Aksinya Enterprises Limited v Bhagirath

[2022] NZHC 3526

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2016-404-3158

[2022] NZHC 3526

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of Aksinya Enterprises Limited (in liquidation)

BETWEEN

AKSINYA ENTERPRISES LIMITED

First Plaintiff

AND

HENRY DAVID LEVIN and VIVIEN

JUDITH MADSEN-RIES as liquidators of Aksinya Enterprises Limited (in liquidation Second Plaintiffs

SHIV SHARAN TEK SINGH BHAGIRATH

First Defendant

Cont …

Hearing:

On the papers

Appearances:

P Shackleton for the Plaintiffs

S Stretton for the Fourth Defendants J Katz KC assisting the Court

Judgment:

19 December 2022

JUDGMENT OF DUFFY J

This judgment was delivered by me on 19 December 2022 at 4.30 pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

AKSINYA ENTERPRISES LIMITED v BHAGIRATH [2022] NZHC 3526 [19 December 2022]

Cont … AND

SHIV SHARAN TEK SINGH BHAGIRATH and HARSHARAN SINGH

BHAGIRATH and SHARANDEEP SINGH

BHAGIRATH as trustees of the 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

[1]    The progress of this proceeding has been significantly delayed by the failure of the trustees of the Shiv Bhagirath Family Trust (the Trust) to take a responsible role in relation to the proceeding. It is, therefore, necessary to consider whether they should be removed and replaced with new trustees.

[2]    There are several reasons for the trustees’ inaction. One of them, Shiv Bhagirath (Mr Bhagirath), is also the first defendant in his personal capacity. He lacks capacity to defend the proceeding. The second defendants were wrongly sued as trustees of the Trust. Their continued presence in the proceeding needs to be addressed by the plaintiffs. The third defendants are the remaining trustees. They have taken no action despite being made aware of the proceeding.

[3]    I shall now address in detail why I consider all present trustees should be removed and replaced with new trustees.

Basis for removal of trustees

Mr Bhagirath

[4]    For some time now the Court has been seized of experts’ evidence which satisfies the Court that Mr Bhagirath lacks capacity to perform the role of trustee and there is no reasonable expectation that his state of mind will change in the future.

[5]    I refer here to the undated report of Dr Ian Goodwin, specialist psychiatrist, which was provided to the Court in response to my minute dated 3 March 2020. In that report (which comprises nine pages) Dr Goodwin sets out his experience, the information relied upon in writing the report, the interview he had with Mr Bhagirath on 22 June 2020, and the clinical material supplied to Dr Goodwin by Mr Bhagirath’s medical practitioner Dr Granrud.

[6]    Dr Granrud had diagnosed Mr Bhagirath in May 2018 as suffering from a medium to severe depressive episode  with  psychotic  features  and  had  referred  Mr Bhagirath to the Counties Manukau Mental Health Services for older people for further evaluation of potential dementia.

[7]    On the basis of what appears to me to have been a thorough examination by Dr Goodwin, he concluded that Mr Bhagirath’s then current cognitive deficits and apparent inability to care for himself technically fulfilled the criteria for mental disorder as outlined in ss 2 and 4 of the Mental Health (Compulsory Assessment and Treatment) Act 1992, whilst noting that at present an order under that Act was not required for ongoing treatment of Mr Bhagirath. Dr Goodwin also noted for completeness that the Court would normally accept Mr Bhagirath’s diagnosis and current presentations as fulfilling the concept of mental impairment under s 4 of the Criminal Procedure (Mentally Impaired Persons) Act 2003.

[8]    Dr Goodwin found that Mr Bhagirath demonstrated a limited understanding of the proceeding, and when questioned about this proceeding was unable to articulate the detail of the proceedings against him or any defence he might offer to the Court. He could broadly state that an adverse outcome in the case would be disastrous for him, but he could not outline the specifics of what such a finding would mean for him.

[9]    As to whether Mr Bhagirath could understand and act on legal advice, as well as give sufficient instructions to his lawyer for the purpose of not only defending the proceedings but also considering other alternatives such as settling them Dr Goodwin concluded “I am of the opinion on the balance of probabilities he cannot”.

[10]   Dr Goodwin also found that Mr Bhagirath was unable to outline what instructions he might give to his lawyer, and he did not spontaneously communicate any alternative strategies such as settling to Dr Goodwin. Dr Goodwin found that Mr Bhagirath’s cognitive deficits including his “word finding difficulties” and “frontal lobe executive functioning” was such that he would have difficulty in ordering his thoughts and communicating effectively with counsel.

[11]   On balance, therefore, Dr Goodwin concluded that Mr Bhagirath currently lacked capacity to instruct counsel in the present proceeding and therefore the appointment of a litigation guardian was required. Dr Goodwin also expressed the opinion that Mr Bhagirath’s condition is such that he is unlikely to improve in his mental state, and there is a strong possibility that his cognitive deficits will continue

to worsen. This led Dr Goodwin to conclude that Mr Bhagirath is unlikely to gain capacity due to any medical treatment in the foreseeable future.

[12]   Dr Goodwin’s report was directed to addressing whether Mr Bhagirath lacked capacity to defend himself in the proceeding and whether he would therefore require a litigation guardian. In a judgment delivered on 20 October 2020 in this proceeding I accepted the reasoning in Dr Goodwin’s report, and I found that the report also provided reason to consider whether Mr Bhagirath should be removed as a trustee of the trust.1    I remain of that view.    Further, because Dr Goodwin concluded that    Mr Bhagirath’s condition is unlikely to  improve this  satisfies  me that at  present  Mr Bhagirath must lack the capacity to perform the role of trustee. Accordingly, I am satisfied that Mr Bhagirath cannot perform the role of trustee and should for that reason be removed from that role.

The other trustee defendants

[13]   The second defendants, Harsharan Bhagirath and Sharandeep Bhagirath, were joined as defendant trustees based on a misunderstanding they held this role. It is now known they do not. The plaintiffs should take steps to discontinue the proceeding against persons who have been mistakenly joined as defendants.

[14]   The third defendants, Gurchetan Singh and Shivender Singh, are trustees of the Trust. During the proceeding the third defendants have been served with an interlocutory application brought by the fourth defendant, Ms Swamy, to remove them as trustees, as well as other material generated by the proceeding. They have failed to register a response to anything that was served on them. They have made no attempts to take part in the proceeding since they were joined in 2018. They have not sought to actively defend it, nor have they sought to reach a settlement with the plaintiffs.

[15]   Were it not for the fact the proceeding involves trustees of a family trust the proceeding would have been heard by now, by way of formal proof. This is the usual response when defendants fail to respond to civil litigation brought against them. The Court has not allowed the proceeding to proceed by way of formal proof here because

1      Aksinya Enterprises Ltd v Bhagirath [2020] NZHC 2788 at [9].

it is aware of the incapacity of Mr Bhagirath and the neglectful conduct of the other trustees. A formal proof hearing would visit the consequences of the trustees’ conduct on the beneficiaries, who have had no part in the trustees’ conduct. It would be wrong in principle for beneficiaries to suffer the consequences of incapacitated and neglectful trustees failing to properly discharge their obligations to the Trust by offering a defence to the plaintiffs’ allegations or otherwise trying to resolve the claims the plaintiffs make.

[16]   In such circumstances it seems to me the proper approach is for the Court to respond to the clear evidence it has of the failure of Gurchetan Singh and Shivender Singh to take steps to defend the Trust property by removing them.2 This will leave the Trust without trustees and, therefore, new trustees will need to be appointed. Those persons can then engage in the proceeding, ascertain whether there are available defences and, if not, to attempt to resolve the plaintiffs’ claims out of Court.

Process for removal

Mr Bhagirath

[17]   The plaintiffs are the liquidators of Aksinya Enterprises Ltd and the company is a beneficiary of the Trust. As part of this proceeding the plaintiffs filed an application to remove Mr Bhagirath as trustee and a without notice application for orders to dispense with the need to appoint a litigation guardian to act for him in the removal application. As persons legally responsible for a beneficiary of the Trust the plaintiffs have standing to file such an application.

[18]   In a judgment delivered on 20 October 2020 I made orders permitting the plaintiffs’ removal application to proceed without service on Mr Bhagirath and dispensing with the need to appoint a litigation guardian. I directed service of the removal application on the other trustees (the third defendants). I also dispensed with service on the adult beneficiaries.

2      See Wood v Wood HC Hamilton CIV-2007-419-1765, 21 November 2007.

[19]   The third defendants have not responded to the removal application. The plaintiffs and counsel assisting are content for me to deal with it on the papers.

[20]   As explained earlier, there is a sound evidential basis for the removal of Mr Bhagirath as a trustee of the Trust. The plaintiffs’ removal application was commenced before the Trusts Act 2019 came into force.3 Whilst that Act is now in force, s 33(1) of the Legislation Act 2019 provides that the repeal or amendment of legislation does not affect the completion of a proceeding commenced or in progress under the repealed legislation. “Proceeding” is defined in s 13 as including a proceeding “at any stage” whether interlocutory or main. Accordingly the application continues to be governed by the Trustee Act 1956.

[21]   The plaintiffs’ application was brought seeking exercise of the inherent jurisdiction of the Court. The Trustee Act 1956 did not expressly provide for a beneficiary to apply to remove a trustee. Section 67 is the closest provision which provides for a beneficiary to apply to the Court to appoint a new trustee. However, s 51 of the Trustee Act 1956 authorised a Judge to appoint a new trustee in substitution for an existing trustee, which achieved the removal of the existing trustee. In addition, the Court has always been able to exercise its inherent jurisdiction in accordance with the legal principles relating to removal of trustees and consequential vesting orders.4

[22]   This approach is consistent with s 112 of the Trusts Act 2019. This provision allows the Court to order the removal of a trustee where it is necessary or desirable and it is difficult or impracticable to do so without the assistance of the Court.

[23]   Accordingly, I am satisfied that under the inherent jurisdiction of this Court I can order the removal of Mr Bhagirath.

[24]   Further I am satisfied that the evidence supports the removal of Mr Bhagirath as a trustee. Put simply, for the reasons already expressed he is never going to be able

3      The Trusts Act 2019 came into force on 30 January 2021 (except pt 9, subpt 5 which is not presently relevant).

4      See Letterstedt v Broers (1884) 9 App Cas 371; Hunter v Hunter [1938] NZLR 520; Kain v Hutton (CA23/01 and CA246/01), 25 July 2002; Wells v Young [2019] NZHC 561, Green v Green [2019] NZHC 1467; Guise v Guise [2019] NZHC 3387; and Gray v Heighway [2020] NZHC 473.

to discharge his obligations as a trustee. In such circumstances his removal is necessary and desirable. Accordingly, I order he be removed as a trustee. I now turn to deal with the remaining two trustees.

Removal of other trustees and appointment of new trustees

[25]   The fourth defendant, Ms Swamy, has filed an application on notice to remove the other trustees and for her and another person to be appointed as trustees.

[26]   However, Ms Swamy lacks standing to file an application to remove the other trustees. She is a stranger to the Trust. She is the former partner of Mr Bhagirath, his current caregiver and they have a child, Aksinya Bhagirath, who is not a beneficiary of the Trust. Her connection with the Trust is through the present relationship she has with Mr Bhagirath. That is not enough to warrant the Court recognising her as someone who has a legitimate interest in removing and replacing trustees of the Trust.5

[27]   The trust deed requires there be more than one trustee. Two trustees are sufficient. However, the total inaction of the third defendants has of itself raised questions about their suitability to continue as trustees. If they are also removed new trustees will need to be appointed to replace them. I now deal with this issue.

[28]   In a memorandum prepared for this Court, counsel assisting has recommended that the removal of the other trustees and replacement with new trustees be brought in an application by the plaintiffs. They are reluctant to take that step, particularly when it comes to them applying to appoint new trustees, given the claims brought by the plaintiffs against the Trust. I can understand the plaintiffs’ reluctance to propose new trustees in this circumstance. At the telephone conference I raised with counsel assisting whether he could see any objection to me acting of my own volition to achieve the removal and replacement of trustees of this trust. He could not.

5      See minute dated 6 December 2021 which sets out the Court’s refusal to act on memoranda of counsel who at the time believed Aksinya to be a beneficiary of the Trust and thought it appropriate Ms Swamy be appointed a trustee. All counsel now agree Aksinya is not a beneficiary of the Trust and therefore Ms Swamy has no proper basis for bringing an application to appoint her a trustee.

[29]   Counsel assisting had suggested that he file an application for removal of the trustees and their replacement. However, that would take further time and I see no benefit in this course of action. The proceeding has a trial fixture for May 2023. If steps are not taken now, to allow the first quarter of the new year to be spent preparing for trial, the current predicament created by the present trustees’ conduct may extend into the new year and jeopardise the trial date. Steps will need to be taken in the new year to ready the proceeding for trial. Because such steps require persons capable of issuing instructions to defend the Trust nothing has been able to be done to date.

[30]   For the removal of the other trustees and their replacement with new trustees I will act on the Court’s motion using the powers available to me under ss 112 and 114 of the Trusts Act 2019 and the inherent jurisdiction of this Court I consider that appropriate here since there is no other application before the Court for removal of trustees.

[31]   In Eden Refuge Trust,6 I made orders of the Court’s own volition under what was then s 51 of the Trustee Act 1956 and this Court’s inherent jurisdiction to remove a sole trustee whose conduct the Court considered warranted the taking of this step:7

… once it is brought to the Court’s attention that its intervention is required to ensure the protection of a trust’s interest, the power under s 51 is available. There is also this Court’s inherent jurisdiction.

[32]   In Eden Refuge Trust I explained that the Court’s authority to act in this way was well established:

[9]        Section 51(1) of the Trustee Act 1956 permits the Court wherever it is expedient to make an order appointing a new trustee in substitution for or in addition to existing trustees. Section 51(2) permits the Court to make an order appointing a new trustee in substitution for a trustee who has misconducted himself or herself in the administration of the trust. It is clear to me that the Court can exercise its jurisdiction under s 51 once it is satisfied that a trust is without any effective means of operation: see Mendelssohn v Centrepoint Community Growth Trust.8

[10]      In addition, the inherent jurisdiction of this Court permits it to order the removal of a trustee and the substitution of a new trustee in circumstances of trustee misconduct or in circumstances in which the Court is of the opinion

6      Eden Refuge Trust v Hohepa HC Auckland CIV-2003-404-000539.

7 At [14].

8      Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 89.

that the administration of the trustee is inimical to the interests of the trust and the beneficiaries: see Hunter v Hunter.9 Also, I refer to the Court of Appeal’s judgment in Kain & Ors v Hutton & Ors10 in which between [17]-[20] the Court of Appeal discusses this Court’s power to appoint and remove trustees. That power is said to be both inherent and statutory, the statutory authority being s 51 of the Trustee Act. The inherent jurisdiction is said to be:

… derived from the Court's general supervisory powers in equity relating to the supervision of trusts for the welfare of beneficiaries. The relevance of that objective is recognised in well-known cases such as Letterstedt v Broers and Hunter v Hunter.

[19] The circumstances in which a Court will exercise its power to remove trustees are authoritatively and conveniently summarised in the speech of Lord Blackburn in Letterstedt v Broers …

which the Court of Appeal cites in Kain. Those powers are as follows:

… in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew [sic] a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.

It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.

[33]   I am satisfied the availability of the power created by s 51 of the Trustee Act 1956 (as mentioned in Eden Refuge Trust) is now to be found in ss 112 and 114 of the Trustee Act 2019. Those sections provide that whenever it is necessary or desirable either to remove or replace a trustee and it is difficult or impracticable to do so without

9      Hunter v Hunter [1938] NZLR 520 at 535.

10     Kain v Hutton CA23/01, 25 July 2002.

the assistance of the court, the court may make an order removing and/or replacing a trustee.

[34]   I am satisfied that here it is clearly both necessary and desirable to remove trustees who have failed to perform in their role as trustees. Further this failure has been ongoing since at least 2020 if not earlier. Regarding the third defendants/trustees they were served with Ms Swamy’s application for their removal and they took no steps to oppose it. The practical effect of her application drew no response from those trustees. Had they been concerned about matters in this proceeding affecting the Trust they have had some notice of those various matters over the years and they have apparently chosen to take no steps in response.

[35]   Moreover, counsel assisting the Court has now identified the beneficiaries of the Trust and communicated with them. Thus, I am aware there are contactable beneficiaries whose rights under the Trust are potentially in jeopardy by this litigation. They need effective trustees to protect those rights. Also, the proceeding cannot continue to languish in the way that it has. The plaintiffs are liquidators of an insolvent company and they are entitled to pursue their claims for recovery of funds they allege were wrongly placed in the Trust. The circumstances of both the plaintiffs and the beneficiaries provide compelling grounds for this Court to act to remove the present log jam from which the proceeding suffers.

[36]   Accordingly, in the exercise of powers available to the Court under ss 112 and 114 of the Trustee Act 2019 and its inherent jurisdiction I order the removal the remaining trustees of the Trust (the third defendants) and appoint new trustees.

Appointment of new trustees

[37]   I now turn to consider the potential replacement trustees. Counsel assisting has done valuable work in identifying proposed new trustees; namely Gaynor McLean and Gulab (George) Kanji. The memorandum of counsel assisting informs me of the background and experience of those persons.

[38]   Ms McLean is a partner in Glaister Ennor. She was admitted to the Bar in 1997. She has worked at Glaister Ennor for the last 20 years. She is a commercial

property lawyer in the firm’s private client team. She also works in the area of trusts and estate planning. She was identified as a potential suitable trustee following counsel assisting’s enquiry of the New Zealand Law Society. A copy of Ms McLean’s curriculum vitae has been provided to me. She has advised that she intends to retire from legal practice in two years’ time. However, I do not see that as being an impediment to her appointment now.

[39]   Mr Kanji is a lawyer who has retired from active practice. He previously practiced on his own account before merging  his practice  with Penny Patel Law.  Mr Kanji originally acted for Shiv Bhagirath and acted on the settlement of the Trust. Mr Kanji continued to act for the Trust and Shiv Bhagirath down to 2020. He last had contact with Shiv Bhagirath in or about September 2020. Counsel assisting has sought from Mr Kanji a declaration that there are no past or present disciplinary concerns held by the New Zealand Law Society or the former Auckland District Law Society against him. Mr Kanji has confirmed there are no such concerns. I am prepared to rely on that assurance.

[40]   I am satisfied that the persons identified by counsel assisting are persons who are both competent and capable of discharging the role of trustees of the Trust.

[41]   Accordingly, I order the appointment of Ms McLean and Mr Kanji as trustees of the Shiv Bhagirath Family Trust.

[42]   I make the following consequential orders to enable the newly appointed trustees to have the Trust assets transferred to their names:

(a)An order vesting in the new trustees all assets of the Shiv Bhagirath Family Trust including but without limitation the property at 62 Avenue Road, Otahuhu (identifier NA428/124) subject to any registered mortgage already registered against the title and all bank accounts in the name of the third defendants, the Shiv Bhagirath Family Trust or any other person or entity acting or purporting to act as a trustee or agent of the Shiv Bhagirath Family Trust or the trustees thereof.11

11     See s 116(5) of the Trusts Act 2019.

(b)I order there is to be indemnity in favour of Mr Kanji and Ms McLean as new trustees to the extent that they shall not be personally liable for acts or omissions in connection with the discharge of their duties as trustees of the Shiv Bhagirath Family Trust provided that they have acted at all times in good faith. Nor shall they be liable for any acts or omissions of the removed trustees (the second and third defendants).12

[43]   Counsel assisting has also sought I  make a  consequential  order  directing Mr Kanji and Ms McLean as trustees to negotiate a settlement with the plaintiffs of this proceeding. I consider it appropriate for me to recognise that as trustees of the Trust and insofar as the trustees of that Trust are defendants in this proceeding, it is appropriate for Mr Kanji and Ms McLean to negotiate a settlement with the plaintiffs of the proceeding. If Mr Kanji and Ms McLean are of the view that settlement is warranted I do not consider they require authorisation from me to negotiate a settlement, because in my view they have authority to do so by virtue of their role as trustees. However, I reserve leave to them to come to Court for directions should the need for them to do so arise.

[44]   Counsel assisting also sought a declaration that  I waive any obligation on  Mr Kanji and Ms McLean to serve on the removed trustees any documents. Section 120 of the Trusts Act 2019 provides that a new trustee must give to a trustee who is removed a copy of any documents that demonstrate that the departing trustee has been divested of trust property including any document of transfer of registration. I see no provision in the Trustee Act 2019 to enable the Court to override that obligation.

[45]   Further, I can see the benefit of the obligation in that it provides evidence to the removed trustees that they are no longer the legal owners of Trust property. I understand that in the past there have been difficulties making contact with the other trustees. Leave is reserved to the trustees to seek directions from the Court on this issue. My understanding is that the solicitors for the fourth defendant have made

12 Such orders can be made under s 131 of the Trusts Act 2019 and s 73 of the Trustee Act 1956.  Here as Ms McLean and Mr Kanji are appointed by the Court’s own motion I consider s 131 of the Trusts Act 2019 is the applicable provision.

contact with the third defendants and therefore service of documents pursuant to s 120 of the Trustee Act 2019 may be effected by service on the last known address.

Result

[46]Shiv Sharan Tek Singh Bhagirath is removed as a trustee (as per [24] herein.)

[47]   Gurchetan Sing and Shivender Pal Singh are removed as trustees (as per [36] herein.

[48]   Radha Mani Swamy’s application to appoint her and another person as trustee of the Shiv Bhagirath Family Trust is dismissed for the reasons set out at [26] herein.

[49]   Gaynor McLean and Gulab (George) Kanji are appointed as trustees of the Shiv Bhagirath Family Trust (as per [41] herein.)

[50]There are consequential orders as per [42(a)] and [42(b)] herein.

[51]   Leave is reserved to the parties and the new appointed trustees to return to Court should the need to do so arise.

Duffy J