Is a creditor precluded from instituting action in common law against a deceased estate?

September 1st, 2019
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The question whether the corollary effect of the claims procedure prescribed by the Administration of Estates Act 66 of 1965 (the Act) is to effectively bar a creditor from instituting an action in common law against the executor of the deceased estate, seems evidently trite. However, South African case law is replete with cases in which the aforementioned question was brought to court for consideration. This article aims to provide insight into the current legal position regarding this seemingly abstruse legal issue.

The claims procedure

The claims procedure pertaining to deceased estates is contained in s 35 read with ss 29, 32, and 33 of the Act.  The salient provisions of the Act encapsulate the following:

  • As soon as may be possible after a letter of executorship has been granted to them, an executor is required in terms of s 29, to cause a notice to be published in the Government Gazette and in a newspaper, calling on persons who have claims against the deceased estate to lodge these claims within a stipulated period.
  • Thereafter, creditors are required to submit their claims in the prescribed form and within the stipulated period.
  • If the estate is solvent the executor is obliged to submit an account, of the liquidation and distribution of the estate. This account will indicate, whether or not a particular claim has been admitted.
  • The aforementioned account will lie with the Master for 21 days, during which a purported creditor whose claim has been rejected and who wants to object to the account, must file that objection with the Master.
  • The executor is then afforded an opportunity to respond to the objection.
  • The decision regarding whether the objection is justifiable or not lies with the Master who then makes a ruling on the matter.
  • The Master’s decision can be reviewed on motion to the High Court within 30 days.

Background

Although the Act provides an elaborate procedure for the recovery of a claim from a deceased estate, it was formerly not clear whether the aforementioned procedure operates as an embargo to the institution of a common law action against a deceased estate. This issue was brought to the Supreme Court of Appeal (SCA) for determination in the case of Nedbank Limited v Steyn and Others [2015] 2 All SA 671 (SCA).

The decision in Steyn emanates from a dispute that arose in the Gauteng Division of the High Court in Pretoria, in the case of Standard Bank of South Africa Ltd and Others v Ndlovu and Others (GP) (unreported case no 33265/13, 24-10-2013) (Mabuse J). In Ndlovu the court dismissed 17 applications for default judgment on the basis of non-compliance with the provisions of ss 29, 32, 33 and 35 of the Act. A direct consequence of this ruling is that the plaintiff’s attempt to recover their dues through the action procedure were effectively quashed. Their only remedy according to Mabuse J, was to lodge a claim with the executors in accordance with the Act. This meant that the creditors would have to institute proceedings afresh. However, the appellant in Steyn, namely, Nedbank Ltd was the plaintiff in six of these applications and it lodged an appeal against the decision with the leave of Mabuse J.

In reaching its decision, the court in Steyn took cognisance of the fact that the issue before the court was in fact not new, having been brought to court for determination numerous times under the previous Administration of Estates Act 24 of 1913 (the 1913 Act), which contains substantially similar provisions. One of the decisions under the 1913 Act was the ruling of Estate Stanford v Kruger 1942 TPD 243, which held that there was nothing under the 1913 Act to indicate that the legislature intended to deprive a creditor of their common law right to sue the deceased estate.

Interpretation of the Act

In Steyn the court cited the judgment of Watermeyer AJ in Davids v Estate Hall 1956 (1) SA 774 (C) in order to elicit two fundamental points, which were crucial in correctly interpreting the effect of the relevant provisions of the Act on the creditor’s right to institute action proceedings against a deceased estate.

First, the court concurred with the view that the 1913 Act does not preclude a creditor from instituting an action in common law against the deceased estate. In Watermeyer AJ’s view, the 1913 Act had not created the right, which it sought to enforce. Thus, the remedy supplied by it could not be applied to the exclusion of all other legal remedies. This submission was made in order to rebut a submission in Davids, where the executors sought to rely on an established legal principle referred to in Madrassa Anjuman Islamia v Johannesburg Municipality 1917 AD 718, ‘where a statute creates a right or an obligation and gives a special and particular remedy for enforcing it the remedy provided by the statute must be followed and it is not competent to proceed by action at common law.’

In Davids the right in question was found to have emanated from a contract and, therefore, under the common law, the creditor (Davids) was entitled to enforce it by action. This reasoning is directly applicable to Steyn.

Secondly, the court held that even if the application of the aforementioned principle were to be extended to cases where the statute does not itself create the right/obligation, then it must be clear that the legislature intended that the remedy provided by the Act must be the only remedy available, to the exclusion of all others. In this regard the court cited the case of Mhlongo v McDonald 1940 AD 299 at 310, which articulated this principle as follows:

‘If the legislature’s intention be to encroach on existing rights of persons it is expected that it will manifest it plainly, if not in express words, at least by clear implication and beyond reasonable doubt.’

The court in Steyn found that there were no express words in either the 1913 Act or the Act to indicate that the creditor was barred from proceeding by way of action against an executor for the recovery of their debt.

Time and cost implications of applying the action procedure

The issue of costs remains a determinant factor when one is deciding whether or not to institute legal proceedings, as well as the nature of the proceedings to be instituted. In Ndlovu, Mabuse J was of the view that the institution of both the common law action and the claims procedure simultaneously by creditors could precipitate a delay in the finalisation of the estate and could potentially lead to a protracted and, therefore, costly legal process.

However, the SCA in Steyn dissented from this view and pointed out that even claims procedures done in accordance with the Act could be lengthy and expensive. The court stated that hypothetically where there is a dispute regarding the authenticity of a creditor’s claim the creditor might have to launch a review in the High Court, which could lead to the hearing of oral evidence akin to a trial. In light of the aforementioned the court concluded that there was no basis for concluding that a magistrate’s court action would be more expensive than for instance a High Court application with the potential risk of being converted into a trial.

Conclusion

The interest of justice dictates that all legal remedies available to an aggrieved party be made available to that party. In this regard, the decision in Steyn is useful in that it eliminates any doubt or ambiguity on the current legal position regarding the effect of the claims procedure stipulated in the Act on the common law right of the creditor to institute action proceedings.

In Steyn the court correctly held that the provisions of the Act do not preclude an executor from instituting an action in common law against the deceased estate.

Antonatta Chihombori LLM (University of Fort Hare) is a candidate legal practitioner at Tracey-Lee Munsamy Attorneys Incorporating MS Mall Inc in Kwadukuza.

 This article was first published in De Rebus in 2019 (Sept) DR 12.