SunshineLoans Pty Ltd v ASIC: A Constitutional Dimension to Apprehended Bias?
Jerry Leung and Seung Chan Rhee
15.10.2025
Where a judge makes adverse credibility findings against a witness in the liability stage of a trial and that same witness is required to give evidence at the relief stage, is that judge required to recuse themselves on account of apprehended bias? On 16 October 2025, the High Court will consider this important question when it hears the appeal in SunshineLoans Pty Ltd v ASIC (Case No B23/2025). This post argues that disqualification should not always follow. We consider what was said at first instance and on appeal and note that a constitutional dimension to apprehended bias may have been overlooked. Procedural fairness is a defining characteristic of Ch III courts, from which the subsidiary rule against apprehended bias is derived. This post argues that the rule against apprehended bias is not an absolute rule, and departures are permissible where they are reasonably necessary for protecting a compelling public interest – an evaluative exercise going beyond the four corners of the fair-minded lay observer test.
Background
Primary proceeding
SunshineLoans Pty Ltd (SunshineLoans) is a credit provider of small amount credit contracts, under the regulation of the National Credit Code (the Code). The Australian Securities and Investments Commission (ASIC) brought a proceeding in the Federal Court alleging various contraventions of the Code; at the motion of ASIC, and with the agreement of SunshineLoans, the proceeding was bifurcated such that the issue of liability was to be dealt with ahead of and separate to any hearing about relief. At the liability stage, the primary judge (Derrington J) found that SunshineLoans was liable for certain contraventions and in doing so, found that a witness by the name of Mr Powe (a director of SunshineLoans) gave ‘unsatisfactory’ evidence that was ‘not credible in the face of objective evidence’. His Honour concluded that Mr Powe was ‘not a witness who tried to give his evidence in an honest manner’; rather, he ‘gave evidence in the manner of someone who had been schooled to advance a particular theory’ and ‘in the maintenance of the theory that he had sought to propound, his evidence became preposterous’: ASIC v SunshineLoans Pty Ltd (No 2) [2024] FCA 345 at [268], [302]-[304].
Before the penalty hearing, SunshineLoans filed an application seeking that Derrington J recuse himself from hearing the question of relief on the basis of apprehended bias. His Honour ultimately acceded to that application, although not for the reasons advanced by SunshineLoans (which appeared to involve a complaint ‘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’: ASIC v SunshineLoans Pty Ltd (No 3) [2024] FCA 786 at [23] (Recusal Decision)). Rather, Derrington J considered that because he ‘had made adverse credit findings in relation to the directors of Sunshine Loans in [his] reasons for judgment on liability, it would be inappropriate for [him] to conduct the penalty hearing in circumstances where [he] would again be required to assess the credibility of one or more of them’: Recusal Decision at [5]; see also [14]-[18].
Justice Derrington signaled his awareness of the difficulties posed by a strict conception of the apprehended bias test. Bifurcated civil penalty proceedings had now become ‘conventional’, with significant economies in that approach: Recusal Decision at [50]-[51]. Nevertheless, inherent was the prospect that a judge would have to consider contentious evidence on relief from a person against whom adverse credit findings had already been made. ASIC noted that in previous authority, judges had considered the subsequent credit of such witnesses without difficulty: Recusal Decision at [53]-[54]. ASIC also noted judge-only criminal trials in which determination of guilt and sentence (and evidence appertaining to both) is conducted by the same judge as a matter of course: Recusal Decision at [56]-[57]. In light of this conflict, Derrington J considered ‘a solution’ was required. However, that was not for him to fashion, but for the Court (through the adoption of a protocol) or the legislature: Recusal Decision at [58]-[59].
Appeal proceeding
The Recusal Decision was overturned on appeal by a majority of the Full Court of the Federal Court (Bromwich and Colvin JJ, Perram J dissenting). Each judge wrote separately, but it was common ground that:
The relevant test for apprehended bias 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 that the judge is required to decide. This requires (a) the identification of what is said that might lead a judge to decide a case other than on its legal and factual merits; and (b) the articulation of the logical connection between that factor and the feared deviation from deciding the case on the merits: ASIC v SunshineLoans Pty Ltd (2025) 308 FCR 514 (Recusal Appeal) at [8], [18], [66], [68], [74]-[85], [122], [136];
The consideration of whether an identified apprehension of bias from the perspective of a fair-minded lay observer is reasonable is to be considered in the context of ordinary judicial practice at the time and the legal, statutory and factual context of the decision: Recusal Appeal at [18]-[19]. [82], [124], [139]; and
The mere fact that a judge has made an adverse credibility finding against a witness at the liability stage and that same witness will give evidence at the penalty stage does not necessarily mean that the judge must recuse themselves due to apprehended bias: Recusal Appeal at [29], [112], [113], [152], [163].
For the majority, emphasis was put on the fact that a hearing on relief or penalty in the same proceeding would never occur in a vacuum, and that understanding was to be imported to the fair-minded lay observer. Justice Bromwich noted that a penalty hearing would permit, if not require, a judge (whether original or new) to have express regard to findings, including as to credit, made at the liability stage of the proceeding: Recusal Appeal at [111]-[113]. Justice Colvin made similar observations: Recusal Appeal at [148], [161], [164]. Hence, it was not to the point that Derrington J had found adversely as to Mr Powe’s credit before he was to give further evidence on penalty.
For Perram J, while there was no universal rule tending to disqualification in situations of successive findings of credit, the modality of the language used by Derrington J in his liability reasons were at a level which led to a reasonable apprehension of bias: Recusal Appeal at [35]. On this account, the remarks ‘travelled further’ than mere credibility findings or non-acceptances of evidence: Recusal Appeal at [31], [36].
In this post, we do not propose to consider the fact-specific question as to whether there was a reasonable apprehension of bias in the circumstances of the case in SunshineLoans. Instead, our argument is this: even if Derrington J and Perram J were correct in holding that a reasonable apprehension of bias arose in SunshineLoans, that is not the end of the inquiry and did not automatically demand recusal. That is because the rule against apprehended bias is a general rule, derived from a court’s defining characteristic of procedural fairness, that may be departed from if reasonably necessary for attaining a countervailing public interest. We make good this proposition by drawing upon the High Court’s recent Ch III jurisprudence. As to the public interest itself, beyond the undesirability of judges being disqualified from adjudication too readily, another aspect arises as discussed by Bromwich J and Colvin J, that inherent in the nature of staged proceedings and civil penalty proceedings is a requirement that judges have regard to prior findings of credit in forming their view on relief. There is no contrary requirement of a tabula rasa.
The constitutional dimension
Institutional requirements of courts under Ch III
Courts must always exhibit certain “essential attributes” or “defining characteristics” that distinguish them from other decision-making bodies, such that they remain suitable repositories of federal jurisdiction and conform to the expression, ‘court’, within Ch III of the Constitution: Forge v Australian Securities and Investments Commission (2006) 228 CLR 45 at [63].
One such attribute is the observance of open justice. This defining characteristic is said to give rise to a ‘general rule that judicial proceedings shall be conducted in public’: Hogan v Hinch (2011) 243 CLR 506 at [90]. That aspect of the administration of justice has been said to be ‘critical to the maintenance of public confidence in the courts’: Hogan at [20]. Yet, the general rule can be departed from in circumstances where a closed court is, for example, necessary to protect national security: Condon v Pompano Pty Ltd (2013) 252 CLR 38 at [5].
The critical question is how the permissibility of any departure from the general rule that court proceedings be conducted in public should be assessed. In Hogan, Stephen Gageler SC as Solicitor-General for the Commonwealth offered a potential solution. He suggested that a ‘substantial legislative derogation from the principle of open justice’ would require ‘constitutional justification in terms of the pursuit of a legitimate end by proportionate means’: Hogan v Hinch [2010] HCATrans 285, 3947-52 (Gageler SC). Reframing this slightly, it might be said that the relevant question is whether the departure from the general rule that court proceedings be conducted in public is reasonably necessary for attaining a legitimate end.
Another defining characteristic of a court is that it affords procedural fairness: SDCV v Director-General of Security (2022) 277 CLR 241 at [50], [58], [106], [172]. This defining characteristic cannot be sacrificed. However, procedural fairness is a malleable concept; procedures which may appear unfair in a non-legal sense may nevertheless be permissible. SDCV provides an apt illustration: there, a provision which denied a litigant access to security-sensitive evidence but permitted a court to consider that secret evidence in its deliberations was held (by a narrow majority, but constituting ratio upheld unanimously in MJZP v Director-General of Security (2025) 423 ALR 378) to be constitutionally valid. That provision did not derogate from the Federal Court’s defining characteristic of procedural fairness.
Evaluating permissibility of departure from procedural fairness
How should we assess whether a court’s defining characteristic of procedural fairness has been compromised? Just like how open justice as an essential attribute of a court gives rise to a general rule that court proceedings be conducted in public, the starting point is to recognise that the parent defining characteristic of procedural fairness gives rise to various subsidiary general rules. One example of a subsidiary general rule derived from procedural fairness is the rule ‘that opposing parties will know what case an opposite party seeks to make and how that party seeks to make it’: Pompano at [157] (the general rule against surprise). That rule, however, was not considered indispensable in the circumstances of SDCV (and later MJZP). As Kiefel CJ, Keane and Gleeson JJ noted in the former, ‘it is necessary to appreciate that Ch III of the Constitution does not entrench the adversarial system of adjudication and its incidents [including, we interpolate, the general rule against surprise] as defining characteristics of the courts for which it provides’: Pompano at [15].
Another subsidiary general rule derived from procedural fairness is that a judge should not decide a matter ‘if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide’: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [6] (the general rule against apprehended bias). This too is not absolute and may be departed from in certain circumstances. That was recognised in Ebner itself, where the general rule against apprehended bias was expressly said to being ‘subject to qualifications to waiver … or necessity’: at [6]. Similarly, in British American Tobacco Australia Services v Laurie (2011) 242 CLR 283, the plurality observed that ‘[e]xceptions to the apprehension of bias rule include necessity, waiver and, possibly, special circumstances’: at [146].
Is there a principled approach to determining whether a departure from one of these subsidiary general rules is acceptable? In SDCV, Gageler J suggested at [231] that (emphasis added) (cf Edelman J at [218], [231] [235], [237]-[238], [267]):
[A] legislated departure from the general rule [against surprise] does not necessarily result in non compliance with the standard of procedural fairness required by Ch III of the Constitution of a court engaged in a judicial process … There is much to be said for an approach which would require any legislated departure from the general rule to be no more than is reasonably necessary to protect a compelling public interest.
With respect, this approach is a principled one. It coheres to the one taken by High Court in determining whether a burden on the implied freedom of political communication or s 92 of the Constitution is justified. Those guarantees can be readily conceived as general rules which require freedoms of political communication or interstate trade and commerce to be maintained in Australia as an incident of the Constitution. Whether a departure from that rule is constitutionally justified then depends on whether it is reasonably appropriate or adapted (implied freedom) or reasonably necessary (s 92) for serving a legitimate end: McCloy v New South Wales (2015) 257 CLR 178 at [2], [129], [220], [306]; Palmer v Western Australia (2021) 272 CLR 505 at [50], [137]-[139], [192], [197], [265].
Justice Gageler’s approach in SDCV was recently relied upon by the plaintiff in MJZP in an attempt to re-open SDCV: see ‘Submissions of the Plaintiff’ in MJZP v Director-General of Security, [38]-[39]. However, because the Court ultimately declined to do so, it did not address the cogency of the reasonable necessity approach. The result is that its adoption remains an open possibility.
Drawing upon Gageler J’s remarks in SDCV, we argue that the permissibility of a departure from the general rule against apprehended bias should similarly be tested by asking whether it is reasonably necessary for protecting a compelling public interest. This standard of necessity aligns with the qualifications of necessity and special circumstances that attend the general rule against apprehended bias –– the former having been engaged in Clenae v Australia v New Zealand Banking Group Ltd [1999] 2 VR 573, as discussed by the plurality in Ebner at [65].
Clenae can be rationalised as a case where the departure from the rule against apprehended bias was reasonably necessary for achieving a compelling public interest. Even though between hearing the case and handing down judgment, the judge had acquired a ‘modest’ pecuniary interest in the plaintiff bank (his mother having died in that intervening period, leaving him shares in the bank) so as to give rise to a reasonable apprehension of bias, the judge’s course of action in deciding the case anyway (departing from the general rule against apprehended bias) was justified because it was reasonably necessary for upholding the ‘public confidence in the administration of justice’. The standard of reasonable necessity was met because (1) the judge had first-hand knowledge of a key witness’s credibility based off his own observations at trial; (2) that issue was central to the proceedings at hand; and (3) by proceeding to decide the case anyway despite the apprehension of bias, the parties were saved from having to ‘embark upon a fresh hearing of the case before a new judge’ which would have been antithetical to the just, quick and cheap resolution of the proceedings.
Application to apprehended bias in SunshineLoans
In SunshineLoans, two out of four judges (namely, the primary judge, Derrington J, and Perram J dissenting on appeal) considered that a reasonable apprehension of bias did arise. At first instance, Derrington J referred (Recusal Decision at [15]) to the ALRC’s report, Without Fear of Favour, at [10.77], which states (emphasis added, citations omitted):
A previous decision of the same fact or expression of clear views about the credit of a relevant witness, whether in the same proceedings or different proceedings, will amount to a disqualifying ground.
Justice Derrington went on to hold that ‘[t]he principle as identified is entirely correct’: Recusal Decision at [17]. Applying the principle, since Derrington J had (1) made adverse credibility findings against Mr Powe at the liability stage of the proceedings and (2) Mr Powe was required to give evidence at the penalty stage, his Honour recused himself from hearing the issue of relief.
Justice Perram on appeal also held that a reasonable apprehension of bias arose. However, Perram J rejected the existence of a universal rule as articulated by the ALRC in its report (quoted above), saying the statement was ‘too absolute and … not supported by the authorities cited for it’: Recusal Appeal at [13], [38]. His Honour considered that by relying on this rule, ‘the primary judge … approach[ed] the question of apprehended bias on an erroneous basis’: Recusal Appeal at [14].
In the absence of an absolute rule of the kind referred to by the ALRC, our view is that a finding of a reasonable apprehension of bias does not automatically demand recusal. Instead, the inquiry must then be directed to identifying whether it is reasonably necessary for the judge to remain seized of the matter to protect or attain a compelling public interest.
On this counterfactual, we argue that Derrington J could have been able to decide the issue of relief after having made adverse findings of credit against Mr Powe. The compelling public interest at hand is the need to impose an appropriate penalty for SunshineLoans’s contraventions of the Code. That is a statutory objective arising under the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) which requires having full regard to the antecedent factual findings concerning ‘the nature and quality of the contravening conduct’: see Recusal Appeal at [100]-[101], [107], [111] (Bromwich J), [148] (Colvin J). The departure from the general rule against apprehended bias (ie Derrington J proceeding to decide the issue of penalty even though a reasonable apprehension of bias arises due to prior adverse findings of credit having been made against a witness giving evidence as to penalty) is reasonably necessary for attaining this compelling public interest because, to use the words of Bromwich J in the Recusal Appeal (at [116]):
No-one is likely to be better placed than the judge who determines liability to understand fully the basis for the conclusions reached. That judge will correspondingly be best placed to bring that knowledge and understanding forward to the penalty determination stage, including in evaluating the relevance and significance of any additional evidence adduced, and additional submissions, made at that stage.
To this may be added the observations of Colvin J on the unfairness that would be occasioned ‘if the second hearing were now to be conducted by a judge who had not heard and determined the issues raised at the first hearing’: at [154].
Crucially, as Bromwich J highlighted (at [111]), the same considerations apply to other civil penalty proceedings conducted in a bifurcated way, even if the underlying provisions are not set out in the same bifurcated way as ss 166 and 167 of the NCCPA. By way of context, s 166(1) of the NCCPA provides for the liability step, where ‘[w]ithin 6 years of a person contravening a civil penalty provision, ASIC may apply to the court for a declaration that the person contravened the provision’. The subsequent penalty step is set out at s 167(1), providing ‘[w]ithin 6 years of a person contravening a civil penalty provision, ASIC may apply to the court for an order that the person pay the Commonwealth a pecuniary penalty’. His Honour also held that the positive requirement of self-reference to prior findings in s 167(3) of the NCCPA (ie courts being required to consider the findings made at the liability stage in order to establish penalty and quantum) means that split penalty proceedings can be distinguished from justifiable instances of disqualification arising from other kinds of interlocutory processes (like privilege claims) involving adverse findings of credit before the final hearing: see, eg, Westpac Banking Corporation v Forum Finance Pty Limited (Apprehended Bias Application) [2022] FCA 981 at [10] (Lee J) and compare Recusal Appeal at [99] and [112].
In addition, the reallocation of the penalty determination stage to another judge who is completely unfamiliar with the matter is likely to be in tension with the overarching purpose in s 37M(1) of the Federal Court of Australia Act 1976 (Cth), which is to ‘facilitate the just resolution of disputes … according to law … and as quickly, inexpensively and efficiently as possible’. Doing so would almost inevitably delay the disposition of the proceedings; very recently in ASIC v Bekier [2025] FCA 84, Lee J was considerably reluctant to recuse himself from hearing a part of a proceeding concerning an agreed penalty between ASIC and one of several defendants in circumstances where the balance of the proceeding against the other defendants was to be heard by him in due course. His Honour said it was ‘entirely unclear to [him] as to when another judge will be able to hear this aspect of the case, let alone deliver judgment’: at [11]. Conversely the expedited determination of this part before the commencement of the main hearing would have ‘made intuitive sense to [him] and would have best facilitated the overarching purpose’: at [9]-[10]. It is well to note that the primary judge and all members of the Full Court in SunshineLoans acknowledged the material efficiencies of split proceedings in such a case management sense: see Recusal Decision at [50]-[51] and Recusal Appeal at [28], [87(c)], [142]. It would be counter to these efficiencies if it were to become accepted that split proceedings had an inherent vice of incurable apprehended bias.
Conclusion
It follows, in our view, that even if a reasonable apprehension of bias did arise in SunshineLoans, the possibility of Derrington J proceeding to hear the penalty stage was not automatically foreclosed as him doing so was reasonably necessary for attaining a compelling public interest. There would consequently be no sacrifice to the court’s institutional integrity occasioned. This qualified conception of apprehended bias has the notable benefit of explaining and validating the existence of authorities in which trial judges considered subsequent evidence from a witness against whom they had already made adverse findings of credit: see Recusal Decision at [53]-[54] and the authorities cited there.
We note that these issues have not been raised by the parties in their written submissions before the High Court. The written submissions concern the application of the apprehended bias rule and the fair-minded lay observer test, including the ‘logical connection’ between findings being made as to credibility at an earlier stage and risk to impartiality at a later stage in the same proceeding. Both parties considered that no notices to Attorneys-General under s 78B of the Judiciary Act 1903 (Cth) indicating the involvement of ‘a matter arising under the Constitution or involving its interpretation’ were required. However, we suggest that there is a constitutional dimension to apprehended bias which could have a real impact on the outcome of the appeal and would compel the issuing of s 78B notices. Whether this point will be explored in the hearing before the High Court on 16 October 2025 remains to be seen.
Jerry Leung and Seung Chan Rhee are casual academics at the University of Sydney.
Suggested citation: Jerry Leung and Seung Chan Rhee, ‘SunshineLoans Pty Ltd v ASIC: A Constitutional Dimension to Apprehended Bias? (15 October 2025) <https://www.auspublaw.org/blog/2025/10/sunshineloans-pty-ltd-v-asic-a-constitutional-dimension-to-apprehended-bias>