De Varda v Scott in his capacity as the trustee of the bankrupt estate of de Varda

Federal Court of Australia|2022-02-18|Before: Rares J

Recusal application

The interlocutory application filed by the applicant on 18 February 2022 (the recusal application) be dismissed.
The applicant pay the respondent's costs of the recusal application. Strike out application
The interlocutory application filed by the respondent on 4 February 2022 (the strike out application) be adjourned to 18 March 2022.
The applicant file and serve on or before 10 March 2022: a. Points of claim that comply with the Federal Court Rules 2011 and, in particular, if relevant, rules 16.02, 16.03, 16.04, 16.42 and 16.43 identifying the basis on which he contends that he has a reasonable prospect of successfully contending at a trial that the deed of settlement and release he entered into on 9 July 2015 is not enforceable together with any evidence in support and written submissions limited to five pages.; and b. A readable or revised version of the schedule to the amended statement of claim
The respondent file and serve on or before 16 March 2022 his points of defence together with any evidence in support and further submissions written submissions limited to five pages. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

RARES J: 1 This is an application by the applicant, Joseph de Varda, that I recuse myself from hearing this proceeding. In this proceeding, Mr de Varda asserts that his former trustee in bankruptcy, Andrew Scott, had acted in such a way as requires there to be an inquiry into Mr Scott's conduct under the then ss 178 and 179 of the Bankruptcy Act 1966 (Cth) relevant at the time of the administration.

Background - the 2014 proceedings 2 Mr de Varda was one of three applicants and appellants (I will refer to them for convenience as the appellants) in two proceedings that I heard on 7 and 11 March 2014 in which he and his fellow appellants sought, first, to have their bankruptcies annulled and, secondly, to have the orders made by the Federal Circuit Court sequestrating their estates set aside. 3 At the beginning of those hearings I also had to deal with the appellants' application that I recuse myself by reason of an alleged apprehension of bias: Tov-Lev v Lowbeer [2014] FCA 360. I declined to recuse myself, for the reasons I gave there, and proceeded to hear the case later on 7 and 11 March 2014. At the conclusion of the hearing I gave ex tempore reasons dismissing the appeal and application for annulment: Tov-Lev v Lowbeer (No. 2) [2014] FCA 379. 4 On 7 April 2014, Mr Scott was appointed the trustee in bankruptcy of Mr De Varda. Mr de Varda wishes to make serious allegations in his amended statement of claim that, first, Mr Scott acted in an inappropriate way, such as to warrant the Court ordering that there be an inquiry into his conduct under the former s 179 and, secondly, Mr De Varda is entitled to relief including damages. 5 The appellants were unrepresented. Mr de Varda did not give evidence before me during the course of the hearing of the appeal and application for annulment. The issues in that hearing concerned whether the trial judge had erred, first, in making the sequestration order and, secondly, in not setting aside the Registrar's orders that set aside the subpoenas which the appellants had contended would have produced evidence enabling them to go behind the judgment debts. I noted in my reasons that there was very little in the appeal or application papers that could be characterised as evidence, but rather there were assertions in that material. 6 During the course of the proceeding before the trial judge and in the appeal, the appellants relied on an allegation against John Lowbeer, the petitioning creditor. Mr Lowbeer had been the auditor of The Strathfield District Hebrew Congregation company that owned the land and buildings known as the Holocaust and War Memorial Synagogue at Strathfield. They alleged that during a meeting of the company of 1 May 2011, Mr Lowbeer had been bribed by a resolution that his incorporated accounting practice be paid a fee of $7,500 for audit work. The allegation appears to have been that the previous board (the old board), which another board comprising the appellants and their allies (the new board) had sought to displace, wished to reward Mr Lowbeer, for his efforts in securing the new board's removal as directors from the register of the Australian Securities & Investments Commission. In Tov-Lev (No 2) [2014] FCA 379 at [16]-[18] I said: [16] The accounts of the company in evidence begin with a profit and loss statement for the year ended 30 April 2011, with comparative figures for the preceding 2010 year. The item for accountancy fees recorded an expense of $253 in each year. A tax invoice addressed to the company by Caunt and Lowbeer Pty Ltd dated 12 April 2011 required payment of $253 for professional accountancy and secretarial services, rendered for the period ended 12 April 2011. It specified the work performed as maintenance of the corporate register system, review of an ASIC company statement, preparation of declaration of solvency and attendance to other corporate matters as required. That invoice appears to have been paid on 26 April 2011. [17] The appellants contended that, on about 1 May 2011, the old board agreed to pay Mr Lowbeer $7,500 for his efforts in securing the new board's removal from ASIC's registers and its replacement by the old board. The appellants contended that this payment was a bribe to Mr Lowbeer. They asserted that, on 8 November 2011, two members of the old board wrote a company cheque for $7,500 in favour of Mr Caunt, who endorsed it on 14 November 2011 to Caunt and Lowbeer Audit Pty Ltd. Mr Cliffe claimed that the cheque was made out to Mr Caunt to obfuscate forensic examination of the payment of the $7,500 as a bribe, and somehow to avoid investigation into Mr Lowbeer's conduct when he attended the 1 May 2011 meeting and secured the arrangements for the payment. The appellants also asserted that the 1 May 2011 annual general meeting of the company convened by the old board was for the 2010, and not 2011, year, and that the old board had fabricated company records for the preceding 14 annual general meetings. [18] Mr Lowbeer gave evidence, which I accept as truthful. He said that he attended the annual general meeting on 1 May 2011 as auditor. He and his firm had performed the auditor's role for many years on an honorary basis, and the $253 charge represented annual fees for lodgement of statutory returns. At the 1 May 2011 meeting, he was surprised to hear a proposal that a fee of $7,500 be paid to his company for audit work. That proposal became a resolution that was passed. Mr Lowbeer knew that, on 30 June 2011, he would be retiring from active practice with Caunt and Lowbeer Pty Limited and its associated companies. He denied that he was paid or received any part of the $7,500 fee. He also denied the appellants' accusations that he was paid, or it was proposed that he be paid, $7,500 or any part of it in cash and that the payment was a bribe. I accept his evidence and denials. 7 During the course of the hearing on 7 March 2014 I expressed, propositionally, to the solicitor representing Mr Lowbeer, what I understood to be the appellants' case in relation to the subpoenas and some initial views that I had formed in relation to its strength. Those provisional thoughts included that the trial judge had erred in reasons that he gave for setting the subpoenas aside, because the subpoenas appeared to be relevant to the issues. In my final reasons, I adhered to the view that his Honour made an error in his reasoning for dismissing the application to review the Registrar's orders that set aside the subpoenas. I found that they had been issued for the purpose of obtaining evidence to support the appellants' notices of opposition which the trial judge was determining. But, I found, having reviewed the form of the subpoenas as served, that they were incapable of achieving that result: see Tov-Lev (No 2) [2014] FCA 379 at [30]-[32], [52]-[61]. 8 I concluded (at [61]) there was nothing in the evidence to warrant a conclusion that any injustice had been occasioned by his Honour's refusal, albeit on erroneous grounds, to vacate the Registrar's orders to set aside the subpoenas. That was because the subpoenas as drafted would not have been able to catch the documents that the appellants sought, including because the subpoenas were not addressed to the incorporated accountancy practice to which, on the evidence before me, the alleged bribe was paid. 9 I should, also, note that on 11 September 2014, Kiefel and Keane JJ refused special leave to appeal from my decisions saying in Tov-Lev and Others v Lowbeer [2014] HCASL 166 at [5]: The applicants' draft notice of appeal raises no question of principle. Further, an appeal to this court would enjoy insufficient prospects of success to warrant the grant of special leave. 10 David Cliffe, another of the three appellants before me in 2014 who was also made bankrupt, has subsequently sued Mr de Varda in proceedings commenced in the Supreme Court of New South Wales that apparently have been transferred to this Court (the Cliffe proceedings). Mr Cliffe apparently seeks to recoup contributions that he claims to have made to Mr de Varda's bankrupt estate to bring about the annulment of both Mr de Varda's and Mr Cliffe's bankruptcies. 11 In his affidavit of 15 February 2022, which annexed the transcripts of the hearings of 7 and 11 March 2014, Mr de Varda said that, during the lunch recess on 7 March 2014, he was speaking to his co-appellant, Rabbi Tov-Lev, outside the courtroom and heard the solicitor for Mr Lowbeer, David Austin, discussing the case on his mobile phone with someone. Mr de Varda stated that: I heard him specifically say "You've got to get someone to speak to Judge Rares and change his position otherwise we're going to lose the entire case."

Mr de Varda's submissions 12 Mr de Varda asserts that in 2014 during the course of the hearing of the appeal and application for annulment, I so conducted myself that a fair-minded lay observer reasonably might apprehend that I might not bring an impartial mind to the hearing of this proceeding. In particular, Mr de Varda relied on what Mason, Murphy, Brennan, Deane and Dawson JJ said in Livesey v New South Wales Bar Association (1983) 151 CLR 288 at 300, namely that: …a fair-minded observer might entertain a reasonable apprehension of bias by reason of prejudgment if a judge sits to hear a case at first instance after he has, in a previous case, expressed clear views about either a question of fact which constitutes a live and significant issue in the subsequent case or about the credit of a witness whose evidence is of significance on such a question of fact. 13 Mr de Varda is now represented by his solicitor, Christopher Chang. Mr Chang's written submissions on why I should recuse myself extend for about 20 pages, together with eight pages of extracts from the transcript of the hearing of 7 March 2014. Mr Chang asserted in [2]: These proceedings involve a dispute that has been litigated for over 11 years and its subject matter is of importance to many interested parties. 14 Mr Chang argued that the fair-minded person, informed of Mr Austin's alleged remarks that Mr de Varda asserted that he overheard, and what Mr Chang said was a radical change in how I was approaching the issues, particularly in relation to the subpoenas, after the luncheon adjournment on 7 March 2014, might apprehend that I might not bring an impartial mind to that case, particularly since I decided it differently to what, Mr Chang said, was the trend of the argument prior to lunch. 15 Mr Chang made the submission that the decisions that I made to dismiss the appeal and application for annulment "opened the gate for the conduct of the respondent, [i.e. Mr Scott], described in the amended statement of claim to occur". He argued that the same substratum of facts that was before me in the appeal and annulment application in some way would arise in determining whether or not there should be an inquiry into Mr Scott's conduct as trustee. 16 Mr Chang contended that somehow the Cliffe proceeding should be heard consecutively to this one. Mr Chang asserted that the Cliffe proceeding raised some basis which he could not articulate, as to why I should disqualify or recuse myself. 17 Mr Chang engaged in the following exchange in his address: MR CHANG: Your Honour, I can't understand why you're so attached to this case. HIS HONOUR: I'm not attached to this case. This case has been docketed to me; it's my duty to hear it unless there's - - - MR CHANG: There is overwhelming evidence to suggest that any decision you make is going to be challengeable on the basis that - - - HIS HONOUR: Every decision I make is able to be challenged, either by an appeal or seeking special leave to appeal. MR CHANG: But if you were to weigh up the balance of convenience, if you like, against this matter being allocated to another judge verses you continuing to hear it in the circumstances of this case that's in the evidence before you - I'm struggling to understand why you are so determined to hear it. 18 He contended that my attitude in not acceding to his argument might also give rise to an apprehension that I might not bring an impartial mind to its resolution. Mr Chang added that Mr Scott, whose senior counsel opposed the recusal application, was also keen that I retain the proceeding in my docket, which he, Mr Chang, contended lent support to his proposition.

Consideration 19 In my opinion, this proceeding relates to whether or not Mr de Varda is able to demonstrate some reason for an inquiry to be ordered under the then s 179 into the conduct of Mr Scott, acting as his trustee in bankruptcy from April 2014 to some time in 2015, when the bankruptcy was annulled. 20 The apprehension of bias in the form of prejudgment disqualifies a judge from hearing or continuing to hear a court proceeding. As I explained in Reckitt Benckiser Healthcare (UK) Ltd v GlaxoSmithKline Australia Pty Ltd (No. 3) [2013] FCA 1043 at [10], the test is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is asked to decide: Johnson v Johnson (2000) 201 CLR 488 at 492 [11] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. The test is objective and requires the decision-maker to assume that the observer is reasonable and the person being observed is a professional judge whose training, tradition and oath or affirmation require the judge to discard the irrelevant, the immaterial and the prejudicial. The reasonableness of any apprehension must be considered in the context of ordinary judicial practice, including the exigencies of modern litigation, such as active case management and intervention by a judge in the conduct of cases by, among other things, the expression of tentative views in exchanges with counsel, in the circumstances that, while those views may reflect a certain tendency of mind [they] are not, on that account alone, to be taken to indicate prejudgment: Johnson 201 CLR at 493 [12]-[13]. In Johnson 201 CLR at 493-494 [13]-[14] the Court said: [13] Whilst the fictional observer, by reference to whom the test is formulated, is not to be assumed to have a detailed knowledge of the law, or of the character or ability of a particular judge ([Webb v The Queen (l994) 181 CLR 41 at 73, per Deane J]), the reasonableness of any suggested apprehension of bias is to be considered in the context of ordinary judicial practice. The rules and conventions governing such practice are not frozen in time. They develop to take account of the exigencies of modem litigation. At the trial level, modem judges, responding to a need for more active case management, intervene in the conduct of cases to an extent that may surprise a person who came to court expecting a judge to remain, until the moment of pronouncement of judgment, as inscrutable as the Sphinx. In Vakauta v Kelly ([(1989) 167 CLR 568 at 571]) Brennan, Deane and Gaudron JJ, referring both to trial and appellate proceedings, spoke of "the dialogue between Bench and Bar which is so helpful in the identification of real issues and real problems in a particular case" ([See also Re Lusink; Ex parte Shaw (1980) 55 ALJR 12 at 15; 32 ALR 47 at 53, per Murphy J]). Judges, at trial or appellate level, who, in exchanges with counsel, express tentative views which reflect a certain tendency of mind, are not on that account alone to be taken to indicate prejudgment. Judges are not expected to wait until the end of a case before they start thinking about the issues, or to sit mute while evidence is advanced and arguments are presented. On the contrary, they will often form tentative opinions on matters in issue, and counsel are usually assisted by hearing those opinions, and being given an opportunity to deal with them. [14] There was argument in this Court, prompted by Anderson J's explanation of what he intended to communicate, about whether the effect of a statement that might indicate prejudgment can be removed by a later statement which withdraws or qualifies it. Clearly, in some cases it can. So much has been expressly acknowledged in the cases ([eg, Re JRL; Ex parte CJL (1986) 161 CLR 342 at 372, per Dawson J; Vakauta v Kelly (1989) 167 CLR 568 at 572, per Brennan, Deane and Gaudron JJ; at 577, per Dawson J]). No doubt some statements, or some behaviour, may produce an ineradicable apprehension of prejudgment. On other occasions, however, a preliminary impression created by what is said or done may be altered by a later statement. lt depends upon the circumstances of the particular case. The hypothetical observer is no more entitled to make snap judgments than the person under observation. (emphasis added) 21 The test involves, first, ascertaining whether there is a real, and not remote, possibility that the judge might not decide a case on its legal and factual merits and, secondly, the articulation of the logical connection between the matter giving rise to that possibility and the feared deviation from the course of deciding the case on its merits, that is, impartially: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at 345 [7]-[8] per Gleeson CJ, McHugh, Gummow and Hayne JJ. A fair and unprejudiced mind, however "is not necessarily a mind which has not given thought to the subject matter or one which, having thought about it, has not formed any views or inclination of mind upon or with respect to it": The Queen v Commonwealth Conciliation and Arbitration Commission; Ex parte The Angliss Group (1969) 122 CLR 546, 554 per Barwick CJ, McTiernan, Kitto, Taylor, Menzies, Windeyer and Owen JJ. 22 As I summarised in Reckitt [2013] FCA 1043 at [14]-[18]: [14] A judge's expression of tentative views during the course of argument as to matters on which the parties are permitted to address full argument does not manifest any partiality or bias, or amount to a predetermination of the issues: Bienstein v Bienstein (2003) 195 ALR 225 at 234 [34] per McHugh, Kirby and Callinan JJ citing Re Keeley: Ex parte Ansett Transport Industries (1990) 94 ALR 1, where Dawson J, at 9, noted that the mere fact, that there, the judge had persistently expressed views on a line of inquiry that he had raised during argument that had been met with equally persistent resistance, did not give rise to an appearance of bias. That was because, his Honour said, the judge's views were tentative and not concluded, and he had allowed the party complaining a full opportunity to make any submissions it wished about the matters the judge had sought to explore. [15] In R v Watson; Ex parte Armstrong (1976) 136 CLR 248 at 264 Barwick CJ, Gibbs, Stephen and Mason JJ said: "The remarks on which the wife's submission were founded were made during argument in an interlocutory application. One must be careful not to exaggerate the importance of remarks of that kind. During the course of argument a judge will often follow the common, and sometimes necessary, course of formulating propositions for the purpose of enabling their correctness to be tested, and as a general rule anything that a judge says in the course of argument will be merely tentative and exploratory." [16] And in Concrete Pty Limited v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577 at 582 [4] Gummow ACJ, in agreeing with what Callinan J and Kirby and Crennan JJ had said on the issue of apprehension of bias, adopted the conclusion stated by Lord Walker of Gestingthorpe for the Privy Council in Almeida v Opportunity Equity Partners Ltd [2006] UKPC 44 at [103], namely: "[T]he judge's interventions were motivated not by partiality but by the wish to understand the evidence (which was often obscure and inconsequential) and to push on the trial process." Kirby and Crennan JJ expressly adopted what had been said in Bienstein 195 ALR at 234 [34] (at 229 CLR at 630 [112] and see also per Callinan J who discussed the application of the principles in relation to the Federal Court's docket system at 634-636 [174]-[180]). [17] The fair-minded lay observer is a person who is informed: Webb v The Queen (1994) 181 CLR 41 at 51-52, 55 per Mason CJ and McHugh J, 57 per Brennan J agreeing on this point, 87-88 per Toohey J and see too at 76 per Deane J; Concrete 229 CLR at 609-610 [110]-[112], 635-636 [177], 582 [4] and 612 [120]. Importantly, a judge's duty is to hear and determine the litigation before him or her. In Livesey v The New South Wales Bar Association (1983) 151 CLR 288 at 294 Mason, Murphy, Brennan, Deane and Dawson JJ said that: "… it would be an abdication of judicial function and an encouragement of procedural abuse for a judge to adopt the approach that he should automatically disqualify himself whenever he was requested by one party so to do on the grounds of a possible appearance of pre-judgment or bias, regardless of whether the other party desired that the matter be dealt with by him as the judge to whom the hearing of the case had been entrusted by the ordinary procedures and practice of the particular court." [18] That was echoed in Re JRL; Ex parte CJL (1986) 161 CLR 342 at 352 by Mason J, who also said that: "There may be many situations in which previous decisions of a judicial officer on issues of fact and law may generate an expectation that he or she is likely to decide issues in a particular case adversely to one of the parties." He said that this did not mean that the judge would "… approach the issues in the particular case otherwise than with an impartial and unprejudiced mind in the sense in which that expression was used in the authorities or that the judge's previous decisions provided an acceptable basis for inferring that there is a reasonable apprehension that the judge will approach the issues in this way." Rather, Mason J said that the judge will be disqualified only if it is firmly established that there is a reasonable apprehension of bias by reason of prejudgment. (emphasis added) 23 The fair-minded lay observer would understand that this is a case concerning whether Mr de Varda can establish a sufficient basis to show that Mr Scott, in one or more respects, failed to properly to conduct himself in his office as trustee sufficiently to warrant the Court ordering an inquiry and, if so, what conduct the inquiry should then cover. 24 Mr Chang's argument about the breadth of the issues raised in this proceeding and the need to revisit the history of and before the appeal and annulment proceedings, in my opinion, is incoherent. Mr Scott's conduct as trustee could have nothing to do with whether or not facts occurred prior to his appointment in connection with the conduct of the company, the old or the new boards. Whether Mr Scott's conduct as trustee either was or was not appropriate, and such as gives rise to the need for an inquiry into that conduct must be assessed in accordance with what he did or did not do in his office as trustee in bankruptcy in light of the principles as to whether the Court will order such an inquiry under the authorities developed over many years under the then s 179 of the Bankruptcy Act. 25 I reject Mr Chang's argument that my reluctance to recuse myself bespeaks support for a fair minded person to form the requisite apprehension. As I noted in Reckitt [2013] FCA 1043 at [17], in Livesey 151 CLR at 294 the Court emphasised that, ordinarily, a judge should not automatically accept an invitation for recusal. 26 In his submissions, Mr Chang asserted that Mr Scott had somehow entered into a conspiracy with the old board "to keep [Mr] de Varda in a pattern of bankruptcy so as to paralyze him and prevent him from continuing to obstruct the sale of the Holocaust Synagogue, and at the same time destroy him financially." Whether those allegations could be seen at the end of the day to have any foundation, does not, in my opinion, give rise to any basis on which a fair-minded person might reasonably apprehend why I might not bring an impartial mind to the resolution of this proceeding. 27 A fair-minded person would know that whatever Mr de Varda asserts that he heard Mr Austin saying, would not lead to any contact occurring between a judge hearing the case and or otherwise influence the judge in any decision that might be reached. At no time during the hearing before me in 2014 did Mr de Varda raise any such suggestion. Mr Chang did not direct me to any evidence in the transcript of 7 March 2014, that I was informed of such a conversation or the possibility of such an improper contact or approach. I had no knowledge in 2014 of any of the parties or other persons involved in those proceedings other than through the Court proceedings transcripts. Obviously, Mr de Varda was aware that such a conversation occurred at the time of seeking special leave to appeal in 2014. 28 I am unable to see how, on the material before me, a fair-minded lay observer might reasonably apprehend that I might not bring an impartial and unprejudiced mind to the resolution of Mr de Varda's application for an inquiry under the then s 179 of the Bankruptcy Act into Mr Scott's conduct as his trustee or the grant of any financial relief to which Mr de Varda might be entitled.

Conclusion 29 I am not satisfied that there is any substance in the allegations that there may be an apprehension of bias for the suggestion that I recuse myself. I refuse the application with costs. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.

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