Bhnan v Micheletto (as joint and several Trustees of the property of Eshi, (Bankrupt)) [2022] FCA 846
The decision of Bhnan v Micheletto (as joint and several Trustees of the property of Eshi, (Bankrupt)) [2022] FCA 846 provides an interesting illustration of the circumstances in which a judgment can be set aside due to the apprehension of judicial bias. In the primary proceeding, orders were made voiding a transaction entered into by a bankrupt. Those orders were set aside on appeal because of the conduct of the primary judge during the trial.
Facts
In the primary proceeding, the trustees were successful in arguing that the transfer of title in a residential property by the bankrupt, Mr Eshi, to Ms Bhnan was void under s.121 of the Bankruptcy Act 1966 (Cth)(“Act”). The primary judge found that Ms Bhnan had paid only $1.2 million of the $1.5 million purchase price. This was despite the fact there were contemporaneous records of some payments relating to the $300,000 shortfall.
At trial, the judge rejected the entirety of Ms Bhnan’s case and formed the view that documents recording payment of some of the shortfall were patently false. Further, because the incoming mortgagee (which lent Ms Bhnan the $1.2m) believed Ms Bhnan would contribute 20% of the purchase price, the judge contended Ms Bhnan had committed a fraud upon it. Significantly, no fraud was pleaded or put by the trustees, and the mortgagee was not a party to the proceeding.
As a result of the finding that the transfer was void, the trustees became the registered proprietors of the property (subject to the mortgage). However, Ms Bhnan remained indebted to the mortgagee in relation to the $1.2m.
Appeal
On appeal, Ms Bhnan argued she had been denied procedural fairness by reason of the primary judge’s interventions, including during cross examination of herself and other witnesses, which gave rise to a reasonable apprehension of bias.
In considering the appeal, the Court had regard to the decision of R v T, WA [2014] SASCFC 3, where Kourakis CJ outlined three basic grounds on which judicial intervention may give rise to a miscarriage of justice:
- Disruption ground: where judicial intervention unfairly undermines the presentation of a party’s case.
- Bias ground: where the intervention gives rise to the appearance of bias.
- Dust of conflict ground: where the intervention is so egregious that it unduly compromises the judge’s ability to objectively and impartially evaluate the evidence.
The appeal was prosecuted on the basis of the “bias ground.” The Court noted that the relevant test to be applied was whether a “fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide” (Ebner v Official Trustee in Bankruptcy [2000] HCA 63).
A critical question at trial of the primary proceeding was whether any of the $300,000 shortfall had been paid. Ms Bhnan submitted that the primary judge, by his interventions, concluded that Ms Bhnan’s case was fraudulent and that His Honour’s mind was so made up that he was not open to changing it.
The trustees did not completely reject that the judge’s intervention gave rise to a reasonable apprehension of bias. Instead, they argued that Ms Bhnan waived her right to argue apprehended bias by failing to raise it at the hearing.
Consideration
In determining the issues, the Court noted the important distinction between judicial interventions during submissions and when witnesses are giving evidence. In respect of cross examination, the Court had regard to the view expressed in Serafin v Malkiewicz [2020] UKSC 23 that interventions should be as infrequent as possible.
The Court considered multiple instances of the primary judge’s interventions in the context of the hearing as a whole, and concluded that “there is nothing in his Honour’s remarks that indicates he was open to any other view or that he was open to seeing something other than what he already saw.” Further, the Court determined that the notion that the incoming mortgagee was defrauded by Ms Bhnan was a case “developed, pursued in cross-examination and upheld by his Honour”.
Finally, the Court found the primary judge’s cross examination of Ms Bhnan to have been “extensive and aggressive,” and that some of the questions put to Ms Bhnan were unfair. Those questions caused Ms Bhnan to become confused and make concessions she might not have otherwise made. The judicial intervention was so aggressive that it also caused Ms Bhnan to explain the limitations of her English speaking ability.
Outcome
Ultimately, the Court concluded that His Honour’s interventions at trial were such to give rise to a reasonable apprehension of bias, and the decision of the primary judge was set aside.
In respect of costs, the Court noted that costs had been wasted through no fault of the parties. However, given the trustees’ defence of the appeal, an order was made in Ms Bhnan’s favour, in accordance with the ordinary rule that costs follow the event. Certificates were also granted to both the appellant and the respondent under s 8(1) of the Federal Proceedings (Costs) Act 1981 (Cth) in respect of any costs incurred by them in relation to the new trial.
~ with Sean Hollis, Graduate at Law
