A decisive element in deciding the dispute between the dramatis personae in the matter Paulus Bernhardus Koch v Michele Weiland NO & The Master of the High Court, Cape Town[1] was Regulation 2 of the regulations promulgated in terms of the Attorneys, Notaries and Conveyancers Admission Act, 1934.  This regulation states, as the court summarised, that “no person other than an attorney, notary or conveyancer, or an agent in terms of section 22 of the Magistrates’ Courts Act, 1944 (a so-called law agent) may liquidate or distribute a deceased estate”.  This includes “the performance of any act relating to the liquidation or distribution of the estate other than the realisation, transfer or valuation of estate assets or of any right in or to such assets”.

There are four exemptions under Regulation 3: boards of executors; trust companies; public accountants; and persons duly licensed under the Licences Act, 1962 and carrying on business predominantly consisting in the liquidation or distribution of deceased estates.  Under Regulation 4, there are another seven: banking institutions under certain conditions; persons in the full-time service of a person lawfully liquidating a deceased estate, assisting or acting on that person’s behalf; persons in the full-time service of any trade union, under certain conditions; persons acting on the instructions of an attorney, notary or conveyancer; persons acting under the direction of the Master; the surviving spouse of or any person related by consanguinity up to and including the second degree to the deceased person, in so far as he or she is liquidating or distributing the estate: and, most relevant, to the present matter, any natural person nominated by a deceased person in a will and accepted by the Master, in so far as the person is personally liquidating or distributing the estate [Emphasis added].

The court decided that, although the two Acts had long since been repealed, the regulations had continued in existence in their successors, currently the Legal Practice Act, 2014.  They therefore applied in the present matter.

The court referred to Meyerowitz[2] where at paragraph 12.23 the learned author stated that an executor cannot substitute another person to act in their place, but may appoint an agent under power of attorney to administer the estate.  The power of attorney may not be irrevocable.

The first defendant was the deceased’s daughter, who was nominated as executor in the deceased’s will and duly appointed.  She and the plaintiff entered into an agreement, the salient provisions of which were that she nominated and appointed the plaintiff (in translation): “…as my authorised Agent to administer, distribute and finalise the Estate in accordance with prevailing legislation and against payment of the prescribed executors’ fee or such other fee as we agree upon between us.  Without limiting in any way my Agent’s general powers, I authorise him in particular to:

• Complete and sign any documents, returns Liquidation and Distribution accounts, tax returns and so forth
• Open bank accounts in the name of the Estate, operate thereon and close them
• Represent the Estate in any actions and/or suits instituted by or against the estate
• To complete and sign all documents regarding the transfer, cession and/or alienation of any estate assets to heirs, purchasers and/or claimants

My Agent’s lawful actions in respect of the estate and related matters are ratified herewith as if I personally acted herein and this power of attorney will remain in force until the Estate has been finalised and all monies owing to my Agent have been paid in full.”  As an aside, Judge van Zyl stated that it appeared to him that this was an irrevocable power of attorney, which rendered it unenforceable on the authority referred to earlier.  However, the parties had not taken the point and he said no more about it.

Before the liquidation and distribution process had been concluded, the defendant repudiated the agreement before the plaintiff was able to fulfil his mandate.  The plaintiff claimed payment of about R1,3 million, based on 90% of the commission the plaintiff had expected, based on the statutory executor’s rate of 3,5% of the gross value of the assets in the estate.  The defendant’s case was to take exception to the plaintiff’s claim in that he had failed to disclose a cause of action, because in terms of the regulations he was prohibited from administering and liquidating deceased estates.

It was clear that the plaintiff was well aware of the prohibition against substitution, as it was expressly alleged in the particulars of claim that “the purpose of the agreement was not to substitute or surrogate the First Defendant with the Plaintiff to act as executor in her place, is [sic] was to render services to the First Defendant against the fee similar to and/or equivalent to the fee which the First Defendant will receive upon the successful liquidation and distribution of the estate.  The Defendant [sic] therefor [sic] did not abdicate from her responsibilities and duties regarding the administration of the estate but delegated these to the Plaintiff”. 

The agreement was clearly, on its plain language, a power of attorney granted by a principal to an agent.  The plaintiff’s case was that, even with his assistance, it was the defendant who was regarded as having acted.  It followed, according to the plaintiff, that he had no need to make any allegation as to his capacity under the regulations.  His claim was purely for contractual damages for loss of income.

The court found that the plaintiff could not evade the implications of the regulations in this way.  On a proper interpretation of the regulations, having regard to the approach set out in Natal Joint Municipal Pension Fund v Endumeni Municipality[3], one of the reasons for their promulgation must have been to protect the public and to ensure the orderly and lawful administration of deceased estates.  “Notably, the regulations do not say that no person, save as provided for in the regulations, shall be appointed as executor.[4]  They specifically say that no such person “shall liquidate or distribute” a deceased estate.  This (sensibly so, given the purpose of the regulations) refers to the acts involved in liquidating and distributing an estate, rather than to where the responsibility lies for those actions.”  And further:”The first defendant patently did not administer the estate “personally”, as is required by regulation 4(1).  To interpret the requirement of “personally” in the regulations as to include liquidation and distribution via an agent would undermine the essence of the regulations.”

The grant of a power of attorney without regard to the regulations would allow them to be side-stepped and enable an unqualified person to administer an estate.  If the plaintiff were allowed to sue on the power of attorney for an executor’s fee, it would mean that the plaintiff was effectively allowed to step into the shoes of the executor.

The court upheld the defendant’s exception and gave the plaintiff leave, within 10 days, to amend his particulars of claim so as to remove the excepted cause of complaint (and, presumably, replace it with a more anodyne one such as “for services rendered and advice provided in the course of your liquidation and distribution of the estate of the late xxx”).

It commonly occurs that the person appointed as executor of a deceased estate is not equipped to carry out the liquidation and distribution unaided.  This frequently applies where the surviving spouse is appointed, for example.  Invariably, the surviving spouse obtains professional help.  If the person so engaged falls within one of the categories of persons listed in Regulations 3 and 4, the sort of situation that arose in the present matter would not arise.  Should the executor elect as advisor a person who falls outside the Regulations, the executor and the advisor should conduct the process in a way that makes clear that the executor was involved in the entire process and took all the important decisions, even though they were based on the advisor’s guidance.  And it would be most unwise to link the advisor’s fee to the statutory executor’s remuneration rate.

[1]  [2020] Case no 16526/2020

[2] Meyerowitz on Administration of Estates and their Taxation, Juta 2010

[3] 2012 (4) SA 593 (ZASCA) para [18]

[4] The Administration of Estates Act deals with this in section 13(2): “No letters of executorship shall be granted or signed and sealed and no endorsement under section fifteen shall be made to or at the instance or in favour of any person who is by any law prohibited from liquidating or distributing the estate of any deceased person.”

Ms B was the sole heir and executrix in the estate of her deceased father, who died intestate on 18 August 2015.  The asset in question consisted of 1673 Kruger Rands (Coins), and the question was whether they should be valued for estate duty purposes in terms of section 5(1)(a) of the Estate Duty Act, as SARS contended, or of section 5(1)(g), as asserted by Ms B.  Before the estate had been finalised, Ms B had sold the Coins in several tranches between 27 May and 25 November 2016.

Section 5(1)(a) would apply if the Coins had been sold in the course of the liquidation of the estate, while section 5(1)(g) would apply if they had accrued to Ms B on the death of her father and she had sold them in her capacity as owner consequential upon inheriting them.  At date of death of the father, the value of the Coins was about R26,6 million, while the total proceeds of the sales were about R31,2 million.

Section 5(1)(a) provides that, for purposes of its inclusion in the estate, the value of any property disposed of in the course of the liquidation of the estate is the price realised, namely R31,2 million in the view of SARS in the present matter.  Section 5(1)(g) prescribes that the value of any other property (that is, in effect, property not sold but awarded to the heir) is the value at the date of death of the deceased person.  This would be R26,6 million if Ms B had her way.

The crisp question was whether Ms B had disposed of the Coins in her capacity as the only heir, and not as executrix “in the course of the liquidation of the estate”; or whether she had sold them as executrix.  Alternatively, if she had sold them in her capacity as executrix, whether she had done so “during liquidation”.  The appellant cited three judgments in arguing for section 5(1)(g):

CSARS v Estate late HE Kelly[2], where the court stated: “The norm is that estate duty is based on the value of the estate assets as at the date of the deceased’s death”;

De Leef Family Trust and Others v CIR[3]. Here the court stated: “Besides, according to our modern system of administration of deceased estates, the heir or legatee of an unconditional bequest obtains a vested right (dies cedit) to be entitled to the bequest on the death of the testator (a morte testatoris)”; and

Harris v Assumed Administrator, Estate Late Macgregor[4], [1987]. Although this case was about an intestate estate, the statement relied on by the appellant in the present matter was that the estate vests on the date of death when the heirs have been determined.

The facts of Kelly, on which the appellant mainly relied, were that Mrs Kelly at the time of her death in 1981 was married out of community of property to Mr D Kelly, who was the executor of her estate.  The estate assets included ten units of Karoo land on which bona fide farming operations were carried on.  Mr Kelly owned an undivided half shares of five of these units.  Mrs Kelly bequeathed her own farms to her son J Kelly (including the five units she owned outright) and the five half shares to her son F Kelly, in both instances subject to a usufruct in favour of her husband.

In 1983, while the estate was still being wound up, Mr Kelly and J Kelly entered into a redistribution agreement in terms of which Mr Kelly became the sole owner of the five half shares bequeathed to J Kelly, subject to a bequest price.  For estate duty purposes the total value of all ten units was determined at R289 177,50, being the Land Bank value as was permitted at that time.

In 1984, Mr Kelly, in both his personal capacity and as usufructuary, and F Kelly as bare dominium holder, sold the ten units to one P for R1 750 000.

In 1985 the executor filed the liquidation and distribution account, in which the ten units were reflected at the R289 177,50 Land Bank value in terms of section 5(1)(g).

In 1997 SARS became aware of the 1984 sale and revised the estate duty calculation to reflect the selling price, on the grounds that the sale had taken place in the course of the liquidation and that section 5(1)(a) applied.  The estate objected and appealed on the grounds that the sale had taken place during and not in the course of the liquidation.  The matter ended up in the then Appeal Court, where the learned judge held: “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 sale between which and the liquidation process there is some relationship. Put 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 the executor, in the latter’s capacity as executor, not in the latter’s personal capacity as beneficiary.”  And further: “Quite apart from the consideration that in selling to P the respondent did not purport to act as executor but only in his personal capacity as usufructuary, and as his son, F Kelly’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. This 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 consequent upon the decision by the respondent and F Kelly to sell, pursuant to the redistribution agreement, in advance of their receiving transfer from the estate.”

Fortified by this decision as precedent, Ms B contended for the same result.  Perhaps made aware of the Kelly decision by her agent, who had experience as an executor, Ms B in emails with her financial advisor treated the sales as being concluded in her personal capacity as sole heir.  Significantly, as it turned out, the estate did not have sufficient cash to meet the liquidation and estate duty costs.  Ms B had to provide these from the proceeds of the Coins.  She claimed to have done so following her undertaking to pay the liabilities of the estate, and admitted that part of the reason for the sale had been to pay the liabilities and cover the administration costs of the estate.

The court found that the management of the liabilities and administration of the estate is inherently the function of the executor and not the heir.  Ms B’s reliance on Kelly “falls at the first hurdle of the legal requirement, as the sales in question were fundamentally in the function of the executor and could not have been undertaken in the personal capacity of the beneficiary”.  Moreover, it had been necessary to sell some of the Coins for estate purposes, in contrast with the Kelly position.

In conclusion, the court found that:

“[69] In the absence of any legal or factual congruence between the appellant’s case and the authority, there is no basis on which the appellant can rely on Kelly.

[70] The case of Kelly confirms that SARS’ opinion that the sale was in course of the liquidation of the estate is correct, in that:

[70.1] The sale could only have been undertaken by an executor;

[70.2] The sale only involved estate assets which the heir had no ownership over; and;

[70.3] The sale was necessary to cover the debts of the estate.”

Executors and heirs therefore need to be wary of uncritically relying on Kelly unless the facts, and especially point [2] above from Kelly, are in their favour.

[1] [2020] Case no 24863

[2] [2004] JOL 12754 (SCA)

[3] [1993] 55 SATC 207 (A)

[4] 1987 (3) SA 563 (AD)

Section 2B provides that: “If any person dies within three months after his marriage was dissolved by a divorce or an annulment by a competent court, and that person executed a will before the date of such dissolution, that will shall be implemented in the same manner as it would have been implemented if his previous spouse had died before the date of the dissolution concerned, unless it appears from the will that the testator intended to benefit his previous spouse notwithstanding the dissolution of his marriage”.

As the court observed, elderly people tend not to get divorced, and they are more likely to die relatively soon after each other than young and middle-aged couples, who in turn are more likely to get divorced. This would explain the obscurity of section 2B. In its 1991 report, the SA Law Commission had recommended the insertion of section 2B into the Act after extensive research into the position in a number of other countries. The rationale is the acknowledgment that in so inevitably stressful and sometimes traumatic an experience as divorce, redrafting your will is often the last thing on your mind. The Commission recommended, however, that three months was long enough time for persons newly divorced to take stock of their new situation and take remedial action. The result was the introduction of section 2B in 1992.

The appellant’s spouse, NW, died less than three months after their divorce had been finalised. She had signed a will shortly before the couple’s marriage, referring to JW as “my husband”. The court found that this premature description did not invalidate the will. In the will she bequeathed her estate to her husband. No children were born of the union and NW had no children of her own. Her executor applied section 2B, which had the effect of disinheriting JW and devolving NW’s estate upon her parents in terms of the Intestate Succession Act, 1987. JW appealed against this decision on broadly two grounds. In response to each of the grounds, as mentioned below, the court devoted considerable attention.

Section 25(1) of the Constitution provides that no one may be deprived of property except in terms of a law of general application, and no law may permit the arbitrary deprivation of property.  In 73 closely crafted paragraphs, too long to consider in this brief summary, the court found that section 2B does not deprive beneficiaries of their right to benefit under a will, partly because they had no right but only a spes. This part of the judgment deserves an article of its own.

Section 34 of the Constitution provides that everyone has the right to have a dispute which can be resolved by the application of law decided in a fair public hearing before a Court, or, where appropriate, another independent and impartial tribunal or forum. JW contended that section 2B offends against section 34 of the Constitution because in the first place it “seeks to exclude the Court’s ‘general oversight function’ (sic). Secondly, because it ousts the ‘general discretion’ which the Court has in terms of the Wills Act (such as that which it has to condone non-compliance with the formalities required for a will or the revocation of a will), thereby preventing it from accepting evidence which a former spouse may be able to put forward of a testator spouse’s intent, which might be recorded in another document, or which may have been expressed in terms of an oral agreement which is ‘publicly accepted as true’ (sic). Thirdly, the applicant contends that the provision is in conflict with section 34 as it ‘deletes’ (sic) the constitutional right which the applicant has to seek judicial redress in circumstances where he is able to provide ‘direct’ evidence of a testator spouse’s testamentary intentions, and instead directs that the Court must operate under a ‘false fiction’ that a former spouse has predeceased a testator spouse, which is contrary to public policy”. In a mere 33 paragraphs, which also deserve their own article, the court demolished JW’s second constitutional challenge.

In the result, the court found that section 2B “serves a legitimate and compelling social purpose and the deprivation which it affects when it applies is not arbitrary in terms of s 25(1), and there is sufficient reason for it. It is also not procedurally unfair. In addition, the terms of s 2B do not constitute a limitation of the applicant’s right of access to a Court, in breach of s 34. Consequently, the application falls to be dismissed”.

Readers would do well to take the time to read and digest this judgment as an example of judicial interpretation at its best.

Chronology:

DS Rens (the testator) owned the remaining extent of Portion 2 of the farm Hammanskraal No 112.

July 2008:         the Minister consents to sub-division into:

(1)           Rem Ext of Portion 2 (which I will refer to as Portion 112); and

(2)           Portion 76 of Rem Ext of Portion 2 (which I will refer to as Portion 76).

Feb 2009:         the Surveyor General approves the sub-division.

March 2009:      deed of sale of Portion 76 to D de Klerk on behalf of a company to be formed:

(3)           subject to a suspensive condition that township rights would be granted within 18 months; and

(4)           DSR would acquire 20% of the share capital of the company which would hold the property (Hammanskraal Residential Properties (Pty) Ltd).

Sept 2009:        Edelstein instructs a valuer to value the properties; not Portion 76 but of another Portion.  And see 17.2.

11 March 2010:  DSR executes his will:

(5)           Daughter Rene Zerf to get R250 000;

(6)           Daughter Natalie de Klerk to get a farm valued at R18 million (is D de Klerk Natalie’s husband?  Not clear from the judgment);

(7)           Son TA Rens (TAR) to get Rem Ext Portion 2.  (As will appear later, the issue in the case was whether this referred to the entire farm or only Portion 112).  He records his intention during his lifetime to transfer the property to TAR and insofar as he achieves this it must be seen as an advance on TAR’s inheritance.

1 June 2010:     deed of sale (the “second deed”) signed but nothing came of it.  D de Klerk signs on behalf of DSR (how?)

25 June 2010:    DSR dies.  Executors appointed: TAR, Edelstein & D de Klerk.

26 Sept 2010:    suspensive condition not met; contract null and void.

2 Dec 2010:      the deed of sale drafted and finalised.

25 Nov 2011:     registration of title and servitudes in favour of Eskom.

25 Nov 2011:     subdivision registered and certificate of registered title registered.

6 Jul 2012:        first and final liquidation and distribution in the estate filed and D De Klerk resigns.  Had he not resigned, Edelstein would have been compelled to take action against him.  The judgment does not explain the reason for this statement.

6 Jul 2012         Edelstein gets an opinion from Fine SC.  He does not tell Fine about the second contract or that the subdivision had not been finalised at time of the will.

Arguments

TAR contended that Portions 112 and 76 (ie the whole of Rem Ext of Portion 2) were bequeathed to him, whereas Edelstein contended that Portion 76 should fall in the family trust (presumably the residual heir)

The court identified what it called a factual matrix summarising the inferences that the protagonists urged upon the court, based on the facts and circumstances.  Based on these:

Edelstein contended that, at the date of execution of the will, Portion 76 was already sold.  The time for fulfilment of the suspensive condition had not yet lapsed and the deed of sale was in force.  He contended that the testator would have seen it this way, especially since he would receive a 20% shareholding;

Edelstein contended further that in September 2009 DSR had instructed him to transfer Portion 112 (ie excluding Portion 76) to TAR as an advance on his inheritance.  The transfer was delayed by the Eskom servitude registration.  The inference he placed before the court was that the legacy (see 6(3)) was to cover the eventuality that the donation had not been concluded by DSR’s death ie the donation related to the same property as in the will;

TAR contended that DSR would not have wanted him to inherit only R4 million (Portion 112) as opposed to R9 million (both Portions).  However, Rene and Natalie disputed this and pointed to the disparity of their inheritances.

TAR contended further that DSR was an astute businessman who would have well understood the tenuous nature of the suspensive condition.

Given the competing interpretations of the will, Edelstein contended for rectification on the grounds that the provision in the will was ambiguous and that the factual matrix pointed to his interpretation.

The finding

As to rectification, the court stated that rectification is an equitable remedy, the purpose being to give effect to the true intention of the testator in the case of a will.  The onus is on the applicant for rectification to establish, on the balance of probabilities, firstly that the alleged discrepancy between expression and intention was a mistake; and secondly what the testator really meant to provide.  In the present matter there was no ambiguity, and therefore no room for rectification.

Edelstein contended that the will must be interpreted according to Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] (4) SA 593 (SCA).  The court rejected this contention on the grounds of the difference between a contract and a will.  A contract offers the parties the opportunity to explain clauses.  A testator is beyond reach, and so the correct approach in the case of a will where, as here, the testator’s words are clear from the plain grammatical wording is to have regard to the material facts and circumstances known to the testator when he drafted the will.  The court cannot interpret the language of the will to give effect to what the testator may have intended but has not expressed at all.  The court must put itself in the position of the testator – the armchair rule.  Had DSR not wanted TAR to inherit Portion 76 if the sale fell through, he could have stated as much.

The “second deed” (see 7), had “popped up” as a desperate attempt by D de Klerk to keep the original deed of sale alive and thus Portion 76 out of the picture.  The court noted that D De Klerk had drafted and signed the “deed” on behalf of DSR and he, of course, was the person who stood to benefit from it.

Edelstein stated on affidavit that DSR had instructed him to exclude Portion 76 in the will but that he had omitted to do so.  TAR denied this and provided evidence in support of his contention.

In the event the court found for TAR and indicated some displeasure with Edelstein’s conduct.