Federal Court of Australia

Aravanis (Trustee) v Twin Investors Pty Ltd, in the matter of the Bankrupt Estate of Kapp (Standing of Third Respondent) [2021] FCA 359

ORDERS

THE COURT ORDERS THAT:

1.    The Third Respondent’s application to appear as trustee of the Twin Trust or alternatively in his personal capacity be dismissed.

2.    The Third Respondent’s application for an adjournment of the hearing be dismissed.

3.    The Third Respondent’s application to recall Order 1 be dismissed.

4.    The Third Respondent be removed as a party to the proceeding.

5.    The Third Respondent be granted an extension of time in which to apply for leave to appeal from these orders, to 29 April 2021.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

PERRAM J:

Standing of Third Respondent

1    On 27 July 2020, Mr Philip Kapp was joined as Third Respondent to the proceeding by order of Jagot J. There is a question as to whether the effect of that order was to join Mr Kapp in his capacity as the trustee of the family trust (‘the Twin Trust’) or whether instead, it was to join him only in his personal capacity. That question matters because on 24 November 2020, Mr Kapp was detained for assessment and treatment pursuant to s 25 of the Mental Health Act 2007 (NSW) (‘the Act’). Section 25 of the Act is in the following terms:

25 Detention after transfer from another health facility

(1)    A person may be transferred from a health facility to a declared mental health facility and detained in the mental health facility if a medical officer of the health facility, or the authorised medical officer of the mental health facility, considers the person to be a mentally ill person or a mentally disordered person.

(2)    Any such person is taken to have been detained in the declared mental health facility under section 19 when the person is transferred to the facility.

2    That matter becomes relevant because of the terms of the deed for the Twin Trust. Clause 10.4(a)(ii) of that deed provides relevantly that where the trustee, being a natural person, is found to be of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health, then that office is vacated. In my view, the effect of the transfer of Mr Kapp under s 25(1) of the Act to a mental health facility was an event which answers the description: ‘whose person … is liable to be dealt with in any way under the law relating to mental health’.

3    This is because I accept the submission that the Act is a law relating to mental health, and I accept that transferring a person constitutes a person being dealt with under such a provision. Consequently, making the assumption in Mr Kapp’s favour that he had been appointed as the trustee of the Twin Trust at an anterior point, the consequence of the events of 24 November 2020 is that he ceased to hold any office in that regard. If the order of Jagot J on 27 July 2020 is construed such that Mr Kapp was joined as the Third Respondent in his capacity as trustee of the Twin Trust, then the consequence would be, subject to a minor matter to which I will shortly turn, that he has no further role in the proceeding.

4    The minor matter to which I have just referred is the possibility that whilst in office as the trustee of the Twin Trust, Mr Kapp actually had in his name assets of the trust. If that were the case, then the cessation of his office on 24 November 2020 would then mean that he continued to hold trust assets and as such would hold them as a bare trustee, not under the provisions of the trust deed itself, but instead subject to the powers and duties imposed by the Trustee Act 1925 (NSW). I clarified during argument, however, with Mr Kapp and with Mr Combe, Counsel for the Applicant, that there were no assets which were held in Mr Kapp’s name in that sense.

5    On that basis, it must follow that not only does Mr Kapp have no standing as the trustee of the trust, that office having been vacated, but he also has no capacity as a bare trustee holding assets of the trust which he formerly held under the terms of the trust deed. Thus, if the order of Jagot J is construed as joining Mr Kapp as the Third Respondent in his capacity as trustee, then the consequence of the reasons I have just given is that he has no role in these proceedings and no entitlement to be heard.

6    If, on the other hand, the order of Jagot J joined Mr Kapp in his personal capacity, then it seems to me that the consequence of a sequestration order having been made against Mr Kapp is that by reason of s 58 of the Bankruptcy Act 1966 (Cth), he has no actual personal interest which would entitle him to be heard in that regard, and this is because any such interest has itself vested in the trustees in bankruptcy. In that circumstance, it seems to me that Mr Kapp has no entitlement to be heard. This question arose procedurally in two different ways when the matter was called on for hearing.

7    First, it arose by way of objection raised by Mr Combe against Mr Kapp appearing. I dealt with that on an initial basis, determining that I thought that the effect of the events of 24 November 2020 had been to vacate Mr Kapp’s appointment. Subsequently, Mr Kapp drew my attention to the existence of an interlocutory application which had, at an earlier time, sought his substitution as the First Respondent, which is the trustee of the Twin Trust. It was that interlocutory application which resulted in the order made by Jagot J on 27 July 2020. Whilst I tend to think that, when construed against the backdrop of the interlocutory application which was before her Honour, the likely effect of the order her Honour made was that Mr Kapp was joined in his capacity as a trustee, that is not necessary to determine; for the reasons I have already given, whether he is joined in his personal capacity or whether he was joined in his capacity as trustee, he has no entitlement to be heard in these proceedings.

8    When making submissions about the interlocutory application which had been before Jagot J, Mr Kapp impressed on me, and I accept, that this left the position of the Twin Trust in a somewhat parlous condition. Parlous because it meant that at today’s hearing, the voice of the trust would not be heard. One can understand that that is an unfortunate turn of events, but it does not follow from the fact that it is an unfortunate turn of events that Mr Kapp can be given a standing at law which, either by reason of the terms of the trust deed or by reason of s 58 of the Bankruptcy Act 1966 (Cth), he does not have.

Adjournment Application

9    At the end of the argument on the question of Mr Kapp’s standing, Mr Kapp submitted to me that I should adjourn the proceeding in order to facilitate action by the appointor under the trust deed for the Twin Trust to appoint a fresh trustee, most likely the Second Respondent, so that the trust could be heard on the present application. For the reasons I have given, I do not think that Mr Kapp has any standing to make that submission. That is a sufficient reason not to deal with it. However, even if I thought that Mr Kapp had some residual standing to make a submission about that, I would be disinclined to adjourn this proceeding.

10    The matter has been in preparation for some time. The difficulties in relation to Mr Kapp’s standing in the matter have been overt for a period of time, and I do not think it would be appropriate to adjourn the proceeding on the possibility that the appointor will appoint a new trustee. If the appointor does that, no doubt that new trustee can take such action as it, he or she is advised. But I am not prepared to adjourn the proceeding simply on the basis that that may occur. And so, for the reasons I have given, I conclude that Mr Kapp has no standing in this morning’s proceedings and to the extent that there was an adjournment application made to me and on the assumption that the person making it had sufficient standing to do so, I would dismiss that application.

11    However, the primary reason I dismiss the adjournment application is because it is made by a person without standing.

Application to Recall Interlocutory Order

12    At the conclusion of the argument on the question of whether Mr Kapp could appear and if so, in what capacity, Mr Kapp indicated that he wished to submit that he in fact held assets of the Twin Trust in his own personal capacity. The assets he nominated were certain shares. I clarified during argument in relation to the questions on standing, which I have just resolved, whether there were any such assets, and both Mr Kapp and Mr Combe agreed there were not, and indeed, I clarified that on more than one occasion.

13    It is, of course, the fact that the reasons I have just given are given in relation to an interlocutory matter. The interlocutory matter may be characterised either as Mr Combe’s objection to Mr Kapp appearing or as the determination of a residual aspect of the interlocutory application which was before Jagot J. I therefore accept that, in principle, under the Federal Court Rules 2011 (Cth), I have jurisdiction to recall the orders which I have made. The principles upon which a court may recall interlocutory orders were usefully set out by McClelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 (‘Brimaud’). That decision affirms, obviously, that the Court has a jurisdiction, but it makes clear that there needs to be some change in circumstance which was not open to be raised beforehand.

14    I do not read that as an absolute rule, and indeed, it has been said that the principle in Brimaud is just a rule of practice. Taking the approach that it is a rule of practice, I do not think it would be appropriate for me now to reopen the matter. This is for two reasons. First, it was dealt with clearly and dealt with specifically by me precisely so the Court would not find itself in the present situation, and secondly, because the only material which I have before me to indicate the existence of such assets now is Mr Kapp’s statement from the bar table. I do not regard either of those as sufficient, either looked at individually or cumulatively. For that reason, I dismiss the application that I revisit my earlier determination of the question of whether Mr Kapp can appear.

Associate:

Dated:    15 April 2021