In the matter of an application for writ of prohibition directed to the Honourable Mr Justice Fisher; Ex parte Karta Pty Ltd

[1988] HCATrans 150

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide	No A26 of 1988
In the matter of -

An application for writ of

prohibition directed to

THE HONOURABLE MR JUSTICE FISHER,

a Judge of the Federal Court of

Australia

Respondent

Ex parte -

KARTA PTY LTD., KRAKAT PTY LTD.,

BARBARA JOY HUNT and

SOPHIA KAROUNOS

Applicants

WILSON J

(In Chambers)

Karta

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 5 AUGUST 1988, AT 10 30 AM

Copyright in the High Court of Australia

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MR H.C. WILLIAMS, QC:  May it please Your Honour, I appear

with MR I.C. ROBERTSON for the first two named

applicants in this matter, that is Karta Pty--Ltd

and Krakat Pty Ltd (instructed by Piper Alderman)

and with MR G. PALASIS for the third and fourth

applicants, Mrs Hunt and Hrs Karounos (instructed

by Andersons)

HIS HONOUR:	Yes, Mr Williams.
MR WILLIAMS:	I should indicate, Your Honour, that the

Official Receiver in Adelaide may have been interested

in these proceedings. We have not served him with

the application, although as a matter of courtesy we

have told him the fact of the application being made

at this time this morning. We have - - -

HIS HONOUR: Apparently he is content not to appear.

MR WILLIAMS:  We understand that he is not proposing to appear.

HIS HONOUR:  Yes. You have had time to get your breath, have

you?

MR WILLIAMS: Just, Your Honour, but we are ready to - - -

HIS HONOUR:	You do not mind going on immediately?
MR WILLIAMS:	No, I am quite happy to go on,Your Honour, thank you.

Perhaps I should indicate, at the outset - I take it

that Your Honour does have before you a set of copy

documents which we have had bound up simply because it is

convenient with the number ot pages to have some

quick reference to a numbering system.

HIS HONOUR:  Yes, I have tha4 Mr Williams,and it may be of some

assistance to you if I say that I got the photocopies -

the faxed copies last night and I have had an opportunity

of reading most of the material. I must say I have

not read the points of claim or defence, but subject

to that I have a broad familiarity with it and I think

you could come straight to the issues. (Continued on page 3)

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MR WILLIAMS:	Thank you, Your Honour.	Well, might I say that

this is an application for an order to show cause

against Mr Justice Fisher based on the fact of a

predetermination which he has made in a previous case

which we say to the bystander, whether it be a

party to the action or a stranger, would give a

certain impression so strong that he, in the ciret.m1Stances,

ought to disqualify himself or be disqualified.	Now,
to come immediately to the point, it is not - - -

WILSON J:  Just a correction to what you have just said:

provided the party and the bystander are in a position

to take a reasonable - - -

MR WILLIAMS:  Yes, I accept that, Your Honour. It is not a

matter of dispute as to what was said and that has

been identified by His Honour. However, the point at

which I part company from His Honour is that His Honour
has not identified, and perhaps understandably so, the

issue which arises in the proceedings which are about

to start next Monday. I am interested to hear that

Your Honour has not had a look at the points of claim

because, of course, it is in the pleadings that I will

identify quite specifically what it is that is the

factual matter that is central to the claims.

WILSON J: Although it is clearly identified, is it not, in

paragraph 9 of Mrs Karounos' affidavit? I rather

though that got to grips with - -

MR WILLIAMS:	Oh yes, that gets to grips with it.
WILSON J:	Yes.
MR WILLIAMS:	But for the purposes of the Court, of course, we

have had the advantage, Your Honour, of being together

on the plane travelling across this morning, and we

have been able to perhaps pull things together in a
way which I perhaps did not do before Mr Justice Fisher

and it may be that if I had been able to pull it

together, having had the benefit, of course, now of

what His Honour has to say, it might not have been

necessary to make this application. But I wonder if

I could take you, sir, immediately to the allegations

which we say are central to this matter and then

relate them back to what His Honour had said?

Could I take you~ Your Honour, to first of all

pages 58 and 61 of the pleadings of the Official

Receiver?

WILSON J: This is the defence or the reply?

MR WILLIAMS:  Well, it would have two aspects to it.

WILSON J: Reply and defence to cross-claim.

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MR WILLIAMS:  And it is because it has those two aspects that

I refer to what really is the same thing being said

in different ways. On page 62 it is in its simplest

form. It is there alleged by the Official Receiver

that:

The Trustee as the beneficial owner of

the mortgages is entitled to accept purported

discharge of the Campbell Park mortgage

without receiving payment of all monies

due pursuant to the Moana mortgage.

Now that is, in effect, an allegation that he is

entitled to have the two mortgages consolidated.

WILSON J:	Consolidated, yes.
MR WILLIAMS:	But then, to get back to the actual matters

that are alleged, on page 61 he says, at the top of

page 61 - that is in paragraph 2 of his defence to

cross-claim:

The Trustee says that the funds provided for the purchase of the said land were

procured through the bankrupt -

the important words -

acting on behalf of Karta as its agent, but

otherwise admits that the funds had emanated

from persons who invested such funds with the

bankrupt or Hogbee Nominees.

So that what is alleged is that the bankrupt procured

these funds acting as the agent of one of my clients.

(Continued on page 5)

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MR WILLIAMS (continuing): The same thing is said - and I will

take Your Honour to this in other places - in many

different ways.

HIS HONOUR:  Karta Pty Limited sought funds on the security

of a property, the Campbell Parle - - -

MR WILLIAMS:  Yes, there has been transactions between them

for - - -

HIS HONOUR:	And it goes to Mr Hodby as a finance broker?
MR WILLIAMS:	Yes.
HIS HONOUR:	And says, "I need to raise so much on this property,

will you get it for me?"

MR WILLIAMS:	In effect, yes.
HIS HONOUR:	According to your clients that is what actually

happened.

MR WILLIAMS:  Yes. We say we went to Hodby in the ordinary

course of our business and wanted to raise some funds.
We say those funds were advanced, as far as we
were concerned, by people in our shoes standing at

arm's length from Hodby and having no knowledge of

what was going on.

HIS HONOUR:  So it is an allegation of agency that is the

critical phrase?

MR WILLIAMS:  Yes,it is absolutely critical from our

point of view because we say that we received

these moneys from Hodby in which he was acting with
the authority of the lenders so far as we were

concerned and acting as their agents. Now, whether

he was acting as agent of the people whose name

went on to the mortgages or whether he was acting

as agent for someone else - and it may be the moneys

appear to have come in part out of a trust fund
of Hodby Nominees,	I think.i·the name of the company

is, that was his broking operation - and it may be

that in those circumstances that the moneys ultimately

belonged to the creditors of Hodby Nominess. But,

anyhow, that is an argument further down the track.

HIS HONOUR:  Is there any objection to the person in the

position of Mr Hodby collecting funds for investment

in first-class securities from a wide number of

investors and simply making the advances from - - -

MR WILLIAMS:	No, no objection whatsoever and it is done - - -
HIS HONOUR:	And that is what your client believed he might

have been doing?

MR WILLIAMS:  And he had been doing it for many years; he

had been a very respected man in South Australia

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doing that. But there is, undoubtedly - in this case,

there was defalcation and that the moneys that

were advanced to my client , it would seem, certainly

did not come from the people whose names appeared

will say'my people' to put it in a general way - and

on the mortgages, he just put those names in there.

this is Mr Justice Fisher's finding - is that at the

time these advances were made Hodby had ceased to

act as a free agent because my people were found

to have, in effect, stood over him and be in a

position where we had found out about the defalcation,

so it is said, and that we were then using this

as a lever just to get Hodby to do whatever we wanted

as our puppet. So that this is absolutely critical

to the question as to whether or not Hodby was

acting as agent for the people that he was supposedly
acting for or as agent for some other group of his

investors, or whether there was a criminal conspiracy

going on to which my clients were acting in common

with Hodby.

Now, that in a nutshell is the basic bone of

contention between the parties because the ~mportance
of it in relation to these proceedings is that the
question as to whether or not the Official Receiver

is entitled to consolidate will depend upon whether

or not there were common parties to both mortgages,

and mortgages having been taken out at different

times certainly, we will be saying, that there were

undoubtedly different groups of people who on any

view of the facts would have been entitled to be

the mortgagees.

Now, I can say to Your Honour, before I develop

my argument further that is the critical matter of

fact with which we are concerned.

HIS HONOUR:  Can I just interrupt you just so that I know.

Nothing you have said in expounding more fully

the essential point in the trial of the application

that is coming up is inconsistent with what is

said in paragraph 9, is it? I just want to know

whether I can accept paragraph 9 as a statement of

the essential issue.

MR WILLIAMS:

Both the said actions require the Court to determine common matters of fact relating to the circumstances of the negotiation of the said Mortgages.

HIS HONOUR:  That is to say whether the funds -the source of the

funds in each case, whether there is any parallel?

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HIS HONOUR (continuing):

There is a dispute ..... whether the

advances were in the ordinary course

of business ..... whether they were parties who

had knowledge of the defalcations -

et cetera. And then over the next page I think

there is further denials:

deny that the loan was made by the bankrupt.

MR WILLIAMS:  That is the key to the matter in affidavit

form.

HIS HONOUR:	Yes.
MR WILLIAMS:	But it would seem to me, Your Honour, that for

the purposes of a court at this stage it was

convenient for me, as it were, to zero right in

on the way it was expressed in the pleadings.

HIS HONOUR:	I am not questioning that, Mr Williams. thought it may be convenient as I reflect on the	I just
matter to know that I can take it from the
affidavit as a comparatively accurate, if shortened, statement of the issue.
MR WILLIAMS:	Yes.	Now, of course, this is a very, very

complicated matter and Mr Justice Fisher is
intimately aware of all the facets of it and,

of course, in arguing a matter before His Honour,

I suppose one is inclined to put the broadness

of the matter. But, of course, not only is there

that issu~ but there is implicit in His Honour's

original finding the fact that he accepts Hodby

as a truthful witness. His story, if we go

to trial on Monday, starts out on the footing that

at least at that stage His Honour has no doubt of

certain facts.

HIS HONOUR:  That Ea very wide statement. You have used

the word "finding" a couple of times and it may

be - I realize you will come to it - open to

question whether it was ever a finding.

MR WILLIAMS:  Well, His Honour put that to me, to which

I immediately replied, "Well, Your Honour" - I took His Honour to a subsequent occasion and

said, "That's how Your Honour described it
yourself on a later occasion." Perhaps that is
the technique of cross-examination and I accept
there may be a certain looseness in the use of

the phrase.

HIS HONOUR:  Yes.

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MR WILLIAMS:	It perhaps might be convenient, before I do more, to look at the passage that gives
rise to the problem, which is the decision of
Mr Justice Fisher in the case of RE BAILETTI.
HIS HONOUR:	Yes.
MR WILLIAMS:	At about 101, Your Honour will find the

passage in question, about point 4:

There is no doubt -

and I emphasize those words -

that at the time the transaction which

falls for consideration in this matter

was undertaken, persons associated with

Krakat were placing considerable pressure

on the bankrupt who was in consequence

incapable of acting as a free agent.

And perhaps I could say,indeed,was acting as the agent or puppet of my clients as is alleged

in the pleading to which I have referred. I mean,

that is simply a straight statement which justifies

the Official Receiver's pleading.

HIS HONOUR:  The source of that statement, I take it, was

Mr Govan's affidavit setting out salien½ and

sunnnarizin& the passages from the public examination

of the bankrupt.

MR WILLIAMS:  It was Mr Govan's affidavit, but that was a second-hand source of material. The primary

source of material was before His Honour in the

form of what was said on the public examination.

HIS HONOUR:	By the bankrupt.
MR WILLIAMS:	On the public examination of the bankrupt.

Undoubtedly he gives that sort of story, I

accept that, and also the evidence which the

bankrupt himself gave to the Court in BAILETTI,

on which, of course, there was only a limited

cross-examination.

(Continued on page 9)

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HIS HONOUR:  And Krakat chose not to be there?

MR WILLIAMS:  It was not necessary for Krakat to be there. We

were a party to the proceedings but we had simply

paid the money into Court. I mean our interest in

the matter had ceased - Krakat's interest. But, of

course, the other people involved were not even

notionally before the c~urt in any shape or form,

Mrs Hunt and Mrs Karounos and Karta who was the borrower

in this case. So that in my submission there can be

absolutely no criticism of the position of any of

those people in not being there. They simply did not

have the opportunity. There was no reason for them

to be there on that occasion.

Now, I do draw Your Honour's attention to the

fact that the statement His Honour fud is ma.de "there is

no doubt"- was the situation. His Honour has noc

said, "Well, whilst the situation may turn out

subsequently to be different, on the bankrupt's story, at this staga the story would appear to be so-and- so". His Honour - - -

HIS HONOUR:  I think the point that I need to know, Mr Williams

and why I mentioned that Krakat had chosen not to

be there, I was just interested to know was there	any party present in BAILETTI who had an interest to
challenge the bankrupt and by cross-examination in
relation to the bankrupt'. s allegations against your clients?

MR WILLIAMS: 

There -was no reason why that story should have

been subjected to cross-examination at that stage
because it was, in effect, a tracing exercise in

relation to the mortgage. There was - - -

HIS HONOUR: 

The real issue was whether the ~ortgagees named - - -

MR WILLIAMS: It was undoubtedly - - -

HIS HONOUR:  - - - could trace their money into that $586,000?

MR WILLIAMS:  Yes, but in terms of the circumstances in which

this extraordinary transaction arose it was

appropriate for evidence to be led about these

particular matters and His Honour has accepted that

extraordinary story.

HIS HONOUR:  But it was uncontested before him. That is the

point I want to clarify.

MR WILLIAMS: Yes, I will accept that, yes, immediately.

Now, in my submission, it matters not that it was

uncontested. In a sense, my submission is if it

had been a statement, let us say, that it had been

made by a judge over the dinner table that had

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come forward of a statement that he had heard, let us say

It obviously has got to depend on the circumstances

of the particular statement and what is actually said. there was no contest between parties on this, but

in those circumstances it might have been, with the

benefit of hindsight, preferable for His Honour to

have expressed himself in.some more limited way.

HIS HONOUR:  Do not try and read too much into every intervention

that I may make, Mr Williams.	I wanted clarification,
that was all.

MR WILLIAMS:	I am a bit inclined to do that, sir.
HIS HONOUR:	Had His Honour not introduced that sentence with

the phrase "there is no doubt that",you would not

be there.

MR WILLIAMS:	I would not be standing here today.
HIS HONOUR:	No, because it would clearly then have been what His Honour now, in his judgment on the application
to disqualify says it was, a statement of the
history of the background or the background that was
put to him,uncontested,to the proceeding which he
then had to go on and deal with.

MR WILLIAMS:  Yes. But tm.doubtedly His Honour has only confined

himself to the matters which he considered relevant

to the matter. It -was certainly relevant for him to

make such an observation. ~ut it perhaps went beyond

the strict need of the occasion for His Honour to
take it so far as to say"there is no doubt11 that

a certain situation was the case. And h~ of course,

says there, "incapable of acting as a free agent".

Now I would then want to link that up. His Honour

sa}!s,. "Well, of course, that was not a finding"and

I would so characterize it in my address.

(Continued on page 11)

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MR WILLIAMS (continuing):  I was then able to take

His Honour to a comment which he had subsequently made which I simply rely upon for reinforcing

what I have already put because in quite another

set of proceedings involving the discharge of
bankruptcy from certain members of this family -

and this appears at page 150 of Your Honour's copy documents - there was a discussion going

on about what should happen and His Honour, at

page 150 - - -

HIS HONOUR:	Who is Mr Barrett appearing for?
MR WILLIAMS:	Mr Barrett was a counsel for the Official

Receiver and he also counsel - or has been

for Mr Justice Fisher in this matter. At the bottom of page 150, about point 8, Mr Barrett is reminding His Honour of the BAILETTI matter

and on page 150, about point 5, he says:

Your Honour has also had before you the public examinations of Mr Hodby where - the

public examination on several days where

he has given evidence which amounts to

extortioq on his version of the events,on

the part of the Karounos group,without seeking

out any individuals.

And then, further down the page, about point 8:

Not to put too fine a point on it, it is

the Official Receiver's view that the cause

of the deficiency has been the involvement

and the conduct of the Karounos family companies.

HIS HONOUR: Is the Official Receiver opposing the dischargethat is

sought by Mr Karounos?

MR WILLIAMS:  That was the background. He had been opposing

a discharge. In fact, he withdrew it. And then

he goes on to expand on the mortgages - this
is on page 151 point 5.	He reminds His Honour:

MR BARRETT: Well, the evidence from Hodby

was that there was a series of mortgages

signed at 29 August 1986 under the threat

of his defections being exposed to his clients.

At the bottom of page 151:

HIS HONOUR:	Are the Karmm.os' s behind Kr aka t?
MR BARRETT:	Yes.

Then on page 152, about point 4:

MR BARRETT:  But for the extraordinary

relevations that have come out of thisbankruptcy

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we would be quite happy to fight this

application now -

"Now I want some time to look at what is going on."

With all that background His Honour's mind is obviously being refreshed and on 153 His Honour,

at about point 8, makes the statement:

Well, then I am just giving issue. What

I am doing is giving you, if you wish, the

opportunity to do so.

HIS HONOUR:  Who is he saying this too, Mr Palasis?

MR WILLIAMS: Palasis.

HIS HONOUR:  Who was appearing for the applicant for discharge?

MR WILLIAMS: Applicants for discharge, yes.

HIS HONOUR:  Which Karounos was it? I would appreciate

it probably does not matter.

MR WILLIAMS:	Helen and John.
HIS HONOUR:	Do not explain it any further.
MR WILLIAMS:	They are all members of the same family and, of course, this transaction is all part of the
one transaction that we are now concerned with.
He said - this is His Honour:

The trouble is, of course, that I have

been inextricably involved in all these goings

o and will continue to be so for quite

a time and we have got the Krakat matter which

does relate to,-- I do not know which Karounos's
but the Karounos' sand the mortgage that
is prepared to be given for some odd amount

under severe pressure.

(Continued on page 13)

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MR WILLIAMS (continuing):  So His Honour there uses that

expression for himself, of 'severe pressure",

and then he says:

I think I have already made a finding about

that.

My submission is that with that background the reasonable bystander - and I emphasize"the reasonable

bystander"- would be entitled to conclude that

His Honour had reached a predetermined view on

the matter as I have identified in RE BAILETTI.

And it is that very issue which is now in issue

as I hope I have identified in the proceedings

which are due to start before Mr Justice Fisher

on Monday.

HIS HONOUR:  Yes, the fact remains, Mr Williams, although

His Honour uses the word "finding", putting that word aside, he is voicing his recollection of

uncontested information that has come into his

possession on other applications. Can you really

say that that gives rise to a reasonable

apprehension of prejudgment? I mean, judges

are frequently seized of matters that continue

over a period of time and have various stages in the hearing, whether they be interlocutory hearings or successive hearings of one sort or

another and they are gathering information as
they go, background information, but a reasonable

observer would not find it difficult to see a

judge coming into a Court like this this morning

for the commencement of a hotly contested issue of fact, starting with a clean slate, listening

to the evidence and making up his mind. It is
this prejudgment word that is attached to previous

knowledge that seems to be the critical point

in the application, is it not?

MR WILLIAMS: It is the fact that His Honour has expressed

himself in the way that he did, Your Honour,

the fact that he chose to use the words "there

is no doubt". Now, one would have thought, with

respect, that there would be a considerable amount

of doubt as to whether this extraordinary story

is true or not but His Honour has simply accepted

it. If he had chosen to say, "The bankrupt has

given this story which, at this stage, I have

no reason to disbelieve" - - -

HIS HONOUR: Or ''For the purposes of these proceedings, I accept

that.

MR WILLIAMS: It is just the unfortunate way in which

His Honour has chosen to express himself. And

might I say this, Your Honour, and I put this

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as being extremely important. It is the job of all of us here at the bar table to ensure

that we do uphold the Court at all times and

we try to do that, I would suggest, but it makes

it very difficult for us to - and, I mean, in

these sort of circumstances we are expected to

go away and explain to our clients what is going

on because it is in the interests of justice

that everyone should think that there is fair

play. But we, with respect, submit that we have

great difficulty in explaining a paragraph like

that to our clients and, indeed, to say there

there is no doubt is, with respect, simply

overstating the position.

To say that it was just something that happened

is perhaps unfortunate but it did happen and, in my submission, it would be better in those circumstances that His Honour should be disqualified

and that the hearing, which will be an extremely

long one, proceed before some other judge.

HIS HONOUR:  The BAILETTI judgment was given, obviously -

it was a reserve decision, was it not?

MR WILLIAMS:  Yes, it was a considered judgment.

Very difficult points that arise in - - -

(Continued on page 15)

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HIS HONOUR:  Yes. I just wonder whether - and I fully

understand the matter to which Mrs Karounos

testifies in her affidavit that she has an apprehension arising from the matters that

you have pressed. But, my task is, of course,

not completed by accepting that testimony.

MR WILLIAMS: It is an objective test.

HIS HONOUR:  And it places an horrendous task on a

judge to perhaps watch every word, particularly

that statement in the course of a discussion

with counsel in which His Honour says, "I think

I had made a finding about that".	He is
just plumbing - - -

MR WILLIAMS:	To be fair to His Honour, I make it quite clear that before His Honour I did not, as it
were, rely upon that.  I simply took it in the
context of reinforcing what His Honour has said before and it is essentially the original
statement. But it does demonstrate the way
in which His Honour, out of the blue, characterized
the particular matter.  It came back to him in
that way.

Now, Your Honour has referred to the necessary

course of proceedings. These, of course, are

a separate set of proceedings_. Although they

were filed in one administration, the proceedings

which are due to start on Monday have no connection

with the earlier proceedings which are

essentially between different parties. It is not

as if His Honour, in the course, shall we say, of

an interlocutory matter, has made certain

observations. It is not as if His Honour has
necessarily been required in the earlier stages

of a matter to make a decision which then flows

through with consequences, as was the case in

the MUDGINBERRI case, which His Honour referred to.

There is, undoubtedly, a principle of

necessity. In my submission, we have got the

general rule that judges should not sit in certain

circumstances where they may be seen to have

prejudged.	There are two exceptions to that,
as I see it.	One is a situation of waiver by

the parties, and the other is the case of

necessity, because we have had cases in years gone

past where every judge of the court has been in

someway involved in matters, and that has happened

in the last century.

Undoubtedly, there is a principle of necessity

and we can see how that all applies in the

MUDGINBERRI case where, with the approval of the

parties, Mr Justice Morling deals with certain

matters and makes a declaration and then deals with

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the question of damages later. It is almost

inevitable that in those circumstances there

is likely to be a situation where the effect

of his judgment, even on questions of credit

is going to flow through from one part of the

matter to another. But, in my submission,

that is a special case which arises from the

way in which that particular set of proceedings

have been conducted. It is a case on its

own special facts, if you like, perhaps related

to the law of necessity. It is so easy to, in

a word, distinguish it from the general run of

cases.

I say that this case is, in essence, on

all fours with the case of LIVESEY, which I

cited to His Honour, where the Court of Appeal

in New South Wales, having dealt with one matter

then was regarded as being in a situation

where it ought to have disqualified itself in

relation to its dealings of another matter, having

made a certain observation in one matter that flowed

over into the other matter.

I do not want to go too much into comparing

the facts of one case with facts of another. It

is the principle that I cite these things for.

HIS HONOUR:  There was something over 40 applications in

the Hodby administration. Is not Mr Hodby's

credibility a connecting thread throughout those

applications?

MR WILLIAMS: Strangely enough, not, Your Honour. This is

the first time where the whole issue really comes

up, because there is a deficiency in the estate -

it is in the papers - of somewhere between $2.2

and $3 million, and the allegation is that in

effect this money has found its way through into

the hands of my clients, or the group that it

represents. This is where the real issue will

take place, and it is at this stage that the
credibility of Mr Hodby must be put on the line

as against the credibility of my various clients

who are all going to have to say, as Mrs Karounos

has said, that it was a regular transaction and

that there was no extortion going on.

(Continued on page 17)

C3T8/2/JM	16	5/8/88
Karta

HIS HONOUR:  I am not sure that that advances your argument

really because what it amounts to is this: LIVESEY -

and let me say Id~ not put any weight on the

necessity argument in this case, nor on any question

of delay, although the - - -

HR WILLIAMS:	No thank you, Your Honour. I will not bother to develop in those -
HIS HONOUR:	- - - affidavit refers to it. But there is no

basis on which you can sustain an argument that the

judge has ruled on the credibility of the Karounos'

or the applicant, Mrs Hunter,	anyone associated with
Karta or Kra kat.

MR WILLIAMS:  What he has done as to - taken quite an

extraordinary, we say, explanation and has accepted

it and that is the - there can be - - -

HIS HONOUR:  Was not it, as it were, tacit acceptance, a

relevant part of the background to the situation

that confronted him in Bailetti, namely that you

had $586,000, the fruits of a mortgage, to which

a number of mortgagees were claiming to have

contributed?

MR WILLIAMS:	Yes, and it was a tracing exercise.
HIS HONOUR:	What His Honour said, on one view, is simply an

entirely colourless statement of the history of

the matter from which the then proceedings in

BAILETTI arose.

MR WILLIAMS:  In my submission,it is not colourless. A

colourless statement in those circumstances would

have been, in my submission, in the form, "The

bankrupt has given a certain explanation" Whether

that be correct or not, and it does not matter for

present purposes, the fact of the matter is that

these moneys have gone out of a certain account,

whether it be as a result of him acting to get himself	out of a mess or whether it is because he was in	a situation where others, namely the Karounos had
put him in that position and were extorting money ou~
of him, does not remain to be decided here today.
If he had put it that way there would be no complaint.
But to put it in the form of having such an
extraordinary explanation, to say that there can
be no doubts that he ceased to act as his own free agent and was acting as a puppet, as it were,
of my clients, in my submission,is to put it, mildly, unfortunate.

HIS HONOUR:  Part of the problem that your application raises

and it is a problem for me, obviously, is that the

statement did not come as the outcome of a

C3T9/l/SR	17	5/8/88
Karta

consideration of the pros and cons of an issue.

There was no issue requiring to be determined by

His Honour in BAILETTI, in respect of which issue

that passage was the answer. It was a conclusion.

~tis not a decision.

MR WILLIAMS:  In my submission the critical factor is not

whether the statement arose out of, as it were, a

fundamental issue in the first case. It is a

question as to how that statement impinges upon the

second case and that is why I have been so much at

pains to take Your Honour to the pleadings and

demonstrate how it really is the only factual

issue between the parties because, although it is

going to be an enormous trial, all the facts after

that are going to fall into place because, I mean,
the bank records will be produced, we will see,
in fact,how moneys have gone in and out of accounts

and then the law is going to have to be applied

as a tracing exercise. It is a terrible difficult one if

it can be followed through. But it is absolutely

fundamental before we start that to work out whether or not these parties were acting in cohor.ts together

or whether we were at arms length from Hodby and

that is the issue in the case.

(Continued on page 19)

C3T9/2/SR	18	5/8/88
Karta

MR WILLIAMS (continuing):  Now, in my submission, because

that is such a central issue to the second case

and because His Honour has expressed himself in a way

that he has, that that,in my submission,should be
the end of the matter. If His Honour had made this

statement over the dinner table, well then, of course,

it would have had no connection with an issue,it

would simply have been a statement. And it is

really a question of how the reasonable bystander

would look at it. And because he has chosen to

express it in that way, there can be no doubt·	Why
does he say "there can be no doubt"?

HIS HONOUR:  Yes, but I would have to join issue with your

last statement, that it is the importance of the

issue in the coming proceedings - of course, I

accept that and realize all that- but you can only

assess the significance of the statement that you

have attacked and drawn attention to by looking at it

in its context and that is the context of the

issues that were being fought before him. Given

that this was not a finding on a contested issue

before him, it appears as part of the narrative, it may well be explained as a bit of careless writing,

a throw-away line, an acceptance - an uncritical -

even allow an uncritical acceptance of the information

that was put before him in which he overlooked the

caveat of a phrase that made it clear that it was

only one side of the story. But is it rational to

think that the judge would embark on this new trial

in which this very thing is the central issue

having prejudge	it or that anybody could think that
he had prejudge	it?

MR WILLIAMS:  First of all we would say that it cannot, with

respect, be treated as a throw-away line because

when the matter comes again before His Honour,

His Honour refers to it as a finding. It is not

a question that where, as he recalls it, it was

simply a throw-away line.	He, himself, characterizes
it as a finding the second time around. It was

obviously something that was in his mind which he

treated as something which had been decided by him.

HIS HONOUR: Well, of course, Mr Barrett had recalled it to

his mind very explicitly.

MR WILLIAMS:  Yes, he had.

HIS HONOUR: And,after all,any of these actions that focus

attention on Hodby's manipulation of his accounts

and Hodby's attempt to exculpate himself from that

account, an ex parte statement on Hodby's part to

minimize his own criminal activity - it is still

part of the history.

C3Tl0/l/SR	19	5/8/88
Karta

MR WILLIAMS:  In my submission, although it is part of the

history, there was absolutely no reason for

His Honour to take it as far as he did. That is

really the critical factor.

HIS HONOUR:  Yes, I am tending to argue with you but it does

not do any harm to let you know the way I am seeing

your submission.

MR WILLIAMS:  But -and I also of course accept that His Honour

has had a one-sided poi.nt of view, as it were, from

the Official Receiver's representatives - I am not
suggesting that it is unfair for that to be the

case - obviously suggesting this extortion argument, one can see it in the short passage that I referred to but,of course,it goes right back through the

transcript. We have, of course, here only put

snippets from the transcript before the Court. I think it would be appreciated that if this matter

went further, well then, of course, we would

be	expecting to open the thing up in much greater
depths.	But one does have to really zero in on

something for the purposes of an application such

as this.

(Continued on page 21)

C3Tl0/2/SR	20	5/8/88
Karta

MR WILLIAMS (continuing):  I doubt, Your Honour, whether I

can really,in the final analysis,take it further

than the matters that I have put to you. Should

I fill in the gaps so far as the pleadings are

concerned or have we taken that aspect of the

matter far enough?

HIS HONOUR:  I think the pages you have drawn my attention to

in the trustee's reply - - -

MR WILLIAMS:	Seem to me to be sufficient.
HIS HONOUR:	- - - coupled with the affidavit, which is a

narrative of~ - -

MR WILLIAMS:	Yes, I could undoubtedly- I mean the same thing - - -
HIS HONOUR:	It is a very short point really,

Mr Williams, and I think I can see the relevance of

that earlier statement that gives rise to the

application to the issues that will be litigated

in the action. If you would like in just a couple

of sentences to restate it, I would be happy to have

your restatement rather than - - -

MR WILLIAMS:  I think.....I would put it this way to Your Honour:

tbat at the end of August and the beginning of

September 1986 there were a series of transactions

between the bankrupt, Hodby, and the Karounos
group. Those transactions encompassed the matter

which was ventilated in BAILETTI and it is

accepted that the same transactions will be the

subject of the matters now in question.

HIS HONOUR:  The transactions at the end of August and

September?

MR WILLIAMS: Yes. In questions before Mr Justice - - -

HIS HONOUR:  How did they come to be ·,;-entilated in BAILETTI?

MR WILLIAMS:	I am sorry, Your Honour.
HIS HONOUR:	How did they come to be relevant in BAILETTI?

Bailetti was a mortgagee, at leas 4 a named person

on the mortgage, was he?

MR WILLIAMS:  Yes. It became relevant in BAILETTI for

His Honour to know the background to the circumstances
in which these moneys had been advanced before
he went on in that case to identify whether or not

there was any person who could, amongst the creditors,

establish a claim to the moneys. I acknowledge

that it was, as I say, by way of background there.

HIS HONOUR:  And this is the way in which moneys had been

advanced by BAILETTI and others to Hodby?

C3Tll/l/SR	21	5/8/88
Karta

MR WILLIAMS:  Yes, who was then, on Hodby's evidence, ceasing

to advance moneys. At his own instigation he was

doing it under the thumb of the Karounos group.

HIS HONOUR: Ostensibly, Hodby having got the moneys from

BAILETTI and others, advanced it to Krakat on mortgage and - - -

MR WILLIAMS: Well, put it this way: undoubtedly he got the

moneys,	he had them under his controi and he
advanced them to the Karounos group.	The question is

on whose behalf did he advance them and,of course,

in BAILETTI, no one could establish a tracing into

those particular moneys. Now,against that

background and dealing with these same series of

transactions, there are two further mortgages which

were given to the company,Karta, which is an

applicant here today.

HIS HONOUR:  These are the mortgages, the Campbell Park

and Moana?

MR WILLIAMS:  The Campbell Park and Moana. And it is

alleged by the Official Receiver that Karta cannot
discharge one mortgage without discharging the

other by virtue of the doctrine of consolidation.

And that then raises as the central issue who were

the mortgagees who advanced the money to Karta and
that then raises the factual issue as to the

person on whose behalf Hodby was acting when he

made the advance.

(Continued on page 23)

C3Tll/2/SR	22	5/8/88
Karta

MR WII.LIAMS (continuing); Was he acting on behalf of

some creditors, that is, some body of creditors,

whether they were the named mortgagees, or some

more general body, whether of his own creditors or one of his companies, Hodby Investments? Or

was he simply acting in concert with the Karounos'?

It is the determination of that question which

is central to the matter which will come before

Mr Justice Fisher.

HIS HONOUR:  Yes, I can understand it is the link between

the question'Who were the mortgagees who advanced the moneys to Karta?"and the subsidiary question,

''Ch whose behalf Hodby was actin~ when he

channelled those moneys through." The alternative

answer to that last question would be precisely

what: that he was acting truly as a mortgage

broker in good faith for the persons who had

entrusted him with money to invest? Alternatively - - -

MR WILLIAMS:  Yes. Perhaps what I should do is to take

Your Honour not only to the pleading of the

Official Receiver, but the way in which my clients

put it in their pleading, and that would then complete

the record.

HIS HONOUR:  Yes. I do not want to confuse it, I just

want to be quite clear.

MR WILLIAMS: Probably the most convenient place is

on page 29, 5.2.2, an allegation:

That Hodby Nominees Pty Ltd, or alternatively

the bankrupt, was expressly or impliedly

authorised by each Hodby Investor to

allocate and amalgamate the whole or

part of the funds of such Hodby Investor
provided to Hodby Nominees Pty Ltd or the

bankrupt with funds of other Hodby Investors

and lend the same out on the security of

mortgages or unsecured investments from
time to time arranged or proposed by Hodby

Nominees Pty Ltd or the bankrupt.

I will only read that one paragraph, but really

the whole of paragraph 5, starting on the
previous page, down to the end of 5.2.5 is

really part of the same pleadings.

HIS HONOUR:  And this is the points of claim of the defence

of the Karounos', is it?

MR WILLIAMS: This is Karta's pleading. Now, I have taken

Your Honour to basically what Karta has said.

Then I took you, in response to that, only in

one place -

HIS HONOUR:	To the reply of the trustee?
Karta

C3Tl2/l/JM 23 5/8/88

MR WILLIAMS:  I think I, in fac4 took Your Honour to the

top of page 62:

the funds ..... were procured through the

bankrupt acting on behalf of Karta.

It also appears though at the top of page 58,

Your Honour.

HIS HONOUR:  You referred me to 61, as well.

MR WILLIAMS:  Sixty-one was the page I referred to at the

outset of my address, but I am now taking you to a passage where the Official Receiver says

the same thing in a different way on page 58.

In paragraph 1:

The applicant denies that the advances

made by the bankrupt or Hodby Nominees

Pty.Ltd.were made in his or their capacity

as an agent solely for the clients of the

bankrupt.

(Continued on page 25)

C3Tl2/2/JM	24	5/8/88
Karta

MR WILLIAMS (continuing): There the Official Receiver is

denying that straight out.	And then goes on
and says:

that at all material times the bankrupt

and Hodby Nominees Pty Ltd were acting as

the agent of Vimited Pty Ltd -

that is one of these companies -

Karta Pty Ltd and Krakat Pty Ltd for the
purpose of the procurement of the advances
particularised in paragraphs 4 and 7 of

the Amended Points of Claim.

And I might say that the same pleadings,

substantially, appear in the other action. The

two actions have got virtually a common set of

pleadings.

HIS HONOUR:  Yes.

MR WILLIAMS: That, in a nutshell, is what the case is

all about and it depends on Your Honour's objective
assessment of what a reasonable bystander, including
my clients, would say in the circumstances, having
regard to the use of the words "it cannot be

doubted" and the subsequent comment that he

has treated it as a finding.	They are my
submissions, Your Honour.

HIS HONOUR:  Thank you, Mr Williams. I want to reflect

on this for a moment - at least, perhaps, a little

more than a moment. Certainly, you must have

a decision today, I appreciate that, and we will

see about reasons if they are necessary.	I might
have to reserve my reasons.	We will adjourn
until 3.30 this afternoon.

AT 11.28 AM THE MATTER WAS ADJOURNED

UNTIL LATER THE SAME DAY

C3Tl3/l/ND	25
Karta
UPON RESUMING AT 3.37 PM:

HIS HONOUR: This is an ex parte application for an order nisi

for a writ of prohibition directed to Mr Justice Fisher

sitting in Adelaide in the bankruptcy jurisdiction of

the Federal Court of Australia.

The writ is sought to prohtbit His Honour from

hearing actions 910/39 of 1986 and 910/40 of 1986, to

the extent that the actions are brought against the

applicants. The ground of the application is that

His Honour is disqualified from hearing the actions by

reason of a reasonable suspicion that he has or may

have prejudged adversely to the applicants'factual

issues and issues of credibility relevant to the actions.

The applicants failed to persuade His Honour that he

should disqualify himself. The hearing is scheduled

to begin on Monday next, 8 August 1988, and the

applicants seek an interim stay of the hearing to

complement an order nisi.

Each action involves an application to the Federal Court by the Official Receiver relating to the

bankrupt estate of Ross Daniel Hodby, a person who

formerly carried on a business in Adelaide as a land

and finance broker. Action 910/39 relates to a mortgage

over land situated at Campbell Park in South Australia

owned by the first applicant, Karta Pty. Ltd. ("Karta"),

the mortgagor. Barbara Joy Hunt and Sophia Karounos,
the third and fourth applicants, are directors of

Karta and Krakat Pty Ltd ("Krakat"), the second

applicant, and are named in the mortgage as

co-borrowers.

Action 910/40 relates to a mortgage over land

situated at Moana in South Australia owned by Karta,

the mortgagor. In this mortgage Karta and Krakat are

named as joint borrowers.

The nature of the issues which will be litigated

in the actions are described by the applicant

Sophia Karounos in the affidavit sworn on behalf of

all the applicants in support of the present application

in the following terms:

"Both the said actions require the Court to
determine common matters of fact relating to the

circumstances of the negotiation of the said

Mortgages, of the execution of the said Mortgages,

of settlement in respect of the loans referred to

in the said Mortgages, and of the means by which

the funds for the said loans were provided. It is

accepted by all parties to the two said actions
that the bankrupt was intimately involved in all
these events. There is a dispute between the
parties to the said actions whether advances of

monies to the mortgagors was in the ordinary course

of business so far as the mortgagors were concerned

or whether they were parties who had knowledge of

C3Tl4/l/VH	26	5/8/88
Karta

the defalcations by the bankrupt which led to the

advance of the said monies. Karta, Krakat,

Mrs Hunt and I deny any such knowledge."

It is the~Qfficial Receiver's contention that he is

entitled to consolidate the Campbell Park mortgage and

the Moana mortgage, notwithstanding that they were

entered into at different times, by reason of the fact

that, in securing the monies that were advanced, the

applicants were in collusion with Hodby in circumstances

which made him their agent. The right to consolidate

depends upon a conclusion that in effect there were

cormnon mortgagees to both mortgages. This is the

essential bone of contention between the parties.

The applicants assert that the appearance of

prejudgment arises from a passage in a reserved

judgment delivered by His Honour some 16 month~

ago when dealing with an earlier application by the

Official Receiver in connection with the same bankrupt

estate. The matter is entitled RE THE BANKRUPT ESTATE

OF ROSS DANIEL HODBY; EX PARTE G. BAILETTI & SONS & ORS.

AND KRAKAT, No. 910/11 ("Bailetti"). The decision was

delivered on 16 April 1987 and the material passage

reads as follows:

"There is no doubt that at the time the

transaction which falls for consideration in

this matter was undertaken, persons associated

with Krakat were placing considerable pressure

on the bankrupt who was in consequence

incapable of acting as a free agent."

The transaction _ref erred to concerned another mortgage

in respect of which Krakat was the mortgagor. The

application with which His Honour was dealing involved
a determination as to the person or persons entitled
to a sum of $586,000 paid into court by Krakat to
discharge the mortgage. The sole question in issue
was whether the creditors of the bankrupt estate or

the persons named as mortgagees were entitled to the

money. Krakat made no claim to the sum mentioned

and was not represented during the hearing. The

evidence before the Court consisted primarily of

affidavit evidence tendered on behalf of the Official

Receiver. The bankrupt gave some oral evidence upon

which he was cross-examined to a limited extent.

Counsel for the applicants draws attention to the prefatory phrase in the passage from His Honour's

judgment that I have cited - "There is no doubt" -

and argues that it clearly confers on the sentence the

character of a considered opinion which can rightly

be described as a "finding." He draws support for the

submission in a remark made by His Honour on 8 October 1987

in the course of a discussion with counsel in a case

where certain members of the Karounos family were

C3Tl4/2/VH	27	5/8/88
Karta

seeking their discharge from bankruptcy. Counsel

for the Official Receiver had recalled the evidence

of the bankrupt Hodby in the course of his public

examination to the effect that certain moneys were

advanced to Krakat and Karta on mortgage under

threat that his (Hodby's) defalcations would be

disclosed to his clients. Counsel for the Karounos

family intimated that he would obviously be objecting

to what was being put. His Honour then said:

"Well, then I am just giving issue. What

I am doing is giving you, if you wish, the

opportunity to do so. The trouble is, of course,

that I have been inextricably involved in all

these goings-on and will continue to be so for

quite a time and we have got the Krakat matter

which does relate to, I do not know which

Karounos's, but the Karounos's and the mortgage

that is prepared to be given for some odd

amount under severe pressure. I think I have

already made a finding about that."

I am satisfied that the statement made by His Honour in BAILETTI touches on matters which could

be most relevant to the present actions. If the parties

maintain their respective positions it will be necessary

for the trial judge to choose between the evidence of

Hodby and that of the applicants and their witnesses.

Credibility will be important. Counsel for the applicants asserts that there is ground for a reasonable apprehension that His Honour has already

predetermined or prejudged that vital question adversely

to his clients.

There is no doubt about the underlying principle

to be applied in dealing with the present application.

It is that a judge should not sit to hear a case if

in all the circumstances the parties or the public

might entertain a reasonable apprehension that he might

not bring an impartial and unprejudiced mind to the

resolution of the	question involved in the case:
REG V WATSON; EX PARTE ARMSTRONG, (1976) 136 CLR 248;

LIVESEY V NEW SOUTH WALES BAR ASSOCIATION, (1983)

151 CLR 288.

I can understand that the applicants may feel such

an apprehension but if that is so I cannot accept that

it would be a reasonable apprehension. The true

significance of the statement made by His Honour in

BAILETTI is to be determined in its context. Viewed

objectively, the relevant circumstances are the

following:

1.        His Honour has not heard any cross-examination

of Hodby on the circumstances surrounding the
execution of the mortgages in question.

2.         He has never heard any evidence from the

applicants on that question.

C3Tl4/3/VH	28	5/8/88
Karta

3.         The questions that are central to the

coming trials have never been in issue before

His Honour either in BAILETTI or in any other

proceeding.

4.      The substance of His Honour's statement

was derived primarily from an affidavit filed

on behalf of the Official Receiver detailing

passages from evidence given by Hodby on his

public examination. Hodby made a brief

appearance in the witness box but he was not
subject to cross-examination by any person

appearing in the interests of the applicants.

Krakat was a party to the proceedings in

BAILETTI but it chose not to be represented,

because the issues that fell to be determined

were not contested by it.

5.      The statement appears in the earlier part

of the judgment and formed part of the background

provided by the information placed before

His Honour without objection. It was not

necessary for His Honour in dealing with the issues,

to make any finding as to the truth or otherwise

of the statement. Admittedly, the prefatory

words, "There is no doubt," suggest a degree

of conviction in His Honour's mind and I shall

deal separately with these words shortly.

6.      The reference to "severe pressure" and

"a finding" by His Honour in the course of a discussion with counsel on another matter on

8 October 1987 is, in my view, of little

significance. Indeed, counsel for the applicants

frankly admitted as much. His Honour was

obviously giving voice to some recollection in

his mind without purporting to be precise.

In the end, it is the words, "There is no doubt"

which must bear the whole weight of the application.

have prefaced the statement in this way. Certainly, it	I find it difficult to understand why His Honour should
was quite unnecessary. It did not matter for the
purposes of his decision in BAILETTI whether there was no doubt or a lot of doubt about the material contained
in the statement. The statement cannot properly be
described as a "finding" notwithstanding His Honour's
recollection expressed with some diffidence some six
months later.

Nor do I think that the statement could reasonably

be regarded as any kind of prejudgment of the issues

in the coming trials. Clearly His Honour accepted, for

the purposes of the matter then before him, the material

which had been placed before him and wlich was not the

subject of any contest in those proceedings. But no

reasonable person would suspect or think it possible

C3Tl4/4/VH	29	5/8/88
Karta

that a long and vigorously contested trial 16 months

later might be nothing more than an expensive charade

because the trial judge was embarking on it with his

mind already closed to, or weighted against, the case

that was to be put for the applicants. In my view

such a suspicion would be unreasonable, but I remind

myself that a reasonable observer is not a judge but

any member of the public including a party who is

not unfamiliar with the proceedings and who is capable

that an observer of the kind I have described

of making a reasonable response to the circumstances. arguable

would apprehend as a real possibility, on the basis of

an inconsequential phrase used in a judgment on

another matter some 16 months earlier, that the judge

might not bring an unprejudiced or impartial mind to

bear on the issues upon the resolution of which the

outcome of the coming trials will depend.

I am therefore obliged to refuse the application.

As I have said, I can understand the apprehension to which the applicants have testified; I can only hope

that the delivery of my reasons for refusing their

application will assuage that apprehension.

MR WILLIAMS:  I am grateful to Your Honour.

AT 3.48 PM THE MATTER WAS ADJOURNED SINE DIE

C3Tl4/5/VH	30	s I 8 I 88
Karta