Application for recusal of judge

Contraventions of civil penalty provisions – whether judge making findings on liability should recuse himself from penalty hearing

In Australian Securities and Investments Commission v Sunshine Loans Pty Ltd (No 3) [2024] FCA 786 (18 July 2024), there was an application for recusal of the judge after his judgment on liability and before the hearing on penalty.

The Australian Securities and Investments Commission (ASIC) sought relief against Sunshine Loans Pty Ltd (Sunshine Loans) for alleged contraventions of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA).

In a judgment on liability ([2024] FCA 345), findings were made to the effect that Sunshine Loans had, on numerous occasions, contravened certain provisions of the National Credit Code, being Sch 1 to the NCCPA (Credit Code).

 Sunshine Loans filed an application seeking that the judge recuse himself from conducting the penalty hearing in which ASIC sought penalties totalling $10.5 million. Sunshine Loans’ approach to establishing apprehended bias appeared to be that, as a result of the previous findings that certain directors and officers of Sunshine Loans had been untruthful when giving their previous evidence, it would be apprehended that the Court might not bring an impartial mind to bear in relation to the issue of penalty. The Court rejected this position (at [22]). 

Sunshine Loans’ complaint appeared to be that the manner of the Court’s expression in the liability judgment reflected an animus, or the possibility of it, against Sunshine Loans, which would carry over into the penalty hearing (at [23]). Sunshine Loans relied on passages from the liability judgment in support of its allegation of apprehended bias (at [24]-[39]). The Court held Sunshine Loans did not identify any logical connection between the impugned passages and an apprehension that the Court would deviate from deciding the question of penalty on its merits (at [40]).

Derrington J explained: “A fair-minded lay observer would accept that it is part of the function and duty of a court to make findings about the veracity of the evidence which is advanced to it. That is particularly so where, as in the present case, submissions were made that the evidence of certain witnesses should not be accepted. A fair-minded lay observer, having knowledge of the circumstances of the case, would also accept that findings made in the liability part of a proceeding for the imposition of a civil penalty are relevant to the question of penalty. They would accept that it is relevant whether the contraventions were intentional and, if so, whether the alleged contraveners are likely to engage in conduct of that nature in the future. Necessarily, that must go to the question of specific deterrence. Similarly, a court is entitled to conclude that a party who advances various submissions with minimal prospects of success might well be attempting to delay or prolong the proceedings for their own purposes, and that is also relevant to the question of specific deterrence when the question of penalty is assessed” (at [43]).

However, on the morning of the recusal application the judge was informed by counsel for ASIC that Mr Powe, a director of Sunshine Loans who had filed an affidavit for the purposes of the penalty hearing, would be cross-examined including as to his credit. Mr Powe had given evidence in the liability hearing as to whether the alleged contraventions of the Credit Code had occurred, and the judge reached an adverse view of his credibility in the liability judgment (at [19]). Derrington J recused himself on the basis that as he had made adverse credit findings in relation to the directors of Sunshine Loans in the reasons for judgment on liability, it would be inappropriate to conduct the penalty hearing in circumstances where he would again be required to assess the credibility of one or more of them (at [5]), based on the principles regarding a second determination of the credit of a witness (at [14]-[18]).

The Court addressed the position in civil penalty cases and the pragmatism of “splitting” civil penalty proceedings was not doubted (at [51]). The difficulties in a judge hearing a civil penalty action being required to recuse themselves after making a determination on liability, merely because credit findings have been made and the same witnesses may give evidence in the penalty phase of the proceedings, and their credibility may again be put in issue were explained (at [56]).

Derrington J observed: “The tension between the orthodox principles relating to recusal and the usual way civil penalty proceedings are conducted is evident. It may be that the Court should adopt a protocol for the hearing of such matters which takes the orthodox recusal principles into account. How that might be achieved is unclear, though it may necessitate the parties accepting the most unpalatable proposition that the judge may be called on to determine the creditworthiness of a witness against whom they have already formed strong views. Alternatively, the Court might require the parties to put all evidence going to contravention and penalty before it prior to any decision being made . . . Indeed, the difficulties of this issue may require legislative intervention of some description” (at [58]).