CLENAE PTY LTD V AUSTRALIA & NEW ZEALAND BANKING GROUP

Clenae Pty Ltd v Australia & New Zealand Banking Group Ltd
CaseBase
| [1999] 2 VR 573 | [1999] VSCA 35 | BC9901759
CLENAE PTY LTD v AUSTRALIA & NEW ZEALAND BANKING GROUP LTD
BC9901759
Unreported Judgments Vic · 96 Paragraphs
SUPREME COURT OF VICTORIA COURT OF APPEAL

WINNEKE P, CHARLES AND CALLAWAY JJA
4482 of 1994
8-9 February 1999, 9 April 1999
[1999] VSCA 35
Headnotes
COURTS AND JUDGES — Natural justice — Bias — Claim by bank against foreign currency borrower —
Judge becoming shareholder in bank before judgment — Disqualification for pecuniary interest —
Appropriate test — Reasonable apprehension of lack of impartiality — Death of witness after trial —
Whether necessity or special circumstances relevant to continuation of proceedings.
NEGLIGENCE — Duty of care — Foreign currency loan and bill facilities — Losses incurred due to
exchange rate fluctuations — Necessity of warning of risks — Duty of bank to farmer customers.
Winneke P
[1] I have had the advantage of reading in draft the reasons for judgment prepared by Charles, JA. For the reasons
which his Honour has advanced, I agree that these appeals should be dismissed.
I desire to add some brief observations of my own with regard to the appellants' contention that the trial judge was
disqualified, by reason of his shareholding in the respondent bank, from giving judgment in the matter. In doing so, I
am content to adopt the facts as recited by Charles, JA.
[2] Even if authority binding on this Court compelled me to conclude that the trial judge's acquisition of 2,400
shares in the respondent bank amounted to a disqualifying interest, I would not be prepared for that reason alone,
in the peculiar circumstances of this case, to set his Honour's decision aside and order a re-trial. His Honour
acquired his shares, by inheritance, some time after the hearing had concluded and before he had given judgment.
The trial of the issues had been a lengthy one and, during its course, many witnesses had been called and
examined. It no doubt involved the parties in the commitment of considerable resources and expense. It is apparent
from his Honour's reasons that many of the issues raised by the evidence were factual and their resolution was, at
least in part, clearly dependent upon the judge's view of the character and credibility of the witnesses who gave that
evidence. One of the critical witnesses who gave evidence for the respondent bank, Mr Skehan, had died after the
conclusion of the hearing. In these circumstances, I agree with Callaway, JA (whose reasons I have also had the
advantage of reading in draft) that the nature of the trial and the course which it had followed required the judge to
give judgment in the matter, notwithstanding his adventitious acquisition of shares in the respondent company. The
obligation imposed upon the judge by the circumstances, in my opinion, went beyond mere convenience of the type
to which Kirby, P referred in Australian National Industries Ltd v Spedley Securities (1992) 26 NSWLR 411 at 421-2.
[3] In any event, and notwithstanding the conclusion which I have expressed in the preceding paragraph, I agree
with Charles, JA that authority which binds this Court does not compel us to conclude that it is the mere
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CLENAE PTY LTD v AUSTRALIA & NEW ZEALAND BANKING GROUP LTD BC9901759
shareholding by a judicial officer ("judge") in a party which, alone, constitutes the "disqualifying pecuniary interest",
but rather it is the potential interest, created by that shareholding, in the subject matter or outcome of the litigation
which is the disqualifying factor. The survey of the authorities, which Charles, JA has made, demonstrates that
uncertainty continues to exist about the scope of the pecuniary interest which automatically disqualifies a judge
from deciding a cause. Indeed, as his Honour points out, doubt remains as to whether, in this country, the so-called
"automatic disqualification rule", by reason of direct pecuniary interest, has survived the development by the High
Court of the "reasonable apprehension" test. On the assumption that it has survived, I agree with Charles, JA that
its scope of operation is limited to the circumstances which his Honour has described.
[4] The appellants contend that authority compels us to conclude that the scope of the disqualifying interest rule is
much more stringent and requires a judge with a shareholding in a party, no matter how small, to disqualify himself
or herself (subject to waiver or necessity), regardless of whether or not the outcome of the case could have any
bearing at all upon the judge's interest. The appellants submit that the law requires the application of this strict test
in order to ensure that public confidence in the fairness and impartiality of administration of justice can be
maintained. Any relaxation of this test, the appellants contend, will lead to practical difficulties because, although
judges can be readily assumed to know of their shareholding interests, it cannot be assumed that they can so
readily assess the impact of their decision upon the interest which they have.
These contentions raise issues which travel beyond mere academic interest in times when many, if not most
judges, can be expected to have shareholdings in corporate litigants.
[5] I am, with respect, unable to accept the appellants' submissions. Not only does it seem to me that the scope
which Charles, JA has attributed to the rule better exemplifies its underlying principle that a person should not be a
judge in his or her own cause, but I am by no means satisfied that the rule as his Honour perceives it to be either
relaxes standards or creates the practical difficulties suggested.
[6] It is the current and standard practice of judges to disclose to the parties, at the outset of a case, the existence
of a shareholding interest which they have in one of the parties. That disclosure, as I understand it, is not made in
the interests of fulfilling idle curiosity. Rather it is designed to advise the parties of facts upon which they can make
an informed decision as to whether the judge's interest could possibly incline him or her to pre-judge the issues. It is
not uncommon, in my experience, for the judge to add to the disclosure a statement to the effect that he or she
does not believe that the interest disclosed will cause embarrassment in fairly trying the cause.
One thing, however, is clear, whether or not the disclosure is accompanied by the addendum to which I have
referred. If the parties elect to proceed with the litigation in the light of the interest disclosed, they will not thereafter
be heard to contend that the judge had a possible interest in the outcome of the litigation. In this sense it seems to
me that the scope of the waiver itself indicates the scope of the disqualifying interest.
[7] Nor, with respect to those who think to the contrary, does it seem to me that the rule, as Charles, JA and I
perceive it to be, causes the formidable practical difficulties which are said to attend its application. Once the issue
of shareholding is raised, the parties will readily be able to direct argument as to whether the outcome might
possibly affect or be affected by the interest disclosed. If, ultimately, the judge has any doubt about the matter he or
she will be required to withdraw. As I see it, no greater difficulties of fact or degree are created either for the judge,
or an appellate court, than exist in a case where the judge is challenged on the grounds of "reasonable
apprehension of bias". Indeed this was the question which the trial judge asked himself in Re Maxwell William
Ebner (a Bankrupt); Ebner v The Official Trustee in Bankruptcy [1999] FCA 110. In that case the judge had a
beneficial interest in some 9,000 shares in the same bank which is the respondent to this appeal. The bank was not
a party to the cause in Ebner's case but it was a major creditor of the bankrupt and stood to gain from the success
of the Official Trustee in an action to set aside a transfer from the bankrupt to his wife. The bank, no doubt for that
reason, was funding the action brought by the Official Trustee.
At the commencement of the action the judge declared the nature of his shareholding interest in the bank and
counsel for the respondent objected to his Honour continuing to hear the case on the ground that such an interest
might give rise to a reasonable apprehension of bias. In refusing to disqualify himself the judge said (para16):
"It seems to me that the issues before the court ... are such that they could not in my opinion impact in any
significant way on the share price of the ANZ Bank, and it seems to me therefore that, to that extent, there is no real
pecuniary interest that I have in the proceeding in any way which is such that ... an objective observer, knowing all
the relevant facts, would entertain a reasonable apprehension that I would not decide the case impartially or without
prejudice."
The judge having found for the Official Trustee, the matter went on appeal to the Full Court of the Federal Court.
One of the grounds of appeal was that the judge's decision was voidable because he was disqualified on account of
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his pecuniary interest in a major creditor. Whilst the court expressed reservations about the need for and utility of a
strict rule calling for automatic disqualification on account of shareholding in one of the parties (no matter how
insignificant), it appears to have accepted, albeit in obiter, that the rule exists in this country in the rigid form for
which the appellants here contend (para37, para41). The court however expressed the view that such a rule should
be narrowly confined in its operation to those cases where the judge has an interest in an actual party to the
litigation and stated (para48) that, if it were not so confined, it would "create formidable practical difficulties".
[8] Whatever difficulties might be perceived to exist if the rule were extended to shareholding interests in non-
parties, I do not share the view that similar difficulties exist to preclude a judge from determining whether his or her
shareholding interest in a party might be affected by the outcome of the cause. The trial judge in Ebner's case
appears to have entertained no difficulty in concluding that there could not be any "reasonable apprehension of
bias" because the value of his interest in the bank could not possibly have been affected by the outcome of the
litigation and, if the appellant in that case had not made the concession that the trial judge was entitled to form that
view, the Full Court would have had to consider the same question for itself.
[9] If the disqualifying interest rule is to apply in the stringent form for which the appellants here contend, it is not
difficult to foresee that its application in that form will give rise to undesirable practices which are just as subversive
of the public's confidence in the administration of justice as are the consequences which the appellants contend will
flow from the broader formulation of the rule which I prefer. If a judge is bound to stand aside, upon objection, on
account of holding a share interest in a party which could not possibly be affected by the outcome of the cause,
then not only will inconvenience, cost and delay be occasioned to the parties but it will inevitably provide
opportunities to parties to seek to avoid a hearing before judges whom they regard as possibly unfavourable to their
cause. Furthermore, on this view, if the judge neglects, or fails for whatever reason, to disclose such an interest, his
judgment will be liable to be set aside. As the court in Ebner's case remarked (para37):
"Why is it to be assumed that the confidence of fair-minded people in the administration of justice would be shaken
by the existence of a direct pecuniary interest of no tangible value, but not by the waste of resources and the delays
brought about by the setting aside of a judgment on the ground that the judge is disqualified for having such an
interest?"
I agree with the sentiments expressed by the court in this passage. It is such reasons which compel me to the view
that, if the automatic disqualification rule continues to exist, it does not operate to automatically disqualify a judge
on grounds of mere shareholding in a party alone, but is limited to cases where the judge's pecuniary interest will or
might be affected by the outcome of the relevant proceedings.
Charles JA
[10] In the late 1940s, Clement Martin Quick ("the deceased") with other members of the Quick family bought a
property (which they called "Clenae") of some 1,680 acres in the Warracknabeal district. Mr Quick died on 4
October 1986 leaving two sons, Clement Reginald Quick ("CR Quick") and Wesley Malcolm Quick ("WM Quick"),
who became his executors. The Quick brothers, with their father while he was alive, carried on business as farmers
and graziers near Brim, in western Victoria, and the brothers have for a number of years conducted business,
together with their wives, under the name of CM Quick & Sons. By 1985 the Quick family had progressively built up
their land holding in the Warracknabeal district to a total of in excess of 6,300 acres in eight different parcels of
land.
[11] Since the 1920s the Quick family had banked with the Warracknabeal branch of the Australia and New
Zealand Banking Group ("the Bank") and its predecessor known in the 1920s as "the Union Bank". The brothers
had commenced farming in partnership with their parents, but since about 1971 the brothers took all major
decisions together. Most dealings with the Bank were however left to Mr CR Quick.
[12] In the early 1980s the Bank established a new form of lending under which the debtor's liability to the Bank to
repay principal and interest was expressed in a foreign currency. The Bank promoted foreign currency loans to
farmers in the Horsham district. On 5 March 1985 Mr CR Quick attended the Wimmera Machinery Field Day at
Longerenong Agricultural College in Horsham where the Bank had a marquee and there were bank managers
available to discuss what the Bank could do for farmers. On this occasion Mr Quick heard some officer of the Bank
speaking of the advantages and desirability of a foreign currency loan in Swiss francs for farmers, and in particular
to finance the purchase of farms. One of the points emphasized by the Bank officer was that foreign currency loans
had low interest rates and were five-year interest-only loans.
The foreign currency loan
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[13] Shortly after the March Field Day, a property (called "Weidemans") which linked two of the Quicks' properties
came onto the market. The Quicks were interested in purchasing Weidemans and estimated they needed
approximately $300,000 for the purpose. Their borrowings from the Bank, in overdraft and under mortgages
enabling the purchase of various other properties then amounted to some $700,000. Mr CR Quick went to the
Bank's Warracknabeal branch manager, Mr S. May, and told him of their interest in buying Weidemans. They
discussed the finance needed and Mr Quick asked Mr May about borrowing offshore.
[14] On 17 May 1985 the Quicks signed a sale note for the purchase of Weidemans, subject to finance. On 18
June 1985, Clenae Pty Ltd, a company established by the Quick family in or about 1982 to hold one of their
properties, executed the Bank's standard form entitled "Foreign Currency Loan Application - Form B", making
application to the Bank for the provision to it "of a loan facility funded by borrowing by the Bank overseas", and
stating that the "making of an Advance by the Bank to the customer shall be and be evidence of the acceptance by
the Bank of this Application on the terms and conditions set out."
[15] On 27 June 1985 the Bank advanced AUD$1m. to Clenae which, when disbursed in accordance with the
Bank's letter of 1 July, paid off most, if not all, of the Quick family's existing debts and the price outstanding for
Weidemans. The sum of AUD$1m. represented CHF1,720,000 and the interest rate was said to be then 7.681 per
cent.
[16] By the month of December 1985 there had already occurred a substantially adverse movement in the
exchange rate of the Australian dollar against the Swiss franc. On 20 December 1985 and in June 1986 the loan
was rolled over for a further six-month period. On 22 January 1987 however the loan was converted, at the
insistence of the Bank, into a loan in Singapore dollars, and in March 1987 the Bank placed a stop loss order at
1.39 Singapore dollars on the account. On 4 November 1987 the Australian dollar fell below the level fixed by the
stop loss order and the foreign currency loan was converted by the Bank from approximately SGD$2.4m. to
approximately AUD$1.8m.
[17] In about June 1988 the Bank established a further overdraft limit of $120,000 ("to fund the 1988-1989 cropping
programme") at which time the Quicks signed a document, including the following:
"We acknowledge and agree that our liabilities to the Bank, including those in the name of our family company
Clenae Pty Ltd as at 30 March 1988 stand at $2,446,346.88 including bank interest accrued and bank fees but
excluding the additional $120,000 line."
A written agreement dated 31 August 1989 ("the First Agreement") was later executed between the Bank, and
Messrs CR and WM Quick and Clenae Pty Ltd. The First Agreement provided inter alia -
"That the Quicks should pay to the Bank in reduction of principal three equal consecutive instalments of $170,000
on 31 March 1990, 1991 and 1992 and the proceeds of the sale of 'lots' to be sold no later than 31 March 1991."
A second agreement was executed on 9 June 1992 ("the Farm Restructuring Agreement") between the Bank and
Messrs CR and WM Quick and Clenae Pty Ltd. A third agreement was executed on 15 October 1993 between the
same parties ("the October Agreement"). The First Agreement contained releases by Messrs CR and WM Quick
and Clenae Pty Ltd of the Bank "from all liability, actions, claims, suits, demands and costs whatsoever". The
second and third agreements contained releases of claims against the Bank in substantially similar form.
Issue of proceedings
[18] The writ in these proceedings was issued by the Bank on 7 February 1994. Repayment was claimed of the
various sums alleged to be owing by Clenae Pty Ltd and Messrs CR and WM Quick to the Bank, and which were
said to total (together with interest) some $3,026,269.80. Of these amounts, $1m. represented the original foreign
currency loan to Clenae Pty Ltd, some $222,000 a further loan to CM Quick & Sons, and $178,000 a further loan to
Clenae Pty Ltd. Large amounts were owing by way of interest on each of these loans. Between 1985 and 1995 a
number of poor farming seasons had been experienced in the Wimmera district and financial returns were well
below projected incomes in a number of these years, which had contributed to the Quick family's inability to meet
many interest payments.
[19] The defendants counterclaimed against the Bank and, at the trial, the principal issues were, in broad terms,
first, whether the Bank had, or alternatively, was entitled in the circumstances to enforce, legal rights against the
defendants in respect of moneys advanced to them by the Bank; and, secondly, whether the defendants were
entitled to succeed in various causes of action founded on differing obligations alleged to be owed by the Bank to
the defendants, including one of honesty, one to exercise reasonable care and skill, one not to engage in
misleading and deceptive conduct, and one not to engage in unconscionable conduct, and a fiduciary obligation.
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The Bank, for its part, denied each of the allegations made by the defendants of breach, and further relied on the
three releases to which previous reference has been made.
[20] The proceedings were heard by the learned judge over some 18 days in March, April and May 1996. On 25
March 1996 his Honour directed that the trial proceed on all issues other than the quantification of damage on the
counterclaim. His Honour reserved his decision on these issues on 2 May 1996. During the trial his Honour heard
evidence from Mr CR Quick and Mr WM Quick, Mrs Cheryl Quick, and various other witnesses on the part of the
defendants, and some ten witnesses on behalf of the Bank.
The acquisition by the judge of a shareholding in the Bank
[21] On 14 July 1996, some two-and-a-half months after judgment had been reserved, the learned judge's mother
died. The judge and his brother were named as executors of their mother's estate under her will dated 10
December 1995. An application for probate was made by his Honour and his brother to the Supreme Court of
Victoria, and probate was granted to them on 12 September 1996. His Honour swore an affidavit on 4 September
1996 referring to an Inventory of Assets and Liabilities for his mother's estate which was signed by his Honour.
[22] By the will, the learned judge and his brother were bequeathed the deceased's residuary estate as tenants-in-
common in equal shares. The residuary estate included 4,800 shares in the Bank, and a debenture No 1366106005
for $200,000 secured over the assets of Esanda Finance Corporation Ltd ("Esanda"). Esanda was, on 15 October
1997, a wholly-owned subsidiary of the Bank. On 9 October 1996 his Honour became registered as the holder of
2,400 shares in the Bank.
Decision at the trial
[23] On 9 October 1997, the learned judge published his reasons for judgment and at 10am on 10 October his
Honour made orders in accordance with minutes of proposed orders submitted by the parties. In reasons for
judgment, the learned judge rejected each of the defendants' claims that the Bank had acted in breach of the
various obligations alleged against it. Insofar as the defendants' claim was based on negligent misstatements
alleged to have been made by Mr WJ Skehan (the Bank's Ballarat Area Manager) to Mr CR Quick, his Honour in
substance rejected the defendants' evidence and accepted Mr Skehan's evidence. Although his Honour accepted in
part Mr CR Quick's evidence as to what was said on behalf of the Bank at the Wimmera Field Day and by Mr
Moreno (the State Manager, International Services, of the Bank), nevertheless, in the light of the continued
warnings which his Honour found had been given by Mr Skehan and Mr CR Quick's own evidence as to his
appreciation of the risks of currency fluctuations, his Honour was not satisfied that negligent statements (if any)
made at the Wimmera Field Day or by Mr Moreno had played any material part in inducing the Quicks to enter the
foreign currency loan. The learned judge also accepted that the releases contained in the first and second
agreement were effective to release the Bank from all claims the defendants had against the Bank relating to the
foreign currency loan (if, contrary to his Honour's conclusions the defendants had any). His Honour rejected the
defendants' claims that these agreements (and the releases) were entered into as a result of unconscionable
dealing by the Bank or as a result of illegitimate pressure by the Bank amounting to economic duress. Mr Skehan
died on 1 September 1997.
The discovery by the defendants of the learned judge's shareholding
[24] At 11 am on 10 October 1997, one hour after the learned judge had made orders in accordance with the
minutes of orders submitted by the parties, the appellants' solicitor searched the share register of the Bank and
found that his Honour and his brother were each the registered owner of 2,400 "A" class $1 fully-paid shares in the
bank.
The appeals
[25] From these orders, the defendants, as appellants, brought two separate appeals, which were heard together
by this Court. In the principal appeal, the appellants' first argument was that the trial judge was disqualified from
giving judgment by reason of direct pecuniary interest. The second issue was whether the learned judge was in
error in the way in which the appellants' claims in the tort of negligence were rejected. The appellants also relied
upon the equitable doctrine of unconscionability, and sought to argue that the releases were not effective to release
the Bank from the various claims made by the appellants. The second appeal which was sensibly not pressed in
this Court related to a claim that the learned judge should have recalled or withdrawn his judgment upon
application.
The first ground - disqualification by way of interest
[26] Mr Douglas, QC, who appeared with Mr Connor for the appellants, argued that the learned judge acquired his
shares in the Bank whilst he was adjudicating in this particular matter, and did not disclose that fact to the parties.
Accordingly he submitted that the judgment and orders must be set aside. In his submission the fundamental
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principle was that no person can be a judge in his own cause and the principle extended to situations where the
judge is not a party but has a financial or property or proprietary interest in the outcome of the proceeding. Mr
Douglas submitted that the judge was disqualified automatically and without any investigation into whether there
was a likelihood or suspicion of bias. The principle applied, so the argument ran, to the situation where the judge
holds shares in a company which is a party to the litigation, and it was submitted that the extent of the judge's
personal or pecuniary interest in the outcome was immaterial. The principle was said to apply to such an interest
however small. Reliance was placed on a line of cases beginning with Dimes v Grand Junction Canal Proprietors
(1852) 3 HLC 759 and continuing to R v Bow Street Magistrate; ex parte Pinochet Ugarte (No 2) [1999] 2 WLR 272.
Mr Douglas also submitted that an interest in the nature of a loan to a party was also a sufficient pecuniary interest
to require a judge to disqualify himself unless the parties consented to his hearing the case, but reliance was
primarily placed upon the learned judge's shareholding. Indeed the relevant ground of appeal as amended during
argument, asserts that "the learned trial judge was disqualified from giving judgment in the matter by reason of
beneficially holding 2,400 shares in the respondent company."
[27] Mr Shaw, QC, who appeared with Mr Berglund for the Bank, argued that the appellants' submissions failed to
take into account properly the fact that it is not the mere holding of an interest which disqualifies a judicial officer.
The interest, said Mr Shaw, must be one which may be affected by the decisions to be made. To suggest
otherwise, particularly in relation to an assertion that an interest as a lender is sufficient to disqualify the judicial
officer, would render most judicial officers incapable of hearing cases involving their bankers if they held a credit
account with the bank. Mr Shaw submitted that the rule may be stated as being: subject to exceptions relating to
waiver and necessity a judicial officer is disqualified from participating in a decision where he or she has a direct
pecuniary interest in the outcome of the proceeding; such an interest occurs when the judicial officer has an interest
in one of the parties to the proceeding and as a direct result of the decision made it can reasonably be said that the
value of the interest will vary; it matters not that the interest on variation in value is small. Mr Shaw submitted that in
the present appeal the value of the interest held by his Honour was so unlikely to be affected by the decision of the
court having regard to the effect a successful claim would have upon a company the size of the Bank, and the fact
that its shares are traded on the Australian Stock Exchange, that it could not be said that the judge had a pecuniary
interest in the outcome of the proceeding. He submitted that it could not be the case that a judge who has a
shareholding in a party, but which shareholding will not be affected by any decision to be made, has a direct
pecuniary interest in the outcome of the proceeding or has such an interest that warrants disqualification.
The evidence before the Court as to the judge's shareholding
[28] The affidavit material disclosed that in an inventory of assets and liabilities as at 29 August 1996 the judge's
mother was shown as having 4,800 shares in the Bank, each of which was said then to have a value of $6.01, the
shareholding being valued at $28,848. The value of these shares on the Australian Stock Exchange during the
period 14 July 1996 to 9 October 1997 fluctuated from $5.90 per share on 17 July 1996 to $11.45 on 26 September
1997. On the latter date, therefore, the value of 2,400 such shares was $28,290. The 1998 financial statements of
the Bank, summarizing the financial position of the Bank and its subsidiaries for the financial year ending 30
September 1998, show that as at 30 September 1998 the Bank's share capital was 1,539,440,677 ordinary shares
fully paid, 169,000 ordinary shares paid to 10 cents per share and 64,016,000 preference shares fully paid; and
there were 151,564 shareholders. In 1997 the ordinary issued shares of the Bank numbered 1,508.6m. and there
were 132,450 shareholders. As at 30 September 1997 the net assets of the Bank and controlled entities were
$6,993m. The figure for 1998 was $8,391m. Share capital and reserves attributable to members of the Bank as at
1997 were $6,943m., and for 1998 $8,335m. Operating profit after income tax of the Bank for 1997 was $1,024m.
and for 1998 was $1,106m. In 1997 $695m. was the amount provided for or paid in ordinary share dividends. For
1998 the amount provided for or paid in ordinary share dividends was $747m.
[29] Mr Douglas conceded at the outset of his argument that he could not argue on the evidence before this Court
that any verdict would have affected the value of the shares at the end of the litigation. Clenae Pty Ltd and WM
Quick & Sons had received loans from the Bank (including their foreign currency loan in dispute) to the value of at
least $1,400,000, upon which most interest remained unpaid. The total debt figure as at the time of issue of
proceedings in 1994 was some $3,026,000. Although the defendants claimed unliquidated damages, if they had
succeeded on all issues it is unlikely that the verdict would have exceeded $1m. Even if the amount of damages
were put at $1.5m., it could not, I think, have been seriously argued that an award of this order would have had any
impact at all on the value of the judge's shares or on the potential dividend payable for the shares. Nor could it have
had any impact on Esanda's ability to meet its obligations on the debenture for $200,000 which was part of the
estate of the judge's mother. In all the circumstances I have no doubt that Mr Douglas' concession was properly
made.
Bias by reason of pecuniary interest
[30] It is a fundamental principle of our law that a person may not be a judge in his or her own cause. The test to
Page 7 of 21
be applied by the courts has been settled by a long list of decisions of the High Court in the following terms: 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 or unprejudiced mind to the resolution of the question
involved in it; see eg R v Commonwealth Conciliation and Arbitration Commission; ex parte Angliss Group (1969)
122 CLR 546, at 553-554; R v Watson; ex parte Armstrong (1976) 136 CLR 248, at 261-262, 264, 267; Livesey v
NSW Bar Association (1983) 151 CLR 288 at 293-294, 300; Re JRL; ex parte CJL (1986) 161 CLR 342, at 349,
351, 359, 368, 371; Webb v R (1993-1994) 181 CLR 41 at 47, 57, 67, 87. The High Court has specifically rejected
(Webb per Mason, CJ and McHugh, J at 47, Brennan, J at 57, Deane, J at 69-74, Toohey, J at 87-88) the test
which continues to be applied in the House of Lords, the "real likelihood" or "a real danger" of bias; R v Gough
[1993] AC 646, at 670 per Lord Goff of Chieveley. In Webb, Brennan and Deane, JJ dissented, but only as to
whether the fair-minded observer would in all the circumstances have apprehended a lack of impartiality on the part
of a juror, not as to the law. The test applied in Australia is of a reasonable apprehension on the part of a fair-
minded and informed observer (Webb, at 53, 57 and 73-74). Deane, J in Webb (at 73) said that the knowledge to
be attributed to the fair-minded observer is -
"a broad knowledge of the material objective facts as ascertained by the appellate court, as distinct from a detailed
knowledge of the law or knowledge of the character or ability of the members of the relevant court. The material
objective facts include, of course, any published statement, whether prior, contemporaneous or subsequent, of the
person concerned."
[31] There are, as Deane, J observed in Webb at 74, at least four distinct, though sometimes overlapping, main
categories covered by the doctrine of disqualification by reason of the appearance of bias; the first of which, for
present purposes, is disqualification by interest. It has been conventional to distinguish allegations of bias through
pecuniary interest from other allegations of a non-pecuniary nature, since the very special case of a direct
pecuniary interest, when found to exist, results in the disqualification of the judge being automatic, without there
being any "question of investigating, from an objective point of view, whether there was any real likelihood of bias,
or any reasonable suspicion of bias, on the facts of a particular case"; Gough per Lord Goff of Chieveley at 661;
see also Dimes at 793; Webb per Deane, J at 74-75. Since Webb, there is now a question, to which I shall return,
whether in Australia it is the same test (the "reasonable apprehension" test) which must be applied to all four
categories notwithstanding that disqualification follows automatically upon a finding of direct pecuniary interest; see
in particular per Deane, J in Webb at 67-68, and 74-75, in a detailed examination of the categories of case covered
by the doctrine of disqualification by reason of an appearance of bias. The view that there is a single test applicable
to all four categories may also be implicit in the language used in Webb by Mason, CJ and McHugh, J at 47-53
(with whom Brennan, J agreed at 57) and by Toohey, J at 86-87. The Court in Webb was however not concerned
with apparent bias resulting from pecuniary interest. If the reasonable apprehension test is also to be applied to the
category of pecuniary interest, it presumably does so on the presumptive basis that a relevant direct pecuniary
interest immediately establishes the necessary reasonable apprehension or suspicion.
[32] The argument for the appellants was that if a judge owns any shareholding, however small, in a litigant, that is
in itself sufficient to disqualify the judge as having a direct pecuniary interest in the proceedings. There is a
substantial body of case law which supports this submission, although, I think, none which could be regarded as
binding Victorian courts to take such a view. It is convenient to begin with Dimes. There the Lord Chancellor had an
interest as shareholder in the Grand Junction Canal, a public company. The Vice-Chancellor granted the relief
sought by the company against a landowner and the Lord Chancellor on appeal affirmed the order. In the House of
Lords, Lord Campbell said, at 793-794 -
"No one can suppose that Lord Cottenham could be, in the remotest degree, influenced by the interest that he had
in this concern; but, my Lords, it is of the last importance that the maxim that no man is to be a judge in his own
cause should be held sacred. And that is not to be confined to a cause in which he is a party, but applies to a cause
in which he has an interest. Since I have had the honour to be Chief Justice of the Court of Queen's Bench, we
have again and again set aside proceedings in inferior tribunals because an individual, who had an interest in a
cause, took a part in the decision. And it will have a most salutory influence on these tribunals when it is known that
this high Court of last resort, in a case in which the Lord Chancellor of England had an interest, considered that his
decree was on that account a decree not according to law, and was set aside. This will be a lesson to all inferior
tribunals to take care not only that in their decrees they are not influenced by their personal interest, but to avoid the
appearance of labouring under such an influence."
[33] Then in R v Hammond (1863) 9 LT(NS) 423 Blackburn, J said (arguendo) "The interest to each shareholder
may be less than a farthing, but still it is an interest". Again, in R v Rand (1866) LR 1 QB 230, Blackburn, J
(speaking for the Court of Queen's Bench) said at 232 -
"There is no doubt that any direct pecuniary interest, however small, in the subject of inquiry, does disqualify a
Page 8 of 21
person from acting as a judge in the matter; and if by any possibility these gentlemen, though mere trustees, could
have been liable to costs, or to other pecuniary loss or gain, in consequence of their being so, we should think the
question different from what it is: for that might be held an interest. But the only way in which the facts could affect
their impartiality, would be that they might have a tendency to favour those for whom they were trustees; and that is
an objection not in the nature of interest, but of a challenge to the favour."
Then, in Leeson v General Council of Medical Education and Registration (1889) 43 ChD 366, Bowen, LJ said, at
384 -
"Nothing can be clearer than the principle of law that a person who has a judicial duty to perform disqualifies himself
from performing it if he has a pecuniary interest in the decision which he is about to give, or a bias which renders
him otherwise than an impartial judge. If he is an accuser he must not be a judge. If he has a pecuniary interest in
the success of the accusation he must not be a judge. Where such a pecuniary interest exists, the law does not
allow any further inquiry as to whether or not the mind was actually biased by the pecuniary interests. The fact is
established from which the inference is drawn that he is interested in the decision, and he cannot act as a judge."
One of the strongest statements to the same effect is that of Lord Buckmaster in Sellar v Highland Railway Co
[1919] SC(HL) 19, most recently quoted by Lord Hope of Craighead in Pinochet at 288. After referring to Dimes,
Lord Buckmaster said -
"The law remains unaltered and unvarying today, and, although it is obvious that the extended growth of personal
property and the wide distribution of interests in vast commercial concerns may render the application of the rule
increasingly irksome, it is nonetheless a rule which I for my part should greatly regret to see even in the slightest
degree relaxed. The importance of preserving the administration of justice from anything which can even by remote
imagination infer a bias or interest in the judge upon whom falls the solemn duty of interpreting the law is so grave
that any small inconvenience experienced in its preservation may be cheerfully endured. In practice also the
difficulty is one easily overcome, because, directly the fact is stated, it is common practice that counsel on each
side agree that the existence of a disqualification shall afford no objection to the prosecution of the suit, and the
matter proceeds in the ordinary way. But if the disclosure is not made, either through neglect or inadvertence, the
judgment becomes voidable and may be set aside."
[34] A like view has not infrequently been taken in courts in this country; see, in New South Wales, Commercial
Banking Co v Balgarnie [1864] SCRep 27, at 28-29 per Stephen, CJ and Wise, J (the latter quoting Dimes); and Ex
parte Dalton [1876] SCRep 277, at 281-2 per Martin, CJ and Manning, J; and in Queensland, R v Lowe, ex parte
Queensland [1912] SCRepQd 188.
[35] The rationale for these decisions begins with the proposition that a person may not be a judge in his own
cause. Lord Hewitt CJ in R v Sussex Justices, ex p McCarthy [1924] 1 KB 256 in a celebrated passage at 258-259
referred to it being of "fundamental importance that justice should not only be done, but should manifestly be seen
to be done". Judges (such as Lord Buckmaster in Sellar) have emphasized the importance of preserving the
administration of justice from anything which can even by remote imagination infer a bias in the judge; once a
personal financial interest of the judge has been shown to exist, there is said to exist a powerful risk of bias on the
part of the judge, no matter how hard the judge strives to overcome it (Galligan, Due Process and Fair Procedures;
A Study of Administrative Procedures, 1996, 446). Since there would obviously be a difficulty in determining when
exactly a shareholding becomes large enough so that partiality might be suspected, it is argued that the most
practical approach remains the disqualification of the judge, no matter how small the shareholding (Cranston,
Disqualification of Judges for Interest, Association or Opinion [1979] PL 237 at 243).
[36] Considerations such as these have led numerous texts to support the rule in its strictest form; see eg De
Smith, Woolf & Jowell, Judicial Review of Administrative Action, 5th ed, 1995, 528-9; Aronson & Dyer, Judicial
Review of Administrative Action, 1996, 597-598; Craig, Administrative Law, 1983, 291-2; Halsbury's Laws of
Australia, Vol 8, Disqualification for Interest and Bias, para125-para290, para125-para295, para125-para300; Jones
& Thompson, Garner's Administrative Law, 8th ed, 1996, at 242-243; The Laws of Australia, Vol 2, Chapter 4, The
Rule Against Bias; para57; Cranston, op cit, 238-243.
[37] Dimes is the decision usually quoted as the principal source of the rule. Upon examination, it is hardly a
compelling authority for the view that the rule must be applied, no matter how small the shareholding. The Lord
Chancellor owned a substantial shareholding in the Grand Junction Canal company, the shareholding being said to
have a value of "several thousand pounds". The then Lord of the Manor of Rickmansworth (see 3 HLC at 760-761),
placed a bar across the canal and then threw a large quantity of bricks into the canal to prevent the passage of
barges, threatening wholly to stop navigation unless the company paid him £5,000. That sum would by today's
measurement have a value well in excess of AUD$500,000 (Global Financial Data, a measure available on the
Internet of English consumer prices from 1264-1998, suggests that as from 1855 to 1998 it would be necessary to
Page 9 of 21
multiply the 1855 figure by a factor of roughly 46 to achieve 1998 values). The landowner's proposed actions would
have brought the business of the canal company to a complete halt. Lord Cottenham was repeatedly referred to in
argument as being "largely interested" (at 768), as having an interest in the company which was "very considerable"
and being "a large shareholder" (both at 769). Dimes is scarcely the best springboard for the view that an
insignificant shareholding in a litigant is sufficient to disqualify a judge.
[38] When one examines the 19th century decisions concerning disqualification for pecuniary interest, it must be
borne in mind that it was not until the Ltd Liability Act 1855 that a company could secure the limited liability of its
members to the nominal amount of the shares held by them respectively. The Companies Act 1862 was the first
enactment to bear that short title. It was not until 1897 that Salomon v A. Salomon & Co. Ltd ([1897] AC 22) entered
the law reports. Although it is now long-established that a shareholder has no interest in the assets of the company
(Macaura v Northern Assurance Co Ltd [1925] AC 619 per Lord Buckmaster at 626; Re Webster (1975) 132 CLR
270, at 287), the attitude of members of even the Court of Appeal in 1895 was, not surprisingly, very different from
today's. Notwithstanding that all three judges in that court had no doubt that the incorporation of A Salomon & Co
Ltd had been properly effected, and that every necessary detail for incorporation had been scrupulously observed
(Broderip v Salomon [1895] 2 Ch 323 per Lindley, LJ at 337, per Lopes, LJ at 340 and per Kay, LJ at 343), Lindley,
LJ said (at 338-9) that Mr Salomon's incorporation of his business was merely "a device to defraud creditors", that -
"In a strict legal sense the business may have to be regarded as the business of the company; but if any jury were
asked, Whose business was it? they would say Aaron Salomon's, and they would be right, if they meant that the
beneficial interest in the business was his."
and later that -
"If the legislature thinks it is right to extend the principle of limited liability to sole traders it would no doubt do so,
with such safeguards, if any, as it may think necessary. But until the law is changed such attempts as these ought
to be defeated whenever they are brought to light. They do infinite mischief; they bring into disrepute one of the
most useful statutes of modern times, by perverting its legitimate use, and by making it an instrument for cheating
honest creditors."
[39] These sentiments were echoed in both the other judgments in that court. As Lord Halsbury, LC said on appeal
([1897] AC at 33-34):
"The truth is that the learned judges have never allowed in their own minds the proposition that the company has a
real existence."
[40] In more recent times the interest of the shareholder has been viewed in a rather different light from that taken
by the Court of Appeal in 1895. In The Modern Corporation & Private Property, (1991), Berle and Means, at 114,
identified the three principal interests of the shareholder in a company as being first that the company should be
made to earn the maximum profit compatible with a reasonable degree of risk, secondly that as large a proportion
of these profits should be distributed as the best interests of the business permit, and thirdly that the stock should
remain freely marketable at a fair price. Consistently with these propositions, it cannot now be said that a
shareholder is in any sense a party to litigation in which the company is involved. As Lord Goff said in Pinochet,
after referring to Dimes, at 286 -
"As stated by Lord Campbell the principle is not confined to a cause to which the judge is a party, but applies also
to a cause in which he had an interest. Thus, for example, a judge who holds shares in a company which is a party
to the litigation is caught by the principle, not because he himself is a party to the litigation (which he is not), but
because he has by virtue of his shareholding an interest in the cause. That was indeed the ratio decidendi of the
famous Dimes case itself."
[41] If then the shareholder is not a party to litigation in which the company is involved, and has no interest in the
assets of the company, it should follow that the shareholder would not ordinarily have a financial interest in the
outcome of litigation in which the company was a party unless the outcome might, as a possibility, affect either the
value of the shares in question or the potential dividend attributable to them. And, if a judge as shareholder does
not become a party to litigation in which the company is involved, and has no legal or equitable interest in the
company's assets, why should the judge be disqualified by a shareholding unless the value of the shares or the
amount of the likely dividend could be affected by the outcome; or, that is, unless the judge is financially interested
in the outcome of the litigation? There remains a further question whether the judge should be disqualified if the
shareholding can be described as significant, even though the judge has no financial interest in the outcome of the
litigation.
The rule in Australian courts
Page 10 of 21
[42] It is the practice of most, if not all, Victorian (and, I believe, Australian) judges who hold shares in companies
litigating in their courts to declare their shareholding at the outset of proceedings, a course which (as Lord
Buckmaster predicted in Sellar) is almost invariably followed by the parties stating that they have no objection to the
judge continuing in the case. The consequence is, naturally, that there is relatively little recent authority on the
question whether a shareholding in a litigant company is sufficient to disqualify a judge, in the absence of consent
of the parties. The issue arose in the course of the Bank Nationalization case (Bank of New South Wales v
Commonwealth (1948) 76 CLR 1) when it was disclosed that the wife of Starke, J held shares in one of the plaintiff
banks and that Williams, J was a holder of shares in two of the plaintiff banks, but this holding was as bare trustee
for the judge's sister who lived abroad. In the course of argument, Latham, CJ said -
"You draw a distinction, do you not - an actual pecuniary interest and embarrassment in hearing the case? For
example, if there is any degree of pecuniary interest, however small, a judge is disqualified from sitting. If, however,
there is no pecuniary interest, then it becomes a matter of a question in all the circumstances of the case whether
there is any degree of embarrassment which would prevent a fair trial. In neither of the cases mentioned is there
any actual pecuniary interest - none. My learned brothers have said that they do not regard the existence of the
facts stated as in any way affecting a fair and impartial consideration of the issues in the case. It appears to me that
that has to be accepted."
(This passage was not included in the report in 76 CLR, but was quoted by Wanstall, J in R v The Industrial Court
[1966] QdR 245 at 279-280.)
[43] In R v The Industrial Court, the Full Court of the Supreme Court of Queensland held that the President of the
Industrial Court was not disqualified by virtue of the fact that his wife held some 1,235 five-shilling stock units in Mt
Isa Mines Ltd, which was a party to proceedings before the Industrial Court involving a long industrial dispute. The
court held that the President did not by virtue of his wife's shareholding have a disqualifying interest, the question
being whether in all the circumstances of the case it had been shown that there was a real likelihood of bias, all
three judges relying on the Bank Nationalization Case for this purpose (Mansfield, CJ at 268, Mack, J at 278, and
Wanstall, J at 278-282).
[44] The statement by Latham, CJ in argument in the Bank Nationalization Case gives some support to the view
that any degree of pecuniary interest, however small, is sufficient to disqualify a judge from sitting, although no clear
assistance was given for identifying how such an interest is to be found to exist. The Bank Nationalization Case is
presumably authority for the view that a small shareholding held by a judge's wife is not a source of disqualification
for the judge, nor is a shareholding held as bare trustee for a relative. The case was certainly treated as authority
for the former proposition by all members of the Full Court in Queensland in 1966.
[45] In Holyoak v R (Butterworths Unreported Cases, BC9504155, Court of Criminal Appeal of Western Australia, 7
September 1995) a juror disclosed after the jury had been empanelled that she was a "reasonably modest"
shareholder in Westpac Bank, the parent company of Australian Guarantee Corporation Ltd, which was the
complainant in relation to a number of charges of false pretences and forgery with which the accused had been
charged. Counsel for the accused asked the judge to discharge the juror, but the judge refused. The appellant was
convicted and one of the grounds of appeal was the failure to discharge the juror. Malcolm, CJ, with whom Pidgeon
and Steytler, JJ agreed, said at 6 that since Webb, the test to be applied for determining whether a juror should be
discharged for bias was the reasonable apprehension test as formulated by Mason, CJ and McHugh, J in Webb at
47 and rejected the view that a fair-minded and informed member of the public would have had any such
apprehension or suspicion. I should add that in Webb, all members of the Court agreed in the view that the test for
the apprehension of bias applies to jurors in precisely the same way as it does to judges (Mason, CJ and McHugh,
J at 53, Brennan, J at 57, Deane, J at 68-69, and Toohey, J at 87). Malcolm, CJ stated in terms that, after Webb,
the test to be applied where a juror was said to be biased by reason of a shareholding was the reasonable
apprehension test.
[46] Justice Thomas of the Supreme Court of Queensland in Judicial Ethics in Australia (2nd ed 1997) stated at 54-
55, on the basis of the Bank Nationalization Case and R v Industrial Court that "Australian courts have adopted a
pragmatic approach in the area of financial interest." After referring to the argument that Dimes allows no discretion
to the appeal court and that the ownership of even a small parcel of shares in a large corporation renders the
decision of the trial judge void, his Honour continued -
"Whilst that view is arguable, I disagree with it. It is difficult to think that any court of authority today in Australia
would void a decision where the holding was so indirect, theoretical and immaterial. A question of degree seems to
be involved."
The rule according to recent English authorities
Page 11 of 21
[47] The approach of Australian courts to this question has been criticized as involving an unacceptable departure
from Dimes (see eg Cranston, at 239-240, 242-243). This criticism is open to the objection that the view expressed
in argument in the Bank Nationalization Case and the decision in R v Industrial Court both arrive at a conclusion
(that the judges were not disqualified by bias) entirely consistent with that to which Blackburn, J came in Rand. But
if the criticism implies that English courts maintain a more strict and "principled" approach to the question of bias
through financial interest than do Australian courts, or that Australian courts have been alone in applying some
more flexible and lesser standard, that criticism appears to be unjustified. Writing in 1976, Professor Shetreet
(Judges on Trial, at 303-4) stated the law in strict terms, that any pecuniary interest, no matter how small, is
sufficient to disqualify a judge; but later asserted (at 309) that -
"The English practice does not take the strict view and allows a judge to sit when the interest is minor or minimal
provided that he always discloses it. Whether or not the shareholding would be regarded as minor would depend on
the number of shares, when compared with the total capital; the amount involved in the litigation; whether the
company is a public or private company; whether the judge has shares in the company which is a party to the
proceedings or in another company which has an interest in it, and how much interest it has in it; to what extent the
issue under adjudication would have any effect on his interest."
These views were formed after very wide-ranging interviews had been conducted in and following 1972 with many
members, including judges, of the legal profession in England. The author also stated that a shareholding by the
judge's wife was considered in the same light as if the judge himself were a shareholder. I have some difficulty with
the author's qualification that the judge is allowed to sit "provided that he always discloses" his shareholding. If the
shareholding is properly to be regarded as a disqualification, disclosure of its existence would merely create the
occasion for a party to object, or by consenting, to waive any such objection; and absent a waiver, the disqualifying
factor should under the strict rule remain extant, and a decision by the judge in the absence of consent should
remain voidable. The added importance of disclosure, as it seems to me, is that it enables an objector to state the
grounds of the objection; and, in doing so, draw to the judge's attention some basis for recusal which may
previously have escaped the judge's notice.
[48] Precisely this view appears to have been taken by the present Lord Chief Justice, Lord Bingham of Cornhill, in
contributing (while still Master of the Rolls) a chapter entitled "Judicial Ethics" in Legal Ethics and Professional
Responsibility (1995). Lord Bingham said, at 40-41 after referring to Dimes, that -
"This was ... a very strong decision, but I have no doubt that it would be followed today on similar facts although I
do not think a judge would stand down on account of a shareholding in a litigant company, or perhaps even disclose
it, unless the shareholding and the action were such that the outcome could have a more than negligible effect on
his fortune. That accords with an occasion in the Court of Appeal when, at the outset of a very lengthy and
obviously tedious patent appeal, one member of the court disclosed that he held shares in one of the litigant
companies. 'If my Brother thinks,' said (Charles) Russell, LJ, presiding, 'that he can escape from this case on a
ground as tenuous as that, he is in error.'"
[49] In R v Mulvihill [1990] 1 WLR 438, the appellant appealed against his conviction on the charge of conspiracy
to rob persons at premises belonging to banks, on the ground that the trial judge owned shares in one of the banks
that had been robbed. The judge had not disclosed that he owned 1,650 shares in the National Westminster Bank
Plc. The Court of Appeal held that the test to be applied was whether a reasonable and fair-minded person sitting in
court and knowing of the judge's shareholding would have had a reasonable suspicion that a fair trial for the
appellant was not possible, and held that there was no question of bias having arisen in the circumstances.
[50] The decision in Pinochet itself suggests that Lord Bingham's views are shared by a majority of the House of
Lords in that case. Lord Browne-Wilkinson said, at 283, that -
"The rationale of the whole rule is that a man cannot be a judge in his own cause. In civil litigation the matters in
issue will normally have an economic impact; therefore a judge is automatically disqualified if he stands to make a
financial gain as a consequence of his own decision of the case." (Emphasis added.)
Lord Goff said, at 286-287, that -
"The question which arises is whether his connection with that party will (subject to waiver) itself disqualify him from
sitting as a judge in the proceedings, in the same way as a significant shareholding in a party will do, and so require
that the order made upon the outcome of the proceedings must be set aside." (Emphasis added.)
Page 12 of 21
Lord Nolan agreed with Lord Browne-Wilkinson and Lord Goff. Lord Hope of Craighead also agreed with Lord
Browne-Wilkinson and Lord Goff, although Lord Hope later quoted from Lord Buckmaster's speech in Sellar and
mentioned Lord Wensleydale's recusal in London and North Western Railway Co v Lindsay (1858) 3 Macq 99 on
the ground that he was a shareholder in the appellant, suggesting that Lord Hope was a supporter of the strict view.
Lord Hutton also agreed with Lord Browne-Wilkinson, although later appeared to state (at 293) that a judge's
shareholding (which might be small) in a public company involved in litigation would be ground for recusal.
The position in Canada and New Zealand
[51] In Canada, the position in relation to disqualification of a judge for pecuniary interest was said to be unclear in
the Canadian Judicial Council Report, Commentaries on Judicial Conduct (1991). When discussing the question
what a judge should do when the share interest is insignificant in relation to the total share issue of the corporation,
or the amount at issue in the litigation could not possibly affect the value of the corporation's shares, the Council's
report stated (at 57-58) that a considerable majority of respondents to the relevant questionnaire thought that a
judge was disqualified even for small amounts of securities. A significant number however did not agree, and a
minority of the respondents thought it absurd to say that a judge is disqualified where the judge's holdings are
insignificant in amount or where the litigation could not possibly affect the value of the judge's shares.
[52] The question of pecuniary disqualification was considered by the Court of Appeal in New Zealand in Auckland
Casino Ltd v Casino Control Authority [1995] 1 NZLR 142. The appellant was an unsuccessful applicant to the
Authority for a casino premises licence under the Casino Control Act 1990. The licence was granted by the
Authority to Sky Tower Casino Ltd, after a 49-day hearing. Two of the six members of the Authority held shares and
convertible notes in Brierley Investments Ltd, which held 80 per cent of the shares in Sky Tower. The appellant's
claim of apparent bias was rejected by the court on the grounds of waiver and failure to move with reasonable
expedition, but Cooke, P made the obiter observation at 148, that the court was inclined to think that the words
"however small" used by Blackburn, J in Rand, should be treated at the present day in New Zealand as an
exaggeration and that there was scope for the de minimis rule; and that in that case interests via the 80 per cent
parent company were sufficiently direct to be realistically within the disqualification rule. Cooke, P also said at 148
that "A firm and realistic rule of pecuniary disqualification is necessary to assist public confidence in the
administration of justice and the impartiality of licensing bodies. The existence of an irrebuttable presumption in
cases of direct pecuniary interest was assumed in argument."
Conclusions as to pecuniary interest
[53] Those judges who are thought to have stated the pecuniary disqualification rule in its strictest form have
frequently couched the rule in terms which readily lend themselves to the conclusion that the judge is not
disqualified unless the judge has a pecuniary interest in the outcome of the litigation. Thus in Dimes itself, Lord
Campbell at 793 said the rule applied to a cause "in which [the judge] has an interest". In Rand, Blackburn, J at 232
spoke of the disqualifying factor as "any direct pecuniary interest, however small, in the subject of inquiry". In
Leeson, Bowen, LJ at 384 referred to the disqualifying factor as "a pecuniary interest in the decision" and "a
pecuniary interest in the success of the accusation". In R v Watson, ex p Armstrong, Barwick, CJ, Gibbs, Stephen
and Mason, JJ referred, at 263, to Dimes for the "rule that a judge may not sit in a cause in which he has an
interest." In Gough, Lord Goff at 661 and 664 referred to "a pecuniary interest in the outcome of the proceedings"
and Lord Woolf at 673 to "a pecuniary interest in the subject matter of the proceedings". In Webb, Deane, J referred
at 75 to "a direct pecuniary interest in the outcome of the proceedings", adding by footnote "in the sense of an
interest sounding in money or money's worth". In Pinochet, Lord Browne-Wilkinson on three occasions (at 281-282)
referred to the rule applying where "the judge had an interest in the outcome", and Lord Goff spoke at 286 of a
judge having "by virtue of his shareholding an interest in the cause". Each of these phrases suggests in one way or
another that automatic disqualification should not follow merely because a judge has a shareholding in a party to
litigation, but that something more is required, an interest in the outcome, or the cause itself, or the subject matter of
the proceedings.
[54] The problem which next must be addressed is how a court is to establish whether the judge is interested in the
outcome or the cause. The difficulties involved in such an inquiry have led some to argue that the most practical
approach must be disqualification, however small a judge's shareholding (see eg Cranston at 243). Examination
however of judicial statements both in England and Australia earlier in this judgment suggests that this solution may
not now be acceptable to the courts of either country. The question can be approached in two ways, depending
upon whether the reasonable apprehension test in Webb governs pecuniary disqualification; or, if there is a special
category of automatic disqualification resulting from pecuniary interest, whether an interest in the outcome or the
cause is established simply by the existence of a shareholding in a litigant, or in some other way.
[55] Any investigation of this question must, I think, commence with the context provided by the legal proceedings
themselves. For example, litigation arising out of a contested takeover would readily, if not usually, affect the value
Page 13 of 21
of shares in the target company (and possibly also the bidder). The result of an application for a casino licence, as
in the Auckland Casino Case, would have been likely to affect the value of the shares in the winning or, for that
matter, the losing bidders (see [1995] 1 NZLR at 148). There will often be cases where a company is party to
litigation (say, as stakeholder) in circumstances where the company itself has no financial interest in the decision at
all. Whether there was a financial interest in the outcome of litigation would be more easy to decide when the action
involved a liquidated claim, say for debt, than if, as here, the claim sounded in unliquidated damages. The relevant
matters thereafter would include the ratio of the judge's shareholding to the company's total issued share capital;
the amount involved in the litigation; whether the company is a public or private company; and to what extent the
issue under adjudication would have any effect on the judge's interest as shareholder; see Shetreet, 303.
Furthermore, in order that justice may positively be seen to be done, any reasonable doubt in a marginal case
would usually require to be resolved in favour of disqualification.
[56] Notwithstanding Mr Douglas' concession that he could not argue that the value of the judge's shareholding
would have been affected by the outcome of this litigation, it is, I think, essential to scrutinize the process by which
this question would have been determined, had there been a contest. I certainly share the view that the
administration of justice must be preserved from anything which could reasonably suggest a bias or interest in the
judge. And if the obstacles in the process were insurmountable, or even very difficult to overcome, the argument in
favour of maintaining the strict approach might well become unanswerable. But, by way of example, an examination
of the judge's position in the present case shows, in my view, that although there will be difficulties in the procedure
on occasions, giving rise to differing views, these are not sufficient to make it necessary to insist upon the strict
approach of disqualifying a judge by reason of a shareholding (however small) in a litigant company.
[57] Here the number and value of the shares of which the learned judge became the owner upon his mother's
death can only be described as minuscule when compared with the Bank's total shareholding and asset value. The
litigation involved a claim for unliquidated damages which, I have said, might, if successful, have resulted in an
award of damages of up to $1,500,000 (although damages were unlikely to exceed $1m.). That amount is
substantial but, having regard to the Bank's annual profit of over $1b. and the Bank's total asset value, the success
of the claim could not, as Mr Douglas conceded, have affected the value of the judge's shareholding. Nor could the
outcome have affected the amount of the potential dividend, or the ability of the Bank's subsidiary, Esanda, to meet
its obligations upon the debenture. The judge, on this analysis, did not have any financial interest in the outcome of
the litigation, and this conclusion is one which in my view could not be said to be marginal or open to reasonable
question. I have not ignored the fact mentioned by Mr Douglas in argument, that there was before the Court a report
published in The Age newspaper on 16 October 1997, in which the reporter, commenting on the judge's decision in
the case, stated that the "decision was widely seen as a ground-breaking judgment for 1750 foreign-currency loans
arranged by the ANZ Bank in the mid-1980s" and that "legal sources" said that if Mr Quick had won the case "many
other ANZ forex borrowers could have mounted similar damages claims against the Bank". By mid-1997, there had
been a substantial volume of cases against various banks brought by foreign currency borrowers, a number of
which had succeeded, these decisions being well-publicized. No evidence was placed before this Court of any other
proceeding actually having been commenced by a foreign currency borrower against the ANZ Bank. In the absence
of any such evidence, and having regard to the length of time which by 1997 had elapsed since the "mid-1980s", I
would not be prepared to treat this unsubstantiated newspaper report as establishing that the present action was in
any sense a test case, certainly not in the absence of evidence of any other proceedings having been commenced
against the Bank.
[58] When the learned judge became entitled to his mother's shares in the Bank, hindsight now suggests that his
Honour should, with respect, immediately have informed the parties of this fact. If any party had then asked the
judge to recuse himself, his Honour would, I think, have had the option of forthwith selling his shareholding, as an
alternative to merely accepting or rejecting this submission (although, see the Auckland Casino Case at 149). In
deciding whether to accept the submission, his Honour would also have been obliged to consider the question of
necessity in all the circumstances of the case, including that a lengthy trial had been completed some months
beforehand. To paraphrase what was said by Brennan, Gaudron and McHugh, JJ in Re Polites, Ex parte Hoyts
Corporation Pty Ltd (1991) 173 CLR 78 at 92, the judge should not have disqualified himself unless he was obliged
to do so, "especially where the parties had been engaged in the proceeding for some time, with the inevitable
commitment of resources and costs that that entails". Furthermore, as Mason, J said in Re JRL, Ex p CJL at 352 -
"Although it is important that justice must be seen to be done, it is equally important that judicial officers discharge
their duty to sit and do not, by acceding too readily to suggestions of appearance of bias, encourage parties to
believe that by seeking the disqualification of a judge, they will have their case tried by someone thought to be more
likely to decide the case in their favour."
[59] If there is a separate rule for automatic disqualification for financial interest, unrelated to a reasonable
apprehension of bias, in my view the irrebuttable presumption of bias only arises (subject to questions of waiver or
necessity) where the judicial officer has a direct pecuniary interest in the outcome of the proceeding. Such an
Page 14 of 21
interest would exist when the judicial officer has a pecuniary interest in one of the parties, and, as a direct result of
the decision made, it can reasonably be said that that interest might be affected. If the question arises at the outset
of a hearing, and the judge, after an objection is taken, remains in any reasonable doubt as to whether the judge's
pecuniary interest might be affected by the outcome, doubt should be resolved in favour of recusal. Different
considerations, such as necessity and fairness to all parties, would be involved if the question arises, as here, at a
later stage in the hearing. In the present case, I would conclude that the learned judge's interest in the Bank, by
reason of his shareholding or under the debenture, would not have been affected by the outcome of this action.
Accordingly, on this test, the judge had no direct pecuniary interest requiring his disqualification. On this view, it is
unnecessary to consider whether there is scope for a de minimis exception to the rule.
[60] I should add that if I had taken the view that the judge had an interest in the outcome by virtue of his
shareholding, I should in any event have agreed with Callaway, JA that a new trial should not be directed, for the
reasons he gives. Mr Douglas put to the Court that, having regard to the very lengthy time taken (17 months) to
deliver judgment, much of the benefit his Honour would have gained from seeing and hearing the witnesses might
have disappeared; see Goose v William Sandford & Co. unreported, Court of Appeal, 13 February 1998; R v
Maxwell, unreported, Court of Criminal Appeal of New South Wales, 23 December 1998. I have considerable
sympathy with this argument. The delay in giving judgment, which was of a quite unacceptable order, would
certainly have weakened the judge's advantage in observing the witnesses. I am none the less persuaded that it
would in any event have been wrong to order a re-trial.
[61] If, on the other hand, the question of disqualification for apparent bias is now to be determined in Australia by
reference to the test of a reasonable apprehension of bias, a somewhat different answer is dictated. As Tadgell, JA
said in Gascor v Ellicott [1997] 1 VR 332, at 342, "A reasonable apprehension is to be established to the Court's
satisfaction; it is a reasonable and not a fantastic apprehension that is to be established; and the apprehension is to
be attributed to an observer who is 'fair-minded' - which means 'reasonable'". The question, as Aickin, J observed in
Re Lusink, ex parte Shaw (1980) 55 ALJR 12, at 16, involves matters "of degree and particular circumstances may
strike different minds in different ways"; see also Livesey v NSW Bar Association, at 294. If the judge had a direct
pecuniary interest in the outcome of the litigation, I have already suggested that this fact without further
investigation would, subject to possible de minimis considerations, lead the Court to conclude that bias was
reasonably apprehended. But if the judge had a shareholding in a litigant that could be described as significant it
might well be that a court would find that a reasonable apprehension of bias existed, even though the judge had no
direct pecuniary interest in the outcome. The interests of the shareholder discussed by Berle and Means might well
cause a fair-minded and objective observer to consider that the holder of a significant shareholding in a company
might not bring an impartial or unprejudiced mind to the resolution of a question in the litigation, notwithstanding that
the judge had no financial interest in the outcome.
[62] It has been suggested that in the consideration of this question it does not go far enough simply to examine
the ratio of the judge's shareholding to the company's total issued share capital, "for it is also necessary to
scrutinize the value of those shares as compared with the judge's total assets" (Cranston, 243), which would lead,
as the commentator observed, to a considerable invasion of a judge's privacy. I should myself have thought that
this factor is quite irrelevant to the question whether the judge has any pecuniary interest in the outcome; but also
that in most cases it would be irrelevant to what I would regard as the wider question - whether the shareholding
could lead to a reasonable apprehension of bias. In the present case, assuming a generous dividend rate of, say,
ten per cent of the highest relevant value of the shares, their annual dividend would, after tax, add approximately
$1,500 per annum to the judge's disposable income. I would not characterize the judge's shareholding as
"significant", and certainly not as sufficient, in all the circumstances, to lead to a reasonable apprehension or
suspicion of bias in the mind of a fair-minded and informed independent observer.
[63] Since completing these reasons, the parties have referred the Court to the decision of the Full Federal Court in
Re Maxwell William Ebner; Ebner v Official Trustee 1999 FCA 110 (decided by Sackville, Finn and Kenny, JJ on 10
March 1999). The judge at first instance had decided that a registered transfer of an interest in land to the
bankrupt's wife was void against the Official Trustee. The judge during the hearing declared an interest in a trust
which held 9,000 shares in the ANZ Banking Group Ltd (the respondent in the present appeal) which was not a
party to the proceedings determined by the primary judge but was a creditor (claiming $1.3m.) of the bankrupt and
contributed to the funding of the proceedings instituted by the Official Trustee. The judge refused to disqualify
himself. The question with which the court was concerned was whether the rule of automatic disqualification applies
where a judge is not a shareholder in a party. The appellant's counsel conceded that the appellant could not
establish any reasonable apprehension of bias on the part of the primary judge. Many of the cases considered in
argument by this Court were also considered by the Full Federal Court.
[64] The court, after referring to Webb, noted at para36 that it might be thought anomalous that a special rule of
automatic disqualification had survived for cases of direct pecuniary interest, especially in Australia where the more
stringent "reasonable suspicion" test has been adopted, and raised the question at para37-para40 why the
confidence of fair-minded people in the administration of justice would be shaken by the existence of a direct
pecuniary interest of no tangible value. Their Honours however stated at para41 that they accepted that unless and
Page 15 of 21
until the High Court rules otherwise the law requires a judge having a "direct pecuniary interest" to disqualify himself
or herself. The question for the Court was what constitutes a direct pecuniary interest in the outcome. The
appellant's argument was that it was a small step from Dimes to apply the principle of automatic disqualification to
the circumstances before the Federal Court; and that it was a fair inference from the evidence that the bank was a
major creditor of the bankrupt estate and that it was likely to receive a substantial share of the net proceeds of any
assets recovered by the Official Trustee. The court said, at para48 -
"In our view considerable caution should be exercised before extending the scope of direct pecuniary interest
disqualification beyond the established categories. The very point of requiring a direct pecuniary interest is to avoid
the practical difficulties resulting from an over-broad automatic disqualification rule. A line can and should be drawn
between a case in which a judge has a shareholding, however small, in one of the parties to the litigation and the
case in which the judge has a shareholding in a corporation which may ultimately obtain a financial benefit from
proceedings, although not as a direct beneficiary of any order made by the court. In the former case the principle is
clear (if stringent) and can generally be applied by the judge making some straightforward enquiries. A test which
turns on whether a non-party corporation might obtain a financial benefit from the proceedings is uncertain in its
application and would create formidable practical difficulties, especially where neither the pleadings nor the
evidence identify which corporations might obtain such benefit. In our view, a test of this kind would be likely to
diminish rather than enhance confidence in the administration of justice."
[65] It will be seen that the Full Federal Court was not dealing with the question with which this Court is concerned
(whether a judge as shareholder has a direct pecuniary interest in litigation in which the company is a party) but it is
clear that the court assumed that a judge would be disqualified by any shareholding in a litigant. I agree with
respect with the court's conclusion that a judge as shareholder in the bank, a supporting creditor in the bankruptcy
proceedings, did not have a direct pecuniary interest requiring disqualification. With the greatest of respect, for the
reasons I have given, I do not agree with the court's assumption (which I think was in any event obiter) that any
shareholding however small, in one of the parties to the litigation is sufficient to disqualify the judge. Furthermore,
had it not been for counsel's concession that the appellant could not establish a reasonable apprehension of bias, I
should have thought that it would have been necessary for the court to embark on the test last mentioned in the
passage quoted above, in order to establish whether an informed observer might reasonably apprehend the
existence of a bias in the judge.
[66] I would reject the first ground of appeal.
The issue as to negligence
[67] The second major issue argued for the appellants was that the long-standing relationship between the Quick
family and the Bank, dating back to the 1920s, together with the Quick family's known dependence upon the Bank
for financial assistance and advice, created the context in which the Bank's obligations to the Quick family had to be
assessed. Then, in the early 1980s the Bank established a new and dangerous form of lending in foreign currency
loans and the Bank had developed guidelines for its officers in relation to such loans. The Bank wished to take an
aggressive role in the arrangement of off-shore financing. The Bank had promoted foreign currency loans to
farmers in the Horsham District and (at the Wimmera Machinery Field Day held on 5 March 1985) Mr Quick heard
some officer of the Bank speaking of the advantages and desirability of a foreign currency loan in Swiss francs for
farmers and in particular to finance the purchase of farms; and one of the points emphasized by the Bank officer
was that foreign currency loans had low interest rates and were five-year interest-only loans. Mr Douglas submitted
that the Bank was well aware of the risks that such loans would present to a farming family.
[68] The learned judge recorded the appellants' submission as to the nature of the Bank's duty as being -
"that the Bank owed the appellants a duty to advise them and provide information to them with reasonable care and
skill in relation to the foreign currency loan."
His Honour held that -
"There was a duty of care owed by the Bank to the appellants but it was limited to the advice given as to the risks
attendant upon a foreign currency loan. However, I am satisfied that there was no breach of that duty."
Elaborating upon the issue of the duty, his Honour said -
"In the circumstances of the present case, it seems to me that the Bank did no more than assume the responsibility
to alert the appellants generally in relation to the risks of foreign currency loans. I consider that this responsibility
was assumed by virtue of the advice given by Mr Skehan to Mr C Quick commencing in August 1983 and
Page 16 of 21
continuing into 1985. I am satisfied that the Bank did not assume responsibility as a financial adviser to advise the
appellants of the wisdom of a foreign currency loan in the light of their particular financial circumstances."
Accordingly his Honour found that it was unnecessary for him to analyse the expert evidence concerning the foreign
exchange market and related issues.
[69] The submission made by Mr Douglas in these circumstances was that the learned judge had erred in confining
the Bank's duty to being no more than to alert the appellants generally as to the risks of foreign currency loans. He
submitted that the judge had adopted an approach to determining whether a duty of care existed which did not fully
comprehend the appellants' claim in negligence. His Honour was said to have defined the content of the Bank's
duty in a very specific way in addressing the question whether a duty of care and skill was owed by the Bank to the
appellants. The argument continued that the learned judge gave paramountcy to the concept of assumption of
responsibility by looking only subjectively as to what responsibility the Bank itself had assumed, whereas an
objective test should have been applied to the question whether responsibility should be held by the court to have
been assumed by the Bank to the appellants. Accordingly it was submitted that the tort of negligence is concerned
with risks created for one person by reason of another's conduct, and that, once the relationship of proximity was
properly identified, it was apparent that the Bank had not discharged its duty merely by adverting to the existence of
a risk without any need to elaborate upon the nature of a risk; for example, the likelihood of the risk eventuating and
the extent of the loss which would be suffered if the risk did eventuate. To draw support for this argument, Mr
Douglas relied on Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' (1976) 136 CLR 529 per Stephen, J at
558-576; San Sebastian Properties Pty Ltd v The Minister (1986) 162 CLR 340 at 354-355; Wardley Australia Ltd v
Western Australia (1992) 175 CLR 514 at 527; Hawkins v Clayton Utz (1988) 164 CLR 539, at 600-601; Bryan v
Maloney (1995) 182 CLR 609, at 617-619; Hill v Van Erp (1997) 188 CLR 159 at 192-197; and Williams v Natural
Life Foods [1998] 2 All ER 577, per Lord Steyn at 582. Mr Douglas submitted that in all the circumstances the
Bank's obligation was not merely to warn the appellants, but to "exhort" them not to take the loan, and that the
appropriate standard of care in the circumstances dictated that the Bank should not have marketed foreign currency
loans at all to persons such as the appellants. He submitted that all the elements of assumption of risk, vulnerability,
dependence, reliance and forseeability of harm were present to give rise to this duty of care and that the Bank's
obligation was increased by virtue of the appellants having existing property rights which were at risk as a result of
the Bank's conduct.
[70] It is necessary now to examine the facts found by the learned judge with some care. The following summary is
taken from the judge's reasons at 5-13, 63-65 and 67-73. In August 1983 Mr CR Quick telephoned Mr Skehan and
first raised the possibility of the Bank making a foreign currency to the Quick family. Mr Skehan informed Mr Quick
of the risk in which a borrower was placed, of adverse foreign currency movements against the Australian dollar. Mr
Skehan mentioned the possibility of hedging to protect against that risk and advised Mr Quick that with the costs
and fees involved in obtaining protection the overall cost of a loan would then be similar to an Australian dollar loan.
Mr Skehan also told Mr Quick that means of offshore funding were available without hedging but that the customer
needed to have a guaranteed cash-flow or an ability to provide cover by way of a claw-back provision. Mr Skehan
then wrote to Mr CR Quick a letter dated 19 August 1983 which included the following passage -
"As discussed by phone, I am enclosing some examples of currency movements of the last 18 months, Australian
Dollar-Swiss Franc, which indicate the vulnerability of being exposed. Movements can be and have been more
dramatic than these quoted. Forward cover, conversion to USA and then Hedging costs, fees etc, as stated on the
phone, at date, about put the overall cost of Offshore borrowings close to those in Australia. There are methods of
Offshore funding on an unhedged basis, but for us to arrange this there needs to be a guaranteed Cash Flow or
realization of assets to cover 'claw-back' commitments in covering a re-evaluation of any loan resulting in a shortfall
each (6) months (loans are rolled over each six months), by placing shortfall funds on deposit as reserve to cover
exchange risk."
Enclosed with the letter was a sheet showing fluctuations in the $A-Swiss franc exchange rate and showing a
considerable decline in the value of the $A against the Swiss franc from January 1982 to August 1983. From
August 1983 until the beginning of 1985 Mr Skehan had several further discussions with Mr Quick relating to foreign
currency loans and these discussions became more frequent early in 1985. Mr Quick began pressing the Bank for a
foreign currency loan and on one occasion before May 1985 Mr Quick told Mr Skehan that he had spoken with a
merchant banker about a foreign currency loan and that he was eager to draw one down. During these further
discussions Mr Skehan again told Mr Quick about the risks of losing money because of adverse changes in the
exchange rate and Mr Skehan reiterated in substance what he had said in August 1983 concerning hedging. In
addition, Mr Skehan told Mr Quick that in his opinion a foreign currency loan was not generally appropriate for
people such as farmers whose cash-flow fluctuated.
Page 17 of 21
[71] It is important to note that there were significant differences in the evidence given by Mr CR Quick and Mr
Skehan as to the events I have just recounted. Mr Quick's witness statement made no reference to conversations
with, or the letter from, Mr Skehan concerning foreign currency loans in and after August 1983 nor to the
discussions with Mr Skehan in 1985 prior to May of that year. Mr CR Quick's evidence suggested that he had not
spoken to Mr Skehan concerning foreign currency loans prior to May 1985. The learned judge however rejected Mr
Quick's version of these events, and preferred Mr Skehan's. His Honour found that Mr Skehan at no time
recommended to Mr CR Quick that he take a foreign currency loan and rejected Mr Quick's evidence that Mr
Skehan had said to him that the Australian currency had dropped, that everything was "bottoming out", that he
thought that a foreign currency loan was "the way to go" and that the Bank would monitor the loan. The learned
judge did not accept Mr Quick's testimony that Mr Skehan had told him that there was a "low degree of risk" of
adverse movements in the Swiss franc-Australian dollar exchange rate or that the Australian dollar had "plateaued"
and would go the other way. His Honour generally preferred Mr Skehan's evidence to that of Mr Quick and, as he
put it in summary, said "I do not accept Mr C Quick's evidence that it was Mr Skehan who convinced him to take a
foreign currency loan."
[72] Thereafter Mr CR Quick spoke to a number of persons unrelated to the Bank in relation to the taking of a
foreign currency loan. He spoke to a Mr Michael Henderson in Geelong about the matter, to an old friend Mr Bill
Norton, head of the Financial Markets section of the Reserve Bank of Australia, to Mr Bruce Bond, a financial
adviser who speaks regularly on ABC Radio, and to Mr Simon Montana of Consolidated Currencies. His Honour
said that after the discussion with Mr Norton, Mr Quick clearly knew that there was a risk that the $A would further
decline against the Swiss franc, thereby increasing the amount Clenae would have to repay in Australian dollars on
the Swiss franc borrowings. On the basis of all this material, his Honour found that it was undeniable that Clenae's
controllers entered into the foreign currency loan transaction knowing of the risk and accepting it.
[73] In late May 1985 Mr CR Quick telephoned Mr Moreno of the international section of the Bank and obtained
advice as to "the applicable interest rate of the loan". There were differences between Mr Moreno and Mr Quick as
to what was said in these conversations, with the learned judge again rejecting Mr Quick's evidence in some
respects, in particular Mr Quick's assertion that Mr Moreno had stated his belief that the exchange rate for Swiss
francs into Australian dollars would improve to approximately four Swiss francs to each Australian dollar, which
would mean that a $1m. loan would only require $.5m. to be repaid at the end of the five-year term. Clenae then
applied for the foreign currency loan by writing, dated 18 June 1985 and on 27 June 1985 the loan was drawn down
in favour of Clenae. On 24 June 1985, Messrs CR and WM Quick visited Mr Moreno at his office to discuss interest
rates and at that meeting his Honour found that Mr Moreno said that the Australian dollar had bottomed against the
Swiss franc and showed them a graph which illustrated the downward trend of the Australian dollar against the
Swiss franc and then its levelling out.
[74] The learned judge then held in relation to the appellants' claim of negligence against the bank that -
"In the circumstances of the present case, it seems to me that the Bank did no more than assume the responsibility
to alert the defendants generally in relation to the risks of foreign currency loans. I consider that this responsibility
was assumed by virtue of the advice given by Mr Skehan to Mr C Quick commencing in August 1983 and
continuing into 1985. I am satisfied that the Bank did not assume responsibility as a financial adviser to advise the
defendants of the wisdom of a foreign currency loan in the light of their particular financial circumstances. Nor do I
think that the Bank knew or ought to have known that the defendants were relying upon the bank for such advice -
indeed, I do not think that they were.
I am satisfied that Mr C Quick, having initiated the suggestion of taking a foreign currency loan, having heard Mr
Skehan's warnings as to the risks, made up his own mind in consultation with his brother and their wives. By the
time Messrs C & W Quick spoke to Mr Moreno, they had already decided, after inquiries and discussions with
others, to take such a loan.
In my view, therefore, there was a duty of care owed by the Bank to the defendants but it was limited to the advice
given as to the risks attendant upon a foreign currency loan. However, I am satisfied that there was no breach of
that duty. In my opinion, the advice and warnings given throughout by Mr Skehan constituted reasonable and
adequate advice and warning in the circumstances as to the risks of exchange rate fluctuations and the resulting
problems which might arise in relation to servicing a foreign currency loan having regard to the variable cash flow
provided by farm income. I note that Mr Biesek and Mr Slatyer, two experts called by the defendants, each
considered that Mr Skehan's letter of 19 August 1983 was a satisfactory warning concerning the risks of a foreign
currency loan. I do not think that it was incumbent upon the Bank to give more detailed advice to the defendants
concerning techniques of risk protection or of loss minimisation (such as hedging) or of 'monitoring' loans. In any
event, the expert evidence does not at all satisfy me that there were any techniques available of such utility in the
circumstances as ought to have been drawn to the defendants' attention. In particular, I was not persuaded by the
Page 18 of 21
evidence of Mr Slatyer that, in effect, it was negligent of the Bank to fail to recommend 'active management' of a
foreign currency loan or to fail to advise as to techniques of so-called 'selective hedging'. In this respect, and
generally, I prefer the evidence of Professor Valentine. Having regard to my view as to the limited duty of care
imposed on the Bank it is unnecessary to analyse the expert evidence concerning the foreign exchange market and
related issues.
Insofar as the defendants maintained any claim that the Bank was negligent in 'managing' the FCL, this was not
proved. Indeed, the Quicks tended to resist the suggestions and actions by the Bank to protect them against
ongoing losses, in the hope that the exchange rate would rebound. There was no evidence which satisfied me that
the Bank's actions (or suggestions) in that regard were negligent."
[75] The facts found by the learned judge were, of course, destructive of the appellants' case. Insofar as there
were differences in the evidence given by Mr Skehan and Mr CR Quick, or as to inferences to be drawn from Mr
Quick's evidence, no attempt was made by the appellants during argument to suggest that his Honour's conclusions
were in any way defective. His Honour was, with respect, plainly entitled to prefer Mr Skehan's evidence, supported
as it was by diary notes and letters. On the other hand his Honour was in a number of respects critical of Mr CR
Quick's evidence, both as to its content and the manner in which it was given.
[76] Insofar as the appellants' argument was that the Bank was obliged to exhort (rather than warn) the Quick
family not to take a foreign currency loan, the appellants' difficulty lies first in persuading this Court to accept that so
ambiguous and non-specific a duty of care could be found to exist in the circumstances. Mr Skehan had in fact
given Mr CR Quick a number of explicit warnings against borrowing in foreign currency, as well as sending him the
letter of 19 August 1983, the terms of which have already been quoted, and which was said by the appellants' two
expert witnesses to be an acceptable form of letter advising as to the risks of off-shore borrowing. The learned
judge found that the Bank gave limited advice to the appellants in relation to foreign currency loans, that that advice
was given correctly and without negligence, and that the Bank had in all the circumstances no obligation to give any
further warning. In my view, with respect, no error is to be found in his Honour's reasoning.
[77] Was there then, in the circumstances found by the judge, any basis for asserting, as Mr Douglas argued, that
the Bank should not have marketed foreign currency loans at all to persons such as the appellants? As Lockhart,
Beaumont and Gummow, JJ said in David Securities Pty Ltd v Commonwealth (1990) 23 FCR 1, at 22 -
"It is clear that the rule as to things dangerous in themselves can have no direct application here. Nor, in our view,
can the rule as to things inherently dangerous provide an appropriate analogy in the case of a borrowing in a
foreign currency. It may be accepted that there will always be a risk of an adverse movement in the rate of
exchange. But it does not follow that a foreign loan transaction is something 'dangerous', let alone 'dangerous in
itself', or anything analogous to such a special thing. Speaking generally, all that can be said is that it is possible
that such a transaction may result in some economic gain in certain events or in some economic loss if other
contingencies occur. A foreign borrowing is not itself dangerous merely because opportunities for profit, or loss,
may exist."
See also Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 per Meagher, JA at 92; Lenin v
Australian Bank Ltd, Cole, J, Supreme Court of New South Wales, 21 June 1991, unreported, at 2-3; and ANZ
Banking Group Ltd v Dunstan's Hotel, Hedigan, J, 17 October 1995, unreported, at 19-27.
[78] In my view the appellants cannot make good the argument that the Bank should not in all the circumstances
have marketed foreign currency loans to them at all. No error is, with respect, in my view to be found in his
Honour's reasons for rejecting the appellants' claim in negligence. I must add that it is no easy matter to detect in
the appellants' pleadings the duty now sought to be alleged, that the Bank should not have sold foreign currency
loans to the appellants at all. The matter does not appear to have been argued at any length before the learned
judge. Having regard to the findings of fact made by his Honour, I think the appellants' claim in negligence was
properly dismissed.
Fraudulent misrepresentation and negligent mis-statement
[79] Although three allegedly fraudulent representations were pleaded, only one of these was pressed at trial. The
learned judge found that no such representation was made and was not satisfied that the appellants entered into
the foreign currency loan transaction induced by the pleaded representation. No attempt was made to pursue this
issue during the appeal.
[80] The appellants' case in relation to negligent mis-statement depended largely upon whether Mr CR Quick's
evidence, that certain statements were made to him by Mr Skehan, was accepted. The learned judge, as I have
said, preferred Mr Skehan's evidence. Mr CR Quick also claimed that he had relied on statements made by bank
officers at the Wimmera Field Day, and by Mr Moreno. His Honour accepted in part Mr Quick's evidence of these
matters, but in the light of Mr Skehan's continued warnings, and Mr Quick's own evidence as to his appreciation of
Page 19 of 21
the risks of currency fluctuations, said that he was not satisfied that negligent statements (if any) made at the Field
Day or by Mr Moreno played any material part in inducing the Quick family to enter the foreign currency loan.
[81] No attempt also was made during the appeal to challenge the learned judge's findings in this regard, which
were, in any event, plainly open on the evidence before his Honour.
Breach of fiduciary duty and unconscionability
[82] Insofar as the appellants asserted that a fiduciary obligation had arisen in the circumstances of the relationship
between the Bank and the Quick family, his Honour held that the history of the family's dealings with the Bank did
not of itself establish the existence of any fiduciary duty on the part of the Bank towards the Quicks as customers,
nor did it demonstrate that the family were in any position of disadvantage or vulnerability which caused them, in
particular Mr CR Quick, to place special or particular reliance upon receiving the Bank's advice in relation to the
wisdom of taking a foreign currency loan. His Honour found that the foreign currency loan was not a transaction in
which the Bank created any expectation that it was acting in the defendant's interests and not in its own interests,
which were real commercial interests.
[83] Mr Douglas during argument abandoned the claim of breach of fiduciary duty in light of the decision of the
High Court in Breen v Williams (1996) 186 CLR 71, but continued to maintain that the Bank had acted
unconscionably both in relation to the original loan and the three later agreements. I shall deal shortly with
unconscionability in relation to these agreements. As to the loan itself, it is sufficient to say that Mr Douglas argued
that there was unconscionability resulting from the Bank having acted negligently in making that loan. On the facts
found by the learned judge, this argument cannot succeed.
The three subsequent agreements and unconscionability
[84] Mr Douglas made a number of arguments in relation to the First Agreement of 31 August 1989, the Farm
Restructuring Agreement of 9 June 1992, and the October Agreement of 15 October 1993, each of which contained
a release of the appellants' various claims against the Bank. The argument of unconscionability was directed
specifically to these three agreements and the releases contained in them, and it was submitted that equity could,
and here should, restrain the exercise of legal rights in circumstances where that would be unconscionable (see
Bridgewater v Leahy (1998) 158 ALR 66, at 81, 93). An interesting argument was also made as to the proper
construction of these releases, and to the question whether they were effective to release the Bank from any
defences the appellants might have against the Bank's claim. Mr Douglas also submitted that these three
agreements were executed by the appellants under unconscionable pressure applied by the Bank.
[85] Having regard to the rejection of the appellants' principal submissions, it is not necessary to deal at any length
with these arguments. The Bank obtained judgment on its debt, the amount of which was clearly acknowledged in
these various agreements. At no stage was any argument addressed to this Court to suggest that the debt (or the
judgment) had been improperly quantified - subject of course to the various counterclaims made by the appellants.
These counterclaims having been rejected, it is sufficient to say that on the learned judge's findings, there was no
room for a conclusion of unconscionable conduct. While these agreements were being negotiated, the Quick family
was at all times receiving independent legal advice. The terms of the First Agreement had the effect of giving the
appellants time to improve their financial position after lengthy negotiations and a debt mediation. The Farm
Restructuring Agreement involved the Bank agreeing to accept a very substantial reduction in debt. It is sufficient to
say on these arguments that the learned judge was clearly entitled to find that the Bank took no unfair advantage of
the appellants.
[86] In all the circumstances I would dismiss both appeals.
Callaway JA
[87] Against the background of the facts described by my brother Charles, five questions arise for consideration:
first, whether the learned trial judge was disqualified from giving judgment by reason of his Honour's having become
the beneficial holder of 2,400 shares in the respondent; secondly, if so, whether the judgment should be set aside,
either absolutely or on terms; thirdly, whether his Honour erred in finding that the respondent was not negligent;
fourthly, whether his Honour erred in finding that the respondent did not engage in unconscionable conduct either in
respect of the original loan or in respect of the releases; and finally, whether the releases bar the assertion of a
defence or only of a claim.
[88] Subject to para93 below, I find it unnecessary to decide any of those questions except the second and third. If
the learned judge was disqualified, I am nevertheless of opinion that the judgment should not be set aside. Mr
Douglas submitted that his Honour erred in one or other of two respects in finding that the respondent was not
negligent. I do not accept either branch of the submission. The only kind of unconscionability that was suggested
Page 20 of 21
was unconscionability deriving, in effect, from the negligence. It was said that, if there was a relationship of
proximity, a duty of care and breach thereof, it was unconscientious to enforce or take advantage of the rights
thereby acquired. Rejection of the submission on negligence means that that argument fails and the respondent
does not have to rely on the releases.
[89] As a preliminary to deciding the second question, I shall however make some observations on the first:
(a) This case does not concern a judge who holds his or her shares as a bare trustee, as Williams, J did in the Bank
Nationalization Case: see R v The Industrial Court [1966] QdR 245 at p279-p280. Nor may the holding itself be
regarded as de minimis, so there is no occasion to consider the correctness of the tentative view expressed by the
New Zealand Court of Appeal in Auckland Casino Ltd v Casino Control Authority [1995] 1 NZLR 142 at p148,
assuming that that view applies to a minuscule shareholding rather than to a negligible interest in the case.
(b) This is an ordinary commercial dispute. If there is room for a presumption that a shareholding imports an interest
in the litigation, there is room for that presumption to operate. It is not like a dispute between two shareholders as to
which of them is to receive a dividend that the company is undoubtedly liable to pay to one or other of them.
(c) To hold that a judge who is the beneficial owner of 2,400 shares in a bank should automatically disqualify
himself or herself accords with well established practice and causes little inconvenience and no injustice if the
position becomes apparent at the outset. In the unusual case where it becomes apparent later, justice is served by
balancing the competing considerations.
(d) The contrary view gives rise to undesirable questions of fact and degree on which reasonable minds may differ.
In particular an appellate court may differ from a judicial officer's assessment as to whether the result of the case
might affect the value of his or her shares. In the absence of exceptional circumstances, there will then have to be a
retrial.
(e) As a general rule, it is the duty of a judicial officer to hear and determine the cases allocated to him or her by his
or her head of jurisdiction. Subject to certain limited exceptions, a judge or magistrate should not accede to an
unfounded disqualification application. It has not hitherto been the practice for a judge or magistrate who holds
shares in one of the parties to refuse to disqualify himself or herself if objection is taken.
[90] Finally, and very importantly, this case does not raise for consideration the position of a judge who does not
know or forgets that he or she holds shares in a company. It was not submitted that that was the position of the
learned judge here. I do not desire, by the reservations expressed above, to cast any doubt on the protection
afforded by a properly administered blind trust. As at present advised, I do not think that the beneficiary of such a
trust is disqualified, however great his or her beneficial interest may be.
[91] Where a judge has, or is presumed to have, an interest in a case and the parties do not expressly or impliedly
consent to his or her determining it, the judgment is voidable, but it does not follow that it is voidable as of right. The
purpose of the rule is to ensure a fair trial and there may be circumstances, of which the present case is an
example, where that purpose would be defeated by setting aside the judgment. Granted that a completely fair trial
has not been had in the first instance, even greater unfairness would ensue if a new trial were directed.
Irremediable prejudice would be suffered by the respondent if the case were to be re-tried by a judge who could not
have the advantage of seeing and hearing Mr Skehan give evidence. That prejudice is far greater than the prejudice
that has been sustained by the appellants. No one suggests that the learned judge in fact had an interest in the
outcome of the case or that he was actually, or in any other respect ostensibly, biased. The sole objection is the
technical objection that his Honour was the beneficial holder of a tiny fraction of the shares in the respondent. To
order a retrial would be to right a small wrong by doing a far greater wrong.
[92] A balancing exercise of that kind, mindful of the purpose of the rule, may also be explained in terms of
necessity, for necessity is a concept that depends upon the circumstances. It invites the question "Necessary for
what purpose?" There may, for example, be only one judge who can hear a genuinely urgent application for an
interim injunction. He or she may have an interest in the case. It is nevertheless necessary that that judge hear the
application because of its urgency. It is no answer to say that next week another judge will be available who is not
embarrassed. By parity of reasoning, after Mr Skehan's death, it was necessary to a fair adjudication that the case
be decided by the judicial officer who had seen all the significant witnesses notwithstanding his having acquired an
interest in the respondent. That would not have been true if Mr Skehan had been an incidental witness or if the
Bank could achieve a comparable forensic advantage by relying on his diary notes. The judgment of Charles, JA
shows that the former was far from being the case and I do not consider that the diary notes would be an adequate
substitute.
[93] The analysis in para92 may well be preferable to that in para91, for it means that the learned judge in the
present case would have been justified in insisting on delivering judgment and implies that the judgment was not
Page 21 of 21
voidable at all. Approaching the matter in that way, the first of the five questions set out at the beginning of these
reasons should itself be answered in the negative. Mr Douglas prayed in aid the observations of Deane, J in Laws v
Australian Broadcasting Tribunal (1990) 170 CLR 70 at p96-p98 and of Kirby, P in Australian National Industries Ltd
v Spedley Securities Ltd (1992) 26 NSWLR 411 at p421-p422 but, properly understood, I think that they support
rather than hinder the foregoing analysis. The exigencies of a fair adjudication meant that it was necessary, not
convenient, that his Honour should decide the case.
[94] Turning to the question of negligence, it is important to appreciate that the duty asserted on appeal was with
respect to pure economic loss, particular emphasis being laid on the judgment of Stephen, J in Caltex Oil (Australia)
Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529. That duty was said to be enlivened, in part, by the
existence of the appellants' properties which, although they were already mortgaged, would be exposed to further
risk. Mr Douglas submitted that the duty was breached either by the respondent's not declining to make a foreign
currency loan to the appellants or by its failing to exhort them not to enter into such a transaction. It was not, as I
understood the submission, the information given to the appellants of which complaint was made but the character
of the advice given to them, considered as a warning or exhortation. I do not accept that a foreign currency loan to
the appellants was so dangerous that it should have been refused altogether or that the respondent should have
given a stronger warning than it did.
[95] The parties have drawn our attention to the recent decision of the Full Court of the Federal Court in Re Ebner
[1999] FCA 110. It confirms my reservations (see especially para41 and para48 of their Honours' reasons) and
casts no doubt upon the necessity version of the argument that I have accepted. As I have already said, that may
well be the preferable version.
[96] For these reasons I, too, would dismiss the appeals.
Order
Both appeals dismissed.
Counsel for the appellants: Mr F M Douglas, QC and Mr K Connor
Solicitors for the appellants: McKean & Park as agents for Sergio Guerra
Counsel for the respondents: Mr B J Shaw, QC and Mr R L Berglund
Solicitors for the respondents: Blake Dawson Waldron
End of Document

CLENAE PTY LTD V AUSTRALIA & NEW ZEALAND BANKING GROUP

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CLENAE PTY LTD V AUSTRALIA & NEW ZEALAND BANKING GROUP

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Clenae Pty Ltd v Australia & New Zealand Banking Group Ltd

SUPREME COURT OF VICTORIA COURT OF APPEAL

and later that -

Lord Goff said, at 286-287, that -

His Honour held that -

Elaborating upon the issue of the duty, his Honour said -

Counsel for the appellants: Mr F M Douglas, QC and Mr K Connor

Counsel for the respondents: Mr B J Shaw, QC and Mr R L Berglund

Solicitors for the respondents: Blake Dawson Waldron

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