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[2011] ZAGPPHC 119
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First Rand Limited trading inter alia as First National Bank v Britz and Others (54742/09) [2011] ZAGPPHC 119 (20 July 2011)
NOT
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT
(REPUBLIC
OF SOUTH AFRICA)
CASE
NO: 54742/09
DATE:
20 July 2011
In
the matter between:
FIRST
RAND LIMITED trading
inter
alia
as FIRST NATIONAL
BANK
.............................................................................
APPLICANT
AND
BRITZ,
STEFANUS
TJAART
..................................................................
FIRST
RESPONDENT
BRITZ.
ISABELLA HELMAN JACOMINA
/.........................................
SECOND RESPONDENT
BRITZ.
STEFANUS TJAART
N.O.
.........................................................
THIRD
RESPONDENT
BRITZ.
ISABELLA HELMAN JACOMINA N.O.
..................................
FOURTH RESPONDENT
BRITZ,
STEFANUS TJAART
N.O.
...........................................................
FIFTH
RESPONDENT
BRITZ,
STEFANUS TJAART
N.O.
.........................................................
SIXTH
RESPONDENT
THE
STANDARD BANK OF SA LTD
…..........................................
SEVENTH
RESPONDENT
JUDGMENT
MABUSE
J:
1.
This is an application for a declaratory order. According to the
notice of motion, the applicant seeks an order;-
"1.
Declaring the following assets to be owned by and the property of the
First and Second Respondenfs:-
1.1
All of the movable Hems situated at 10 Mono Street Jordaan Park,
Heidelberg and referred to in the Sheriff's return of service
and
inventory, Annexure"FA23" to the Applicant's founding
affidavit;
1.2
The immovable property described as Erf 2730 Heidelberg Extension 13
Township, situated at 10 Mono Street, Jordaan Park, Heidelberg.
2.
Declaring the items referred to in (,1 and 1.2 above to be executable
by the Applicant in respect of the judgment obtained by
the Applicant
against the First and Second Respondents in the above Honourable
Court under case no 1926212008.
3.
That the costs of this application be paid by the First and Second
Respondents, alternatively and in the event of the Seventh
Respondent
opposing this application, by the First, Second 0nd Seventh
Respondents jointly and severally, the one to pay and the
others to
be absolved; and
4.
Further and or alternative relief"
2.
The applicant is a company and a commercial bank duly registered in
terms of the company and bank laws of this country and conducts
business as such as its principal
and
registered address at 1 Place Bank City, Simmonds Street, in
Johannesburg.
3.
The first respondent is an adult male who is cited herein in his
personal capacity. The second respondent is an adult female
who is
also cited in this application in her personal capacity. The third
respondent is an adult male cited in this application
in his capacity
as the trustee of the 14 Ackermannstraal Trust, a duly registered
trust in terms of the laws of this country under
trust deed number It
1300/2000 ("the 14 Ackermanstraat Trust") . The fourth
respondent is an adult female cited in this
application in her
capacity as a trustee of the 14 Ackermannstraat Trust. The fifth
respondent is on adult male cited in his capacity
in this matter as
trustee of Brizeile Trust, a duly registered trust in terms of the
laws of the Republic of South Africa under
trust deed no !T 1081/2000
("the Brizelle Trust"). The sixth respondent is an adult
female cited in this matter in her
capacity as the trustee of
Brizelle Trust. The seventh respondent is a public company with
limited liability and duly registered
in terms of the company laws of
this country of 9* Floor, Standard Bank Centre. Simmonds Street,
Johannesburg. The first to the
sixth respondents oil reside at 10
Mono Street. Jordan Park, Heidelberg.
3.
The purpose of this application is to seek an order declaring the
movable and
immovable property respectively owned the 14
Ackermdnnstraat Trust and the Brizelle Trust (collectively referred
to as the trusts)
to be the personal property of the First and Second
Respondents, who are married to each ether in community of property,
and executable
by the applicant in respect of the judgment granted
against the First and the Second Respondents respectively by this
court in
favour of the applicant in case number 19262/2008. The
applicant seeks no relief against the Seventh Respondent in this
matter,
unless the Seventh Respondent opposes the application. The
Seventh Respondent is joined in these proceedings by virtue of the
fact
that it is the holder of a mortgage bond registered over the
property owned by Brizelle Trust and accordingly has interest in this
matter. The Seventh respondent has not filed any papers.
BACKGROUND
TO THE APPLICATION
4.
On 16 April 2009 the applicant, then the plaintiff, issued summons
against the First and Second Respondents, in their personal
capacities and furthermore in their capacities as trustees of the
Izani Trust and claimed payment of certain amounts of money.
The said
claims were categorised into claims A, B, C and D. Claim A was
against the First and Second Respondents in their capacities
as
trustees of the Izani Trust and the First and Second Respondents in
their personal capacities, jointly and severally the one
paying and
the other to be absolved. The first of such claims was for payment of
an amount of R56, 3343.46, being the amount owed
by Izani Trust to
the applicant in respect of an overdraft facility granted by the
applicant to the said Trust at its special instance
and request. In
addition the applicant claimed interest of 19.5 per annum compounded
monthly in arrears from the 1 February 2008
to date of payment.
5.
On the 4 February 2005 and at Heidelberg the Third and Fourth
Respondents bound themselves in writing as sureties and co-principal
debtors with the said izani Trust to the applicant in respect of the
said overdraft facility in the first claim. The Third and
Fourth
respondents had undertaken, inter alia, to pay costs on
attorney-and-client scale. in the event of the applicant suing for
recovery of any amount due. Furthermore they had renounced the
benefits of excussion, division and cession of action, among others,
and had agreed that a certificate signed by the manager of the
applicant as to any indebtedness of the Third and Fourth respondents
and do the Trust would be prima facie evidence of such indebtedness,
for purposes of any action or application, judgment or order
or for
any other purpose.
6.
With regard to the sold the said claim B the applicant, then the
plaintiff claimed, from the First respondent (then the Fist
defendant
amount of Rl4126.16 being the amount owing by the respondent to the
applicant in respect of overdraft facilities granted
by the applicant
to the first respondent, trading as Decor and Style at his special
instance and request, together with interest
thereon at the rate of
the applicant's publicly quoted prime lending rate which at the time
of the institution the of action was
14,5 percent per annum plus an
additional 756 per annum compounded monthly in arrears from I
February 2008 to date of payment
both days inclusive and at which
rate the third respondent agreed to pay and which amount was due,
owing and payable and which,
despite demand, the third respondent
failed or refused or neglected to pay.
7.
With regard to claims C the applicant claimed payment from the Third
Respondent of an amount of R5390.28 being the amount owing
by the
Third respondent to the applicant in respect of overdraft facilities
granted by the applicant to the Third Respondent trading
as Izani
Electrical of its special instance and its request. Although a copy
of the summons was served on them, both the respondents
failed to
defend the said action as a result of which on 17 July 2008 default
judgments was granted against the respondents in
favour of the
applicant for payment of the amounts so claimed.
8.
In August 2008 the applicant's attorneys caused a warrant of
execution to be issued against the First and Second Respondents
in
their personal capacities as well as in their capacities as trustees
of the Izani Trust, for service upon the residence of the
First and
the Second Respondents at 10 Mona Street, Jordaan Park, Heidelberg.
On October on 8 Octcber 2008 the applicant's attorneys
received a
nulla bono Return of Service from the Heidelberg Sheriff of the High
Court in which it was stated that he had attended
on the property of
the First and Second Respondents and had failed to find sufficient
disposable property to satisfy the warrant
of execution. In addition
the Sheriff furnished the applicant's attorneys with an affidavit
disposed to by the First and Second
Respondents in which they stated
that, during the period 2002-2004, they had donated all of their
movable property to the 14 Ackermannstraat
Trust and accordingly they
themselves did not own any attachable asset.
9.
In the same affidavit the First and Second Respondents stated that
they were the trustees of the 14 Ackermannstraat Trust and
that the
said Trust formally claimed all of the furniture and movable assets
which the applicant had attached or wished to attach
on the basis
that such furniture and the whole assets belonged to the said Trust
and not to the First and Second Respondents personally.
10.
When a copy of the aforementioned affidavit was delivered by the
Sheriff to the applicant's attorneys, it was accompanied by
copies of
the financial statements of the !4 Ackermannstraat Trust for the year
which ended on 29 February 2004. The said financial
statements
revealed that as at February 2004 the 14 Ackermannstraat Trust was
indebted to its trustees, the First and Second Respondents,
in the
amount of R234 400. The applicant's attorneys caused a warrant of
attachment to be issued for the attachments of the rights
and
interests in respect of the claims which the First and Second
Respondents had against the 14 Ackermannstradt Trust.
11.
On 5 February 2009 the Heidelberg Sheriff attended on the residence
of the First and Second Respondents and attached their rights,
titles, and interests in respect of the claims which the First and
Second Respondents had against the 14 Ackermannstraat Trust.
Subsepuent to such attachment and in particular on 9 February 2009.
one Grant Filipa an attorney in the employ of the applicant's
attorneys, received a telephone call from one Danie Du Plessis of
Danie Du Plessis Incorporated Attorneys ( DDP Attorneys) advising
him
that he had been instructed to act on behalf of the First and Second
Respondents and in which furthermore the said Danie Du
Plessis
requested that the matter be held in abeyance in order to allow him
the opportunity to take instructions from their clients
in respect of
the financial statements. In addiction they requested to be furnished
with copies of oil the audited statements of
the 14 Ackermannstraat
Trust and an affidavit by the first respondent. On 19 February 2009,
the applicant's attorneys furnished
DDP attorneys with the copies of
the documents in their letter dated 19 February 2009. In the same
letter, the applicant's attorneys
indicated that they expected a
response to their said letter by 23 February 2009, tailing which they
threatened to proceed with
execution.
12.
On 26 February 2009 the applicant's attorneys addressed a further
letter to DDP attorneys demanding a response by 4 March 2009
and
stating that if they did not receive a response by then they would
proceed with execution. On 12 March 2009 DP attorneys wrote
a letter
to the applicant's attorneys advising them, among others, that the
First and Second Respondents were not beneficiaries
in terms of the
loan account of 14 Ackermannstraat Trust as confirmed by such Trust's
most recent financial statements. Furthermore
they confirmed that the
First and Second Respondents were not possessed of any attachable
property. The applicant's attorneys then
on 16 March 2009 wrote to
DDP attorneys and they requested a copy of the most recent financial
statements of the trust referred
to in a copy of the letter dated 12
March 2009 from DP Attorneys, a copy of the Trust Deed of the 14
Ackermannstraat Trust and
an explanation as to what had happened to
the trustees' loans reflected in the financial statements of the
trust in respect of
the year ending 29 February 2004.
13.
On 3 April 2009 the applicant's attorneys received a telefax from DDP
attorneys in which they promised to furnish them with
copies of the
documents requested on 6 April 2009. They confirmed however that
their client, the Fifth and Sixth Respondents, did
not have their own
personal attachable assets and that neither of them had any loan
accounts in the 14 Ackermannstraat Trust. As
promised, on 6 April
2009 under cover of a letter of the same date, DDP attorneys sent the
applicant's attorneys copies of the
Trust Deed of 14 Ackermannstraat
Trust and its financial statements for 2007 and 2008 years.
14.
In terms of the Trust Deed of the 14 Ackermonstraat Trust-
1.
the First Respondent is the founder of the said Trust having donated
R100 to the Trust.
2.
The First and Second Respondents are the first and only trustees of
the Trust.
3.
The Brizelle trust is the sole beneficiary, which has the power from
time to time and at all times by resolution passed in terms
of clause
11 of said Trust Deed, to remove any trustee from office and or to
appoint such additional trustee or trustees and or
to appoint a
successor or successors to assume office as trustee or trustees on
the failure of anyone or more of the trustees,
as the Brizelle Trust
may in its own discretion by resolution aforementioned determine.(see
clause 6.2).
4.
The 14 Ackermannstraat Trust exists until such date as determined by
the First and Second Respondents as trustees, (see clause
1.1.8 and
clause 13.3)
5.
Until the vesting dates, the First and Second Respondents, as
trustees, have the power, but are not obliged, to make distributions
of any part of the capital of trust fund to the beneficiaries,
Brizelle Trust, by making payment in cash or in specie in terms
of
clause 9.9 of the Trust Deed to or the benefit of such beneficiaries
as trustees may direct, (see in this regard clause 13.1).
6.
In terms of clause 9.1 of the Trust Deed, the trustees of the 14
Ackermannstraat
Trust are. in their full discretion, empowered,
among others, to deal with the trust property by, among others,
retaining, selling,
disposing of, pledging, mortgaging (see clause
9.1.1 thereof]; in terms of clause 9.1.2, incurring and paying from
the income or
capital of the said Trust day expenses relating to the
ownership, holding, upkeep, repairs, maintenance or preservation of
the
trust property; and in terms of clause 9.1.6 thereof, generally
to deal with the
trust assets from time to time in their
unfettered discretion and as it pleases them, as if they had been
absolutely and beneficially
entitled to such property.
7.
Clause 10.8 creates obligations for the trustees to cause proper
books of accounts and records of all the affairs and dealings
at the
trust to be kept; to prepare or cause to be prepared dealings of the
trust: to prepare or cause to be prepared annual financial
statements
that reflect the trust's financial affairs for which purpose the
trustees are empowered to appoint auditors to audit
the trust books.
15.
On 24 April 2009, the applicant's attorneys sent DDP attorneys a
letter in which they observed that DDP attorneys had failed
to
furnish them with on explanation as to what had happened to the
trustees' loans reflected in the 2004 financial statements of
the 14
Ackermannstraat Trust. Having noted that the Brizelle Trust was the
sole beneficiary of the 14 Ackermannstraat Trust, they
also requested
DDP attorneys to furnish them with the Trust Deed of Brizelle Trust.
The applicant contends that, in the light
of the dilatory stratagem
employed by the First and Second Respondents, and in order to obtain
insight into the nature and value
of the movable assets ostensibly
owned by the 14 Ackermannstraat Trust and situated at the residence
of the First and Second Respondents,
the applicant's attorneys
instructed the Sheriff to attach such assets. On 23 April 2009 the
Sheriff complied with such instructions
and attached furniture and
house-hold equipment to the value of approximately R140 000.
16.
By the middle of May 2009 DDP attorneys had failed to respond to the
applicant's attorney's letter dated 24 April 2009 as a
consequence of
which the applicant's attorneys wrote another letter on the 15 May
2009 to DDP attorneys. Paragraphs 2 and 3 of
the said letter reads as
follows:-
"2
We note that to date you have failed to furnish us with trust deed of
the Brizelle trust as welt as the explanation sought
as to what
became of the trustees loan reflected in the 2004 financial! of the
13th Ackermonnstraat Trust.
3.
We advise that unless you furnish us with such trust deed and
explanation our client must conclude that your client is not being
frank and honest. Should you fail to furnish same by close of
business on Monday, 18 May 2009 our client's instruction are to
proceed with this matter accordingly".
15.
Since the applicant's attorneys were furnished with a copy of the
Trust Deed of the 14 Ackermannstraat Trust they attempted,
but in
vain, to obtain a copy of the Trust Deed of the Brizelle Trust. From
the Windeed property search, the applicant's attorneys
were able to
ascertain that the Brizelle Trust owned the immovable property in
Heidelberg and furthermore to obtain the registration
number of such
trust. The applicant's attorneys attended at the Johannesburg
Master's office in search of a copy of trust deed
of the Brizelle
Trust without any success. They even appointed correspondents in
Pretoria to try and secure a copy of the relevant
trust deed from the
Master of the High Court's office but do no avail.
16.
As a last resort the applicant's attorneys obtained a copy of the
title deed of the immovable property registered in the name
of the
Brizelle trust. It contained the details of the conveyancers who had
transferred the immovable property to Brizelle Trust
The applicant
then requested the said attorneys to furnish them with a copy of the
trust deed of the Brizelle Trust. The conveyances
retrieved the file
from their archives and forwarded a copy of the Trust Deed they
sought on 8 July 2009. That copy of the trust
deed is attached to the
applicant's papers.
19.
The Trust Deed of the Brizelle Trust reveols that:
19.1.
in terms of douse 4.1 thereof, the First respondent is the donor who
donated R100 (one hundred rands) to the trust;
19.2.
In terms of clause 5.1, the First and Second Respondents are the
first and only trustees as well as the income and capital
beneficiaries, along with a certain Isabella Helmina Jacominaa Britz
and Federick Francois Britz, as provided for in clauses 2.3.1
and
2.3.2. The applicant contends that the aforementioned Helmina
Jacominaa Britz and Federick Francois Britz are the First and
Second
Respondents' children;
19.3.
according to clause 6.1, the trustees other than the First and Second
Respondents are appointed by the First and Second Respondents;
and
19.4.
in terms of clause 14.1 thereof, the discretion of the First and
Second Respondents cs trustees, is absolute and unrestricted
and need
not be exercised with any reference to the beneficiaries.
20.
In terms of the provisions of clause 11.2.4.1, the trustees of such
trust, are, infer alia, empowered, in their full discretion
to hold,
develop, let, buy or sell, whether by public auction, or out of hand
or by open tender or in any manner to deal with the
trust's assets;
to reside in any immovable property that belongs to the trust and to
develop the property or to exploit its minerals
and sell them as
they, in their absolute discretion, deem it to be in the best
interest of the trust.(clause 11.2.4.2)
20.1.
deal with property of such trust by, inter alia, retaining, selling,
disposing of, pledging or mortgaging such property (see
clause
9.1.1.)
20.2.
Incur and pay from the income or from the capital of the trust any
expenses in connection with the ownership, holding, upkeep,
repair,
maintenance or preservation of the trust property (see cause 9.1.2.)
at 14 Ackermannstraat Trust
20.3.
to deal generally with the assets of the trust from time to time in a
such manner as they in a sole and unfettered discretion
shall think
fit, as if they had been absolutely and beneficially entitled to the
property (see clause 9.1.6) at 14 Ackermannstraat
Trust.
21.
In terms of the Trust Deed of the Brizelle Trust, the trustees or
such trust are, among others, empowered in their full discretion
allow any of the trust beneficiaries to reside in day immovable
property which is an asset of the trust, or to lease such property
and to develop the property or exploit the minerals thereof and sell
same as they in their discretion, believe to be in the interest
of
such trust (see clause 11.2.4.2)
22.
The applicant contends that it is clear that the First and Second
Respondents are effectively in full and absolute control of
the
assets of the trust and that but for the trust, the First and Second
Respondents would hold or would have acquired in their
own names the
assets belonging 1o the trusts, having regard to the following facts:
22.1.
that the First and Second Respondents are sole trustees of the trusts
in terms of Trust Deeds, given absolute control and
unfettered
discretion in respect of the assets of a trusts.
22.2.
the First and Second Respondents are the beneficiaries of the
Brizelle trust which in turn is the sale beneficiary of the
14
Ackermannstraat Trust and which
has
the power to remove the trustees of the 14 Ackermannstraat Trust at
will:
23.
In terms of clause 16.3 of the Trust Deed of Brizelle Trust, the
trustees of such trust are entitled, in their sole and exclusive
discretion, to transfer ownership pf the trust assets to any of the
beneficiaries prior to the termination of the trust.
23.1.
in terms of clause 13.3 of the trust deed of the 14 Ackermdnnstraat
Trust, the trustees are empowered, on such date as the
trustees in
their discretion resolve, to terminate the trust and distribute the
trust assets to the beneficiaries.
23.2
On that basis, the First and Second Respondents are entitled to
transfer ownership of the assets of both trusts to themselves
as and
when they please. According to the applicant this is again part of
the unfettered discretion of the first and second respondents
in
respect of assets of the trust. The First and Second Respondents
effectively cannot be removed as trustees of the trust by anyone
other than themselves.
24.
The First and Second Respondents are in possession of, utilise and
go in the full benefit of the assets of the trusts on a
day-to-day
basis. The trustees reside in the immovable property described as Erf
2780 Heidelberg Extension 13 Township, Iocated
at 10 Mona Street,
Jordaan Park, Heidelberg, which is registered in the name of the
Brizelle trust, as confirmed in the Windeed
property search. The
furniture and household-equipment ostensibly owned by the 14
Ackermannstraat Trust and listed in the inventory
of the Sheriff
annexed to the applicant's papers ere located within the residence of
the First and Second Respondents. The movable
assets owned by the 14
Ackermannstraat Trust were owned by the First and Second Respondents
and supposedly donated to such trust
by the First and Second
Respondents during the period 2000 and 2004 as evidenced by the First
and Second Respondent in paragraph
3 of their affidavit annexed to
the Sheriff's Return of Service. The First and Second Respondents are
married to each other in
community of property and accordingly have
their joint estate.
25.
It is clear from the financial statements of the 14 Ackermannstraat
Trust that it does not carry on business or operate in any
other
manner than to ostensibly own the movable assets located at the place
of residence of the First and Second Respondents. Although
the
applicant is not in possession of any of the financial statements of
Brizelle Trust, there is no doubt, so contends the applicant,
that
Brizelle Trust does not carry business or operate in any manner other
than ostensibly to own the immovable property wherein
the First and
Second Respondents reside. The applicant contends furthermore that it
is probable that no formal meetings of the
trustees of the trust have
ever been held. The applicant opines that the trusts are merely
vehicles utilized by the First and Second
Respondents to protect
themselves from creditors.
26.
It is clear, in the circumstances illustrated above, that the First
and Second Respondents do not treat the trusts as being
separate
entities existing apart from them. It is clear furthermore that the
trusts are the "alter egos" of the First
grid Second
Respondents and are not actually separate from the First and Second
Respondents. It is also clear that in 2000 or before
then the First
and Second Respondents made a calculated decision to rearrange their
financial affairs in order to frustrate the
claims of their
creditors.
27.
Both of the trusts were registered in mid-2000 and, as set out in
the affidavit of the First and Second Respondents, the First
and
Second Respondents systematically donated all of their movable
property to the 14 Ackermannstraat Trust during the period 2000
to
2004 and Erf 2730 Heidelberg Extension 13 Township was registered in
the name of the Brizelle trust in 2005.
28.
As a result the First and Second Respondents are divested of all
attachable property and are at leisure to incur debts as they
please
without fear of the consequences to default, to the grave prejudice
of creditors such as the applicant. If is in the light
of the above
mentioned factors that the applicant submits that in truth and in
fact the assets ostensibly owned by the trusts belong
to the First
and Second Respondents and furthermore that the veil of the trust
ought to be disregarded and the assets ostensibly
owned by the trusts
ought to be declared executable for the debts owned by the First and
Second Respondents, to the applicant.
29.
The respondents oppose the application and, in doing so, rely on the
opposing affidavit by the First Respondent, supported by
the
confirmatory affidavit of the Second Respondent.
30.
According to the First Respondent, a property developer, he and the
Second Respondent are married to each other in community
of property
and both reside as tenants at 10 Mona Street, Jordaan Park,
Heidelberg, which is the property of Brizelle Trust (BT)
owners. In
2000, he was advised to restructure their business affairs and
portfolio in trust.
31.
Following such advice, he founded three infer vivos trusts as
follows:-
•
Izani
trust IT 1139/2000 which catered for his business as a developer. He
founded this trust because he had taken on development
to erect 40
simplex units in a security complex known as Arcon Villas in
Vereeniging;
•
Brizelle
Trust IT 1081/2000 which was designed for investment in immovable
property; and 14,h Ackerman Straat Trust 1T1300/2000
which was
designed for investment in movable property.
■
Izani
Trus
t was registered tor the sole purpose of being used as a
property developer and a trading trust. Its business banking accauni
was
held at the Heidelberg Branch of the First National Bank.
Initially the development of the forty simplex units of Arcon Villas
went well with twenty two (22) of such units sold of the plan and a
managed business account conducted ct the applicant without
any
overdraft facility. However in the course of time, Izani Trust
started experienced Cash flow problems. In order to solve such
problems, he approached their Heidelberg branch of the First National
Bank so that it could grant Izani Trust overdraft facilities.
As
security for the said overdraft facilities, Izani Trust was prepared
to encumber unit 59 which at the time was 80 percent complete.
However the First Nation Bank advised that it would not be necessary.
32.
Izani was then introduced to Wyand Naude attorneys who informed him
that he would arrange for bridging finance in order to enable
Izani
Trust to complete the remaining units of the projects. To that end,
he and the Second Respondent in both their personal capacities
and as
trustees of Izani, applied for a financial loan for Izani Trust.
According to annexure "B2" to the First Respondent's
answering affidavit, the loan agreement, the loan was for R7, 200,
200. 00. Due to the high interest on the said loan, Izani could
not
service the loan as a consequence of which they were requested to
transfer the remaining units to the said attorneys at the
value of
R500, 000.00 each and, having done so, Izani Trust had no cash flow
to settle each debt with the applicant and withdrew
from the
development. Unit 59, which they had originally offered to the
applicant as security for the overdraft facility, was later
transferred from Izani Trust to the said attorneys.
33.
He contends furthermore that they always ran Izani Trust as an
on-going concern in law and practically. When Izani Trust applied
for
overdraft facilities tram First National Bank, and he signed as
surety, he never listed any of the assets of Brizelle Trust
or 14
Ackermannstraat Trust as part of the assets of Izant Trust. He
contends furthermore that he has alwdys recognised, as independent
entities, the various trusts and their own separate assets. He runs
these entities independently and, as a founder, divested himself
from
such trust prcperties. He would, had he been so requested by the
applicant, have listed the assets of Izant Trust when ii
applied for
the overdraft facilities and the applicant would, at that stage, have
been aware of the nature of the assets of the
various trusts.
BRIZELA
TRUST
34.
When he applied for the overdraft facilities for Izani Trust and
signed as surety, he was already renting the property, 10 Mona
Street, Jordaan Park, Heidelberg , which had previously been acquired
by Brizelle Trust and which had already been registered in
the name
of Brizelle Trust, as their investment property. The said property
had been acquired by the said Brizelle Trust with its
own resources
and he was at all times divested from ownership of its assets.
35.
The said Brizelle trust acquired the said property under the
fellowing circumstances. The Brizelle Trust acquired the said
property during 2004 with d "kustingsbrief" bond from the
original owners registered to the amount of R725, 273.43. This
was
done under mortgage bond B012383/2006 which was later cancelled on 8
September 2006.
36.
The Brizelle Trust bought the said property for the initial purchase
price of R700 000 together with such costs and accordingly
generated
its own finance to secure the purchase thereof. Brizelle Trust then
established a credit record payment of the "kustingsbrief"
bond to the initial sellers and as a result of such payment qualified
for mortgage bond with the Seventh Respondent. It was able
to
register a mortgage bond in the sum of R800, 000.00 over the property
in favour of the Seventh Respondent. The Brizelle Trust
was in that
manner able to settle the "kustingsbrief" which was then
cancelled.
37.
As at the 16 October 2009 the Brizelle Trust had identified another
investment
opportunity in Oudtshoorn. It has listed the property,
on which the First and Second
Respondents live as one of its own
assets, for sale. It entered into a sale agreement which failed by
reason of the fact that no
guarantees were delivered. The First and
Second Respondents contend that the Brizelle Trust is run
independently and furthermore,
that it acquired its assets from its
own resources. As its founder and trustee the first respondent does
not own any property of
the trust assets. They contend furthermore
that the Brizelle Trust would suffer imparable damage should it be
unable to dispose
of its aforementioned assets by sale and use the
proceeds thereof to finance its planned investment in Oudtshoorn.
14
ACKERMANNSTRAAT TRUST
38.
This is the trust that the First Respondent, acting on the advice to
structure a trust in order to transfer movable assets acquired
at a
market value, established. The respondents, having identified the
movable assets they wanted to transfer to this trust, first
obtained
their valuation from the auctioneers. The movable property was
evaluated at R234, 400.00, which was the market related
value and the
trustees, acting in their personal capacities, then transferred their
movable property from 2001 to 2004, to the
14 Ackermannstraat Trust.
39.
Loan accounts in lieu of the transfer of the movable property were
created during that period. in the value of Rl 19. 400.00
in favour
of the First Respondent and Rl 15, 000.00 in favour of the Second
Respondent. The respondents contend that they were
advised that it
was legally correct to create Ioan accounts in their favour against
the said trust in respect of the personal movable
property that they
had transferred to the trust. In support of the evaluation of the
property and the escalated loan accounts the
First and Second
Respondents attached a "Schedule Transferring of Movable to
Trust Against Loan Accounts".
40.
This state of affairs was also recorded in the trust's financial
statements for the period 2001- 2004 as fully set out in annexure
"B6-B9" to their answering affidavit. The First Respondent
contends that he always differentiated between the assets
of the
trust and his personal assets and as proof thereof he never listed
them in the application when Izani Trust applied for
credit
facilities or when he signed as surety.
41.
He was advised that once each year, their loan accounts should be
reduced with the allowed exempt annual donations from them
to the
trust over the period. The said state of affairs was also recorded in
the financial statements of the trust for the periods
2005 to 2008.
The First Respondent contends that the transfer of their personal
movables to the said trust in the manner in which
they did was lawful
and that once transfer of such goods had been effected, the goods
ceased to be their own personal belongings
and thereby became the
property of the trust. They recognised the difference between the
trust assets and their own personal assets
and it is for the said
reason that the Sheriff found no attachable assets and had on that
basis, to file a nulla bona Return of
Service on both assets and loan
accounts of 14 Ackermannstraat Trust. He and the Second Respondent
are renting 10 Mona Street,
Jordaan Park, Heidelberg, as a fully
furnished property from the Brazille trust and are covering the bond
payments out of rent
which is market related.
42.
It is clear that the applicant does not complain about the founding
or the trusts as much as it does with the purpose for which
the First
Respondent founded the trusts. In a word, according to the applicant,
the purpose of the establishment of the trusts
was to frustrate the
creditors' claims and, for that reason, the applicant opines that
special circumstances exist that justify
the piercing of the veil in
regard to the trusts. According to the applicant, the three trusts
are the "alter egos" of
the First and Second Respondents;
the said respondents do not treat the trusts as entities separate
from them; the trusts are not
actually separate from the First and
Second Respondents; the transactions relied upon by the Second
Respondent are simulated and
but for the trusts the First and Second
respondents would have acquired in their own names assets ostensibly
belonging to the trusts.
43.
In
Badenhorst v. Badenhorst
2006 (2) SA 255
(SCA)
, the court
stated that whether trust assets should be included in the husband's
estate for purposes of redistribution in terms
of
s 7
(3) of the
Divorce Act 70 of 1979
, the de facto control of the trust assets by
the husband must first be established.
44.
The court held that the mere fact that the trust assets vested in the
trustees and did thus not form part of the trustees' estates,
did not
per se exclude such assets from consideration when determining what
had to be taken into account when making a redistribution
order.
"To
succeed in claim that trusts assets be included in the estate of one
of the parties to a marriage there needs to be evidence
that such a
party controlled the trusts and but tor the trust would have acquired
and owned the assets in his own name". See
paragraph [9] at page
260. "To determine whether o party has such control it is
necessary to first have regard to the terms
of the trust deed and
secondly to consider the evidence of how the affairs of the trust
were conducted during the marriage".
See also Jordan v Jordan
2001 (3) SA 288(C)
300F-G at paragraphs 29 and 33.
45.
.According to clause 41 of the trust deed of Brizelle Trust the First
Respondent donated R100-00.
"4.1
Die Skenker skenk hiermee die bedrag van R100.00 aan die Trustees ten
behoewe van die begunstigdes as 'n skenking inter
vivos en names
homself en sy Eksekuieur............. "
46.
Clause 5 of the trust deed provides that:
"Die
Eerste Trustees sal die volgende persone wees wat hiermee sodanige
aanstelling aanvoar;
5.1.1
STEPHANUS TJAART BRITZ en
5.1.2
ISABELLA HELMINA BRITZ...."
who
are respectively the First and Second Respondents in this
application. Of course any person may be appointed as a trustee, if
there is no conflict of interest. It would appear that the founder
too, may also be appointed as trustee.
"A
beneficiary may himself be appointed trustee and if there is no
conflict of interests involved the founder may also be appointed"
See R Pace in Butterworth Forms And Precedents Trusts and Trustees
page 9.
47.
Provision for the appointment of successive trustees is made in
clause 6 of the trust deeds of both Brizelle Trust and 14
Ackermannstraat
Trust. Although clause 6.2 of the 14 Ackermannstraat
Trust provides that Brizelle Trust shall have the power from time to
time
and at all times to, by resolution passed in terms of 1.1
below(sic) remove any Trustee from office and or to appoint such
additional
Trustee or trustees, and or to appoint a successor or
successors to assume office as Trustee(s) on the appointment of
successive
trustees is entirely the exclusive domain of the First and
Second Respondents, failure of any one or more o the Trustees, as the
Primary Beneficiary may in his discretion by resolution aforesaid
determine it is however clear that
48.
The purpose of clauses 6 of the trusts quite clearly is to create and
perpetuate a situation in which control of the trusts
permanently
vests in the First and Second Respondents or in such people as are
determined by the First and Second Respondents.
This clause is
designed to place control of the affairs the trust directly in hands
of the First and Second Respondents or indirectly
through their
stringent participation in the appointment of alternative trustees.
This is precisely what the court in Badenhorst
v. Badenhorst supra
held that should be established.
49.
According to clause 14 of the deed of trust at the Brizille Trust the
discretion of the First and Second Respondents is absolute.
Neither
of the beneficiaries has any right to challenge the manner in which
the trustees exercise their discretion. This clause
is, in my view,
oppressive and contrary to the idea of a trust in the sense that,
although the trust was established for the benefit,
among others, of
the First and Second Respondents' children, they are barred from
challenging the decisions of the First and Second
respondents with
regard to the manner in which they administer the affairs of the
trust. The trustees themselves, together with
their two children, are
the beneficiaries of the Brizille Trust.
50.
It is indeed the duty of the trustees, among others, to keep proper
records of the affairs of the trusts. This duty involves
the duty to
furnish the beneficiaries with copies of the accounts, should the
beneficiary so request. There is a purpose in furnishing
the
beneficiary with copies of the accounting records of the trust. The
purpose should not be, as it is the case in terms of clause
1 4 of
the Brizille Trust, to silence the beneficiaries but to apprise them
of the manner in which the trust is managed. Accordingly
the trustees
are accountable to the beneficiaries in the manner in which the trust
is run. It is for these reasons that a trustee
may be personally
liable to the beneficiaries for o breach of trust. The beneficiary
has rights that are be protected. The trust
deed of Brizelle Trust
has created rights for the beneficiaries but at the same time takes
away their means of protection of those
rights.
51.
The trustees of Brizelle Trusts are empowered by the provisions of
clause 11.2 .4.1, in their absolute discretion to hold,
develop, let,
by, or sell, whether by public auction or private tender the assets,
whether movable or immovable, of the trust.
Clause 11.2.4.2 provides
that beneficiaries and their guardians or parents or caretakers may
reside on the immovable property in
order to conduct, among others,
farming activities.
52.
On the strength of the provisions of clause 11.2.4.2 of the Brizelle
Trust Deed, the First and Second Respondents reside on
the property,
10 Mona Street, Jordaan Park, Heidelberg. They claim that they have
leased the property from Brizelle Trust. They
have however failed to
produce any lease agreement or to show its existence or furnish the
relevant details of such lease agreement
or to Justify their tenancy
on the property of the trust. Failure by the First and Second
Respondents to attach to their papers
proof of the existence of a
lease agreement between said trust and them or to furnish explanatory
details of the alleged lease
or to produce the lease leads to several
inevitable conclusions.
53.
The first conclusion that one may arrive at under the circumstances
is that there is no such lease agreement between the Brizelle
Trust,
which owns the immovable property on which the First and Second
Respondents stay on one hand, and the First and Second Respondents
on
the other hand, and that the First and Second Respondents use the
property ostensibly owned by the trust, as their own personal
property. The First and Second Respondents do not therefore regard
the immovable property as the separate property of the trust.
54.
In Brunette v Brunette and Another N.O.
2009 (5) SA 81
(SE), the
court had to decide whether to allow an application for an amendment
of the applicant's particulars of claim in order
to include a prayer
that the assets of two infer vivos trusts be regarded as the assets
of two businesses conducted in partnership
by the applicant and the
first respondent in that particular matter. The applicant in that
matter had alleged that during the conduct
of the businesses no
distinction was made by the parties between the assets of the trusts
and the assets of the partnership. On
that basis the applicant
contended that it would be proper that the trusts' assets be dealt
with as the partnership assets in any
distribution order which the
court might make. The court held that prima facie at least it
appeared that the trusts' assets were
regarded as partnership assets.
The court held furthermere that:
"if
the applicant's contentions were correct, then the manner in which
the trust had been administered in the past became highly
relevant in
determining whether or not they should be regarded as constituting
partnership assets to be taken into account in any
distribution order
of Act 77 (3) of the
Divorce Act"
;. See paragraph 81 f-g.
55.
Secondly, one may easily infer that, by failing to make sure that
there is in existence a properly executed lease agreement
between the
trust and the aforementioned respondents or tenants, the trustees
have neglected their duties to safeguard, for the
benefit, and
interests of the beneficiaries,.
56.
No balance sheet has been attached to the respondents' papers to
show the income that 14 Ackermannstraat Trust derives from
the First
and Second Respondents for using the trust's movable assets or to
show to show the income that Brizelle Trust derives
from the
respondents for staying on its property. Using the principle set out
in Brunette v Brunette and Another supra I am persuaded
to find that
the First and Second Respondents do not make a distinction between
their personal assets and assets of the trust and
that they use the
assets ostensibly owned by the trusts as part of their personal
assets.
57.
Clause 16.3 of Brizelle Trust grants the trustees the exclusive
discretion to distribute to the beneficiaries the trust properties
or
trust income before termination of the trust. The trust beneficiary
may, at their own pleasure, deal with their awards in any
manner they
please. It will be recalled that the First and Second Respondents are
the beneficiaries of the Brizelle Trust and that
the said Brizelle
Trust is itself the beneficiary of 14 Ackermannstraat Trust, The
Brizelle Trust has no power to remove the trustees
of the 14
Ackermannstraat Trust.
58.
Counsel for the respondent denied that the First and Second
Respondents created the trusts solely to defraud and mislead the
applicant. He argued furthermore that the applicant was the author of
its downfall. According to him, and this was indeed the respondents'
case, the applicant was offered unit 59 as security to encumber for
the loan that Izani Trust applied for. The applicant did not
want to
accept the said Unit 59 as security and was simply prepared to extend
a financial loan of R7, 200, 000. to Izani Trust
without any form of
security. To compound the matters, the applicant failed to obtain
list of assets of Izani Trust from the First
Respondent. Over and
above the applicant failed to request the income statements and
balance sheets of Izani Trust. Accordingly
Counsel for the respondent
argued that the applicant's contention that the respondents misled it
is without any merit.
59.
The respondents' case is that the trusts keep separate estates and
that the respondents never listed any assets of one trust
as assets
of the other trusts. This argument does not hold water for one simple
reason that the determination as to whether the
trustees distinguish
trust property from personal or business property can only be made
when the trust has already been established.
According to Badenhorst
v. Badenhorst supra the test of control of the trust property cannot
be applied at the beginning of the
trust but only when the trust is
already in existence. Again the test laid down in Brunette v Brunette
supra can only be applied
when the trust is already in full running
and not at the beginning. For these reasons there is no merit in the
argument by the
respondent's counsel that the applicant dug its own
grave by refusing to secure its loan by encumbering Unit 59.
60.
Relying on the authority of Airport Cold Storage (Pty) Ltd v Ibrahim
2008 (2) SA 303 (C)
paras16
at pages 306-308, councel for the applicant argued that special
circumstances do exists that justified the piercing of the
veil. In
the said authority the court stated that:
"[7]
In the sphere of companies, the directors and members of a company
ordinarily enjoy extensive protection against personal
liability.
However, such protection is not absolute, as the court has the power-
in certain exceptional circumstances, to "pierce"
or "lift"
or "pull aside" "the corporate veil" and hold the
directors personally liable for the debts
of the company.
[8]
According to Rlackman:
Veil
piercing takes at least two forms. Firstly, there are cases where the
court disregards the company and treats the members as
if they have
been acting in partnership (or where the company has a single member,
as if he had been acting on his own behalf),
with the consequence
that they are, for example, held to be the owners of the property
otherwise owned by the company, or to be
personally liable for its
debts and other liabilities.
[This
is sold to be the most frequently slated consequence of veil
piercing.] Secondly, there are those cases where obligations,
incurred by shareholders in their personal capacity ore treated as if
they were incurred by the company. For present purposes,
only the
first form of veil piercing need to be considered.
[9]
Whatever form it fakes, veil piercing is an "exceptional
procedure", and, as pointed out by Scott J A in Hulse-Reutter
and Others v Godde, a court has no general discretion simply to
disregard the existence of a separate corporate entity whenever
it
considers it just or convenient to do so. However, the circumstances
in which a court will disregard the distinction between
the corporate
entity and those who control it are far from settled;
Much
will depend on a close analysis of the facts of each case,
considerations of policy and judicial judgment. Nonetheless what
is,
I think, clear is that as a matter of principle in a case such as the
present there must at least be some misuse or abuse of
the
distinction between the corporate entity and those who control it
which results in an unfair advantage being afforded to the
latter."
61.
What "misuse" or "abuse" is, is clearly set out
in paragraph 12 on page 308 where the court stated that:
"The
starting point is that veil piercing will be employed "only
where special circumstances exist indicating that it
(i.e. the
company or dose corporation) is a mere facade concealing the true
facts. Fraud will obviously be such a special circumstance,
but it is
not essential. In certain circumstances the corporate veil will also
be pierced where the controlling shareholder do
not treat the company
as a separate entity but instead treat it as their "alter ego"
or instrumentality, to promote their
private, extra-corporate
interests: although the form is that of a separate entity carrying on
business to promote its stated objects,
in truth a company is a mere
instrumentality or business conduct for promoting, not its owned
business or affairs, but those of
its controlling shareholders. For
all practical purposes the two concerns are in truth one. In these
cases there is usually no
intention to defraud although there is
always abuse of the company's separate existence (an attempt obtain
the advantages of the
separate personality of the company without in
fact treating it as separate entity")
62.
In the first place, by analogy the applicant's Counse'ls argument was
that the principle and law that is applicable to the close
corporations in terms of section 65 of the Close Corporation Act 69
of 1984 should also find application to the trust and trustees.
The
said Section 65 provided as follows:
"Whenever
a Court on application by an interested person, or in any proceedings
in which a corporation is involved, finds that
the incorporation of,
or any act by or on behalf of, or any use of, that corporation,
constitutes a gross abuse of the juristic
personality of the
corporation as a separate entity, the Court may declare that the
corporation is to be deemed not to be a juristic
person in respect of
such rights, obligations or liabilities of the corporation, or of
such member or members thereof, or of such
other person or persons,
as are specified in the declaration, and the Court may give such
further order or orders as if may deem
fit in order to give effect to
such declaration".
63.
In simple terms the law as set out in the said section 65 and as
analysed and dpplied by the Court in Airport Cold Storage (Pty)
Ltd v
Ebrahim and Others supra, means that when the trustees of a trust do
not treat the trust as separate entities the corporate
veil will also
be pierced. The corporate veil will also be pierced where fraud
exists. However fraud is not always required in
order pierce the
veil. According to the said authority, the applicant only has to show
that the trustees do not treat the trusts
as any separate entities
but as their "alter ego" or instrumentality to promote
their private, extra-trust interests
in order to show that the
trustees misuse or abuse the personality of the trust and
consequently to pierce the veil. See also Cape
Pacific v Lubner
Controlling Investment (Pty) Ltd 790 A at page 797-804D
64
. I now turn to consider whether or not the applicant has succeeded
in discharging the onus upon it. I have already referred
to some
grounds which tend to show thot indeed, the trustees did not treat
the trust as separate entities . In this paragraph,
I merely wish to
consider the further grounds advanced by Counsel for the applicant.
He argued that, apart from ostensibly owing
the property on which the
First and Second Respondent live, the Brizelie Trust does not conduct
any form of business, is not engaged
in any commence and is not
involved in any activity designed to bring in income. This is despite
the fact that it has obligations
emanating from a mortgage bond to
comply with.
65.
Despite the fact that the First and Second Respondent's evidence that
"save
for residing there and renting it from Brizelle Trust," no
evidence has been placed before this court by the First
and Second
Respondent that the said trust pays the bond . To compound matters,
no evidence has been placed before the court that
the said trust
receives any rental payment from its tenants in particular the First
and Second Respondents. Instead it is the said
tenants who hove,
according to the respondents, assumed the said Trust's obligations to
pay the bond. As the respondents have not
furnished any financial
details regarding the circumstances under which the tenants assumed
the obligations to make, on behalf
of the trust, the bond payments,
it is unclear whether such payments are regarded as loans on
donations to the trust or not.
66.
Somewhere above, I dealt with the issue of the lease. Suffice to
mention that the respondents have not furnished any further
details
regarding the lease. Counsel for the applicant argued furthermore
that the respondents have failed to furnish it or to
attach to its
affidavit, the financial statement of Brizelle Trust. Counsel for the
applicant submitted, and here I am persuaded
to agree with him, that
the reasons that the respondents have failed to:
(a)
attach the financial statements of Brizelle Trust.
(b)
attach any lease agreement or furnish the details thereof; and
(c)
show payment of any rental by them to the trust are that it is not
true that the First and Second Respondents are tenants on
the
immovable property ostensibly owned by the Brizelle Trust. The
Financial statements of Brizelle Trust would not have revealed
that
he first and second respondents pay any rental. Furthermore there is
no proof that the Brizelle Trust operates any banking
account into
which any rental could be paid and from which any expenses could be
dispersed.
67.
Finally in its affidavit, the applicant averred that:
"it
is probable that no formal meetings of the trust have been held."
The
respondents have failed to deal with this allegation. Furthermore the
respondents have also failed to deal with the following
allegation by
the applicant:
"
the first and second respondent are in position of utilised and gain
the full
benefit
of the assets of the trust on a day to day basis" See the
documents marked "H" for this.
68.
With regard to 14 Ackermannstraat Trust, it was alleged by the
applicant that, on account of the following facts, the alleged
sale
of the movable assets to the said trust was a simulation transaction;
Firstly the said trust did not pay all the monies at
all for the
acquisition of the movable assets from the First and Second
Respondents; secondly the said trust did not take physical
delivery
of the movable assets in as much as the movable assets remained in
the physical possession and control of the First and
Second
Respondent;
"The
founder ought to hove had a serious intention of establishing a trust
and of transferring ownership of the trust assets
to somebody who
could control them."
"In
our view, the founder foiled to give sufficient indication that he
had indeed relinquished control of the assets".
See Trust Law
and Practice by P A Olivier, A S Strydom and G. P. J Van Den Berg
page 6 - 28. Thirdly the First and Second Respondents
transferred
their ownership of the movable assets to the trust over a period of
four years; fourthly the trustees' loans in lieu
of the value of the
movable assets they transferred to the said trust were unsecured, did
not bear any interest and no specific
terms of repayment had been
arranged; fifthly counsel for the applicant questioned the
authenticity of the annexure "B5",
which is a "SCHEDULE
TRANSFERRING
OF MOVABLES TO TRUST AGAINST LOAN 14 ACKERMANNSTRAAT TRUST,
IT
1300/2000 and B6 to BIO and questioned, understandably so, their
verification on the basis that these documents did not disclose
or
bear the details of the persons or organisation that prepared them
and furthermore that they have not been accompanied by the
verifying
affidavit of such person or persons.
69.
It is as clear as crystal from the authorities of Badenhorst Jordan v
Badenhorst and Jordan v. Jordan supra that where the founder
of the
trust has completely disregarded the basic principal of the trust, in
the name of equity, a court is entitled to know the
trust as separate
entity and declare that the trust assets must be seen as part of the
personal assets of the founder.
I
am satisfied that the applicant has discharged its onus. I can find
no reasons why this court should not grant the applicant s
application. I therefore make the following order:
1.
It is hereby declared that the following assets are the property of,
and owned by, the
first and second respondents;
1.1.
All of the movable property items situated at 10 Mona Street, Jordan
Park, Heidelberg and referred to in the Sheriff's Return
of Service
and inventory marked annexure "FA23" to the applicant's
founding affidavit.
1.2.
The immovable property described as Erf 2730 Heidelberg Extension 13
Township, situated at 10 Mona Street, Jordaan Park, Heidelberg.
2.
It is hereby declared furthermore that the aforementioned assets
mentioned in 1.1. and 1.2 above, are executable by the applicant
in
order to satisfy the judgment obtained by the applicant against the
First and Second Respondents under case no 19262/2008.
3.
The First and Second Respondents are hereby ordered to pay the costs
of this application, the one paying and the ether to be
absolved.
MABUSE
J
APPEARANCES:
APPLICANT'S
ATTORNEY: J. M. S. INC
APPLICANT'S
COUNSEL: ADV LOUIS HOLLANDER
FIRST
TO SIXTH RESPONDENT'S ATTORNEY: ADV BOUWE WIERSMA, ATTORNEYS
FIRST
TO SIXTH RESPONDENTS COUNSEL: ADV H. WIJNBEEK