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[2010] ZAGPJHC 51
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Harris and Others v Rees and Others (09/32226) [2010] ZAGPJHC 51; [2010] 4 All SA 603 (GSJ) ; 2011 (2) SA 294 (GSJ) (25 June 2010)
REPUBLIC OF SOUTH AFRICA
SOUTH GAUTENG HIGH COURT,
JOHANNESBURG
CASE
NO: 09/32226
REPORTABLE
In the matter between:
HARRIS
CHRISTOPHER VAUSE
1
ST
APPLICANT
HARRIS
N.O. CHRISTOPHER VAUSE 2
ND
APPLICANT
ROSS
N.O. ANNE ELIZABETH 3
RD
APPLICANT
and
REES
DEAN GILLIAN
1
ST
RESPONDENT
REES
N.O. DEAN GILLIAN
2
ND
RESPONDENT
REES
N.O. DOMINIQUE 3
RD
RESPONDENT
SUSCITO
INVESTMENTS (PTY) LIMITED 4
TH
RESPONDENT
CENTAUR
PROPERTIES (PTY) LIMITED 5
TH
RESPONDENT
ABATED
INVESTMENTS (PTY) LIMITED 6
TH
RESPONDENT
JUDGMENT
HORN, J
:
On
11 August 2009 Claassen J granted an attachment order
ad
fundandem
alternatively
ad
confirmandum iurisdictionem
.
The order was to attach the first defendant’s rights, title
and interest in a claim he has on loan account for repayment
of
monies lent and advanced by him to the Aljebami Trust. The
attachment also concerned the first respondent’s interests
in
various other companies including the interests of the fourth, fifth
and sixth respondents which companies it is alleged are
no more than
the
alter
egos
of the first respondent. The attachment further pervaded monies
utilised by the first respondent in two bank accounts at Investec
Bank. At the same time the applicants were granted leave to commence
action by way of edictal citation against the first respondent
in his
personal capacity and the second and third respondents in their
representative capacities as the trustees of the Aljebami
Trust.
The
first applicant acts herein in his personal capacity and he and his
mother Anne Elizabeth Ross are also cited as second and
third
applicants in their representative capacities of the AER Trust and
the AEH
Trust.
It was alleged that the second and third applicants were at the
relevant time the only trustees of the aforementioned trusts.
However, I shall return to this aspect later in my judgment.
On
12 August 2009 the writ of attachment was duly effected by the
Sheriff in accordance with the court order. The first respondent
in
his personal capacity and on behalf of the Aljebami Trust opposed the
application and moved for the discharge of the attachment
order
granted by Claassen J.
At
the outset I need to deal with the initial defence raised by the
first respondent that when the application was launched the
averment
by the first applicant acting on behalf of all the applicants that
the first applicant
and
his mother, the third applicant, were the only trustees of the trusts
(that is the AEH and AER Trusts) was incorrect. At that
time the
first respondent was also a trustee of the trusts. The first
respondent also complains that he was not given notice either
of the
meeting to have him removed as a trustee or of a meeting to ratify
the trustees’ decision to remove the first respondent
as a
trustee. The first respondent alleges that because the Master had
not issued letters of authority, confirming the appointment
of Anne
Elizabeth Ross and Jennifer Anne Westoby (the first applicant’s
sister) as trustees, the applicants had no
locus
standi
to bring the application and their acts could not be ratified as such
acts constituted a nullity.
It
is clear from the papers and this is common cause that when the
meeting was held to remove the first respondent as a trustee,
he had
already left the country
with
the stated intention not to return. I fail to see, therefore, what
purpose a notice of the meeting would have served in these
circumstances. Moreover, it is inconceivable that the trustees
should have been precluded from holding the meeting and removing
the
first respondent as a trustee when it was clearly in the interests of
the trusts. Serious allegations of fraud were levelled
against the
first respondent which could very well have impacted on the trusts
and in these circumstances the majority of the trustees
would have
been entitled, even duty bound, to take the necessary steps to
protect the trusts.
What
transpired was that Jennifer Anne Westoby was made a trustee on 31
July 2009. The first applicant was then by
majority
vote removed as a trustee of the AEH and AER trusts. This was done
prior to the launching of the application on 11 August
2009. It is
so that the letters of authority in respect of the new trustees were
issued by the Master after the launch of the
application. In my view
this is of no real moment. It is evident that when the decision was
taken by the majority of the trustees
to remove the first respondent
as a trustee they had already been accepted and appointed as trustees
of the trusts. They launched
the application as a matter of urgency
by reason of the grave irreparable harm with which the trusts were
threatened by virtue
of the conduct of the first respondent (which I
shall deal with in more detail). They acted in the interests of the
trusts and
had to do so prior to the master confirming the authority
of the new trustees. In any event the trustees ratified the decision
in a later resolution. It further needs to be pointed out that on 1
September 2009 by order of the North Gauteng High Court the
first
respondent was removed as a trustee of all trusts in respect whereof
he held an interest.
Mr
Theron who appeared on behalf of the respondents
submitted
that the trustees had no authority to remove the first respondent by
reason of the absence of a letter of authority from
the Master. He
relied for this submission on the provisions of section 6(1) of the
Trust Property Control Act (57 of 1988, “the
Act”) which
reads as follows:
“
Any
person whose appointment as trustee in terms of a trust instrument,
section 7 or a court order comes into force after the commencement
of
this Act, shall act in that capacity only if authorised thereto in
writing by the Master.
”
Mr
Theron argued that the intention of the Legislature in enacting
section 6 (1) of the Act was to codify the whole of the law dealing
with the capacity of a trustee to act on behalf of a trust. There
was no room for deviating from these provisions. In this regard
Mr
Theron relied on the decision in
Simplex
(Pty) Ltd v Van der Merwe and Others NNO
1996
(1) SA 111
(W). In this case the enquiry concerned the lack of
authority of a trustee to bind a trust in a contract in the absence
of being
authorised thereto in writing by the Master. Goldblatt J
held that in a case like that, the trustee was not authorised to bind
the trust and the shortcoming could not be ratified (at pp
113G-114E). In my view this decision should be read with the
decision
in
Desai-Chilwan
NO v Ross and Another
2003 (2) SA 644
(C) where the court had to deal with formal
shortcomings and condonation by the court concerning a trust. This
case is a good
example of the principle that the court will look past
mere formalities when it comes to the interests of a trust. In
Watt
v Sea Plant Products Bpk and Others
[1998] 4 All SA 109
(C) Conradie J (as he then was) drew the
distinction between the lack of
locus
standi
in
iudicio
(“
verskyningsbevoegdheid
”)
and contractual power (“
kontrakteerbevoegdheid
”).
These are not identical concepts. In that respect therefore
Goldblatt J in the
Simplex-
case
was correct in holding that in the circumstances of that case the
trustee lacked the authority in terms of section 6(1) of
the Act to
enter into the contract. He correctly, therefore, held that the
contract was invalid. However, as Conradie J pointed
out:
“
Locus
standi in iudicio
is
an access mechanism controlled by the Court itself. The standing of a
person does not depend on authority to act. It depends
on whether the
litigant is regarded by the Court as having a sufficiently close
interest in the litigation.
”
(at p 113(h))
And at p 114(a) the learned
Judge continues:
“
The
question, then, to be posed in casu is whether at the time summons
was issued the trustees’ interest in the trust was
too remote.
The answer to this question depends upon the nature of a trustee’s
appointment. Where a trustee has been appointed
– in a trust
deed or otherwise – the appointment is not void pending
authorization by the Master in terms of
section
6(1)
of the Act (cf. Metequity Limited and another v NWN Properties
Limited and others
[1997]
4 All SA 607
(T) at 611a–d). Although a trustee’s power to act in that
capacity is suspended by
section
6(1)
of
the Act, he or she would, in my view, have a sufficiently well
defined and close interest in the administration of the
trust to have
locus standi in iudicio. Any conclusion that the second and third
defendants were by
section
6(1)
of the Act deprived of locus standi in iudicio (which would mean not
only that they could not be sued but also that they
could not
approach the court to protect the interests of the trust) would not
give effect to the intention of the legislature.
Whilst recognising
the desire of the legislature to regulate the rights and duties of
trustees in the Act, one should, I think,
be slow to conclude that it
would have desired to accomplish this by controlling their access to,
or accountability in, a court
of law. The focus of the legislation,
after all, is on what trustees should or should not do; it is not on
whether they may or
may not sue or be sued.”
(See
also the commentary in Honoré:
South
African Law of Trusts
5
th
edition pp 218-221.)
From
the above authorities it is evident that a trustee can act in the
interests of the trust even where his appointment has not
been
confirmed by the Master. Removing a
furtive
trustee
would fall into this category. The court has always had the inherent
power, in terms of the common law, to remove a trustee
on the ground
that his continuation in office would be prejudicial to the future
welfare of the trust estate which he administers.
(
Fey
NO and Whiteford NO v Serfontein and Another
1993 (2) SA 605
(A) 609G). At p 613F in
Fey
NO supra
Hoexter JA said the following:
“
It
is trite law, moreover, that statutes in derogation of the common law
are to be strictly construed. The common law will be displaced
only
where the terms of the statute are irreconcilably opposed to the
common law. That approach, in the context of the present
exception,
harmonises with and follows another cardinal principle of our law:
that the jurisdiction of the Supreme Court is not
to be ousted unless
by the express language of, or an obvious inference from, a statute.”
The
aforegoing puts paid to the submission by Mr Theron that section 6(1)
was a complete codification of the law governing the conduct
of a
trustee with or without the Master’s letter of authority, and
that no deviation is permissible. A trustee is in a position
of
trust; he acts in a fiduciary capacity in accordance with the trust
deed. Consequently a trustee could in fact be held to be
negligent
should he fail timeously and diligently to act in the interests of
the trust, so as to protect those interests against
unlawful or
unwarranted intrusion:
“
Now,
in dealing with the administration of the property of others by
persons in a fiduciary position, our Courts have adopted the
rule of
the Roman law, as expounded by the commentators and by the Dutch
jurists. They have followed and applied the precept laid
down by
Paulus in the Digest (18.1.34.7), where we are told that ‘the
same principles, which apply to a tutor in dealing
with the property
of his ward, should also be extended to the other persons acting
under similar circumstances; that is to say,
to curators, procurators
and all those who administer the affairs of others’. A
trustee, therefore, is to be included in
this category.
”
(Per
Kotzé JA in
Sackville
West v Nourse and Another
1925 AD 516
, at pp 533-4.)
I
am therefore of the view that the narrow approach propounded by Mr
Theron in the application of section 6(1) of the Act, cannot
be
correct. Particularly in a case such as this where the appointment
and removal of trustees, their authority and the duty to
administer
the trust property is specifically dealt with in the trust deed, the
real source of the trust. The duties of a trustee
does not cease
simply because there was no one who could bind the trust. The trust’s
rights and obligations do not simply
fall away. The remaining
trustees would be entitled, and plainly obliged to appoint another
trustee to fill the vacancy so that
the trust can continue to
function for the purpose for which it was created (see e.g.
Land
and Agricultural Bank of South Africa v Parker and Others
2005 (2) SA 77
(SCA) at page 84 paragraphs [11] to [14]). Even more
so, I believe, where the trustee has an obligation to act to remove a
recalcitrant
trustee as was the case in the present matter.
The
first respondent resides and to all appearances is domiciled in
Switzerland. He holds a British passport. He left South Africa
during mid-2009 to take up residence in Switzerland. On all accounts
he purchased a home in Switzerland to the value of R70 million.
He
abandoned his legal practice in South Africa and resigned as director
from various corporate entities in which he was involved.
The first
respondent effectively therefore has placed himself outside the
jurisdiction of this Court. The applicants allege that
the first
respondent is a fugitive from justice. The first respondent denies
this. Of course it is not necessary to make a finding
on this aspect
for the purpose of the attachment. The success or failure of the
application is not dependent on the question as
to whether the first
respondent is a fugitive from justice or whether the first respondent
has deliberately placed himself outside
the jurisdiction of this
Court in an attempt to thwart justice. However, the question is of
some importance as it has a bearing
on the first respondent’s
mindset regarding his knowledge and involvement in Tannerbaum’s
surreptitious dealings.
It also has a bearing on the so-called
“
clean
hands
”
concept. In
Mulligan
v Mulligan
1925 TPD 164
, it was held that a fugitive from justice or a person
who has deliberately placed himself beyond the jurisdiction of the
court,
had no
locus
standi
in
iudicio
to litigate. At p 157 of the judgment De Waal J said the following:
“
Before
a person seeks to establish his rights in a court of law he must
approach the court with clean hands; where he himself, through
his
own conduct makes it impossible for the process of the court (whether
criminal or civil) to be given effect to he cannot ask
the court to
set its machinery in motion to protect his civil rights and
interests. Were it not so, such a person would be in
a much more
advantageous position than an ordinary applicant or even peregrines,
who is obliged to give security. He would have
all the advantages and
be liable to none of the disadvantages of an ordinary litigant,
because, if unsuccessful in his suit, his
successful opponent would
be unable to attach either his property, supposing he had any, or his
person, in satisfaction for his
claim for costs. Moreover, it is
totally inconsistent with the whole spirit of our judicial system to
take cognisance of matters
conducted in secrecy. It is true the
applicant is entitled to present his petition through a solicitor,
but, nonetheless, while
disclosing his whereabouts to his solicitor,
he withholds that information from the court and from his opponent.
As a fugitive
from justice, he is not only not amenable to the
ordinary criminal and civil processes of the court, but as far as
this Court is
concerned, it cannot call upon him to appear in person
to give evidence on oath; it cannot order his arrest in case the
facts
testified to in his affidavit are proved to be false, whereas
on the other hand he would be able to incept criminal proceedings
for
perjury to have been committed by his opponent. And, in this case,
he would be able to involve the authority of the court
to arrest his
opponent if she were suspected of flight with the property sought to
be interdicted. Such a litigant might, moreover,
conceivably be the
cause of the courts being unable to arrive at any decision on the
facts sought by him to be determined, if,
during the hearing of the
application, the court were to find that justice could not be done
unless he was called to give evidence
on oath before it. Were the
court to entertain a suit at the instance of such a litigant it would
be stultifying its own processes
and it would moreover, be conniving
at and condoning the conduct of a person, who through his flight from
justice, sets law and
order in defiance.
”
These
are indeed weighty words which cannot simply be ignored and certainly
these principles should form the bases of the test of
the
locus
standi
of a fugitive from justice to litigate. The principles enunciated in
Mulligan
v Mulligan
have stood the test of time and have been followed in cases such
Maluleke
v Dupont NO and Another
1967 (1) SA 574
(RA) and
Herf
v Germani
1978 (1) SA 440
(T). As a general statement of the law on this
aspect the comments of De Waal J in
Mulligan
v Mulligan
cannot be faulted. However, I do believe that when a court has to
consider the right of a person to approach the court for relief
in
circumstances where such a person can either be categorised as a
fugitive from justice or a person who has deliberately placed
himself
beyond the jurisdiction of the court, in having regard to the
principles enunciated in
Mulligan
v Mulligan, it
will have to deal with each case on its own facts. I say this for the
reason that to close the doors of the court to a litigant
will always
be a serious thing to do. In
Hadkinson
v Hadkinson
[1952] 2 All ER (CA) at p 574, Lord Denning expressed himself in his
usual explicatory manner thus:
“
It
is a strong thing for a court to refuse to hear a party to a cause
and it is only to be justified by grave considerations of
public
policy. It is a step which a court will only take when the contempt
itself impedes the course of justice and there is no
other effective
means of securing his compliance.
”
The
Mulligan
v Mulligan
principles must also be read against the background of the
Constitution. The right of a party to have access to the courts is a
strongly guarded constitutional right which should not be easily
deviated from. In
Minister
of Home Affairs v Bickle
1983 (2) SA 457
(ZSC) at p 463C-E, Fieldsend CJ said the following:
“
Mr
Blackie’s contention involves a misconception of the role of
the courts. Their duty is, of course, to enforce the law
and to rule
against or to punish anyone who acts contrary to it. But in the
normal way they do this only in cases brought before
them to enforce
the law, whether being civil or criminal. If the courts are to
fulfil the obligations put upon them by the Constitution
they cannot,
save in most exceptional circumstances, deny an aggrieved person
access to them. Section 18(1) of the Constitution
provides that
every person is entitled to the protection of the law and section
18(9) provides that every person is entitled to
be afforded a fair
hearing within a reasonable time by an independent and impartial
court or other adjudicating authority established
by law in the
determination of the existence or extent of his civil rights or
obligations.
”
In
this case the Zimbabwean Appeal Court, while not disavowing the
principles enunciated in
Mulligan
v Mulligan
,
adopted a pragmatic approach and considered the matter on its own
facts. It had regard to factors such as: that Bickle had not
committed any crime for which he was still to be convicted; that no
judicial process had been issued against him or was contemplated;
that any executive process had been issued against him; that he left
Zimbabwe unlawfully or even surreptitiously; that his continued
absence from Zimbabwe was not unlawful; that he did not hide or
sought to withhold information as to his whereabouts; or that it
had
been shown that Bickle would not be amenable to judicial process
which may follow (pp 461H-462). The learned judge of appeal
also
pointed out that in England the courts did not deny a declared outlaw
access to the courts without exception. In
Hawkins
v Hall (1) Beav
73
[1839] EngR 112
; ,
41 ER 109
, for example, an outlaw was allowed to approach the
court for the setting aside of an attachment order and was successful
in the
application (p 464A).
What
all this tells us is that even should a litigant fall within the
category classified as a fugitive from justice, it does not
follow as
a matter of course that the doors of the court will be closed to him.
I am of the view that the court hearing the application
and having
regard to all the relevant factors concerning the litigant’s
flight or absence from the jurisdiction of the court,
will be, in the
exercise of its inherent discretion, entitled to hear the litigant
notwithstanding his absence from the court’s
jurisdiction.
Even more so, where in a case such as the present, the application
concerns an attachment to confirm or found jurisdiction
and where the
first respondent has throughout the proceedings been represented by
an attorney on whom papers had been served and
through whose office
the first respondent prepared his opposition to the attachment
application. Strictly speaking, however, whether
the first respondent
is indeed a fugitive from justice is of no moment for present
purposes. Obviously his continued absence from
the court’s
jurisdiction and the circumstances under which he left the country
will be looked at when considering the evidence
as a whole,
particularly insofar as his involvement with Tannerbaum is concerned.
A
factor which has to be taken into account is that the first
respondent left the country in June 2009 in circumstances which can
be described as somewhat dubious. He abandoned his legal practice and
resigned his directorship from the companies which he represented.
He
left without explanation or warning shortly after the so-called
“confession” by Tannerbaum. He settled in Switzerland
with a large amount of money which he had been able to divert from
South Africa, probably money either directly acquired from investors
or money obtained in this fashion by other means, e.g. commissions
etc. The first respondent was able to purchase a home in Switzerland
where he and his wife and child have taken up residence. He has
declared that he has no intention to return to South Africa other
than on his own conditions. A warrant has been issued for the arrest
of the first respondent on charges of fraud, forgery and
uttering.
The
first respondent’s allegation that he knew nothing about the
fraudulent nature of Tannerbaum’s scheme does not sit
easily.
The first respondent was intimately involved with each and every
investment. He had intimate knowledge of Tannerbaum’s
business.
He approached the investors and prompted them to invest in the
scheme. He dealt with investors personally. He vetted
each and every
investment. All payments were made directly to the first respondent
and he treated all investments as his responsibility
and dealt with
them through his trust account. Repayments from such investments
were generally made by the first respondent. He
was the only person
the investors knew and looked to for the operation of the scheme.
The first respondent insisted on confidentiality
from investors
regarding their investments and he alone had direct contact with
Tannerbaum. Add to this of course the deliberate
placing of himself
outside the jurisdiction of this Court. Even if one accepts, as one
has to on the papers, that the first respondent
discussed with the
first applicant his intention to move to Switzerland during 2008,
that does not mean that the first respondent’s
abdication of
the country where he lived and worked was not contemplated in the
face of overwhelming proof of Tannerbaum’s
fraudulent scheme of
which the first respondent must have had knowledge. When he
eventually left South Africa, he did so without
warning. The first
respondent intended to leave South Africa, and no doubt his fear of
being exposed must have spurred him on
to leave without warning,
probably to avoid having to answer to the authorities and investors
for the considerable financial losses
suffered by the investors when
the Tannerbaum scheme eventually collapsed. An innocent man in the
circumstances of the first respondent
would not have abandoned the
investors. He would have stayed in the country if only to assist with
investigations and to clear
his name from any wrongdoing. The first
respondent’s presence during these investigations could have
been of immense assistance
and most useful to those investigating the
matter. He leaving the investors in the lurch as he did made a
mockery of his claim
that he always had the interests of investors at
heart. It also made a mockery of the first respondent’s
allegation that
he had no knowledge of Tannerbaum’s fraudulent
scheme. It rather served to show that the first respondent was a
willing
participant in a grand scheme to defraud investors. The
inference in this regard is irresistible.
The
first applicant has known and become acquainted with the first
respondent since approximately the early 1990’s. They
were
essentially business partners. The first applicant avers that by
reason of his close relationship with the first respondent,
both on a
friendship and business basis, he had intimate knowledge of the first
respondent’s business, his connection with
the Aljebami Trust
as well as his involvement with the fourth, fifth and sixth
respondents. Indeed the first applicant alleges
that over the past
few years he and the AER and AEH Trusts have invested money with the
first respondent of over R80 million. These
investments were received
by the first respondent, they were deposited in his attorney’s
trust account and they were dealt
with through his trust account.
The applicants have been unable to recover a balance of approximately
R8 million so invested.
The aforementioned investments were provided
at the instance of the first respondent which the applicants allege
were invested
in a so-called Ponzi Scheme, in which Tannerbaum was
involved. The first respondent was always the front man. He was the
person
the applicants dealt with and he was the one who recommended
the various investment options to them.
The
first applicant states that when he was initially approached by the
first respondent to invest with Tannerbaum the first applicant
expressed his concern as to why such large sums of money were
required to be invested with private individuals. The first
applicant
who trusted the first respondent implicitly by reason of
their longstanding friendship and long-term business relationship
wanted
to know why the investments could not be solicited from
established financial institutions. The first applicant was advised
by
the first respondent that the nature of the businesses of those
who would benefit from the investments was such as to require an
immediate response. These businesses could not be kept waiting for
finances which would be the case were the investments to be
channelled through recognised financial institutions. What was
required were immediate and substantial sources of investments.
Tannerbaum held himself out, according to the first respondent, to be
well connected in the pharmaceutical industry in America.
He had the
contacts who would advise him of their special needs for large
investments to meet their order books but on condition
that these
investments were readily available.
The
first applicant never met Tannerbaum. All his dealings were with the
first respondent. The process became a regular request
for
investments and the paying over by the applicants of vast sums of
money to the first respondent. At all times the first respondent
was
the one who prompted the investments. The first respondent would
advise the applicants as to the financial viability of the
investments. It is evident that the applicants relied completely on
the knowledge, know-how and candidness of the first respondent.
From
what is stated in the affidavits the first respondent had first-hand
and personal knowledge of each investment. The applicants
were not
the only investors prompted by the first respondent. There were many
others. When the first respondent saw the need to
address letters to
investors he did so on letterheads of his attorney’s firm. He
gave his business address as 5 Wessels
Road, Sandton and had
practised from that address for several years. The first applicant is
a director of the company who owns
the building from which the first
respondent conducted his practice. The first respondent abandoned his
practice and the lease
was cancelled.
The
first applicant alleges that the first respondent is a fugitive from
justice. A warrant for his arrest has been issued by the
National
Prosecution Authority on charges of fraud, theft, forgery and
uttering. A copy of the warrant was attached to the papers.
The
first applicant further alleged that the Aljebami Trust and the other
respondents are the
alter
egos
of the first respondent, that he has a direct interest in them and
that those interests likewise needed to be attached. The applicant
points out that the first respondent has fled South Africa with his
wife, the third respondent, and their child and they have settled
in
Switzerland clearly with the intention not to return to South Africa.
First respondent has assets which include assets purportedly
owned
by the second and third respondents (in their capacities as trustees
in the Aljebami Trust) as well as assets held by the
fourth and fifth
respondents. The first respondent to all intents and purposes
controls all these assets and these entities are
no more than
alter
egos
of the first respondent. It is alleged that these
alter
egos
were used by the first respondent to siphon money provided by the
investors through the various bank accounts of the first respondent,
including the bank accounts of the various entities that held the
money on the first respondent’s behalf. The first applicant
referred to an amount of R 1 million which the applicant advanced to
the first respondent at the latter’s special instance
and
request. This amount has not been repaid by the first respondent.
The
first applicant states that by early June 2009 the first respondent
and Tannerbaum could no longer keep the creditors at bay.
Tannerbaum’s estate was provisionally sequestrated and he has
left the country and now resides in Australia. A warrant
for his
arrest has been issued. The applicants referred to numerous emails
and other communications in effect indicating the direct
involvement
of the first respondent with the South African investments. The first
applicant in his affidavit summarises the first
defendant’s
fraudulent conduct towards the applicants as follows:
A
relationship of trust developed between the applicants and the first
respondent over a number of years.
With
the exception of one or two instances amounts invested in the scheme
by the applicants were paid into the first respondent’s
attorney’s trust account (this was conducted with the bank).
The
first respondent in turn led the first applicant to believe that he
placed the funds with Tannerbaum or one of his companies.
The
applicants were never made privy to the precise details of where the
funds were invested.
Repayments
of money invested (with perhaps one or two minor exceptions)
received by the applicants were made by the first respondent
from
his Investec trust account.
The
first respondent clothed everything he did, with regard to the
investments, in a veil of secrecy.
The
first respondent by various stratagems persuaded the applicants that
the loans to be made to the scheme were genuine and
bona
fide
.
The
first respondent sold the deal on the basis that only a few
fortunate and well connected people would be offered this investment
opportunity.
The
first respondent assured his investors that all loans would be
scrutinised by him, securitised to his satisfaction and be
totally
secure.
The
first respondent told investors that he was fully
au
fait
with all aspects of the dealings between Tannerbaum, his companies
and the manufactures of the pharmaceuticals who had pre-ordered
the
raw materials for which the investor funding was required.
The
first respondent sold the deal in the context of allowing a select
few invitees to invest and also in the context of imposing
as a
strict condition of participating in the making of loans and receipt
of returns that all transactions should be kept confidential.
The
first respondent assured the investors any number of times that he
personally, in order to protect the applicants and his
other clients
who he had introduced to the scheme, had conducted a thorough due
diligence investigation of the risks involved
and was fully
acquainted with the scheme and the orders that underpinned it. He
gave the applicants comfort by informing them
that he had structured
things in such a way that Tannerbaum (he specifically mentioned that
Tannerbaum was a grandson of one
of the founders of the
Adcock-Ingram Group) and he were continually personally on the line.
The
first respondent stated that he in his sole discretion would
determine the rate of return on any particular investment and
the
terms thereof.
The
first respondent emphasised that the investments were fully secured.
The
first applicant stressed that by reason of the aforegoing the first
defendant was directly liable to the applicants for the
losses
incurred. He received and controlled the investments and he
undertook to repay the investments and the returns promised.
He made
far-reaching promises always underpinned by his assurance that the
investments were sound. Often when he wrote letters
he did so on the
letterhead of his attorney’s firm. He referred to himself in
the first person in the letters clearly intimating
that he was taking
the money and dealing with the investments in his personal capacity.
The applicants gave numerous examples depicting
the subterfuge with
which the first respondent kept himself busy. I do not believe that
it is necessary to detail all these. It
is clear from the papers that
the first respondent spun a web of intrigue to convince people to
invest with him in the Tannerbaum
scheme.
The
first respondent’s answering affidavit is remarkable not for
what he says but for what he does not say. He simply denies
that he
had knowledge of any fraudulent conduct on the part of Tannerbaum and
he also denies that the fourth, firth and sixth respondents
are his
alter
egos
.
The first respondent does not deny that the so-called Ponzi scheme
was fraudulent, or that Tannerbaum’s scheme was fraudulent,
that he had a significant close relationship with Tannerbaum and that
investors had lost millions of rand in the Tannerbaum scheme.
The
first respondent does not take the court into his confidence when it
comes to his personal wealth or his personal losses by
reason of the
disintegration of the Tannerbaum scheme. He does not tell the court
anything about the Aljebami Trust, its income,
and expenditure, his
involvement with the Aljebami Trust, its financial viability and so
forth. Mr Theron, in his submission,
simply adopted the stance that
the onus was on the applicants and the first respondent did not have
to prove anything. I do not
agree. In a matter such as this, where
there are direct allegations of fraud, where the Aljebami Trust is
alleged to be the
alter
ego
of the first respondent and where the first respondent allegedly is
hiding behind the Trust, surely there is an obligation on the
first
respondent to give more than a mere denial.
The
first respondent bears personal knowledge of the workings of the
Aljebami Trust, its monetary worth, its investments, income,
and so
forth. Why should the applicants who have no connection with the
Aljebami Trust be expected to supply such information?
I believe that
the failure on the part of the respondent to deal with the aforegoing
aspects of the Aljebami Trust was a deliberate
attempt on his part to
conceal the true facts from the court. The same goes for the other
entities mentioned in the papers in
which, it is common cause, the
first respondent has direct interests. It serves to strengthen the
inference that the first respondent
did use these entities, including
the Aljebami Trust, to enrich himself with the money received from
investors.
What
we have on the Aljebami Trust is the following:
The
first respondent was the founder of the trust.
The
first respondent’s wife and the first respondent himself are
the only trustees.
On
a reading of the trust deed the first respondent essentially was in
sole control of the trust.
The
introductory capital was R1 000. It is inconceivable that a family
trust of this nature will be retained against capital
of a mere R1
000. The inference is inescapable that there must have been some
income in the form of investments – otherwise
the Trust would
have had no purpose. Indeed in his answering affidavit at paragraph
12.7 the first respondent states the following:
“
On
my provisional sequestration on 28 October 2009, I immediately became
disentitled to any benefit in terms of the Trusts.
”
These
benefits referred to by the first respondent could only have been
monetary benefits.
The
Aljebami Trust is a family trust created for the sole benefit of the
first respondent and his family. It is the typical trust
dealt with
by Harmse JA in
Niewoudt
and Another NNO v Vrystaat Mielies (Edms) Bpk
2004 (3) SA 486
(SCA) and Cameron JA in
Land
and Agricultural Bank of South Africa v Parker and Others supra
.
At p 88 paragraph [25] of his judgment, Cameron JA says the
following:
“
The
change has come principally because certain types of business trusts
have developed in which functional separation between control
and
enjoyment is entirely lacking. This is particularly so in the case
of family trusts – those designed to secure the interests
and
protect the property of a group of family members, usually identified
in the trust deed by name or by descent or by degree
of kinship to
the founder.
”
This
description of Cameron JA fits nicely into the mould of the Aljebami
Trust where the control and decision-making rests primarily
with the
first respondent.
A
trust is not a legal
persona
.
The assets of the trust vests in its trustees in their capacities as
trustees (
Van
der Westhuizen v Van Sandwyk
1996 (2) SA 490
(W) at p 495D) The relationship between a trustee,
and for that matter a beneficiary of a trust, is therefore, more real
and direct
than would be the case between a director or shareholder
of a company. An inference of an
alter
ego
can therefore be more readily drawn between a trustee or beneficiary
and a trust. On the probabilities, and the inferences to be
drawn
from the proven facts dealt with above, I am of the view that the
applicants have shown that the Aljebami Trust was indeed
the first
respondent’s
alter
ego
and that the first respondent through the trust dealt with income
derived from the fraudulent investment scheme.
The
same can be said of the fourth, fifth and sixth respondents. Both
Suscito (the fourth respondent) and Centaur Properties (Pty)
Ltd (the
fifth respondent) dealt with the financial affairs of the first
respondent. On the first respondent’s own case Abated
Investments (Pty) Ltd (the sixth respondent) was created to
administer the investments. The first respondent does not explain the
various payments. There appears to be a fusion between the fourth
respondent and the trust accounts as was the case with certain
payments by the fifth respondent. The first respondent is strangely
reticent about the funding and asset-worth of the trust and
the other
entities. There are no income statements or books of account, balance
sheets and so on. There appears to be a reluctance
by the first
respondent to deal with these matters in the papers.
It
is so that courts will generally respect the
persona
of a company. Even where there is a single shareholder a court will
not easily interfere with the separate identities of the company
and
the shareholders (
H
ülse
-Reutter
and Others v G
ö
dde
2001
(4) SA 1336
(SCA) at p 1346 paragraph [20]). Whether a court will in
certain circumstances intrude onto the separate identities of a
corporation
and those who control it will depend on the facts. The
misuse or abuse of such a distinction by those who control the
company will
no doubt be a factor which the court will weigh up in
such an enquiry. Undoubtedly where fraud is involved it would also
be a
factor the court would take into account. In
Cape
Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others
[1995] ZASCA 53
;
1995 (4) SA 790
(A) Smallberger JA said at p 804D:
“
Thus
if a company, otherwise legitimately established and operated, is
misused in a particular instance to perpetrate a fraud, or
for a
dishonest or improper purpose, there is no reason in principle or
logic why its separate personality cannot be disregarded
in relation
to the transaction in question (in order to fix the individual or
individuals responsible with personal liability)
while giving affect
to it in other respects.
”
See
also Cameron JA’s comment at p 592A in
Ebrahim
and Another v Airport Cold Storage (Pty) Ltd
[2008] ZASCA 113
;
2008 (6) SA 585
(SCA)
There
can therefore be no doubt, that in certain circumstances a court will
be permitted to go behind the structure of a company
- to “
pierce
the corporate veil
”
where the separate corporate personality is found to have been
misused by those who control it. Again, whether a court will
take
such a step will depend on the facts of each particular case.
The
evidence shows that the first respondent used his name, his
attorney’s practice, the fourth and fifth respondents and
to a
degree the sixth respondent interchangeably in dealings with the
investors. The record is replete with such examples. The
first
respondent repeatedly stated that he was in sole control of the
investments. In a further supplementary affidavit by the
first
applicant, the filing of which was opposed by the first respondent,
documents were attached showing investments made by the
applicants
totalling more than R9 million to the first respondent. The payments
were made by the fifth respondent on behalf of
the first respondent,
again showing the interchangeability of the affairs of the first
respondent and the fourth and fifth respondents.
Using different
companies is not an uncommon method of fraudsters to launder money or
conceal assets. I should mention that I allowed
the further affidavit
by reason thereof that firstly, it was already before me and the
parties dealt with it in the papers and
during argument. Secondly,
the first respondent did reply to the affidavit and thirdly, I
believe that the evidence was necessary
to ensure a proper
ventilation of all the facts in this matter. I was in any event not
referred to any prejudice the respondents
might have suffered by
allowing the affidavit to be admitted as evidence. The court has a
discretion to permit the filing of additional
affidavits. In James
Brown and Hamer (Pty) Ltd (previously named Gilbert Hamer and Co.
Ltd) v Simmons NO
1963 (4) SA 656
(A) at p 660 D-F, Ogilvie Thompson
JA said:
“
It
is in the interest of the administration of justice that the
well-known and well-established general rules regarding the number
of
sets and proper sequence of affidavits in motion proceedings should
ordinarily be observed. That is not to say that those general
rules
must always be rigidly applied: flexibility, controlled by the
presiding judge exercising his discretion in relation to the
facts of
the case before him, must necessarily also be permitted.
”
I
believe that this was a case where I should exercise my discretion in
favour of allowing the additional affidavit by the applicant.
It
was on the aforegoing bases that I allowed the affidavit.
In
my view, having regard to the evidence as a whole, the applicants
have made out a
prima
facie
case for the relief claimed. The requirements of a
prima
facie
cause
of action, for the purpose of an attachment to found jurisdiction, is
satisfied where:
“
There
is evidence which, if accepted, will show a cause of action
”
per
Steyn J in Bradbury Gretorex Co (Colonial) Ltd v Standard Trading Co
(Pty) Ltd
1953 (3) SA 529
(W) at p 533 C-D)”
It
is the attachment which establishes the jurisdiction, quite apart
from the cause of action.
“
The
matter of primary concern, therefore, is the attachment, and not the
cause of action. In fact the court is not entitled to go
into the
merits of the case” (per Steyn J in Bradbury Gretorex
supra
p 532A)
”
In
H
ü
Ise
– Reutter and Others v G
ö
dde
supra
at p1343E Scott JA said the following:
“
The
requirement of a prima facie case in relation to an attachment to
found or confirm jurisdiction has over the years been said
to be
satisfied if an applicant shows that there is evidence which, if
accepted, will establish a cause of action and that the
mere fact
that such evidence is contradicted will not disentitle the applicant
to relief – not even if the probabilities
are against him; it
is only where it is quite clear that the applicant has no cause of
action, or can not succeed that an attachment
should be refused”
Accepting
that this formulation of the requirement of a
prima
facie
case in matters such as these has been accepted by the courts in the
past, the learned judge sounded a warning against the unqualified
acceptance of such a principle. At p1343J he said the following:
“
Nonetheless,
the remedy is of an exceptional nature and may have far reaching
consequences for the owner of the property attached.
It has
accordingly been stressed that the remedy is one that should be
applied with caution”
And
at p1344C the learned judge continues:
“
What
is clear is that the “evidence” on which an applicant
relies, save in exceptional cases must consist of allegations
of fact
as apposed to mere assertions. It is only when the assertion amounts
to an inference which may reasonably be drawn from
the facts alleged
that it can have any relevance. In other words, although some
latitude may be allowed the ordinary principles
involved in reasoning
by inference cannot simply be ignored”
Because
of the very nature of an attachment to confirm or found jurisdiction,
evidence by inferential reasoning will often be the
only way in which
a case of this nature can be determined. It is almost equivalent to
asking the question whether there are prospects
of success in the
main action. On the other hand the court cannot at this stage of the
enquiry delve too deeply into the merits
of the matter. That would
not be its primary concern. An analysis by way of inferences would,
therefore, be in order, provided
those inferences can reasonably be
drawn from the facts. Where, in a case such as the present, the first
respondent had deliberately
absented himself from the jurisdiction of
the court, where he left the country leaving numerous investors at a
loss, where possibly
millions of rands are involved, where the first
respondent personally and through his various companies and trusts
have been directly
involved with the fraudulent scheme, where the
first respondent and his entities have themselves administered and
operated the
scheme which turned out to be fraudulent and where the
first respondent fails to adequately answer the allegations against
him,
an inference of impropriety will be relatively easy to draw from
the facts. There are so many factors pointing to a calculated
conspiracy by the first respondent that it can safely be said, in the
circumstances of this case, that the applicants have made
out a
prima
facie
case for the relief claimed. Consequently the first respondent’s
request to have the order of Claassen J discharged cannot
succeed.
This
brings me to the application to join. The applicants have filed an
additional notice of motion in which they claim:
That
Jennifer Anne Westoby NO in her capacity as a trustee for the time
being of the AER trust and in her capacity as a trustee
for the time
being of the AEH trust be joined as the forth applicant to these
proceedings and in the application for attachment
ad
fundandem
alternatively
ad
confirmandum iurisdictionem
The
question
as
to the position of Jennifer Anne Westoby in these proceedings has
been dealt with in this judgment. I can see no reason why the
application to have her joined in the proceedings should not be
granted. There is no prejudice for the first respondent and it
would,
I believe, be in the interests of justice to allow her to be joined
by virtue of her position as a trustee of the aforesaid
trusts.
I
have been advised from the bar that the attachment in accordance with
the order of Claassen J will only be sought in respect of
certain of
the entities mentioned in the order. I have been advised that no
further relief will be claimed in respect of paragraphs
1.1, 1.6,
1.12, 1.13, 1.15 and 1.22 of the aforesaid order. The main reason for
this is that winding up proceedings have been initiated
in respect of
the companies mentioned in those paragraphs of the order.
The
order I make is the following:
The
application by the first respondent for the discharge of the order
granted by Claassen J on 11 August 2009 is dismissed with
costs and
the order of Claassen J is hereby confirmed in respect of paragraphs
1.2, 1.3, 1.4, 1.5, 1.8, 1.9, 1.10, 1.11, 1.14,
1.16, 1.17, 1.18,
1.19, 1.20, 1.21, 1.23, 1.24, 1.25
The
aforesaid costs shall include the cost of two counsel
The
application by the applicant for the filing of a further affidavit
is granted with costs, which costs shall include the costs
of two
counsel.
It
is ordered that
Jennifer
Anne Westoby NO in her capacity as trustee for the time being of the
AER Trust and in her capacity as a trustee for the
time being of the
AEH Trust be joined as the fourth applicant to these proceedings and
in the application for attachment. The
first respondent shall pay
the costs of the joinder application, which costs to include the
costs of two counsel.
_________________________________
J.P.HORN J
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
SOUTH GAUTENG HIGH COURT
G.I HOFFMAN (SC)
D.L WILLIAMS
Councel for the First Applicant
ALAN ALLSCHWANG & ASSOCIATES INC.
Applicants’
Attorneys
C/O Shapiro Aarons
1 Unity Street, Cnr Louis Botha Avenue
Fellside
JOHANNESBURG
E.
L
THERON
Counsel for the Respondent
EVERSHEDS
Respondent
s’
Attorneys
22 Fredman Drive Sandton
C/o Office
1709, 17
th
Floor
Schreiner Chambers
94 Pritchard Street
JOHANNESBURG