Toailoa v Eliu
[2024] NZHC 2080
•19 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1747
[2024] NZHC 2080
UNDER Trusts Act 2019, the Charitable Trusts Act 1957, and Part 18 of the High Court Rules IN THE MATTER
of the Samoan Independent Seventh Day Adventist Church (SISDAC) charitable trust board and the Samoan Independent Seventh Day Adventist Property Trust (SISDA Property Trust) charitable trust board
BETWEEN
SIAOSI DAVID SOOTAGA TOAILOA
First Applicant
Continued:…/2
Hearing: 18 June 2024 Appearances:
B O’Callahan and R Warren for Applicants
J D McBride and R Woods for First to Fourth Respondents
Judgment:
19 July 2024
Reasons:
30 July 2024
REASONS JUDGMENT OF WILKINSON-SMITH J
This judgment was delivered by me on 30/07/2024 at 2pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors:
Zhang Law, Auckland
B O’Callahan, Auckland R Warren, Auckland
CM & Associates, Auckland Crown Law, Wellington
TOAILOA & ORS v ELIU & ORS [2024] NZHC 2080 [30 July 2024]
Continued…
AND
FEU SEUMAALII
Second Applicant
PENIATA SAUNIA
Third ApplicantMATAUINA ELIU, SALETAULUA CHARLES FAAMANATU MAKA AND TONGA SEINI FATA
as trustees of the SISDA PROPERTY TRUST First Respondents
SUNRISE GLOBAL HOMES LIMITED
Second Respondent
WILLIE PAPU
Third RespondentWILLIE PAPU JUNIOR
Fourth RespondentATTORNEY GENERAL
Fifth Respondent
Introduction
[1] On 10 June 2024, I issued a judgment appointing a manager and making associated orders in respect of the administration of two closely related charitable trusts, namely the Samoan Independent Seventh Day Adventist Church (SISDAC), which is incorporated as a charitable trust board and the Samoan Seventh Day Adventist Property Trust (SISDA Property Trust), also incorporated as a charitable trust board (the Management Decision). The respondents have filed an application for leave to appeal the Management Decision and an application for stay of execution of the interlocutory orders pending appeal.
[2] On 19 June 2024, I granted the application for leave to appeal and ordered a stay of execution of the interlocutory orders pending appeal with reasons to follow. These are the reasons.
[3] The applicants in the proceeding opposed the respondents’ applications. Related orders were made by Johnstone J granting Beddoe orders in favour of the applicants (the Beddoe Decision).1
[4] The respondents have already filed an appeal against that decision (the Beddoe Appeal).
[5] The respondents have applied to have the Beddoe Appeal submitted to the Court of Appeal’s fast track procedure. The respondents will apply to join this appeal to the Beddoe Appeal.
Leave to appeal
[6] The respondents sought leave to appeal the Management Decision on the following grounds:
1 Toailoa v Eliu [2024] NZHC 701; and Toailia v Eliu [2024] NZHC 1412.
(a)The proposed appeal is neither frivolous nor vexatious.
(b)They have already filed an appeal against the judgments issued by Johnstone J in this proceeding, dated 28 March 2024 and 31 May 2024, making Beddoe orders in favour of the respondents, in the Court of Appeal.
(c)They have applied to have the Beddoe Appeal admitted to the fast track process in the Court of Appeal and the first to third applicants have consented to this.
(d)The respondents will seek to have this appeal addressed together with the Beddoe Appeal, including applying to have it admitted to the fast track process in the Court of Appeal.
(e)The judgment is open to serious question. The law does not recognise the term “manager”, let alone a manager who is empowered by the Court to act as a trustee. The applicants say that the Court did not have jurisdiction to make the orders it did in the judgment.
(f)The appointment of a manager will potentially have a significant adverse effect on the SISDA Property Trust and SISDAC. SISDAC’s income is from donations and tithes. A significant number of congregation members are opposed to the proceeding and may refuse to continue contributing to SISDAC and/or the SISDA Property Trust if a manager, external to the church, is placed in control of their finances and affairs.
(g)Any adverse impact on SISDAC or SISDA Property Trust’s financial position (whether in respect of their available income or their relationship with creditors) has the potential to jeopardise the completion of the church at Māngere (the Church Project). The Church Project is well advanced, having been commenced approximately five years ago. SISDAC and the SISDA Property Trust
have invested significant amounts in the Church Project to date, and any disruption to the Church Project or its completion is likely to have a deleterious effect on their respective financial positions.
(h)The appointment of the manager will impose further costs on SISDAC and/or the SISDA Property Trust. That cost will ultimately have to be borne by SISDAC and/or the SISDA Property Trust. While these fees have initially been capped at $50,000 (excluding GST), the Court has granted the manager leave to apply to extend this cap, which seems inevitable. Any fees payable to the manager will divert funds away from the Church Project, further jeopardising its completion.
(i)The proposed appeal raises issues of general and public importance including whether the term “manager” should be recognised at law, whether SISDAC and the SISDA Property Trust needed to be named as defendants, whether their consent was required to the appointment of the manager, and whether the Court can appoint “managers” of trusts under the Trusts Act 2019.
(j)Should the appointment of the manager proceed, there is a real risk that the SISDA Property Trust will be in default of its funding arrangements, that its income (and the income of SISDAC) will be put at risk, and that the Church Project will be put in jeopardy. These outcomes would pose a serious and irremediable threat to the financial position of both SISDAC and SISDA Property Trust and to their future operations.
[7] One of the grounds of appeal initially raised was that SISDAC was not joined as a party to the proceeding or to the related application for Beddoe orders.
[8] The original application sought orders in respect of SISDA Property Trust. The application was amended to also seek orders against SISDAC, but no party applied for SISDAC to be formally joined. I heard initial argument on 12 June 2024 regarding the position of SISDAC. I issued a minute that day joining SISDAC to the proceeding. I also said that, although SISDAC was not formally joined, it was served and
represented at the hearing of the application to appoint a manager. No miscarriage arises from the failure to join it earlier. I also recorded that all parties agreed that SISDAC should now be formally joined.
[9] Subsequently, the applicants filed a memorandum clarifying the position. The applicants’ position is that SISDAC previously had an opportunity to be separately heard and did not take up that opportunity. While the applicants did not seek to revisit the order for joinder, they clarified that they do not agree that joinder was necessary.
[10]The applicants set out the position regarding service of SISDAC as follows:
(a)By interlocutory application without notice dated 26 January 2024, the applicants sought orders as to service of the amended statement of claim and amended interlocutory application to appoint a receiver (as it was then) and for other orders. This application was served on the other parties on a pickwick basis.
(b)By minute dated 1 February 2024, her Honour Justice O’Gorman
invited the other parties to state their position on the application.
(c)By memorandum dated 1 February 2024, the first to fourth respondents abided the order. In this memorandum, Mr Kohler KC who was then acting for the respondents noted that “most of the alleged trustees have signed the petition to the Court that opposes the proceedings”.
(d)By memorandum dated 2 February 2024, the Attorney-General agreed that the service orders appeared appropriate.
(e)The order for service was made by his Honour Justice Downs on 5 February 2024.
[11] The applicants submit that the documents were served on the registered office of SISDAC on 14 February 2024. In light of the formal service of SISDAC, and the fact that SISDAC did not seek to be separately heard in relation to the application, it is not now open to the first to fourth respondents through the application for stay or
leave to appeal or otherwise to impugn the judgment on the basis that SISDAC was not a party.
[12] The applicants opposed the respondents’ application for leave to appeal. They submitted that:
(a)it is appropriate that the application for stay of execution of the Management Decision, and interlocutory application for leave to appeal be adjourned to be heard together with the application for stay of execution of the Beddoe Decision; and
(b)they consent to the continuation of the interim interim stay until that date, assuming it could be heard within one month.
[13] The applicants say that both the legal and practical issues at play in the application for stay of the Beddoe Decision are related to those in the current applications for leave to appeal and stay pending appeal. The issue of when the appeals may be determined is related to whether the applicants have funding for their legal costs and ability to secure ongoing legal representation. That issue depends upon the outcome of a current claim for costs being considered by the Registrar and the application for stay of the Beddoe Decision.
[14] The applicants say that the Court determining the stay of the Beddoe Decision may be satisfied that there is a position that appropriately balances the interests of all parties and enables the appeal to be prosecuted expeditiously. If that proves to be the case, it maybe that stay of execution of the Management Decision is appropriate for a short time pending determination of both appeals.
[15] For those reasons, the applicants submit that the determination of the applications for stay of the Management Decision and leave to appeal be adjourned to be heard together with the application for stay of the Beddoe Decision. That would enable the Court, when balancing the competing interests, to be fully informed. All relevant issues could be weighed, and an appropriate position reached that preserves the interests of all parties.
[16] So far as the substantive argument against leave to appeal, the applicants say that the apparent merits of the appeal are weak.
[17] The applicants point to the Court’s wide powers under s 60(1)(d) of the Charitable Trusts Act 1957 which have previously been used to appoint a manager. No authority is cited for a contrary view. The applicants say that even if the title “manager” has no special meaning in law, the detail of the orders is set out in the judgment granting the powers and responsibilities of the person appointed.
[18] The applicants say that the judgment expressly applied the test of whether the orders are reasonably necessary which would have permitted the appointment of a receiver under the Trusts Act 2019. The appointment was framed as the appointment of a manager under the Charitable Trusts Act rather than as a receiver under the Trusts Act because all parties agreed that was the preferable course in the respondents’ interests.
[19] On the natural justice point, the applicants say that the trustees of the SISDA Property Trust are the first respondents to the proceeding. An application for direction that SISDAC be served with the proceeding was sought and made. SISDAC was served and chose not to enter an appearance or be separately represented. Counsel for the first to fourth respondents expressed the view that all those who might be interested had signed the petition expressing opposition and that SISDAC’s position was effectively being represented.
[20] The applicants say that consent by SISDA Property Trust and SISDAC is not required for an order to be made. The orders were made on a contested application where the opposition to the application was argued.
[21] The applicants say further that the Attorney-General neither supported nor opposed the appointment. The Attorney-General’s support for an order is not required for one to be made. Counsel for the Attorney-General said that the Attorney-General shared the concerns about the mismanagement — which I considered supported the applicants’ position. The Attorney-General remained neutral on the application itself.
[22] The applicants say that the list of alleged wrong findings on the evidence were the subject of discussion and assessment in the decision and are not matters justifying leave.
[23] As for the issue of appointing a manager without knowledge or expertise in the Samoan culture, the appointment was made in relation to administration of financial matters, and compliance with legal obligations as opposed to spiritual matters.
Application for leave to appeal
[24] In oral submissions, the respondents submitted that the issue of whether there was power to appoint a manager under s 61(d) of the Charitable Trusts Act is a novel point justifying leave to appeal. Further, the respondents say that the granting of preservation orders was inappropriate in respect of title to land or property.
[25] The argument raised on appeal in respect of the appropriateness of the appointment of a manager rather than a receiver was not made at first instance. The appropriateness of granting preservation orders in respect of title to land or property was likewise not raised before me or before Lang J who granted the initial preservation orders. There has been a change of counsel since the initial hearing and new points raised on appeal. At the hearing appointment of a manager was seen as preferable to appointment of a receiver to avoid an event of default under SISDA Property Trust’s finance arrangements.
[26] For the applicants, Mr O’Callahan submits that acceptance by the Court of bona fide grounds for appeal does not mean that leave should be granted in respect of an interlocutory matter. Mr O’Callahan submitted that s 56(3) of the Senior Courts Act 2016 is intended to act as a filter. Interlocutory appeals involve cost and delay which is particularly true in the current case. By reason of the Beddoe orders currently in place, the trusts are liable for the legal fees of both the applicants and respondents. It is submitted on behalf of the applicants, that the cost of appointing a manager would be far less than the costs that would be incurred appealing the Management Decision. Further, there would be considerable delay. Even if the appeal can be heard as a fast track appeal, it is likely to be at least three months before the appeal could be heard.
[27]Section 56(3) of the Senior Courts Act provides that:
No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.
[28]The Court of Appeal confirmed that the following principles apply:2
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law of fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
[29]As Fitzgerald J said in Finewood Upholstery Ltd v Vaughan:3
The requirement for leave to appeal should serve as a “filtering mechanism”, to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.
[30] This Court has considered that applications under s 56(3) of the Senior Courts Act are likely to be granted where there is a good reason to consider it before, or separately to the substantive application; and it is sufficiently meritorious in substance and relates to a sufficiently important issue as to outweigh the cost and delay of the appeal.4
2 Greendrake v The District Court Of New Zealand [2020] NZCA 122 at [6].
3 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
4 Shores v Howden [2024] NZHC 1623 at [11] citing Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171, [2018] NZAR 1134 at [22].
[31] The issue of whether a manager can be appointed to administer a charitable trust in the way proposed by the parties and ordered by the Court is a relatively novel point. While it has been done previously in the case of Lama v Hope the effect of the appointment was much narrower.5 That is not a matter that was argued before me, although I was alert to it. That is one reason that the test applied for the appointment of the manager was the same test that would have been applied for appointment of a receiver under the Trusts Act.
[32] The appointment of a manager does have potentially significant consequences for SISDAC and SISDA Property Trust. It cannot be said that the appeal is unmeritorious. The substantive application has a date that is still months away and the appeal will not delay that hearing. If my decision was wrong, the respondents could suffer real damage and there is little prospect of the plaintiffs being able to meet an order for costs. Although the application was interlocutory, the appointment of an interim manager is closely related to the substantive relief sought namely orders regarding the governance of SISDAC and SISDA Property Trust.
[33]The interests of justice favour granting leave to appeal.
Application for stay of execution pending appeal
[34] I turn to consider the application for stay of execution of the orders pending appeal.
[35]The legal principles are well settled and not disputed between the parties.
[36] Ordinarily a successful party is entitled to the fruits of its judgment, but that must be balanced against the need to preserve an applicant’s position should an appeal succeed.
[37] The Court of Appeal in Keung v GBR Investments Ltd identified that the factors to be taken into account include:6
5 Lama v Hope HC Auckland CIV-2004-4404-1363, 1 April 2004.
6 Keung v GBR Investments Ltd [2010] NZCA 396 at [10].
(a)Whether the appeal may be rendered nugatory by the lack of a stay;
(b)The bona fides of the applicant as to the prosecution of the appeal;
(c)Whether the successful party will be injuriously affected by the stay;
(d)The effect on third parties;
(e)The novelty and importance of questions involved;
(f)The public interest in the proceedings; and
(g)The overall balance of convenience.
[38] The respondents submit that the appointment of a manager of the trusts pending the outcome of any appeal creates a risk of serious harm to both SISDAC and SISDA Property Trust, in particular because:
(a)the appointment may trigger defaults under banking facilities;
(b)members of the congregation may refuse to provide further donations or tithes; and
(c)the trust will occur additional and irrecoverable administrative costs.
[39] The respondents say there is no real risk of prejudice to the plaintiffs that could arise from a stay of execution pending appeal. Preservation orders made by Lang J on 17 August 2023 remain in place. Further, it has taken almost a year for the application for appointment of a receiver/manager to be determined. If a stay is granted the applicants’ position will continue to be protected in the same manner as it has been for the last ten months.
[40] The applicants oppose the stay stating that the potential financial consequences have been considerably overstated. They say that a stay would compound the existing problems identified in the judgment and would require the consumption of resources to pursue the appeal. The applicants say that the clarity that will result from the appointment of a manager has the potential to reduce the costs to the trust in the long run.
[41] At the hearing, Mr McBride, for the respondents, suggested that an alternative dispute resolution process would be more appropriate and suggested that steps were underway to ensure that the trusts were subject to proper governance.
[42] Mr McBride indicated that the respondents are entirely comfortable with the prospect of alternative dispute resolution and with any other steps that would ensure proper governance of the trusts. The history of the matter suggests that this might be optimistic. Earlier attempts to have an independent forensic accountant appointed were resisted. Those steps, the applicant says, could have resolved matters and stopped the proceedings. The applicants’ position is that the strong resistance to oversight either by an independent accountant or an independent manager reinforces the concerns about ongoing risk to the trusts.
[43] In the Management Decision I made a number of findings about apparent mismanagement of both trusts, failure to comply with conditions of re-registration of SISDAC by the Charities Board and the risk of further wrongdoing by trustees as a result of the apparent mismanagement. The most immediate concern, however, was the prospect of further action by Charities Services and deregistration if the Court did not appoint a receiver or manager.
Would a lack of stay render the appeal nugatory?
[44] Failure to grant a stay pending appeal would be likely to render any appeal nugatory. That is because the current orders do not preserve the status quo rather they seek to alter the status quo and put in place interlocutory protection which would have consequences for the trusts, and which could not be reversed in the event of a successful appeal. In particular, the manager is likely to incur costs immediately. As I said earlier there is little prospect of the applicants being able to meet an order for costs if the appeal is successful. Further, appointment of the manager may trigger an event of default although it was not intended to do so. That also would have long term consequences that could not easily be undone.
[45] As against those considerations, the applicants as the successful party will not be significantly affected by the stay. The most immediate risk, namely the risk of further action by Charities Services, is unlikely to lead to deregistration prior to the
appeal. While there is a prospect of ongoing mismanagement compounding the risk of loss or dissipation of assets, that risk has been live for the past ten months.
[46]The overall balance of convenience favours granting a stay pending appeal.
[47] The applicants submit that if a stay is granted it must be on the condition that a fund of $120,000 is paid into Court upon which the applicants can draw in connection with the proposed appeal.
[48] The applicants seek a condition that the first to fourth respondents comply with the cost orders made by Johnstone J in the Beddoe Decision subject only to any amendment occasioned by any orders made in determination of the application for stay of execution of that judgment. The applicants also seek that the stay be in place for a period of three months and must be reconsidered if any appeal is not determined within that time.
[49] The proposed costs condition overlaps considerably with the Beddoe Appeal and application for stay of the Beddoe Decision. Because of the pending appeal against the Beddoe Decision and the application for stay of execution of that decision, the applicants have no guarantee that the costs already incurred will be met. In those circumstances, there is a lack of funding to defend the appeal. Ordinarily, the application for Beddoe orders and the application for appointment of a manager would have been heard together and this issue would not arise. They were heard separately by separate judges at the request of the respondents.
[50] It was suggested by the applicants that a way forward may be for at least the costs of the appeal, identified as $120,000, to be ringfenced and available for the purpose of the appeal so that the applicants can defend the appeal in respect of the Beddoe Decision and Management Decision. Until the applicants know whether that will occur, they do not have sufficient resourcing to defend an appeal.
[51] The proposed condition that a fund of $120,000 be paid into Court overlaps with issues relating to the Beddoe Decision. That proposed condition is best
considered by Johnstone J when the application for stay of execution of the Beddoe Decision is decided. In my results decision I made orders relating to that.
Result
[52]The results are as set out in my decision dated 19 June 2024:
(a)Leave to appeal against the decision dated 10 June 2024 ([2024] NZHC 1509) is granted.
(b)The execution of the interlocutory orders made in the decision dated 10 June 2024 appointing Andrew McKay as manager of SISDAC and the SISDA Property Trust are stayed pending determination of any appeal filed in the Court of Appeal upon the following conditions:
(i)a notice of appeal is to be filed within five working days of the results decision dated 19 June 2024; and
(ii)the appeal is to be prosecuted with all diligence including application to have the appeal admitted to the fast-track process in the Court of Appeal.
Costs
[53]The costs in respect of this matter are reserved.
Wilkinson-Smith J
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