DISQUALIFICATION FOR INTEREST OR BIAS
8 It was argued on behalf of Mr Ashton that the primary Judge had been disqualified from determining the proceeding then before him, either because he had a direct pecuniary interest in the outcome of the proceeding or because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue.
9 The argument of disqualification by reason of direct pecuniary interest arose because (as he disclosed to the parties in advance of the substantive hearing) the primary Judge was a discretionary beneficiary of a family trust which held 2,375 fully paid ordinary shares and 3,225 convertible preference shares in the Bank and the Bank, as the bankrupt's largest creditor, stood to derive a financial benefit if Mr Prentice were to succeed in the proceeding before the primary Judge.
10 As counsel for Mr Ashton conceded before us, his argument that the primary Judge had been disqualified by reason of direct pecuniary interest could not succeed unless this Court were persuaded to overrule its own earlier decision in Re Ebner; Ebner v Official Trustee in Bankruptcy (1999) 161 ALR 557 (Sackville, Finn and Kenny JJ).
11 Ebner, like the present case, was one in which a trustee in bankruptcy was seeking under the Act to have set aside a transfer of property by a person who had later become a bankrupt. As in the present case, the primary Judge in that case was a discretionary beneficiary of a trust which held shares in a bank which was a creditor of the bankrupt and was likely to benefit from an increased distribution if the trustee's proceeding should succeed.
12 The Full Court in Ebner, in joint reasons for judgment, approached the question whether the primary Judge had been disqualified by reason of direct pecuniary interest from determining the proceeding then before him by assuming, contrary to the fact, that the primary Judge had held a direct shareholding in the bank equal to that held by the trust: see at 569, par 43. On that assumption, nevertheless, it held that the primary Judge had not been disqualified by reason of direct pecuniary interest from determining the proceeding then before him. It said (at 570 - 571, par 48):
"A line can and should be drawn between a case in which a judge has a shareholding, however small, in one of the parties to litigation and a case in which the judge has a shareholding in a corporation which may ultimately obtain a financial benefit from proceedings, although not as a direct beneficiary of any order made by the court."
13 The Court's view was that, in the first class of case, the Judge concerned was disqualified by reason of direct pecuniary interest from determining the proceeding then before him or her; in the second class of case, he or she was not. Obviously, the case before the Court fell into the second class, so that the primary Judge had not been disqualified by reason of direct pecuniary interest from determining the proceeding then before him.
14 After counsel for Mr Ashton conceded that Ebner, if followed, presented an insuperable obstacle to the success of his argument that the primary Judge in the present case was disqualified by reason of direct pecuniary interest, we invited him to make submissions, particularly by reference to the "John" considerations (John v Federal Commissioner of Taxation (1989) 166 CLR 417 at 438 - 439 (Mason CJ and Wilson, Dawson, Toohey and Gaudron JJ)) on the question whether we should give him leave to argue that Ebner had been wrongly decided.
15 However, although we were pressed to grant leave, those submissions made no reference whatever to any of the John considerations. Rather, the simple submission was made that we should give leave to re-argue Ebner because its reasoning was defective. Its reasoning was said to be defective, in substance, because it failed to give any weight to the fact that the bankruptcy trustee's function in proceedings like those in Ebner or the present case is to recover assets for the benefit of the bankrupt's creditors.
16 In the circumstances, the appellant's failure to address the John considerations is not of any moment, because, if leave were granted to challenge the correctness of Ebner, we would not be persuaded that it was wrongly decided. We agree, for the reasons given in Ebner, that it is appropriate to draw the line which their Honours drew in that case. We are comforted, in reaching that conclusion, by the knowledge that, in Clenae Pty Limited v Australia & New Zealand Banking Group Limited [1999] VSCA 35 (unreported; 9 April 1999), Charles JA (with whom Winneke P agreed: see at par 1) said (at par 65) that he agreed with the conclusion of the Full Court in Ebner that the primary Judge in that case had not been disqualified because of direct pecuniary interest.
17 It follows that we reject the appellant's argument that the primary Judge had been disqualified from determining the proceeding before him because he had a direct pecuniary interest in its outcome.
18 Before turning to Mr Ashton's argument that the primary Judge had been disqualified from determining the proceeding then before him because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue, it is convenient that we refer to a matter which arose at the outset of the hearing of Mr Ashton's appeal.
19 Before the hearing of the appeal had commenced, Katz J had notified the parties that his wife owned 412 fully paid ordinary shares in the Bank. That disclosure provoked a submission by Mr McQuillen of counsel for the appellant at the outset of the appeal that Katz J was disqualified from participating in its determination by reason of his having a direct pecuniary interest in the outcome of the appeal. Having heard that submission and the respondent's submission in reply, we announced our view that Katz J was not so disqualified and that we would give our reasons for that decision concurrently with our reasons for judgment on the appeal itself.
20 It follows from what we have said above about the position of the primary Judge that, if we were now being called upon to decide whether Katz J had been disqualified from participating in the determination of the appeal by reason of direct pecuniary interest and were to make the assumption that Katz J himself owned the shares concerned, we would nevertheless not hold him to be disqualified by reason of direct pecuniary interest.
21 However, at the time we made the decision regarding Katz J, the making of such an assumption would, in any event, have been contrary to the approach of the High Court in the Bank Nationalisation Case. As was pointed out by the Full Court in Ebner (at 567, par 34), in that case, which was one in which the bank concerned was a party, the High Court ruled that Starke J was not disqualified because of direct pecuniary interest from participating in the determination of that case by reason of his wife's shareholding in a bank.
22 That ruling was afterwards applied by the Full Court of the Supreme Court of Queensland in R v Industrial Court [1966] Qd R 245.
23 In recent times, in Dovade Pty Limited v Westpac Banking Corporation [1999] NSWCA 113 (unreported; 30 April 1999), the New South Wales Court of Appeal (Mason P and Sheller and Stein JJA) has discussed further the position of a Judge whose spouse owns shares in a corporation which is a party to litigation before the Judge. The Court referred (at par 86) to an argument made in that case, in the context of a submission of disqualification of the trial Judge by reason of direct pecuniary interest, that the Judge had such a community of economic interest with his wife that whatever affected the value of her interests affected his. That submission, the Court said, overlooked the fact that Australian law had, for over a century, had a separate property regime for married persons. It later said (at par 89), by way of conclusion to its discussion of the topic of disqualification because of direct pecuniary interest, that "the position of the pecuniary interest of a family member, however close, cannot be equated automatically with that of the judge".
24 In the circumstances, our rejection of the submission that Katz J was disqualified from participating in the determination of the appeal because of direct pecuniary interest was inevitable, even if the Bank had notionally been treated as a party to the appeal, as the appellant argued it should.
25 The appellant's argument that the primary Judge had been disqualified because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was based upon a number of matters.
26 The first matter was the very one relied upon in an attempt to establish the primary Judge's disqualification because of direct pecuniary interest, namely, his status as a discretionary beneficiary of the trust which owned shares in the Bank.
27 We note that the Full Court in Ebner was not required to deal with an argument based on a reasonable apprehension of bias, it being expressly conceded by the appellant in that case that the trust's shareholding (nine thousand shares in ANZ Bank) and the primary Judge's status as a discretionary beneficiary of the trust did not give rise to a reasonable apprehension of bias on the primary Judge's part. However, as we have already made plain, no such concession was made in the present case. That exemplifies, it appears to us, the comment of the Full Court in Ebner (at 570, par 47), in the context of submissions of judicial disqualification in the bankruptcy jurisdiction, that it is a jurisdiction "not always characterised by restraint and common sense on the part of litigants".
28 It appears to us that fair-minded people might reasonably apprehend or suspect that a Judge had prejudged or would prejudge the matters then before him or her in circumstances like those of the present case only if: first, either the price of the shares concerned or the level of dividends to be paid on them could be affected by the outcome of the case; and, secondly, the shareholding concerned were large enough for that effect to result in a significant benefit or detriment to the Judge. One may compare in that respect the approach taken by Charles JA in the Clenae Case at pars 55 to 57.
29 In the present case, Mr Prentice was seeking to obtain for the benefit of the creditors (let it be assumed the Bank alone) an asset which, putting his case at its highest, had a value of slightly less than six hundred thousand dollars. Let it be assumed that, on a wholly successful outcome of the case from Mr Prentice's point of view, the Bank would be the indirect beneficiary of Mr Prentice's success to the full extent of that amount (although such an assumption is obviously far too favourable to Mr Ashton). Since it was being suggested, in substance, by Mr Ashton that such an outcome could have some measurable effect on either the price of the 2,375 fully paid ordinary shares and 3,225 convertible preference shares concerned or the level of dividends to be paid on them, it appears to us to have been incumbent upon Mr Ashton to put before us evidence which would sustain, even at the crudest level, that conclusion. For instance, as was pointed out by Charles JA in Clenae (at par 55), one would need to know the ratio of the shareholding concerned to the Bank's total issued share capital. Mr Ashton made no attempt to adduce, either before the primary Judge or before us, evidence of that kind. However, knowing what we are permitted to know about the Bank even in the absence of evidence, we would be astonished if the distribution as a dividend of the full value of the house to the Bank's shareholders rateably would lead to the trust's gaining as much as an additional two cents in total.
30 It was pointed out by Tadgell JA in Gascor v Ellicott [1997] 1 VR 332 at 342 that the Court's search in present circumstances is for a "reasonable" apprehension of bias, "not a fanciful or fantastic" one. In the absence of the necessary evidence from Mr Ashton, we can only regard the argument of apprehension of bias in the primary Judge because of his status as a discretionary beneficiary of the trust which owned shares in the Bank as fanciful or fantastic.
31 (We should perhaps add here that the same conclusion applies, if anything, even more strongly to the submission that Katz J was disqualified from participation in the determination of the appeal because of apprehension of bias on his part based on his wife's shareholding.)
32 The second matter upon which Mr Ashton based his argument that the primary Judge had been disqualified from determining the proceeding then before him because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was the fact that (as he disclosed to the parties in advance of the substantive hearing of the proceeding) the primary Judge was a customer of the Bank and had been so for many years, having "moneys on deposit, cheque and savings accounts and matters of that kind".
33 We think it is a sufficient answer to that submission to repeat what was said, relevantly, by the New South Wales Court of Appeal in Dovade. It said:
"100 The suggestion that the mere relationship of banker and customer could give rise to a reasonable apprehension of bias in accordance with the Livesey [v New South Wales Bar Association (1983) 151 CLR 288 at 293-94] test should be firmly rejected…. Whatever the situation in times past, the relationship that now exists between a banking corporation and its customers is necessarily highly impersonal and remote. Modern banking is, for most customers, a relationship in which the intercourse takes place at the ATM and through the mail and the telephone. It is analogous to that which exists with a telecommunications service provider, a motor vehicle or general insurer, or a large supermarket chain. No one would reasonably apprehend that the judge might be diverted from the judicial oath to do justice without fear or favour, affection or ill will by the mere existence of such a link.
101 And, as regards the judge who is a customer of a particular bank, telecommunications service provider, motor vehicle insurer or supermarket chain, nothing turns upon the state of accounts at any point of time, at least with a customer who pays accounts as they fall due. For many people, short-term indebtedness to the provider of goods or services is a relationship of pure convenience, which in no way places the debtor at the pecuniary mercy of the creditor or establishes any sense of obligation beyond the immediate indebtedness from time to time.
102 Obviously, there will be situations where the affairs of a particular bank branch or group of bank personnel are involved in litigation, or where the judge has some special association with the branch or bank personnel. And it is conceivable that a particular judge may be in such financial difficulty or may through some dealing with a present or former bank have a such a level of obligation towards or animus against a bank that there may be actual bias or at least its appearance to a reasonable observer. But these are exceptional cases. They are no different from the infinite range of adventitious relationships with litigants, counsel or witnesses that could arise in any piece of litigation, and which are dealt with (in the ultimate resort) by application of the Livesey principle to the particular facts of the case."
34 There being nothing in the present case to suggest that the primary Judge's relationship with the Bank as a customer was in any way exceptional, that relationship could not, in our view, give rise to a reasonable apprehension of bias on the primary Judge's part.
35 The third matter upon which Mr Ashton based his argument that the primary Judge had been disqualified from determining the proceeding then before him because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was the fact that (as he disclosed to the parties in advance of the substantive hearing of the proceeding) the primary Judge had, many years earlier, when a barrister, given taxation advice to the transferor of the property the subject of the proceeding before him.
36 The argument based upon this matter had, as we understood it, the following steps: first, the primary Judge had specialised in taxation law when a barrister and had on occasion given taxpayers advice on how to minimise their future taxation liability; secondly, we should infer from the fact that the primary Judge had given such advice that the subject of his advice to the transferor had been how the transferor could minimise his future taxation liability; thirdly, an issue before the primary Judge could be whether the transferor's main purpose in making the transfer had been either to prevent the transferred property from becoming divisible among the transferor's creditors or to hinder or delay the process of making property available for division among the transferor's creditors (see par 121(1)(b) of the Act); and, fourthly, the primary Judge was more likely than he would otherwise have been to conclude, assuming it to be necessary to make a finding on the matter, that the transferor had been actuated by one of the nominated purposes, by reason of the Judge's knowing that the transferor had earlier taken advice on minimising his future taxation liabilities.
37 About such an argument, we consider it only necessary to say that if it was on the right side of the line between arguments which counsel can and cannot make to a Court consistently with their professional obligations, then it was just barely so.
38 The final matter upon which the appellant based his argument that the primary Judge had been disqualified because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was the fact that the primary Judge was friendly with a person named Arnold Milton.
39 To explain the significance of this matter, it is necessary to make reference to events which occurred at the outset of the proceeding before the primary Judge.
40 At that time, Counsel for Mr Ashton submitted to the primary Judge that he was disqualified from hearing and determining the proceeding on a number of grounds. Among those grounds was that it was "more likely than not" that Mr Ashton would seek leave to adduce in his case evidence from Mr Milton and that Mr Milton was friendly with the primary Judge. (Mr Ashton required leave to adduce evidence from Mr Milton, there having been a direction made earlier in the proceeding for evidence in chief to be on affidavit which had not been complied with by filing and serving any affidavit from Mr Milton.)
41 While that submission was being made, the primary Judge said that any question of his relationship with Mr Milton could not possibly become relevant until Mr Ashton actually sought leave to adduce evidence from Mr Milton, such leave was granted and evidence was ultimately adduced from Mr Milton. His Honour went on to say that, if those events occurred and if Mr Milton's credit were subsequently put in issue by Mr Prentice, then he (the primary Judge) would "of course" disqualify himself, "there is no doubt about that".
42 It should be noted immediately that at no stage during those submissions was any attempt made by counsel for Mr Ashton to identify the "victim" of the bias which could be reasonably apprehended by the fair-minded observer if evidence were ultimately to be adduced from Mr Milton in the circumstances.
43 Before us, it was submitted that, as a result of the primary Judge's relationship with Mr Milton and particularly in the light of his Honour's statement that if evidence were ultimately to be adduced from Mr Milton and if Mr Milton's credit were subsequently in issue, then his Honour would disqualify himself, the fair-minded observer would, at that time, have had a reasonable apprehension of bias on his Honour's part.
44 When that submission was made, we immediately requested counsel for Mr Ashton to identify the "victim" of the bias which could reasonably have been apprehended by the fair-minded observer if evidence were to be adduced from Mr Milton in the circumstances. Was it his case, we enquired, that, the primary Judge being friendly with Mr Milton, the fair-minded observer would conclude that the Judge was likely to be prejudiced against Mr Ashton by way of overcompensating for his friendship with Mr Ashton's witness: see, on the "overcompensation" argument, Munro v Australia & New Zealand Banking Group Limited (unreported; 29 June 1993; FCA: Ryan J).
45 Counsel disavowed the "overcompensation" argument and, although he did not then in terms acknowledge what his case actually was, it can only have been that the fair-minded observer would have concluded that the Judge was likely to be prejudiced in favour of Mr Ashton if Mr Milton were to give evidence in his case.
46 We reject the notion that it is open to Mr Ashton to assert that the primary Judge was disqualified because of a reasonable apprehension of bias in his favour.
47 The matter was referred to by Hutley JA in Sankey v Whitlam [1977] 1 NSWLR 333. In that case, a magistrate conducting a committal proceeding had refused to continue the hearing, taking the view that he was disqualified from doing so. The informant had then obtained from the Supreme Court a mandamus to the magistrate, requiring him to resume the hearing on the basis that, contrary to his view, he was not disqualified from continuing. In the course of an appeal from that decision, the defendants in the committal proceeding sought to support the magistrate's decision by arguing that he was disqualified because of a reasonable apprehension of bias in their favour. Hutley JA dealt with that submission as follows (at 358):
"Though in raising this point, the accused are showing a commendable zeal for the purity of the administration, this is not for them to rely upon. They can complain against bias against themselves or suspicion of bias to their disadvantage, not a suspicion of bias in their favour. It would make the administration of justice impossible if bias or suspicion of bias to which the victim does not object could be used by his opponent to abort a hearing."
48 However, even assuming, contrary to our view, that it is open to Mr Ashton to seek to establish that the primary Judge was disqualified because of a reasonable apprehension of bias in his favour, we still regard as hopeless the argument that the fair-minded observer would, at the conclusion of the submissions at the outset of the proceeding before the primary Judge, have reasonably apprehended bias in Mr Ashton's favour on the part of the primary Judge because of his Honour's relationship with Mr Milton.
49 We say that because the fair-minded observer would have been aware that the adducing of evidence from Mr Milton was, at that stage, hypothetical. First, Mr Ashton would have to decide to seek leave to adduce such evidence, something which he acknowledged he had not yet decided; secondly, the primary Judge would have to grant such leave; and, thirdly, admissible evidence would actually have to be adduced from Mr Milton.
50 We add that, in fact, Mr Ashton never did seek leave to adduce evidence from Mr Milton because of concessions made on behalf of Mr Prentice as to the matters to which Mr Milton's evidence would have been directed.