Firm Views But Fair Mind: Australian High Court Clarifies Limits Of Apprehended Bias In Bifurcated Proceedings

On 18 March 2026, the Australian High Court delivered judgment in SunshineLoans Pty Ltd v Australian Securities and Investments Commission [2026] HCA 8.

The decision confirms that a judge who makes strong adverse credibility findings against witnesses at the liability stage of a bifurcated civil penalty proceeding is not, without more, disqualified by apprehended bias from presiding over the subsequent penalty hearing. 

Background

ASIC brought proceedings against SunshineLoans in the Federal Court of Australia alleging that SunshineLoans had charged consumers prohibited fees under the National Consumer Credit Protection Act 2009 (Cth) in connection with its small amount credit contracts.¹ 

Relevantly, the proceedings were bifurcated into (1) a liability stage; and (2) a penalty stage (to be determined only if liability was established). 

The central issue at the liability stage was whether an “Amendment Fee” charged to borrowers was a fee payable upon default (and thus permitted) or a fee payable upon amendment of the repayment schedule (and thus prohibited). At the liability stage, the primary judge (Derrington J) found SunshineLoans liable for numerous contraventions. In doing so, his Honour was highly critical of SunshineLoans’ arguments (and its witnesses), stating at [200] of the Primary Judgment that:

It is difficult to know whether, in this respect, Sunshine Loans had adopted a deliberately obstruse attitude, was effectively misleading borrowers, or was concocting a fanciful argument to avoid liability in these proceedings.

Derrington J described the evidence given by Mr Powe (the witness due to give evidence at the penalty stage) as “preposterous” and “schooled”, concluding that Mr Powe had not “tried to give his evidence in an honest manner” ([302]-[304]).

When ASIC subsequently sought penalties of $10.5 million, SunshineLoans applied for the primary judge to recuse himself from the penalty hearing on the basis of apprehended bias. The primary judge accepted SunshineLoans’ narrower argument that his adverse credibility findings about Mr Powe gave rise to a reasonable apprehension of bias. Derrington J considered that “[t]he lack of propriety in [a] judge attempting to perform a second assessment of [a] person's credibility is patently self-evident” ([31] of the High Court Judgment). Accordingly, he ordered his recusal.

The majority of the Full Court of the Federal Court of Australia (Bromwich and Colvin JJ, Perram J dissenting) overturned the recusal, holding that the primary judge's findings were required to be carried forward to the penalty stage and did not constitute prejudgment.²

High Court’s Findings

The High Court unanimously dismissed the appeal. 

Gageler CJ and Gleeson J held at [5] that:

In our opinion, the argument fails because it breaks down at the second stage of the requisite analysis. There is no logical connection between the identified source of apprehended bias and the postulated deviation from the course of deciding the case on its legal and factual merits. Though expressed in language that is highly critical, the findings to which SunshineLoans points in the liability judgment were all open to be made by the primary judge in the proper discharge of his function of determining the issues of fact and law raised for his determination at the liability stage of the hearing. Having been so made, those findings are all available to be taken into account by the primary judge to the extent they are relevant to such issues as may be raised for determination at the penalty stage of the hearing. In determining penalty, the primary judge is not required to put aside the views he has already expressed concerning the conduct of SunshineLoans. And, in evaluating such further evidence as may be given by Mr Powe at the penalty stage of the hearing, the primary judge is not required to put aside the views he has already expressed concerning the credibility of Mr Powe as a witness.

Gordon J adopted a structured application of Ebner and added two observations from that case (see [91]-[92]). First, where there is genuine doubt, recusal may be sensible. However, parties must not be allowed to manipulate the composition of the bench. Second, in limited (and difficult to define) circumstances, a judge may properly decide not to sit despite not being formally disqualified, a point reiterated by Steward J.

Jagot and Beech-Jones JJ emphasised the finality and binding nature of the liability stage. Her Honour Jagot J observed at [142] that: 

“[T]he required judicial mindset in the usual course is best described as a mind firmly closed about the contraventions as found and a mind manifestly open to persuasion about the penalty to be imposed and relief to be granted for the contraventions as found. That the principle of finality in its application to the contravention judgment demands the very outcome which SunshineLoans contends gives rise to the apprehension of bias exposes the error in its approach in this case”

Beech-Jones J drew a helpful analogy to criminal law at [197]: 

“a judge … conducting a criminal trial … who rejects an accused's evidence of innocence and finds them guilty of a crime … is not thereby per se precluded from determining the appropriate sentence or assessing any evidence the offender may give at the sentencing hearing.”

Finally, Edelman J diverged most in framing. His Honour dismissed the idea that this case raised new issues of principle, instead characterising it as an ordinary question of the spectrum between bias and impartiality ([95]-[96]). 

Key Takeaways

In civil penalty proceedings, it is orthodox practice to bifurcate the hearing into liability and penalty stages. However, bifurcation can generate tension where the judge at the liability stage makes strong findings about the credibility of witnesses who are to give further evidence at the penalty hearing. 

The High Court’s judgment resolves that tension by confirming the following principles:

1. The Ebner test governs apprehended bias in bifurcated proceedings. The Court affirmed the three-step test in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, 344 for apprehended bias: a judge will be disqualified “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”. The test requires: (1) identifying the factor that might lead the 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 (Gordon J, [60]);
2. The principle of finality is central. The judge hearing the penalty stage is not required, nor permitted, to adopt a “suspended state of judgment” as if the liability stage had not occurred (Beech-Jones J, [196]). Rather, the penalty stage of a bifurcated hearing is “simply a continuation” of the liability stage (Beech-Jones J, [196]). Consequently, “the primary judge is not required to put aside the views he has already expressed” on a party’s conduct nor the credibility of a witness (Gageler CJ and Gleeson J, [5]).
3. Strongly worded findings do not, of themselves, give rise to apprehended bias. “Strident” language used in the proper discharge of the judicial function at the liability stage will not automatically disqualify a judge from presiding over the penalty stage (Gordon J, [88]). However, there is a limit: an apprehension of bias might arise if a judge said or implied that no matter what a witness said at the penalty hearing, the evidence would be disregarded (Edelman J, [96]). The question is not whether the judge has expressed forceful views on liability, but whether the judge's mind appears closed to persuasion on penalty issues (Jagot J, [142]).
4. Bifurcated hearings in a single proceeding are distinguishable from separate or unrelated proceedings. The findings at the liability stage are final and binding on the penalty stage, and the fair-minded lay observer is taken to understand that the second stage proceeds on the foundation of the first.
5. A judge retains a residual discretion to decline to sit. Even where a judge is not formally disqualified on the ground of apprehended bias, it remains open to the judge, as a matter of good case management, to decline to hear the penalty stage where to do so is in the interests of justice, though such occasions should be rare (Steward J, [128]–[129]).

The decision provides important practical guidance for the conduct of bifurcated civil penalty proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.