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[2020] ZASCA 48
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C M v E M (1086/2018) [2020] ZASCA 48; [2020] 3 All SA 1 (SCA); 2020 (5) SA 49 (SCA) (5 May 2020)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1086/2018
In
the matter between:
C
M
APPLICANT
and
E M
RESPONDENT
Neutral
citation:
M v M
(1086/2018)
[2020] ZASCA 48
(5 May 2020)
Coram:
Maya P and Wallis, Mokgohloa and Dlodlo
JJA and Eksteen AJA
Heard:
7 November 2019
Delivered:
This judgment was handed down
electronically by circulation to the parties’ legal
representatives by email, publication on
the Supreme Court of Appeal
website and release to SAFLII. The date and time for hand-down is
deemed to be at 10:00 am on 5 May
2020.
Summary
:
Divorce
– accrual – value of annuitant spouse’s
right to future annuity payments in respect of a living annuity as
defined
in s 1 of the Income Tax Act 58 of 1962, read with General
Note 18 of the Second Schedule to the said Act, is an asset in his
estate
and is subject to accrual.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Johannesburg (Keightley and Modiba JJ and Sardiwalla AJ
sitting as court of appeal):
1
The application for special leave to appeal is granted and the appeal
is upheld with costs.
2
The order of the Full Court of the Gauteng Division, Johannesburg is
set aside and replaced with the following:
‘
(a)
The appeal is upheld with costs.
(b)
The value of the respondent’s right to future annuity payments
under
Personal Portfolio Living Annuities 002419307, 003491172
and 004662953 (the living annuities) from Glacier Financial Solutions
(Pty)
Ltd, a member of the Sanlam Group is an asset in his estate for
purposes of calculating the accrual in his estate.
(c)
The matter is remitted to the trial court for the admission of
evidence on the value of the respondent’s right to receive
future payments from Sanlam in respect of the l
iving
annuities.’
JUDGMENT
Maya
P:
(Wallis, Mokgohloa, Dlodlo JJA and
Eksteen AJA concurring):
[1]
This is an application for special leave to appeal which was referred
for oral argument in terms of
s 17(2)
(d)
of the
Superior Courts Act 10 of 2013
.
[1]
The applicant, Mrs C M, seeks to challenge the judgment of the Full
Court of the Gauteng Division of the High Court, Johannesburg
(Keightley J, Modiba and Sardiwalla JJ concurring). The full court
dismissed the applicant’s appeal, brought with Victor
J’s
leave, against her judgment in the divorce action instituted by the
applicant’s husband, the respondent, Mr E M.
The full court
affirmed the trial court’s decision, on the strength of this
Court’s judgment in
ST
v CT
,
[2]
that the respondent’s living annuities do not form part of his
estate for purposes of calculating an accrual.
[2]
The relevant factual background to the matter is briefly the
following. The parties married in December 1999, out of community
of
property and subject to the accrual system as defined in the
Matrimonial Property Act 88 of 1984
. In July 2008, the respondent
used a portion of his pension benefit, which arose from his
employment, to purchase a Personal Portfolio
Living Annuity […]07
from Glacier Financial Solutions (Pty) Ltd, a member of the Sanlam
Group (Glacier by Sanlam). In March
2012, he used the remainder of
the proceeds of his pension benefit, which he cashed upon retiring
from his employment in November
2011, to make another purchase with
Glacier by Sanlam, Living Annuity [...]72.
In
circumstances that do not appear from the record, he purchased a
further living annuity […]53 on 7 January 2015.
[3]
I
refer to these collectively as ‘the living annuities’.
[3]
In 2014, the respondent instituted divorce proceedings against the
applicant. In addition to a claim for spousal maintenance,
he sought
a declaratory order that the living annuities, which provide his
monthly source of income, were not assets in his estate
and were
consequently not subject to the applicant’s accrual claim. The
applicant did not contest the dissolution of the
marriage but lodged
a counterclaim seeking an order against the respondent for the
payment ‘of an amount equal to half of
the difference in the
accrual of the respective estates of the parties, alternatively . . .
full particulars and a statement of
his estate in order to determine
the accrual in his estate, the debatement thereof . . . and . .
. payment . . .
of an amount equal to half of the
difference in the accrual in the respective estates of the parties’.
[4]
At the commencement of the trial, the parties agreed to separate the
issues for decision. The question whether the living annuities
acquired by the respondent form part of his estate for purposes of
calculating the accrual would be resolved ahead of the merits
of the
action. The essence of the respondent’s case was that the
living annuities were not subject to accrual because on
a proper
interpretation of the relevant legislation, they were not a
pensionable interest as defined in the
Divorce Act 70 of 1979
, a view
which the appellant rightly endorsed.
[4]
Furthermore, the ownership of the capital value of the annuities
vests in the insurer, Sanlam, and the respondent is entitled only
to
the annuity income.
[5]
The respondent called three expert witnesses to support his case, Mr
William Herbert Hunter Thyne, an attorney specialising
in banking and
finance, including pension funds and insurance; Dr Elizabeth Lear, an
asset consultant on pension and provident
funds; and Ms Deirdre van
Niekerk, a certified financial planner in investments and estate
planning with long-time experience in
the field. The applicant, on
the other hand, led the evidence of a benefit valuation actuary, Mr
Ryan Immerman.
[6]
The essence of the evidence of the respondent’s witnesses was
that the capital of a living annuity belongs to the provider
of the
benefit and not the annuitant. Thus, it does not form part of the
annuitant’s estate. According to Mr Thyne, the purpose
of
converting a pension fund into a living annuity was to continue to
make the capital inaccessible to an annuitant; to ensure
that there
is a benefit in the fund to pay an income upon the annuitant’s
retirement. An annuitant may switch the underlying
investment
vehicles of the living annuity to another fund. But his entitlement
in the scheme is only to ‘an income based
on the amount the
pension fund paid to the insurer which then becomes an insurer’s
asset . . . a right to an income
stream’, which he may
elect to draw down at any rate between 2,5 per cent and 17,5 per cent
per annum. To support his view,
he also referred to s 29(4) of the
Income Tax Act 58 of 1962, which requires that an annuity must be
placed in ‘[a] fund,
to be known as the Untaxed Policy Fund
Holder Fund, in which shall be placed assets having a market value
equal to the value of
liabilities determined in relation . . .
to any annuity contracts entered into by it in respect of which
annuities are being
paid’.
[7]
Ms Van Niekerk agreed with Mr Thyne’s opinion and adduced
testimony that was similar to that given by Dr Lear. She confirmed
the parties’ agreed view that a living annuity is not a pension
interest as defined in the
Divorce Act and
is, therefore, not deemed
to be an asset under those provisions. She described it as ‘a
ring-fenced' asset held on the annuitant’s
behalf by the
insurer in an untaxed policy holder’s fund to provide him with
a regular annuity income. But, the underlying
capital amount of the
annuity never accrues to the annuitant during his lifetime. Whilst an
annuitant may nominate a beneficiary
to the living annuity to whom
the insurer must pay the value of the underlying capital upon his
death, the beneficiary has a right
to continue with the annuity
payments and receive income or exercise a commutation of the cash
value of the capital amount. A non-member
spouse would only be able
to access the annuity or income when it accrued to the annuitant by
way of a maintenance order.
[8]
Mr Immerman, on the other hand, testified only on the computation of
the actuarial value of a pool of assets, including the
living
annuities, that was based on the assumption that they belonged to the
respondent. He disavowed any expertise on the question
of the actual
ownership of living annuities. However, he did venture an opinion
when pressed, that if the living annuities were
found not to be
assets in the respondent’s estate, a market value could still
be placed on the income stream they generate
at any given time. To
that end, regard would be had to variables such as the investment
return assumptions, the level of contributions
and the annuitant’s
mortality.
[9]
The trial court found that respondent’s witnesses possessed
‘the necessary expertise in the field of living annuities’
and provided ‘background information of what living annuities
mean in the industry’. In its view, Mr Immerman had ‘the
necessary expertise in the field of calculating the actuarial value
of an income stream’. The court determined that the overriding
consideration was whether ‘within the context of the statutory
framework of living annuities and its strict regulation, the
capital
can be said to be vested in the [applicant] for purposes of
calculating the accrual’. The court accepted the respondent’s
version that the annuities belonged to the insurer and did not form
part of his estate for the calculation of accrual. Its reasoning
was
that a contrary finding would defeat the purpose of a living annuity
– to provide an income stream so that pensioners
do not become
a burden on the State. This was so because an annuitant ‘could
hypothetically be placed under severe financial
pressure to pay’
an amount from the annuities that would constitute part of the
accrual and ‘be left without any income
at all’. The
court concluded that the monthly or periodical payment of the living
annuities was relevant and could be taken
into account to assess the
applicant’s future maintenance needs.
[10]
This court’s judgment in
ST
v CT
had been delivered before the
appeal to the full court was heard. The applicant accepted in the
full court that the decision meant
that the appeal had to be
dismissed and this is what occurred without any additional
consideration of the applicable legal principles.
[11]
The applicant raised a number of contentions on appeal before us. Her
case, in the main, was that the court a quo erred in
fact and in law
in finding that ownership of the funds invested in the annuities
belonged to Sanlam and that the annuities did
not form part of the
respondent’s estate for purposes of accrual. To illustrate the
point, it was argued that a consequence
of that finding was that a
married person who had accumulated R100 million before a divorce
could invest the whole amount in a
living annuity. This would bear
the untenable result of denuding his estate to the detriment of his
spouse because the value of
his estate for purposes of calculating
accrual would diminish by that sum. Moreover, there was no indication
in the contracts concluded
between the respondent and Sanlam that
ownership of the invested funds would vest in the insurer.
[12]
The applicant relied squarely on the judgment of the full court in
Commissioner,
South African Revenue Service v Higgo
,
[5]
which she argued the trial court misinterpreted. She also relied on
the provisions of the Financial Institutions (Protection of
Funds)
Act 28 of 2001 (the Financial Institutions Act) which, she contended,
apply to the living annuities as they constitute ‘trust
property’ as defined in that Act. She argued that the attention
of this Court was obviously not drawn to these authorities
in
ST
v CT
as
it would otherwise not have found that the annuities belonged to the
insurer. We were further urged to decide a question left
open in
ST
v CT,
namely whether a married annuitant’s right to future annuity
payments is an asset which can be valued and included in his
or her
accrual upon divorce.
[13]
Before I deal with the merits of this matter, it is necessary to
foreshadow an error that derailed the separated enquiry and
led to
these proceedings. The issue that the parties sought to be
adjudicated by the trial court seems to have been mischaracterised.
Notwithstanding repeated judgments from this court
establishing the necessity for any separation of issues to be
properly and clearly
formulated in an order by the trial court, this
was not done, with the result that there was never clarity as to the
real issue
before the trial court.
[14]
As is apparent from the pleadings, the applicant merely sought
to identify the assets in the respondent’s estate and their
values so that she could quantify her accrual claim in the divorce
action.
In his answering affidavit in the
application for leave to appeal, the respondent said that the issue
to be determined was ‘the
status of the living annuities’.
Thus, the purpose of the separated enquiry was simply to determine
determine whether the living annuities should
be
included in the calculation of the accrual of the respondent’s
estate
and on what basis that should be done
.
[15]
However, as pointed out, the parties
failed to
define the issue properly
and the trial court’s judgment
and declaratory order perpetuated the misunderstanding that the
applicant’s target was
solely the underlying capital value of
the annuities. Another worrisome feature of the trial proceedings is
the court’s adjudication
of the matter without having sight of
the living annuity
contracts, which were not
produced as they should have been if their terms and effect were in
dispute, as they were.
[16]
It also requires mention at the outset that the issue of the
ownership of the living annuities in respect of which the
respondent’s
expert witnesses testified and explained in the
context of the various statutory provisions to which they referred,
is a question
of law. Its determination, therefore, fell strictly
within the trial court’s domain. The trial court held that it
considered
such evidence ‘as providing expert background
information of what living annuities mean in the industry’. But
the record
indicates otherwise and the evidence clearly went beyond
that scope. The witnesses were pertinently questioned and gave their
opinion
on where the ownership of the living annuities lay. This
includes the applicant’s own witness, Mr Immerman who, as I
noted,
was called merely to provide the value on a pool of the
respondent’s assets and had to proclaim his lack of expertise
in
this area.
[17]
An example may be found in Mr Thyne’s evidence, which was
peppered with various references to statutory provisions and
his
interpretation thereof. He invoked
s 5
of the
Pension Funds Act 24 of
1956
for his opinion that Sanlam owned the respondent’s
annuities and rounded off his evidence in re-examination as follows:
‘
Question: So just
to tie up very briefly Mr Thyne. In your opinion do the living
annuities form part of the plaintiff’s estate
for the purposes
of an accrual?
Answer: No again I will
reiterate, what the annuitant is entitled to is an income stream . .
. in terms of which one has to
look at GN 18, where it talks
about the liability [that] has been transferred . . . the
fourth paragraph [which] says . .
. I have already gone through
the provisions of the
Pension Funds Act to
say all assets of the
pension fund belong to the pension fund. What is happening here is
the liability is being transferred from
the pension fund to the
insurer. Why would SARS or the regulator say there is going to be a
change in the ownership, it has to
be the insurer who owns the asset
as the funds owns the asset and the insurer then pays the annuity
based on the underlying asset.’
Needless
to say, to the extent that the trial court’s reasoning may have
been guided by the expert witnesses’ impermissible
foray into
the interpretive exercise of the relevant law on the question before
it, it committed a misdirection.
[18]
Turning to the merits, a convenient starting point for determining
whether a living annuity is susceptible to an accrual claim
is
assessing the precise nature of this type of investment. Section 1 of
the Income Tax Act defines it as follows:
‘“
living
annuity” means a right of a member or former member of a
pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund, or his or her dependant
or nominee, or any subsequent nominee, to an annuity purchased
from a
person or provided by that fund on or after the retirement date of
that member or former member in respect of which–
(a)
the value of the annuity is determined solely by reference to the
value of assets which are specified in the annuity agreement
and are
held for purpose of providing the annuity;
(b)
the amount of the annuity is determined in accordance with a method
or formula prescribed by the Minister by notice in the
Gazette
;
(c)
the full remaining value of the assets contemplated in paragraph (a)
may be paid as a lump sum when the value of those assets become
at
any time less than an amount prescribed by the Minister by notice in
the Gazette;
(d)
the amount of the annuity is not guaranteed by that person or fund;
(e)
on the death of the member or former member, the value of the assets
referred to in paragraph (a) may be paid to a nominee of the
member
or former member as an annuity or lump sum or as an annuity and a
lump sum, or, in the absence of nominee, to the deceased’s
estate as a lump sum; and
(f)
further requirements regarding the annuity may be prescribed by the
Minister by notice in the
Gazette
.’
[19]
There was no dispute that the living annuities
were contracts complying with the requirements of the Income Tax Act.
It follows
that they were contracts providing for Glacier by Sanlam
to pay annuities, ie regular amounts at regular intervals, to the
respondent.
The value of the annuities was determined by the value of
the assets delivered to Glacier by Sanlam in terms of the annuity
agreements
and held by them for the purpose of providing the
annuities. The full value of the assets would only be payable to the
respondent
if their value fell below a figure prescribed by the
Minister of Finance. The respondent would have no other claim to
those assets.
As it happens, this description accords with the
evidence of the respondent’s witnesses as well as a description
in a document
titled “Glacier Investment
– Linked
Living Annuity – Personal Portfolio Living Annuity (Technical
Guide for Personal Portfolio Living Annuity April
2018).
That
document was placed before us by the applicant in a ‘core
bundle’ produced three days before the hearing without
the
consent of the respondent. But it merely confirmed what was already
apparent.
[20]
The terms of the respondent’s annuities are described as
Personal Portfolio Living Annuities, which are investment-linked
and
can be purchased only with compulsory funds coming from a contractual
pre-retirement product. They are administered by Glacier
by Sanlam.
They are member-owned ie they were purchased from a registered South
African Insurer in the name and on the life of
the member, the
respondent in this case. They are non-commutable, payable for and
based on the lifetime of the retiring member
and may not be
transferred, assigned, reduced, hypothecated or attached by creditors
as contemplated by the provisions of
ss 37A
and
37B
of the
Pension
Funds Act read
with General Note 18.
[6]
[21]
The member
can direct in which investments the
amount paid to the insurer will be placed
(with options
including offshore collective investment funds and offshore shares)
and has the right to draw an income and, to a
limited extent, manage
the underlying funds by altering the investments once a year. The
member has a right to the income and can
give instructions and
nominate beneficiaries. The income is not guaranteed but depends on
the performance of the underlying investment
options and the
draw-down rate selected by the annuitant. The annuitant can choose
the level of income and the income frequency
between a pre-defined
minimum of 2,5 per cent and a maximum of 17,5 per cent level as
prescribed by the Minister of Finance in
the Government
Gazette
under the Income Tax Act. The annuitant may change the income
percentage on the anniversary date.
[22]
The annuity contracts state that once a living annuity is purchased
the underlying capital in it is no longer accessible to
the
annuitant. The proceeds or annuity income do not fall within the
ambit of ‘pension interest’ as defined in the
Divorce
Act, hence
the parties’ agreement in this regard. Thus, an
annuitant cannot give part or all of the living annuities to an
ex-spouse
in terms of a divorce order or agree to split the annuity
income with the ex-spouse. Glacier by Sanlam pays the annuity to the
member spouse, who is taxed on it at his or her marginal rate and
then left to sort out any payment of maintenance to the non-member
spouse in accordance with the divorce order under his own steam.
[23]
There is another listed class of annuities; the conventional life
annuities, which are completely different from the member-owned
living annuities. They are described as fund-owned and are purchased
from an insurer by the fund on behalf of the member. In their
case,
the trustees, and not the annuitant, sign all transfer documentation.
They may override the annuitant’s nominee options
for a
dependant and can appoint beneficiaries. These annuities pay a
guaranteed income for life. The income is based on the life
expectancy of the annuitant, who cannot choose the level of the
income, which ceases upon his death or at the end of the guaranteed
term.
[24]
In the applicant’s submission, the distinguishing features of
this class of annuities supported her view that the respondent’s
living annuities are not owned by the insurer. She took issue with
what she described as a failure by Dr Lear and Ms Van Niekerk
to
address the differences between the two classes of annuities. These
witnesses merely stated in their identical statements that
‘[b]oth
the life and living annuity options would provide the member with a
certain regular income until death … are
still “owned”
by either the retirement fund or insurer on behalf of the member and
cannot be attached for eg. insolvency
… exactly the same
reason that these annuities cannot be assigned (and the deeming
provisions built into the
Divorce Act)&rsquo
;.
[25]
I deal first with the question whether
ST
v CT
was wrongly decided as contended by the applicant. There, the living
annuity under consideration was a Sanlam Glacier product similar
to
the ones in this matter, from which the annuitant also drew a monthly
income. This Court accepted that the annuity qualified
as a living
annuity for income tax purposes as it complied with the requirements
set out in s 1 of the Income Tax Act read with
Government Notice 290
of 11 March 2009.
[7]
It also
endorsed the parties agreement that the provisions of the
Divorce Act
dealing
with a spouse’s pension interest are not applicable as
his pension interest had become payable to him before the divorce.
[8]
The Court further recognised the general principle in the pension
fund industry that the provisions of
ss 37A
to
37D
of the
Pension
Funds Act apply
to a living annuity purchased in the name of a former
member of a retirement annuity fund.
[9]
[26]
Regarding the question whether the
capital
invested in the
living
annuity formed part of the annuitant’s divorce accrual, the
Court said:
[10]
‘
Having regard to
the nature of the Glacier contract, we are of the view that its
supposed capital value cannot be included as part
of the appellant’s
accrual. The capital belongs to Sanlam, not the appellant. The
appellant’s only contractual right
is to be paid an annuity in
an amount selected by him within the permissible range specified by
law. His right to receive any particular
annuity instalment is
subject to a condition of survivorship, ie that he should be alive on
the date on which the next annuity
instalment becomes payable. If he
does not survive to the next date, the fate of the capital will be
determined by whether or not
he has nominated a beneficiary. The
capital may or may not be paid to his estate, depending on whether or
not there is such a nomination.’
Explaining
the rationale for this view, the Court continued:
[11]
‘
If
the supposed capital value of the Glacier contract were included in
the appellant’s accrual, one would have the anomalous
outcome
that he would be obliged to pay half its value to the respondent in
circumstances where he has no right to claim half the
capital from
Sanlam. He would have to satisfy this part of an accrual award from
other assets. While in the present case the appellant
may have other
assets from which to make payments, the question is one of principle.
If the Glacier contract is to be included
in the appellant’s
accrual, it would have to be included in the accrual of any spouse
with a comparable annuity contract,
even though the contract were
such spouse’s only “asset”. The outcome would be
even more anomalous if the spouse’s
interest in the annuity
contract was exempt from attachment in terms of
s 37A
of the
Pension
Funds Act, because
then there would be nothing for the other spouse
to attach in satisfaction of the accrual award.’
[27]
As I have mentioned, the appellant relied, inter alia, on
Higgo
for his challenge against the above decision, in
ST
v CT
.
In that matter the full court held that on the facts of the case, the
provider of a living annuity, Momentum Life Ltd, was not
a beneficial
owner of the capital that was paid to it by the annuitant’s
pension fund for re-investment.
[12]
In the full court’s view, the money was received by the insurer
on the annuitant’s behalf and for his benefit and was
held by
the insurer to cover its obligation to the pensioner until that
obligation was entirely fulfilled.
[13]
As the full court put it:
‘
The money which
had been transferred . . . to Momentum and used to purchase the
“underlying assets was not merely the
measure of the cash
payments which Momentum was obliged to make” . . . but was the
guarantee for payment to [the annuitant]
of that to which he, and
after his death his dependants, were entitled.’
[28]
The applicant’s reliance on
Higgo
is,
however, beset by the simple problem that the case is distinguished
by its own circumstances.
As
appears from the stated case set out in the judgment of the Cape
Income Tax Special Court,
[14]
it
concerned what was described in the stated case as a ‘life
annuity’, but incorrectly referred to in the judgment
as a
‘living annuity’. The contract was concluded before the
definition of a ‘living annuity’ was introduced
into the
Income Tax Act in 2008 and allowed the taxpayer a free hand
throughout the year to manage the investment of the funds
with the
assistance of a financial adviser, whose fees he sought to set off
against the income generated by the life annuity. That
is
impermissible with a living annuity under the present definition. The
judgment is thus of no assistance in this case because
it dealt with
a contract that was not a living annuity of the type now regulated by
the Income Tax Act. Its characterisation of
the contract in issue
cannot apply to the living annuities in this case.
Higgo
is, therefore, not authority for the applicant’s contentions
and does not assist her case.
[29]
I turn to deal with the second arrow in the applicant’s bow.
This is the contention that the underlying capital of the
respondent’s living annuities constituted ‘trust
property’ as envisaged in the Financial Institutions Act and
therefore remained his asset held by Glacier by Sanlam on his behalf.
This statute provides for and consolidates the laws relating
to the
investment, safe custody and administration of funds and trust
property by financial institutions. It defines ‘trust
property’, in s 1, as ‘any corporeal or incorporeal,
movable or immovable asset invested, held, kept in safe custody,
controlled, administered or alienated by any person …
hereinafter referred to as the principal’. Chapter 1, ss 4.4
and 4.5 provide as follows in relevant part:
‘
A financial
institution must keep trust property separate from assets belonging
to that institution, and must in its books of account
clearly
indicate the trust property as being property belonging to a
specified principal.
Despite anything to the
contrary in any law or the common law, trust property invested, held,
kept in safe custody, controlled or
administered by a financial
institution or a nominee company under no circumstances forms part of
the assets or funds of the financial
institution or such nominee
company.’
‘
Financial
institution’ is defined in s 1 of the Financial Services Board
Act 90 of 1990 and includes, in s 1(vi), any ‘registered
insurer’ as defined in s 1(1) of the Insurance Act 27 of 1943.
[30]
The only basis advanced by the applicant for her contention that the
living annuities constituted trust property was the evidence
of the
respondent’s expert witnesses; that the annuities were owned by
the insurer which held them on behalf of the annuitant
to provide him
with regular annuity income. The applicant challenged the notion of
owning something on behalf of another having
regard to the incidence
of ownership or dominium, ie the right to possess, use, take the
fruits of, destroy or alienate a thing.
[15]
[31]
But, the applicant’s argument overlooked Mr Thyne’s
uncontested evidence that the underlying capital is owned by
the
insurer and is accordingly reflected in the insurer’s balance
sheet, and the annuitant is entitled only to the annuity
income.
[16]
The
annuity, and not the capital, is the asset that would be reflected in
his or her balance sheet. And whilst the living annuity
enjoys the
protection provided by ss 37A and 37B of the Pension Funds Acts, s 1
of the Income Tax Act nonetheless stipulates that
the amount of the
annuity is not guaranteed by the person or fund from whom the annuity
is purchased.
[32]
This is replicated in the Glacier documents in which the insurer
disavows any responsibility for the preservation of the underlying
capital of the annuity and specifies that the ‘underlying
capital, and the income, is not guaranteed by Glacier in any way’.
Therefore, there is no obligation on the insurer to repay the capital
paid for the annuity, merely the agreed annuity. And in the
case of a
breach by the insurer, ‘the cause of action of the annuitant
will lie in damages for breach of contract’,
subject of course
to the terms of the annuity.
[17]
This
is by virtue of the contractual right to annuity payments held by the
annuitant against the insurer.
[33]
It is also instructive to have regard to the nature of Sanlam. It is
an unambiguously profit-driven business entity, which
is required by
law, inter alia, to:
‘
. . . maintain its
business in a financially sound condition by –
(a)
having assets;
(b)
providing for its liabilities and capital adequacy requirement;
and
(c)
generally conducting its business,
so as to be in a position
to meet its liabilities and capital adequacy requirements at all
times.’
[18]
All
relevant indications are therefore that the insurer’s
relationship with the annuitants is
purely
contractual in nature.
[34]
There is no indication in any of the legislation that applies to
living annuities ie, the
Pension Funds Act (in
ss 37A
and
37B
), and
the Income Tax Act (which defines a living annuity), the Financial
Institutions Act itself and the Glacier contracts concluded
between
the parties, that the living annuities are regarded as ‘trust
property’. Neither is there even a hint of a
fiduciary
relationship between the parties in these legal instruments. The
provisions of the Financial Institutions Act add nothing
to the
applicant’s case.
[35]
But do these findings disentitle the applicant from any claim
whatsoever in regard to the respondent’s annuities? I think
not. In an analogous decision,
De
Kock v Jacobson
,
[19]
the
court determined whether a pension that the husband was receiving was
an asset in the joint estate of a couple married in community
of
property. Upon his retirement, prior to the divorce, he ceased to be
a member of the pension fund to which he had belonged and
his pension
interest was converted into a pension. His right against the pension
fund had two components; a right to a cash payment
(which he conceded
fell within the community of property) and a right to monthly
payments by way of pension.
[36]
The court answered the question in the affirmative stating:
‘
The
question then remains whether the right to the pension is part of the
community of property. There is to my mind no reason in
principle why
the accrued right to the pension should not form part of the
community of property existing between the parties prior
to the
divorce. Community of property is defined in Hahlo
The
South African Law of Husband and Wife
5th
ed at 157 - 8 in these terms:
“
Community
of property is a universal economic partnership of the spouses. All
their assets and liabilities are merged in a joint
estate, in which
both spouses, irrespective of the value of their financial
contributions, hold equal shares.’
See
Grotius
Jurisprudence of Holland
3.21.10.
A
spouse's salary falls within the community of property. See
Hahlo
(op cit
at 161), where he says:
“
The
joint estate consists of all the property and rights of the spouses
which belonged to either of them at the time of the marriage
or which
were acquired by either of them during the marriage.”
…
See
also
Voet
23.2.68,
69.’
[37]
The court cited with approval two judgments. First was
Clark
v Clark
,
[20]
in
which the court
accepted
that
a
spouse's interest in a pension which had not yet accrued did indeed
form part of the community estate, as did a pension right
which had
accrued. The second one was a case of this Court,
Commissioner
for Inland Revenue v Nolan's Estate
,
[21]
which
reaffirmed that the right to a pension is a right which vests in the
parties to a marriage in community of property in undivided
shares.
The court in
De
Kock
concluded that there was
no
logical or legal reason why both the cash component and the accrued
right to the pension should not form part of the community
of
property existing between the parties prior to the divorce.
[22]
[38]
I align myself fully with this reasoning and see no reason why it
cannot extend to the case at hand. The respondent has a clear
right
to the investment returns yielded by his capital re-investment with
Sanlam, in the form of future annuity income which he
draws from the
agreement. Such annuity income is evidently an asset which can be
valued, as was testified to by Mr Immerman. The
trial court actually
took that evidence into account, correctly so in my view. But then it
erroneously considered the annuity income
relevant only for purposes
of a maintenance claim. It should have found it to be an asset in the
respondent’s estate, which
is subject to accrual, and allowed
Mr Immerman to provide a valuation of that income stream. This
it failed to do. The court
a quo perpetuated the misdirection by
dismissing the appeal. Thus, there is no basis to deviate from the
judgment in
ST v CT.
The application for special leave to
appeal must be granted and the appeal allowed so that the error may
be righted.
[39]
In the result the following order is made:
1 The application for
special leave to appeal is granted and the appeal is upheld with
costs.
3 The order of the Full
Court of the Gauteng Division, Johannesburg is set aside and replaced
with the following:
‘
(a)
The appeal is upheld with costs.
(b)
The value of the respondent’s right to future annuity payments
in respect of
Personal Portfolio Living Annuities […]07,
[…]72 and […]53 (the living annuities) from Glacier
Financial Solutions
(Pty) Ltd, a member of the Sanlam Group is an
asset in his estate for purposes of calculating the accrual in his
estate.
(c)
The matter is remitted to the trial court for the admission of
evidence on the value of the respondent’s right to receive
future payments in respect of the l
iving annuities.’
________________________
MML Maya
President
of the Supreme Court of Appeal
APPEARANCES:
For
the Appellant: F Joubert SC
Instructed
by: R C Christie Inc, Gauteng
Webbers
Attorneys, Bloemfontein
For
the Respondent: A de Wet SC
Instructed
by: Schindlers Attorneys, Gauteng
Honey
Attorneys, Bloemfontein
[1]
In
terms of which the Judges considering an application for leave to
appeal may, inter alia, if they are of the opinion
that
the circumstances so require, order that it be argued before them at
a time and place appointed.
[2]
ST
v CT
[2018]
ZASCA 73
;
[2018]
3 All SA 408
(SCA);
2018 (5) SA 479
(SCA), which was delivered
before the hearing of the matter by the full court.
[3]
This
living annuity was purchased two weeks before the notice of
amendment of the plaintiff’s claim, dated 28 January 2015.
but
is curiously not mentioned in that document. It was, however,
included in the respondent’s Summary of Portfolio and
was
included in the respondent’s asset pool furnished to the
applicant’s expert witness, an actuary, Mr Immerman,
for the
purposes of his valuation of the respondent’s assets. There
is, therefore, no reason to exclude it from this judgment.
[4]
ST
v CT
ibid
para 107.
[5]
Commissioner,
South African Revenue Service v Higgo
2007
(2) SA 189 (C).
[6]
General
Notes Second Schedule to the Income Tax Act 1962 General Note 10
(Issue 2 with effect from 1 September 2008), which contains
the
definitions of the Pension Fund and Provident Fund and specifically,
provides for ‘annuities on retirement from employment’.
General Note 18 replaced General Note 12 ‘so as to allow
retirement funds to purchase an annuity from a South African
registered insurer in the name and on the life of a member who is
retiring from employment (a member owned annuity)’.
[7]
‘
Notice
in terms of paragraph (B) of the definition of "Living Annuity"
in section 1 of the Income Tax Act, 1962 (Act
No. 58 of 1962)
GG
32005, GN 290, 11 March 2009.
[8]
Sections
7(7)
and
7
(8) of the
Divorce Act 70 of 1979
.
See
also,
Eskom
Pension and Provident Fund v Krugel
2012 (6) SA 143
(SCA); 2011 (3) BPLR 309 (SCA) 314;
[2011] ZASCA 96
para 12;
Saunders
v Eskom Pension Fund and Provident Fund
2013 JOL 30305 (PFA).
[9]
These
provisions read, in relevant part:
‘
37A
Pension benefits not reducible, transferable or executable
(1) Save to the extent
permitted by this Act, the Income Tax Act, 1962 (Act 58 of 1962),
and the
Maintenance Act, 1998
, no benefit provided for in the rules
of a registered fund (including an annuity purchased or to be
purchased by the said fund
from an insurer for a member), or right
to such benefit, or right in respect of contributions made by or on
behalf of a member,
shall, notwithstanding anything to the contrary
contained in the rules of such a fund, be capable of being reduced,
transferred
or otherwise ceded, or of being pledged or hypothecated,
or be liable to be attached or subjected to any form of execution
under
a judgment or order of a court of law, or to the extent of not
more than three thousand rand per annum, be capable of being taken
into account in a determination of a judgment debtor's financial
position in terms of section 65 of the Magistrates' Courts Act,
1944
(Act 32 of 1944), and in the event of the member or beneficiary
concerned attempting to transfer or otherwise cede, or to
pledge or
hypothecate, such benefit or right, the fund concerned may withhold
or suspend payment thereof: Provided that the fund
may pay any such
benefit or any benefit in pursuance of such contributions, or part
thereof, to any one or more of the dependants
of the member or
beneficiary or to a guardian or trustee for the benefit of such
dependant or dependants during such period as
it may determine.
37B Disposition of
pension benefits upon insolvency
If
the estate of any person entitled to a benefit payable in terms of
the rules of a registered fund (including an annuity purchased
by
the said fund from an insurer for that person) is sequestrated or
surrendered, such benefit or any part thereof which became
payable
after the commencement of the Financial Institutions Amendment Act,
1976 (Act 101 of 1976), shall, subject to a pledge
in accordance
with section 19 (5) (b) (i) and subject to the provisions of
sections 37A (3) and 37D, not be deemed to form part
of the assets
in the insolvent estate of that person and may not in any way be
attached or appropriated by the trustee in his
insolvent estate or
by his creditors, notwithstanding anything to the contrary in any
law relating to insolvency
.’
[10]
ST
v CT
fn
2 para 108.
[11]
ST
v CT
fn
2 para109.
[12]
At
196I.
[13]
At
196H-197D.
[14]
ITC
11135 (2005) 96 SATC.
[15]
Wille
Principles
of South African Law
5ed
at194.
[16]
This is stated as follows in the Technical Guide for Personal
Portfolio Living Annuity, under the heading ‘Maintenance
orders’:
Upon entering into a
living annuity contract, the annuitant becomes entitled to an
annuity income only. The annuitant is not entitled
to the underlying
capital providing the annuity. The annuitant’s legal interest
is therefore limited to the receipt of
an annuity income on the
basis stipulated in the annuity contract, but always subject to the
relevant legislation, the most important
being that the living
annuity may not be commuted for a single payment other than in very
limited circumstances as prescribed
in terms of the Income Tax Act
No. 58 of 1962. Accordingly, there is no statutory mechanism to dip
into the underlying capital
for a lump sum payment.’
[17]
See,
ANZ
Savings Bank Ltd v FCT
[1993] FCA 282
;
25
ATR 369
at 392.
[18]
Section
29 of the Long-term Insurance Act 52 of 1998.
[19]
De
Kock v Jacobson & another
1999
(4) SA 346 (W).
[20]
Clark
v Clark
1949
(3) SA 226 (D)
.
[21]
Commissioner
for Inland Revenue v Nolan's Estate
1962
(1) SA 785
(A)
at
791C – E.
[22]
At
349G.