THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case no: 463/04
In the matter between:
NEVILLE WILLIAM MACKAY Appellant
and
EILEEN MARGARET FEY NO 1 ST Respondent
MICHAEL JOHN LANE NO 2ND Respondent
_______________________________________________________
Coram : HARMS, SCOTT, ZULMAN, CAMERON et
JAFTA JJA
Date of hearing : 29 August 2005
Date of delivery : 22 September 2005
Summary: Insol vency – r elationship betw een s 20 an d s 23(2) o f the
Insolvency Act – essence of a simulated transaction is an intent on the part
of both parties to deceive
_______________________________________________________
JUDGMENT
_______________________________________________________
SCOTT JA/…
2
SCOTT JA:
[1] The respondents in this appeal are the joint trustees of the
insolvent estate of Mr Jurgen Ha rksen. They were provisionally
appointed in 1995 and their appointm ent was made final in 1999. I
shall refer to them as the trustees. The appellant is a businessman
and resides in Gauteng. In No vember 2000 he purchased an
expensive dwelling in the Cape, kn own as 16 Third Beach, Clifton
(‘the bungalow’), and took transfer in January 2001. In February he
signed a lease agreement which had been negotiated on his behalf
by a letting agency called Accommodation Shop CC. The lessee was
stated in the lease to be Mr s Jeannette Harkse n and it was
purportedly signed by her. She is the wife of the insolvent. The
appellant had met neither. The circumstances in which the lease
came to be concluded were the subjec t of much evidence and I shall
refer to these in detail later. For the moment it is sufficient to record
that the lease was for a period of 10 months and expired at the end of
November 2001. The rent was R25 000 per month. In addition, the
lessee was obliged to pay various incidental expenses such as a
domestic worker’s salary, telepho ne and electricit y charges and
administration fees. In all, a total amount of R271 290,63 was paid to
3
the appellant through the letting agency which deducted its
commission. In November 2002 the trustees instituted action against
the appellant in the Cape High Court for repayment of the total
amount which the lessee had paid pursuant to the lease.
[2] The case against the appellant, as pleaded, was in short the
following. It was alleged that Harksen himself (and not his wife) had
entered into an oral lease with the appellant; that the money paid to
the appellant as rental had emanat ed from the insolvent estate, and
that the conclusion of the lease had been concealed from the trustees
and was without their knowledge or consent. Accordingly, so it was
pleaded, the money paid to the appel lant constituted property which
in terms of s 20 of the Insolvency Act 24 of 1936 was vested in the
trustees. In the alternative, it was alleged that in terms of s 23(2) of
the Act the lease and the payments made were voidable at the
instance of the trustees who had elected to regard them as void.
[3] In his plea the appellant denied the existence of an oral lease
with Harksen and alleged that he had entered into a written lease with
Mrs Harksen. He denied, too, that the funds used to pay the rental
emanated from Harksen’s insolvent es tate. In the alternative, it was
pleaded that in the event of it being found that the c onclusion of the
4
lease and the payment of rent cons tituted an alienation for valuable
consideration as contemplated in terms of s 24(1) of the Act, then the
alienation was nonetheless valid as the appellant ‘was not aware and
had no reason to suspect that Mr Harksen was the true lessee [and]
that his estate was under sequestration’.
[4] The trustees filed a replication in which they alleged that in the
event of it being found that the payments of rental were made
pursuant to the written lease a lleged by the appellant, then the
reference therein to ‘Mrs Jeanette Harksen’ as the lessee was a
simulation, the true lessee being Harksen himself. It was further
alleged that in any event the payments made in terms of the lease
were made by Harksen with money that vested in the trustees.
[5] In the court below the appellant accepted that the funds used to
pay the rental had not emanated from Harksen’s insolvent estate and
in this court the defence was ab andoned. The trustees, on the other
hand, did not persist in their claim th at for this reason alone the rental
received by the appellant was re payable and the question was not
considered by the trial judge (Wagl ay AJ). The learned judge found,
however, that the purported leas e between the appellant and Mrs
Harksen was a simulated transaction and that the true lessee was
5
Harksen himself who had paid the rent with funds belonging to his
insolvent estate. He furthermore re jected the defence ra ised in terms
of s 24(1) of the Act, holding that the appellant not only had reason to
suspect that Harksen was insolvent but must have been aware of his
status as an insolvent. It was acco rdingly held that the lease was
voidable at the instance of the trus tees in terms of s 23(2) of the Act
and that they were entitled to the sum claimed. The appeal is with the
leave of the court a quo.
[6] Before dealing with the true natur e of the lease, it is necessary
to say something about the claim ba sed on s 20 of the Act (which
was not proceeded with) and the rela tionship between that section
and s 23(2) on which reliance was placed at the trial. In terms of s 20
the effect of sequestration is to ve st the insolvent’s estate in the
Master until a trustee has been appointed and upon the latter event to
vest it in the trustee. The estate of the insolvent is moreover stated to
include all property which the inso lvent may acquire or which may
accrue to him or her during the seques tration, except as otherwise
provided in section twenty-three. It follows that where the insolvent
without the consent of the trustee delivers specific property vesting in
the trustee to another , whether in pursuance of a contract or
6
otherwise, the trustee may recover the property by way of a
vindicatory action. The reason is that in the absence of the consent of
the trustee, the insolvent has no authority to pass ownership to
another. Had Harksen, for example, delivered specific property to the
appellant in pursuance of a cont ract between his wife and the
appellant, the trustees could simp ly have recovered it on the basis
that it belonged to the estate. But money is different; unless in some
way identifiable or possibly ear-marked as a particular fund, money in
the hands of a pay ee becomes the property of the payee by confusio
and cannot be recovered by vindicatory action (see Stern and Ruskin
NO v Appleson 1951 (3) SA 800 (W) 810H-811H; S v Gathercole
1964 (1) SA 21 (A) at 24F-25E). If it is assumed for the moment that
the contract of lease in the present case was indeed one between
Mrs Harksen and the appellant, as the latter alleges, and Harksen
had used money emanating from his insolvent estate to discharge the
lessees’ debt, it would follow that the trustees’ action against the
appellant for repayment would be limited to an action based on
unjustified enrichment. But the difficulties that would be associated
with such an action are readily apparent. The trustees in these
circumstances may well have had a claim against Mrs Harksen
7
whose debt had been discharged. This could result in the trustees
being unable to show that t he estate had been impoverished.
Similarly, as the payment would ha ve had the effect of discharging
the debt owed to the appellant, t he latter would be precluded from
recovering the debt from Mrs Harksen, in which event the appellant
would not have been enriched. But none of this was pleaded or
canvassed in evidence and need not be considered further. Instead,
the trustees based their claim on an alleged contract of lease
between Harksen and the appellant which it was contended fell within
the ambit of one or other of the provisos to s 23(2) of the Act and
which for that reason entitled them to repayment of the rental. It was
assumed by counsel both in this co urt and in the court below that in
the event of this being established the trustees would be entitled to
succeed. In the absence of full argument on the issue and in view of
the conclusion to which I have come regarding the identity of the
parties to the lease, I shall similarly assume, without deciding, that
the approach adopted by counsel was correct.
[7] Nonetheless, I propose to make certain observations regarding
the issue. Section 23(2) reads:
8
‘23(2) The fact that a person entering into any contract is an insolvent, shall not
affect the validity of that contract: Provided that the insolvent does not thereby
purport to dispose of any property of his insolvent estate; and provided further
that an insolvent shall not, without the cons ent in writing of the trustee of his
estate, enter into any contract whereby hi s estate or any contribution towards his
estate which he is obliged to make, is or is likely to be adverse ly affected, but in
either case subject to the provisions of sub-section (1) of section twenty-four.’
[8] The first proviso is of little a ssistance because it adds nothing to
s 20(2). An insolvent has no authori ty to dispose of any property of
the insolvent estate and a contract whereby the insolvent purports to
do so cannot be enforced against ei ther the trustee or against the
insolvent. In any event, it is dou btful whether the written lease –
assuming it to have been in the na me of Harksen – ‘purported’ to
dispose of any property of his in solvent estate. Harksen merely
undertook to pay rental. He did not undertake to pay rental with
monies belonging to the insolvent estate. It may have been an
unrealistic undertaking but that does not necessarily mean that he
‘thereby’ (ie, the contract) purported to dispose of estate assets.
[9] However, given that the rental was R25 000 per month and, as
will become apparent, the Harksens already had a house in
Constantia not far from the bungalow, it would seem that the contract,
9
if with Harksen, was one ‘whereb y his estate or any contribution
towards his estate which he is obliged to make is or is likely to be
adversely affected’ within the meaning of the second proviso.
[10] Although not expressly stated in the section, it is well
established that a contract entered into by an insolvent falling under
either the first or second proviso to s 23(2) is voidable only and not
void. See W L Carroll & Co v Ray Hall Motors (Pty) Ltd 1972 (4) 728
(T) at 731A-732C; Ex Parte Olivier 1948 (2) 545 (C) at 548-549;
Fairlie v Raubenheimer 1935 AD 135. In the ev ent of such a contract
being avoided the appropriate remedy is restitutio in integrum. In
Bonne Fortune Beleggings Bpk v Ka lahari Salt Works (Pty) Ltd 1973
(3) SA 739 (NC) at 743H Van den H eever J formulated the remedy
thus:
‘In restitutio in integrum an attempt is made to put the parties to a contract
retrospectively declared null and void ab initio, into the same position in which
they would have been had the contract not been concluded.’
It has frequently been said that the action for restitutio in integrum is a
separate and distinct remedy and that it is not an enrichment action.
See eg Davidson v Bonafede 1981 (2) SA 501 (C) at 510A-E where
Marais AJ cites with approval De Vos Verrykingsaanspreeklikheid in
die Suid-Afrikaanse Reg 2ed at 144. However, under the influence of
10
English law, which recognises restitutio in integrum as based on
unjust enrichment, there has been over the years a general relaxation
of the rule that a party seeking re stitution must first be willing and
able to restore what he or she received. See Daniel Visser
‘Unjustified Enrichment’ in Southern Cross: Civil law and Common
law in SA editors Zimmerman and Visser at 536-537. Whether the
need to make restitution is excused, either wholly or partially, will now
depend upon considerations of equity and justice and the
circumstances of each case; the oc casions on which it will do so are
not limited to a specified and lim ited number of exceptions. See
Feinstein v Niggli 1981 (2) SA 684 (A) at 700G-701C where the
cases are collected. If one assumes that trustees are as a matter of
principle entitled to restitution, they are unable in the present case to
return what was received by the lessee, ie occupation of the
premises, but that of course is due to no fault of their own. It is also
true that s 23(2) is subject to s 24(1) which would afford some
protection for a party entering into a contract with an insolvent.
However, whether the trustees w ould be excused from making any
form of restitution is not an issue that was debated before us.
11
[11] Another question that arises is the correctness of the
assumption that a trustee who avoi ds a contract unde r s 23(2) is in
principle entitled to restitution. A c ontract entered into by an insolvent
is prima facie valid and the contract is one between the insolvent and
the third party, whether the trustee gives the necessary prior consent
or ratifies the agreement or chooses not to avoi d it. The trustee does
not derive any rights or benefit f rom the contract; nor could it create
liabilities for the insolvent estate. If the trustee avoids the contract,
should reciprocal restitution not therefore take place between the
parties to the contract? A few examples will illustrate the problem. If,
for instance, an insolvent buys an expensive motor vehicle, it is
unlikely that the trustee would ha ve to restore possession. If an
insolvent hires a house wi thin his means, the contract is valid, but if
he hires one beyond his means but pays the rental, the trustee may
avoid the lease because it may affect the ability of the insolvent to
make a contribution towards his insolvent estate. Can the trustee
simply step into the shoes of the insolvent and claim everything the
third person received from the insolvent? A third example: an
insolvent sells a vehicle belonging to his new estate, ie an estate he
has validly acquired subsequent to sequestration. The trustee
12
believes that this may affect the insolvent’s earning capacity and his
ability to make a contribution, and avoi ds the contract. Is it likely that
the trustee will then be entitled to re stitution? All this suggests that
the proviso does not purport to deal with the disposal of estate assets
(something Harksen did by paying the rental) but rather with the
validity of a contract whereby the inso lvent estate ‘is or is likely to be
adversely affected’ and that a trustee in a case such as this has to
rely on either vindication or enrichment. But, as I have said, there was
no debate before us on the issue and I shall assume that the trustees
were entitled to succeed if the part ies to the contract were the
appellant and Harksen. It is common cause that the latter did not
have the consent of the trustees.
[12] No attempt was made to pr ove the oral lease alleged by the
trustees. The latter accordingly bore the onus of proving that the
written lease alleged by the appel lant was a simulated transaction
and that in truth the lease was a contract between the appellant and
Harksen himself. To determine this issue it is necessary, first, to trace
the events leading up to the conclusion of the lease. Much is common
cause.
13
[13] As previously indicated, the appellant purchas ed the bungalow
in November 2000. Its value was in excess of R10m. The furniture
alone was said to be worth somethi ng in the region of R1 000 000
and included artifacts imported from Bali. The appellant, who also
owned another dwelling in the vicinity, was initially in two minds
whether to let the bungalow but after taking transfer was approached
by two letting agents who both i ndicated that the previous tenant was
anxious to hire the bungalow for a further period. On 18 January 2001
the appellant wrote by email to the former owner, Ms Patsy Watson,
requesting information concerning th e tenant and the rent that was
paid. He noted that he had been told that the tenant only used the
bungalow over weekends which, he said, seemed amazing given that
he paid rental for the whole month. Watson replied on the same day.
After giving details of the rental, ie R25 000 per month and other
expenses paid by the tenant, she wrote:
‘The lease agreement was signed by a Mr Studer. However, the de facto tenant
was Mr Jurgen Harksen, his wife Jeannette and their three children. Mr Harksen
is a German who has been the subject of a number of extradition attempts by the
German government, as he is wanted for massive bank fraud in Germany. He is
also the subject of many articles in “Noseweek” and is apparently widely
14
regarded as a “conman”. I was not aware of the identity of the real tenant until
after he had moved out.
The tenants did not use the premises o ften, and were model tenants. However,
once the identity of the “real tenant” became apparent, I was told some horror
stories about previous lets he had underta ken which had resulted in litigation.
Although this was not our experience, and it is all hearsay, perhaps you should
bear it in mind.’
The reference to ‘horror stories’ was a reference to an incident
involving Mrs Harksen repainting th e walls of a hired house on some
previous occasion. The appellant remained concerned but his
concern related to the ‘horror stori es’ rather than to the extradition
attempts. The following day he again wrote to Watson saying:
‘My greatest fear in rent ing the bungalow is that some people would not
appreciate the quality of the house and the preciousness of the furnishings and
objects - and leave a trail of damage.
I am really troubled about Mr Jurgen Ha rksen. On the one hand it seems he
looked after the bungalow very well, and as he rarely used it he was the ideal
tenant. But I am disturbed at the horror stories . . . .’
Watson replied the same day in effect recommending Harksen as a
tenant. She said:
‘I understand how you feel about Mr Har ksen - if it helps, I would let the
bungalow to him again if it were my decis ion, because he really seemed to have
15
a love for the place, and treated it very well. Gladys also liked the family which I
took as a good sign.’
(The ‘Gladys’ referred to was the domestic worker.)
[14] Thus assured, the appellant wrote to Mr Keith Ferguson, an
agent employed by Accommodation Shop who had been pressing the
appellant to let the property, proposi ng the terms on which he was
prepared to enter into a lease. (This letter and all subsequent
correspondence, unless otherwise st ated, was sent by telefax.)
Ferguson replied, recording Har ksen’s comments on the proposed
terms and annexing a copy of the previous lease with Watson. With
regard to that lease, he wrote:
‘The agreement was signed by Mr Harks en’s advocate Mr W Studer when the
deal was originally negotiated.’
The appellant responded on 24 January 2001 seeking advice as to
Studer signing the lease. After commenting on other aspects of the
proposed lease, he wrote:
‘Incidentally, as the Letti ng Agent I would ask you to advise me what is the
legality of Mr Harksen’s advocate si gning the lease agreement. If he does, I
believe he should accompany the agreement signed by him with a separate letter
from Mr Harksen, saying that he, Mr W St uder, is authorized to contract on his
behalf. Someone has got to be liable in the event of a breach of the contract.’
16
Ferguson’s reply on the same day contained the following:
‘Mr Harksen’s advocate (an acting Swiss Judge) would be required to sign the
lease agreement (which would be in hi s name) for diplomatic reasons as
explained to you telephonically. There was no problem with Patsy Watson’s
Lease Agreement which was also in the Studers’ name, however it must be
understood that Mr Harksen and his family would be o ccupying the bungalow as
before.’
[15] I interpose that Ferguson in evidence sought to explain that by
the expression ‘for diplomatic rea sons’ he meant no more than that
Harksen had previously been a good tenant and it would be unwise to
go against his wishes. This however was not the attitude adopted by
the appellant who remained dissatisfied. As far as he was concerned
it did not matter who the principal was as long as that person was
creditworthy and available to be sued in the event of a breach of the
lease. On 26 January 2001 he wrote to Ferguson:
‘You have not yet addressed my question as to who is legally liable to fulfil the
contents of this lease. For whatever reason Mr Harksen does not wish to sign it,
[the lease agreement], he is the de facto tenant. If he wishes someone else to
sign the lease on his behalf, then I requir e from him a Power of Attorney
authorizing that person to sign on his behalf.’
With regard to the po ssibility of Studer being the principal, he
enquired:
17
‘If Mr Studer is the Principal, is he a South African citizen? Is he an accredited
member of the Law Society? Is he creditworthy?’
He added:
‘At least one of the parti es - either Mr Harksen or Mr Studer - [must] be the
Principal, and be domiciled in South Africa (it would probably cost me more to
sue in a Swiss court, than any damages suffer ed) . . . the least I require is that
one party clearly be the “Principal”, and you must satisfy me with his ID number,
domicile and credit-worthiness.’
[16] There had been some prior discussion between the appellant
and Ferguson regarding the possibili ty of an upfront payment of the
rent. After referring to the need for cl arity on the issue of the identity
of the principal, the appellant co ncluded his letter of 26 January 2001
by indicating that if his re quirements regarding domicile and credit-
worthiness presented a problem he was prepared to accept an
upfront payment of the entire rental or to conclude three separate
leases (two of three months and one of four months) with the rent in
each case being paid in advance.
[17] It appears that after this letter was sent, Ferguson went off sick
and Harksen, ostensibly because of a ‘busy schedule’, could not be
reached. The issue of who was to be the principal and the method of
payment remained unresolved. Th e lease was supposed to have
18
commenced on 5 February 2001. By that date nothing had happened.
However, on 6 February 2001 Harks en wrote to Ferguson advising
that Studer was due to arrive on 8 February when he would sign the
lease. The letter was couched in the form of an agent writing on
behalf of his principal. The ultimate sentence read: ‘On behalf of Mr
Studer, I would like to mention that he is looking forward to a long and
successful tenancy.’ On the same day Ferguson, after meeting with
Harksen, wrote to the appellant advising that Harksen ‘has agreed to
take up the option of 3 month, 3 month, 4 month respective “upfront”
payments’ but ‘has asked if you will accept a 5% reduction on each of
the 3 upfront payments’. The nex t day, the appellant wrote back
indicating that he would not agree to a five per cent discount.
[18] The 8 th of February came and went. Once again Harksen could
not be reached and nothing happe ned. On 13 February Ferguson
wrote to both Harksen and t he appellant expressing his
embarrassment. Harksen replied on the same day. After stating that
Studer had been delayed and would be arriving on 15 February 2001
he continued:
‘In connection with the lease contract, I would apprec iate it, if you could make
some changes regarding the method of payment. Mr Studer agrees to the
19
deposit and he is willing to pay a couple of months in advance when you offer
him a discount of 10%. Otherwise, he is prepared to pay the lease on monthly
basis.
Your argument that Mr Studer has to pay so many months in advance because
he is a foreigner doesn’t make sense, as he has been legally the tenant during
the last year.
In order for you to check the credit-wo rthiness of Mr Studer I shall give you
herewith all the relevant details.’
The letter was disingenuous. By writing that Studer was not
agreeable to payments in advance, H arksen was in effect reneging
on what he had previously agreed to. Significantly, the proposal of
‘upfront’ payments had been put up as an alternative to the
appellant’s requirement that the principal be domiciled in South Africa
and creditworthy. The effect of Harksen’s letter was therefore to
present him with neither of these al ternatives. By this time, however,
the holiday season was well past its peak. The prospect of finding
another suitable tenant and starting the whole process all over again
was clearly not one the appellant welcomed. His obvious annoyance
is understandable. The next day, 14 February 2001, he wrote a
formal letter to Ferguson addressi ng him no longer as ‘Keith’ but as
‘Mr Ferguson’. After summarizing what had occurred since 18
20
January 2001 he proceeded to ‘set out [his] position’ in numbered
paragraphs. The first and ultimate paragraphs are relevant. They
read as follows:
‘(1) As Mr Harksen advises that Mr Studer is not willing to pay rent in advance,
I will take the risk of entering the lease with Mr Studer, knowing he is a non
resident and relying in good faith on the reputation of Mr Harksen, as given to me
by yourself and Mrs Watson.
. . .
(4) If the lease is not signed by Mr St uder (or Mr Harksen) by Monday, 19 th
February, I will seek another tenant and will consider these negotiations as
terminated for the present, and in future.’
[19] In response to the deadline set by the appellant, Ferguson
repeatedly attempted to contact Har ksen by telephone. Once again
he could not be reached. On the advice of Ms Anne Strickland, the
owner of Accommodation Shop CC, Ferguson eventually on 19
February 2001 left a message on Harksen’s mobile telephone to the
effect that unless a lease was sign ed that day the transaction would
fall through. Shortly thereafter H arksen phoned back. He said that
Studer had not arrived but that he was quite happy for his wife ‘to
have the lease; and he was sure she would have no objection. He
explained that she was domiciled in South Africa (which was not true)
21
and had a shop in Cape Town (which was true). Ferguson
telephoned the appellant to seek hi s instructions. This was confirmed
by the appellant who testified that he first questioned Ferguson on
what the latter had been told about Mrs Harksen and then expressed
his willingness to have her as the le ssee. He said it never entered his
head that she was to be a mere nominee for Harksen, in other words,
that Harksen was to be the other contracting party.
[20] Ferguson then drafted a leas e agreement which reflected Mrs
Harksen as the lessee and proceeded to the latte r’s shop for her to
sign it. I interpose that the shop was called ‘J H Design’ and sold
women’s clothing. It was owned by a company, Unitrade 463 (Pty)
Ltd, in which Mrs Harksen apparently held the shares. On arriving at
the shop, Ferguson found that ne ither Harksen nor his wife was
there. He waited for an hour and a half and eventually left the lease
with one of the assistants with instructions to give it to Mrs Harksen to
sign in the presence of witnesses.
[21] Ferguson testified that the next day the signed lease was
returned to the premises of Acco mmodation Shop. As he expressed
it, he was ‘fairly sure’ that it was Mrs Harksen who delivered the
lease. He had met her before. He recalled her arriving in a four-
22
wheeled drive vehicle and having to double-park outside. Strickland,
was also present. She, too, had prev iously met Mrs Harksen and had
no doubt that it was she who delivered the lease. I mention this
because Mrs Harksen testified t hat at that stage she had no
knowledge of the lease and alt hough she did drive a four-wheeled
drive motor car she ‘could not remember’ delivering the lease. I shall
return to her evidence later.
[22] The lessee’s signature on the lease was wholly illegible. The
same signature appeared on two addenda signed on the same day.
(They were presumably also sign ed at the shop as they were
witnessed by the same person.) The letters ‘pp’ were inserted
immediately in front of the lesse e’s signature on one of them. Their
proximity to the signature, which was nothing more than a scrawl,
rendered them not readily a pparent and they went unnoticed. It was
only after the trustees demanded pa yment that it was appreciated
that all three documents had been signed by Harksen himself and not
by Mrs Harksen.
[23] The reason for the second addendum (the first merely
contained some additional terms) was that the draft lease agreement
had been altered by the ins ertion of 1 March 2001 as the
23
commencement date. I mention this because counsel for the trustees
sought to make something of t he letter dated 20 February which
Ferguson wrote to the appellant reporting w hat had happened. The
letter began:
‘I have just received the signed agreement and addendum. I noticed that he had
altered the date of occupatio n to 1 March 2001. I phoned him immediately and
reminded him that our original negotiation dated back . . . .’ (My emphasis.)
It was argued that this constituted a recognition by Ferguson, and for
that matter also the appellant who rec eived the letter, that the true
lessee was Harksen himself. I mention at this stage that I do not think
much significance can be attach ed to the reference to Harksen as
opposed to his wife. After all, he had done all the ne gotiating and for
him to have altered the lease before signature would not have been
inconsistent with Mrs Harksen bei ng the signatory and lessee. The
same can be said of a letter of the same date recording that
Ferguson had ‘prepared a statement for Mr Harksen’. Significantly, in
yet another letter to the appellant written on the same day Ferguson
reported that he had arr anged for an inventory to be ‘signed by Mrs
Harksen after it has been checked’.
24
[24] Mrs Harksen testified on behalf of the trustees. She explained
that her husband, w ho had since been ext radited to Germany, had
used persons and companies as ‘fronts’ to hold assets on his behalf
and in this way to maintain his lifes tyle of opulence. She said Studer
was one such a person and that sh e too had on occasions served as
a ‘front’ for Harksen. She denied that she knew at the time that the
lease with the appellant had been concluded in her name and said
she could not remember delivering the lease to the letting agents on
20 February 2001. Her evidence was severely criticised by counsel
for the appellant in this court. But it is unnecessary to deal with the
criticism. The inference arising from her evidence is that Harksen was
authorized to act on her behalf. Bu t even if he was not, and she was
unaware of the conclusion of the lease at the time, she readily
conceded that once she discov ered what had happened she ‘went
along with it’ and indicated by he r conduct that she was the lessee.
Indeed, she was not only directly involved in the drawing up of the
inventory at the commencement a nd termination of the lease but
personally wrote to the appellant on 28 November 2001 requiring the
latter ‘to pay out my remaining deposit’. On 4 April she personally
signed a cheque for R25 000 drawn on Unitrade 463 (Pty) Ltd in
25
favour of Accommodation Shop for that month’s rent. In passing, I
mention that the other payments of rental to the agents were either by
cheque drawn on an acco unt operated by Harksen in the name of
Voyager Trust or in cash.
[25] The court a quo found on the evidence ‘that Jeannette Harksen
simply replaced Studer as a front for Harksen and that the “written
agreement” only reflected the name of Jeanette Harksen but that the
lease agreement was one in fa ct between Harksen and [the
appellant]’. The correctness or otherwise of this finding became the
main issue debated before us.
[26] It has long been recognised that where parties to a transaction
for whatever reason attempt to conceal its true nature by giving it
some form different from what they really intend, a court called upon
to give effect to the transaction will do so in accordance with its
substance, not its form. See generally Erf 3183/1 Ladysmith (Pty) Ltd
v Commissioner for Inland Revenue 1996 (3) SA 942 (A) at 952C-
953A and the cases therei n cited. It is important to emphasise that a
transaction which is disguised in this way is essentially a dishonest
transaction; the object of the di sguise, which is common to the
parties, is to deceive the outside world. Before a court will hold a
26
transaction to be simulated or di shonest in this sense it must
therefore be satisfied that ther e is some unexpressed or tacit
understanding between the parties to the agreement which has been
deliberately concealed. See Commissioner of Customs and Excise v
Randles, Brothers and Hudson Ltd 1941 AD 369 at 395-396. On the
facts of the present case it follows that the trustees were obliged to
establish that whatever Harksen’s intention may have been, the
appellant’s true intention was to contract with Harksen,
notwithstanding the form of the lease.
[27] It is necessary to observe that if the appellant’s intention had
indeed been to contract with Mrs Harksen, it would be of no
assistance to the trustees that she had no reciprocal intention and
accordingly did not become a party to the lease. In other words, it
would not matter that Harksen had no authority to enter into a lease
on her behalf or that she had not subsequently ratified the lease.
Similarly, there would be no contra ct if in these circumstances
Harksen himself intended to be the lessee in terms of the lease. (C f
Registrateur van Aandelebeurse v Aldum h/a Onecor Group 2002 (2)
SA 767 (SCA) at 773B-E.) As previous ly indicated, in the absence of
a contract, no reliance could be placed on s 23(2) of the Act. In that
27
event, in order to succeed the trustees would have been obliged to
formulate a claim based on unjust enrichment. Such a cause of action
was neither pleaded nor established.
[28] What is critical to the inqu iry, therefore, is appellant’s true
intention. In other words: was it established on a balance of
probabilities that his true intention wa s to enter into a disguised and
dishonest transaction in the sense discussed above?
[29] In finding for the truste es on this issue, the court a quo by
implication rejected the evidence of the appellant that as far as he
was concerned he had entered into a l ease with Mrs Harksen who
was the person to whom he would have to look in the event of a
breach. No adverse credibility finding was made against the
appellant, nor was an attempt made to assess his credibility. The trial
judge appears simply to have found that the evidence pointed to Mrs
Harksen having served as a substitu te for Studer who was Harksen’s
‘front’. In assessing the probabilitie s in the light of the appellant’s
evidence, a question that arises is why he should have wished to
connive with Harksen to disguise the true identity of the lessee; in
other words: what motive would he have had for the deception? The
trial judge found, despite the ev idence of the appellant to the
28
contrary, that he was fully aware that Harksen was an insolvent, ie
subject to a sequestration order. If this finding were correct, it is
possible that Harksen’s insolvent status may have played a role in
influencing the appellant to enter in to a disguised transaction. But in
my view, the finding was wholly unjustified. There was no direct
evidence to the effect that the appellant, or for that matter the agents,
knew that Harksen was insolvent. As far as the probabilities are
concerned, from the very inception of the negotiations Harksen
presented himself as a man of considerable means who enjoyed an
opulent lifestyle. The appellant was told that Harksen had a house in
Constantia in the Cape but nonetheless was prepared, and had the
means, to pay R25 000 a month in rental for a bungalow which he
generally occupied only over week ends. As far as Watson was
concerned, he was a model tenant. The appellant explained that it
was constantly impressed upon him by the letting agents who were
obviously impressed by Harksen just how wealthy he was; he
entertained lavishly and drove a rang e of very expensive motor-cars.
It is true that it was also clear to the appellant from a relatively early
stage in the negotiations that Hark sen was unwilling to enter into a
lease in his own name. But this would not give rise to an inference of
29
insolvency in the mind of a layman. The appellant was told by Watson
that Harksen was wanted for fraud in Germany and had successfully
resisted being extradited. This in the appellant’s mind was enough to
justify Harksen’s reluctance to be a contracting party. There is no
reason for doubting his evidence in this regard. The brazen life of
luxury enjoyed by Harksen was not the life which an insolvent’s
trustee would ordinarily permit and th is would be known to a layman.
In any event, given the appellant’s cautious nature as demonstrated
by the correspondence, it is wholly improbable that he would have
been prepared to do business with an insolvent.
[30] Ultimately the inquiry is whether the appellant regarded
Harksen or his wife as his debtor under the lease or, to put it
differently, the inquiry is to whic h of the two would he have regarded
himself as obliged to look in the event of a breach. It is clear from the
correspondence that when informed of the unusual circumstances of
the previous lease, the appellant’s principal concern was, as he put it,
who was to be the principal. He wanted to know who and where he
would have to sue in the event of a breach. Although earlier in the
negotiations he had contemplated contracting with Studer as agent
for Harksen, in which event he required a power of attorney, by 14
30
February 2001, as is apparent from his letter of that date, he was
prepared to contract with either Stud er or Harksen as principal. The
appellant testified that when Mr s Harksen was proposed as the
lessee he accepted her as the party with whom he would contract as
principal. There is nothing improbable about this. Indeed, the
subsequent correspondence during the subsistence of the lease
demonstrates quite clearly that he regarded Mrs Harksen as the
lessee and the person to whom he looked for fulfilment of the
lessee’s obligations.
[31] On 5 March 2001, for example, the appellant addressed a letter
to Mrs Harksen drawing her attenti on to various fe atures of the
property. One such feature was the existence of four separate
telephone lines. He wrote:
‘In terms of our agreement (clause 4.1), you are resp onsible for telephone costs
and therefore I bring this to your att ention as four exchange lines and the usage
which the previous owner envisaged may not apply to you.’ (Emphasis
supplied.)
Mrs Harksen replied on 20 Marc h 2001 indicating she would
comment on the points raised in the appellant’s letter later in the
week. On 27 September 2001 sh e again wrote answering the
31
appellant’s letter in detail. Both letters were signed ‘Jeannette
Harksen’. Every month the appellant wrote to Ferguson listing the
amounts ‘to be recovered from Mrs J Harksen’ or ‘outstanding from
Mrs Harksen’. These were typically telephone, water and electricity
charges which were payable by the le ssee in terms of the lease. It
appears that at some stage the appellant agreed to a Mr and Mrs
Markowitz using the bungalow. On 15 August 2001 the appellant
addressed a letter to ‘Mrs Jea nnette Harksen’ regarding the
Markowitz’s use of the bungalow in which he reminded her that:
‘I agreed to it on the understanding that they were guests and that you remained
the tenant in terms of the existing lease contract.’
Again, on 10 October 2001 the appellant wrote to Ferguson regarding
the inventory of items at the bunga low. The letter b ore the heading:
‘Mrs Harksen’s Agreem ent of lease until 30 th November’ and
commenced: ‘As we are less than tw o months away from the time
that Mrs Harksen’s lease of Bungalow 16 ends . . . .’ A final example
is a letter written by the appe llant to Ferguson on 13 November 2001
concerning inter alia the cost of repairs to the bungalow for damage
that occurred during the currency of the lease. He wrote:
‘It seems to me that the tenant must be responsible for this and we should duly
convey these changes to Mrs Harksen.’
32
He concluded by writing:
‘I believe . . . these accounts should be for Mrs Harksen’s account, and I would
appreciate it if you will claim the amounts from her. If you disagree, please advise
me.’
[32] Counsel for the respondent did not submit that these letters
were written by the appellant as part of an on-going sham to conceal
the true identity of the lessee; nor indeed would there have been any
basis for such a submission. T he letters corroborate the appellant’s
evidence that he entered into a contract of lease with her on the basis
that she was to be the lessee in her own right and not merely as a
nominee for Harksen. In my view there was no justification for
rejecting this evidence and in doing so the court a quo clearly erred.
[33] The appeal must therefore succeed.
The following order is made:
(1) The appeal is upheld with co sts, such costs to include
those occasioned by the employment of two counsel;
(2) The order of the court a quo is set aside and the following
is substituted in its place –
33
‘The plaintiffs’ action is dismissed with costs.’
__________
D G SCOTT
JUDGE OF APPEAL
CONCUR:
HARMS JA
ZULMAN JA
CAMERON JA
JAFTA JA