IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
REPORTABLE
Case no: 421/03
In the matter between
B J V DURANDT APPELLANT
and
FEDSURE GENERAL INSURANCE LTD RESPONDENT
Coram: HARMS, NUGENT, CONRADIE, HEHER JJA and COMRIE AJA
Heard: 22 NOVEMBER 2004
Delivered: 30 NOVEMBER 2004
Summary: Insolvency: Theft by co-trust ee from estate – liability of innocent
trustee – interpretation of surety bond furnished to the Master.
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JUDGMENT
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A
2
HEHER JA:
[1] This appeal requires this Court to decide whether one of two joint trustees in
insolvency should be held liable for a shortfall in the estate that is solely attributable
to the wrongful acts or omissions of the other trustee.
[2] The appellant and Joha nnes Janse van Rensburg were appointed joint
provisional trustees in the insolvent joint estate of Mr D J and Mrs M A C Spies on 20
May 1994.
[3] On the same day the appellant and Van Rensburg executed separate written
documents entitled ‘Undertaking and Bond of Security’. Each bound himself to
administer the estate and distribute the assets properly according to law and to pay on
demand an amount up to R220 000 to the Master of the Supreme Court, Cape
Provincial Division, as might be claimed by the Master in respect of loss or damage
suffered by the estate or any person by reas on of a failure to perform his functions
properly or because of maladministration on his part. It would appear that the Master
required these undertakings in satisfaction of his right to demand that the trustees give
security for the proper performance of their duties as contemplated by s 56(2) read
with s 57(6) of the Insolvency Act 24 of 1936.
[4] On 23 May 1994 and 7 September 1994 the respondent, an insurance company,
bound itself in writing in favour of the Master as surety and co-principal debtor
jointly and severally with each of the trustees for the due and proper performance by
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them of their duties and functions as join t trustees of the estate for amounts up to
R220 000 and a further R30 000 respectively in respect of loss or damage suffered by
the estate.
[5] On 15 June 1994 a final order of seque stration was granted and on 24 June
1994 the appellant and Van Rensburg were appointed the joint trustees.
[6] Although the joint appointment did not specify any division of responsibilities
between them, the trustees arranged between themselves that Van Rensburg would
attend to the day to day administration of the estate, subject to the consent of the
appellant when dealing with its assets.
[7] On 12 July 1994 Van Rensburg notified the appellant that he had received an
offer to purchase the immovable property of the estate for a price of R220 000. He
undertook to keep the appellant informed of further developments after the second
meeting of creditors and acceptance of the offer by the bondholders. On 26 July he
sent a copy of the bondholders’ approval to the appellant. On 9 August he requested
the appellant’s consent to the sale of the property and informed him that he would
apply to the Master in terms of s 18(3) of the Act to sell the property. On the
following day the appellant gave his written consent. Transfer of the property to the
purchaser was however passed on the strength of a power of attorney signed by Van
Rensburg and which bore the forged signa ture of the appellant. Van Rensburg
apparently decamped with the purchase price.
[8] On 2 May 1996 the Master called on the respondent to honour its guarantee to
make good the pecuniary loss suffered by the estate ‘due to the failure of [the
4
trustees] to administer the Insolvent Estate as required by law’. The respondent
consequently paid an amount of R243 045,52 as it was obliged to do.
[9] In July 1998 the respondent claimed payment of that sum from the trustees
jointly and severally citing th e terms of the suretyships referred to in para 4. The
allegation of a failure of due and proper performance of the trustees’ obligations was
limited to Van Rensburg’s misappropriation of the proceeds of the sale.
[10] The summons could not be served on Van Rensburg and the action proceeded
against the appellant alone. The evidence presented by the respondent was that of a
former claims superintendent, Mr Saswin , who established that the respondent’s
intention in paying the Master was to di scharge its own liability irrespective of
whether one or both of the trustees was involved. The appellant testified on his own
behalf. He said that the appointment of Van Rensburg as his co-trustee was the
decision of the Master and not of his ow n choosing. He sketched the arrangements
between the trustees to which I have already referred. He agreed with counsel that he
was a professional liquidator on the panel kept by the Master, that it was open to him
to accept or refuse an appointment and that , as part of his business, he protected
himself against claims by taking out insuran ce cover, as indeed he had done in the
present instance.
[11] The submission on the appellant’s behalf to Louw J in the Cape High Court
was that he, as a joint trustee, could not be held liable for a misappropriation by his
co-trustee of which he was entirely innocent, neither negligence in administration nor
breach of duty having been raised against him.
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[12] The court a quo rejected the submission and gave judgment for the respondent
with costs. It referred to s 56(4) of the Act which provides as follows:
‘(4) When two trustees have been appointed or when the Master has appointed a co-
trustee in terms of sub-section (5) of section fifty-seven, both or all three trustees shall
act jointly in performing their functions as trustees and each of them shall be jointly
and severally liable for every act performed by them jointly.’
The learned judge reasoned that, although s 56(4) of the Act makes it clear that
trustees must perform their functions jointly and are jointly and severally liable for
every act performed by them jointly, the Act is silent on the question of a trustee who
acts on his or her own without the knowledge of a co-trustee. Because, so the court
found, the Act does not oust relevant rules of the common law that are consistent with
its provisions, where such rules exist a resort to the common law is justified (relying
on Millman NO v Twiggs and Another 1995 (3) SA 674 (A) at 679H-680B). The
common law applicable to curators (trust ees) in insolvency, as expressed by Voet
42.7.5 and 42.7.12(a) and applied in, inter alia, In re Crause 3 Menz 257 (and cf
Gross and others v Pentz 1996 (4) SA 617 (A) at 629H-630D), renders an innocent
trustee liable for loss caused to the estate by the acts of a defaulting co-trustee. The
court therefore ordered the appellant to pa y the respondent’s claim. It granted him
leave to appeal to this Court.
[13] Section 56(4) consists of two elements-
(i) two or more trustees must act jointly in performing their functions;
(ii) each of them is jointly and severally liable for every act performed by
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them jointly. (My emphasis)
Given the italicized words I have some doubt as to whether the learned Judge was
correct in finding that the common law ru le which rendered each co-trustee jointly
and severally liable for every act performed in the administration of the estate even
where he or she was innocent of that act, survived the coming into operation of the
legislation. But, for the reasons which follow, it is unnecessary to decide this
question. Nor is it necessary to consider the common law liability of different classes
of co-trustees, cf Honore’s The South African Law of Trusts, 5th ed by Cameron et al
375-382.
[14] The Master is a creation of statute. While he may enforce the terms of a bond
of security furnished under s 56(2), he has no general power to recover money from
debtors of an insolvent estate on its beha lf. That is the function of the trustees.
Accordingly, whatever rights the Mast er possessed to recover a loss from the
appellant suffered by the es tate must be sought in the undertaking signed by the
appellant on 20 May 1994. Since its terms are decisive I quote it in full:
‘UNDERTAKING AND BOND OF SECURITY
by CURATOR(S) BONIS/PROVISIONAL TRUSTEE(S)/TRUSTEE(S)
In the (insolvent) estate of DANIEL JACOBUS SPIES and MARIA
ALETTA CATHARINA SPIES
I/we BAREND JOHANNES VORSTER DURANDT
of 41 STRATHBLANE WAY, MELKBOSSTRAND
21 RIEBEECK STREET, CAPE TOWN
7
(Full residential and business address(es))
do hereby undertake and bind myself/ourselves jointly and severally, should I/we
be appointed
by the Master of the Supreme Court (CAPE OF GOOD HOPE PROVINCIAL
Division) as CURATOR(S) BONIS, PROVISIONAL TRUSTEE(S) and/or
TRUSTEE(S) to administer the above estate and/or liquidate and distribute the
assets thereof properly according to Law, and to pay to the Master of the Supreme
Court (CAPE OF GOOD HOPE PROVINCIAL
Division) on
demand an amount up to R220,000 (TWO HUNDRED AND TWENTY
THOUSAND rand) as
the Master may claim from me/us in respect of any loss or damage as may be
suffered by the said Estate or by any person by reason of the fact that I/we failed
to perform properly my/our functions in the above capacities or because of any
maladministration on my/our part.
A certificate under the hand of the Master or his duly authorized representative to
the effect that I/we have failed to discharge my/our duties as aforesaid and/or
stating the amount of any such loss or damage shall be accepted as prima facie
proof of such failure and/or of the extent of such loss or damage.
I/we choose as my/our domicilium citandi et executandi and for the purpose of the
service of any notices or for the service of any legal process: SOUTHERN LIFE
PLACE, 21 RIEBEECK STREET, CAPE TOWN
(not a post box number)
SIGNED AT CAPE TOWN
this 20th day of MAY 1994
AS WITNESSES:
1. SIGNED
1 . S I G N E D (Appellant)
2. SIGNED 2. (UNSIGNED)
SIGNATURE(S)’
The underlined portions of the document were completed by typed insertions save
for the handwritten signatures.
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[15] As can be seen, the document which the appellant was required to sign was
designed to accommodate various statutory appointments and to cater for one or more
signatories. The parts of the document that were inappropriate to the appellant’s
situation were not deleted. The appellant’s was the only name typed on it as the giver
of the undertaking, his domicilium alone wa s inserted, he was the sole signatory.
There can be no doubt that a proper reflection of his intention and that of the Master
as its recipient required that all use of the plural forms in the document should have
been struck out. Counsel for the responde nt conceded as much, but she submitted
that, reading the document thus amended th e appellant was left with a joint and
several liability. According to her, that meant ‘joint and several with whomsoever the
Master shall appoint’ and, therefore, it bound the appellant for losses caused by his
co-trustee. That is, in my view, a contrived reading of the undertaking. Moreover it
necessitates the implying into it of words which are neither businesslike or necessary
to give it effect. There is no reason why a co-trustee should not undertake liability for
his own loss or default alone. In addition there was no evidence that, at the time he
signed the document, the appellant knew that Van Rensburg (or anyone else) had
been or was to be appointed as his co-t rustee. (A comparison of their respective
undertakings shows that although both bear the same date, they were signed at
different places before diffe rent witnesses.) The approach consistent with the
probabilities and with logic is therefore to treat the words ‘ourselves jointly and
severally’ as a single phrase that falls to be deleted because it forms one of the
inappropriate plural alternatives.
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[16] Thus, on a proper construction of the undertaking, the liability of the appellant
is confined to any loss or damage as may be suffered by the estate or by any person
by reason of the fact that the appellant himself failed to perform properly his
functions as a trustee or because of maladministration on his part. Since it is common
cause that the theft of th e estate property by Van Rensburg was not due to such a
failure by the appellant or to his maladm inistration, it follows that the Master
possessed no claim against him arising from the undertaking. Because that document
was, as I have pointed out, the only potential source of liability of the appellant to the
Master, there was in existence no principal debt relating to him which the respondent
could have been called upon to pay to the Master by reason of the suretyships which
it had furnished to him. The respondent made the payment at its own risk and, the
basis of the appellant’s liability having now proved non-existent, it must bear the loss
if it is unable to recover from Van Rensburg.
[17] The appeal succeeds with costs. The order of the Court a quo is set aside and
for it is substituted an order dismissing the plaintiff’s claim with costs.
___________________
J A HEHER
J U D G E O F A P P E A L
Concur:
HARMS JA
NUGENT JA
COMRIE AJA
CONRADIE JA:
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[18] I regret that I do not agree with the conclusion reached by my brother Heher.
In my view one should adopt a more holistic approach to the interpretation of the
Undertaking and Bond of Security signed by each of the trustees and not look so
intently at what the appellant failed to delete from his undertaking. I accept for the
purpose of this case that the Master’s ri ght to recover from the trustees any loss
suffered by the estate must be found in th e undertaking. The fact is that the
undertaking signed by the appellant is ambiguous. In order to extract from it how the
appellant intended to be bound, one should therefore look beyond the document at the
legislative framework and the surrounding circumstances.
[19] Section 18(1) of the Insolvency Ac t 24 of 1936 provides for the appointment
by the Master of a provisional trustee ‘…who shall give security to the satisfaction of
the Master for the proper performance of his duties as provisional trustee…’ A final
trustee is by s 56(2) of the Insolvency Act required to provide security to the
satisfaction of the Master for the proper performance of his duties as trustee. If the
Master decides to appoint a co-trustee it must be someone who has given the security
mentioned in ss (2).
[20] In giving effect to these (and other) pr ovisions, the Master devised a standard
form, bureaucratically identified by the code J. 312(E). ‘E’ stands for English. In
this form are the (standard) terms the Master requires a prospective trustee
(provisional or final) or an aspiring curator bonis to agree to.
[21] The appellant is a professional liquidato r and trustee who administers insolvent
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estates and bankrupt companies for a living. He is on the Master’s panel. He is a
director of Aiken and Peate Administrateurs (Edms) Bpk. It is fair to assume that by
the time he was about to become a provisiona l trustee in the insolvent estate of DJ
and MA Spies he had signed many forms 312(E) and perhaps quite a few forms
312(A). The point about standard terms is that they are well known in a particular
trade and generally well-respected in the sense that they are not lightly departed from.
In deciding, therefore, that the appellant, exceptionally, decided to depart from them
in this instance, it would be helpful to see if there is anything in the surrounding
circumstances that might have prompted him to do so.
[22] The 312 form does not give the prospective curator or trustee a choice of terms.
If he signs by himself, obviously only he is liable on the undertaking. If someone else
signs with him, the two of them are liable jointly and severally. There is no provision
for two people to sign the form and avoid joint and several liability. Since he asks for
joint and several liability it is obviously a requirement of the Master and forms an
element, and one would think an important element, in satisfying the Master that any
claim that he may have against the trustees is secure. Two co-principal debtors, each
of whom is (up to the limit of his undertak ing) liable for any loss to the estate are
obviously better than two debtors each liable for a half share of any loss.
[23] If two prospective trustees both sign the same form 312(E) they would
unquestionably thereby undertake joint and se veral liability. It is not likely that
simply because each of them signed a separate identical form their liability was now
not joint and several.
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[24] Heher JA considers that there is no reason why a co-trustee should not
undertake liability for his own default alone. In theory there is not. But we have to do
here with a Master who has to be satisfied. There is no reason to think that when the
appellant gave his undertaking he meant to give one that was out of the ordinary and
would probably not be to the Master’s satis faction. One would therefore have to
suppose that he thought that the Master would, in the case of this particular estate, be
content to depart from his usual requirements embodied in form 312(E) that joint
trustees are to accept joint and several liability. We do not know of any reason that
could have made him think this. Moreover, we must suppose that the appellant when
he signed this standard undertaking that he had signed many times before intended,
this time, not to accept joint and several liability.
[25] There are sound practical reasons why joint trustees should be jointly and
severally liable. It might in practice be very difficult to apportion blame between
trustees where there has been maladministration. The Master, I am sure, has no wish
to become embroiled in disputes about who of several trustees is liable for a particular
act of maladministration so as to be able to recover against the wrongdoer among
them. As an experienced trustee the appellant could not have thought that an
undertaking without joint and several liability of co-trustees would be to the Master's
satisfaction.
[26] On the basis that the appellant knew that he was not proposed as the sole
trustee it is, in my respectful view, not possible to conclude that he intended
(exceptionally) to undertake liability for his own default alone. I think that if he had
13
wanted to take this unusual step, he would (even if he did not think to debate it with
the Master first) have been careful to delete inappropriate matter in the form so as to
make it clear that, in this particular inst ance, he was not content to be jointly and
severally liable with his co-trustee.
[27] There was no external impul se that we are aware of that could have moved him
not to abide by the Master’s ordinary requirements. He said that he knew of nothing
adverse to the trustworthiness of Mr Janse van Rensburg, his proposed co-trustee, so
that any intention to bind only himself would appear to have been capricious. And,
assuming that he knew that Janse van Rens burg was proposed as a co-trustee, it is
strange that he did not discuss his intention to bind only himself with the latter who
would, after all, be profoundly affected thereby in his own decision on how to bind
himself.
[28] It is true that there is no explicit ev idence that the appellant knew that it was
proposed to appoint him together with Janse van Rensburg. There is, however,
circumstantial evidence that he knew he was not alone. The appointment of Janse van
Rensburg was not an afterthought. He and the appellant were both appointed on the
same day, 20 May 1994, the day after a sequestration order had been granted. In the
normal course of these things it is improbable that the Master kept them in the dark
about his intentions until after they had each signed an undertaking.
[29] It was not only improbable that they were kept in the dark, it was also unfair.
Assuming that each signed the 312 form believing that he was the only provisional
trustee, the Master would, by not advising the two trustees of each other’s proposed
14
appointment, obtain two separate undertakings, each for a maximum of R220 000,
when the value of the estate was only of the order of R250 000.
[30] At any rate, not more than three days la ter, by the time that security in the form
of a suretyship was furnished to the Master by the respondent, each of the two
provisional trustees must have discovered that he was not alone. If the appellant had
wanted to remain true to his resolve to be liable only for his share of any loss he
would have applied to the respondent fo r a surety bond of R 220 000 to cover his
undertaking. Janse van Rensburg would have had to do the same. Together the two
would have applied for su retyships covering R440 000. Instead, acting jointly, (as
they were under the Insolvency Act obliged to do) they applied for one suretyship
covering an amount of R220 000.
[31] Now, if the appellant had three days before (and probably not without some
trepidation at the extraordinary step he had taken) intended to bind himself alone,
obliging himself to the insurer jointly and severally with the other trustee would have
been an illogical thing to do. With the idea of separate liability still uppermost in his
mind, one would have expected him to ask the respondent for a surety bond to secure
his own undertaking and to either leave Janse van Vuuren to his own devices, or to
suggest to him that he takes care of his own affairs in the same way. Or at least to tell
Janse van Vuuren that whether he liked it or not he had to take out his own insurance.
[32] I might remark in passing that the a ppellant’s caprice would have cost the
estate a good deal. Fidelity insurance is notoriously expensive. The cost of it comes
out of the estate. Since each of the provisional trustees would have to cover himself
15
to the value of the whole estate, the estate would have to finance total fidelity cover
of R440 000. One wonders how the Master would have reacted to this if the appellant
had debated it with him. More pertinently, one wonders what expected benefit would
have prompted the appellant to impose such additional costs on the estate.
[33] There is another improbability connected to the (joint) application for the
surety bond. The terms of the suretyship clearly envisage joint and several liability of
the two principal debtors to the surety: The respondent bound itself as surety and co-
principal debtor in solidum jointly and severally with the two provisional trustees. If
the appellant had intended to be only severally liable to the creditor (the Master), I
think that by binding himself to the surety in this way (which was the way he always
bound himself when he was a joint trustee) he represented to the respondent that his
liability to the Master was joint and severa l. Of course, Janse van Rensburg, who,
whatever his intentions were, could not be jointly and severally liable for want of
someone to be jointly and se verally liable with, must also have represented to the
respondent that he was really jointly and severally liabl e with the appellant. He
seems to have been a bit of a bad egg so I suppose he might have done such a thing,
but I think that it is inherently unlikel y that the appellant would have made a
misrepresentation that he must have known to be false.
[34] The misrepresentation had other seri ous repercussions. The two provisional
trustees pretended to be jointly and severally liable and the respondent assessed the
risk (and calculated the premiums) on this basis. It is unconscionable for the
appellant, now that the respondent is exercising its right of recourse against what it
16
believed to be two joint and several debtors, to put up the defence that he and Janse
van Rensburg were severally liable to the Master and that the respondent has a right
of recourse only against Janse van Rensburg.
[35] Unconscionable like fraudulent conduct is not lightly inferred and I consider
that one should approach the matter of the interpretation of the undertaking in a way
that would resolve these anomalies. An interpretation that the two trustees, by
signing separate but identical undertakings , intended to be a nd were jointly and
severally bound to the Master, would resolve every one of the difficulties discussed
above. That seems to me, with respect, to be the sensible interpretation.
[36] I should that think the appeal ought to be dismissed.
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J H CONRADIE
JUDGE OF APPEAL
COMRIE AJA:
[37] There is, with respect, much to be said in favour of the view expounded by
Conradie JA in his persuasive dissenting judgment. My difficulty with his approach,
however, is that the matters canvassed by him were not canvassed in evidence a quo,
even though the appellant (the ‘innocent’ trustee) gave evidence and was cross-
examined. In the court below the appellant’s evidence, and cross-examination, were
directed: firstly, to his ‘innocence’; secondl y, to the fact that there had been no
17
appropriate division of responsibilities in the light of the received common law
relating to the joint and several liability of joint curators; and thirdly, to the fact that
the respondent, as a professional trustee, had taken out his own insurance and that his
insurers were supporting him in the present action.
[38] As seen by counsel in the court a quo, and by the learned judge, the issues were
whether the Roman Dutch common law relating to the joint and several liability of
joint curators was applicable to joint trust ees in insolvency and, if so, whether the
position had been modified by s 56 of the Insolvency Act. Counsel and the court a
quo failed to perceive that the principal de bt depended solely on the separate but
concurrent undertakings given by the appellant and Janse van Rensburg to the Master.
Had that issue been perceived, then the appellant might well have been confronted in
evidence with the various matters to which Conradie JA so persuasively refers.
[39] Had that course been followed, then perhaps the appellant would have had no
acceptable response, in which case the learned trial judge would have brought in an
appropriate finding with regard to the proper interpretation of the appellant’s
undertaking to the Master. But that was not an issue. There was in consequence no
enquiry into the proper interpretation of the appellant’s undertaking and, in further
consequence, no relevant finding by the court a quo. I think, with respect, that we
should not on appeal impose our own prim a facie views on that interpretation –
attractive as those views may appear to be – in the absence of a suitable enquiry into
the facts by the trial court.
[40] But there is one point that is said to have emerged from the evidence before us
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and upon which I respectfully disagree. In para 15 of his judgment Conradie JA
contends that the appellant must have represented to the respondent that he was
jointly and severally liable with van Ren sburg. That contention is based upon the
deed of suretyship itself, which is said to reflect that the two principal debtors were
jointly and severally liable inter se. I do not think that is correct. By binding itself
jointly and severally liable with the two trustees the surety rendered itself jointly and
severally liable with each of the trustees for whatever liability that trustee might
incur. The deed is silent on the question whether each trustee was in turn jointly and
severally liable with the other. I do not thi nk that it is correct to say, on that basis
alone, that the appellant represented the position to the respondent or that his conduct
in defending the action is unconscionable in any way.
[41] I would therefore concur in the judgm ent of Heher JA and I would allow the
appeal with costs.
_____________
R G COMRIE
ACTING JUDGE OF APPEAL
CONCUR:
NUGENT JA