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[2018] ZASCA 58
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Osborne v Cockin NO and Others (549/2017) [2018] ZASCA 58 (17 May 2018)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
Reportable
Case
No: 549/2017
In
the matter between:
DAVID
MILES OSBORNE
APPELLANT
and
MARK
WILLIAM COCKIN NO
FIRST
RESPONDENT
MARIOTH
JANET COCKIN NO
SECOND
RESPONDENT
ANDREW
OLIVER SMITH
NO
THIRD RESPONDENT
IN
THEIR CAPACITIES AS TRUSTEES
OF
THE COCKIN TRUST
Neutral
citation:
Osborne
v Cockin NO & Others
(549/2017)
[2018] ZASCA 58
(17 May 2018)
Coram:
Lewis,
Willis and Saldulker JJA and Plasket and Hughes AJJA
Heard:
7
May 2018
Delivered:
17
May 2018
Summary:
Where
no contractual or other claim lies against a trust, and the creditor
alleges that the trust is the alter ego of the debtor,
it cannot
claim the sequestration of the trust unless it can show that the
trust is its debtor and is insolvent. An unliquidated
claim for
damages cannot found a claim for sequestration and sequestration is
not the appropriate remedy for resolving a dispute
about a debt.
ORDER
On
appeal from:
Eastern
Cape Division of the High Court, Grahamstown (Alkema J sitting as
court of first instance):
The appeal is dismissed
with costs.
JUDGMENT
Lewis
JA (
Saldulker
JA and Plasket and Hughes AJJA
concurring)
[1]
Shaun Cockin, formerly a farmer and a cattle dealer in the Eastern
Cape, committed suicide on 13 September 2015. He left in
his wake
numerous farmers and businessmen in the region whom he had defrauded.
The appellant, David Osborne, was one of them. He
brought an
application in the Eastern Cape Division of the High Court,
Grahamstown, for the sequestration of a family trust, the
Cockin
Trust, on the basis that the Cockin Trust was no more than the alter
ego of Shaun, and that he had a claim in respect of
the theft of some
1 501 head of cattle of an estimated value of R11 million against the
Cockin Trust.
[2]
The provisional sequestration application was brought by Osborne in
early December of 2015, after the deceased estate of Shaun
had been
sequestrated, and after he had obtained an Anton Piller order against
the trustees of the Cockin Trust, the three respondents:
Mark Cockin,
Shaun’s son; Marioth Cockin, his widow; and Andrew Smith. I
shall refer to the Cockins by their first names
to avoid confusion.
(One of the trustees of the insolvent deceased estate, Werner de
Jager was, for an unknown reason, cited as
a respondent as well, but
he did not in fact participate as such in the proceedings.)
[3]
Pickering J, on 12 April 2016, confirmed the interim interdict
obtained pursuant to the Anton Piller order, and granted the
application for provisional sequestration. On the return day, Alkema
J discharged the order, finding that Osborne did not have
a claim
against the Cockin Trust: the claim was not liquidated and there was
no debt owed by the trust itself. The appeal to this
court lies with
the leave of Alkema J. The central issues are whether the Cockin
Trust should be regarded as Osborne’s debtor,
given that the
underlying claim was one against Shaun (and then his deceased estate
rather than the Cockin Trust) and whether the
claim for the value of
cattle was liquidated. But first, the factual matrix.
[4]
Shaun farmed on various farms in the Eastern Cape. Mark joined him in
the farming venture and Marioth ran a guest house, The
Cock Inn, on
one of them. The farms were owned at various stages by the Cockin
Trust and the Downs Trust, also a family trust.
At some stage Shaun
had run a cattle trading venture in partnership with his father,
Vernon Cockin, and Shaun’s brother.
He traded as Cockin &
Partners although he really was a sole dealer. From 2012, on the
advice of an accountant, Jaco Rossouw,
and others, the farming
venture between Mark and Shaun was terminated. Mark continued to farm
cattle and sheep, but Shaun ran his
cattle dealing business on farms
that he hired. At the time of his death he owned no farms.
[5]
Osborne and Shaun entered into an oral agreement in 2013 in terms of
which Osborne sent cattle to farms hired by Shaun for the
purpose of
grazing. They agreed that the progeny of the cattle would be divided
equally between them on a date to be agreed. Shaun
would be
responsible for the costs of the cattle grazing while he was in
charge of them, and Osborne would retain ownership in
the cattle. The
cattle were branded with Osborne’s brand. Shaun undertook to
account to Osborne on a monthly basis for the
cattle and their
progeny that were under his control. It was agreed that the cattle
would be returned to Osborne when the contract
terminated.
[6]
Osborne and Shaun concluded a further agreement, this time written,
in March 2014, in terms of which Osborne placed additional
cattle on
Shaun’s hired farms, specified in the agreement, on similar
terms. Shaun had similar ‘investment’ contracts
with
several other farmers in the region. In Osborne’s words, Shaun
ran a cattle investment scheme, which turned into a ‘Ponzi’
scheme some time in 2015.
[7]
Osborne’s farm manager visited the farms where the cattle
grazed in early September 2015, and noticed that there were
cattle
missing. Osborne met Shaun to discuss this on Friday 11 September
2015. Shaun was asked to explain the discrepancies, which
he
undertook to do on Monday 14 September 2015. But on Sunday 13, Shaun
committed suicide. Other investors similarly discovered
that their
cattle were missing.
[8]
On 17 September 2015 a meeting of Shaun’s creditors was
convened. Attorney De Jager was present. Osborne did not state
who
convened the meeting and who called all the investors together, but
the application for sequestration of the deceased estate,
attached to
the founding affidavit, indicated that at the request of the Cockin
family, Rossouw, their accountant, called the meeting.
It is, in any
event, common cause that there were numerous claims against Shaun’s
estate, and that it was insolvent. Mark
had been appointed an
executor of the estate in terms of Shaun’s will. And at a later
stage Marioth was appointed as executrix,
since Osborne objected to
Mark’s role, alleging a conflict on the basis that Mark was
involved with the investment scheme.
[9]
On 22 September 2015 De Jager provided a report to various investors
stating that there appeared to be claims in respect of
the cattle
amounting to nearly R25 million, and there were other liabilities of
about R10 million. De Jager concluded that the
estate was ‘hopelessly
insolvent’. He advised about the procedures to be followed for
sequestrating the estate and
on the best course of action to follow
to establish where the missing cattle were and whether the proceeds
of the sale of the cattle
had been used for the benefit of the Cockin
Trust and the Downs Trust. He suggested that investigations in terms
of the
Insolvency Act 24 of 1936
should follow.
[10]
Sequestration of the deceased estate indeed followed at the instance
of a close corporation in October 2015. De Jager and Michael
Timkoe
were appointed as provisional trustees in the insolvent estate on 20
October 2015. Before any investigations into Shaun’s
affairs
had concluded, Osborne brought the Anton Piller application against
the trustees of the Cockin Trust, and followed that
with the
application for provisional sequestration of the trust.
[11]
The basis for the sequestration of the Cockin Trust was, Osborne
alleged, that Shaun ‘treated the Cockin Trust and the
Downs
Trust as his alter ego and simply moved funds from one entity to the
other’. There can be no doubt, he said, that ‘the
financial affairs of the Cockin Trust were conducted by Shaun as if
it was his own money’. However, the irrefutable proof
that
Osborne said he had that the Cockin Trust was Shaun’s alter ego
was actually refuted by Mark in his answering affidavit
in the
sequestration application. I shall deal with this in due course.
[12]
It should be noted that the trustees of the deceased insolvent
estate, Werner de Jager and Michael Timkoe, sought leave to
intervene
in the application for sequestration. An order granting leave to
intervene was purportedly made, though not in quite
those terms.
Alkema J in the court a quo considered that the application had not
been properly made, and that the status of the
intervention was
questionable. The estate did not show that the Cockin Trust was a
debtor in the trust. At best, he said, the interveners
sought only to
support the claim of Osborne by adducing further evidence. He
declined to examine the additional papers.
[13]
Although Osborne insisted that these papers form part of the record
before us, the trustees have not appealed the order of
Alkema J and,
at the hearing, counsel for Osborne did not pursue the request to
examine the affidavits supporting the intervening
application with
any vigour. I consider that the trustees did not show locus standi or
that the estate had a liquidated claim against
the Cockin Trust, and
their evidence is of no consequence in this appeal. The application
for intervention and the affidavits should
not have formed part of
the record before us.
[14]
As indicated earlier, the basis of the claim is that as a result of
Shaun’s deception, 1 501 head of cattle, at an estimated
value
of R11 million, went missing. The inference he drew from this was
that, as Shaun treated the Cockin Trust (as well as the
Downs Trust)
as his alter ego, and did not intend to hold the assets for
beneficiaries, the trust must have formed part of Shaun’s
unlawful scheme.
[15]
In answer, Mark denied that any of Osborne’s cattle had been
found on the farms owned or controlled by the Cockin Trust
(save for
three animals, in respect of which he gave an explanation). And he
refuted the allegation that the trust was Shaun’s
alter ego.
His denials were supported by the evidence of Frederick Rossouw, who
was the Cockin and Downs Trusts accountant and
had been Shaun’s
accountant prior to his death. He explained that when he commenced
acting as the accountant, the Cockin
family had already decided to
separate Shaun’s trading from the farming affairs of the Cockin
Trust and on the Downs Trust
farms.
[16]
Rossouw continued to detail the reasons for the separation of the
activities, and stated that Mark had conducted the farming
operations
on the Downs farm on behalf of the Cockin Trust, which he had, after
2013, regarded as his own family trust. Various
financial activities
had been carried on in respect of the sale of farms formerly owned by
the two trusts, and liabilities had
been consolidated. Eventually the
Downs farm had been sold as had farm vehicles and implements in order
to repay Shaun what he
had lent the Cockin Trust.
[17]
Rossouw had discovered, after Shaun’s death, that not all
entries on the financial statements of the trusts were correct
–
he had been given incorrect information in some respects. In
particular, entries in respect of lucerne sales had to be
corrected.
He had discerned no evidence that there were transfers of money
between Shaun and the Cockin Trust which had no legal
basis. All
loans made to and by Shaun had been recorded in the books of account.
[18]
In Rossouw’s view, neither of the Cockin nor the Downs trusts
was insolvent. Moreover, the transactions alleged to be
suspect by
Osborne, as a result of another accountant’s examination of the
books, had occurred before Osborne and Shaun had
entered into their
first contract in respect of cattle grazing and division of progeny.
Misallocations of the proceeds of lucerne
sales had been corrected.
Neither Mark nor Marioth had taken any part in Shaun’s cattle
dealing business. And the books of
account showed no transaction
between the Cockin Trust and Osborne. Rossouw concluded that the
Cockin Trust was not insolvent,
that the sales of assets were
concluded in arms length transactions, and that the trust had not
entered into any transactions that
amounted to acts of insolvency.
[19]
Mark also denied Osborne’s allegations about the insolvency of
the Cockin Trust and provided figures to show that it
was solvent. He
explained that he and Marioth had never been party to Shaun’s
trading activities. Accepting that disputes
of fact must be resolved
on the
Plascon-Evans
principle, Alkema J said that Mark’s version, supported by
Rossouw, must be taken to be correct. However, he took a different
route to the conclusion that he reached that the Cockin Trust should
not be sequestrated at the instance of Osborne.
[20]
Alkema J pointed out that the predominant purpose of a sequestration
of an estate is the bona fide achievement of sequestration,
not the
resolution of a dispute over a debt. This is trite: see
Investec
Bank Ltd v Lewis
2002 (2) SA 111 (C).
Section 9(1)
of the
Insolvency Act provides
that
a creditor who has a liquidated claim for not less than R100 against
a debtor who has committed an act of insolvency, or is
insolvent, may
apply to court for the sequestration of the estate of the debtor. But
Osborne showed neither that he had a claim
against the Cockin Trust,
nor that it was liquidated. To the extent that he made allegations of
fact (rather than speculated on
what must have happened to his
cattle) these were disputed.
[21]
If it was alleged that the Cockin Trust was liable to return the
cattle that Shaun had misappropriated and that it had in its
possession, the remedy was a rei vindicatio brought by action
proceedings where evidence would be led and tested. Similarly, if
Osborne wished to recover the value of the cattle allegedly
misappropriated by the trust, he should have brought an action for
a
declarator that the cattle were under the Cockin Trust’s
control, and proved the damages that it claimed.
[22]
As Alkema J pointed out in the court a quo, the market value of
cattle depends on a variety of factors such as the weight of
one
head, its age, its gender, its condition, and prevailing market
conditions. The claim, even if it did lie against the Cockin
Trust,
was not liquidated and damages, if any were claimable, had to be
proved.
[23]
The basis of the claim brought by Osborne was, as I have said, that
the Cockin Trust was Shaun’s alter ego – that
it was a
sham. As counsel for the Cockin Trust submitted, however, if the
trust were in fact a sham, then it could not be sequestrated.
If on
the other hand, Osborne’s argument is that assets appearing to
be those of the trust were in fact Shaun’s assets,
to which the
estate was entitled, then any claim in this regard would lie in the
hands of the trustees of the deceased estate.
The principles in
respect of disregarding the form of the trust for the purpose of
establishing that another person or entity is
entitled to assets
appearing to be those of a trust, are set out in
Van
Zyl NNO v Kaye NO
[2014] ZAHCHC 52,
2014 (4) SA 452
(WCC), approved by this court in
REM
v VM
[2016] ZASCA 5
,
2017 (3) SA 371
(SCA) para 17.
[24]
Alkema J relied also on a judgment handed down by him in
RP
v DP & others
2014 (6) SA 243
(EC), in which the principles relating to the
determination of when the trust form may be disregarded, in order to
ascertain whether
a person is placing assets in the trust to avoid
the appearance of personal accumulation, are set out. The cases in
which the trust
form has been disregarded have by and large involved
disputes over matrimonial property rights on divorce. Where one of
the spouses
has abused the trust form in order to prevent his or her
assets from forming part of a joint estate or an accrual, the courts
have
questioned whether the assets ostensibly in the trust are really
its assets or those of one of the spouses. The trust form has not
itself been set aside.
[25]
This is not such a case. It is a case where Osborne has contended
that the trust is in fact a simulation. The evidence before
the court
simply did not support the contention, as Alkema J found.
[26]
As the court a quo suggested, the proper procedure that should have
been followed by Osborne was to make a claim against the
trustees of
the insolvent deceased estate, and to insist on enquiries or an
investigation in terms of
ss 64
,
65
and
66
of the
Insolvency Act.
Proper
investigation might establish which of his assets, if any,
were on trust property, and whether the trustees of the Cockin Trust
were liable to return any a cattle or pay damages.
[27]
In the circumstances, the appeal must be dismissed. Osborne did not
establish that the Cockin Trust was his debtor and was
insolvent or
had committed any act of insolvency.
[28]
The appeal is dismissed with costs.
_________________________
C
H Lewis
Judge
of Appeal
Willis
JA
[
29] I have had the benefit of reading the fine judgment prepared by
Lewis JA. I agree with the order that she has proposed and
her
reasoning, save for that in paragraph 22 of her judgment. In my
opinion, the appeal stands to be dismissed because, applying
the
time-honoured
Plascon-Evans
principles,
[1]
the appellant has failed to prove its claim against the trust.
Nothing else matters in this case. In other words, the
appellant
fails because it cannot be said that the respondents’ dispute
concerning the appellant’s allegations was
fictitious,
palpably implausible, far-fetched or so clearly untenable that the
court would justified in rejecting them merely on
the papers.
[2]
[29]
The liquidated nature of the claim or rather, the ‘liquidatedness’
of the claim, is relevant only insofar as the
threshold in terms of
s
9(1)
of the
Insolvency Act 24 of 1936
is concerned. In terms thereof,
in order to apply to (petition) the court for the sequestration of
the estate of a debtor, one
must have a claim ‘for not less
than fifty pounds’ against a debtor. The purpose of the
provision was plainly
to prevent persons who had trifling claims or
claims that were speculative from being able to sequestrate the
estate of another
person. The longevity of the currency of the
Insolvency Act is
testimony to its extraordinarily capable
draftsmanship. The passage of time has, however, eroded the value of
money. Translated
into modern South African currency, the threshold
is R100.
[3]
It had to
appear in the application (petition, to use the original terminology)
that a creditor had a claim incontestably
worth at least this amount
in order to have locus standi.
[4]
[30]
I agree with counsel for the appellant that, even though the total of
the claim may be unliquidated (a point validly made by
Lewis JA in
para 13), this does not mean that he was unable to pass the threshold
for locus standi. It is a notorious fact that
even one head of cattle
(never mind 1501 of them as claimed by the appellant) is worth
more than R100 or fifty pounds. Everyone,
especially in ‘cattle
country’ such as the Eastern Cape, knows this. In other words,
had the appellant been able to
straddle the
Plascon-Evans
test
,
he
would not have failed in the appeal by reason of locus standi.
My disagreement with Lewis JA may seem ‘technical’
in
nature but, on the other hand, it seems to me that it would have been
‘out of court’ for the appellant to fail because
he had
failed to prove that his claim was for at least R100.
_____________
N
P WILLIS
Judge of Appeal
APPEARANCES
For
Appellant:
A Beyleveld SC
Instructed
by:
Wheeldon Rushmere &
Cole Inc., Grahamstown
Symington & De Kok,
Bloemfontein
For
Respondent:
T J M Paterson
SC
Instructed by:
Huxtable Attorneys,
Grahamstown
Bezuidenhouts Inc,
Bloemfontein
[1]
Plascon-Evans Paints
Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634E-635C. In
National
Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009
(2) SA 277
(SCA) this court said:
'Motion
proceedings, unless concerned with interim relief, are all about the
resolution of legal issues based on common cause
facts. Unless the
circumstances are special they cannot be used to resolve factual
issues because they are not designed to determine
probabilities. It
is well established under the
Plascon-Evans
rule
that where in motion proceedings disputes of fact arise on the
affidavits, a final order can be granted only if the
facts averred
in the applicant's (Mr Zuma’s) affidavits, which have been
admitted by the respondent (the NDPP), together
with the facts
alleged by the latter, justify such order. It may be different if
the respondent’s version
consists
of bald or uncreditworthy denials, raises fictitious disputes of
fact, is palpably implausible, far-fetched or so clearly
untenable
that the court is justified in rejecting them merely on the papers.'
(Para
26.)
The
Plascon-Evans
rule has been emphatically endorsed by the Constitutional Court. See
for example
President
of the Republic of South Africa & others v M & G Media Ltd
2012 (2) SA 50
(CC);
[2011] ZACC 32
para 34.
[2]
Plascon-Evans
(supra)
para 26.
[3]
See
Kleynhans
v Van der Westhuizen NO
1970 (2) SA 742
(A) at 749D
.
[4]
Ibid at 749D-H.