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[2016] ZASCA 83
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Swart v Starbuck and Others (20785/2014) [2016] ZASCA 83; 2016 (5) SA 372 (SCA) (30 May 2016)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No:20785/2014
DATE:
30 MAY 2016
Reportable
In
the matter between:
NICOLAAS
JOHANNES
SWART
...................................................................................
APPELLANT
And
CONRAD
ALEXANDER
STARBUCK
...........................................................
FIRST
RESPONDENT
JAMES
HENRY VAN
RENSBURG
............................................................
SECOND
RESPONDENT
TSIU
VINCENT
MATSEPE
............................................................................
THIRD
RESPONDENT
THE
MASTER OF THE HIGH
COURT
...................................................
FOURTH
RESPONDENT
Neutral
citation:
Swart v Starbuck & others
(20785/2014)
[2016] ZASCA 83
(30 May
2016)
Coram:
Ponnan, Seriti, Dambuza and Mathopo JJA and
Fourie AJA
Heard:
12 May 2016
Delivered:
30 May 2016
Summary:
Claim by insolvent on behalf of his insolvent
estate for the payment of damages by his trustees in terms of
s 82(8)
of the
Insolvency Act 24 of 1936
–
section 82(8)
does not find
application where the trustees sold immovable properties of the
estate prior to the second meeting of creditors –
sale of the
immovable properties of the estate valid and enforceable –
claim for damages dismissed.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Strijdom AJ sitting as court of first
instance):
The
appeal is dismissed with costs, including the costs consequent upon
the employment of two counsel.
JUDGMENT
Fourie
AJA (Ponnan, Seriti, Dambuza and Mathopo JJA concurring):
[1]
This appeal concerns an action brought by the appellant (the
insolvent) against the first to third respondents, the trustees
of
his insolvent estate (the trustees), for the payment of damages
allegedly caused by them in the administration of his estate.
The
matter was heard by Strijdom AJ in the Gauteng Division of the High
Court, Pretoria, who dismissed the claim with costs, but
granted the
insolvent leave to appeal to this court.
[2]
The estate of the insolvent was provisionally sequestrated by order
of the Gauteng Division, Pretoria, on 4 October 2005 and
a final
order of sequestration was granted on 1 November 2005. On 24 January
2006 the trustees were appointed as the provisional
trustees of the
insolvent estate by the fourth respondent (the master). Their
appointment as final trustees followed on 16 November
2006.
[3]
At the time of his provisional sequestration the insolvent was the
registered owner of certain immovable properties known as
portions 5,
8 and 13 of the Farm Doorndraai 2A, Registration Division KR, Limpopo
Province (the properties). Portion 5 had been
granted water rights
for agricultural purposes in terms of
s 21
(a)
of the
National Water Act 36 of 1998
.
[4]
On 16 November 2005 the L J Möller Trust (the trust) submitted
three written offers to purchase the properties (including
the water
rights attaching to portion 5) for a total purchase price of
R1 625 000. The offers were addressed to the first
respondent only and not to his two co-trustees. The trustees had by
then not yet been formally appointed as provisional trustees
of the
insolvent estate, but had apparently been advised by the master on 6
October 2005 of the latter’s intention to appoint
them as
provisional co-trustees. The offers to purchase were addressed to the
first respondent in his capacity as ‘trustee’
of the
insolvent estate. It has become common cause that each of the three
offers to purchase had been accepted by the first respondent
who
signed same as the ‘seller’ on 1 December 2005.
[5]
The three offers to purchase were similarly worded save for the
description of the relevant property in each instance and the
purchase price payable in respect thereof. Each offer contained the
following suspensive condition:
‘
The
agreement is further subject to the condition that the Seller and/or
Master of the High Court must grant the required consent,
if
applicable. Should the consent of the Master of the High Court or any
court be required before transfer of the property or any
portion
thereof can be registered in the name of the Purchaser, this
agreement is subject to such consent being obtained and it
shall fall
away and be regarded as pro non scripto if such consent cannot be
obtained.’
[6]
On 12 January 2006 the trustees submitted a written application to
the master in terms of
s 80
bis
read with s 18(3) of the Insolvency Act 24 of 1936 (the Act), for the
extension of their powers to enable them to sell the properties
by
private treaty. The application motivated the decision to sell the
properties of the insolvent estate prior to the second meeting
of
creditors, and included a consent from the two secured creditors; a
circular sent to all known creditors regarding the decision
to sell
the properties; valuations of the properties and the three written
offers to purchase received from the trust. The trustees
further
expressed the view that the properties should be sold by private
treaty in terms of the offers received from the trust.
I should add
that no creditor responded to the circular by objecting to the
anticipated sale of the properties.
[7]
On 31 January 2006 the master responded to the trustees’
application by consenting to the sale of the properties in the
following terms:
‘
The
powers of the provisional trustees are hereby extended in terms of
s
80
(bis)
of
the
Insolvency Act 24 of 1936
, as amended, to sell the immovable
properties of the above-mentioned insolvent estate, subject to the
following conditions’.
(There being no conditions stated.)
[8]
Having received payment of the agreed purchase consideration for the
properties, the trustees executed written powers of attorney
on 13
April 2006, in which they declared that the properties had been sold
on 1 December 2005 and authorised the transfer thereof
to the trust
as purchaser. Pursuant thereto, on 14 June 2006, the transfer of the
properties by the trustees to the trust was registered
by the deeds
office, Pretoria. The first meeting of creditors was held on 7
September 2006 with the second meeting of creditors
taking place on
12 October 2006. At the second meeting, the creditors approved the
trustees’ report reflecting the sale and
transfer of the
properties to the trust.
[9]
It is convenient to consider the opposing contentions of the parties
against the backdrop of the relevant provisions of the
Act. They are
the following:
Section
18(1)
The
subsection provides for the appointment of a provisional trustee by
the master as soon as an estate has been sequestrated (whether
provisionally or finally). The provisional trustee is required to
furnish security to the satisfaction of the master for the proper
performance of his or her duties as provisional trustee and holds
office until the appointment of a trustee.
Section
18(3)
In
terms of this subsection a provisional trustee shall have the powers
and the duties of a trustee, as provided in the Act, except
that,
without the authority of the court or the master, he or she shall not
sell any property belonging to the insolvent estate.
Such sale shall
be after such notices and subject to such conditions as the master
may direct.
Sections
54 and 56
These
sections provide that, at the first meeting of the creditors of an
insolvent estate, the creditors who have proved their claims
against
the estate may elect a trustee. The selection has to be confirmed by
the master and the person so selected has to provide
security to the
master for the proper performance of his or her duties as trustee.
Where (as happened in this case) the creditors
do not elect a trustee
at their first meeting the master would, virtually as a matter of
course, appoint the provisional trustee
as trustee.
Section
80
bis
This
section provides that, at any time before the second meeting of
creditors, a trustee shall, if satisfied that any movable or
immovable property of the estate ought forthwith to be sold,
recommend to the master in writing accordingly, stating his or her
reasons for such recommendation. The master may thereupon authorise
the sale of such property on such conditions and in such manner
as he
or she may direct.
Section
82(1)
In
terms of this subsection the trustee of an insolvent estate shall, as
soon as he or she is authorised to do so at the second
meeting of the
creditors of that estate, sell all the property in that estate in
such manner and upon such conditions as the creditors
may direct.
However, if the creditors have not, prior to the final closing of the
second meeting of creditors given any directions,
the trustee shall
sell the property by public auction or public tender.
Section
82(8)
The
relevant part thereof reads as follows:
‘
If
any person . . . has purchased in good faith from an insolvent estate
any property which was sold to him in contravention of
this section .
. . the purchase . . . shall nevertheless be valid, but the person
who sold . . . the property shall be liable to
make good to the
estate twice the amount of the loss which the estate may have
sustained as a result of the dealing with the property
in
contravention of this section.’
[10]
In his pleadings the insolvent contended that the trustees did not,
on 1 December 2005, have the necessary authority (or rather
capacity)
to accept the offers to purchase made by the trust, as they had not
yet been appointed as provisional trustees. Nor had
the powers of the
trustees, when they purported to accept the offers to purchase, been
extended in terms of s 18(3) of the Act
to authorise them to sell the
properties. Also that at 1 December 2005, the trustees had not been
granted any authorisation by
the master in terms of s 80
bis
of the Act, to sell the properties to
the trust. Therefore, according to the insolvent, the sale of the
properties and the resultant
transfer thereof to the trust were
irregular (‘onreëlmatig’) and constituted
maladministration of his estate.
He further alleged that the sale of
the properties had to take place in terms of s 82(1) of the Act and
as the trustees had failed
to follow the prescripts of this
subsection, they were liable in terms of s 82(8), to make good to the
insolvent estate twice the
amount of the loss which the estate had
sustained as a result of their irregular dealing with the properties.
[11]
In their plea, the trustees denied that on 1 December 2005 any
agreements of sale were entered into by them in their capacities
as
trustees of the insolvent estate, but admitted that the first
respondent signed and thereby accepted the offers to purchase
on that
date, ‘subject to the permission of the master being granted
and by implication their formal appointment by the master.’
They further pleaded that, on 31 January 2006, they were granted
authority in terms of s 80
bis
of
the Act to sell the properties by way of private treaty. Therefore,
the trustees contended, the properties had been validly transferred
to the trust on 14 June 2006, which transfer took place after the
master had granted the necessary authorisation in terms of s
80
bis
of the Act. They accordingly denied any
maladministration on their part and disavowed liability for the
payment of any damages.
[12]
The court a quo, in essence, held that the trustees had been granted
the necessary authorisation by the master in terms of
s 80
bis
of the Act to sell the properties to
the trust, and that compliance with s 82 of the Act was accordingly
not required. Therefore
the action was dismissed with costs.
[13]
In evaluating the insolvent’s claim it has to be borne in mind
that he is an unrehabilitated insolvent who would, save
for the
exceptions mentioned in s 23 of the Act (which do not apply in this
instance), not have had locus standi to institute legal
proceedings
in his own name. However, as appears from the particulars of claim,
the insolvent sought an order compelling the trustees
to pay damages
to his estate caused by their alleged maladministration of the
estate. Our law has recognised that in certain circumstances
an
insolvent has locus standi by virtue of his or her real interest in
the administration of the estate, to institute a claim on
behalf of
his insolvent estate. See
Mears v
Rissik, MacKenzie NO and Mears’ Trustee
1905
TS 303
at 305;
Muller v De Wet NO &
others
1999 (2) SA 1024
(W) at
1029D-1030H. Whether or not the insolvent had locus standi in this
case is unnecessary to decide, for I will assume, without
deciding,
that he did.
[14]
Turning to the insolvent’s cause of action, I must confess that
I have some difficulty in appreciating the legal basis
of the claim.
As recorded above, the insolvent’s case on the pleadings
appears to be that the sale of the properties and
the transfer
thereof to the trust were ‘irregular’, constituting
maladministration of his estate, entitling him to
claim damages on
behalf of the estate from the trustees. In the heads of argument
filed on his behalf and in argument on appeal
counsel for the
insolvent expanded on this submission by contending that the
agreements in terms of which the properties were sold
were in fact
void ab initio. However, as I understood the argument on his behalf,
the insolvent did not seek to attack the validity
of the transfer of
the properties and have the parties restored to the status quo ante,
but only to recover damages for and on
behalf of the insolvent
estate.
[15]
According to the insolvent’s pleadings and the written heads of
argument filed on his behalf on appeal, his cause of
action was based
squarely on s 82(1), read with s 82(8), of the Act. He contended
that, in view of the absence of a valid authorisation
by the master
in terms of s 80
bis
of the Act, the sale of the properties had to take place in terms of
s 82(1), in such manner and upon such conditions as the creditors
may
direct at their second meeting, failing which, the properties had to
be sold by public auction or public tender. As the trustees
had sold
the properties in contravention of s 82(1), they were, in terms of s
82(8) of the Act, liable to make good to the estate
twice the amount
of the loss which the estate may have sustained as a result of their
dealing with the properties in contravention
of s 82(1). That this
was the basis of the insolvent’s cause of action is borne out
by the emphatic statement in his heads
of argument, that ‘the
case is based on s 82(8) as read with s 82(1) of the Act’.
[16]
At the hearing of the appeal, counsel for the insolvent, however,
attempted to change course by pinning his colours to the
mast of a
delictual claim for damages, based on a breach of their fiduciary
duties by the trustees in disposing of the properties
without the
necessary authorisation by the master. As I understood the adapted
cause of action, it was not based on s 82(8) as
read with s 82(1) of
the Act, but s 82(8) was invoked in order to recover twice the amount
of the loss which the estate had allegedly
suffered due to the breach
of their fiduciary duties by the trustees. I should mention that,
even on a liberal reading, the pleadings
do not disclose a delictual
claim advanced along these lines.
[17]
In my view, both the insolvent’s original cause of action based
on s 82(8), read with s 82(1) of the Act, and the more
recently
adopted delictual cause of action based on the breach of a fiduciary
duty by the trustees, are misconceived and devoid
of any merit. At
the outset, it is clear that both causes of action depend, inter
alia, upon the absence of a valid authorisation
by the master for the
sale of the properties. However, as recorded earlier, the master did
on 31 January 2006 extend the powers
of the trustees by authorising
the sale of the properties in terms of s 80
bis
of the Act. This authorisation was
granted by the master after the trustees had been appointed as
provisional trustees. The granting
of permission in terms of s 80
bis
of the Act is clearly an administrative
act which has legally valid consequences until such time as it is set
aside. See
Oudekraal Estates (Pty) Ltd v
City of Cape Town & others
[2004]
ZASCA 48
;
2004 (6) SA 222
(SCA) para 14. It is common cause that no
application had been made to set aside the s 80
bis
authorisation granted by the master. It
accordingly stands as a legally valid authorisation and on this basis
alone the insolvent’s
claim had to fail.
[18]
Returning to the cause of action as originally pleaded, it is clear
from the wording of s 82(1) that it deals with the sale
of property
of an insolvent estate after the second meeting of creditors, in
circumstances where the trustee sells the property
in a manner or on
conditions contrary to those directed by the creditors at their
second meeting, or, absent such direction, sells
the property other
than by public auction or public tender. Section 82(1) has no
application in a case such as the present where
the sale of the
properties had taken place prior to the first meeting of the
creditors. When the present sales took place there
were obviously no
directives given by creditors at a second meeting that the trustees
had to comply with, nor were the trustees
bound, to sell the
properties by public auction or public tender. They were perfectly
entitled to sell the properties, having been
duly authorised thereto
by the master in terms of s 80
bis
of
the Act.
[19]
In
Cronje NO & others v Hillcrest Village (Pty) Ltd &
another
[2009] ZASCA 81
;
2009 (6) SA 12
(SCA), this court dealt
with an analogous situation where the liquidators of a company had
sold the company’s property prior
to the general meeting of the
company’s creditors. Streicher JA, writing for the court, said
the following at para 22:
‘
Section
82(1)
of the
Insolvency Act deals
with the sale of property after the
second meeting of creditors and is not applicable to the auction of
WKP’s [the company
in liquidation] property. The auction sale
was a sale authorised by the Master in terms of s 386(2B) of the
Companies Act [the
equivalent of s 80
bis
of the Act] before a general meeting of WKP’s creditors had
been convened. The court below therefore erred in considering
the
section to be of application in respect of the auction sale.’
The
present matter similarly did not concern a sale of property after the
second meeting of creditors and therefore ss 82(1) and
82(8) did not
find application.
[20]
It follows that the insolvent’s claim, whether based on s 82 of
the Act or a delictual claim as belatedly contended for,
fell to be
dismissed. It is in any event telling that this action, which the
insolvent purportedly instituted for the benefit of
his insolvent
estate, ie in effect for the benefit of the creditors of the estate,
did not carry the support of the creditors.
On the contrary, as
recorded earlier, the two secured creditors whose claims represented
the lion’s share of the value of
the total claims against the
estate, actively supported the sale of the properties to the trust.
Nor did any concurrent creditor
respond negatively to the circular
sent by the trustees advising them of the intended sale.
[21]
It has to be borne in mind that the creditors of an insolvent estate
are in law the masters of the realisation of the assets
of the
estate. This was emphasised in
Janse van Rensburg v Muller
[1995] ZASCA 136
;
1996 (2) SA 557
(A), where the trustees of an
insolvent estate, contrary to s 82(1) of the Act, disposed of an
asset of the estate (a claim for
damages) without value, by ceding
same to the insolvent’s spouse. This occurred with the consent
of the majority of the creditors
in number and value, but in the
litigation that followed the validity of the cession was put in
issue. Joubert JA, writing for
the court, concluded that,
notwithstanding non-compliance with s 82(1) of the Act, the wishes of
the creditors reigned supreme.
It was put as follows at 565A-B:
‘
Dit
is duidelik dat die skuldeisers in die onderhawige geval nie die
risiko van die skadevergoedingseis wou aandurf nie. Dis
skadevergoedingseis
het vir die skuldeisers geen praktiese betekenis
en nut gehad nie. Hulle is regtens meesters van die tegeldemaking van
die insolvente
boedel se bates. Hulle optrede was geoorloofd . . .
Dit volg na my oordeel dat die sessie geldig is en geensins in stryd
met die
openbare belang is nie.’
In
the instant case the sale of the properties to the trust took place
without objection from the body of creditors and enured to
their
benefit. There is no reason in law or public policy for the trustees
to be mulcted in damages for acting in the best interests
of the
creditors.
[22]
This effectively disposes of the matter. However, I do believe that
it is necessary to clear up a misconception that seems
to have
permeated the submissions made on behalf of the insolvent, namely
that the sale and transfer of the properties were irregular
(or maybe
even void), thereby giving rise to a claim for damages on behalf of
the insolvent estate against the trustees. It appears
to me that the
misconception is founded on a lack of appreciation of the principle
laid down by this court in
Legator
McKenna Inc & another v Shea & others
[2008] ZASCA 144
;
2010 (1) SA 35
(SCA), namely that the abstract
theory of transfer applies to immovable property as well, ie the
validity of the transfer of ownership
is not dependent on the
validity of the underlying transaction such as, in this case, the
contracts of sale. The abstract theory
postulates two requirements
for the passing of ownership of immovable property, namely delivery –
which is effected by registration
of transfer in the deeds office –
coupled with a so-called real agreement or ‘saaklike
ooreenkoms’. The essential
elements of the real agreement are
an intention on the part of the transferor to pass ownership and the
intention of the transferee
to become the owner of the property. The
abstract theory does not require a valid underlying contract, eg an
agreement of sale,
but ownership will not pass, despite registration
of transfer, if there is a defect in the real agreement. As explained
by Ponnan
JA in
Du Plessis v Prophitius
& another
[2009] ZASCA 79
;
2010 (1)
SA 49
(SCA) para 11, it is at the moment of passing of ownership that
the transferor must have the intention of transferring ownership
(and
obviously when the transferee must have the intention of acquiring
ownership), which supplies the subjective element for the
passing of
ownership.
[23]
Moreover, in
Legator McKenna
para 28 this court also expressed its unequivocal approval of the
'rule' in
Wilken v Kohler
.
The 'rule' has its origin in an obiter dictum by Innes JA in
Wilken
v Kohler
1913 AD 135
at 144, dealing
with performance under sales of land that were invalid for want of
compliance with a statute requiring the contract
to be in writing.
The 'rule' provides that, where both parties had performed in full in
terms of such an invalid contract, neither
party can recover its
performance purely on the basis that the contract was invalid.
[24]
In
Legator McKenna
a
curator bonis was appointed to a patient, but before receiving his
letters of curatorship the curator bonis sold the immovable
property
of the patient. Pursuant thereto the letters of curatorship were
received and the curator bonis thereafter effected transfer
of the
property to the purchaser. The validity of the transfer of the
property was in issue. This court assumed that a sale concluded
by a
curator without letters of curatorship would be invalid and the
transfer by a curator without letters of curatorship would
therefore
not pass ownership to the transferee, but as the curator had received
his letters of curatorship before he concluded
the real agreement, he
was properly authorised to enter into that agreement when he did so.
Therefore, the fact that the curator
lacked authority when he
purported to enter into the prior agreement of sale, was of no
consequence. In view of the abstract theory,
it did not affect the
validity of the real agreement. This court held that to transpose the
curator’s lack of authority when
he concluded the sale to the
real agreement was to ignore the implications of the abstract theory.
It accordingly held that the
property was validly transferred.
[25]
In the present appeal it is similarly of no consequence that, at the
time of the acceptance of the offers to purchase by the
first
respondent, the trustees had not yet been appointed. The fact of the
matter is that they had been subsequently appointed
as provisional
trustees on 24 January 2006, whereafter, on 13 April 2006, they
executed written powers of attorney in terms of
which they authorised
the transfer of the properties to the trust and the transfer was
registered in the deeds office. In addition,
at the time when the
parties concluded the real agreement and registration of transfer
took place, the master had extended the
powers of the trustees and
granted the necessary authority to them in terms of s 80
bis
of the Act to sell the properties. The
properties were accordingly validly transferred to the trust.
[26]
Neither counsel relied on nor made reference to
Legator
McKenna
, but counsel for the insolvent
set much store by the decision in
Simplex
(Pty) Ltd v Van der Merwe & others NNO
1996
(1) SA 111
(WLD), where Goldblatt J held that an agreement of sale
concluded by trustees who had not yet been authorised to act in that
capacity,
was null and void and could not be ‘resuscitated by
subsequent ratification either by the Master or by the trustees after
receipt of the necessary authority’.
[27]
There are, however, two material distinguishing features in the
instant matter. First, the agreements of sale resulting from
the
three offers to purchase were subject to the suspensive condition
referred to in para 5 above. Second, the properties were
subsequently
validly transferred to the trust in terms of real agreements between
the trustees and the trust after the master had
provisionally
appointed the trustees and granted them authority in terms of s 80
bis
of the Act to sell the properties to
the trust.
[28]
By means of the suspensive conditions incorporated in the offers to
purchase, the parties intended to render their contracts
subject to
the master granting the required consent to the trustees to transfer
the properties to the trust. As pointed out by
Brand JA in
Legator
McKenna
, para 15, there is no rule that
a contract cannot be rendered subject to compliance with a condition
imposed by statute, such as
s 80
bis
of the Act in this instance. The agreement would then only become
final and binding upon the fulfilment of the condition. The absence
of a similar suspensive condition in
Simplex
formed a significant part of the reasoning of Goldblatt J in
declaring the relevant agreement void. This appears at 114E of
Simplex
where the court noted that ‘it was never the intention of the
parties to have a limping contract which would only become
whole on
approval by a duly authorised trustee or the master or the
beneficiaries or the court’.
[29]
The lack of authority on the part of the trustees when they
(represented by the first respondent) accepted the offers to
purchase,
was accordingly of no legal consequence and could not
somehow have served as a basis for a claim for damages against the
trustees.
[30]
For these reasons the appeal is dismissed with costs, including the
costs consequent upon the employment of two counsel.
P
B Fourie
Acting
Judge of Appeal
APPEARANCES:
For
Appellant: N Davis SC (with him M Coetzee)
Instructed
by: Minnaar & De Kock, Middelburg
Honey
Attorneys, Bloemfontein
For
Respondent: M Leathern SC (with him S J van Rensburg)
Instructed
by: Van Rensburg Koen Baloyi, Pretoria
Hill
McHardy & Herbst, Bloemfontein