Brief Summary

Sequestration — Application for sequestration of trust — Applicant, an attorney, sought sequestration due to non-payment of fees secured by a deed of suretyship — Trust lacked locus standi to oppose application as it had insufficient trustees — Court allowed founder of trust to intervene as a witness to present evidence — Jurisdiction upheld despite trustees residing outside the court's area — Application granted based on outstanding debt.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application in the Gauteng Division, Pretoria, for the provisional sequestration of a trust, coupled (in the urgent proceedings) with a claim for the removal of trustees. The application was brought by the trust’s founder’s attorneys as creditor, relying on fees allegedly secured by a deed of suretyship furnished by the trust.

The applicant was JP Van Schalkwyk Attorneys, a firm of attorneys. The respondents were Jan Jonathan Durand Botha N.O and Jan Jonathan Durand Botha N.O, cited in their capacities as trustees of the Durand Botha Family Trust. The judgment explains that the trust’s ability to litigate and oppose the proceedings was compromised due to an insufficient number of authorised trustees, with the result that Mr Botha (snr) was permitted to intervene in a limited manner as the “voice” of the trust so that the court could have regard to relevant evidence despite the trust’s lack of locus standi.

Procedurally, the application was initially launched in the ordinary course. It was later converted into an urgent application after a settlement agreement was allegedly concluded and then not honoured, and after there was an attempt to dispose of what was described as the trust’s principal asset. The matter was heard in open court under the Judge President’s COVID-era directives, with the judgment distributed electronically.

The subject-matter of the dispute concerned the enforceability and consequences of an alleged trust suretyship for legal fees, the trust’s ability to oppose in light of trustee authorisation requirements, the High Court’s jurisdiction in relation to trust administration and sequestration, whether the statutory requirements for provisional sequestration were met, and whether the conduct of the trustees warranted their removal under the trust-control statute.

2. Material Facts

The applicant attorneys had acted for Mr Botha (snr) in various matters. A principal matter involved extensive negotiations regarding the sale of a valuable game farm in Madikwe by the trust to the Government, with transfer taking place in October 2019 and final payment occurring only in July 2020 due to a dispute about the game on the farm.

To secure payment of fees due to the applicant and the advocate briefed by it, a deed of suretyship was furnished on the face of it by the trust. Mr Botha (snr) and Mr Botha (jnr) signed the deed on 18 March 2019. The terms of the suretyship were not in dispute. The applicant’s claim was based on an acknowledgement of debt signed by Mr Botha (snr) reflecting amounts of R 337 860,33 (the applicant’s fees and disbursements) and R 451 971,08 (Adv Van der Merwe’s fees), totalling R 789 831,41, which debt the applicant sought to recover from the trust on the strength of the suretyship.

A settlement proposal was made by the trust’s then attorneys, Eugene Kruger & Co, on 13 January 2021, stating that the respondents would pay R 500 000,00 by 7 February 2021 and the balance by 31 August 2021, with the sequestration application to be withdrawn upon payment of the first amount. The applicant accepted this in writing on 14 January 2021, stating that the application would be removed from the roll upon receipt of R 500 000,00, re-enrolled for the first week of September 2021, and withdrawn upon payment of the full balance by 31 August 2021. It was common cause that the R 500 000,00 was not paid, after which new attorneys came on record and a notice of intention to oppose was delivered.

Mr Botha (snr) later contended that the settlement offer had not been made on behalf of the trust or the trustee-respondents, but on his personal behalf, and he also claimed the non-payment was due to a sale of another farm (said to be the trust’s principal asset) falling through. The court treated these contentions as part of the trustees’ broader conduct, addressed in its evaluation of trustee behaviour and the suretyship dispute.

The trust deed required that there be no fewer than three trustees at all times. This was the position when the suretyship was signed in March 2019. A third trustee, attorney Roodt, resigned on 4 September 2020 and, on the papers, his resignation was lodged with the Master shortly thereafter. Although a third trustee (Berend Botha) was proposed in February 2021, the Master had not issued letters of authority to him, and the court treated this as decisive for trustee capacity under the statute.

The court accepted that the trust’s then sole or principal asset was another farm (purchased prior to finalisation of the Government transaction), operated as a going concern and burdened by substantial bond indebtedness. On the figures disclosed in the papers, the farm was alleged to have been purchased for R 41 million, while the outstanding amount due to the bondholder was reflected as approximately R 44,9 million, even taking into account pre-paid instalments. The court also recorded an alleged value of movables of R 500 000,00, but treated this as insufficient to disturb the inference of insolvency on the disclosed figures.

In the urgent component of the matter, the applicant sought removal of the trustees on the basis that they allowed an unauthorised trustee complement to persist and attempted to dispose of the trust’s sole asset pursuant to a purported trustees’ resolution, despite the non-compliance with the trust deed’s minimum trustee requirement. The court also considered the trustees’ conduct in relation to the attempted sale agreement, including terms that would have involved instalment payments, rental arrangements, and future changes to trustees and beneficiaries.

3. Legal Issues

The central legal questions the court was required to determine were whether the High Court had jurisdiction to hear a sequestration application relating to a trust where the trustees and trust assets were said to be outside the court’s geographic area; whether the trust had the necessary locus standi to oppose the application given the trustee-authorisation requirements and the trust deed’s minimum trustee requirement; and whether the statutory requirements for provisional sequestration were satisfied.

On the sequestration merits, the dispute required determination of whether the applicant had established, on a prima facie basis, either an act of insolvency (including reliance on section 8(g) and potentially section 8(c) or 8(d) of the Insolvency Act) or actual insolvency under section 10(b) of the Insolvency Act. This involved an application of law to the financial facts disclosed on the papers and an evaluative assessment of what could be inferred from the evidence and the trustees’ conduct.

A further legal question was whether the deed of suretyship was valid and binding on the trust in circumstances where, at a later stage, Mr Botha (snr) suggested there had been no trustee resolution authorising it and pointed to the manner of signature. This issue required an assessment of the trustees’ authority and intention as evidenced by their conduct.

Finally, the court had to decide whether the conduct of the trustees justified their removal under section 20 of the Trust Property Control Act, read with the duties imposed by section 9 and the separation between trust property and trustees’ personal estates in section 12. This required a value judgment as to whether removal would be “in the interest of the trust and its beneficiaries”.

4. Court’s Reasoning

On locus standi, the court applied the principle that trustees may only act when properly authorised, and that compliance with statutory requirements for letters of authority is necessary before a trustee may perform trustee functions. The court relied on authority emphasising that a trust cannot validly perform juristic acts where there is a failure to meet trustee-authorisation requirements and governance requirements under the trust deed. Because the trust deed required at least three trustees, and because the proposed additional trustee had not received letters of authority from the Master under section 6(1) of the Trust Property Control Act, the court concluded that the trust was unable to perform legal acts and lacked locus standi to oppose the sequestration application in the ordinary way.

Despite that, the court permitted Mr Botha (snr) to intervene in a limited capacity as the “voice” of the trust. The court reasoned that fairness considerations, including the audi alterem partem principle and constitutional access-to-court values, supported receiving relevant evidence where the trust faced adverse relief but could not formally oppose due to its lack of locus standi. The court found no demonstrated prejudice to the applicant from this approach.

On jurisdiction, the court considered the argument that sequestration jurisdiction requires residence or business within the area (with reference to section 149 of the Insolvency Act). The court then analysed section 3(1)(a) of the Trust Property Control Act and, in particular, the proviso that a Master who has exercised jurisdiction continues to have jurisdiction notwithstanding changes in the location of the greater or greatest portion of trust property. The court treated this proviso as ensuring certainty and stability in trust administration and preventing trusts from “migrating” between Masters’ offices due to changing asset locations.

The court found that the Master, Pretoria continued to exercise jurisdiction over the administration of the trust because the trust was originally registered under that Master and no transfer of administration had occurred. This was reinforced by the fact that the parties had approached the Master, Pretoria, for trustee letters of authority, and that the Master, Pretoria, had issued the insolvency-related certificate of security and received service in terms of the Insolvency Act. Against that background, the court interpreted section 21 of the Superior Courts Act as requiring a ratio jurisdictionis at common law, and held that supervision over the administration of a trust (including its sequestration) constituted a sufficient ratio for jurisdiction. The court accepted that, for purposes of sequestration in terms of sections 10 and 149 of the Insolvency Act, a trust was deemed to “reside” in the area of the Master’s office where it is registered, and therefore rejected the jurisdictional objection.

On whether the trust should be provisionally sequestrated, the court distinguished between commercial insolvency and the legal grounds relied upon. It observed that the trust’s conduct suggested it was not in a position to readily pay the debt and could only do so by disposing of assets, but stated that commercial insolvency was not the basis advanced. The applicant relied primarily on an alleged act of insolvency under section 8(g) of the Insolvency Act (written notice of inability to pay), and the court noted that the attempted sale of the sole asset could potentially implicate sections 8(c) or 8(d) in relation to prejudice to creditors.

The court further considered actual insolvency under section 10(b). On the financial information in the papers, the court treated the bond “credit” created by paying part of the proceeds from the earlier Government sale into the bond account as a prepayment of instalments rather than an actual surplus, and accepted that there remained a large outstanding loan secured by the bond. Comparing the disclosed purchase price/value indication for the farm with the disclosed outstanding bond indebtedness, the court inferred on a prima facie basis that liabilities exceeded assets. The alleged value of movables did not alter that inference.

The court then drew on the principle that payment is the best proof of solvency and emphasised that payment had not occurred. In the particular context where the trust could not formally oppose and where Mr Botha (snr) had been admitted as the “voice” of the trust, the court considered his assertions of solvency to be vague and unsatisfactory and held that this failure justified a negative inference.

The court also reasoned that even where an applicant relies on an act of insolvency, the court may grant relief on the basis of actual insolvency if it appears from the papers, even if not specifically pleaded as the basis for relief. Applying section 10 of the Insolvency Act, the court held that the necessary elements for a provisional sequestration order were established on a prima facie basis, subject to the issue of the suretyship’s validity.

On the validity of the suretyship, the court evaluated the trustees’ conduct and intention. It found that when Messrs Botha signed the suretyship they clearly intended it to be valid and to bind the trust. The court noted that the trustees were, at the time, a lawful majority and were entitled to bind the trust, and that no formalities were required for their acting in that regard beyond the resolution manifested by their conduct. The later claim by Mr Botha (snr) that he could not recall a resolution and that the suretyship was invalid was treated as a transparent attempt to avoid the consequences of prior conduct, especially in light of the document’s maintenance over time, interim payments, and the settlement offer made when sequestration was threatened. The court rejected the alleged invalidity as false.

On the removal of trustees, the court considered the statutory duties in section 9 of the Trust Property Control Act and the removal power in section 20. It found that after Roodt’s resignation, the trustees could no longer validly act and that this defect, which placed the trust at risk and could prejudice beneficiaries, was allowed to persist until the applicant challenged the attorneys’ authority under Rule 7. The court viewed the trustees as having been content to maintain the inadequate status quo and still attempted to dispose of the trust’s sole asset despite the lack of authority occasioned by the three-trustee minimum requirement.

In analysing the attempted sale agreement and related conduct, the court treated the terms and surrounding circumstances as indicative of disregard for the trust’s separate existence and an opportunistic switching between personal and trustee capacities. This culminated in the court’s conclusion that the trusteeship was abused by Mr Botha (snr), with Mr Botha (jnr) as a willing participant. The court held that this conduct fell foul of section 9 and that removal was justified in the interest of the trust and its beneficiaries.

On costs, the court considered an argument that the trust estate should not be burdened with costs occasioned by sequestration. Because the sequestration order was only provisional, the court considered it premature to determine those costs and reserved them. In relation to the removal application, the court held that costs should follow the event, and ordered the trustees (in their personal capacities) to pay those costs.

5. Outcome and Relief

The court granted a provisional sequestration order in respect of the Durand Botha Family Trust, with a return day of 20 July 2021 for interested parties to show cause why final sequestration should not be ordered.

The court ordered that Jan Jonathan Durand Botha (snr) and Jan Jonathan Durand Botha (jnr) be removed as trustees of the trust.

The costs of the sequestration application were reserved. The first and second respondents were ordered, in their personal capacities, to pay the costs of the application for their removal as trustees.

Cases Cited

Hyde Construction CC v Deuchar Family Trust and Another 2015 (5) SA 388 (WCC)

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

Gallo Africa Ltd v Sting Music (Pty) Ltd 2020 (6) SA 329 (SCA)

Saber Motors (Pty) Ltd v Morophane 1961 (4) SA 759 (W)

Smith & Walton (SA) (Pty) Ltd v Holt 1961 (4) SA 157 (N)

Legislation Cited

Insolvency Act 24 of 1936

Trust Property Control Act 57 of 1988

Superior Courts Act 10 of 2013

Rules of Court Cited

Uniform Rule 7

Held

The court held that the trust lacked locus standi to oppose the sequestration application because it did not have the minimum complement of duly authorised trustees required by its trust deed and section 6(1) of the Trust Property Control Act. Nevertheless, the court permitted the trust’s founder (Mr Botha (snr)) to participate in a limited way so that relevant evidence could be considered in the interests of fairness.

The court held that it had jurisdiction to entertain the sequestration application because the Master, Pretoria continued to exercise supervisory jurisdiction over the trust’s administration under section 3(1)(a) of the Trust Property Control Act, and that such supervisory connection constituted a sufficient ratio jurisdictionis. For sequestration purposes, the trust was treated as residing where it was registered under the Master’s office.

On the merits, the court held that the applicant had established, on a prima facie basis, grounds for a provisional sequestration order, including actual insolvency under section 10(b) of the Insolvency Act as inferred from the disclosed indebtedness exceeding the disclosed value indication of the trust’s primary asset.

The court held that the trustees’ belated attempt to challenge the validity of the trust’s suretyship was inconsistent with their earlier conduct and intentions, and rejected the alleged invalidity as false on the papers.

The court held that the conduct of Mr Botha (snr) and Mr Botha (jnr) as trustees breached the standards required by section 9 of the Trust Property Control Act and justified their removal under section 20 in the interests of the trust and its beneficiaries.

LEGAL PRINCIPLES

A trustee may only act as such once duly authorised under the Trust Property Control Act, and where a trust deed prescribes a minimum number of trustees, non-compliance with that governance requirement can prevent the trust from validly performing juristic acts and can undermine its ability to litigate through trustees.

The Master who first exercised jurisdiction over the administration of a trust continues to have such jurisdiction notwithstanding changes in the location of the greater or greatest portion of trust property, promoting stability and certainty in trust administration. The supervisory jurisdiction of the Master over a trust’s administration may constitute a sufficient connecting factor for a High Court’s jurisdiction in matters relating to that trust.

For purposes of provisional sequestration, a court applies section 10 of the Insolvency Act on a prima facie basis and may grant relief on the basis of actual insolvency appearing from the papers even where the applicant approached the court primarily on an act of insolvency.

In evaluating the binding nature of a trust obligation allegedly undertaken by trustees, the court may consider the trustees’ manifested intention and subsequent conduct, including whether an alleged lack of formal resolution is raised only when enforcement consequences arise.

A trustee’s removal under section 20 of the Trust Property Control Act turns on whether removal is in the interest of the trust and its beneficiaries, informed by the statutory duty of care, diligence and skill in section 9 and by conduct indicating abuse of trusteeship or disregard for the trust’s separate existence.

JP Van Schalkwyk Attorneys v Botha N.O and Another (65348/2020) [2021] ZAGPPHC 189 (23 March 2021)