This document contains referenced examination answers for LPL4802 / Law of damages take home examination for Second semester 2022, due on the 28th of October .
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The remedy action pauliana applies to any transaction aimed at defrauding creditors, in
the sense that its application results in the setting aside any such transaction. 1 The
remedy is available if the transaction actually defrauds the creditors in that the assets of
the person alienating the property are diminished by such alienation. The action can be
instituted before or after the sequestration of the debtor. However, the following must be
proved: the alienation must have diminished the debtor's assets; the recipient must not
have received his own property or something owing to him; (the debtor or alienator must
have intended to defraud his creditors (if he received value in respect of the alienation,
the recipient must also have been aware of the debtor's intention); the fraud must have
caused the loss suffered by the creditors.2 The intention to defraud still plays a significant
role here. The fraud being referred in this situation is not 'fraud' in the criminal sense of
the term but refers to an act which will have the effect of prejudicing the creditor’s ability
to recover the debt owed to him.3
The actio pauliana forms part of our common law and is available where a debtor
“disposes of assets with the intent to defraud, in these cases a court can set aside the
disposition, provided that the alienee was a party to the fraud and had acquired the
1
Fenhalls v Ebrahim 1956(4) SA 723(N).
2
Andre Boraine, ‘Towards Codifying The Actio Pauliana’ (1996) 8 S. Afr. MerL.J. 225.
3
Note that the fraud referred to in insolvency cases differs from its criminal meaning (Boraine (2007)
TSAR 529fn 105). In insolvency cases the plaintiff must establish that the debtor knew that he was
insolvent at the time the disposition was made and intended to defraud his creditors with the disposition
(Hockey 122; Scharff v Trustee Scharff 1915 TPD 463 476).
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