Ebner v Official Trustee in Bankruptcy

The Proceedings at First Instance 14 The Official Trustee filed an application on 16 July 1996 seeking orders to the effect of those ultimately made by the primary Judge. The application was not accompanied by pleadings and no pleadings were ever ordered or filed. Each party relied on affidavits and documentary evidence, including (in the case of the Official Trustee) the transcripts of examination of the bankrupt and the appellant conducted pursuant to s 77C of the Bankruptcy Act. 15 On the first day of the hearing before the primary Judge, 21 May 1997, both the Official Trustee and the appellant were represented by counsel. Shortly after counsel for the Official Trustee began his opening address, his Honour made the following disclosure: "HIS HONOUR: Mr Clarke there was something I meant to say to the parties this morning that has just occurred to me. I say it as a matter of record. A family trust of which I am a director I think owns 9000 shares in the ANZ Bank. I say that as a matter of record. The ANZ Bank is not a party to these proceedings, but it is one of the creditors." Counsel for the Official Trustee indicated that the shareholding presented no difficulty for his client. Counsel for the appellant said he would obtain instructions. 16 Shortly thereafter, the following exchange took place: "MR CAWTHORN: Your Honour, Mr Clarke has told me that the ANZ Bank is funding the action up to a certain level. HIS HONOUR: Well, I do not need to know that. MR CAWTHORN: Your Honour, that is what the [sic] has told me, your Honour, and my instructions are to object to your Honour hearing the case. HIS HONOUR: Why? MR CAWTHORN: That is the basis, your Honour. HIS HONOUR: But that is not the appropriate test, is it? MR CAWTHORN: Well, that is so, your Honour, the test is whether your Honour would be in any way pre-judging the action because of your Honour's ownership of ANZ shares. Now, my instructions are to raise the objection, it is a matter for your Honour how your Honour deals with it. HIS HONOUR: Well, it is a matter for you to make the submissions as to why I should disqualify myself. I think you will find the relevant test is that there is a reasonable apprehension that I will not decide the case impartially or without prejudice, rather than that I will decide the case adversely to one party. MR CAWTHORN: Your Honour, I cannot advance any submission, but I was asked to make the objection and I do so, but I cannot advance any submission, your Honour, and I do not. HIS HONOUR: Thank you. I have announced to the parties this morning that a family trust of which I am a director, and a contingent beneficiary as the holder of some 8000 to 9000 shares in the ANZ Bank Limited. The parties before me are the Official Trustee and Ingrid Ebner. It is apparent from the material that one of the creditors of the bankrupt estate is the ANZ Bank. I was informed this morning that the ANZ Bank is contributing to the funding of the proceeding, which was not a matter of which I was aware, or needed to be told. The relevant test of reasonable apprehension of bias is according to the High Court for example, one finds it in the judgment of Mason J in Re JRL; ex parte CJL (1986) 161 CLR 342, at 352, that the ground of disqualification is a reasonable apprehension that the judicial officer will not decide the case impartially or without prejudice rather than that he will decide the case adversely to one party or another. It seems to me that the issues before the court this morning are such that they could not in my opinion impact in any significant way on the share price of the ANZ Bank, and it seems to me therefore that to that extent there is no real pecuniary interest that I have in the proceeding in any way which is such that there in the minds of an objective observer, knowing all the relevant facts, would entertain a reasonable apprehension that I would not decide the case impartially or without prejudice. I propose to proceed with the hearing. Yes, Mr Clarke?" 17 Following his Honour's ruling, the trial continued on 21 May 1997 and for four further hearing days, the last of which was 30 June 1997. The appellant made no further application to the primary Judge that he should disqualify himself and did not file a notice of appeal or application for leave to appeal. At the conclusion of the hearing, his Honour reserved judgment. He subsequently delivered a judgment in which he made the orders in favour of the Official Trustee.

Primary Judge's Reasons 18 The primary Judge recounted the largely uncontroversial facts to which we have already referred. His Honour then recited the legal principles governing the construction of ss 120 and 121 of the Bankruptcy Act. We shall return to these principles, to the limited extent it is necessary to do so in the light of the appellant's submissions. 19 His Honour considered the evidence in considerable detail. He found, for reasons which are unnecessary to enumerate, that both the bankrupt and the appellant were unreliable witnesses. He rejected their evidence that the bankrupt, rather than Logenstone was the developer of the Gisborne property. He expressed himself to be satisfied that the Visa credit account had been used to make purchases for and on behalf of Logenstone (and not on behalf of the bankrupt). For this and other reasons his Honour indicated that, to the extent that the appellant paid money in respect of expenses incurred by the use of the credit card, the payment did not give rise to any debt due by the bankrupt to the appellant. His Honour further found that, to the extent that the appellant had paid money to solicitors, the payment was not for and on behalf of the bankrupt. Accordingly, on 16 April 1991 the bankrupt was not indebted to the appellant in the sum of $177,158.07 or $150,000 or any part thereof. The appellant had not provided any consideration, valuable or otherwise, for the transfer to her of the bankrupt's interest in the Property. 20 The primary Judge found that on 16 April 1991 the appellant was well aware that the Bank was asserting that the bankrupt owed approximately $1.3 million. His Honour also made the following findings: "I am satisfied that the decision to transfer [the bankrupt's] interest in the [Property] was made when [the bankrupt and the appellant] realised that the result of the sale of the Gisborne property by the Bank was going to be that [the bankrupt] would still be liable to the Bank for an amount of some hundreds of thousands of dollars which he could not pay. [The bankrupt] realised that his interest in the property was vulnerable and took steps to put it out of the reach of the Bank.... [B]oth [the bankrupt and the appellant] were alive to the fact that the transfer of [the bankrupt's] interest…to [the appellant] would put that interest beyond the reach of [the bankrupt's] creditors but nevertheless intended that circumstance to occur. At the time the transfer occurred [the bankrupt] was unable to pay his creditor, the Bank what he owed it." 21 His Honour declined to accept the appellant's evidence that she had no knowledge of her husband's financial difficulties and that she believed he had a good defence to the Bank's claim under the present caveat contained in the Gisborne mortgage. Thus she had not acted in good faith. For his part, the bankrupt had transferred his share in the Property with intent to defraud his creditors. Accordingly, the Trustee was entitled to rely on ss 120 and 121 of the Bankruptcy Act to obtain the relief sought against the appellant.

Direct Pecuniary Interest 22 The appellant's principal submission was that the learned primary Judge had erred in failing to disqualify himself from continuing to hear the proceedings by reason of his declared interest in the shareholding in the Bank. Mr Bigmore expressly conceded on the appellant's behalf that she could not establish any reasonable apprehension of bias on the part of the primary Judge. In other words, he accepted that the appellant could not satisfy the test laid down by the High Court for determining whether a judge has been or might be activated by bias, namely, "whether fair-minded people might reasonably apprehend or suspect that the judge has prejudged or might prejudge the case": Webb v The Queen (1994) 181 CLR 41, at 47, per Mason CJ and McHugh J. 23 Mr Bigmore submitted that despite this concession, the appellant was entitled to have the orders made by the primary Judge set aside. Mr Bigmore relied on the fundamental principle that no person can be a judge in his or her own cause. One manifestation of that principle, according to Mr Bigmore, is that, if a judge has a direct pecuniary interest in the subject of an inquiry or the outcome of the proceedings, however small, that judge is disqualified from sitting or continuing in the proceedings. He submitted that if a judge with a direct pecuniary interest does not disqualify himself or herself, the proceedings are voidable, unless the parties waive the objection to the judge sitting. It followed that such proceedings must be set aside on the application of a party regardless of whether there can be said to be a reasonable apprehension of bias. 24 Mr Bigmore contended that the primary Judge had a direct pecuniary interest in the outcome of the present case because he held a contingent beneficial interest in shares in the Bank. While Mr Bigmore conceded that the Bank was not a party to the proceedings, he contended that the Bank, at the least, was a major creditor of the bankrupt and stood to gain substantially from any assets clawed back by the Official Trustee in consequence of the proceedings. As a creditor funding the litigation, the Bank was also entitled, pursuant to s 109(10) of the Bankruptcy Act, toseek an order from the Court conferring priority over other creditors in respect of any expenses for which it had indemnified the Trustee, although Mr Bigmore did not suggest that this fact added anything significant to the appellant's case. These potential advantages to the Bank were sufficient to give the primary Judge a direct pecuniary interest in the subject of the inquiry on the outcome of the litigation. Bankruptcy Act Submissions 25 The appellant challenged the construction and application of the Bankruptcy Act on two primary and a number of subsidiary grounds. Since Mr Bigmore did not seek to advance any arguments in support of the subsidiary bases (including grounds 2(f), (g) and (h) in the proposed further amended notice of appeal) we propose to say no more about them. We shall address only the two primary arguments developed by Mr Bigmore. 26 First, the appellant contended that the primary Judge had applied the wrong test for determining whether the bankrupt had had the necessary intent to defraud required by s 121 of the Bankruptcy Act. According to Mr Bigmore, his Honour erred in holding that the relevant intention covered "existing, future or anticipated creditors". He contended that the intention to defraud contemplated by s 121 is an intention in respect of existing or future creditors, not anticipated creditors. 27 Secondly, the appellant submitted that the primary Judge had failed to apply the principle that dispositions void under ss 120 and 121 of the Bankruptcy Act are avoided only insofar as necessary to satisfy the debts of the bankrupt and the costs of the bankruptcy. In particular, his Honour had erred by failing to resolve the bankrupt's claim that he was not indebted to the Bank under the covenant contained in the Gisborne mortgage. Although the bankrupt has never instituted proceedings to contest his apparent liability to the Bank, Mr Bigmore said that it emerged during the proceedings that the bankrupt was claiming that he was entitled to obtain orders for rectification of the Gisborne mortgage. Rectification of the mortgage would remove the covenant requiring the bankrupt to pay to the Bank the moneys due to it by Logenstone. Mr Bigmore contended that the primary Judge should have determined the extent of the bankrupt's true indebtedness to the Bank before ordering a transfer of the appellant's interest in the Property to the Official Trustee. This was said to be so notwithstanding that the Bank was not a party to the proceedings before the primary Judge and that the appellant had never sought to join the Bank.

The Nature of the Primary Judge's Interest 28 As is to be expected, the only material identifying the interest of the primary Judge in the Bank shares was that provided by his Honour in the disclosure he made on 27 May 1996. His Honour said that the shares were held by a family trust of which he was a director and a "contingent beneficiary". It is not entirely clear what his Honour meant by "contingent beneficiary". However, the parties approached the question on the basis that his Honour was entitled to a distribution of income from the trust and a share of corpus, should the directors of the corporate trustee so resolve in accordance with the terms of the trust instrument. We are content to proceed on the basis that this is what his Honour intended to convey. 29 It should be noted that until 9 December 1995, when Schedule 4 to the First Corporate Law Simplification Act 1995 (Cth)came into force, s 221(1) of the Corporations Law required a proprietary company to have at least two directors. After that date, s 221(1) of the Corporations Law, as amended, required a proprietary company to have at least one director. In the present case, the primary Judge stated that he was "a director" of the "family trust". At the date of the hearing, the Corporations Law permitted a proprietary company, such as the corporate trustee of a family trust, to have only one director. Although we do not think it makes a difference to the outcome of the present case, the appropriate inference to draw from his Honour's disclosure is that he was one of at least two directors of the corporate trustee of the family trust. 30 The primary Judge was aware at the time he made his disclosure that the Bank claimed to be a very large creditor of the bankrupt. There was no evidence before his Honour concerning the proofs of debt, if any, lodged by other creditors of the bankrupt. Nor was there any attempt to adduce such evidence on the appeal. It seems clear enough, however, that if the orders made by the primary Judge stand, the likely consequence is that the Bank will receive a distribution from the bankrupt's estate. The amount of that distribution cannot be estimated on the material available to us, but his Honour found that at the time the bankrupt executed the transfer of his half interest in the Property, the fair market value of the Property was not less than $400,000. 31 The only information conveyed to his Honour concerning the funding of the proceedings by the Bank was the somewhat cryptic statement from the bar table that the Bank "is funding the action up to a certain level". No evidence on the topic was adduced by the respondent and his counsel did not elaborate on the statement. It was common ground before us that what his Honour was told was accurate, so far as it went. It follows that, if other unsecured creditors proved in the bankruptcy, the Bank would be entitled to apply to the Court under s 109(10) of the Bankruptcy Act for an order giving it an advantage over other creditors in consideration of the risk it assumed in indemnifying the Trustee: see generally Re Webb; Ex parte Taylor (1987) 75 ALR 139 (FCA, Pincus J); Re Butler; Ex parte Taylor (1995) 57 FCR 499 (Cooper J).

The Principle of Automatic Disqualification 32 The law in Australia governing the disqualification of judges and other decision-makers for bias has diverged from that in England. In Australia, the High Court has consistently held that the proper test is whether fair-minded people might reasonably apprehend or suspect that the judge has prejudged or might prejudge the case: Webb v The Queen at 47, n 36, per Mason CJ and McHugh J and authorities cited there; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 (FC), at 493. In England, the House of Lords has rejected what is usually described as the "reasonable suspicion" test and opted for the "real danger" test, namely, whether having regard to the relevant circumstances, there is a real danger of bias in the sense that the decision-maker might unfairly regard with favour or disfavour the case of a party to the issue under consideration: Reg v Gough [1993] AC 646, at 670, per Lord Goff. While Gough was not a judicial disqualification case, it has been treated as laying down the principles applicable to judges: see Gough, at 672, per Lord Woolf; Webb at 70, per Deane J, at 87, per Toohey J; In re Pinochet, unreported, House of Lords, 15 January 1999. In Webb v The Queen, the High Court declined to follow Gough, thus entrenching, for the time being at least, the division between English and Australian law on this question: cf In re Pinochet, per Lord Browne-Wilkinson in paragraph 13 of the report under the subheading "2. Apparent bias". 33 Despite this divergence of opinion, it has been recognised in both jurisdictions that there is a class of case in which a judge will be disqualified, whether or not it can be said that there is a "real danger" or "reasonable suspicion" of bias. In Gough, Lord Goff, with whom all of their Lordships agreed, summarised the position as follows (at 661): "I wish to draw attention to the fact that there are certain cases in which it has been considered that the circumstances are such that they must inevitably shake public confidence in the integrity of the administration of justice if the decision is to be allowed to stand. Such cases attract the full force of Lord Hewart CJ's requirement that justice must not only be done but must manifestly be seen to be done. These cases arise where a person sitting in a judicial capacity has a pecuniary interest in the outcome of the proceedings. In such a case, as Blackburn J said in Reg v Rand (1866) LR 1 QB 230, 232: 'any direct pecuniary interest, however small, in the subject of inquiry, does disqualify a person from acting as a judge in the matter.' The principle is expressed in the maxim that nobody may be judge in his own cause (nemo judex in sua causa). Perhaps the most famous case in which the principle was applied is Dimes v Proprietors of Grand Junction Canal (1852) 3 HL Cas 759, in which decrees affirmed by Lord Cottenham LC in favour of a canal company in which he was a substantial shareholder were set aside by this House, which then proceeded to consider the matter on its merits, and in fact itself affirmed the decrees. Lord Campbell said, at p 793: 'No one can suppose that Lord Cottenham could be, in the remotest degree, influenced by the interest that he had in this concern; but, my Lords, it is of the last importance that the maxim that no man is to be a judge in his own cause should be held sacred.' In such a case, therefore, not only is it irrelevant that there was in fact no bias on the part of the tribunal, but there is no question of investigating, from an objective point of view, whether there was any real likelihood of bias, or any reasonable suspicion of bias, on the facts of the particular case. The nature of the interest is such that public confidence in the administration of justice requires that the decision should not stand." 34 The High Court recognised the authority of Dimes in The Queen v Watson; Ex parte Armstrong (1976) 136 CLR 248, the decision establishing the "reasonable suspicion" test as the law in Australia. There the joint judgment noted (at 263), with apparent approval, that the rule that a judge may not sit on a cause in which he or she has an interest "has been applied to the most eminent of judicial officers" in Dimes. Earlier, in the Bank Nationalisation Case, an issue had arisen as to whether two members of the Court were disqualified by reason of a shareholding in the plaintiff banks. In the case of Starke J, his wife held the shares; Williams J held shares in his own name, but as bare trustee for his sister. The Court's ruling, that neither judge was disqualified, was given by Latham CJ, in the course of argument, in these terms: "You draw a distinction, do you not - an actual pecuniary interest and embarrassment in hearing the case? For example, if there is any degree of pecuniary interest, however small, a Judge is disqualified from sitting. If, however, there is no pecuniary interest, then it becomes a matter of a question in all the circumstances of the case whether there is any degree of embarrassment which would prevent a fair trial. In neither of the cases mentioned is there any actual pecuniary interest - none. My learned brothers have said that they do not regard the existence of the facts stated as in any way affecting a fair and impartial consideration of the issues in the case. It appears to me that that has to be accepted." (The ruling is not recorded in the report of the case: Bank of New South Wales v Commonwealth (1948) 76 CLR 1. It is, however, reproduced in the judgment of Wanstall J in The Queen v The Industrial Court and Mount Isa Mines Limited [1966] Qd R 245 (FC), at 279-280, where his Honour noted that Latham CJ had adopted the formula used by Blackburn J in Reg v Rand.) 35 In Webb v The Queen, Deane J accepted (at 75) that there is a "special class…of cases" in which the judge has "a direct pecuniary interest in the outcome of proceedings", in the sense of "an interest sounding in money or money's worth". His Honour said, citing Gough, that "[i]n such cases, public confidence in the administration of justice requires that there be disqualification regardless of the particular circumstances". Deane J dissented in Webb v The Queen, but there is nothing in the other judgments contradicting his observations. A number of Australian cases have applied the principle referred to by Deane J: Commercial Banking Co v Balgarnie (1864) 3 SCR(L) 27; Ex parte Dalton (1876) 14 SCR(L) 277 (FC); The King v Lowe; Ex parte Peterson [1912] St R Qd 138 (FC). 36 It might be thought somewhat anomalous that a special rule of automatic disqualification has survived for cases of direct pecuniary interest, especially in Australia where the more stringent "reasonable suspicion" test has been adopted. The principle underlying the reasonable suspicion test is, in the famous words of Lord Hewart CJ in R v Sussex Justices; Ex parte McCarthy [1924] 1 KB 256, at 259, that it is of "fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done": Webb, at 47, per Mason CJ and McHugh J. As their Honours pointed out in Webb (at 51): "the premise on which the decisions in this Court [adopting the reasonable suspicion test] are based is that public confidence in the administration of justice is more likely to be maintained if the Court adopts a test that reflects the reaction of the ordinary reasonable member of the public to the irregularity in question." This statement echoes the analysis in the joint judgment in Watson (at 263): "It is of fundamental importance that the public should have confidence in the administration of justice. If fair-minded people reasonably apprehend or suspect that the tribunal has prejudged the case, they cannot have confidence in the decision. To repeat the words of Lord Denning MR [in Metropolitan Properties Co (FGC) Ltd v Lannon [1969] 1 QB 577, at 599] 'Justice must be rooted in confidence: and confidence is destroyed when right-minded people go away thinking: 'The judge was biased'.'" 37 If this is the rationale for the stringent reasonable suspicion test, it might well be asked why it is necessary to have a special rule which disqualifies a judge even where (as is conceded to be the position in the present case) an ordinary reasonable member of the public could not suspect bias on the part of the Judge. It must be remembered that the principle on which the appellant relies results in the decision being voidable, except in cases of waiver, necessity and statutory authority: Dimes, at 790. According to Blackburn J in Reg v Rand, a direct pecuniary interest in the subject of inquiry, however small, disqualifies the judge. It would seem on the authorities (and Mr Bigmore said it was settled law) that a failure to disclose, say, a shareholding in a corporate party to litigation will disqualify a judge, even though the shares are worth very little and the prospect of the litigation making a difference to the price of the shares is utterly remote. If this is so, the consequence is that a judgment delivered after many days of hearing is liable to be set aside, notwithstanding that no reasonable person could suggest that there is any suspicion of judicial bias. Why is it to be assumed that the confidence of fair-minded people in the administration of justice would be shaken by the existence of a direct pecuniary interest of no tangible value, but not by the waste of resources and the delays brought about by setting aside a judgment on the ground that the judge is disqualified for having such an interest. 38 While it seems to have been accepted that Dimes requires disqualification if the judge has a direct pecuniary interest, however small, and regardless of whether any reasonable person could suspect bias, it is worth recalling the circumstances of Dimes itself. In that case, Lord Cottenham LC had an interest as shareholder in the respondent corporation, as the report rather delicately records, "to the amount of several thousand pounds" (at 784). In the famous passage already quoted in the extract from Gough, Lord Campbell asserted that "[n]o one can suppose that Lord Cottenham could be, in the remotest degree, influenced by the interest that he had in this concern" (emphasis added). While lawyers might well be prepared to accept that Lord Cottenham could not have been influenced, it is a little difficult to see why Lord Campbell was so confident that no-one could reasonably reach a different view. As Lord Woolf remarked in Gough (at 672), perhaps too much attention should not be attached to the remarks in Dimes concerning the bona fides of Lord Cottenham, although doubtless the Lord Chancellor himself found them comforting. 39 It is also worth recalling that Blackburn J's oft-cited observation in Rand was made in a case where it was held that the interest of the justices (as bare trustees) did not amount to a "direct pecuniary interest". Thus the comment was not necessary to the decision. However, Blackburn J had expressed similar views a few years earlier, in Reg v Hammond (1863) 9 LT 423. In that case the justices who convicted a man of travelling on a railway without a valid ticket were shareholders in the railway company. In the course of argument, Blackburn J said (at 423) that "the interest of each shareholder may be less than a farthing, but still it is an interest." The conviction was set aside because of the interest of the justices, although the report does not reveal the extent of their shareholdings in the railway company. 40 Considerations of the kind to which we have referred have led some commentators to doubt that the rule relating to disqualification for a pecuniary interest is as rigid as is sometimes suggested. Justice JB Thomas, in his work, Judicial Ethics in Australia (2nd ed 1997), at 54, disagrees with the proposition that Dimes allows no discretion to an appeal court where, for example, the judge has only a small shareholding in a large corporation. He also suggests (at 54, n 17) that it may well be that the distinction between possession of an interest and the question of impartiality has outlived its usefulness. A similar view as to the effect of Dimes has been expressed extra-judicially by Sir Thomas Bingham, "Judicial Ethics" in R Cranston (ed), Legal Ethics and Professional Responsibility (1995). Sir Thomas described Dimes as a "very strong decision", but says (at 40) that he does "not think a judge would stand down on account of a share-holding in a litigant company, or perhaps even disclose it, unless the share-holding and the action were such that the outcome could have a more than negligible effect on his fortune". Did the Primary Judge have a Direct Pecuniary Interest? 41 Despite the reservations of these learned commentators, we accept that, unless and until the High Court rules otherwise, the law requires a judge having a "direct pecuniary interest" in the outcome of proceedings to disqualify himself or herself. The question, then, is what constitutes a direct pecuniary interest in the outcome of proceedings for the purposes of the rule. 42 Clearly the application of the rule is not confined to a case in which the judge is actually a party to the litigation. As Lord Goff observed in Re Pinochet, in paragraph 2 of his judgment: "a judge who holds shares in a company which is a party to the litigation is caught by the principle [that a person should not be a judge in his or her own cause], not because he himself is a party to the litigation (which he is not), but because he has by virtue of his shareholding an interest in the cause. That was indeed the ratio decidendi of the famous case of Dimes itself." 43 In the present case, the primary Judge was not himself a shareholder in the Bank. If, as we think likely, there was at least one other director of the trustee corporation, the primary Judge could not unilaterally take action to benefit personally from that corporation's shareholding in the Bank. Mr Clarke, who appeared for the Official Trustee, argued that this circumstance, of itself, took the case outside the principle that a judge may not sit where he or she has a direct pecuniary interest in the outcome of the proceedings. We prefer not to rule on this contention, which involves a distinction well understood by lawyers, but by no means likely to be understood by lay people. We approach the case on the assumption that the primary Judge can be regarded as having a direct shareholding in the Bank. 44 The question, on this approach, is whether the principle of disqualification applies where a judge is not a shareholder in a party to the proceedings, but is a shareholder in a corporation which is likely to obtain a not insignificant financial benefit from the proceedings, if they are resolved in a particular way. There is of course no doubt in Australia that if, in these circumstances, a fair-minded person might reasonably apprehend or suspect that the judge might prejudge the case, the judge is disqualified. But, as has been seen, the present case has been conducted on the basis that a fair-minded person could not labour under any such apprehension or suspicion. 45 It will be recalled that Mr Bigmore conceded that the Bank was not a party to the litigation determined by the primary Judge. In making this concession, Mr Bigmore doubtless had in mind the provisions of the Bankruptcy Act which empower the trustee of a bankrupt estate, inter alia, to institute legal proceedings relating to the administration of the estate and to compromise any claim arising out of the administration of the estate: Bankruptcy Act, s 134(1)(g), (j); see also s 177(1) (requiring the trustee to "have regard to" any lawful directions given by a creditors' meeting) and s 178 (providing for an appeal to the Court against a trustee's decision). Nonetheless, he submitted that it is a small step from Dimes (as interpreted in subsequent authorities) to apply the principle to the circumstances of the present case. After all, as he pointed out, it is a fair inference from the evidence that the Bank is a major creditor of the bankrupt estate and that it is likely to receive a substantial share of the net proceeds of any assets recovered by the Official Trustee from the appellant. 46 In our opinion, the step from Dimes to this case is substantially greater than suggested by Mr Bigmore. The significance of that step is shown by a consideration of the adverse consequences for the administration of justice which would flow from an extension of the principle of automatic disqualification applied in Dimes. It has never been suggested that a judge is not permitted to hold shares for investment purposes. It is inevitable that many judges will hold or control shares in corporations, whether traded on a stock exchange or not. As Mr Bigmore frankly conceded, if the principle of disqualification applies to a case where a judge holds shares in a major corporate creditor of a bankrupt estate, it must apply where the judge holds shares in a creditor corporation owed relatively small amounts. The principle does not depend on the size of the shareholding, nor on the quantum of any benefit derived or likely to be derived from the proceedings. According to Mr Bigmore, the touchstone for disqualification is a shareholding in a corporation which, although not a party, is likely to gain a financial benefit from the proceedings, however small. 47 If Mr Bigmore's submission is right, it follows that a judge hearing a claim in bankruptcy is disqualified by reason of a shareholding in a creditor of the bankrupt estate, at least where the proceedings are likely to result in a distribution or greater distribution to that creditor. Courts very frequently deal with applications in the administration of a bankruptcy that are designed to produce financial benefits for creditors. They commonly hear and determine such applications at short notice. The evidence often does not identify the creditors who have proved in the bankrupt estate, since their identity is not relevant to the issues in dispute. Yet, on the arguments advanced by the appellant, the presiding judge must identify all creditors in order to be satisfied that he or she has no disqualifying shareholding. Not only would this impose an extremely onerous and sometimes impossible burden on judges, it would (more importantly) inevitably result in considerable expense and delays consequent upon applications to set aside judgments which no fair-minded person could suspect were affected by bias. It is perhaps not inappropriate to observe that the bankruptcy jurisdiction (among others) is not always characterised by restraint and commonsense on the part of litigants. 48 In our view, considerable caution should be exercised before extending the scope of direct pecuniary interest disqualification beyond the established categories. The very point of requiring a direct pecuniary interest is to avoid the practical difficulties resulting from an over-broad automatic disqualification rule. 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. In the former case the principle is clear (if stringent) and can generally be applied by the judge making some straightforward inquiries. A test which turns on whether a non-party corporation might obtain a financial benefit from the proceedings is uncertain in its application and would create formidable practical difficulties, especially where neither the pleadings nor the evidence identify which corporations might obtain such a benefit. In our view, a test of this kind would be likely to diminish rather than enhance confidence in the administration of justice. 49 In Reg v Gough, Lord Woolf adverted (at 673) to the danger, referred to in Reg v Camborne Justices; Ex parte Pearce [1955] 1 QB 41, at 52, that the continued citation of Lord Hewart's maxim in the Sussex Justices case might lead to the erroneous impression that "it is more important that justice should appear to be done than that it should, in fact, be done". Lord Woolf went on to say this (at 673): "There is only one established special category and that exists where the tribunal has a pecuniary or proprietary interest in the subject matter of the proceedings as in [Dimes]. The courts should hesitate long before creating any other special category since this will immediately create uncertainty as to what are the parameters of that category and what is the test to be applied in the case of that category. The real danger test is quite capable of producing the right answer and ensure that the purity of justice is maintained across the range of situations where bias may exist." Lord Goff expressed (at 664) his concurrence with the observations of Lord Woolf. In Webb v The Queen Deane J said (at 75) that he saw great force in the view expressed by Lords Woolf and Goff to the effect that automatic disqualification should be confined to cases of direct pecuniary interest. 50 Lord Woolf's comments do not, of themselves, establish the boundary between "direct" and "indirect" pecuniary interest. However, they suggest that the boundary should be well-defined and should be drawn at a point which limits the uncertainty and potential for injustice inherent in a test that is overly broad or difficult to apply. Particularly is this so in Australia, where the reasonable suspicion test represents the law. 51 In our view, the primary Judge did not have a direct pecuniary interest in the outcome of the litigation. He was correct in holding that the application for disqualification was to be determined by the reasonable suspicion test.

Re Pinochet 52 Mr Bigmore argued that the conclusion we have expressed is inconsistent with the recent decision of the House of Lords in Re Pinochet. In that case, the House of Lords set aside the orders made by a differently constituted House a few weeks earlier, in R v Bow Street Metropolitan Stipendary Magistrate & Ors; Ex parte Pinochet Ugarte; R v Bartle; Ex parte Pinochet [1998] 3 WLR 1456. In the earlier decision, a majority (Lords Nicholls, Steyn and Hoffmann; Lords Slynn and Lloyd dissenting) held that Senator Pinochet, the former Head of State of Chile, was not entitled to immunity from arrest on charges that he had committed crimes against humanity during his period in office. Accordingly, an appeal was allowed from orders quashing the warrant pursuant to which Senator Pinochet had been arrested in England. 53 In Re Pinochet the orders made earlier in Bow Street were set aside because of the links between Lord Hoffmann (a member of the majority) and Amnesty International ("AI"). AI had been granted leave to intervene in the appeal and had participated by making oral and written submissions in support of the contention that Senator Pinochet was not entitled to immunity. 54 The principal speech in Re Pinochet was delivered by Lord Browne-Wilkinson, with whom Lords Nolan, Hope of Craighead and Hutton agreed. Lord Browne-Wilkinson traced in considerable detail the relationship between AI and Amnesty International Charity Limited ("AICL"). The latter was a company limited by guarantee and a charity. It had been established in 1986 to carry out such of the objects of AI as were charitable. AICL raised funds to support the work of AI, including reports prepared by AI urging the punishment of those guilty in Chile of breaches of human rights. Lord Hoffmann was one of the two directors of AICL and its Chairperson. He took no part, however, in the running of AI. 55 Lord Browne-Wilkinson accepted that AI had no financial interest in the outcome of the proceedings. Its interest was in achieving the trial of Senator Pinochet for crimes against humanity. His Lordship also accepted that, although AI had been a party to the appeal, Lord Hoffmann could not be so regarded. He was "closely linked" to AI, but was not in fact AI. Nonetheless, Lord Browne-Wilkinson considered that Lord Hoffmann had been disqualified from participating in the appeal, on the principle that a judge cannot be a judge in his or her own cause. 56 Lord Browne-Wilkinson pointed out that the litigation was "most unusual". It was not civil, but criminal. Moreover, AI was neither a prosecutor nor an accused, but was a party. Each of AI and AICL had a non-pecuniary interest in the litigation, namely. to establish that Senator Pinochet was not immune from arrest. The question was therefore whether "in the very unusual circumstances of this case", a non-pecuniary interest in achieving a particular result was sufficient to give rise to automatic disqualification and, if so, whether the fact that AICL had such an interest resulted in the automatic disqualification of Lord Hoffmann. 57 Lord Browne-Wilkinson (at paragraph 11 under the subheading "2. Apparent bias"), could see no good reason to limit automatic disqualification to cases of pecuniary interest, as distinct from interest in a cause: "if...the matter at issue...is concerned with the promotion of the cause, the rationale disqualifying a judge applies just as much if the judge's decision will lead to the promotion of a cause in which the judge is involved together with one of the parties." Lord Brown-Wilkinson considered that if Lord Hoffmann had been a member of AI, he would have been automatically disqualified because of his non-pecuniary interest in establishing that Senator Pinochet was not entitled to immunity. His Lordship continued (at paragraph 12 under the subheading "2. Apparent bias"): "Can it make any difference that, instead of being a direct member of AI, Lord Hoffmann is a Director of AICL, that is of a company which is wholly controlled by AI and is carrying on much of its work? Surely not. The substance of the matter is that AI, AIL and AICL are all various parts of an entity or movement working in different fields towards the same goals. If the absolute impartiality of the judiciary is to be maintained, there must be a rule which automatically disqualifies a judge who is involved, whether personally or as a Director of a company, in promoting the same causes in the same organisation as is a party to the suit. There is no room for fine distinctions if Lord Hewart's famous dictum is to be observed: it is 'of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done'. (see Rex v Sussex Justices, Ex parte McCarthy [1924] [1] KB 256, 259." 58 It is not necessary for us to consider whether the reasoning in Re Pinochet would be followed in Australia. It may be that in this country the reasonable suspicion test would lead to the same result as that reached by the House of Lords, without the need to rely on the concept of automatic disqualification by reason of a non-pecuniary interest. Be that as it may, the analysis in Re Pinochet does not address the limits of the concept of "direct pecuniary interest". The case itself involved a non-pecuniary interest. Lord Hoffmann was held to be disqualified because he was involved in promoting the same cause in the same organisation as a party to the suit. There is nothing in the speech of Lord Brown-Wilkinson or, for that matter, in the other speeches, which sheds light on whether a judge who holds shares in a corporation which might gain a benefit from litigation to which it is not a party is automatically disqualified from presiding over the litigation.

Waiver 59 In view of the conclusion we have reached, it is not necessary to consider the Official Trustee's submission that the appellant had waived any objection to the primary Judge continuing to sit on the case. We merely observe that it is difficult to see how such a contention could be made out in the circumstances of the present case.

Intention to Defraud Creditors 60 In construing s 121 of the Bankruptcy Act, the primary Judge said that the intention contemplated by the section covered "existing, future or anticipated creditors". That terminology was plainly derived from the judgment of Stephen J in Barton v The Deputy Commissioner of Taxation of the Commonwealth of Australia (1974) 131 CLR 370, to which the primary Judge referred. In that judgment, Stephen J, with whom Menzies and Gibbs JJ agreed, said (at 374) that an intent may be established for the purposes of s 40(1)(c) of the Bankruptcy Act (which provides that a debtor commits an act of bankruptcy if, with intent to defraud or delay his or her creditors, he or she departs Australia) if the intent is formed in relation to an "existing or anticipated creditor". 61 The primary Judge also quoted from the joint judgment of Brennan CJ and McHugh J in Cannane v J Cannane Pty Ltd (in liq) (1998) 153 ALR 163, at 168-169. In that judgment, their Honours referred to s 121 of the Bankruptcy Act as being enlivened by the disponor's intent to deprive creditors of assets against which they would otherwise be entitled to prove their debts. They quoted from the judgment of Dixon CJ in Hardie v Hanson (1960) 105 CLR 451, at 456, where his Honour spoke of "present or future creditors [being] cheated of their rights". However, they also cited with approval (at 167) Stephen J's comments in Barton v DCT, suggesting that they saw no relevant difference between "future" and "anticipated" creditors. Gummow J, too, referred to Barton v DCT in support of the proposition that (at 174) "[a]n intention to defeat future creditors is sufficient to enliven s 121, and if this be made out, it is no answer that at the date of the disposition of property the disponor had no creditors". 62 We would add, in any event, that the term "anticipated creditor" is one that accurately captures the very type of creditor that provisions derived from the statute 13 Eliz I c 5 were designed to protect: cf Mackay v Douglas (1872) LR 14 Eq 106; Ex parte Russell; In re Butterworth (1882) 19 ChD 588. It is therefore not surprising, with respect, that it was used by Stephen J in Barton's case. 63 Mr Bigmore did not refer to Cannane. As we understand his objection to the primary Judge's construction of s 121 of the Bankruptcy Act, it is that an "anticipated" creditor, but not a "future" creditor, falls outside the reach of s 121. More than a linguistic issue was said to be raised by this distinction. A "future" creditor is apparently a person who, though not a creditor at the time of the challenged transfer, later becomes an actual creditor. An "anticipated" creditor in contrast, it was claimed, is a person whom the disponor thought might become a creditor but who never obtains that status. Relying upon doctrines concerned with whether fraudulent intentions have been carried into effect in whole or in part (for example, the repentance rule for illegal contracts and trusts: see Payne v McDonald (1908) 6 CLR 208; Perpetual Executors & Trustees Association of Australia Ltd v Wright (1917) 23 CLR 185), the appellant contended that unless an anticipated creditor later becomes an actual creditor, and hence is affected by the fraudulent intent, that person is not within the class of possible creditors contemplated by s 121. 64 The short answer to this contention is that, as Cannane demonstrates, s 121 is concerned with an intention to defraud any present or future creditors. It is not concerned with the realisation of that intention. If the requisite intent exists at the time of the disposition in relation to a person or persons not already creditors, it is immaterial whether or not they in fact later become creditors. Given the clear wording of s 121, there is no justification for reading such a limiting requirement into the section. Neither do doctrines and rules that turn, not upon an intent to defraud, but upon the effectuation in whole or in part of the fraud itself, assist in the proper construction of s 121.

Consequences of Avoidance of the Disposition 65 The appellant contended that, for the purposes of s 120 and s 121, the settlement or disposition successfully impugned will only be avoided to the extent necessary to satisfy the debts of the bankrupt and the costs of the bankruptcy but that the right to any surplus belongs to those taking under the settlement or disposition. This proposition is uncontroversial: see In re Sims, Ex parte Sheffield (1896) 3 Mans340; Manson, Law of Bankruptcy, (Sweet and Maxwell, London, 1904) at 161; McDonald, Henry and Meek, Australian Bankruptcy Law and Practice, para 120.0.20. But it does not produce the consequence that the primary Judge, after finding the disposition to the appellant to be void against the Official Trustee, ought to have determined the existence and extent of the bankrupt's debt to the Bank (and hence the likelihood or otherwise of a significant surplus) before ordering the transfer of the Property to the Official Trustee. 66 The point can be made by reference to In re Sims, a case on which Mr Bigmore relied. In that case, Vaughan Williams J restated the proposition relied on by the appellant, in the context of an application to avoid a settlement pursuant to s 47 of the Bankruptcy Act 1883 (UK). His Lordship recorded that the trustee in bankruptcy was content to have the settlement caught by s 47 declared void as against him and to have the benefit of an order that the disponees (who were trustees of a settlement) hand over the settled property, without prejudice to any application they might subsequently make to receive the surplus (if any) after payment of the bankrupt's debts and the costs of bankruptcy. His Lordship also directed the trustee not to realise the settled property until the bankrupt's debts had been ascertained and to give notice to the trustees of the settlement of the amount of the debts and the estimated costs of the bankruptcy. 67 In re Sims was not a case in which the bankrupt disputed a substantial debt claimed by a creditor. There is nothing in Vaughan Williams J's judgment which supports the contention that orders of the kind made by the primary Judge cannot be validly made unless the judge ascertains the true extent of the bankrupt's indebtedness. The decision merely illustrates that there may be cases under ss 120 and 121 of the Bankruptcy Act in which consequential procedural orders can appropriately be made, protecting the position of the disponee in relation to any surplus available from the disposition held to be invalid against the trustee in bankruptcy. This may be the situation, for example, where the debts of a bankrupt are certain and uncontroverted and where only a small part of a void settlement or disposition is needed to satisfy those debts. In such cases, rather than ordering a transfer to the trustee in bankruptcy, it may be appropriate for a judge to make orders which, while fulfilling the purposes of s 120 and s 121, operate so as to avoid unnecessary hardship or burden to those entitled to the surplus. 68 The present is not such a case. It follows that his Honour did not err in making the order for transfer of the Property without determining the extent of the bankrupt's indebtedness to the Bank. 69 Perhaps anticipating such a view being taken by this Court, the appellant sought a direction varying the orders of the primary Judge, as follows: "a direction that the Official Trustee is not to realise the property described in Certificate of Title Volume 9913 Folio 969 until 14 days after the bankrupt's debts have been ascertained and written notice has been given to [the appellant] of the amount of the debts and estimated costs of the bankruptcy." We can see no justification for such a direction in the present case. Unless and until the bankrupt is able to contest successfully his liability to the Bank under the covenant he gave guaranteeing Logenstone's debt to the Bank, there is no prospect at all of any surplus on the realisation of the property. No such contesting claim has been initiated by him, despite ample opportunity to do so. There is no reason for precluding the Official Trustee from dealing with the Property in his administration of the bankruptcy in the ordinary way.

Conclusion 70 The appellant's attacks on the orders made by the primary Judge fail. Leave should be refused to the appellant to file a further amended notice of appeal incorporating grounds 2(f), (g) and (h). The appeal should be dismissed, with costs. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Sackville, Finn & Kenny.

Associate: Dated: 10 March 1999 Counsel for the Appellant: Mr G Bigmore QC with Mr M Harvey

Solicitor for the Respondent: Dunhill Madden Butler