Toailoa v Eliu
[2024] NZHC 1412
•31 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1747
CIV-2023-404-1748 [2024] NZHC 1412
BETWEEN SIAOSI DAVID SOOTAGA TOAILOA
First Applicant
AND
FEU SEUMAALII
Second Applicant
AND
PENIATA SAUNIA
Third Applicant
AND
MATAUAINA ELIU, SALETAULUA CHARLES FAAMANATU MAKA AND TONGA SEINI FATA, AS TRUSTEES OF THE SISDA PROPERTY TRUST
First Respondents
AND
SUNRISE GLOBAL HOMES LIMITED
Second Respondent
Cont:/
Hearing: 26 February 2024 Appearances:
B O’Callahan and R Warren for applicants
G J Kohler KC and H P Short for respondents D L Harris for fifth respondent
Judgment:
31 May 2024
REASONS JUDGMENT OF JOHNSTONE J
This judgment was delivered by me on 31 May 2024 at 2 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Zhang Law, Auckland
Duggan & Murphy, Auckland Crown Law, Wellington
TOAILOA & ORS v ELIU & ORS [2024] NZHC 1412 [31 May 2024]
AND WILLIE PAPU
Third Respondent
AND
WILLIE JUNIOR PAPU
Fourth Respondent
AND
ATTORNEY-GENERAL
Fifth Respondent
[1] By way of a results judgment dated 28 March 2024, I made orders relating to two trusts: the Samoan Independent Seventh Day Adventist Church (Church) and the Samoan Independent Seventh Day Adventist Property Trust (Property Trust).
[2]In essence, I made orders:
(a)declaring that it was reasonable and appropriate for the applicants:
(i)to commence substantive proceedings seeking certain orders as to the trusts’ constitutions and administration, for removal and replacement of trustees of the Church and the Property Trust, and for the transfer of various properties from the Property Trust back to the Church; and
(ii)to seek interim orders in those proceedings, appointing an interim receiver or trustee, and restraining disposition of trust property except for stated purposes; and
(b)that the applicants’ reasonable legal costs are to be met from the Church’s assets, or failing that, the Property Trust’s assets.
[3]This judgment sets out my reasons for making those orders.
Background
Charitable trusts, incorporated boards, registered charities and Charities Services
[4] The trustees of charitable trusts may apply to the Registrar of Incorporated Societies for their incorporation as a board under s 7 of the Charitable Trusts Act 1957. The Registrar’s role under that Act is to register trust boards, and to record changes to trust deeds, addresses and other details. The Registrar is not empowered to enquire into an incorporated board’s activities or operations.
[5] Qualifying entities may apply for registration as charitable entities under s 17 of the Charities Act 2005. The primary advantage of doing so is that registered charities may qualify for certain tax benefits, including tax exemptions for all or some
of their income, and donee status, which allows donors to claim tax credits on donations.
[6] Charities Services is an agency established within the Department of Internal Affairs to administer the Charities Act, and to assist the Charities Registration Board to make decisions about registering or de-registering charities. Its website states that they “strive to be a modern, responsive, risk-based regulator focused on promoting public trust and confidence in the charitable sector and encouraging the effective use of charitable resources”.
The Church and the Property Trust
[7] The Church was incorporated as a board under the Charitable Trusts Act in 1980. Its objects are to profess the beliefs of Jesus Christ and to foster the teachings of the Bible among all people, and particularly the Samoan people, in New Zealand. The Church was registered as a charity under the Charities Act in 2008.
[8] Over time, the Church has accumulated considerable assets from tithes and donations of congregation members. It is beneficially entitled to some 19 properties, including a new church hall in Māngere that is nearing completion at a cost of approximately $30 million.
[9] The Property Trust is also a charitable trust, established in February 2008 to manage the Church’s operations. It was registered as a charity in May 2008. There is some uncertainty whether the Property Trust’s deed of 2008, or a new deed, dated 6 December 2022, is now valid and effective. The new deed adds the objective of providing community housing and undertaking commercial investments for the Church and “wider community”.
The applicants
[10] The first applicant, Pastor Siaosi Toailoa, became a member of the Church’s Wellington congregation in 1984. Pastor Toailoa was a minister of the Church from 2005 to 2014. From 2015 he has been a pastor and departmental leader of the Church, at least until recently.
[11]The second and third applicants are Church elders.
The Church is de-registered
[12] On 16 December 2020, the Charities Registration Board directed that the Church be removed from the register of charitable entities, on the basis that it and its officers had engaged in serious wrongdoing and gross mismanagement. The Board considered that, amongst other things, the Church had allowed its founder, Pastor Willie Papu, to exercise an undue level of influence over its poor quality investment decisions, and that Pastor Papu had engaged in serious wrongdoing. Pastor Papu was disqualified from being an officer of a charitable entity for four years from the date of the Church’s de-registration, on 4 February 2021.
[13] However, the Board’s written decision expressed its concern that Pastor Papu remained in his role as Executive Director of the Church’s so-called “World Committee”, which it understood to be a subsidiary division or department of the Church, rather than a separate legal entity.
Remnant is established
[14] On 17 December 2020, a new church named the Universal Remnant Church of the Living God was established in Samoa. In June 2021, it was incorporated under the Charitable Trusts Act as a board (Remnant). Since then, 14 branches of the Remnant Church have become incorporated boards. Neither Remnant, nor its branches, have sought registration as charities under the Charities Act. Accordingly, they are not directly subject to Charitable Services’ oversight.
[15] Remnant’s trust deed describes Pastor Papu as the Remnant Church’s spiritual leader.
The Church buys Bitcoin
[16] In early 2021, Pastor Toailoa, he says under the direction of Pastor Papu, arranged for the Church to buy $1 million of Bitcoin. Pastor Toailoa says the Bitcoin wallet was stored on a computer held at the Church’s headquarters in Māngere, but
Pastor Papu’s son, Pastor Willie Papu Junior, took the computer on behalf of the World Committee and its location is now unknown.
The Church is re-registered
[17] The Church applied to be re-registered as a charitable entity in December 2021. Prior to its application being determined, and in response to the risk of significant tax liability if its application were declined, the Church transferred the registered ownership of its 19 properties to the Property Trust.
[18] In February 2022, following engagement with Charitable Services, the Church achieved re-registration by the Charities Registration Board.
The respondents
[19] The first respondents, Matauaina Eliu, Saletaulua Maka and Tonga Fata, are the trustees of the Property Trust, and now also of Remnant and/or its branches. Further, Mr Eliu, Mr Maka and Ms Fata are the directors and shareholders of the second respondent, Sunrise Global Homes Limited, which they incorporated as a limited liability company on 14 July 2022.
[20] The third and fourth respondents are Pastor Papu and Pastor Papu Jr. In his 27 September 2023 affidavit, Pastor Papu described himself as the Church’s spiritual leader, and as the leader of its World Committee. Contradicting the Board’s description of the World Committee as a subsidiary or department of the Church, Pastor Papu described it as forming the highest, “most sacred” level of the Church’s three-level hierarchy. However, he says that he is not involved in the day-to-day administration and management of the Church.
Property Trust properties are transferred to Sunrise
[21] On 14 July 2022, the day of Sunrise’s incorporation, Ms Eliu, Mr Maka and Mr Fata executed a transfer to it of the registered ownership of four of the properties which the Church had transferred to the Property Trust.
Mr Toailoa is purportedly removed from his post
[22] The Secretary of the Executive Committee of the North New Zealand division of the Church, Miracle Faatamala, has sworn an affidavit asserting that the World Committee asked the first applicant, Mr Toailoa, to stand down as Division Leader of the Central New Zealand division in May 2023, for poor performance.
[23] Mr Toailoa does not accept poor performance was the cause. He says Pastor Papu expressed concern that members of the Church’s congregation, like Mr Toailoa, wanted to remain with the Church rather than join Remnant.
[24] Mr Toailoa was purportedly dismissed from his leadership roles with the Church on the day the main proceeding was filed.
The main proceeding
[25] The applicants say they are troubled by apparent mismanagement and misappropriation of the Property Trust’s assets. On 14 August 2023, they sought leave to commence proceedings in this Court by way of originating application, seeking by statement of claim:
(a)a declaration that the former Property Trust deed, not the new deed with its objective providing for a “wider” community than the Church, remains valid;
(b)declarations that the 19 properties transferred to the Property Trust are held on trust for the charitable purposes of the Property Trust, including those in the registered ownership of Sunrise, directions requiring re-transfer of the latter properties to the Property Trust, and an account for any interim profits;
(c)orders removing the first respondents as Property Trust trustees, and appointing the applicants in their place; and
(d)a declaration that the Bitcoin wallet is held on charitable trust for the Church, and an order that Pastor Papu and Pastor Papu Jr pay Mr Toailoa $1 million in damages.
[26] The applicants also sought interim preservation orders under r 7.55 of the High Court Rules 2016 over all of the Property Trust’s assets, and an order appointing an interim receiver or trustee to hold and preserve those assets pending further Court orders. Justice Lang granted leave to commence proceedings, and interim preservation orders.1 The application for appointment of an interim receiver or trustee was adjourned for later argument.
[27]The applicants later amended their statement claim, so that:
(a)they seek amendment of the constitution of the Church and the Property Trust concerning the appointment and removal of trustees, removal of the current Church and Property Trust trustees, and/or the appointment of alternative or additional trustees, including independent professionals with government expertise; and
(b)they seek no direct relief relating to the Bitcoin wallet.
This proceeding
The application
[28]In this proceeding, the applicants sought orders:
(a)declaring it reasonable and appropriate for them to commence the main proceedings, and to seek interim preservation orders and the appointment of an interim receiver or trustee;
(b)that they be indemnified from the assets of the Church and/or the Property Trust for their reasonable costs, both to date and in future, in relation to the main proceeding;
1 Toailoa v Eliu HC Auckland CIV-2023-404-1747, 17 August 2023.
(c)that, unless it be shown they have acted unreasonably, they are immune from any costs order in the main proceeding; and
(d)declaring that the respondents are not entitled to meet their costs in the main proceeding from the assets of the Church and the Property Trust.
The applicants’ grounds
[29] The applicants asserted they have reasonable grounds to believe the trustees of the Church and Property Trust have, amongst other things:
(a)breached their duties as trustees, including by investing imprudently and failing to keep a full and proper record of the trusts’ administration; and
(b)applied trust property for the improper purpose of supporting Remnant, and for the non-charitable purpose of transfer to Sunrise.
[30] They asserted there was a high risk of such conduct continuing in the absence of intervention by the Court.
Legal principles
[31] The application described these orders as “Beddoe” or “prospective costs” orders. Various efforts have been made to explain the nature of, and the differences between, applications for Beddoe orders and for prospective costs order (PCOs).2 As Thomas J explained in McLaughlin v MacLaughlin:3
[19]A Beddoe application is made in prior separate proceedings for directions as to whether to bring or defend the main proceedings at the expense of the trust. Applicants – often trustees – primarily seek the sanction of the Court to bring or defend claims, the question being whether the trust’s funds should be spent or placed at risk in the main proceedings. An applicant must fully disclose the strengths and weaknesses of those proceedings. If granted, the applicant is indemnified by the trust fund for the cost of bringing or defending the main proceedings. It may extend to immunity from a costs award
2 For example, in Fundacion Pimjo AC v Aguilar & Aguilar Ltd [2015] NZHC 1402 at [29]–[30], and in McLaughlin v McLaughlin [2018] NZHC 3198, [2019] NZAR 286 at [19]–[20].
3 McLaughlin v McLaughlin, above n 2 (footnote omitted).
against the applicant personally. However, it will not typically deal with issues of costs as between the parties in the main proceedings. These are more commonly dealt with in prospective costs orders.
[20]Prospective costs orders are made in advance of the trial and are therefore contrary to the usual principle that costs follow the event. They fall into two broad categories. First, an applicant may seek an order that their own costs be paid out of the trust fund on an indemnity basis. Secondly, they may seek an order, in advance of the substantive hearing in the main proceedings, that they will not be liable to pay the other party’s costs, regardless of the outcome of the case. The former category can overlap with orders sought under a Beddoe application.
[32] In light of the authorities, it seems to me that meaningful distinctions may be drawn, not as to matters of form but as to the prospect of substantive success, between:
(a)applications:
(i)seeking indemnification from trust property for costs expended directly in pursuing litigation (“indemnity” or “own costs” orders, in the language of Kós J in Woodward v Smith);4 as against those
(ii)seeking immunity from adverse costs orders (“immunity” or “other party costs” orders); and
(b)applications seeking indemnification as just stated in [32(a)(i),] where the underlying litigation is:
(i)clearly for the purpose of proper administration of the trust, including the protection of trust property; rather than
(ii)arguably undertaken for other purposes, such as to favour the interests of individual beneficiaries or the trustees in their personal capacities.
[33]This is because:
4 Woodward v Smith [2014] NZHC 407, [2014] 3 NZLR 525 at [28].
(a)One of the fundamental rights of an honest express trustee is that costs and expenses properly incurred in the administration of the trust are compensable out of the assets of the trust.5 However, this Court in its supervisory jurisdiction relating to trusts, will review trustees’ costs and expenses to ensure they were necessarily incurred in the interests of the trust and that they were reasonable in extent.6
(b)Accordingly, since trustees have duties to protect trust assets, and thus to bring, and defend, litigation where to do so is reasonable, they may seek Beddoe orders to confirm, pre-emptively, the propriety of action or defence, and to confirm their entitlement to indemnity for costs to be paid out of the trust’s funds.7
(c)The trustees’ indemnity out of the trust fund extends both to their own costs, and to any costs they are ordered to pay other parties, unless the court orders otherwise. However, misconduct, including careless and unreasonable conduct in the conduct of litigation or the management of the trust, may deprive them of their entitlement to indemnity.8
(d)The “classic statement” of Kekewich J in Re Buckton, classifying proceedings in which indemnity for trustees’ costs might or might not be given, recognises that non-trustees may also be reimbursed their costs where the proceeding would have justifiably been brought by a trustee.9 It does so by dividing trust litigation into three categories:
(i)A first category where proceedings are brought by trustees to obtain the Court’s guidance on the construction of the trust deed or some aspect of the trust’s administration. In such cases, the
5 Butterfield v Public Trust [2017] NZCA 367, [2017] NZAR 1439 at [20].
6 McCallum v McCallum [2021] NZCA 237 at [31], citing Butterfield v Public Trust, above n 5, at
[21] where the Court of Appeal endorsed observations made in New Zealand Māori Council v Foulkes [2015] NZHC 489 at [31].
7 McCallum v McCallum, above n 6, at [28].
8 At [32].
9 Re Buckton [1907] 2 Ch 406 at 413–417, described as the “classic statement” by Hoffmann LJ in McDonald v Horn [1995] 1 All ER 961 (CA) at 970. See also Kós J’s summary in Woodward v Smith, above n 4, at [39].
costs of all parties necessarily participating are treated as incurred for the benefit of the estate and ordered to be paid out of the trust fund.
(ii)A second category involving a similar application, but by someone other than a trustee, such as a beneficiary. However, the case would have justified application by a trustee. The same approach is taken to costs in the second category as in the first.
(iii)A third category, where a beneficiary is making a “hostile claim” against the trustees, or another beneficiary. The claim may still involve a point of construction, or administration. It will often involve a claim to a beneficial interest or entitlement to a part of the trust fund. Here, the usual principles as to costs apply. Ordinarily they will follow the event.
(e)However, the Court of Appeal has described the concept of “hostile claims” as involving a crude shorthand for cases where it is inappropriate to pre-empt allocation of costs in advance.10 A better, but still not wholly accurate, label would be “self-interested” litigation. In that sense, beneficiaries taking self-interested cases asserting breach of trust or other fiduciary duty by trustees, and trustees defending allegations of breach of trust, or self-dealing and profit-taking from the trust, and proceedings for or concerning the removal of trustees, are unlikely to earn pre-emptive indemnity via a Beddoe order.11
(f)Accordingly, it can be seen that applicants, whether trustees or non-trustees, may seek orders, prior to and separately from main proceedings or in the course of those proceedings, awarding both indemnification of their own costs from trust property, and immunity from costs consequences as against other parties. And whether the
10 McCallum v McCallum, above n 6, at [42].
11 At [42].
application is described as a Beddoe application or as a prospective costs application seems insignificant. More significant is that:
(i)Actions demonstrably necessary to the proper administration of trusts and the protection of trust property are more likely to justify pre-emptive orders, particularly of the applicant’s own costs.
(ii)Actions which carry the risk of self-interest are less likely to justify pre-emptive orders.
(iii)Pre-determination of costs consequences as between the parties is rare.
[34] In any event, the Court of Appeal has endorsed the view that the test when considering Beddoe applications involves consideration of:12
… what is in the best interests of the trust. The Court must … exercise its jurisdiction in the best interests of the trust, and the beneficiaries as a whole, having regard to all the circumstances.
[35] I regard that issue as similarly determinative of applications for prospective costs orders in trust litigation generally.
The issues
[36] Accordingly, I was required to determine whether the orders sought in this proceeding were in the best interests of the Church and the Property Trust, and their beneficiaries as a whole, having regard to all the circumstances. In addressing that issue, I needed to consider:
(a)whether the main proceeding and the associated applications for interim preservation and receivership/trusteeship orders were clearly for the
12 McCallum v McCallum above n 6, at [43], endorsing Thomas J’s remarks in McLaughlin v McLaughlin, above n 2, at [29].
purpose of the trusts’ proper administration, rather than arguably self-interested; and
(b)whether a pre-determined immunity in favour of the applicants from the prospect of adverse costs, or a prohibition on the first respondents accessing trust monies for the purpose of funding their opposition to the litigation, could be justified.
Are the main proceeding and associated applications for interim preservation and receivership/trusteeship clearly for the trusts’ proper administration?
The respondents’ position
[37] The respondents say they represent the congregation of the Church, which considers the Church and the Remnant Church to be “one and the same”. They say that the applicants object to the establishment of the Remnant Church, that Mr Toailoa thinks he has been demoted as an officer of the Church, and that the applicants have since disassociated themselves from the Church. The respondents say that the applicants’ litigation is accordingly “hostile” and “self-interested”.
[38] Further, they say that Mr Toailoa was involved in, or aware of, events now said to found his claims, and that his failure to disclose that involvement or awareness breaches the requirement that a Beddoe applicant fully disclose the strengths and weaknesses of the substantive proceeding. The respondents note that the applicants filed the written advice of their solicitor, Xinan Zhang, which has not been disclosed to the respondents. They say that Mr Zhang is not independent to either the applicants (who he represents) or the respondents (who he used to represent).
[39] The respondents also say that the Charities Registration Board’s de-registration orders and conditions of re-registration have been complied with. Pastor Papu remains involved in the Church as its “spiritual leader” but is not acting as an “officer” and is not involved in the Church’s day-to-day management and administration. In any event, any breach of the Board’s requirements should be left for the Board to address.
[40]In respect of the main proceeding, the respondents say:
(a)They dispute that the Property Trust’s deed cannot be amended without Court approval, and that its new objective is non-charitable. But in any event, the issue is insubstantial.
(b)As directors of Sunrise, Mr Eliu, Mr Maka and Ms Fata have acknowledged the four properties transferred to Sunrise are held on trust for the benefit of the Property Trust and, in turn, the Church. There is no intention to sell any of the Church properties owned by the Property Trust or by Sunrise, and accordingly no risk of dissipation of trust assets.
(c)Replacement of the trustees with new trustees, including independent trustees, would be a serious and costly exercise, and does not appear to be in the trusts’ best interests.
[41] The respondents add that completion of the new church hall in Māngere is critical. Money advanced to the Church and Property Trust should be spent on construction, not lawyers and accountants.
The Attorney-General’s position
[42] In her role representing the public interest as the protector of charities, and in particular the beneficiaries of the Church and the Property Trust, the Attorney-General advanced submissions via her counsel, Debra Harris.
[43] Ms Harris submitted that the Court could find the applicants to have standing to bring the proceedings. Under cl 11.2 of the Church’s constitution dated 31 December 2021, its board consists of its ministers, elders and departmental leaders, and a Treasurer and Secretary. Applying the approach of Walker J in Singh v Attorney-General,13 Mr Toailoa’s challenge to his August 2023 removal as a Church officer does not deprive him of standing. In any event, the second and third applicants are Church elders. And the interests of the Church and the Property Trust
13 Singh v Attorney-General [2022] NZHC 666 at [96].
are so closely aligned that standing derived from responsibilities relating to the Church amounts to standing in the entire proceeding.
[44] Ms Harris further submitted that the main and associated proceedings are concerned with the proper administration and governance of the Church and the Property Trust, and are intended to resolve whether there has been any misappropriation of trust property. She further submitted that the remedies sought do not appear to be self-serving.
[45]More particularly, Ms Harris submitted:
(a)The purported amendment of the Property Trust deed “needs to be tidied”. The amendment of charitable trust purposes is governed by s 32 of the Charitable Trusts Act, and requires determination by this Court following a report by the Attorney-General.
(b)Despite the respondents’ assertions that there is no apparent risk of dissipation of trust assets, it remains of concern that the properties were transferred without adequate documentation, and in the apparent absence of requisite power under the Property Trust’s deed.
(c)Not all of the applicants’ allegations in support of trustee removal suggest a “real and present danger” of trust assets being wasted due to incompetent management, or lost to charity and made subject to tax liability due to de-registration. In particular:
(i)Following his disqualification, Pastor Papu appears not to have acted as a Church officer. If he is nevertheless having undue influence in the trusts’ affairs, this might be referred to Charities Services.
(ii)While the trusts’ annual accounts were being filed late, an explanation had been offered and the issue is usually for Charities Services to manage.
(iii)Cost overruns in respect of the new church hall may not indicate mismanagement.
(d)However:
(i)It is unclear how the Remnant Church purports to operate as a branch of the Church. The relationship between the Church, the Property Trust and the Remnant Church would benefit from examination and clarification.
(ii)The Bitcoin purchase raises issues related to its timing (shortly after the Church’s de-registration), merits and unclear value.
(e)Accordingly, the applicants have raised serious concerns for the administration of the trusts, which require examination and possible rectification. That said, issues of remedy (removal and replacement of trustees) may not be suitable for determination by the Court rather than by Charities Services, particularly given the likely scale of the parties’ costs.
Discussion
[46] In the context of the applicants’ Beddoe/PCO application, I was not required to reach a concluded view of the nature and merits of the main and associated interim proceedings. Indeed, it would have been inappropriate to do so. Further, I did not rely in any substantive way upon Mr Zhang’s opinion, his independence having been questioned and the appropriateness of his role on the basis of alleged conflict being unclear.
[47] Nevertheless, I adopted the Attorney-General’s position and found that the main and associated interim proceedings are brought for the purpose of ensuring the proper administration and governance of the Church and the Property Trust.
[48] I did so in particular because I was struck by the chronological sequence of the Church’s de-registration, the immediate establishment of Remnant, and the applicants’
apparent dislocation from the Church due to their reluctance to engage with Remnant and to treat it and the Church as one and the same. As outlined above, the Church has achieved re-registration as a charity, and attendant tax-related benefits, on the basis of promised managerial independence from Pastor Papu. Yet the first respondent trustees of the Property Trust, which holds the Church’s property and operates its affairs, appear content to share the resources of the Church with an unregistered charity closely associated with Pastor Papu. I consider it arguable that the establishment and operation of Remnant is a device to avoid the attentions of Charitable Services.
[49] Further, I was troubled by the apparent lack of inclination on the part of Charitable Services to enforce strict compliance with the trusts’ financial reporting requirements. Shortly before the Beddoe/costs application, a chartered accountant, Michael Prasad, filed an affidavit. Mr Prasad’s affidavit dated 20 February 2024 annexed financial statements:
(a)for the Church, for financial years ended 31 December 2020, 2021, and 2022;
(b)in draft for the Property Trust, for the year ended 31 December 2022 (its previous accountants having prepared financial accounts for the year ended 31 December 2021); and
(c)for Remnant, for the seven months ended 31 December 2022.
[50] Mr Prasad swore that the trusts had approached his firm to prepare these accounts only in September 2023 — after the main proceeding had been commenced and Lang J had made interim preservation orders.
[51] Under s 41 of the Charities Act, charitable entities such as the Church and the Property Trust are required to send annual returns, accompanied by financial statements, to the chief executive of the Department of Internal Affairs, within six months of the entities’ balance dates. Under s 42C, large charitable entities must ensure those accompanying financial statements are audited by a qualified auditor.
Failure to comply with s 42C amounts to an offence punishable by a fine of up to
$50,000.14
[52] At the hearing before me, Ms Harris accepted that the Church and the Property Trust appear to be large charitable entities. But Ms Harris, as counsel for the Attorney-General, understandably could not assist when asked if there was any reason Charitable Services appears not to have taken steps to address, for example, the Church’s failure to obtain and file audited year-end 2020 financial statements in the more than two and a half years since they were due, or the failures of the Property Trust and Remnant to obtain and file year-end 2022 financial statements in the more than seven months since they were due.
[53] Amongst other things, the financial statements produced by Mr Prasad show that in the period to 31 December 2022:
(a)The Church received $2,262,121 in donations and tithes, and made
$1,566,454 in donations and distributions (other than the transfer of the Church’s properties to the Property Trust).
(b)The Property Trust received $11,488,264 in donations, and made
$855,131 in donations and distributions. The notes to the Property Trust’s financial statements record that it “had transactions and payments with the [Remnant Church]” which are “recorded as donations made and/or received”.
(c)Remnant received $1,458,841 in donations, fundraising and other similar revenue, and made $503,960 in grants and donations. The notes to Remnant’s financial statements similarly record that it “entered into various transactions and payments with the [Property Trust] … Recorded as donations made and/or received”.
[54] The Property Trust appears likely to have donated considerable funds to Remnant. The objective merit of doing so, when Remnant is in theory in no better
14 Charities Act 2005, s 42E.
position than it to fulfil the Church’s charitable purposes, and does not enjoy the tax advantages of registration as a charitable entity, is difficult to discern. This point supports my apprehension over the purpose for which Remnant has been established.
[55] In those circumstances, I did not find the respondents’ arguments that they, rather than the applicants, enjoy congregational support and that Mr Toailoa was involved in the events of which he now complains, to be important. It did not speak to the more fundamental issue, whether the trusts have been and are being administered properly. In my view, the apparent but inadequately explained interrelationship between the Church, the Property Trust, and Remnant, requires examination. If not by Charities Services, then by the Court.
[56] Given the remedies now sought, I accepted Ms Harris’ submission that the applicants’ proceedings do not appear to be self-serving.
[57] Dealing with the various aspects of the main proceeding, and addressing the respondents’ submissions relating to them:
(a)Determination whether the Property Trust’s new deed is valid appears to require the Court’s intervention. Whether the issue is indeed insubstantial as the respondents suggest is yet to be seen. It may be that without the new objective, the symbiotic relationship with Remnant proposed by the respondents cannot be maintained or developed. In any event, it appears common ground that proper administration of the Property Trust requires Court proceedings which the trust’s current trustees appear reluctant to pursue.
(b)Given the first respondents’ acknowledgement that the four properties transferred to Sunrise are held on trust for the benefit of the Property Trust and in turn the Church, their failure to assure the Court that the properties were being re-transferred to the Property Trust seemed inexplicable. In the absence of such assurance, Court proceedings seeking their re-transfer is reasonable and appropriate.
(c)Formulation of a suitably independent and professional new governance structure for the Church and the Property Trust, for consideration and if appropriate, adoption by the Court, would likely indeed be a substantial and costly exercise. However, in light of the context of de-registration and Pastor Papu’s unsatisfactory prior behaviour, the ongoing administrative difficulties now encountered by the Church and the apparently hands-off nature of supervision by Charities Services combine so that in my view the exercise is reasonable and appropriate, and in the trusts’ best interests.
[58] I also found the applicants’ associated proceeding, seeking appointment of an interim receiver or trustee, to be reasonable and appropriate, particularly in light of the apparently ongoing sharing of resources as between the Church, the Property Trust, and Remnant. I considered that such proceedings may disclose the whereabouts of a substantial quantity of Bitcoin, which I note appears to have escaped description in Mr Prasad’s accounts.
Could a pre-determined applicants’ costs immunity, or prohibition on respondents’ accessing trust monies to oppose the litigation, be justified?
The applicants’ position
[59] In support of their proposition that, in addition to being awarded an indemnity for their reasonable costs in pursuing the main and associated litigation, the applicants should receive immunity from the prospect of an adverse costs award, they submitted only that without both forms of protection the public interest in protecting substantial charitable funds would not be met.
[60] In support of the requested declaration that the respondents are not entitled to meet their costs in the main proceeding from the assets of the Church and the Property Trust, they submitted only that the first to fourth respondents might be funding their costs in that way but should not do so, at least in the absence of their own Beddoe or prospective costs orders.
Discussion
[61] On the immunity issue, I doubted that the applicants would decline to pursue their proceedings further in the absence of an immunity against adverse costs. They had already commenced, and pursued a substantial portion of, their proceeding, succeeding in obtaining interim preservation orders. I considered it likely they would pursue their proceeding if in receipt of an indemnity for their reasonable costs.
[62] In any event, the disciplinary effect of a potential costs award provides at least one of the reasons prospective costs immunities are exceptional. I was not persuaded such effect was not required in this case.
[63] On the respondents’ entitlement to meet their costs from Church or the Property Trust assets, I did not consider it necessary that the Court intervene. The respondents are likely to be well advised of the risks of making assumptions in this regard, particularly in light of the possible appointment of an interim receiver or trustee.
Conclusion
[64]As stated above, I made orders in essence:
(a)declaring that it was reasonable and appropriate for the applicants:
(i)to commence substantive proceedings seeking certain orders as to the trusts’ constitutions and administration, for removal and replacement of trustees of the Church and Property Trust, and for the transfer of various properties from the Property Trust back to the Church; and
(ii)to seek interim orders in those proceedings, appointing an interim receiver or trustee, and restraining disposition of trust property except for stated purposes; and
(b)that the applicants’ reasonable legal costs are to be met from the Church’s assets, or failing that, the Property Trust’s assets.
[65] I did so in light of my findings outlined above that such orders were in the best interests of maintaining the integrity and the charitable purposes of those trusts.
[66] However, I declined to immunise the applicants against the prospect of an adverse costs award upon the determination of such proceedings. And I refused a declaration that the first to fourth respondents are not entitled to have their costs met from assets of the Church or the Property Trust. I did so without making any substantive finding as to any such entitlement.
Johnstone J
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