Van Zyl and Another NNO v Kaye NO and Others

JurisdictionSouth Africa
Citation2014 (4) SA 452 (WCC)

Van Zyl and Another NNO v Kaye NO and Others
2014 (4) SA 452 (WCC)

2014 (4) SA p452


Citation

2014 (4) SA 452 (WCC)

Case No

1110/14

Court

Western Cape Division, Cape Town

Judge

Binns-Ward J

Heard

March 11-12, 2014

Judgment

April 15, 2014

Counsel

ARG Mundell SC (with DM Davis) for the applicants.
J Bernstein
for the first and second respondents.
JG Dickerson SC (with AM Smalberger) for the sixth respondent.

Flynote : Sleutelwoorde B

Trust — Legal personality — Separate identity — Piercing of trust veneer — Nature of remedy.

C Trust — Legal personality — Sham trust — Nature of.

Evidence — Admissibility — Statement from s 417 enquiry into affairs of company at later civil proceedings — Such admissible, if requirements of s 3 of Act 45 of 1988 met — Companies Act 61 of 1973, s 417; Law of Evidence Amendment Act 45 of 1988, s 3.

D Insolvency — Trustee — Provisional trustee — Actions by and against — Authorisation to proceed — Provisional trustee may apply simultaneously for authority to bring proceedings and for substantive relief — Requirements for grant — Insolvency Act 24 of 1936, s 18(3).

Headnote : Kopnota

In this case the applicants applied to a court for it to 'go behind' a trust and to E disregard its 'veneer' in order to give effect to what they said was the true situation. This they alleged was that it was the alter ego of one K. They contended, following from this, that the assets of the trust ought to be regarded as those of K. (Paragraphs [1] and [14] at 454F – H and 457I – 458B.)

Held, that 'going behind the trust form' and establishing that a trust was a sham had to be distinguished. A trust was a sham and did not exist where the F requirements to establish it had not been met, or where it appeared that they had been met, but that this was a dissimulation. By contrast, 'going behind the trust form' was an equitable remedy for a third party affected by an abuse of the trust form. It entailed accepting that the trust existed, but disregarding the consequences of its existence. It was likely to find application where a trustee treated trust property as his personal property G and used the trust as his alter ego. In such an instance the trustee might, for example, be held personally liable for an obligation he had ostensibly undertaken in his capacity as trustee. Significantly, establishing that an individual used a trust as his alter ego did not in itself render a trust a sham. (Paragraphs [16], [19], [21] – [22] and [28] – [29] at 458E, 459E, 459G – 460G and 464B/C – 466B.)

H Here the applicants had failed to show that the trust was a sham or that K had used it as his alter ego. (Paragraphs [20] and [29] – [30] at 459F – G and 465G – 466C.)

The applicants also sought relief in respect of a company of which K had been the sole director, and which had owned an immovable property. They sought a declaration based on s 20(9) of the Companies Act 71 of 2008, I that the property be treated as an asset in K's insolvent estate.

Held, though, that the requirements of the section had not been satisfied. (Paragraphs [1], [9], [31] and [33] at 454F – H, 456E, 466D and 467B – E.)

Separately, the applicants relied in their papers on evidence given by K at an enquiry under s 417 of the Companies Act 61 of 1973. The respondents objected to its admissibility on the ground of it being hearsay, and applied J to strike it out. The applicants responded by applying for its admission in

2014 (4) SA p453

terms of s 3 of the Law of Evidence Amendment Act 45 of 1988. A (Paragraphs [25] – [26] and [35] – [36] at 463B – F and 468B – F.)

Held, that s 3 allowed the use of evidence from a s 417 enquiry in a subsequent civil proceeding, provided that the requirements of s 3 were satisfied. Here, though, those requirements had not been met and the evidence was thus inadmissible. (Paragraph [44] at 472C – E.)

A further matter was the application by the applicants — the provisional trustees B of K's insolvent estate — for authorisation to institute the proceedings. This was in terms of s 18(3) of the Insolvency Act 24 of 1936. The section requires a provisional trustee to obtain the authorisation of a court in order to bring any legal proceedings. (Paragraphs [2] and [46] at 454I – 455A and 473C – E.)

Held, that it was competent for provisional trustees to apply simultaneously for authority to bring proceedings and for substantive relief. Where they sought C authorisation, they would have to satisfy the court that (1) there was urgency; (2) that the cause of action was prima facie enforceable; and (3) that the interests of the creditors of the insolvent estate would not be prejudiced by the earlier institution of proceedings. Here the applicants had failed to satisfy the court of the second requirement and their application was accordingly dismissed. (Paragraphs [46] and [47] at 473C – E and 473E – G.) D

Cases Considered

Annotations

Case law

Southern Africa

Badenhorst v Badenhorst 2006 (2) SA 255 (SCA) ([2006] 2 All SA 363): E distinguished

BC v CC and Others 2012 (5) SA 562 (ECP): referred to

Bernstein and Others v Bester and Others NNO 1996 (2) SA 751 (CC) (1996 (4) BCLR 449; [1996] ZACC 2): dictum in para [120] followed

Brunette v Brunette and Another NO 2009 (5) SA 81 (SE): referred to

Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd F 2005 (4) SA 389 (D): referred to

Engelbrecht NO and Others v Van Staden and Others [2011] ZAWCHC 447: followed

Ex parte Gore and Others NNO 2013 (3) SA 382 (WCC): referred to

Ferreira v Levin NO and Others; Vryenhoek and Others v Powell NO and Others 1996 (1) SA 984 (CC) (1996 (1) BCLR 1; [1995] ZACC 13): G referred to

James Brown & Hamer (Pty) Ltd (previously named Gilbert Hamer & Co Ltd) v Simmons, NO 1963 (4) SA 656 (A): referred to

Jordaan v Jordaan 2001 (3) SA 288 (C): distinguished

Khabola NO v Ralitabo NO [2011] ZAFSHC 62: referred to

Land and Agricultural Development Bank of South Africa v Parker and Others H 2005 (2) SA 77 (SCA) ([2004] 4 All SA 261): referred to

Nedbank Ltd v Thorpe [2008] ZAKZHC 72: referred to

Nel and Others v Metequity Ltd and Another 2007 (3) SA 34 (SCA) ([2007] 2 All SA 602): referred to

Nieuwoudt and Another NNO v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486 (SCA) ([2004] 1 All SA 396): referred to I

O'Shea NO v Van Zyl and Others NNO 2012 (1) SA 90 (SCA) ([2012] 1 All SA 303): referred to

Rees and Others v Harris and Others 2012 (1) SA 583 (GSJ): referred to

S v Heller 1969 (2) SA 361 (W): referred to

Simmons, NO v Gilbert Hamer & Co Ltd 1962 (2) SA 487 (D): referred to

Simmons, NO v Gilbert Hamer & Co Ltd 1963 (1) SA 897 (N): referred to J

2014 (4) SA p454

The Shipping Corporation of India Ltd v Evdomon Corporation and Another 1994 (1) SA 550 (A): referred to A

Van der Merwe NO and Others v Hydraberg Hydraulics CC and Others; Van der Merwe NO and Others v Bosman and Others 2010 (5) SA 555 (WCC): referred to

Von Wielligh Bester NO and Others v Merchant Commercial Finance and Others B [2014] ZAWCHC 16: followed

Warricker and Another NNO v Liberty Life Association of Africa Ltd 2003 (6) SA 272 (W): dictum at 276H applied.

England

Prest v Petrodel Resources Ltd [2013] UKSC 34: referred to.

New Zealand C

Official Assignee v Wilson [2008] NZCA 122 ([2008] 3 NZLR 45): considered.

Statutes Considered

Statutes

D The Companies Act 61 of 1973, s 417: see Juta's Statutes of South Africa 2012/13 vol 2 at 1-218

The Insolvency Act 24 of 1936, s 18(3): see Juta's Statutes of South Africa 2012/13 vol 2 at 1-549

The Law of Evidence Amendment Act 45 of 1988, s 3: see Juta's Statutes of South Africa 2012/13 vol 1 at 2-814.

Case Information

ARG Mundell SC (with DM Davis) for the applicants. E

J Bernstein for the first and second respondents.

JG Dickerson SC (with AM Smalberger) for the sixth respondent.

An application for orders that properties were part of an insolvent estate. F The order is in para [48].

Judgment

Binns-Ward J:

[1] The applicants, who are the provisional trustees of the insolvent estate of Denis Henry Kaye (Kaye), have applied for orders declaring that two immovable properties, one in Constantia, Cape Town, and the G other in Plettenberg Bay, or the proceeds of any sale of such properties, may be treated as assets in the insolvent estate. The Cape Town property is registered in the name of the JGN Trust (the Trust), and the Plettenberg Bay property as the property of a company, Bella Densel 176 (Pty) Ltd. The two properties are the only assets of the Trust and the H company, respectively. The trustees of the Trust have been joined as the first and second respondents in the application. The company is the fifth respondent. The applicants seek the invocation by the court of its power under the common law to disregard 'the veneer' of the Trust, or to 'go behind' it, for the relief sought in respect of the Cape Town property. They rely on the provisions of s 20(9) of the Companies Act 71 of 2008 [1] I for the relief sought in respect of the Plettenberg Bay property.

[2] The insolvent estate is the subject of a final order of sequestration, but there has not yet been a first meeting of creditors, and final trustees have thus not yet been appointed. The applicants have thus also applied

2014 (4) SA p455

Binns-Ward J

pari passu, in terms of s 18(3) of the Insolvency Act 24 of 1936, for A authorisation to bring the proceedings.

[3] The Cape Town property has been sold by the Trust to the fourth respondent, and transfer to the purchaser is pending. The Plettenberg Bay property is the subject of a pending sale in execution. Merchant B Commercial Finance (Pty) Ltd, trading as Merchant Factors, which was joined as the sixth respondent, holds security bonds over both properties. There is also an application for an...

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