Southern Equities Corp Ltd v Arthur Andersen No. Scciv-94-1474
[2001] SASC 58
•2 March 2001
SOUTHERN EQUITIES CORPORATION LTD (IN LIQ) v ARTHUR ANDERSEN & CO (REG)
[2001] SASC 58
Civil
1................ DEBELLE J..... The plaintiff applies for an order that I should disqualify myself on the ground of pre-judgment. The defendant neither consents to nor opposes the application. The allegation of pre-judgment is grounded on findings made by me in Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737. The application is that I disqualify myself not only from sitting as the trial judge but also from sitting as the judge managing the pre-trial procedures.
The plaintiff is Southern Equities Corporation Ltd (in liq) (“SECL”). It was formerly called Bond Corporation Holdings Ltd (“Bond Corporation”). The defendant is a firm of chartered accountants which completed an audit of Bond Corporation in the year ended 30 June 1988. In this action, SECL sues the defendant for damages for an allegedly negligent audit. I have been appointed as the judge to manage the pre-trial procedures and to hear the trial. I have been managing the action for at least three years.
This action involves issues which are complex. The trial will be very long. It is likely that it will occupy at least two years. The management of the action has been complicated and has been frustrated by delays on a number of fronts. However, the pre-trial procedures are nearing completion. A trial date has been tentatively fixed.
The Judgment in Pascoe v Lucas
Pascoe Ltd (in liq) (“Pascoe”) was ultimately controlled by J N Taylor Holdings Ltd (in liq) which, in turn, was controlled by Bond Corporation. Pascoe instituted proceedings in this Court claiming damages from Mr Peter Lucas, one of its former directors, for alleged breaches of his duties as a director of Pascoe. Mr Lucas was at all material times also a director of Bond Corporation. The transactions in relation to which it was alleged that Lucas had not properly discharged his duties as a director were a series of so-called “back to back” loans. I heard the action. On 1 May 1998 I dismissed the plaintiff’s claim and published reasons for judgment: Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737. The decision was upheld by the Full Court: (1999) 75 SASR 246. An application for leave to appeal to the High Court was dismissed.
In large part, the evidence at the trial was documentary. In addition, the plaintiff called four witnesses. Two gave uncontentious evidence and there is no need to refer to them. The other two witnesses were Mr G W Couttie and Mr C J McKie. They gave evidence of events occurring some nine years before the trial despite the fact that both had been involved in hundreds of transactions at that time. Both professed to have a good recollection of those events. Mr Couttie went so far as to assert that he was not reconstructing events but was able to recall them, given that documents existed which refreshed his memory. He had no contemporaneous notes which he could use to refresh his memory. I did not accept his evidence that he could recall these events. I formed the view that there was a significant element of reconstruction in his evidence. Mr McKie also said that he had a good recollection of events independently of the documents. He went so far as to say he recalled them clearly. I did not believe that he was able to recall each step in the transactions involved in the action, particularly as his duties required him to handle a huge volume of transactions. Furthermore, he was proved to be incorrect in his recollection in some instances. I did not accept Mr McKie’s evidence on another point.
As already mentioned, the evidence was in large part documentary. The determination of the issues turned on the documents and a few objective facts. I referred to this in my reasons and commented on the lack of evidence from persons who had been the authors of documents or who had given instructions to Messrs Couttie and McKie. In my reasons I said:
“Thus, the only witnesses called who had any direct involvement with the transactions the subject of this action were Couttie, McKie and Lucas. However, as will appear later, all three were acting at the behest of officers in the Bond Group in Australia. Neither Couttie, McKie or Lucas devised any of the transactions. Instead, they simply carried out instructions given to them from time to time by one or more officers in the Bond Group. None of the relevant officers in the Bond Group were called. There was no explanation for their absence. The court is, therefore, left with no evidence as to the reasons for these transactions from the persons who initiated and directed them. As already mentioned, I do not accept that either Couttie or McKie has an independent recollection of the events. Lucas said he could not remember them. Thus, the plaintiff’s case is essentially one which depends on inferences to be drawn from a few objective facts and mainly from documents. As will be seen, there are occasions when more than one interpretation of the documents is available. On other occasions, it is simply not possible to draw from the documents the inferences for which the plaintiff contends.”
Later in the reasons I referred to the control exercised by executors of Bond Corporation and by both Dolfinne and the J N Taylor Group. Having found that there was a great deal of control by two officers of the company named Baker and Noonan and other officers in Bond Corporation, I continued:
“Thus, not only did Baker and others control the day to day operations of J N Taylor and Dolfinne, they created a company which was a wholly owned subsidiary of Dolfinne and, ultimately, a wholly owned subsidiary of J N Taylor Holdings. That company was to do the bidding of Baker and others in the same way as Dolfinne and other companies in the J N Taylor Group. In other words, the decisions which were made by Baker, Noonan and other employees in the Bond Group were the decisions of J N Taylor Holdings, J N Taylor Finance and Dolfinne and I find that those decisions were made with the authority of the boards of those companies. The inescapable fact is that they were decisions of those companies and Pascoe acted in accordance with them.”
In the course of argument, submissions were made as to the possible reasons why the transactions, the subject of the action, had been arranged. I refused to enter into that speculation.
The Grounds of the Application
The application that I should disqualify myself stems from a late amendment to the defence in this action. The preparation of the defence has been a long and protracted affair. Pursuant to leave, the defendants have amended it on more than one occasion. The last amendment is dated 13 March 2000. In this latest amendment, the defendants for the first time pleaded transactions called “back to back” loans which include the back to back loans, the subject of the action in Pascoe Ltd (in liq) v Lucas. The defendants rely on them as one of a number of facts which, they allege, show that the plaintiff was not misled and was at all material times aware of the true financial position of Bond Corporation and its subsidiaries. The Defence alleges that Messrs Bond, Beckwith, Mitchell and Oates, as directors of Bond Corporation and of the companies in the J N Taylor Group, were aware of the general nature of the back to back loans and authorised their senior executives, including Noonan and Baker, to engage in them. It is further alleged that Pascoe was incorporated for the sole purpose of effecting the transaction to unwind a direct loan from J N Taylor Finance to a company called Bond Corporation Finance Ltd. The defence, in part, proceeds on the basis of the findings made by me.
In its reply, SECL denies the allegations. While it admits the back to back loans, it puts in issue the question whether the companies in the J N Taylor Group knew of the transactions and whether Messrs Bond, Beckwith, Mitchell and Oates knew of the loans or authorised their executives to engage in them. In short, SECL and its liquidator seek to re-litigate the issues in Pascoe Ltd (in liq) v Lucas, notwithstanding that my decision was upheld by the Full Court and the High Court refused leave to appeal. There is no plea of issue estoppel or res judicata available since the parties to each action are different.
The plaintiff asserts that by reason of my findings concerning the creditworthiness of the evidence of Messrs Couttie and McKie, I must disqualify myself on the ground of bias.
A Different Action Three Years Later
As this is a different action and as the parties to the action are different from those in Pascoe Ltd (in liq) v Lucas, it is likely the evidence which will be led will be different. I have every confidence in being able to approach the issues afresh, particularly as the trial of this action will not commence until at least three years after I delivered judgment in Pascoe Ltd (in liq) v Lucas. Furthermore, as might be expected, I have little recollection of much, if not most, of the detailed evidence in that action both by reason of the lapse of time and the fact that my duties have required me to be involved in detailed evidence in other actions. The comments on the evidence of Messrs Couttie and McKie did not go to the creditworthiness of their evidence in the ordinary way. I did no more than state that I did not accept their evidence that they had a good recollection of the events. Beyond those comments, I made no adverse findings. The point is underscored by the fact that my findings turned on the inferences to be drawn from the documents. Some of the findings of fact were consistent with the pleadings in that action. The pleadings in this action are expressed in different terms and I would have regard to that fact. In addition, I would approach the evidence of Messrs Couttie and McKie afresh. In short, I know that I would have no difficulty in putting aside the evidence in Pascoe Ltd (in liq) v Lucas and the findings I made in that action and decide the issues in this action only on the evidence led. As Meagher JA noted in Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 411 at 449, any reasonable observer who was acquainted with the idea of a judge at all would assume that the judge had precisely that capability, whatever other virtues or defects he might have.
However, recent decisions of the High Court of Australia require me to disqualify myself. It is now well established that the test is whether a fair-minded, lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide: Johnson v Johnson (2000) 74 ALJR 1380 at para 11; Ebner v The Official Trustee in Bankruptcy (2000) 75 ALJR 277 at para 6.
This test does not sit easily with the remarks of Mason J in Re JRL; ex parte CJL (1986) 161 CLR 342 at 352:
“It seems that the acceptance by this Court of the test of reasonable apprehension of bias in such cases as Watson and Livesey has led to an increase in the frequency of applications by litigants that judicial officers should disqualify themselves from sitting in particular cases on account of their participation in other proceedings involving one of the litigants or on account of conduct during the litigation. It needs to be said loudly and clearly that the ground of disqualification is a reasonable apprehension that the judicial officer will not decide the case impartially or without prejudice, rather than that he will decide the case adversely to one party. There may be many situations in which previous decisions of a judicial officer on issues of fact and law may generate an expectation that he is likely to decide issues in a particular case adversely to one of the parties. But this does not mean either that he will approach the issues in that case otherwise than with an impartial and unprejudiced mind in the sense in which that expression is used in the authorities or that his previous decisions provide an acceptable basis for inferring that there is a reasonable apprehension that he will approach the issues in this way. In cases of this kind, disqualification is only made out by showing that there is a reasonable apprehension of bias by reason of prejudgment and this must be ‘firmly established’: Reg. v Commonwealth Conciliation and Arbitration Commission; Ex parte Angliss Group; Watson; Re Lusink; Ex parte Shaw. 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 a judge, they will have their case tried by someone thought to be more likely to decide the case in their favour.”
In those remarks, Mason J is implicitly acknowledging the attributes of a judge, namely, that he or she will decide an action only according to the evidence and the law and, in doing so, will be able to put to one side evidence or findings in another action. That is a not uncommon aspect of judicial experience. Thus, as Hayne J noted in Helljay Investments Pty Ltd v Deputy Commissioner of Taxation(Cth) (1999) 74 ALJR 68 at para 12, the bare fact that a judicial officer has earlier expressed an opinion on questions of law will therefore seldom, if ever, warrant a conclusion of appearance of bias. A finding of fact in an earlier action does not necessarily mean that the same finding of fact will be made in a later action, where it is likely that there will be other evidence to be considered. The remarks of Mason J were echoed by Meagher JA in Spedley in the passage already mentioned. There is also particular force in the last sentence of Mason J’s remarks.
Furthermore, Mason J held that it must be firmly established that a reasonable apprehension of bias by reason of pre-judgment exists. That view is shared by Wilson J at 359 – 360 and Dawson J at 371 – 372. Those remarks suggest that, at least in relation to disqualification on the ground of pre-judgment, the test in the United Kingdom rests on a surer footing. That test is whether, on an examination of all the relevant circumstances, the court concludes that there is a real danger of bias: Locabail Ltd v Bayfield Properties [2000] 1 All ER 65 at 72 – 73. However, as was noted in para 7 of the majority decision in Ebner, the question in Australia is not of probability that the judge might not bring an impartial mind to the resolution of the issues but of the possibility of that occurring. That is apparent also in the fact that the test as enunciated in Johnson twice uses the word “might”. The test in Johnson substantially qualifies the need for pre-judgment to be firmly established. I am bound to apply these principles.
In Pascoe Ltd (in liq) v Lucas I decided issues which are to be re-litigated in this action. I have made some comments concerning the two witnesses likely to be called by the plaintiff. I therefore have no alternative but to disqualify myself from acting as the judge who will hear the action.
The Management of the Action
Although I am not able to act as the trial judge, it does not follow that I should not be involved in the management of the action. When dealing with the management of the action, the findings I made in Pascoe Ltd (in liq) v Lucas both as to the creditworthiness of witnesses and on the issues of fact or law will not, generally speaking, give rise to any reasonable apprehension of pre-judgment. The determination of pre-trial issues will not, generally speaking, involve anything remotely related to the issues in Pascoe Ltd (in liq) v Lucas nor will they turn on the credit of either Messrs Couttie or McKie. I have used the expressions “generally speaking” and “as a rule” because I am aware that there may be one pre-trial application which I may not be able to hear. But that is a matter for later determination. I do not propose to rehearse the wide variety of applications which might be made before a trial. It is sufficient to observe that they are varied and will not as a rule turn on anything which occurred in Pascoe Ltd (in liq) v Lucas. There is nothing in the determination of those issues which a fair-minded lay observer might reasonably apprehend which would cause me to bring other than an impartial mind to the resolution of the issues involved in the pre-trial applications. I will examine each application to see if it is proper for me to hear it.
The plaintiff submitted that the principles relating to disqualification of judges on the ground of pre-judgment have the consequence that, if a judge is disqualified, he is disqualified from all aspects of the action. I do not agree. Regard must be had to the facts which give rise to the apprehension of pre-judgment. The issue was directly addressed by the High Court in Ebner at para 8:
“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.”
The approach of the majority in Ebner illustrates that the court will have regard to the alleged cause of the apprehension of bias in determining whether a judge is disqualified. There is simply no logical connection between the issues in Pascoe Ltd (in liq) v Lucas and the question whether most of the pre-trial applications would not be impartially decided on its merits. Nevertheless, it will be necessary to examine each application just as a judge examines any action or application to determine whether there is any aspect which requires the judge to be disqualified.
In reaching this conclusion, I do not overlook the decision of the Full Court in Southern Equities Corporation Ltd (in liq) v Bond [2000] SASC 450. That case turned on its own facts. Similarly, I do not think that any of the other decisions upon which the plaintiff relies requires a different conclusion. The observations of Kirby J in Australian National Industries Ltd v Spedley Securities Ltd (in liq) (supra) at 422 – 423 are qualified by the reasons of the majority in Ebner. Further, in those reasons, Kirby J makes the point that a different judge from the trial judge may deal with interlocutory applications. That is the very course I propose to adopt. The decisions in Argo Pty Ltd v Attorney-General for Tasmania [1999] TASSC 154 and Plenty v Pattinson (unreported, Lander J, 25 June 1998, Judgment No. S6695) turn on their own special facts.
The question whether I am disqualified from dealing with any application which arises in the management of the action should, therefore, be approached individually on an application by application basis. There may be some matters that I will have to remit to the trial judge. In due course, the trial judge may take over the management of the action. But there is nothing which at this stage requires me to disqualify myself from continuing to conduct the management of the action before it comes to trial.
For these reasons, I will disqualify myself from acting as the trial judge. I will continue to manage the action before the trial and will determine in respect of each application whether there is any ground which disqualifies me from hearing it. There may be other matters which it will be necessary, in any event, to refer to the trial judge.
The plaintiff applies for the costs of the action. As already noted, the defendant neither supported nor opposed the application. The defendant did not delay the hearing or add to its cost. Counsel for the defendant did draw my attention to certain facts which I might wish to consider in the course of determining whether I should disqualify myself. The submissions were short. Furthermore, the plaintiff has not entirely succeeded in its application. I do not think the submissions went beyond the stated attitude of the defendant. For these reasons, there will be no order as to costs.
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