The highest court in the land has recalled a judgment - a rare event - after one of its judges disclosed that he effectively owed nearly a quarter of a million dollars to a QC who appeared before him in the Appeal Court.

In addition, a racing industry company, Rich Hill Ltd, owned by Justice Bill Wilson and Alan Galbraith, QC, was in the process of borrowing another $700,000 to help buy a property to enlarge a horse stud.

"The judge's shareholding in Rich Hill Ltd was not at that time merely a passive investment," the Supreme Court said yesterday.

"These circumstances ... would, if disclosed before the earlier hearing, have led the court to the conclusion that the case on apparent bias was made out. There is ... a very special reason why justice requires recall of our earlier judgment".

The case has legal significance beyond a small victory for sheepfarmers battling the rump of the former Wool Board.

A spokesman for Attorney-General Chris Finlayson said he was studying the ruling. He had no immediate comment.

Justice Wilson has since been made a permanent judge on the Supreme Court bench.

The Supreme Court said he should not have judged a case where one of the counsel was an active business partner.

The ruling by Justices Peter Blanchard, Andrew Tipping, John McGrath, and Noel Anderson is the first on apparent bias relating to the relationship between a judge and counsel.

A fifth judge, Justice Tom Gault, sat on the original Supreme Court bench that on July 3 ruled in favour of Mr Galbraith's client, but was not available for the recall hearing, a court official said.

Saxon merino growers, including the Saxmere Company, have spent years arguing their wool should be treated separately from other merino wools in allocating Wool Board funding.

Mr Galbraith represented the Wool Board Disestablishment Company in the Appeal Court, where Justice Wilson found against Saxmere.

Saxmere owner Peter Radford - through his lawyer Sue Grey - appealed to the Supreme Court, alleging a potential conflict of interest because Mr Galbraith co-owned with Justice Wilson land for grazing race horses.

But the court ruled in July that a "fair-minded lay observer" would reasonably understand that Justice Wilson brought an impartial mind to his judgment.

Yesterday, the court said "it has emerged" that at March 31, 2007, shortly before the Appeal Court hearing, Justice Wilson had advanced $984,176 to Rich Hill, and Mr Galbraith had loaned the company $1,226,980.

Justice Wilson was to balance the contributions with a further $242,804, including interest and principal on $168,555 of bank debt.

"The objective lay observer could reasonably consider that ... the judge was at the relevant time beholden to Mr Galbraith," the court said.

Since the earlier Supreme Court ruling, it had also been disclosed that Rich Hill had contracted to buy a property to enlarge the horse stud, and had arranged to borrow its one-third share of the $2.16 million price.

"The judge and Mr Galbraith must have been reliant upon one another during the very time the Saxmere judgment was reserved in the Court of Appeal", the court said.

The rehearing in the Appeal Court will be before a new panel of judges.