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Charitable trust fails to secure return of assets after invalid alterations and termination of trustees

28 Apr 2023

| Author: Heidi Bendikson

Judicial Review Procedure Act 2016 – application for judicial review of transfer of trust property following invalid alteration of trust deed and termination of trustees – applicable principles – knowing receipt – equitable estoppel – impact of settlement order with first respondent – impact of consent order determined invalid alterations and removal of trustees – deregistration and dissolution of charitable trusts – whether de-registration of charitable trust improper– application dismissed

Khan V New Zealand Muslim Association [2023] NZHC 802 [18 April 2023]

Khan and the other applicants (K), along with Hussain and the other first respondents (H), were trustees of the Abu Harairah Trust Kelston (the Kelston Trust). Among the Kelston Trust’s assets were a mosque, Islamic centre, and cash obtained through charitable donations.

The Kelston Trust suffered years of internal conflicts. K were purportedly removed as trustees and there were disputed alterations to the trust deed.

In 2018, H, as trustee of the trust, resolved to come under the banner of the New Zealand Muslim Association (NZMA). They proposed to NZMA that all trust assets be transferred to them in accordance with Charities Commission rules.

The Kelston Trust filed de-registration documents with the Charities Commission, advising they were merging with another charity and seeking dissolution of their trust board.

K’s counsel wrote to NZMA advising they had filed an application for judicial review regarding the trust’s disputes and seeking an undertaking that NZMA would not progress the transfer of Kelston Trust’s assets. No such undertaking was given, nor was an interim injunction sought by K. The transfer of assets was effected later the same month.

Less than a year later, the High Court determined by consent order that the dissolution of K as trustees of the Kelston Trust and certain alterations to the trust deed were invalid.

K now seeks to recover the Kelston Trust assets through judicial review.

Before the case was heard, K and H entered a settlement agreement under which K agreed to withdraw proceedings against H and H agreed not to take part in the proceedings.

That left open K’s second and third causes of action against NZMA: knowing receipt of the Kelston Trust assets from a transferee allegedly in breach of trust and equitable estoppel on the basis that NZMA caused K to believe it would not proceed with the transfer. A third cause of action against the Registrar of Incorporated Societies sought revocation of the trust’s “de-registration”. However, opening and closing arguments at the hearing focused solely on knowing receipt.

Applicable principles – High Court found there was an immediate difficulty with the pleadings taken in conjunction with the settlement agreement, meaning no breach of trust could be alleged of H and accordingly the claim of knowing receipt must fail – discussion of whether any level of inquiry by NZMA could have elevated disputed alterations to trust’s deed and disputed termination of Ks’ trusteeships to determinations of invalidity or breach of trust (High Court found it could not) – consideration of the impact of consent order – equitable estoppel – High Court found nothing in the exchange between K and NZMA’s counsel capable of inducing assumption that transfer had been paused – whether the registrar was improper in “de-registration” – High Court found registrar dissolved (rather than ‘de-registered’) the Kelston Trust on the statutory ground that it was no longer carrying out its operations.

Held: Application dismissed. Applicants were ordered to pay 2B costs and disbursements to the NZMA.


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