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

1ST  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:     Insolvency – relationship between s 20 and s 23(2) of the
Insolvency Act – essence of a simulated transaction is an intent on the part
of both parties to deceive
_______________________________________________________
JUDGMENT
_______________________________________________________

SCOTT JA/…

SCOTT JA:

[1] The respondents in this appeal are the joint trustees of the
insolvent estate of Mr Jurgen Harksen. They were provisionally
appointed in 1995 and their appointment was made final in 1999. I
shall refer to them as the trustees. The appellant is a businessman
and resides in Gauteng. In November 2000 he purchased an
expensive dwelling in the Cape, known 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 Mrs Jeannette Harksen 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 subject 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, telephone and electricity charges and
administration fees. In all, a total amount of R271 290,63 was paid to

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 emanated 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 appellant 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 estate. In the alternative, it was
pleaded that in the event of it being found that the conclusion of the

lease and the payment of rent constituted 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 alleged 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 abandoned. The trustees, on the other
hand, did not persist in their claim that for this reason alone the rental
received by the appellant was repayable and the question was not
considered by the trial judge (Waglay AJ). The learned judge found,
however, that the purported lease between the appellant and Mrs
Harksen was a simulated transaction and that the true lessee was

Harksen himself who had paid the rent with funds belonging to his
insolvent estate. He furthermore rejected the defence raised 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 accordingly held that the lease was
voidable at the instance of the trustees 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 nature of the lease, it is necessary
to say something about the claim based on s 20 of the Act (which
was not proceeded with) and the relationship 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 vest 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 insolvent may acquire or which may
accrue to him or her during the sequestration, 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

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 contract between his wife and the
appellant, the trustees could simply 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 payee 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

whose debt had been discharged. This could result in the trustees
being unable to show that the estate had been impoverished.
Similarly, as the payment would have had the effect of discharging
the debt owed to the appellant, the 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 court 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:

‘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 consent in writing of the trustee of his
estate, enter into any contract whereby his estate or any contribution towards his
estate which he is obliged to make, is or is likely to be adversely affected, but in
either case subject to the provisions of sub-section (1) of section twenty-four.’
[8] The first proviso is of little assistance because it adds nothing to
s 20(2). An insolvent has no authority to dispose of any property of
the insolvent estate and a contract whereby the insolvent purports to
do so cannot be enforced against either the trustee or against the
insolvent. In any event, it is doubtful whether the written lease –
assuming it to have been in the name of Harksen – ‘purported’ to
dispose of any property of his insolvent 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,

if with Harksen, was one ‘whereby 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 event of such a contract
being avoided the appropriate remedy is restitutio in integrum. In
Bonne Fortune Beleggings Bpk v Kalahari Salt Works (Pty) Ltd  1973
(3) SA 739 (NC) at 743H Van den Heever 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

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 restitution 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 occasions on which it will do so are
not limited to a specified and limited 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 would be excused from making any
form of restitution is not an issue that was debated before us.

[11] Another question that arises is the correctness of the
assumption that a trustee who avoids a contract under s 23(2) is in
principle entitled to restitution. A contract 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 avoid it. The trustee does
not derive any rights or benefit from 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 have to restore possession. If an
insolvent hires a house within 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

believes that this may affect the insolvent’s earning capacity and his
ability to make a contribution, and avoids the contract. Is it likely that
the trustee will then be entitled to restitution? 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 insolvent 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 parties 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 prove the oral lease alleged by the
trustees. The latter accordingly bore the onus of proving that the
written lease alleged by the appellant 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] As previously indicated, the appellant purchased the bungalow
in November 2000. Its value was in excess of R10m. The furniture
alone was said to be worth something 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 indicated 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 the 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

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 often, 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 undertaken 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 the walls of a hired house on some
previous occasion. The appellant remained concerned but his
concern related to the ‘horror stories’ rather than to the extradition
attempts. The following day he again wrote to Watson saying:
‘My greatest fear in renting 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 Harksen. 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 Harksen - if it helps, I would let the
bungalow to him again if it were my decision, because he really seemed to have

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, proposing the terms on which he was
prepared to enter into a lease. (This letter and all subsequent
correspondence, unless otherwise stated, was sent by telefax.)
Ferguson replied, recording Harksen’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 Harksen’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 Letting Agent I would ask you to advise me what is the
legality of Mr Harksen’s advocate signing 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 Studer, is authorized to contract on his
behalf. Someone has got to be liable in the event of a breach of the contract.’

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 his 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 occupying the bungalow as
before.’
[15]  I interpose that Ferguson in evidence sought to explain that by
the expression ‘for diplomatic reasons’ 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 require from him a Power of Attorney
authorizing that person to sign on his behalf.’
With regard to the possibility of Studer being the principal, he
enquired:

‘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 parties - 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 suffered) . . . 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 possibility of an upfront payment of the
rent. After referring to the need for clarity on the issue of the identity
of the principal, the appellant concluded his letter of 26 January 2001
by indicating that if his requirements 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. The lease was supposed to have

commenced on 5 February 2001. By that date nothing had happened.
However, on 6 February 2001 Harksen 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 next day, the appellant wrote back
indicating that he would not agree to a five per cent discount.
[18] The 8th of February came and went. Once again Harksen could
not be reached and nothing happened. On 13 February Ferguson
wrote
to
both
Harksen
and
the
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 appreciate it, if you could make
some changes regarding the method of payment. Mr Studer agrees to the

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-worthiness 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, Harksen 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 alternatives. 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 addressing him no longer as ‘Keith’ but as
‘Mr Ferguson’. After summarizing what had occurred since 18

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 Studer (or Mr Harksen) by Monday, 19th
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 Harksen 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 signed that day the transaction would
fall through. Shortly thereafter Harksen 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)

and had a shop in Cape Town (which was true). Ferguson
telephoned the appellant to seek his 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 lessee. 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 lease agreement which reflected Mrs
Harksen as the lessee and proceeded to the latter’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 neither 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 Accommodation 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-

wheeled drive vehicle and having to double-park outside. Strickland,
was also present. She, too, had previously met Mrs Harksen and had
no doubt that it was she who delivered the lease. I mention this
because Mrs Harksen testified that at that stage she had no
knowledge of the lease and although 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 signed at the shop as they were
witnessed by the same person.) The letters ‘pp’ were inserted
immediately in front of the lessee’s signature on one of them. Their
proximity to the signature, which was nothing more than a scrawl,
rendered them not readily apparent and they went unnoticed.  It was
only after the trustees demanded payment 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 insertion of 1 March 2001 as the

commencement date. I mention this because counsel for the trustees
sought to make something of the letter dated 20 February which
Ferguson wrote to the appellant reporting what had happened. The
letter began:
‘I have just received the signed agreement and addendum. I noticed that he had
altered the date of occupation 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 received the letter, that the true
lessee was Harksen himself. I mention at this stage that I do not think
much significance can be attached to the reference to Harksen as
opposed to his wife. After all, he had done all the negotiating and for
him to have altered the lease before signature would not have been
inconsistent with Mrs Harksen being 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 arranged for an inventory to be ‘signed by Mrs
Harksen after it has been checked’.

[24] Mrs Harksen testified on behalf of the trustees. She explained
that her husband, who had since been extradited to Germany, had
used persons and companies as ‘fronts’ to hold assets on his behalf
and in this way to maintain his lifestyle of opulence. She said Studer
was one such a person and that she 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. But even if he was not, and she was
unaware of the conclusion of the lease at the time, she readily
conceded that once she discovered what had happened she ‘went
along with it’ and indicated by her conduct that she was the lessee.
Indeed, she was not only directly involved in the drawing up of the
inventory at the commencement and 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

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 account 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 fact 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 therein cited. It is important to emphasise that a
transaction which is disguised in this way is essentially a dishonest
transaction; the object of the disguise, which is common to the
parties, is to deceive the outside world. Before a court will hold a

transaction to be simulated or dishonest in this sense it must
therefore be satisfied that there 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 contract if in these circumstances
Harksen himself intended to be the lessee in terms of the lease. (Cf
Registrateur van Aandelebeurse v Aldum h/a Onecor Group 2002 (2)
SA 767 (SCA) at 773B-E.)  As previously indicated, in the absence of
a contract, no reliance could be placed on s 23(2) of the Act. In that

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 inquiry, therefore, is appellant’s true
intention. In other words: was it established on a balance of
probabilities that his true intention was to enter into a disguised and
dishonest transaction in the sense discussed above?
[29] In finding for the trustees 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 lease 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 substitute for Studer who was Harksen’s
‘front’. In assessing the probabilities 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 evidence of the appellant to the

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 into 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 weekends. 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 range 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 Harksen was unwilling to enter into a
lease in his own name. But this would not give rise to an inference of

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 this 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 which 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

February 2001, as is apparent from his letter of that date, he was
prepared to contract with either Studer or Harksen as principal. The
appellant testified that when Mrs 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 attention to various features 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 responsible for telephone costs
and therefore I bring this to your attention as four exchange lines and the usage
which the previous owner envisaged may not apply to you.’ (Emphasis
supplied.)
Mrs Harksen replied on 20 March 2001 indicating she would
comment on the points raised in the appellant’s letter later in the
week. On 27 September 2001 she again wrote answering the

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 lessee 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 Jeannette 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 bungalow. The letter bore the heading:
‘Mrs Harksen’s Agreement of lease until 30th November’ and
commenced: ‘As we are less than two months away from the time
that Mrs Harksen’s lease of  Bungalow 16 ends . . . .’ A final example
is a letter written by the appellant 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.’

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. The 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 costs, 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 –

‘The plaintiffs’ action is dismissed with costs.’

__________

D G SCOTT

JUDGE OF APPEAL

CONCUR:

HARMS        JA
ZULMAN      JA
CAMERON  JA
JAFTA          JA