Supreme Court New South Wales Medium Neutral Citation: John Sheahan v Martin Thompson [2015] NSWSC 535 Hearing dates: 04 May 2015 Date of orders: 04 May 2015 Decision date: 06 May 2015 Jurisdiction: Equity Division Before: Rein J Decision: See [18] Catchwords: EQUITY - Application to the trial Judge to recuse himself on the basis of apprehension of bias - Practice in relation to recusal applications Legislation Cited: N/A Cases Cited: Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 411 British American Tobacco Australia Services Ltd v Laurie [2011] HCA 2; (2011) 242 CLR 283 Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134 Wilson v Nicholls (2011) 244 CLR 247 Texts Cited: N/A Category: Procedural and other rulings Parties: John Sheahan (First Plaintiff) Ian Lock (Second Plaintiff) Valofo Pty Ltd (in liquidation) ACN 003 366 934 (Third Plaintiff) Philip Crossman (Third Defendant) Seniors Provident Pty Limited (Fourth Defendant) Metro Finance Pty Limited (Fifth Defendant) Metro Finance NZ Pty Limited (Ninth Defendant) Representation: Counsel: J.E Marshall SC with D. Sulan (First, Second and Third Plaintiffs) A.S Bell SC with D.F.C Thomas (Third, Fourth, Fifth and Ninth Defendants) Solicitors: Clayton Utz (First, Second and Third Plaintiffs) Corrs Chambers Westgarth (Third, Fourth, Fifth and Ninth Defendants) File Number(s): 2013/127413 Publication restriction: nil JUDGMENT 1. In these proceedings the plaintiffs are the trustees of the PILT Trust and the Baltarna Trust and a company, Valofo Pty Ltd ("Valofo"), of which the trustees are liquidators. Mr J.E Marshall SC and Mr D Sulan appear for the plaintiffs. 2. The trustees whom I shall refer to as the New Trustees were appointed as trustees of two trusts known as the PILT Trust and Baltarna Trust respectively on 25 February 2011 in circumstances I shall shortly describe. 3. There are nine defendants to these proceedings but the plaintiffs have resolved their claims against Mr Thompson and Mr Chan. Mr Ross Seller ("Seller"), Mr Peter Londish ("Londish"), PILT Nominees Pty Ltd ("Nominees") and Baltarna Pty Ltd ("BPL"), have taken no or very little active role in the proceedings. I shall refer to Nominees and BPL as "the Old Trustees"- Nominees having been the trustee of PILT Trust removed on 25 February and BPL having been the trustee of the Baltarna Trust. 4. The active defendants are Mr Phillip Crossman ("Crossman") and three companies connected with him: Seniors Provident Pty Limited, Metro Finance Pty Limited and Metro Finance NZ Pty Limited ("the Crossman corporations"). Dr A.S Bell SC and Mr D.F.C Thomas appear for Mr Crossman and the Crossman corporations. 5. The claims brought by the New Trustees against Crossman and his companies arise out of two deeds by which he entered into arrangements with Nominees, BPL, Seller and Londish. Pursuant to one of the deeds he was paid two amounts totalling $2.2 million out of the assets of the PILT Trust. The payments were made as a result of a settlement of proceedings ("the main proceedings") brought by Crossman against Nominees, BPL, Seller and Londish and more particularly of resolution of a motion for contempt of Court brought by Crossman against the Old Trustees and Seller and Londish in respect of alleged breaches of trust by the Old Trustees in which Seller and Londish were claimed to be complicit. Crossman had, in the main proceedings, alleged that the Old Trustees and Seller and Londish had acted to denude the PILT Trust of assets belonging to the trust. 6. The Trustees claim that the Old Trustees, instead of repaying money, wrongly taken by them or with their connivance by Seller and Londish, by paying out money from the trust to pay Crossman were using assets of the trust to buy off Crossman's claims against them. That, the New Trustees contend, is also a breach of trust by the Old Trustees and a breach in which Crossman and his corporations were complicit. The Crossman defendants dispute any wrongdoing on their part. 7. By a motion made returnable instanter at 9.30 am on Monday 4 May the Crossman defendants sought to have me recuse myself from hearing this case, on the ground of apprehension of bias. I refused this application- and by agreement deferred the provision of reasons for my decision until now. 8. The apprehension of bias is said to arise by reason of the fact that the order removing the Old Trustees of the PILT Trust and the Baltarna Trust respectively was made by me, together with an order appointing the trustees as the New Trustees: see Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134. 9. The affidavits relied on in support of the motion were two affidavits by Michael do Rozario- one of 1 May 2015 and one of 3 May 2015. 10. The Crossman defendants drew attention to several matters in support of their motion: 1. the following passages in part of my ex tempore judgment: "9 The Court does not usually invite or permit submissions from parties who have no interest in the outcome of the application before the Court. In this case, Mr Raphael's clients have a reason to be interested in the outcome, and that is, it is abundantly clear from the material put before the Court (see Exhibits A1, A2, A3, C and D) and Mr Gleeson's submissions, both written and oral, that the liquidators of Valofo believe that there are significant aspects of the administration of the trusts by the retiring trustees which could lead to substantial claims against them and other persons. 10 There is an exceedingly obvious conflict of interest between the interest of the retiring trustees and that of the beneficiary, in a context where the Valofo liquidators have outlined a series of concerns about the management of the trusts and quite specifically enumerated those concerns, and where, as I understood it, the essential factual matters asserted are not disputed, but only the conclusions to be drawn from them. This is precisely the reason why resignation was sought from the retiring trustees and was surprisingly resisted, but finally, as I have noted, was proffered. It is in the interests of Mr Raphael's clients that there be no investigation of the claims or potential claims, and that there be no proceedings brought against them. This interest does not, in my view, provide the retiring trustees with a legitimate basis to be heard, and as I have noted, Mr Raphael did not in the end assert that they did, and I saw no reason to hear from them through their counsel." 1. the fact that I was provided with extensive documentation (see Annexure "A" to Mr do Rozario's second affidavit) 2. the fact that I was provided with detailed written submissions by counsel for the trustee in the Volofo proceedings (see Annexure O to Mr do Rozario's first affidavit) 3. that in forming a view that there was a very clear conflict of interest between the Old Trustees and the beneficiary Valofo I must have formed a view as to the propriety of the transaction (see para 21 of the Crossman defendants written submissions) 4. that justice must not only be done but be seen to be done 1. Dr Bell drew my attention to the High Court's decision in Wilson v Nicholls (2011) 244 CLR 247 at 31- 33, British American Tobacco Australia Services Ltd v Laurie [2011] HCA 2; (2011) 242 CLR 283 at [145] per Heydon, Kiefel and Bell JJ and a decision of Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 411 ("Spedley"), at p 438 C and 410 F-G per Mahoney JA. 2. Dr Bell contended that a lay observer might conclude that I had accepted that the transaction entered into by Crossman and the Old Trustees was in fact a breach of trust, and had passed judgment on the very transaction in question in this case. 3. I approach the matter as required to do by Wilson- could a fair minded lay observer reasonably apprehend that I might not bring an impartial and unprejudiced mind to the resolution of the questions which I am called on to decide in this matter? 4. In considering that question I think it is necessary to bear in mind the following matters: 1. the Old Trustees had, prior to the Valofo hearing, indicated that they would withdraw and on that morning abandoned a conditional withdrawal that is one subject to the appointment of persons of their choosing. There was therefore no opposition by them to the order that they be removed 2. the questions which I determined were 1. inferentially, that it was in the best interests of the trusts that the persons against whom allegations of inappropriate conduct had been made by the New Trustees' as liquidators of Valofo, should be removed in circumstances where they had accepted that they should retire having regard to the allegations made by the New Trustees' as liquidators of Valofo who wished to have those matters investigated further 2. whether the Old Trustees had an entitlement to be heard on the identity of the New Trustees. I held they did not and it was in that context that I made the remarks at [9] and [10] of the Valofo judgment set out above at [10] hereof 3. whether the New Trustees should be appointed as trustees (they were also liquidators of Valofo)- I held that they should be so appointed 4. whether the Old Trustees and the two individuals controlling them should pay the costs of Valofo- I held that they should pay those costs 1. I made no finding of facts concerning the transactions nor was I required to do so (cf Spedley and see also British American Tobacco where the trial Judge had found, in other proceedings that the applicant for disqualification had adopted a document retention policy for the purposes of fraud). 2. the Crossman defendants were not parties to the Valofo proceedings 3. the allegations made by the New Trustees in the Valofo proceedings were, at least in relation to the circumstances leading up to the settlement, very similar to the allegations made by the Crossman defendants in the Crossman proceedings 4. there was no cross examination of any witness and no findings were made as to the credit of any party (cf Spedley) 1. I think it is clear from the written submissions of counsel for the Valofo liquidators and the index that the transaction in issue in these proceedings was part of what was put before me in the Valofo proceedings as one of the matters which was the subject of allegations by the liquidators of Valofo although the focus of attention was on the conduct of the Old Trustees since they were the parties whom the liquidators of Valofo had been seeking to have removed. 2. Having regard to all of the matters to which I have drawn attention I do not accept the proposition that I have passed judgment on the propriety of the transaction that is the subject of complaint in these proceedings or that anyone aware of the Valofo judgment could think I had. What I dealt with, in the Valofo proceedings in the context where the Old Trustees had accepted that they had to resign, was whether there was an obvious reason why it was appropriate for them to step down as trustees given the allegations being made against them. The identification of a conflict did not entail a conclusion that they had in fact acted inappropriately, and it was quite unnecessary for me to have so decided. They had an interest in there being no investigation of the matters which were raised against them, whereas the beneficiaries of the trusts had an interest in such an investigation. 3. I do not accept that by reason of my conclusion in the Valofo proceedings it could be thought that in determining the dispute between the New Trustees and the Crossman defendants I would in some way be inhibited or impeded in determining on the evidence to be put before me in these proceedings the issues both factual and legal to be identified, and would not approach the matter with an entirely unbiased mind free of any preconceptions about any of the matters in issue. 4. For these reasons I refused the application made by the Crossman defendants. 5. Dr Bell did submit that it was relevant to my decision that another Judge was available to hear this matter. The unavailability of any other Judge to hear a case can be relevant in a recusal application where grounds of concern are established but my decision is not based on any such consideration. Practice Re Recusal Applications 1. On learning that I had been designated to hear the matter, the solicitors for the Crossman defendants wrote to the List Judge Hammerschlag J seeking to have his Honour appoint another Judge in my place. Before sending the letter the defendants' solicitors sent a copy to the plaintiffs' solicitors. The plaintiffs' solicitors indicated their disagreement with the request but did not object to the letter being sent to the List Judge together with a copy of their letter in opposition. As it happens subsequently the plaintiffs' position altered from opposition to neither consenting nor opposing. His Honour Hammerschlag J listed the matter before him on Friday 1 May at 2 pm and, I was informed by the parties, indicated his criticism of the course which had been adopted by both sides. His Honour made clear his view that it is not appropriate for a party to seek to have the List Judge determine, administratively as it were, that the Judge appointed should be replaced on the grounds of a claimed apprehension of bias by one of the parties. Any such application should be brought by way of Notice of Motion before the trial Judge. Dr Bell and Mr Marshall both accepted, properly in my view, that the letters sent to his Honour were not an appropriate method of dealing with the problem that the defendants perceived existed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 May 2015