Michael Wilson & Partners Limited v Nicholls & Ors [2011] HCATrans 28

[2011] HCATrans 28

[2011] HCATrans 028

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S236 of 2010

B e t w e e n -

MICHAEL WILSON & PARTNERS LIMITED

Applicant

and

ROBERT COLIN NICHOLLS

First Respondent

DAVID ROSS SLATER

Second Respondent

TEMUJIN SERVICES LIMITED

Third Respondent

TEMUJIN INTERNATIONAL LIMITED

Fourth Respondent

TEMUJIN INTERNATIONAL FZE

Fifth Respondent

Application for special leave to appeal

FRENCH CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 FEBRUARY 2011, AT 10.29 AM

Copyright in the High Court of Australia

__________________

MR T.F. BATHURST, QC:   May it please the Court, in that matter I appear with my learned friends, MR M. WALTON, SC and MR D.F.C. THOMAS, for the applicant.  (instructed by Clayton Utz Lawyers)

MR G.C. LINDSAY, SC:   May it please the Court, I appear for the respondents with MR G.W. McGRATH, SC and MR A.D.B. FOX.  (instructed by Henry Davis York)

FRENCH CJ:   Yes, Mr Bathurst.

MR BATHURST:   If the Court pleases.  The first and primary ground on which special leave is sought is that the Court of Appeal had erred in its conclusion that the applicant was not entitled in these proceedings to maintain any claim against the respondent to the extent the basis of the claim was inconsistent with findings contained in an interim award in a London arbitration between the applicant and the third party, the third party not being a party to the proceedings.  The conclusion is to be found first in the judgment of Justice Basten.  If your Honours could go to page 356 of the book, at paragraph 104:

To the extent that the respondent was unsuccessful in the arbitration, it should not be able to pursue against the appellants claims based upon those aspects of Mr Emmott’s liability.

Mr Emmott was the fiduciary.  The claim against the parties in these proceedings was for, among other things, accessorial liability for breach of fiduciary obligations.  Your Honours will see that in reaching that conclusion, he relied on the decision in the Court of Appeal in Rippon v Chilcotin.

The judgment of Justice Lindgren, his Honour deals with it at page 440 of the book, paragraphs 399 to 401, and your Honours will see from those paragraphs that his Honour relied on a series of cases, Reichel v McGrath, Haines v Australian Broadcasting Corporation and Rippon.  Those cases all relate to the principle that it is not permissible to mount a subsequent attack on an earlier judgment in subsequent proceedings.  That principle, in our submission, is founded on the basis that it is vexatious and oppressive and more importantly brings the administration of justice into disrepute. 

It is our submission that it is wrong, in principle, to extend that to a private arbitration.  The extension of the principle, in our respectful submission, ignores the fact that arbitration is essentially a private process between parties who have consented to submit their dispute to arbitration.  There is no process, for example, for the joinder of parties who may be proper parties in court proceedings.  The proceedings generally are conducted in private, and awards, generally speaking, are not publicly available.  The rules and procedures under which arbitrations are held can and often do differ materially from the basis on which court proceedings are conducted.

HEYDON J:   Is not your fundamental problem those three cases on page 440 are all cases where a plaintiff started one set of proceedings and lost, and then started another set of proceedings.  Your client was simply not a party to the arbitration.

MR BATHURST:   Yes, my client was a party to the arbitration.

HEYDON J:   Was in what capacity?

MR BATHURST:   As a claimant.

HEYDON J:   You were suing against the wrongdoing fiduciary, and in New South Wales you are claiming against the bounds in that he ‑ ‑ ‑

MR BATHURST:   Yes, secondly mounted ‑ ‑ ‑

HEYDON J:   Is there not then a problem of – leaving aside the timing question, namely one did not know what was going to happen in London at the time the proceedings were taking place in New South Wales – there is a risk that your client is starting two sets of proceedings that may lead to a conflicting conclusion.

MR BATHURST:   There is that possibility.  My client sought to join the fiduciary in the New South Wales proceedings.  He declined to do so, relying on his contractual rights in the arbitration.

HEYDON J:   When you say sought to join, you invited ‑ ‑ ‑

MR BATHURST:   More accurately, invited that he be joined.  There was no application to join him.

FRENCH CJ:   The notion of abuse of process via relitigation would not be confined, for the purposes of your submission - not necessarily confined to relitigation to judicial proceedings.  In other words, you do not have to look to the anterior proceeding in a judicial context.  For example – and this is a case which I remember I had to look at many years ago – where you have prior proceedings in some administrative body or tribunal.  If you accept that proposition, then the question is where do you draw the line in terms of abuse of process categories?

MR BATHURST:   We submit the line is drawn where the comparison, as it were, is between court proceedings and private consensual arrangements which are essentially what is involved in arbitrations.

FRENCH CJ:   The arbitral process, of course, is supported by statute and awards are given capable of enforcement in courts.

MR BATHURST:   Yes, we accept that.  There are, of course, different appeal rights.

FRENCH CJ:   Yes.

MR BATHURST:   In London, the appeal rights, I think, generally speaking, are on a question of law only with the consent of the parties or the leave of the court, serious misconduct or excessive jurisdictions.  Fundamentally, we say, the principles have been designed to protect the integrity of court proceedings.  They should not be extended to, in effect, private proceedings.  One can ask this question.  Assume two private arbitrations.  Does the principle arise there?  If it is court vis-à-vis private arbitration, logically the same thing could occur. 

The extent of the principle is unclear in the present case, and the present case highlights the difficulty.  The arbitration proceedings were started before the court proceedings.  It is by no means clear from the Court of Appeal judgment whether the proceedings between the third party should have been stayed by reason of the pending arbitration.  What in fact happened was that the judgment of the trial judge was given before the arbitral award.  It is not clear whether or not the Court of Appeal took the view that it should have been set aside merely because the arbitral award subsequently came into existence, or because once they held it should be set aside on different grounds, to continue with the claim was an abuse of process.

There is, so far as we are aware, no authority to support the extension of a principle to arbitration.  Such authority as there is suggests the contrary.  We gave the Court a reference to the decision of the English Court of Appeal in Sun Life Assurance v Lincoln National Life.  That was a contest between, as it were, two arbitrations.  It was the situation I postulated a moment ago.  During the course of his judgment, Lord Justice Mance, as his Lordship then was, dealt with the question in paragraph 68, page 628 of the report:

Fifthly, and more fundamentally, the solution for which Mr. Hunter contends appears to me to overlook or obscure important differences between arbitration and litigation.  In the context of litigation, problems of potentially conflicting judgments arrived at between different parties to the same overall complex of disputes are met by provisions for joinder of parties or proceedings or for trial together, if necessary on a mandatory basis using the courts’ compulsive powers.  Even in circumstances in which there has been no such joinder, and where neither res judicata nor issue estoppel has any application, the court may intervene to prevent abuse of its process . . . All this is facilitated by the public nature of litigation, the public interest in the efficient administration of justice and the courts’ coercive powers.  Considerations of general justice of the sort to which Mr. Justice Toulson referred thus have relevance and can be given effect in the context of litigation.  Arbitration is in contrast a consensual, private affair between the particular parties . . . The resulting inability to enforce the solutions of joinder of parties or proceedings in arbitration, or to try connected arbitrations together other than by consent, is well-recognised . . . Different arbitrations on closely inter‑linked issues may as a result lead to different results, even where, as in the present case, the evidence before one tribunal is very largely the same as that before the other.  The arbitrators in each arbitration are appointed to decide the disputes in that arbitration between the particular parties to that arbitration.  The privacy and confidentiality attaching to arbitration underline this; and, even if they do not lead to non-parties remaining ignorant . . . they are calculated to lead to difficulties in obtaining access, and about the scope of any access, to material –

That, we would submit, which we would respectfully adopt, tends to, in our submission, lead to a result contrary to the result propounded by the Court of Appeal.  The issue is, in our respectful submission, of importance.  This Court has not had the opportunity at any time to consider the extent that the principles would apply in an arbitration which will become increasingly important, having regard to the increasing extent of arbitrations in this country.  It is suggested that the application is premature.  The effect of the judgment, or the orders made by the Court of Appeal, is to prevent the applicant invoking a court’s process in respect of matters which have been determined against it in the arbitration and require it to wait until the arbitration has worked itself out prior to further prosecuting the proceedings.

FRENCH CJ:   What is the status of the proceedings in the High Court in relation to the arbitration?

MR BATHURST:   The appeal is pending.

FRENCH CJ:   Yes.  When is it likely to come on?

MR BATHURST:   The best I can – I cannot give your Honour ‑ ‑ ‑

FRENCH CJ:   Mr Lindsay says Monday.

MR BATHURST:   I do not think that is right.  I just do not know.

FRENCH CJ:   All right.

MR BATHURST:   Can I move then to the second point, which I would loosely describe as the waiver point.  When his Honour refused to recuse himself, he indicated he would, if the respondent requested, frame an order which could the form the basis of challenging his refusal to disqualify himself.  Your Honours will see that at page 461 of the book.

FRENCH CJ:   Yes.  There was going to be a principle basis for an appeal.

MR BATHURST:   Yes.  That was declined by the respondent in these proceedings.  Your Honours will see at page 465, at the top of the page:

In the event that any final orders are made by Einstein J adverse to the Defendants, or that the Defendants are compelled to submit to a trial without full disclosure to them of what has occurred in the arbitration and a reasonable opportunity to consider all material relating to the arbitration, the Defendants anticipate that they will appeal to the Court of Appeal on the ground that they will have been denied a fair trial.  In that event, the Defendants propose to seek orders for the payment by the Plaintiff, on an indemnity basis, of all costs thrown away in connection with the trial and the appeal.

We submit that in deciding not to take up the invitation, but to proceed to wait the outcome of a lengthy trial, the respondent waived its rights to challenge his Honour’s hearing in the subsequent appeal.  It was waiver, in our respectful submission, in the sense, for example, identified by Justice Gaudron in Verwayen where her Honour described it as fair dealing in the conduct of litigation and promoting the finality of litigation. 

Now, we have set out in our written submissions the current state of authority surrounding the possibility of appeals from judges refusing to recuse themselves.  It is controversial as to whether an appeal can lie purely from a refusal, but it has been accepted in a number of cases, both in the Supreme Court and the Federal Court, that where a consequential order is made, an appeal from that order could be used to challenge the judge’s decision on the disqualification issue.

FRENCH CJ:   What do you say to the statement – the first sentence at paragraph 8 of the respondent’s submissions at 468?  This cannot be a case of waiver because they were maintaining their objection and reserving their rights.

MR BATHURST:   That is why we said that it was waiver in the sense described by Justice Gaudron in Verwayen and Justice Toohey, in a sense in Verwayen I think said that it had to be considered in the context of the adjudicative process.  I cannot say that there was, for example, an election in the Sargent v ASL sense.  The way we maintain is on that basis.  In effect, what it amounted to is that the respondents chose to keep their powder dry whilst maintaining their objection and to go to the expense of a lengthy trial reserving their rights to seek to abort it if that is lost.  That is what we say constitutes the waiver. 

The third matter on which we seek special leave is the question of whether the court was correct in determining that the trial judge should have disqualified himself.  Justice Basten at the very least equated the position of a fair‑minded observer to that of the reviewing judge.  If your Honours could go to page 320 of the book, paragraph 10:

Because the hypothetical fair-minded observer is postulated to emphasise the purpose of maintaining public confidence in the administration of justice, the postulate has particular relevance in circumstances where a judge may have confidence in –

I think that should be “his or her” –

colleague’s ability to avoid prejudgment, but the lay observer may not.  On the other hand, where the reviewing judge holds an apprehension of prejudgment it seems unnecessary to ask whether that apprehension would be shared by the lay observer.  As the present case illustrates, to inquire into the mind of the lay observer may, in some circumstances, require the attribution of quite sophisticated knowledge about how the legal system usually operates.  Without that knowledge, the lay observer may say, ‘If that is how the system usually operates, I am content with that’.  A judge may know that that is not how the system usually operates, or is not how it should operate.  It might be thought sufficient for the reviewing judge to rely on his or her own apprehension of bias in such circumstances, rather than undertaking the wholly artificial exercise of transferring the knowledge of the professional to the hypothetical lay observer.  To reiterate, the role of the lay observer may be critical in the reasoning process where the reviewing judge does not personally entertain a relevant apprehension.

His Honour reached his conclusions at page 351 of the book, but it was relatively clear that although he makes reference to the fair-minded observer in paragraph 94, which your Honours will find on page 352, he was certainly influenced by his own subjective views and in particular, his view of – what I might call, without any disrespect – the quality of the judge’s reasons.  That appears in paragraph 94:

The cumulative effect of these considerations leads to the conclusion that a fair-minded lay observer, apprised of the facts, might well apprehend that the primary judge might not be able to bring an open mind to the issues raised in the trial, and particularly an assessment of the credibility of Mr Wilson on the one hand and Messrs Nicholls and Slater on the other.  I would hold that view and do not see any reason to think that the fair-minded lay observer would not share that view.  Finally, the judgments given by the primary judge following the trial tend to enhance, rather than diminish, the apprehension that would otherwise arise.

When one looks at paragraph 92, where the matters of which we complain were set out, they really amount to no more than making interlocutory orders on the evidence then before the trial judge, the last one being some 20 months before.  There is a discussion about confidentiality of material.  There was no suggestion, or no application made, on the basis that the judge at the trial had material available to him which the other parties did not. 

There is also, your Honours will see in paragraph 92, a reference to secreting documents.  That was a rather terse comment made by the learned trial judge in relation to what he seemed to regard as a suggestion which was disavowed, that he had been wrongfully holding on to documents.  Those matters of themselves would not, to the fair-minded observer, amount, in our respectful submission, to a reasonable apprehension of bias.  They are our submissions, if the Court pleases.

FRENCH CJ:   Thank you, Mr Bathurst.  Yes, Mr Lindsay.

MR LINDSAY:   May it please the Court.  In our submission, none of the three special leave questions identified by the applicant is appropriate for a grant of special leave.  Dealing first with the question of bias, in our submission, the Court of Appeal’s findings on bias are correct and nothing more or less than an orthodox application of the fair‑minded lay observer test.  Justice Basten, who delivered the principal judgment on this topic, commenced his analysis in paragraph 2 on page 317 with a statement of that principle, and throughout his judgment, he both assessed the evidence and assessed arguments by reference to that test, and his conclusion, particularly in paragraph 94 at page 352, was expressed in terms of the fair‑minded lay observer.

In his Honour’s articulation of the factors pointing towards a conclusion of apprehension of bias at pages 351 to 352, his Honour drew attention to the length of time, and the number of closed court hearings that were involved in consideration of whether or not there was an apprehension of bias, and your Honours need to bear in mind that what his Honour did in closed court was to vary consent orders for the provision of an affidavit of discovery and authorise the applicant to use that material in pursuit of a criminal prosecution overseas so that it was not simply a matter of an ordinary interlocutory process happening on one or two days and the matter coming back before the court over an extended period of time with some six or seven ex parte applications.  Coercive orders, or orders, were made which exposed the respondents to coercive orders in foreign proceedings. 

In our submission, it was entirely open to the Court of Appeal to conclude, as they did, that on the fair-minded lay observer test, an apprehension of bias was there and, in our submission, the observations made by Justice Young in concurring with the judgment of Justice Basten at pages 359 and following are also correct.

In our submission, the Court of Appeal’s findings on waiver are correct and they can be found principally in the judgment of Justice Basten in paragraph 77 at page 345.  In our submission, it is material that there is no express waiver.  It could not be because the objection was maintained.  There was no factual basis upon which it could be asserted that there was some form of implied waiver.  The case that my friend seeks to run could be characterised as one in which, notwithstanding an intention not to waive, there should be an imputation of waiver because the respondents did not make a speculative application for leave to appeal in circumstances in which they were preparing for trial.

HEYDON J:   You could not have on the authorities, Barton v Walker, but one question is whether those authorities should survive.

MR LINDSAY:   That may be the case but, in our submission, it can hardly be held against a person in the respondents’ case that they conformed to what was the general understanding of the law in New South Wales at that time.

HEYDON J:   It is not your fault, perhaps, but it is not a satisfactory state of affairs that a 33‑day trial had to take place before any challenge to the capacity of a judge to hear it could be considered.

MR LINDSAY:   The whole proceedings from the point of view of the respondents, as the respondents submitted, were quite oppressive.  Part of the oppression of the respondents was their exposure to the multitude of claims that were made and also to the judge to whom an objection had been made and…..for some time.  The question of oppression, in our submission, cuts the other way and in any event the respondents conformed to the orthodox view of what was possible, all in circumstances in which they were being bombarded with documentation from the commencement of the trial the following week. 

In our submission, this could not be case on which it could be fairly be said that there should be an imputation of waiver against these particular respondents.  In our submission, the applicant needs to get through the bias and waiver issues in a manner favourable to it in order to get to the principles in Reichel v Magrath.

HEYDON J:   I do not quite follow that because if there is going to be another trial, at present the new trial judge will be bound by what the Court of Appeal has said about Reichel v Magrath, but if the present applicant succeeds on an appeal in relation to Reichel v Magrath and nothing else, at least it can lift that problem out of its path.  The new trial will take place in a different way than would take place if today’s application was dismissed.

MR LINDSAY:   There is a number of what might be called practical speculative considerations and one is the possibility that the foundation for Reichel v Magrath or any application of it might evaporate in the light of what happens in the English High Court of Justice, so that there are all those factors.  In our submission, they militate against any grant of special leave, certainly at this stage.

FRENCH CJ:   Do you have information in relation to the date of hearing in the English Court?

MR LINDSAY:   I am instructed with a degree of confidence that it is on Monday.  It may be that the applicant has sought, or is seeking an adjournment of it, but on earlier occasions in these proceedings it was suggested to us that the critical date was 14 February.  Whether there has been any recent development, we cannot say, but that is the basis upon which we have been proceeding.  In our submission, the reasoning of the court on the application of Reichel v Magrath is correct and, in our submission, that appears both in the judgments of Justice Lindgren and also Justice Basten.

HEYDON J:   What do you say about Lord Justice Mance’s judgment?

MR LINDSAY:   In the written submissions at page 472 of the application book, we have drawn attention to a number of passages in Sun Life which, in our submission, make it plain that that case did not consider Reichel v Magrath and the court expressly disclaimed consideration of arguments about abuses of process of the court.  In our submission, the Sun Life Case does not do that which the applicant seeks to have it do.

HEYDON J:   In the London arbitration, could the present applicant have brought in your clients?

MR LINDSAY:   Probably not.

HEYDON J:   That rather supports the principles that Lord Justice Mance was referring to.

MR LINDSAY:   His Lordship was dealing with, in our submission, something completely different.  That was two successive private arbitrations between different parties.  The focus of the application of Reichel v Magrath in a case such as this is not so much what happens in the arbitration, but what happens in the court and protecting the processes of the court, and what the applicant sought to do – and in many ways, this lies at the heart of the abuse of process question generally – is that the applicant sought to run two sets of cases.  He ran a case in the arbitration against the alleged principal wrongdoer, and then ran a parallel case against the alleged accessories here in New South Wales.

The fact that the issues were substantially the same is highlighted, as was pointed out, I think, in the judgment of the Court of Appeal, by the fact that from time to time – certainly more than once – documents obtained on subpoena were sought to be released for the use overseas, and for the purpose of conducting those parallel proceedings.  They were, in substance, on the facts of the case, really parallel cases.

In our submission, the Court of Appeal was correct to say that having lost on the primary issues against the principal alleged offender, it would be an abuse of process of the Supreme Court to run the same case again here and, in our submission, that is at the core of it.  Your Honours may not have

picked up, for what it is worth, that virtually all the evidence in the arbitration proceedings was tendered in the proceedings in the court below, so the fact that the two sets of proceedings ran in parallel, in our submission, is quite plain when one looks at the facts. 

In our submission, the factors that militate against a grant of special leave include the fact that the status of the arbitration award is the subject of appeal in England and it includes the fact that there has been an order for retrial and one needs also to bear in mind what would be the outcome of any appeal, if it was favourable to the applicant in these proceedings. 

The Court of Appeal did not consider - had no need to consider a number of grounds of appeal about what happened before the primary judge, which would have led to a retrial in any event if those arguments got up.  In our submission, it is not appropriate to grant special leave, certainly not at this stage where there is so much doubt and controversy attending the status of the arbitration award, at least in the submissions that are made ‑ ‑ ‑

FRENCH CJ:   When you say “not at this stage”, what does that mean?

MR LINDSAY:   We say the appropriate course is that the application for special leave should be dismissed.  However, if the Court were minded to do so, an alternative – in order to clarify the facts – would be to stand it over pending consideration of what happens with the arbitration award in England.  But in our submission, the appropriate course – the first course, the first submission is that the special leave application should be dismissed. 

If the Court were minded to make an order granting special leave, we draw attention to the submissions that we have made about security for costs and we would invite the Court, if it were minded to make an order for special leave, to do so subject to a condition that the applicant provides security for costs in the terms agreed and in that connection we would draw your Honours’ attention to what appears in the application book at pages 479 referring back to page 472.

FRENCH CJ:   Is the amount to which the applicant would consent acceptable to you?

MR LINDSAY:   It is.  Those are our submissions.

FRENCH CJ:   Thank you.  We will not need to hear from you, Mr Bathurst, in response.  There will be a grant of special leave subject to the condition that the applicant provides security in the amount of $150,000 in a form to be determined by agreement or suitable to the Registrar.  An estimate of time, is this likely to take more than one day?

MR BATHURST:   It could possibly spill over to the second day, but if the parties were economical, I think we could finish it in one, and the Court would no doubt encourage them to be economical.

FRENCH CJ:   Mr Lindsay.

MR LINDSAY:   Every family has to have an optimist and a pessimist.  On this occasion I am the pessimist, particularly if there is a notice of contention, as there would have to be.  Your Honours would need, I think, to allocate the two days.

FRENCH CJ:   Yes, all right, thank you, Mr Lindsay. 

The Court will now adjourn to reconstitute for the next matter.

AT 11.03 AM THE MATTER WAS CONCLUDED