P A F v S C F

The parties were married on 5 September 2001 out of community of property subject to the accrual system. On 24 June 2013, the applicant (husband) issued summons for divorce. The applicant's estate showed greater accrual than the respondent's (wife), entitling her to half the difference. Twenty days before the trial commenced on 18 February 2015, the applicant established a trust in the British Virgin Islands (29 January 2015) with his brother as sole trustee and the parties' minor daughter as sole beneficiary. On 30 January 2015, he donated £115,000 (approximately R2,205,362) to the trust, payable within a year. The donation was paid in March 2015. At the same time, he transferred £125,000 to his father, allegedly repaying a 25-year-old loan. The respondent amended her counterclaim to include these transactions in the accrual calculation. The High Court granted the divorce and ordered that the value of both transactions be deemed part of the applicant's assets for accrual purposes, finding they were made with fraudulent intention to reduce the accrual claim. The applicant was granted leave to appeal to the full court but failed to prosecute timeously. The appeal lapsed. Before the full court, he abandoned the appeal regarding the payment to his father and applied for condonation of late prosecution and leave to introduce further evidence (a legal opinion from his counsel regarding the lawfulness of establishing the trust). The full court dismissed both applications.

• Whether special leave to appeal should be granted against the full court's refusal to condone late prosecution of appeal
• Whether further evidence (legal opinion) should be admitted on appeal
• Whether condonation should be granted for failure to prosecute appeal timeously
• Whether the High Court was correct in ordering that the value of the donation to the trust be deemed part of the donor spouse's estate for calculating accrual
• Whether a court can pierce the trust veneer in the context of marriages subject to the accrual system
• Whether the Badenhorst 'control test' is the only basis for considering trust assets in accrual calculations
• Whether trust form abuse can justify piercing the trust veneer even in the absence of control

The application for special leave to appeal was refused with costs, including costs of two counsel where so employed. The High Court's order that the value of the donation to the trust be deemed part of the applicant's assets for calculating accrual was upheld.

Courts have inherent common law power, derived from principles of piercing the corporate veil, to pierce the trust veneer in the context of marriages subject to the accrual system where the trust form has been abused to prejudice a spouse's accrual claim. This power exists independently of any statutory discretion under the Matrimonial Property Act or Divorce Act. Where a court, after conducting an in-depth factual enquiry, finds that trust form has been abused - for example, by establishing a trust and donating assets to it with the intention of reducing accrual liability - the court may order that the value of such assets be deemed part of the donor spouse's estate for purposes of calculating accrual. The Badenhorst 'control test' is applicable to accrual marriages and provides one basis for considering trust assets, but it is not the exclusive test. Even in the absence of de facto or de iure control over the trust, courts may pierce the trust veneer where trust form abuse is established. The proviso in Badenhorst specifically contemplates this: where assets are beyond the founder's control but were placed there with the intention of frustrating the other spouse's accrual claim, such assets can be taken into account. Relevant factors in determining trust form abuse include: the timing of trust creation and donation relative to divorce proceedings; the location of the trust in a foreign jurisdiction; lack of consultation with the other spouse contrary to established patterns of joint financial decision-making; absence of genuine immediate need for the transaction; and evidence that the transaction was motivated by desire to reduce accrual liability. Spouses in accrual marriages have contingent protectable rights against each other during the subsistence of the marriage, which courts will vindicate against attempts at evasion through trust structures.

The court made several notable observations. It emphasized that the determination of accrual claims is not merely a mechanical or arithmetical exercise but requires courts to conduct in-depth factual enquiries to determine the true value of estates and to prevent manipulation. The court observed that piercing the trust veneer is an equitable remedy that lends itself to a flexible approach to address unconscionable abuse of trust forms. The court commented that MM v JM's rigid approach would frustrate the objectives of the accrual system by enabling spouses to reduce their accrual by transferring assets to trusts, and that its holding that courts lack legal basis to deem trust assets part of a spouse's estate must be considered overturned by REM v VM. The court noted that the fact that legal advice was obtained regarding establishing the trust does not render the transaction lawful or prevent piercing of the trust veneer - it is merely one factor to consider. The court observed that transparency and consultation between spouses on major financial matters is particularly significant where spouses have contingent accrual rights against each other. The court also noted approvingly Professor Smith's academic criticism of MM v JM and academic support for the view that courts have common law power to pierce trust veils in accrual contexts. On procedural matters, the court reiterated that attorneys have a duty to acquaint themselves with court rules, that ignorance or misconstruction of clear rules is no excuse, and that applications for condonation must be made promptly upon becoming aware of non-compliance. The court emphasized that appellate courts exercise restraint in interfering with discretionary decisions of lower courts, intervening only where there has been a misdirection or the decision was unreasonable.

This case is highly significant in South African family law and trust law. It clarifies that courts have common law power to pierce the trust veneer in the context of marriages subject to the accrual system, independent of statutory provisions in the Matrimonial Property Act or Divorce Act. The judgment rejects the overly restrictive approach that accrual calculations are purely arithmetical exercises, recognizing instead that courts must conduct in-depth factual enquiries to prevent abuse of trust forms to evade accrual obligations. The case establishes that the Badenhorst 'control test' is not the exclusive basis for considering trust assets in accrual calculations - even without de facto or de iure control, courts can pierce the trust veneer where trust form abuse is established. The judgment provides guidance on factors relevant to determining trust form abuse, including timing of trust creation and donations, location of trust, consultation with spouse, and genuine need for the transaction. It affirms that spouses in accrual marriages have contingent protectable rights during the marriage which courts will vindicate against attempts at evasion. The case represents an important development in preventing manipulation of patrimonial consequences through abuse of trust structures, promoting the policy objectives of fairness and equal sharing underlying the accrual system.