY – OTHER MATTERS – where application brought by court appointed receiver of investment fund for remuneration – where liquidator of the same investment fund contested application on the basis that the amount sought was neither proportional nor reasonable – where liquidator did not oppose remuneration on an interim basis to be fixed at 85% of the total remuneration claimed by the receiver – where parties could not agree to directions to be made governing the future conduct of similar applications for remuneration – whether remuneration claimed by the receiver should be ordered to be paid out of the assets of the investment fund – whether liquidator’s proposed remuneration should be ordered to be paid to the receiver out of the assets of the investment fund – whether proposed orders for future conduct of similar applications should be made Corporations Act 2001 (Cth) s 425, s 601NF Australian Securities and Investments Commission v Letten (No 9) [2010] FCA 1459, cited LM Investment Management Ltd (receiver apptd) (in liq) v Drake & Ors [2020] QSC 265, cited Owen v Madden (No 2) (2012) FCA 312, cited Re Say Enterprises Pty Ltd [2018] NSWSC 396, cited Wren v Emmett Contractors Pty Ltd (1969) 43 ALJR 213, cited COUNSEL: D de Jersey QC for the applicant JW Peden QC for the liquidator and cross-applicant SOLICITORS: Tucker & Cowan for the applicant Russells for the liquidator and cross applicant -- 3 of 11 -- 4 [1] These two applications were heard at the same time. They represent a small facet of the multi-dimensional litigation generated by the collapse of an investment fund in 2013. As will be explained, the citation does not convey the functional identity of the parties involved. [2] The first application was brought by Mr David Whyte who was, on 21 August 2013, appointed by the Court under section 601NF(1) of the Corporations Act 2001 (Cth) (“CA”), to ensure that the fund known as the LM Investment Management Limited (“LMIM”) is wound up in accordance with its constitution. Pursuant to section 601NF(2) of the CA he was appointed as a receiver of the property of the scheme known as the LM First Mortgage Income Fund (“FMIF”). Pursuant to the same subsection, the order entitled Mr Whyte to claim remuneration for work done in carrying out this appointment and to receive that remuneration out of the assets of that fund. [3] The first application makes such a claim for work done during the period between 1 November 2019 to 30 April 2020. [4] This is not the first occasion upon which such an application has been made. It has been observed previously that the exercise is a “large and complex undertaking”.1 Twelve previous applications of this nature have been approved by Judges of this Court.2 [5] That, of itself, has limited relevance, although will be the subject of further discussion when I consider which orders are appropriate. For the moment it is sufficient to note that every such application must be considered on its merits and by reference to established principles.3 And in any case, this time there is a difference. For the first time in this sequence of applications, the first respondent now appears, represented by Mr Peden QC. For convenience I shall refer to his client as the fund’s liquidator. 1 Applicant’s outline of submissions at [15]. 2 Between 28 August 2014 to 17 December 2019. 3 T1-26 L 41; T1-31 L 45-47. -- 4 of 11 -- 5 He queries whether the amount claimed by Mr Whyte as remuneration is in fact “fair and reasonable”.4 [6] The liquidator says he does not oppose the award of remuneration on an interim basis and agrees that the receiver should be paid for his work. However, he takes issue with the “manner” in which Mr Whyte makes his claim for remuneration.5 [7] This is therefore the second time in two months that I have presided over adversarial litigation between two parties “whose interests align”.6 [8] Indeed, the adversarial approach that was adopted in the earlier application is now extended because the liquidator brings a second, or “cross” application seeking specific orders. These orders allow for only partial payment of the amount sought, seek to add a layer of scrutiny to Mr Whyte’s claim, and include a requirement for him to submit, to an independent referee, material that is said to support his application. It is then proposed that the referee should provide the Court with answers to a series of questions that the liquidator has drafted. [9] Such orders are said to be necessary because of a concern that the materials before me do not address the “proportionality issue”,7 and because the Court cannot be satisfied that the amount sought is reasonable.8 [10] In essence, and by reference to the cases cited in argument, there is said to be a “best practice” procedure that ought to be followed in an application of this nature.9 The liquidator in effect submits that unless this procedure is followed, then the weight to be attributed to evidence of the kind adduced by the applicant reduces to vanishing point, such that the onus which lies upon him cannot be discharged.10 [11] The procedure submitted to be appropriate takes its form from orders made in the case of Australian Securities and Investments Commission v Letten (No 9) [2010] FCA 1459 (“Letten (No 9)”). In that case Gordon J allowed 85% of the remuneration 4 Re Cannuli Holdings Pty Ltd (in liq) [2017] NSWSC 1562 at [8]-[9]; Conlan v Adams (2008) 65 ACSR 521 at [28] per McLure JA. 5 Submissions of the liquidator at [2]-[5]. 6 LM Investment Management Ltd (receiver apptd) (in liq) v Drake & Ors [2020] QSC 265 at [5]. 7 As discussed by the Full Federal Court in Templeton v ASIC [2015] 108 ACSR 545 at [30]-[33]. 8 Submissions of the liquidator at [1]. 9 T1-66 – T1-67. 10 T1-68 L30-45. -- 5 of 11 -- 6 of a receiver to be paid, the receiver to then have the entire percentage of the claimed remuneration to be assessed by a registrar of the Federal Court and the final amount paid in line with that subsequent assessment. Such a system is said to be sensible because it allows the receiver immediate access to funds for work done, yet provides a system of independent oversight.11 [12] In broad terms the cross-application filed by the receiver proposes an analogous procedure, but allows for the final assessment to be made by an independent referee or referees.12 [13] Mr Whyte denies the existence of a need for further scrutiny, points to the material that he has provided and directs my attention to certain principles that are said to apply “by analogy” - that is, the principles that apply to liquidators. In this context, no reference was made to s 425 of the CA. [14] The material provided includes Mr Whyte’s sworn evidence as to the work done by him and his staff. He has summarised that under 16 headings which fall within five different categories.13 He has, in part, justified his claim by reference to the complexity of the matter,14 and explained the benefits which he says have accrued to the FMIF as a result of the work undertaken.15 [15] Mr Whyte has sworn that the work performed – as detailed – was necessary.16 He has further sworn to his belief that the total amount claimed represents fair and reasonable remuneration for the relevant period.17 [16] Authority counsels me to be wary of such an opinion.18 Nevertheless, for an application of this kind to succeed it might be thought mandatory for the applicant swear to something along these lines. And it would involve too much of a paradox 11 T1-41 L18-21. See also Australian Securities and Investments Commission v Letten (No 23) [2014] FCA 985 12 The liquidator would also have the application be adjourned part heard until the assessment is complete with the costs, at first instance, of the referee or referees to be paid by the receiver. 13 Affidavit of David Whyte 7 May 2020 at [22] and [48]. 14 Affidavit of David Whyte 7 May 2020 at [37]-[39]. 15 Affidavit of David Whyte 7 May 2020 at [19]. 16 Affidavit of David Whyte 7 May 2020 at [214] and [221]. 17 Affidavit of David Whyte 7 May 2020 at [232]. 18 See Wren v Emmett Contractors Pty Ltd (1969) 43 ALJR 213 at 221 per Winderyer J: “In assessing the testimony of any witness in any case it is relevant to know whether he has any interest or concern in the outcome of the case which might make him not impartial.”; See also in regards to receivers Re Say Enterprises Pty Ltd [2018] NSWSC 396 at [12] per Brereton J. -- 6 of 11 -- 7 to insist that he do so, to acknowledge authority that suggests that the court will “not gainsay the considered oath of an officer of the court”,19 and yet feel entitled to dismiss his opinion entirely on the basis that it is self-serving. [17] I accept, however, that such an opinion may not be accepted wholly at face value. Someone in the applicant’s position can never “swear the issue”. Mr Whyte’s view as to what is reasonable might be relevant but can never be decisive, and an unsubstantiated assertion cannot be accepted for the purposes of an application of this nature. [18] However, even if only by reference to the evidence which is catalogued above, Mr Whyte’s claim could not be described as “unsubstantiated”. [19] Indeed, it was bolstered by sworn evidence from Mr Gerry Collins, who is a registered liquidator and who has been involved in more than 500 receiverships or liquidations. Mr Collins reviewed what seems to have been a reasonably representative sample of Mr Whyte’s claims and concluded that they were fair, reasonable and in line with that which would be charged by insolvency practitioners of similar experience.20 [20] The question then becomes whether, in light of this evidence, and by reference to the concerns expressed by the liquidator the totality of this evidence is of insufficient weight for the purpose of the application. [21] Those concerns were developed in the course of the cross application. One argument can be dismissed immediately. It was submitted that the applicant could point to no compelling reason why only partial allowance of the amount claimed caused him any prejudice.21 However, if the applicant independently can substantiate his claim on the balance of probabilities, I do not believe that he has to demonstrate a prejudice in order to resist the cross application. [22] Other submissions were targeted more specifically. For example, it was suggested that I should entertain the possibility that a claim for remuneration sought in respect 19 Owen v Madden (No 2) (2012) FCA 312 at [26] per Logan J. 20 Affidavit of Gerry Collins 18 June 2020. 21 Liquidator’s submissions at [25]. -- 7 of 11 -- 8 of some litigation conducted by the applicant was tainted by a concern that there was “some doubt” about his power to have commenced it.22 [23] Further, the liquidator’s arguments, insofar as they were directed to the topics of proportionality and reasonableness, were couched in terms that encouraged me to find that Mr Whyte’s “substantiation” was “opaque”23 and “unhelpful”.24 It was said that aspects of his claim were “unlikely”25 and that my conclusions could not be drawn “confidently”.26 [24] There is a possibility that all of these arguments may have an element of validity. But any application must be determined on evidence. Assessing the sufficiency of evidence is an exercise that, although informed by principle, necessarily involves questions of perception and degree. And the liquidator must confront the fact that the applicant’s evidence on this application (and specifically that given by Mr Whyte and Mr Collins) was unchallenged. Neither was required for cross examination. [25] The opportunity presented. Mr Whyte was in Court throughout the hearing. Mr de Jersey QC explicitly waived any requirements as to notice and made him available for cross examination.27 The offer was rejected. It was maintained that the points raised by the liquidator were issues that could be resolved without the need for cross examination.28 [26] However, confronted as he was with the content and form of evidence from Mr Whyte and Mr Collins, the position adopted by the liquidator was akin to that of one who is “willing to wound, and yet afraid to strike”. As noted above, Mr Whyte’s evidence is to be assessed as that from an officer of the court. He received his appointment as part of these proceedings and was expressly empowered by an order of this Court to make an application in the nature of the one he has brought. Mr Collins is familiar with the same duties that apply in this very situation. It may well be that the liquidator wished, as it was said, to “preserve some form of comity in this matter” 29 and that 22 Liquidator’s submissions at [26]. 23 Liquidator’s submissions at [34]. 24 Liquidator’s submissions at [38]. 25 Liquidator’s submissions at [41]. 26 Liquidator’s submissions at [36]. 27 T1-86 L7-13. 28 T1-99 L16-20. 29 As to “comity”, see also LM Investment Management Ltd (receiver apptd) (in liq) v Drake & Ors [2020] QSC 265 at [3]. -- 8 of 11 -- 9 this would not be assisted by cross examination of Mr Whyte.30 But the inevitable consequence of that position, however altruistically motivated it might have been, is that the actual evidence remains unchallenged. [27] It remains also uncontradicted, in that the liquidator did not seek to place before the Court any actual evidence that might displace the effect of Mr Whyte’s sworn testimony. The only things to be balanced against the evidence were words quoted from authorities and spoken from the bar table.31 The authority was eminent and the submissions eloquent, but the analogy (with other cases) is imprecise and the argument does not lead me away from the conclusion that the application is to be determined on its merits, on the evidence. [28] In the result, and even if its weight just tilts the balance in the applicant’s favour, I find in the circumstances of this particular application that the unimpugned evidence is sufficient to do at least that. [29] I am therefore prepared to order that the remuneration of David Whyte, as the person responsible for ensuring that the FMIF is wound up in accordance with its constitution, for the period of 1 November to 30 April 2020 be fixed in the amount of $989,373.55 (inclusive of GST) pursuant to paragraph 3(c) of the Orders of Justice Dalton on 21 August 2013. The Cross-Application filed by the First Respondent on 24 June 2020 is dismissed. [30] After the parties were informed that this order would be made, submissions were heard on the questions of costs and further orders. The discretion to award costs is just that, a discretion. In my view, it would be open for the exercise of that discretion to be informed by the extent to which parties with a common interest have endeavoured to cooperate so as to avoid the need for adversarial litigation which means the greater cause “lapses and melts away”. [31] For the purposes of this application, I am prepared to order that Mr 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. I am also prepared to order that the liquidator’s costs 30 T1-99 L16-20. 31 Australian Securities and Investments Commission v Letten (No 9) [2010] FCA 1459. -- 9 of 11 -- 10 of the applications filed 11 May 2020 and 24 June 2020 be paid from the assets of the FMIF on the indemnity basis. [32] One of the further orders is made in order to regularise such applications so that they align with those that might be brought by other receivers. It is noted that the applicant approached the case on the basis of principles applicable to liquidators, which applied, so it was submitted, “by analogy”. There may be little, if any, difference between that approach and the one foreshadowed, but if there is to be any further contest in an application of this nature, appropriate submissions will, in my view, be best formulated by reference to s 425 of the CA. [33] The other orders reflect proposals that have been agreed by the parties, and hopefully demonstrate that they have devised a workable regime that will prevent the need for adversarial litigation between them. [34] I therefore propose to make the further orders that: (a) Unless the Court orders otherwise, the orders in the following paragraphs (b) to (g) (inclusive) this Order shall apply to all future applications by Mr Whyte for approval of remuneration pursuant to paragraph 3(c) of the Orders of Justice Dalton on 21 August 2013 (“Remuneration Application”). (b) Within fourteen days after the Remuneration Application (“the Application”) and supporting affidavit/s are served on the first respondent, LM Investment Management Limited (in liquidation) (on its own account and/or as responsible entity for the LM First Mortgage Income Fund and as responsible entity for the LM Currency Protected Australian Income Fund and as responsible entity for the LM Institutional Currency Protected Australian Income Fund) (referred to below as “LMIM”), LMIM shall file and serve on Mr Whyte: (i) A short statement summarising the grounds, if any, on which LMIM opposes the relief sought in the Application (“Short Statement”); (ii) Any affidavits relied upon in response to the Application (“LMIM’s Affidavits”). (c) Within seven days after service of any Short Statement and/or LMIM’s Affidavits, Mr Whyte shall file and serve on LMIM and any other party or -- 10 of 11 -- 11 member who has notified Mr Whyte that they intend to appear on the hearing of the Application, any further Affidavits relied upon by Mr Whyte, in response to the Short Statement or LMIM’s Affidavits. (d) At least four business days prior to the hearing of the Application Mr Whyte shall file and serve on LMIM and any other party or member who has notified Mr Whyte that that they intend to appear on the hearing of the Application, written submissions in support of the Application. (e) At least two business days prior to the hearing of the Application, LMIM shall file and serve on Mr Whyte, any written submissions in response to the Application. (f) In the event that the timeframes in these orders are not appropriate to the particular Remuneration Application, Mr Whyte and LMIM shall confer with a view to agreeing upon consent orders varying the timeframes. (g) Liberty to apply. -- 11 of 11 --