Nadan v Sharma

[2022] NZHC 2553

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-002331

[2022] NZHC 2553

BETWEEN

PARAMSIWAN (SIWAN) NADAN

Plaintiff

AND

NILESHNI SHARMA

Defendant

Hearing:	17 August 2022
Appearances:	Callum McLean and Wendy Prior for the Plaintiff Defendant in person
Judgment:	5 October 2022

JUDGMENT OF MOORE J

This judgment was delivered by me on 5 October 2022 at 11:00 am.

Registrar / Deputy Registrar Date:

NADAN v SHARMA [2022] NZHC 2553 [5 October 2022]

Introduction

[1]    Paramsiwan Nadan and Nileshni Sharma were formerly husband and wife. Their marriage broke down after Mr Nadan had an affair. The aftermath was extremely acrimonious. The continuing level of bitterness between the estranged couple is relevant in terms of both the context and genesis of these proceedings.

[2]    That is because Mr Nadan and Ms Sharma are the joint trustees and beneficiaries of the Shivam Family Trust (“the Trust”). The primary beneficiaries are their two children, Shyla and Shinel Nadan.

[3]    The Trust’s sole asset is the former family home in New Lynn, Auckland (“the Property”). Ms  Sharma  wants  to  retain  ownership  of  the  Property.  But  Mr Nadan wants to sell it and distribute the proceeds among the beneficiaries. He obtained  orders  to  this  effect  by  way  of  an  arbitral  award  given  by  the     Hon Paul Heath KC and issued on 3 December 2020.

[4]    Ms Sharma has taken no steps to sell the Property. To the contrary, she has rented it out and has continued to service and pay down the mortgage loan.

[5]    The couple have reached an impasse. Mr Nadan now brings this application seeking the following orders:

(a)removal of himself and Ms Sharma as trustees of the Trust;

(b)the appointment of the Comac Trustees Ltd (“Comac Trustees”) as a replacement trustee of the Trust;1

(c)that he and Ms Sharma be divested of the Property and that it be vested in Comac Trustees; and

1      Mr Nadan’s first application was for the Public Trust to be appointed as a replacement trustee. The Public Trust subsequently advised that it would not accept the appointment. Mr Nadan’s solicitors contacted a number of other independent trustees enquiring whether they were able to act. Comac Trustees confirmed it was able and willing to act by way of an email dated 12 August 2022.

(d)an order that Ms Sharma disgorge the profit earned tenanting the property to the Trust.

[6]    Ms Sharma opposes the making of these orders. She says Mr Nadan should be removed as a trustee and that Shyla and Shinel should be appointed as his replacements.

Background facts

[7]    The Property was purchased in June 2005. As part of this process, Mr Nadan and Ms Sharma obtained legal advice. One aspect of the advice they received was to the effect that the family home should be purchased by a trust established for that purpose. The Trust was established by deed dated 24 June 2005. Shortly afterwards the Property was transferred to it. While they were married, Mr Nadan and Ms Sharma paid the mortgage loan and other property related expenses out of their income.

[8]    The marriage fell apart in late December 2017, for the reasons previously explained. In March 2018, Mr Nadan moved out of the family home. His contributions to family costs reduced significantly. From the point of separation, the evidence plainly reveals that neither party was able to maintain cordial or co-operative relations with the other.

[9]    Questions then arose whether the family home should be sold so that Mr Nadan and Ms Sharma could restart their respective lives afresh. Mr Nadan wanted the home sold. Ms Sharma was opposed to this. She believed she was unable to procure sufficient money from Mr Nadan to meet family expenses and care costs for their children. She wished to retain the family home.

The first arbitration

[10]   Given their irreconcilable differences, the dispute was referred to Mr Heath for arbitration.

[11]   Ms Sharma sought an order permitting her to occupy the family home together with the two children, until the children completed university and her son turned

23 years old. The practical effect of such an order would be that Ms Sharma was entitled to exclusive occupation of the family home until 14 September 2025.

[12]   Mr Heath issued his award on 2 November 2018 (“the First Award”). He noted that if the Property was sold, Ms Sharma would have insufficient funds to acquire another property at which the children could also reside. He expressed no confidence that she could acquire or rent a property close to the school that the children were attending. He observed that there was a need for continuity of residence and schooling until both children were ready to attend university or enter the workforce.

[13]He thus made the following orders:

“(a)[Ms Sharma] shall be entitled to occupy the [Property] until such time as the youngest child, Shinel, attains the age of 18 years or ceases secondary education, whichever is the later.

(b)To provide sufficient time for her financial affairs to be put in order, from 1 February 2019 [Ms Sharma] shall assume responsibility for meeting all mortgage payments and other outgoings in relation to the property for the period of her occupation. The joint responsibility of [Mr Nadan and Ms Sharma] to meet such mortgage payments and other outgoings shall continue until 31 January 2019.

(c)The question whether the occupation period should be extended further shall be considered by the trustees no less than six months prior to the date on which it would otherwise expire. If the trustees were unable to reach agreement, it may be that the arbitration clause will need to be invoked again.”

The second arbitration

[14]   Ms Sharma invoked  the  arbitration  clause.  A  second  arbitration  before Mr Heath was convened.

[15]   Ms Sharma applied, albeit out of time, for the occupation period to be extended. She reinstated her earlier application that she be entitled to occupy the Property with her children until both completed university education and had reached “capacity” at 23 years old.

[16]Mr Heath issued his decision on 3 December 2020 (“the Second Award”).

[17]   He noted that there had been a number of material changes in circumstances since the First Award. Those were that Mr Nadan and Ms Sharma had divorced; Shyla and Shinel had completed their secondary education; Mr Nadan was made redundant during the COVID-19 pandemic and no longer earned a good salary; and both children had attained the age of 18 years.

[18]   Mr Heath reasoned that none of the previous justifications for continued occupation still applied. There was no need for the family to live near the children’s school, which they had since graduated from.

[19]   He found that it was in Mr Nadan and Ms Sharma’s best interests for the Property to be sold, provided that immediate financial support could be given to the children to meet living expenses and tertiary education fees. He considered that it would be preferable to leave such a fund available for the children within the Trust, to be distributed for their benefit with the unanimous agreement of Mr Nadan and     Ms Sharma.

[20]Orders were made in the following terms:

“(a) Mr Nadan and Ms Sharma, in their capacities as trustees of the Trust, shall put the property on the market for sale on or before 22 January 2021.

(b)Ms Sharma, Shyla and Shinel shall be entitled to occupy the property until no later than 30 April 2021, while the property is marketed for sale. If the property has not been sold by 30 April 2021, Mr Nadan and Ms Sharma, in their capacities as trustees of the Trust, shall arrange for the property to be auctioned as soon as practicable thereafter.

(c)If Mr Nadan and Ms Sharma, in their capacities as trustees of the Trust, cannot agree on the appointment of an agent or the mode of sale, any difference shall be referred to me (with their competing views) and I will make a summary determination of what should occur. In the event of disagreement on the sale price, the trustees shall refer to me (on the same summary basis) the decision whether to accept an offer.

(d)On the sale of the property, the proceeds shall be distributed as follows:

(i)To pay all costs incurred in relation to the sale, including real estate agent’s commission and marketing costs.

(ii)To pay the whole of the mortgage debt over the property, including any arrears of interest.

(iii)To retain a sum equivalent to 20% of the net amount available after payment of the costs of sale and mortgage, to be used for the benefit of the education of the two children. If Mr Nadan and Ms Sharma cannot agree as to how that fund will be administered, it may be necessary for a new trustee to be appointed to enable such decisions to be made.

(iv)After establishing a fund for the children’s educational needs and making any adjustments to ensure that my orders in relation to the payment of outgoings from 1 February 2019 are honoured, the balance of the sale proceeds shall be divided equally between Mr Nadan and Ms Sharma, for their personal use.”

(footnotes omitted)

Subsequent failure to sell the property

[21]   It is now October 2022. The Property has still not been sold. It is presently being rented out to a residential tenant.

[22]   Mr Nadan obtained an order of the Tenancy Tribunal that the Trust is entitled to possession of the Property.2 He engaged a real estate agent. Ms Sharma refused to agree to the Property being put on the market for sale. She also declined to sign the real estate agency agreement.

[23]   Mr Nadan subsequently applied to enter the Second Award into judgment. On 7 July 2022, Harvey J granted his application.3

[24]None of these steps have resulted in the Property being sold.

Mr Nadan’s application

[25]Mr Nadan has now filed the present application seeking:

(a)removal of himself and Ms Sharma as trustees of the Trust;

2      Nadan v Sharma [2021] NZTT Waitakere 4302328.

3      Nadan v Sharma [2022] NZHC 1610.

(b)the appointment of the Comac Trustees as a replacement trustee of the Trust;

(c)that he and Ms Sharma be divested of the Property and that it be vested in Comac Trustees; and

(d)an order that Ms Sharma disgorge the profit earned tenanting the property to the Trust.

Should Mr Nadan and Ms Sharma be removed as trustees?

[26]   Mr McLean, for Mr Nadan, submitted that Mr Nadan and Ms Sharma can no longer be trustees of the Trust. He submitted that Ms Sharma has unilaterally commandeered the administration of the Trust. In doing so she has refused to comply with the Second Award and Harvey J’s judgment. Neither Mr Nadan nor Ms Sharma is able to fulfil their duties as trustees. He thus submitted that it is necessary and desirable to remove Mr Nadan and Ms Sharma as trustees and replace them with an independent third-party trustee.

[27]   Ms Sharma opposes this course of action. The thrust of her argument was directed at the merits of the arbitral awards, the Tenancy Tribunal’s decision and Harvey J’s judgment. She also devoted considerable time directing her submissions to impugning Mr Nadan and his conduct.

[28]   None of her arguments bear on the issues this Court is required to determine. Section 112 of the Trusts Act 2019 (“the Act”) empowers the Court to make an order removing a trustee where it is necessary or desirable to do so and it is difficult or impracticable without the assistance of the Court. Examples of where the Court has made such orders include cases where the trustees were former spouses whose relationship has deteriorated into dysfunction following separation and an impasse has

been reached.4 These circumstances are conducive to the following consequences, which have been established as meeting the threshold for removal:5

(a)the trust is deadlocked because one trustee refuses to make decisions; or

(b)there has been a fundamental breakdown in the relationship between one trustee and the beneficiaries, such that the trustee cannot be relied on the act impartially.

[29]   I am satisfied that the second of the above is the case here. It is common ground and plainly evident from both the written and oral submissions that Ms Sharma and Mr Nadan are irreconcilably opposed. Ms Sharma’s antipathy towards her former husband is patent. They are simply incapable of agreeing to anything. That state of affairs has also been detrimental to Mr Nadan’s relationship with Shyla and Shinel. There is evidence they are estranged. It is difficult, if not impossible, to see how either of them could act fairly and impartially towards the beneficiaries in these circumstances, particularly given that each is a beneficiary under the Trust. Against that background Mr Nadan sensibly accepts that there can be no question of him remaining as a trustee and Ms Sharma being removed. The only option is for both of them to be removed and replaced by an independent trustee appointed by the Court.

[30]   The Trust is also deadlocked. Clause 22 of the Trust deed requires decisions to be unanimous. Ms Sharma refuses to agree to the sale of the Property despite an arbitral award and judgment of this Court mandating it. There is nothing to suggest that her position will change. The administration of the Trust is at an impasse.

[31]   It follows that it is both necessary and desirable to remove both Mr Nadan and Ms Sharma as trustees of the Trust and it would be difficult or impracticable to do so without the assistance of the Court.

4      See for example Oldfield v Oldfield [2019] NZHC 492; and Taylor v Taylor [2021] NZHC 992.

5      At [37]–[38].

Should Comac Trustees be appointed as the replacement trustee?

[32]I thus turn to the question of a replacement trustee.

[33]   Section 114 of the Act empowers the Court to appoint a new trustee whenever it is necessary or desirable to appoint a new trustee and it is difficult or impracticable to do so without the assistance of the Court.

[34]   The consequence of removing Mr Nadan and Ms Sharma as trustees makes it necessary for the Court to appoint a replacement.

[35]   Mr Nadan’s position is that he and Ms Sharma should be replaced by Comac Trustees. This was directly contemplated by the arbitrator in his Second Award, where he said that:

“If communication were not practicable, it would be necessary … for one or the other to seek an order from the High Court to have a new trustee appointed in substitution for them. That would inevitably lead to additional costs involved in paying a professional trustee, who would be entitled to be paid out of the funds set aside for the benefit of the children. The same comment applies equally if there were any difficulties in arranging a prompt sale of the property.”

(footnote omitted)

[36]   Comac Trustees has indicated its acceptance to an appointment as trustee of the Trust. It appears to be an independent trustee company headed by two individuals. I am satisfied that Comac Trustees is an appropriate replacement.

[37]   Mr McLean has sought an additional order amending or varying the Trust deed to permit one trustee to act rather than two. Having reviewed the deed, it seems to me that such an order is unnecessary. The deed provides that:

“16 POWER OF APPOINTMENT AND NUMBER OF TRUSTEES

...

16.3The number of Trustees is:

a.Not less than two (2) except where the sole trustee is a company:

…

c.If an incorporated company is appointed to be a Trustee that company may be the sole trustee.”

[38]   Comac Trustees is an incorporated company. The Trust deed in its current form thus permits a sole trustee and, for present purposes, allows Comac Trustees to be the sole trustee. In the event I am wrong or have misunderstood this aspect of the application, leave is granted to the applicant to seek such further or other orders as may be necessary to give effect to the spirit of this judgment.

[39]I accordingly order that Comac Trustees be appointed as trustee of the Trust.

Should Mr Nadan and Ms Sharma be divested of the Trust’s property and it be vested in Comac Trustees?

[40]   The issue logically following is the divesting and vesting of the Trust’s property.

[41]   Section 116 of the Act applies where a new trustee of a trust is appointed or an existing trustee of a trust is removed.6 The execution of the document of appointment or removal:7

(a)divests the trust property from the persons who were the trustees immediately before the document was executed; and

(b)vests the property in the persons who become and are the trustees as joint tenants without any conveyance, transfer, or assignment (but subject to any liabilities attaching to the property).

[42]   A Court order appointing a trustee or removing a trustee without replacement is a document of appointment or removal for the purpose of s 116.8

6      Section 116(1).

7      Section 116(2).

8      Section 116(5).

[43]   In the present case, it follows that the removal of Mr Nadan and Ms Sharma as trustees of the Trust divests them of the Trust’s property. This includes, for example, the Property and any money held by the Trust.

[44]I order that all property owned by the Trust is vested in Comac Trustees.

Should Ms Sharma be ordered to disgorge to the Trust the rental profit earned from the Property?

[45]   Mr Nadan’s final claim is that Ms Sharma should be ordered to disgorge profit earned renting out the Property to the Trust.

[46]Mr McLean submitted that Ms Sharma has made a profit of approximately

$496.70 per month renting out the Property, which she has retained herself. He submitted that this profit was made in breach of the Second Award. Ms Sharma has then failed to consult Mr Nadan on how to administer it for the benefit of the beneficiaries. Mr McLean thus submitted that she should be ordered to disgorge the profit to the Trust.

[47]   In response, Ms Sharma submitted that she rented out the property because Mr Nadan has not been contributing to its outgoings and maintenance. She submitted that the income is being spent for this purpose and she is not profiting from it.

[48]   It is difficult to see how the figure arrived at by Mr McLean is borne out on the evidence. The rental agreement adduced as evidence records the weekly rent as $650 per week. The calculation by which this is reduced to a profit of $496.70 per month is unknown.

[49]   Critically, it is also disputed by Ms Sharma. She says that she has been using the rental profit to maintain the Property. There is insufficient evidence before the Court to determine whether that is in fact the case. This ground must be put to one side.

[50]   Ultimately this question of disgorgement is most appropriately dealt with by the replacement trustee.  It  can  assess  for  itself  whether  there  is  any  merit  in Mr Nadan’s claim. If there is, it may be able to resolve the matter without the Court’s assistance. Failing that, it may apply for a similar order with supporting evidence.

Result

[51]Mr Nadan’s application is granted in part.

[52]I order that:

(a)Mr Nadan and Ms Sharma are removed as trustees of the Shivam Family Trust, pursuant to s 112 of the Trusts Act 2019.

(b)Comac Trustee Ltd is appointed as a trustee of the Shivam Family Trust, pursuant to s 114 of the Trusts Act 2019.

(c)Mr Nadan and Ms Sharma are divested of all of the property owned by the Shivam Family Trust, and that property is then vested in Comac Trustee Ltd, pursuant to s 116 of the Trusts Act 2019.

(d)No orders as to disgorgement are made.

Costs

[53]   It is my preliminary view that Mr Nadan, as the successful party, is entitled to costs on a 2B basis. I encourage the parties to resolve any costs issues between themselves. If they are unable to do so, leave is reserved to file memoranda:

(a)Any memorandum on behalf of the applicant is to be filed and served

no later than 5:00 pm on Thursday, 3 November 2022.

(b)Any memorandum by the respondent is to be filed and served no later than 5:00 pm on Thursday, 17 November 2022.

[54]No memorandum is to exceed five pages exclusive of appendices and tables.

Moore J

Solicitors:

McLean Law Limited, Auckland

Copy to:

The Defendant