A legal-comparative study of the interpretation and application of the doctrines of the sham and the alter-ego in the context of South African trust law: the dangers of translocating company law principles into trust law

This thesis analyses the doctrines of the sham and the alter-ego and their application to the law of trusts in South Africa. Following an initial examination of the historical development of the law of trusts in English law and the principles of equity law, the study focuses on the current legal status of the trust inter vivos in South Africa and the similarities to its English forerunner. The work traces the sham doctrine back to its origins in English law, where the term “sham” was first used in the context of fraud and dishonesty in cases involving matters arising from hire-purchase agreements, and explains how it gradually began to find its place in the law of trusts. During the exploration, the work highlights the cornerstone of the sham doctrine’s development, the Snook test, which in effect became the internationally accepted guideline for any sham trust enquiry. In terms of the alter-ego doctrine, the work highlights the birth of the principle in Australian law and the doctrine’s immediate reception into other common law jurisdictions and its resultant development. The growth, maturity and popularity of the doctrines are key to the thesis and, in the course of the investigation, the study provides a legal-comparative analysis of the treatment of the doctrines in the context of trusts against that in other common law countries. The study then shifts its focus to South Africa’s interpretation and application of these doctrines in trust law, and reveals the erroneous judicial development in which the courts have in some instances mistakenly replaced the sham doctrine with the company law doctrine of piercing the corporate veil or, in other instances, have erroneously conflated the two trust doctrines. The results highlight a breach of a fundamental rule observed overseas – the “no half way house” rule, which specifically cautions against South Africa’s chosen direction when allowing the lifting of a trust’s veil. The study closes with suggestions as to how the country could reconcile the problems underlined in the thesis by means of law reform, as well as offering practical advice for settlors, trustees and beneficiaries, the core of which is given in the handbook that accompanies this thesis