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[2010] ZAWCHC 490
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Lane and Others v Khan (6474/2010) [2010] ZAWCHC 490 (13 October 2010)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGHCOURT, CAPE TOWN)
CASE
NUMBER:
6474/2010
DATE:
13 OCTOBER 2010
In
the matter between:
MICHAEL
JOHN LANE
…....................................................................
1
st
Applicant
JOHAN
APPIES
…...............................................................................
2
nd
Applicant
THEMBA
BASIWE
…...........................................................................
3
rd
Applicant
and
MOHAMED
RASHAAD KHAN
….....................................................
Respondent
JUDGMENT
BLIGNAULT.
J
:
This
is an application for the provisional sequestration of the Erf 1957,
Sunset Beach Trust (the respondent trust). The application
was
brought jointly by two insolvent trusts, the first is the CAM Brown
Family Trust (the CAM Trust), represented by its provisional
trustees
in insolvency, Mr Michael Lane (described as first applicant). Mr
Johan Appies (described as second applicant) is the
trustee in
insolvency of the S L Brown Family Trust (the SL Trust), represented
herein by its provisional trustees in insolvency,
first applicant and
Mr Themba Basiwe, described as the trustee in insolvency of the SL
Trust as third applicant. Both applicant
trusts were provisionally
sequestrated on 23 September 2009.
Mr
Mohamed Rashaad Khan, at the stage when this application was brought,
was the sole trustee of the respondent trust and he was
cited in that
capacity as the respondent. The application was launched on 31 March
2010. The founding affidavit was deposed to
by first applicant. He
explained first that applicants require authority in terms of section
18(3) of the Insolvency Act 24 of
1936 (the Act) to bring this
application.
First
applicant provided some background relating to the two applicant
trust. Both were registered in 2003. He provided information
in
regard to the beneficiaries under each of the trust deeds and the
trustees, prior to the sequestration of the two trustees.
During
December 2002, the two applicant trusts purchased the beneficial
interest and the loan accounts in the respondent trust from
Mr Hans
and Ms Rosemary Runz. The respondent trust was the registered owner
of Erf 19571, Milnerton. First applicant stated that
the two trusts
are joint creditors of the respondent trust in an amount of not less
than R2 131 276,00. He attached a letter from
Mr Runz, in which he
confirmed, as at 27 May 2003, that his loan account in the respondent
trust was valued at this amount. The
purchase price for the
beneficial interest and loan accounts of the sellers was R5 000
000,00. Upon cession of the loan account,
the two applicant trusts
became joint creditors of the trusts in the sum or R2 131 276,00.
Erf
19571 was the family home of the Brown family. It is the only
immovable asset of the respondent trust. During late June 2009
it was
discovered that the respondent trust had sold Erf 19571 for R4 000
000,00 and the movable assets for R987 225,00 to Mr Imraan
Moosa and
Mr Yakub Amanjee. Mr Khan was appointed as sole trustee of the
respondent trust in 2008. In his capacity as attorney,
he had
represented Brown in various opposed matters. The trustees of the
Brown estate launched an urgent ex
parte
application
to secure the proceeds of the sale of Erf 19571 and the movable
assets. Mr Khan refused to give an undertaking that
he would not
dispose of the proceeds of the sale.
On
23 July 2009, the Court granted an order in an ex
parte
application,
interdicting Mr Khan from disposing of the proceeds and directing him
to retain the proceeds in a trust account with
the attorneys for the
joint trustees in insolvency in the Brown estates. On 4 August 2009,
Mr Khan addressed a letter to Attorneys
Cliffe Dekker Hofmeyer, who
at that stage was representing certain of the entities involved in
the group of companies and trusts
involved and who are at present the
attorneys of record for the applicants in this matter. In this
letter, dated 4 August 2009,
he said
inter
alia
that
the proceeds of R4 000 000,00 had been used by him towards the
payment of his fees and disbursements for the past year in terms
of a
special agreement between the former trustees and guardians of the
beneficiaries entered into during 2008.
In
respect of the amount R987 256,00, he said, the last payment was R42
000,00 in and during June 2009. The balance of the purchase
price was
not paid as Mr Moosa requested an extension and Mr Khan subsequently
advised him not to make any further payments until
he received
notification from him. The sum of R42 000,00 was also disbursed by Mr
Khan in and during 2009. Mr Khan then said that
there are therefore
no monies held in trust. The transaction was based on the purchaser
being allowed to pay off the purchase price,
but to allow Mr Khan to
utilise the funds prior to transfer on a loan basis.
In
an answering affidavit in the
ex
parte
application,
Mr Khan explained that although the purchase price had been paid by
the purchasers, transfer had not yet been registered.
He said that
he had full authority from the purchaser to utilise the funds in the
manner which he did. On 23 September 2009,
the order in that
application was made final.
First
applicant contended in the founding affidavit in the present
application that Mr Khan had used the proceeds of the sale
for
payment of the fees owing to him as Brown's attorneys. He thus
committed an act of insolvency in terms of section 8(c) of
the act
ad the disposition of property would have had the effect of
prejudicing the creditors of the respondent trust. Applicants
maintain that the market value of Erf 19571 is R9,5 million. The
movable property of the respondent trust was sold for R928 225,
but
the purchase price has not been paid to the respondent trust. This
was confirmed by Mr Khan. Mr Brown also testified, however,
that the
movable property was worth only some R100.00 to R2 000,00.
The
liabilities at this stage, according to applicants, are (1) the
amount owing to applicants, (2) an amount of about R19 000,00
owing
to Cape Town City Council and (3) the claim of R4 000 000,00 for the
repayment of the purchase price by the purchasers
in the event of
the sale being set aside.
Applicant
contended that there are various aspects to investigate which could
have beneficial results for creditors. I shall revert
to that
hereunder.
The
respondent trust gave a notice of opposition and on 16 April 2010 an
order was made providing for the postponement of the
matter to 12
October 2010 and the filing of further affidavits. The respondent
trust did not file any answering affidavit in
the application in
terms of the agreed timetable. On 28 September 2010, counsel for
applicants' heads of argument were filed.
They were drawn on the
assumption that the application was unopposed.
On
11 October 2010, that is the day before the hearing, a number of
documents found their way into the court file. The first is
an
affidavit by first applicant, advising that he had been informed by
Mr Johannes Klopper and Mr Craig McLean Hathorne that
they had been
appointed as joint trustees of the respondent trust by the Master.
On 8 October 2010 he had been advised by Klopper
that a trustees'
meeting took place on 8 October 2010. Mr Khan did not attend the
meeting. At the meeting it was decided to terminate
the mandate of
Mr Khan to represent the respondent trust and to withdraw the
opposition to the application.
The
second document is an affidavit made by Klopper. He explained the
recent developments. He said that attempts were made to
secure the
attendance by Mr Khan at the meeting in question, but Mr Khan did
not respond to his attempts. On 8 October 2010,
he and Hathorne met
and passed certain resolutions. Two resolutions were taken, which
have been referred above. Klopper pointed
out that the resolutions
were probably invalid as Mr Khan had not been given proper notice of
the meeting in terms of the provisions
of the trust deed. Klopper
said that he wished it to be placed on record that he and Hathorne
believed that a proper case had
been made out for the sequestration
of the respondent trust and that they did not oppose the
application. Hathorne filed a confirmatory
affidavit.
The
third document, filed on or shortly before the hearing, is an
application brought by Mr Khan in his purported capacity as
trustee
of the respondent trust, for leave to file an answering affidavit in
the sequestration application. Mr Khan's explanation
is that he had
been busy with other litigation and that he had been ill in July and
August. He only realised with horror on 8
October 2010 that the
respondents' answering affidavit had not been filed. As a result of
the other litigation in which he was
involved, which, he said,
caused extreme pressure, he became confused. On the evening of 7
October 2010 he met with counsel and
he was then told that he had
not filed an answering affidavit. On checking the file the next day,
he realised that this was indeed
so.
The
application was in any event not ripe for hearing, he said, for the
following reasons. I quote from paragraph 22.1 of this
application:
"1.
The surreptitious application and appointment of the additional
trustees. The unauthorised and surreptitious resolution
which
purported to withdraw by opposition to the application, both of
which have been effectively attacked in the pending review
application.
2.
The additional trustees to the main sequestration have not been
joined in same. This non-joinder means that the application
cannot
proceed until such time ad the additional trustees have been so
joined.
3.
The application for the review of the decision by the Master to
appoint the additional trustees aforesaid, is pending and requires
to be decided before the main sequestration application can
proceed."
In
Mr Khan's proposed answering affidavit, he raised and purported to
incorporate the papers in an interdict application brought
by
applicants under case number 6475/2010. He attacked applicants'
locus
standi
on
the basis that the alleged loan account had been settled and paid in
full by Mr and Ms Runz. He also advances a contention
that
applicants' alleged claim had become prescribed. He further replied
seriatim
to
applicants' founding affidavit.
The
fifth document is a review application in which Mr Khan sought a
temporary interdict staying the sequestration application
and a
review and setting aside of the Master's decision to appoint Klopper
and Hathorne as trustees. In this application applicant
was
described as Mr Khan, in his representative capacity, as a trustee
of the Erf 19571, Sunset Beach Trust. The hearing of the
matter
commenced on 12 October 2010 and stood over until today 13 October
2010.
Mr
Philip
Daniels
SC
appeared on behalf of the applicant trusts. Mr Paul
Tredoux
,
assisted by Mr
Cutler
appeared
on behalf of Mr Khan. They act on instructions of Mr Khan as
attorney. Advocate Richard
Goodman
SC
acted on behalf of Klopper and Hawthorne. As foreshadowed in
Klopper's affidavit, his role was, in the main, to convey Klopper
and Hathorne's attitude with respect to the application, to the
Court.
The
first question that arose
in
limine,
was
whether the respondent trust was indeed represented at this hearing.
It is trite law that trustees must act jointly in representing
the
trust in litigation, unless the trust deed provides otherwise. See
Honore's
Law of Trusts
,
5
th
Edition,
page 419. In the present case the trust deed provides, in clause 12
thereof, that the trustees shall meet and otherwise
regulate their
business, as the trustees shall from time to time resolve, subject
to a quorum of two trustees attending the meeting.
When
this application was launched, Mr Khan was the sole trustee and in
that capacity he decided to oppose the sequestration application.
On
27 August 2010, Klopper and Hathorne had also been appointed by the
Master as trustees to act together with Mr Khan. From
that date
onwards, the trust had three trustees. One of the matters that
required urgent attention was this pending sequestration
application. At that stage the application had
de
facto
become
unopposed and the trustees had to decide whether to oppose it or
not. Klopper and Hathorne held the meeting on 8 October
2010 in the
circumstances described above. It seems, however, that inadequate
notice of the resolution to be adopted had been
given to Mr Khan.
Klopper and Hathorne decided
de
facto
not
to oppose the sequestration application, but their resolution
appears to be invalid and it is now under attack in their review
application, as is, as I have pointed above, their appointment as
trustees itself.
The
result is that the respondent trust has been unable, and still is
unable, to decide how to approach the present sequestration
application. Mr Khan nevertheless proceeded to act as if he was the
sole trustee. In that capacity he brought the condonation
application, deposed to the proposed answering affidavit and brought
the review application, all purporting to act on behalf
of the
respondent trust. The problem, however, that it is not clear at all
whether he had authority to act on behalf of the respondent
trust.
Mr
Tredoux
sought
to overcome this difficulty by arguing that Khan was the sole
trustee when the sequestration application became opposed
and that
the appointment of Klopper and Hathorne was invalid and was being
attacked in the review application. Mr
Tredoux
relied
in this regard on what he called the continuity principle. As I
understand the application of this principle, the decision
taken by
Mr Khan as sole trustee to oppose the application, continued to be
effective until amended or terminated. In the presence
case it was
never validly amended or terminated. The respondent trust thus
remained bound by Khan's original decision and his
authority was
never revoked.
In
my view these arguments are faced by a number of problems. The
conduct of any litigation, including the opposition to this
application, necessarily requires constant attention as it is
necessary to take decisions in regard to its conduct on a continuous
basis. Thus in the present case, all three trustees were authorised
and indeed obliged as trustees to consider the application
and to
decide whether to continue opposing the sequestration application or
not, and if so, on what grounds. The second problem
faced by Mr Khan
is that the appointment of Klopper and Hathorne as trustees is valid
until set aside by a court. Until then
they remain trustees and they
must carry out, to the best of their ability, their duties as
trustees. The mere fact that an application
had been brought
attacking their appointment, has in itself no effect in law.
Turning
to the principle of continuity referred to by Mr
Tredoux
,
I must say first that I am not aware of any such legal principle. It
seems to me, however, to be fundamentally inconsistent
with the
performance of a trustee's duties as trustee and the continuous
nature thereof. Mr
Tredoux
did
not cite any authority in support of this principle or the
application thereof. The principle does not, in any event, assist
Mr
Khan. He took certain recent decisions on behalf of respondent, to
which I referred above,
inter
alia:
1.
To persist in opposing the application.
To
instruct himself as attorney to give effect to that opposition.
To
apply for condonation for the filing of the late answering
affidavit.
4.
To prepare such affidavit as the object of the condonation
application.
5.
To authorise the appointment of counsel to act for the respondent
trust.
6.
To launch the review application in his capacity as trustee.
In
my view, not one of these decisions was valid or binding on the
respondent trust, for the reasons that I have given above.
The
result in law is that the recent affidavits filed by Mr Khan and his
opposition to the application, are unauthorised and
do not bind the
respondent trust.
There
are ways and means of dealing with the deadlock
situation
that has arisen and the Court's powers in this regard appear to be
wide. It will, however, give rise to a further litigation
which may
extend for years. It is not necessary for me to intervene at this
stage in order to attempt to resolve this deadlock.
The
de
facto
result
of the present dispute between the respective trustees which, I may
mention, as appears from the papers placed in the court
file, to
raise issues which are wide ranging. As I said the
de
facto
result
is that the trust cannot, at this point in time, function at all. It
cannot
de
facto
support
the sequestration application, it cannot oppose the application and
it cannot agree to the postponement thereof. There
are, as I have
said, ways in which a Court can resolve this situation, but that
will take time.
In
the present case, however, there is an obvious immediate solution to
these problems, namely the sequestration of the respondent
trust.
The merits of the sequestration application, on the basis of the
applicants' founding affidavit, do not have to detain
me for long.
They are fully canvassed in applicants' heads of arguments and need
not be repeated here. The issue of advantage
to creditors is one
that has been queried by Mr
Tredoux
in
argument. This question was dealt with in paragraphs 88 to 103 of
the founding affidavit. I do not intend to repeat the content
of
these paragraphs save to say that applicants have shown, on a
prima
facie
basis,
that there is reason to believe that it would be to the advantage of
creditors, within the meaning of section 10 of the
Act, to
sequestrate the respondent trust.
In
the present circumstances, for the reasons already given, it seems
to me in any event necessary and equitable and to the advantage
of
creditors, that the provisional trustees take control of the affairs
of the respondent trust as soon as possible. Apart from
preserving
the assets of the trust, there are the various matters which require
to be investigated, as mentioned in applicants'
founding affidavit.
These matters require immediate attention and some of them concern
Mr Khan himself in his personal capacity.
In this regard I wish to
point out, without making any findings, that there appear to be
serious conflicts of interest which
may affect the suitability of
the existing trustees of the respondent trust to act as trustees.
For that reason I propose to
bring this judgment to the attention of
the Master of this court.
I
have not heard any arguments in regard to costs regarding this
application. They will in any event stand over for determination
on
the return date of the order which I am about to grant.
In
the result I grant a provisional order of sequestration with the
usual directions as to service. The advocates are invited
to agree
upon a return date and to prepare a draft court order for submission
to me. The applicants in this matter are authorised
to have brought
this application in their capacity as trustees in insolvency. In the
matters of 13890 and 13891 I make an order
in terms of the drafts
presented to me.
BLIGNAUT,
J