TGIF 18 September 2020 – LM Investment Management: Supreme Court declines to provide judicial advice sought by receiver

This week’s TGIF looks at recent litigation involving LM Investment Management Ltd (LM), where the Supreme Court declined to provide judicial advice to the receiver of the LM First Mortgage Income Fund regarding whether to pursue an appeal. (LM Investment Management Ltd (receiver apptd) (in liq) v Drake & Ors [2020] QSC 265).

Key takeaways

• In a case where an external administrator is seeking judicial advice whether or not to pursue an appeal, the relevant test is whether:
  
  
  • the appeal outcome would be meaningful for beneficiaries;
    
    
  • there are reasonably arguable appeal grounds; and
    
    
  • the Court should exercise its discretion having regard to certain factors, including the appeal’s prospects of success and the known means of the other party to satisfy any judgment in the event the appeal is successful.
    
    
• Save in unusual cases where there has been a clear error on the part of the trial judge (for example, a decision contrary to settled authority), satisfying the Court that an appeal has sufficient prospects of success will most likely require an external administrator to provide the Court with an independent opinion from counsel who was not involved in the trial.
  
  
• In addition to satisfying all other discretionary factors, an external administrator will also need to demonstrate the actual benefits that might accrue to beneficiaries if the appeal is successful by reference to satisfactory evidence of the other party’s financial means to satisfy any judgment.

First instance decision

The first instance decision was delivered by Jackson J in 2019 (LM Investment Management Ltd (receiver apptd) (in liq) v Drake & Ors [2019] QSC 281).  

The receiver had commenced proceedings against the directors of LM alleging breaches of duties relating to the distribution of monies between two funds of which LM was the responsible entity / trustee.  Jackson J found against the receiver and ordered him to pay the defendants’ costs.

The receiver appealed Jackson J’s ruling and then applied to the Court for judicial advice on whether he was “justified in making and pursuing” the appeal.  

The judge hearing the application for judicial advice noted that the receiver’s application was an unusual one in that it involved the judge being asked to critique a judgment delivered by another judge of the same Court, whilst not empowered with any sort of appellate jurisdiction.

Applicable test

The Court identified the applicable test whether to give judicial advice:

• First, whether the advice being sought is meaningful in the sense that the result of a successful appeal may benefit the beneficiaries.
  
  
• Second, whether the applicant has identified reasonably arguable grounds of appeal.
  
  
• Third, whether the Court’s discretion should be exercised to give advice, as informed by the interests of the beneficiaries and having regard to certain discretionary factors, including the prospects of success and the known means of the other party to satisfy any judgment.

What did the Court decide?

While the Court found that the judicial advice would be meaningful and the grounds of appeal were reasonably arguable, the Court concluded that the receiver had failed to provide sufficient evidence as to the prospects of success of the appeal and the ‘known means’ of the defendants to satisfy any judgment should the appeal be successful.

The Court therefore declined to provide the judicial advice sought by the receiver.

Prospects of success

The receiver produced two opinions on prospects from trial counsel.  The Court reasoned that, in a case where a receiver is seeking judicial advice whether or not to pursue an appeal absent any obvious error on the part of the trial judge, best practice required the receiver to produce independent advice from counsel who had not been involved in the trial.  As the only opinions before the Court were provided by trial counsel for the receiver, the Court found there was no evidence that satisfactorily informed the question of appeal prospects.  

Known means

Further, no evidence was tendered about the defendants’ capacity to meet a successful claim for damages. The Court could not assess whether any actual benefits would flow to the beneficiaries in the event the receiver’s appeal was successful.

Comment

In a case where an external administrator is seeking judicial advice whether or not to pursue an appeal, unless there is an obvious error in the trial decision, the applicant will most likely need to provide an independent opinion on appeal prospects from counsel who was not involved in the trial.