Ash v Singh
[2017] NZHC 2909
•24 November 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-589 [2017] NZHC 2909
UNDER the Trustee Act 1956 IN THE MATTER OF
an application for removal and substitution of trustees
BETWEEN
GABRIEL SEBASTIAN ASH Plaintiff
AND
MAHENDRA SINGH First Defendant
GEOFFREY HUGH BOURCHIER Second Defendant
DARSAN SINGH Third Defendant
Hearing: 19 September 2017 Appearances:
R J Thompson for the Plaintiff
A R Gilchrist for the DefendantsJudgment:
24 November 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 24 November 2017 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………………………………….
Registrar/Deputy Registrar
ASH v SINGH [2017] NZHC 2909 [24 November 2017]
Solicitors:
Paterson Hopkins (W M Paterson), Auckland, for the Plaintiff
Kiely Thompson Caisley (P Kiely), Auckland, for the Defendants
Copy for:
R J Thompson, Auckland, for the Plaintiff
A R Gilchrist, Auckland, for the Defendants
[1] The plaintiff, Gabriel Ash, a beneficiary of the Shean Singh Family Trust, seeks a declaration that a deed of 23 August 1996 varying the trust has no effect and an order requiring the trustees to provide records of legal advice they have received. The trustees say that the variation is effective and that they have provided records of all legal advice which the plaintiff can require. They propose a judicial settlement conference under r 7.79 of the High Court Rules, and seek security for costs against the plaintiff. The plaintiff has applied for summary judgment.
[2] Dhirendra Singh, more commonly known as Shean Singh, was a lawyer practising in Dominion Road, Auckland. He married twice. Gabriel and his sister Olivia are children of the first marriage. Shean and his first wife separated in March 1993. He bought her out. Among the assets, he took on the division of property were commercial premises in Dominion Road, Mt Eden, where he carried on his practice, and a block of land at Redvale.
[3] The Shean Singh Family Trust was established by a deed dated
23 December 1993. Shean, the architect of the trust, designed it and drafted the deed. The settlor, Shean’s brother, Mahendra, is a medical practitioner living in Queensland. He is a nominal settlor. Shean established the trust for himself and his children.1 Mahendra and Mr Bourchier, Shean’s accountant, are the trustees. The vesting date is 23 December 2019, 26 years after the date of the deed. The final beneficiaries are Gabriel, Olivia and any other children of Shean born before the vesting date. The discretionary beneficiaries are Shean, the final beneficiaries, any child, children or grandchildren of the final beneficiaries, and any charitable object or institution in New Zealand. The deed makes no provision for any wife
or de facto partner of Shean. Under the deed the trustees shall hold the capital and
1 Shean is likely to be considered a settlor for tax purposes: Income Tax Act 2007, s HC28, Income
Tax Act 2004, s HH1 and Income Tax Act 1994, s HH1.
income of the trust on trust for Shean and in the event of his death for such of the final beneficiaries as shall be living and, if more than one, in equal shares. The trustees have powers to distribute to discretionary beneficiaries. The deed allows the trustees to re-settle the trust fund. The settlor may appoint additional trustees. There is no express provision in the trust deed for beneficiaries to be added or removed.
[4] Shean settled the Dominion Road and Redvale properties on the trust. At the time of the deed Gabriel and Olivia were still children.
[5] Darsan Singh, the third defendant, is Shean’s second wife. They married in August 1994. There are two children of that marriage, Christopher Singh (born in August 1995) and Elizabeth Singh (born in April of 1997).
[6] On 23 August 1996, the settlor and the trustees made a deed varying the Shean Singh Family Trust. They deleted the definition of “final beneficiaries” and inserted another defining them as Shean, Darsan, any children born to Shean and Darsan before the vesting date, Gabriel and Olivia. Darsan was made a discretionary beneficiary. The vesting clause was deleted and replaced with one providing that the trust fund was to be held for Shean and in the event of his death for one half of the funds to go to Darsan and the other half to go to the final beneficiaries in equal shares. Under these changes, Darsan will take 60 per cent of the trust assets on the vesting date. Gabriel and Shean’s other children will each take only ten per cent.
[7] Gabriel challenges this variation. He was born Shannon Siddarth Singh, but on 16 March 1998 changed his name to Gabriel Sebastian Ash. He now lives in Germany.
[8] On 24 May 2015 Shean tragically died in a boating accident. All his children were over the age of 18 when he died. Shortly after Shean’s death, Darsan was appointed a further trustee of the trust. This was said to be for administrative reasons. She is also the sole executor of his will under a grant of probate of 24
June 2015.
[9] Darsan says that when she married Shean he was heavily in debt after buying out his first wife. She believes that there was no equity in the trust properties. Together they built a substantial home on the Redvale property. Her family gave gifts used in decorating the house. She claims credit for the internal décor. She studied law while working in his practice and continued working after she qualified. Her earnings went towards paying mortgage commitments on the trust assets. She did all this believing that she had been made a beneficiary of the trust. Her evidence shows that she may have her own claims against trust assets if she is found not to be a beneficiary.
[10] At my request after the hearing the defendants provided copies of financial statements for the trust. While there are significant debts, total equity is about
$1,000,000 as at 31 March 2017. The assets include advances to DD Ltd, a company associated with Darsan.
[11] Relations between Gabriel and the trustees have broken down. They have stonewalled him on reasonable requests for documents and information. Mahendra has been very abusive in correspondence.
[12] The statement of claim has four causes of action:
[a] seeking a declaration that the deed of variation of 23 August 1996 and the appointment of Darsan as a beneficiary are invalid, and consequential orders;
[b] seeking orders removing the defendants as trustees of the Shean
Singh Family Trust and the appointment of a receiver;
[c] alleging that the trustees in breach of fiduciary duty and breach of trust have mismanaged the trust assets, have incurred liabilities in favour of Darsan and entities associated with her and have saddled the trust assets with debt; and
[d] seeking production of documents.
For this summary judgment decision I need to consider only the first cause of action and the claim in the fourth cause of action to provide copies of legal advice.
Validity of the deed of 23 August 1996
[13] The plaintiff’s case for the invalidity of the variation deed of 23 August
1996 is straightforward. The original trust deed does not contain any variation provisions, except the re-settlement clause and the power to appoint trustees. These provisions do not allow the trustees or the settlor to vary the trust by adding more final beneficiaries, adding another discretionary beneficiary, or substituting the vesting provisions.
[14] The defendants accept that the trust deed does not expressly empower the settlor, the trustees or anyone else to vary the trust or to add beneficiaries but they say that the variation of trust of 23 August 1996 comes within the re-settlement clause. They also say that the trust deed should be rectified to provide for a power of variation. Alternatively, they say that at the time of the variation the trustees and sui juris beneficiaries consented to the variation of the trust and other beneficiaries (non-sui juris, unborn or unknown) suffered no detriment. They seek a retrospective order validating the variation of trust under s 64A of the Trustee Act. Finally, they say that the court should authorise the disposition of trust property in accordance with the deed of variation under s 64 of the Trustee Act
1956.
The resettlement argument
[15] The resettlement provision says:
Power to resettle
7. The powers of the trustees in relation to income and capital contained in clauses 4 and 6 hereof shall, without in any way limiting or restricting such powers, include the power of the trustees at any time or times during the trust period to re-settle by deed the whole or any part of the income or capital of the trust fund upon trust in any manner which, in the opinion of the trustees, is for the benefit of any person or object who, or which, shall for the time being be a beneficiary under the trust contained herein provided that such re- settlement does not transgress the rule against perpetuities.
[16] The word “resettlement” is commonly used by lawyers to describe a decision by trustees to take money or assets of one trust and settle them on a new set of trusts. The whole or part of the original trust fund may be resettled in this way.2
[17] Clause 4 of the trust deed contains a power of advancement for income, and cl 6 has a power of advancement for capital. Accordingly, cl 7 allows the trustees to exercise their powers of advancement under cls 4 and 6 of the trust deed by resettling the whole or part of the trust fund on a new trust. The power of advancement in cls 4 and 6 is for discretionary beneficiaries only. Consequently, the power of resettlement can be used only to establish a trust for the benefit of one or more of the discretionary beneficiaries, but not for anyone else. Clause 7 does not allow a new trust holding part of the trust fund of the Sean Singh Family Trust to be established for anyone who is not a discretionary beneficiary of the trust.
[18] Moreover, the deed of 23 August 1995 does not purport to be a resettlement under cl 7. Under the deed, the existing trust is retained. No assets are taken out of the trust, there is no transfer to the trustees of a new trust, and no new trust is constituted. The deed purports only to vary the trust deed by specifying several deletions, substitutions and additions. It is not a resettlement of any part of the trust fund, either in form or in substance.
[19] In arguing that the 1996 deed was a resettlement under cl 7 of the trust deed, Mr Gilchrist referred to Re Ball’s Settlement Trusts and Re Holt’s Settlement Trusts3 to submit that an arrangement that changes the whole sub-stratum of the trust can amount to a resettlement. Those are decisions under the English Variation of Trusts Act 1958, which more or less corresponds to s 64A of New Zealand’s Trustee Act 1956. In Re Ball’s Settlement Trusts, the question was whether a
resettlement of part of a trust fund on a new trust could be a variation which the
2 Garrow and Kelly The Law of Trusts and Trustees, seventh edition, paragraph 23.272.
3 Re Ball’s Settlement Trusts [1968] 1 WLR 899 (Ch); Re Holt’s Settlement Trusts [1969] 1 Ch 100 (Ch D).
court could prove under the legislation. Following a decision from Victoria, Dyer v Trustees Executors & Agency Company Ltd,4 Megarry J said:5
If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded merely as varying that trust. But if an arrangement, while leaving the substratum, effectuates the purpose of the original trust by other means, it may still be possible to regard that arrangement as merely varying the original trusts, even though the means employed are wholly different and even though the form is completely changed.
[20] In Dyer a deed which settled a trust to establish and maintain an orchestra had a variation provision. The trust fund was inadequate for that purpose. The settler executed a deed varying the trust so that the accumulated income or future income should be paid to certain musical societies. That was held to be outside the power to vary the trust. In Re Holt’s Settlement Trust, Megarry J held that an arrangement under which existing trusts were substituted may still be a variation under the legislation. He said:6
One must not confuse machinery with substance; and it is the substance that matters. Comparing the position before and after the arrangement takes effect, I am satisfied that the result is a variation of the old trusts, even though effected by the machinery of revocation and resettlement.
[21] These English cases do not help the defendants. This case instead falls within the principle in Dyer. In the absence of any power to vary the terms of the trust by adding to discretionary beneficiaries, adding final beneficiaries or changing the vesting date, the deed of August 1996 is ineffective and cannot be saved by invoking the resettlement clause, which does no more than allow resettlements in favour of existing beneficiaries.
Rectification
[22] The rectification argument is an afterthought. The defendants did not raise it in their notice of opposition to the application for summary judgment filed on 21
July 2017. Mahendra and Mr Bourchier did not give any evidence about it in their
affidavits sworn in July. It appeared in a statement of defence and counterclaim
4 Dyer v Trustees Executors & Agency Company Ltd [1935] VLR 273 (SC).
5 Re Ball’s Settlement Trusts [1968] 1 WLR 899 (Ch) at 905.
6 Re Holts’ Settlement Trusts [1969] 1 Ch 100 (Ch) at 117.
filed on 6 September 2017. The rectification sought in the statement of defence is to add the following clause to the trust deed:
The settlor grants the trustees the power by any revocable or irrevocable deed during the Trust Period at any time and from time to time:
•to add any person or class of person or Charity or class of Charity; other than any of the Precluded persons, to the class of Primary or Secondary Beneficiaries;
• to exclude any person or class of person or Charity or class of
Charity from the class of Primary or Secondary Beneficiaries; No addition or exclusion shall:
•Affect any interest to which any Beneficiary has previously become absolutely entitled;
•Be contrary to public policy or the law, or be exercised in a manner which results in the Trust no longer existing;
All beneficiaries added as beneficiaries under this clause shall be eligible to receive income accumulated before the date upon which they were added as beneficiary.
“Precluded persons” is defined to include:
if, and only if, circumstances are such by a person being a Primary Beneficiary section EZ38 of the Income Tax Act 2007 (New Zealand) or any section or enactment passed in place therefore would cease to apply any debts forgiven to this Trust by a natural person and thereby result in such debt forgiveness and treated as income for the purposes of the Income Tax Act 2007 (New Zealand) or any section or enactment passed in place thereof, such person shall be a Precluded Person.
[23] For evidence Mr Bourchier says in his affidavit of 10 September 2017:
[12] At the time that the Trust was set up the First Defendant (as Settlor, and as a Trustee), myself, as a Trustee, and Shean Singh all believed that the trust had a power of variation. That is evident from the Deed of Variation that was executed on 23 August 1996, which proceeded on the basis of our mutual understanding that that was permitted.
[13] I can quite clearly state that it was the common intention of the Settlor and the Trustees of the original Trust Deed that it should contain a clause, allowing the original Trust Deed to be varied, including to add and/or amend beneficiaries.
[14] That common intention existed right up until the time of Dhirendra’s death and by myself and Mahendra Singh since his death.
[15] It appears that the original Trust Deed did not fit our intention, so I would seek that it be able to be ratified. The trust deed not containing a variation clause appears to be a mistake or inadvertence by the Settlor and the Trustees.
In his affidavit of 6 September 2017 Mahendra confirms Mr Bourchier’s evidence but adds nothing more. The defendants also point to the variation deed as being consistent with their evidence that they had a common intention before signing the trust deed that it was to have a power of variation.
[24] It is trite that the object of a claim for rectification is to make a document conform with the intentions of the parties to the transaction the subject of the document. The transaction is not rectified, only its documented expression. The claim succeeds if the court finds that the document does not accurately record the parties’ transaction.
[25] The courts have always scrutinised rectification claims carefully. In the nineteenth century judges required proof to be irrefragable. That may have softened since but the case must still be convincing. A relevant consideration is that lawyers who draft transactional documents for their clients do not ordinarily misstate their clients’ intentions. In Thomas Bates & Sons Ltd v Wyndham’s Lingerie Ltd, Brightman J said:7
The standard of proof required in an action of rectification to establish the common intention of the parties is, in my view, the civil standard of balance of probability. But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties’ intention because it is a document signed by the parties.
7 Thomas Bates & Sons Ltd v Wyndham’s Lingerie Ltd [1981] 1 WLR 505 (CA) at 521.
The authors of Meagher, Gummow & Lehane’s Equity Doctrines and Remedies
comment:8
Where the parties to an instrument have each had legal advice, and the instrument has been prepared by solicitors, the party seeking rectification must overcome the court’s doubts that it is inherently unlikely that the solicitors on each side will have failed to grasp and express the intention of the client.
[26] Rectification arguments come up more often in contract cases, but other documents may be rectified. In this case counsel cited principles and cases on contractual rectification.9 In contract cases the parties must form and continue to hold a single corresponding intention on a point up to the signing of the contractual document which does not reflect that common intention. The claim may be resisted by the other party who may insist on applying the contract as written and contest allegations of common intention. That allows the court a better assessment of the parties’ intentions.
[27] The arguments for rectification were put on the basis of a common intention by Mahendra as settlor and Mahendra and Mr Bourchier as trustees, as though they were parties to a contract. But the trust deed is a voluntary settlement. An inquiry as to common intention is not required. In Bonhote v Henderson Kekewich J said:10
Suffice it to say, that a judgment reforming a deed proceeds on the basis that the deed as it stands does not express the real bargain between the parties, of which real bargain the Court has satisfactory evidence. This, of course, is not directly applicable to voluntary deeds; that is, deeds made without voluntary consideration, where, therefore, there is no bargain capable of proof…
Given the extended jurisdiction, it is obvious that the Court must approach the exercise of it with caution at least equal to that required in dealing with the investigation of bargains; and the difficulty is necessarily increased by the circumstance that in the nature of things the Court cannot have the same advantages of criticism and opposition. If there are documents, such as written instructions, evidencing the intention of the parties, the course may be clear; but if that intention rests on statements of settlors made, perhaps, long after the date of the deed, when haply precise memory is wanting and circumstances
8 D Heydon, MJ Leeming and PJ Turner (5th ed, LexisNexis, Chatswood (NSW), 2015) at [27-
120].
9 Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC); Farmers’ Mutual Insurance Ltd v QBE Insurance International Ltd [1993] 3 NZLR 305 (HC). For good measure Mr Gilchrist cited Featherstone Park Developments Ltd v Bradley HC Auckland, CIV-2010-404-3020, 31 May 2011 as an example of rectification succeeding in opposition to a summary judgment application.
10 Bonhote v Henderson [1895] 1 Ch 742 (Ch D) at 748-9.
have changed, it behoves the Court to act warily. It may be too much to say that no effect is to be given to a statement on oath that if the settlor had known the deed to be what it is he or she would not have executed it.
But the operation of the human mind is so complex, so easily swayed first by one motive and then by another, that I hesitate to attribute much effect, and I decline to attribute cogent force, to the belief and opinion – for really it is no more – that something would or would not have been done in years gone by in possible events which did not in fact occur.
[28] In Re Butlin’s Settlement Trusts11 Brightman J stated that the court has power to rectify a settlement notwithstanding that it is a voluntary settlement and not the result of a bargain, such as an ante-nuptial marriage settlement. Rectification is available not only in a case where particular words are added, omitted, or wrongly written as a result of careless copying or the like. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from the correct meaning as a matter of true construction. In such a case the court will rectify the wording of the document so that it expresses the true intention. The controlling intention is the settlor’s. The trustee’s intention is not determinative, but it may go to discretion. He said:12
…in the absence of an actual bargain between the settlor and the trustees, (i) a settlor may seek rectification by proving that the settlement does not express his true intention, or the true intention of himself and any party with whom he has bargained, such as a spouse in the case of an ante-nuptial settlement; (ii) it is not essential for him to prove that the settlement fails to express the true intention of the trustees if they have not bargained; but (iii) the court may in its discretion decline to rectify a settlement against a protesting trustee who objects to rectification.
[29] The trust deed shows Mahendra as the settlor, but his role was nominal. He settled $10 on the trust but the deed anticipated that further property would be settled. For all practical purposes Shean was the settlor. He was the architect, drew the trust deed and settled substantial assets, the Redvale and Dominion Road properties, on the trust. The deed is called the Shean Singh Family Trust. The trust was for him and his
children. The court looks to his intention in deciding a rectification claim. This
11 Re Butlin’s Settlement Trusts [1976] Ch 251 (Ch D) at 260-261.
12 At 262.
approach is consistent with the Court of Appeal’s judgment in Commissioner of Inland
Revenue v Dick:13
[68] The question then is as to the ordinary meaning of the word “settlor” in this country and in the context of this legislation. In particular, it is necessary to determine whether we are bound in this case by the terms of the trust deed in determining who is the settlor. The deed describes Ms Dick as the settlor and she did indeed, settle a nominal sum of money. But in a practical sense the person who settled the trust with the assets that enabled it to conduct its business and to fulfil its purpose was Mr Sloan. The online Oxford English Dictionary defines a settlor as “one who makes a settlement of property”. From the practical point of view that person was Mr Sloan. He provided the gaming machines and if he did not give those machines to the trust he provided the money with which the trust was able to buy them.
[30] I assume that as executor and trustee of Shean’s estate Darsan has standing to make any rectification claim that he could have made while he was alive.
[31] There is an inherent improbability in the claim that a lawyer drawing a deed for a trust for his own family would make a mistake in recording his own intentions. The alleged mistake is about adding beneficiaries. The deed defined the final beneficiaries as the plaintiff, Olivia and “any child or children of Dhirendra Singh who shall hereafter be born or adopted before the Vesting Day.” The deed provides for future children but not the mothers of those children. Once there is provision for future children a settlor is likely to consider whether to make their mothers beneficiaries. Shean had recently separated. The context suggests that he deliberately limited the class of beneficiaries under the trust. It is beside the point that he might change his mind or that others would consider that he should provide for the mothers of his children.
[32] There is a real problem with proving Shean’s intention because he is dead. He is not available to give evidence as to his intentions when he established the trust. In Bonhote v Henderson Kekewich J spoke of the difficulties of a rectification claim by a settlor when the settlor’s evidence is not supported by contemporary documents, but they are even greater when the settlor is no longer available. In some cases there may
be assistance from contemporary documents such as drafts of deeds which may throw
13 Commissioner of Inland Revenue v Dick [2003] 1 NZLR 741 (CA). See also Baldwin v Commissioner of Inland Revenue [1965] NZLR 1 (SC), Tucker v Commissioner of Inland Revenue [1965] NZLR 1027 (SC).
light on a settlor’s intention.14 Darsan is executor of his estate. The trustees have access to trust records and Darsan has access to his personal records. They have had time in which to find any records which might support a rectification claim. Their evidence does not suggest that there is more evidence to come.
[33] The defendants’ case is no more than assertion coupled with a reference to the variation deed. That deed does not by itself prove Shean’s intentions when he established the trust three years before. It is also consistent with a mistake of law that the trust could be varied by the deed. Its ineffectiveness does not prove what Shean intended to put in the trust deed but failed to do so.
[34] Overall the rectification claim is implausible. Shean, whose intention is crucial, cannot give evidence. There is nothing else to suggest that at a hearing with witnesses called to give evidence anything like a convincing case for rectification could be advanced.
[35] There are other weaknesses with the rectification claim as advanced:
[a] Any rectification by the court has retrospective effect from the date of execution of the deed. Even if rectified, the deed would not refer to the Income Tax Act 2007 which had not been enacted at the date of the deed.
[b] The terminology of primary and secondary beneficiaries is inconsistent with the deed.
[c] The proposed variation includes a power to exclude beneficiaries, clearly a device targeted at the plaintiff, but there is nothing to suggest that Shean ever wanted to exclude his children as beneficiaries.
[d] The variation deed of August 1996 changed the vesting clause in the
trust deed, but the defendants’ rectification claim does not suggest any
basis for altering the vesting provisions.
14 Re Butlin’s Settlement Trusts [1976] Ch 251 (Ch D) is an example.
[36] The plaintiff has shown that the defendants do not have an arguable rectification defence.
Section 64A Trustee Act 1956
[37] The defendants say that the court can approve a variation of the trust under s 64A of the Trustee Act 1956. Their case is that the trustees, Mahendra, Mr Bourchier and the only sui juris beneficiary, Shean, consented to the variation. There were beneficiaries who were not sui juris – the plaintiff, Olivia, Christopher and there was an unborn beneficiary, Elizabeth. The variation was not to the detriment of beneficiaries who were not sui juris. The court should accordingly order a variation in terms of the deed of August 1996.
[38] That asks the court to make a retrospective order under s 64A. That section allows the court to authorise variations of trust on behalf of those whose consent is required but do not have capacity to give it, including unborn and unknown persons. But any orders made by the court under s 64A are prospective only. That is clear from s 64A(2):
Any rearrangement approved by the court under subsection (1) shall be binding on all persons on whose behalf it is so approved, and thereafter the trusts as so arranged shall take effect accordingly.
(emphasis added)
[39] The problem facing the defendants is that the plaintiff does not consent to the variation of trust. Their ploy of seeking the court’s approval under s 64A is to invite the court to authorise the variations as if he did not have capacity, when he does have capacity and will not consent.
Section 64 Trustee Act 1956
[40] The defendants also invoke s 64 of the Trustee Act, alleging that the deed of variation is expedient in the management of the administration of the trust property and would be in the best interests of the persons beneficially interested under the original trust. Section 64 of the Trustee Act deals with the administration of the trust. It allows the court to confer powers on trustees for the better administration of the trust, as when a trust deed itself is insufficient. Section 64 does not, however, allow the court to adjust the substantive trusts.
[41] Mr Gilchrist cited McKnight v Craig:15
[7] The role of the court in an application under s 64 of the Trustee Act is to give consent to the arrangement on behalf of persons such as minors, unborn and unascertained beneficiaries, who are unable to give consent themselves.
That does not support the defendants. There is a misprint. McKnight v Craig is a case under s 64A of the Trustee Act, not s 64.
Summary
[42] Up to this stage the plaintiff has shown the deed of variation of August 1996 was ineffective. The defendants made a written resolution on 27 September 2016 ratifying their decision to make the deed of variation. It is not possible to ratify a nullity. That resolution adds nothing to their case. They do not have any arguable defence to the plaintiff’s first cause of action. He is entitled to these declarations sought in his application for summary judgment:
[a] the deed of variation is void and of no effect;
[b] the purported appointment of Darsan as a final beneficiary was unauthorised and void;
[c] the purported appointment of Darsan as a discretionary beneficiary was unauthorised and void;
15 McKnight v Craig [2010] 3 NZLR 860 (HC) at [7].
[d] the purported appointment of Shean as a final beneficiary was unauthorised and void;
[e] Darsan is not a final beneficiary;
[f] the purported substitution of the vesting clause was unauthorised and void;
[g] the assets of the trust remain vested in the trustees for the time being under the terms of the trust deed dated 23 December 1993;
[43] As additional relief, the plaintiff sought an order that the trustees reimburse the trust for any payments made to or benefits received by Darsan in her purported capacity as discretionary or final beneficiary. On this summary judgment application, it is not appropriate to make a general order for the trustees to reimburse the trust for any payments made to the benefit received by Darsan. The plaintiff has not established whether the claims against the trustees requiring them to reimburse the trust involve allegations of breach of trust. That will require a more extensive enquiry than is possible on this application. The plaintiff has not presented a case to the summary judgment standard that the trustees have breached the trust by conferring any benefits on Darsan. It is not possible to quantify what benefits, if any, Darsan has received. That matter must await a final hearing.
[44] I ask for further submissions on costs. In a proceeding between a beneficiary and trustees, the High Court Rules do not always apply. There are different costs principles. Counsel may wish to consider authorities such as Re Buckton, Re Beddoe and Alsop Wilkinson v Neary.16
Production of legal advice
[45] In the fourth cause of action to his statement of claim, the plaintiff seeks substantive disclosure of a number of trust documents and information which were
16 Re Buckton [1907] 2 Ch 406 (Ch D); Re Beddoe [1893] 1 Ch 547 (CA) and Alsop Wilkinson v
Neary [1996] 1 WLR 1220 (Ch D).
listed in a schedule. One class of documents is legal advice received by the trustees. He seeks summary judgment for that class. The defendants do not contest his right to substantive disclosure of legal advice,17 but they say that they have disclosed all the advice they have received relating to the administration of the trust. They have disclosed an opinion of 10 July 2016 by a specialist trust lawyer. Mr Bourchier acknowledges that Darsan personally and at her own cost sought advice about her own personal position vis-à-vis the trust from another firm of lawyers, but says that was not done on behalf of the trust. Mr Thompson tendered a copy of an invoice from those lawyers made out to Darsan. The charge was for “trust deed review”.
[46] It is understandable that Darsan may have sought advice as to her own position as a beneficiary of the trust. If she did so, she would not be able to charge the trust for that advice. For summary judgment purposes, the defendants have an arguable defence that they have provided copies of all legal advice (not subject to litigation privilege) relating to the administration of the trust. Their case on this part is not implausible. That part of the case will have to go to a hearing on the merits.
Application for security for costs
[47] The defendants apply under r 5.45 of the High Court Rules for an order requiring the plaintiff to give security and for the proceeding to be stayed until security is given. The application does not apply to the plaintiff’s summary judgment application. Instead, it is directed at those parts of the plaintiff’s claim outside the summary judgment costs application which will go to a hearing in the normal way, with discovery, other interlocutory steps, exchanges of evidence, and a hearing of some days with oral evidence. They assess the likely costs that would be awarded against the plaintiff after a full defended hearing at $54,412.00 based on 24.4 days on a category 2 rate of $2,230.00 per day. They have not allowed for
disbursements.
17 The plaintiff cited Burgess v Monk [2016] NZHC 527.
[48] The defendants have satisfied the threshold requirement under r 5.45(1)(a). The plaintiff lives in Germany, not in New Zealand. They submit that any order for cost against the plaintiff would not be enforceable against him in Germany – or at least not without great difficulty. I am not aware of any reciprocal enforcement of judgments arrangements between New Zealand and Germany. I accept the defendants’ point that there is no current way by which a New Zealand money judgment could be enforced against a German resident. I have no assurance that the common law principles for enforcement of money judgments overseas (in this case because of the plaintiff’s submission to the jurisdiction as a party) would apply in Germany.
[49] The plaintiff says that he has a property in Australia worth AUD$300,000, but he has given no details about it: not even which state it is in. If he had, it would have been helpful for him to identify that property. It is possible to enforce New Zealand money judgments against assets in Australia with little difficulty, under Part 7 of the Trans-Tasman Proceedings Act 2010 (Cth) – the counterpart to Part 2 subpart 5 of the Trans-Tasman Proceedings Act 2010 (NZ).
[50] I accept, however, that the plaintiff does have a valuable asset in New Zealand – his interest as beneficiary under the Shean Singh Family Trust. I noted before that the defendants filed a memorandum attaching financial statements for the trust, showing a net equity of $1,000,000. The latest financial statements showed a book value for the Dominion Road property of $730,000 and the Redvale property a book value of $1,338,000. I take it that, consistent with standard accounting practice, land is at cost value rather than at current market value. The Auckland Council has just released its updated rating valuations. The Dominion Road property has a rating value of $2,375,000; the Redvale property is
$2,267,500. The net value of the trust assets appears to be in the order of $3.67 million.
[51] The value of the plaintiff’s quarter share is subject to various contingencies. The most important is that Darsan may have a constructive trust claim against assets of the trust for contributions she made during the marriage under the
expectation held out that she would have an interest in those assets.18 At this stage, I am in no position to assess the strength of her claim, if she has one. But the ceiling for her claim is unlikely to be more than half the value of the assets. Even allowing that, the value of the plaintiff’s interest in the trust is likely to be significantly more than any costs against him if he is unsuccessful in the proceeding. The vesting date for the trust is in December 2019. If the trustees are still in office then, they will be able to set off any order for costs against any distribution to him as beneficiary, even if they do not use any powers to make an earlier distribution under the powers of advancement to beneficiaries. If they are removed as trustees (as the plaintiff seeks), and orders for costs are made against him on his other causes of action, any orders for costs against him would be enforceable against his share of the trust assets.
[52] The purpose of ordering security for costs is to protect successful defendants against barren costs orders. I am satisfied that that is not a realistic risk in this case. The application for security for costs fails.
Application for judicial settlement conference
[53] The defendants apply for an order for a conference under r 7.79 of the High Court Rules. While any judge may order a settlement conference, as a matter of practice in Auckland the List Judge decides whether settlement conferences should be allocated. If I considered that there was any merit in the defendants’ proposal, I would refer this matter to the List Judge for a decision whether there should be a judicial settlement conference.
[54] I recognise the advantages of the parties resolving all matters by agreement and that a judicial settlement conference under r 7.79 can be useful in assisting the parties to identify strengths and weaknesses of their case, and to resolve matters ahead of a hearing. Notwithstanding that, this case is not ready for a judicial
settlement conference yet.
18 Lankow v Rose [1995] 1 NZLR 277 (CA).
[55] Darsan will no doubt make a claim against the trustees, and say that she is entitled to an interest in trust assets under a constructive trust claim. No distribution of trust assets is likely to be possible until her claim is also addressed. She will need to instruct her own lawyer and to issue her own proceeding against the trustees. The parties can hardly negotiate a resolution, without knowing the strengths or otherwise of her case.
[56] Another difficulty is the obvious animosity of the trustees towards the plaintiff. Given his abusive correspondence I have no confidence that Mahendra would take part in sensible discussion with the plaintiff.
[57] There is also the practical problem that Mahendra is in Queensland and the plaintiff is in Germany. Before the court could allocate a conference, it would need to be assured that all parties would be able to travel to New Zealand to take part.
Outcome
[58] The plaintiff has been generally successful, except for obtaining substantive disclosure of documents under his fourth cause of action. That will have to go to a hearing.
[59] I make these orders:
[a] The plaintiff has summary judgment against the defendants on his first cause of action in his statement of claim except that there are no orders in terms of paragraphs (h) and (j) of the prayer for relief.
[b] The plaintiff’s application for summary judgment under the fourth
cause of action is dismissed.
[c] The matters on which the plaintiff has been unsuccessful in his summary judgment application will go to hearing in the ordinary way.
[d] The defendants’ application for security for costs is dismissed.
[e] I decline to refer this file to the List Judge for a judicial settlement conference at this stage.
[f] I direct the Registrar to allocate a first case management conference, to give directions for the further conduct of this proceeding.
[g] Counsel are to file memoranda as to costs. The plaintiff is to file his submissions within 10 working days of this decision, and the defendants are to file their memoranda within a further 10 working days.
[h] Leave is reserved to apply for further directions.
……………………………
Associate Judge R M Bell
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