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IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
In the matter between
A R FAIRLEIGH N O
Appellant
and
M WHITEHEAD First
Respondent
THE MASTER OF THE SUPREME COURT Second
Respondent
Composition of the Court : Hefer ADCJ,
Smalberger, Olivier, Schutz JJA and Mthiyane AJA
Date of hearing : 1 September
2000
Date of delivery : 29 September
2000
SUMMARY
A deceased estate being dealt with as insolvent in terms
of s 34 of the Administration of Estates Act 66 of 1965 is
“sequestrated”
for the purposes of ss 44(1) and (2) of the Insurance
Act 27 of 1943; effect of the decision of the Constitutional Court in
Brink v Kitshoff N O 1996 (4) SA 197 (CC) in respect of the rights
of the executor of such a deceased estate and of creditors of the
estate
J U D G M E N T
OLIVIER JA
[1] It happens from time to time that the insolvency of the estate of a
person manifests itself onlyafter his death. Those interested
in the winding up of the estate can then proceed in one of three ways:
a
creditor may apply to court for the compulsory sequestration of the estate; the
executor may surrender the estate to the court
as insolvent, thereby achieving
its sequestration; and thirdly the executor may follow the
“informal” route of s 34
of the Administration of Estates Act 66 of
1965 (“the 1965 Estates Act”). This section creates the machinery
whereby
the executor can give notice to creditors that the estate is insolvent.
Unless a majority in number and value of all the creditors
instruct him in
writing within a period (not less than fourteen days) specified in the notice,
to surrender the estate under the
Insolvency Act 24 of 1936 (“the
Insolvency Act”), the executor must proceed to realize the assets in the
estate and to
distribute the proceeds in the order of preference prescribed
under the Insolvency Act in the case of a sequestrated estate.
[2] In
the ordinary course the question, whether the end result of the informal route
described above amounts to a “sequestration”,
would seem to be a
nice but wholly academic one. But sometimes it assumes great practical
importance. This is such a case.
[3] Mr Geoffrey Dale Whitehead and Mrs Margaret Whitehead were
married to each other out of community of property on 12 November 1960. The marriage was terminated when Mr Whitehead died on 10 March 1994. I will refer to him as the deceased and to his widow as the first respondent.
[4] While married, the deceased, during the period 1980 - 1991,
effected various life policies on his own life and nominated the first
respondent as the beneficiary in each. After the death of the
deceased,
the insurance companies concerned paid the proceeds of the
policies to
the first respondent as follows:
1 Old Mutual Policy No 7065929: R45 670,00 paid on 7 April 1994;
2 Federated Life Insurance Company Limited, Policy VA202437: R59 836,00 paid on 21 April 1994;
3 Standard General Insurance Company Limited Policy No 846624: R565 173,05 paid on 25 April 1994.
[5] On 21 November 1994 the appellant was appointed executor of the
estate of the deceased, after the resignation of a previous executor. As the estate was unable to meet the claims of its creditors, the appellant, on 16 November 1995, gave notice to the creditors in terms of s 34 (4) of the 1965 Estates Act of such insolvency. The appellant was not instructed by creditors to surrender the estate. No other creditor applied for its compulsory sequestration. The appellant pursued the informal route described above. The deemed date of sequestration, according to s 34 (1) of the 1965 Estates Act, occurred in December 1995.
[6] The estate being unable to pay the claims of its creditors, the
appellant now turned his attention to the various sums of money paid by the insurance companies to the first respondent. He decided to claim them for the benefit of the estate. He based his claim on the provisions of s 44 (1) and (2) of the Insurance Act 27 of 1943 (“the Insurance Act”) which, at all times relevant hereto, read as follows:
“(1) If the estate of a man who has ceded or effected a life policy in terms of s forty two or forty three has been sequestrated as insolvent, the policy or any money which has been paid or has become due thereunder or any other asset into which any such money was converted 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 subsection shall not apply in connection with the policy, money or other asset in question;
(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, money and other assets as exceeds thirty
thousand rand 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 any money which has been paid or has become due thereunder or any other asset into which any such money was converted 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 all moneys which have been paid or have become due under any such policy and the value of all other assets into which any such money was converted, exceeds the sum of thirty thousand rand, 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.” (My emphasis)
[7] In March 1997 the appellant launched the application now under
consideration in the Durban and Coast Local Division of the High
Court against the first respondent, claiming payment of the said
amounts. She
opposed the application. The Master of the Supreme Court was cited as second
respondent. He abides the decision
of the court.
[8] The
application was dismissed and an appropriate costs order made by Alexander J on
3 March 1998. The learned judge subsequently
granted the appellant leave to
appeal to this Court.
[9] Because of the differing legal results that emanate from the
respective applications of ss 44 (1) and (2) of the Insurance
Act I must, therefore, turn to the vexed question whether the end result
of the
steps taken by an executor of a deceased estate in terms of s 34 of the 1965
Estates Act, amounts to a “sequestration”,
at least for the purposes
of ss 44 (1) and (2) of the Insurance Act.
[10] In endeavouring to
find an answer to this problem, one must distinguish between the provisions of
the previous Administration of
Estates Act 24 of 1913 (“the 1913 Estates
Act”) and the present 1965 Estates Act, relating to the
“informal”
procedure whereby an executor deals with an insolvent
deceased estate.
[11] The relevant provision of the 1913 Estates
Act was s 48 (3) (b). It read:
“If the Master be not satisfied as aforesaid as to the value of the assets the executor shall immediately report, in writing, the position of the estate to the creditors, informing them that unless a majority in number and value of all the creditors instruct him in writing to surrender the estate, he will proceed to realise the estate and will distribute the same as if he were a trustee distributing an insolvent estate. Unless creditors to the number and value aforesaid instruct the executor within a reasonable time to surrender the estate he shall proceed so to realise and distribute the same, but nothing in this section contained shall prevent a creditor from applying to the Court for the sequestration of the estate as insolvent, and the Court may order the sequestration of the estate if satisfied that the sequestration will be for the benefit of the creditors generally.”
The section did
not state what the legal effect of the procedure was, except that the executor
must realise the estate and will distribute
the same “... as if he were a
trustee distributing an insolvent estate”.
[12] Two cases were
decided in respect of the legal effects of this “informal
distribution” under the 1913 Estates Act:
Hugo N O v
Lipkie 1961 (3) SA 66 (O), decided by Potgieter J; and Ward v
Barrett, N O and Another, N O 1963 (2) SA 546 (A), a judgment of this
Court delivered by Steyn CJ.
[13] The very question now under
discussion arose in Hugo N O v Lipkie, supra, where it was
held that the informal procedure described above was not a sequestration for the
purposes of ss 44 (1) and (2) of the
Insurance Act. Potgieter J stated at 70 E
– H
“But it seems also clear from the very wording of sec. 44 (1) of the Insurance Act, that the Legislature could never have had a realisation and distribution in terms of sec. 48 (3) of the Administration of Estates Act in mind when the words ‘has been sequestrated as insolvent’ were used. The words clearly seem to suggest that sequestration is a condition precedent to the policy belonging to the estate - in other words something must first happen before the policy is deemed to belong to the estate. If realisation and distribution in terms of sec. 48 (3) are also included in the words ‘sequestrated’, at what point of time in the process of realisation and distribution ‘has the estate been sequestrated’? To my mind the Legislature must have had in mind a fixed point of time after which the policy becomes ‘deemed to belong to that estate’ and if that is so the only reasonable interpretation to be placed on the words is that the policy is deemed to belong to the estate only after it has been sequestrated by the Court.”
[14] In Ward, the
executrix had by letter, dated 9 June 1960, reported that the estate was in fact
insolvent. She advised the creditors that
unless instructed by them to
surrender the estate formally as insolvent in terms of the Insolvency Act before
23 June 1960, she would
proceed to realise and distribute it as if she were a
trustee distributing an insolvent estate. She was not instructed by the
creditors
to surrender the estate and followed the informal route of the Estates
Act. On 22 September 1960 the executrix caused a bond to
be registered over an
asset in the deceased’s estate in favour of the appellant. Later, she
refused to recognise the validity
of the bond in the liquidation and
distribution account. The appellant un-successfully sought the assistance of
the Master.
She then applied for an order requiring the account to be amended
by recognising her preference under the bond. The application
was dismissed
and the matter came before this Court.
[15] The Court dismissed the
appeal. In so doing he held that although the position brought about by the
application of the provisions
of s 48 (3) (b) of the 1913 Estates Act,
i.e. the informal procedure, was not in all respects equivalent to that
created by a sequestration order under the Insolvency Act, it
did have the
effect of initiating a concursus creditorum. Even in the absence of an
order of court, the expiry of the date set for instructions by the creditors
“ ...was apparently
intended by the Legislature to have a similar
effect.” As from that date (i.e. the expiry of the date set for
instructions by the creditors) there was a concursus creditorum. In the
result the executrix was not entitled to deal with an asset of the estate in
such a way that one creditor received a preference
above others (see p 552 B - H
in fine).
[16] There are important features in the Ward
case which should be kept in mind. The first is that the Court was not
required to interpret the word “sequestrated”.
The second is that
it in fact disavowed a full identification of the effect of the informal
procedure under s 48 (3) (b) of the
1913 Estates Act with sequestration,
notwithstanding the words in that section that the executor, in such a case,
“will proceed
to realise the estate and will distribute the same as if he
were a trustee distributing an insolvent estate.”
The third noteworthy
feature is that no reference was made to Hugo N O v Lipkie,
supra, either in the heads of argument of counsel for the parties, or in the
judgment itself.
[17] The 1913 Estates Act was repealed in by the
1965 Estates Act. The relevant provisions are now contained in s 34 the terms
of which
I have set out above. Of particular importance is the new s 34 (5),
which now provides that in so far as a date of sequestration is relevant
for the purposes of the distribution of an estate under that section such date
shall be deemed to be the day immediately
following the date on which the period
specified in the relevant notice has expired.
[18] The genesis of
this new section was obviously the question posed by Potgieter J in Hugo
N O v Lipkie, supra, viz: If realisation and distribution in
terms of s 48 (3) of the 1913 Estate Act are also included in the word
‘sequestrated’,
at what point of time in the process of realisation
and distribution has the estate been sequestrated?
Section 34 (5) of the
Estates Act now answers that question, and in doing so it has removed the main
ratio of the judgment of Potgieter J on this point; for it seems
implausible that the legislature intended that the conclusion reached
in
Hugo N O v Lipkie, supra, would remain valid. To my mind,
s 34 (5) gives a clear indication that the end result of the s 34 procedure is a
sequestration
of the estate at the moment mentioned therein. The change in
wording between the 1913 and the 1965 Estates Acts on this aspect
is too clear
to negate, especially when seen as a response to the two decisions mentioned
above.
[19] The first decision on the point now under consideration
under the 1965 Estates Act was that of Van den Heever J in Miller N O v
Smit 1986 (1) SA 320 (C).
In that case the informal route of s 34 of
the 1965 Estates Act was not followed, but this was not a central issue
in the case. What was said by Van den Heever J in respect of the
interpretation of the
word “sequestrated” in ss 44 (1) and (2) of
the Insurance Act, must thus be regarded as obiter. Nevertheless the
learned judge assumed that the informal route might have been followed.
She stated at 326 H - I:
“According to Ward v Barrett NO and Another NO 1963 (2) SA 546 (A), a concursus creditorum would be initiated by the s 34 procedure which again in the view of many of the writers, brings s 44 (1) of the Insurance Act into operation.”
The learned judge did not decide the
point at all, stating expressly that s 44 (2) applied in that case - thereby
accepting that
there had not been a sequestration. The difference in
the wording of the 1913 and the 1965 Estates Act was not mentioned.
This
case, therefore, despite favouring the synonymity of sequestration and the
informal process of s 34 of the 1965 Estates Act,
can not really be regarded as
authority one way or the other on the question before us.
[20] In the
Constitutional Court case of Brink v Kitshoff N O 1996 (4) SA 197
(CC), ss 44 (1) and (2) of the Insurance Act were challenged on the basis that
they discriminate unfairly against women, thereby
violating s 8 of the
Constitution of the Republic of South Africa Act 200 of 1993. The question of
the meaning to be given to the
word “sequestrated” in ss 44 (1) and
(2) of the Insurance Act was raised, but the Court, quite properly in my view,
held
that it had no jurisdiction to decide either on the question when an
estate becomes entitled to the proceeds of a life insurance policy in terms
of s
44 of the said Act or the question when a concursus creditorim is deemed
to have been initiated (see par [28] of the judgment of O’Regan J). This
latter question was, in terms of par 3
of the order of the Constitutional Court,
referred back to the court a quo.
[21] The matter, so referred
back by the Constitutional Court, came before Hartzenberg J (sub nom
Kitshoff N O v Brink and Andere 1997 (4) SA 117 (T) ). The
facts in that case were, for all intents and purposes, similar to those in the
present case (see p 122
C - 123 G for a summary of the facts). In respect of
the question whether a “sequestration” had taken place, Hartzenberg
J solved the problem in this way: the Constitutional Court had declared
invalid the deeming provisions of ss 44 (1) and (2) of
the Insurance Act with
effect from 27 April 1994; the estate was not sequestrated on or before that
date; further, no concursus creditorum had been effected in terms of s 34
of the 1965 Estates Act, because such a concursus would only come into
existence after the expiry of the notification to creditors in terms of s 34
- this follows from the decision
in Ward v Barrett N O and Another N
O, supra, and because s 34 (5) of the 1965 Estates Act now
specifically lays down that the day after the date of expiry of the said
notification
is deemed to be the date of sequestration. In the result, no
sequestration or concursus creditorum had taken place before 27 April
1994, and, for the purposes of ss 44 (1) and (2) of the Insurance Act, there had
not been a “sequestration”.
The learned judge then proceeded to
deal with the matter in terms of s 44 (2).
[22] From what I have said
before, in paragraphs [21], [22] and [23], it will be clear that I believe that
the correct interpretation
of the word “sequestrated” in s 44 (1) of
the Insurance Act includes the conclusion of the informal procedure followed
by
the executor of an insolvent deceased estate in terms of s 34 of the 1965
Estates Act. It follows from this that Hartzenberg
J was wrong, on this
aspect, in the case just discussed in holding that there had not been a
sequestration. He did not analyse the difference between the 1913 and the 1965
Estates Acts.
[23] As also indicated above, I am of the view that the
sequestration in terms of ss 44 (1) of the Insurance Act need not take place
before the man’s death. It can occur long after his death and while his
estate is being administered by the executor: whether
because of compulsory
sequestration by a creditor; or because of voluntary surrender by the executor;
or because of conclusion of
the informal process in terms of s 34 of the 1965
Estates Act.
It is, therefore, wrong to say that because the sequestration
in the present case occurred after 27 April 1994 (the relevance of
which I will
discuss just now) that there had not been a sequestration. It is a
non sequitur. Such a conclusion would also fly in the face of the plain
meaning of s 44 (1) of the Insurance Act. There was a sequestration,
no matter
when it occurred.
[24] Based solely on these facts and on this
reasoning, I would have concluded that s 44 (1) of the Insurance Act governs the
present
case, with resultant success for the appellant. S 44 (2) of the
Insurance Act clearly does not come into the picture, there having
been a
sequestration.
[25] But what is the effect of the judgment of the
Constitutional Court in Brink v Kitshoff N O 1996 (4) SA 197 (CC)?
In that case, the challenge to the constitutional validity of s 44 (1) and (2)
of the Insurance Act was successful. A declaration
to that effect was called
for. As always, the effect of the retrospectivity of such an order required
careful consideration.
The Constitutional Court, per O’Regan J,
specifically limited the declaration of the invalidity of the deeming provisions
of
ss 44 (1) and (2) of the Insurance Act to 27 April 1994, i.e. the date
of commencement of the 1993 Constitution. The following order was made at (221
G - I):
“1 It is declared that ss (1) and (2) of s 44 of the Insurance Act 27 of 1943 are invalid.
2 In terms of s 98 (6) (a) of the Constitution it is ordered that the declaration of invalidity made in para 1 shall invalidate the deeming provisions of ss 44 (1) and (2) of the Insurance Act with effect from 27 April 1994, except to the extent that the operation of such deeming provisions has resulted, before the date of this order, in the payment of any money or the delivery of any asset which, but for such provisions, would not otherwise have formed part of the estate, to any creditor of the man or any beneficiary of his estate.
3 The matter of Brink v Kitshoff N O is remitted to the Transvaal Provincial division to be dealt with in terms of this judgment.”
[26] The crucial order
is that made in par 2. The exception mentioned in par 2 of the order is not
relevant to the present matter,
as no money has been paid or asset delivered to
any creditor or beneficiary. The question is: what is the effect of the
declaration
of invalidity of the deeming provision of s 44 (1) of the Insurance
Act as from 27 April 1994, in the context of the case before
us?
[27]
In my view the correct answer to this enquiry depends on whether the appellant,
as executor, had acquired a vested right to claim
the proceeds of the policies
as property of the estate before or after 27 April 1994. If such vesting took
place before 27 April
1994, his claim is not affected by the judgment;
aliter if it vested after that date.
[28] It is clear that
the appellant’s claim under s 44 (1) of the Insurance Act could only have
vested (a) after he had been appointed
as executor of the deceased estate and
(b) after the sequestration had occurred in terms of s 34 of the 1965 Estates
Act. Both
these events took place long after 27 April 1994. When the
appellant’s rights would have vested in the ordinary course of
events, s
44 (1) of the Insurance Act was a dead letter. He could not claim under
it.
[29] Nor can the appellant succeed under s 44 (2) of the Insurance
Act. By virtue of the fact that the estate of the deceased had been
sequestrated, he would in any event not have succeeded under s 44 (2) of
that Act. But the point is academic, for - together with ss (1)
- ss (2)
has been rendered invalid by the order made in Brink v Kitshoff N
O. The claim must fail.
[30] In the result, I would
dismiss the appeal with costs.
P J J OLIVIER JA
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