Mercanti v Mercanti & Ors

[2017] HCATrans 1

[2017] HCATrans 001

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P63 of 2016

B e t w e e n -

JASON DEAN MERCANTI

Applicant

and

TYRONE KANE MERCANTI

First Respondent

PARRADELE PTY LTD (ACN 159 852 169)

Second Respondent

SLONDIA NOMINEES PTY LTD (ACN 008 892 224)

Third Respondent

CITYCOURT PTY LTD (ACN 075 142 228)

Fourth Respondent

MICHAEL ANGELO MERCANTI

Fifth Respondent

KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO PERTH

ON THURSDAY, 5 JANUARY 2017, AT 2.17 PM

Copyright in the High Court of Australia

____________________

MR S. PENGLIS:   May it please the Court, I appear for the applicant.  (instructed by Fletcher Law)

MR A. METAXAS:   If it please your Honour, I appear for the first respondent and second respondent.  (instructed by Metaxas & Hager Lawyers)

HER HONOUR:   Thank you.  There is no appearance for the third, fourth and fifth respondents I see.

MR PENGLIS:   No, there is not, your Honour.  Has your Honour seen a short letter that was provided to the Court by my instructors confirming that?

HER HONOUR:   No, I have not but I take that to be the case.

MR PENGLIS:   That is the case, your Honour.  Your Honour, may I take it that you have had an opportunity to peruse the papers?

HER HONOUR:   I have and I have read the submissions.  Could I ask you this, Mr Penglis?  Why was the Court of Appeal not asked to make an order in effect staying the matter for injunctions until the hearing of the special leave application?

MR PENGLIS:   The approach that the court took, similar to an approach taken in a case in which I appeared on the other side in Kupang, where it has taken the approach that on the question of merit whilst it was of the view that the prospective ground of appeal had no merit, that is that the prospect of special leave was not likely, it concluded that others may have a different view and in all the circumstances made an order to tide us over to enable us to get before this Court.

HER HONOUR:   But that is the very circumstance in which Justice Brennan in Jennings Construction Ltd v Burgundy Royale Investments (1986) 161 CLR 681 at 684 said that the Court should make an order extending the time to avoid the need to come to this Court.

MR PENGLIS:   I understand that, your Honour.

HER HONOUR:   Was the Court of Appeal asked to make a longer order?

MR PENGLIS:   No, it was not – we adopted the approach taken by the court in the Kupang Case, to which I have referred in our submissions, where the court adopted that approach and adopted that approach in this case which was whilst it was of the view – I will not repeat myself, your Honour.

HER HONOUR:   Yes, all right.  The other matter is – and I would expect Mr Metaxas to respond to this in due course as well – I wondered whether the lawyers on both sides were aware of the change to procedures for special leave in this Court that were implemented last year which mean, in effect, that special leave determinations can be made rather more promptly.  That is to say that there is now in place a procedure by which a panel of two Justices looks at an application for special leave very soon after it comes into the Court and it is determined whether or not an oral hearing is warranted.  At that point those Justices can make an order refusing special leave is they consider there is no basis for it, or they can make an order granting special leave, and if the matter is referred in for oral hearing because of this procedure, this panel procedure, matters are now getting on for hearing much earlier.  Are the parties aware of this?

MR PENGLIS:   Can I briefly respond to that?  I appreciate it is largely directed to my learned friend.  The answer is yes.  In communications with the Court Registry, which I have seen and therefore can tell your Honour first hand, the Registrar made that very observation and indicated that it would be possible to get a panel together likely by the end of the month and if an oral hearing was required likely by the end of February and inquired whether on that basis the first and second respondents would agree to an injunction in those circumstances and their answer was no.

HER HONOUR:   I see.  All right, well, as I said, I have read the submissions. 

MR PENGLIS:   Can I just make one observation, your Honour, and that is this.  In my learned friend’s submissions – I will limit my submissions…..to reply, it was put that we have misunderstood the general principles articulated by Justice Brennan in Jennings because what his Honour said is only applicable where it is necessary to preserve the subject matter of the litigation – I am reading from paragraph 4, your Honour, of the applicant’s submissions on this application.  We respectfully submit that is an incorrect and too narrow reading of what Justice Brennan ‑ ‑ ‑

HER HONOUR:   I think you are referring to the first and second respondent’s submissions, are you?

MR PENGLIS:   I am, at paragraph 4.

HER HONOUR:   Yes.

MR PENGLIS:   And that is why, your Honour, I took the liberty of – and hopefully your Honour has this – of asking that it be made available to you the ex tempore decision of Justice Haynes in the Patrick Stevedores Case. 

HER HONOUR:   Yes, I have it with me.  Which passage are you referring to?

MR PENGLIS:   Regrettably, the pages and paragraphs are not numbered but if you go – his Honour took a short adjournment and resumed.  His Honour’s reasons are ‑ ‑ ‑

HER HONOUR:   My printout is actually page numbered but ‑ ‑ ‑

MR PENGLIS:   I see, sorry, mine is not, your Honour, my apologies.  But his Honour does give reasons for decision about two‑thirds of the way in.

HER HONOUR:   That is pretty helpful, there are 47 pages.

MR PENGLIS:   Well ‑ ‑ ‑

HER HONOUR:   I see.  I have got the resumption at 12.32 pm, that is where you are taking it from?

MR PENGLIS:   Yes, your Honour.  It is that page, and in particular can I take you to the paragraph just short of halfway down:

To speak only of preserving the subject‑matter of litigation may in some cases obscure the fact ‑

Can I ask your Honour to read and have regard to that paragraph, and in particular the proposition that ‑ ‑ ‑

HER HONOUR:   Rendering futile the exercise of appeal rights.

MR PENGLIS:   Well, it is rendering futile is one thing but also it is enlivened where they are exercised in circumstances where restoration of status quo cannot be achieved.

HER HONOUR:   Yes, I see.

MR PENGLIS:   And that is what we rely on in this case.  Unless there is anything further you seek to hear me on at this stage, your Honour, they are my submissions.  I adopt obviously my written submissions.

HER HONOUR:   Yes, thank you.  I will hear from Mr Metaxas.

MR METAXAS:   If it please your Honour.  I was aware of the change in the procedure in the Court and after the inquiry was made of the Registry I took instructions from my client.  My instructions were that we would not agree to a proposal to extend the injunctions on the basis that ‑ ‑ ‑

HER HONOUR:   Effectively, this is your clients would not agree to extend injunctions which have been in place since, what, 2013 until the end of February?

MR METAXAS:   Yes.

HER HONOUR:   All right, I understand they were your instructions.

MR METAXAS:   Yes.  We have put our submissions in writing.  Our suggestion was the matter be dealt with on the papers, so the only comment I would offer is that, as I said in my submissions, this is not a case where the restoration of the status quo is not possible as the Court of Appeal said in its October 2015 judgment, that the refusal of injunctive relief would not render the appeal nugatory.

So our position is that this falls squarely within a whole series of cases decided in this Court where, in the absence of that requirement being met – the issue does not go further but, even if that requirement is met, then the onus is on the applicant to demonstrate that there is a real possibility that special leave will be granted and we say that this application will not achieve that level for the reasons we have stated in the response to the application for special leave. 

HER HONOUR:   I take it in that respect that you are taking Justice Brennan in Jennings to say that the prospects of success on the application for special leave must be high.

MR METAXAS:   Well, must be – I would put it in terms of a realistic prospect of success in the application because in cases like the Duke Group, Rahm v Commonwealth Bank, Haydon v Chivell, Ampol Exploration, all of the Justices who dealt with those matters ‑ in Duke Group, Justice Dawson said “a substantial prospect that special leave to appeal will be granted” as the requirement that had to be satisfied.

HER HONOUR:   Well, they were the words initially used by Justice Brennan in Jennings Construction “a substantial prospect”, but in actually applying that test his Honour said that he did not “think that the prospect of a grant of special leave is insubstantial” which tends to turn it around a little the other way, does it not?

MR METAXAS:   It does, but ‑ ‑ ‑

HER HONOUR:   I think it is probably not too far from what you say, a realistic prospect.

MR METAXAS:   Yes, and I do not think we need to quibble over the terms of the definition.  At its heart, this is an application in respect of a matter where the applicant says only I should have won.  It does not say that the law is other than the law that was applied in the court below.  They just say we should have won, and on that basis we say this is just a complaint that the application of established law was not undertaken appropriately ‑ ‑ ‑

HER HONOUR:   Well, you are saying that there is nothing more than the application of established principle to the facts of this case.

MR METAXAS:   Yes.

HER HONOUR:   But there are cases in which, on applications for special leave, where that might be so strictly speaking but the court takes the view that a consideration of particular facts might clarify the application of a rule which does not come up all that much.

MR METAXAS:   No, no.

HER HONOUR:   This is a fairly rare case.

MR METAXAS:   Sorry.  Is your Honour meaning that this is a rare case where the application of established rules to ‑ ‑ ‑

HER HONOUR:   No, no, I really mean that cases involving frauds on powers are not something that one sees very often.

MR METAXAS:   No, and Scaffidi v Montevento is the sort of case where there was no argument about what – well, everyone understood what the law was, they thought, until the Full Court of the Court of Appeal said that in the context of that case we look through the corporate veil and because Mr Scaffidi is the sole director and shareholder of the company which he has been appointed as a trustee that offended the terms of the trust deed, and so in order to avoid the general community thinking that this was a correct decision the High Court had to grant special leave to appeal to say, no, the

law is as it was.  So those sorts of cases can come about but we say this is not one of those cases and for that reason we say that the prospects of special leave being granted are slim at best.

HER HONOUR:   Yes.

MR METAXAS:   They are my submissions, your Honour.

HER HONOUR:   Thank you, Mr Metaxas. 

MR METAXAS:   If it please the Court.

HER HONOUR:   Mr Penglis, what do you say is the something more that this case has which would warrant the grant of special leave given Mr Metaxas’ submissions?

MR PENGLIS:   The something more is this.  Firstly, it does deal with a case of fraud on power which, certainly on my research and it may well be flawed but it is rather extensive, has not come before this Court for a significant period of time.  The something more is the fact that it is the application of that principle to a set of circumstances which, in my respectful submission, is wrong to say is somehow unique or germane to the parties to these proceedings.  We have here a family trust where, on advice of lawyers, it was considered appropriate to, in effect, deliver by way of an advance on inheritance the control of a trust with the intention that the controller would be able to use it as his, and the Court has said that is not a fraud on a power.

If it is a fraud on a power, then that authoritative decision of the Court of Appeal needs to be corrected because no doubt this case which has been carefully considered, at least here in the west by many commentators, will provide authority for that proposition and we submit if the authority is wrong, as we do, it ought be corrected by this Court so that it is not further applied in other cases.  Does your Honour need to hear me in regard to the suggestion that the Court of Appeal was of the view that the injunctions were not necessary in order to avoid the – preserve the subject matter of the proceedings?

HER HONOUR:   No, I do not think so.  Thank you, Mr Penglis.

An application for special leave to appeal in this matter is brought by Jason Mercanti.  It concerns a discretionary trust (“the MMF Trust”) of which Slondia Nominees Pty Ltd (“Slondia”) (the third respondent) was the first Trustee.  The applicant’s brother Tyrone Mercanti (the first respondent) and the applicant’s parents, Michael Mercanti (the fifth respondent) and Sybil (or Yvonne) Mercanti, are directors of Slondia.  Michael Mercanti was also the initial Guardian and Appointor of the MMF Trust.  The assets of the MMF Trust included a retail business established by Michael Mercanti.

In 2004, a Deed of Variation of the MMF Trust Deed was executed by Slondia in its capacity as Trustee, substituting Tyrone Mercanti as the new Guardian and Appointor.  The trial judge, Le Miere J, found as a fact that the applicant’s parents “intended that the business [owned by the MMF Trust] should be Tyrone’s” and that they wanted it to be “an advance on [his] inheritance”.  They intended to make provision for their other sons in their wills.

On 31 July 2013, Tyrone Mercanti, in his capacity as Appointor of the MMF Trust, removed Slondia as Trustee and appointed Parradele Pty Ltd (the second respondent) in its place.

The MMF Trust Deed contained a general power of amendment in cl 28.  The central issue on the application for special leave, as it was in the courts below, is whether it is a fraud on a general power to amend a Trust Deed for a Trustee to vary the terms of a family discretionary trust so as to appoint one of the beneficiaries as Guardian and Appointor with the intention and purpose of delivering to that beneficiary the business owned and operated by the Trust as an advance on his inheritance.  The applicant does not cavil with the Court of Appeal’s statement of law drawn from the decision in Vatcher v Paull, that “[t]he term fraud in connection with frauds on a power … merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power”.

Le Miere J held the Deed of Variation to be valid and made declaratory orders to that effect.  The Court of Appeal (Buss P, Newnes and Murphy JJA) dismissed the appeal from that decision.

Buss P considered that the characterisation by the parents and by Tyrone Mercanti of the transfer of effective control of the MMF Trust as an advance on Tyrone Mercanti’s inheritance did not render the execution of the Deed of Variation improper or liable to be set aside in equity.  Newnes and Murphy JJA held that the parents’ motivation was not relevant.  The purpose of the Trustee, Slondia, was relevant and it was simply to change the identity of the Appointor.  Although Tyrone Mercanti, as the new Appointor, had the power to remove the Trustee, that power would be required to be exercised bona fide and for proper purposes.  The appointment of Tyrone Mercanti was itself unremarkable and within the purposes contemplated by cl 28 of the Trust Deed.

The applicant seeks injunctions of the kind made by the Supreme Court of Western Australia, restraining Tyrone Mercanti and Parradele Pty Ltd from exercising powers respectively as Appointor and Trustee.  The applicant has provided the usual undertaking as to compensation.  For their part, his parents have undertaken not to cause Slondia to exercise any power it may have.

Injunctions of the kind sought have been in place since August 2013.  On 9 October 2015, the Court of Appeal granted injunctions pending the determination of appeals in the Court of Appeal.  Following the delivery of its judgment on 29 November 2016, the Court of Appeal granted an extension of the injunctions to 19 December 2016, pending a possible application for special leave to appeal to this Court.  On 21 December 2016 the applicant obtained a further extension until 6 January 2017, hence the urgency of this application.  The application for special leave was filed on 23 December 2016.

It is not obvious why the Court of Appeal was not asked to extend the injunctions until the application for special leave to appeal was determined by this Court, although counsel for the applicant has indicated that a longer time was not sought because of a previous decision of the Court of Appeal which limited the time in circumstances where it was considered that this Court might have a different view of the merits of the case.  In Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd [No 1], Brennan J pointed out that “[w]hen an application for special leave ... is made to this Court, a jurisdiction to stay may be exercised by the court below and ... an application” should be made in the first place to that court.  In that case, the intermediate appellate court had limited the period of its order, so as not to pre-empt the view of this Court.  His Honour said:

“In future, there should be no inhibition on the court in which the matter is pending framing a stay order, if a stay be appropriate, to avoid the necessity for application to this Court.”

That view has been reiterated in this Court in Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health.

The parties’ legal advisers in this matter are aware that, following upon changes made last year by this Court to the procedures respecting applications for special leave, the determination of such applications is able to be made more expeditiously by this Court.  In the case of all such applications, including those in which the parties are represented, they are in the first instance referred to a panel of two Justices, who determine whether oral argument is warranted.  If the Justices consider at that point that there is no basis for the grant of special leave, they list the matter for orders accordingly.  They may also order a grant of leave, without oral argument.  In the event that the matter is referred for oral argument, it can usually be heard in a relatively short period of time.

In Jennings Construction, Brennan J stated as a first condition for a stay made by this Court, that there be a “substantial prospect that special leave to appeal will be granted”.  This should not be understood as requiring that the prospects of success on the application for special leave be high.  In applying that test, his Honour held that, in that case, he did not “think that the prospect of a grant of special leave is insubstantial”.

It is not necessary to state the arguments for and against the grant of special leave.  They essentially come down to whether this case involves more than an application of settled principles to the facts of this case, for example, by providing an opportunity for clarification or amplification of a principle by reference to the particular facts of the case.

It does not seem to me that the prospects of a grant of special leave can be said to be insubstantial.  As to the other considerations referred to in Jennings Construction, the applicant has not failed to take steps necessary to seek orders from the Court of Appeal, even though the term of the orders sought should have been longer in order to obviate the need for an application to this Court.  It is not apparent that the grant of a stay or injunction will cause any loss to a respondent.  Without a grant of a stay or injunction any appeal rights may be rendered futile.  The balance of convenience clearly favours the continuation of the regime of injunctions which has been in place for some time.

Mr Metaxas, do you have issue with any of the terms of the orders sought?

1. MR METAXAS:   No, your Honour.

   HER HONOUR:   There will therefore be orders in terms of paragraphs 1, 2 and 3 of the summons filed by the applicant, however, the fourth order in relation to costs will be that costs be in the cause.

   Is there anything further, gentlemen?

   MR PENGLIS:   Your Honour, probably not a matter for you, but since we are here, it occurred to me, given the urgency in which we needed to prepare the application for special leave to appeal, that it may be of use, particularly to the applicant but also to the Court, if I were able to make some small tweaks to it and I could do that within a day.  I was wondering if we could have leave – and I have not confirmed with my learned friend in this regard – to file an amended application, say, by the close of business tomorrow.  It would deal with some of the issues, or the issue which you raised with me, as to what is the something else; that would be the sole point of the amendment.

   HER HONOUR:   I think there might be some merit in that.  You have no objection, Mr Metaxas?

   MR METAXAS:   Obviously, on the basis that we have an opportunity to put in an amended response, no, your Honour.

   HER HONOUR:   Of course.  Yes, there will be leave to amend in those terms as part of the orders.

   MR PENGLIS:   I am obliged to your Honour.  May it please the Court.

   HER HONOUR:   The Court will now adjourn.

   AT 2.44 PM THE MATTER WAS ADJOURNED