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[2010] ZAWCHC 129
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Van der Merwe NO and Others v Hydraberg Hydraulics CC and Others, Van der Merwe NO and Others v Bosman and Others (12742/09, 22837/09) [2010] ZAWCHC 129; 2010 (5) SA 555 (WCC) (17 June 2010)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
In
the matter between:-
Case
No: 12742/09
JOHANNES
MARTHINUS VAN DER MERWE N.O.
First
Applicant
LEON
TOBIAS MOSTERT N.O.
Second
Applicant
JACQUES
BRINK THERON N.O.
Third
Applicant
and
HYDRABERG HYDRAULICS
CC
First
Respondent
EDWARD WILLIAM JOHN
CLARKE N.O.
Second
Respondent
QUINTON PETRUS
JOHANNES BOSMAN N.O.
Third
Respondent
EDWARD WILLIAM JOHN
CLARKE
Fourth
Respondent
QUINTON PETRUS
JOHANNES BOSMAN
Fifth
Respondent
AND
Case
No: 22837/09
In
the matter between:-
JOHANNES
MARTHINUS VAN DER MERWE N.O.
First
Applicant
LEON
TOBIAS MOSTERT N.O.
Second
Applicant
JACQUES
BRINK THERON N.O.
Third
Applicant
and
QUINTON
PETRUS JOHANNES BOSMAN
First
Respondent
EDWARD
WILLIAM JOHN CLARKE
Second
Respondent
XTREME
HYDRAULICS AND PNEUMATICS
Third
Respondent
HYDRABERG
HYDRAULICS CC
Fourth
Respondent
MORNE
DU PLOOY
Fifth
Respondent
JUDGMENT
DELIVERED ON 17 JUNE 2010
BINNS-WARD J:
[1]
Two separately instituted applications came before me for hearing
together. The applicants in both applications were the trustees
of
the Monument Trust.
[2]
In the first application the applicants seek the following orders by
way of substantive relief arising out of the execution
of a deed of
contract the object of which was the purchase and sale of a business
and the fixed property from which the business
operated:
That
the Sales (sic) Agreement ('Option to Purchase') dated 4 July 2008
annexed to First Applicant's founding affidavit herein
and marked
'MTV be rectified by substituting the name 'Clarke Bosman Trust' on
page 1 thereof with the name 'Hydraberg Property
Trust'.
That
the Respondents be ordered to take all necessary steps so as to
effect the transfer of [the fixed property] to the Applicant
(sic)
within 7 days of the Court Order.
[3]
In the second application the applicants seek to enforce a covenant
in restraint of trade incorporated in clause 8 of a subsequently
executed addendum to the aforementioned deed of contract in terms of
which the Trust, the close corporation, one Edward William
John
Clarke ('Clarke') and one Quinton Petrus Johannes Bosman ('Bosman')
bound themselves in favour of the purchaser and the
business not to
compete with the business for a period of two years after the date
of the final payment of the purchase price.
1
For various reasons, which I shall discuss presently, the
respondents contend that the agreement recorded in the deed of
contract
is void. It will therefore become necessary to engage with
the merits of the second application only if the first application
is granted. I shall therefore treat with that application alone to
begin with. There was, however, a cross-referencing between
the two
applications in the affidavits and counsel therefore agreed that,
notwithstanding the absence of any formal consolidation
of the two
matters, the court could for the purposes of determining either of
the applications have regard to the evidence in
the affidavits in
the other.
[4]
The contract document evinced an option agreement signed by the
option grantors and the option grantee on 4 July 2008;
2
and, by his further signature thereto on 11 July 2008, the purported
exercise of the option by the option grantee. The resultant
deed
identified a seller and a purchaser; it recorded a price and it
described the
res
vendita
with
sufficient detail to enable its identity to be objectively
ascertained. Insofar as it recorded, in part, an agreement in
respect of the sale of immovable property, the deed of contract
therefore complied, on its face, with the formalities requirements
of the
Alienation of Land Act 68 of 1981
. It was therefore amenable,
if needs be, to rectification.
3
[5]
The fixed property that was the subject of the deed of contract was,
as at the date of the signature of the deed, in July
2008,
registered in the names of Clarke and his wife. Mr and Mrs Clarke
owned the property jointly in undivided shares. In terms
of a deed
of alienation executed by the parties thereto on 30 June 2005, Mr
and Mrs Clarke had bound themselves, as sellers,
to sell the
property at a price of R400 000 to the Hydraberg Property Trust
('the Trust'). The property had, however, not yet
been transferred
to the Trust when the contract in issue in the current case was
concluded.
[6]
It is common ground that when the contract currently in issue was
concluded the trustees of the Trust were Clarke and Bosman.
It is a
matter of dispute whether one Johan Gerhard Slabbert was also a
trustee at the time. The beneficiaries of the Trust are
Clarke and
Bosman and their respective spouses and descendants, as well as any
trust created 'mainly' for the benefit of any
of the aforementioned.
It is apparent from the provisions of the trust deed that the
positions of Clarke and Bosman as trustees
are entrenched for as
long as they might wish to hold office as such, whereas the third
trustee (described in the trust instrument
as 'an independent
trustee') may be dismissed if the majority of the other trustees
4
so decide. Should either Clarke or Bosman cease to be a trustee,
they and those of their respective family members who are
beneficiaries are empowered to replace them. (Quite how - i.e. by
what procedure - each of the respective groups of family
beneficiaries
is to effect the nomination of the replacement is not
evident from the trust deed.)
[7]
The deed of contract currently in issue purported on its face to
have been concluded between Hydraberg Hydraulics CC and 'the
Clarke
Bosman Trust' of the one part, as seller, and Johannes Marthinus Van
der Merwe 'or his nominee/s' of the other part, as
purchaser. It is
evident from the facts that are common cause that Hydraberg
Hydraulics CC was the intending seller of the business
and the Trust
the intending seller of the fixed property, but the Trust and the
close corporation acted jointly in the sale of
both business and
land. The deed of contract recorded that Clarke and Bosman purported
to represent both the close corporation
and the seller-trust in
concluding the contract, and each of them warranted that he was duly
authorised by the corporation and
such trust to do so. It is common
cause that the transaction was intended to be an indivisible one;
this notwithstanding the
express allocation of part of the purchase
price as being in respect of the business and the balance in respect
of the fixed
property. Thus it is the position of all the parties
that the sale of the business and the fixed property go together and
that
a failure of one leg results in a failure of the whole
contract.
[8]
During argument I raised a query as to whether the applicant for
enforcement of the transfer of the fixed property should
not have
been Van der Merwe, rather than his nominee, the trustees of the
Monument Trust (of whom he was one). Following upon
that, an
application was moved to introduce Van der Merwe in his personal
capacity as a fourth applicant. The respondents' counsel
advised the
court at that stage that the respondents accepted that the trustees
of the Monument Trust had standing to seek the
relief being sought
and did not wish to take issue on their
locus
standi.
It
thus became unnecessary to consider this aspect further, and the
application to introduce Van der Merwe as fourth applicant
was not
proceeded with.
[9]
As far as is known, no trust by the name of the Clarke Bosman Trust
existed. In context it is obvious that Clarke and Bosman
were
intending to represent the Hydraberg Property Trust. After all it
was only in that capacity that they must have expected
to take
transfer of the fixed property from the registered owners and thus
be placed in a position to fulfil the obligation under
the contract
to give transfer of the property to the option grantee/purchaser.
There is no other sensible explanation for their
action in playing
the role they did in the execution of the deed of contract. Indeed,
the central basis of opposition to the
first application is the
voidness of the contract because
the
Hydraberg Property Trust
was
not effectively represented by its trustees in compliance with the
provisions of the trust instrument. In regard to the identified
defect in the description of one of the sellers in the deed of
contract, Clarke, the deponent to the principal answering affidavit,
averred that the error had occurred because of a mistake on the part
of the drafting attorney, one Theron. He went on to argue
that even
if the agreement were to be rectified, the agreement was
nevertheless void because there was no written authority from
the
Trust, as required in terms of
s 2
of the
Alienation of Land Act,
empowering
Bosman and him to execute the deed as only two of the
three trustees. He pointed out in his affidavit that there was in
any event,
at that stage, no claim by the applicants for
rectification.
[10]
In the applicants' replying affidavit it was averred in response
that rectification was not required, but that 'a notice
of intention
to amend the notice of motion [would] nevertheless, insofar and if
this [might] be necessary, be filed in due course
to provide for the
rectification of the name of the seller trust'. A notice of
intention to amend was not filed. Instead, application
was made from
the bar at the commencement of the hearing to amend the notice of
motion by introducing a prayer for the appropriate
rectification of
the deed.
[11]
The respondents' counsel was somewhat equivocal in his attitude to
the application to amend the notice of motion. He certainly
did not
consent to it. In my view there was no cogent basis to oppose the
amendment sought. It was foreshadowed in the papers
and, as
mentioned, the mistake regarding the description of the Trust is
essentially conceded in the respondents' answering papers.
The
application for the amendment of the notice of motion will
accordingly be granted.
[12]
Whether any point will be served by granting the rectification
depends, of course, on the determination of the legal validity,
alternatively, the enforceability of the deed of contract. And it is
to those questions that I now turn.
[13]
The deed establishing the Trust provides that there 'shall at all
times be a minimum of 3 (Three) trustees, provided that
if there are
less than 3 (Three) trustees as a result of the termination of the
office of a co-trustee, the remaining trustee(s)
shall be authorised
to exercise all the powers of the trustees for the maintenance and
administration of the trust fund until
such time as another trustee
has been appointed'. It is not in dispute that Mr Slabbert, who had
been appointed as the third
trustee upon the establishment of the
Trust, was not informed or consulted by Clarke and Bosman in regard
to the conclusion of
the contract. If Slabbert was indeed still one
of the trustees at the time, the omission to involve him in the
decision to conclude
the agreement would ordinarily have fatal
consequences for the validity of the agreement.
[14]
As Cameron JA explained in
Land
and Agricultural Bank of South Africa v Parker and Others
2005
(2) SA 77
(SCA);
[2004] 4 All SA 261
at para. [10], '[E]xcept where
statute provides otherwise, a trust is not a legal person. It is an
accumulation of assets and
liabilities. These constitute the trust
estate, which is a separate entity. But though separate, the
accumulation of rights and
obligations comprising the trust estate
does not have legal personality. It vests in the trustees, and must
be administered by
them - and it is only through the trustees,
specified as in the trust instrument, that the trust can act. Who
the trustees are,
their number, how they are appointed, and under
what circumstances they have power to bind the trust estate are
matters defined
in the trust deed, which is the trust's constitutive
charter. Outside its provisions the trust estate can not be bound';
and
at para.
[15],
'[l]t is a fundamental rule of trust law, which this Court recently
restated in
Nieuwoudt
and Another NNO v Vrystaat Mielies (Edms) Bpk,
5
that
in the absence of contrary provision in the trust deed the trustees
must act jointly if the trust estate is to be bound by
their acts.
The rule derives from the nature of the trustees' joint ownership of
the trust property. Since co-owners must act
jointly, trustees must
also act jointly. Professor Tony Honore's authoritative historical
exposition has shown that the joint
action requirement was already
being enforced as early as 1848. It has thus formed the basis of
trust law in this country for
well over a century and half.'
[15]
The following provisions of the Hydraberg Property Trust instrument
of entrustment appear to me to be pertinent in respect
of the issue
of capacity that arises in the current matter:
5.2. The
trustees may meet together for the despatch of business, adjourn and
otherwise regulate their meetings as they see fit.
Any trustee shall
at any time be entitled to summon a meeting of the trustees. The
quorum necessary for the purpose of this trust
shall be the majority
of the trustees, provided that a trustee appointed in terms of 4.3
[being Bosman and Clarke or a trustee
appointed in their place to
represent the interests of the two family groups of beneficiaries]
shall at all times form part of
such majority.
5.3 In
the absence of provisions to the contrary, the decisions of the
majority of the trustees present at a meeting shall prevail.
5.4 …......
5.5
A written resolution signed by all the trustees has the same
implication as a valid resolution passed at a meeting of trustees.
The aforesaid resolution can be contained in more than one document
signed by the trustees.
5.6 …......
5.7 Every
trustee who was not present at a meeting of trustees, must be
notified in writing within 7 (Seven) days from the date
of the
meeting, by the trustees who were present at such meeting, of all
decisions taken at such meeting. Any trustee who has
not been
notified, is hereby indemnified by every other trustee who was
present at the meeting against any claims or losses of
whatsoever
nature which may arise as a result of any action taken in execution
of such decision.
[16]
It is evident from these provisions that unanimity amongst the
trustees is not required in order for decisions to be made
effectively in respect of transactions concerning the administration
of the trust and the dealing with its assets in terms of
the powers
conferred on the trustees in terms of clause 6 of the trust deed. It
is sufficient if the relevant decision enjoys
the support of a
majority. A majority decision is competent only if adopted by a
majority of thetrustees present at a quorate
meeting of trustees.
Whether such a 'meeting' would need to be one at which the trustees
attending were physically present together,
or whether the 'meeting'
could be held in some alternative form, is a question which it is
not necessary to decide. It is evident,
however, that in order to
qualify as 'a meeting', all the trustees in office would have to
receive notice thereof so as to be
able to participate in it if they
so wished.
6
Slabbert did not receive any such notice and was therefore not
afforded an opportunity to participate in the decision by the
Trust
to sell the fixed property. The terms of the trust instrument which
provide for the trustees to make decisions by a majority
vote at a
quorate meeting do not provide an exception to the rule that all the
trustees must act jointly; they merely provide
that, subject to the
indemnity in clause 5.7, a majority decision will bind the
dissenting or absent trustees. The minority is
obliged to act
jointly with the other trustees in executing the resolution adopted
by the majority.
[17]
The applicants allege that Slabbert had ceased to be a trustee at
the time the deed of contract was executed. Before discussing
the
evidence in this regard it is perhaps convenient to summarise the
common law position in respect of the resignation of trustees
and
also the relevant provision in the Trust Property Control Act 57 of
1988. Cameron
el
al
state
the common law position as follows in
Honore's
South African Law of Trusts
Fifth
Edition at § 135: 'At common law, in the absence of provision
in the trust instrument, a trustee was not entitled to
resign office
except for good reason with theconsent of the court.'
7
The effect of the common law is that it is not competent for a
trustee to give up his/her fiduciary duties simply by electing
no
longer to fulfil them. Section 21 of the Trust Property Control Act
has advanced matters. It provides:
Whether
or not the trust instrument provides for the trustee's resignation,
the trustee may resign by notice in writing to the
Master and the
ascertained beneficiaries who have legal capacity, or to the tutors
or curators of the beneficiaries of the trust
under tutorship or
curatorship,
[18]
Slabbert did not resign as trustee in the manner permitted in terms
of s 21 of the Trust Property Control Act, or in the
manner
permitted in terms of the trust instrument - that is by no notice in
writing to his co-trustees. The applicants' counsel
therefore relied
on two other provisions of the trust deed to contend that Slabbert's
appointment as a trustee had been terminated.
These provisions were
sub-clauses 4.6.2 and 4.6.5, which read as follows:
4.6
The office of a trustee shall immediately be terminated and
vacated:
4.6.2
if he is for any reason unable to perform the duties of a trustee;
or
4.6.5
if there are more than 2 (Two) trustees and the majority of such
trustees discharge him; provided that it shall not be competent
for
the other trustees to discharge a trustee appointed in terms of
clause 4.3 as trustee.
[19]
The factual basis upon which the applicant's counsel relied on
clause 4.6.2 was the following: Clarke and Bosman had told
the
attorney representing the purchaser that they were the only
trustees. Slabbert had
also
subsequently confirmed to the attorney that 'he was not aware that
he, perhaps
technically,
was still a trustee....[h]e also stated that he was in any event
unable to perform the duties of trustee...due to
a breach of trust
and confidence between [Clarke and Bosman] and himself. He confirmed
that he resigned office as trustee of
[Clarke's and Bosman's] trusts
and as their public accountant at least a year before the Hydraberg
transaction.
8
He was not aware that his name was still reflected on any of their
documents as responsible official. He had handed over all
documentation to [Clarke and Bosman].'
9
All of this was confirmed by Slabbert in a confirmatory affidavit
deposed to on 22 October 2009. Counsel stressed that this evidence
was not disputed and argued that it was evident that Clarke and
Bosman had thereafter 'kept Slabbert out of the loop' by excluding
him as a decision-maker in regard to the trust. (I pause to remark
that it clear from what I have described earlier that when
Slabbert
said that he had resigned, he did not mean that he had complied with
the formalities necessary to competently resign.)
[20]
As I understand the averments of Clarke and Bosman in the
'supplementary
affidavit'
introduced after the delivery of the applicants' replying
affidavits, they do not quibble that they did not involve
Slabbert
in the relevant decision-making. They sought to explain that their
omission arose out of ignorance. They put in a written
notice from
Slabbert, dated 18 January
2010
(i.e. some three months after his aforementioned confirmatory
affidavit), in terms of which Slabbert formally resigned as
a
trustee of the Trust.
[21]
Much as I would have liked to, because of my perception of the
equities of this case, I am regretfully unable to uphold the
applicants' counsel contentions relying on clauses 4.6.2 or 4.6.5 of
the trust instrument.
[22]
Clause 4.6.2 must, in conformity with trite principle, be construed
with regard to its context, including the evident object
of the
trust instrument read as a whole. If this is done it becomes evident
that the relevant inability must be one that in a
relatively
absolute sense incapacitates the affected trustee from discharging
his/her functions. The temporary incapacity of
a trustee, say
through illness, or being uncontactable while away on a holiday,
might render him or her unable for a while to
perform the duties of
a trustee, but it was clearly not the founder's intention that such
relative inability should result in
the automatic and immediate
termination of the trustee's appointment. That much is apparent from
the provisions of clause 4.7
of the trust deed which permits a
trustee who is going to be temporarily absent or temporarily unable
to act as trustee to appoint
an alternative. Clause 4.6.2 would, for
example, operate if the inability arose from a permanent or
long-term cognitive disability,
or arguably even emigration to a
place which rendered it impractical for the affected trustee to
attend meetings of trustees
(although in the latter example one
would ordinarily expect the trustee to resign).
[23]
Because sub-clause 4.6.2 is widely worded, its operation is
essentially a matter of practicality and common sense; which
means
that its construction might give rise to grey areas. But there is no
doubt, in my view, that it does not apply to a situation
in which a
trustee chooses not to resign in the manner permitted either in
terms of the statute or of the trust instrument, but
instead
purports to 'informally' resign and his/her co-trustees as a
consequence, in breach of the trust instrument, exclude
him/her from
notice of their meetings as if s/he had resigned. To apply the
sub-clause in the manner contended for by the applicants'
counsel in
the factual context of the current case would be incongruent with
and inimical to the rest of the trust instrument;
and also with the
common law and the statute.
[24]
Clause 4.6.5, properly construed, would require a meeting of
trustees, of which notice would have to be given to the trustee
whom
it was intended to discharge. I do not consider that a discharge of
a trustee could competently occur in terms of this provision
simply
as a consequence of a tacit acceptance by the remaining trustees of
an oral or tacit indication by one of the trustees
of an
unwillingness to continue in office. The act of discharging requires
an antecedent decision to that effect. As I have already
remarked,
such a decision would, by reason of the provisions of the trust
instrument, require notice to all the trustees to participate
in a
meeting at which such decision might be taken, alternatively, a
round robin resolution signed by all the trustees, including
the one
being discharged thereby.
[25]
The applicants' counsel argued that in the event that I should
arrive at the conclusion that Slabbert remained in office
as a
trustee, the agreement should, on the application of the Turquand
rule, nevertheless be held to bind the trustees. I turn
now to
consider that argument.
[26]
The rule in Turquand's case derives from the decision of Jervis CJ
10
in the Court of Exchequer Chamber in
Royal
British Bank v Turquand
(1856)
6 E&B 327, affirming a judgment of Lord Campbell CJ of the Court
of the Queens Bench. It is a sufficiently well-known
aspect of our
Company Law not to require detailed discussion in this judgment.
11
It is enough, by way of reminder, to mention that it entails that a
party dealing in good faith with a company is entitled, if
the
latter's affairs appear to be being conducted in a manner permitted
by its memorandum and articles, to assume that any internal
formalities required thereby have been duly complied with.
[27]
In
Nieuwoudt
NO and Another v Vrystaat Mielies (Edms) Bpk.
2004
(3) SA 486
(SCA);
[2004] 1 All SA 396
the Supreme Court of Appeal
did not find it necessary to determine the question whether, as held
by the Northern Cape High Court
in
Man
Truck & Bus (SA) Ltd v Victor en Andere
2001
(2) SA 562
(NC), the Turquand rule applies to trusts. I have some
difficulty with the proposition in the absence of evidence of actual
or
constructive knowledge by the third party with the provisions of
the trust instrument. In
Man
Truck,
Buys
J proceeded on the understanding that when a third party deals with
a trust it is deemed to be aware of the content of the
trust
instrument.
12
I am not aware of any such legal fiction and counsel did not refer
me to any reasoned authority which might support it. There
is no
public record identifying at which of the several offices of the
Master throughout the country a particular trust instrument
is
lodged, and even then the Master must decide whether any person
seeking access to it should be permitted to inspect it.
[28]
In my judgment the Turquand rule in any event could not avail the
applicants in the current matter. The trust instrument
does not
provide a power to the trustees to authorise one of more of their
number to make decisions on the trustees' behalf,
or to act as
principals in respect of the Trust's affairs otherwise than jointly
with all the trustees. Even if it did, the applicants
would not have
been entitled to assume that such authorisation had been granted.
See
Nieuwoudt
at
para. [22], per Harms JA (as he then was) citing
Legg
& Co v Premier Tobacco Co
1926
AD 132
139;
Wolpert
v Uitzigt Properties (Pty) Limited & Others
1961
(2) SA 257
(W) 262G-263F; and
Tuckers
Land & Development Corporation v Perpellief
1978
(2) SA 11
(T) 15A-H.
[29]
More pertinently, even if the Turquand rule could be called in aid,
that would not avoid the necessity of compliance with
the
requirement that two of three trustees, required in terms of the
trust deed and the common law to act jointly, would have
to be
authorised in writing to conclude any agreement on behalf of the
Trust in respect of the alienation of immovable property;
cf.
Thorpe
and Others v Trittenwein and Another
2007
(2) SA 172
(SCA). I shall return to this incidence later. It is in
fact determinative of the applications.
[30]
For the same reason it would also not avail the applicants to rely
on an allegation of ostensible authority by Clarke and
Bosman to
represent the Trust. As soon as the role of the actors is brought
within the ambit of agency, the formality requirements
of the
Alienation of Land Act, which
require an agent's authorisation to be
in writing, become applicable. The existence of any such written
authorisation is nowhere
suggested in the evidence.
[31]
By way of conclusion on the matter of the application of the
Turquand rule contended for by the applicants' counsel, I should
record that I am in respectful agreement with the view expressed by
Cameron et al in
Honore's
South African Law of Trusts
5ed
at §198 that the rule that trustees must act jointly in the
discharge of their functions is not a matter of 'internal
management', but a matter of capacity.
[32]
As a further alternative, and in the event of their endeavour to
invoke the Turquand rule turning out to be unfruitful, counsel
for
the applicants submitted that the circumstances of the matter are
such that the court shoulddisregard the veneer of a trust
under
which Clarke and Bosman had in fact conducted their personal
business as usual. After all, it is apparent that Clarke and
Bosman
represented that they were the only trustees of the Trust.
Furthermore, it is evident that they must in fact have conducted
themselves as such quite consistently, and in a number of matters
besides the purported conclusion of the option agreement. In
this
regard it is apparent that Clarke and Bosman must have conducted the
business of the Trust, including making decisions on
the
distribution of its income for a year or more without the
involvement of their co-trustee, Slabbert. Notably, they opposed
one
of the current applications,
qua
trustees
of the Hydraberg Trust, without involving Slabbert in the decision,
and stated on oath that they were duly authorised
to do so. They
also implemented the contract by accepting payment of the initial
instalments of the purchase price totalling
R6 million and by
putting the applicants in possession of the business and the fixed
property from which it operates. They now
maintain that if the
contract is void the trustees are not obliged to repay the R6
million because, so they allege, the business
has not been well
managed during the intervening two years and is now worth less than
the R6 million of the contract purchase
price allocated to it.
[33]
I described the structure of the Trust earlier in this judgment.
13
The provision of a separation between the person or persons vested
with ownership and control of property from the person or
persons
for whose benefit or enjoyment the property is held has appositely
been described as 'the core idea' or 'the essential
notion'
underlying the trust form as a legal
concept.
14
In
Parker's
case,
supra, the Supreme Court of Appeal observed that '[T]he great virtue
of the trust form is its flexibility, and the great
advantage of
trusts their relative lack of formality in creation and operation:
"the trust is an all-purpose institution,
more flexible and
wide-ranging than any of the others".
15
It is the separation of enjoyment and control that has made this
traditionally greater leeway possible. The courts and legislature
have countenanced the trust's relatively autonomous development and
administration because the structural features of "the
ordinary
case of trust" tend to ensure propriety and rigour and
accountability in its administration.'
[34]
Cameron JA, however, discerned that since the mid-1980's there had
been a
noticeable
change brought about by the formation of many business trusts 'in
which functional separation between control and enjoyment
is
entirely lacking. This is particularly so in the case of family
trusts - those designed to secure the interests and protect
the
property of a group of family members, usually identified in the
trust deed by name or by descent or by degree of kinship
to the
founder.'
16
I doubt that anyone with a modicum of commercial law experience
would doubt the pertinence of this insight concerning what Harms
JA
in
Nieuwoudt
disparagingly
described as a 'newer type of trust'.
17
Cameron
JA proceeded 'The core idea of the trust is debased in such cases
because the trust form is employed not to separate beneficial
interest
from control, but to permit everything to remain "as before",
though now on terms that privilege those who
enjoy benefit as before
while simultaneously continuing to exercise control.'
18
[35]
The Hydraberg Property Trust bears the unwholesome hallmarks of the
'newer type' of business trust. These are reflected not
only in its
structure, but also in the manner in which its affairs have
demonstrably been conducted. Although the trust instrument
makes
provision for the mandatory appointment of a third so-called
'independent' trustee, that trustee holds office only at the
pleasure of Clarke and Bosman, or should the latter have resigned or
forfeited their office (for example, as a consequence of
having been
sequestrated), at the pleasure of the substitute trustees appointed
by their respective family member beneficiaries.
The independent
trustee's position can in any event never prevail against that of
Clarke and Bosman, who if they vote together
will always constitute
a majority. In theory the trust could operate with a real functional
separation between control and benefit
were additional independent
trustees to be appointed thereby overriding the otherwise
controlling majority of the entrenched
initially appointed
beneficiary trustees or their successors. Having regard to the
provisions of the trust instrument considered
as a whole, it is no
cause for surprise to find that no additional trustees have been
appointed during the five years of the
Trust's existence. Instead,
as is all too likely to happen with such a trust structure, the
beneficiary trustees have sidelined
the independent trustee; and,
when he ceased to fulfil his essential role in the control of the
Trust's affairs, they blithely
proceeded without him, indifferent to
the trust instrument's requirement that there be a minimum of three
effectively functioning
trustees and oblivious of their obligation,
should this requirement fail for any reason, to ensure the
appointment of an additional
or replacement trustee.
[36]
The first signs of interest in the importance of compliance with the
trust instrument arose in the context of Clarke and
Bosman's resort
to its provisions in seeking to escape the contractual obligations
they were happy to assume on the Trust's behalf;
this only several
months after they had accepted payment of the major portion of the
purchase price and put the purchaser's nominees
in possession of the
business and the fixed property. Slabbert's formal resignation as
'independent trustee' was procured only
three months after the
applicants' replying affidavits were delivered. A presumably
functioning third trustee was appointed only
with effect from 12
February 2010. On Slabbert's evidence this would have been at least
two and a half years since he had ceased
to function as the
originally appointed third trustee. Almost comically, what, judged
by its content, would appear to have been
the first resolution of
the newly constituted board of trustees unanimously determined in
writing, amongst other matters, that
it be recorded that the
Hydraberg Property Trust was not a party to the agreement of sale of
the fixed property in July 2008
and had not given Clarke or Bosman
authority in writing to enter into the agreement. I describe the
resolution as comical - tragic-comical
might be a more fitting
adjective - because it was tantamount to a formal confession by
Clarke and Bosman of their dishonesty
in executing the deed of
contract; it cynically ignored the palpable abuse of the trust form
inwhich those in control of the
Trust's affairs during the relevant
period had engaged; and it was subscribed to by the newly appointed
so-called independent
trustee without any evident concern by him
about the aforementioned attributes. The trustees also resolved to
institute proceedings
for the eviction of the purported purchaser or
the persons occupying the fixed property under him, but curiously,
appear to have
given no consideration to the funding of the R6
million that will have to be tendered to sustain any such claim, or
the recoupment
of any damages from Clarke and Bosman for having put
the Trust in the prejudiced position of having to institute
proceedings
for the recovery of its property. This, in my view,
provides yet further indication, of the persisting conduct of the
Trust's
affairs as if they were the proprietary affairs of Clarke
and Bosman personally.
[37]
It has been pointed out on more than one occasion that transacting
business with a trust can be to enter onto perilous territory
and
that it therefore behoves third parties doing so to take care to
ensure that the persons purporting to act on a trust's behalf
are
duly empowered or authorised to do so.
19
But, as observed in
Parker,
'While
outsiders have an interest in self-protection, the primary
responsibility for compliance with formalities and for ensuring
that
contracts lie within the authority conferred by the trust deed lies
with the trustees. Where they are also the beneficiaries,
the
debasement of
trust
function means all too often that this duty will be violated.
20
The facts in the
current
matter confirm the wisdom of both these observations.
[38]
The abuse of the trust form is something that should not lightly be
countenanced
by
the courts in cases in which the veneer of a trust is used to
protect the trustees against fraud and dishonesty and to raise
unscrupulous defences against
bona
fide
third
parties seeking to enforce the performance of contractual
obligations purportedly entered into by such trustees ostensibly
in
that capacity. In
Parker,
Cameron
JA ventured the following observations in this connection: 'The
courts will themselves in appropriate cases ensure that
the trust
form is not abused. The courts have the power and the duty to evolve
the law of trusts by adapting the trust idea to
the principles of
our law
(Braun
v Blann and Botha NNO and another).
21
This power may have to be invoked to ensure that trusts function in
accordance with principles of business efficacy, sound commercial
accountability and the reasonable expectations of outsiders who deal
with them.';
22
and 'Where trustees of a family trust, including the founder, act in
breach of the duties imposed by the trust deed, and purport
on their
sole authority to enter into contracts binding the trust, that may
provide evidence that the trust form is a veneer
that in justice
should be pierced in the interests of creditors.'
23
A decision to disregard the veneer would, like one to pierce the
corporate veil, be a decision
to
afford an equitable remedy. The weight of the policy considerations
arising from the need to respect corporate or juristic
personality
that make piercing the corporate veil a rare event is less, I
venture, in the matter of disregarding the form of
an example of the
'newer type of trust'. In the latter type of case no question of
disregarding juristic personality presents.
On the contrary the
issue in such cases of abuse of the trust form is whether or not it
would be conscionable for a court to
give credence to a natural
person's disguise of him or herself as a trustee of what is in
reality treated by such person as his
or her own property.
[39]
The facts of the current matter afford a classic example of an abuse
of the trust form flowing directly from the conduct
by Clarke and
Bosman in respect of the ownership of the fixed property with no
distinction between their responsibilities as
trustees and their
expectations as beneficiaries. They treat the property as their own,
and invoke the existence of the trust
only when it suits them. There
has not been any suggestion that in acting as they did at the time
Clarke and Bosman prejudiced
the rights of the beneficiaries of the
Trust. On the contrary, the evidence is that the third (independent)
trustee would have
consented to the transaction, had his input been
sought. It is apparent that the only reason that non-compliance with
the requirements
of the trust instrument is being raised at this
late stage is because it apparently no longer suits the personal
interests of
Clarke and Bosman for effect to be given to the
contract they purported to enter into. In principle I consider that
it would
be unconscionable to allow them to get away with such
behaviour.
[40]
I should mention that the respondents counsel sought to explain the
respondents' behaviour by saying that it was due to their
dissatisfaction at being visited with an unexpected liability in
respect of VAT on the sale of the fixed property. It was claimed
that the attorney, Theron, who had negotiated the agreement on
behalf of Van der Merwe had given them to understand that there
would be no such liability. I find this difficult to accept in the
face of an express provision (in clause 7.2) of the agreement
that
should the Receiver of Revenue regard the sale of the property as a
taxable supply, the purchaser would not be liable to
pay the value
added tax. Clarke and Bosman moreover took the draft agreement to
their own attorneys for consideration before
they signed it. They
certainly did not express this complaint in the correspondence in
which, through their attorneys of record,
they first contended that
the contract was void.
[41]
If it had been legally possible, this matter would be an appropriate
case, in my judgment, to have disregarded the veneer
of the trust
form. This might have been done in one of two ways: By holding the
delinquent trustees personally liable for performance,
or by
directing the trust to perform as if the obligation had been
properly incurred by the trustees acting in the capacity that
they
purported to. As the trustees of the Trust have contracted with Mr
and Mrs Clarke to take transfer of the fixed property
so as to be
able to give effect to the contract concluded by Clarke and Boswell
with Van der Merwe, it seems that the indicated
course in the
current matter would have been to direct that the trustees for the
time being of the Trust do everything necessary
to effect transfer
of the fixed property to the applicants against payment by the
latter of the balance of the outstanding amount
of the purchase
price.
[42]
Unfortunately, however, the formalities applying in respect of
contracts in respect of the alienation of land pose an insuperable
obstacle to the course I would have wished to take. Whereas, as
between the parties to the contract I might, on the basis described
at some length above, have been able to disregard the veneer of the
trust to overcome an unscrupulous resort by the trustees
to internal
formalities and conveniently assumed lack of capacity to escape
contractual obligations, I am not able to ignore
the trust's
existence as a formally constituted legal concept when it comes to
compliance with the peremptory requirements of
applicable
legislation. When law and equity cannot concur, it is the law that
must prevail. As mentioned earlier, it was not
competent for the
trustees of the Trust to act other than jointly. Therefore, as also
mentioned earlier, Clarke and Bosman, being
only two of the three
trustees in office, could bind the Trust in respect of a sale of
immovable property only by acting together
with their co-trustee as
joint principals, alternatively, on the written authority of all of
the trustees given acting jointly.
[43]
The application for an order compelling the transfer of the fixed
property must fail. In the circumstances no point will
be served in
rectifying the ineffectual deed of contract. The restraint of trade
clause also fails as a consequence because it
is part of the sale of
the business which the parties regarded as indivisible from the sale
of property. I nevertheless wish
to record that had it not been for
the obstacle presented by the sale of land formalities, Ishould have
upheld the application
for the enforcement of the restraint against
Bosman and, insofar as Clarke contended that he was not bound by it,
granted declaratory
relief by way of alternative relief confirming
that he was in fact bound by it. I would not have found that a case
had been made
out against the third, fourth and fifth respondents.
[44]
It will be evident that this judgment could have been much shorter
had I considered it appropriate to dispose of the applications
only
on their legal merits. I proceeded at greater length, however, so as
to be able to explain my decision to depart from the
general rule in
litigation that costs follow the result.
[45]
The formalities legislation on which the result of these
applications has ultimately turned was evidently intended to promote
certainty in regard to contracts in respect of the alienation of
interests in land. The apparent legislative hope was that the
imposition of formalities would lessen the scope for dispute and
reduce the amount of litigation between parties to such contracts.
Successive legislatures have persisted with the belief in that ideal
despite the observations by judges and academic writers
over many
years that the effect of the formalities has often been to bring
about greater evils than those which it was hoped
thereby to avoid.
24
These evils include the resort by the dishonest and the unscrupulous
to the formalities in order to avoid obligations seriously
undertaken which would otherwise be enforceable against them at
common law, and a hampering of the ability of the courts todo
justice. As I have sought to make clear, the current case is yet
another one in which the incidence of the formalities has had
this
unjust effect. It would be to heap injustice upon injustice if the
already unseemly result of these cases were to be compounded
by an
order that costs follow the result. The existence of an overriding
judicial discretion in regard to costs means that it
is not
inevitable that costs follow the result.
25
In the exercise of the court's discretion I have therefore decided
that it would be appropriate that in both applications the
parties
should be left to bear their own costs, save that in case no.
22837/09, the applicants shall be liable for any costs
that may have
been incurred by the third, fourth and fifth respondents.
[46]
The following orders are made:
1. The
application to amend the notion of motion in case no. 12742/09 to
introduce a claim for the rectification of the deed of
contract is
allowed and the amended notice of motion is admitted to the record.
2. The
applications in case no. 12742/09 and case no. 22837/09 are
dismissed.
3. In
both the aforementioned matters the parties shall bear their own
costs; save that in case no. 22837/09, the applicants shall
be
liable for any costs that may have been incurred by the third,
fourth and fifth respondents.
A.G.
BINNS-WARD
Judge
of the High Court
1
The execution of the restraint agreement recorded in clause 8 of the
addendum agreement was presaged in clause 13.1 of the principal
deed
of contract.
2
The
evidence suggests that notwithstanding the inserted date of 4 July,
the option agreement was in fact executed on 7 July 2008.
3
Cf.
Headermans (Vryburg) (Pty) Ltd. v Bai
[1997] ZASCA 33
;
1997 (3) SA 1004
(SCA);
[1997]
2 All SA 371
(A) at 1010 (SA); Magwaza v Heenan
1979 (2) SA 1019
(A)
at 1025H-1026D and 1029A-C.
4
The trust instrument requires that there be a minimum of three
trustees. The original trustees and their replacements are empowered
to appoint additional trustees if they so wish, but having regard to
the structure and evident purpose of the Trust it is no
cause for
surprise that this power has not been exercised during the existence
of the Trust.
5
2004 (3) SA 486
(SCA);
[2004] 1 All SA 396
at para [16].
6
Joubert ed
The
Law of South Africa
Second
Edition (LexisNexis) vol 17(2) sv.
Meetings
at
para.s 187-9;
Legg
&Cov
Premier Tobacco Co
1926
AD 132
at 139.
7
Ex parte Estate Berk
1939
(1) PH G24 (N), citing Ex
parte
Wilson: Re Estate Wilson
(CPD
1937, unreported) is cited in support of this statement.
Berk's
case
seems to me only indirectly in point.
8
The 'Hydraberg transaction' is a reference to the execution of the
deed of contract currently in issue.
9
The
wording in quotation marks is taken, subject to the adaptations
indicated by the words within
square
brackets, from the replying affidavit deposed to by Van der Merwe,
which is supported by a confirmatory affidavit by Slabbert.
10
Pollock CB, Alderson B, Cresswell J, Crowder J and Bramwell B
concurring.
11
The Turquand rule has also been applied in regard to transactions
with trade unions and municipalities: see
Mine
Workers' Union v Prinsloo
1948
(3) SA 831
(A) (the trade union's constitution was a matter of
public record in terms of
s 68
of Act 36 of 1937) and
Potchefstroomse
Stadsraad v Kotze
1960
(3) SA 616
(A) (the municipality's by-laws provided that the town
clerk was the municipality's chief executive officer who might
properly
have been authorised by the council to bind the
municipality contractually). In
Nieuwoudt
NO and Another v Vrystaat Mielies (Edms) Bpk
at
para. 8, Farlam JA quoted what he described as 'a modern formulation
of the rule' in
Halsbury's
Laws of England
4
ed, reissue vol 7(1), para 980: 'Persons contracting with a company
and dealing in good faith may assume that acts within its
constitution and powers have been properly and duly performed, and
are not bound to inquire whether acts of internal management
have
been regular.'
12
See
Man
Truck
at
569G.
13
See para. [6], above.
14
Per Cameron JA in
Parker
supra,
at para.s [19] and [22], respectively.
15
Tony Honore Chapter 26, 'Trust', in R Zimmermann and D Visser
Southern
Cross - Civiland Common Law in South Africa
(1996)
page 850.
16
Parker
supra,
at para. [25].
17
See
Nieuwoudt
supra,
at para. [17]: 'The trust deed in this case is typical of a newer
typeof trust where someone, probably for estate planning
purposes or
to escape the constraintsimposed by corporate law, forms a trust
while everything else remains as before.
'
18
Parker
supra,
at para. [26],
19
See
Nieuwoudt's
case,
supra, at para. [24];
Standard
Bank of South Africa Ltd v Koekemoer and Others
[2004]
ZASCA44 (27 May 2004) at para. [12] and
Parker,
supra,
at para. [32] and cf. Walter Geach, with Jeremy Yeats,
Trusts:
Law and Practice
Juta
(2007) at 7.5 (pp. 139-140).
20
See
Parker
at
para. [33].
21
[1984] ZASCA 19
;
1984 (2) SA 850
(A) 859F-G, per Joubert JA
22
See
Parker
at
para.
[37], endorsing the view expressed by van Coppenhagen J in
VrystaatMielies
(Edms) Bpk v Nieuwoudt NO
2003
(2) SA 262
(O) at para. 12: Van Coppenhagen J,however, considered
that the issue could be addressed by the application of the
Turquandrule
to dealings by third parties with the trustees of
business trusts.
23
See
Parker
at
para. 37.3.
24
See e.g. RH Christie
The
Law of Contract in South Africa
5
ed. 2006 (LexisNexis) at pp. 109-111 and especially the citations,
loc
c/'f,
of the dicta of a list of most eminent judges at footnote 30.
25
Cf. e.g.
Rustenburg
Platinum Mines Ltd (Rustenburg Section) v Commission for
Conciliation, Mediation and Arbitration and Others
2007
(1) SA 576
(SCA);
[2007] 1 All SA 164
at para 52;
Minister
of Agriculture and Another v Bluelilliesbush Dairy Farming (Pty) Ltd
and Another
[2008] ZASCA 60
;
[2008]
4 All SA 81
(SCA);
2008 (5) SA 522
at para. 23.