About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Free State High Court, Bloemfontein
SAFLII
>>
Databases
>>
South Africa: Free State High Court, Bloemfontein
>>
2024
>>
[2024] ZAFSHC 6
|
|
M.W.H v N.E.H and Another (A69/2023) [2024] ZAFSHC 6 (9 January 2024)
FLYNOTES:
FAMILY – Divorce –
Settlement
agreement
–
Appellant
was to pay respondent monies from appellant’s policies –
Respondent issued a writ upon shortfall of
payment –
Appellant contends he fully complied with settlement agreement as
shortfall was paid to SARS – Clauses
indicate appellant
transferred his interests in policies to respondent – Such
would be taxable in hands of respondent
– Appellant fully
complied with terms of settlement agreement – Appeal
succeeds.
SAFLII Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
no: A69/2023
Reportable: NO
Of
Interest to other Judges: NO
Circulate
to Magistrates: NO
In
the matter between:
M[…]
W[…] H[…]
Appellant
And
N[…]
E[…] H[…]
First
Respondent
SHERIFF
WEST: BLOEMFONTEIN
Second
Respondent
CORAM:
MBHELE, AJP et MTHIMUNYE, AJ
HEARD
ON:
23 OCTOBER 2023
DELIVERED
ON:
09 JANUARY
2024
JUDGMENT
BY:
MTHIMUNYE,
AJ
[1]
This is an appeal against the whole judgement
of the Regional Court Magistrate of Bloemfontein handed down on 14
April 2023. In
the assailed judgement, the learned Magistrate
dismissed the appellant’s application to set aside a warrant of
execution
that was issued in favour of the first respondent against
the appellant, as well as staying any execution in pursuance of the
aforementioned
warrant pending the final adjudication of this matter.
The appellant further sought an order authorising the appellant to
approach
the Regional Court on the same papers for an order
compelling the first respondent to transfer her one half undivided
share in
a certain immovable property.
[2]
The appellant and the first respondent were married to
each other in
community of property. Upon divorce, they entered into a settlement
agreement which was made an order of court. In
terms of the
settlement agreement, the appellant was to pay the first respondent
an amount of R1 400 000.00 (One Million
Four Hundred
Thousand Rand) from the appellant’s Investment Retirement Plan
and a retirement annuity (“the policies”)
held at
Discovery and PPS respectively. The settlement agreement further
provided that the first respondent would continue to reside
in the
matrimonial home in Langenhoven Park until she has received the
monies referred to above, and to, within 30 days from the
final
payment, vacate the property.
[3]
The first respondent received four payments as follows:
a cash
payment of R458 699.10 directly from the appellant; R124 394.94
from Discovery, R122 497.68 from PPS and R504 385.42
from PPS.
In the remittances from Discovery and PPS, these amounts are depicted
as nett payments after PAYE Tax was paid over to
the South African
Revenue Service (SARS). The total deductions amounted to R190 022.86.
This constitutes a shortfall on the
amount of R1 400 000.00
which is the subject of this dispute. After receiving the last
payment, the first respondent
vacated the matrimonial home. To
recover the shortfall of R190 022.86, she caused a Writ of
Execution (“a writ”)
to be issued against the appellant.
[4]
The appellant approached the court
a quo
to rescind and set
aside the writ on the basis that he had fully complied with the
settlement agreement as the shortfall was paid
to the South African
Revenue Service (SARS) on the basis that the benefit became taxable
in the first respondent’s hands;
and that by vacating the
marital home, the first respondent tacitly waived her right to the
shortfall. The learned Magistrate disagreed
and dismissed the
application with costs on the basis that the appellant’s
policies do not constitute a pension fund; that
the first respondent
is not a member of PPS and Discovery and could not be expected to be
liable for the tax thereof, and had that
been the intention of the
parties, the settlement agreement would have expressly stated the
same; and that it cannot be said that
the first respondent had waived
her right to the outstanding amount when she vacated her matrimonial
home. It is this dismissal
that is the subject of this appeal.
[5]
At the hearing of the appeal, the appellant did not pursue
the
contention of waiver on the basis of vacation of the property by the
first respondent. This judgment therefore will make no
reference
thereto but only focus on whether the appellant’s policies
amount to a pension fund and whether they are therefore
taxable in
the first respondent’s hands and if so, whether or not the
appellant had fully complied with the terms of the
settlement
agreement as he contends.
[6]
The appellant argued that the provisions of the settlement
agreement
transferred the appellant’s interests in the policies to the
first respondent hence she became liable for the tax
thereof. He
contends that the policies (IRP and the Annuity) constitute a pension
fund and thus the first respondent is liable
for tax payable in
respect thereof in accordance with the provisions of Section
37D(i)(d)(i) of the Pension Fund Act 24 of 1956
as amended, which
provides for a Fund’s right to deduct:
“
from a member’s
benefit or minimum individual reserve, as the case may be, any amount
assigned from his or her pension interest
to a non-member spouse in
terms of a decree granted under Section 7(8)(a) of the Divorce Act…or
in terms of any order made
by a Court in respect of the division of
assets of a marriage…”
[7]
In contention, the first respondent argues that the settlement
agreement made no provisions for the transfer of the appellant’s
interest to the first respondent in the said policies and
as such she
should have been paid R1400 000.00 free of any deductions. She says
in terms of the settlement agreement; the method
of payment was the
proceeds of the policies plus an additional payment of the balance to
be made by the appellant.
[8]
She further argues that the policies do not constitute
a pension fund
and that it was never the agreement between the parties that the
payment in the amount of R1 400 000.00
was a payment as
contemplated in the provisions of section 7(8)(a) of the Divorce Act
or section 37D of the Pension Fund Act. As
such, it was never agreed
that the first respondent would be liable for payment of any tax in
respect of the policies and therefore
any tax arising therefrom
should be paid by the appellant as he is the member of the pension
fund whilst the respondent is not.
[9]
The relevant provisions of the settlement agreement read
as follows:
“…
3.2.
The Defendant will reside free of rent or any other expense in the
communal
home situated at 3[…] E[…] M[…] Street,
Langenhovenpark, Bloemfontein until the amount of R1 400 000.00,
as referred to in paragraph 4 hereunder is received. The Defendant
will vacate the property within thirty (30) days after the payment
is
received.
…
4.1.
The Plaintiff will pay the Defendant the amount of R1 400 000.00
in full and final settlement of the Defendant’s claim in
respect of the estate in community or property. The amount of
R1 400 000.00
will be paid as follows:
4.1.1.
100% of the Plaintiff’s total value in the Discovery Invest
Retirement Plan (Policy number: 857[…])
as on 1 July 2021.
4.1.2.
98% of the Plaintiff’s market value in the PPS annuities
(Policy Number: POL 2011[…] and 2010[…])
as on 1 July
2021, and
4.1.3.
The remaining outstanding amount within sixty (60) days after the
last payment received from either of
the Policies referred to in
paragraphs 4.1.1 and 4.1.2.
…
6.
6.1.
The Plaintiff is a member of the Discovery Invest Retirement Plan,
with Membership number 857[…]
held with Discovery.
6.2.
The parties agreed that the Defendant shall be entitled to 100% of
the Plaintiff’s pension
interest in the Fund as on 1 July 2021,
as defined in Section 1 of the Divorce Act, 70/1979, as on date of
divorce in terms of
the provisions of
Section 7(7)
and (7) (8) (a) of
the
Divorce Act, 70 of 1979
, read with the provisions of
Section
37(D)(4)
of the
Pension Funds Act, 24 of 1956
.
6.3.
The parties further agree that the 100% of the abovementioned fund
interest, as on 1 July 2021,
which is payable to the Defendant by
Discovery will be paid directly to the Defendant in the alternative
will be transferred to
an approved Fund in accordance with Section
37(D)(4) of the Pension Act of 1956, as amended.
6.4.
Accordingly, it is ordered that an endorsement be made in the records
of Discovery that 100%
of the abovementioned fund interest is awarded
to the Defendant.
7
7.1.
The Plaintiff is a member of the Personal Pension Retirement Annuity
Fund with Membership number
POL2010[…];
7.2.
The parties agreed that the Defendant shall be entitled to 98% of the
Plaintiff’s pension
interest in the Fund as on 1 July 2021, as
defined in
section 1
of the
Divorce Act, 70/1979, as
on date of
divorce in terms of the provisions of
Section 7(7)
and (7)(8)(a) of
the
Divorce Act, 70 of 1979
, read together with the provisions of
Section 37
(D) (4) of the
Pension Funds Act, 24 of 1956
7.3.
The parties further agreed that the 98% of the above mentioned fund
interest, as on 1 July 2021
which is payable to the Defendant by the
Fund will be paid directly to the Defendant in the alternative will
be transferred to
an approved Fund in accordance with Section
37(D)(4) of the Pension Act of 1956, as amended.
7.4.
Accordingly, it is ordered that an endorsement be made in the records
of the Fund that 98% of
the abovementioned fund interest is awarded
to the Defendant.
8.
8.1.
The Plaintiff is a member of the Personal Pension Retirement Annuity
Fund with Membership number
POL2011[…];
8.2.
The parties agreed that the Defendant shall be entitled to 98% of the
Plaintiff’s pension
interest in the Fund as on 1 July 2021, as
defined in
section 1
of the
Divorce Act, 70/1979, as
on date of
divorce in terms of the provisions of
Section 7(7)
and (7)(8)(a) of
the
Divorce Act, 70 of 1979
, read together with the provisions of
Section 37
(D) (4) of the
Pension Funds Act, 24 of 1956
.
8.3.
The parties further agreed that the 98% of the above mentioned fund
interest, as on 1 July 2021
which is payable to the Defendant by the
Fund will be paid directly to the Defendant in the alternative will
be transferred to
an approved Fund in accordance with Section
37(D)(4) of the Pension Act of 1956, as amended.
8.4.
Accordingly, it is ordered that an endorsement be made in the records
of the Fund that 98% of
the abovementioned fund interest is awarded
to the Defendant.… “
[10]
I now turn to deal with the first respondent’s contention that
the applicant’s policies do not
constitute a pension fund. The
Divorce Act defines
pension fund as ‘
pension fund as defined
in
section 1(1)
of the
Pension Funds Act 24 of 1956
, irrespective of
whether the provisions of that Act apply to the pension fund or not’
The Pension Funds Act 24 of 1956 (“PFA”) defines a
pension fund as a ‘
pension fund organisation’
and
further defines a pension fund organisation as “
any
association of persons engaged in any occupation established with the
object of providing benefits for members or former members
of such an
association upon their retirement from such occupation, or for the
dependants of such members or former members upon
the death of such
members or former members”.
[11]
In
Nailana v Nailana (Case No 714/2018
[2019] ZASCA 185
)
delivered on 03 December 2019, at Paragraphs 23 – 25 the
Supreme Court of Appeal clarified this interpretation in light
of the
provisions of the
Divorce Act as
follows:
“
[23]
As correctly pointed out by A B Downie Essentials of Retirement Fund
Management, (2019) para C2 at
12: “It is important to note that
the difference between pension and provident funds do not stem from
the
Pension Funds Act which
does not distinguish between the two
types of fund. The Pension Fund Act treats both pension and provident
funds the same under
the description of a “pension fund
organization” covered earlier in this chapter. The difference
between pension funds
and provident funds mentioned in this chapter,
stem from the Income Tax Act.”
…
[25]
It is therefore clear that the reference to a ‘pension funds’
in the
Divorce Act, means
a ‘pension fund organisation’
in the PFA, which in turn includes both pension and provident funds…”
[12]
Looking at the above dictum, it is clear that retirement annuities
fall within
the definition of pension funds. The Discovery Investment
Retirement Plan is self-explanatory and there can be no confusion of
whether or not it is a pension fund. The PPS Annuity and Personal
Pension Retirement Annuity Funds from PPS are annuities falling
within the
Pension Funds Act’s
definition of pension fund. It
follows therefore that the first respondent’s contention in
this regard ought to be rejected.
[13]
The next contention by the first respondent is that the settlement
agreement
made no provision for the transfer of the member’s
interest from the appellant to her. Clause 4.1 of the settlement
agreement
as cited in para [9] above provides for the payment of the
R1400 000.00 by the appellant to the first respondent as well as the
policies from which such money must be paid and the balance.
[14]
Clauses 6.1, 7.1 and 8.1 stipulates or confirms the appellants’
membership
of the Discovery Investment Retirement Plan and the two
Personal Pension Retirement Annuity Funds with PPS respectively.
Clauses
6.2, 7.2 and 8.2, save for the distinctive names of the
policies and percentages (100% for the IRP and 98% for the Annuity
Funds)
contains the same provision in respect of the three policies
which reads as follows:
“
The parties
agreed that the Defendant shall be entitled to 100% of the
Plaintiff’s pension interest in the Fund as on 1 July
2021, as
defined in
Section 1
of the
Divorce Act, 70/1979, as
on date of
divorce in terms of the provisions of
Section 7(7)
and (7) (8) (a) of
the
Divorce Act, 70 of 1979
, read with the provisions of
Section
37(D)(4)
of the
Pension Funds Act, 24 of 1956
.”
[15]
Clauses 6.4,7.4 and 8.4 respectively ceded the appellant’s
interests
in the polices by providing that:
“
Accordingly, it
is ordered that an endorsement be made in the records of Discovery
(or the Fund respectively) that 100% (or 98%
respectively) of the
abovementioned fund interest
is
awarded
(my emphasis)
to
the defendant”.
Through these clauses,
the appellant clearly transferred his int1erests in the policies to
the first respondent. The argument that
the settlement agreement made
no provision for the transfer of interests to the first respondent
cannot be true and has to fail.
[16]
Further, in the letter from PPS dated 06 August 2021, the first
respondent was given a choice between taking
the money as a cash
withdrawal, which would be subject to tax or using it to purchase a
retirement annuity from an insurer of her
choice, she chose the
former. For purposes of completeness, the relevant provisions of the
letter read as follows:
“
The options
available to you are as follows:
1.
Cash
You may take the full
amount of the benefit as a cash lump sum. The lumpsum will the
subject to tax by SARS. If tax is payable,
it will be deducted from
the benefit and paid to SARS before making payment to you.
2.
Retirement Annuity:
You may use the full
amount of the benefit to purchase a Retirement Annuity policy from a
long-term insurer of your choice.
[17]
In my view, it follows therefore that if the interests in the
policies were transferred to the first respondent,
such would be
taxable in the hands of the first respondent. for this reason,
this court is persuaded that the appellant had
fully complied with
the terms of the settlement agreement. Resultantly, the appellant’s
appeal must succeed.
[18]
I now deal with the issue of costs, both in respect of the costs of
the application in the court
a quo
and this appeal. In his
notice of motion to the court
a quo
, the appellant asked for
costs against the 1
st
respondent on the scale as between
attorney and client on the basis that she is deliberately delaying
the finalisation of this
matter in order to frustrate and prejudice
the appellant. Costs are governed by two principles, first that
unless expressly otherwise
enacted, the granting thereof rests within
the discretion of the court, which discretion must be exercised
judiciously; and secondly
that generally, costs follow the result
i.e. they are awarded in favour of the successful litigant. An
attorney and client
scale is a punitive scale reserved for matters
where there has been conduct on the part of a litigant that the court
views so serious
that it warrants a punitive scale. The first
respondent raised bona fide and legitimate issues in opposition of
the appellant’s
application. It was necessary for the parties
to get a clear interpretation and understanding of the implications
of the relevant
clauses of their deed of settlement. It was therefore
not unreasonable for the first respondent to pursue and oppose the
matter
in a manner that she did. In my view, it would be just and
fair that each party is ordered to pay their own costs, which costs
are to include the costs of litigation in the court
a quo
and
the costs of this appeal.
Consequently,
I make the following
Order
:
1.
The appeal against the order of the court
a quo
is upheld.
2.
Each party to pay his / her own costs of appeal.
3.
The judgement of the court
a quo
is set aside and replaced
with the following order:
“
1.
The
warrant of execution issued on 16 February 2022 in favour of the
first
respondent is set
aside.
2.
The Applicant is authorised to approach this honourable court on
the same papers, duly amplified if needs be, for an order compelling
the 1
st
Respondent to:
2.1.
transfer / endorse her half undivided share in the immovable
property situated at 3[…] M[…] Street, Langenhoven
Park,
Bloemfontein. into the name of the Applicant;
2.2.
sign all documents necessary to transfer / endorse her half
undivided share in the immovable property into the name of the
Applicant.
3.
Each party to pay his / her own costs”
D.P.
MTHIMUNYE, AJ
I
concur:
M.
MBHELE, DJP
Appearances:
For
the Appellant:
Adv N
Plaatjies
Bloemfontein
Society of Advocates
Instructed
by
Mlozana
Attorneys
Bloemfontein
For
the First Respondent:
Adv M
C Louw
Bloemfontein
Society of Advocates
Instructed
by
Honey
Attorneys
Bloemfontein