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[2015] ZAWCHC 74
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Firstrand Finance Company v Van Zyl (4826/2014) [2015] ZAWCHC 74 (27 May 2015)
THE REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case No: 4826/2014
DATE: 27 MAY 2015
In the matter between:
FIRSTRAND FINANCE
COMPANY
.....................................................................................
Applicant
And
EMERALD VAN
ZYL
...........................................................................................................
Respondent
Coram: BOZALEK J
Heard: 12 MAY 2015
Delivered: 27 MAY 2015
JUDGMENT
BOZALEK J:
[1] The applicant seeks a final order
of sequestration against respondent having been granted a provisional
order by Meer J on 12
March 2015. Respondent opposes the granting of
a final order seeking instead its discharge.
[2] At the prior hearing it was common
cause that the first two requirements for a sequestration order had
been satisfied, namely,
the petitioning creditor’s claim was
established and the debtor had committed an act of insolvency or was
insolvent. Then,
as now, the element in dispute between the parties
was whether it would be to the advantage of the creditors if
respondent’s
estate was sequestrated.
[3] Applicant’s claim against
respondent is for an amount of R3 328 000.00 being a taxed costs
award obtained by applicant
against respondent. That litigation was a
test case run in the North Gauteng High Court by respondent in which
he sought to establish
that applicant’s predecessor, Saambou
National Building Society, had over many years unlawfully charged
interest on loans
to clients secured by mortgage bonds. It would
appear that respondent’s business is assessing such claims and
taking cession
thereof subject to an agreement to share in the
proceeds of any successful action for the repayment of monies or
interest overpaid.
[4] The action was dismissed in May
2013 and respondent’s attempts to appeal the judgment were
unsuccessful. When applicant
sought to execute on the costs award,
the sheriff’s return indicated that respondent had no
meaningful assets beyond some
household furniture and equipment. His
life partner lays claim to those goods, in any event. Respondent
resides in a dwelling in
Welgemoed which is registered in the name of
a trust bearing his name and which, in 2009, had a municipal
valuation of R1 261 600.00.
[5] Meer J granted a provisional order
on the strength of applicant’s argument that there were
reasonable grounds for concluding
that upon a proper investigation of
respondent’s affairs a trustee might discover assets for the
benefit of creditors. In
particular there was a reasonable prospect
that a trustee of respondent’s estate might, after
investigation, succeed in piercing
the corporate veil of the trust
which applicant alleges serves as a vehicle to render the immovable
property attachment –
proof and ‘insolvency remote’.
[6] In seeking a final order a
petitioning creditor must establish the same three elements but,
whereas a provisional order can
be granted where the Court is prima
facie of the opinion that the such elements have been established, a
final order will only
be granted where the Court is satisfied that
these elements have been established. Failing such proof it must
dismiss the petition
or require further proof of any such element and
postpone the hearing to that end.
[7] In seeking a final order applicant
relies upon the case which it made out in its founding papers.
Respondent likewise relied
on the case it had made out in its
opposing papers but as supplemented by his additional affidavit and
that of his attorney of
record, Mr G Falck, filed on the morning on
which the final order was sought.
SUPPLEMENTARY AFFIDAVITS
[8] In his supplementary opposing
affidavit respondent states that since the provisional order for
sequestration was granted the
debts of additional creditors have
become due and payable, namely, one of R2.5mil in respect of
professional services rendered
by his attorney and an amount of R125
000.00 being monies lent and advanced by Banger Investments CC.
[9] No proof is provided of the first
debt beyond an insolvency requisition form on which the attorney
nominated a certain person
as provisional trustee and lays claim to a
liquidated claim in the aforesaid sum in respect of ‘professional
services’.
Likewise no proof is provided for the second debt
beyond a similar requisition form, also completed by the respondent’s
attorney
as ‘member/director of Banger Investments CC’
stating that it has a liquidated claim for R125 000.00 in respect of
a ‘loan’. In his supplementary affidavit respondent is
now more forthcoming regarding his source of finance for the
litigation which he ran against applicant, stating that a certain
Anthorex (Pty) Ltd paid him the sum of R300 000.00 in May 2012
for
half of the proceeds which he might obtain in the actions or claims
ceded to him by clients of Saambou Bank. Respondent encloses
a copy
of an agreement with Anthorex to that effect but it is only signed by
himself and not by the company.
[10] In the balance of his affidavit
respondent continues to insist that there are no hidden assets in his
estate, no possibility
of finding any such assets and that applicant
has failed to prove a benefit for the body of creditors.
[11] In Mr Falck’s affidavit he
states that his firm has a claim against respondent for R2.5mil for
professional services
rendered since 2009, which claim could even be
greater and that a detailed account ‘should still be drafted’.
He mentions,
but gives no details of, the claim by Banger Investments
CC for R125 000.00. He submits that it would not beneficial for these
two creditors were respondent to be sequestrated as it will
effectively extinguish those two debts when it is ‘quite clear’
that there are no assets in respondent’s estate from which any
claims can be paid.
THE APPLICANT’S CASE
[12] Applicant rested its case for a
final order squarely on the dictum in Commissioner SARS v Hawker Air
Services (Pty) Ltd; In
re Commissioner for, SARS v Hawker Aviation
Services Partnership and others
[2006] 2 All SA 565
SCA at para [29]
to the effect that a benefit to creditors is established where the
Court is satisfied ‘only that there is
reason to believe –
not necessarily a likelihood, but a prospect not too remote –
that as a result of investigation
and inquiry assets might be
unearthed that will benefit creditors’. That dictum was in turn
based on findings in Meskin and
Co v Friedman
1948 (2) SA 555
(W) at
559 and Dunlop Tyres (Pty) Ltd v Brewitt
[1999] 2 SA 580
(W) at 585.
The question then is whether applicant has managed to satisfy the
Court that there is reason to believe that as a result
of
investigation and inquiry assets might be unearthed that will benefit
creditors.
[13] In support of this case applicant
essentially relies upon the striking discrepancy between respondent’s
lifestyle, livelihood
and the manner in which he conducted the
litigation which gave rise to applicant’s claim and his
apparent penurious state.
In the first place the litigation which
respondent pursued against applicant was clearly indicative of
someone with means. Quite
apart from the costs of more than R3.3mil
which were awarded against respondent it now appears that his own
legal representative
considers the respondent to be liable for legal
fees in the region of R2.5mil. Earlier in the litigation, in June
2012, applicant
taxed certain wasted costs against respondent in the
amount of R253 000.00 odd and this sum was paid in full by
respondent. It
is difficult to envisage litigation being pursued by
respondent on such a scale without some source of finance yet all
that he
has disclosed in this regard is the payment of R3000.00
allegedly made to him by Anthorex (Pty) Ltd. Nor was an explanation
tendered
as to why this information was not initially disclosed in
respondent’s opposing affidavit.
[14] In its replying affidavit, in
response to respondent disclosing that he enjoyed a credit facility
from an affiliate of applicant,
the latter put up material showing
that in August 2012 respondent declared a gross monthly income of
R106 000.00 and, as at May
2014, his account had a debit balance of
R212 000.00. It also put up material showing that in August 2013 when
respondent applied
to another of applicant’s subsidiaries for
credit he declared a gross income of R65 000.00 per month plus an
additional income
of R7400.00 per month. Despite thereafter filing a
supplementary opposing affidavit, respondent did not deal with these
allegations
and explain on what basis he had laid claim to these
levels of income. Respondent, was, in fact, extremely cagey about his
income,
setting out only his existing creditors, totalling more than
R750 000.00, and stating that his remuneration as a ‘financial
investigating consultant’ was subject to obtaining successful
results for his clients whom he represented on a ‘contingency
basis’.
[15] He annexed a copy of the deed of
trust in whose name the residence which he occupies is registered
which records that he, his
son and his apparent life partner are the
only beneficiaries of the trust. In suggesting that the trust was no
more than a vehicle
to conceal respondent’s assets, applicant
relied on a sworn affidavit by respondent deposed to in 2005 in which
he stated
that he was a trustee of that trust and that the house in
Welgemoed was leased to Ms JM Roux, his apparent life partner. In
response
respondent did not dispute that he had made the affidavit
but sought to explain that his statement that he was a trustee was a
merely a bona fide mistake but without explaining how this mistake
arose.
[16] A further factor relied upon by
applicant was that a Windeed search had revealed that in recent years
respondent had been
involved in a total of five companies, albeit all
of them having by then been dissolved or being in the de-registration
process.
There is also the matter of the remaining claims against
applicant which have been ceded to respondent. In his affidavit
respondent
states that there are approximately 1600 such claims to
the value of some R117mil already instituted and a further 3000
claims
to the value of R135mil yet to be instituted. He also
complains that the applicant’s strategy is to neutralise him as
the
cessionary to the claims through the sequestration application.
If the claims indeed have some value this would be a substantial
asset in respondent’s estate but in argument his legal
representatives stated that no value could be attributed to them
since they were no than a spes. This may well be so but in that event
respondent can hardly have it both ways i.e. they carry no
weight as
an asset or a potential asset in his estate but are an important
factor as to why the Court should exercise its discretion
in refusing
a final order of sequestration.
[17] Applicant’s counsel also
relied on various dicta to the effect that, where appropriate, a
Court would be entitled to
pierce the veil of a trust where it is, in
effect no more than the alter ego of a particular beneficiary. See in
this regard Harris
v Rees
2011 (2) SA 294
at page 306 paras [5] and
[6] and the statement of Cameron JA in Land and Agricultural Bank of
South Africa v Parker and Others
2005 (2) SA 77
(SCA) at para [19] –
[38] where, in para [37.3], the learned judge stated as follows:
‘It may be necessary to go
further and extend well-established principles to trusts by holding
in a suitable case that the
trustees' conduct invites the inference
that the trust form was a mere cover for the conduct of business 'as
before', and that
the assets allegedly vesting in trustees in fact
belong to one or more of the trustees and so may be used in
satisfaction of debts
to the repayment of which the trustees
purported to bind the trust. Where trustees of a family trust,
including the founder, act
in breach of the duties imposed by the
trust deed, and purport on their sole authority to enter into
contracts binding the trust,
that may provide evidence that the trust
form is a veneer that in justice should be pierced in the interests
of creditors.’
See also Niewoudt and Another NNO v
Vrystaat Mielies (Edms) Bpk
2004 (3) SA 486
[18] Respondent’s opposing
affidavit is characterised by the scantiness of the information which
he supplies in respect of
his financial position, in particular his
income and the sources of finance for the litigation which generated
enormous legal fees
and bills of costs. The anomalous position is
revealed of someone with considerable debts, who at times has laid
claim to a substantial
income and who can conduct litigation at a
lavish scale but yet states he has absolutely no assets of any
significance, either
movable or immovable, notwithstanding that he
lives in a house, the value of which must now be at least R2mil,
situated in a sought-after
area.
[19] In these circumstances
respondent’s insistence that no assets belonging to him will be
revealed by any inquiry or investigation
must be approached with some
sceptism. Similarly, the statements made in the supplementary
affidavits by his legal representative
qua creditor that a
sequestration order, together with the associated possibility of an
inquiry will produce no assets must also
be considered in a similar
light. Neither of his legal representative’s two claims have
been proved or substantiated, even
by rudimentary documentation such
as a bill of costs, an account rendered or a loan agreement.
Respondent’s legal representative
has, furthermore, a conflict
of interest. His client has clearly instructed him to oppose the
granting of a sequestration order
and in these circumstances he is
hardly likely to assert, qua creditor, that it would be in creditors’
interests for a sequestration
order to be granted. The position of
these, as yet, unproven creditors is, moreover, also weakened by the
fact that neither of
them has seen fit to intervene in these
proceedings.
[20] In granting a provisional
sequestration order Meer J made the following finding:
‘In short, the fact that the
respondent conducts a business of an interest re-calculator on a
contingency basis, utilises
the assets of a Trust without any counter
prestation as contended by the applicant, was quite capable of paying
wasted costs in
a not insubstantial amount and conducted extensive
litigation against the applicant employing various experts, counsel
and attorneys,
and that he obtained substantial credit from finance
houses are all factors in my view indicating that an insolvency
enquiry would
be appropriate and that such may lead to the recovery
of property or monies.’
[21] Having considered the matter, the
fresh arguments made by counsel and the supplementary material put up
by respondent, I find
myself in agreement with the conclusion reached
by Meer J. Furthermore, applicant has succeeded in establishing that
there is reason
to believe that it will be to the advantage of the
creditors if respondent’s estate is sequestrated. To the extent
that,
notwithstanding any such finding, I enjoy a discretion whether
to grant a final order I can see no good reason to exercise my
discretion
in favour of respondent. In this regard I give little if
any weight to the argument that the effect of a final order would be
to
frustrate respondent’s apparent intentions of proceeding
with claims on behalf of his clients against applicant. It does not
follow as a matter of course that such claims will be discontinued
since that is a decision which may yet have to be taken by the
trustees of the insolvent estate. If an improper or unlawful decision
is taken in that regard respondent, or other persons with
an interest
in such a decision, will have remedies at their disposal to challenge
any such decision. More importantly, this is
not an instance where
claims whose merits are undisputed are being stymied. Respondent has
had a test case fully ventilated in
the High Court. That case failed
and he was unable to obtain leave to appeal.
[22] Applicant has complied with all
the formalities consequent upon the granting of a provisional order.
In these circumstances
a final order of sequestration is granted
against respondent with applicant’s costs being costs in the
sequestration.
BOZALEK J
APPEARANCES
For the Applicant:Mr EL Theron SC
Instructed by: Norton Rose Fulbright
South Africa Inc
For the Respondents/Defendants: Mr
G Falck
Instructed by: Falck Inc