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[2016] ZAWCHC 132
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Rademeyer & Another v Rademeyer & Another N.O. (8358/2016) [2016] ZAWCHC 132 (14 September 2016)
IN THE
HIGH COURT OF SOUTH AFRICA
(
WESTERN
CAPE DIVISION, CAPE TOWN
)
CASE
NUMBER
: 8358/2016
DATE
:
14 SEPTEMBER 2016
In the matter between:
ABSA BANK
LIMITED
Intervening
Creditor
JOHANNES
GERHARDUS FREDERIK
First
Respondent
RADEMAN
CATHARINA
WILHELMINA
RADEMAN
Second Respondent
JOHANNES
GERHARDUS
FREDERICK
Third Respondent
RADEMAN N.O.
CATHARINA
WILHELMINA RADEMAN
N.O.
Fourth
Respondent
In the re application for
sequestration:
JOHANNES
GERHARDUS
FREDERIK
First Applicant
RADEMAN
CATHARINA
WILHELMINA
RADEMAN
Second Applicant
and
JOHANNES
GERHARDUS FREDERICK
First Respondent
RADEMAN N.O.
CATHARINA
WILHELMINA
RADEMAN
Second Respondent
N.O.
Both in their respective capacities as
Trustees of Johan Rademan Familie
Trust No. 1-IT 997/2000
EX
TEMPORE JUDGMENT
ROGERS
J
:
[1]
This is the extended return day of a provisional order of
sequestration. Absa Bank Limited (‘Absa’) seeks
leave to intervene and to oppose the application. The applicants have
responded to Absa’s allegations and the merits of the
sequestration have been debated in the event that I allow Absa to
intervene.
[2]
Very briefly by way of background, Absa lent money to a trust of
which the applicants are the sole trustees. The loan was secured
by a
mortgage bond. The trust fell into default and the bank took out
legal proceedings against the trust which resulted in a judgment
in
favour of the bank delivered by my colleague Binns-Ward J on 28
October 2014. Applications for leave to appeal to the Supreme
Court
of Appeal and the Constitutional Court were rejected by those courts
on 28 April 2015 and 27 June 2015 respectively.
[3] On
7 April 2016 the mortgaged property, which appears to be the only
asset of the trust and the applicants’ personal residence,
was
sold in execution of the bank’s judgment for a price of R3
million.
[4] On
17 May 2016, that is about six weeks after the sale in execution, the
applicants brought an urgent application for the trust’s
sequestration to be heard the following day. Mr Rademan, who made the
founding affidavit, said that the applicants in their personal
capacities had locus standi to bring the sequestration application
because the trust was indebted to them personally in the sum
of R2,3
million. On 18 May 2016 Van Staden AJ granted the provisional order
returnable on 17 June 2016.
[5] The
provisional order having come to Absa’s attention. it gave
notice to intervene and oppose, as a result of which on
17 June 2016
the matter was postponed to today for hearing on the semi-urgent roll
with a timetable. Further affidavits have been
exchanged. Mr Benade
appears for the applicants for sequestration and Ms Treurnicht for
Absa.
[6]
Although the intervention is opposed by the applicants, there is no
merit in that opposition. The rule nisi called upon interested
persons to show cause why the provisional order should not be made
final. It is common cause that Absa is a creditor of the trust.
Indeed on the applicants’ version it is the only creditor apart
from themselves. The bank was thus entitled to appear to
show cause.
I am not sure that Absa strictly speaking had to intervene but if
such intervention were necessary it plainly
must be granted.
[7]
Turning to the sequestration application itself, I raised with Mr
Benade a preliminary matter not raised by Absa, namely whether
it was
permissible for the applicants in their personal capacities to
institute proceedings for the sequestration of a trust citing
themselves nomine officii as the representatives of the trust.
[8]
Sequestration proceedings are at least potentially adversarial which
is why the debtor to be sequestrated is cited. The debtor
might or
might not choose to oppose the proceedings. There must always be two
sides in adversarial litigation. In
Enyati
Resources Ltd & Another v Thorne NO
1984
(2) SA 551
(C) Berman AJ (as he then was) said that although a person
may have different capacities he is nevertheless a single person and
cannot feature on both sides of litigation. That puts one in mind of
the observation of another judge that a man can wear two hats
but
only has one head.
[9] The
principle appears to me to be sound. There is an obvious conflict of
interest where the only trustees of a trust to be sequestrated
are
facing a sequestration application effectively from themselves. The
position in other Commonwealth jurisdictions appears likewise
to be
that a person cannot take out proceedings against himself in a
representative capacity. Many of the cases are discussed in
an
Australian judgment
Hayes v Hayes
[1994] NSWCC 7.
Reference can also be made to
Gross
& Others v Pentz
[1996] ZASCA 78
;
1996 (4) SA 617
(A) at 627D-G citing an old Transvaal case. That was in the context
of explaining why in certain circumstances beneficiaries of
a trust
can take out proceedings against the trustees for delinquency
inter
alia
on the basis that the trustees
could not take out proceedings against themselves.
[10] I
think that this is a sufficient basis to find that the present
proceedings are fatally defective. This does not mean that
the
applicants were without a remedy if they thought the trust should be
sequestrated. They could have caused the trust to apply
for voluntary
surrender subject to compliance with the provisions of the Insolvency
Act for that type of procedure. Failing that,
it seems that the only
remedy would be to resign as trustees so that the trust could be
represented by other and hopefully independent
persons.
[11]
However, since this point was not fully argued and since it might
only present a temporary obstacle in the way of the trust’s
sequestration, I think I should deal with Absa’s grounds of
opposition. In regard to Mr Benade’s submission that Absa’s
deponent did not duly establish his authority to represent the bank
in opposing the sequestration, my view is that the objection
cannot
be taken in the way it has. The bank’s application for
intervention and for the dismissal of the sequestration application
was presented as a notice of motion signed by a firm of attorneys, as
was the notice of opposition filed a few days before.
[12]
Rule 7 provides a method by which a litigant can challenge the
authority of attorneys who file such documents to establish
that the
relief claimed or the opposition is authorised by the litigant.
My understanding of the judgments of the Supreme
Court of Appeal is
that rule 7 provides the only way in which such authority can be
challenged. See
inter alia
Ganes and Another v Telecom Namibia Ltd
2004 (3) SA 615
(SCA) at 624-625 and
Unlawful
Occupiers, School Site v City of Johannesburg
2005
(4) SA 199
(SCA) paras 14-16. A deponent who swears to the affidavit
in support of the application or opposition is merely providing
evidence
and does not need to establish or prove authority. If the
applicants were concerned that Absa had not authorised intervention
and
opposition, they should have challenged the attorneys’
right to file the documents which they did, in which event the
attorneys
would in all probability have procured a resolution.
[13] In
any event it seems to me that the allegation by the deponent, Mr
Coetsee, sufficiently alleges authority. He says he is
duly
authorised to depose to the affidavit. From the nature of his
position that seems inherently plausible. Mr Benade cited the
decision of
Mall (Cape) (Pty) Ltd v
Marino
Korporasie Bpk
1957 (2) SA 347
(C). On my reading of the
relevant part of that judgment (at 352-353), an allegation in very
similar terms was found to be sufficient.
If the deponent says that
he is authorised to depose to the affidavit and proceeds to say that
the bank wishes to intervene and
oppose, that covers the opposition
as well as the giving of the evidence. I therefore reject the
preliminary objection.
[14] On
the assumption, then, that the applicants in their personal
capacities can in these particular circumstances bring the
application, Absa contends that the founding affidavit contains
inadequate information about the applicants’ supposed claim
of
R2,3 million. The sum total of what is said in that regard is
contained in para 9 of the founding affidavit which reads, and
I
translate, that the Rademans have a liquidated claim against the
trust in the amount of R2,3 million and that the claim is unsecured.
Later, in the setting out of the assets and liabilities of the trust,
the applicants’ claim of R2,3 million is repeated with
reference to an annexure signed by an accountant confirming that the
trust owes the applicants R2,3 million in respect of monies
lent for
building costs incurred. Very little, if anything, was added in the
replying affidavit after the objection to the paucity
of information
was made. The same letter from the accountant was filed and it was
said that in the course of the sequestration
the applicants would
provide full documentary proof of the claim.
[15] I
think, particularly in a friendly sequestration of this kind, that
something more is required. One does not know when the
money was lent
or precisely what it was lent for. No documents at all have been
supplied to vouch for the fact that the money was
lent. There is in
the replying affidavit an attachment, being financial statements of
the applicants in their personal capacities,
which reflects the claim
of R2,3 million against the trust but this does not take the matter
much further. The said financial statements
contain a qualification
by the accountant who furnished the certificate of indebtedness to
the effect that he had conducted no
audit and could thus not express
confirmation of the particulars. It thus seems that his
knowledge does not go further than
what the applicants have told him.
[16] I
thus think that, in the face of an explicit challenge to the adequacy
of the information, not enough has been provided to
meet the test of
establishing a liquidated claim at the final stage of sequestration
proceedings.
[17] In
regard to the question whether the trust is insolvent, it seems that
on both sides’ versions of the value of its only
asset this is
likely to be the case. It does not follow, however, that the
sequestration would be to the benefit of creditors,
ie whether, as
laid down in section 12, there is reason to believe that it will be
to the advantage of creditors for the trust’s
estate to be
sequestrated. That is obviously a higher test than at the provisional
stage since this must be established not only
prima facie but on a
balance of probability, including (where the facts are disputed) in
accordance with the
Plascon-Evans
rule.
[18]
The case one has here is rather unusual. The trust’s only asset
has been sold at a duly advertised sale in execution
for a sum of R3
million. The applicants contend that there would be a benefit to
creditors because the true value in accordance
with the valuation
annexed to the founding papers is between R4,5 million and R5
million. Absa has provided a valuation stating
that the value is only
R3,8 million. I take both of these to be what one might call an
ordinary market valuation rather than forced
sale values.
[19] I
cannot on the material before me say that the applicants’
valuation is right and Absa’s valuation wrong. As far
as I
recall, I do not have affidavits from either of the valuers in
support of the valuations.
[20] Mr
Benade argued that in insolvency a trustee would be able to sell the
property by private treaty and might thus be able to
achieve the
property’s ordinary market value, even if that value were R3,8
million rather than the higher figure furnished
by the applicants’
valuer. However it seems to me that in insolvency a trustee is
obliged to proceed to realise the property.
This is also a form of
execution and will also thus generally give rise to a forced sale. It
may be that an insolvency trustee
has greater flexibility than an
execution creditor but that also comes with additional costs. Here
the costs of the sale in execution
have already been incurred. If
there is a sequestration, the trustees’ fees in addition to any
estate agent’s commission
or auctioneer’s commission will
have to be defrayed out of the property’s value.
[20]
One must also take into account what would happen to the proceeds of
the sale. Absa’s claim currently exceeds R5 million
so that if
it was secured to the full extent of its claim there would not, even
on the applicants’ version, be anything left
for concurrent
creditors. Mr Benade submitted that the bank’s security is in
fact limited to R3 million, being the sum of
the two mortgage bonds
in the respective amounts of R2,6 million and R400 000.
[21]
The affidavits themselves do not contain allegations as to the extent
of the bank’s security. Mr Benade relied for his
submission on
the bond information contained in the valuation attached to the
founding affidavit. While I have no reason to think
that the
information in the valuation report is inaccurate, this is a very
unsatisfactory way of proceeding. The founding papers
should clearly
set out the extent of the secured creditor’s claim so that the
question of advantage to creditors can properly
be assessed.
[22]
Furthermore the sums which Mr Benade mentioned and which are
reflected in the valuation report are not necessarily the full
secured sums. I have a signed version of what was the first of
apparently two loan agreements entered into between the bank and
the
trust. The agreement indicates that the bond would be in the sum of
R2,6 million with an additional amount of R520 000
which would
thus come to R3,12 million. Precisely what the additional sum covers
is not known because I do not have the bond but
typically an
additional sum, while it might not cover interest, would cover legal
costs incurred in enforcing the mortgagee’s
claim as well as
fees, commissions and the like.
[23] It
is a fair supposition that the bond of R400 000 contains a similar
allowance for an additional sum. If it was 20%,
as in the case
of the first bond, the second bond would secure a total amount of
R480 000.
[24]
The sum of the two bonds would thus come to R3,6 million. Even if
only R3 million were security for the capital and interest
of the
bank’s claim, one knows that there has been extensive
litigation. The matter in which Binns-Ward J gave judgment was
a
trial action and there were subsequent applications for leave to
appeal to the Supreme Court of Appeal and the Constitutional
Court.
It may thus well be that the bank will be entitled to the amount of
R3,6 million as a secured creditor. At any rate the
applicants have
not provided sufficient information for me to conclude that this is
not the position. If the property were sold
for R3,8 million, being
the bank’s ordinary market valuation, then – after
allowance of costs associated with the sequestration
process and the
selling of the property – there would be nothing left for
concurrent creditors.
[25] In
regard to the value of the property, one may also wonder why, if the
property was worth as much as the applicants claim
it is, they have
not found a purchaser and introduced the purchaser to the bank. It
would clearly be in Absa’s interests
to obtain the best value
for the property. It seems on any reckoning that the bank is not
going to recover its full claim by way
of its security. The fact that
the bank had a claim against the trust and that the property were
specially executable in respect
of the bank’s claim was finally
determined in June 2015 when the Constitutional Court dismissed the
trust’s petition
for leave to appeal. The applicants knew for
more than a year that the property would be sold at execution.
[26]
There was in fact a prior sale in execution scheduled for 23
September 2015. On the day before that sale was due to take place,
the trust’s former attorneys brought an application for the
trust’s sequestration. The result was that the sale in
execution had to be postponed. According to the bank’s
deponent, the trust’s former attorneys only withdrew the
sequestration
application after papers had been filed and the matter
enrolled for hearing and after the bank had filed heads of argument.
[27] I
am not sure I can find that the first sequestration application was a
friendly one. According to the applicants, they dispute
the quantum
of their former attorneys’ fees. Nevertheless they were aware
of the first sequestration application and they
must have been aware
that another sale in execution would follow yet they did not, through
estate agents who might think that the
property is R5 million, find
somebody prepared to pay that sum. I do not know whether they have
tried.
[26] In
the circumstances, and treating the value of the property as being no
more than R3,8 million and probably less in a forced
sale scenario, I
do not think that the applicants have shown a benefit to creditors.
However, if that has been shown, it is at
best marginal, in which
case the question of the court’s discretion comes into play. If
a creditor has made out a case, then
the court will not ordinarily
exercise a discretion to refuse sequestration if the person
requesting a favourable exercise of the
discretion is the debtor
himself. See
First Rand Bank Ltd v Evans
2011 (4) SA 597
(KZD) para 27.
[27]
Here, however, it is another creditor – apparently the only
other creditor and certainly the largest creditor –
who is
opposing confirmation of the provisional order. Furthermore the
creditor does so not only on the basis of inadequacies in
the
founding papers and benefit to creditors but alleging that the
applicants have been guilty of an abuse of the process. I regret
to
say that I indeed regard their application for sequestration as an
abuse. Even if the applicants were not behind or associated
with the
previous sequestration application, I think it was reprehensible for
them to bring the second sequestration application
effectively ex
parte. They must have known that Absa, if it were given notice of the
application for provisional sequestration,
would oppose.
[28]
The founding affidavit in support of sequestration made only the
barest mention to the fact that a judgment had been granted
against
the trust. There was no reference to the judgment of Binns-Ward J,
when it was delivered or the fact that petitions for
leave to appeal
had been refused. There was no mention of the previous sequestration
application and its effect on a previously
scheduled sale in
execution. There also was and is no satisfactory explanation as to
why, if the sale in execution took place on
7 April 2016, they waited
more than six weeks to bring the sequestration and then effectively
did so on less than 24 hours’
notice and ex parte insofar as
Absa is concerned.
[29]
They also provided extremely scanty information about their claim and
of certain other matters which I have mentioned. I cannot
but
conclude that a judge properly informed of the relevant circumstances
would not have granted a provisional order there and
then but would
have required notice to Absa. If the property achieves more than the
bank’s secured claim and if this surplus
is appreciable, the
applicants’ (if they establish their claim for R2.3 million)
will get some modest share as concurrent
creditors but the property
also serves as their primary residence and I have little doubt that
the sequestration was an attempt
to stave off having to give up the
property.
[30]
Absa has had to litigate a long way to get finality and there has
already been one cancelled sale in execution. Nothing has
been shown
to indicate that the second sale in execution was not properly
advertised and I do not think it would be in the interests
of justice
to accede to the applicants’ request effectively for further
delay in the mere hope that something appreciable
above the execution
sale price would be achieved.
[31] For all
these reasons I make the following order:
1.
THE INTERVENING CREDITOR, ABSA BANK LIMITED, IS GRANTED LEAVE TO
INTERVENE AND TO OPPOSE THE CONFIRMATION OF THE PROVISIONAL
ORDER OF
SEQUESTRATION.
2.
THE PROVISIONAL ORDER OF SEQUESTRATION IS DISCHARGED AND THE
APPLICATION FOR SEQUESTRATION DISMISSED.
3.
THE APPLICANTS ARE DIRECTED TO PAY THE INTERVENING CREDITOR’S
COSTS OF INTERVENTION AND OPPOSITION, INCLUDING THE COSTS
OF 17 JUNE
2016.
__________________
ROGERS J