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[2011] ZASCA 181
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Potgieter v Potgieter NO and Others (629/2010) [2011] ZASCA 181; 2012 (1) SA 637 (SCA) (30 September 2011)
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 629/2010
In
the matter between:
JAN
WILHELMUS POTGIETER
….........................................................
First
Appellant
MAGDELL
WOODWARD
…..............................................................
Second
Appellant
v
ANNA-MARIE
JULIANA POTGIETER NO
….....................................
First
Respondent
THERON
WESSELS NO
…...........................................................
Second
Respondent
ANNA-MARIE
JULIANA POTGIETER
…..........................................
Third
Respondent
JANDRÉ
VENTER
….......................................................................
Fourth
Respondent
RUAN
VENTER
…...............................................................................
Fifth
Respondent
THE
MASTER OF THE NORTH
GAUTENG
HIGH COURT, PRETORIA
….........................................
Sixth
Respondent
THERON WESSELS
….................................................................
Seventh
Respondent
Neutral
citation:
Potgieter v Potgieter
(629/2010)
[2011] ZASCA
181
(30 September 2011).
Coram:
NAVSA, BRAND, VAN HEERDEN, LEACH AND
MAJIEDT JJA
Heard:
20 September 2011
Delivered:
30 September 2011
Summary: Trust – variation of trust deed by
agreement between founder and trustees – invalid for want of
consent by
beneficiaries who had previously accepted benefits
conferred upon them by original trust deed – effect of invalid
variation
agreement – trust deed enforceable in unamended form.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
North Gauteng High Court
(Pretoria) (Bertelsmann J sitting as court of first instance):
The following order is made:
a. The appeal is upheld.
b. The cross-appeal is dismissed.
c. The costs incurred by the appellants and the
respondents in both the appeal and the cross-appeal, including the
costs of two
counsel, where applicable, shall, save for the costs of
the seventh respondent, be paid by the Buffelshoek Familie Trust on
an
attorney and client scale.
d. The order of the court a quo is set aside and
replaced by the following:
‘
1. The purported variation of
the trust deed of the Buffelshoek Familie Trust on 21 February 2006
is declared to be invalid and
set aside.
2. The costs incurred by the applicants and the
respondents, including the costs of two counsel, where applicable,
shall, save for
the costs of the seventh respondent, be paid by the
Buffelshoek Familie Trust on an attorney and client scale.’
________________________________________________________________
JUDGMENT
________________________________________________________________
BRAND JA
(Navsa, Van Heerden, Leach and
Majiedt JJA concurring):
[1] This appeal is about a trust, originally called the
Buffelshoek Familie Trust and later renamed the V P J
Trust, in
which all the appellants and the respondents, save for the
sixth respondent, who is the Master of the High Court, have an
interest
of some kind or another. Since the Master took no part in
the proceedings, I shall exclude him from any further reference to
‘the
respondents’. The central issue raised by the appeal
is whether the purported variation of the trust deed pertaining to
the
Buffelshoek Familie Trust, pursuant to an agreement between the
founder and the trustees of the trust, is legally binding. While
the
appellants contended that the variation was invalid and of no force,
the respondents took up the contrary position that the
variation
agreement was valid and enforceable.
[2] Eventually the dispute gave rise to an application
by the appellants as applicants in the North Gauteng High Court
(Pretoria)
for an order, in the main, confirming their position that
the variation of the trust deed was invalid. When the matter came
before
Bertelsmann J, he agreed, despite the counter-arguments by the
respondents, with the appellants’ contention that the variation
was invalid and without force. Normally this finding would have
resulted in the implementation of the trust deed in its original,
unamended form. But Bertelsmann J found this result in the
circumstances, unpalatable, contrary to public policy and
constitutionally
unsound. In consequence he granted an order which
effectively awarded one-fifth of the trust assets to each of the two
appellants
as their exclusive property, while the other potential
beneficiaries retained their rights in terms of the amended trust
deed in
respect of the remaining three-fifths of the trust assets.
This outcome satisfied neither the appellants nor the respondents.
The
appeal and cross-appeal that consequently followed are both with
the leave of the court a quo. Apart from ancillary issues, there
are
two questions we have to determine: (a) was the purported variation
of the trust deed invalid? and (b) if so, what should be
the
consequences of that finding?
[3] The opposing arguments bearing on these questions
will be better understood against the factual background that
follows. The
founder of the trust was Mr Victor Petrus Johannes
Potgieter, a businessman of Mookgophong, who passed away at the age
of 49 on
28 April 2008 (the deceased). The two appellants, Mr Jan
Wilhelmus Potgieter and Mrs Magdell Woodward (born Potgieter) were
the
only children of the deceased. The first and second respondents
are cited in their capacities as the two trustees of the trust.
They
are Mrs Anna-Marie Juliana Potgieter, who married the deceased after
his divorce from the mother of the appellants, and Mr
Theron Wessels
who was the deceased’s attorney. The third respondent is Mrs
Potgieter in her personal capacity. The fourth
and fifth respondents
are Mr Jandré Venter and Mr Ruan Venter, the two sons of Mrs
Potgieter from her previous marriage,
while the seventh respondent is
Wessels in his personal capacity.
[4] The trust was originally created under the name of
the Buffelshoek Familie Trust, by means of a trust deed which was
notarially
executed on 1 June 1999. In terms of the trust deed the
deceased was one of the original trustees. So was Wessels, who was
his
attorney throughout. The third original trustee, who was the
deceased’s accountant, Mr Nicolaas Louwrens Pretorius, resigned
his position on 2 July 2001 before the occurrence of further events
that are relevant to this case. A proper appreciation of the
import
of the impugned amendments that were to follow unfortunately requires
a somewhat detailed rendition of the original terms
of the trust
deed.
[5] The original trust deed was in Afrikaans. According
to my translation, its terms that turned out to be pertinent laid
down the
following:
(a) Clause 1.3.1 of the trust deed nominated the two
appellants as the capital beneficiaries of the Buffelshoek Familie
Trust. It
provided that:
‘”
capital
beneficiaries” are the following persons: Magdell Potgieter,
born on 30 September 1982 and Jan Wilhelmus Potgieter,
born on 15
June 1984: being the children of [the deceased] on the understanding
that they will not receive any benefit from the
trust during the life
of [the deceased], unless the [the deceased] consents thereto in
writing’
(b) Clause 1.3.2 of the trust deed provided that the
income beneficiaries of the trust were to be determined by the
trustees in
their discretion from a class consisting of the two
capital beneficiaries or those related to them in consanguinity or
affinity.
(c) Clause 1.6 defined ‘vesting date’ for
the purposes of clause 13 as the first of the following dates:
(i) The date of death of the founder (the deceased);
(ii) The date determined at any time by the trustees as
the vesting date on the condition that such date is not earlier than
the
date on which the younger of the capital beneficiaries reaches
the age of 21, but in any event not later than the date on which
the
younger of the capital beneficiaries reaches the age of 25 years.
(d) Clause 13 provided, in turn, that:
(i) On the vesting date thus determined, the capital of
the trust is to become the property of the capital beneficiaries set
out
in clause 1.3.1;
(ii) No capital not paid out or accumulated income will
vest in any capital beneficiary before the capital beneficiaries
reach the
ages set out in clause 1.6.
(e) Typical of a discretionary trust, clauses 5 and 6
bestowed wide powers on the trustees with regard to the capital
assets of
the trust. These were limited, in essence, only by the
general restrictions that the trustees should exercise their powers
in accordance
with the general principles of trust law and solely for
the benefit of the beneficiaries. Within these broad parameters, the
trustees
were authorised, for example, to sell the assets of the
trust and to invest the proceeds in any way they deemed fit.
(f) Clauses 12 and 14 afforded similar wide powers to
the trustees with regard to the income of the trust. Again, within
the same
broad parameters, they were authorised to utilise the trust
income for trust purposes and to distribute the surplus amongst the
income beneficiaries in any way they deemed fit.
(g) Clause 21 dealt with amendments to the trust deed
with specific reference to the capital beneficiaries. It provided:
‘
21.1
The trustees may amend the capital beneficiaries of the trust. Their
right to amend is, however, limited to the extent that:
21.1.1 No amendment may be
executed after the death of the trustee [the deceased] and only with
the consent of [the deceased] during
his lifetime; and
21.1.2 Capital beneficiaries may
be appointed only from the following persons:
21.1.2.1 the persons nominated
as capital beneficiaries in clause 1.3.1 or their children in the
event that they die before the
vesting of the capital;
21.1.2.2 a member of the family
or descendant of [the deceased].
This right of the trustees to
amend the capital beneficiaries entails that the persons appointed as
capital beneficiaries in terms
of the provisions of clause 1.3.1
above can be excluded and another capital beneficiary can be
appointed in accordance with the
aforesaid procedure, in 21.1.
21.2 No amendment in respect of
the capital beneficiaries may have the effect that the assets of the
trust are used for the benefit
of the founder of the trust (the
deceased) or his estate.’
[6] In June 1999, when the deceased founded the
Buffelshoek Familie Trust, both the appellants were still minors and
the deceased
was married to their mother. On 11 September 2003 that
marriage was, however, dissolved by a decree of divorce. The divorce
was
preceded by a drawn out and bitter dispute. Part of the conflict
stemmed from a claim by the appellants’ mother that the assets
of the trust be regarded as the assets of the deceased for purposes
of the divorce proceedings. This led to a meeting of the trustees
and
the capital beneficiaries of the trust on 18 August 2003 regarding
the alienation of a trust asset to the mother of the appellants,
to
which I shall presently return.
[7] After the divorce, the deceased married the first
respondent, Mrs Potgieter, on 22 November 2003. As I have indicated,
the fourth
and fifth respondents were born of her previous marriage.
On 25 January 2006 Mrs Potgieter became the third trustee of the
Buffelshoek
Family Trust together with the deceased and Wessels. This
was the state of affairs when the impugned variation agreement was
entered
into on 21 February 2006.
[8] The variation agreement was a formal agreement
between the founder and the trustees. The changes brought about to
the original
trust deed were substantial. In the main they comprised
the following:
(a) The name of the trust was amended to the V P J
Trust;
(b) The appellants were no longer the only capital
beneficiaries. They were reduced to members of a class of potential
capital beneficiaries.
Other members of the class included Mrs
Potgieter and her two sons. In addition, the trustees were afforded
the absolute discretion
to select the actual capital beneficiaries
from that class. Nothing therefore prevented the trustees from
excluding the appellants
altogether as beneficiaries of the trust;
(c) The income beneficiaries of the trust were those
selected by the trustees, in their absolute discretion, from the
members of
the same class;
(d) The date on which the rights of capital
beneficiaries would vest was amended to the extent that it was in the
sole discretion
of the trustees when rights would vest (if at all);
and
(e) Wessels resigned as trustee. The Best Trust Company
(Jhb) (Pty) Ltd was appointed in his stead. To complete the picture –
shortly thereafter the company, however, resigned and Wessels was
reappointed in his capacity as trustee, together with the deceased
and Mrs Potgieter.
[9] The appellants’ first contention in the court
a quo was that, apart from a variation in accordance with the
provisions
of clause 21 of the original trust deed, the deed could
only be changed with their consent as capital beneficiaries.
Consequently,
they further contended, the purported amendment to the
trust deed on 21 February 2006, was invalid because it was neither in
accordance
with the provisions of clause 21, nor was it effected with
their consent. The respondents admitted that the appellants did not
consent to the variations brought about by the variation agreement
and that, in fact, they had no knowledge of the agreement at
the
time. Their contention was, however, that the variation agreement was
entered into before the appellants had accepted the benefits
conferred upon them in terms of the original trust deed.
Consequently, the respondents contended, the trust deed could, as a
matter
of law, be amended by agreement between the founder and the
trustees without the co-operation of the appellants.
[10] The appellants, in turn, accepted the correctness
of the legal proposition that the variation of a trust deed did not
require
the consent of beneficiaries who had not yet accepted the
benefits conferred upon them. Their contention was, however, that as
a matter of fact the benefits conferred upon them by the original
trust deed had been accepted on their behalf by the deceased as
their
father and natural guardian as set out in the preamble to the trust
deed. Moreover, so they alleged, the deceased (as founder)
and the
other trustees had acknowledged, at least by implication, that these
benefits had previously been accepted on their behalf,
by requiring
their consent to the alienation of a trust asset at the meeting of 18
August 2003. The respondents disputed the correctness
of both these
factual allegations.
[11] Despite the respondents’ objections, the
court a quo decided both areas of factual dispute thus arising in
favour of
the appellants. As to the question whether the deceased
accepted the benefits conferred upon the appellants in the trust
deed,
it held that acceptance to be established by the preamble to
the trust deed. Moreover, the court agreed with the appellants’
argument based on the minutes of the meeting which was held on 18
August 2003. In the event, the court also agreed with the appellants’
contention that, because of the acceptance of the trust benefits on
their behalf, a variation of the trust deed outside the ambit
of
clause 21, could only be brought about with their consent.
Consequently the court held that, in the absence of the appellants’
consent, the purported amendment to the trust deed in terms of the
agreement between the deceased and the trustees on 21 February
2006,
was of no legal force and effect.
[12] Since the findings of the court a quo thus far are
directly challenged in the cross-appeal, I shall return to them in
due course.
But before doing so, I propose to complete the chronicle
of events by referring to the court’s additional findings that
gave
rise to the main appeal. After acknowledging that its findings
thus far would normally result in the implementation of the trust
deed in its original form, the court a quo, as I have said,
immediately proclaimed that result to be untenable. Implementation
of
the original trust deed, so the court reasoned, would mean that on
the death of the deceased, all the assets of the trust would
become
vested in the two appellants to the total exclusion of Mrs Potgieter
and the two sons of her previous marriage.
[13] This outcome, so the court held, would be in direct
conflict with the obvious intention of the deceased as to the
devolution
of his assets upon his death. With regard to the
deceased’s intention, the court referred to the fact that the
deceased had
changed his will after the variation of the trust deed.
Prior to the variation, his will in existence was one executed in
February
2004. In terms of that will he bequeathed an amount of R1
million, together with his interest in a specified close corporation,
to each of the appellants. The residue of his estate he left to a
trust for the benefit of Mrs Potgieter and her two sons. Subsequent
to the variation of the trust deed the deceased executed a new will
on 6 June 2007. Apart from certain legacies to the deceased’s
employees, the new will provided for a bequest of all his assets to
the V P J Trust. Exclusion of Mrs Potgieter and her
sons
from the trust, so the court a quo concluded, would therefore
effectively exclude them from any benefit deriving from the
deceased’s estate.
[14] Since enforcement of the trust deed in its original
terms would be demonstrably in conflict with the deceased’s
intent,
so the court a quo reasoned, it should have the authority to
avoid that result. It then found that authority originating from two
different sources: first, from the provisions of s 13 of the
Trust Property Control Act 57 of 1988; and, second, from the
values
of the Constitution as applied to the principles of contract law and
other private law structures, in accordance with the
judgment of the
Constitutional Court in
Barkhuizen v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC). Relying on its authority thus established, the court a quo
concluded that it had the power to grant an order which would
give
effect to what it regarded as the real intent of the deceased.
[15] In broad outline the court a quo’s further
reasoning, as appears from its judgment, proceeded along the
following lines:
(a) The obvious way of giving effect to the deceased’s
intent would be to implement the terms of the variation agreement,
despite the legal invalidity of that agreement.
(b) However, since the death of the deceased, the
relationship between the appellants, on the one hand, and the first
and second
respondents as trustees of the trust, on the other, had
deteriorated to the extent that the appellants have understandably
lost
any confidence in the willingness of the two trustees to treat
them fairly and without partiality.
(c) A refusal of the application by the appellants for
an order declaring the variation of the trust deed invalid would
therefore
simply lead to further conflicts, strife and litigation
between the two opposing factions.
(d) The only equitable solution remaining was therefore
to award one-fifth of the net value of the trust assets to each of
the appellants
and to order that the other potential beneficiaries
retain their rights in terms of the amended trust deed, with regard
to the
three-fifths of the trust assets that remained in the V P J
Trust.
[16] In giving effect to these conclusions, the court a
quo then formulated a fairly detailed order providing, inter alia,
for the
valuation of the trust assets and for the appointment of a
valuer or an auditor, or both, for this purpose, and for the division
of the assets of the trust. As to the costs of the proceedings before
it, the court a quo ordered that the costs incurred by the
appellants
as well as the respondents should be paid by the trust on an attorney
and client scale.
[17] In essence, the appellants’ contention on
appeal was that the court a quo rightly concluded that the agreement
to vary
the trust deed was invalid and without any legal effect. But,
following upon that conclusion, so the appellants further contended,
the court a quo had no option but to grant a declarator confirming
the invalidity of the variation agreement, which was the order
that
they sought. The cross-appeal, on the other hand, was essentially
based on the contention by the respondents that the court
a quo had
erred in not finding that the agreement to vary the trust deed was
valid and enforceable. Alternatively and even if the
variation
agreement proved to be invalid, so the respondents further contended,
the appellants’ remedy was a claim for damages
resulting from a
breach of contract by the deceased and the trustees when they sought
to vary the trust deed without the appellants’
consent. Since
the appellants brought no such claim, but sought an order declaring
the variation agreement invalid, so the respondents’
argument
concluded, the court a quo had been bound to refuse the appellants’
application with costs.
[18] Logic dictates that I deal with the cross-appeal
first. This is so because, if the variation agreement was found to be
valid
and enforceable, that would be the end of the matter. In that
event, the appellants’ application for a declarator to the
contrary should have been dismissed which would mean that the
cross-appeal must succeed. As I see it, the legal principles that
find application are well settled and I did not understand any of the
parties to contend otherwise. I believe these principles
can be
formulated thus: a trust deed executed by a founder and trustees of a
trust for the benefit of others is akin to a contract
for the benefit
of a third party, also known as a
stipulatio alteri
. In
consequence, the founder and trustee can vary or even cancel the
agreement between them before the third party has accepted
the
benefits conferred on him or her by the trust deed. But once the
beneficiary has accepted those benefits, the trust deed can
only be
varied with his or her consent. The reason is that, as in the case of
a
stipulatio alteri
, it is only upon acceptance that the
beneficiaries acquire rights under the trust (see eg
Crookes NO v
Watson
1956 (1) SA 277
(A) at 285F;
Ex parte Hulton
1954
(1) SA 460
(C) at 466A-D;
Hofer v Kevitt NO
[1997] ZASCA 79
;
1998 (1) SA 382
(SCA) at 386G-387E; Cameron, De Waal & Wunsh
Honoré’s
South African Law of Trusts
5 ed (2002) para 304).
[19] Relying on these principles, the appellants’
main argument in their papers was that the benefits conferred on them
in
the original trust deed were accepted by the deceased on their
behalf as reflected in the preamble of the trust deed itself. In
relevant part the preamble provided:
‘
Whereas
the founder desires to create the trust referred to in this deed for
and on behalf of the named capital beneficiaries, subject
to the
terms and conditions more fully set out hereafter;
And whereas
the
beneficiaries have indicated
(Afrikaans
– ‘aangedui’)
their
acceptance of the benefits conferred upon them in terms hereof
;
And whereas the
trustees agreed to accept their appointments as such and to
administer the trust created herein’.’
(My
emphasis.)
[20] The clear meaning of the second pronouncement thus
recorded, so the appellants maintained, is that the deceased, who was
their
father and natural guardian, as they were still minors at the
time, had indicated his acceptance of the benefits conferred upon
them, as the sole capital beneficiaries, on their behalf. These
allegations of fact were disputed in the respondents’ answering
affidavit deposed to by Wessels on behalf of the respondents. It will
be remembered that Wessels was the deceased’s attorney
at the
time. In that capacity he prepared the original trust deed on the
instructions of the deceased. According to Wessels’
testimony,
the pronouncement in the preamble relied upon by the appellants
amounts to no more than ‘a vague and loose statement’.
In
any event, he proceeded, this vague statement was without any meaning
and was never intended to form part of the document. It
unintentionally found its way into the draft, Wessels said, because
he slavishly copied a precedent without realising that the
statement
was inapposite to the deed that he prepared. Had the deceased
instructed him to record an acceptance of the benefits
on behalf of
his minor children, so Wessels said, the trust deed would have read
quite differently. In that event he would, for
instance, have
incorporated the acceptance as an independent, self-standing term of
the trust deed. In support of this version
the respondents also
relied on the rather laconic statement by Mr Nicolaas Pretorius, who
was the third original trustee and hence
a party to the original
trust deed, that the deceased never expressly stated, when he signed
the trust deed, that he intended to
accept the benefits conferred
upon the appellants on their behalf.
[21] The appellants’ contention was, however, that
Wessels’ testimony is inadmissible. Since the trust deed was
intended
to provide a complete memorial of the agreement that it
recorded, extrinsic evidence may not contradict, add to or modify its
meaning.
In support of this contention they relied on
KPMG
Chartered Accountants (SA) v Securefin Ltd
2009 (4) SA 399
(SCA)
para 39. This argument found favour with the court a quo and I
believe rightly so. However, as I see it, there is an even
shorter
answer to the respondents’ case based on the testimony of
Wessels. It is this. There is no reason to think that the
deceased,
who was by all accounts a careful and astute businessman, had
realised that his attorney wanted him to confirm a meaningless
statement in a formal document which was destined to be notarially
executed. On the contrary, the fact that the deceased had initialled
every page of the document that was to be notarially executed, gave
rise to the presumption of fact that he intended to confirm
the
pronouncement embodied in that document (see eg
Glen
Comeragh
(Pty) Ltd v Colibri (Pty) Ltd
1979 (3) SA 210
(T) at 216A-C,
referred to with approval by Harms DP in
KPMG Chartered
Accountants (SA) v Securefin Ltd supra
para 28). Moreover, common
sense dictates that at that stage the deceased indeed intended to
give effect to this essential purpose
for the creation of the trust
by accepting the benefits conferred upon his two minor children on
their behalf. Absent any evidence
to the contrary, it must therefore
be accepted as an established fact that the deceased intended to
confirm the contents of the
document that he signed.
[22] In this light, the pronouncement in the preamble
cannot be ignored. It must be given some meaning. That raises the
question
as to what meaning the pronouncement can possibly bear,
other than confirmation by the deceased that he accepted the benefits
conferred
by the trust deed on behalf of his two minor children.
Though the respondents contended that the contents of the
pronouncement
are vague, they could suggest no alternative meaning
and I can think of none. After all, only two capital beneficiaries
were expressly
named in the trust deed. Confirmation that these
beneficiaries had accepted the benefits conferred upon them could
therefore refer
to no-one else. As a matter of law, their father and
natural guardian had authority to accept these benefits on their
behalf and
that is plainly what he intended to confirm. This is why I
say that, in the circumstances, the pronouncement can have no other
sensible meaning than the one contended for by the appellants. Thus
understood, the laconic statement by Pretorius, that the deceased
never expressly stated that he intended to accept the benefits on
behalf of the appellants when he signed the trust deed, becomes
meaningless. The real question is whether there is evidence that the
deceased did not intend to do so and, as I have indicated,
there is
none.
[23] Assuming, however, for the sake of argument, that
the respondents are correct in saying that the meaning of the
pronouncement
is vague and ambiguous, I agree with the appellants’
argument that the interpretation for which they contend is supported
by the minutes of a meeting which took place on 18 August 2003. These
minutes were prepared by Wessels as a formal document and
signed by
those who attended. They reflected that:
(a) Apart from the three trustees at the time, it was
attended by the first appellant in his capacity as one of the capital
and
income beneficiaries. Because he was still a minor at the time,
so the minutes recorded, he was duly assisted by the deceased as
his
father and natural guardian.
(b) The second appellant, who by then had reached
majority status through marriage, could not attend. But, so the
minutes stated,
as the other capital and income beneficiary, she was
represented by the deceased and the deliberations and discussions at
the meeting
were conveyed to her telephonically.
(c) The deceased, purely for purposes of settling the
divorce and without admitting any liability to do so, was prepared to
accede
to the claim of the appellants’ mother that a trust
asset, described as a portion of the farm Naboomspruit, be
transferred
to her.
(d) The deceased, for settlement purposes, was thus
prepared to purchase that asset from the trust for R1 million.
(e) The issue of the sale of the trust property was
‘intensely discussed’ and ‘the trustees decided,
with the
consent of the income and capital beneficiaries’ to
sell and transfer the property to the appellants’ mother as
soon
as a settlement had been reached in the divorce whereupon the
deceased would pay the R1 million to the trust.
[24] The respondents’ answers to the appellants’
reliance on these minutes are twofold. The first is founded is law
and the second based on fact. For their answer founded in law, the
respondents relied on the parol evidence rule. If Wessels’
evidence with regard to the contents of the trust deed is
inadmissible for non-compliance with the parol evidence rule, so the
respondents argued, the same must hold true for the minutes of the
August meeting. I do not believe, however, that the comparison
is
valid. Unlike the evidence of Wessels, the minutes of the meeting are
not introduced as evidence of direct intent, aimed at
the avoidance
or the variation of the express terms of the pronouncement in the
preamble to the trust deed. On the contrary, the
minutes are plainly
introduced to demonstrate that the meaning of the pronouncement
contended for by the appellants is supported
by the subsequent
conduct of the parties to the trust deed which is a well-recognised
and admissible way of interpreting an ambiguous
document (see eg
Coopers & Lybrand v Bryant
[1995] ZASCA 64
;
1995 (3) SA 761
(A) at 768A-E).
[25]
The respondents’ second answer, based on
fact, again relied on the testimony of Wessels. According to his
evidence there
is no merit in the appellants’ inference from
the minutes of the meeting that the deceased and the trustees thought
it necessary
at the time to obtain the approval of the appellants, in
their capacities as capital beneficiaries, for the alienation of a
trust
asset. The reason for their presence at the meeting, so he
said, was something entirely different. It was because he, Wessels,
had suggested to the deceased that the children should be made aware
of the marked degree of acrimony generated by the divorce proceedings
and the fact that their mother was in effect claiming an asset which
the deceased regarded as part of the children’s inheritance.
He
thought this advisable, Wessels said, so as to avoid later
recriminations by anyone against the deceased.
[26] In my view Wessels’ version does him no
credit. In fact, I believe it is so untenable that it can be rejected
with confidence
on the papers, which is essentially what the court a
quo did. The contents of the minutes clearly reflect that the
deceased and
the other trustees thought it necessary to obtain the
consent of the appellants as beneficiaries to the alienation of a
trust asset.
That is what was sought, obtained and formally recorded
in the minutes. If Wessels and the deceased merely intended to ensure
that
the appellants knew what was happening in the divorce
proceedings, there were many ways of doing so. Minuting a formal
meeting
which records the appellants’ consent to the alienation
of a trust asset, while no single negative comment is made about the
conduct of their mother during the divorce proceedings, could hardly
serve that purpose. In this light, I am in agreement with
the court a
quo’s finding that the deceased accepted the benefits conferred
by the trust deed on behalf of his minor children
in the preamble of
the trust deed and that this was confirmed by the deceased and the
trustees at the August meeting.
[27] That brings me to the respondents’
alternative argument that, even if the benefits conferred upon the
appellants by the
trust deed were held to be accepted on their
behalf, it would not preclude the deceased and the trustees to vary
the trust deed
without the appellants’ consent. This is so, the
respondents' argument went, because, in accordance with the terms of
the
trust deed, the appellants could, in any event, be deprived by
the trustees of all benefits conferred upon them in the deed. In
support of this argument the respondents referred to the wide
discretionary powers bestowed upon the trustees and to other
provisions
in the trust deed which rendered the position of the
appellants extremely vulnerable and uncertain until the vesting date.
[28] I do not think it can be gainsaid that at the time
of the variation agreement on 21 February 2006, the appellants
enjoyed no
vested rights to either the income or the capital of the
trust. They were clearly contingent beneficiaries only. But that does
not render their acceptance of these contingent benefits irrelevant.
The respondents referred to no authority that supports any
proposition to that effect and I cannot think of a reason why that
would be so. The import of acceptance by the beneficiary is
that it
creates a right for the beneficiary pursuant to the trust deed, while
no such right existed before. The reason why, after
that acceptance,
the trust deed cannot be varied without the beneficiary’s
consent, is that the law seeks to protect the
right thus created for
the first time. In this light, the question whether the right thus
created is enforceable, conditional or
contingent should make no
difference. The only relevant consideration is whether the right is
worthy of protection, and I have
no doubt that it is. Hence, for
example, our law affords the contingent beneficiary the right to
protect his or her interest against
mal-administration by the trustee
(see
Gross v Pentz
[1996] ZASCA 78
;
1996 (4) SA 617
(A) at 628I-J). The
respondents’ alternative argument as to why the variation
agreement was valid, is therefore, in my view,
equally unsustainable.
[29] Arriving at the same conclusion, the court a quo
held, rightly in my view, that it would normally lead to the finding
that
the variation agreement was invalid and that the provisions of
the original trust deed must be applied in unamended form. But, as
I
have said, the court a quo found itself authorised to deviate from
this usual outcome by granting an order which it regarded
as
equitable and fair. As the first basis for that authority the court a
quo relied on the provisions of s 13 of the Trust
Property
Control Act 57 of 1988. This section provides in relevant part:
‘
If a
trust instrument contains any provision which brings about
consequences which in the opinion of the court the founder of a
trust
did not contemplate or foresee and which –
(a)
hampers
the achievement of the objects of the founder; or
(b)
prejudices
the interests of beneficiaries; or
(c)
is
in conflict with the public interest,
the court may, on the
application of the trustee or any person who in the opinion of the
court has a sufficient interest in the
trust property, delete or vary
any such provision or make in respect thereof any order which such
court deems just . . . ‘
[30] I do not agree that s 13 supports the
authority assumed by the court a quo. I say this for two reasons.
First, I find
no provision in the original trust deed which brings
about any consequence that could not be foreseen by the founder. The
consequences
which the court a quo found untenable were brought about
by an application of common law principles, not by any provision of
the
trust deed. My second reason is that no-one brought an
application as contemplated by s 13. The explanation for this
omission
should probably be ascribed to my first reason, namely that
there is no provision in the original trust deed that could be
objected
to and therefore no basis for an application under the
section.
[31] As the second basis for its authority to deviate
from common law principles, the court a quo relied on the majority
judgment
of the Constitutional Court by Ngcobo J in
Barkhuizen v
Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC). According to the court a quo’s
interpretation of that judgment, it provides authority for the
following propositions:
(a) under our new constitutional dispensation it is part
of our contract law that, as a matter of public policy, our courts
can
refuse to give effect to the implementation of contractual
provisions which it regards as unreasonable and unfair; and
(b) the same principle should be applied in other
spheres of private law.
[32] I find the court a quo’s approach
fundamentally unsound. I do not believe the two propositions from
which it departs
are supported by the judgment of Ngcobo J in
Barkhuizen.
Nor does the first proposition reflect the
principles of our law of contract as they stand. Reasonableness and
fairness are not
freestanding requirements for the exercise of a
contractual right. That much was pertinently held in
Bredenkamp v
Standard Bank of South Africa Ltd
2010 (4) SA 468
(SCA) para 53.
As to the role of these abstract values in our law of contract this
court expressed itself as follows in
South African Forestry Co Ltd
v York Timbers Ltd
2005 (3) SA 323
(SCA) para 27:
‘
[A]lthough
abstract values such as good faith, reasonableness and fairness are
fundamental to our law of contract, they do not constitute
independent substantive rules that courts can employ to intervene in
contractual relations. These abstract values perform creative,
informative and controlling functions through established rules of
the law of contract. They cannot be acted upon by the courts
directly. Acceptance of the notion that judges can refuse to enforce
a contractual provision merely because it offends their personal
sense of fairness and equity will give rise to legal and commercial
uncertainty.’
(See also eg
Brisley v Drotsky
2002 (4) SA 1
(SCA) paras 21-24 and 93-95;
Maphango v Aengus Lifestyle
Properties
2011 (5) SA 19
(SCA) paras 22-25.)
[33] In
Barkhuizen,
Ngcobo J first explained
(para 80) what he meant by the notion of ‘good faith’,
namely that it encompasses the concepts
of justice, reasonableness
and fairness. He then proceeded to express the principles of our law,
as formulated by this court, inter
alia in
Brisley
, in the
following terms (para 82):
‘
As the
law currently stands good faith is not a self-standing rule, but an
underlying value that is given expression through existing
rules of
law. In this instance good faith is given effect to by the existing
common-law rule that contractual clauses that are
impossible to
comply with should not be enforced . . . Whether, under the
Constitution, this limited role of good faith is appropriate
and
whether the maxim
lex
non cogit ad impossibilia
alone
is sufficient to give effect to the value of good faith are,
fortunately, not questions that need be answered on the facts
of this
case and I refrain from doing so.’
[34] Unless and until the Constitutional Court holds
otherwise, the law is therefore as stated by this court, for example,
in the
cases of
South African Forestry, Brisley, Bredenkamp,
and
Maphango
which do not support the first proposition relied
upon by the court a quo. As to the second proposition, it follows, in
my view,
that the supposed principle of contract law perceived by the
court a quo cannot be extended to other parts of the law. In
addition,
the reason why our law cannot endorse the notion that
judges may decide cases on the basis of what they regard as
reasonable and
fair, is essentially that it will give rise to
intolerable legal uncertainty. That much has been illustrated by past
experience.
Reasonable people, including judges, may often differ on
what is equitable and fair. The outcome in any particular case will
thus
depend on the personal idiosyncrasies of the individual judge.
Or, as Van den Heever JA put it in
Preller v Jordaan
1956 (1)
SA 483
(A) at 500, if judges are allowed to decide cases on the basis
of what they regard as reasonable and fair, the criterion will no
longer be the law but the judge. (See also
Brisley
para 24;
Bredenkamp
para 38; P M Nienaber ‘Regters en juriste’
2000
TSAR
190
at 193; J J F Hefer ‘Billikheid in die
kontraktereg volgens die Suid-Afrikaanse regskommissie’
2000
TSAR
143.)
[35] This danger, I believe, is illustrated by what
happened in this case. The court a quo obviously thought that it was
fair to
award two-fifths of the trust assets to the appellants. But
some may wonder whether that is necessarily so. Without more, it is
hard to say. The mere fact that the appellants are two out of five
potential trust beneficiaries can hardly, in itself, justify
that
apportionment. A decision on fairness requires more background facts
which were not fully ventilated on the papers. Moreover,
there are
numerous factual disputes on the papers that may impact on the issue
of what is fair. To give but a few examples. On
the respondents’
version the relationship between the deceased and his son, the first
appellant, was not good. According
to Wessels, the deceased regarded
his son as a good for nothing who was unsuccessful in any business
venture he turned to and who
was quite willing to be maintained by
his father. In stark contrast, the appellants’ version, on the
other hand, is that
the first appellant was a successful businessman
in his own right, who sold his own business ventures in order to join
the business
of his father, at the instance of the latter. Then there
are the disputes surrounding the role of Wessels in the business and
personal
affairs of the deceased during his lifetime; the allegations
about mal-administration by the two trustees since the death of the
deceased; and the dispute as to whether or not the trustees were
responsible for the marked decline in the financial position of
the
trust.
[36] But be that as it may, I do not believe that the
court a quo had any option but to follow the tenets of common law.
Its decision
to do otherwise in my view offended the principle of
legality, which I regard as part of the rule of law, which in turn
constitutes
a founding value in terms of s 1 of our
Constitution. I thus find myself in agreement with Harms DP when he
said in
Bredenkamp
(para 39):
‘
A
constitutional principle that tends to be overlooked, when
generalised resort to constitutional values is made, is the principle
of legality. Making rules of law discretionary or subject to value
judgments may be destructive of the rule of law.’
[37] As to the result dictated by the tenets of common
law in this case, I can again only agree with what the court a quo
itself
said. Succinctly stated it is this: the variation of the trust
deed was invalid for lack of consent by the beneficiaries who had
previously accepted the benefits bestowed upon them in terms of the
trust deed. Hence the original provisions of the trust deed,
prior to
the purported amendment, must prevail. Prima facie, the appellants
were therefore entitled to a declarator confirming
that conclusion,
which was what they sought. The respondents’ final argument as
to why the appellants were not so entitled
rested on two
suppositions:
(a) that the appellants’ claim was essentially for
specific performance of the terms of the original trust deed; and
(b) that the appellants’ claim for specific
performance is based on the breach of contract by the deceased and
the trustees
when they agreed to vary the original trust deed without
the appellants’ consent.
[38] Departing from these suppositions, the respondents
referred to the trite principle that courts have a discretion to
refuse
an order for specific performance where, for instance, it
would lead to undue hardship on the part of a defendant. In this
instance,
so the respondents’ argument went, implementation of
the original trust deed would indeed give rise to undue hardship on
the part of Mrs Potgieter and her two children, since they would be
deprived of any inheritance from the deceased. Consequently,
so the
respondents’ argument concluded, the appellants should be
satisfied with a claim for damages which would be represented
by the
value of the trust assets at the time of the variation agreement.
[39] I find this argument fundamentally flawed since
both suppositions on which it is founded are unsustainable. The
appellants’
claim is not based on breach of contract. As a
matter of law, the deceased and the trustees had no authority to
amend the trust
deed without the appellants’ consent. Their
attempt to do so can therefore not be categorised as breach of
contract. As a
matter of positive law, they had no power to do what
they purported to do. Their agreement to do so was therefore without
any force
and effect. This means that the variation agreement was
invalid. The proposition that what the appellants sought was an order
for
specific performance of a contract, is equally unfounded. What
they sought was a declarator confirming the invalidity of the
variation
agreement. As I see it they were entitled to that order as
a matter of law.
[40] In argument before us the appellants invited us to
grant a further declarator confirming that, upon the death of the
deceased,
the assets of the trust became vested in the two
appellants. I believe we must decline that invitation. In their
notice of motion
the only declarator sought by the appellants was for
an order confirming the invalidity of the variation agreement. On the
papers
the searchlight therefore focussed exclusively on the validity
of the variation agreement, leaving surrounding issues in obscurity.
A shift in the focus of the searchlight may well result in a dramatic
change of scenery. The respondents, on the other hand, made
various
assumptions, for instance, about the impact of the deceased's will on
the trust and the effect of the invalidity of the
variation agreement
on the assets of the trust. For the same reason I make no
pronouncement on the correctness of these assumptions.
Again these
issues were not properly ventilated on the papers or in argument
before us.
[41] What remains are matters of costs. The court a quo
held that the costs of both factions should be paid by the trust on
an attorney
and client scale. I agree with the considerations
underlying that order. In my view they also hold true on appeal. The
appellants,
on the one hand, were substantially successful in both
their application and on appeal. As to the respondents, on the other
hand,
it cannot be said in my view that the opposition by the first
and second respondents in their representative capacities as trustees
was either
mala fide
or unreasonable. It follows that an award
of costs
de bonis propriis
against them would not be
justified. With regard to the opposition by the respondents in their
personal capacities, the appellants’
counsel conceded, fairly
in my view, that this did not result in any additional costs. In the
result, I believe that all costs
in the court a quo and on appeal
should, save for one exception, be borne by the trust. The exception
relates to the position of
Wessels. His conduct during the
proceedings was subjected to severe criticism by the court a quo.
Suffice it to say, in my view,
that I agree with this criticism. I am
also of the view that his conduct did him no credit, particularly as
an officer of the court.
As a token of our displeasure I therefore
propose to order that the costs he might have incurred as seventh
respondent, ie in his
personal capacity, will not be recoverable from
the trust.
[42] In the result it is ordered:
a. The appeal is upheld.
b. The cross-appeal is dismissed.
c. The costs incurred by the appellants and the
respondents in both the appeal and the cross-appeal, including the
costs of two
counsel, where applicable, shall, save for the costs of
the seventh respondent, be paid by the Buffelshoek Familie Trust on
an
attorney and client scale.
d. The order of the court a quo is set aside and
replaced by the following:
‘
1. The purported variation of
the trust deed of the Buffelshoek Familie Trust on 21 February 2006
is declared to be invalid and
set aside.
The costs incurred by the applicants and the
respondents, including the costs of two counsel, where applicable,
shall, save for
the costs of the seventh respondent, be paid by the
Buffelshoek Familie Trust on an attorney and client scale.’
……………………
F D J BRAND
JUDGE OF APPEAL
Counsel for Appellants: J H
Ströh SC
P
E Cilliers
Instructed
by: Cilliers & Reynders Inc
PRETORIA
Correspondents:
Patshoane Henney Inc
BLOEMFONTEIN
Counsel
for Respondent: F du Toit SC
Instructed
by: M E Eybers Attorneys
PRETORIA
Correspondents:
Lovius Block Attorneys
BLOEMFONTEIN
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