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[2013] ZAWCHC 190
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Burger N.O. v Ismail and Others (8399/2013) [2013] ZAWCHC 190 (6 December 2013)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
Case
no: 8399/2013
DATE:
06 DECEMBER 2013
In
the matter between:
LEANA
BURGER
N.O
..................................................................................................
Applicant
v
NIZAM
ISMAIL
...............................................................................................
First
Respondent
ESSOP
ISMAIL
.......................................................................................
Second
Respondent
MEELAN
VALA
............................................................................................
Third
Respondent
THE
MASTER OF THE HIGH COURT, CAPE TOWN
.......................
Fourth
Respondent
NIZAM
ISMAIL
N.O
.......................................................................................
Fifth
Respondent
ESSOP
ISMAIL
N.O.
...................................................................................
Sixth
Respondent
MEELAN
VALA
N.O
..............................................................................
Seventh
Respondent
Court:
Judge J Cloete
Heard:
4 and 5 September 2013, supplementary note from counsel requested
by 12 September 2013, but delivered on 18 October 2013.
Delivered:
6 December 2013
JUDGMENT
CLOETE
J:
[1]
The applicant is the executrix of the estate of the late Antonio
Henrico (‘the deceased’) who passed away on 29
November
2010. She applies for the discharge and/or removal of the 1st to 3rd
respondents as trustees of the Trivest Trust (‘the
trust’);
and that Pieter Andreas Venter, an attorney, be appointed as trustee
in their stead. The Master (the 4th respondent)
abides the court’s
decision. The 5th to 7th respondents are cited in their capacities as
trustees of the Anmark Trust, which
is the sole beneficiary of the
trust. No relief is sought against the 4th to 7th respondents who are
cited only as interested parties.
Accordingly, and for sake of
convenience, I will refer to the 1st to 3rd respondents as ‘the
respondents’.
[2]
The trust is the registered owner of five immovable properties, four
of which are residential and one which is a mixture of
commercial and
residential. All are usually rented out to tenants. All were acquired
largely with loans secured by way of mortgage
bonds registered over
the various properties in favour of Standard Bank and Absa Bank
respectively. During the period May 2007
to July 2010 the deceased
bound himself as surety and co-principal debtor for the trust’s
obligations under the mortgage
bonds to Standard Bank in a maximum
amount of R360 000 (plus interest and costs); and in an unlimited
amount to Absa Bank on a
substantially similar basis.
[3]
The applicant alleges that the respondents have misappropriated the
trust funds, and in particular, the rental income. The
misappropriation is alleged to lie in the following, namely that: (a)
rental is collected in cash without being accounted for and
is thus
not appropriated to mortgage bond payments in relation to the trust’s
properties; and (b) rental has been paid into
the personal bank
account of the first respondent.
[4]
The applicant avers that this has caused the mortgage bond
instalments to fall into arrears and that municipal accounts and
VAT
have also not been paid. As a result of non-payment of the mortgage
bond instalments, the risk to the estate of the deceased
as surety
and co-principal debtor to the mortgage bond holders increases on a
daily basis, given that the banks may call up the
loans. The
applicant contends that if the banks proceed against the deceased’s
estate there is a ‘possibility’
that the estate will not
be able to exercise its right of recourse against the trust because
it has insufficient assets. In her
replying affidavit the applicant
changed tack to an extent but, given that an applicant must make out
a case in its founding papers,
and further that the respondents were
not afforded the opportunity to reply to the new allegations, it
would be inappropriate to
deal therewith.
[5]
The respondents oppose the relief sought on the following grounds,
namely that: (a) the applicant does not have the necessary
locus
standi to have brought the application as required by s 20(1) of the
Trust Property Control Act 57 of 1988 (‘the Act’);
(b) it
is not open to a surety, in order to protect its potential exposure,
to seek relief from a court to interfere with the affairs
of the
principal debtor save in very limited circumstances, none of which
are present; and (c) in any event, the applicant has
failed to make
out a case sufficient to satisfy the court that the removal of the
trustees will be in the interests of the trust
and its sole
beneficiary. As to (c) it is alleged that: (i) the assets of the
trust exceed its liabilities, thus eliminating the
risk complained
of; and (ii) rather than misappropriating the trust’s funds,
the respondents are doing more than what could
reasonably be expected
of trustees in order to protect the trust assets. An objection was
also made to the substitute trustee proposed
by the applicant, but
for the reasons that follow it is not necessary to consider this
aspect.
[6]
S 20(1) of the Act provides that:
‘
A
trustee may, on the application of the Master or any person having an
interest in the trust property, at any time be removed from
his
office by the court if the court is satisfied that such removal will
be in the interests of the trust and its beneficiaries.’
[7]
In Ras and Others NNO v Van der Meulen and Another
2011 (4) SA 17
(SCA) the first respondent had launched an application in the High
Court, alleging that she was a capital beneficiary of a certain
trust, and applied for an order removing the trustees, contending
that they had acted in bad faith in the performance of their
duties.
The trustees (in addition to other defences raised) denied that the
first respondent was a beneficiary of the trust, and
argued that she
was accordingly not entitled to the relief sought. The High Court
found that even if the first respondent was not
a trust beneficiary
(in respect of which the learned judge made no finding), she
nonetheless had a sufficient interest in the matter
which entitled
her to have brought the application, given the existence of a dispute
as to whether she had been appointed as a
beneficiary in terms of
particular resolution. On appeal the Supreme Court of Appeal held at
para [9] that: -
‘
The
Court clearly erred in finding that, short of being a beneficiary,
the respondent had an interest in the trust which justified
her being
entitled to seek the relief claimed. It is only if she is a
beneficiary that she would be entitled to seek the removal
of the
trustees, and the respondent correctly did not seek to support the
High Court’s contrary conclusion. If the trustees
are correct
and the respondent is not a beneficiary, her application would fall
to be dismissed.’
[8]
The Ras case appears to be decisive of the locus standi issue, save
for one further aspect raised on the applicant’s behalf
during
argument, namely that she enjoys locus standi in any event, because
as executrix she has stepped into the shoes of the deceased,
who was
the founder or settlor of the trust. The applicant relies on a
passage in Honore’s South African Law of Trusts (5th
Edition)
at para 118, p195 where it is stated that:-
‘
The
founder would likewise retain a “sufficient interest in the
trust property” for the purposes of making an application
to
court to delete or vary any provision in the trust instrument or to
obtain copies of trust documents, to constrain the trustee
to perform
trust duties or even to apply for the trustee’s removal from
office.’
[9]
I am unable to agree for the following reasons. First, an executor is
appointed to the estate of a deceased person. He or she
does not
succeed to the persona of the deceased: see LAWSA (2nd Edition) Vol
31 at para 213.
S 26(1)
of the
Administration of Estates Act No 66 of
1965
provides that an executor is charged with custody and control of
the estate property. Second, the applicant did not approach the
court
purporting to act as founder or settlor of the trust, but on the
basis that the estate is a contingent debtor.
[10]
However, even if I am incorrect, I am not persuaded that the
applicant has made out a case on the merits.
[11]
The applicant relies on sworn valuations of the trust properties
dated November 2010. The total value at that date was R8 125
000. At
my request the parties provided an agreed table of mortgage bond
balances, by way of a supplementary note.
[12]
The Master appointed the respondents as trustees on 14 March 2012. At
February 2012 the total amount owing under the mortgage
bonds was R5
157 836.06. Merle Gie (‘Gie’), who handled the collection
of the rentals and administration of the trust
at least until the
beginning of 2012, formally handed over these responsibilities to the
trustees during July 2012. In August 2012
the total amount owed under
the mortgage bonds was R5 187 469.28. One of the mortgage bonds,
namely that of the mixed use property
known as Wolfgebou, was in
arrears at 1 September 2012 in an amount of R295 183.13 and, by the
end of May 2013 (when the applicant
launched these proceedings on an
urgent basis) the arrears had reduced to R248 083.83. The
respondents’ version is that they
have kept the business of the
trust afloat in lean times by way of personal loans. Their undisputed
version is further that, shortly
after taking over the trust’s
administration, they reached an agreement with the relevant bank to
make increased monthly
payments to reduce the arrears.
[13]
According to bank statements annexed to the respondents’
answering papers, none of the other mortgage loan accounts were
in
arrears as at May 2013. At August 2013, shortly before the matter was
argued, the total mortgage bond liability in respect of
all of the
trust properties was R4 906 243.81, meaning that, based on the 2010
valuations, the total asset value exceeded the total
liabilities by
R3 218 756.19. Even allowing for the applicant’s concern that
forced sales would result in a reduction in
the overall sale price of
between 15% to 20%, and ignoring any expected increase in the value
of the properties over the almost
3 year period since November 2010,
the net result would still be that the total asset value exceeds the
total liabilities by R1
593 756. This is calculated as follows:
Total
value as at November 2010 8 125 000
Less
20% 1 625 000
Less
total bond liability 4 906 243
1
593 756
[14]
Accordingly, on the applicant’s own version, her fear that
there was a ‘possibility’ that the estate, if
called upon
to pay the loans, would not be able to exercise its right of recourse
against the trust, proved to be groundless.
[15]
The applicant also relied on two letters of demand addressed on
behalf of Absa Bank to a separate, unrelated surety of the
trust, Mr
P Grobler, on 19 March 2013. He was advised that two of the mortgage
bonds, namely those relating to the units known
as 7 and 109
Parkview, were in arrears in the amounts of R23 216.96 and R16 918.17
respectively. The respondents’ retort
was that the reason for
this was that Gie had not transferred rental payments accumulated
into the relevant mortgage bond accounts.
They pointed out that at 31
May 2013 an amount of R37 497.73 was immediately available in a
separate account to appropriate towards
the total arrears of R40
135.13. Although the applicant in turn pointed a finger at the
respondents for non-payment, she did not
dispute the availability of
those funds.
[16]
In reply the applicant also relied on two notices addressed by Absa
Bank’s attorneys to her dated 28 May 2013 and 25
July 2013 in
terms of
s 129
of the
National Credit Act No 34 of 2005
. The first
letter indicated that arrears of R28 196.95 had accumulated on the
one residential unit in Parkview, and the other that
arrears of R6
654.41 had accumulated on another residential unit in Nooitgedacht.
According to the agreed table produced subsequent
to argument, in
August 2013 the arrears on the Parkview unit had reduced to R19
729.68 (about 3½ months of arrears). The
“arrears”
on the Nooitgedacht property were the equivalent of a month’s
instalment. What is also apparent from
the table is that an amount
equal to the arrears on the Parkview unit had been inexplicably
credited by the relevant bank to the
bond account of another unit in
the same complex, leaving that account in credit. There is also no
allegation in the applicant’s
papers that legal action has in
fact been instituted against the trust.
[17]
The applicant’s allegation that the municipal accounts for the
Parkview units were unpaid was based on the respondents’
alleged failure to collect these accounts from Gie’s office; it
was contended that the ineluctable inference was that these
accounts
had not been paid. However the respondents annexed the relevant
accounts dated 29 and 30 April 2013 which showed that
the arrears
(which were insignificant) had been settled in full by 24 March 2013.
[18]
In relation to unpaid VAT the respondents pointed out that only about
4% of the total rental income was subject to VAT, i.e.
for commercial
tenants, and that arrangements were being made to settle this amount.
The figures produced by the respondents showed
that, of the total
rental income received of R446 821 over the 9 month period from
September 2012 to May 2013, VAT payable amounted
to only R18 429 (or
4.12%). The respondents’ undisputed version was further that,
after payment of any outstanding amount
due to SARS, they would be
taking the necessary steps to deregister the trust for VAT.
[19]
I was also informed that steps were being taken to open a separate
trust bank account.
[20]
The anticipatory relief sought by the applicant, in order to protect
the estate from potential risk under the suretyship, is
to remove the
trustees from the trust. It is my view that the application is
misguided. First, the applicant has not persuaded
me that the
respondents have been recklessly squandering or wasting the trust
assets; nor has she persuaded me that their conduct
(albeit at times
not strictly in accordance with the provisions of the Act) has been
such as to induce a reasonable fear in her
mind that the trust may
eventually be unable to render performance. Had she been able to show
this, the path that she should have
followed was to bring an action
against the trustees to compel them to render the required
performance to the banks and, pending
the determination of that
action, to ask the court for an interdict restraining the respondents
from further disposal of the trust
assets. It would also have been
open to the applicant to seek an order calling upon the respondents
to secure the estate’s
release from the suretyship: see LAWSA
(2nd Edition) Vol 26 at para 306; Douglas G Wylde and Co v Burger
1970 (3) SA 618
at 620G-H. Instead however she sought to remove the
respondents.
[21]
That leaves the question of costs. In their answering papers the
respondents asked for costs on the scale as between attorney
and
client. In argument they sought such an order against the applicant
in her personal capacity on the basis that this litigation
has been
vexatious. In the exercise of my discretion I do not intend to go
that far. Although misguided, there is not enough on
the papers
before me to persuade me that the applicant, in an attempt to
safeguard the estate in her capacity as executrix, has
behaved in
such a manner that a punitive costs order against her personally, or
the estate, is warranted.
[22]
In the result I make the following order:
The
application is dismissed with costs.
J
I CLOETE