HOODS AN BU aw LIN CATCHWORDS BANKRUPTCY - Application made seeking order that Judge disqualify himself - whether statement made in reasons for judgment in separate matter arising from same bankruptcy indicated a reasonable likelihood of bias. Re: THE BANKRUPT ESTATE OF ROSS DANIEL HODBY BETWEEN: OFFICIAL RECEIVER for and on behalf of THE OFFICIAL TRUSTEE IN BANKRUPTCY Applicant - and - KATHLEEN MAY SKERITT, KEVIN WILLIAM PENNY, PERCY DOUGLAS BINNING COLEMAN, DOROTHY KAYE JENKINSON, EILEEN HILDA ST CLARE HILL, ROBERT WILLIAM FARRANT, LEAH WELCH, OWEN DAVID ROBERTS, JANE BOOT, JEAN MARY SCHOMBURGK, DON RAYMOND MARSHMAN, MOLLY HAZEL MARSHMAN, ALFRED GEORGE MARCH, DULCIE IRENE GROSE, MORRIS LINDEN BARREY, FREDERICK WILL, ITALO GOSTI, CATHERINE GOSTI, HENDRICK JOANNES VAN ZYTVELD, JANNETTA FRANCINA VAN ZYTVELD, FLORENCE LILLIAN MARY MARRETT, GILBERT EDGAR HOLMES, KENNETH LLOYD JOHNSON and VICKY DALE JOHNSON and GLENELG LODGE NO. 6 BUILDING COMMITTEE INC., KARTA PTY. LTD., SOPHIA KAROUNOS and BARBARA JOY HUNT Respondents Fisher J. Adelaide 2 August 1988 IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY ) GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE No. 910/39 of 1986 OF SOUTH AUSTRALIA nt DE RALLIA JUDGE MAKING ORDER WHERE MADE DATE OF ORDER THE COURT ORDERS THAT: tO RAT Re: THE BANKRUPT ESTATE OF ROSS DANIEL HODBY — BETWEEN: OFFICIAL RECEIVER for and on behalf of THE OFFICIAL TRUSTEE IN BANKRUPTCY CEN BANKRUPTCY Applicant - and - KATHLEEN MAY SKERITT, KEVIN WILLIAM PENNY, PERCY DOUGLAS BINNING COLEMAN, DOROTHY KAYE JENKINSON, EILEEN HILDA ST CLARE HILL, ROBERT WILLIAM FARRANT, LEAH WELCH, OWEN DAVID ROBERTS, JANE BOOT, JEAN MARY SCHOMBURGK, DON RAYMOND MARSHMAN, MOLLY HAZEL MARSHMAN, ALFRED GEORGE MARCH, DULCIE IRENE GROSE, MORRIS LINDEN BARREY, FREDERICK WILL, ITALO GOSTI, CATHERINE GOSTI, HENDRICK " JOANNES VAN ZYTVELD, JANNETTA FRANCINA VAN ZYTVELD, FLORENCE LILLIAN MARY MARRETT, GILBERT EDGAR HOLMES, KENNETH LLOYD JOHNSON and VICKY DALE JOHNSON an GLENELG LODGE NO. BUILDING COMMITTEE INC., KARTA PTY. LTD., SOPHIA KAROUNOS and BARBARA JOY HUNT Respondents FISHER J. ADELAIDE 2 AUGUST 1988 oe 00 oe 1. The application be dismissed. Note: Settlement and en Rule 124, try of order is dealt with in Bankruptcy 2. for an order that I disqualify myself from hearing these proceedings by the Official Receiver which are primarily against these three respondents. I need not refer to the general background of the proceedings as they have already been recited in some detail in various judgments, both on appeal and at first instance, of this Court. The particular application by the Official Receiver in which the three respondents make their application for my disqualification was taken out in November 1987. It concerns a mortgage over a property known as Campbell Park ("the Campbell Park Mortgage") granted by Karta in which Sophia Karounos and Barbara Joy Hunt are named as co-borrowers. The mortgagees were the other respondents in these proceedings, in which, however, they have at no time played any part. Because of the complexity of the matter, points of claim and points of defence were ordered at an early stage to be filed to which the parties other than the mortgagees have made a number of amendments. The matter has been before the Court on many occasions since November 1987 and I have given a number of directions including fixing dates for hearing of the Official Receiver's claim in May 1988 which dates were at the request of the parties subsequently vacated. At the present time I am due to commence hearing the matter and also the matter of the Moana mortgage hereafter referred to on 8 August 1988 and at this stage two weeks have been set aside for what is expected to be a lengthy hearing. On 15 July 1988 the solicitor for Krakat mentioned during a directions hearing that his instructions were to make application that I and Forster J, and incidentally counsel for IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE ) ) ) ) GENERAL DIVISION ) No.910/39 of 1986 ) OF SOUTH AUSTRALIA ) Re: THE BANKRUPT ESTATE OF ROSS DANIEL HODBY BETWEEN: OFFICIAL RECEIVER for and on behalf of THE OFFICIAL TRUSTEE IN BANKRUPTCY Applicant - and - KATHLEEN MAY SKERITT, KEVIN WILLIAM PENNY, PERCY DOUGLAS BINNING COLEMAN, DOROTHY KAYE JENKINSON, EILEEN HILDA st CLARE HILL, ROBERT WILLIAM FARRANT, LEAH WELCH, OWEN DAVID ROBERTS, JANE BOOT, JEAN MARY SCHOMBURGK, DON RAYMOND MARSHMAN, MOLLY HAZEL MARSHMAN, ALFRED GEORGE MARCH, DULCIE IRENE GROSE, MORRIS LINDEN BARREY, FREDERICK WILL, ITALO GOSTI, CATHERINE GOSTI, HENDRICK JOANNES VAN ZYTVELD, JANNETTA FRANCINA VAN ZYTVELD, FLORENCE LILLIAN MARY MARRETT, GILBERT EDGAR HOLMES, KENNETH LLOYD JOHNSON and VICKY DALE JOHNSON and GLENELG LODGE NO. 6 BUILDING COMMITTEE INC., KARTA PTY. LTD., SOPHIA KAROUNOS and BARBARA JOY HUNT Respondents REASONS FOR JUDGMENT FISHER J. : This is an application on motion by the respondents Karta Pty. Ltd. ("Karta"), Sophia Karounos and Barbara Joy Hunt 8. the Official Receiver, disqualify ourselves because of our extensive earlier involvement in matters arising out of the Hodby bankruptcy. However counsel for the three applicants informed me that he had advised against proceeding with the proposed application in respect of both Forster J. and counsel for the Official Receiver. The application that I disqualify myself was taken out on 26 July 1988 returnable on 27 July and was heard on 28 July 1988. At the same time a similar application was made by Krakat Pty. Ltd. ("Krakat") in proceedings commenced by the Official Receiver in respect of a mortgage of Moana land ("the Moana mortgage") in which Krakat was named as mortgagor and a number of other respondents as mortgagee. However the motion relevant to the Campbell Park mortgage was essentially the basis around which the two applications to disqualify were argued. Sophia Karounos swore an affidavit in support of the application, enumerating a number of occasions in which, directly or indirectly, I had been involved in matters in which she, Barbara Joy Hunt, Krakat and Karta were interested. However their counsel restricted his submissions essentially to a. portion of my reasons for judgment in Re Hodby, Ex parte Bailetti and Krakat No. 910/11 of 1986, an unreported decision delivered 16 April 1987. In those reasons I said as follows: "There is no doubt that at the time the transaction which falls for consideration in this matter was undertaken, persons associated with Krakat were placing considerable pressure on the bankrupt who was in consequence incapable of acting as a free agent." It was said that the inclusion of this passage in my reasons might give rise to a reasonable suspicion that I may not resolve the matters in these proceedings with a fair and unprejudiced mind. It is therefore necessary to consider both the issues and circumstances of the Bailetti proceedings and _ the issues in the present proceedings. In the present matter the Official Receiver claimed in his points of claim that Karta was mortgagor and Sophia Karounos and Barbara Joy Hunt were co-borrowers under the Campbell Park mortgage. The principal sum thereunder was stated to be $520,000 repayable on 12 September 1987. The Official Receiver claimed that Karta and the co-borrowers were in default and that the mortgagees thereunder, being the remaining respondents in these proceedings, other than one Alfred George March, had assigned their respective interests under the mortgage to the Official Receiver. It was further pleaded that Karta had lodged a caveat in the Lands Titles Office forbidding registration of any dealing with the interest of the mortgagees. The Official Receiver's claim to relief was stated as a declaration that the interest of the mortgagees other than March vested in the Official Receiver on behalf of the Hodby estate, and in addition as orders that the Registrar General be directed to make an entry on the relevant certificates of title substituting the Official Receiver for the mortgagees thereon and to cancel the caveat. In the application relating to the Moana mortgage there were identical claims to relief. 5. Karta's points of defence were voluminous and were expressed by its counsel as being a denial of the jurisdiction of the Court, a contention, which was repeated ina cross-claim, that the Campbell Park mortgage was void on the ground that the mortgagees did not provide consideration for the grant of the mortgage and that their names had been inserted by Hodby or a company, Hodby Nominees Pty. Ltd., without their consent. There was also inthe points of defence a recital of a series of transactions which conceded that certain persons called Hodby Investors had advanced the sum of $520,000 to Karta which transactions occurred on 12 September 1986 the date of the Campbell Park mortgage. Karta's final point of defence was that the Official Receiver, if he obtained the relief claimed, might seek to assert that Karta was not entitled to a discharge of the Campbell Park mortgage without at the same time repaying the amount due under the Moana mortgage. It was generally accepted that the Official Receiver's contention that in the circumstances he was entitled, both in equity and contractually, to consolidate the Campbell Park mortgage and the Moana mortgage was' the essential bone of contention in the matter. Counsel for Karta did not refer to any other issue raised by his client's cross-claim as having relevance to this present matter of disqualification. Furthermore he was unable to point to any pleading by the Official Receiver or his client on which on its face my statement in Bailetti had a direct bearing or indeed even an undoubted indirect bearing. Sophia Karounos and Barbara Joy Hunt essentially adopted the points of defence and the points of cross-claim of Karta. 6. In the Bailetti proceedings, for which reasonably extensive reasons for judgment were given, the contest turned on the entitlement to a sum of $586,000 which had been paid into Court as portion of the sum of $800,603.45 by Krakat Pty. Limited ("Krakat") to discharge a certain unregistered mortgage. At the time Krakat made no claim to the $586,000 but contended that it was entitled to the balance of the sum of $800,603.45 in excess of the sum of $586,000. The latter contention was not before the Court in the Bailetti proceedings as it was expressly adjourned for further consideration. When late in 1987 a hearing date was fixed in respect of this aspect Krakat withdrew its claim to these balance moneys. The sole question in issue before the Court in the Bailetti matter was whether the creditors of the bankrupt estate or the persons named as mortgagees were entitled to the sum of $586,000. Krakat was not represented during the hearing, having no interest in the sum of $586,000 and only some of the mortgagees participated and were represented by counsel. The evidence before the court was contained in an affidavit of Dean Richard Govan and the bankrupt gave oral evidence upon which he was toa limited extent cross-examined. Mr. Govan in his affidavit set out a summary of the bankrupt's evidence in his public examination in respect of the Krakat mortgage to which there was no objection in the hearing and no challenge in cross-examination. This summary was as follows: "(a) the persons named therein as mortgagees were not the persons who had truly advanced such funds to Krakat Pty. Ltd.; (b) the funds had been paid to Krakat Pty. Ltd. between the 9th day of April 1985 and the 2nd day of July 1986 and such funds belonged to the bankrupt's clients and were paid into the bankrupt's trust account or the account of Archer Finance Brokers for the purpose of 7. investment to be secured by a first mortgage; (c) the true amount of advances to Krakat Pty. Ltd. made through the bankrupt's trust account or accounts conducted by Archer Finance Brokers was $903,091.40; (d) the figure of $586,000.00 was agreed as the amount owing by Krakat Pty. Ltd. after some dispute between the bankrupt and George Karounos. It appears the said George Karounos took a dominant role in negotiations about these matters between Krakat Pty. Ltd. and the bankrupt. A threat by George Karounos to expose the bankrupt's defalcation to his clients in part caused the bankrupt to agree to the figure of $586,000.00 as being the figure actually advanced; (e) the bankrupt could not positively identify the persons whose funds were applied to this transaction and in many cases could positively depose to the fact that the persons named as mortgagees in the said mortgage bore no relationship to the persons who had truly advanced such funds." It was in the light of these unchallenged facts and the bankrupt's evidence that the particular statement in my reasons was made. It was not made in reference to the particular issue then before the Court but as part of the background against which the capacity of the mortgagees or any of them to trace their funds into the particular security, an unregistered mortgage, could be assessed. The statement had nothing to do with this issue, which was the only one before the Court, but was a circumstance which on the then evidence gave some explanation of how the irregularities came about. Counsel for the applicants in this hearing relied upon that statement and referred to, but said he did not rely upon, a comment which I made during a directions hearing when an application was made by two members of the Karounos family, John 8. and Helen, for their discharge. The Official Receiver contended that the application was premature and that he would seek an order under s.149 (12) of the Bankruptcy Act that they not be discharged until further order. Reference was made to the then impending litigation concerning the surplus monies in the Bailetti matter and a summons which had been issued under s.81 of the Bankruptcy Act. This statement, as follows, was in response to a comment by the solicitor for the two applicants in that matter that he wished to object to what the solicitor for the Official Receiver was putting: "Well, then I am just giving issue. What I am doing is giving you, if you wish, the opportunity to do so. The trouble is, of course that I have been inextricably involved in all these goings on and will continue to be so for quite a time and we have got the Krakat matter which does relate to, I do not know which Karounos's, but the Karounos's and the mortgage that is prepared to be given for some odd amount under severe pressure. I think I have already made a finding about that." There is little doubt that what was being referred to in that passage, however ineptly stated and elliptically expressed, was the Krakat application for the surplus in excess of $586,000 in the Bailetti matter which was due to be heard later in the following month. The finding there referred to was the finding in respect of the $586,000 amount in the Bailetti proceedings. It would be reasonable to interpret counsel's reference without placing reliance upon this statement as an indication that I would be likely to be partial in any subsequent proceedings concerning that pressure if it was a relevant issue therein. Counsel for the three applicants particularly relied 9. upon the reasoning of the High Court in Livesey v New South Wales Bar Association (1983) 151 CLR 288 as being applicable to this matter and supporting his submissions. The <aifficulty is of course to apply the undoubted law to the circumstances of a particular case. The following passage at page 300 is helpful in this matter and can be applied to present circumstances: "It is, however, apparent that, in a case such as_ the present - where it is not suggested that there is any overriding consideration of necessity, special circumstances or consent of the parties, a fair minded observer might entertain a reasonable apprehension of bias by reason of prejudgment if a judge sits to hear a case at first instance after he has in a previous case, expressed clear views either about a question of fact which constitutes a live and significant issue in the subsequent case or about the credit of a witness whose evidence is of significance on such a question of fact," The members of. the High Court then went on to identify three central issues in those proceedings upon which two members of the Court of Appeal had already made findings. One of these findings was that a Ms. Bacon who was a possible and critical witness in the appellant's proceedings was a witness without credit whose evidence on matters relevant to those proceedings should be rejected. It appears that the court considered it necessary to ascertain whether the matter upon which a view had been expressed would constitute a significant issue in the subsequent case. In my opinion the circumstances here are very different from those in the Livesey case. Counsel for the three applicants in this matter could not identify a question of fact concerning 10. which I had expressed clear views and which question of fact would constitute a "live and significant issue" in the forthcoming proceedings. Nor did my statement reflect upon the credit of a witness on such a question of fact. If there was any risk of prejudgment on any aspect, which is hardly likely as reference was only made to this circumstance as part of the background, it was not on a matter in issue either in the earlier proceedings or as I see it in these subsequent proceedings. Furthermore the statement in no way comprised a prejudgment of the credit of a witness to be called in the latter proceedings. To my mind the circumstances here have more in common with those in Morling J's matter Mudginberri Station Pty. Ltd v The Australasian Meat Industry Employees Union & Ors (1986) ATPR 40-646 in which he declined to disqualify himself. His action was confirmed by Dawson J. in the High Court (Re Morling; Ex parte Australasian Meat Industry Employees Union & Ors (1986) 66 ALR 608). In that matter he had in fact, in the somewhat different circumstances, expressed a view on the credibility of a witness who would of necessity have to give later evidence. I agree that because of the course of the proceedings before him he had no alternative but to express such a view, which he acknowledged he might have to change upon further cross-examination and production of other facts. Likewise in respect of the proceedings in this bankruptcy in which at least 45 applications have been before the Court, each on several occasions at least, background facts are of necessity set out in reliance upon the then evidence. Those facts will require reconsideration if there is additional evidence and in the light 11. of subsequent cross-examination. Counsel for the applicant also made reference to the High Court decision in The Queen v Watson; Ex parte Armstrong (1976) 136 CLR 248, and more particularly at page 259 to the extract from the reasons of Denning M.R. in Metropolitan Properties Co. (F.G.C.) Ltd. v Connor [1969] 1 QB 577. That passage read as follows: "... in considering whether there was a real likelihood of bias, the court does not look at the mind of the justice himself or at the mind of the chairman of the tribunal, or whoever it may be, who sits in a judicial capacity. It does not look to see if there was a_ real likelihood that he would, or did, in fact favour one side at the expense of the other. The court looks at the impression which would be given to other people. Even if he was as impartial as could be, nevertheless if right-minded persons would think that, in _ the circumstances, there was a_ real likelihood of bias on his part, then he should not sit. And if he does not, his decision cannot stand.... Nevertheless there must appear to be a real likelihood of bias. Surmise or conjecture is not enough.... There must be circumstances from which a reasonable man would think it likely or probable that the justice, or chairman, as the case may be, would, or did, favour one side unfairly at the expense of the other. The court will not inquire whether he did, in fact, favour one side unfairly. Suffice it that reasonable people might think he did. The reason is plain enough. Justice must be rooted in confidence: and confidence is destroyed when right-minded people go away thinking: 'The Judge was biased'." Counsel for the applicants placed particular emphasis on the words "the impression given to other people". A further reference made with approval by the High Court to that case is on point and was as follows: "Danckwerts L.J., who dealt with the matter quite shortly, appears to have accepted that it would be enough to justify the court's interference if a person knowing the circumstances might reasonably feel doubts as to the tribunal's impartiality. Edmund Davies L.J. was clearly of the view that the court should interfere 12. if it considered that it would appear to right-thinking people that there were solid grounds for suspecting that a member of the tribunal responsible for the decision may (however unconsciously) have been biased." (my emphasis) I do not think that my statement in Bailetti's case would lead a reasonable or rational person who knew the circumstances to feel that there were solid or indeed any grounds to suspect that I will be unable to keep an open mind on the questions in these present proceedings. In all the circumstances I think that it is appropriate that I continue with the hearing of the proceedings. This I propose to do. I have noted the considerable delay on the part of the applicants in seeking disqualification as well as the lengthy delay in the hearing of the matter which will necessarily ensue if I accede. However I have made my decision without placing reliance on either of these two considerations. The application will be dismissed. On the question of costs I amof opinion that they should be the Official Receiver's costs in the cause but I will hear' the parties in this regard before making a formal order. I certify that this and the // preceding pages are a true copy of the Reasons for Judgment of Mr Justice Fisher. Associate AMilbs . Dated: 2% [re