By Jerome Veldsman and Roxanne Ker

Section 11(1) of the Matrimonial Property Act 88 of 1984 (the Act) repealed the marital power that included the right of a husband in a marriage in community of property to alienate assets forming part of the joint estate to the prejudice of his wife. Section 14 of the Act introduced equal powers of the spouses with regard to the alienation of the assets of the joint estate, subject to s 15 requiring mutual consent for the alienation of the ‘big ticket’ items (including insurance policies) in the joint estate.

In the insurance industry, especially in respect of risk only life policies (also known as ‘term policies’), s 15 of the Act has caused challenges. Ostensibly Naidoo v Discovery Life Limited and Others (SCA) (unreported case no 202/2017, 31-5-2018) (Mbha JA) (Shongwe ADP, Willis JA, Hughes and Schippers AJJA concurring) has clarified the position, but the Constitutional Court (CC) may adopt a different approach.

The facts

Mr Naidoo (the husband) and Mrs Naidoo (the wife) were married in community of property in 1996.

In 2002, the husband purchased a term policy, with himself as the life insured. Policy benefits would only be payable on the life of the husband ending. The husband nominated his wife as the beneficiary of the policy proceeds. The premiums under the policy were paid out of the assets of the joint estate.

In 2011, the husband cancelled the nomination of his wife as the beneficiary, and nominated his parents, brother, and sister (the third parties) as the beneficiaries of the policy proceeds. The wife was unaware of the change in beneficiaries, and did not informally or in writing consent thereto.

The husband died in 2012, and the insurer paid the policy benefits to the third parties. The wife sued the insurer for the policy benefits.

The statute

Sections 15(2)(a) to (d) of the Act specify kinds of assets forming part of the joint estate that a spouse is not entitled to alienate or encumber without the written consent of the other spouse. Sub-sections (a) and (b) deal with immovable property, (c) deals with financial products, and (d) deals with corporeal or material objects held mainly as investments. In terms of s 15(2)(c) of the Act, a spouse shall not without the written consent of the other spouse:

‘Alienate, cede or pledge any shares, stock, debentures, debenture bonds, insurance policies, mortgage bonds, fixed deposits or any similar assets, or any investment by or on behalf of the other spouse in a financial institution, forming part of the joint estate,’ (our italics).

Technically, one cannot alienate, cede, or pledge an insurance policy as a ‘thing’ (saak) per se. Rather, any such act can only be done in respect of the contractual rights, interests, or privileges under the insurance policy.

Note that a spouse in a marriage in community of property does not require any consent of the other spouse to purchase an insurance policy with assets forming part of the joint estate.

The wife’s argument

The wife argued that the aggregate of rights and obligations under the policy vested in the joint estate, which included the right to nominate a beneficiary, receive payment of the policy benefits, and revoke a nominated beneficiary. Therefore, the late husband was not entitled to nominate the third parties as beneficiaries without her written consent.

The court, in a unanimous judgment, disagreed, and held the nomination of the third parties as beneficiaries did not constitute an alienation of the policy within the meaning of s 15(2)(c) of the Act.

What went wrong?

In the real world:

• The premiums under the policy were paid out of the assets of the joint estate, but, without the wife’s consent, the policy benefits were paid to the third parties. It seems obvious that, from the wife’s perspective, she had been impoverished, and this is an oppressive consequence that is inconsistent with the broader operation of s 15.
• Many couples, whatever their exact marital regime, especially with children, purchase term policies: One policy with one spouse as the life insured and the other spouse nominated as the beneficiary, and the other policy with the spouses the other way around. And each spouse regards the rights, interests, or privileges under the policy of which that spouse is the nominated beneficiary as a valuable hedge (an asset) against the adverse financial consequences of the life of the other spouse untimely ending.

The court quoted the famous passages from Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA), and ended the quotations with (from para 26):

‘An interpretation will not be given that leads to impractical, unbusinesslike or oppressive consequences or that will stultify the broader operation of the legislation or contract under consideration.’

The court in Naidoo considered the purpose of the Act, and concluded (in para 17):

‘… it follows that when examining whether a spouse is prohibited in terms of s 15(2)(c) of the Act from dealing with impugned property without the written consent of the other spouse, the crucial enquiry is whether such property forms part of the joint estate.’

We submit that the purpose of s 15 is more accurately described in Visser v Hull and Others 2010 (1) SA 521 (WCC) at para 5:

‘The ambit of s 15 should be interpreted as intended, to protect the one spouse against the illicit selling or alienation of property forming part of the joint estate by the other spouse who does that without the knowledge and/or consent of the innocent spouse.’

The Visser case is also consistent with s 15(3) of the Act.

In para 19 of the Naidoo case, the court defined an ‘asset’ as ‘property that could be applied to the payment of debts’. We submit that such a narrow definition is inconsistent with South African law in general, and specifically with the broader operation of s 15 of the Act.

The term ‘asset’ is defined as follows in s 1 of the Tax Administration Act 28 of 2011, which includes:

‘(a) property of whatever nature, whether movable or immovable, corporeal or incorporeal; and

(b) a right or interest of whatever nature to or in the property.’

The term ‘property’ is defined as follows in s 1 of the Prevention of Organised Crime Act 121 of 1998:

‘“property” means money or any other movable, immovable, corporeal or incorporeal thing and includes any rights, privileges, claims and securities and any interest therein and all proceeds thereof’.

In Commissioner for Inland Revenue v Estate Crewe and Another 1943 AD 656 at 667 ‘property’ is defined as follows:

‘One would expect that when the estate of a person is described as consisting of property, what is meant by property is all rights vested in him which have a pecuniary or economic value. Such rights can conveniently be referred to as proprietary rights and they include jura in rem, real rights, such as rights of ownership in both immovable and movable property, and also jura in personam such as debts and rights of action.’

We submit that all or many of the respective contractual and other rights under the policy constituted ‘assets’ or ‘property’. Notwithstanding the policy proceeds not being payable while the joint estate subsisted –

• the husband retained the contractual right to nominate the beneficiary, which right was a right, interest, or privilege to or in the policy, and had a pecuniary or economic value; and
• while nominated as the beneficiary of the policy benefits, the wife’s entitlement to the policy proceeds on the life of the husband ending was a right, interest, or privilege to or in the policy, and had a pecuniary or economic value.

And such rights, interests, or privileges formed part of their joint estate, at least sufficiently so for s 15(2)(c) to apply to such rights, interests, or privileges.

Sadly, interrogation of the future consequences of a particular interpretation of a statute is not part of our judicial tradition. Pursuant to the interpretation of s 15(2)(c) in the Naidoo case, one spouse can legitimately denude the joint estate of value by unilaterally paying premiums for term policies with external parties as beneficiaries from the assets forming part of the joint estate. And if the delinquent spouse pays substantial single lump sum premiums from the joint estate, the innocent spouse will really get a surprise, with no apparent legal recourse.

Through the prism of constitutional norms

‘A court is simply obliged to deal with the legislation it has to interpret in a manner that promotes the spirit, purport and objects of the Bill of Rights’ (Phumelela Gaming and Leisure Ltd v Gründlingh and Others 2007 (6) SA 350 (CC) from para 27).

It is arguable that the wife has suffered arbitrary deprivation of property and/or that her dignity has not been respected and protected.

We submit that a broader definition of an ‘asset’ in s 15(2)(c) of the Act, as argued for above, would be more consistent with constitutional norms.

International law

In Jones v Skinner (1835) 5 LJ Ch 87 at 90 (also cited in Hewlett v Minister of Finance and Another 1982 (1) SA 490 (ZS) at 494) it was held:

‘It is well known that the word property is the most comprehensive of all the terms which can be used, in as much as it is indicative and descriptive of every possible interest which the party can have.’

In the Marriage of Duff (1977) 15 ALR 476 at para 26, the High Court of Australia approved of Jones, and continued:

‘This is a definition which commends itself to us as being descriptive of the nature of the concept of “property” to which it is intended that the Family Law Act 1975 should relate and over which the Family Court of Australia should have jurisdiction to intervene when disputes arise in relation to the property of spouses as between themselves or when the court is asked to exercise the powers conferred upon it under Pt VIII or its injunctive powers under s 114 so far as they are expressed to relate to a property of the party to a marriage.’

In AIG Capital Partners, Inc and Another v The Republic of Kazakhstan (National Bank of Kazakhstan Intervening) [2005] EWHC 2239 (Comm), the Queen’s Bench of England held at para 45:

‘So, in my view, “property” will include all real and personal property and will embrace any right or interest, legal, equitable, or contractual in assets that might be held’.

Conclusion

In terms of s 15(3)(c) of the Act, a spouse shall not without the written consent of the other spouse:

‘Donate to another person any asset of the joint estate or alienate such an asset without value, excluding an asset of which the donation or alienation does not and probably will not unreasonably prejudice the interest of the other spouse in the joint estate’.

In the Naidoo case, the court did not discuss s 15(3), but it seems arguable that, at the very least, as of the husband nominating the third parties as the beneficiaries of the policy, the joint estate paying the premiums under the policy was in contravention of s 15(3) in that it would be a donation as contemplated in that section.

The majority of marriages in terms of the Act are in community of property. In terms of s 7 of the Recognition of Customary Marriages Act 120 of 1998, s 15 of the Act also applies to monogamous customary marriages, unless the spouses agree to the contrary in an antenuptial contract. A marriage under the Civil Union Act 17 of 2006 can also be in community of property. Accordingly, in millions of South African marriages, the interpretation of s 15(2)(c) in the Naidoo case creates scope for a delinquent spouse to abuse term policies to the detriment of the innocent spouse. It is hoped that the Legislator, the CC, or the Supreme Court of Appeal will revisit this matter.

Jerome Veldsman BCom LLB (Stell) and Roxanne Ker BA (Law and Psychology) LLB (UCT) are attorneys at Walkers Inc in Cape Town.

This article was first published in De Rebus in 2018 (Oct) DR 30.