Australian Securities & Investment Commission v Lanepoint

Federal Court of Australia|2009-04-21|Before: Gilmour J

REASONS FOR JUDGMENT 1 The respondent, Lanepoint Enterprises Pty Ltd, by motion dated 19 March 2009, seeks orders that I disqualify myself from further hearing the matter because I had acted as counsel against Mr Norman Phillip Carey, a former director of Lanepoint and because one of my brothers-in-law lost an investment in a company related to Lanepoint following the collapse, several years ago, of the Westpoint Group to which each belonged. Mr Carey was a witness for Lanepoint at the trial of this action. 2 It is unsatisfactory in the extreme that this motion has been brought at this juncture. Indeed, it was filed a few days before the date fixed for delivery of the judgment. There is a strong public interest together with legitimate private interests that such applications be brought at the earliest opportunity. In this case there is an added element of public interest involving, as it does, the corporate regulator. 3 Strictly, what the respondent is seeking, in effect, is that I not deliver judgment in the substantive application in which the Australian Securities & Investment Commission ("ASIC") seeks an order that Lanepoint be wound up. Lanepoint was required to rebut the statutory presumption of insolvency under s 459C(2)(c) of the Corporations Act 2001 (Cth). Judgment was listed to be delivered on 23 March 2009, the same day upon which the motion was returnable. I thought it preferable in these circumstances to defer the delivery of the judgment. 4 I have concluded that, even were there grounds for objection based in apprehension of bias, and in my view there are not, the right to object has been waived by Lanepoint. I set out the reasons for this conclusion below. Nonetheless, I consider it appropriate to deal with these late objections apart from the question of waiver. 5 There was a further motion in a related matter also seeking that I recuse myself. There, the only issue for determination was the question of costs. The motion was, by consent, discontinued on 23 March 2009. I then delivered judgment in the matter: Australian Securities & Investment Commission v Bowesco [2009] FCA 257.

History of proceeding 6 The proceedings were instituted in early 2006. The trial of the action took place over three days between 25 and 27 March 2008. 7 Thereafter there were further hearings in respect to the case on the following dates: (i) 11 April 2008; (ii) 11 June 2008; (iii) 8 August 2008; (iv) 3 September 2008; (v) 13 November 2008; (vi) 10 February 2009. 8 The motion is supported by the following affidavits:

Ms Karen Sandra Carey sworn on 19 March 2009 and 24 March 2009 9 Ms Carey is a director of Lanepoint. In her first affidavit she authorises Mr Carey to swear an affidavit on behalf of Lanepoint for the purposes of the motion. She deposes in her second affidavit to having been present in Court when I made the disclosure concerning my brother-in-law to which I refer below. She told her brother, Mr Carey, about the fact of the disclosure a matter of days after it was made. He said that he would take the matter up with Lanepoint's counsel.

Mark Mieczyslaw Mony De Kerloy sworn on 27 March 2009 10 Mr De Kerloy was at all material times the solicitor and counsel for Lanepoint. His retainer it seems was terminated recently and Lanepoint appointed Metaxas & Hager as its solicitors and who filed the present motion.

Norman Phillip Carey sworn on 19 March 2009 11 Mr Carey had been a director of Lanepoint from 30 August 2004 to 30 November 2005 but since then has not been a director of Lanepoint. He is not currently a shareholder or beneficiary of Lanepoint. Nonetheless, he deposes in his affidavit to being "interested" in Lanepoint and that he has been the person who engaged and instructed solicitors to act for it in the substantive application. This interest is said to arise by reason of his children being beneficiaries in the Dyson Family Trust, a discretionary trust the trustee of which is Bowesco Pty Ltd. Lanepoint is a wholly owned subsidiary of Bowesco. 12 The affidavit of Mr Carey relevantly further contains the following: Background 8. I cannot now recall when I was first informed that Justice Gilmour was to be the trial Judge in these applications. 9. When I attended at the Federal Court for the trial on the first day, being 25 March 2008, and seeing His Honour I then remembered that: 9.1 Justice Gilmour was counsel who acted against in about 1980 me on a complaint of insolvent trading; and 9.2 . . . 10. On 25 March 2008 I informed Mark De Kerloy, counsel and solicitor for the respondents, of the matters in 9 above and said to him words to the effect that I was surprised that Justice Gilmour would hear the matter because I had already then had experience of Judges of the Supreme Court of Western Australia disqualifying themselves because of their professional relationships with my former wife. I asked Mr De Kerloy for his advice as to what action should be taken and he recommended that nothing be done and I accepted that advice. 11. I gave evidence on the first and second days of the trial. The application against Bowesco has been dismissed without opposition from ASIC. Disclosure on day 3 of the trial 12. About a week after 26 March 2008 I was informed by Karen Carey that at the commencement of day 3 of the hearing, whilst I was not present in the Court, Justice Gilmour raised with counsel the issue that one of his brothers-in-law had been an investor in York Street Mezzanine Pty Ltd, a company associated with the Westpoint Group. My sister did not then inform me that Mr Kerloy had then informed His Honour that the Respondents were not concerned by His Honour's disclosure.

I am the former managing director of the Westpoint group of companies. York Street Mezzanine Pty Ltd is now in liquidation and I contend that its failure triggered the collapse of the Westpoint group. Any person who invested money in York Street Mezzanine Pty Ltd has lost their money. … 15. About 2 or 3 weeks after the discussion with my sister in paragraph 12 above I was meeting with Mr De Kerloy and I raised with him the disclosure which His Honour had made on 26 March 2008 and said to him that I was unable to understand how His Honour could act in the circumstances. Mr De Kerloy was dismissive of my concerns. 16. In 2008 I continued to meet with Mr De Kerloy every 2 or 3 weeks and I continued to raise with him my desire that Justice Gilmour should disqualify himself. Mr De Kerloy would not bring an application and the applications had not been resolved. 17. After April 2008 I did not take any steps to bring on a motion because Mr De Kerloy was negotiating with Simon Read, the liquidator of the Westpoint Income Fund, Lanepoint's only alleged creditor, and if those negotiations were successful there would have been nothing left for His Honour to decide except for Bowesco's application for costs. 18. The negotiations with Read broke down over the last few weeks although they had proceeded for more than 8 months or thereabouts. There was a proposed agreement, but it was subject to Read's requirement for a release by me for him in respect of unrelated matters with which I would not agree. 19. As a result of the failure of the negotiations I asked Mr De Kerloy to bring a motion for His Honour to disqualify himself and he again declined to act on such a motion. I was then required to engage another solicitor to bring this application. 13 It is correct that, a very long time ago, I was briefed to appear as counsel for, I think, the then Commissioner for Corporate Affairs upon several complaints in the then Perth Court of Petty Sessions against Mr Carey. I am prepared to proceed on the footing that this occurred in or about 1980 as Mr Carey suggests. Mr Carey states that the charges concerned alleged insolvent trading. I will proceed on the basis that Mr Carey is broadly correct in his characterisation of the charges. My recollection, correct or not, is that Mr Carey was convicted on all counts but that these were quashed on appeal. 14 At the commencement of the third day of the trial on 27 March 2008, I made disclosure in the following terms to the parties concerning an investment made by one of my brothers-in-law in a company in the Westpoint Group. HIS HONOUR: But before you call Mr Nairn, I need to inform the parties that during the course of the hearing yesterday something triggered a recollection of mine that one of my brothers-in-law was an investor in a company. I couldn't remember the name of it but I made inquiries last night and it was the company called York Street Mezzanine Pty Ltd, which I think may have something to do with the Westpoint group. MR DE KERLOY: Yes. HIS HONOUR: Now, I don't consider that fact to be an impediment to my hearing this case. However, I felt it important to tell the parties of that fact. MR DE KERLOY: Yes, I would not take any issue with that, sir. Thank you for the disclosure. HIS HONOUR: Very well, thank you, Mr de Kerloy. Mr Slater? MR SLATER. We wouldn't take issue with that. HIS HONOUR: Very well. If you wish to call Mr Nairn, you can do so, Mr de Kerloy. 15 I will proceed on the basis of Mr Carey's assertion that York Street Mezzanine Pty Ltd is indeed a company "associated with the Westpoint Group" and that any person, including my brother-in-law, who invested in York Street Mezzanine Pty Ltd has "lost their money". 16 Lanepoint is concerned that Mr Carey's credibility had become an issue in the case in respect to the accounting treatment of loans recorded as having been made to the Westpoint Income Fund which the respondent contended were erroneous and which had been corrected. 17 The test as to whether there is an apprehension of bias is whether "a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide": Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [6]; Johnson v Johnson (2000) 201 CLR 488 at [11]; Antoun v R (2006) 224 ALR 51 at [1], [51], [82]; Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577 at [110]. 18 The application of this principle requires two steps. First, it requires the identification of what it is said might lead a judge to decide a case other than on its legal and factual merits. Second, there must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits: Ebner v Official Trustee in Bankruptcy at [8]; Smits v Roach (2006) 227 CLR 423 at [53], [56].

The insolvent trading prosecution: 19 Counsel for Lanepoint submits that in the course of acting in the prosecution it is to be expected that I would have been exposed to a range of issues or allegations concerning Mr Carey's conduct. This, he says, is an integral part of the process that those seeking to advance a case tell counsel a range of facts some of which will become admissible as evidence and be put before the court and others which may never see the light of day in that context, but nonetheless have the capacity to effect counsel's perception of the defendant. 20 A subsidiary proposition put by counsel for Lanepoint was that I would have been counsel in circumstances where Mr Carey gave evidence in his defence and where I had advanced the case against him, leading to the result invariably in those circumstances, that I would be more inclined to form a positive view of the case that I presented and an adverse view of the evidence which was presented by Mr Carey. Accordingly, Lanepoint submits that I may have left the court in my capacity as prosecutor with the perception that Mr Carey was an unreliable or untrustworthy person. 21 I do not accept those submissions. It is not deposed to by Mr Carey nor submitted by counsel for Lanepoint that Mr Carey's credibility was at issue in the prosecution which occurred nearly thirty years ago. 22 It was not, having regard to the broad nature of the prosecution as I have accepted it to be for present purposes, inevitable that his credibility was put in issue. The central issue in such a prosecution would more likely be whether the relevant company or companies were or were not solvent at the material times. 23 There is no reasonable basis, in my opinion, on the material, to conclude that I must have formed or likely formed an adverse opinion as to Mr Carey's character and integrity as a result of the prosecution many years before.

Brother-in-law's investment 24 The fact that my brother-in-law lost money from an investment in a company in the Westpoint Group would not, in my opinion, in the mind of such a lay observer, give rise reasonably to the view that I might conclude that Mr Carey was disreputable. The fair-minded lay observer could not reasonably assume, without more, that the investment had been lost because Mr Carey was disreputable or for that matter dishonest or reckless or negligent. Companies can fail despite the best efforts of competent and diligent directors. 25 Accordingly, I do not find the matters relied upon to have been made out. The surviving matters, at their highest, are therefore: (a) I acted as counsel for the Corporate Affairs Commission about 29 years ago in a prosecution of Mr Carey for, loosely described, "insolvent trading". Mr Carey's credibility was not an issue at trial. Mr Carey was convicted. (b) One of my brothers-in-law lost his investment in a company which, like Lanepoint, was in the Westpoint Group. 26 I do not consider that a fully informed fair-minded lay observer would reasonably conclude that, on either basis, I might not bring an impartial mind to the resolution of the question whether Lanepoint has rebutted the legal presumption of insolvency even if that potentially involved an adverse conclusion on my part as to Mr Carey's credibility. In neither case has the necessary first step been established, namely, the existence of facts which might lead me, as a judge, to decide the case before me other than on its legal and factual merits. Furthermore, there is no logical connection between the matters, as I have found them to be, and the feared deviation from the course of deciding the case on its merits.

Further disclosure 27 The hearing of the motion took place on 23 and 30 March 2009. On the first day, and given the belated public concern by Lanepoint as to an apprehension of bias on my part emerging from my past professional involvement with matters concerning Mr Carey, I made further disclosure to the parties of a matter about which I had made enquiries at the end of the previous week before the first day of hearing. It concerned the fact that I had been briefed as senior counsel for a defendant in an action in the Supreme Court of Western Australia who was being sued by Mr Carey for damages for alleged defamation. The extent of my involvement was I believe, and as I disclosed to the parties, that I offered general guidance pre-action and at an early stage of the proceeding and that I may have settled the defence. I did not, however, appear on the client's behalf in court at any stage. My involvement it appears ended sometime prior to 1 July 2004 and the action had not then passed the discovery phase. 28 Upon making the disclosure, counsel for Lanepoint informed me that he had already discussed that matter with Mr Carey although it was not then asserted as a ground for my recusal in this case. Nonetheless, I afforded counsel for Lanepoint a short adjournment in order to confirm that this further matter would not be relied upon. Following that adjournment, I was informed that Lanepoint now intended relying upon the content of my further disclosure as a further ground of apprehended bias on my part. Counsel for Lanepoint informed me that in the Supreme Court action against the person for whom I had been briefed, Mr Carey alleged that she had defamed him at a dinner party in the presence of, amongst others, Mr Carey's former wife. She too was named as a defendant. The alleged libel was to the effect that Mr Carey was having an extra-marital relationship with his then personal assistant and further that he was unable or unwilling or was refusing to pay his bills. 29 Lanepoint submits that taken in isolation this would not constitute a ground for my recusal but taken together with the other matters relied upon it created, in effect, an accumulation of reasons for my doing so. 30 I do not consider that a fair-minded lay observer would reasonably conclude that I might not bring an impartial mind to the question of the solvency of Lanepoint as a result of my having acted in the defamation matter instituted by Mr Carey whether viewed separately or together with other matters. There is no logical connection between the fact of my acting as counsel and the concern that I would not have brought an impartial mind to deciding the present litigation.

Waiver 31 Lanepoint was at all times represented by counsel in these proceedings. At the time I made disclosure concerning my brother-in-law's investment, Ms Carey, the then director of Lanepoint was, I am told by counsel for Lanepoint, in Court. It is not to the point to consider whether counsel for Lanepoint declined to object without instructions being taken from Ms Carey. So much is evident from what was said by Gleeson CJ, Heydon and Crennan JJ in Smits v Roach at [45]-[48]. The Court is generally entitled to rely upon what counsel states on behalf of his or her client on such matters. 32 Mr Carey knew of the matter which was the subject of my disclosure from as early as the beginning of April 2008. 33 It was, belatedly, conceded in argument by counsel for Lanepoint that as and from about four weeks from the 27 March 2008, the third day of the trial, Lanepoint had impliedly waived its right to object to my hearing the case on the ground that my brother-in-law had lost his investment in a company in the Westpoint Group. This then leaves only the matter of the prosecution and the defamation action. 34 Mr Carey deposed not only that he recalled the matter of his prosecution and my involvement but says that it was of such concern to him that on the first day of the trial he raised it with counsel for Lanepoint. Nonetheless, Lanepoint, at least through Mr Carey, and I infer, to the knowledge of Ms Carey, accepted counsel's advice not to take any objection to my hearing the matter. Lanepoint is bound by that election. 35 Lanepoint, through Mr Carey, was aware of my acting in the defamation suit. It took no steps to have me disqualify myself. 36 It is clear that, following the trial, Lanepoint, whether by Mr Carey or Ms Carey, determined not to instruct other solicitors to bring an application for my disqualification but elected, rather, to pursue negotiations with the liquidator of the Westpoint Income Fund in the hope that it could reach an agreement which would result in Lanepoint being in a position to establish its solvency. As Mr Carey's affidavit discloses, those negotiations broke down "over the last few weeks". As a result he asked his solicitor and counsel Mr De Kerloy to bring a motion that I disqualify myself, but he declined to act. Mr Carey then engaged his present solicitors to do so. 37 There has been, in respect to each of the grounds relied upon to demonstrate an apprehension of bias, a waiver by Lanepoint of its right to object. However, even had there been no waiver I would not recuse myself as, in my opinion, the test for an apprehension of bias, on any of the grounds relied upon, has not been met. 38 The motion ought be dismissed with costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Associate: Dated: 21 April 2009 Counsel for the Applicant: Mr C M Slater

Solicitor for the Applicant: Australian Securities & Investment Commission

Date of Hearing: 23 and 30 March 2009

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (6)

Cited By (1)