Federal Court of Australia

Macrolend Pty Ltd v Deputy Commissioner of Taxation [2026] FCA 1501

ORDERS

THE COURT ORDERS THAT:

1.    The application for recusal filed on 7 September 2026 be dismissed.

2.    The plaintiffs pay the defendant’s costs of the application, as assessed or agreed.

3.    The matter be listed for hearing at 10:30 am AEST on Friday, 2 October 2026.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This interlocutory application seeks an order referring these proceedings to the National Operations Registry for reallocation to another judge of this Court, on the ground of apprehended bias. It is brought by the plaintiffs, Macrolend Pty Ltd (Macrolend) and Paladin Hydrogen Pty Ltd (Paladin), who in these proceedings seek the setting aside of statutory demands issued by the defendant, the Deputy Commissioner of Taxation.

2    For the reasons which follow, the plaintiffs have failed to establish any basis upon which a fair-minded lay observer might reasonably apprehend that the issues in the proceedings might be determined otherwise than on their legal and factual merits.

Background

3    This matter concerns statutory demands issued to the plaintiffs by the Deputy Commissioner, in the amount of $4,387,419.33 for Macrolend and $4,120,289.78 for Paladin. Those amounts are said to comprise penalties imposed under s 16-30 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA53), for failing to withhold amounts as required by subdivision 12-F of Schedule 1 to the TAA53, as well as general interest charges.

4    The penalties are referable to interest paid to Great Southland Ltd (GSL) and Paladin Coal International Ltd (PCIL), being companies incorporated in Belize. Relevantly, those companies and the plaintiff companies in these proceedings were all controlled at the relevant times by Mr David Hodgson.

5    The plaintiffs contend that there is a genuine dispute about the existence or amount of the taxation liabilities. Relevantly, part of that dispute concerns an allegation by the plaintiffs that GSL and PCIL were residents of Australia, within the meaning of s 6(1) of the Income Tax Assessment Act 1936 (Cth), because each carried on business in Australia and had its central management and control here. That is said to be supported by evidence of Mr Hodgson, who has sworn affidavits as to his control over GSL and PCIL from Queensland.

6    Initially, the plaintiffs’ application to set aside the statutory demands was docketed to Downes J and listed for hearing on 3 August 2026. However, in the course of submissions at that hearing, her Honour identified a conflict and ordered reallocation of the proceedings. Consequently, the proceedings were allocated to me.

The contention of apprehended bias

7    By this application, the plaintiffs allege apprehended bias arising from a decision of Sarah C Derrington J delivered on 19 September 2025: Australian Securities and Investments Commission v Macrolend Pty Ltd (No 3) (2025) 176 ACSR 29 (ASIC v Macrolend (No 3)). The parties to those proceedings were the Australian Securities and Investments Commission, Macrolend, Mr Hodgson (as the second defendant) and GSL (as the third defendant). It appears that Mr Hodgson was the principal witness for the defendants in those proceedings.

8    Whilst much of her Honour’s decision in ASIC v Macrolend (No 3) was based upon agreed facts, it appears that Mr Hodgson was a key witness on some contentious issues. Relevantly, the plaintiffs contend that her Honour made a number of findings in relation to his credit, as well as the conduct of the affairs of Macrolend and GSL in and from Australia. They submit that the existence of those prior findings, which are said to be relevant to the present proceedings, creates a reasonable apprehension of bias in circumstances where Sarah C Derrington J is my wife.

Relevant principles

9    The principles concerning the disqualification of judges for apprehended bias are now well established. They have been repeated often in recent years, especially because applications of this nature are becoming increasingly frequent.

10    Whilst it is impossible to lay down a single inflexible rule in cases of this nature, the overarching principle is that a judge should not hear a case if a fair-minded lay observer might reasonably apprehend the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, 344 [6] (Ebner).

11    The application of that test involves three steps: (1) identification of the factor which it is said might lead a judge to resolve the question other than on its legal and factual merits; (2) articulation of the logical connection between that factor and the apprehended deviation from deciding the question on its merits; and (3) assessment of the reasonableness of that apprehension from the perspective of a fair-minded lay observer: QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2023) 279 CLR 148, 163 [38] (QYFM). Importantly, this is an objective test and one which does not require a conclusion about a judge’s actual state of mind.

12    Central to this analysis are the characteristics assumed of the fair-minded lay observer. As Kiefel CJ and Gageler J identified in QYFM at 165 [47], being “fair-minded”, the observer is neither complacent nor unduly sensitive or suspicious, but is cognisant of human frailty: citing Johnson v Johnson (2000) 201 CLR 488, 509 [53] (Johnson); see also Kirby v Centro Properties Ltd (No 2) (2011) 202 FCR 439, 449 [59]. The observer is also aware that judges are not “passionless thinking machines”, and that information and attitudes consciously and conscientiously discarded may nonetheless have a subconscious effect on decision-making: QYFM 165 [47], 172 [70]; CNY17 v Minister for Immigration and Border Protection (2019) 268 CLR 76, 90 [28] (CNY17). Further, being “lay”, the observer is taken not to be aware of the law, judicial process, and the character or ability of a particular judge, but may be taken to understand that the judge, by reason of their professional training, experience and fidelity to their judicial office, will have a greater capacity than most to discard the irrelevant, the immaterial and the prejudicial: QYFM 165 – 166 [48]; CNY17 90 [28]; Johnson 493 [13]. The observer is also not so abstracted and dispassionate as to be insensitive to the impression that the circumstances in issue might reasonably create in the mind of the actual party who is asserting an apprehension of bias: QYFM 166 [49].

13    The nature and characteristics of the fair-minded lay observer were also recently discussed by Beech-Jones J in SunshineLoans Pty Ltd v Australian Securities and Investments Commission (2026) 100 ALJR 489 at 523 – 524 [177] – [178], in his Honour’s customary erudite manner:

177     The construct of the fair-minded lay observer provides the “standard by which the courts address what may appear to the public served by the courts to be a departure from standards of impartiality and independence”. The knowledge attributed to that construct is informed by the objective of maintaining public confidence in the impartiality of the justice system. That objective is distinct from asking whether the judicial system has confidence in itself and does not correspond to an objective of simply maintaining the confidence of the general public based on “public opinion” or “on matters of general impression”.

178     Thus, the fair-minded lay observer is taken to be reasonably well informed of: (1) the nature of the decision that must be made according to its legal and factual merits and the “legal, statutory and factual contexts” in which that decision is made but not to have a “detailed knowledge of the law”; (2) the broader context for the decision, including the general structure and operation of the judicial system and the legal profession, but not to have knowledge of some idealised version thereof that “ordinary experience suggests not to be the case”; and (3) the nature of the decision-maker, be they a judge or a jury, but not to be aware of the decision-maker’s personal characteristics or abilities.

(Footnotes omitted).

14    Importantly, the Ebner test concerns the objective possibility, rather than a probability, that the fair-minded lay observer might apprehend the existence of bias. However, such a conclusion is not one that should be reached lightly; apprehension of bias must be “firmly established”: GetSwift Limited v Webb (2021) 283 FCR 328, 336 [28]; CNY17 98 [56].

No reasonable apprehension of bias is made out

15    Applied here, the first Ebner element is the identification of the factor which it is said might lead the judge to resolve the question other than on its legal merits. That inquiry considers two things: firstly, the question to be decided by the judge in the proceedings, and second, the factor which might impede the judge’s determination of that question.

16    In these proceedings, the question before the Court is whether there is a genuine dispute as to the existence or amount of the debts the subject of the statutory demands, which arise from the penalty notices issued by the Deputy Commissioner. That relevantly involves a question as to the location from which those companies were managed and controlled. The factor which it is said might impede my determination of that question is the judgment of Sarah C Derrington J in ASIC v Macrolend (No 3), in circumstances where her Honour is my spouse.

17    Turning to the second Ebner element, the plaintiffs contend that her Honour’s decision is logically connected to the matters in issue in these proceedings because it contains findings as to the management and control of Macrolend. Somewhat unusually, the plaintiffs submit that they wish to rely on that decision because her Honour found that the management and control of GSL and Macrolend occurred in Australia. The plaintiffs also assert that certain adverse credit findings made by her Honour against Mr Hodgson are logically connected to these proceedings, to the extent that his credit might be in issue.

18    With respect to her Honour’s findings of fact, the plaintiffs submit that there is a risk that a judge confronted with a possibility of bias might overcorrect by reaching a conclusion contrary to that which the alleged bias might favour. In this case, it is said that I might disregard, or make findings contrary to, those made by Sarah C Derrington J.

19    Whilst one can accept the premise that a judge might make an erroneous decision whilst attempting to appear unbiased and fair, that is not a risk which could conceivably materialise in this case. Importantly, there is no reason why the findings of any other judge of this Court (or, indeed, any other court), including those of Sarah C Derrington J, might bear upon any issues arising in these proceedings.

20    Section 91 of the Evidence Act 1995 (Cth) is instructive in this respect. It provides as follows:

91 Exclusion of evidence of judgments and convictions

(1)     Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.

(2)    Evidence that, under this Part, is not admissible to prove the existence of a fact may not be used to prove that fact even if it is relevant for another purpose.

21    This provision is generally reflective of the common law rules against hearsay and opinion evidence: R v Muriniti (2018) 97 NSWLR 991, 1000 [32]. Under those principles, reasons for judgment and observations made by judges during a trial are generally inadmissible hearsay or opinion evidence: Re HIH Insurance Ltd (in liq) [2015] NSWSC 790 [59].

22    Accordingly, in these proceedings, the decision of Sarah C Derrington J in ASIC v Macrolend (No 3) could not be tendered as evidence of the findings of fact therein. Therefore, no opportunity would arise in these proceedings to have regard to those findings or descend into a consideration of their veracity. Indeed, that applies to any decision of any other judge in this or any other court, absent an issue estoppel or some other legal basis on which to consider the decision.

23    Nevertheless, the plaintiffs submit that the admissibility of her Honour’s decision ought not be determined on this application, and that the Ebner test should be undertaken having regard to the fair-minded lay observer’s perspective prior to any such determination. That submission should be rejected because the question posed by this application is whether there is any logical connection between the decision and the application to set aside the statutory demands. Since the inadmissibility of the decision materially undermines any such connection, it is necessary to consider admissibility for present purposes.

24    Alternatively, the plaintiffs submit that, even if the judgment is not admissible, it could nonetheless give rise to a reasonable apprehension of bias if it were placed before the Court for a ruling as to its admissibility. That cannot be so. In the ordinary course, the mere fact that a judge has ruled evidence to be inadmissible does not, and should not, prejudice their ability to hear the matter. Indeed, it is commonplace that judges read and consider inadmissible and prejudicial evidence before determining its admissibility.

25    It follows that the plaintiffs have failed to demonstrate a logical connection between the decision of Sarah C Derrington J in ASIC v Macrolend (No 3) and any apprehended deviation from deciding the plaintiffs’ substantive applications on their merits.

26    In any event, the present circumstances would not satisfy the third Ebner consideration, being the assessment of the reasonableness of an apprehension from the perspective of the fair-minded lay observer. Such an observer would appreciate that a litigant may be involved in several proceedings in which judges make findings, potentially on the basis of overlapping facts and witnesses. Whilst the observer may not know the rules governing the admissibility of those findings, they may nonetheless be expected to understand that each case must be determined on an individual basis, by reference to the evidence adduced in it. It is also accepted that the observer would understand that judges, by reason of their professional training, experience and fidelity to their judicial office, will have a greater capacity than most to discard irrelevant, immaterial and prejudicial information: QYFM 165 – 166 [48]; CNY17 90 [28]; Johnson 493 [13]. Against that background, the mere fact that I have read a judgment concerning the plaintiffs and Mr Hodgson, in which findings were made which overlap somewhat with issues arising in the present proceedings, would not, without more, provide a reasonable basis for apprehending that I might not approach those issues impartially. Nor would my relationship with Sarah C Derrington J provide such a basis. There is no rational reason to apprehend that, because of that relationship, I might adopt her Honour’s findings, depart from them to demonstrate my independence, or resolve the issues otherwise than on their legal and factual merits. This analysis applies equally to the adverse credit findings made against Mr Hodgson by her Honour. For those reasons, the third Ebner element is not satisfied.

27    Accordingly, the Ebner test has not been met in this case.

Conclusion

28    In the circumstances, the application should be dismissed.

29    This being a discrete issue to which the parties will not return at the substantive hearing, there is no reason why the Deputy Commissioner should not have his costs. The appropriate order, therefore, is that the plaintiffs pay the defendant’s costs of the application, as assessed or agreed.

Note

30    These are the amended and revised reasons for judgment given on 25 September 2026. Whilst the reasons given above refine and develop those that were delivered ex tempore, the substance of what was said that day has not been changed nor has any other material change been made.

Associate:    

Dated:    9 October 2026