Federal Court: May 2025

CORPORATIONS and CONTRACTS

Representative of Australian financial services licence holder contravened Corporations Act 2001 (Cth), Australian Securities and Investments Commission Act 2001 (Cth) and/or Australian Consumer Law – licence holder liable for conduct of representative – representative of licence holder breached employment agreement, fiduciary duties and/or engaged in misleading and deceptive conduct

In Xie v Moshav Financial Wholesale Pty Ltd [2025] FCA 250 (Markovic J), the first defendant (‘Moshav’) was a fund manager which raised and lent money for the purposes of investing in real property. It held an Australian Financial Services Licence (‘AFSL’) which permitted it to carry on, among other things, a financial services business to provide general product advice and deal in financial products such as managed investment schemes.

AXL Financial Pty Ltd (‘AXL’) was an authorised representative under Moshav’s AFSL. AXL was issued with limited authorisation to source investors for Moshav’s funds. For that purpose, Moshav and AXL issued a white label information memorandum to invite investors, via AXL, to invest in one of Moshav’s funds called the ‘premium fund series’ (‘AXL premium fund series’). At about the time AXL became an authorised representative of Moshav, there was a temporary ‘hot desking’ arrangement whereby AXL staff worked from Moshav’s office.

The second defendant, Mr Yu, was an employee of Moshav pursuant to an employment contract and his role was to source Chinese investors to invest in Moshav’s managed funds. During his employment, Mr Yu met with Moshav’s director to discuss marketing Moshav’s products and the AXL premium fund series to Chinese investors. Mr Yu understood these were the only products he was authorised to sell.

The plaintiff, Mr Xie, was undertaking accounting and bookkeeping work for Hyperbuild Pty Ltd and AXL at the relevant time, and he would often speak with Mr Yu when he was at Moshav’s office.

The claims

Mr Xie claimed he invested about $700,000 in the Hyperbuild Unit Trust in reliance on several representations made to him by Mr Yu in relation to a ‘backdoor listing’ transaction (‘Hyperbuild Transaction’). The investment was lost when the Hyperbuild Transaction did not complete, and such amount (contrary to the representations) was not refunded to him. Mr Xie brought proceedings against Mr Yu for contraventions of sections 1041E and 1041H of the Corporations Act 2001 (Cth) (‘Corporations Act’), sections 12DA, 12DB(1)(a) and 12DF of the Australian Securities and Investments Commission Act 2001 (‘ASIC Act’), and section 18 of the Australian Consumer Law (‘ACL’) in relation to the representations being misleading or deceptive, or likely to mislead or deceive. In this regard, as the representations were made with respect to future matters, Mr Xie relied on the presumption Mr Yu did not have reasonable grounds for making them unless evidence was adduced to the contrary (pursuant to section 769C of the Corporations Act, section 12BB of the ASIC Act 12BB and section 4 of the ACL).

Moreover, Mr Xie claimed Mr Yu contravened s 1041E of the Corporations Act in that the representations were likely to have induced Mr Xie to acquire a financial product within the meaning of that section and Mr Yu did not care, or ought to have known, the representations were false in a material particular or materially misleading.

Mr Xie claimed Moshav was strictly liable for Mr Yu’s contravening conduct as follows:

• Mr Yu’s conduct, in making the representations and contravening ss 1041E and/or 1041H of the Corporations Act, was undertaken by Mr Yu as Moshav’s employee, on Moshav’s behalf and within the scope of Mr Yu’s actual or apparent authority. As such Mr Yu’s conduct was also taken to have been engaged in by Moshav, pursuant to section 769B of the Corporations Act. Mr Xie made the same allegation regarding contraventions of ss 12DA, 12DB(1)(a) and 12DF of the ASIC Act, relying on sections 12GF and 12GH of the ASIC Act; and/or
• Moshav was responsible and liable for Mr Yu’s conduct as he was its employee and therefore its representative within the meaning of sections 917B, 917E and 917F of the Corporations Act.

Mr Xie sought damages from Mr Yu pursuant to section 1041I of the Corporations Act, section 12GF of the ASIC Act and/or section 236 ACL, and/or an order Moshav pay compensation or damages pursuant to ss 917E and 917F of the Corporations Act.

By cross-claim, Moshav contended Mr Yu was Moshav’s agent in carrying out investor responsibilities and therefore owed Moshav fiduciary duties and, in the event Moshav was found liable to Mr Xie, Mr Yu breached those duties and his employment contract with Moshav consequentially suffering loss and damage.

Since Mr Yu was not legally represented at the hearing, the Court provided him with a list of Additional Questions to facilitate Mr Yu giving evidence as to whether he had reasonable grounds for making the representations.

The Court’s findings

Her Honour found all but one of the representations were made and Mr Xie made out his case in relation to Mr Yu engaging in conduct:

• that was misleading or deceptive or likely to mislead or deceive, in contravention of s 1041H of the Corporations Act, s 12DA of the ASIC Act and s 18 of the ACL, and that Mr Yu made false or misleading representations in contravention of s 12DB(1)(a) of the ASIC Act (at [186]-[212]); and
• in breach of s 1041E of the Corporations Act (at [214]-[223]).

However, Mr Xie did not establish a breach of s 12DF of the ASIC Act as he had not pleaded or explained how the conduct in question was liable to mislead the public or a class of the public (at [213]).

With respect to the claim against Moshav, her Honour was not satisfied Mr Xie established Mr Yu was engaged in conduct on Moshav’s behalf or that Mr Yu was acting within the scope of this actual or apparent authority in order to find Moshav liable under s 769B of the Corporations Act and s 12GH(2) of the ASIC Act (at [228]-[237]).

However, Moshav was found liable under ss 917A -917F of the Corporations Act. In this regard, because there was no mention that the offer to participate in the Hyperbuild Transaction was not an offer provided by Moshav and no clear statement by Mr Yu that he was acting outside of his authority as an employee of Moshav, Moshav could not rely on s 917D of the Corporations Act to escape these strict liability provisions. Moshav was therefore jointly and severally liable with Mr Yu (at [238]-[259]).

Given the Court found Mr Yu contravened s 1041E of the Corporations Act and s 12DB of the ASIC Act, the proportionate liability provisions in section 1041L of the Corporations Act and section 12GR of the ASIC Act did not apply and therefore were not considered (at [260]-263]).

Since Moshav was found to be liable to Mr Xie, its cross-claim against Mr Yu was considered, and it was held to be made out with the finding Mr Yu breached the fiduciary duties he owed Moshav and the employment agreement (at [276]-[292]).

Accordingly, Moshav was ordered to pay Mr Xie damages in the sum of about $700,000 (assessment of damages at [264]-[275]) and Mr Yu was ordered to pay Moshav damages in the amount Moshav was ultimately required to pay Mr Xie (at [293]).

APPREHENDED BIAS

Appeal of recusal decision – bifurcated hearing – primary judge already determined liability – primary judge made findings of credit about a witness who would give further evidence at the penalties stage.

Australian Securities and Investments Commission v SunshineLoans Pty Ltd [2025] FCAFC 32 raises a short but important question. Namely, the circumstances in which a reasonable apprehension of bias may arise where a judge who has made adverse credit findings of a witness in one hearing is called upon to evaluate the credit of the same witness in a subsequent hearing in the same proceeding. The case was unusual in that it was an appeal from a recusal, rather than the more conventional appeal from a failure to recuse.

Background proceedings

ASIC commenced proceedings against SunshineLoans Pty Ltd for declarations of contravention of the National Consumer Credit Protection Act 2009 (Cth), Schedule 1 (‘National Credit Code’). It also sought pecuniary penalties. As is common practice in such matters, the hearing of the proceeding was bifurcated between a ‘liability hearing’ and a ‘penalty hearing’.

At the liability hearing, the primary judge accepted ASIC’s case. The primary judge’s reasons included adverse findings as to the testimony given by certain officers of SunshineLoans. His Honour described one witness’ evidence as: ‘unsatisfactory’; he had given his evidence ‘in the manner of someone who had been schooled to advance a particular theory’; his evidence had become at one point ‘preposterous’; his evidence was ‘not credible’; and he was not a witness ‘who tried to give his evidence in an honest manner’.

Recusal application

Prior to the penalty hearing taking place, SunshineLoans successfully applied for the primary judge to disqualify himself on the basis of an apprehension of bias said to arise from the fact that his Honour had already made adverse credit findings about certain witnesses who would also give evidence in the penalty hearing. In effect, it was said that an apprehension of prejudgment arose.

Both parties accepted that whether an apprehension of bias arose depended upon whether a fair-minded lay observer might reasonably apprehend his Honour might not bring an impartial mind to his assessment of Mr Powe’s evidence at the penalty hearing. This is the ‘double might’ test restated by the High Court in Ebner v Official Trustee in Bankruptcy [2000] 205 CLR 337; [2000] HCA 63 (‘Ebner’) at [6] per Gleeson CJ, McHugh, Gummow and Hayne JJ.

On the recusal application, SunshineLoans submitted that having concluded in the liability hearing that certain witnesses were not credible in some respects, including that one witness’ evidence was ‘preposterous’ and given in a manner indicative of a witness who was not trying to give his evidence honestly, a fair-minded lay observer might reasonably apprehend that his Honour might not bring an impartial mind to his assessment of that witness’ evidence on the penalty hearing.

Finding on recusal application

The primary judge reasoned by analogy from instances where it was concluded a fair-minded lay observer might reasonably apprehend a judge might not bring an impartial mind to the resolution of an issue as to the credibility of a witness’ testimony where the judge had expressed clear views about the witness’ credit in a previous case.

The primary judge found that if he was to conduct the penalty hearing, he would be invited to make a further credit finding as to a witness in circumstances where he had already formed an adverse view as to his credit. His Honour described any attempt by a judge to perform a second assessment of a person’s credibility as being ‘little more than a solemn judicial farce’ that would be lacking in propriety. He determined it would be inappropriate for him to further hear the matter and ordered the proceedings be reallocated to another judge.

Broader consequences of the primary judge’s decision

Seemingly recognising the wide-reaching practical consequences of his decision, the primary judge concluded a ‘solution is required’, which might include the Court adopting a protocol for the hearing of such matters or even legislative intervention (Australian Securities and Investments Commission v Sunshineloans Pty Ltd (No 3) [2024] FCA 786 at [58] per Derrington J).

Appeal of recusal

ASIC was granted leave to appeal against the recusal and was successful in overturning the decision of recusal (per Bromwich J Colvin J, Perram J in dissent).

Apprehension of bias

The principle that judges must be, and must be seen to be, impartial is foundational to the administration of justice.

As a majority of the High Court articulated in Ebner, subject to the exceptions for waiver and necessity, a judge will be disqualified from deciding a matter where a fair-minded lay observer might reasonably apprehend the judge in question might not bring an impartial mind to the matter before her or him. This was recently endorsed by all seven justices of the High Court in QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 15.

Ebner principles

The decision of Bromwich J provided a helpful overview of the principles set out in Ebner (at [80]-[85]).

First, the principle of apprehended bias rests between two fundamental duties of judicial decision-makers. On one hand, the obligation of a judge to exercise the jurisdiction of a court, properly invoked, where a case has been allocated to that judge. On the other hand, there is an obligation not to exercise that jurisdiction where an apprehension of bias that meets the test exists.

Secondly, the Ebner test is to be applied in all cases. There is no source of apprehended bias which leads to a presumption of, or an automatic, recusal.

Thirdly, the hypothetical fair-minded lay observer will be aware of the question the judge is tasked with deciding and its legal, statutory and factual context. Such a hypothetical observer would be aware of the substantial overlap and relationship between contravention findings and remedy (here, penalty) findings in a case such as this, arising from the statutory regime, and more generally for cases of this kind.

Fourth, the relevant perspective is not that of another judge or member of the legal profession, but a notional member of the public, properly informed.

Fifth, the sources of an apprehension of bias are ‘as diverse as human frailty’.

Sixth, it is a ‘double might’ test, requiring a possibility, on reasonable grounds, that a hypothetical lay observer might think the judge fails to bring an impartial mind to the question she is tasked with resolving.

Context: Successive or ‘split out’ hearings within the one proceedings

Bifurcated, or a staged hearing, is a form of trial that is commonly undertaken for practical reasons especially in regulatory matters. Significantly, it is inherent in such cases that it is in contemplation that the same judge will conduct both hearings.

Bromwich J and Colvin J considered the primary judge had erred by making a conceptual mistake of regarding the previous findings as part of a wholly distinct judicial inquiry. Relatedly, the primary judge erred by not considering the issue in the specific context of the proceedings where the trial involves a single proceeding conducted by way of successive or ‘split out’ hearings.

In such cases, the first and second hearings are not separate judicial applications. Rather, they contemplate, in effect, one trial that is split between a decision given by the judge on some but not all issues which then governs the next stage of the trial.

The fact that views might be formed by the judge in the first hearing, would not give rise to a reasonable apprehension of bias on the part of the judge that would disqualify the judge from the second hearing. That is because a fair-minded lay observer will know that the second hearing is not to be conducted as a separate and fresh adjudication unaffected by what has occurred in the first hearing.

Consequently, in the present case, the primary judge was not called upon to make a second adjudication of the credibility of the witness that was to be formed independently of any view as to credibility that was formed in the first hearing. Rather, he was able to carry forward those views into the second hearing. Indeed, it was expected from the nature of the successive hearings that he would do so. As Bromwich J noted, ‘The reality that the liability findings must be carried through to the remedy determination is an important part of the determination of this appeal’ (at [59]).

Bromwich J considered no-one is likely to be better placed than the judge who determines liability to fully understand the basis for the conclusions reached (at [116]). 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. In particular, assessment of the stance of the contravenor towards the contravening conduct is likely to be an important consideration on the need for deterrence.

Potential broader consequences avoided

As identified by Colvin J, if the primary judge was correct in his finding that the apprehension of bias existed, then in any such proceedings where liability and penalty hearings are conducted separately, an adverse finding as to credibility in the reasoning on the liability case would mean that in all likelihood a different judge must determine the penalty case.

Bromwich J similarly observed that if the primary judge was correct, it would ‘give rise to the possibility that the new judge could or would make contradictory findings, and then would be impossibly tasked with deciding the appropriate penalty based on the findings of the primary judge (which adopted a dim view of [the witness’] credit in relation to the contravening conduct) as well as findings in which new evidence he offers, which is accepted.’ (at [15]) It would lead to difficulties such as, ‘what is the new judge to do with the candid assessment that has already taken place? Revisit and reassess it? Review the underlying evidence, including the transcript of the evidence and the documents to which it relates? That may be a considerable burden’ (Bromwich J at [121]).

Vincci Chan is a barrister at University Chambers and  Talitha Fishburn is a barrister at 4 Wentworth Chambers.