FEDERAL COURT OF AUSTRALIA

Fried v National Australia Bank Ltd [2000] FCA 787

COURTS AND JUDGES – apprehended bias – association between judge and prospective witness – disqualification – test to be applied to determine – reasonable bystander – knowledge to be imputed to.

Fried v National Australia Bank Ltd [2000] FCA 604 referred to

R v Watson; Ex parte Armstrong (1976) 136 CLR 248 at 258-263 referred to

Livesey v New South Wales Bar Association (1983) 151 CLR 288, 293-294 at 300 referred to

Re J.R.L.; Ex parte C.J.L. (1986) 161 CLR 342 at 349 and 351 referred to

Vakauta v Kelly (1989) 167 CLR 567 at 570-571, 584-585 referred to

Webb v The Queen (1994) 181 CLR 41 at 74 referred to

S & M Motor Repairs Pty Ltd v Caltex Oil (Australia) Pty Ltd (1988) 12 NSWLR 358 at 368-369 referred to

Trustees of the Christian Brothers v Cardone (1995) 57 FCR 327 at 336 referred to

Aussie Airlines Pty Limited v Australian Airlines Pty Ltd (1996) 65 FCR 215 at 226 to 236 referred to

Jones v Dunkel (1959) 101 CLR 298 referred to

TAB FRIED & ORS v NATIONAL AUSTRALIA BANK LIMITED

(ACN 004 044 937) & ORS

VG 352 of 1998

WEINBERG J

13 JUNE 2000

MELBOURNE

THE COURT ORDERS THAT:

1.                  The trial before the Court as presently constituted be vacated.

2.                  The application be listed for trial before another judge of the Court to commence on 3 October 2000.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is an application by the National Australia Bank Limited (“NAB”) and Bendigo Bank Limited (“Bendigo Bank”) that I not continue to sit as the trial judge in this proceeding.  The application is made on the basis that a reasonable apprehension of bias might arise because of my association with a witness whom the applicants now propose to call in the trial.  That witness, Mr Peter Rado, is an accountant.  He also happens to be my accountant, and that of my wife. 

The background facts

2                     The applicants commenced this proceeding in the Court in July 1998.  They initially sought relief only against NAB, and against the partners of the Melbourne firm of solicitors Aroni Colman.  In May 1999 Bendigo Bank was joined as a respondent. 

3                     The relief claimed is founded upon a series of fraudulent misappropriations perpetrated by Max Green, a partner in Aroni Colman.  It is common knowledge that Green was murdered in March 1998. It was discovered after his death that he had stolen large sums of money from various trust accounts held by Aroni Colman with the Bendigo Bank on behalf of the applicants. Green had arranged for these funds to be withdrawn from these accounts. The monies were transferred, sometimes directly, and sometimes via the Aroni Colman Trust Account, to an account which Green had opened in December 1993 at the Elgin Street branch of NAB.  That account was styled “Max Green & Associates Trust Account” and was said to have been secretly maintained by Green.  After the applicants’ monies found their way into that account, Green arranged for them to be telegraphically transferred to various overseas accounts including, a number of accounts in Thailand.  The monies cannot now be located.

4                     The applicants were long-standing clients of Aroni Colman. One of the partners of that firm, Mr Benni Aroni, is the brother-in-law of Mr Tab Fried, the first applicant.  The firm handled substantial investments on behalf of the applicants. Most of the monies were invested in mortgages and in fixed interest deposits.

5                     In their statement of claim the applicants plead a number of causes of action against the partners of the firm.  These include:

·                  their liability as partners for Green’s defalcations;

·                  breach of fiduciary duty;

·                  breach of contract;

·                  negligence; and

·                  misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth), and s 11 of the Fair Trading Act 1986 (Vic).

6                     The applicants’ claims against the partners have been settled.  I have been informed that the applicants propose to seek leave during the course of the proceeding to enter judgment against them.  None of the partners has taken any part in the trial.  The real contest in the proceeding is between the applicants on the one hand, and NAB and Bendigo Bank on the other. 

7                     The applicants’ claim against NAB is based upon its allegedly having participated in Aroni Colman’s breach of trust.  NAB is said to have been involved in the firm’s contraventions of various provisions of the Legal Practice Act 1996 (Vic), and associated legislation.  The applicants contend that NAB is liable to them for Green’s frauds because it had sufficient knowledge of his background and activities to have put it on notice of the need to exercise special care in its dealings with him.  NAB is further alleged to be liable for Green’s various breaches of fiduciary duty under the rule in Barnes v Addy (1874) 9 Ch App 244.  Moreover, NAB is said to have acted in breach of its contractual obligations to Aroni Colman, and in breach of a duty of care owed to the firm.  The applicants say that Aroni Colman acted as their trustee and that they are therefore entitled to stand in the firm’s shoes in vindicating all rights which it, as their trustee, has against NAB.  Finally, the applicants contend, in the alternative, that NAB is directly liable to them for conversion by reason of its actions in relation to a number of bank cheques. The applicants say they either owned, or were entitled to immediate possession of, those bank cheques.

8                     The applicants’ claims against Bendigo Bank are grounded in breach of contract and negligence.  The applicants contend that Aroni Colman, acting as their trustee, invested their funds with Bendigo Bank in four interest bearing trust accounts, each specifically designated to one or other of the corporate applicants.  They say that Bendigo Bank acted in breach of its contractual obligations when it permitted Green, who was not a signatory, to withdraw funds from those accounts and to receive bank cheques drawn against them.  The applicants contend further that Bendigo Bank was negligent in permitting Green to withdraw those funds.  They claim that Aroni Colman, as their trustee, is entitled either to restitution of the sums so withdrawn, or to damages in lieu thereof.  Finally, and in the alternative, the applicants claim that Bendigo Bank owed them, and not just the firm, a duty of care, and that by its actions it breached that duty, giving rise to liability for their losses.

9                     The trial of this proceeding was originally scheduled to commence on 3 May 2000.  On 5 April, however, the applicants filed a notice of motion seeking leave to amend their statement of claim.  On 7 April I granted them leave to make several relatively uncontentious amendments.  On 17 April I heard further submissions in relation to the balance of the proposed amendments.  These related principally to the applicants’ claim against NAB for conversion, and the effect upon that claim of various bank cheques having been drawn as “bearer cheques”.  In substance, the applicants sought leave to amend their statement of claim in order to meet the defence which they had only recently come to appreciate NAB proposed to raise which invoked the status of those cheques as “bearer cheques” in answer to the claim for conversion. 

10                  It was contended by both NAB and Bendigo Bank that I should refuse the applicants leave to make these amendments. Indeed NAB submitted during the course of the first hearing on 7 April that were I to grant the leave sought NAB would require a period of six to twelve months of additional preparation in order to meet the applicants’ claims as reformulated.  By 17 April NAB had resiled from that proposition, and accepted, albeit reluctantly, that were I to grant the applicants leave to amend their statement of claim it could be in a position to commence this trial some time after 10 May.

11                  On 10 May 2000 I delivered my ruling concerning the application to amend the statement of claim.  I ordered that the applicants be granted leave to file and serve the further statement of claim which had been foreshadowed.  I also granted leave to NAB and Bendigo Bank to file and serve amended defences.  I directed that the trial of this proceeding would commence on 22 May 2000, on an estimate of six weeks’ duration, that being the period agreed by all parties – see Fried v National Australia Bank Ltd [2000] FCA 604.

12                  Within a day or two of that ruling, NAB provided to the applicants a proposed further amended defence.  That document answered the new claims made by the applicants concerning the status of the bank cheques as “bearer cheques”.  NAB’s amendments were not, however, confined to dealing with that issue.

13                  NAB’s further amended defence added a series of paragraphs (being 59A-59G) which introduced a series of new issues into the proceeding:

·                    Par 59A alleged, in substance, that Benni Aroni had been not merely the applicants’ solicitor, but also a director and company secretary of some of their corporate entities and, in general terms, that he had been their agent. 

·                    Par 59B alleged that Mr Aroni and the other partners of Aroni Colman were at all material times aware that, notwithstanding the fact that Green had joined Aroni Colman as a partner, he had continued to practise as a solicitor under the name “Max Green & Associates”.  It was also alleged that they were aware that he kept trust and office accounts for that practice with NAB. 

·                    Par 59C alleged that the applicants and Mr Aroni were at all material times aware of matters which indicated that, in purporting to deal with the monies entrusted by the relevant applicants to Aroni Colman for investments, Green was acting dishonestly and in breach of trust. 

·                    Par 59D alleged that Mr Aroni was, in addition, aware in his capacity as agent for the applicants of further matters which indicated that, in purporting to deal with the monies entrusted by the relevant applicants to Aroni Colman for investment, Green was acting dishonestly and in breach of trust. 

14                  Each of pars 59A-59D was particularised in detail. 

15                  Pars 59E-59G were in the following terms:

“59E   By reason of the matters referred to in paragraphs 59A to 59D above, the loss or damage (if any) suffered by the applicants was caused by:

(a)               their own conduct;

(b)               further or alternatively, the conduct of their agent Benni Aroni.

59F      Further or alternatively, by reason of the matters referred to in paragraphs 59A to 59D above, the applicants have acquiesced in or otherwise waived Green’s alleged breaches of trust or fiduciary duty, and are barred from claiming any relief in respect thereof.

59G     Further, to the extent that the applicants seek equitable relief, they are by reason of the matters referred to in paragraphs 59A to 59D above barred from obtaining such relief because they come to Court with unclean hands.”

16                  Throughout the period between 11 or 12 May, when NAB’s further amended defence was served upon the applicants, and 22 May when the trial commenced, the applicants did not raise any formal objection to the inclusion of pars 59A-59G in NAB’s defence. 

The course of the trial

17                  The trial of the proceeding commenced on Monday 22 May 2000.  At my suggestion, and with the agreement of all counsel, it was decided that each party would open its case fully at the outset.  In accordance with the usual practice in this Court, detailed witness statements had been filed well before the commencement of the trial.  In addition, a comprehensive Court Book consisting in total of some forty arch lever folders had been compiled by the parties.

18                  Mr Young QC, senior counsel for the applicants, opened their case for a little over two and a half days, completing his opening shortly after lunch on Wednesday 24 May.  In the course of his opening Mr Young referred to the inclusion by NAB of pars 59A-59G in its proposed further amended defence.  He described these paragraphs as containing allegations which were “sweeping”.  He said:

“The case mounted by way of defence broadly stated acquiescence, contributory negligence, voluntary assumption of risk, waiver and so forth is all premised on the basis that our clients had knowledge and having knowledge of Green’s dishonest conduct they deliberately stood by and left their money there for Mr Green to steal.

It is alleged, I don’t overstate it in what I have just said, the defence says:

The applicant stood by, did not complain about and took no action in relation to Green’s unauthorised actions.

Those allegations, your Honour, are denied and Mr Fried will give evidence that he had no knowledge of Green’s dishonesty, no knowledge of the Green account, no knowledge of the misappropriations and he did not deliberately stand by and allow it to happen, he did not acquiesce in it and he was the innocent victim of frauds perpetrated by Green.”

19                  Mr Young also indicated that as a result of NAB’s having widened the scope of its defence the applicants would be calling the partners of Aroni Colman to rebut the allegations made in pars 59B-59D concerning them.  This was the first indication that the partners would be called to give evidence in this trial. 

20                  Mr Karkar QC, senior counsel for NAB, then commenced his opening.  He referred on that same afternoon to a document which contained a reference to Mr Peter Rado, an accountant. It seems that he had been the applicants’ accountant in the period up to 1997 when the firm Horwaths took over that function.  That, so far as I can ascertain, was the first time Mr Rado’s name had been mentioned before me in this proceeding. There was no reference to him in the pleadings, nor was his name among the list of prospective witnesses to be called. 

21                  The transcript records that I corrected Mr Karkar’s pronunciation of Mr Rado’s name.  I said:

“I think his name is pronounced Rado.  I say that because he is my accountant.”

22                  My comment that he was my accountant elicited no response, and no apparent interest on the part of anyone. Mr Karkar continued his opening throughout that afternoon and Thursday 25 May.  In the course of doing so he referred to a number of documents in the Court Book which contained references to Mr Rado. He also foreshadowed that a strong attack would be made upon the credit of Mr Tab Fried based upon his having allegedly engaged in various tax frauds in relation to a series of transactions each of which was said to be connected with the funds misappropriated by Green. Nothing was said on either of those two days about the possibility that Mr Rado might be called to give evidence. 

23                  To this point nothing of any significance seemed to turn upon Mr Rado’s role as the applicants’ former accountant.  The position changed over the weekend.  On the morning of Monday 29 May 2000 the transcript records the following:

“HIS HONOUR:   Yes, Mr Karkar.

MR KARKAR:   Might I mention one matter arising out of an observation your Honour made last week.  Your Honour mentioned, I think on Wednesday last week, that your Honour’s accountant is Mr Rado.  We can see potential embarrassment for your Honour, depending, of course, on the extent of your Honour’s association or relationship with Mr Rado.  We think your Honour will probably apprehend whether there is an embarrassment or not probably after Mr Fried is examined and cross‑examined.

HIS HONOUR:   Is Mr Rado to be called as a witness in the proceeding as matters stand?

MR KARKAR:   As matters stand, there has been no witness statement filed from him but we apprehend that probably a statement will be forthcoming from the applicants for him.

HIS HONOUR:   I should then perhaps elaborate a little further on my relationship with Mr Rado.  He has been my accountant and my wife’s accountant now for a number of years.  I know him reasonably well but not on a social basis; it’s a purely professional relationship.  He is, as I say, our accountant and also the accountant of my family company, investment company.  Beyond that, I won’t say any more at this stage and I certainly don’t propose to take any action in relation to the matter at this stage.

MR KARKAR:   If Your Honour pleases.

MR GARRATT:   If I could, in relation to that, say this, before Mr Young responds:  it does seem to us as well that, depending upon Mr Fried’s evidence, Mr Rado would become a necessary witness for the applicants and in that event your Honour might be invited to be making findings going to credit.  The sooner any witness statement, if the applicants are to deliver one, in respect of Mr Rado is delivered, the sooner we will be able to know just whether and what issues may arise.

HIS HONOUR:   Yes, thank you, Mr Garratt.

MR YOUNG:   Your Honour, until Mr Karkar opened the matter and made submissions or opening statements concerning the several tax returns prepared by Mr Rado, we had not anticipated that he would be a necessary witness.  Now that the matter of the tax returns prepared by Mr Rado has been opened in the way it was, with the allegations attending that opening, there is a real chance that we will call Mr Rado to give evidence, if he can give any relevant evidence.  We have not yet interviewed him with that in mind, so I can’t say it’s a definite situation, but it is a likelihood that we will call him.  Our instructions indicate that the matters opened by Mr Karkar lead absolutely nowhere, either in relation to Mr Fried or Mr Rado, so we expect that any evidence he gives will be in a very narrow compass.

HIS HONOUR:   I think it was important that Mr Karkar raise the matter, given that I’ve indicated that Mr Rado is my accountant and has been for a number of years.  I’ve said all that I think needs to be said about our relationship at this stage.  If at some point anything further arises in relation to Mr Rado’s position, then I would expect one or other of the parties to raise the matter with me.  As matters presently stand, I don’t foresee any difficulty or embarrassment about either dealing with Mr Rado’s situation in this case, if he is a witness, or if necessary making findings that might be adverse to him  but I simply state what the position is and I will of course hear any submissions that any party wishes to make at a later stage if it becomes clear that that’s the position that’s going to arise.

MR YOUNG:   Thank you, your Honour.  I should add that because of the way in which Mr Karkar has opened the matter, it is also likely that we will call accountants in Horwaths for the same reason.”

24                  At that stage it was not certain that Mr Rado would be called to give evidence, and even less certain what, if anything, he might say.  Nothing further was said about this matter until the following day when Mr Young reiterated that he had yet to meet with Mr Rado.  Mr Karkar then completed his opening.  He was followed by Mr Garratt QC, senior counsel for Bendigo Bank. 

25                  On Wednesday 31 May 2000 I heard submissions regarding an application by the applicants for further leave to amend their statement of claim.  That application had been foreshadowed by the applicants shortly before the commencement of the trial, and a draft of the proposed amended pleading had been provided to the respondents.  It is not necessary, for present purposes, to set out any of the details of the proposed amendments. They were not, in the main, opposed and I granted leave to the applicants to make most of the amendments sought. However, NAB had also foreshadowed some further amendments to their further amended defence, and two, in particular, were opposed. The amendments which were contentious were to par 59G which concerned the defence of “unclean hands”, and were in the following terms:

“Particulars

(a)               NAB refers to and repeats the matters referred to in paragraphs 59A to 59D above.

(b)               Further, the moneys allegedly lost by the applicants were lost by them in the course of the implementation by them of unlawful tax avoidance schemes or arrangements, alternatively in the course of evading their lawful obligations to pay income tax.

(c)               In particular, NAB says that the applicants claimed deductions, and/or failed to return income, and/or failed to pay fringe benefits tax in connection with:

(i)                 a gas meter leasing scheme;

(ii)               the Compack Packaging Employee Share Plan;

(iii)             the TED Engineering Australia Employee Bonus Unit Trust.

(d)               …”

26                  Having heard submissions regarding the particulars concerning tax fraud in par 59G, I ruled that NAB should be refused leave to include particulars (b) and (c). In the course of that ruling I indicated that the allegations of tax fraud contained in those particulars were matters that might be raised with Mr Fried in cross-examination as going to credit, but that those allegations were not appropriate to be included as particulars.  This was because the material said to support those allegations was sparse, and it was doubtful that they had any relevance to the defence of “unclean hands” to which they were appended.  I then formally granted leave to NAB to amend its defence to include pars 59A-59G save for the particulars to par 59G to which objection had been taken.

27                  Mr Tab Fried was then called to give evidence.  His evidence in-chief commenced on the afternoon of 31 May and continued into the next day.  In the course of that evidence he explained the circumstances surrounding the preparation of income tax returns on his behalf, and that of the other applicants.  He said that he had not been involved in assembling or providing the information required for the preparation of those tax returns, and that this task had been carried out by others.  He explained that Mr Rado had been responsible for preparing the tax returns for the group and that he, Mr Fried, had had virtually no involvement in that process.  Mr Fried also said that Mr Rado typically would come to his home at night with a pile of tax returns, and that he would sign those returns where indicated.  He said that he did not normally read the returns before he signed them, and that he had no real understanding of their contents.  He claimed that he had relied on others to provide all relevant information to Mr Rado, and on Mr Rado to prepare the returns in accordance with that information. 

28                  After Mr Fried had completed his evidence in-chief, and before Mr Karkar commenced his cross-examination, Mr Garratt again raised the issue of Mr Rado giving evidence.  Mr Garratt asked for a direction that, assuming that Mr Rado was to give evidence, the proposed witness statement be provided at least by the following morning.  The transcript then records the following:

“HIS HONOUR:  Let’s find out what’s going to happen.  Mr Young, is Mr Rado going to be called to give evidence?

MR YOUNG:  Mr Rado is going to be called to give evidence.  I am going to see Mr Rado, his commitments permitting, on Monday.”

29                  There was then some further discussion and the transcript records:

“MR GARRATT:   There is the further issue as well, your Honour, that we flag and my learned friend Mr Karkar has flagged just ahead of when I would have flagged it of potential embarrassment to the court as a result of Mr Rado’s evidence.  We simply can’t progress that issue without knowing what it is he is going to say.

HIS HONOUR:   You mean because of the fact that Mr Rado is my accountant?

MR GARRATT:   Yes, and whether there is going to be any tension between his proposed evidence and the evidence we have just heard.

HIS HONOUR:   I don’t know, Mr Garratt.  I have said everything that I think I need to say about the nature of my association with Mr Rado.  If at some point you feel that that warrants some kind of application being made then no doubt you’ll make the application.

MR GARRATT:   Yes, your Honour.”

30                  Mr Karkar then continued his cross-examination throughout the rest of that afternoon.

31                  On the following morning, Friday 2 June 2000, I raised at the outset with Mr Young whether it had been finally decided that Mr Rado would be called to give evidence.  I indicated that this was a matter which ought to be resolved in terms of any potential embarrassment to the Court “sooner rather than later”.  I asked Mr Young to prepare a short synopsis of the evidence that would be elicited from Mr Rado in the event that he was called so that the issue of my possibly being disqualified could be dealt with as soon as possible.  Mr Young agreed that he would provide such a synopsis. 

32                  Mr Karkar then cross-examined Mr Fried for the balance of that day and throughout the following Monday 5 and Tuesday 6 June.  He completed his cross-examination at lunchtime on Wednesday 7 June.  Much of that cross-examination was directed to the matters pleaded by NAB in pars 59A-59G of its further amended defence.  There was also a lengthy and sustained attack upon Mr Fried’s credit.  Mr Karkar specifically put to Mr Fried that he had been knowingly involved in defrauding the revenue by including false claims in the applicants’ tax returns in relation to various tax schemes which, as it transpired, were associated with Green’s fraudulent misappropriations.  Mr Fried denied these allegations.  He maintained that he had no real understanding or appreciation of the various tax schemes into which the applicants had entered.  He insisted that he had relied upon his legal advisers and his accountants in these matters, and, in particular, in relation to the preparation of the tax returns.

33                  Mr Garratt commenced his cross-examination on the afternoon of Wednesday 7 June and completed it on the afternoon of Thursday 8 June.  Mr Fried was then re-examined by Mr Young.  At the conclusion of proceedings on that afternoon Mr Young filed with the Court a copy of a proposed witness statement for Mr Rado.  In that witness statement Mr Rado confirmed Mr Fried’s account of the manner in which the applicants’ tax returns had been prepared while he had been their accountant.  Mr Rado denied any wrongdoing on his own part in relation to the preparation of the returns. He said that much of the information with which he had been provided had come from Green. 

34                  The question of what course, if any, I would take as a result of Mr Rado being called to give evidence in accordance with that witness statement was put over until the following morning. 

The application by NAB and Bendigo Bank that I disqualify myself

35                  On Friday 9 June 2000 both NAB and Bendigo Bank made application that I no longer continue to sit as the trial judge in this proceeding.  The basis for that application was that a reasonable apprehension of bias may arise because of my association with Mr Rado.  Both NAB and Bendigo Bank stressed that the application was made not on the basis of any suggestion of actual bias, but solely on the basis of apprehended bias.

36                  Mr Karkar commenced his submission by referring to a series of authorities which, he contended, set out the principles governing applications of this type.  These authorities all support the principle that a judge should not sit to hear a case if in all the circumstances the parties or the public might entertain a reasonable apprehension that the judge might not bring an impartial and unprejudiced mind to the resolution of the issues before him:  R v Watson; Ex parte Armstrong (1976) 136 CLR 248 at 258-263; Livesey v New South Wales Bar Association (1983) 151 CLR 288 at 293-294; and Re J.R.L.; Ex parte C.J.L. (1986) 161 CLR 342 at 349 and 351.

37                  Mr Karkar then referred to Vakauta v Kelly (1989) 167 CLR 567.  There, in the course of the trial of a personal injuries case, the judge, who was sitting without a jury, made statements critical of evidence given by the defendant’s medical witnesses in previous cases.  The judge also made remarks critical of the efficiency of the Government Insurance Office by whom those witnesses had been retained.  Counsel for the defendant did not object to the remarks and made no application about them.  The High Court held that the remarks would have excited in the minds of the parties and in members of the public a reasonable apprehension that the judge might not bring an unprejudiced mind to the resolution of the matter before him.  However, by majority, the Court held that by not objecting to the judge’s remarks the defendant had waived any right to appeal against an adverse decision on the ground of what had been said at the hearing.  Toohey J said at 584-5:

“I accept the observation of McHugh J.A. in the instant case 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”.  In effect, that is what this Court said in Livesey.  And it is true, as Clarke J.A. pointed out, that it is a “reasonable apprehension” with which the court is concerned.  And, if it adds anything, it is such an apprehension in “a fair-minded observer”: Livesey.  But, in this regard, the public perception of the judiciary is not advanced by attributing to the reasonable or fair-minded observer a knowledge of the law and an awareness of the judicial process that ordinary experience suggests not to be the case.  Such an observer, on being told the nature of the litigation in the present case and then being told of his Honour’s remarks, is unlikely to conclude that his Honour was showing no bias against the appellant’s potential witnesses and in turn against the appellant’s case as to the extent of the respondent’s disabilities.  On the contrary, the observer is likely to conclude that his Honour would approach the assessment of damages with a strongly held opinion that the evidence of the appellant’s medical witnesses (which he had not heard) would almost certainly be loaded against the respondent and therefore be worthy of little credence.”  (Footnotes omitted)

38                  Mr Karkar referred to Webb v The Queen (1994) 181 CLR 41 where at 74 Deane J, who, with Brennan J, dissented, summarised the relevant principles in the following terms:

“The area covered by the doctrine of disqualification by reason of the appearance of bias encompasses at least four distinct, though sometimes overlapping, main categories of case.  The first is disqualification by interest, that is to say, cases where some direct or indirect interest in the proceedings, whether pecuniary or otherwise, gives rise to a reasonable apprehension of prejudice, partiality or prejudgment.  The second is disqualification by conduct, including published statements.  That category consists of cases in which conduct, either in the course of, or outside, the proceedings, gives rise to such an apprehension of bias.  The third category is disqualification by association.  It will often overlap the first and consists of cases where the apprehension of prejudgment or other bias results from some direct or indirect relationship, experience or contact with a person or persons interested in, or otherwise involved in, the proceedings.  The fourth is disqualification by extraneous information.  It will commonly overlap the third and consists of cases where knowledge of some prejudicial but inadmissible fact or circumstance gives rise to the apprehension of bias.”  (Footnotes omitted)

39                  Mr Karkar submitted that the application that I disqualify myself fell squarely within the principles laid down in the third and fourth categories to which Deane J had referred. 

40                  Mr Karkar then drew attention to certain observations in the judgment of Kirby P in S & M Motor Repairs Pty Ltd v Caltex Oil (Australia) Pty Ltd (1988) 12 NSWLR 358 at 368-369.  There his Honour said:

“Necessarily, where what is alleged is a reasonable apprehension of bias, the fact situations will greatly vary.  Thus the apprehension of bias may be grounded in prior judicial activity (as it was in Livesey) or in family, financial or professional relationships with one of the parties.  The determination of whether there is, by the stated test, a reasonable apprehension of bias depends upon a full understanding of the facts from which it is suggested that such apprehension arises.  In so far as such bias is said to arise from a relationship between the parties, it is clearly relevant to know the duration of that relationship, its intensity and nature and the time that has elapsed between its last renewal and the performance of judicial functions said to be affected by it.”

41                  Kirby P went on to consider a number of conventions which have developed to ensure the maintenance of high standards and to preserve the appearance of the neutrality and impartiality of judges.  He pointed out that if a judge prefers, because of some past association, not to sit in cases involving particular parties for fear of actual or imputed bias, he or she will so indicate and, save for necessity, will not sit in such cases.

42                  Kirby P continued at 369:

“If a judge has had any connection, even indirect, with litigation that comes before the court, he or she will so indicate when the list of sitting arrangements is distributed.  A substitution will then be arranged.  If the connection is not noted until the judge is actually sitting, cases have arisen where even in mid hearing, the court has been reconstituted, usually on the insistence of the judge concerned.  Even minor connections with the parties, with their interests or with issues raised in the litigation are usually, in my experience, announced.  Thus where a judge holds appointment as a university chancellor, and a case comes before the court involving a college or another university, it has been the practice in the Court of Appeal for the judges concerned to announce in public and at the beginning of proceedings, the judge’s appointment in order to give the parties the opportunity to make submissions, which the judge can then weigh.”

43                  Mr Karkar next referred to Trustees of the Christian Brothers v Cardone (1995) 57 FCR 327.  There the appellant, a corporation, occupied land on which a school was situated.  Relying on occupier’s liability the respondent claimed damages for personal injuries against the appellant.  The trial judge had attended the school, his sons attended it, and he was chairman of the school board.  The judge also knew three teachers who were to be called to give evidence in support of the appellant’s case.  When the matter came on, the appellant invited the judge to disqualify himself on the basis of possible embarrassment if the judge were to decide issues of credit between the respondent and the teachers.  The respondent did not ask the judge to disqualify himself, and the appellant raised no objection to the judge trying the matter if he felt able to try it.  The judge proceeded to hear the case and gave judgment for the respondent. 

44                  On appeal it was contended that the judge had erred in not disqualifying himself on the ground of apprehended bias.  It was contended, in substance, that because of his association with the appellant there was an apprehension of bias in favour of the appellant, and that there was a further apprehension that, in order to dispel the first apprehension, the judge would decide in favour of the respondent.

45                  Wilcox J delivered a short judgment in which he agreed with Ryan J that the appeal should be dismissed.  His Honour said at 336:

“There is no general rule that a judge is disqualified from hearing a case in which a witness known to him or her will be called.  If there were such a rule, it would frequently cause difficulties in a small jurisdiction such as the Australian Capital Territory.  There must be many Territory residents known to all three resident judges.  On the other hand, expect perhaps in an emergency situation, it is clearly undesirable for a judge to hear a case in which a person well-known to him or her is to give important and controversial evidence, especially if the witnesses’ credit may be in issue.  It might be difficult for the judge to bring an open mind to the evaluation of that person’s evidence.”

46                  Gallop J dissented.  His Honour concluded that it was clear that the trial judge should have disqualified himself.  His association with the school was not minimal and was current.  In Gallop J’s view there would need to have been a very clear and unequivocal waiver by the appellant of its right to seek the trial judge’s disqualification to dispel the apprehension that he might not bring an impartial and unprejudiced mind to the trial of the action.

47                  Finally, Mr Karkar referred to Aussie Airlines Pty Limited v Australian Airlines Pty Ltd (1996) 65 FCR 215 where Merkel J at 226-236 canvassed the relevant authorities.  As his Honour noted, the resolution of the issue of possible disqualification requires one to ask how the matter would appear, viewed reasonably, to the public and the parties. It is idle, therefore, to start such an inquiry by stating that the judge himself is confident that he will act impartially, or that counsel for the party making the application that the judge not sit does not contend that the judge will not act impartially. The matter is to be considered through the eyes of the hypothetical reasonable and fair-minded but “informed” observer.

48                  Having canvassed the authorities Mr Karkar emphasised the following matters in support of NAB’s application that I no longer continue to sit as the trial judge in this proceeding:

·                    Mr Rado is, and has been for a number of years, my accountant and that of my wife.  He is also the accountant who handles the taxation affairs of a family investment company. 

·                    I know Mr Rado reasonably well, though on a professional rather than social basis.

·                    By reason of my past and continuing association with Mr Rado I have acquired a knowledge and understanding of his personality and character, and of the way in which he carries out his accounting responsibilities.  Such knowledge may, at least subconsciously, influence any assessment which I might make of Mr Rado’s evidence.

·                    Mr Rado is now to be a witness in this proceeding.  His evidence bears directly upon the matters pleaded by NAB in pars 59A-59G of its further amended defence.  His credit will be in issue.

·                    The witness statement prepared on behalf of Mr Rado indicates that his evidence will, in part at least, be relied upon by the applicants to blunt the attack made by Mr Karkar upon Mr Fried’s credit.  In so far as Mr Fried denies having had any involvement in the preparation of the applicants’ tax returns, and asserts that the information contained in those returns was provided to Mr Rado by others, Mr Rado supports that claim.

·                    Had Mr Rado’s name appeared on the list of witnesses to be called in this proceeding there would be little doubt that I would have declined to hear this case and arranged for it to be heard by another judge.

·                    The fact that I had indicated that I was not personally troubled at the thought that I might be required to make findings adverse to Mr Rado’s credit was of little consequence when considering whether the fair-minded observer might entertain a reasonable apprehension of bias.

·                    No question of necessity could possibly be said to arise.

·                    Despite the cost, inconvenience and delay which undoubtedly would be caused to the parties if I were to disqualify myself, this was a paradigm case requiring that course to be followed.  Although the trial had been running for three weeks, it was still only in its early stages. Far greater harm would be done were I to continue to sit as the trial judge, and were my decision ultimately to be overturned.

49                  Mr Garratt joined with Mr Karkar in submitting that I should disqualify myself.  He adopted the submissions advanced by Mr Karkar.  He added, however, that whether or not Mr Rado was called to give evidence, his role in some of the events which gave rise to this proceeding had been very significant, and it was likely that I would have to make findings regarding his conduct.

50                  Mr Black, counsel for WF Titchener & Co Pty Ltd, the auditors of the Aroni Colman Trust Account, a cross-respondent in this proceeding, neither supported nor opposed the application that I disqualify myself.

51                  Mr Young submitted that I should not accede to the application that I no longer sit as the trial judge in this proceeding.  He submitted firstly that an application of this type should not be lightly granted.  He drew attention to certain observations in the joint judgment of Brennan, Deane and Gaudron JJ in Vakauta v Kelly at 570-571 where their Honours said:

“It is inevitable that a judge who sits regularly to hear claims for damages for personal injury will form views about the reliability and impartiality of some medical experts who are frequent witnesses in his or her court.  In some cases and notwithstanding the professional detachment of an experienced judge, it will be all but impossible to put such preconceived views entirely to one side in weighing the evidence of a particular medical expert.  That does not, however, mean that the judge is disqualified from hearing the particular action or any other action involving that medical expert as a witness.  The requirement of the reality and the appearance of impartial justice in the administration of the law by the courts is one which must be observed in the real world of actual litigation.  That requirement will not be infringed merely because a judge carries with him or her the knowledge that some medical witnesses, who are regularly called to give evidence on behalf of particular classes of plaintiffs (e.g. members of a particular trade union), are likely to be less sceptical of a plaintiff’s claims and less optimistic in their prognosis of the extent of future recovery than are other medical witnesses who are regularly called to give evidence on behalf of particular classes of defendants (e.g. those whose liability is covered by a particular insurer).  If it were so infringed, the administration of justice in personal injuries cases would be all but impossible.  In that regard, both necessity and common sense require that a distinction be drawn between the case where a judge has some preconceived views about the expertise or reliability of the professional opinions of an expert medical witness and the case where a judge has preconceived views about the credit or trustworthiness of a non-expert witness “whose evidence is of significance on … a question of fact” which “constitutes a live and significant issue” in the case ….”

52                  Mr Young submitted that both Mr Karkar and Mr Garratt had greatly overstated the importance of Mr Rado as a witness in the proceeding.  He submitted that the evidence which Mr Rado would give was in narrow compass, and ought to be viewed as being relatively uncontentious.  He submitted that there was no proper basis for any attack to be made upon Mr Rado’s credit, and that Mr Karkar had been unable, when questioned by me about this matter, to point convincingly to any area where issues concerning his credit might arise. 

53                  Mr Young denied that Mr Rado was being called in order to bolster Mr Fried’s credit.  He submitted that the only reason Mr Rado’s evidence had now become relevant was because NAB had amended its defence to include the allegations contained in pars 59A-59G.  Even so, Mr Young submitted, Mr Rado’s evidence was only peripherally relevant to those allegations.

54                  Mr Young submitted that not only had Mr Karkar’s cross-examination of Mr Fried been unduly lengthy and oppressive, but there had been no proper foundation for the attacks made upon his credit in relation to the applicants’ tax returns.  He submitted that I should not entertain the application by NAB and Bendigo Bank that I disqualify myself upon the basis of what had been a wholly improper attack upon Mr Fried’s credit.  The fact that Mr Rado’s evidence might be seen as blunting an attack which ought never to have been made did not provide any basis for my being asked no longer to sit.  Nor should an unjustified attack on Mr Fried provide any basis for a further unjustified attack to be made upon Mr Rado. 

55                  Finally, Mr Young submitted that I should take into account the undeniable prejudice which the applicants, in particular, would suffer if the trial of this proceeding were to be aborted, and the matter allocated to a different judge.  He reminded me of the considerable costs incurred to date by his clients, and of the effect of any further delay upon them should I accede to the respondents’ application.

56                  At the conclusion of his submission, Mr Young reminded me that it was by no means clear that the difficulty which had arisen as a result of Mr Rado’s situation would be resolved if he were to elect not to call him to give evidence.  He referred in particular to a passage in Livesey where the Court observed at 300:

“The consideration that the relevant question of fact may be conceded or that the relevant person may not be called as a witness if the particular judge sits would not, of course, avoid the appearance of bias.”

57                  Mr Young’s reference to that passage was made in response to the one obvious difficulty which would arise if he were now to elect not to call Mr Rado.  No doubt I would then be confronted with a submission on behalf of NAB and Bendigo Bank that an inference of the kind contemplated in Jones v Dunkel (1959) 101 CLR 298 should be drawn against the applicants.  The applicants would respond that the reason Mr Rado was not called was obvious, and their failure to call him should not give rise to any such inference.  The solution to that particular dilemma is by no means an easy one.

58                  In any event, as Mr Young acknowledged, a decision by the applicants not to call Mr Rado would do nothing to overcome the fact that I know him well.  It would still be said by the respondents that I could not be expected to ignore what I know about him when considering the probabilities of Mr Fried’s account of his relationship with Mr Rado being true.  I indicated to Mr Young that I agreed with the submission that it would place the applicants in an invidious position were I to say that I would continue to hear this case provided Mr Rado was not called to give evidence.  I made it clear that I was saying no such thing. 

59                  Mr Young then sought final instructions from his clients as to whether Mr Rado would be called to give evidence.  After obtaining those instructions, Mr Young submitted that I should deal with the present application on the footing that the applicants proposed to call Mr Rado, and that he would give evidence in accordance with his witness statement.  Accordingly, I will deal with the application on that basis.

Conclusion

60                  After giving this matter anxious consideration, I am satisfied that the only realistic course open to me in response to the application made by NAB and Bendigo Bank that I disqualify myself is that I accede to that application. I am satisfied that the hypothetical reasonable and fair-minded but “informed” observer might well entertain an apprehension that, in dealing with the evidence of Mr Rado, I might not bring to the task of assessing that evidence an impartial and unprejudiced mind. 

61                  In arriving at this conclusion I have taken into account in particular the nature of the relationship which ordinarily exists between any individual and his or her accountant.  That relationship, of course, involves the utmost trust.  The fair-minded observer would be entitled to conclude that a client would normally regard his or her accountant as a person of integrity and would at least be disinclined to view him as dishonest.

62                  The evidence which Mr Rado is to give in this proceeding is not unconnected with his professional background and experience. It concerns his role as an accountant, and in particular his involvement over several years in the preparation of company accounts and tax returns for the applicants.  Mr Rado has performed the same functions for me, and for my wife, for many years.  I can well understand that a reasonable bystander might think that it would be difficult for me to avoid being subconsciously influenced by my long-standing association with him into accepting as truthful and accurate any evidence which he might give. 

63                  In any event, my knowledge of Mr Rado and of the nature of his practice provides me with extraneous information of which I ought not be aware in evaluating his evidence. 

64                  I should indicate that in my view the overall importance of Mr Rado’s evidence in this case has been somewhat overstated, particularly by Mr Garratt who has described him as “an essential witness”.  At the same time I am unable to accept Mr Young’s characterisation of Mr Rado’s evidence as being so unimportant and non-contentious as to make it possible for me to continue in this case.  Mr Rado’s evidence is potentially important, and it cannot be assumed that what he has to say is uncontentious.  Indeed, responsible senior counsel have assured me that he will be subjected to a strong attack on matters of credit.  I cannot conclude, on the material before me, that any such attack will be made without proper foundation. 

65                  The decision which I have reached is one which I believe is unavoidable.  It is unfortunate that the possibility that Mr Rado might be called to give evidence in this proceeding did not emerge until after the trial had commenced.  I am acutely conscious of the cost, inconvenience and delay which will result from my decision.  On balance, however, I am satisfied that given that Mr Rado is now to be called to give evidence, and given what I know about the nature and potential importance of that evidence, the interests of justice require that this case be determined by another judge of the Court.

66                  I propose to hear the parties in relation to any consequential orders which may be required.

Associate:

Dated:   13 June 2000