Khan v New Zealand Muslim Association
[2023] NZHC 802
•18 April 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1648
[2023] NZHC 802
UNDER the Judicial Review Procedure Act 2016 IN THE MATTER
of an application for judicial review
BETWEEN AND
AND AND AND
ISMAIL RAHIMAN KHAN
First applicant
FARHAZ ASHIK REHMAN
Second applicantMUNTAJ ALI
Third applicantAZAD ALI
Fourth applicantMOHAMMED ATIK
Fifth applicantContinued overleaf
Hearing: 5–7 September 2022 and 3 April 2023 Appearances:
I M Hutcheson for applicants
P C Murray and K M Paterson for second respondent
Date of judgment:
18 April 2023
JUDGMENT OF JAGOSE J
This judgment was delivered by me on 18 April 2023 at 11.00am.
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
KHAN v NEW ZEALAND MUSLIM ASSOCIATION [2023] NZHC 802 [18 April 2023]
ANDMOHAMMED ZAKIR HUSSAIN, MOHAMMED RAFIQ WANIA, MOHAMED AHAMED NADAT,
ABDUL AZIZ as trustees of the ABU HARAIRAH TRUST KELSTON
First respondents
ANDNEW ZEALAND MUSLIM ASSOCIATION
Second respondent
ANDTHE REGISTRAR OF INCORPORATED SOCIETIES AT AUCKLAND
Third respondent
AND ATTORNEY-GENERAL
Intervener
[1] The applicants and first respondents previously together were trustees of the Abu Harairah Trust Kelston (the Kelston trust). The Kelston trust had been riven by internal conflicts for some years, which the parties (including the New Zealand Muslim Association (the NZMA)) and others had sought to resolve in accordance with tenets of their common Muslim faith. No more elaboration is constructive or required.
[2] The applicants now claim to recover the assets of the Kelston trust — cash, and land and buildings in Auckland’s Kelston operated as a mosque and Islamic centre, all obtained from charitable donations — after their 16 August 2018 transfer by the first respondents, acting as the Kelston trust’s board, to the NZMA. In either case, the assets were or are held for the benefit of the Kelston Muslim community.
[3] Transfer of the Kelston trust’s assets was contended in breach of trust following disputed alterations to the trust’s deed and disputed termination of the applicants’ trusteeships (the disputes). By consent order dated 5 June 2019, this Court declared those alterations and terminations invalid.
[4] In July 2022, the applicants and first respondents settled matters as between themselves — including the applicants will withdraw their claims against the first
respondents, the first respondents will have no further involvement in the litigation, and the applicants will not apply to summon them to be witnesses and will not “make any other claims arising out of the same facts” — but were unable to resolve the issue of the assets’ transfer to the NZMA. The settlement agreement recorded it “presume[d] the return of all assets (property and funds) from NZMA to the [Kelston trust] or any successor trust but is not conditional on that”.
[5] Outstanding then were the applicants’ second and third causes of action against the NZMA — that it knew of the disputes, or caused the applicants to believe it would not proceed with the transfer, such as to make its retention of the assets unconscionable
— and fourth cause of action against the Registrar, seeking revocation of the Trust’s “de-registration” as “improper”. The Registrar abides my decision.
[6] The proceeding’s 5–7 September 2022 hearing was adjourned part-heard on conclusion of the evidence, at the parties’ request “to accommodate completion of the parties’ anticipated settlement of all issues between them”. The parties’ optimism regrettably proved unfounded, and closing arguments then were addressed on 3 April 2023. Opening and closing arguments focused exclusively on NZMA’s alleged ‘knowing receipt’.
Background
[7] In the context of the disputes, the first respondents — acting as the Kelston trust’s trustees, and in considering “how to take forward the development of the [Kelston] trust for the benefit of the community at large” — resolved on 27 July 2018 “to come under the banner of NZMA” as being in “the best interest of the [Kelston trust] and wider community at large within the Kelston and surrounding area”. On 30 July 2018, they advised the NZMA of their resolution, proposing to “transfer all our assets to NZMA as per rules of Charities Commission once the transfer is complete” and hoping for NZMA’s “favourable consideration”.
[8] The NZMA responded on 1 August 2018 to “welcome Kelston as a branch of NZMA” and “to discuss the process of transitioning from the current trust structure to NZMA”. The Kelston trust filed deregistration documents dated 30 July 2018 (but including the NZMA’s 1 August 2018 response) with the Charities Commission,
advising “it is merging or has merged with another registered charity”. On 14 August 2018, the first respondents formally resolved to execute deeds of the same date transferring all assets of the Kelston trust to the NZMA and winding up the Kelston trust. The Kelston trust also sought its charitable trust board be dissolved as no longer carrying on its operations, as occurred.1
[9] On 10 August 2018, the applicants’ counsel, Iain Hutcheson, wrote to the NZMA, advising of their then-filed application for judicial review in relation to the disputes. He explained the proceeding “if successful will undermine the purported authority of the respondents” to transfer the Kelston trust’s assets to the NZMA, and sought an undertaking “not to progress or proceed with the proposed transactions” until this Court determined matters, absent which the applicants would “make urgent application for an interim injunction”. Mr Hutcheson sought the undertaking by
5.00 pm on 15 August 2018. In the event, the deadline passed without either undertaking or application.
[10] There is uncertainty as to the formality by which the applicants’ allegations and then-intended judicial review proceeding were notified to the first respondents, and if they then or later were known to NZMA. A pre-commencement letter dated 3 July 2018 from the applicants’ lawyers to the first respondents, indicating judicial review would be sought of the disputes, appears not to have been followed up. A version of Mr Hutcheson’s 10 August 2018 letter to the NZMA marked “Draft” and unsigned was provided by one of the applicants, Ismail Khan, to the NZMA.
[11] In subsequent correspondence between the first respondents’ and the NZMA’s lawyers engaged on the transfer, the NZMA’s lawyer observed “[i]t seems in view of the pending court proceedings we have agreed to put everything on hold”. The first respondents’ lawyer responded he understood the NZMA considered “the letter ought not inhibit the transfer”, with which the first respondents agreed. The NZMA accepted the transfer in the morning of 16 August 2018, asking the first respondents to “release” the property’s electronic transfer. The transfer’s mechanics followed that day.
1 Charitable Trusts Act 1957, s 26.
[12] In the afternoon of 16 August 2018, in response to Ismail Khan’s follow up that day of his earlier provision of the draft letter to NZMA, the NZMA’s Saiyad Khan provided his email address. On 18 August 2018, Mr Khan requested by email NZMA’s response to the 10 August 2018 letter. The NZMA’s president, Gul Ikhlaq Kashkari, responded the same day:
1. NZMA has only the best interests at heart for both Kelston Mosque and the community that it serves.
2. I will arrange a meeting with you all in September to try and understand your concerns and outcomes that you are looking for.
3. Discuss what can we do together to ensure Kelston Masjid meets the needs of the Kelston community.
4. NZMA will help facilitate discussions with various parties to resolve dispute between the two parties.
Relevant law
—knowing receipt
[13] Liability for knowing receipt here relevantly is founded on the first respondents’ alleged transfer of trust property, in breach of trust, to the NZMA’s benefit, received with knowledge of the breach.2 “The remedy for knowing receipt is the restoration of what was unconscionably received …”.3
—equitable estoppel
[14] Liability in equitable estoppel here relevantly is founded on the first respondents’ alleged unconscionable inducement or encouragement of the applicants’ assumption the transfer would be paused, pending determination of the proceeding.4 The remedy turns on what is necessary “to satisfy the equity that has arisen in the claimant’s favour”.5
2 Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218, (2022) 23 NZCPR 259 at [78], citing Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2020) vol 2 at [42-023].
3 Enright v Newton [2020] NZCA 529, [2021] 2 NZLR 412 at n 53, citing McLennan v Livaja [2017] NZCA 446, [2018] NZAR 405 at [40] (citing Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] AC 1189 at [31]).
4 Brougham v Regan [2020] NZSC 118, [2020] 1 NZLR 315 at [52], citing Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] UKHL 17, [2003] 2 AC 541.
5 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [116].
Discussion
[15] There is an immediate difficulty on the pleadings, taken in conjunction with the settlement agreement, which is no breach of trust is or now can be alleged of the first respondents in making the transfer.
[16] Paragraph 65 of the second amended claim alleges — in connection with its second cause of action, pleaded against the NZMA — “[t]he transfer of property involved a breach of fiduciary obligations owed by the first respondents … to the trust”. The allegation plainly anticipates success on the claim’s first cause of action, pleaded against the first respondents, their transfer of the assets to NZMA was unlawful and invalid. The first cause is separate to, but made in partial reliance on, the consent order.
[17] But, under the settlement agreement, if paragraph 65’s allegation is a claim against the first respondents, it is to “be withdrawn” and not renewed or made as “any other [claim] arising out of the same facts”. If not a claim against the first respondents directly (but against the NZMA), it nonetheless is another claim arising out of the same facts.
[18] Without any foundation breach of trust, the applicants’ claim of the NZMA’s knowing receipt must fail. Even if the NZMA can be taken at the time of the transfer to have known the applicants alleged such breach of trust is insufficient. That is knowledge only of the allegation. I pressed Mr Hutcheson in closing to identify the ‘fact’ of which the NZMA was alleged to have known,6 and understood him to concede there was no fact established for NZMA to know (to some requisite degree, including wilful blindness)7 as a breach of trust.
[19] The concession was responsible. All there then was to know were the disputed alterations to the trust’s deed and disputed termination of the applicants’ trusteeships. No level of enquiry by NZMA could elevate those disputes to determinations of invalidity, as eventually occurred by consent; still less, any consequent breach of trust.
6 With reference to McLennan v Livaja, above n 3, at [38], relied on by the applicants.
7 At [41]–[45].
[20] The consent order’s later invalidations do not necessarily either restore the status quo ante (the previously existing state of affairs) or render the first respondents’ prior transfer to NZMA in breach of trust. There is a significant question at least in determination of relief if the invalidations were to have retrospective effect,8 consideration of which:9
… will include the gravity of the error and its effects upon the applicant, the inevitability of the same outcome or the futility of granting relief, and questions of delay and prejudice to third parties.
The NZMA may be thought such a third party, prospectively prejudiced if retrospective effect was to be given the applicants’ and first respondents’ consensual invalidities. So too may members of the Kelston Muslim community.
[21] The Kelston trust had express power to dispose of its property as its board thought “necessary or expedient for the purpose of attaining the objects of the Trust”. Even if the invalidations were determined to undermine the first respondents’ authority as the Kelston trust’s board to resolve to transfer, there are questions if transfer as occurred also necessarily was in breach of trust or if the NZMA could have known prior to the consent order it was such. The allegation remained to be proved, and the settlement agreement means the applicants now cannot do so. Their second cause of action must be dismissed.
[22] It is unclear to me if the applicants’ alternative cause against the NZMA or cause against the Registrar are maintained, given the absence of argument on them.
[23] Ismail Khan’s evidence was he called the NZMA’s Saiyad Khan on 16 August 2018, who “confirmed that he had received the [10 August 2018] letter and said he would text me his email address so we could communicate by email in relation
8 See discussion in Mangawhai Ratepayersʼ & Residentsʼ Association Inc v Northland Regional Council [2017] NZHC 1972 at [15] (not upset on appeal in Northland Regional Council v Rogan [2018] NZCA 63, [2018] NZAR 507 at [82]: “[c]ommon sense and proportionality have a role to play”, citing West Coast Province of Federated Farmers of New Zealand (Inc) v Birch CA25/82, 16 December 1983 at 9 and 30; Magna Carta 1297 (Eng) 25 Edw I, c 29; Petition of Right 1627 (Eng) 3 Cha I, c 1; and Bill of Rights 1688 (Eng) 1 Will and Mar Sess 2, c 2, art 4), citing Martin v Ryan [1990] 2 NZLR 209 (HC) at 238–240 and Smith v Attorney-General [2016] NZHC 136, [2017] NZAR 331.
9 Murray v Whakatane District Council [1999] 3 NZLR 276 (HC) at 320.
to ongoing discussions”; the email address was provided at 4.11 pm that day, I infer, shortly after the telephone call and well after the transfer’s conclusion in the morning.
[24] Ismail Khan did not elaborate on the ‘ongoing discussions’, except on 18 August 2018 to request of Saiyad Khan by email for NZMA’s response to the letter and the ensuing correspondence. Nothing in that exchange is capable of inducing any assumption the transfer had been paused. That no assumption was induced is illustrated by Ismail Khan’s request for a response to the letter’s demand for an undertaking not to progress or proceed with the transfer, which response then would have been superfluous if the transfer had been paused. The request’s phrasing, alleging NZMA’s “interference”, runs counter to any assumption having been induced. Ismail Khan followed up on his email to reinforce “before any commitment to meet and talk please reply our counsels email”, confirming no assumption was induced. The third cause of action will be dismissed.
[25] Notwithstanding its separate pleading, I apprehend the claim against the Registrar is intended to be remedial rather than freestanding. If I am wrong in that, on 3 September 2018, the Registrar dissolved (rather than ‘de-registered’) the Kelston trust on the statutory ground she was satisfied it no longer was carrying out its operations. The improprieties pleaded against the Registrar are not material to that ground, which is established by the Kelston trust’s 14 August 2018 winding up resolution. The fourth cause of action will be dismissed.
Result
[26]The applicants’ second, third and fourth causes of action are dismissed.
Costs
[27] In my preliminary view, from what I presently know — as the unsuccessful parties in this averagely complex proceeding requiring counsel of average skill and experience, and in which a normal amount of time is considered reasonable for each step on the application — the applicants should pay 2B costs and disbursements to the NZMA. I would allow for second counsel as part of the proceeding’s ‘average’ characterisation.
[28] If my view is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination on short memoranda each of no more than five pages
— annexing a single-page table setting out any contended allowable steps, time allocation and daily recovery rate — to be filed and served by the defendants within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.
—Jagose J
Counsel/Solicitors:
I M Hutcheson, Barrister, Auckland P C Murray, Barrister, Auckland
The Small Law Firm Ltd, Auckland Newton Law, Auckland
Luke Cunningham Clere, Wellington Crown Law, Wellington
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