Singh
[2020] NZHC 2479
•23 September 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002806
[2020] NZHC 2479
UNDER the Trustee Act 1956 BETWEEN
MAHENDRA SINGH, GEOFFREY HUGH BOURCHIER and DARSAN SINGH as
trustees of the SHEAN SINGH FAMILY TRUSTPlaintiffs
Hearing: 21 September 2020 Counsel:
SR Morris and FJ McKechnie for Plaintiffs
DG Collecutt for Olivia, Christopher and Elizabeth Singh RJ Thompson for Gabriel Ash
Judgment:
23 September 2020
JUDGMENT OF DOWNS J
This judgment was delivered by me on Wednesday, 23 September 2020 at 11 am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Morris Legal, Auckland.
Patterson Hopkins, Auckland. Citylaw, Auckland.
RJ Thompson, Auckland. DG Collecutt, Auckland.
RE SINGH [2020] NZHC 2479 [23 September 2020]
The case
[1] The trustees of the Shean Singh Family Trust (the trust) seek directions. The trust has vested, but the assets cannot be distributed as the trust is the subject of litigation affecting distribution. Three beneficiaries implore the status quo. A fourth commends appointment of a manager and sale of trust assets.
Background
[2] I gratefully adopt this summary of Associate Judge Bell from the related litigation:1
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.
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. 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 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.
Shean settled the Dominion Road and Redvale properties on the trust. At the time of the deed Gabriel and Olivia were still children.
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).
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
1 Ash v Singh [2017] NZHC 2909 at [2]–[9].
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.
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.
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.
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 decor. 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.
The following précis completes the background.
[3] Gabriel Ash contends the 1996 variation is invalid. Mr Ash also contends the trustees have breached their duties and mismanaged the trust, including financially. Darsan Singh contends—in her personal capacity—a constructive trust exists in her favour over trust assets; she is a creditor of the trust; and the trust is a nuptial settlement. Each sues. The two cases have been consolidated. These are to be tried in this Court from 8 March 2021. Ten days have been set aside.
[4] This litigation casts doubt over who is a beneficiary and who has claims to trust property. As observed, the trust has vested. So, the trustees hold the property on bare trust for the beneficiaries. The known beneficiaries disagree how the assets should be administered until trial (and judgment). This explains the trustees’ application for directions under s 66 of the Trustee Act 1956.
The provisional financial position of the trust
[5] The trust has two significant assets: the Dominion Road property and another in Redvale. Dominion Road has a registered valuation of $1,620,000;2 Redvale
$2,000,000.
[6] Both properties are mortgaged. The loan balance is $1,384,756. Interest is payable at 3.09 percent per annum. The rate is fixed until 17 April 2021. Dominion Road is used as a law office and home. Shean Singh Law operates from one floor of Dominion Road; Darsan, Christopher and Elizabeth Singh live on another. Shean Singh Law pays $2,500 per month in rent. Redvale is rented too. Its tenant pays $5,200 per month.
[7] The trust owes $308,248 to Shean Singh’s estate and a little under $72,000 to a company of which Darsan Singh is sole director and shareholder. The trust also owes legal fees of almost $64,000.
[8] The trust has net equity of $2,296,329, a figure captured in the schedule prepared by the trustees:
Trust 31 March 20203 September 20204 ASSETS Current assets Cash at bank and on deposit 8,046 24,003 Advance – DDLTD Ltd 438,256 438,256 Trade and other receiveables 40,556 40,556 GST receiveable 6,048 6,048 Non-current assets Dominion Rd property 2,471,483 1,620,000 Redvale property 2,157,529 2,000,000 Total assets 5,121,918 4,128,863
2 As at 7 September 2020.
3 Based on provisional financial statement for the financial year ended 31 March 2020.
4 Properties based on valuations. Westpac bank account and loan and legal fees updated to September 2020.
LIABILITIES Current liabilities Bank - - Legal fees owed for Singh v Bourchier and application for directions 21,600 63,839 Income tax payable 3,699 3,699 Advance – Dhirendra Singh 308,248 308,248 Advance – PSPL 71,992 71,992 Non-current liabilities Term loans – Westpac bank 1,360,000 1,384,756 Total liabilities 1,765,539 1,832,534 EQUITY IN TRUST 3,356,379 2,296,329
What everyone wants
[9] Unsurprisingly, the trustees offer possibilities absent commendation. On their behalf, Ms Morris observes:
The trustees could take any of the following actions:
(a) Retain the status quo and hold the Trust properties for the final beneficiaries pending determination of the proceedings. The rental income of around $7,700 per month would cover the Westpac mortgage repayments of $6,500 per month.
(b) Retain the Trust properties and rent these to different tenants.
(c) Sell the Trust properties, repay the Westpac mortgage, and hold any residual amount in an interest-bearing account.
(d) Sell the Dominion Road property and continue to rent the Redvale property, with the rental income of around $5,633 per month and sale proceeds to be applied to the Westpac mortgage. Any remaining funds would be held on trust for the final beneficiaries.
(e) Sell the Redvale property and retain the Dominion Road property, with Darsan Singh, Christopher and Elizabeth continuing to live in part of the Dominion Road property and Shean Singh Law continuing to rent the other part of the property for $2,500 per month or an increased rate. The sale proceeds and rental income could be applied to the Westpac mortgage.
(f) Sell the Redvale property and retain the Dominion Road property, but rent the Dominion Road property to a third party. The sale proceeds and rental income could be applied to the Westpac mortgage.
[10] Olivia, Christopher and Elizabeth Singh—three of the four beneficiaries— commend the status quo.5 On their behalf, Mr Collecutt contends the trustees should retain the trust assets and re-fix the loan (to Westpac) at the best interest rate come 18 April 2021.
[11] Mr Collecutt emphasises Mr Ash’s interest in the assets ranges between 10 and 25 percent. He notes the Singhs have “a significant emotional connection” to Dominion Road and Redvale. Dominion Road continues to be both accommodation and law office; Redvale is the tenanted family home. Mr Collecutt says one or more of the beneficiaries may wish to buy Mr Ash’s share in the assets once the litigation is determined. Sale would preclude this.
[12] Mr Collecutt says there is little risk of a mortgagee sale as the properties are “cashflow positive”. Mr Collecutt says the best approach, especially given the imminence of the trial, is for everything to remain as it is.
Mr Ash’s position
[13] Mr Ash has a different position. On his behalf, Mr Thompson says a manager should be appointed and both properties sold; or a manager appointed and Redvale sold.
[14] Mr Ash contends the trustees have failed to disclose “the true picture” and Mahendra Singh, one of the trustees living overseas, has “exhibited particular hostility” to him.
[15] Mr Thompson contends the trust has been unable to meet its liabilities since Shean Singh died in 2015. So, it has become reliant on advances from Darsan Singh. Mr Thompson contends rental income is unstable.6 Shean Singh Law made only two payments of rent between 1 April and 20 July 2020. Mr Thompson observes Darsan Singh’s own evidence in the related litigation reveals the firm is under considerable financial pressure. Mr Thompson says “considerable uncertainty” attaches to arrangements in relation to the Redvale tenant. Mr Thompson observes
5 Darsan Singh has not participated in this application.
6 Ms Morris denies this.
Dominion Road and Redvale may depreciate due to volatility associated with the COVID-19 pandemic, while costs continue to rise. Mr Thompson says Dominion Road appears to have depreciated; its recent registered valuation is much lower than its rateable valuation.
[16] Mr Thompson contends the trust has been managed imprudently, and in contravention of the trustees’ fiduciary duties. For example, he contends Darsan Singh has applied the proceeds of Shean Singh’s life insurance to meet personal debts even though the proceeds were payable to the trust under Shean Singh’s will. Mr Thompson also says the trust has made advances without security. He says the trustees are “overwhelmingly” conflicted; and trust records inaccurate. Mr Thompson also says the trustees’ decision in favour of a mortgage “holiday” during the pandemic is in breach of undertakings by the trustees not to incur additional debt.
[17] For these reasons, Mr Thompson contends a manager should be appointed and one or both of the properties sold. Mr Thompson argues associated expenses “will be modest”.
Principle
[18]Section 66(1) of the Trustee Act 1956 provides:
66 Right of trustee to apply to Court for directions
(1) Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.
[19]The provision has attracted many cases. The observations of Kos J in
New Zealand Maori Council v Foulkes constitute a helpful statement of principle:7
[46] First, s 66 may be used to resolve any live question of interpretation of the Trust Deed, as well as any uncertainty as to the exercise of a power. The former power necessarily must fall within s 66, as well as the other matters provided for expressly. It is, therefore, wider than the oft cited passage in Re Allen-Meyrick’s Will Trusts:
7 New Zealand Maori Council v Foulkes [2015] NZAR 1441, [2014] NZHC 1777 at [46]–[49].
Wherever Trustees have some discretionary power of this kind, where it is properly described as a power or a pure discretion, and they are in doubt how, in the relevant circumstances, they ought to exercise their discretion, they are able to come to the Court and obtain directions what is the proper thing for them to do.
That might seem (although I do not believe it was intended) to confine the Court’s role to an advisory one on how powers may be exercised. But that is not in fact the position at all. Section 66 is a robust, parallel source of jurisdiction to resolve any substantial question of law concerning the meaning or administration of a trust. It is not, in my view, confined to points of “minor importance arising from the management of a trust”.
[47] Secondly, the existence of a dispute is not fatal to the exercise of the jurisdiction. Indeed the existence of a dispute, or at least a doubt, is essential. The Court’s function is not purely advisory, or to be invoked to resolve abstract hypotheses. In this case the parties are in dispute, but are at least united in seeking the Court’s ruling on questions of interpretation.
[48] Thirdly, the more profound the dispute, the more care must be taken that those with a legitimate interest in the outcome are represented. In particular, beneficiaries. That is the first caveat. That does not, however, preclude trustees in disagreement from seeking directions. But it may not represent the last word where a Court finds trustees have been acting in a manner inconsistent with their obligations under the Trust Deed. In such cases an application under the ordinary inherent Equitable jurisdiction is likely to be more appropriate, and more cost-effective. Otherwise affected persons not party to the s 66 proceedings will be entitled to raise the same issues anew, and seek different outcomes.
[49] Fourthly, the relief sought must not involve resolution of any disputed issues of facts. That is the second caveat. Like the Declaratory Judgments Act 1908, the s 66 procedure is entirely unsuited to resolving such issues. A s 66 application proceeds on the basis of affidavit evidence. An agreed statement of facts will normally be presented to the Court.
[20] This case is unusual, because the trust has vested, and the beneficiaries disagree about what should happen. No one could find a case quite like this. That said, everyone agreed jurisdiction exists under s 66 and should be exercised during the interregnum.
Analysis
[21] I acknowledge Mr Ash’s wide-ranging concerns, including the pre-eminent one the trust is slowly sinking. I am satisfied, however, the trustees should be directed to preserve existing arrangements.
[22] First, the trial is now only six months away. Significant deterioration in the trust’s financial health is unlikely within this period.
[23] Second, Mr Ash has a modest interest in trust property. This ranges between 10 and 25 percent depending on the outcome of the litigation.
[24] Third, a majority of known beneficiaries—Olivia, Christopher and Elizabeth Singh—support the status quo.
[25] Fourth, sale of Dominion Road would deprive Shean Singh Law of an office, and Darsan, Elizabeth and Christopher Singh of accommodation. Sale of Redvale would deprive the Singh family of their (tenanted) home. Change would be disruptive.
[26] Fifth, prompt sale of either Dominion Road or Redvale is not without difficulty, because Darsan Singh has lodged a caveat against each, presumably to protect her alleged interests pending trial. Mr Thompson was critical of the caveats, observing his client was not informed of this development until recently. Mr Thompson said the caveats underscored Darsan Singh’s conflict of interest.8 He submitted it was open to me to set aside the caveats, albeit with substituted security. Whatever the rights or wrongs here; clearly, the caveats could not be set aside unless Darsan Singh were first heard on the issue in connection with a suitably framed application. She has not been.9
[27] Sixth, (I was told) the trustees do not charge for their services, including the independent trustee, Geoffrey Bourchier. Appointment of a manager would add cost, in turn potentially exacerbating Mr Ash’s concerns about asset erosion. Mr Thompson sought to address this concern; he submitted associated cost should be “modest”. I accept this is so in theory, but life has an inconvenient habit of not unfolding according to theory.
[28] Seventh, Mr Ash’s case for the sale of trust assets and appointment of a manager is based on the same concerns he will ventilate at trial next year. Underlying facts are contested. This does not preclude the course Mr Ash’s commends, but it does
8 Ms Morris said from the Bar that Darsan Singh was no longer involved in decision making as a trustee.
9 This would add to the trust’s costs too.
necessitate caution. Cases in this area highlight the dangers of directions vis-à-vis contested fact quite apart from the presence of pending litigation.10 Mr Ash’s concerns may prove well founded, but nothing in the record decisively calls for a departure from the status quo.
[29] I do not overlook Shean Singh Law is paying (much) less than a market rental for Dominion Road. However, leasing Dominion Road is not without risk. Changes to the property have been made without the required consent(s); the interior is now split between an office and accommodation; and demand for commercial space in the city has been adversely affected by the pandemic (because many people are working from home). Even if a tenant were found, the same mix does not inspire confidence of a significant return.
[30] In summary, I consider existing arrangements better preserve trust property given: (a) the competing wishes of the known beneficiaries; (b) the trial’s imminence; and (c) the potential outcomes at trial.
Additional evidence
[31] Mr Thompson served additional evidence the business day before the hearing, including correspondence in which the trustees gave undertakings not to burden the trust with new debt. Ms Morris and Mr Collecutt objected on grounds of lateness; contravention of the timetable; and alleged prejudice. This spilled to argument about what Associate Judge Bell contemplated in case management directions.11
[32] I received the additional evidence out of an abundance of caution: Mr Ash is a minority voice. As will be apparent, this does not affect the outcome.
Result
[33]The application is granted:
10 See, for example, New Zealand Maori Council v Foulkes, above n 7, at [49].
11 Minute dated 21 July 2020.
(a)The trustees are directed to hold trust property on existing terms pending trial and judgment.
(b)Any party may apply for further directions if circumstances materially
change.12
Costs
[34] Mr Ash foreshadowed an application for indemnity costs. I invite reflection, especially given the result. If disagreement arises about costs, the parties may file memoranda of not more than seven pages each in this order:
(a)Mr Ash by 14 October 2020.
(b)Olivia, Christopher and Elizabeth Singh by 21 October 2020.
(c)The trustees by 28 October 2020.
……………………………..
Downs J
12 Italicisation reflects a deliberately high threshold.
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