Prasad v Parai [2012] NZHC 2858; [2013] 1 NZLR 444; (2012) 3 NZTR 22-032 (31 October 2012)

Last Updated: 26 January 2018

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-003530 [2012] NZHC 2858

UNDER the District Courts Act 1947

IN THE MATTER OF an appeal against the judgment of the

District Court at Manukau in CIV 2008-

092-2598 given on 24 May 2012

BETWEEN DEO PRASAD Appellant

AND PUKERUA PARAI, PI ELISAIA, FRANK RODNEY STOWERS,

CAREN JANE RANGI, LOUISA RYAN, TRUSTEES OF THE PACIFIC ISLAND HOMECARE SERVICES TRUST Respondents

Hearing: 15 and 19 October 2012

Counsel: M R T Colthart for the Appellant

A H J Commons for the Respondents

Judgment: 31 October 2012

_{JUDGMENT OF DUFFY J}

This judgment was delivered by Justice Duffy on 31 October 2012 at 12.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

_Date:

PRASAD v PARAI and ORS HC AK CIV-2012-404-003530 [31 October 2012]

[1] The appellant, Deo Prasad, appeals against a decision of the District Court at Manukau. That decision found that Mr Prasad had to account to the defendants as the trustees of a charitable trust for profit of approximately $47,000 that Mr Prasad had made on the sale of a property that Mr Prasad purchased, using trust funds of

$43,000 to pay the deposit. Mr Prasad contends that he should not be liable to account to the charitable trust for this profit. The trustees oppose the appeal.

Background

[2] Mr Prasad was a trustee and the general manager of the Pacific Island Homecare Services Trust Board (“the Trust”) from 1995 until May 2010. The Trust is registered as a charitable trust board under the Charitable Trusts Act 1957. It provides homecare and personal care to elderly and disabled people, such as people with dementia, paraplegics and tetraplegics. It has approximately 600 clients in the Counties Manukau area. Its funding is from the local District Health Board and the Ministry of Health.

[3] While an employee and trustee of the Trust, Mr Prasad attended the auction for the sale and purchase of a property at Papatoetoe. He successfully purchased this property at the auction, paying the deposit with a Trust cheque of $43,000. The property was then on-sold by Mr Prasad. There was a contemporaneous settlement date of 6 November 2008. The sale by Mr Prasad to another person was at a higher price than the price for which Mr Prasad purchased the property; he made a net gain of $47,410.50. Mr Prasad later paid $500 to the Trust. He has retained the balance of the gain for himself.

District Court decision

[4] The District Court Judge found that Mr Prasad had purchased the property in breach of his fiduciary obligations to the Trust, and therefore he was liable to account to the Trust for the profit he made on the property’s resale. Where Mr Prasad’s evidence was in conflict with that of the other trustees, the Judge preferred their evidence to that of Mr Prasad.

[5] The Judge made unfavourable findings on Mr Prasad’s credibility as a witness. At [35] of the judgment the Judge found:

He [Mr Prasad] failed to account for the true profit until April 2010 [approximately 18 months after purchasing and on selling the property], despite having every opportunity to do so earlier and while responding to specific questions designed to elicit that information. He resolutely gave away the minimum he felt able to reveal, and hung on steadfastly not only to his account for what had transpired but also the profit. Greed and dishonesty are redolent in his behaviour.

[6] Regarding Mr Prasad’s claims that he had only offered to repay the profit at the disciplinary meeting after coming under duress from the respondents, the Judge found that Mr Prasad was under no illegitimate pressure to do so.

Approach to appeal

[7] Section 75 of the District Courts Act 1947 states that general appeals shall be by way of rehearing. The principles relating to appeals by way of rehearing were considered by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141, which made it clear that the appellate court is required to come to its own view of the merits, both on questions of fact and law. That means that the matter will be argued again on the evidence as presented before the District Court Judge. The appellate court may draw different inferences from the evidence where these are warranted, though an appellate court will be cautious about departing from the first instance Judge’s views on questions of a witness’ credibility or reliability. At [5], Elias CJ stated:

The appeal court may or may not find the reasoning of the tribunal persuasive in its own terms. The tribunal may have had a particular advantage (such as technical expertise or the opportunity to assess the credibility of witnesses, where such assessment is important). In such a case the appeal court may rightly hesitate to conclude that findings of fact or fact and degree are wrong. It may take the view that it has no basis for rejecting the reasoning of the tribunal appealed from and that its decision should stand. But the extent of the consideration an appeal court exercising a general power of appeal gives to the decision appealed from is a matter for its judgment. An appeal court makes no error in approach simply because it pays little explicit attention to the reasons of the court or tribunal appealed from, if it comes to a different reasoned result. On general appeal, the appeal court has the responsibility of arriving at its own assessment of the merits of the case.

And later at [13]:

The appeal court must be persuaded that the decision is wrong, but in reaching that view no “deference” is required beyond the “customary” caution appropriate when seeing the witnesses provides an advantage because credibility is important. Such caution when facts found by the trial judge turn on issues of credibility is illustrated by Rae v International Insurance Brokers (Nelson Marlborough) Ltd and Rangatira Ltd v Commissioner of Inland Revenue.

Discussion

Breach of trust

[8] Mr Prasad accepted that for him to succeed on appeal, he needed to persuade me to take a different view of his credibility as a witness. It is never easy on appeal to challenge findings on credibility. Bearing in mind the advantage the trial judge has when it comes to assessing the credibility and reliability of oral testimony, I have considered the evidence to see if there is anything that would support Mr Prasad’s explanation of the material events such that I could conclude the Judge was wrong to disbelieve Mr Prasad’s evidence. I have given careful consideration to the evidence and to the arguments advanced for Mr Prasad. In the end, I have concluded that there is nothing of sufficient weight to lead me to conclude that the Judge reached the wrong factual conclusions.

[9] Mr Prasad’s evidence in explanation for his conduct was that he believed he had the Trust’s authority to purchase the Papatoetoe property. He attended the auction of the property and was successful in buying the property for $430,000. Because the signatures of two trustees were required on any legal documents, he signed up as a buyer in his own name, but with provision for a nominee. He intended to nominate the Trust as purchaser. He said this approach was taken on the advice of the real estate agent handling the sale. Later, when he told another trustee, Anderson Tulutu, about the purchase, Mr Tulutu said he wanted nothing to do with the property. Because Mr Prasad believed that decisions of the trustees had to be unanimous, he believed that the Trust would not complete the purchase and that he would be left personally liable for the purchase. Thus, he arranged for the property to be put back on the market. He was able to find a buyer who was prepared to pay

around $47,000 more than Mr Prasad was to pay for the property and with a contemporaneous settlement. In this way, he was able to acquire the property himself without having to use any funds beyond the Trust’s $43,000.

[10] When viewed in this way, Mr Prasad’s use of the Trust’s funds has an innocent explanation, which places him in the role of being a victim of the Trust’s change of stance regarding the purchase of a property and so having to take steps to save himself from personally having to perform the sale and purchase agreement at a cost to himself. If the Judge had accepted Mr Prasad’s explanation, there would have been no adverse findings on Mr Prasad’s honesty and he may have been able to establish a basis in equity for personally retaining some of the profit that resulted from the on-sale of the property.

[11] However, the evidence from two other trustees was contrary to Mr Prasad’s account. On their evidence, he had purchased the property without the Trust’s authority. He had used for the deposit a Trust cheque that Pastor Parai, another trustee, had pre-signed (two trustees signatures were required) in the belief the cheque was to be used to fund general expenses. The Trust appears to have been well funded as in 2008 it had surplus funds of $1.4M, which it was considering investing in real estate or currency trading. In another context, Mr Tulutu said that transactions of $43,000 were not uncommon and he described the Trust as “turning over millions”. The other trustees say that Mr Prasad had on-sold the property before they even knew he had purchased it, so that by the time he was questioned about the use of the Trust cheque and before they could have given any thought to confirming or ratifying the purchase, the property was already lost to the Trust. Further, the fact that the property was on-sold and the resulting profit only became known to the other trustees much later on.

[12] On this view of events, there can be no innocent explanation for Mr Prasad’s conduct. Any dissatisfaction the trustees might have expressed about the purchase would have come after the property was on-sold and so could not be used to justify Mr Prasad’s decision to complete the purchase personally and to deal with the property thereafter as if it had been his own.

[13] Faced with a conflict in the evidence of Mr Prasad and Mr Tulutu regarding

when they discussed the purchase of the property and the use of the Trust’s cheque of

$43,000 as a deposit, the Judge squarely addressed the conflict by finding at [30]- [31] of the judgment that he accepted the evidence of Mr Tulutu in preference to that of Mr Prasad. The Judge concluded that the discussion had not occurred on

24 October 2008, but some time later, most likely December 2008 and after the two transactions for the property had settled.

[14] The Judge reasoned at [33] that:

Even if Mr Tulutu had been adamantly against the purchase, all Mr Prasad needed to do, had he been truly authorised to act as he insisted by the Board, was to nominate [the Trust] as the purchaser – all personal liability was [sic] have evaporated.

[15] Mr Prasad contends that this was a legal error on the part of the Judge which influenced the Judge’s finding about when the discussion occurred. Here, Mr Prasad relies on the legal principle that the purchaser to a sale and purchase agreement which provides for a nomination cannot avoid liability simply by naming another party as the nominee. Because the purchaser always remains liable, Mr Prasad contends that had the Judge been aware of this, he would have realised the significance of Mr Prasad’s evidence that he believed the Trust would not complete the transaction. Since he would be left personally liable for it, he needed to act to protect himself from this outcome. Hence, the on-sale of the property.

[16] This argument has some initial appeal, but it does not bear close scrutiny. Its acceptance hinges on reading [33] of the judgment as stating the bald proposition that liability under the sale and purchase agreement could be avoided simply by reliance on the power to nominate another purchaser. I do not understand [33] to say that. The paragraph needs to be read in the context of the judgment overall. The Judge was dealing with two competing versions of events where Mr Prasad had contended that he had started out by purchasing the property on behalf of the Trust with the Trust’s authority. The Judge’s statement in [33] can be understood to mean that so far as the Judge was concerned, if Mr Prasad had bought the property in circumstances where the Trust had authorised him to do so, then he could nominate the Trust as purchaser, and if the Trust rejected the nomination, he could avoid

personal liability by requiring the Trust to perform the transaction it had authorised him to make on its behalf. Whilst, in general, a purchaser cannot avoid liability by naming a nominee as purchaser under an agreement for the sale and purchase of land, a purchaser in the circumstances as Mr Prasad has outlined them to be could do so. The situation may have become complicated in terms of potential litigation and the nomination would have been no direct answer to a claim by the vendor to enforce performance of the contract, but Mr Prasad could have joined the Trust to any such claim and if his account of events was true and correct, it is hard to see how he could have been left personally liable. After all, the general legal position is that an agent has a right against his principal to be indemnified against all liabilities incurred in the execution of his authority: Peter Watts (ed) Bowstead and Reynolds on Agency (19th ed, Sweet & Maxwell, London, 2010) at [7-056].

[17] The statement that Mr Prasad could have avoided personal liability by nominating the Trust was qualified at [33] by “had he truly been authorised to act”. This is enough to satisfy me that the Judge was not making a general reference to how the law treats the liability of purchasers and their nominees, but to what the legal consequences would have been in the circumstances as described by Mr Prasad. When seen in this way, there is no legal error on the part of the Judge. Thus, there is nothing to undermine his conclusion that he preferred Mr Tulutu’s evidence to that of Mr Prasad when it came to the timing of their discussion and its tenor.

[18] Later, at [35], when the Judge made his finding of dishonesty and breach of fiduciary obligation, the Judge referred to Mr Prasad being an employee and trustee. Mr Prasad argues that the Trust has always accepted the purchase of the property was outside his usual authority as an employee. Thus, Mr Prasad contends the Judge made another legal error. But I do not read the reference to Mr Prasad being a trustee and employee as being directly related to any basis on which he bought the property. Rather, I see the reference being made as part of the context against which the Judge was assessing Mr Prasad’s overall character. As an employee, he owed duties of fidelity and good faith to his employer. The Judge found he was not forthcoming and open with his employer and that, in essence, the employer had to go to some lengths to find out what Mr Prasad had done. Given the duties of fidelity

and good faith that he owed to the Trust as his employer, the Trust was entitled to expect that when it sought information from him, he would be more forthcoming than he was. Thus, I see no error in [35] of the judgment.

[19] Mr Prasad has not pointed to any convincing evidence or legal argument that could lead me to conclude that the Judge’s factual findings were wrong. Nor can I see anything that would lead me to this view.

[20] Further, once the Trust authorised a trustee to purchase property on its behalf, it would have to revisit any change of stance at another Trust meeting. It is hard to see how the displeasure (assuming there was any) of one trustee expressed at a discussion between two trustees could amount to the Trust being understood to reject the purchase. If Mr Prasad had truly believed that the Trust had placed him in an invidious position over the purchase of the property, I would have expected him to inform the Trust of this formally and to inform the Trust of the steps he intended to take to relieve himself of the risk that the Trust’s change of stance had imposed on him. Instead, he was silent until such time as the trustees made demands on him to report fully on what had occurred. Ultimately, that did not occur in full until early

2010.

[21] On 26 January 2010, Mr Prasad prepared a report for the trust on how he came to acquire the property. From the date stamp on the report, it appears the Trust received it on 2 February 2010. The report outlines much the same explanation as I have already outlined. Significantly, however, when it comes to the circumstances of the on-selling of the property, Mr Prasad states that (emphasis added):

[He] had to sell the property at a later date as it was not for his geographical area of purchase/investment, however that was after he had financed under his name and paid back the [Trust] its deposit in full.

He went on to say that whatever profit and/or loss he made on the property did not involve the Trust, as the Trust had no vested interest in the property after the $43,000 had been repaid and no involvement at the time of resale of Mr Prasad’s property to another purchaser. These statements were factually incorrect. The property was on- sold before the Trust was repaid the $43,000, as that payment came from the proceeds of the settlement Mr Prasad received on 6 November 2008. At the time the

property was on-sold by Mr Prasad, the Trust did have an interest in it through its funds being used as a deposit by him to purchase it.

[22] Mr Prasad sought to argue that he had acted with the Trust’s authority because the Trust had backdated a letter of authority, which, on Mr Prasad’s view, authorised the purchase of the property. The difficulty with this is that the retrospective authorisation is not a complete answer for Mr Prasad. It cannot correct the wrongful conduct regarding the subsequent on-sale and obtaining of a personal profit. Further, Mr Prasad accepts that this letter of authority was actually written to satisfy the Trust’s auditors; they only raised questions about the use of the Trust cheque in October 2009. This was a year later. The reality is that at the time Mr Prasad used the Trust’s funds to purchase the property, the letter of authority did not exist. Nor can he point to any other form of authority that existed at the time of the purchase. He sought to rely on Board Minutes dated 9 October 2008 but, like the District Court Judge, I do not accept that these Minutes can provide the necessary basis for this authority. Put simply, Mr Prasad cannot point to any convincing evidence to support his contention that he was authorised to purchase the property.

[23] I acknowledge that the letter of authority (backdated to 1 October 2008) could amount to the Trust ratifying the purchase of the property by giving a belated authority for its purchase but by then, the Trust could not purchase it because it had been on-sold. I cannot see how the Trust could ever properly ratify Mr Prasad’s use of the funds to purchase a property when it did not know all the details of the purchase, including the fact the property was not available for it to own, that it had already been on-sold by Mr Prasad for a profit that he kept for himself. Nor can I see how a charitable trust could ever properly authorise conduct that amounted to a trustee obtaining a personal benefit from the use of trust funds. A charitable trust must act in accordance with its powers under the trust deed and these must be consistent with its charitable purposes. Assisting a trustee to make a personal profit can never be consistent with its charitable purposes.

[24] My own view is that the inferences to be drawn from the most favourable view of the facts for Mr Prasad do not lead to a conclusion in his favour. His conduct does not seem to me to fit with someone who truly finds himself in a

position where he has made himself legally liable for $430,000 at the behest of and on behalf of another party only to find that party has then changed its mind and walked away from the arrangement.

[25] The evidence, therefore, is that Mr Prasad purchased a $430,000 property in his own name using the Trust’s funds as a deposit in circumstances where the Trust had not authorised this and he then on-sold the property in circumstances where the on-sale paid for the balance of his liability for the purchase. This all occurred before the Trust knew anything about the use of its funds. As Mr Prasad was a trustee at the time, this amounts to a breach of trust. Mr Prasad must account to the Trust for any profit he received from his breach of trust: see Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46 (HL). The Judge was right to find Mr Prasad liable in this way and to order him to disgorge the profit that he had made.

[26] Mr Prasad argued he should be permitted to enjoy at least some of the profit from the on-sale of the property, as it was his skill that contributed to the gain: see discussion in Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 on the topic of when an errant fiduciary will be permitted to enjoy some of the gain that he or she has made from a breach of fiduciary obligation. However, in Chirnside the majority of the Supreme Court at [134] distinguished between trustees who necessarily have accepted the obligations of trusteeship and others who by operation of law have fiduciary obligations imposed upon them. Persons in the first category were less likely to be able to retain any gains as a result of a breach of trust. I consider that when a trustee of a charitable trust board acts dishonestly and obtains a personal benefit in breach of trust, it would be contrary to public policy to allow the trustee to retain any of the unlawful gains. A charitable trust has no beneficiaries to, in effect, police the conduct of the trustees. Thus, it is important that, in those circumstances, trustees have no incentive to act dishonestly in breach of trust for personal gain. For this reason, I consider that Mr Prasad cannot be permitted any allowance for his efforts in achieving the gains that flowed from the on-sale of the property.

[27] In addition to finding Mr Prasad had acted in breach of trust, the Judge also found that Mr Prasad had offered to settle the dispute regarding this matter by paying the profit he had made to the Trust. Mr Prasad appeals against this finding as well. Given the finding I have made regarding the breach of trust, this issue is not material to the outcome of the appeal. Nonetheless, as I heard argument on it, I will deal with it. It provides a second reason for why this appeal cannot succeed.

[28] In 2010, there were meetings between the Trust and Mr Prasad regarding his conduct as the Trust’s manager. One of the issues covered by the meetings was Mr Prasad’s misuse of the Trust’s $43,000. At one disciplinary meeting, Mr Prasad was legally represented. On this occasion, in the presence of his lawyer, he twice offered to pay the profit he had received from the on-sale of the property. Later, the Trust wrote to him accepting his offer to pay the profit to it. He now contends that he did this under duress because the Trust was threatening to sue him for the money.

[29] The Judge found that such threats were not illegitimate pressure. This is right. Parties to a dispute can always decide to compromise. A promise not to enforce a valid claim is normally good consideration for a promise given in return: see Hugh Beale (ed) Chitty on Contracts (30th ed, Sweet and Maxwell, London,

2008) vol 1 at [3-047]. Furthermore, even doubtful claims can be compromised in this way: see Chitty at [3-051]. All that is required is that the claim which is to be foreborn is a reasonable claim. Here, the claim the Trust had against Mr Prasad was a reasonable claim; indeed it was a strong prima facie claim for breach of trust. As such, any threat to sue could not be illegitimate pressure. Mr Prasad’s offer to pay the profit to the Trust was accepted by the Trust and that acceptance was supported by consideration from the Trust in the form of the Trust’s forbearance to sue him. This is the standard way in which legal disputes are settled. I consider, therefore, that the Trust and Mr Prasad have concluded a legally binding compromise, which Mr Prasad has breached by non-performance.

[30] It follows that the appeal is dismissed.

[31] The parties have leave to file memoranda on costs. As this is an appeal which involves the Court upholding findings of dishonesty and breach of trust, the parties should address whether those matters bear on the amount of costs that are awarded.

Duffy J

Counsel: M R T Colthart P O Box 535 Shortland Street Auckland 1140 for the Appellant

A H J Commons P O Box 1804 Shortland Street Auckland 1140 for the

Respondents

Copies To: Mike Lucas Law Firm (M A Lucas) P O Box 75144 Manurewa Manukau 2243 (DX EP76006)

Hornabrook Macdonald Lawyers (A G Macdonald) P O Box 91845

Victoria Street West Auckland 1142 (DX CP21015)