Johnson v Johnson

[1999] FamCA 369

[1999] FamCA 369

FAMILY LAW ACT 1975

IN THE FULL COURT  
OF THE FAMILY COURT OF AUSTRALIA  Appeal No WA15 of 1998
AT PERTH  File No PT2827 of 1995

BETWEEN:

MR JOHNSON
Appellant Husband
- and -

MS JOHNSON
Cross-Appellant Wife

REASONS FOR JUDGMENT OF THE FULL COURT

CORAM:  ELLIS, KAY AND DESSAU JJ
DATE OF HEARING:  11, 12, 13, 14, 15, 18, 19 and 20 January 1999
DATE OF JUDGMENT:                  31 March 1999

APPEARANCES:  Mr Udorovic, one of Her Majesty’s Counsel, and Dr Ingleby of Counsel, instructed by Messrs Paterson & Dowding, 28 The Esplanade, Perth WA 6000, appeared on behalf of the Appellant

Husband.

Mr Kirk, Senior Counsel, and Mr Wilson of Counsel, instructed by Kim Wilson & Co., 123B Colin Street, West Perth WA 6005, appeared on behalf of the Cross-Appellant Wife.

JOHNSON and JOHNSON

WA15 of 1998
Coram:   Ellis, Kay and Dessau JJ
Date of appeal:      11 – 15, 18 – 20 January 1999
Date of judgment:  31 March 1999

APPEALS - From decision of Family Court Judge - Powers and discretion of Full Court - Insufficiency of reasons - Findings made on no or inadequate evidence - Re-exercise of discretion under Warren v Coombes principle.

PROPERTY – ADJUSTMENT in relation to marriage - Value of Property - Company shares - Expert Evidence - c$15m in overseas assets included in pool by trial Judge - Whether held beneficially for party - Contributions - Appeal ground not pursued - Parties' liability for tax losses and penalties.

COURTS AND JUDGES - Disqualification for bias - Apprehension of Bias - Before hearing from the husband the Judge said he would look principally to evidence of witnesses other than the parties to determine the facts - Statement clarified by its context - Bias not made out.

H and W commenced cohabitation in 1974 and married in 1979.  They each had adult children from their first marriages.  A decree nisi became absolute in mid-1996.  W brought property proceedings in the Family Court of Western Australia.  H was a successful business person, with significant business interests focused on the primary sector.  W worked in an administrative role with H during the marriage.

At trial The primary judge found an asset pool of c$30m.  This included Australian assets held in H and W’s names of c$15m, and offshore assets of a further c$15m.  His Honour apportioned the asset pool 60% in favour of H. 

H appealed against findings that he had a beneficial interest in certain assets and the inclusion of those assets in the pool.  H sought to rely on grounds summarised as insufficient reasons, bias, evidence wrongly admitted, wrong findings or findings made on insufficient evidence, errors in the asset pool, wrong credit findings, contribution (which was abandoned), and the form and effect of orders. 

W cross-appealed, claiming that the trial Judge undervalued shares in B Ltd ( a company which received concessional tax treatment under the Pooled Development Fund Act 1992 (Cth) and which held shares in other entities in dispute).

Held

Relevant principles

• It was noted that appellants against discretionary judgments face a difficult task, citing House v The King, De Winter v De Winter, Abalos v Australian Postal Commission, Devries v Australian National Railway Commission and the recent High Court decision State Rail Authority of NSW v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306.

• The Full Court applied the test for failure to give reasons from Robbins and Deer, similar to that in Sun Alliance Insurance Ltd v Massoud, that a trial judge’s line of reasoning must be able to be ascertained.  It was open to The primary judge to “[try] to stay with the ‘big picture’” because of the nature of the issues raised and the volume of evidence.

Identifying the asset pool: Findings on associates of H and interests held beneficially for H

• The various grounds of inadequate reasons, bias, finding contrary to evidence or without foundation, and errors of law regarding the credit of witnesses were not made out and it was open to his Honour to find that:

• an associate of H, Mr C, held a beneficial interest for H in the D Foundation (an entity formed in Country E, similar to a discretionary trust). 

• an associate of H, Mr F, under instructions from Mr C, held a beneficial interest for H in shares in B Ltd, because H had reached a legislative cap on the shareholding in his own name.

• Mr C and H operated in concert in deals regarding Region G (a commodity licence) to move assets out of H’s ostensible control.

• a deal on J Ltd (a resource site in Queensland) was structured to move funds from H to Mr C and for Mr C to acquire assets beneficially for H.

• Mr C held a beneficial interest for H in profits from K Corporation (licence in the US).  Profits were moved off-shore and funds were repatriated to H through loans. 

• Mr C held 80% of his interests in entities controlled by H beneficially for H.  Evidence for this included the description of Mr C as a “commission man” and a letter he wrote stating that in the event of his death his assets were to be apportioned 80% to H. 

• Errors in some of his Honours preliminary findings did not negate the ultimate conclusions reached.

• It was therefore open to his Honour to include the above interests that were found to be held by or beneficially for H at the time of the trial in the asset pool.

• His Honour however erred in including shares held by Mr C in L Ltd in the asset pool.  W expressly withdrew her allegation that Mr C held a beneficial interest in L Ltd for H, and her counsel made no attempt to reverse or ameliorate this concession.  The grounds of inadequate reasons and finding contrary to evidence or without evidence were made out in relation to L Ltd.

Valuation issues

• It was open to his Honour to prefer the evidence of one expert witness over another.

• H’s shareholding in M Ltd (a primary production company based in Country N) was valued erroneously.  An appellate tribunal may correct erroneous inferences drawn by a trial judge who had no relevant advantage over the appellate tribunal (Warren v Coombes).  Taking the spoiling of product into consideration and the principle that a trial Judge is not restricted to accepting one valuation over another (McGregor), the Full Court devalued M Ltd shares by 25%.  It was then necessary to devalue interests in other entities in the asset pool that held shares in M Ltd.

• Having determined that certain tax losses would never be offset against gains, it was open to his Honour to state that they should be excluded from the asset pool but incorrect to ultimately include them.  The asset pool should be reduced accordingly by a further $728,000.

• It was open to his Honour to not devalue B Ltd shares for a claimed lack of marketability.

• Tax penalties should have been treated the same as any contingent tax and interest thereon as a liability of both parties, rather than only H being liable.

Evidence

• It was proper to admit into evidence a letter that H admitted drafting, even though its signatory denied knowledge of it.

H’s credit

• In his concluding remarks the trial Judge made comments to the effect that he would focus on evidence suggesting that transactions were conducted through Mr C for H’s benefit.  This would not lead an informed but disinterested bystander to conclude that his Honour prejudged the issues before him.  It instead suggested that his Honour considered but did not discuss fully the side issues in the case.

• It was open to his Honour to make findings against H’s credit.

The effect of the trial Judge’s orders

• W would benefit from the proceeds of any tax avoidance by H, so his Honour’s discretion miscarried in failing to provide that W share the liability for tax, interest and penalties owing to the ATO (currently c$8m).

• His Honour did not err in acting in favour of W by imposing a floating charge to secure W’s entitlements, notwithstanding H’s assertion that he did not have an interest in assets that were secured.

Bias

• Errors by his Honour did not give rise to a reasonable apprehension of bias, being immaterial (De Winter) in the context of the complexities of the case and the overall conclusions reached.

• The reasonable observer described in Vakauta v Kelly, Livesey v NSW Bar Association, Laws v Australian Broadcasting Tribunal and The Queen v Watson would not have apprehended that the trial Judge was biased from a particular statement made by his Honour during the trial.  It was unfortunate that the trial Judge said he would look “principally” to witnesses other than the parties to determine the truth, but he clarified the comments satisfactorily with reference to earlier non-controversial statements.

Cross-appeal

• The cross-appeal was dismissed.  It was appropriate to discount the value of shares held in B Ltd to take into account the risk that B Ltd may lose its tax exemptions under the Pooled Development Funds Act 1992 (Cth) because of non-compliance with the requirements of that legislation.

The reexercise of discretion

• The Full Court determined that it was in a position to re-exercise the trial Judge’s discretion, and made orders removing the shares owned by L Ltd from the pool, revaluing the shares in B Ltd to take into account the revaluation of B Ltd’s interest in M Ltd, and removing the tax losses from the pool. 

• These alterations had the effect of reducing the pool by $4,758,924 to c$25m. 

• W’s 40% share of the total pool was therefore reduced by $1,935,969, to c$10m.

Appeal allowed in part.
Cross-appeal dismissed
Costs submissions to be received
Reportable on bias issue only

INDEX

1. Introduction

2. Background

3. Orders appealed from      

4. Orders sought        

5. Notice of Appeal    

6. The Cross Appeal 

7. The Appeal Proceedings 

8. Relevant Principles          

9. Structure of this Judgment          

10. D Foundation         

    .7The issue of the treatment of the evidence of Mr O

    .8The issue of the finding that Mr C had failed to respond to the wife’s allegations concerning the Foundation   

    .9The issue of the ultimate finding that the Foundation is          controlled by the husband     

    .10  The evidence of Mr O         
               .11  The letter of the husband to Mr P
               .12  The non-appearance of Mr Q       
               .13  The departure of Mr C        

11. Mr F and his shareholding in B Ltd        

12. Region G    

13. J Ltd 

14. L Ltd 

15. K Corporation        

16. Mr C 
               .4  The CM Lawyers Complaint         
               .5  A commission man 
               .6  Absence from the Board of B Ltd 
               .7  80:20 

1. Valuations  
              .5  Valuers         
              .7  M Ltd 
              .8  B Ltd and a loss of PDF status     
              .9  R Pty Ltd tax losses
              .10  Marketability 

2. Evidence    

3. The Husband's Credit      

4. The Effect of the Trial Judge’s Orders   
              .3  Tax Penalties          

5. Charge on S Investments Pty Ltd           

6. Bias 

7. Summary of Conclusions
              .1  The cross appeal    
              .2  Costs 
              .3  Remittance or re-exercise of discretion  

8. Orders         

1. INTRODUCTION

1.1      This is an appeal from orders made by The primary judge in financial proceedings between the parties.  His Honour delivered a 380 page judgment following a trial that occupied 66 sitting days.  His Honour found an asset pool valued at nearly $30 million and decided that the wife should receive 40% of that pool.  That asset pool  consisted of assets held by the husband and/or the wife in Australia (c$15 million) and assets held offshore by sundry persons and entities (c$15million) that his Honour concluded were beneficially held for the husband.

1.2      The husband has appealed the trial decision and the wife has cross-appealed.

1.3      A special sitting of the Court was arranged for this appeal.  Holden J gave extensive directions as to procedural matters associated with the appeal and determined that 10 sitting days should be allocated for the appeal hearing.  Notwithstanding the intricate nature of counsels’ arguments and the complexity of the factual content of the appeal, they disciplined themselves to this time limit.

1.4      Due to the sheer volume of the material to be relied upon at the appeal, and extensive challenges to the trial Judge’s factual findings, it was determined that all documentation be transformed into electronically accessible data. 

1.5      We record with gratitude the assistance of the Supreme Court of Western Australia in facilitating the conduct of this appeal.  Through the good graces of the Chief Justice of Western Australia, we were provided with the assistance of his Court’s information technology expert and were accommodated in a specially fitted courtroom for the hearing.  As a result an essentially difficult and time consuming appeal hearing was made immeasurably less arduous.

1. BACKGROUND

2.1      The following background information is not in dispute and provides a sketch that introduces key entities and people considered within the appeal.

2.2      Each party had been married before and each had children of the earlier marriage.  The husband was born in 1939 and the wife was born in 1938.  Both parties have travelled extensively but have lived for the most part in Australia. 

2.3      The husband is a professional, having obtained a Degree from T University in 1961.  From 1964 until 1974 he was employed by U Pty Ltd.  The wife’s secondary education terminated at year 10 and she obtained administrative qualifications in 1955.  It would appear that she worked for a fairly substantial period during her first marriage.  She began work for U Pty Ltd in 1970 and worked with the husband shortly thereafter.  An intimate relationship began between them a short while after their meeting.

2.4      The parties began living together on a permanent basis in 1974.  They married on in 1979 and lived together until April 1994 when the husband left the former matrimonial home.  The husband applied to dissolve the parties’ marriage and a decree nisi became absolute in mid-1996.  The husband has since remarried.

2.5      Prior to the commencement of cohabitation the husband had set up the  Johnson Family Trust.  Its purpose was to hold family assets and to split income between family members.  The primary beneficiaries were the husband’s two children and himself, with his first wife as an additional beneficiary.  He was the first trustee and his first wife and he were joint guardians and appointors.  Except through the husband, the wife was not in a position to benefit from the Johnson Family Trust.

2.6      The husband subsequently had himself replaced as trustee by W Pty Ltd, which later became X Pty Ltd. 

2.7      In 1974 both parties left U Pty Ltd.  The husband set up a company named Y Pty Ltd.  The wife worked with the husband.

2.8      In 1975 the husband established Z Pty Ltd, which became X Holdings Pty Ltd and finally AA Pty Ltd.  It was the trustee of a trust through which a good deal of business was transacted. 

2.9      In late 1976 the wife was introduced to Mr C.  She said that the husband told her that he had known Mr C since about 1972.  Mr C featured in a significant way both at trial and in the appeal.

2.10     In 1980 the Johnson enterprises were consolidated into a company then known as BB Ltd.  Selected assets of the Johnson family enterprises were sold to BB Ltd.  BB Ltd then changed its name to X Holdings Ltd which became a publicly listed company.  The husband was Chairman and Chief Executive. 

2.11     According to the husband, the Family Trust received a total of $8m from the sale of assets to X Holdings Ltd, comprising $7m in shares and $1m in cash.

2.12     In 1980 the Johnson Family Trust was wound up and, a new trust, called the Johnson Trust was established with Z Pty Ltd, which later became AA Pty Ltd, as the trustee.  AA Pty Ltd and the Trust were wound up in 1994.  AA Pty Ltd became the main investment vehicle of the Johnson family.  Through AA Pty Ltd, the parties held a 43% interest in the X Group of companies, through the Trust’s shareholding in X Holdings Ltd.  X Holdings Ltd had a number of subsidiaries with investments in several primary and commercial sectors.  It collapsed, however, in 1990, with a receiver being appointed late in that year. 

2.13     A prominent subsidiary of X Holdings Ltd was DD Holding Ltd in which X Holdings Ltd held a 49% interest.  DD Holding Ltd was prominent in commercial industry. The acquisition of X Holdings Ltd holding in DD Holding Ltd came about by DD Holding Ltd acquiring X Holdings Ltd’s commercial subsidiary for $9m, and X Holdings Ltd receiving in return a placement of shares in DD Holdings Ltd.

2.14     From 1982 to 1990 the parties were largely based in Sydney.  They also spent considerable amounts of time in the United States, Australia and the United Kingdom.

2.15     An issue at trial and on appeal concerned X Holdings Ltd’s subsidiaries and X Holdings Ltd’s interest in EE Company and its associate FF Trust.

2.16     During 1986 and 1987 a boat was constructed for the parties. Construction began in the United Kingdom and ceased when the company building the boat failed.  AA Pty Ltd, on behalf of the Family Trust, then acquired all the shares in an Australian company known as GG Pty Ltd (later renamed HH Pty Ltd) which owned the semi-completed hull of a boat.  This vessel was completed by JJ Pty Ltd and became known as the "[…]".  The financing of its construction was a significant matter at trial and the appeal.

2.17     In 1986 X Holdings Ltd acquired 50% of KK Company , a United Kingdom based commercial company.  According to the husband, the cost to X Holdings Ltd was approximately $70m.  KK Company had approximately $150m invested in four or five high quality commercial buildings in cities in the United Kingdom and Europe, numerous holdings in small scale retail properties in the United Kingdom and some investments in a property development company and property joint ventures in the United States.  The husband’s plan was to gain control of KK Company, sell the retail properties and the US investments, and then sell X Holdings Ltd’s Sydney properties to KK Company, which would cover the cost of the bid.  The acquisition of KK Company by X Holdings Ltd was as a result of an on market bid, and X Holdings Ltd therefore had no access to the books and records of KK Company, other than its published annual reports.  The husband had Mr C appointed as a Director of KK Company.  It turned out that KK Company had given guarantees on loans over highly leveraged properties.  With a drop in property values it became apparent that the loans that had been guaranteed by KK Company were in excess of the values of the properties, and the guarantees as contingent liabilities were not disclosed in the company’s accounts or by the Chairman or other Directors of KK Company during the negotiations leading to the bid. 

2.18     The company from which X Holdings Ltd had acquired the interest in KK Company went into liquidation and X Holdings Ltd was unable to recover damages caused by the non-disclosures.  X Holdings Ltd had made large borrowings in order to fund the KK Company bid.  The recovery by banks from X Holdings Ltd of the moneys borrowed led to the ultimate demise of X Holdings Ltd and companies associated with it.  This, however, did not occur until 1990. 

2.19     In the meantime, whilst the boat was being built, the parties acquired land in LL Street, Suburb MM, Sydney for $3.8m to $4m, and a house was constructed there.  The house took nearly three years to build and cost $7.2m.  With the demise of X Holdings Ltd, the house had to be sold, and was sold in 1990 for $11.3m. 

2.20     In 1989 the X Group started to fall into decline.  Mr NN, the Manager of X Holdings Ltd advised the husband to buy more shares in X Holdings Ltd to keep the price up and he followed this advice.

2.21     In 1990 the wife met a number of people who were involved in the affairs of the husband and of Mr C.  The husband took the wife to City OO in Country PP and she was there introduced to a Mr QQ, a Mr Q and a Ms RR.  Mr QQ and Mr Q were partners in a firm, and Ms RR was the secretary.

2.22     There was a Country E Foundation known as the D Foundation, which started its existence under another name.  The husband’s control of or interest in this corporate entity was another significant matter of dispute at trial and at the appeal.

2.23     With the collapse of the X Group and the financial problems of the trust controlled by AA Pty Ltd, the husband set up a new trust in early 1990 named the SS Trust, and later renamed the TT Trust .  Its trustee was originally UU Pty Ltd, which was replaced by VV Pty Ltd.  VV Pty Ltd was renamed TT Ltd.  The husband asserted that TT Trust was formed to act as the vehicle for a new era of business activity based on his relationship with Mr WW.

2.24     R Pty Ltd was incorporated in  1990, with the husband and wife each holding 50% of the shares therein.  This company acquired land at Suburb XX in Perth.  The parties built a substantial house on the land.  It became the home of the parties and was occupied by them at the time of separation.  The wife was residing in that house at the date of hearing.

2.25     In 1993 share transactions in a company known as YY Company, in which the husband held a substantial interest through various entities, were the subject of an investigation by the Australian Securities Commission. 

2.26     A number of other entities in existence included TT Investments Inc, which was incorporated in Country ZZ, and BA Ltd, incorporated in Country BC.  Both of these entities were administered by Mr QQ and Mr Q.  TT Investments Inc began life as BD Inc, became BE Holdings Inc in  1993 and finally BF Inc  in  1995. 

2.27     Also of significance in this case were companies named BG Company, M Ltd and L Ltd. 

2.28     In 1994, the husband set up a company called BH Holdings Ltd in Country BK.  A few days later the company changed its name to BH Ltd.  The husband had, in early 1994, incorporated in Australia a company named BH Holdings Pty Ltd.  This company subsequently had its name changed to S Investments Pty Ltd Pty Ltd, and is the trustee for the trust that appears now to hold most of the husband’s assets, namely the S Investment Trust.

2.29     Around this time, an employee, Mr BL, drew to the attention of the husband a new concept created by the Commonwealth Parliament in 1992.  The Pooled Development Funds Act, provided for an arrangement under which companies and their shareholders could qualify for certain income tax concessions.  The object was to encourage the provision of “patient equity capital to small or medium sized Australian companies whose primary activities were not excluded” by the Act or the Registration Board that was set up to administer the Act.

2.30     A company that obtains registration under the Pooled Development Funds Act is, in the Act, referred to as a PDF.  It is required to invest its funds in ordinary shares in companies, each of which is referred to as “the investee company”, or alternatively, some other kind of shares that the Board set up under the Act approves.  There are limits on how much of a PDF’s funds can be invested in any investee company.  Further, there are limits on shareholdings in a PDF.  Unless the Registration Board otherwise approves, no-one can hold more than 30% of the issued shares in a PDF.  That 30% includes shares held by associates, and there is a definition of associate.  There is a timetable for the investment of funds, and there are prohibitions on borrowing.  However, a PDF is not prohibited “from making a permitted short term borrowing”.

2.31     In late 1994 the husband began putting together a proposal for a PDF to be called B Ltd.  This company was incorporated in early 1995.  A draft prospectus for the company was prepared and typed by the wife, notwithstanding that she and the husband had separated.  In the meantime, the husband's main investment vehicle S Investment Trust had lent to the Country BK company BH Ltd substantial funds, and as part of the establishment of B Ltd, these loans were repaid and the amount repaid was invested by S Investments Pty Ltd in B Ltd.  BH Ltd and the Country ZZ company BF Inc had a number of assets that were sold into B Ltd. 

2.32     The husband is currently the Chief Executive of B Ltd on a salary of $250,000 per annum, paid through a company, BM Pty Ltd, controlled by his present wife.

1. ORDERS APPEALED FROM

3.1      The formal order pronounced the 17^th July 1998 was: 

"That orders are hereby pronounced in accordance with the terms of the Updated Revised Amended Minute of Orders Sought by the wife dated the 17th day of July 1998 and initialled by the The primary judge, a sealed copy of which is attached hereto, with the inclusion of a further order numbered 24A as follows

24A   The wife be restrained and an injunction is hereby granted restraining her from buying, selling or otherwise dealing with shares in [B Ltd] and [M Ltd] save for the purpose of enforcing the terms of these orders."

3.2      The minute prepared by the wife's solicitors and amended by the trial judge is a 182 page document (20 pages of orders plus 162 pages of attachments).  The orders give effect to the 60:40 division of the asset pool established by the trial Judge, provide for security of performance by various means and make provision for sharing contingent liabilities such as income tax.  Order 11 required payment to the wife of the sum of $7,440,087 by instalments.  Order 11A set out the instalments as follows:    

“The husband and/or [S Investments Pty Ltd Pty Ltd] and/or [S Investment Trust] do pay or cause to be paid to the wife or her nominee the capital sum on the following terms:

(a)      $2,000,000 on or before 31 August, 1998;

(b)      $1,000,000 on or before 18 February 1999;

(c)       $1,000,000 on or before 18 February 2000;

(d)      $1,000,000 on or before 18 February 2001;

(e)      $1,000,000 on or before 18 February 2002;

(f)       $1,000,000 on or before 18 February 2003;

(g)      $440,087 on or before 18 February 2004;

(h)interest to be paid on the capital sum at the rate of 6% per annum, such interest accruing from the date of the making of these orders and such interest being payable by annual instalments due on 18 February each year, commencing in 1999, until the capital sum is paid in full.”

3.3      In addition the wife was to take R Pty Ltd ($3,407,778), BN Investments Pty Ltd ($330,500) and retain personal assets ($249,625).

1. ORDERS SOUGHT

4.1      The Husband’s Amended Notice of Appeal sought the following orders:

“1.       That the orders of the primary judge be discharged.

2.That the matter be sent for retrial before a judge other than the primary judge.

In the alternative that

3.       The wife retain the following assets :

(a)      The net proceeds of the sale of the apartment at [BO Street].

(b)The proceeds of land sales at [Suburb XX] received by the wife in [late]1995.

(c)The sale proceeds of the [Motor Vehicle 1] retained by her at separation and [Motor Vehicle 2] and the jewellery in her possession.

(d)      Her superannuation entitlement.

4.Within 60 days of order the husband pay to the wife the sum of $883,000.00.

5.In the event that the wife seeks to have chattel items from [Suburb XX] additional to those referred to in order 1, the wife be at liberty to select and retain items of her choice at values as already determined by [Mr BP] with the value of such items to be deducted from the amount otherwise payable pursuant to order 2. 

6.Any election by the wife to retain any chattel items from [Suburb XX] be made by her in writing and notified to the husband's solicitors within 21 days of order.

7.The balance of the assets vest in the husband absolutely and the wife do all such things necessary and execute all such documents as may be required to give effect to this order.

8.The wife forthwith resign as officer holder of [R Holdings Pty Ltd] and [S Investments Pty Ltd Pty Ltd] and any of its subsidiaries.

9.The husband indemnify the wife against all liability of whatever nature arising in connection with [R Holdings Pty Ltd], [S Investments Pty Ltd Pty Ltd] and the [S Investment Trust].”

1. NOTICE OF APPEAL

5.1      The grounds sought to be relied upon in the amended Notice of Appeal occupied some 33 pages.  They can be conveniently summarised as falling under 8 headings:

1.        Insufficient reasons

2.        Bias

3.        Evidence wrongly admitted

4.        Wrong findings or findings made on insufficient evidence

5.        Errors in the asset pool

6.        Wrong credit findings

7.        Contribution

8.Form and effect of orders

5.2      In the course of his oral submissions, we canvassed with Mr Udorovic whether this Court could re-exercise the trial Judge's discretion if the appeal was upheld or whether it would be necessary to remit the matter for retrial.  He submitted that a retrial would be necessary because this Court could not rely upon the findings of credit and the findings of fact made by the trial Judge.  Further, he said it would be necessary to reassess the competing valuation evidence in light of circumstances that had arisen since the making of the orders.  

1. THE CROSS APPEAL

6.1      The cross-appeal concerned itself with the valuation of the shares held in B Ltd.  The trial Judge found that B Ltd did not comply with the provisions of the Pooled Development Fund Act and would lose its PDF status.  This loss of status would reduce the value of its shares.  The wife sought to argue via the cross-appeal that no such reduction should have been allowed and that the pool of assets should be increased by approximately $4.5 million.

1. THE APPEAL PROCEEDINGS

7.1      It is convenient to record some procedural matters which were canvassed on the first day of the appeal hearing.

7.2      A significant consideration was the limited time of ten sitting days which had been set aside for the hearing of the appeal.  Counsel were advised that the Court was insistent that, save for any unexpected events, the appeal was to be concluded within the allocated period.

7.3      At the commencement of the hearing of the appeal, we also drew attention to grounds of appeal, which appeared to us to lack a corresponding argument in the Amended Summary of Argument document filed on behalf of the appellant.  As the pre-hearing directions made by Holden J had provided that such a circumstance would result in such grounds of appeal being deemed abandoned, we provided the appellant with an opportunity to consider these matters before the commencement of the second day of hearing.  On the second day of the appeal hearing Mr Udorovic advised that grounds of appeal III.A.2 to III.A.6 inclusive were abandoned.

7.4      The extensive range and detail of the grounds of appeal contained in the appellant’s notice also required the Court to emphasise to counsel that it was required of them to clearly identify which grounds they were addressing in their oral argument each time that submissions were being made.  In doing so, we did not prevent a number of grounds being the subject of a common argument.  However from a logistical perspective, it was essential in our view that the link between arguments and the grounds of appeal targeted be explicit for both the benefit of the bench and for the respondent’s counsel. 

7.5      It was also made clear that if Mr Udorovic did not address or specifically refer to a particular ground, such ground would be deemed to be abandoned.  The appeal proceeded on that basis with the agreement of counsel.  No arguments were advanced in respect of various grounds including the whole issue of contribution (Ground VII ) which we have treated as having been abandoned.

7.6      Mr Udorovic assisted the bench as requested and proceeded to argue his client’s case under the following headings which we have used in this judgment:

• BIAS

• D FOUNDATION

• MR F AND HIS SHAREHOLDING IN B LTD

• REGION G

• J LTD

• L LTD

• K CORPORATION  - BG Company/AA Pty Ltd loan – CH Company/AA Pty Ltd loan

• MR C

• VALUATIONS

• CREDIT

• THE EFFECT OF THE TRIAL JUDGE’S ORDERS

7.7      On the second day following the luncheon adjournment, Mr Kirk SC for the respondent addressed us in respect of the trial Judge’s decision as to costs.  He advised that an appeal was foreshadowed.  A stay on the costs orders was operative until 4:00pm on the first sitting day of this appeal but it had been agreed between the parties that such stay would continue pending the outcome of the substantive appeal.

7.8      With the agreement of the appellant, it was submitted that the Court as presently constituted should determine the costs appeal once this Court has delivered its judgment.  To this end, it was proposed that the Court in its orders should make directions as to the filing of written submissions concerning the costs appeal.  We indicated that such a course would be satisfactory subject however to the filing of a Notice of Appeal and information as to the preparation of Appeal Books for the costs appeal.

7.9      The final procedural matter that we canvassed was the grounds of appeal concerning bias on the part of the trial Judge.  Mr Udorovic QC for the appellant clarified that the attack concerned an apprehension of bias rather than a claim of actual bias.  He explained that the appellant was submitting that the trial Judge erred in law when he failed to disqualify himself in circumstances where his statements indicated prejudgment and gave rise to perceived bias.

7.10     The Court was obviously concerned with the procedural consequences of finding in favour of the appellant on that ground.  In such circumstances, it would be inappropriate for all the appellant’s complaints to be ventilated before us.  The only proper course of action consequent to such a finding would be to remit the matter for retrial before a different primary Judge.  Pursuit of the appeal in full would be uneconomical for the parties and for the Court. 

7.11     To this end, Mr Udorovic was asked whether the issue of bias could be dealt with at the outset of his substantive arguments as a discrete issue.  He was reticent about the suggestion.  He emphasised to us that issues of perceived bias permeated other grounds that he would be arguing and that to appreciate the argument as to perceived bias, it was necessary for him to explain how other alleged errors on the part of the trial Judge were cumulatively relevant to the perceived bias argument.

7.12     In the result, the perceived bias ground was argued first after we made it plain that Mr Udorovic was not being asked to make an election and we heard an opening address from him in which he gave examples of a number of matters associated with the trial Judge’s view of the husband’s credit, examples which, in his submission, illustrated adverse consequences of his Honour’s alleged attitude in respect of the parties’ personal evidence.

7.13     Having heard the appeal we consider that arguments going to the question of apprehended bias should be considered last in these reasons.  Before turning to the other areas of argument, it is convenient to reiterate the principles that govern this appeal.

1. RELEVANT PRINCIPLES

8.1      It must be stressed at the outset that the task of this Court in an appeal from a discretionary judgment is a circumscribed one governed by the well known principles of House v The King (1936) 55 CLR 499. It is particularly important in this appeal, where issues of credit, findings of fact and inferences which may be drawn, are all grounds of appeal, to reiterate the principle that an appellate court is not to be moved to overturn a judgment at first instance merely because it would or might have reached different conclusions on the evidence which was before the trial Judge. An appeal is not a retrial. The hurdle faced by an appellant in these circumstances is therefore a high one.

8.2      We have had this consideration at the forefront of our deliberations and we made mention of it a number of times during the course of the appeal hearing.

8.3      Where issues of credit, material findings or inferences drawn from the evidence by the trial Judge are under attack, our task is to determine whether the conclusions reached were open to his Honour given the evidence before him.  If we conclude that the trial Judge erred, a further step is then required to determine whether any such errors were material to the reasoning adopted by his Honour.  The mere fact that we may find there have been erroneous findings made by the trial Judge does not lead to the appeal being successful.  We are required to take the view that any such errors vitiate his Honour’s ultimate conclusions to the extent that the orders he made cannot stand.

8.4      As Gibbs J (as he then was) said in De Winter v De Winter (1979) FLC 90-605; 4 Fam LR 583; 23 ALR 211, at FLC 78,092:

“The question is whether the invalid reason has influenced the ultimate conclusion, or whether the error was immaterial; if the error did affect the conclusion, the result may nevertheless be so plainly right that it can be allowed to stand, notwithstanding the unsoundness of some of its foundations.”

8.5      The role of an appellate court where findings of credit are particularly in issue has been discussed on numerous occasions by the High Court, most recently in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 73 ALJR 306. That case illustrated an appropriate circumstance in which an appellate court may conclude that, in light of other evidence, a primary judge had too fragile a base to support a negative finding as to a witness’s credit having regard to other documentary evidence.

8.6      Earlier decisions, some of which were reviewed with a critical eye by Kirby J in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (supra) remain authoritative. 

8.7      In Abalos v Australian Postal Commission (1988) 171 CLR 167 at 178 McHugh J, with whom Mason CJ, Deane, Dawson and Gaudron JJ all agreed, cited with approval the judgment of Lord Sumner in SS Hontestroom v SS Sagaporack [1927] AC 37 at 47 where his Lordship said:

“…not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and unless it can be shown that he (sic) has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man (sic) forms any substantial part of his reasons for his judgment the trial judge’s conclusions of fact, as I understand the decisions, [should] be let alone.” 

McHugh J then said:

“Consequently where a trial judge has made a finding of fact contrary to the evidence of a witness but has made no reference to that evidence, an appellate court cannot act on that evidence to reverse the finding unless it is satisfied ‘that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge’s conclusion’ : see Watt or Thomas v Thomas [(1947) AC 484 at 488].”

8.8      In Devries v Australian National Railways Commission (1992-93) 177 CLR 472 at 479 Brennan, Gaudron and McHugh JJ expressed the principle as follows:

“More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact. [See Brunskill (1985) 59 ALJR 842; 62 ALR 53; Jones v Hyde (1989) 63 ALJR 349; 85 ALR 23, Abalos v Australian Postal Commission (1990) 171 CLR 167] If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge ‘has failed to use or has palpably misused his advantage’ [SS Hontestroom v SS Sagaporack [1927] AC 37 at 47] or has acted on evidence which was ‘inconsistent with facts incontrovertibly established by the evidence’ or which was ’glaringly improbable’. [Brunskill (supra)]”

1. STRUCTURE OF THIS JUDGMENT

9.1      The specific grounds referred to by Mr Udorovic before us for each heading are recited at the commencement of each section of this judgment dealing with each heading.  Even though it will be evident that some are repetitive of other grounds we have referred to all that were nominated by counsel for the appellant for the sake of completeness.

9.2      Depending on the nature of the arguments to this Court and our conclusions concerning them, it will be seen that under some headings, we deal with specific grounds seriatim whereas in others we deal with a number of grounds collectively even though we have considered the matters individually before doing so.  This is because counsel for the appellant made it clear that some grounds were component findings on the reasoning pathway to the material and decisive findings in dispute.

9.3      It will be seen that a frequent basis of challenge to his Honour’s decision concerned the failure to give reasons or the failure to give adequate reasons for findings (see Amended Notice of Appeal grounds 1A to 1L inclusive).  We think it convenient at the outset to identify the authorities we have borne in mind when considering arguments on this basis.

9.4      As to whether or not adequate reasons have been given we accept, as did Fogarty, Lindenmayer and O'Ryan JJ in  A and J (1995) FLC 92-619; 19 Fam LR at FLC 82,232 that the test is that identified by the Full Court In the Marriage of Robbins and Deer (unreported, 29 November 1994) where Fogarty, Kay and Tolcon JJ said at 8:

“That does not mean that the trial judge must deal specifically with every argument that may or could have been raised by the party who has been unsuccessful and relate it in detail. What is required is for the appellate tribunal and the parties ‘to follow the trial judge’s line of reasoning’, to be able to ‘ascertain the reasoning upon which (the) decision was based’. See also Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247.”

9.5      At FLC 82,233 of A and J (supra), their Honours said:

“It may be that from reading the reasons as a whole the basis of the reasoning can be clearly inferred and although there is a limit to which an appeal court will read the reasons for judgment liberally, the grounds for the finding of an ultimate fact may be revealed notwithstanding that the reasoning in support of the ultimate finding is not detailed.

In Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd, [[1983] 3 NSWLR 378] at 385–386, Mahoney JA said, referring to the duty of a judge to state reasons:

‘However, such a duty does not exist in respect of every matter, of fact or of law, which was or might have been raised in the proceeding. It is not the duty of the judge to decide every matter which is raised in argument. He (sic) may decide a case in a way which does not require the determination of a particular submission: in such a case he may put it aside or as Lord Scarman said, merely salute it in passing.’”

9.6      In Bennett and Bennett (1991) FLC 92-191 the Full Court of this Court dealt extensively with all the authorities on the topic and approved the test propounded by Gray J in Sun Alliance Insurance Limited v Massoud [1989] VR 8 as being a particularly useful one and one which has particular application to discretionary judgments. In that case, Gray J, with whom Fullagar and Tadgell JJ agreed, said at 18:

"The adequacy of the reasons will depend upon the circumstances of the case. But the reasons will, in my opinion, be inadequate if:-

(a)the appeal court is unable to ascertain the reasoning upon which the decision is based; or

(b)      justice is not seen to have been done.”

1. D FOUNDATION

10.1     The ultimate finding under attack was that this overseas corporate entity was, in reality, controlled by the husband notwithstanding that it was apparently owned by Mr C.  The wife asserted that the significance of the D Foundation was that it demonstrated that the husband had a long history of dealings using Mr C and/or entities apparently controlled by Mr C as his vehicle for holding assets off-shore.  She asserted that pre-1992 there were several major dealings that saw the D Foundation make large profits as a result of the husband soliciting the co-operation of Mr C in some off-shore developments.

10.2     The wife asserted, and the trial Judge accepted, that the husband informed her of making such profits and of using them to acquire the boat.  It was common ground that the husband informed the wife of his utilising the services of Messers QQ and Q to organise some of his affairs.  She deposed that the husband told her of the need to create a Foundation in Europe and sought her assistance in giving it a name.  She chose D Foundation because it reminded her of a house she had admired.

10.3     His Honour said (at 138):

“I am satisfied that at the relevant times the husband controlled the Foundation.”  

10.4     His Honour further concluded (at 368) :

“I do not accept that the [D Foundation] was [Mr C’s] foundation.  The evidence of [Mr O], the letter of the husband to [Mr P] of the 11 February 1992, the non attendance of [Mr Q] and the departure of [Mr C], both of whom could have put a different light, if that was possible, on the evidence that indicated the husband’s control of the foundation.”

10.5     Mr Udorovic informed us that argument under this heading would address the following grounds in the Amended Notice of Appeal:

“I (Inadequate reasons)

I.A.1The witness [Mr O] had changed his beliefs in relation to the ownership of [the D Foundation] (J123).

I.A.2[Mr O] changed his testimony only after speaking to the husband immediately prior to the hearing (J123).

I.A.3There was a very close association between the husband and [Mr O] (J124).

I.A.4[Mr C] had failed to respond to the wife's allegations in relation to [the D Foundation] (J116).

I.A.7The value of the evidence of the witness [Mr O] given in court should be discounted (J124) and preference given to the proof of evidence signed prior to the hearing.

I.A.8That [D Foundation] was controlled by the husband at all relevant times (J123, J126, J129 and J138, J368).

II (Bias)

He continued to hear the proceedings and deliver a decision giving rise to a reasonable apprehension of bias by:

II.B.5Finding that the witness [Mr O] had changed his testimony only after speaking to the husband immediately prior to the hearing (J123).

IV. (Finding contrary to evidence or without foundation)

IV.A.5.a)That [Mr C] had failed to respond to the wife's allegations in relation to [the D Foundation] (J116).

IV.A.5.b)That [D Foundation] must have been controlled by the husband (J123, J126, J129 and J138).

IV.A.5.c)That there was a very close association between the husband and [Mr O] (J124).

IV.A.5.f)That [D Foundation] at all relevant times was controlled by the husband (J368).

VI. (Credit)

VI.D.5The Learned Trial Judge erred in law when he discounted the value of the evidence given by the witness [Mr O] in cross-examination.

VI.D.6The Learned Trial Judge erred in law when preferring the contents of the proof of evidence signed by the witness prior to the hearing to his evidence given on oath (RJ page 124 para 3).

VI.D.8The Learned Judge erred in fact when he found that a very close association existed between the husband and [Mr O].

VI.D.9The Learned Trial Judge erred in fact when he found that the witness [Mr O] had changed his beliefs in relation to the ownership of [the D Foundation] as a result of being contacted by the husband prior to the hearing (J123).”

10.6     Mr Udorovic presented his arguments in the following three clusters:

• Grounds IA1, A2, A3, A7, IIB5, IV A5c, VI D5, VI D6, VID8 and 9: the issue of the treatment of the evidence of Mr O.

• Grounds IA4,  IVA5a: the issue of the finding that Mr C had failed to respond to the wife’s allegations concerning the Foundation.

• Grounds IA8, IVA5b, IVA5f: the issue of the ultimate finding that the Foundation is controlled by the husband.

We now turn to those clusters.

10.7     The issue of the treatment of the evidence of Mr O.

10.7.1   Mr O, now a resident of Country DI had signed a proof of evidence on behalf of the wife which he adopted (exhibit 11 – original is exhibit 12).  He had been, and despite contrary assertions of the husband, was found to be a close associate of the husband. 

10.7.2   In order to better understand the context of Mr O's evidence it is convenient to summarise Exhibit 11 (his proof of evidence).

• Mr and Mrs O have known the Johnson’s since the early 1980s when X Holdings Ltd was a public entity.  Mr O has known Mr QQ and Mr Q for 15 years and has used them in their professional capacity.  Mr Johnson was introduced to Mr QQ by Mr Q about 15 years ago.  They used Mr Q as a finance professional.

• In 1983-1984 Johnson and Mr O talked about the need for a Country E foundation.  Mr O contact Mr QQ who initiated the setting up of the D Foundation and the BQ Foundation.  He met with Johnson in City OO on two occasions to finalise the setting up of the foundations.  He had control of the BQ Foundation and could nominate its beneficiaries.  D Foundation and BQ Foundation are identical.  He did not think that anybody other than Johnson was involved in the setting up of the D Foundation. 

• He had extensive business dealings with Mr and Mrs Johnson until 1994.  “They always acted as one”. 

• In 1996 he was told by the husband that the marriage was over and that the husband would be in touch with him to refresh his memory about J Ltd. 

• In 1988 he was introduced to a deal by the husband.  He and his wife were directors of BR Pty Ltd .  The shareholders were AA Pty Ltd and X Resources Ltd.  As at  July 1989 BS Pty Ltd owned two fully paid up ordinary shares.  BS Pty Ltd was a Mr O entity.  Johnson and Mr O were the directors of J Ltd in 1989.  As at mid-1989 BR Pty Ltd owned 29.4 million fully paid ordinary shares (49% of the company). 

• In mid-1989 Mr QQ ("of [D Foundation]") gave one Mr BU a power of attorney to execute two versions of an agreement between BR Pty Ltd and Mr QQ and two versions of an agreement between BS Pty Ltd and Mr QQ.  The first agreement had BR Pty Ltd entering into an arrangement with BT Finance for $1.5million dollars and it granted to Mr QQ the right to purchase its J Ltd shareholding for $1.  If Mr QQ bought the shares it had to take over the debt or if the debt was non-existent it had to pay $14,850,000.  The option was valid until mid-1991.  In the second agreement, the purchase price was the amount owed to BT Finance plus $250,000. 

• In the agreement between BS Pty Ltd and Mr QQ, BS Pty Ltd granted Mr QQ the right to purchase its two shares in BR Pty Ltd for $1 and if the option was exercised Mr QQ took over any BT Finance debt, or if there was no BT Finance debt Mr QQ paid $2.  The second BS Pty Ltd agreement was in identical terms except that the price for exercising the option was $250,000 and the BT Finance debt and not just the BT Finance debt and $1.

• Mr O then said that after mid-1989 BS Pty Ltd entered into an agreement with X Resources Ltd and X Holdings Ltd for the sale of the BS Pty Ltd shares in BR Pty Ltd, and BS Pty Ltd surrendered its option in early 1990 in consideration of BS Pty Ltd directing X Resources Ltd to pay $5,850,000 to Mr QQ and assigning $250,000 to BV Pty Ltd.  The J Ltd shares were then sold to BW Trust.  The effect of all of that was that D Foundation via Mr QQ received $5.85 million for the expenditure of $1 and BV Pty Ltd (Mr O's company) received $250,000.

• Mr O said that he was very active in relation to this particular deal and he had dealings with Johnson about what was happening.  The $250,000 was received by his company for "services rendered by him to other entities involved and to [Mr] Johnson".  He assumed that the D Foundation belonged to Mr Johnson during the dealings.  He was aware that the dealings were happening whilst X Group was going into decline and there was a lot of activity to try to save assets, pay creditors, banks, and the others.  To the best of Mr O’s knowledge Mr C was “not involved in [D Foundation] nor is he involved in the [J Ltd] deal”.

10.7.3   After Mr O had given his evidence-in-chief, and in response to questions from his Honour, Mr O corrected his proof of evidence.  In his proof he had said that he and the husband went to Country PP together to form two offshore foundations.  One of these was his and the other, D Foundation, was the husband’s. 

10.7.4   The trial Judge found that Mr O had said that, after he had been sent documents by the wife’s solicitors, which showed that Mr C was the “mandator” of the D Foundation, he had made further enquiries of Mr C and Mr Q, and verified that he had been to Country PP with Mr C rather than the husband, and that the D Foundation was Mr C’s entity. 

10.7.5   At pages 118-120 of the Judgment his Honour records the following:

“The wife’s solicitors were in contact with [Mr O] prior to the hearing and obtained a proof of evidence from him.  That proof of evidence is exhibit 12.  Each page of the proof has been signed by [Mr O] and dated the 17th January 1997.  What [Mr O] said in his proof of evidence is of relevance and is, therefore, quoted in part.

‘[Mr O] of [Country DI]:

I was interviewed by Mrs […] Johnson’s solicitors on 27 December 1996.  I had never met, spoken to, or communicated with Mrs Johnson’s solicitors prior to this meeting.

I did not meet with or discuss with Mrs Johnson the issues set out in this Proof prior to my meeting with her solicitors.

…

My wife and I have known [Mr] Johnson and [Ms] Johnson since about the early 1980’s when [X] Holdings Ltd was a public entity.

We became very good friends, and business associates.

I have known [Mr QQ] for about 15 years.

He and [Mr Q] are the principals of a [Contry PP] […] firm called [QQ and Q] which is based in [City OO].

I have used [QQ and Q] as my [Country PP] [professionals] for about 15 years.

[Mr QQ] and his wife are good friends of mine and of my wife, and their daughter has travelled out to Australia to stay on my [property].

[Mr Johnson] and I were both introduced to [Mr QQ] by [Mr Q] about 15 years ago.

[Mr Q] was a finance professional that we used at the time and then became involved in [the firm].

Sometime around 1983/84 [Mr] Johnson and I had been talking about the need for a [Country E] Foundation, and how we could each benefit from owning such entities, because our businesses were becoming more and more international.  The reasons were purely practical.  It looked like it would be good for business to be offshore.

The attraction of [Country E] was its stability and convenience, and also, I had built relationships in [Country PP] in the [commercial sector].

On both our behalf I contacted [Mr QQ] who incorporates entities in [Country E] and initiated the setting up of two Foundations named [D Foundation] and [BQ Foundation].

The Foundations are similar to discretionary trusts.

[Mr] Johnson and I then met in [City OO] on about two occasions to finalise the setting up of the Foundations.

I used to control my trust to the extent that I did at the beginning decide who were to be the beneficiaries.

Both [BQ Foundation and D Foundation] were identical at the time they were set up.

I have never been a beneficiary of my trust and I do not now control my trust.

I have official trustees acting in respect of my trust.  This was at my request.  I did not want to be in control of my trust.

If I told my trustees what I wanted them to do in terms of the trust, I believe that they possibly would do what I wanted.

Similarly if I instructed them to change the beneficiaries I believe that they would possibly change the beneficiaries.

The trustees have been appointed so that in the event of my demise, life would go on.  They are legally empowered to have total control.

But similarly in the event of my demise, if I left them with written instructions as to what I wanted to happen with the trust and the assets of the trust, I believe that they would possibly follow those instructions.

[Mr] Johnson took [D Foundation] and I took [BQ Foundation].

No-one that I know of, other than [Mr] Johnson, myself and solicitors, both from [Country PP and Country E] were involved in the setting up of [D Foundation], and [BQ Foundation].

[D Foundation] was [Mr] Johnson’s and [Ms] Johnson’s entity.

There was never any mention of any third person being involved in [D Foundation] at any time.

…” (emphasis added)

10.7.6   At pages 121-123, the trial Judge said the following of Mr O’s viva voce evidence:

“In his evidence in chief at the hearing, [Mr O] indicated that he had known the husband since the early 1980s.  He said that they had a discussion relating to the setting up of entities or foundations.  When asked in what circumstances there was the discussion, he said on page 219 of the evidence of the 24th February:

‘Well, we were, in our business activities, principally in the [primary sector] business.  We were looking to go off-shore and do various activities off-shore.  We were looking for projects in [North America] and [Region DG], [Country DH] specifically, and we talked about the desirability of getting some off-shore entities.’

When further asked, he said:

‘When you say “we” who is that?---[Mr Johnson] and I.

Right, and did you discuss - - as a result of those discussions, what did you do about it?---Yes.  We - - this wasn’t an instant thing.  You know, it was embryonic and the result of that was that - - you know, we thought it would be a good idea so - - I can’t really remember whose idea it was, but you know, I went off and formed them and we had, I believe, agreed that that could be a desirable thing.  So I went off and formed a couple of entities.

Sorry, when you say - -?---Sorry, I didn’t form them.  I phone [Mr QQ] and asked him to do it.

Right.  Can you take me through the steps involved in forming them?  What did you do in terms of forming these entities?  Who did you contact?---My recall is that I phone [Mr QQ].

Yes?---I think then [Mr C] took me to meet [Mr P] in [Country E] and ultimately it happened, they were formed.

What was formed?---Well, two entities.

What were the names of these entities?---Oh, my recall is that one was [BQ Foundation] and one was [D Foundation].

Specifically, what were these entities as far as you were aware?---What?  Do you mean the type of entity?

MR WILSON:   Yes?---They’re a bit like a discretionary trust.

Right, and where were they formed?---[Country E].

Yes?---Sorry, they were formed through [City OO], but they actually reside in [Country E].

What were the names of the two trusts, sorry?

HIS HONOUR:   He has already told you that;  [BQ Foundation] and [D Foundation].

WITNESS:   [BQ Foundation and D Foundation].

MR WILSON:   And on what basis was it decided who would take which trust?---Well, there wasn’t any basis.  I just took [BQ Foundation].’”

The evidence further went on:

‘Sir, in the setting up of these two trusts was there anyone else involved apart from, as far as you’re aware, yourself and [Mr QQ]?---Well, [Mr Johnson] and I discussed them, but when they were formed I took [BQ Foundation] and I left the other one.  I didn’t do anything with it.  I didn’t take it.

Was there, in relation to the other one, any mention of any third person being involved in [D Foundation] at the time it was set up?---Well, only the discussions that I had with [Mr Johnson], but I don’t know what happened after that.’

He was asked on page 235, did he know who the [D Foundation] was in March of 1990.  He answered “no”.  I would be satisfied, however, that in March 1990 he firmly believed the [D Foundation] was the husband’s.  This is because in other evidence he made it perfectly clear that he was not aware that the [D Foundation] was not the husband’s until contact was made with him by the husband just prior to him giving his evidence.” (emphasis added)

10.7.7   In argument before us, Mr Udorovic directed our attention to the transcript of 24 February 1997 at page 238-240 which indicates that Mr O had received faxed documentation on the subject matter from the solicitors for the wife rather than the husband:

“- - sorry, I was faxed some documents that had [Mr C’s] signature as the mandator of [D Foundation] and previously I'd thought the Johnsons were [D Foundation] so - -

[HIS HONOUR] But what was your purpose? "I was faxed documents showing [Mr C] as the - -" where did they come from?---From the solicitors for Mrs Johnson.

Do you have that letter?---Not with me, your Honour.

HIS HONOUR: Go on?---Wait on. I may have, in my bag. Yes. Have a look. You're allowed to?---Yes. Here it is.

Can I see it, please? That's the - -?---What that caused me to do was to scratch my head and - -

Just as a matter of interest, they only gave you the cover and two other pages, did they?---Well, I think so. There were - -

It's just that these are pages 5, 6 and 7 of what was sent to you?---Yes, your Honour. There's - -

Can I have 1, 2, 3 and 4? Thank you. This of course is not the solicitor for the husband. This is the solicitor for the wife - - oh, that's right. Solicitor for Mrs Johnson, yes?---Yes, but - -

Just a minute?       that's got [Mr P’s] signature on it and [Mr P] is the solicitor that I went to [Country E] to see and I recognised [Mr C’s] signature there so that caused me to ring up - - start making some inquiries of [Mr Q] and it turns out that that's how he explained it. It wasn't him that I met many years ago ~-n the bank. It was his brother, on his recommendation, so I was confused about that. That led me to scratch my head because I'd - - in the initial discussions with [Mr Johnson], I'd had the impression that [Mr Johnson] had taken [D Foundation], but that made it look like that wasn't the case. I started thinking about it and maybe it was another trust that was set up called ‘[CE Corporation]’." (emphasis added)

10.7.8   Mr Udorovic also took us to the re-examination of Mr O on 25 February 1997 in respect of contact with the husband:

“MR WILSON: [Mr O], you mentioned yesterday that you had I think recently spoken with [Mr Q]; is that correct?---That's correct.

How recent was that?---It was - - wait on - -

HIS HONOUR: Today's Tuesday the 25th?---Yes. I miss a day coming downhill, your Honour. Sunday night, Perth time.

MR WILSON: Sunday night, Perth time?---Yeah. I'd come out of [North America] Friday night. Travelling down you use a day. I got in Sunday evening, so it would have been Sunday evening.

MR WILSON: You mentioned I think yesterday you spoke with [Mr C] as well; when was that?---It was the same evening.

Where was [Mr C]?---I tracked him down in [Europe].

And you spoke to Mr Johnson on Sunday night?---Yeah. No. Sunday afternoon.

Did he telephone you or did you telephone him?---He telephoned me and woke me up. And then he hung up and said, "Sorry," and I went back to sleep.

I have no further questions.” (emphasis added).

10.7.9   These passages were cited in support of the submission that there was no other contact made by the husband with Mr O and thus the finding of the husband’s alleged influence over this witness was insupportable.

10.7.10    Moreover, Mr Udorovic took us to the cross-examination of the wife on 25 February 1997 at page 316 which went to the question of whether the trial Judge was also incorrect because Mr O had indicated his changed recollection prior to speaking with the husband:

“HIS HONOUR: [Mr O] said until a couple of days ago he believed that [D Foundation] was the husband's company, and he'd been shown documents which he felt that he had to change his mind, but at least up until a couple of days ago, with all that had gone over the years, he believed it was the husband's.

MR UDOROVIC: Yes. And he agreed that he was mistaken. He was wrong.

WITNESS: [Mr O] spoke to me on Friday evening, very late. He had - -

MR UDOROVIC: He may well have?        changed his mind then.”

10.7.11    A further related submission by Mr Udorovic concerned the weight attached to Mr O’s answers in circumstances where Mr O was seen to respond to leading questions from Mr Udorovic.  At page 124 of the judgment, the trial Judge said:

“The cross-examination of [Mr O] begins on page 241.  The two foundations, BQ and D Foundation], were unquestionably set up around the same time, and until [Mr O] spoke to the husband a few days before the hearing, he believed that [D Foundation] was the husband’s foundation.  The wife believed that the [D Foundation] was the husband’s.  The questions that were put to [Mr O] by the husband’s counsel were, in many respects, leading questions.  Counsel for the husband, bearing in mind he was cross-examining [Mr O], was entitled to ask leading questions.  When one takes into account the very close association between the husband and [Mr O], the fact of [Mr O] giving required answers to leading questions took away a lot of the value, in my view, of the cross-examination.”

10.7.12    In response Mr Kirk SC conceded that the evidence did not justify his Honour finding that the husband had influenced Mr O to change his evidence.  He submitted however that other evidence of Mr O supported the finding that he thought he was dealing with the husband in the J Ltd deal even though the medium used was D Foundation.  Mr O said in his proof of evidence, which he adopted in the witness box as being accurate save for the variations above:   

"I was very active in relation to this particular deal and it was necessary for me to speak to [Mr] Johnson about what was happening.

I recall having to attend board meetings of [BW Trust] and  acting as a facilitator for the agreement, at a time when I was living in [the United Kingdom].

The payment of $250,000 was a payment for services rendered by me and my controlled entities to the other entities involved and [Mr] Johnson.

I am aware that [D Foundation] was an entity involved in the deal, and because of [Mr] Johnson's involvement I have always assumed  that at the time of the [J Ltd] deal [D Foundation] belonged to [Mr Johnson]."

10.7.13    We conclude, having regard to the evidence outlined, that the trial Judge was perfectly entitled to have characterised Mr O and the husband as “close associates”.   It may be the case as submitted to us by Mr. Udorovic, that the husband and Mr O were not close at the time of the trial but it is not that point in time which is pertinent to the transactions in question and thus it is immaterial in our view what the nature of their relationship was at the time of the trial.

10.7.14    We have however concluded that it was not open to the learned trial Judge to find that Mr O had “made it perfectly clear that he was not aware that the [D Foundation] was not the husband’s until contact was made with him by the husband just prior to him giving evidence.” (Judgment at 123).   We accept that the evidence indicates that Mr O had received documentation from the wife’s solicitors and that the difference between his proof of evidence and subsequent evidence was not due to contact with the husband.  

10.7.15    Even so, in our view, that error did not discount the balance of Mr O's evidence.  His recollection that the J Ltd deal involved the husband, remained unaltered.  Accordingly it was still open to the trial Judge to rely on Mr O as cementing the links otherwise established between the Husband and Mr C in a deal which left D Foundation making a lot of profit for little effort or risk.

10.8     The finding that Mr C had failed to respond to the wife's allegations concerning the Foundation.

10.8.1   The Learned Trial Judge found (at page 116 of the Judgment) that Mr C had failed to respond to the wife's allegations in relation to D Foundation:

“Strangely, however, in the affidavit of [Mr C] that was filed on the 24th January 1997, and which was sworn by him in [Country CQ] on the 21st January 1997, he makes no mention whatsoever of the wife’s allegations about the [D Foundation].  His affidavit clearly was prepared after the wife had signed her first affidavit because he says in paragraph 2 of his affidavit, ‘I deny the allegations made by the wife in para 125 and elsewhere in her affidavit’.  Paragraph 125 of the wife’s affidavit does not deal with the [D Foundation].”

10.8.2   Mr Udorovic submitted that Mr C had, in fact, made extensive denials which should be taken to include the wife’s allegations concerning the Foundation and that it was therefore not open to his Honour to make the criticised finding.  He referred the Court to document 588, the affidavit of Mr C sworn on 21 January 1997, wherein there are numerous paragraphs in addition to those cited by the trial Judge that are said to support this interpretation.

10.8.3   As Mr C’s affidavit made a general denial of the allegations made by the wife about the relationship between the husband and Mr C’s entities, it was submitted the finding could not stand.

10.8.4   We agree with this submission, however for reasons which will become apparent this incorrect finding is not material to the ultimate findings of control which rest on firmer ground.

10.9     The issue of the ultimate finding that the Foundation is controlled by the husband.

10.9.1   There were four specific matters identified by the trial Judge that led to his conclusion that D Foundation was controlled by the husband.

·     The evidence of Mr O,

·     the letter of the husband to Mr P of the 11 February 1992,

·     the non attendance of Mr Q and

·     the departure of Mr C.

10.10   The evidence of Mr O

10.10.1    We have already set out the significant aspects of Mr O's evidence relating to his discussions with the husband of the need to set up a Country E Foundation and his belief that he was at all times dealing with the husband in the J Ltd arrangement.

10.11   The letter of the husband to Mr P

10.11.1    The letter to Mr P is a reference to a letter written by the husband to a person in Country E described by the husband as "the Legal Founder and Sole Director of [D Foundation] " who was apparently instrumental in the creation or management of the [D Foundation].  The letter reads as follows:

“Dear [Mr P]

RE:   [D FOUNDATION, Country E]

I herewith authorise you to revoke the By-Statutes dated February […], 1992 and that you should accept instructions in future from [Mr C].

Kind regards

(Sgd)

[Mr] Johnson

copy [Mr C]”

10.11.2    His Honour concluded that the husband could not satisfactorily explain why he had written such a letter if the D Foundation had nothing to do with him, and that there was no explanation as to why Mr P was not called by the husband to explain the true position with the D Foundation.

10.11.3    A few days later the D Foundation By-Statutes were amended to include the following:

"The sole beneficiary of the Foundation for lifetime without any restriction whatsoever shall be [Mr C]…" (Exhibit 14).

According to the uncontradicted evidence of Mr CR a Country E lawyer called on behalf of the wife, someone else was most likely to have previously been the sole beneficiary otherwise there was no reason to change it.

10.11.4    His Honour concluded that “the only logical explanation for the letter is that up to this date, the [D foundation] was the husband's.”  We see nothing inappropriate with that finding.  

10.12   The non-appearance of Mr Q

10.12.1    Mr Q was a partner in a European firm.  He swore an affidavit deposing to (inter alia) his involvement in the establishment of D Foundation.  He said he was acting for Mr C.  He dealt with other documents which were alleged to implicate the husband in the management of the Foundation.  He did not appear at the trial despite a request that he be available for cross examination and an assurance given by Mr Udorovic to the trial Judge on 18 March 1997 (transcript 342) that "…we of course will bring [Mr Q] (sic) here".

10.12.2    In these circumstances, little weight could be attached to Mr Q’s affidavit.  In conformity with Jones v Dunkel (1959) 101 CLR 298, the inference to be drawn was that there was no oral evidence which would assist the husband’s case, being in the circumstances of this case that Mr Q acted for Mr C.

10.12.3    The trial Judge said:

“[Mr Q] failed to attend the hearing.  In the circumstances, I am not prepared to place any reliance on his evidence.” (Judgment page 138)

10.12.4    We discern no error on his Honour’s part in taking that approach having regard to the body of evidence before him.

10.13   The departure of Mr C

10.13.1    Mr Udorovic had described Mr C's evidence as where “the pinnacle of it all will rest…He is the man who is saying ‘these are my assets.  They belong to me and only me’” (Transcript 27 May 1997 at 797).

10.13.2    Mr C was called to give evidence on 3 June 1997.  When introducing the witness,  Mr Udorovic stated that:

“The next matter is this, your Honour, [Mr C] is just outside of court. He is here, your Honour, but I am obliged, your Honour, to mention a couple of matters which will be of significance. The first is this, your Honour, that it became apparent to both Mr Moser and myself during the course of yesterday when we spent some time with [Mr C], your Honour, with respect to any additional evidence that he may be able to give in these proceedings, that [Mr C] suffered from a [medical episode] some years ago, your Honour, and he is still apparently receiving treatment with respect to it.

He has significantly been affected in terms of his - - impairment in terms of his short term and long term memory capacities, your Honour, as will become evident during the course of his evidence; and I ask your Honour to take that into account in terms of any stress that may be caused to the witness, and to be aware of those matters.”

10.13.3    His Honour dealt with Mr C’s disappearance as follows:

“The principal witness on behalf of the husband, who was involved in many of his transactions, was [Mr C].  [Mr C’s] affidavit, to say the least, was sketchy. During the proceedings there were assurances that [Mr C] would attend to give evidence.  [Mr C] did eventually attend.  He arrived in Perth, according to his evidence, [late] May.  Monday, 2nd June, was a public holiday.  He began giving his evidence on Tuesday, 3rd June.  It was sought to lead evidence from him about the state of his health and, in particular, his memory.  [Mr C] indicated that he had had a [medical episode] in 1989.  There was nothing in the affidavit containing his evidence in chief sworn by [Mr C] that indicated there was anything wrong with his health.  There was no medical evidence forthcoming about the state of his health.  The husband, who has been in frequent contact with [Mr C] over the years, and who saw him as recently as February 1997, gave no indication that there was anything wrong with [Mr C’s] health.  When [Mr C] sought to give evidence about his health, an objection was taken, which I allowed. 

When [Mr C] began to give evidence on the morning of the 3rd June, it was apparent to Counsel for the wife that [Mr C] had notes before him.  It was requested that these notes be turned over, and that was done.  When the afternoon hearing began, it was apparent that [Mr C] had not only the pad on which the notes had been written that were earlier referred to, but he also had two sheets of typed paper.  Counsel for the wife requested these sheets, and it was noted that they were numbered 3 and 18.  This indicated that there were not less than another 16 sheets.  In response to questions, [Mr C] indicated that he had been given the notes by the husband and the husband’s assistant, [Ms CN]. 

Accordingly, I made an order that [Mr C], accompanied by an instructing solicitor for the wife, go to his hotel room and get the balance of the notes.  This he duly did.  After a brief perusal of those notes, Counsel for the wife sought an adjournment so that the notes could be looked at carefully and compared with evidence that had been  given.  It was apparent from the notes that [Mr C] had been supplied with substantial amounts of information by the husband and [Ms CN], in order to be able to answer questions that were expected to be directed to him during cross-examination.  This was despite the fact that there had been an order for witnesses out of Court, and that both the husband and [Ms CN] were aware of the consequences of such an order in relation to contact with witnesses yet to be called. 

Those consequences had been reiterated to the husband on the 26th May, when it was revealed that the husband had sent a fax to [Mr C] in [Country CQ], detailing calculations made by the husband in relation to transactions that he and [Mr C] had been involved in.  In my view, the only conclusion one can draw from the actions of the husband and his assistant, was that they wished to ensure that [Mr C] did not give any evidence that differed from that of the husband.

Before the hearing resumed on Wednesday, 4th June, a fax from [Mr C] arrived at the Court on the fax number of the machine in the chambers of Deputy Chief Justice of the Family Court of Australia.  The fax was sent at 8.00 a.m.  It read as follows:

‘Dear The primary judge

As a result of the histrionics in your courtroom yesterday afternoon, which I found extremely demeaning to myself, I have decided that my ongoing presence would not be helpful to either party. 

I came all the way from [Country CQ] at my expense to assist in bringing the case to conclusion, but the following reasons have forced my decision to leave.

My reasons are as follows:

1.  The condescending way in which Mr Wilson treated my physical state.

2.  The total lack of briefing of Australian Court rules and procedures afforded to me.

3.  I was unaware of the fact(sic) that I would not be permitted, before my appearance in court, to meet with my friend and colleague, Mr Johnson, and the lady who currently monitors my business in Perth, [Ms CN], not to mention Mr Johnson’s legal representatives.

4.  I was also not made aware that I could not utilize my own notes and aide memoires in the courtroom.

I left your court feeling distinctly unwell and sought medical attention when I returned to my hotel.

Yours sincerely

[Mr C]

In dealing with the reasons that [Mr C’s] outlined, I would comment as follows:

1.        If [Mr C] was given any indication that evidence as to his physical state coming from him at the late stage would be likely to be received by the Court, then he was, in my view, misled.

2.        It is not the responsibility of the Court to brief a person in [Mr C’s] position of the rules and procedures.  If [Mr C] required this briefing, it was clearly the duty of the husband’s legal advisers.

3.        It was not, and never has been, the position that [Mr C] would not be permitted before his appearance in Court to meet with the husband or the husband’s legal representatives.  [Mr C], as he indicated eventually, spent part of Friday, the whole of Saturday and Sunday, and part of the Monday with the husband, interspersed with time with [Ms CN] and the husband’s legal representatives.

4.        If he was led to believe that he could gain assistance from anything other than documents that could be put into evidence, or that he could answer questions in cross-examination, from notes that had been supplied to him by the husband and his assistant, again, he was misled.

Every reason that [Mr C] therefore advances as the reason for not attending the Court after the adjournment on Tuesday, 3rd June, is entirely the fault of the husband and his advisers.

It was after the Court resumed on Wednesday, 4th June, and I informed those present of the fax message received from [Mr C], that it was announced by Counsel for the husband that [Mr Q] would not be attending.  The Court was not given any information by Counsel for the husband of how that information happened to be conveyed to the husband’s legal advisers, despite a request from the Bench.  The following day, it was sought to tender a letter from [Mr Q], which presumably gave an excuse for his non-attendance.  Counsel for the wife objected to the production of this letter.  As the contents of the letter were not sworn to, the objection was sustained. 

21.2     Whilst Mr Kirk did not respond directly to this submission, we are not persuaded that his Honour was in error in the manner in which he sought to secure the wife's entitlements under his orders.  He was dealing with a pool of assets where a substantial portion of the pool was outside the jurisdiction of the Court.  The husband was averring that he had no interest in those assets.  It was entirely appropriate in those circumstances to act in favour of the wife when making orders to secure her entitlements.    

1. BIAS

22.1     Mr. Udorovic’s arguments under this heading amounted to the assertion of three propositions.  First, it was said that his Honour had made a specific statement which gave rise to the apprehension of bias.  Secondly, it was put that rulings made in this course of the trial similarly gave rise to such concern.  Thirdly, he contended that there were so many erroneous findings in the judgment that an apprehension of bias was created.

22.2     It is convenient to dispense with the second and third bases of the complaint under this heading before dealing with the specific statement which is the subject of complaint. 

22.3     Although Mr. Udorovic foreshadowed a challenge to the rulings made by his Honour during the trial, he did not in fact take us to a series of rulings which collectively provided a basis for contending an apprehension of bias.

22.4     So far as the third basis is concerned, in the course of these reasons, reference has been made to the errors which are said to invite a finding of a reasonable apprehension of bias.  In our view, when the errors we accept have been made are viewed together, within a case of this magnitude and complexity of detail, we are not satisfied that those matters, most of them immaterial in a De Winter sense, establish such a reasonable apprehension of bias.  We can see no pattern of error that would lend itself to sustaining that complaint.  More problematic, however, was the statement made by the trial Judge prior to hearing evidence from the appellant.

22.5     The statement under attack was made by his Honour on 19 March 1997.  He said:

“Well, let me go back to what I said at the very beginning - - is that I will rely, principally, on witnesses other than the parties in this matter - and documents - to determine where the truth lies; and any other documents that are available to assist me in that regard, I'll' [sic] be grateful to receive. I'm not vacating my earlier order; and I am adjourning.”

This comment was made at the end of the day’s sittings after his Honour had read material concerning the matter but before the appellant had stepped into the witness box.

22.6     Mr Udorovic submitted to us that this statement in and of itself, prejudged and demoted the credit of the parties in a manner contrary to law.  He laid stress on the trial Judge’s use of the word “principally” and submitted that we should view his Honour as effectively demoting the credit of the parties in an impermissible manner.

22.7     He said that he had raised the issue expressly with the trial Judge on 20 March 1997 and had argued with reference to the authorities of Vakauta v Kelly (1989) 167 CLR 568, Livesey v the New South Wales Bar Association (1983) 151 CLR 288 and The Queen v Watson re ex parte Armstrong (1976) 136 CLR 248; 9 ALR 551 in support of an application for his Honour to disqualify himself.

22.8     Relying upon Watson’s case, Mr Udorovic said he had stressed the principle that demotion of the credit of both parties fell foul of authority and that Watson’s case in particular had appreciated that the ramifications of such an approach by a trial Judge may, though directed at both parties, have graver consequences for one party than the other depending on the context.  He said that in the present case, the graver impact fell upon the husband. 

22.9     At page 68 of the transcript of 20 March 1997, Mr Udorovic said:

“He has not given viva voce evidence, nor has that evidence been tested; and it's in those circumstances where we are dealing particularly, your Honour, with many complex, detailed financial transactions going back many years, of which your Honour has heard he conceptualised, and he is essentially the financial architect of, that in circumstances where his credibility and he possibly might be the only person who can piece it all together - where there's already been a statement made by the court that the credibility, which otherwise any witness going to the witness box would be afforded by the court, is not in balance with any other evidence before there's even been cross-examination, must lead to the conclusion, your Honour, that that is so far as our law is concerned, your Honour, a perception of bias…”

22.10   In furtherance of the disproportionate impact argument, Mr Udorovic drew the Court’s attention to two passages of the trial judgment which, in his submission, accentuated the adverse consequences to the husband of an apprehension of bias.  Those passages concerned his Honour’s view that it would be necessary to examine a number of financial transactions which the wife alleged concerned witnesses who were involved in holding assets on trust for the husband. 

22.11   At page 21, his Honour said:

“In order to sustain her claim that [Mr C] was holding assets on behalf of the husband, the wife presented evidence of a number of transactions in which the husband, or entities associated with the husband, were involved with [Mr C], or entities associated with [Mr C].  I propose, therefore, to review each of these transactions.”

At page 385, his Honour said:

“I have not reviewed in these reasons every transaction with which the husband was involved, or the evidence of every witness called.  This does not mean that the transaction or the evidence has been overlooked.  It simply means that I have tried to stay with “the big picture” and, in particular, with the evidence that pointed to the fact that the husband conducted transactions through [Mr C] that were clearly for the benefit of the husband, despite his denials.”

These passages were said to indicate that matters as to the husband’s credit were crucial in the case to an extent far greater than for the wife.

22.12   In respect of the governing law, Mr Udorovic referred the court to Watson’s case (supra) which stands for the proposition that prohibition lies against the person to whom it may be directed if in all the circumstances the parties or the public might reasonably suspect that the person was not unprejudiced or impartial. He cited inter alia the following apposite passage from the judgment of Barwick CJ and Gibbs, Stephen and Mason JJ in Watson’s case (supra) to the trial Judge and also to this Court:

"It was said that there was no bias because the judge had formed an equal distrust of both parties. The formation of a preconceived opinion that neither party is worthy of belief, amounts to bias in the sense in which that word is used in a number of authorities already cited. To form such an opinion is to predetermine one of the issues in the case and may operate unfairly against one party, even though both are discredited. A prejudice against the credit of both parties, will not necessarily damage both parties equally. It will prove more damaging to that party who wishes to establish a fact by means of his or her own unsupported evidence. A party who believes, on reasonable grounds, that the judge has decided in advance to disbelieve her evidence, cannot have confidence in the result of the proceedings. Even if the judge has decided to reject the evidence of her adversary as well." (at CLR 265 emphasis added)

22.13   The trial Judge adjourned to consider the application and ruled in the following way on 20 March 1997:

“Before this matter began, I spent 2 days reading the affidavits filed by both parties and some of the witnesses. I say, some of the witnesses, because in respect of a number of the witnesses to be called there were no affidavits. It was apparent that there was a wide divergence between the evidence of both parties relating to the matters in issue in this case. That has become more apparent as the case has proceeded. I drew attention to this difficulty. When yesterday I repeated what I earlier said, I was simply pointing out to the parties the wide divergence. It was going to be a difficult task. My statement was not to be taken as a predetermination of the credibility of both parties, or of either of them.

My statement merely affirms my need to look to the other evidence to assist in determining who is telling the truth. I was not saying I would not accept the evidence of either party; I did not reject the credit of both parties; I was merely saying that the other evidence was important in determining the credit of one or other of the parties, and to that extent I don't accede to the application that has been made by the husband. That having been said, we'll proceed.”

22.14   Before us, counsel for the appellant renewed the arguments put to the trial Judge but rejected by his Honour.  He also sought to highlight the fact that the trial Judge had made prior statements concerning the approach he proposed to take to the evidence at previous times in the hearing.  This comparison was in aid of a submission that the comment on 19 March 1997 should be construed as giving rise to the perception of bias. 

22.15   Counsel further argued that there was a significant difference between the remarks under attack and the way the remarks had been characterised in his Honour’s ruling on the impugned remarks.  This submission went to the question of whether his Honour’s ruling had overcome any apprehension of bias that might have arisen for the parties.

22.16   Counsel’s arguments as to prior references compared the view taken by his Honour at earlier stages of the proceedings with the impugned remarks.  These references were highlighted by Mr Udorovic and were also extracted in the respondent’s submissions at paragraph 5.2:

“5.2     WHAT THE TRIAL JUDGE SAID

(a)      The Offending Statement (Tp 19/03/97 AB 759 p51)

“Well, let me go back to what I said at the very beginning… is that I will rely, principally, on witnesses other than the parties in this matter – and documents – to determine where the truth lies, and any other documents that are available to assist me in that regard, I’ll be grateful to receive”;

(b)In refusing the husband’s application that he disqualify himself, the trial Judge said (20/03/97 AB 760 p81):

The trial Judge made similar statements almost a month earlier

“My statement merely affirms my need to look to the other evidence to assist in determining who is telling the truth.  I was not saying I would not accept the evidence of either party.  I did not reject the credit of both parties.  I was merely saying that the other evidence was important in determining the credit of one or other of the parties….”;

(c)       on 24 February 1997 (AB 746 p195):

“When you’ve got two parties…who are so far apart as these two are, you really look to, as far as possible, persons external to them to support their cases”

and on the next day, 25 February 1997 (AB 747 p318):

“I said with both of these parties I am going to look as far as possible at the transactions and independent sources in determining what the final position is”

to which senior Counsel for the husband said:

“Yes, of course Your Honour.  There is no question that Your Honour will”.”

22.17   The trial Judge repeated this again on 25 February 1997 a few pages over at AB 747 p320:

“5.3     EFFECT OF THESE STATEMENTS

(a)The understanding of any reasonable person hearing the trial Judge’s statements in a case where the parties’ evidence was so widely divergent would be exactly what the husband’s senior Counsel said to an almost identical comment a month earlier:

“Yes of course Your Honour.  There is no question that Your Honour will”.

(b)The husband’s Outline asserts that on 19 March 1997 his senior Counsel was aware of requirements in Vakauta’scase that a party is “not entitled to stand by” but must make the objection as soon as reasonably practicable if the Judge’s comments were “likely to convey to a reasonable and intelligent lay observer an impression of bias”.

(c)Did the husband’s very experienced and able senior Counsel view the trial Judge’s comments on 24 February 1997 ad (sic) 25 February 1997 as conveying an impression of bias?  The answer is an emphatic “NO” and indeed he expressed the opinion this Court will share, that the trial Judge got it right.”

22.18   It was Mr Udorovic’s submission that the first statement did not disclose any error as to law. 

22.19   With respect to the second statement, he said that it was arguably contrary to the authorities and rejected the suggestion that the transcript indicated an apparent concession on his part.  Mr Udorovic said that the transcript showed that it could not be properly said that he had conceded as such to the trial Judge’s approach.  In support of this proposition, he highlighted the apparent interruption by his Honour before Mr Udorovic had an opportunity to elaborate his remark:

“HIS HONOUR: Mrs Johnson's made her situation clear.

MR UDOROVIC:  Yes, she might have, your Honour, but the reasons for it are important because, at the end of it all, your Honour, your Honour will have to decide with respect to the veracity of what she says and whether your Honour would accept - -

HIS HONOUR: What did I say yesterday?

MR UDOROVIC: I don't know, your Honour. Your Honour said a lot yesterday.

HIS HONOUR: Well, I said with both of these parties I am going to look as far as possible at the transactions and independent sources in determining what the final position is.

MR UDOROVIC: Yes, of course, your Honour. There's no question that your Honour will - -

HIS HONOUR: You're having a debate with this lady trying to convince her that the husband is not the owner of [D Foundation], and she's made up her mind - and that's the whole basis of her case - that he is the owner.

MR UDOROVIC: Your Honour, I'm not trying to convince her of it.” (Transcript of 25 February 1997 at 318).

As can be seen from this transcript extract, discussion between the trial Judge and counsel for the appellant then turned to other matters.

22.20   The argument before us addressed the question of whether, even if it could be said that the impugned remarks could give rise to an apprehension of bias, his Honour’s ruling had dealt with that risk by clarifying what the trial Judge had meant.  Counsel for the appellant submitted that such damage, even if it can be cured by a ruling, had not taken place in this case because the trial Judge had not, in fact, reverted to the approach indicated by his first remarks of 24 February 1997.  He said that the issue of the trial Judge’s intention to principally rely on witnesses other than the parties had been neither acknowledged nor remedied by the reference in his Honour’s 20 March 1997 ruling to the 24 February 1997 remarks.

22.21   Toohey J (with whose judgment Brennan, Deane and Gaudron JJ agreed generally) said in Vakauta v Kelly (supra) at 587:

“For counsel to invite the judge to withdraw from the case may be quite premature, particularly if the judge acknowledges the apparent bias in what has been said and thereafter takes steps to dispel that apprehension.  But, as Dawson J. noted in Re J.R.L.; Ex Parte C.J.L. [(1986) 161 C.L.R. 342 at p. 372], suspicion of bias based on preconceptions existing independently of the case “may well be ineradicable”. In that situation there will be no option but to ask the judge to disqualify himself. In any event objection must be taken: see Re McCrory; Ex parte Rivett [(1895) 21 V.L.R., at 6].  It was not taken in the present case.”

22.22   In assessing his Honour’s offending remarks of 19 March, we must have regard to whether an apprehension of bias might be formed by the hypothetical observer envisaged by the authority of the High Court.

22.23   In formulating the standard of the reasonable observer, Mason J in Re JRL; Ex parte CJL (1986) 161 CLR 342 at 352 cautioned that it is undesirable for judges to be over sensitive to applications for disqualification and must carefully considering the merits of the application:

“Although it is important that justice must be seen to be done, it is equally important that judicial officers discharge their duty to sit and do not, by acceding too readily to suggestions of appearance of bias, encourage parties to believe that by seeking the disqualification of judge, they will have their case tried by someone thought to be more likely to decide the case in their favour.”

22.24   In Livesey (supra), Mason, Murphy, Brennan, Deane and Dawson JJ said at 299:

“The reasonable observer is to be presumed to approach the matter on the basis that ordinarily a judge will so act as to ensure both the appearance and the substance of fairness and impartiality.  But the reasonable observer is not presumed to reject the possibility of pre judgment or bias; nor is the reasonable observer presumed to have any personal knowledge of the character or ability of the members of the relevant court.”

22.25   In Vakauta v Kelly (supra) Toohey J said at 584-5:

“I accept the observation of McHugh JA in the instant case that “in the case of a professional judge whose training, tradition and oath or affirmation require him to discard the irrelevant, the immaterial and the prejudicial, a conclusion that there is a reasonable apprehension that he is biased should not be drawn lightly”.  In effect, that is what this Court said in Livesey.  And it is true, as Clarke JA pointed out, that it is a “reasonable apprehension” with which the court is concerned.  And, if it adds anything, it is such an apprehension in “a fair-minded observer”: Livesey.  But, in this regard, the public perception of the judiciary is not advanced by attributing to the reasonable or fair-minded observer a knowledge of the law and an awareness of the judicial process that ordinary experience suggests not be the case.”

22.26   In a similar vein, Brennan, Deane and Gaudron JJ remarked in Vakauta’s case at 571-2:

“In the passage in his judgment in Watson to which we have referred, Jacobs J. pointed to the undoubted fact that “it is confidence in his own integrity which supports [a judge] not only in his judgment but in all his words and conduct.”  Knowledge of his or her own integrity can sometimes lead a judge to fail to appreciate that particular comments made in the course of a trial may wrongly convey to one or other of the parties to the litigation or to a lay observer an impression of bias.”

22.27   In Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70, 87-8 Mason CJ and Brennan J elaborated the description of the hypothetical observer with the words “fair minded” and said that:

“we must attribute to him or her knowledge of the actual circumstances of the case.  ...  it would not be proper to attribute to the fair minded observer the understanding that a lawyer would have”.

22.28   Gaudron and McHugh JJ described the observer in the following terms at 100:

“A reasonable by-stander does not entertain a reasonable fear that a decision-maker will bring an unfair or prejudiced mind to an inquiry merely because he has formed a conclusion about an issue involved in the inquiry:  ...  When suspected prejudgment of an issue is relied upon to ground the disqualification of a decision-maker, what must be firmly established is a reasonable fear that the decision-maker’s mind is so prejudiced in favour of a conclusion already formed that he or she will not alter that conclusion irrespective of the evidence or arguments presented to him or her.”

22.29    We have had regard to these dicta and are conscious of the similarities which this case is said to have to Watson’s case. We have also approached the matter on the basis that Mr. Udorovic had not made the concession contended on behalf of the wife.

22.30   In our view it cannot be said that the hypothetical observer with the characteristics attributed by these cases might entertain a reasonable apprehension that his Honour might not bring an impartial and unprejudiced mind to the resolution of the questions before him, after his Honour's ruling clarified his third statement.

22.31   In our view the alleged offending remarks of 19 March need to be read as a whole and in context.  It is in our view clear that his Honour was attempting to say no more than he had said earlier, namely that where the parties stories are greatly divergent external evidence is important in finding where the truth lies. 

22.32   That is not to say that ultimately the trial Judge may accept or reject one or other version of the evidence based on the presentation of the evidence by the party in the Court or its inherent probability or because of other factors.  It is merely foreshadowing the obvious: that documentary or objective evidence may prove to be a more reliable indication of where the truth lies than the direct evidence of the parties themselves.  This is some distance away from the disbelief in the parties’ evidence seen in Watson’s case.

22.33   Whilst his Honour’s use of the term “principally” was unfortunate, in our view its impact is significantly dampened by the words which precede it, namely  “Let me go back to what I said at the very beginning…”, and the subsequent explanation “I was merely saying that the other evidence was important in determining the credit of one or other of the parties…”.

22.34   The line between comments which do and do not raise an apprehension of bias in law was described in Vakauta as “ill-defined” and “imprecise” [per Brennan, Deane and Gaudron JJ at 571 and 573].  In our view the line has not been crossed and the applicable grounds of appeal therefore fail.

1. SUMMARY OF CONCLUSIONS

• Save as hereinafter appears the appeal and cross-appeal should be dismissed. 

• The inclusion in the offshore pool of assets of shares held by L Ltd was in error. 

• The valuation of the M Ltd shares was erroneous.

• The tax losses should not have been included in the pool. 

• The tax penalties should have been catered for in the orders pronounced as a liability of both parties to be treated in the same way as any contingent tax and interest thereon was treated.

23.1     The cross appeal

23.1.1   For reasons already discussed we are of the view that the cross appeal should be dismissed.  In our view it was appropriate to discount the value of the shares in B Ltd on the basis of the existence of a risk that they would lose their PDF status.

23.1.2   As an alternative to this court becoming involved in an evaluation of that risk it was submitted by the wife that the husband should have the option of transferring to her 40% of S Investments Pty Ltd 11,700,000 shares in B Ltd and 40% of the B Ltd shareholding in M Ltd and [CF Company] rather than paying her cash.

23.1.3   Whilst the husband through his counsel indicated he had no objection to such an option being granted, we think it inappropriate that we interfere with the trial Judge's orders in that respect.  There is however nothing to stop the parties reaching an agreement as to how the obligations of the husband under the orders may be met.  If the husband is willing to transfer shares to the wife at an agreed value in lieu of cash there is no barrier we can see to her accepting such an offer.  Giving him an option to do that is no more than inviting him to consider it.

23.2     Costs

23.2.1   There is an appeal against the costs orders made at trial still pending.  It is convenient that we deal with the costs appeal and the costs of this appeal by way of written submissions.

23.3     Remittance or re-exercise of discretion

23.3.1   It was Mr Udorovic’s position that the case should be remitted to a single judge if this Court were to decide to find that the appeal should be upheld.  Notwithstanding this submission, having regard to the matters where we consider the trial Judge fell into error, and the material which is available to us we do not consider that course is necessary as we are of the view that we are in a position to re-exercise the discretion.  We propose to do so.

23.3.2   The effect of removing the L Ltd owned shares from the list of assets as found by his Honour, is to reduce the divisible pool by $ 2,112,400 for 80% of its shareholding in B Ltd (4 million shares @ 72.81 cents) and $288,000 for 80% of its shareholding in CF Company (600,000 shares @ 60 cents).  The wife's 40% of the pool of assets would be reduced by $960,160.

23.3.3   We have previously explained our reasons for concluding that the M Ltd shares ought to have been valued at 30 cents per share.  The B Ltd shares need to be revalued as B Ltd has a substantial holding in M Ltd.  The effect of reducing the M Ltd shares by 25% is as set out above.  In summary, the pool of assets will be reduced by $1,630,524 and the wife’s share of the pool of assets will be reduced by 40 per cent of that sum namely $652,210.

23.3.4   The removal of the taxes losses which were incorrectly included in the pool of assets will reduce the value of the S Investment Trust shareholding in CX Pty Ltd and the divisible pool by $728,000.

23.3.5   As a consequence, the total pool of assets is reduced by the following amounts:

L Ltd     2,400,400
           M Ltd  1,630,524 
           Tax losses   728,000
           TOTAL   $4,758,924
           Wife's 40% share of reduction $1,935,969.

1. ORDERS

1.That order 11 of the updated revised amended minute of orders incorporated by reference the orders of the primary judge made 17 July 1998 be varied by substituting for the sum "$7,440,087" therein appearing the sum "$5,504,118"

2.That order 11A of the updated revised amended minute of orders incorporated by reference in the orders of the primary judge made 17July 1998 be varied by deleting sub-paragraphs (f) and (g) thereof and by substituting for the sum "$1,000,000" appearing in sub-paragraph (e) thereof the sum "$504,118", and by renumbering subparagraph (h) as (f).  

3. That order 27 of the updated revised amended minute of orders incorporated by reference in the orders of the primary judge made 17July 1998 be varied by deleting therefrom the words "excluding any penalties arising " and inserting in subparagraph (a) thereof after the word "interest" the words "and penalties".

4.That orders 28 and 29 of the updated revised amended minute of orders incorporated by reference in the orders of the primary judge made 17 July 1998 be varied by deleting therefrom the words "excluding penalties".

5.That the appeal be otherwise dismissed.

6.        That the cross-appeal be dismissed.

7.(a)       The appellant be at liberty to file and serve written submissions as to costs of this appeal and the appeal against the costs orders made at the trial herein within twenty-one (21) days of this date.

(b)The respondent be at liberty to file and serve written submissions in answer thereto within twenty one (21) days thereafter.

(c)The appellant be at liberty to file and serve written submissions in reply thereto within a further ten (10) days.