Waiver defence fails after judge trashes witness

Two bankruptcy trustees have been ordered to pay the costs of a director who successfully argued at appeal that Federal Circuit Court judge Sandy Street denied her procedural fairness when he took over her cross-examination, introduced his own evidence and generally demonstrated what some might apprehend as blatant bias.

The successful appeal – detailed in Bhnan v Micheletto & Carrafa (Trustees) [2022] FCA 846 – means that SV Partners duo Fabian Micheletto and Michael Carrafa will need to endure a retrial before they know if they have any hope of securing a $1.5 million real property asset for the benefit of creditors of the bankrupt estate of Mr Aid Eshi.

“Some of those questions were unfair, and it was apparent that they caused Ms Bhnan confusion and caused her to make concessions that she may not otherwise have made.” Justice Angus Stewart.

In 2021 Judge Street found that the appellant Ms Stephanie Bhnan had failed to pay the full $1.5 million purchase price for the disputed property.

Consequently Judge Street ruled that the transfer to her by Mr Eshi of that property at undervalue and after the act of bankruptcy was void and the property therefore vested with the trustees.

Unfortunately for the trustees Judge Street’s handling of the trial handed Ms Bhnan all the ammunition she needed to mount a successful apprehended bias and denial of procedural fairness case on appeal.

“Ms Bhnan submits that a critical factual question the primary judge was required to determine was whether any or all of the shortfall was paid,” Appellant judge Angus Stewart said.

“She submits that in respect of that issue, the primary judge evinced by his interventions a “strident” and “seemingly concluded” view that Ms Bhnan’s case was all a fraud, and that a fair-minded observer of those interventions might conclude that his Honour’s mind was so made up that he might not be open to changing it.

“In my view, that conduct by his Honour conveyed that his Honour had formed a firm view early in Ms Bhnan’s evidence that, save for the $1.2 million provided by the incoming mortgagee, Ms Bhnan had not contributed any equity of her own to the purchase price and that she had defrauded the lender.

“In the words of Lord Brown JSC, his Honour made obvious “his own profound disbelief in the defence being advanced”, Justice Stewart said.

Not only that, the hectoring quality of Judge Street’s interventions meant: “Some of those questions were unfair, and it was apparent that they caused Ms Bhnan confusion and caused her to make concessions that she may not otherwise have made,” Justice Stewart said.

Micheletto and Carrafa opposed the appeal, arguing that because Bhnan’s counsel hadn’t raised issues of Judge Street’s “prejudgment” during the primary hearing, Bhnan had waived her right to utilise it as a ground for appeal. Justice Stewart disagreed.

“When his Honour asked the first objectionable question, her counsel Benjamin DeBuse did object; he did not merely stand by and let the judge’s cross-examination continue.

“It is “awkward, to say the least” for counsel to object to a judge’s question, particularly during the opponent’s cross-examination.

“But Mr DeBuse was not cowed. He rightly objected. In my view, it cannot be said that, by her counsel failing to do more than object to his Honour’s question, Ms Bhnan thereby waived her right to a fair trial, or to subsequently object to unfairness in the trial.”

The judge ordered a retrial and directed the trustees to pay Bhnan’s costs of the appeal. However he also awarded both sides a costs certificate in relation to the costs if any that will be borne at retrial.