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.