Re APCH Ltd (No 4)
[2017] VSC 451
•11 August 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2012 01199
| AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (LIQUIDATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (CONTROLLERS APPOINTED) | Plaintiff |
| v | |
| MICHAEL RICHARD LEWIS WOOLDRIDGE & ORS | Defendants |
S CI 2014 06713
| AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (LIQUIDATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (CONTROLLERS APPOINTED) | Plaintiff |
| v | |
| WILLIAM LIONEL LEWSKI & ORS | Defendants |
S CI 2013 05042
| AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (LIQUIDATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (CONTROLLERS APPOINTED) | Plaintiff |
| v | |
| PITCHER PARTNERS (A FIRM) (ABN 27 295 255 196) | Defendant |
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JUDGE: | ROBSON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 August 2017 |
DATE OF JUDGMENT: | 11 August 2017 |
CASE MAY BE CITED AS: | Re APCH Ltd (No 4) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 451 |
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COURTS AND JUDGES – Recusal application claiming apprehended bias – Applied test in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 – The plaintiff contended that there was a reasonable apprehension of bias on the part of the judge – Consideration of whether a friendship between a judge and partners in the defendant firm who were not involved in the allegations against the firm, but who would be financially affected by the proceedings, could reasonably give rise to apprehended bias – Consideration of principles on bias – Judge recused himself.
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| APPEARANCES: In proceeding S CI 2012 01199 | Counsel | Solicitors |
| For the Plaintiff | Mr J P Moore QC with Mr R D Strong | King & Wood Mallesons |
| For the Third, Ninth, Tenth and Eleventh Defendants | Mr M Osborne QC with Mr M Tomlinson | SBA Law |
| For the Fifteenth Defendant | Barry Nilsson Lawyers | |
| For the Sixth, Twelfth and Fourteenth Defendants | Wotton Kearney | |
| In proceeding S CI 2014 06713 | ||
| For the Plaintiff | Mr N Evans | Johnson Winter & Slattery |
| For the First, Sixth and Fifteenth Defendants | Mr M Osborne with Mr T Tomlinson | SBA Law |
| For the Third, Fourth and Fifth Defendants | Wotton & Kearney | |
| For the First to Eighth Third Parties | Minter Ellison | |
| For the Second Defendant | Barry Nilsson Lawyers | |
| For the Pitcher Partners Third Party | Mr B.A McLachlan | Arnold Bloch Leibler |
| In proceeding S CI 2013 05042 | ||
| For the Plaintiff | Mr N Evans | Johnson Winter & Slattery |
| For the Defendant | Mr B.A McLachlan | Arnold Bloch Leibler |
| For the Third, Tenth to Twelfth, Twenty-fifth and Thirtieth Third Parties | Mr M Osborne with Mr T Tomlinson | SBA Law |
| For the Twenty-second to Twenty-ninth Third Parties | Minter Ellison | |
| For the Ninth Third Party | Barry Nilsson Lawyers |
HIS HONOUR:
Introduction
Applications have been made by the plaintiffs in each of the three matters for me to recuse myself on the grounds of apprehended bias. Currently, the three proceedings are listed to be heard by me, but further directions are to be held to determine whether or not they should be heard together or separately.
Very broadly, in the 2012 proceeding (the listing fee proceeding), the receivers and managers of Australian Property Custodian Holdings Limited (APCH) (in liquidation) (receivers and managers appointed) (controllers appointed), which was the responsible entity for the Prime Retirement and Aged Care Property trust, contend that amendments to the terms of the trust resulted in trust moneys being improperly applied to pay what is called a listing fee to interests associated with Mr Lewski, a former director of APCH, and effective owner. The listing fee of $33 million was allegedly paid to interests of Mr Lewski upon the listing of a business of APCH. The receivers seek to recover the $33 million from, inter alia, the directors of APCH, and interests of Mr Lewski. APCH also seeks damages from Madgwicks, a firm of solicitors, for, inter alia, negligent advice and engaging in misleading and deceptive conduct in relation to advice given in relation to the amendments to the terms of the trust. Madgwicks were acting for APCH.
In the 2014 proceeding (the management rights proceeding), the liquidator of APCH contends that the rights to manage certain retirement villages controlled by APCH were improperly sold by the Lewski interests to the detriment of APCH. The liquidator of APCH is claiming some $96 million, compound interest and costs against the directors, and others including Madgwicks. It is alleged that Madgwicks gave negligent advice to APCH and were knowingly involved in APCH’s breach of its statutory and fiduciary obligations.
The 2013 proceedings (the audit proceeding) is being brought by the liquidator against Pitcher Partners, as auditors of APCH. Pitcher Partners have joined Madgwicks as a third party.
At the time of the alleged wrongs by Madgwicks, the firm had nine partners. The two senior partners were Mr Peter Kennedy and Mr Graeme Levy. The three proceedings do not make any allegations relating to the conduct of Mr Kennedy or Mr Levy. Further, Madgwicks say that neither Mr Kennedy nor Mr Levy will be called as a witness.
I have informed the parties in each of the three proceedings, at an early stage in the proceedings, that Mr Kennedy and Mr Levy were personal friends of mine. Such friendships were made whilst I was at the bar and was briefed by them in several matters. The friendships went beyond the relationship that may build up where a solicitor occasionally briefs a barrister.
In response to my disclosure, the plaintiffs expressly reserved their position, and were content for me to manage the proceedings in the stages they were in.
Dr Moore QC, senior counsel for the plaintiff in the listing fee proceeding, relied on the affidavits of Mr David Paul Cowling sworn 24 July 2017 and 2 August 2017. Dr Moore also relied on oral and written submissions. Mr Nigel Evans, counsel for the plaintiffs in the audit proceeding and in the management rights proceeding adopted the submissions and evidence made in the listing proceeding.
Mr Cowling deposes that Madgwicks are insured against the claims made against them. Mr Cowling did not depose as to the extent of the insurance, but he deposes that the claims, if successful, could exceed the insurance cover by tens of millions of dollars. Dr Moore submitted that it was possible that if the claims against the firm of solicitors are successful, that the partners could be bankrupted and even lose their practising certificates. Dr Moore also submitted that some of the claims, if sustained, could damage the professional reputation of the firm which could also have a damaging financial impact on the relevant partners of the firm. Mr Kennedy remains a partner. Mr Levy has retired.
The relevant test on recusal for apprehended bias
The High Court of Australia has expressed the relevant test to be applied on an application for recusal on the grounds of apprehended bias as follows:[1]
Where, in the absence of any suggestion of actual bias, a question arises as to the independence or impartiality of a judge (or other judicial officer or juror), as here, the governing principle is that, subject to qualifications relating to waiver (which is not presently relevant) or necessity (which may be relevant to the second appeal), a judge is disqualified if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide.[2] That principle gives effect to the requirement that justice should both be done and be seen to be done,[3] a requirement which reflects the fundamental importance of the principle that the tribunal be independent and impartial. It is convenient to refer to it as the apprehension of bias principle.
[1]Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 2017 (‘Ebner’), [6].
[2]R v Watson; Ex parte Armstrong (1976) 136 CLR 248; Re Lusink (1980) 55 ALJR 12; Ex parte Shaw (1980) 55 ALJR 12; Livesey v New South Wales Bar Association (1983) 151 CLR 288; Re JRL; Ex parte CJL (1986) 161 CLR 342; Vakauta v Kelly (1989) 167 CLR 568; Webb v The Queen (1994) 181 CLR 41; Johnson v Johnson (2000) 74 ALJR 1380; 174 ALR 655.
[3]R v Sussex Justices; Ex parte McCarthy [1924] 1 KB 256, 259 (Lord Hewart CJ).
It is also settled that a judge should not recuse himself unless the test has been established. The High Court has cautioned against forum shopping. In Ebner, the High Court of Australia, after making the above statements, went on to say:[4]
Judges have a duty to exercise their judicial functions when their jurisdiction is regularly invoked and they are assigned to cases in accordance with the practice which prevails in the court to which they belong. They do not select the cases they will hear, and they are not at liberty to decline to hear cases without good cause. Judges do not choose their cases; and litigants do not choose their judges. If one party to a case objects to a particular judge sitting, or continuing to sit, then that objection should not prevail unless it is based upon a substantial ground for contending that the judge is disqualified from hearing and deciding the case.
[4]Ebner, [19].
On the other hand, the Court did accept that in the case of real doubt it may be prudent for the Court to recuse itself:[5]
This is not to say that it is improper for a judge to decline to sit unless the judge has affirmatively concluded that he or she is disqualified. In a case of real doubt, it will often be prudent for a judge to decide not to sit in order to avoid the inconvenience that could result if an appellate court were to take a different view on the matter of disqualification. However, if the mere making of an insubstantial objection were sufficient to lead a judge to decline to hear or decide a case, the system would soon reach a stage where, for practical purposes, individual parties could influence the composition of the bench. That would be intolerable.
It is not possible to state in a categorical form the circumstances in which a judge, although personally convinced that he or she is not disqualified, may properly decline to sit. Circumstances vary, and may include such factors as the stage at which an objection is raised, the practical possibility of arranging for another judge to hear the case, and the public or constitutional role of the court before which the proceedings are being conducted. These problems usually arise in a context in which a judge has no particular personal desire to hear a case. If a judge were anxious to sit in a particular case, and took pains to arrange that he or she would do so, questions of actual bias may arise.
The particular principle or principles which determine the grounds upon which a judge will be disqualified from hearing a case follow from a consideration of the fundamental principle that court cases, civil or criminal, must be decided by an independent and impartial tribunal.
Bias, whether actual or apprehended, connotes the absence of impartiality. It may not be an adequate term to cover all cases of the absence of independence.
[5]Ebner, [20]–[23]. See also Kirbyv Centro Properties Ltd (No 2) (2008) 172 FCR 376.
However, Mason J said in Re JRL; Ex parte CJL,[6] a judge should not too readily accept recusal because a party has demanded it. In Bienstein v Bienstein,[7] the High Court said that ‘[a] Judge should not disqualify himself or herself on the basis of bias or a reasonable apprehension of bias unless substantial grounds are established.’[8]
[6](1986) 161 CLR 342, 352 (‘JRL’).
[7](2003) 195 ALR 255 (‘Bienstein’).
[8]Bienstein [36].
Equally important to the principle that justice be seen to be done is that a judge discharge the duty to sit and does not encourage a belief that by applying for disqualification, a party may have their case tried by a judge thought to be more favourable.[9]
[9]JRL, 352. See also Livesey v New South Wales Bar Assn (1983) 151 CLR 288, 294; Raybos Australia Pty Ltd v Tectran Corp Pty Ltd (1986) 6 NSWLR 272, 276; R v George (1987) 9 NSWLR 527; Fitzgerald v DPP (1991) 24 NSWLR 45; Clenae v ANZ Banking Group Ltd [1999] 2 VR 573, 603; Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451, 479.
In Vakauta v Kelly,[10] Toohey J accepted the observation of McHugh JA, sitting in the New South Wales Court of Appeal, 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.’[11]
[10](1989) 167 CLR 568 (‘Vakauta’).
[11]Vakauta, 584–5.
Toohey J added that ‘this is what this Court said in Livesey v New South Wales Bar Association[12] and it is a “reasonable apprehension” with which the Court is concerned.’[13]
[12](1983) 151 CLR 288, 299 (‘Livesey’).
[13]Vakauta, 585.
Dr Moore relied on the Guide to Judicial Conduct, produced by the Australian Institute of Judicial Administration,[14] which says that ‘personal friendship with a party is a compelling reason for disqualification.’[15]
[14](2nd ed, 2007) (‘Guide to Judicial Conduct’).
[15]Guide to Judicial Conduct, 13 [3.3.4].
Dr Moore also referred to the statement by McHugh, Kirby and Callinan JJ in Bienstein that:[16]
…a reasonable apprehension of bias may exist where the presiding judge has a substantial personal relationship with a party to, or a person involved in, proceedings or a substantial personal relationship with a member of the family of that party or person.[17]
[16]Bienstein, 232 [33].
[17]Emanuele v Emanuel Investments Pty Ltd (1997) 139 FLR 36.
The Full Court of the Supreme Court of South Australia in Emanuele v Emanuele Investments Pty Ltd,[18] a decision cited in Bienstein, said ‘should the friendship be between judge and party, then it is perceived as rendering it difficult for the judge to make findings adverse to the party on issues of credibility, or culpability.’[19] Dr Moore, referring to his passage, said that ‘culpability’ was a synonym for liability for the wrongs of others. In my view, culpability may involve some element of fault and may not extend to merely financial liability imposed on one partner for the actions of another partner.
[18](1997) 139 FLR 36 (‘Emanuele’) .
[19]Emanuele, 46 [22].
It is also to be noted that the possibility that members of the judiciary may be acquainted with prominent citizens whose name may be raised in the course of litigation before them is common place. Where such relationship is not close, and there is no question of credibility, the matter of possible bias will not ordinarily be an issue.[20]
[20]See Friends of Hinchinbrook Society Inc v Minister for Environment (No 1) (1996) 69 FCR 1.
The essential issue is whether, in all the circumstances, a fair-minded lay observer with knowledge of the objective material facts might entertain a reasonable apprehension that the judge might not bring an impartial and unprejudiced mind to the resolution of the matters before the court.
The hypothetical reasonable observer imposes an objective test.[21] The High Court in Johnson v Johnson said:[22]
The hypothetical reasonable observer of the judge's conduct is postulated in order to emphasise that the test is objective, is founded in the need for public confidence in the judiciary, and is not based purely upon the assessment by some judges of the capacity or performance of their colleagues. At the same time, two things need to be remembered: the observer is taken to be reasonable; and the person being observed is "a professional judge whose training, tradition and oath or affirmation require [the judge] to discard the irrelevant, the immaterial and the prejudicial."[23]
[21]Grassby v R (1989) 168 CLR 1, 20; referring to R v Simpson; Ex parte Morrison (1984) 154 CLR 101, 104.
[22](2000) 201 CLR 488, 493 (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).
[23]Vakauta v Kelly (1988) 13 NSWLR 502, 527 (McHugh JA), adopted in Vakauta, 584–585 (Toohey J), cited above.
Whilst the fictional observer, by reference to whom the test is formulated, is not to be assumed to have a detailed knowledge of the law, or of the character or ability of a particular judge,[24] the reasonableness of any suggested apprehension of bias is to be considered in the context of ordinary judicial practice. The objective test of the hypothetical reasonable observer is applied to a judge faced with the circumstances that I am faced with, that is, the friendship of the judge with two partners of the defendant firm of solicitors.
[24]Webb v The Queen (1994) 181 CLR 41, 73 (Deane J); referring to Livesey, 299; Vakauta, 585; Laws v Australian Broadcasting Tribunal (1990) 170 CLR 87, 98. See also JRL, 356–7; City of St Kilda v Evindon Pty Ltd [1990] VR 771, 777–8.
In Ebner, the plurality set out the steps required to apply the apprehension of bias principle. The plurality said:[25]
The apprehension of bias principle admits of the possibility of human frailty. Its application is as diverse as human frailty. Its application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.
[25]Ebner, 345 [8] (Gleeson CH, McHugh, Gummow, and Hayne JJ).
It is a reasonable, and not a fanciful or fantastic, apprehension that is to be established, and the apprehension is to be attributed to a ‘fair-minded’ lay observer's view in all the circumstances.[26]
[26]Gascor v Ellicott, [1997] 1 VR 332 (Tadgell JA).
Application of the test for recusal
What is said, in this case, that might lead a judge to decide a case other than on its legal and factual merits? It is said that the judge’s friendship with the two partners might do so. The logical connection between the matter and the feared deviation from the course of deciding the case on its merits is that the judge might be deviated from deciding the case on the merits because of his concern for the financial welfare of those partners, or might be deviated to find against the firm to avoid the appearance of finding in favour of those partners. Either way, it is said that it might reasonably be apprehended by the objective lay observer that the judge’s decision might be influenced by his friendship with partners of the defendant firm.
Dr Moore submitted that the High Court test in Ebner sets a low threshold[27] and does not require an enquiry into ‘how the judge … will in fact approach the matter. The question is one of possibility (real and not remote), not probability.’[28] No case was cited to me, however, where a superior court judge has excused himself or herself on the grounds of friendship with a partner in a law firm that was being sued where the partner was not involved in any way in the particular transaction in dispute. Dr Moore submitted that the absence of such a reported decision is not surprising. Dr Moore submits that there have been many occasions on which, because of such an association, the judge made arrangements for another case to hear the matter.
[27]Golden v V’landys [2016] NSWCA 300 [104]; Colquhoun v District Court of New South Wales [2014] NSWCA 460 [60] (Leeming JA, with whom Beazley P and Barrett JA agreed); R v Sin [2008] NSWSC 351 [16] (Latham J); McGovern v Kuringal Council (2008) 72 NSWLR 504 (CA) [14] (Spigelman CJ); John Fairfax Publications Pty Ltd v Maurice Kris [2007] NSWCA 79 [11] (the Court) and Kwan v Kang [2003] NSWCA 336 [82].
[28]Ebner, 345 [7].
Might a fair-minded lay observer reasonably apprehend that a professional judge, whose training, tradition and oath or affirmation require the judge to discard the irrelevant, the immaterial and the prejudicial, in the circumstances that a judge would face having a personal friendship with two partners of the defendant firm of solicitors (in circumstances where the partners were not involved in the disputed issues in the case), might not bring an impartial mind to the resolution of the question the judge would be required to decide? In this instance, the particular issue the judge would be required to resolve is whether another partner (other than the two partners who are friends of the judge) or an employee of the defendant firm acted negligently in carrying out his or her duties to APCH or otherwise acted improperly and that, accordingly the firm is liable.
It is submitted that a reasonable observer might reasonably so apprehend because of the possible financial loss that the partners of the defendant firm (who are friends of the judge) might suffer through the liability that attaches to all partners for the acts of any of them, or their employees, incurred in carrying out their duties as a partner or employee of the firm. In deciding whether another partner or an employee acted negligently (in circumstances where the partners who are friends of the judge were not in any way involved) it is submitted that a reasonable lay observer might apprehend that a professional judge with the qualities described above might not bring an impartial mind to the issue.
Conclusion
I find that a reasonable lay observer might reasonably apprehend that a professional judge (with the qualities described above, and in the circumstances that the judge would face, as a friend of two partners in the defendant firm) might not bring an impartial mind to the resolution of the issue of whether a partner or employee of the firm acted negligently or not, because of the possible serious financial consequences for the other partners of the defendant firm, or to avoid the appearance of finding in favour of the partners.
The proceedings have been on foot for several years, and are listed for trial on an estimate of 80 days. Dr Moore submits that, in these circumstances, the prudent approach, consistent with the efficient administration of justice, is for the judge to recuse himself now.
I consider that a significant matter is the sheer size of the claims and the disastrous consequences these might have for the partners of the defendant firm. In saying this I do not seek to prejudge any of the issues. I only deal with the theoretical consequences.
For these reasons, I propose to recuse myself from hearing, or further managing, any of the three proceedings.
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