Aksinya Enterprises Limited v Bhagirath
[2024] NZHC 2048
•25 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-3158
[2024] NZHC 2048
UNDER The Companies Act 1993 IN THE MATTER OF
of the liquidation of Aksinya Enterprises Limited (in liquidation)
BETWEEN
AKSINYA ENTERPRISES LIMITED
First Plaintiff
AND
HENRY DAVID LEVIN and VIVIEN JUDITH MADSEN-RIES
Second Plaintiff
SHIV SHARAN TEK SINGH BHAGIRATH
First DefendantCont’d on next page
Teleconference: 22 July 2024 at 9.00 am Appearances:
J Katz KC for G McLean and G Kanji (with leave, having been advised of his recent retirement)
P Vinnell for the Public Trust
Judgment:
25 July 2024
JUDGMENT OF MUIR J
This judgment was delivered by me on 25 July 2024 at 4.30 pm, Pursuant to Rule 11.5 of the High Court rules.
Registrar/Deputy Registrar Date: ……………………………
Solicitors: Glaister Ennor
AKSINYA ENTERPRISES LIMITED v LEVIN and MADSEN-RIES [2024] NZHC 2048 [25 July 2024]
SHIV SHARAN TEK SINGH BHAGIRATH and SHARANDEEP SINGH BHAGIRATH and SHIV BHAGIRATH FAMILY TRUST
Second Defendants
GURCHETAN SINGH and SHIVENDER
PAL SINGH as trustees of the SHIV BHAGIRATH FAMILY TRUST
Third Defendants
RADHA MANI SWAMY
Fourth Defendant
Introduction
[1] Gaynor McLean and Gulab (George) Kanji apply for orders removing them as trustees of the Shiv Bhagirath Family Trust (the Trust) and appointing the Public Trust as the replacement trustee. They also apply for certain consequential orders.
[2] Both existing trustees are or have been legal practitioners. Mr Kanji has been retired for many years and Ms McLean retires towards the end of this year.
[3] They make the application on the basis that their appointment was only ever intended to be temporary, they do not have the resources or ability to continue as trustees and that the Public Trust is therefore appropriately substituted for them.
[4] The Public Trust does not consent to the appointment. It says that it has a statutory mandate to operate as an efficient business and that, given the financial circumstances of the Trust, it is unlikely to be able to charge or to charge appropriately for its services. It acknowledges however that, given it has not been possible to identify any viable alternative trustees, there is an “inevitability” that the court will wish to appoint it, which such appointment it is obliged to accept under s 114(4)(a) of the Trust Act 2019 (the Act).
Background
[5] The application is made against a complex factual background, fully traversed in many previous Judgments and Minutes of this Court.1 In short:
(a)The Trust was settled in 1998 by Shiv Bhagirath and his then partner, Tafaoga Meli.
(b)The trustees appointed under the Trust Deed were Shiv Bhagirath and his two brothers, Mr Gurchetan Singh and Mr Shivender Pal Singh.
1 Aksinya Enterprises Ltd v Bhagirath [2020] NZHC 2788; and Aksinya Enterprises Ltd v Bhagirath [2022] NZHC 3526. See also the following minutes: Aksinya Enterprises Ltd v Bhagirath HC Auckland CIV-2016-404-3158, 22 February 2019; 3 February 2020; 10 February 2020; 3 March 2020; 4 February 2021; 21 July 2022; 3 February 2023; and 15 March 2024 (the Minutes referred to are a sample only).
(c)Shiv Bhagirath now suffers from dementia.
(d)The two brothers were, from the outset, totally disengaged from the operation of the Trust, fulfilling none of the duties required of them.
(e)In 2016 the Trust became involved in complex proceedings brought by the liquidators of Aksinya Enterprises Limited. For this litigation to be properly managed (and ultimately settled) new trustees had to be appointed. After lengthy inquiry by Mr Katz KC as counsel appointed by Duffy J to assist the Court, all beneficiaries and the joint settlor, Ms Tafaoga Meli, were ultimately located. None had any inclination to be appointed as trustees.
(f)Ultimately, the present trustees were approached and agreed to assume, on a temporary basis, the role of new trustees with the intention of:
(i)regularising the position of the Trust, including registration with the IRD and related steps;
(ii)ensuring proper arrangements for its management; and
(iii)settling the proceedings brought by the liquidators.
[6] Following the appointment of Ms McLean and Mr Kanji, the liquidator’s proceedings were settled, and a discontinuance filed.
[7] Ms McClean and Mr Kanji’s appointments were never intended to be long term. In a previous Minute issued by me, I summarised the evidence of Ms McLean and the submissions of Mr Katz relating to the advice proferred to Duffy J in that respect.2 It was for this reason, among others, that her Honour granted to the new trustees an ongoing reservation of leave to apply. I accept that it was always envisaged by Duffy J, that in due course, the temporary trustees would seek to be replaced by the Public Trustee as trustee of last resort.
2 Aksinya Enterprises Ltd v Bhagirath HC Auckland CIV-2016-404-3158, 15 March 2024.
[8] In my Minute of 15 March 2024, I accepted that the present application was properly brought within the reservation of leave in those proceedings despite their discontinuance.3
The applications
[9]Section 112 of the Act provides:
112 Court may make order for removal
Whenever it is necessary or desirable to remove a trustee and it is difficult or impracticable to do so without the assistance of the court, the court may make an order removing a trustee.
[10] Most applications for removal of trustees are made at the behest of beneficiaries. Normally trustees wishing to retire are not required to invoke s 112 because they will simply follow the relevant procedures in the Trust Deed and replacement(s) will have already been identified in their stead. In the present case however, the trustees cannot give a notice to the settlors (one of whom lacks capacity) of an intention to retire. Accordingly, there is no power under the Trust Deed that can be exercised for the appointment of new trustees (even assuming any eligible potential new trustees could be located, which is not the case).
[11] I accept therefore that the Court has jurisdiction under s 112 on the basis that it is impractical to affect the removal of the existing trustees without the intervention of the Court.
[12] Furthermore, once the existing trustees are removed, the mechanisms in the Trust Deed for their replacement are similarly of no avail. Section 113 of the Act reserves that power to the person given the power to appoint trustees. By virtue of clause 17 of the Trust Deed that power reposes with the settlors (plural). Because of the incapacity of Shiv Bhagirath and the disengagement by co-settlor Tafaoga Meli, this power is effectively unable to be exercised.
[13] Accordingly, resort must be had to the Court’s residuary power under s 114 to make its own replacement appointment.
3 Above, n 2.
[14]Section 114 provides:
114 Court may appoint or replace trustee
(1)Whenever it is necessary or desirable to appoint a new trustee and it is difficult or impracticable to do so without the assistance of the court, the court may make an order appointing a new trustee.
(2)However, this section does not empower the court to appoint an executor or administrator.
(3)If the court proposes to appoint Public Trust as the replacement trustee, the court must, before making the appointment, give Public Trust an opportunity to be heard on the matter.
(4)If the court (except on application by a supervisor within the meaning of section 6(1) of the Financial Markets Conduct Act 2013) appoints Public Trust as the replacement trustee, Public Trust—
(a)must accept the appointment; and
(b)may charge fees for acting as trustee.
[15] There is very little authority in respect of s 114. Generally the section has been invoked where the beneficiaries have been in dispute over removal and appointment of the trustees, resulting in application to appoint the Public Trustee as a replacement neutral “referee”.
[16] The applicants rely on Client Trustee Services Ltd v Khodaverdi where the existing trustee, Client Trustee Services Limited applied to the court for orders removing it as trustee and appointing the Public Trust as its replacement.4 The trust was “essentially hamstrung” in its management and operation.
[17]Granting the application, Gendall J observed:
[18] Section 112 of the Act as I note provides that, whenever it is necessary or desirable to remove a trustee and it is difficult or impracticable to do so without the assistance of the Court, the Court may make an order removing a trustee. And s 114 of the Act, in turn provides that the Court may appoint or replace a trustee, including by appointing the Public Trust.
[19] From all the material before the Court, it appears clear that the Trust simply cannot function at present. For all the reasons I have outlined, and given too there is no opposition to these aspects here, I am satisfied first, in terms of s 112, that it is necessary and desirable an order be made removing
4 Client Trustee Services Ltd v Khodaverdi [2023] NZHC 1772.
CTSL as a trustee of the Trust, and secondly, in terms of s 114, that a new replacement trustee is necessary and that this should be the Public Trust.
[20] As to the appointment of the Public Trust as replacement trustee, I observe that it is well-placed as a long-standing professional trustee to deal with the current situation the Trust finds itself in. This will include any future dealings with Laura, with the beneficiaries including Darren, Laura's mother and any qualifying children, and ultimately with any Trust funds that may materialise, including in particular pursuant to its statutory regime in relation to unclaimed moneys.
[18] That was a case in which the Public Trust accepted appointment. It does not do so in this case, albeit recognising the inevitability that it will be appointed because there is no other person or entity who will assume the responsibility.
[19] I accept that the jurisdiction in s 114 is engaged on the basis that it is, at a minimum, difficult or impracticable, but likely also impossible, to appoint a new trustee without the assistance of the Court. I record that the Public Trust has been given an opportunity to be heard on the matter. I thank Mr Vinnell for his input in this respect.
[20]The applicants also seek incidental or consequential orders as follows:
(a)an order vesting the property of the Trust in the Public Trust;
(b)an order granting an indemnity to Ms McLean and Mr Kanji for any liability in connection with the applications to which the order relates;
(c)an order granting costs to the applicants, such costs to be a charge against and paid out of the assets of the Trust.
[21] The order divesting and revesting the property currently held by Ms McLean and Mr Kanji as trustees is proper and follows inevitably from their removal and replacement. I note that the Trust’s corpus consists of a mortgage free residential property in Otahuhu valued at approximately $1,000,000 which is currently occupied by Mr Bhagirath, his carer and partner Ms Radha Swamy and their daughter [redacted] who also has special needs.
[22] I regard the terms of the indemnity/exoneration sought in the draft orders as similarly appropriate and consistent with the orders of Duffy J in her 2022 Judgment.5
[23] In terms of the application for costs, I have been provided with a schedule calculated on a 2B basis in accordance with the provisions of the High Court Rules 2016. The relevant calculation provides for costs in the amount of $18,403 relating to both the interlocutory application which came before me in March 2024 and now the substantive application for removal and reappointment.
[24] However, Mr Katz does not adamantly advance an application for costs in accordance with the scale. Faithful to his obligations to the Court, he:
(a)points out that the work he has done for the trustees in seeking their replacement was done on the basis that they would not incur any personal liability to him other than to the extent that the Court awarded costs, and these were, in turn, capable of recovery from the Trust;
(b)acknowledges that in a case such as this the Court should feel no compunction in awarding a sum less than indicated on a 2B basis.
[25] Under r 14.2(1)(e), for costs to be recovered, they must have been actually incurred. In McGuire v Secretary of Justice, however, the Supreme Court rejected any requirement that an invoice must have been issued.6
[26] A very senior practitioner, having a long history of association with the Trust, has sought to relieve Ms McLean and Mr Kanji of what was only ever intended to be a temporary burden, on the cusp of his own retirement and on a basis that he only be remunerated if the court considers it appropriate.
[27] In my view there is nothing improper in a costs award in favour of the trustees which will ultimately result in some recognition of the valuable service which Mr Katz has undertaken in bringing the application before the Court on a principled and
5 Aksinya Enterprises Ltd v Bhagirath [2022] NZHC 3526 at [42(b)].
6 McGuire v Secretary of Justice [2018] NZSC 116, [2019] 1 NZLR 335 at [71]–[72].
coherent basis. It is also consistent with the approach adopted in Client Trustee Services Ltd v Khodaverdi.7
[28] By the same token however, this is a Trust with very little in the nature of liquid assets. Its only income is from boarders who reside at the Otahuhu property. Previously there were apparently four but now apparently only two.
[29] Having regard to all the usual outgoings on the property which need to be met, I am told that the Trust’s current account tends to operate within the range of $5,000 to $8,000 only.
[30] I consider that it is also appropriate to have regard to the position of the Public Trust, which in terms of s 9 of the Public Trust Act 2001 has as its principal objective that of operating as an effective business. It is about to inherit an illiquid Trust with ongoing maintenance and other responsibilities. It too is entitled to be remunerated and it should not, in my view, be required to commence its trusteeship with a substantial deficit in terms of current liabilities.
[31] In that context, I award Ms McLean and Mr Kanji the sum of $5,000 in costs on their applications. Mr Katz will, I am sure, facilitate reasonable arrangements for payment of that sum as and when the Trust’s cash resources permit and without the necessity of any further more formal order from me.
[32] Finally, I note that in my Minute of 15 March 2024 I observed that it was possible any judge ultimately persuaded to appoint the Public Trust as trustee, might reserve to the beneficiaries, settlors or other persons with standing, the right to apply to have that appointment set aside on wider grounds than would ordinarily be the case—essentially revisiting whether the appointment should have been made in the first instance having regard of any argument which might have been available if notice of the application had been given.
7 Client Trustee Services Ltd v Khodaverdi, above n 4.
[33] I have reflected on that potential reservation and heard from Mr Katz and Mr Vinnell who do not consider it necessary for me to make any orders in that respect. I come to the same ultimate conclusion having regard to:
(a)previous dispensation of service on Mr Shiv Bhagirath and of any requirement to appoint a litigation guardian for him in the context of his removal as a trustee;
(b)the fact that the other two original trustees (brothers of Mr Shiv Bhagirath) took no steps in the proceedings;
(c)the very considerable efforts undertaken by Mr Katz to notify all identifiable discretionary and financial beneficiaries in the context of earlier applications to remove Mr Shiv Bhagirath and his brothers as trustees, and non-engagement by any such beneficiaries in the subsequent process.
[34] I also take into account the status for the Public Trust as a professional trustee, which by reputation and performance, can be relied upon to provide ongoing and proper management of the Trust on a basis faithful to its terms. As Duffy J observed in her judgement of 23 October 2020, Mr Bhagirath’s “rights as a beneficiary will not be affected by his removal as a trustee”.8 Likewise the rights of other discretionary beneficiaries, or the final beneficiaries. And likewise, if the issue is substitution of the Public Trust for the applicants.
Result
[35] I make orders in terms of the draft filed with this Court dated 18 June 2024 and annexed hereto noting that the sum specified in order 3.4 is to be $5,000.
Muir J
8 Aksinya Enterprises Ltd v Bhagirath [2020] NZHC 2788 at [14].
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