Australian High Court confirms the test for apprehended bias in "split" civil penalty hearings

What you need to know

• The High Court has confirmed that a Federal Court judge who made adverse credit findings about a key witness at a contravention hearing was not disqualified from presiding at the subsequent penalty hearing.
• The High Court held that there was no logical connection between a trial judge's adverse credit findings in the contravention hearing, and the apprehension that the judge might not determine the issues in the penalty hearing on their legal and factual merits. Specifically, it was open to the trial judge to make the adverse credit findings in determining the issues in the contravention hearing, and those findings were available to be taken into account to the extent they were relevant to the issues in the penalty hearing.
• The decision will be welcomed by regulators, as it retains the efficiency of the current practice in civil penalty proceedings whereby the same judge determines the questions of contravention and penalty in separate stages.
• The decision has strategic implications for entities facing civil penalty proceedings and having to decide whether (and how) to defend issues of contravention, including which witnesses to call and which points to contest. If a respondent exposes witnesses at the contravention stage, any findings made or impressions formed about those witnesses' evidence can potentially be taken into account by the trial judge at the penalty stage.

Nature of the appeal

In SunshineLoans Pty Ltd v ASIC [2026] HCA 8, the High Court of Australia has heard an appeal concerning the principles that govern the circumstances in which a judge will be disqualified from hearing a civil penalty case on the grounds of apprehended bias.

The respondent, ASIC, brought civil penalty proceedings against the appellant, a credit provider regulated by the National Consumer Credit Protection Act 2009 (Cth) (‘Credit Act’), alleging contraventions of the Credit Act and the National Credit Code. As part of those proceedings, the respondent sought relief under sections 166, 167 and 177 of the Credit Act, as well as s 21 of the Federal Court of Australia Act 1976 (Cth) for declarations, injunctions and the payment of pecuniary penalties arising out of the alleged contraventions.

The original hearing was split into two stages: the contravention hearing and the penalty hearing. In the contravention hearing, the primary judge made adverse credit findings about the appellant's witnesses, including a director of the company. The appellant intended to rely on further evidence from that director in the penalty hearing, and filed an interlocutory application seeking that the primary judge recuse himself from hearing the case on the ground that the adverse credit findings made in the contravention decision meant the primary judge's determination of penalty might be affected by apprehended bias.

The primary judge's adverse credit findings about the company's director included that:

• he "had been schooled to advance a particular theory";
• "his evidence was not credible in the face of the objective evidence, and he was also not a witness who tried to give his evidence in an honest manner"; and
• "in the maintenance of the theory which he sought to propound, his evidence became preposterous".

The primary judge determined that, because he would be required to make a second assessment of a witness's credibility, it would not be appropriate that he hear the question of penalty. The primary judge therefore recused himself. The matter was re-allocated to another judge to preside over the penalty hearing.

The Full Court of the Federal Court (Bromwich and Colvin JJ, Perram J dissenting) allowed an appeal against the primary judge's decision to recuse himself, and remitted the penalty hearing back to the primary judge.

The company appealed to the High Court on the ground the Full Court incorrectly applied the principles for apprehended bias.

When is a judge disqualified on the ground of apprehended bias?

In Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 (Ebner), the High Court identified that the relevant test to be applied in considering whether an apprehension of bias arises is "whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question" the judge is required to decide.

Importantly, the apprehension of bias must be reasonable, and the Ebner test has subsequently been described by the High Court as having the following three steps: (1) identification of the factor which it is said might lead a judge to resolve the question (or case) other than on its legal and factual merits; (2) articulation of the logical connection between that factor and the apprehended deviation from deciding that question (or case) on its merits; and (3) assessment of the reasonableness of that apprehension from the perspective of a fair-minded lay observer.

The Full Court decision

Applying the Ebner test, the majority of the Full Court (Bromwich and Colvin JJ, Perram J dissenting) considered that there was no logical connection between the primary judge's adverse credibility findings about the director at the contravention stage and a feared impartiality on the part of the primary judge at the penalty stage, nor could any such fear be considered reasonable.

The Full Court considered that the statutory regime underpinning the civil penalty proceedings not only did not require a fresh mind to be brought to bear at the penalty stage, but positively required, or at least permitted, the substance of the prior adverse findings during the contravention stage to be taken into account by the primary judge at the penalty stage.

As a result, the primary judge's assessment of the director's credibility could not be considered a pre-judgment. Rather, the majority considered it was a judgment of a kind that was required to be carried forward to the penalty hearing regardless of who heard it. In those circumstances, a fair-minded lay observer, properly informed in even fairly general terms of the statutory regime underpinning the civil penalty proceedings, would not find that the primary judge might not be able to bring an impartial mind to bear at the penalty stage.

High Court decision

The High Court unanimously dismissed the company's appeal against the Full Court decision.

The company argued that a reasonable apprehension of bias arose on two bases. The first 'broad' argument was that the primary judge's language revealed a kind of animosity or animus towards the appellant, such that a fair-minded lay observer might apprehend that the judge might lack impartiality at the penalty stage. The second 'narrow argument' was that the language used by the primary judge in making adverse credibility findings against the director of the company revealed a prejudgment as to the director's credit with respect to the evidence the director was anticipated to give at the penalty stage.

The High Court agreed with the reasoning of the majority of the Full Court that there was no logical connection between the identified source of apprehended bias, being the primary judge's adverse credibility findings about the director at the contravention stage, and the feared deviation that the primary judge would take from the proper course of deciding the case on its legal and factual merits at the penalty stage. The Court considered that the findings in relation to the director's credit were not broad findings in respect of his character. Rather, they were confined to the evidence the director gave in respect of issues in dispute at the contravention hearing. In this sense, the primary judge's findings did not reveal a prejudgment of any new issue that might arise for determination at the penalty stage of the proceeding, and there was no indication that the primary judge would not properly evaluate the director's second tranche of evidence in respect of the penalty stage.

The High Court further considered that a fair-minded lay observer, reading the primary judge's language in the contravention reasons, would not reasonably apprehend that the primary judge might deviate from deciding either the question of the appropriate penalty, nor the question of the credibility of and weight to be given to the director's evidence at the penalty stage, on its merits. The Court considered that the primary judge's findings did not reveal animosity or animus to the appellant or its witnesses. Each of the primary judge's findings was made in the context of addressing a specific issue or argument raised by the appellant during the contravention hearing and each was an issue or matter the primary judge was required to address and, in addressing those matters, the primary judge's findings were not gratuitous.

In the circumstances, it was held that the appellant had failed to make out both the second step, with respect to the narrow argument, and the third step, with respect to the broad argument, of the Ebner test, and the primary judge's conduct did not give rise to a reasonable apprehension of bias.

While members of the Court made mention of the clear efficiencies to the administration of justice in retaining the trial judge to hear the penalty stage of the proceeding, Edelman J observed that "natural justice is not subservient to efficiency". In doing so, his Honour recognised that this is not a factor to be considered when assessing whether a judge ought to be disqualified.

Finally, several members of the Court emphasised that the test for apprehended bias can be satisfied at any stage of a proceeding, and that the principles of apprehended bias can operate upon matters that arise during the course of a single trial, whether bifurcated or not. Citing Livesey v New South Wales Bar Association (1983) 151 CLR 288 at 299, the Court reiterated that it is "impossible to lay down an inflexible rule" as to when apprehended bias will arise and everything depends on evaluation of the facts from the perspective of a hypothetical lay observer.

Key Takeaways

• It is common for civil penalty proceedings to be brought in two stages: a contravention hearing and a penalty hearing. The High Court's judgment confirms the relationship between findings made at each stage of the proceeding.
• The fact that a judge makes findings at the contravention stage (including credit findings) does not necessarily disqualify the judge from presiding at the penalty hearing. Indeed, some findings at the contravention stage can properly be taken into account at the penalty stage. The overriding question is whether the circumstances might give rise to a reasonable apprehension that the judge might not bring an impartial mind to determining further issues in the penalty hearing.
• Where adverse credit findings are made in bifurcated civil penalty proceedings, a fair-minded lay observer may expect that some of those findings are relevant to and will be carried forward to the latter hearing. This is particularly the case if any statutory regime underpinning the proceeding permits or requires as such. Parties to civil penalty proceedings should therefore be aware that findings made, and impressions formed, by the trial judge at the contravention stage may be carried across to the penalty stage, and should formulate their strategy (including which points to contest and which witnesses to call) accordingly.
• There is no hard and fast rule as to when an apprehension of bias can arise. A judge's conduct at any stage in a proceeding may satisfy the test for apprehended bias and require disqualification. The fundamental question is whether a fair-minded lay observer might reasonably apprehend that the judge might deviate from impartiality, and in answering this question, the factual and legal context of the judge's conduct is important.

Other authors: Elvin Zhang, Lawyer