Can trustees sell trust property to their own company?
The Supreme Court of Appeal (SCA) recently deliberated on whether a court sanction is necessary to validate the sale of shares owned by a trust to a company controlled indirectly by two of the trustees of the trust. This matter was addressed in the case of Kuttel vs Master of the High Court and Others. Peter Clark Kuttel, also known as “Padda” passed away on the 20th of May in 2019. He was the husband of Joy and the father of Peter, Francois, and Adrian. During March in 1981, a trust was created with Padda Kuttel being the donor. The couple named the trust the Padjoy Trust, who, along with a chartered accountant, served as the initial trustees of the trust. The trust was established to acquire and hold assets for the upkeep of Padda and Joy, who were to benefit from it following Padda’s retirement from being a successful businessman. Upon the couple’s demise, the trust’s assets would be distributed equally among Peter, Francois, and Adrian. The trustees of the trust were Padda Kuttel, until his death, Joy Kuttel, until her death a week before the application was heard, Francois, Adrian and two independent trustees, John Levin and Barry Adams, attorneys of considerable experience and expertise. Peter was the only son who was not a trustee. Writing the majority judgment, Judge Clive Plasket said, “no doubt, the enmity between Peter and his father, in particular, as well as with the family more generally, probably also contributed to him being the only beneficiary who is not a trustee.” In 2012, the trustees decided to restructure the trust’s assets as well as those of another related trust. The process was concluded in mid-2013. The sale of the trust’s shares in Southern Ropes (Pty) Ltd to Grace Investments Thirty-Two (Pty) Ltd, a company indirectly controlled by Francois and Adrian, was one part of a bigger process of consolidation of the trust’s assets. Peter applied to the Western Cape Division of the High Court for an order setting aside the sale by the trust of its shares in Southern Ropes. His application was dismissed with costs, as was his application to the high court for leave to appeal to a higher court. On petition to the Supreme Court of Appeal, it was ordered that Peter’s application for leave to appeal be referred for oral argument. Three issues arose to determine whether Peter had reasonable prospects of success: (a) whether the approval of the court was required for the validity of the sale of the shares; (b) whether the transaction was open and bona fide; and (c) whether Peter had been treated unfairly by not being allowed to bid for the shares. The Supreme Court of Appeal found that: (a) Peter did not require court approval for the sale of the shares because the rule he relied on applied only to transactions where a trustee purchases the immovable property from a trust; (b) considering Francois and Adrian’s disclosure of their interest, the fair determination of the purchase price, and the terms of the trust deed, the transaction was conducted openly and bona fide; and (c) to the extent that Peter was treated differently from his brothers, that differentiation was justified in the context of the powers of the trustees, the purpose of the transaction, the effect of the transaction and the fact that Peter as a beneficiary had no right to bid for the shares. The Supreme Court of Appeal dismissed Peter’s application for leave to appeal with costs. Reference List: Kuttel v Master of the High Court and Others (819/2021) [2022] ZASCA 156 WRITTEN BY JAN VAN ZYL This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
The difficulty of choosing a guardian
No parent wants to think about giving their child over to someone else. The idea itself is enough to send many into full Liam Neeson Taken mode, refusing even the idea of their child being taken away from them to find a hold in their minds. But what is it’s not your child that is taken away, but you? Making sure your child is cared for and looked after by someone you know will care for them (almost) as much as you when you’re gone is something that can only be achieved through the appointment of a guardian in a will. The appointment of a guardian should not be taken lightly, though. While your own personal relationship with the prospective guardian is vital, consideration needs to be given to your child’s opinion of them as well. When you feel you have found the perfect candidate, take the time to talk to your child about it. Even if you don’t, the High Court will. Once a legal guardian has been appointed, the Court takes the child’s opinion into consideration and will conduct the necessary investigations to determine whether the most suitable guardian has been appointed, putting your child in a difficult situation that could have been avoided. Unfortunately, the appointment of guardianship is not legally binding. Appointed guardians are free to accept or decline their position as legal guardian before any parental rights or responsibilities are given to them. The reason for refusal may include that they have started a family of their own, they moved too far away, they started a new profession, or even that they have simply changed their minds. The grounds for declining guardianship have no bearing on whether or not their decision is accepted or not. In the case where the appointed guardian refuses guardianship, the High Court will look towards the next of kin of the deceased parents to find a suitable guardian. This search is conducted according to the degree of familial relation, making the aunts, uncles and grandparents of the child the first options, with second cousins twice removed on someone or other’s side barely being given a second thought. In these cases, the next of kin will also have to accept their guardianship, though, just like any other guardian. When no next of kin can be found, the High Court will place the child into childcare. But what if you had actually considered that second cousin as a guardian when you set up your will? What if you have a friend that will make an amazing parent (just maybe not as amazing as your first choice of guardian)? When appointing a guardian in your will, it is important to consider the fact that your primary candidate may not be able to fulfil their duties and include the names of substitute guardians for such cases. This will ensure that the child’s future is still in the hands of their parents, and not with a distant aunt that no one even knew of. Choosing a guardian (or guardians) isn’t a simple task, but it’s one that is essential to ensuring your child will always have someone ready to go full Liam Neeson for them. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
What amendments have been made to High Court rules?
Rule 32 Rule 32(1) determines the following: “The Plaintiff may, after the Defendant has delivered a plea, apply to court for summary judgment on each of such claims in the summons as is only: On a liquid document; For a liquidated amount in money; For delivery of specified movable property; For ejectment.” Previously, an application for summary judgment had to be brought within 15 days after the notice of intention to defend was delivered, now it is after the plea was delivered. The effect of this amendment is that a trial will be run on papers by way of the application procedure. The benefit of the new rule is that by allowing for the plea to be filed, summary judgment applications where the Defendant has a bona fide defence will be avoided, because the Defendant is now given the opportunity to file his plea before the Plaintiff can apply for summary judgment. Previously, if the Defendant had a bona fide defence, it would have been set out in the opposing affidavit to the summary judgment application, which would later be duplicated in the Plea if the summary judgment application was not successful. Rule 32(2)(b) determines the following: “The Plaintiff shall in the affidavit referred to in sub-rule 2(a) verify the cause of action and the amount, and identify any point of law relied upon and the facts upon which the Plaintiff’s claim is based, and explain briefly why the defence as pleaded does not raise any issue for trial.” Previously the rule said that you had to state that there is no bona fide defence to the action and that the Plaintiff merely delivered a notice of intention to defend for the purpose of delaying the proceedings. Because the plea will now be delivered by the time the Plaintiff applies for summary judgment, the Plaintiff will be able to specifically attack the defence contained in the plea. Previously, the Plaintiff would not have had this information when applying for summary judgment. Rule 32(3)(a) now determines: “The Defendant may give security to the Plaintiff to the satisfaction of the court for any judgment including costs”. Previously security was given to the registrar. Rule 32(3)(b) now determines that the Defendant must satisfy the court by an affidavit which shall be delivered five days before the day on which the application is to be heard. Previously the affidavit had to be delivered before noon on the court day but one preceding the day on which application is to be heard. This is also a positive change, as it will give the judge hearing the matter a chance to properly peruse the papers and go to court prepared on the day of the hearing of the summary judgment application. It will also give the Plaintiff’s attorney the opportunity to see well in advance on what basis the Defendant is opposing the summary judgment application. Rule 36 Rule 36(2)(a) determines that any party requiring another party to submit to a medical examination shall deliver a notice to such other party. Previously the rule only provided for “such examination”, now it is specifically stating “medical examination”. Rule 36(8) now determines that any party causing an examination to be made in terms of sub-rules 1 and 6 shall: ) cause the person making the examination to give a full report in writing, within two months of the date of the examination or within such other period as may be directed by a judge in terms of rule 37(8) or in terms of rule 37(A)b; and ) within five days after receipt of such report inform all other parties in writing of the existence of the report and upon request immediately furnish any other party with a complete copy thereof. Previously no timeline was set out for the person conducting the examination to give a report and the party obtaining the report did not have to disclose the report to the other party unless requested to do so. Now it is compulsory to disclose the report within five days of receiving it. This is a positive change in the sense that it will enable opposing parties to see on what the Plaintiff bases the claim long before the matter goes to trial, which will, in turn, enable the opposing party to respond properly to the Plaintiff’s case, or to settle the matter if the Defendant realises that it would not be worthwhile to keep defending the matter. Rule 36(9)(a) now reads as follows: “Where the Plaintiff intends to call an expert, the Plaintiff shall not more than 30 days after the close of pleadings, or where the defendant intends to call the expert, the defendant shall not more than 60 days after the close of pleadings, have delivered notice of intention to call such expert”. Rule 36(9)(b) now reads as follows: “In the case of the Plaintiff not more than 90 days after the close of pleadings and in the case of the Defendant not more than 120 days after the close of pleadings, such Plaintiff or Defendant shall have delivered a summary of the expert’s opinion and the reasons therefor, provided that the notice and summary shall be delivered before a first case summary management conference held in terms of rule 37A”. Previously the Plaintiff had to disclose fifteen days before the hearing that the Plaintiff intended to call an expert witness. The Plaintiff had to deliver not less than ten days before trial a summary of the expert’s opinion. The benefit of this new approach is that parties are forced to see to it that their case is in order and the opposing party can see what case they have to meet long before the case goes to trial, which will avoid unnecessary delays close to trial, and will hopefully have the effect that more cases will be settled before trial, as parties are in a better position to examine whether it will be worthwhile going ahead with the trial, given the evidence disclosed by