Case Name:
First National Bank v Stefanus Brits and 6 others
Area of Law:
Commercial / Trusts
Brief Facts/ Summary:
FNB provided the Izani Trust with an overdraft facility. The co-trustees of the trust were Mr and Mrs Brits (“the Brits”) who had bound themselves as sureties and co-principal debtors of the trust in respect of the overdraft facility. The Izani Trust could not service its debt and as a result the debt became due and owing to FNB. A warrant of execution was subsequently issued against the Brits’ in both their personal capacities and in their capacities as trustees of the Izani Trust.
When the Sheriff arrived at the residence of the Brits’ he could not find sufficient assets to satisfy the debt. What he discovered, however, was that the Brits’ had donated all of their movable assets to another trust (“Trust B”), of which the Brits’ were the only trustees. In addition it was discovered that the house where the Brits’ resided was registered in the name of a third trust (“Trust C”). Trust C was also listed as the sole beneficiary of Trust B, and the Brits’ and their children were the sole beneficiaries of Trust C and had the power to appoint additional trustees.
As a result, the Sheriff was not able to attach the movable property because it did not belong to the Brits’ in their personal capacity.
FNB, in order to recover the debt, applied to the North Gauteng High Court for a court order declaring that all such assets were those of the Brits’ in their personal capacity.
In making its decision, the honourable Mabuse J took note of the principal set out in the case of Badenhorst v Badenhorst where it was said that:
“a person who alleges that assets that purportedly belong to a trust in fact belongs to a person, must prove that such person controlled the trust and but for the trust would have acquired and owned the said assets in his or her name and that such control must be de facto (in practice) and not de iure (in law).”
Mabuse J held that due to the fact that the Brits’ could appoint additional trustees, was indicative of the fact that they had the ultimate power to control the affairs of the trust.
The court therefore concluded that the assets held by Trusts B and C were in fact owned by the Brits’ and therefore were executable by FNB for the debt of the overdraft facility.
Importance/ Significance:
Where the creditors of a person are looking for assets to attach in order to satisfy a judgment against such person, the courts will not hesitate to pierce the veil of a trust of which such person is a beneficiary, and to declare the assets as belonging to such person in their personal capacity. This is one instance where a trust is exposed to be not what it is purported to be, but merely as a “structuring vehicle.”
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