KHAN v NEW ZEALAND MUSLIM ASSOCIATION [2023] NZHC 802

KHAN v NEW ZEALAND MUSLIM ASSOCIATION [2023] NZHC 802 [18 April 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-1648[2023] NZHC 802UNDER the Judicial Review Procedure Act 2016IN THE MATTER of an application for judicial reviewBETWEENANDANDANDANDISMAIL RAHIMAN KHANFirst applicantFARHAZ ASHIK REHMANSecond applicantMUNTAJ ALIThird applicantAZAD ALIFourth applicantMOHAMMED ATIKFifth applicantContinued overleafHearing: 5–7 September 2022 and 3 April 2023Appearances: I M Hutcheson for applicantsP C Murray and K M Paterson for second respondentDate of judgment: 18 April 2023JUDGMENT OF JAGOSE JThis judgment was delivered by me on 18 April 2023 at 11.00am.Pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarAND MOHAMMED ZAKIR HUSSAIN,MOHAMMED RAFIQ WANIA,MOHAMED AHAMED NADAT,ABDUL AZIZ as trustees of the ABUHARAIRAH TRUST KELSTONFirst respondentsAND NEW ZEALAND MUSLIMASSOCIATIONSecond respondentAND THE REGISTRAR OFINCORPORATED SOCIETIES ATAUCKLANDThird respondentAND ATTORNEY-GENERALIntervener[1] The applicants and first respondents previously together were trustees of theAbu Harairah Trust Kelston (the Kelston trust). The Kelston trust had been riven byinternal conflicts for some years, which the parties (including the New ZealandMuslim Association (the NZMA)) and others had sought to resolve in accordance withtenets of their common Muslim faith. No more elaboration is constructive or required.[2] The applicants now claim to recover the assets of the Kelston trust — cash,and land and buildings in Auckland's Kelston operated as a mosque and Islamic centre,all obtained from charitable donations — after their 16 August 2018 transfer by thefirst respondents, acting as the Kelston trust's board, to the NZMA. In either case, theassets were or are held for the benefit of the Kelston Muslim community.[3] Transfer of the Kelston trust's assets was contended in breach of trust followingdisputed alterations to the trust's deed and disputed termination of the applicants'trusteeships (the disputes). By consent order dated 5 June 2019, this Court declaredthose alterations and terminations invalid.[4] In July 2022, the applicants and first respondents settled matters as betweenthemselves — including the applicants will withdraw their claims against the firstrespondents, the first respondents will have no further involvement in the litigation,and the applicants will not apply to summon them to be witnesses and will not "makeany other claims arising out of the same facts" — but were unable to resolve the issueof the assets' transfer to the NZMA. The settlement agreement recorded it "presume[d]the return of all assets (property and funds) from NZMA to the [Kelston trust] or anysuccessor trust but is not conditional on that".[5] Outstanding then were the applicants' second and third causes of action againstthe NZMA — that it knew of the disputes, or caused the applicants to believe it wouldnot proceed with the transfer, such as to make its retention of the assets unconscionable— and fourth cause of action against the Registrar, seeking revocation of the Trust's"de-registration" as "improper". The Registrar abides my decision.[6] The proceeding's 5–7 September 2022 hearing was adjourned part-heard onconclusion of the evidence, at the parties' request "to accommodate completion of theparties' anticipated settlement of all issues between them". The parties' optimismregrettably proved unfounded, and closing arguments then were addressed on3 April 2023. Opening and closing arguments focused exclusively on NZMA's alleged'knowing receipt'.Background[7] In the context of the disputes, the first respondents — acting as the Kelstontrust's trustees, and in considering "how to take forward the development of the[Kelston] trust for the benefit of the community at large" — resolved on 27 July 2018"to come under the banner of NZMA" as being in "the best interest of the [Kelstontrust] and wider community at large within the Kelston and surrounding area". On30 July 2018, they advised the NZMA of their resolution, proposing to "transfer allour assets to NZMA as per rules of Charities Commission once the transfer iscomplete" and hoping for NZMA's "favourable consideration".[8] The NZMA responded on 1 August 2018 to "welcome Kelston as a branch ofNZMA" and "to discuss the process of transitioning from the current trust structure toNZMA". The Kelston trust filed deregistration documents dated 30 July 2018 (butincluding the NZMA's 1 August 2018 response) with the Charities Commission,advising "it is merging or has merged with another registered charity". On 14 August2018, the first respondents formally resolved to execute deeds of the same datetransferring all assets of the Kelston trust to the NZMA and winding up the Kelstontrust. The Kelston trust also sought its charitable trust board be dissolved as no longercarrying on its operations, as occurred.1[9] On 10 August 2018, the applicants' counsel, Iain Hutcheson, wrote to theNZMA, advising of their then-filed application for judicial review in relation to thedisputes. He explained the proceeding "if successful will undermine the purportedauthority of the respondents" to transfer the Kelston trust's assets to the NZMA, andsought an undertaking "not to progress or proceed with the proposed transactions"until this Court determined matters, absent which the applicants would "make urgentapplication for an interim injunction". Mr Hutcheson sought the undertaking by5.00 pm on 15 August 2018. In the event, the deadline passed without eitherundertaking or application.[10] There is uncertainty as to the formality by which the applicants' allegationsand then-intended judicial review proceeding were notified to the first respondents,and if they then or later were known to NZMA. A pre-commencement letter dated3 July 2018 from the applicants' lawyers to the first respondents, indicating judicialreview would be sought of the disputes, appears not to have been followed up.A version of Mr Hutcheson's 10 August 2018 letter to the NZMA marked "Draft" andunsigned was provided by one of the applicants, Ismail Khan, to the NZMA.[11] In subsequent correspondence between the first respondents' and the NZMA'slawyers engaged on the transfer, the NZMA's lawyer observed "[i]t seems in view ofthe pending court proceedings we have agreed to put everything on hold". The firstrespondents' lawyer responded he understood the NZMA considered "the letter oughtnot inhibit the transfer", with which the first respondents agreed. The NZMA acceptedthe transfer in the morning of 16 August 2018, asking the first respondents to "release"the property's electronic transfer. The transfer's mechanics followed that day.1 Charitable Trusts Act 1957, s 26.[12] In the afternoon of 16 August 2018, in response to Ismail Khan's follow up thatday of his earlier provision of the draft letter to NZMA, the NZMA's Saiyad Khanprovided his email address. On 18 August 2018, Mr Khan requested by email NZMA'sresponse to the 10 August 2018 letter. The NZMA's president, Gul Ikhlaq Kashkari,responded the same day:1. NZMA has only the best interests at heart for both Kelston Mosque and thecommunity that it serves.2. I will arrange a meeting with you all in September to try and understandyour concerns and outcomes that you are looking for.3. Discuss what can we do together to ensure Kelston Masjid meets the needsof the Kelston community.4. NZMA will help facilitate discussions with various parties to resolvedispute between the two parties.Relevant law—knowing receipt[13] Liability for knowing receipt here relevantly is founded on the firstrespondents' alleged transfer of trust property, in breach of trust, to the NZMA'sbenefit, received with knowledge of the breach.2 "The remedy for knowing receipt isthe restoration of what was unconscionably received ".3—equitable estoppel[14] Liability in equitable estoppel here relevantly is founded on the firstrespondents' alleged unconscionable inducement or encouragement of the applicants'assumption the transfer would be paused, pending determination of the proceeding.4The remedy turns on what is necessary "to satisfy the equity that has arisen in theclaimant's favour".52 Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218, (2022) 23NZCPR 259 at [78], citing Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin onTrusts (20th ed, Sweet & Maxwell, London, 2020) vol 2 at [42-023].3 Enright v Newton [2020] NZCA 529, [2021] 2 NZLR 412 at n 53, citing McLennan v Livaja [2017]NZCA 446, [2018] NZAR 405 at [40] (citing Williams v Central Bank of Nigeria [2014] UKSC10, [2014] AC 1189 at [31]).4 Brougham v Regan [2020] NZSC 118, [2020] 1 NZLR 315 at [52], citing Actionstrength Ltd vInternational Glass Engineering IN.GL.EN SpA [2003] UKHL 17, [2003] 2 AC 541.5 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at[116].Discussion[15] There is an immediate difficulty on the pleadings, taken in conjunction withthe settlement agreement, which is no breach of trust is or now can be alleged of thefirst respondents in making the transfer.[16] Paragraph 65 of the second amended claim alleges — in connection with itssecond cause of action, pleaded against the NZMA — "[t]he transfer of propertyinvolved a breach of fiduciary obligations owed by the first respondents to thetrust". The allegation plainly anticipates success on the claim's first cause of action,pleaded against the first respondents, their transfer of the assets to NZMA wasunlawful and invalid. The first cause is separate to, but made in partial reliance on, theconsent order.[17] But, under the settlement agreement, if paragraph 65's allegation is a claimagainst the first respondents, it is to "be withdrawn" and not renewed or made as "anyother [claim] arising out of the same facts". If not a claim against the first respondentsdirectly (but against the NZMA), it nonetheless is another claim arising out of thesame facts.[18] Without any foundation breach of trust, the applicants' claim of the NZMA'sknowing receipt must fail. Even if the NZMA can be taken at the time of the transferto have known the applicants alleged such breach of trust is insufficient. That isknowledge only of the allegation. I pressed Mr Hutcheson in closing to identify the'fact' of which the NZMA was alleged to have known,6 and understood him to concedethere was no fact established for NZMA to know (to some requisite degree, includingwilful blindness)7 as a breach of trust.[19] The concession was responsible. All there then was to know were the disputedalterations to the trust's deed and disputed termination of the applicants' trusteeships.No level of enquiry by NZMA could elevate those disputes to determinations ofinvalidity, as eventually occurred by consent; still less, any consequent breach of trust.6 With reference to McLennan v Livaja, above n 3, at [38], relied on by the applicants.7 At [41]–[45].[20] The consent order's later invalidations do not necessarily either restore thestatus quo ante (the previously existing state of affairs) or render the first respondents'prior transfer to NZMA in breach of trust. There is a significant question at least indetermination of relief if the invalidations were to have retrospective effect,8consideration of which:9 will include the gravity of the error and its effects upon the applicant, theinevitability of the same outcome or the futility of granting relief, andquestions of delay and prejudice to third parties.The NZMA may be thought such a third party, prospectively prejudiced ifretrospective effect was to be given the applicants' and first respondents' consensualinvalidities. So too may members of the Kelston Muslim community.[21] The Kelston trust had express power to dispose of its property as its boardthought "necessary or expedient for the purpose of attaining the objects of the Trust".Even if the invalidations were determined to undermine the first respondents' authorityas the Kelston trust's board to resolve to transfer, there are questions if transfer asoccurred also necessarily was in breach of trust or if the NZMA could have knownprior to the consent order it was such. The allegation remained to be proved, and thesettlement agreement means the applicants now cannot do so. Their second cause ofaction must be dismissed.[22] It is unclear to me if the applicants' alternative cause against the NZMA orcause against the Registrar are maintained, given the absence of argument on them.[23] Ismail Khan's evidence was he called the NZMA's Saiyad Khan on16 August 2018, who "confirmed that he had received the [10 August 2018] letter andsaid he would text me his email address so we could communicate by email in relation8 See discussion in Mangawhai Ratepayersʼ & Residentsʼ Association Inc v Northland RegionalCouncil [2017] NZHC 1972 at [15] (not upset on appeal in Northland Regional Council v Rogan[2018] NZCA 63, [2018] NZAR 507 at [82]: "[c]ommon sense and proportionality have a role toplay", citing West Coast Province of Federated Farmers of New Zealand (Inc) v Birch CA25/82,16 December 1983 at 9 and 30; Magna Carta 1297 (Eng) 25 Edw I, c 29; Petition of Right 1627(Eng) 3 Cha I, c 1; and Bill of Rights 1688 (Eng) 1 Will and Mar Sess 2, c 2, art 4), citing Martinv Ryan [1990] 2 NZLR 209 (HC) at 238–240 and Smith v Attorney-General [2016] NZHC 136,[2017] NZAR 331.9 Murray v Whakatane District Council [1999] 3 NZLR 276 (HC) at 320.to ongoing discussions"; the email address was provided at 4.11 pm that day, I infer,shortly after the telephone call and well after the transfer's conclusion in the morning.[24] Ismail Khan did not elaborate on the 'ongoing discussions', except on18 August 2018 to request of Saiyad Khan by email for NZMA's response to the letterand the ensuing correspondence. Nothing in that exchange is capable of inducing anyassumption the transfer had been paused. That no assumption was induced isillustrated by Ismail Khan's request for a response to the letter's demand for anundertaking not to progress or proceed with the transfer, which response then wouldhave been superfluous if the transfer had been paused. The request's phrasing, allegingNZMA's "interference", runs counter to any assumption having been induced.Ismail Khan followed up on his email to reinforce "before any commitment to meetand talk please reply our counsels email", confirming no assumption was induced. Thethird cause of action will be dismissed.[25] Notwithstanding its separate pleading, I apprehend the claim against theRegistrar is intended to be remedial rather than freestanding. If I am wrong in that, on3 September 2018, the Registrar dissolved (rather than 'de-registered') the Kelstontrust on the statutory ground she was satisfied it no longer was carrying out itsoperations. The improprieties pleaded against the Registrar are not material to thatground, which is established by the Kelston trust's 14 August 2018 winding upresolution. The fourth cause of action will be dismissed.Result[26] The applicants' second, third and fourth causes of action are dismissed.Costs[27] In my preliminary view, from what I presently know — as the unsuccessfulparties in this averagely complex proceeding requiring counsel of average skill andexperience, and in which a normal amount of time is considered reasonable for eachstep on the application — the applicants should pay 2B costs and disbursements to theNZMA. I would allow for second counsel as part of the proceeding's 'average'characterisation.[28] If my view is not accepted by the parties, or they cannot otherwise agree,I reserve costs for determination on short memoranda each of no more than five pages— annexing a single-page table setting out any contended allowable steps, timeallocation and daily recovery rate — to be filed and served by the defendants withinten working days of the date of this judgment, with any response or reply to be filedwithin five working day intervals after service.—Jagose JCounsel/Solicitors:I M Hutcheson, Barrister, AucklandP C Murray, Barrister, AucklandThe Small Law Firm Ltd, AucklandNewton Law, AucklandLuke Cunningham Clere, WellingtonCrown Law, Wellington