Brief Summary

Attachment — Jurisdiction — Confirmation of attachment order — Appellants challenged the confirmation of an attachment order granted to the first respondent, Harris, to secure a claim for unpaid loan — Court found that Harris established a prima facie case against Rees, who had solicited a loan and failed to repay it — The court also considered whether the Aljebami trust was an alter ego of Rees, allowing for the attachment of its assets — The appeal was dismissed, confirming the validity of the attachment order as the requisite ownership and connection to the claims were established on a balance of probabilities.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned an appeal to the South Gauteng High Court, Johannesburg (Full Bench) against the whole of the judgment and order granted by Horn J. The appeal followed upon an earlier attachment order granted by Claassen J on 11 August 2009. That initial order attached identified assets ad fundandam, alternatively ad confirmandam jurisdictionem in order to found and/or confirm jurisdiction in contemplated actions against a person alleged to be a peregrinus.

The appellants comprised Mr Dean Rees (the first appellant), further appellants cited in representative capacities and corporate entities, including the Aljebami Trust (represented by its trustees) and certain companies. The respondents included Mr Christopher Vause Harris (the first respondent) in his personal capacity and other respondents connected to trusts, although, by the time of the appeal, only Harris persisted in opposing the appeal.

Procedurally, Horn J had dismissed an application seeking the discharge of the earlier attachment and had confirmed the attachment in respect of, among other things, monies in two Investec bank accounts in Rees’ name and various assets connected to the Aljebami Trust. The appeal was brought with the leave of the court a quo and required the Full Bench to determine whether those confirmations were justified in law and on the evidence placed before the court.

The dispute’s general subject matter was whether an attachment to found/confirm jurisdiction could properly extend beyond assets admittedly in Rees’ name to encompass assets held in the name of a family trust, on the allegation that the trust operated as Rees’ alter ego, and whether the evidentiary thresholds applicable to such attachments were satisfied.

Material Facts

It was common cause that Rees was permanently resident in Switzerland, having relocated there in 2009. He was domiciled there, did not maintain a residence in South Africa, and was not practising as an attorney in South Africa. These facts were material because the attachment was sought to found and/or confirm jurisdiction against him as a peregrinus.

Harris alleged that he had an actionable claim against Rees arising from a loan of R1 million advanced to Rees, which remained unpaid despite demand. Rees did not deny that Harris had lent and advanced the money to him, nor did he deny that it remained unpaid. The existence of the loan and non-payment accordingly formed part of the factual basis upon which the court assessed whether Harris had established a prima facie cause of action for the attachment.

The attachment confirmed by Horn J included the attachment of monies standing to the credit of Rees in two specified Investec bank accounts. At the hearing of the appeal, the ownership of monies standing to the credit of Rees in those accounts was not disputed, and it was effectively conceded that, if Harris was otherwise entitled to attach assets to found or confirm jurisdiction, the attachment of those monies was properly made.

A further component of the attachment related to assets associated with the Aljebami Trust, including shareholdings in, and loan accounts against, various companies. Harris contended that the trust was misused by Rees as his alter ego, such that the trust’s assets should be treated as Rees’ assets for attachment purposes. The Aljebami Trust was described on the papers as a family trust, established by trust deed, with Rees as founder, Rees and his wife as trustees, and Rees and his family as beneficiaries. The trust’s introductory capital was stated as R1 000 in 2004.

The judgment recorded that the second, third and fourth respondents had abandoned the part of the attachment order granted in their favour and had tendered the appellants’ taxed costs. In consequence, the Full Bench considered it unnecessary to determine whether those trusts had established a prima facie case relating to alleged losses from investments said to be linked to an unlawful scheme. It was also noted that certain corporate appellants were not represented at the appeal, apparently because they had since been deregistered.

To the extent that Harris relied on broader allegations that Rees collaborated with another person in an unlawful investment scheme and that funds were “siphoned” through entities, the appellate court treated the decisive question as whether primary facts existed on the papers to sustain, on the applicable standard, the inference that the trust’s assets could be treated as Rees’ own assets for the purposes of attachment.

Legal Issues

The court was required to determine two central questions.

The first question was whether Harris had satisfied the requirements for confirmation of an attachment to found and/or confirm jurisdiction in respect of his personal loan claim against Rees, including whether a prima facie case existed and whether the relevant attached property belonged to Rees.

The second question was whether the court a quo had correctly confirmed the attachment of the Aljebami Trust’s assets on the footing that the trust was Rees’ alter ego, which in substance required deciding whether it had been established that the trust form should be disregarded so that assets held by the trustees as trust estate could be treated as assets of Rees personally.

The dispute concerned a combination of legal standards (the requirements and onuses applicable to attachments ad fundandam/ad confirmandam jurisdictionem and to “piercing” of a trust veneer) and the application of those standards to the facts presented on affidavit, particularly whether asserted inferences could be drawn from proven primary facts to meet the relevant burdens of proof.

Court’s Reasoning

The Full Bench emphasised that attachments to found and/or confirm jurisdiction are exceptional remedies with far-reaching consequences for owners of attached property. It applied the principle that an applicant seeking such attachment must satisfy distinct requirements: first, establishing a prima facie case in respect of the claim against the respondent; and second, establishing that the property sought to be attached belongs to the respondent, which must be proved on a balance of probabilities.

On the first requirement, the court held that Harris established a prima facie cause of action against Rees for monies lent and advanced. This conclusion was grounded in the undisputed position that Rees had solicited the loan, that the sum was advanced, and that it had not been repaid despite demand. Rees’ status as domiciled and resident outside South Africa was also relevant to the jurisdictional purpose of the attachment.

On the second requirement as it related to the Investec bank accounts, the court found that the attachment was properly confirmed because ownership of monies standing to Rees’ credit in those accounts was not disputed. In the court’s analysis, once Harris had established a prima facie claim and the attached monies were accepted to be Rees’ property, the attachment of those monies to found or confirm jurisdiction could not be faulted.

The court then turned to the attachment of the trust assets. It accepted, as a matter of principle, that in appropriate circumstances a court may disregard the distinction between a person and a juristic entity where the entity is used as a façade or alter ego, and it further accepted that similar reasoning may, in suitable cases, apply to trusts. The judgment drew on authorities emphasising that the separate identity of companies should not be disregarded lightly and that “piercing” requires at least some misuse or abuse producing an unfair advantage, commonly associated with fraud, dishonesty, or improper conduct. In the trust context, the court referred to the principle that a trust is not a legal person and that enjoyment and control should be functionally separate; where that separation is entirely lacking and the trust form is used as a veneer to conduct business “as before”, it may be necessary in a suitable case to go further.

However, the court held that, on the papers before it, Harris did not establish on a balance of probabilities that the Aljebami Trust was Rees’ alter ego, nor that the trust’s assets belonged to Rees personally. The court’s difficulty was that Harris’ case rested largely on unsubstantiated inferences and general assertions rather than on primary facts capable of sustaining the inference that the trust was a sham or façade.

The court criticised the reasoning of the court a quo insofar as it found an “inescapable” inference that trust income must have existed and then concluded that such income “could only have been” monetary benefits derived from the alleged fraudulent scheme and dealt with through the trust. The appellate court stated that there were no “proven facts” on the papers sufficient to justify that inference on the required standard. It considered it significant that the trust had two trustees (Rees and his wife) and that the papers did not show whether the co-trustee was implicated in any wrongdoing or whether trust funds flowed in a manner demonstrating misuse. In the appellate court’s view, this undermined any conclusion that Rees had de facto exclusive control such that trust assets should be treated as his own.

The court further held that the court a quo had blurred the evidentiary burdens applicable to the two components of the inquiry. While the “prima facie” threshold applies to the existence of the claim, the ownership requirement (including a contention that trust assets are effectively those of the debtor) must be established on a balance of probabilities, not merely prima facie. The appellate court found that Harris did not meet that ownership burden in relation to the trust assets.

In analysing the role of inference, the court accepted that inferential reasoning may sometimes be necessary, but it emphasised that inferences must be grounded in objective, proven primary facts and must not amount to speculation. It applied the distinction between primary facts and secondary (inferred) facts, and held that the method of inference fails where there are no positive proved facts from which the inference can be made. In this case, Harris’ allegations that entities were “alter egos” and that ill-gotten gains had been channelled into them were treated as vague and unsupported, particularly given Harris’ acknowledged close business relationship with Rees, which, in the court’s view, would have enabled him to provide more concrete factual material if it existed.

The court also dealt with an instance where Harris drew inferences from bank statements of a company in which the trust had been a shareholder. The appellate court considered the amounts relatively small in the context of the alleged misconduct and held that the documents did not establish, on a balance of probabilities, that the trust was abused or that the payments demonstrated the trust being used as a vehicle for wrongdoing. The sale of the trust’s shareholding for a nominal amount was regarded as inconsistent with the contention that the relevant asset represented the proceeds of extensive fraud, at least on the evidence presented.

In sum, the court concluded that Harris had shown enough to justify attachment of Rees’ own bank account monies for jurisdictional purposes, but had not shown the necessary primary facts to justify treating the trust assets as Rees’ assets.

Outcome and Relief

The appeal was partially successful. The Full Bench dismissed the appeal insofar as it related to the attachment of the monies held in the two Investec bank accounts in Rees’ name, and it confirmed that attachment. The appeal succeeded in relation to the attachment of the Aljebami Trust and its assets, and that attachment was discharged.

On costs, notwithstanding Rees’ partial success in having the trust-asset attachment discharged, the court ordered that the first appellant pay the costs of the appeal, including the costs occasioned by the employment of two counsel. The court also set aside paragraphs 1 and 2 of the order of the court a quo and substituted them with an order framed as confirming only specified paragraphs of Claassen J’s order (paragraphs 1.24 and 1.25) and discharging the remainder, together with a costs order (as set out in the judgment).

The judgment recorded that it was a majority judgment of the remainder of the Full Bench and that the late Acting Judge Slomowitz had shared the views expressed before his passing.

Cases Cited

Lendalease Finance (Pty) Ltd v Corporacion De Mercadeo Agricola and Others 1976 (4) SA 464 (A).

Hulse-Reutter and Others v Godde 2001 (4) SA 1336 (SCA).

My Summit One: Farocean Marine (Pty) Ltd v Malacca Holdings Ltd and Another 2005 (1) SA 428 (SCA).

Ebrahim and Another v Airport Cold Storage (Pty) Ltd [2008] ZASCA 113; 2008 (6) SA 585 (SCA).

Airport Cold Storage (Pty) Ltd v Ebrahim and Others 2008 (2) SA 303 (SCA).

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others 1995 (4) SA 790 (A).

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1993 (2) SA 784 (C).

Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA).

Nieuwoudt 2004 (3) SA 486 (SCA).

Badenhorst v Badenhorst 2006 (2) SA 255 (SCA).

Ambassador Factors Corporation v K Koppe & Co; K Koppe & Co v Accreylon Co Inc 1949 (1) SA 312 (T).

Ferguson & Timpson Ltd v African Industrial & Technical Services (Pty) Ltd 1949 (4) SA 340 (W).

Bradbury Gretorex Co (Colonial) Ltd v Standard Trading Co (Pty) Ltd 1953 (3) SA 529 (W).

South African Breweries Limited v Rygerpark Properties (Pty) Limited and Others 1992 (3) SA 829 (W).

Bates & Lloyd Aviation (Pty) Ltd and Another v Aviation Insurance Co 1985 (3) SA 916 (A).

Caswell v Powell Duffryn Associated Collieries Ltd [1939] 3 All ER 722 (HL).

Swissborough Diamond Mines (Pty) Ltd and Others v Government of the Republic of South Africa and Others 1999 (2) SA 279 (T).

Willcox and Others v Commissioner for Inland Revenue 1960 (4) SA 599 (A).

Legislation Cited

No specific legislation was expressly cited in the judgment.

Rules of Court Cited

No specific rules of court were expressly cited in the judgment.

Held

The court held that Harris had established a prima facie claim against Rees for the repayment of monies lent and advanced, and that Rees’ status as a peregrinus justified the use of attachment proceedings to found and/or confirm jurisdiction.

The court further held that, in relation to the two Investec bank accounts in Rees’ name, the requirement that the attached property belongs to the debtor was satisfied on the undisputed facts, and the attachment of those monies was accordingly confirmed.

In contrast, the court held that Harris failed to establish, on a balance of probabilities, that the Aljebami Trust was Rees’ alter ego or that the trust assets effectively belonged to Rees personally. The court found that the allegations concerning misuse of the trust rested on speculation and ungrounded inference, not on primary facts, and that the court a quo had erred by treating the ownership/alter-ego component as though it could be satisfied on a prima facie basis and by effectively shifting the burden to Rees.

LEGAL PRINCIPLES

Attachments ad fundandam jurisdictionem (or ad confirmandam jurisdictionem) are exceptional remedies. An applicant must establish a prima facie case for the underlying cause of action, meaning there must be evidence which, if accepted, will establish the claim; contradiction alone does not defeat the application unless it is clear the applicant has no action or cannot succeed.

Separate from the prima facie requirement for the claim, the applicant must establish, on a balance of probabilities, that the property sought to be attached belongs to the debtor. This ownership requirement is not satisfied on a prima facie standard and requires proof on the ordinary civil standard.

Courts recognise and uphold separate legal personality except in unusual circumstances; there is no general discretion to disregard separate identity merely because it appears just or convenient. “Piercing the corporate veil” (or analogous disregard of a trust veneer) requires at least some form of misuse or abuse of the entity’s separate identity, commonly involving fraud, dishonesty, or improper conduct, and the assessment is fact-specific and informed by policy and judicial judgment.

A trust does not have legal personality; it is an accumulation of assets and liabilities vesting in trustees, who must administer the trust estate. Trust law proceeds from the principle that control and enjoyment should be functionally separate, and where the trust form is used as a veneer to allow affairs to continue “as before”, a court may, in a suitable case, draw inferences that justify looking behind the trust form. However, such an inference must be grounded in primary facts.

Inferential reasoning must be distinguished from speculation. There can be no proper inference without objective proved facts from which the inference is drawn. Assertions only have relevance where they amount to an inference that may reasonably be drawn from the facts alleged, and the balancing of probabilities in civil matters must proceed from proven primary facts rather than vague generalisations.

Rees and Others v Harris and Others (A5070/10) [2011] ZAGPJHC 237; 2012 (1) SA 583 (GSJ) (10 November 2011)