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Last Updated: 3 December 2005
THE SUPREME COURT OF APPEAL
OF SOUTH
AFRICA
Reportable
Case no: 463/04
In the matter between:
NEVILLE WILLIAM
MACKAY Appellant
and
EILEEN
MARGARET FEY NO 1ST Respondent
MICHAEL JOHN LANE NO
2ND
Respondent
_______________________________________________________
Coram : HARMS,
SCOTT, ZULMAN, CAMERON et
JAFTA JJA
Date of
hearing : 29 August 2005
Date of delivery : 22 September
2005
Summary: Insolvency – relationship between s 20 and
s 23(2) of the Insolvency Act – essence of a simulated transaction
is an
intent on the part of both parties to
deceive
_______________________________________________________
JUDGMENT
_______________________________________________________
SCOTT JA/...
SCOTT JA:
[1] The respondents
in this appeal are the joint trustees of the insolvent estate of Mr Jurgen
Harksen. They were provisionally appointed
in 1995 and their appointment was
made final in 1999. I shall refer to them as the trustees. The appellant is a
businessman and resides
in Gauteng. In November 2000 he purchased an expensive
dwelling in the Cape, known as 16 Third Beach, Clifton (‘the
bungalow’),
and took transfer in January 2001. In February he signed a
lease agreement which had been negotiated on his behalf by a letting agency
called Accommodation Shop CC. The lessee was stated in the lease to be Mrs
Jeannette Harksen and it was purportedly signed by her.
She is the wife of the
insolvent. The appellant had met neither. The circumstances in which the lease
came to be concluded were the
subject of much evidence and I shall refer to
these in detail later. For the moment it is sufficient to record that the lease
was
for a period of 10 months and expired at the end of November 2001. The rent
was R25 000 per month. In addition, the lessee was obliged
to pay various
incidental expenses such as a domestic worker’s salary, telephone and
electricity charges and administration
fees. In all, a total amount of R271
290,63 was paid to the appellant through the letting agency which deducted its
commission. In
November 2002 the trustees instituted action against the
appellant in the Cape High Court for repayment of the total amount which
the
lessee had paid pursuant to the lease.
[2] The case against the appellant, as
pleaded, was in short the following. It was alleged that Harksen himself (and
not his wife)
had entered into an oral lease with the appellant; that the money
paid to the appellant as rental had emanated from the insolvent
estate, and that
the conclusion of the lease had been concealed from the trustees and was without
their knowledge or consent. Accordingly,
so it was pleaded, the money paid to
the appellant constituted property which in terms of s 20 of the Insolvency Act
24 of 1936 was
vested in the trustees. In the alternative, it was alleged that
in terms of s 23(2) of the Act the lease and the payments made were
voidable at
the instance of the trustees who had elected to regard them as void.
[3] In
his plea the appellant denied the existence of an oral lease with Harksen and
alleged that he had entered into a written lease
with Mrs Harksen. He denied,
too, that the funds used to pay the rental emanated from Harksen’s
insolvent estate. In the alternative,
it was pleaded that in the event of it
being found that the conclusion of the lease and the payment of rent constituted
an alienation
for valuable consideration as contemplated in terms of s 24(1) of
the Act, then the alienation was nonetheless valid as the appellant
‘was
not aware and had no reason to suspect that Mr Harksen was the true lessee [and]
that his estate was under sequestration’.
[4] The trustees filed a
replication in which they alleged that in the event of it being found that the
payments of rental were made
pursuant to the written lease alleged by the
appellant, then the reference therein to ‘Mrs Jeanette Harksen’ as
the lessee
was a simulation, the true lessee being Harksen himself. It was
further alleged that in any event the payments made in terms of the
lease were
made by Harksen with money that vested in the trustees.
[5] In the court
below the appellant accepted that the funds used to pay the rental had not
emanated from Harksen’s insolvent
estate and in this court the defence was
abandoned. The trustees, on the other hand, did not persist in their claim that
for this
reason alone the rental received by the appellant was repayable and the
question was not considered by the trial judge (Waglay AJ).
The learned judge
found, however, that the purported lease between the appellant and Mrs Harksen
was a simulated transaction and
that the true lessee was Harksen himself who had
paid the rent with funds belonging to his insolvent estate. He furthermore
rejected
the defence raised in terms of s 24(1) of the Act, holding that the
appellant not only had reason to suspect that Harksen was insolvent
but must
have been aware of his status as an insolvent. It was accordingly held that the
lease was voidable at the instance of the
trustees in terms of s 23(2) of the
Act and that they were entitled to the sum claimed. The appeal is with the leave
of the court
a quo.
[6] Before dealing with the true nature of the
lease, it is necessary to say something about the claim based on s 20 of the Act
(which
was not proceeded with) and the relationship between that section and s
23(2) on which reliance was placed at the trial. In terms
of s 20 the effect of
sequestration is to vest the insolvent’s estate in the Master until a
trustee has been appointed and
upon the latter event to vest it in the trustee.
The estate of the insolvent is moreover stated to include all property which the
insolvent may acquire or which may accrue to him or her during the
sequestration, except as otherwise provided in section twenty-three.
It follows
that where the insolvent without the consent of the trustee delivers specific
property vesting in the trustee to another,
whether in pursuance of a contract
or otherwise, the trustee may recover the property by way of a vindicatory
action. The reason
is that in the absence of the consent of the trustee, the
insolvent has no authority to pass ownership to another. Had Harksen, for
example, delivered specific property to the appellant in pursuance of a contract
between his wife and the appellant, the trustees
could simply have recovered it
on the basis that it belonged to the estate. But money is different; unless in
some way identifiable
or possibly ear-marked as a particular fund, money in the
hands of a payee becomes the property of the payee by confusio and cannot
be recovered by vindicatory action (see Stern and Ruskin NO v Appleson
1951 (3) SA 800 (W) 810H-811H; S v Gathercole 1964 (1) SA 21 (A) at
24F-25E). If it is assumed for the moment that the contract of lease in the
present case was indeed one between
Mrs Harksen and the appellant, as the latter
alleges, and Harksen had used money emanating from his insolvent estate to
discharge
the lessees’ debt, it would follow that the trustees’
action against the appellant for repayment would be limited to
an action based
on unjustified enrichment. But the difficulties that would be associated with
such an action are readily apparent.
The trustees in these circumstances may
well have had a claim against Mrs Harksen whose debt had been discharged. This
could result
in the trustees being unable to show that the estate had been
impoverished. Similarly, as the payment would have had the effect of
discharging
the debt owed to the appellant, the latter would be precluded from recovering
the debt from Mrs Harksen, in which event
the appellant would not have been
enriched. But none of this was pleaded or canvassed in evidence and need not be
considered further.
Instead, the trustees based their claim on an alleged
contract of lease between Harksen and the appellant which it was contended
fell
within the ambit of one or other of the provisos to s 23(2) of the Act and which
for that reason entitled them to repayment
of the rental. It was assumed by
counsel both in this court and in the court below that in the event of this
being established the
trustees would be entitled to succeed. In the absence of
full argument on the issue and in view of the conclusion to which I have
come
regarding the identity of the parties to the lease, I shall similarly assume,
without deciding, that the approach adopted by
counsel was
correct.
[7] Nonetheless, I propose to make certain observations regarding
the issue. Section 23(2) reads:
‘23(2) The fact that a person
entering into any contract is an insolvent, shall not affect the validity of
that contract:
Provided that the insolvent does not thereby purport to dispose
of any property of his insolvent estate; and provided further that
an insolvent
shall not, without the consent in writing of the trustee of his estate, enter
into any contract whereby his estate or
any contribution towards his estate
which he is obliged to make, is or is likely to be adversely affected, but in
either case subject
to the provisions of sub-section (1) of section
twenty-four.’
[8] The first proviso is of little assistance
because it adds nothing to s 20(2). An insolvent has no authority to dispose of
any
property of the insolvent estate and a contract whereby the insolvent
purports to do so cannot be enforced against either the trustee
or against the
insolvent. In any event, it is doubtful whether the written lease –
assuming it to have been in the name of
Harksen – ‘purported’
to dispose of any property of his insolvent estate. Harksen merely undertook to
pay rental.
He did not undertake to pay rental with monies belonging to the
insolvent estate. It may have been an unrealistic undertaking but
that does not
necessarily mean that he ‘thereby’ (ie, the contract) purported to
dispose of estate assets.
[9] However, given that the rental was R25 000 per
month and, as will become apparent, the Harksens already had a house in
Constantia
not far from the bungalow, it would seem that the contract, if with
Harksen, was one ‘whereby his estate or any contribution
towards his
estate which he is obliged to make is or is likely to be adversely
affected’ within the meaning of the second proviso.
[10] Although not
expressly stated in the section, it is well established that a contract entered
into by an insolvent falling under
either the first or second proviso to s 23(2)
is voidable only and not void. See W L Carroll & Co v Ray Hall Motors
(Pty) Ltd 1972 (4) 728 (T) at 731A-732C; Ex Parte Olivier 1948 (2)
545 (C) at 548-549; Fairlie v Raubenheimer 1935 AD 135. In the event of
such a contract being avoided the appropriate remedy is restitutio in
integrum. In Bonne Fortune Beleggings Bpk v Kalahari Salt Works (Pty)
Ltd 1973 (3) SA 739 (NC) at 743H Van den Heever J formulated the remedy
thus:
‘In restitutio in integrum an attempt is made to put the
parties to a contract retrospectively declared null and void ab initio,
into the same position in which they would have been had the contract not been
concluded.’
It has frequently been said that the action for
restitutio in integrum is a separate and distinct remedy and that it is
not an enrichment action. See eg Davidson v Bonafede 1981 (2) SA 501 (C)
at 510A-E where Marais AJ cites with approval De Vos
Verrykingsaanspreeklikheid in die Suid-Afrikaanse Reg 2ed at 144. However,
under the influence of English law, which recognises restitutio in
integrum as based on unjust enrichment, there has been over the years a
general relaxation of the rule that a party seeking restitution must
first be
willing and able to restore what he or she received. See Daniel Visser
‘Unjustified Enrichment’ in Southern Cross: Civil law and Common
law in SA editors Zimmerman and Visser at 536-537. Whether the need to make
restitution is excused, either wholly or partially, will now depend
upon
considerations of equity and justice and the circumstances of each case; the
occasions on which it will do so are not limited
to a specified and limited
number of exceptions. See Feinstein v Niggli 1981 (2) SA 684 (A) at
700G-701C where the cases are collected. If one assumes that trustees are as a
matter of principle entitled
to restitution, they are unable in the present case
to return what was received by the lessee, ie occupation of the premises, but
that of course is due to no fault of their own. It is also true that s
23(2) is subject to s 24(1) which would afford some protection for a party
entering into a contract with an
insolvent. However, whether the trustees would
be excused from making any form of restitution is not an issue that was debated
before
us.
[11] Another question that arises is the correctness of the assumption that
a trustee who avoids a contract under s 23(2) is in principle
entitled to
restitution. A contract entered into by an insolvent is prima facie valid and
the contract is one between the insolvent
and the third party, whether the
trustee gives the necessary prior consent or ratifies the agreement or chooses
not to avoid it.
The trustee does not derive any rights or benefit from the
contract; nor could it create liabilities for the insolvent estate. If
the
trustee avoids the contract, should reciprocal restitution not therefore take
place between the parties to the contract? A few
examples will illustrate the
problem. If, for instance, an insolvent buys an expensive motor vehicle, it is
unlikely that the trustee
would have to restore possession. If an insolvent
hires a house within his means, the contract is valid, but if he hires one
beyond
his means but pays the rental, the trustee may avoid the lease because it
may affect the ability of the insolvent to make a contribution
towards his
insolvent estate. Can the trustee simply step into the shoes of the insolvent
and claim everything the third person received
from the insolvent? A third
example: an insolvent sells a vehicle belonging to his new estate, ie an estate
he has validly acquired
subsequent to sequestration. The trustee believes that
this may affect the insolvent’s earning capacity and his ability to
make a
contribution, and avoids the contract. Is it likely that the trustee will then
be entitled to restitution? All this suggests
that the proviso does not purport
to deal with the disposal of estate assets (something Harksen did by paying the
rental) but rather
with the validity of a contract whereby the insolvent estate
‘is or is likely to be adversely affected’ and that a trustee
in a
case such as this has to rely on either vindication or enrichment. But, as I
have said, there was no debate before us on the
issue and I shall assume that
the trustees were entitled to succeed if the parties to the contract were the
appellant and Harksen.
It is common cause that the latter did not have the
consent of the trustees.
[12] No attempt was made to prove the oral lease
alleged by the trustees. The latter accordingly bore the onus of proving that
the
written lease alleged by the appellant was a simulated transaction and that
in truth the lease was a contract between the appellant
and Harksen himself. To
determine this issue it is necessary, first, to trace the events leading up to
the conclusion of the lease.
Much is common cause.
[13] As previously
indicated, the appellant purchased the bungalow in November 2000. Its value was
in excess of R10m. The furniture
alone was said to be worth something in the
region of R1 000 000 and included artifacts imported from Bali. The appellant,
who also
owned another dwelling in the vicinity, was initially in two minds
whether to let the bungalow but after taking transfer was approached
by two
letting agents who both indicated that the previous tenant was anxious to hire
the bungalow for a further period. On 18 January
2001 the appellant wrote by
email to the former owner, Ms Patsy Watson, requesting information concerning
the tenant and the rent
that was paid. He noted that he had been told that the
tenant only used the bungalow over weekends which, he said, seemed amazing
given
that he paid rental for the whole month. Watson replied on the same day. After
giving details of the rental, ie R25 000 per
month and other expenses paid by
the tenant, she wrote:
‘The lease agreement was signed by a Mr Studer.
However, the de facto tenant was Mr Jurgen Harksen, his wife Jeannette and their
three children. Mr Harksen is a German who has been the subject of a number of
extradition attempts by the German government, as
he is wanted for massive bank
fraud in Germany. He is also the subject of many articles in
“Noseweek” and is apparently
widely regarded as a
“conman”. I was not aware of the identity of the real tenant until
after he had moved out.
The tenants did not use the premises often, and were
model tenants. However, once the identity of the “real tenant”
became
apparent, I was told some horror stories about previous lets he had
undertaken which had resulted in litigation. Although this was
not our
experience, and it is all hearsay, perhaps you should bear it in
mind.’
The reference to ‘horror stories’ was a reference to
an incident involving Mrs Harksen repainting the walls of a hired
house on some
previous occasion. The appellant remained concerned but his concern related to
the ‘horror stories’ rather
than to the extradition attempts. The
following day he again wrote to Watson saying:
‘My greatest fear in
renting the bungalow is that some people would not appreciate the quality of the
house and the preciousness
of the furnishings and objects - and leave a trail of
damage.
I am really troubled about Mr Jurgen Harksen. On the one hand it
seems he looked after the bungalow very well, and as he rarely used
it he was
the ideal tenant. But I am disturbed at the horror stories . . .
.’
Watson replied the same day in effect recommending Harksen as a
tenant. She said:
‘I understand how you feel about Mr Harksen - if it
helps, I would let the bungalow to him again if it were my decision, because
he
really seemed to have a love for the place, and treated it very well. Gladys
also liked the family which I took as a good sign.’
(The
‘Gladys’ referred to was the domestic worker.)
[14] Thus assured,
the appellant wrote to Mr Keith Ferguson, an agent employed by Accommodation
Shop who had been pressing the appellant
to let the property, proposing the
terms on which he was prepared to enter into a lease. (This letter and all
subsequent correspondence,
unless otherwise stated, was sent by telefax.)
Ferguson replied, recording Harksen’s comments on the proposed terms and
annexing
a copy of the previous lease with Watson. With regard to that lease, he
wrote:
‘The agreement was signed by Mr Harksen’s advocate Mr W
Studer when the deal was originally negotiated.’
The appellant
responded on 24 January 2001 seeking advice as to Studer signing the lease.
After commenting on other aspects of the
proposed lease, he
wrote:
‘Incidentally, as the Letting Agent I would ask you to advise me
what is the legality of Mr Harksen’s advocate signing
the lease agreement.
If he does, I believe he should accompany the agreement signed by him with a
separate letter from Mr Harksen,
saying that he, Mr W Studer, is authorized to
contract on his behalf. Someone has got to be liable in the event of a breach of
the
contract.’
Ferguson’s reply on the same day contained the
following:
‘Mr Harksen’s advocate (an acting Swiss Judge) would
be required to sign the lease agreement (which would be in his name)
for
diplomatic reasons as explained to you telephonically. There was no problem with
Patsy Watson’s Lease Agreement which was
also in the Studers’ name,
however it must be understood that Mr Harksen and his family would be occupying
the bungalow as
before.’
[15] I interpose that Ferguson in evidence
sought to explain that by the expression ‘for diplomatic reasons’ he
meant
no more than that Harksen had previously been a good tenant and it would
be unwise to go against his wishes. This however was not
the attitude adopted by
the appellant who remained dissatisfied. As far as he was concerned it did not
matter who the principal was
as long as that person was creditworthy and
available to be sued in the event of a breach of the lease. On 26 January 2001
he wrote
to Ferguson:
‘You have not yet addressed my question as to who
is legally liable to fulfil the contents of this lease. For whatever reason
Mr
Harksen does not wish to sign it, [the lease agreement], he is the de facto
tenant. If he wishes someone else to sign the lease
on his behalf, then I
require from him a Power of Attorney authorizing that person to sign on his
behalf.’
With regard to the possibility of Studer being the principal,
he enquired:
‘If Mr Studer is the Principal, is he a South African
citizen? Is he an accredited member of the Law Society? Is he
creditworthy?’
He added:
‘At least one of the parties - either
Mr Harksen or Mr Studer - [must] be the Principal, and be domiciled in South
Africa (it
would probably cost me more to sue in a Swiss court, than any damages
suffered) . . . the least I require is that one party clearly
be the
“Principal”, and you must satisfy me with his ID number, domicile
and credit-worthiness.’
[16] There had been some prior discussion
between the appellant and Ferguson regarding the possibility of an upfront
payment of the
rent. After referring to the need for clarity on the issue of the
identity of the principal, the appellant concluded his letter of
26 January 2001
by indicating that if his requirements regarding domicile and credit-worthiness
presented a problem he was prepared
to accept an upfront payment of the entire
rental or to conclude three separate leases (two of three months and one of four
months)
with the rent in each case being paid in advance.
[17] It appears
that after this letter was sent, Ferguson went off sick and Harksen, ostensibly
because of a ‘busy schedule’,
could not be reached. The issue of who
was to be the principal and the method of payment remained unresolved. The lease
was supposed
to have commenced on 5 February 2001. By that date nothing had
happened. However, on 6 February 2001 Harksen wrote to Ferguson advising
that
Studer was due to arrive on 8 February when he would sign the lease. The letter
was couched in the form of an agent writing
on behalf of his principal. The
ultimate sentence read: ‘On behalf of Mr Studer, I would like to mention
that he is looking
forward to a long and successful tenancy.’ On the same
day Ferguson, after meeting with Harksen, wrote to the appellant advising
that
Harksen ‘has agreed to take up the option of 3 month, 3 month, 4 month
respective “upfront” payments’
but ‘has asked if you
will accept a 5% reduction on each of the 3 upfront payments’. The next
day, the appellant wrote
back indicating that he would not agree to a five per
cent discount.
[18] The 8th of February came and went. Once again
Harksen could not be reached and nothing happened. On 13 February Ferguson wrote
to both Harksen
and the appellant expressing his embarrassment. Harksen replied
on the same day. After stating that Studer had been delayed and would
be
arriving on 15 February 2001 he continued:
‘In connection with the
lease contract, I would appreciate it, if you could make some changes regarding
the method of payment.
Mr Studer agrees to the deposit and he is willing to pay
a couple of months in advance when you offer him a discount of 10%. Otherwise,
he is prepared to pay the lease on monthly basis.
Your argument that Mr
Studer has to pay so many months in advance because he is a foreigner
doesn’t make sense, as he has been
legally the tenant during the last
year.
In order for you to check the credit-worthiness of Mr Studer I shall
give you herewith all the relevant details.’
The letter was
disingenuous. By writing that Studer was not agreeable to payments in advance,
Harksen was in effect reneging on what
he had previously agreed to.
Significantly, the proposal of ‘upfront’ payments had been put up as
an alternative to the
appellant’s requirement that the principal be
domiciled in South Africa and creditworthy. The effect of Harksen’s letter
was therefore to present him with neither of these alternatives. By this time,
however, the holiday season was well past its peak.
The prospect of finding
another suitable tenant and starting the whole process all over again was
clearly not one the appellant welcomed.
His obvious annoyance is understandable.
The next day, 14 February 2001, he wrote a formal letter to Ferguson addressing
him no longer
as ‘Keith’ but as ‘Mr Ferguson’. After
summarizing what had occurred since 18 January 2001 he proceeded to
‘set
out [his] position’ in numbered paragraphs. The first and ultimate
paragraphs are relevant. They read as follows:
‘(1) As Mr Harksen
advises that Mr Studer is not willing to pay rent in advance, I will take the
risk of entering the lease
with Mr Studer, knowing he is a non resident and
relying in good faith on the reputation of Mr Harksen, as given to me by
yourself
and Mrs Watson.
. . .
(4) If the lease is not signed by Mr Studer
(or Mr Harksen) by Monday, 19th February, I will seek another tenant
and will consider these negotiations as terminated for the present, and in
future.’
[19] In response to the deadline set by the appellant,
Ferguson repeatedly attempted to contact Harksen by telephone. Once again he
could not be reached. On the advice of Ms Anne Strickland, the owner of
Accommodation Shop CC, Ferguson eventually on 19 February
2001 left a message on
Harksen’s mobile telephone to the effect that unless a lease was signed
that day the transaction would
fall through. Shortly thereafter Harksen phoned
back. He said that Studer had not arrived but that he was quite happy for his
wife
‘to have the lease; and he was sure she would have no objection. He
explained that she was domiciled in South Africa (which
was not true) and had a
shop in Cape Town (which was true). Ferguson telephoned the appellant to seek
his instructions. This was
confirmed by the appellant who testified that he
first questioned Ferguson on what the latter had been told about Mrs Harksen and
then expressed his willingness to have her as the lessee. He said it never
entered his head that she was to be a mere nominee for
Harksen, in other words,
that Harksen was to be the other contracting party.
[20] Ferguson then
drafted a lease agreement which reflected Mrs Harksen as the lessee and
proceeded to the latter’s shop for
her to sign it. I interpose that the
shop was called ‘J H Design’ and sold women’s clothing. It was
owned by a
company, Unitrade 463 (Pty) Ltd, in which Mrs Harksen apparently held
the shares. On arriving at the shop, Ferguson found that neither
Harksen nor his
wife was there. He waited for an hour and a half and eventually left the lease
with one of the assistants with instructions
to give it to Mrs Harksen to sign
in the presence of witnesses.
[21] Ferguson testified that the next day the
signed lease was returned to the premises of Accommodation Shop. As he expressed
it,
he was ‘fairly sure’ that it was Mrs Harksen who delivered the
lease. He had met her before. He recalled her arriving
in a four-wheeled drive
vehicle and having to double-park outside. Strickland, was also present. She,
too, had previously met Mrs
Harksen and had no doubt that it was she who
delivered the lease. I mention this because Mrs Harksen testified that at that
stage
she had no knowledge of the lease and although she did drive a
four-wheeled drive motor car she ‘could not remember’
delivering the
lease. I shall return to her evidence later.
[22] The lessee’s
signature on the lease was wholly illegible. The same signature appeared on two
addenda signed on the same
day. (They were presumably also signed at the shop
as they were witnessed by the same person.) The letters ‘pp’ were
inserted immediately in front of the lessee’s signature on one of them.
Their proximity to the signature, which was nothing
more than a scrawl, rendered
them not readily apparent and they went unnoticed. It was only after the
trustees demanded payment
that it was appreciated that all three documents had
been signed by Harksen himself and not by Mrs Harksen.
[23] The reason for
the second addendum (the first merely contained some additional terms) was that
the draft lease agreement had
been altered by the insertion of 1 March 2001 as
the commencement date. I mention this because counsel for the trustees sought to
make something of the letter dated 20 February which Ferguson wrote to the
appellant reporting what had happened. The letter began:
‘I have just
received the signed agreement and addendum. I noticed that he had altered
the date of occupation to 1 March 2001. I phoned him immediately and
reminded him that our original negotiation dated back . . . .’ (My
emphasis.)
It was argued that this constituted a recognition by Ferguson, and
for that matter also the appellant who received the letter, that
the true lessee
was Harksen himself. I mention at this stage that I do not think much
significance can be attached to the reference
to Harksen as opposed to his wife.
After all, he had done all the negotiating and for him to have altered the lease
before signature
would not have been inconsistent with Mrs Harksen being the
signatory and lessee. The same can be said of a letter of the same date
recording that Ferguson had ‘prepared a statement for Mr Harksen’.
Significantly, in yet another letter to the appellant
written on the same day
Ferguson reported that he had arranged for an inventory to be ‘signed by
Mrs Harksen after it has been checked’.
[24] Mrs Harksen
testified on behalf of the trustees. She explained that her husband, who had
since been extradited to Germany, had
used persons and companies as
‘fronts’ to hold assets on his behalf and in this way to maintain
his lifestyle of opulence.
She said Studer was one such a person and that she
too had on occasions served as a ‘front’ for Harksen. She denied
that
she knew at the time that the lease with the appellant had been concluded
in her name and said she could not remember delivering
the lease to the letting
agents on 20 February 2001. Her evidence was severely criticised by counsel for
the appellant in this court.
But it is unnecessary to deal with the criticism.
The inference arising from her evidence is that Harksen was authorized to act on
her behalf. But even if he was not, and she was unaware of the conclusion of the
lease at the time, she readily conceded that once
she discovered what had
happened she ‘went along with it’ and indicated by her conduct that
she was the lessee. Indeed,
she was not only directly involved in the drawing up
of the inventory at the commencement and termination of the lease but personally
wrote to the appellant on 28 November 2001 requiring the latter ‘to pay
out my remaining deposit’. On 4 April she personally
signed a cheque for
R25 000 drawn on Unitrade 463 (Pty) Ltd in favour of Accommodation Shop for
that month’s rent. In passing,
I mention that the other payments of rental
to the agents were either by cheque drawn on an account operated by Harksen in
the name
of Voyager Trust or in cash.
[25] The court a quo found on
the evidence ‘that Jeannette Harksen simply replaced Studer as a front for
Harksen and that the “written agreement”
only reflected the name of
Jeanette Harksen but that the lease agreement was one in fact between Harksen
and [the appellant]’.
The correctness or otherwise of this finding became
the main issue debated before us.
[26] It has long been recognised that where
parties to a transaction for whatever reason attempt to conceal its true nature
by giving
it some form different from what they really intend, a court called
upon to give effect to the transaction will do so in accordance
with its
substance, not its form. See generally Erf 3183/1 Ladysmith (Pty) Ltd v
Commissioner for Inland Revenue 1996 (3) SA 942 (A) at 952C-953A and the
cases therein cited. It is important to emphasise that a transaction which is
disguised
in this way is essentially a dishonest transaction; the object of the
disguise, which is common to the parties, is to deceive the
outside world.
Before a court will hold a transaction to be simulated or dishonest in this
sense it must therefore be satisfied that
there is some unexpressed or tacit
understanding between the parties to the agreement which has been deliberately
concealed. See
Commissioner of Customs and Excise v Randles, Brothers and
Hudson Ltd 1941 AD 369 at 395-396. On the facts of the present case it
follows that the trustees were obliged to establish that whatever
Harksen’s
intention may have been, the appellant’s true intention
was to contract with Harksen, notwithstanding the form of the lease.
[27] It
is necessary to observe that if the appellant’s intention had indeed been
to contract with Mrs Harksen, it would be
of no assistance to the trustees that
she had no reciprocal intention and accordingly did not become a party to the
lease. In other
words, it would not matter that Harksen had no authority to
enter into a lease on her behalf or that she had not subsequently ratified
the
lease. Similarly, there would be no contract if in these circumstances Harksen
himself intended to be the lessee in terms of
the lease. (Cf
Registrateur van Aandelebeurse v Aldum h/a Onecor Group 2002 (2) SA 767
(SCA) at 773B-E.) As previously indicated, in the absence of a contract, no
reliance could be placed on s 23(2)
of the Act. In that event, in order to
succeed the trustees would have been obliged to formulate a claim based on
unjust enrichment.
Such a cause of action was neither pleaded nor
established.
[28] What is critical to the inquiry, therefore, is
appellant’s true intention. In other words: was it established on a
balance
of probabilities that his true intention was to enter into a disguised
and dishonest transaction in the sense discussed above?
[29] In finding for
the trustees on this issue, the court a quo by implication rejected the
evidence of the appellant that as far as he was concerned he had entered into a
lease with Mrs Harksen
who was the person to whom he would have to look in the
event of a breach. No adverse credibility finding was made against the
appellant,
nor was an attempt made to assess his credibility. The trial
judge appears simply to have found that the evidence pointed to Mrs Harksen
having served as a substitute for Studer who was Harksen’s
‘front’. In assessing the probabilities in the light of the
appellant’s evidence, a question that arises is why
he should have wished
to connive with Harksen to disguise the true identity of the lessee; in other
words: what motive would he have
had for the deception? The trial judge found,
despite the evidence of the appellant to the contrary, that he was fully aware
that
Harksen was an insolvent, ie subject to a sequestration order. If this
finding were correct, it is possible that Harksen’s
insolvent status may
have played a role in influencing the appellant to enter into a disguised
transaction. But in my view, the finding
was wholly unjustified. There was no
direct evidence to the effect that the appellant, or for that matter the agents,
knew that Harksen
was insolvent. As far as the probabilities are concerned, from
the very inception of the negotiations Harksen presented himself as
a man of
considerable means who enjoyed an opulent lifestyle. The appellant was told
that Harksen had a house in Constantia in
the Cape but nonetheless was prepared,
and had the means, to pay R25 000 a month in rental for a bungalow which he
generally occupied
only over weekends. As far as Watson was concerned, he was a
model tenant. The appellant explained that it was constantly impressed
upon him
by the letting agents who were obviously impressed by Harksen just how wealthy
he was; he entertained lavishly and drove
a range of very expensive motor-cars.
It is true that it was also clear to the appellant from a relatively early stage
in the negotiations
that Harksen was unwilling to enter into a lease in his own
name. But this would not give rise to an inference of insolvency in the
mind of
a layman. The appellant was told by Watson that Harksen was wanted for fraud in
Germany and had successfully resisted being
extradited. This in the
appellant’s mind was enough to justify Harksen’s reluctance to be a
contracting party. There
is no reason for doubting his evidence in this regard.
The brazen life of luxury enjoyed by Harksen was not the life which an
insolvent’s
trustee would ordinarily permit and this would be known to a
layman. In any event, given the appellant’s cautious nature as
demonstrated by the correspondence, it is wholly improbable that he would have
been prepared to do business with an insolvent.
[30] Ultimately the inquiry
is whether the appellant regarded Harksen or his wife as his debtor under the
lease or, to put it differently,
the inquiry is to which of the two would he
have regarded himself as obliged to look in the event of a breach. It is clear
from the
correspondence that when informed of the unusual circumstances of the
previous lease, the appellant’s principal concern was,
as he put it, who
was to be the principal. He wanted to know who and where he would have to sue in
the event of a breach. Although
earlier in the negotiations he had contemplated
contracting with Studer as agent for Harksen, in which event he required a power
of attorney, by 14 February 2001, as is apparent from his letter of that date,
he was prepared to contract with either Studer or
Harksen as principal. The
appellant testified that when Mrs Harksen was proposed as the lessee he accepted
her as the party with
whom he would contract as principal. There is nothing
improbable about this. Indeed, the subsequent correspondence during the
subsistence
of the lease demonstrates quite clearly that he regarded Mrs Harksen
as the lessee and the person to whom he looked for fulfilment
of the
lessee’s obligations.
[31] On 5 March 2001, for example, the appellant
addressed a letter to Mrs Harksen drawing her attention to various features of
the
property. One such feature was the existence of four separate telephone
lines. He wrote:
‘In terms of our agreement (clause 4.1), you
are responsible for telephone costs and therefore I bring this to your attention
as four exchange lines and the
usage which the previous owner envisaged may not
apply to you.’ (Emphasis supplied.)
Mrs Harksen replied on 20 March
2001 indicating she would comment on the points raised in the appellant’s
letter later in the
week. On 27 September 2001 she again wrote answering the
appellant’s letter in detail. Both letters were signed ‘Jeannette
Harksen’. Every month the appellant wrote to Ferguson listing the amounts
‘to be recovered from Mrs J Harksen’
or ‘outstanding from Mrs
Harksen’. These were typically telephone, water and electricity charges
which were payable by
the lessee in terms of the lease. It appears that at some
stage the appellant agreed to a Mr and Mrs Markowitz using the bungalow.
On 15
August 2001 the appellant addressed a letter to ‘Mrs Jeannette
Harksen’ regarding the Markowitz’s use of
the bungalow in which he
reminded her that:
‘I agreed to it on the understanding that they were
guests and that you remained the tenant in terms of the existing lease
contract.’
Again, on 10 October 2001 the appellant wrote to Ferguson
regarding the inventory of items at the bungalow. The letter bore the heading:
‘Mrs Harksen’s Agreement of lease until 30th
November’ and commenced: ‘As we are less than two months away from
the time that Mrs Harksen’s lease of Bungalow
16 ends . . . .’ A
final example is a letter written by the appellant to Ferguson on 13 November
2001 concerning inter alia the cost of repairs to the bungalow for damage
that occurred during the currency of the lease. He wrote:
‘It seems to
me that the tenant must be responsible for this and we should duly convey these
changes to Mrs Harksen.’
He concluded by writing:
‘I believe .
. . these accounts should be for Mrs Harksen’s account, and I would
appreciate it if you will claim the amounts from her. If you disagree,
please advise me.’
[32] Counsel for the respondent did not submit that
these letters were written by the appellant as part of an on-going sham to
conceal
the true identity of the lessee; nor indeed would there have been any
basis for such a submission. The letters corroborate the appellant’s
evidence that he entered into a contract of lease with her on the basis that she
was to be the lessee in her own right and not merely
as a nominee for Harksen.
In my view there was no justification for rejecting this evidence and in doing
so the court a quo clearly erred. [33] The appeal must therefore
succeed.
The following order is made:
(1) The appeal is upheld with costs, such costs to include those occasioned by the employment of two counsel;
(2) The order of the court a quo is set aside and the following is substituted in its place –
‘The plaintiffs’ action is dismissed with costs.’
__________
D G SCOTT
JUDGE OF APPEAL
CONCUR:
HARMS JA
ZULMAN JA
CAMERON JA
JAFTA JA
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