Dewat v Lal

[2024] NZHC 697

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2023-470-09

[2024] NZHC 697

UNDER

AND

Part 18 of the High Court Rules 2016 and the Trusts Act 2019

IN THE MATTER

of the SANATAN DHARAM TRUST

BETWEEN

SANJEEV DEWAT, KULDIP KUMAR, MOHAN LAL SAILY, ROMAN SAILY and

SANJEEV SHARMA as trustees of the SANATAN DHARAM TRUST

Plaintiffs

AND

DARYODHAN LAL, RAM LUBHAIA, AJAY SHARMA and RAM DITTA SAILY

as trustees of the SANATAN DHARAM TRUST

Defendants

Hearing:	On the papers
Appearances:	J Delaney for the Plaintiffs A Singh for the Defendants
Judgment:	28 March 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 28 March 2024 at 11 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Harrington Chambers, Tauranga

DEWAT v LAL [2024] NZHC 697 [28 March 2024]

Introduction

[1]                The plaintiffs apply for costs following a successful application for summary judgment in respect of their removal as trustees of the Sanatan Dharam Trust (Judgment).1

[2]                In my decision I recorded that the plaintiffs had succeeded and in the usual course would be entitled to costs.2 I observed that in my preliminary view it might be appropriate to order costs against the defendants personally because it ought to have been clear to them that they could not proceed as they purported to.3 I asked the parties to confer and, only if costs could not be agreed, to file memoranda. The parties were unable to agree and memoranda have been filed.

[3]                The plaintiffs submit that the Judgment largely determines the proceeding and, on that basis, seek costs in respect of both the summary judgment application and the proceeding itself. They acknowledge that the question of whether an independent trustee is to be appointed is still to be determined and so propose that the costs of the proceedings so far ought to be reduced by 30 per cent. The plaintiffs submit that the defendants should pay these costs personally because the general indemnities under the Trusts Act 2019 or the Trust Deed can be displaced if the trustees’ costs are unreasonable or not properly incurred.4

[4]                As far as the level of costs to be awarded, the plaintiffs submit that indemnity costs are appropriate or alternatively an uplift of 50 per cent.

[5]                In addition, the plaintiffs seek a declaration that the defendants are not entitled to an indemnity from the assets of the Trust for their own costs.

[6]                Finally, the plaintiffs seek a declaration that they may recover from Trust assets the difference, if any, between the costs awarded against the defendants personally and the plaintiffs’ actual costs claimed of $39,216.42.

1      Dewat v Lal [2023] NZHC 1908 at [84].

2 At [88].

3 At [88].

4      Sunde v Sunde [2019] NZCA 552 at [13]–[14].

[7]                The defendants oppose the plaintiffs’ application for indemnity costs or an uplift in costs and instead seek either that:

(a)costs be reserved pending the determination of the substantive hearing; or

(b)costs should lie where they fall.

[8]                The defendants submit that they have incurred significant legal costs so far and that following the freezing of the Trust’s bank account by the plaintiffs the defendants have been donating money from their own funds to keep the community kitchen and weekly prayers at the temple going. In their submission, burdening them with further costs would not be fair and justified in the particular circumstances of this case.

[9]                Furthermore, the defendants say that the plaintiffs amended the statement of claim and the application for summary judgment and that costs could have been saved if the proceedings were filed properly in the first place. The defendants say they should not be blamed for these increased costs.

[10]            I note that the amendments were made to simplify matters and that the 2B costs sought only include costs for the commencement of the proceeding by a plaintiff and not for amending that pleading. This point will therefore only be relevant if indemnity costs are awarded.

[11]            The defendants’ position in the end however is that costs should lie where they fall because the defendants themselves incurred significant costs in defending the proceedings and that they did so to protect the interests of the beneficiaries. If the Court is still minded to order costs at this stage, the defendants say it should only be scale costs on a 2B basis.

Relevant legal principles

[12]            The starting point in any costs decision is r 14.1 of the High Court Rules 2016 which confirms that all matters relating to costs are at the discretion of the Court. The discretion vested by r 14.1 is wide but should generally be exercised subject to the

principles in r 14.2. The first principle in r 14.2(1) is that the party who fails should pay costs to the party who succeeds.

[13]            Rule 14.8(1) relevantly provides that costs should be addressed immediately following an opposed interlocutory application unless there are special reasons to the contrary. Rule 14.8(3) excludes summary judgment applications from this rule but the Court’s practice, as recorded in McGechan on Procedure, is for costs usually to follow the event on a successful summary judgment.5

[14]            The costs issues in this case arise in the context of a dispute between trustees. It is settled law that a trustee has a right to indemnity from trust assets for reasonable costs and expenses incurred in the administration of the Trust.6

[15]Clause 8.2 of the Trust Deed in this case relevantly provides:

All members shall be indemnified out of the Fund against any liabilities incurred in the exercise or attempted exercise of the trusts, powers, authorities and discretions vested in the Board and shall have a lien on and may use any moneys forming part of the Fund in pursuance of this indemnity.

[16]The Court of Appeal confirmed in Sunde v Sunde that:7

The presence of an indemnity clause will not oust the Court’s supervisory jurisdiction to review whether costs and expenses incurred by a trustee have been necessarily incurred in the interests of the beneficiaries and are reasonable in amount.

[17]            Sunde v Sunde considered s 38(2) of the Trustee Act 1956. This has been replaced since 30 January 2021 by s 81 of the Trusts Act 2019 but the Court’s supervisory role continues as s 81 provides:

81Trustee’s liability for expenses and liabilities incurred, and trustee’s right to indemnity

(1)A trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee.

(2)However, a trustee who incurs an expense or a liability when acting reasonably on behalf of the trust is entitled,—

5      Jessica Gorman McGechan on Procedure (online ed, Tomson Reuters) at [14.8.05(a)].

6      Butterfield v Public Trust [2017] NZCA 367 at [20]–[21].

7      Sunde v Sunde, above n 4, at [13].

(a)if the trustee has paid the expense or discharged the liability out of the trustee’s own funds, to reimbursement from the trust property; or

(b)in any other case, to pay the expense or discharge the liability directly from the trust property (or to have it paid or discharged by a remaining trustee).

(3)The operation and enforcement of the indemnity in this section is governed by the rules of the common law and equity relating to trusts.

(4)This section does not limit any indemnity available at common law or in equity.

[18]            For completeness, I record that the Trust in this case is a charitable trust subject to the provisions of the Charitable Trusts Act 1957. The Trusts Act however applies unless there is an inconsistency between the provisions of the Trusts Act and the Charitable Trusts Act.8

Should the plaintiffs be indemnified for their costs of the summary judgment application and part of their costs for the substantive proceeding?

[19]            In my decision I granted the application for orders by way of summary judgment:9

(a)setting aside the resolution to remove the plaintiffs as trustees; and

(b)setting aside the appointment of replacement trustees.

[20]            The plaintiffs were also seeking interim orders removing all trustees and appointing the Public Trust as a sole independent professional trustee until determination of the substantive proceedings.

[21]            I declined to enter summary judgment in respect of the interim orders but instead adjourned that part of the application to allow service on the Attorney-General. This was because the Public Trust proposed changes to the Trust Deed if Public Trust was to be appointed (which it did not consent to),10 and s 60(2) of the Charitable Trusts Act appeared to require service on the Attorney-General in those circumstances. These

8      Trusts Act 2019, s 5(9).

9      Dewat v Lal, above n 1, at [84].

10     Dewat v Lal, above n 1, at [75].

were not matters that could have been anticipated by the plaintiffs as the position of the Public Trust at the time of the application was unknown.

[22]            I consider that the steps taken by the plaintiffs to seek orders reinstating themselves as trustees and then to seek the removal of all trustees and instead appoint Public Trust in the interim were reasonable in the circumstances. As I held in the Judgment (and the history of litigation between the parties shows) there is considerable dysfunction between the trustees.11

[23]            In Gallagher v Gallagher, Venning J similarly found that an application to remove trustees and replace them with an independent trustee was properly brought in circumstances where there had been a breakdown in the relationship between trustees.12

[24]            Furthermore, prior to bringing the summary judgment application, the plaintiffs’ counsel wrote to counsel for the defendants and proposed that all trustees agree to voluntarily resign and appoint the Public Trust. The defendants rejected the proposal, with counsel for the defendants saying any claim by the plaintiffs would be strenuously defended.

[25]            Counsel for the defendants submits that the orders sought by the plaintiffs were contradictory and that the plaintiffs should instead have simply sought orders removing all trustees and appointing the Public Trust as a sole independent trustee. I do not agree as it was necessary to determine who were the validly appointed trustees of the Trust prior to determining whether it was appropriate to remove them. I consider therefore that the plaintiffs’ costs for the summary judgment proceeding ought properly to be indemnified either by the defendants personally or out of the assets of the Trust as discussed further below.

[26]            In addition to the costs of the summary judgment application, the plaintiffs seek a proportion of the costs of the substantive proceeding on the basis that the statement of claim is a necessary part of the application for summary judgment so it

11     Dewat v Lal, above n 1, at [82].

12     Gallagher v Gallagher [2021] NZHC 677 at [18].

must follow that these costs are claimable. In recognition of the fact that the plaintiffs’ application for removal of all trustees and replacement with an independent trustee remains to be decided, the plaintiffs suggest reducing the costs claimed by 30 per cent. This reduces the actual costs claimed of $56,023.45 to $39,216.42.

[27]            I consider it is appropriate for the plaintiffs to be indemnified for the proposed proportion of the costs of the substantive proceeding as I accept that the filing of the statement of claim and the first conference were required steps before the summary judgment application was heard and the plaintiffs have largely succeeded in the steps taken so far.

[28]            The actual costs of the plaintiffs reduced by 30 per cent as they propose therefore ought to be indemnified by the defendant trustees personally or from a combination of the defendant trustees personally and the assets of the Trust in the same way as for the summary judgment application. I discuss this in the next section.

[29]            The question of whether the remainder of the actual costs incurred by the plaintiff trustees (the 30 per cent reduction of $16,807.03) ought to be paid out of the assets of the Trust or by the defendants personally is a matter to be determined when the remainder of the proceedings are resolved either by consent or by application at that stage.

Should the defendants pay any part of the costs sought by the plaintiffs personally?

[30]            As I recorded in the Judgment, cl 8.2 of the Trust Deed provides an indemnity for the trustees when acting in the exercise or attempted exercise of the Trust.13 Despite this clause, I indicated my preliminary view that it may be appropriate to order costs against the defendants personally in circumstances where it ought to have been clear to them that they could not proceed as they purported to.

[31]            My preliminary view has not changed with the filing of costs submissions. In the Judgment I was careful not to rely on the defendants’ failure to give notice of the

13     Gallagher v Gallagher, above n 12, at [88].

meeting at which they purported to remove the plaintiffs because of issues arising in relation to the role of secretary which I was unable to resolve in the context of the summary judgment application.14 However, the steps taken by the defendants when removing the plaintiffs show no real attempt to act in accordance with the Trust Deed.

[32]            Furthermore, the defendants ought to have been aware from the earlier proceedings in 2019 that such an approach to removal was not in accordance with the Trust Deed. This is especially the case when those proceedings were settled in December 2021 on the basis that one of the trustees removed, Daryodhan Lal, was reappointed but not the other, Dharam Pal Tiwari. Yet the defendants purported to remove  all  five  plaintiffs  and   appoint   replacement   trustees   including   Dharam Pal Tiwari in October 2022, less than a year following entry into the Settlement Deed.15

[33]            Following the purported removal, Mr Delaney for the plaintiffs wrote to the defendants, challenging the validity of the plaintiffs’ removal, pointing out the irrationality of the interpretation of the Trust Deed relied on by the defendants and offering to meet to try to resolve the issues. Mr Singh, for the defendants, replied to Mr Delaney agreeing to meet but asserting that there was no ambiguity in the relevant clause in the Trust Deed and that it could only be interpreted as the defendants had. Mr Singh said the defendants would defend any proceeding brought. Mr Delaney wrote to Mr Singh a week later saying the plaintiffs denied the allegations of fraud and dishonesty levelled against them or that they were lawfully removed but saying that the Trust was deadlocked. Mr Delaney therefore proposed that all of the trustees resign voluntarily and appoint the Public Trust as an independent trustee. Mr Singh rejected that proposal on behalf of the defendants, maintaining that the decision to remove the plaintiffs was valid and advising that any challenge would be strenuously defended.

[34]              The proceedings and summary judgment application were then filed. The defendants actively defended the summary judgment application and continued to submit that the Trust was not dysfunctional when it clearly was.

14     Gallagher v Gallagher, above n 12, at [60].

15     Dewat v Lal, above n 1, at [23] to [40].

[35]            I held in the Judgment that the answer to the question of whether the defendants had the power to remove the plaintiffs as trustees in the manner in which they did was straight forward and that there was no reasonably arguable defence that the defendants had acted in accordance with the Trust Deed in removing the plaintiffs.16

[36]            In my view, there is no question that the defendants acted unreasonably in removing and replacing the trustees. Furthermore, they were given the opportunity to avoid the proceedings prior to them being filed. In these circumstances I consider that the defendants ought to pay 2B costs personally to the plaintiffs for both the summary judgment application ($8,126), the proportion proposed of the substantive proceedings ($6,358) and disbursements of $1,567.25, totalling $16,081.25.

[37]            I am not ordering the defendants to pay increased or indemnity costs because I do not have evidence of when the defendants sought legal advice and what the advice was. To require further evidence and submissions at this stage will only increase costs for all parties. It is appropriate instead for the defendants to pay the 2B costs of the plaintiffs and for the remainder of the costs and disbursements claimed by the plaintiffs of $23,135.17 to be indemnified through the assets of the Trust.17

Are the defendants to be indemnified for their costs by the Trust fund?

[38]            I do not consider it is reasonable for the defendants to be indemnified for their costs by the assets of the Trust. It is a primary obligation of trustees to act in accordance with the Trust Deed. And, as I said in the Judgment, “the appointment or removal of trustees is a matter of such importance that strict compliance with the Trust Deed must be achieved”.18

[39]            The defendants point to my observation in the Judgment that the requirements of the Trust Deed are not clear in some instances and there are errors within the  Trust Deed.19 Whilst that may be the case, there was no real attempt by the defendants

16     Gallagher v Gallagher, above n 12, at [66].

17     Total claimed by plaintiffs of ($39,216.42) minus 2B costs ($16,081.25) equals costs to be indemnified ($23,135.17).

18     Dewat v Lal, above n 1, at [68] referring to The Attorney-General of New Zealand v Ngati Karewa and Ngati Tahinga Trust HC Auckland M2073/99, 5 November 2001 at [95].

19     Dewat v Lal, above n 1, at [62].

to comply with the Trust Deed when purportedly removing and replacing the plaintiffs as trustees.

[40]            Clause 8.2 of the Trust Deed provides an indemnity for any liabilities incurred including in the exercise or “attempted exercise” of the trusts or powers vested in the Trust Board. I do not consider that the actions of the defendants can be described as the “attempted exercise” of the powers vested in the Board when those actions were clearly inconsistent with the Trust Deed.

[41]            In these circumstances it is not appropriate for the defendants’ legal costs in respect of the summary judgment application or for the substantive proceedings up until the date of the costs memorandum to be indemnified. Any application by the defendants for indemnification of their costs since 1 September 2023 will need to be resolved between the parties or separately considered.

Result

[42]I order:

(a)the defendants are personally to pay 2B costs to the plaintiffs in the amount of $8,126 for the summary judgment, $6,358 in respect of the substantive proceedings (representing 70 per cent of 2B costs for the substantive proceedings) plus disbursements of $1,597.25 for a total of

$16,081.25 to be paid jointly and severally by the defendants;

(b)the plaintiffs may recover the difference between the proportion of actual costs claimed and the 2B costs to be paid by the defendants personally, equalling $23,135.17, from the assets of the Trust;

(c)the defendants are not entitled to an indemnity from the assets of the Trust:

(i)either to pay that part of the plaintiffs’ costs that have been ordered to be paid by the defendants personally; or

(ii)for the defendants’ costs in respect of the summary judgment and 70 percent of the substantive proceedings up until 1 September 2023.

(d)the plaintiffs and defendants’ entitlement to an indemnity from the Trust fund or otherwise for the remainder of the proceedings is to be resolved in the usual way.

Associate Judge Sussock