Brief Summary

Liquidation — Division of joint estate — Application for declaratory order regarding final account — Applicant, as liquidator, sought court approval for the division of a joint estate following failed negotiations between spouses — First respondent opposed and filed a counter application for review of the final account — Court held that the applicant was justified in bringing the application as the first respondent did not withdraw objections nor indicate intent to pursue a review in a timely manner — The use of forced sale value for property in the final account was deemed proper by the court.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings comprised a main application brought by a court-appointed liquidator for the division and distribution of a former spouses’ joint estate, together with an opposed counter-application by one spouse seeking the review and setting aside of the liquidator’s amended final account (“AFA”) governing the proposed distribution.

The applicant was Aneel Darmalingam N.O., acting in his capacity as the liquidator appointed to divide the joint estate (and described as a chartered accountant). The first respondent was Ana Paula Real Marques, who opposed the main application and launched the counter-application. The second respondent was Franklin Bernadino De Soza Marques, who did not oppose either application and did not participate actively.

The matter arose from earlier divorce proceedings between the respondents. A court order dated 18 October 2016 postponed the decree of divorce and other issues, but directed that the joint estate as at 18 October 2016 be divided equally and created a mechanism for appointing a liquidator if the parties could not agree on an equitable division. When agreement could not be reached, the applicant was appointed as liquidator in accordance with that order. After a protracted process of investigations and engagement with the parties, the applicant produced a final account, received objections, and ultimately produced the AFA. The first respondent maintained objections to the AFA, resulting in the applicant’s approach to court for declaratory and directive relief, and the first respondent’s responsive review application.

The general subject-matter was the proper division of a joint estate, including valuation methodology, treatment of assets and liabilities, allocation of expenses, the liquidator’s remuneration and costs, and an adjustment arising from the disposal of a joint estate asset without spousal consent.

2. Material Facts

The respondents were married in community of property, with a joint estate to be divided. By agreement embodied in a court order of 18 October 2016, the parties were required to divide the joint estate equally, provide full disclosure, and (if necessary) obtain valuations, including sworn valuations of two immovable properties. The order also regulated access to the properties from 1 November 2016 and allowed each party, at their election, to let the allocated property to supplement income. If the parties could not achieve an equitable division within four months, a liquidator was to be appointed with specified powers (annexure “A” to the order), and the costs of the division (including transfer costs and liquidator’s fees, if required) were to be borne by the joint estate.

It was common cause that the parties failed to agree on the division and that the applicant was appointed as liquidator in terms of the 2016 order. Over approximately three years the applicant investigated the estate and engaged with the parties, after which he issued a final account proposing a division. Both parties initially objected, and the applicant revised the account into the AFA. A further undisputed aspect was that the AFA initially contained an “error” regarding the use of market sale value rather than forced sale value for one immovable property, and the applicant amended the AFA to reflect the forced sale value.

After receipt of the AFA, only the first respondent persisted with objections, delivered on 4 November 2020, containing nine grounds. The applicant responded on 27 November 2020, rejecting all objections. The applicant proposed that the first respondent either withdraw objections or institute review proceedings, failing which the applicant would seek court directions. The first respondent requested an extension and later delivered a response that did not withdraw objections and did not clearly commit to review proceedings within a defined period. The applicant proceeded with the main application, which the first respondent opposed and to which she responded by bringing a counter-application for review in April 2021.

The court treated the following asset- and expense-related matters as material to resolving the objections and determining what aspects of the AFA, if any, required correction.

In relation to immovable property valuation, a disputed issue was whether the use of forced sale value was appropriate for an immovable property allocated to (and to be retained by) the second respondent, given that it was not immediately being sold.

In relation to movable assets, a disputed issue was whether the AFA’s distribution could be accepted without a valuation of the movables, and whether the absence of valuation undermined the fairness of the proposed division.

A further dispute concerned the inclusion of storage costs for movables, with the first respondent contending that such costs should not feature in the division (on her version, storage was at a friend and the costs were incurred after the division order).

The parties were also in dispute about the basis and reasonableness of the liquidator’s remuneration, where the applicant charged 10% of the value of joint estate assets and where it was common cause that there was no statutorily set tariff specifically applicable to this category of liquidator.

Another disputed issue concerned whether the liquidator was entitled to obtain legal services (at the joint estate’s expense) to respond to objections and address legal complexities, with the first respondent initially contending that the liquidator’s power to procure professional services was limited.

Further, there was a dispute about whether an affidavit provided by the first respondent constituted sufficient evidence in respect of a loan acquired by her prior to the 18 October 2016 order, and whether such liability should be treated as a joint estate liability to be shared.

There was also a dispute regarding responsibility for municipal charges (rates and taxes) for the Emfuleni property allocated to the first respondent, with the first respondent contending that these should be borne by the joint estate rather than by the recipient of the property.

The first respondent sought inclusion of her divorce legal fees in the division account, notwithstanding that the 2016 order reserved divorce costs for later determination; this was treated as a disputed issue.

Finally, there was a dispute concerning the sale of a Mercedes Benz by the second respondent before the division order, without the first respondent’s consent, and whether and how the AFA should be adjusted in consequence.

3. Legal Issues

The central legal questions were directed at the correctness and reasonableness of the liquidator’s treatment of the first respondent’s objections to the AFA, and, relatedly, the extent to which the AFA should be confirmed or reviewed and set aside (in whole or in part).

The dispute largely concerned the application of legal standards to a defined factual matrix and included evaluative determinations about reasonableness and fairness in the administration of the liquidation and distribution process. It also raised points of law regarding the interpretation of the liquidator’s powers under the annexure to the 2016 order, and the application of section 15(9)(b) of the Matrimonial Property Act 88 of 1984 to a disposal of joint estate property without spousal consent.

A procedural and discretionary question also arose as to whether the applicant was justified in launching the main application in the circumstances, given the timing and manner in which the first respondent pursued review proceedings. Although delay was initially raised, the applicant’s counsel ultimately did not persist with the delay point, and the court treated the necessity and justification for the main application as a matter to be determined on the facts.

4. Court’s Reasoning

The court first addressed whether the applicant was justified in bringing the main application. It considered the history following the applicant’s November 2020 response to objections, including the invitation to withdraw objections or institute a review and the absence of a clear election by the first respondent within a defined period. The court accepted that the applicant required certainty that the division could proceed in accordance with the AFA without subsequent challenge and accepted that the liquidator’s conferred powers entitled him to approach the court for directions. On that basis, the applicant was held to have been both entitled and justified in instituting the main application.

Turning to the counter-application, the court characterised the matter as a review (whether at common law or under the court’s empowering order) and identified the controlling standard as the reasonableness of the liquidator’s responses to the objections, or the soundness of the reasons given for rejecting them. The court then evaluated each of the nine grounds of objection on that footing.

On Ground 1 (forced sale value for immovable property allocated to the second respondent), the court accepted the applicant’s approach. It reasoned that even if the property was not then on the market, it remained a disposable asset and the division was occurring in circumstances where the forced sale value was justified “viewed as at the time of the division of the estate.” The court also noted the absence of an allegation that a different valuation standard was applied to the immovable property in the first respondent’s hands. The objection was therefore rejected.

On Ground 2 (no valuation of movable assets), the court disagreed with the applicant’s rejection of the objection. It accepted that the movables were not necessarily negligible and that, without valuation, it could not be confidently asserted that they were insignificant. The court treated the requirement of disclosure and valuation as important to ensuring that the proposed distribution was fair and just, particularly given the terms of the earlier order requiring disclosure and valuations where required. The court held that the applicant’s rejection of this ground was unreasonable and upheld the objection.

On Ground 3 (storage costs), the court regarded the objection as undermined by the stance on Ground 2. It reasoned that if movable assets required valuation and were potentially of material value, then proper storage would be necessary to preserve that value. It accepted that storage at a cost of R2 500 per month was justified for preservation purposes. The applicant’s rejection of this objection was therefore upheld and the objection failed.

On Ground 4 (liquidator’s fees at 10%), the court noted that no statutorily set tariff applied as a matter of direct regulation. However, it accepted that a tariff-based approach would promote reasonableness and fairness. During argument, a basis emerged for aligning the liquidator’s fees with tariffs applicable in analogous contexts under the Insolvency Act and/or the Companies Act. The first respondent’s counsel indicated amenability to that approach. The court upheld the objection and directed that the AFA be adjusted so that the liquidator’s fees would be charged in conformity with the tariff set out in one of those statutory instruments, rather than at an unqualified 10%.

On Ground 5 (legal fees incurred by the liquidator), the court interpreted the liquidator’s powers in annexure “A” to the 2016 order, specifically paragraph 26. It reasoned that the wording granted a general power to engage suitably qualified persons to assist with the liquidator’s obligations, with the valuation function identified as a specific (“in particular”) instance rather than an exhaustive limitation. The court therefore held that legal practitioners fell within the wider class of permissible professional assistance. The court also considered it significant that the first respondent’s objections were technical and legal, and that she had legal assistance in formulating them; it found no reason the liquidator could not likewise obtain legal assistance to respond. The objection was rejected.

On Ground 6 (loan acquired by the first respondent before the division order), the court accepted that the affidavit relied upon by the first respondent provided sufficient support for the existence and relevance of the loan. It reasoned that spouses share not only assets but also liabilities of the joint estate, particularly liabilities incurred prior to the division order. The objection was upheld.

On Ground 7 (municipal charges for the Emfuleni property allocated to the first respondent), the court agreed with the applicant’s approach that these expenses should be paid by the party to whom the property was allocated. It linked this conclusion to the fact that each party could let their allocated property and receive rental income, making it inappropriate to treat those ongoing property-related charges as expenses of the joint estate at that stage. The objection was rejected.

On Ground 8 (first respondent’s divorce legal fees), the court noted that the 2016 order reserved divorce costs for later determination. It held that it would be improper to pre-empt that future costs determination by incorporating those fees into the present division of the joint estate. The objection was rejected.

On Ground 9 (sale of Mercedes Benz without consent), the court considered the applicant’s reliance on the proposition that the first respondent could sue the second respondent if defrauded. The court disagreed and applied section 15(9)(b) of the Matrimonial Property Act 88 of 1984, holding that disposal of joint estate assets without the required consent calls for an adjustment in favour of the aggrieved spouse upon division. It was common cause that the second respondent lacked the first respondent’s consent, and the court found there was insufficient evidence to refute the first respondent’s allegation that the joint estate suffered a loss as a result. The court held that the adjustment proposed by the first respondent should be effected at the division stage and upheld the objection.

On costs, the court reasoned that its findings did not justify penalising the applicant with costs. Given the partial success on both sides in the main application and the review, it held that the costs of both applications should be borne by the joint estate.

5. Outcome and Relief

The court reviewed and set aside the applicant’s amended final account dated 15 October 2020 only to a limited extent, and otherwise confirmed it.

The applicant was ordered to correct the AFA in the manner contemplated by a draft order to be prepared by the applicant and submitted for the court’s approval within five days of the order.

The costs of both the main application and the counter-application (as agreed or taxed) were ordered to be borne and paid by the joint estate as a liability of that estate.

Cases Cited

No reported cases were cited in the judgment.

Legislation Cited

Matrimonial Property Act 88 of 1984, section 15(9)(b) and section 15(9).

Insolvency Act (referred to in relation to tariff guidance for remuneration, without a specific section cited).

Companies Act (referred to in relation to tariff guidance for remuneration, without a specific provision cited).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the liquidator was justified in approaching the court for directions and that the matter was to be assessed on review by evaluating the reasonableness of the liquidator’s rejection of the first respondent’s objections to the amended final account. It held further that some objections were sound and required correction of the amended final account, namely the lack of valuation of movable assets, the basis for charging liquidator’s fees, recognition of a pre-division liability (loan) as a joint estate liability, and an adjustment required by section 15(9)(b) of the Matrimonial Property Act arising from the unauthorised pre-division disposal of a joint estate asset. Other objections, including the use of forced sale value for an immovable property, inclusion of storage costs, liability for municipal charges for allocated property, inclusion of reserved divorce costs, and the liquidator’s entitlement to incur legal costs for professional assistance, were rejected.

LEGAL PRINCIPLES

A court-appointed liquidator tasked with dividing a joint estate under an empowering court order may approach the court for declaratory or directive relief where objections and uncertainty prevent implementation of the distribution, and where the liquidator’s powers contemplate such steps.

In reviewing a liquidator’s amended final account in this context, the enquiry is directed to the reasonableness of the liquidator’s treatment of objections and the soundness of the reasons for accepting or rejecting them, rather than a purely formal reconsideration of every underlying factual dispute.

Where fairness of distribution depends on the value of movable assets, and their value cannot be assumed to be negligible, an approach that proceeds without proper valuation may be found unreasonable and inconsistent with the need for a fair and equitable division.

A liquidator’s remuneration, in the absence of a directly applicable statutory tariff, must still meet standards of reasonableness and fairness; tariff-based guidance drawn from analogous statutory regimes may be employed to ensure that fees are not arbitrary.

A liquidator’s power to engage “suitably qualified” professionals to assist in performing obligations, especially where the authorising instrument uses inclusive language such as “in particular,” may extend to procuring legal services, particularly where legal objections require legal responses, and the costs are treated as part of administering the division process.

Liabilities incurred prior to a division order may fall to be shared as joint estate liabilities in the equitable division, and sufficient proof of such liabilities may warrant adjustment of the account to reflect that sharing.

In terms of section 15(9)(b) of the Matrimonial Property Act 88 of 1984, disposal of joint estate property without the required spousal consent may require an adjustment in favour of the aggrieved spouse when the joint estate is divided, and the appropriate stage for that adjustment is the division of the joint estate rather than relegating the remedy to separate proceedings as a default position.

Where there is partial success in both the main application and a review (counter-application) concerning the division of a joint estate, it may be appropriate for the costs of both applications to be borne by the joint estate, rather than by either litigant personally.

Darmalingam N.O v Marques and Another (9256/21) [2022] ZAGPPHC 79 (31 January 2022)