IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO 194/03
In the matter between
THE COMMISSIONER SOUTH AFRICAN REVENUE SERVICE Appellant
and
ESTATE LATE H E STREICHER Respondent
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CORAM: HOWIE P, FARLAM, BRAND, LEWIS et HEHER JJA
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Date Heard: 14 May 2004
Delivered: 31 May 2004
Summary: Estate duty – valuation of i mmovable estate prop erty – s 5(1)(a) of
Estate duty Act – meaning of ‘in the course of the liquidation of the
estate’.
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J U D G M E N T
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HOWIE P
2
HOWIE P
[1] This case raises the question whether immovable property in a
deceased estate was sold ‘in the cour se of the liquidation of the estate’
within the meaning of s 5(1)(a) of the Estate Duty Act 45 of 1955.
[2] The sole executor in the responde nt’s estate, Mr DM Streicher, was
the surviving spouse of the late Mrs HE Streicher who died in 1981 and to
whom he was married out of community of property. For convenience I refer
to him as ‘the respondent’. The estate assets included ten units of Karoo land
on which bona fide farming operations were carried on. The respondent was
the owner of an undivided half share of five of the units.
[3] In her Will the deceased bequeat hed the land she owned outright to
their son, Johannes Jacobus Streicher and her undivided half share of the
jointly-owned land she bequeathed to th eir son, Fransie Na ude Streicher. In
both instances she bequeathed a usufruct to the respondent. In return for
their inheritances the sons referred to each had to pay a third son, Daniël
Myburgh Streicher, a specified bequest price.
[4] In 1983 the respondent and Johannes Jacobus Stre icher entered into a
redistribution agreement involving five of the units, in terms of which,
subject to the bequest price provision, they were to become the property of
the respondent.
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[5] The first and final liquidation a nd distribution account in the estate
was submitted to the Master in Cape Town on 15 April 1985. In the
account, lodged by the respondent, the five units that were the subject of the
redistribution agreement were awarded, and to be transferred, to the
respondent and an undivided half shar e in each of the other five were
awarded, and to be transferred, to Fransie Naude Streicher.
[6] The value attributed to each un it in the account was determined in
accordance with a valuation by the Land Bank. The total value of all ten
units was shown in the account as R289 177,50.
[7] That part of the account cons tituting the respondent’s estate duty
return showed the dutiable amount as nil.
[8] In terms of Government Notice 125 of 27 January 1956 a Master has,
in relation to matters concerning d eceased estates, the powers of the
appellant. The Master did not query or challenge the land valuations in the
account or the nil return which, as the appellant’s representative, he was
empowered by s 8(1) of the Act to do.
[9] In 1997, however, the appellant re ceived information that all the land
in question had been sold in May 1984 for R1 750 000. In due course, in
the year 2000, he issued an assessme nt in terms of which estate duty of
R436 502,68 was payable. The respondent appealed successfully to the Cape
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Income Tax Special Court which set aside the assess ment. The President of
that court (Conradie J) thereafter gr anted the appellant leave to appeal
directly to this court.
[10] It is indeed true that all ten units were sold in May 1984. They were
sold, as one, for R1 750 000. The selle rs were stated in the relevant
agreement to be the respondent in his personal capacity and as usufructuary,
and Fransie Naude Stre icher ‘as blote eienaa r’. The buyer was a Mr
Christoffel Petrus Jochemus Prinslo o. Occupation was to be given on
1 August 1984 and transfer was due to take place, as far as possible, on
1 August 1985.
[11] At the hearing before us it was conceded at the outset on the
appellant’s behalf that the sum of R436 502,68 was incorrectly based on the
deceased’s having been the owner of a ll ten units. On the correct facts the
sum of duty claimed was reduced to R293 307,18.
[12] Various questions were debated by the parties’ counsel. The primary,
and in my view, decisive one is whethe r the sale to Mr Prinsloo was ‘in the
course of the liquidation’ or merely ‘during’ the liquidation. That question
arises when regard is had to the provisions of s 5(1) of the Act. In so far as is
now relevant it reads:
‘(1) The value of any property in the estate of any person shall be
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(a) in the case of property … disposed of by a purchase and sale which in the
opinion of the Commissioner is a bona fide purchase and sale in the course of the
liquidation of the estate of the deceased, the price realized by such sale;
…
(g) In the case of any other property, the fair market value of such property as
at the date of death of the deceased person …’
[13] It is common cause that if (g) a pplies, the respondent had, in terms of
the definition of ‘fair market value’ in the Act, as read with s 1(2), a choice
to reflect the value of the immovable property in the estate as its value
according to a Land Bank valuation. As indicated, he exercised that choice.
[14] In view of what has been outlined above, if the sale to Prinsloo was
‘in the course of the liquidation of the estate’ within the meaning of the Act
then the appellant was correct in assessing duty on the basis of the sale price.
If it was not a sale within the scope of that expression then the account was
correctly drawn and the court belo w was right in setting aside the
assessment.
[15] As to whether it is a matter for the appellant’s opinion whether a sale
is in the course of the liquidation of an estate, this question was left open in
Holden’s Estate v Commissioner for Inland Revenue 1960 (3) SA 497 (A) at
502A-B. It will be noted that the court would appear to have thought that the
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answer was in the affirmative. However, that can only have been its view in
relation to the Commissioner’s opinion as to the facts relevant to the issue of
‘course of liquidation’. I say that b ecause the meaning of the expression
‘within the course of the liquidation of the estate’ is clearly not a matter of
fact but of law. Therefore, although constraints limit or even bar judicial
interference with the exercise of a disc retionary opinion, plainly it is for this
court, as it was for the court below, to interfere if the appellant took a wrong
view of what the true meaning of th e expression is in law. The nature and
extent of such interference is another matter. I shall deal with it below.
[16] The appellant’s interpretation of that expression is evident from
certain letters written on his behalf to representatives of the respondent
during an exchange of correspondence preceding the hearing in the Special
Court. In those letters the contention is advanced that s 5(1)(a) applies
‘(i)ndien bates van die oorlede verkoop word gedurende die
likwidasieproses’ and that ‘(i)n th e course of the liquidation’ means
“during” the liquidation, (my emphasis).
[17] I think that interpretation is in correct. Generally, th ere is in law a
difference between ‘during’ and ‘in the course of’. This is illustrated by the
many cases which deal with the re spective phrases ‘in the course of
employment’ and ‘in the course of business’, as employed in the various
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legislative enactments over the years pr oviding for third party compensation
for fatal and bodily injury in motor accidents and in the formulation of the
principles of vicarious delictual liability.
[18] In Standard General Insurance Co v Hennop 1954 (4) SA 560 (A) the
question was whether a registered in surer was liable to compensate an
injured passenger who was being conveyed in a ca r which was involved in
an accident due to the negligence of its driver. The question was whether,
even if the driver was driving in th e course of his business, the passenger
was being conveyed in the course of that busine ss. The court said (per
Centlivres CJ)1
‘The Act does not say that the insurance company is liable if you were a passenger in my
car while I was driving in th e course of my business; before the company can be held
liable it must be shown that you were being conveyed in the course of my business. The
words used by the Legislature connote that there must be some relationship between your
presence in the car and my business.’
[19] In Ngubetole v Administrator, Cape and another 1975 (3) SA 1(A) the
primary question concerned the meani ng of the phrase ‘ in the course of
employment’ in the then applicable motor accident compensation legislation.
In the judgment, Corbett JA explained 2 that those words would usually, but
might not always, mean the same in rela tion to that legislation as they did in
1 At 565D-E.
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the sphere of vicarious liability. Subject to the need for a flexible approach
that could result in a satisfactory casui stic determination of when, under the
legislation, an act was done ‘in the course of employment’, it nevertheless
appeared that such an act was one done in the exercise of the functions to
which the employee was appointed.3
[20] On the strength of the statements in Hennop and Ngubetole to which I
have referred, and the ma ny earlier authorities which those judgments cite, I
conclude that a sale ‘in the course of the liquidation of the estate’ in s 5(1)(a)
of the Estate Duty Act means a sa le between which and the liquidation
process there is some relationship. Pu t another way, it means a sale effected
in the exercise of the functions involved in the liquidation. In short, the sale
must be one in implementation of the liquidation process. It must therefore
be by the executor or on behalf of th e executor, in the latter’s capacity as
executor, not in the latter’s personal capacity as beneficiary.
[21] I would add that the legislatur e had good reason to use the wording it
chose. The norm is that estate duty is based on the value of the estate assets
as at the date of the de ceased’s death. Section 5(1)(a) permits a departure
from that norm. Heirs and legatees ar e naturally free to sell their rights to
their inheritances for such prices as th ey see fit. However, the sale price of
2 At 8G-9C.
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estates assets, if that price is to be ar upon the assessment of estate duty and
thereby play a role in determining wh at the beneficiaries eventually receive
from the estate, should logically and a ppropriately be within the powers and
functions of the executor to control. An executor has to act with careful
regard in relation to thos e who have, or might have, an interest in, or rights
to, the estate. In realising estate assets the executor is subject to the views of
the heirs and, if necessary, the Master. 4 This structure s eeks to ensure that
disposal of estate assets in the liquida tion process not only pays heed to the
subjective wishes of the beneficiaries but is also safeguarded by responsible,
independent and dispassiona te oversight. That being so, if a price is agreed
to by the executor, that fact is, generally, a stamp of reliability signifying the
realisation price as a sound enough indicat or of current market value as at
the date of sale to justify reliance upon it for purposes of determining the
duty. By contrast, unchecked disposal of their rights by the heirs or other
beneficiaries is subject to erratic considerations. Obviously it would
normally be in their best interests to obtain the best possible price but it is
not unrealistic to imagine the pressure of straitened financ ial circumstances
inducing the acceptance of sale prices below current fair market value.
3 At 9E-F.
4 Section 47 of the Administration of Estates Act, 66 of 1965.
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[22] In the present case, of course, th e properties sold included the estate’s
erstwhile undivided half-share in five of the units. An undivided half-share
9is not an attractive purchasing propos ition to someone totally unrelated to
the holder of the other half-share. Bu t that negative feature was removed by
the respondent’s acquisition, via the distribution agreement, of sole
ownership. In these circumstances, however, the realised price was no guide
at all to the market valu e of the deceased’s half share, or, for that matter,
once all the properties were bundled together, of her solely owned units. Had
the disposal been by the respondent qua executor it would have been
necessary for him to have regard to s 5(1) and to the need, in contemplating
disposal, to consider carefully whether the estate assets we re being sold for
acceptable prices.
[23] These considerations militate furt her against construing ‘in the course
of’ as ‘during’ even if there can, in theory, be scope for interpreting the same
wording in two different statutes to mean different things.
[24] Section 24 of the Act as it app lied to the present case contained a
subsection (7) (since repealed) which empowered the court below to give
such decision as in its view the Commissioner ought to have given. It
follows that this court can do the same. It was common cause between
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counsel that if the appellant’s interpretation of the material words was in our
view wrong we should substitute our decision for his.
[25] Quite apart from the considerati on that in selling to Prinsloo the
respondent did not purport to act as executor but only in his personal
capacity as usufructuary, and as his son, Fransie’s, representative, the
following further facts demonstrate that the sale was not in the course of the
liquidation:
1. All the units of land were sold together as one. The merx included the
respondent’s undivided half share in five of the units. His property
was not an estate asset. It was not part of the liquidation process to
sell it.
2. It was not necessary for any estate purpose to sell any of the
immovable estate assets prior to finalisation of the account.
3. The sale was conse quent upon the decision by the respondent and
Fransie to sell, pursuant to the redistribution agreement, in advance of
their receiving transfer from the estate.
[27] It follows that the appellant wa s not entitled to rely on s 5(1)(a) and
that the valuations reflected in the account are not assailable.
[28] The appeal is therefor e dismissed, with costs.
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________________
CT HOWIE
PRESIDENT
SUPREME COURT OF APPEAL
CONCUR:
FARLAM JA
BRAND JA
LEWIS JA
HEHER JA