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IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
In the matter between
A R Fairleigh NO
Appellant
and
M Whitehead
First Respondent
The Master of the Supreme Court
Second Respondent
Before: Hefer ADCJ, Smalberger, Olivier,
Schutz JJA and Mthiyane AJA
Heard: 1 September 2000
Delivered: 29 September 2000
Interpretation and
operation of the since-invalidated ss 44(1) and (2) of the Insurance Act 27 of
1943, which dealt with insurance
policies effected or ceded in favour of a
wife.
W P SCHUTZ
________________________________________________________________
J U D G M E N T
________________________________________________________________
SCHUTZ
JA:
[1] The issue in this appeal is whether the deeming provision contained
in s 44 (2) of the Insurance Act 27 of 1943 (“the Act”)
came into
operation in respect of certain life policies before 27 April 1994 (when the
interim Constitution came into force). If
it did, then the proceeds of those
policies (save for an exempted sum of R30 000) fell into the estate of the
deceased, Mr Geoffrey
Dale Whitehead (“the deceased”), who died at
Durban on 10 March 1994 (that is before the interim Constitution became
law).
If the deeming provision did not operate, then the proceeds of the policies will
remain with his widow, Mrs Margaret Whitehead
(“Mrs Whitehead”) in
whose favour they were taken out by the deceased, more than two years before his
death. The Whiteheads
were married out of community of property in 1960. She
is the respondent on appeal, having successfully opposed an application for
payment of the proceeds of the policies, brought by the deceased’s
executor, Mr Alan Robert Fairleigh (“the executor”)
before Alexander
J in the Durban and Coast High Court. Leave to appeal was granted by the court
a quo.
[2] The significance of the interim Constitution lies in the
decision of the Constitutional Court in Brink v Kitshoff NO 1996 (4) SA 197 (CC) in holding that subsections 44 (1) and (2) were invalid for being
contrary to the equality clause (s 8). The declaration of
invalidity was to have
effect from 27 April 1994. For the executor the decision meant that, whereas
before 27 April he would have
been entitled to rely on the appropriate deeming
clause contained in ss 44 (1) or (2), thereafter he had to show that one of
those
clauses had already vested a right in him by that date.
[3] The
relevant parts of s 44 read:
“44(1) If the estate of a man who has ceded or effected a life policy ... has been sequestrated as insolvent, the policy [or its proceeds] shall be deemed to belong to that estate: Provided that, if the transaction in question was entered into in good faith and was completed not less than two years before the sequestration -
(a) by means or in pursuance of a duly registered antenuptial contract, the preceding provisions of this sub-section shall not apply . . .;
(b) otherwise than by means or in pursuance of a duly registered antenuptial contract, only so much of the total value of all such policies [or their proceeds] as exceeds thirty thousand rands shall be deemed to belong to the said estate.
(2) If the
estate of a man who has ceded or effected a life policy as aforesaid,
has not been sequestrated, the policy [or its proceeds] shall,
as against any creditor of that man, be deemed to be the property of
the said man -
(a) in so far as its value, together with the
value of all other life policies ceded or effected as aforesaid [and their
proceeds] exceeds the sum of thirty thousand rands, if a period of
two years or longer has elapsed since the date upon which the said man ceded or
effected the policy; or
(b) entirely, if a period of less than two
years has elapsed between the date upon which the policy was ceded or effected,
as aforesaid, and the date upon which the creditor concerned causes the
property in question to be attached in execution of a judgment or order
of a
court of law.
(3) When a woman, who is married in community of property, owns a life policy . . . which falls outside that community . . ., but which may lawfully be wholly or partly attached in execution of a judgment given against her husband, that policy, . . . shall not be so attached by any creditor of her husband, unless the assets which they own jointly are insufficient to satisfy the creditor’s claim, and if the policy . . . is used in payment of any such claim, the woman shall be entitled to a refund . . . out of any policy or money belonging to her husband which is withheld from his creditors or the trustee of his insolvent estate in terms of section thirty-nine.”
(Emphasis
supplied.)
[4] The executor was appointed on 21 November 1994. On 28
August 1995 he made demand on Mrs Whitehead to pay over the proceeds of
the
policies (save for R30 000 to which she was in any event entitled.) On 16
November 1995 he gave notice to the creditors of the
estate in terms of s 34(1)
of the Administration of Estates Act 66 of 1965 (“the Estates Act”)
that unless otherwise
instructed he intended to administer the estate as if he
were a trustee in insolvency. The creditors were content that he should
do so.
Accordingly a “deemed state of sequestration” came into operation in
December 1995. At no stage has the estate
been sequestrated by the
court.
[5] Section 44 dealt with two situations in which insurance benefits
conferred on a wife by her husband could be utilized for the
benefit of his
creditors, either to the full extent of the benefit or to so much of it as
exceeded R30 000. The first situation
was where the husband’s estate
“has been sequestrated” (s 44 (1)). The second was where his estate
“has
not been sequestrated” (s 44 (2)). Assuming for the sake of
argument that the executor’s notification operated as a sequestration
for
the purposes of s 44, the executor cannot rely upon it now, because the
notification took effect long after the section ceased
to be law (December 1995
as against April 1994). That does not mean, however, that a s 44 (1)
situation did not come into existence, even if too late for the
executor’s purposes. As the deceased’s estate was in fact
insolvent,
it was only a matter of time before it would be sequestrated (in the
technical sense) or administered as insolvent under s 34 of
the Estates Act. So
far I have assumed that a s 34(1) notification satisfies the “has been
sequestrated” pre-condition
for the operation of s 44 (1). In Hugo NO
v Lipkie 1961 (3) SA 66 (O) it was held that the predecessor of s 34(1) (s
48 (3) (b) of the Administration of Estates Act 24 of 1913) did
not satisfy the
requirement. The main reason for so holding was that the former section did not
fix a time when the process of realisation
and distribution would begin (at 70
G-H). The current section does provide for a fixed time, so that this problem
in interpretation
has fallen away. Moreover, since Hugo’s case,
this court has held that the procedures under the old Estates Act had an effect
similar to a sequestration order, even though
there was no order of court:
Ward v Barrett NO and Another NO 1963 (2) SA 546 (A) at 552 B-H. See
also Gordon & Getz on The SA Law of Insurance 4 ed 349 - 350. I do
not think that there is any reason to treat s 44 as being narrowly focussed upon
forms of procedure. It is
concerned rather with distinguishing between the
situation where an estate is being administered as insolvent and the situation
where
it is treated as solvent. Accordingly I conclude that s 44 (1) would have
applied in this case had the subsection not been declared
invalid. The
executor has not based his appeal on s 44(1).
[6] But the conclusion that I
have reached concerning s 44(1) leaves unanswered the further question, whether
s 44 (2) may have operated
so as to vest the policies in the deceased before his
death on 10 March 1994, so that they passed to his deceased estate before the
coming into operation of the interim Constitution on 27 April 1994, which, as
the Constitutional Court later declared, had the effect
of repealing s 44
because of its inconsistency with the equality clause.
[7] Two opposed interpretations of s 44 (2) have been put forward. For the
executor, emphasis is placed on the words in s 44 (2)
“. . . the policy . . . shall . . be deemed to be the property of the
said
man [the husband] . . . .” The effect of these words, so it is argued, is
that from the moment that a husband benefits
his wife with a policy, the policy
is deemed to be the property of the husband. The provisions of subsections (a)
and (b) of s 44
(2) are not pre-conditions to such deeming, but serve merely to
determine how much of the policy falls into the husband’s
estate. This
situation continues to prevail until such time as the husband may be
sequestrated, in which case the policy falls into
his insolvent estate under s
44 (1). I do not agree with this argument. My reasons will be set out
later.
[8] The contrary argument is that the deeming provision does not
operate from the time that the wife is benefitted, but only if and
when a
creditor attaches the policy in execution, in order to obtain payment of a
judgment debt owed him by the husband. The subsection
is intended to give
speedy relief to a creditor who would rather not follow the longer and more
expensive route of sequestration.
[9] My reasons for accepting the latter
argument, advanced on behalf of Mrs Whitehead, are these:
First, the words
used in the section . Section 44 (2) does not read “shall be deemed to be
the property of the said man.”
It reads “shall, as against any
creditor of that man, be deemed to be the property of the said man”. By
contrast with
the concursus-orientated wording of s 44 (1) “shall
be deemed to belong to that estate”, there is a specific deeming conceived
in
favour of a particular creditor. Further, it is implicit that a particular
creditor at a particular time is envisaged. This is
so because without a fixed
time the periods of more than or less than two years could not be established on
the calendar. The executor’s
argument, on the other hand, might involve
conclusions which it is difficult to suppose were intended. If the deeming
operated
when the wife was first benefitted, but the husband then had no
creditors, one would have to conclude that the expression “as
against any
creditor” was redundant. Or if one has to wait for the deeming to operate
only when a creditor is acquired, is
the deeming undone when the husband again
becomes creditor-free? And so on.
[10] Secondly, if the husband is deemed to
be owner from the outset, what rights could the wife have? None, one must
suppose, except
some ultimate reversionary right. Yet the section itself
envisages that she might convert the policy into other assets. Thus, no
doubt,
she might surrender the policy. Is she to be denied the right to pledge her
policy with a bank in order to obtain an overdraft?
How can such actions be
squared with the policy “belonging” to the husband? That it is she
who owns the policy until
its attachment by the husband’s creditor is
confirmed by the express words of s 44 (3), in its opening lines, “when a
woman who is married in community of property . . . owns a life policy . .
.” The purpose of this subsection is to bring about
that, where there are
joint assets, the burden of execution should as far as possible fall upon them,
and not upon the policy “owned”
by the wife outside the community.
See also the reference to “the policy . . . belonging to her
husband” towards the
end of the subsection. A practical interpretation of
s 44 (2) leads to the conclusion, in my opinion, that the wife and not the
husband owns a policy made over by him to her, until such time as a creditor
attaches it in payment of his judgment debt. To interpret
s 44 (2) as enjoining
an anticipatory nullification as a step precursory to an event that in all
probability will never occur (attachment
by a creditor), might seriously hamper
the wife whilst not conferring upon creditors any benefits beyond those obtained
by attachment.
[11] Thirdly, the calculation of the period of less than two
years provided for in s 44 (2) (b) depends necessarily upon there being
an
attachment by a creditor. Thus if no creditor chooses to attach, this part of s
44 (2) cannot operate. As the amount deemed
to belong to the husband is
dependent upon whether a period of more than or less than two years has run, it
would mean that subsection
44 (2) is substantially inoperable, unless an
attachment is postulated.
[12] Fourthly, the argument for the executor must
involve that at the time that the wife is benefitted the amount of the benefit
is
unknown, because it cannot be known at that stage whether the wife will
receive the benefit of the R30 000, which may be allowed
to her. Or is it to be
concluded that initially the full amount of the policy falls into the
husband’s estate, but after two
years R30 000 disappears out of it to find
its way into the wife’s estate? An unlikely intention, it seems to
me.
[13] Finally, I think there is substance in the remark of Hartzenberg J
in Kitshoff NO v Brink and Andere 1997 (4) SA 117 (T) at 126 F - H that
the very fact that there is a deeming (the Afrikaans text of s 44 (2) reads
“word die
polis . . . beskou as die eiendom van daardie man”)
indicates that the policy is not in fact owned by the husband. The deeming
provision, it seems to me, is designed to create the fiction that the husband
never made over the policy to the wife, so that his
creditor may attach it,
rather than to vest ownership in the husband against all comers and at all
times, as the executor contends
happened.
[14] My conclusion is that s 44 (2)
cannot operate unless a creditor makes an attachment. No attachment was
effected before 27 April
1994. Therefore nothing vested in the executor before
the law upon which his case was based was consigned to history.
[15] The
appeal is dismissed with costs.
W P SCHUTZ
JUDGE OF APPEAL
CONCUR
HEFER ADCJ
SMALBERGER JA
MTHIYANE
AJA
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