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[2015] ZAWCHC 3
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Lehane N.O v Lagoon Beach Hotel (Pty) Limited and Others (15678/2014) [2015] ZAWCHC 3 (23 January 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NO: 15678/2014
DATE:
23 JANAURY 2015
In
the matter between:
CHRISTOPHER
D LEHANE
N.O
..........................................................................
Applicant
And
LAGOON
BEACH HOTEL (PTY)
LIMITED
.................................................
1st
Respondent
CASTORENA
LIMITED
..............................................................................
2nd
Respondent
INVESTEC
BANK
LIMITED
.......................................................................
3rd
Respondent
DLA
CLIFFE DEKKER
HOFMEYR
.............................................................
4th
Respondent
GREAT
AFRICA 999 INVESTMENT (PTY)
LTD
..........................................
5th
Respondent
Dates
of Hearing: 22, 23, 26, 29, 30 September and 1 October 2014
Date
of Order: 17 October 2014
Delivered:
23 January 2015
JUDGMENT
(INCORPORATING
REASONS FOR ORDER GRANTED ON 17 OCTOBER 2014)
YEKISO,
J
[1]
On 29 July 2013, Christopher D Lehane (“the applicant”),
an adult male person whose place of business is situate
at Block 2,
Phoenix House, Conyngham Road, Dublin, in the Republic of Ireland was
appointed as the Official Assignee of the bankrupt
estate of Sean
Dunne by the Dublin High Court, Bankruptcy, at the instance of one of
his creditors, Ulster Bank Ireland Limited.
At the time Mr Dunne was
declared bankrupt by the Dublin High Court he was resident in the
state of Connecticut, USA. Mr Dunne
had earlier, and this was on 23
March 2013, filed for Chapter 7 Bankruptcy in the United States. He
was declared bankrupt by the
United States Bankruptcy Court of
Connecticut, Bridgeport Division on 12 June 2013. His declaration
for bankruptcy in the United
States had been at his instance, and not
that of his creditors. A Mr Richard Coan was appointed his trustee.
His trustee in the
US supports these proceedings. The Official
Assignee in Ireland is the equivalent of a trustee of an insolvent
estate in terms
of the South African Law of Insolvency.
[2]
Once appointed the Official Assignee of Mr Dunne’s bankrupt
estate, the applicant conducted its investigations and in
the course
of such investigations ascertained that Mr Dunne structured his
affairs through a web of companies and trusts situated
in multi
jurisdictions and tax havens. It was in the course of such
investigations that the applicant ascertained that, prior
to 2008, Mr
Dunne was a shareholder of a company registered in Ireland called
Mount Brook Homes Limited which later changed its
name to Mavior.
Mavior, in turn, held the entire shareholding in Lagoon Beach Hotel
(Pty) Limited, the first respondent in these
proceedings.
[3]
The investigation further revealed that Mr Dunne had also funded the
first respondent (Lagoon Beach Hotel (Pty) Ltd) through
loans which
had been made to Mavior. Mavior, in turn, had lent funds to the
first respondent. The investigation ultimately revealed
that Mr
Dunne had a personal interest in, and had indeed funded, the first
respondent through the inter position of the corporate
entity in the
form of Mavior.
[4]
It was in the course of the investigation of the affairs of Mr Dunne
that the applicant ascertained that the first respondent,
Lagoon
Beach Hotel (Pty) Ltd, was in the process of disposing of its
immovable property, or that its shareholder was in the process
of
disposing of its shares and, possibly, its loan account therein. The
purchase consideration in respect of the disposition of
its immovable
property and shares in the first respondent was said to be in an
amount of R260m. The implementation of the transaction
was said to
be imminent hence the launch of these proceedings, ex parte, and on
the basis of urgency.
[5]
On 1 September 2014 the High Court, Bankruptcy, in Ireland, issued
letters of request at the instance of the applicant, asking
the High
Court of South Africa, Western Cape Division, to act in its aid.
This Court was requested by the Irish Court to recognise
the
applicant as the trustee of Mr Dunne’s bankrupt estate. The
High Court in Ireland further authorised the applicant,
in the event
of recognition being accorded to him by the South African High Court,
to apply for an Anti-dissipation Order in respect
of the sale of the
Lagoon Beach Hotel and to pursue any related proceedings in South
Africa.
[6]
On 2 September 2014, the applicant applied, on ex parte basis, for an
order, amongst other things:
[6.1.] to
obtain recognition of the applicant as Mr Dunne’s foreign
trustee;
[6.2.] restraining
the first respondent, Lagoon Beach Hotel (Pty) Ltd, from disposing of
the proceeds of the sale of its assets,
a hotel business, and the
assets comprising same pending the outcome of legal proceedings then
contemplated to be instituted in
the Republic of Ireland. Those
proceedings were subsequently instituted in the High Court in Ireland
on 5 September 2014.
[7]
The application served before Steyn J. Steyn J granted the order
sought, in the form of a Rule Nisi, returnable on 13 October
2014,
together with interim interdicts pending that return date. In terms
of the Order of 2 September 2014, the applicant was
empowered, after
providing security to the satisfaction of the Master:
[7.1.] to
administer the estate of Mr Dunne in respect of all his assets which
are or may be found or are situated within the Republic
of South
Africa; and
[7.2.] granting
him all rights under the Insolvency Act, 24 of 1936 (“the
Insolvency Act&rdquo
;) including
sections 64
,
65
,
66
,
69
and
82
; and
[7.3.] entitling
him to administer the estate of Mr Dunne as if a sequestration order
had been granted against him by a South African
Court on 29 July
2013.
[8]
On 17 September 2014 the first respondent filed a notice in terms of
rule 6(8) of the Uniform Rules of Court advising that it
intended
anticipating the return day on Monday, 22 September 2014. The same
notice informed the applicant of the first respondent’s
intention to seek re-consideration of the application in terms of
rule 6(12) (c) of the Uniform Rules of Court.
[9]
Apart from seeking re-consideration of the matter, the first
respondent opposes the relief sought on several grounds and these
relate to admission of inadmissible hearsay evidence; introduction of
new matter under reply; urgency; authority; locus standi;
jurisdiction; authentication; non-joinder; and material
non-disclosure. It is contended on behalf of the first respondent
that
once these issues are reconsidered, or that the matter is
reconsidered based on those issues, it may well be concluded that the
rule nisi should not have been issued or, at best, that the rule nisi
be discharged.
[10]
The matter was argued before me on 22, 23, 26, 29, 30 September 2014
and 1 October 2014. After hearing argument I reserved
judgment. On
Friday, 17 October 2014, and this was after I had formed a view of
the matter, I handed down the order which is annexed
to this judgment
as Annexure “A” and which, in turn, was handed to all
parties having an interest in the matter.
In handing down the order
I gave, I indicated to the parties that the reasons for that order
would be furnished in due course.
In the paragraphs which follow are
reasons for the order I gave.
THE
RESPONDENTS
[11]
The first respondent is Lagoon Beach Hotel (Pty) Limited, a limited
liability company incorporated in terms of the company
laws of the
Republic of South Africa, and bearing registration number
2003/003/011/07 and has its registered office at Lagoon Beach
Hotel,
Lagoongate Drive, Milnerton, Cape Town. The first respondent is the
owner of at least 205 sectional title units comprising
the Lagoon
Beach Hotel. It appears that the aforesaid units are its principal
asset.
[12]
The second respondent is Castorena Limited (“Castorena”),
same being a company limited by shares incorporated in
accordance
with the laws of Mauritius and bears registration number C11063. It
has its registered office at International Proximity,
608 St James
Court, St Denis Street, Port Louis, Mauritius. On the basis of the
securities register of the first respondent, Lagoon
Beach Hotel (Pty)
Ltd, Castorena, the second respondent, is the first respondent’s
sole shareholder. Efforts by the applicant
to ascertain whether
Castorena, during the period immediately preceding the institution of
these proceedings, was still its shareholder
did not yield any
result. This resulted in proceedings being instituted in this Court
under case number 13180/2014 to compel
a response. That application
was opposed by the first respondent and was due to be heard in this
Court on 22 October 2014.
[13]
The third respondent is Investec Bank Limited, it being a registered
bank and a limited liability company incorporated in accordance
with
the laws of the Republic of South Africa and carrying on business at
36 Hans Strijdom Avenue, Foreshore, Cape Town. As at
the time of the
institution of these proceedings the third respondent had mortgage
bonds registered over the sectional title units
in the first
respondent, Lagoon Beach Hotel (Pty) Ltd, as security for the
indebtedness of the first respondent to it.
[14]
The fourth respondent, DLA Cliffe Dekker Hofmeyr, (“DLA”)
is a firm of attorneys which carries on business as such
at 11
Buitengracht Street, Cape Town. It is cited in these proceedings in
its capacity of having been retained as the first respondent’s
attorneys in the past and in anticipation of having been instructed
in respect of the sale of the first respondent’s assets.
CHRONOLOGY
OF MATERIAL FACTS & EVENTS
[15]
On 11 July 2004 and at Santa Margherita, Italy, Mr Dunne and Gayle
Allison Reyna Killilea were married to each other out of
community of
property. On 23 March 2005 and in Hua Hin, Thailand, Mr Dunne
dissipated a portion of his interest in the first
respondent by way
of a written undertaking to Mrs Dunne to give her 70% of the profits
that would accrue from sale of his share
of Lagoon Beach Hotel, Cape
Town. Mr Dunne also transferred to Mrs Dunne a debt of €4m owed
to him by Mount Brook Homes Limited.
[16]
Ongoing investigations into the affairs of Mr Dunne revealed that as
at 15 February 2008, Mr Dunne’s liabilities exceeded
his assets
by €66,6m and by 28 October 2008 that excess of liabilities over
assets had increased to €240,8m.
[17]
On 15 February 2008, Mr & Mrs Dunne signed a further document in
terms of which the 2005 agreement was clarified and in
which the
following recordals and undertakings appeared:
“
As
the sale of item 3, Lagoon Bay Beach Hotel, Cape Town, SA has not
been possible, I hereby irrevocably transfer to my wife, Gayle
Dunne
(Killilea) my full interest in this property with immediate effect.
I
also hereby transfer with immediate effect the full book value as
calculated as of today’s date all loans made by me to
Mount
Brook Homes Limited [Mavior], and all of its associated companies and
subsidiaries.”
[18]
On 28 October 2008, the shareholding in Mavior was transferred to
Isle of Man companies controlled by Mrs Dunne, these companies
being
Zabingo and Zintkala. Evidence tends to suggest that Mrs Dunne held
100% interest in the first respondent through these
corporate
entities located in the Isle of Man and Cyprus. A total of 499
shares was transferred from Mavior to Zabingo whilst
1 share was
transferred to Zintkala..
[19]
On 14 May 2010 Mr Dunne addressed a letter to the US Embassy in
Ireland which formed part of a visa application for his travel
to the
USA in which he stated:
“
I
am an Irish national who resides in Ireland. I am intending to go to
the United States to develop and manage my United States
company
pending an approved visa.
Upon
termination of the investor visa status, I have every intention of
departing the United States and returning home to Ireland.”
[20]
On 23 June 2010 Mr & Mrs Dunne concluded a separation agreement
in which it is stated that Mrs Dunne does not have a personal
income;
that Mr Dunne owns the Shrewbury home; and that the parties are
domiciled in Geneva. In the separation agreement there
is a
reference to the 2005 agreement but no reference is made to the 2008
agreement.
[21]
In early 2010, Mr & Mrs Dunne were involved in family law
proceedings in Switzerland which culminated in an order by agreement
on 31 August 2010. The Order was granted by a Court of first
instance in Geneva, Switzerland.
[22]
On 30 March 2011 Mount Brook Homes changed its name to that of
Mavior. On 9 March 2012 the Irish High Court, per Kelly J,
granted
default judgment against Mr Dunne at the instance of the National
Asset Loan Management Limited in an amount of €185,299,627.78.
Shortly thereafter, and specifically on 21 May 2012, similarly the
Irish High Court per Kelly J, granted default judgment against
Mr
Dunne at the instance of Ulster Bank Limited in an amount of
€164,586,493.05. On 29 June 2012 Mount Brook Homes Limited
transferred its entire shareholding in Lagoon Beach Hotel (Pty)
Limited to Castorena, the second respondent in these proceedings.
Castorena was, at that time, owned by Mrs Dunne.
[23]
On 12 February 2013 bankruptcy proceedings were initiated in the High
Court, Ireland when leave was given to serve proceedings
outside that
court’s jurisdiction.
[24]
On 29 March 2013 Mr Dunne filed for bankruptcy in terms of Chapter 7
in the United States. On 29 July 2013, Mr Dunne was declared
bankrupt in the Dublin High Court at the instance of the petitioning
creditor, Ulster Bank Ireland Limited. On 31 October 2013
Castorena
Limited sold its shares in Lagoon Beach Hotel to Volcren Management
Limited. This company is indirectly owned by Mrs
Dunne through Enia
Investments Limited. Volcren Management, based in Cyprus, has
claims against another company called Cotton
Developments Limited and
other entities. These other entities also assert loan claims against
Lagoon Beach Hotel.
[25]
On 6 December 2013 Mr Dunne applied to the High Court, Bankruptcy in
Dublin to set aside a declaration of bankruptcy granted
against him
on 29 July 2013. The application was dismissed and in the course of
determining that application, McGovern J determined
that Dunne was
domiciled in Ireland. As at the date of the hearing of this matter
an appeal against that judgment was still pending.
[26]
On 31 March 2014 Mrs Dunne purchased property in the UK for £5m
and for which she paid a non-refundable deposit in an
amount of £1m.
The closing date of that transaction was recorded as having been 30
September 2014.
[27]
What becomes evident from a chronology of these facts and events is
that before October 2008 Mr Dunne, by way of several corporate
entities, had a 100% interest in the first respondent; that
subsequent to the 2005 and 2008 agreements the 100% interest in the
first respondent had migrated to Mrs Dunne through Mavior, which
subsequently transferred its entire shareholding to Zabingo and
Zintkala based in the Isle of Man and both corporate entities being
owned by Mrs Dunne; and that after the Volcren transfer during
October 2013, Mrs Dunne held a 100% interest in Lagoon Beach Hotel
through Volcren Management which is based in Cyprus and, ultimately,
through Enia Investments Limited.
[28]
It is on the basis of these transactions that the applicant contends
that Mr Dunne has sought to defeat the right of his creditors
by
structuring his affairs through a web of companies and, in doing so,
engineered the fraudulent disposal of his interest in the
first
respondent, Lagoon Beach Hotel, to Mrs Dunne at the time when his
estate was insolvent. The applicant contends that those
transactions
pertinent to the disposal of Mr Dunne’s interest in the first
respondent are impeachable dispositions with a
potential to be set
aside and be re-instated in his bankrupt estate. The proceedings
instituted in the High Court, Dublin, Ireland,
are intended to
recover these interests for the benefit of Mr Dunne’s
creditors.
[29]
I now turn to determine those issues set out in paragraph [9] of this
judgment on the basis of which the first respondent opposes
the
relief sought. I am thankful to both counsel for the comprehensive
submissions filed and the elaborate argument before me
to flesh out
those issues.
URGENCY
[30]
In the affidavit deposed to on behalf of the applicant on 2 September
2014 the deponent of that affidavit states that he had
reliably been
informed that Lagoon Beach Hotel was in the process of selling its
assets or its shareholder was in the process of
selling its shares
and/or loan claims against it for an amount of R260m. It is further
stated in that affidavit that the implementation
of the transaction
was imminent and that the conclusion of that transaction would enable
Mrs Dunne, who it appeared was the holder
of the interest in Lagoon
Beach, would realise that interest and to pay it away to whomever she
pleases.
[31]
The first respondent contends that the grounds of urgency the
applicant relies upon are self-created in as much as the applicant
had known about the anticipated sale of the first respondent’s
assets since January 2014, a reference in this regard being
made to
what Mr Dunne stated at a section 341 Enquiry held in the United
States. However, the transcript of the section 341 Enquiry
relied
upon makes no mention of any anticipated disposal by the first
respondent of its assets. The agreement in terms of which
the first
respondent would dispose of those assets was only signed on 16 July
2014. This evidence has since been confirmed by
the intervening
party which confirmed that the sale had indeed taken place and that
the concluding date of the transaction was
30 September 2014. In
the light of the imminent conclusion of that transaction, the
launching of these proceedings, on an urgent
basis, was, in my view,
justified.
INADMISSIBLE
HEARSAY EVIDENCE
[32]
The evidence on the basis of which the applicant relies in seeking
the relief sought is based on several documents. By virtue
of his
office the applicant is in possession of books, records,
correspondence and other documents of a contemporaneous nature
relating to Mr Dunne’s bankrupt estate and the applicant relies
on the evidence based on those documents in support of the
relief it
seeks.
[33]
The first respondent objects to the admission of evidence based on
the documents the applicant relies upon on the basis that
such
documents constitute inadmissible hearsay evidence in as much as the
applicant does not, both in its founding affidavit and
its affidavit
in reply, identify the sources of such hearsay evidence. The first
respondent has set out in its submissions several
paragraphs in the
applicant’s founding and replying affidavits where such
inadmissible hearsay evidence is contained. Indeed,
the first
respondent has adopted the position that anything stated by the
applicant, based on those documents, that the applicant
does not have
personal knowledge of should, on the basis of the exclusion of
hearsay evidence rule, be ignored.
[34]
In adopting this stance, the first respondent seeks to exclude from
the evidence any documents relied upon in the applicant’s
affidavit. The first respondent has pleaded over in the event of its
objection as to the admissibility of hearsay evidence is
rejected.
Gore v Amalgamated Mining Holdings (Pty) Ltd
1985 (1) SA 294
(C) is
authority for the proposition that a respondent seeking to object to
inadmissible hearsay evidence is obliged to plead over,
for a
litigant who elects not to deal with evidence against it, which such
litigant considers inadmissible, runs the risk that
such evidence
will remain unanswered if its objection fails.
[35]
In paragraph [31] of this judgment I concluded that the launching of
these proceedings, on an urgency basis, was justified.
Southern
Pride Foods (Pty) Ltd v Mohidin
1982 (3) SA 1068
(C) is authority for
the proposition that hearsay evidence will be admitted into evidence
in instances where interdictory proceedings
are brought on an urgent
basis. Such hearsay evidence will be admitted into the body of
evidence on the basis of a statement by
the deponent thereof that he
or she believes in the truth of such evidence, simultaneously
identifying the source of such hearsay
evidence relied upon.
[36]
In the instance of this matter, the deponents of both the founding
and the replying affidavit make it plain that their knowledge
of the
facts is based on the documents annexed to their respective
affidavits. The purpose of the requirements to disclose the
source
of hearsay evidence is to enable the party who has to deal with such
evidence to be able to interrogate the source of the
document in
question. Having regard to the documents the applicant relies upon
the first respondent would have been able, on
the basis of such
documents, to identify the source of the hearsay evidence relied upon
thus satisfying the requirement relating
to the identification of the
source of such hearsay facts.
[37]
In any event, the approach to hearsay evidence was altered by the
introduction of the
Law of Evidence Amendment Act, 45 of 1988
.
Section 3(1)
of the
Law of Evidence Amendment Act provides
that
hearsay evidence shall not be admitted unless a court, having regard
to various factors stated therein, is of the opinion
that such
evidence should be admitted in the interest of justice. In
Registrar of Insurance v Johannesburg Insurance Company
Limited (1)
1962 (4) SA 546
(W) at 547 E-F the court made the following
observation:
“
It
is true that the report contains statements by the accountants that
they were informed of certain facts. Any investigation into
books
drawn up by others who do not testify to the entries is, very
strictly speaking, hearsay. But books are admissible against
a
party. If all the people who know about every small fact which makes
up this complex case would have to make affidavits, the
matter would
have become quite impracticable. In a case like that a court will
relax its rules for the sake of facilitating litigation
and in the
interest of justice.”
[38]
I am perfectly in agreement with the submission that this is a matter
of an extremely complex nature concerning, as it does,
significant
sums of money and involves multiple jurisdictions. Proceedings have
already been instituted in the Irish Courts in
an effort to set aside
those dispositions which the applicant believes were of a fraudulent
nature in order that the proceeds arising
from those dispositions be
restored to Mr Dunne’s bankrupt estate. Principles of
international comity would, in the instance
of this matter, lean
towards the evidence complained of being admitted into the body of
evidence for, in my view, it is in the
interest of justice to do so.
[39]
Although the authority referred to in paragraph [37] above precedes
the introduction of the
Law of Evidence Amendment Act, the
position
is currently different in that the advent of the
Law of Evidence
Amendment Act unshackles
the court from such restraint. I
accordingly hold the view that Steyn J was correct in issuing the
rule nisi in the manner she
did and that there is no basis, on the
basis of the evidence on record, to conclude that such an order
should not have been issued.
NEW
MATTER
[40]
Ancillary to the objection of admission of the evidence on the basis
of the hearsay rule is the argument that numerous allegations
in the
applicant’s replying affidavit constitute new matter and, for
that reason alone, that such evidence should be ignored
or, otherwise
be excluded in the determination of the issues in dispute. Amongst
other evidence that the first respondent seeks
to have excluded, and
accordingly ignored, is the evidence relating to the family law
proceedings in Ireland in respect of which
Mrs Dunne stated that she
was exonerated from any wrongdoing. In an attempt to rebut this
evidence the applicant annexed to his
replying affidavit the judgment
in those proceedings which reveal that Mrs Dunne was joined in those
proceedings merely as an interested
party. In those proceedings, it
was found that Mr Dunne had concealed assets from his former wife.
[41]
In another instance, the first respondent alleges that Mr Dunne had
intimated that a sale of the first respondent’s assets
was
likely as long ago as December 2013 and that this fact was known to
the applicant as early as January 2014. In reply, the
applicant
attached a transcript to his replying affidavit revealing that
assertions to this effect, in the course of a
section 341
enquiry,
had been made in the vaguest of terms. I have carefully considered
the first respondent’s submissions with regards
to the
admission of new matter in reply and I am of the view that whatever
evidence that there could be, contained in the applicant’s
replying affidavit, not specifically set out in the founding
affidavit, was included in the replying affidavit in reply to
allegations
contained in the first respondent’s answering
affidavit. My view is that whatever other matter contained in the
replying
affidavit which the first respondent considers objectionable
on the basis that it is new matter or otherwise inadmissible, its
admission at this stage of the proceedings does not create any
prejudice to the first respondent.
WORLDWIDE
STAY OF PROCEEDINGS
[42]
It is contended on behalf of the first respondent that when Mr Dunne
applied for voluntary bankruptcy in the US on 29 March
2013, and once
Mr Richard Coan was appointed as his US trustee, his estate and
assets vested in his US trustee and that fact had
an effect of
staying all proceedings against his estate and barred any future
proceedings against his bankrupt estate save with
the leave of the US
Court of Bankruptcy.
[43]
In terms of section 362 of the United States Bankruptcy Code an
automatic stay is placed on anyone, other than the US Trustee
in
Bankruptcy, in instituting, amongst others, a fraudulent transfer
action for the recovery of assets transferred pursuant to
a
fraudulent transaction. A fraudulent transfer action would be an
action similar to the one based on the right of a creditor
of a
bankrupt person to have a fraudulent disposition made by that
bankrupt person to a third party set aside. According to the
US
domestic law the aforesaid stay of proceedings applies extra
territorially.
[44]
In this regard, it is submitted on behalf of the first respondent
that the proceedings before me are subject to the automatic
stay as
provided in section 362 of the United States Bankruptcy Code and
that, on that basis alone, this application ought to be
dismissed
with costs de bonis proprius as the applicant was aware of automatic
stay placed on Mr Dunne’s estate and the vesting
of his assets
in the US trustee.
[45]
The proceedings before me are, in no doubt, ancillary to the
proceedings instituted in the Dublin High Court, Ireland for the
recovery of Mr Dunne’s assets, arising from the alleged
fraudulent transfer thereof. The proceedings before me are intended
to preserve assets allegedly belonging to Mr Dunne pending the
outcome of a fraudulent transfer action instituted in the High Court,
Dublin, Ireland. The case put up by the first respondent in these
proceedings is that the automatic stay in terms of the US domestic
legislation prevents the applicant from prosecuting any claim against
Mr Dunne that the applicant may have. As has already been
pointed
out, the proceedings before me are not intended to recover assets as
a consequence of a fraudulent transfer but for the
preservation of
such assets pending the determination of a fraudulent transfer action
instituted in the High Court, Dublin.
[46]
Even if I were to accept that the ambit of the proceedings
contemplated by the United States Bankruptcy Code includes the kind
of application before me, that does not of itself, in my view, mean
that the worldwide stay has any binding force in South Africa.
In
the Republic the legislative authority in the national sphere of
government is vested in parliament; that of the provincial
sphere of
government is vested in the provincial legislatures; and that of
local sphere of government is vested in municipal councils.
[47]
The source of law in the Republic is the Constitution of the Republic
of South Africa, 1996 and legislation enacted by the
national
parliament, provincial legislatures and municipal councils. That is
the only legislation that has a binding force in
South Africa.
Declaration of insolvency by a court in a foreign state is no bar to
a domestic court in South Africa from adjudicating
an issue
pertaining to a person declared insolvent by a court in a foreign
state.
[48]
As Henochsberg J observed in Hymore Agencies Durban v Gin Hih Weaving
Factory
1959 (1) SA 180
(D):
“
It
has been held that a bankruptcy statute is only of force in a state
where it is enacted, nevertheless, by comity of nations,
assignments
in bankruptcy in one state are sometimes recognised as effective in
another. It is for this reason that the sequestration
of a debtor
by a foreign court does not preclude a creditor in this country
instituting or proceeding with an action against the
debtor in the
ordinary way.”
[49]
The US Bankruptcy Code is a US domestic piece of legislation. It is
not customary international law. Customary international
law is law
in the Republic unless it is inconsistent with the Constitution or an
act of Parliament. No matter what the US Bankruptcy
Code provides as
regards its extra-territorial application, that in itself is no basis
for a conclusion that it has a binding force
in the Republic. To
conclude otherwise would countenance the violation of the territorial
sovereignty of the Republic of South
Africa. The principle of
sovereignty has consistently been recognised by our courts in the
context of insolvency matters.
[50]
In any event, even if it were to be accepted that the provisions of
section 362 of the US Bankruptcy Code do apply extra territorially
and are thus of force in the Republic of South Africa, the worldwide
stay contemplated in the US domestic legislation is intended
to
prevent the institution of a fraudulent transfer action against the
estate of a bankrupt person. Since the proceedings before
me do not
constitute a fraudulent transfer action, it therefore follows that
these would not be hit by the automatic stay contemplated
in the US
Bankruptcy Code.
[51]
Michael Francis Osborne, an advocate of this Court and a member of
the New York Bar and Joshua W Cohen, an attorney admitted
to practise
law in the United States of America, furnished opinions on behalf of
the first respondent and the applicant, respectively,
about the
effect the US Bankruptcy Code worldwide stay has in these
proceedings. In the light of my conclusion and the approach
I have
adopted in the determination of this issue, it is not necessary for
me to express a view on the opinions expressed by these
pratctitioners.
LOCUS
STANDI
[52]
The first respondent challenges the applicant’s locus standi on
the basis that, until such time as the applicant has
been recognised
by this Court as Mr Dunne’s official assignee, the applicant
does not have locus standi to institute these
proceedings; that a
foreign trustee of an insolvent estate will only be recognised by
this court only in those instances where
the bankrupt is domiciled in
the state where the declaration of bankruptcy was issued; the
declaration of bankruptcy is issued
at the time the bankrupt is
domiciled in the state in which the declaration of bankruptcy is
issued; and that, in the instance
of the matter before me, the
applicant has not established that Mr Dunne was domiciled in Ireland
at the time he was declared bankrupt
by the High Court, Dublin.
[53]
In contending that Mr Dunne was domiciled in Ireland the applicant
relies on a letter signed by Mr Dunne on 14 May 2010 addressed
to the
US embassy in which Mr Dunne indicated that he had intended to pursue
a property development business in the United States
and once that
business project would have been completed, he would thereafter
return home to Ireland. The first respondent refutes
this assertion
on the basis that more than four years had elapsed since the writing
of the letter relied upon; that Mr Dunne is
still resident in the US;
and that he was so resident on 29 March 2013 when he was declared
bankrupt by the US court.
[54]
In a settlement agreement concluded in Geneva, Switzerland on 23 June
2010, Mr & Mrs Dunne stated that they had been domiciled
in
Geneva since 2008. On 30 November 2013 Mr Dunne deposed an affidavit
in which he stated that he was resident and domiciled
in the US and
had not been resident in Ireland since early 2007. It is on the basis
of these facts that the first respondent contends
that the applicant
has not established that Mr Dunne was domiciled in Ireland at the
time he was declared bankrupt by the High
Court, Dublin. Absent
proof that Mr Dunne was domiciled in Ireland as at the time of his
declaration of bankruptcy, the applicant
does not have locus standi
to institute these proceedings, so the first respondent contends.
[55]
The applicant’s response to this assertion is that the Irish
Bankruptcy Court had, in the proceedings before it, determined
that
Mr Dunne was domiciled in Ireland at the time of his declaration of
bankruptcy and that such determination was made after
a comprehensive
analysis of the competing contentions on the point between Mr Dunne
and the applicant. In support of this assertion
the applicant
annexed a copy of the judgment of the Irish Court wherein, in
paragraph 46 thereof, the court stated that it was
not satisfied that
the bankrupt (Mr Dunne) had discharged the onus upon him to show
cause for the declaration of his bankruptcy
to be set aside on the
basis of his domicile. Furthermore, and in response to this
assertion, the applicant contends that domicile
is not an absolute
requirement for his recognition relying on ex parte Pama N.O.: In re
Kahn
1993 (3) SA 359
(C) at 364I – 365B in support of this
contention.
[56]
In that authority this Court, per Berman J, and citing the cautious
and guarded language of Innes CJ Re Estate Morris
1907 TS 657
at 666
observed that recognition could be granted to a trustee appointed by
a Court within whose jurisdiction the insolvent was
not domiciled
under exceptional circumstances and by reason of exceptional
consideration of convenience.
[57]
In the instance of this matter, I therefore conclude that the
applicant has established that Mr Dunne was domiciled in Ireland
when
he was declared bankrupt by the High Court, Dublin and that, in a
subsequent application by Mr Dunne to have his declaration
of
bankruptcy set aside, the High Court, Dublin, determined that Mr
Dunne was domiciled in Ireland at the time of the declaration
of his
bankruptcy.
NON-DISCLOSURE
[58]
The first respondent complains of various non-disclosures or
misrepresentations in the founding papers. Those complained of
are
set out in paragraphs 12.1 upto 12.8 of the first respondent’s
submissions and these are: the existence of the worldwide
stay under
the US Bankruptcy Code; the necessity of a modification to the
worldwide stay in order for the Irish bankruptcy proceedings
to get
off the ground; the order varying the worldwide stay; the judicial
separation of Mr & Mrs Dunne during August 2010;
that Mrs Dunne
has not resided with Mr Dunne in Connecticut since at least September
2013; that the applicant has had access to
all documentation relating
to the family court proceedings between Mr Dunne and Jennifer Coyle
in Ireland; that Mr & Mrs Dunne
have separate
attorneys/solicitors in the US and Ireland, respectively, and that
the applicant has the particulars of those attorneys;
and that the
Irish Statute of Fraudulent Conveyancers 1634 was repealed with
effect from 1 December 2009.
[59]
The applicant complains that such non-disclosures and/or
misrepresentations are capable of being characterised as material
because they are such that had Steyn J been apprised of the true and
full facts, she might well have refused the application, or
granted
relief in differently formulated terms.
[60]
It is trite that an ex parte applicant must disclose all material
facts that might influence the court in deciding the application.
In deciding whether a fact is material to the application, such fact
must have direct relevance and bearing on the merits of
the ex parte
application and, therefore, the utmost good faith must be observed by
litigants in ex parte applications.
[61]
If the applicant fails in this regard and the application is
nevertheless granted in provisional form, the court hearing the
matter on the return day has a discretion and, given the full facts,
to set aside the provisional order or grant confirmation of
the
provisional order.
[62]
In exercising that discretion the court, on the return date, will
have regard to the extent of the non-disclosure; the question
as to
whether the court granting the order on an ex parte basis might have
been influenced by proper disclosure; the reason for
non-disclosure;
and the consequences of setting the provisional order aside.
[63]
The first three non-disclosures set out in the first respondent’s
submissions have already been dealt with in this judgment
under the
heading “Worldwide Stay of Proceedings”. In paragraph
[47] of this judgment I concluded that the declaration
of insolvency
by a court in a foreign state does not bar a domestic court in South
Africa from adjudicating an issue pertaining
to a person declared
insolvent by a court in a foreign state. Thus, the first three
non-disclosures complained of are, in my view,
immaterial and did not
need to be disclosed.
[64]
The fourth to the seventh non-disclosures appear to border around the
relationship between Mr & Mrs Dunne. The relationship
between Mr
& Mrs Dunne, subsequent to the dispositions forming the subject
matter of the Irish family law proceedings is, in
my view, immaterial
to the substantive relief sought in these proceedings. It is trite
that in seeking interim relief, all that
the applicant needs to
establish is a prima facie case based on prospects of success in
those proceedings.
[65]
The alleged non-disclosure of the repeal of the Irish Statute of
Fraudulent Conveyancers 1634 with effect from 1 December 2009,
is
similarly not material to the relief sought in these proceedings. The
dispositions complained of occurred during 2005 and 2008,
long before
the repeal of the Irish Statute of Fraudulent Conveyancers. It was
repealed by the Land & Conveyancing Reform
Act of 2009 which came
into effect on 1 December 2009. I had an opportunity of considering
this piece of legislation which was
handed in during argument.
There is no indication that this piece of legislation was intended to
apply retrospectively. It therefore
follows, in my view, that its
non-disclosure, similarly, has no bearing to the relief sought in
these proceedings.
MISCELLANEOUS
COMPLAINTS
[66]
Apart from the complaints based on the alleged non-disclosure, the
first respondent complains about the issue of jurisdiction;
authentication; and non-joinder.
[67]
As to the issue of authentication, the first respondent objects to
the founding affidavit being utilised as evidence on the
basis that
it was not properly authenticated. I have considered the basis of
this complaint and, in doing so, I have found that,
ex facie the
founding affidavit, the individual who commissioned same was a notary
in the Republic of Ireland and duly authenticated
the affidavit in
the manner contemplated in Government Notice R.1872 in Government
Gazette 15 of 12 September 1980 which contains
a schedule setting out
a list of officers outside the Republic of South Africa entitled to
act as Commissioners of Oaths as contemplated
in the Justices of the
Peace and Commissioners of Oaths Act, 16 of 1963.
[68]
As regards the issue of non-joinder, it would appear that this is
based on the objection by the first respondent and Mrs Dunne
to the
effect that Mrs Dunne has not been joined as a party to these
proceedings. As is evident from the notice of motion, no
substantive
relief is sought against Mrs Dunne. Her interest in the proceedings
are merely financial and, in any event, indirect.
In any event,
this court would not have jurisdiction over her as she is not only
resident outside the jurisdiction of this court,
but is in fact
resident outside the country and, in her own admission, in the state
of Connecticut, USA.
[69]
As to the complaint based on jurisdiction, it would appear that this
relates to Castorena Limited, the second respondent in
these
proceedings. As has already been pointed out in paragraph [12] of
this judgment, the second respondent is the first respondent’s
sole shareholder. While it is so that the second respondent is
situated outside the area of jurisdiction of this court, the shares
in the first respondent are not. As such, such shares are situated
at the first respondent’s registered office, which, in
turn, is
situated within the jurisdiction of this court. The disposal which
prompted this application is a sale of the first respondent’s
business and, as such, the relief sought against the second
respondent, effectively becomes redundant.
THE
APPLICANT’S RIGHT TO THE INTERDICTORY RELIEF
[70]
The purpose of these proceedings is to enable the applicant to
recover the purchase price of R260m or, if not, a substantial
part
thereof from the first respondent through Mount Brook Homes which
later changed its name to Mavior. Effectively, what the
applicant
seeks to recover is Mr Dunne’s indirect claims against the
first respondent.
[71]
By way of recap of the chronology of events it will be recalled that
the applicant states in the founding affidavit that Mr
Dunne had, by
way of various stratagems, sought to put his assets in the form of
his loan claims and shares beyond the reach of
his creditors. Mr
Dunne initially owned the shares in Lagoon Beach and had loan claims
against it through the interposition of
Mount Brook Homes which later
changed its name to Mavior. These interests were alienated during
2008 by way of donations to
Mrs Dunne. On 29 June 2012 the shares
and loan claims in Mavior were transferred to a company registered in
Mauritius called Castorena
Limited, cited as the second respondent in
these proceedings. On 14 November 2013 these shares were transferred
from Castorena
Limited to a company registered in Cyprus called
Volcren Management Limited. This company is controlled by Mrs Dunne
through yet
another company called Enia Investments.
[72]
It is clear on the basis of the affidavit of Mrs Dunne that the
purchase price of R260m received by the second respondent for
the
sale of its assets or a substantial portion thereof, once received,
would have been be paid to Mrs Dunne personally. Thus,
the second
respondent had intended to pay these funds out of jurisdiction of
this court and thus putting them beyond the reach
of the applicant
and, ultimately, Mr Dunne’s creditors. The interim interdict
was sought in order to preserve in South
Africa the funds which would
have been derived from such sale. A preservation order had been
sought pending the finalisation of
legal proceedings in Ireland.
Those proceedings have since been instituted for the recovery of
those claims for the benefit of
Mr Dunne’s bankrupt estate and,
ultimately, his creditors.
[73]
A Trustee or creditor may apply to the court to prevent the disposal
of property, including money separately identifiable as
a particular
fund, which is in possession, or under the control of the proposed
defendant or respondent pending the determination
of proceedings for
the recovery of such property. On the basis of the authority Enyati
Resources Limited v Glaum N.O. & Another
1989 (2) SA 314
(C) it
is not necessary in such an application to show an intention on the
part of the respondent to dissipate the relevant property.
It is
also not necessary for the applicant to prove that irreparable harm
will be suffered if the interdict sought were to be
refused. All
that the applicant is required to establish for purposes of the
interdictory relief sought is a prima facie right
even if open to
some doubt. This approach is in line with authorities such as Spur
Steak Ranches Limited v Saddles Steak Ranch
1996 (3) SA 706
(C) at
714C-D where this Court observed:
“
In
determining whether or not the applicants crossed the threshold, the
right relied upon for a temporary interdict need not be
shown by a
balance of probabilities, it is enough if it is prima facie
established although open to some doubt.
The
proper approach is to take the facts set out by the applicants,
together with any facts set out by the respondents, which the
applicants cannot dispute, and to consider whether having regard to
the inherent probabilities the applicants should, not could,
obtain
final relief at trial.”
A
PRIMA FACIE CASE
[74]
The proceedings which the applicant had intended to institute in
Ireland, which proceedings I was informed when the matter
was argued
before me that they have since been instituted, are intended to set
aside Mr Dunne’s disposal of his indirect
interests in the
first respondent to Mrs Dunne pursuant to two agreements concluded on
23 March 2005 and 15 February 2008. The
applicant states it in so
many words in the founding affidavit that it does not accept that the
two agreements I have just referred
to are genuine agreements.
[75]
In terms of the agreement concluded on 23 March 2005 Mr Dunne
undertook to give Mrs Dunne 70% of the profits that would accrue
to
him from the sale of the first respondent. In the same agreement Mr
Dunne transferred the loan claim he had against Mavior,
stated to be
in an amount of about €4m, to Mrs Dunne. Mavior, in turn, had
advanced loans to the first respondent in the
same amount. In the
same agreement Mr Dunne reserved the right to retain ownership of the
first respondent and to transfer the
value thereof as cash or,
alternatively, properties and values to be agreed between him and Mrs
Dunne ostensibly as and when circumstances
would have been conducive
for him to do so.
[76]
In the 2008 agreement Mr Dunne recorded that the sale of Lagoon Beach
Hotel (the first respondent) as contemplated in the 2005
agreement
had not been possible. In view thereof, and on the basis of 2008
agreement, Mr Dunne transferred, with immediate effect,
his full
Interest in that property (Lagoon Beach Hotel or the first
respondent), the full book value of all loans made by him to
Mavior
and all of its associated companies and subsidiaries to Mrs Dunne.
[77]
The applicant states in his founding affidavit that he considers the
true motivation behind the 2005 and 2008 agreement was
to formally
dissipate Mr Dunne’s indirect interest in the first respondent
to Mrs Dunne with a view to delaying, hindering
or defrauding his
creditors. The first respondent disputes this assertion and, in
doing so, relies on the affidavit of Mrs Dunne
who contends that the
motivation behind the two agreements was an attempt by Mr Dunne to
secure her financial independence as well
as that of her child and
future children. The applicant, on the other hand, states in his
affidavit that the issue of disposal
of Mr Dunne’s interests is
relevant because, if decided in his favour, the dispositions effected
under the 2005 and 2008
agreements may be set aside under Irish law.
The legislation on the basis of which the disposal may be set aside
is section 59(1)(b)
of the Bankruptcy Act, 1988 and section 10 of the
Irish Statute of Fraudulent Conveyancers 1634.
[78]
Finally, as regard the issue of disposal of his interests by Mr
Dunne, it is submitted on behalf of the applicant that the
2005 and
2008 agreements constitute donations between spouses and, as such,
such transactions are by their very nature suspicious
and cannot be
said to be truly at arm’s length. The applicant has,
furthermore, produced a letter from a Mr Mark Sanfey
SC in which
letter Sanfey states that there are reasonable prospects of the
proceedings instituted in Ireland being decided in
favour of the
applicant.
[79]
It is not disputed in the papers that if the interdict is refused or
the rule nisi is otherwise discharged, the first respondent
will pay
the proceeds of the sales transaction to Mrs Dunne. Indeed, Mrs
Dunne candidly states that the proceeds she anticipated
to receive
arising from the transaction had already been earmarked for
utilisation by her for the purchase of a certain property
and for an
investment into a property development venture in the US.
BALANCE
OF CONVENIENCE
[80]
As regards the balance of convenience the first respondent sets out
in its submissions the poor prospects of success, ostensibly
in
litigation then contemplated in Ireland; the first respondent’s
inability to perform its obligations in terms of the sale
of its
immovable property; Mrs Dunne’s inability to access funds
available to the first respondent of which she is the ultimate
sole
owner which, in turn, will result in her being in breach of the
agreement of sale in respect of the immovable property which
she
purchased in the UK for an amount of £5m; the fact that she
stands to forfeit an amount of £1m paid as a deposit;
and a
further amount of £250,000 spent on renovations in respect of
the property she was then in the process of acquiring
if the order
granted by Steyn J stands or not appropriately altered.
[81]
In order to ameliorate the potential prejudice that the first
respondent would suffer, the applicant could have furnished an
undertaking to pay any damages which the first respondent could prove
it had suffered should an interim interdict be granted against
it and
the final relief ultimately refused. It is thus contended on behalf
of the first respondent that the fact that no such
undertaking had
been given, tilts the balance of convenience in the first
respondent’s favour.
[82]
On the other hand, it is submitted on behalf of the applicant that,
as is clearly apparent from paragraph 2.5.1 of the notice
of motion,
the applicant merely seeks to interdict the proceeds the first
respondent is said to receive upon completion of the
transaction
concerning the sale of its business and that the applicant did not
want to interfere with the completion of the transactions
as such.
The interdict sought, so the submission goes, will not prevent the
transfer of the first respondent’s immovable
property. What
the notice of motion contemplates is that certain proceeds may be
paid away with the leave of the applicant, failing
that, with the
leave of the court.
[83]
It is further submitted on behalf of the applicant that there can be
no prejudice to the first respondent’s trade creditors.
In
terms of the agreement of sale those trade creditors are to be
transferred to the purchaser. It is plain on the basis of
the
evidence that the first respondent would immediately pay away the
proceeds of the sale to Mrs Dunne upon receipt thereof.
That it is
obliged to retain those funds cannot cause it any prejudice. The
fifth respondent, the purchaser under the relevant
agreement of sale,
has joined these proceedings but does not oppose the relief sought.
[84]
The sale agreement Mrs Dunne relies upon concerning the immovable
property she intends to purchase in the UK was concluded
in March
2014, several months before the first respondent concluded the sale
of business agreement on 17 July 2014 with the fifth
respondent.
Thus, at the time Mrs Dunne concluded the property transfer
agreement, the balance of the purchase price was to be
sourced from
sources other than from the proceeds of the transaction between the
first and the fifth respondent.
[85]
Mrs Dunne does not state in her affidavit that she is unable to raise
the balance of the purchase price from other sources.
That she has
other sources of capital is overwhelmingly probable from her own
affidavit in which it is revealed that Mr Dunne
gifted her a company
valued at €58m in June 2005; she has business interests in the
US which concerns the building of two
developments; she has been able
to afford renovations of some £250 000 in the UK property since
concluding the immovable
property transaction in March 2014; and that
she was able to raise a deposit of £1m for the purchase of the
UK property.
[86]
The prejudice to the applicant, if the interdict is not granted, is
significant. It is clear that the intention of the first
respondent
is to immediately dissipate the proceeds it will receive from the
fifth respondent solely on instructions of Mrs Dunne.
Once that
occurs, the relief sought in the Irish proceedings to set aside the
dispositions Mr Dunne made under the 2005 and 2008
agreements will
lose their purpose. The restoration of Mr Dunne’s indirect
loan and shareholding in the first respondent
will be valueless given
the disposal by Lagoon Beach of its assets. Efforts to trace the
flow of the proceeds from the first respondent’s
disposition of
its assets will be nigh impossible given the ease with which funds
can be transferred internationally, privacy of
banking transactions,
and the fact that Mrs Dunne controls a network of companies
registered in multiple jurisdictions around the
world. It therefore
follows, in my view, that in the circumstances of this matter, the
balance of convenience clearly favours
the applicant.
CONCLUSION
[87]
In reconsidering the order granted by Steyn J I have had the benefit
of the facts contained in affidavits filed by all parties
having an
interest in the matter as well as argument on behalf of the first
respondent who was absent during the granting of the
original order.
Based on the evaluation of the evidence and the conclusion arising
from such evaluation I am not persuaded that
Steyn J acted
inappropriately in granting the order in the manner she did. The
reasons for the order I gave on 17 October 2014
are contained in this
judgment. Furthermore, I could not find any facts or circumstances
which would warrant the discharge of
the rule nisi, which stands to
be confirmed.
N
J Yekiso
Judge
of the High Court