Thomas and Another v Thomas (1223/2021) [2023] ZASCA 36 (31 March 2023).

Whether the respondent's right, title, and interest in a legal action initiated before his sequestration, which he claimed was abandoned by the trustees of his insolvent estate, could be pursued by him after his rehabilitation

Author

Ross Shepstone
April 11, 2024

James William Thomas (first appellant) and Barend Johannes Thomas (respondent) are brothers who owned adjacent farms. The respondent faced financial difficulties around 1999, leading to the sale of his two farms to settle debts. Middelplaas-Suid Landgoed (Edms) BPK, co-owned by the first appellant and his son (second appellant), purchased one of these farms, Middelplaats, on 13 March 2000. Disputes arose post-sale, leading to various legal actions, including the respondent's refusal to vacate Middelplaats, resulting in his eviction. The appellants later sought the respondent's sequestration due to unpaid costs from the eviction judgment. During 2003, amidst these disputes, the respondent initiated a legal action against the appellants, claiming delivery of livestock or payment for their value, which was pending when his estate was sequestrated in 2006. The respondent was rehabilitated in 2010 and, in 2018, sought a court declaration that his right to pursue the 2003 action did not form part of his insolvent estate, arguing that the trustees had abandoned this right.

The Supreme Court of Appeal addressed whether the respondent's right, title, and interest in a legal action initiated before his sequestration, which he claimed was abandoned by the trustees of his insolvent estate, could be pursued by him after his rehabilitation. The court examined the nature of the right of action as an asset within an insolvent estate and whether its abandonment by the trustees extinguished the right or allowed the respondent to reclaim it post-rehabilitation. The court concluded that the abandonment of the right of action by the trustees effectively extinguished it, rendering it non-recoverable by the respondent after his rehabilitation. Consequently, the appeal was upheld, and the lower court's order, which had favored the respondent, was set aside and replaced with a dismissal of the application with costs.

"In my view, the abandonment by its holders (the trustees) extinguished the right of action. If a legal representative informs a court or the other party that a right of action is abandoned, no one would dispute that that signifies the end of the right of action. The position is similar to a compromise (transactio) in respect of a right of action that is the subject of pending litigation. Our law is clear that the compromise extinguishes that right of action and in that case, replaces it with new rights and obligations. Thus, the right of action in issue had been extinguished long before the rehabilitation of the respondent. "

Justice of Appeal Mocumie

The core legal principle underlying the decision is that the abandonment of a right of action by the trustees of an insolvent estate results in the extinguishment of that right. This principle is grounded in the understanding that once trustees, acting within their authority under the Insolvency Act, decide to abandon a right of action deemed an asset of the insolvent estate, such action no longer exists as a claimable right. Consequently, a rehabilitated insolvent individual cannot reclaim or pursue this extinguished right of action for their benefit. This decision emphasises the finality of trustees' decisions to abandon assets of an insolvent estate and clarifies the effect of such abandonment on the rights of the insolvent post-rehabilitation.

In its reasoning, the court referred to several legal precedents to underpin its judgment:

1. Van Der Merwe, Ex Parte [2008] ZAGPHC 88; 2008 (6) SA 451 (W): This case was pivotal in discussing the abandonment of rights by trustees in an insolvent estate and its implications. It specifically dealt with the abandonment of rights to immovable property and the re-vesting of such property in the insolvent post-rehabilitation.

2. De Villiers NO v Delta Cables (Pty) Ltd 1992 (1) SA 9 (AD); [1992] 1 All SA 192 (A): This case was cited for the principle that upon sequestration, the insolvent's estate vests in the trustee, who becomes the owner of the property of the insolvent estate. It highlights the transfer of dominium inherent in the sequestration process.

3. Stratgro Capital (SA) Ltd v Lombard NO and Others [2009] ZASCA 142; 2010 (2) SA 530 (SCA); [2010] 3 All SA 27 (SCA): This precedent was used to affirm that the right of action constitutes incorporeal property, which can be attached and sold in execution, thereby reinforcing the nature of the right of action as an asset within the insolvent estate.

These cases collectively supported the court's conclusion that the abandonment of a right of action by the trustees of an insolvent estate extinguishes that right, preventing its recovery or pursuit by the insolvent post-rehabilitation.