Australia: A Not So Special Leave – Mercanti V Mercanti [2017] HCA 1

The High Court has recently dismissed an application for special leave to appeal the Western Australian Court of Appeal's decision in Mercanti v Mercanti [2016] WASCA 206, in respect of a case involving amendments to a family discretionary trust. This brings to an end a series of injunctions, most recently extended in the High Court's first judgment of 2017,  Mercanti v Mercanti [2017] HCA 1, per Kiefel J, as the Chief Justice then was.

The High Court's first decision of the year, Mercanti v Mercanti [2017] HCA 1 provides clarification of the procedure for applying for an extension of interlocutory injunctive relief granted by a state appellate court, pending the determination of an application for special leave. It also provides guidance as to how this interacts with the amendments made to the High Court Rules 2004 last year, which were intended to streamline that process. Notably, the decision:

  • provides a description of the new amended application procedures, the first a Justice of the High Court has given;
  • reinforces that an application for an extension of interlocutory injunctive relief should be made in the intermediate appellate court; and
  • reaffirms that the threshold for extending injunctive relief pending special leave to appeal may not be as challenging as it seems, such that the prospects of special leave being granted must be 'substantial' as opposed to 'high'.

Background – facts of the case

Michael Mercanti, a Perth businessman, established two family discretionary trusts covering the retail (the MMF Trust) and wholesale (the FW Trust) arms of his shoe repair business. The first trustees of these were, respectively Slondia Nominees Pty Ltd and Citycourt Pty Ltd, companies of which Michael, his wife and his son Tyrone were directors. As part of a plan that Tyrone, a beneficiary, should inherit the retail business, the respective trustees executed Deeds of Variation, appointing Tyrone as appointer of the two trusts and also guardian of the wholesale trust in Michael's place.

Tyrone and his family subsequently fell out and his parents, as shareholders in Slondia and Citycourt, removed him as a director of those companies. Tyrone promptly exercised his powers of appointment and by written notices replaced these trustees with a new company, Parradelle Pty Ltd, controlled by his wife. His family commenced proceedings challenging the validity of both his appointment and the exercise of his powers, contending they constituted a fraud on a power.

At first instance Tyrone was successful in respect of the MMF Trust, the assets of which included the retail business, but not the FW Trust. The difference being that the MMF Trust deed contained specific authorisation that was held capable of amending fundamental provisions such as the guardian or appointor powers. This result was appealed to the Western Australian Court of Appeal and, following that determination, special leave was sought to appeal to the High Court.

The string of extended injunctions stretches back to 2013, when relief was granted, restraining Tyrone and Parradelle from the exercise of their respective powers. Proceedings were then commenced in the Supreme Court of Western Australia and the injunctions were extended on 9 October 2015 pending appeal. Since then the Western Australian Court of Appeal has granted further extensions, firstly following its judgment on 29 November 2016 when an extension was granted to 19 December 2016 pending filing of special leave to appeal to the High Court. A further extension was granted on 21 December 2016 to 6 January 2017.

Notably however, the applicants did not request that WASCA extend the injunctions to the date of determination of special leave on the grounds of supposed precedent that this was a matter for the High Court to determine. Therefore an urgent application for further extension, made on filing of the special leave application, was heard on 5 January 2017 before Kiefel J.

Decision

The High Court rejected the contention that intermediate courts should, in circumstances where it was considered that the High Court might take a different view of the merits of the case, only issue injunctions provisionally pending special leave applications.

Kiefel J confirmed that where an application for special leave is made, the jurisdiction to stay an order may be exercised by the Court below. Her Honour stated "the term of the orders sought should have been longer in order to obviate the need for an application to this Court".

Kiefel J noted that the Court's 2016 changes to the High Court Rules 2004 streamline the procedures in respect of applications for special leave and have meant that special leave applications could be determined more expeditiously by the Court. Her Honour signalled that the appropriate time for the High Court to first engage is at the stage in which a panel of two justices considers both the need for oral argument and whether there is any basis for a grant of special leave. This is the first time a Justice of the High Court has commented on the operation of the new procedure.

In determining whether a stay should be granted pending special leave, her Honour applied the test set out by Brennan J in Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681, namely that:

  1. There is a 'substantial' prospect that leave to appeal will be granted;
  2. The applicant has taken the steps necessary to seek orders from the Court of Appeal;
  3. The grant of a stay should not cause any loss to the respondent;
  4. Without a grant of a stay or injunction any appeal rights may be rendered futile; and
  5. The balance of convenience favours the order sought.

Kiefel J found that these tests were met and an extension of interlocutory injunctive relief was granted on an indefinite basis. Her Honour noted that 'substantial' prospects of special leave being granted did not require prospects of success to be high, but rather that they not be 'insubstantial'.

That said, the High Court has since dismissed the application for special leave, bringing to an end the series of injunctions restraining Tyrone and Parradelle from the exercise of their respective powers (Mercanti v Mercanti [2017] HCASL 59).

Take-aways

This case is a timely reminder that, rather than seeking an extension of interlocutory relief from the High Court, an application for an extension of interlocutory injunctive relief should be made in the intermediate appellate court. The case also provides clarification of the way in which the High Court will approach the new streamlined procedure for special leave applications implemented by changes to the High Court Rules 2004 in July 2016.

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