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[2019] ZAKZDHC 20
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Moodley N.O and Others v Standard Bank of South Africa Ltd and Others (6084/2018) [2019] ZAKZDHC 20 (14 June 2019)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION
DURBAN
CASE
NO: 6084/2018
In
the matter between:
Rajesperan
Loganathan Moodley N.O.
First Applicant
Kogilambal
Moodley
N.O
Second Applicant
Savatri
Moodley
N.O
Third Applicant
Rajesperan
Loganathan
Moodley
Fourth Applicant
Kogilambal
Moodley
Fifth Applicant
Theslin
Moodley
Sixth Applicant
Rinalda
Moodley
Seventh Applicant
and
The
Standard Bank of South Africa Ltd
First
Respondent
Therins
Freight Carriers
CC
Second Respondent
The
Registrar of Deeds, Pietermaritzburg
Third Respondent
Vukuzithathe
Containers CC
Fourth Respondent
Judgment
Lopes
J
[1]
The applicants in this matter seek an order declaring null and void
and of no force
or effect
ab initio
, a suretyship and cession
of claims executed on behalf of the Kogi Moodley Family Trust (‘the
trust’), as well as a
continuing covering mortgage bond
numbered B18377/2010 registered over Erf 9476 Durban (‘the
property’), which property
is owned by the trust
.
[2]
The parties are as follows:
(a)
The first, second and third applicants are the trustees of the trust;
(b)
The fourth, fifth, sixth and seventh applicants are the beneficiaries
of the trust (‘the
beneficiaries’);
(c)
The first respondent is the Standard Bank of South Africa Limited
(‘the bank’);
(d)
The second respondent is Therins Freight Carriers CC, a close
corporation, of which the
first applicant was at all material times
the sole member (‘the close corporation’).
(e)
The third and fourth respondents are parties against whom no relief
is sought.
[3]
On the 13
th
July 2001 and in terms of a document titled
‘Deed of Trust and Donation’ (‘the trust deed’)
the trust was
formed. The first, second and third applicants
were appointed as trustees on the 1
st
August 2001.
[4]
During August of 2010, the close corporation approached the bank for
a loan of R1.8
million. That loan was granted to the close
corporation on the basis that the trust register a continuing
covering mortgage
bond B18377/2010 over the property as security for
the repayment of the loan by the close corporation to the bank.
In addition
the trust executed an unlimited suretyship agreement in
favour of the bank for the repayment of the loan by the close
corporation.
[5]
On the 21
st
September 2017 the trust sold the property to
the fourth respondent, Vukuzithathe Containers CC. When the transfer
was being prepared
by the conveyancers, they alerted the trustees to
the fact that they did not have authority to have concluded the
suretyship and
register the continuing covering mortgage bond over
the property in favour of the bank. The trust now relies on
this legal
advice as the basis for its cause of action to set aside
the suretyship and cession of claims. The continuing covering
mortgage
bond itself has been determined, in that the trust has
provided security to the bank in exchange for which it has allowed
the fourth
respondent to obtain transfer of the property. The
fourth respondent accordingly no longer has any involvement in the
application,
and no relief sought against it.
[6]
The trustees rely upon the provisions of clause 4.13 of the trust
deed to avoid liability.
It is relevant to set out the preamble
to clause 4 leading to clause 4.13:
‘
4. POWERS OF TRUSTEES
THE TRUSTEES shall have the fullest
and widest powers in relation to the Trust assets and shall be
entitled and are hereby empowered
at their sole and absolute
discretion, to invest the Trust Funds or any portion thereof in the
Republic of South Africa or elsewhere
in whatever manner they deem
fit. Without prejudice to the aforegoing generality, they shall
have power:
. . .
4.13 To enter into indemnities,
guarantees or suretyships of every description, which they in their
sole and absolute discretion
deem fit, whether gratuitously or
otherwise, on behalf of and for the benefit of any Trustee or
beneficiary of the Trust
and to mortgage, pledge or otherwise
encumber any of the assets of the Trust for such purpose’
[7]
Mr
Morgan,
who appeared for the applicants, submitted that in
order to comply with the provisions of clause 4.13 two requirements
had to be
met:
(a)
The suretyship must be provided on behalf of a trustee or
beneficiary; and
(b)
The suretyship must be for the benefit of any trustee or beneficiary.
[8]
Mr
Morgan
submits that the suretyship was given on behalf of
the close corporation for a loan received by it as principal debtor.
An indirect
benefit accruing to the first applicant, as sole member
of the close corporation, was insufficient to confer power on the
trustees
to conclude the surety on behalf of the close corporation
and permit the registration of the mortgage bond against the trust’s
property. The trustees only had authority to furnish
suretyships on behalf of a trustee or beneficiary, and not on behalf
of a third party, to wit, the close corporation.
Mr
Morgan
referred me to Honore’s
Law of Trusts
, 4
th
ed at page 257 where the learned author stated:
‘
at common law a trustee has no
power to mortgage trust property unless such power is given by the
trust instrument, expressly or
by implication. The mere existence of
a power to sell trust property does not imply the existence of a
power to mortgage it since
a mortgage may impose burdens on the trust
property which the founder did not envisage authorising. A trustee
wishing to mortgage
the property must therefore generally apply to
court on one of the grounds set out in chapter 11.’
(Authorities referred to
in footnotes have been omitted)
[9]
With regard to a trustee’s power to guarantee a loan, Mr
Morgan
again referred to Honore at page 257 as follows:
‘
At common law a trustee has no
power to guarantee a loan by third party to a beneficiary. Thus, when
a will created a trust under
which the trustee had the right to make
advances to her children for business or marriage, it was held that
this did not entitle
her to sign a surety for a loan to her son in
her capacity as administrator. Nor could she bind the trust by
holding herself
out to have powers which she did not possess. The
argument that the trustee in such a case could be held to have bound
the
trust because the trust would have a remedy against the trustee
for the unlawful action was rejected.’
(Authorities referred to
in footnotes have been omitted)
[10]
These paragraphs are repeated verbatim at page 312 of the learned
authors 5th edition.
[11]
In chapter 11 of Honore, the learned author sets out the restrictions
on a court of law in varying
the terms of a trust deed, or allowing
conduct expressly prohibited, and only permitted in certain
circumstances. This is permitted,
for example, to avoid frustrating
the objects of the trust or prejudicing the beneficiaries. As I have
not been asked to do so,
I have no intention of varying the terms of
the trust deed or permit anything to be done in contravention of the
terms expressed
therein. This matter deals only with the
interpretation of the trust deed.
[12]
Mr
Morgan
also referred to
Standard SA Limited v Redmond
(80438/2015) [2016] ZAGPPHC 396 (2 June 2016) para 1. That
matter concerned a summary judgment application which was defended
by
the respondent on the basis that the founding affidavit was not
properly deposed to, and that he had no knowledge of the suretyship
allegedly signed by him. In addition, the respondent raised the
fact that the particulars of claim were excipiable because
the
applicant had failed to attach the principle overdraft agreement or
plead its terms. The court held that the applicant’s
cause of action lay in the suretyship agreement signed by the
respondent. The other grounds of complaint were also
dismissed.
It is not clear to me why Mr
Morgan
referred
to this authority.
[13]
Mr
Morgan
also referred to
Tiefenthaler Attorneys v
Kleinhans
(9018/13, 4325/13) [2015] ZAKZDHC 15 (24 February 2015)
which dealt with an application for summary judgment based on a
suretyship
agreement. The defences raised in the summary judgment
opposing affidavit were dismissed and judgment was granted.
Once again,
it is not clear to me why I was referred to this
authority.
[14]
Mr
Morgan
also referred me to clause 18.4 of the first
applicant’s founding affidavit in which he recalls having
furnished the bank
with a copy of the trust deed.
This was presumably done by the deponent to indicate that the bank
had knowledge
of the trust deed prior to the signing of the
suretyship and the registration of the mortgage bond. I accept
this as a fact.
[15]
Mr
Van Rooyen,
who appeared for the bank, submitted that the
process of interpreting the trust document is to be done objectively,
and not subjectively.
In this regard he referred to
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA
593
(SCA), paras 18-20. This new method of interpretation was
expanded upon in
Bothma-Batho Transport (edms) Bpk v S Bothma and
Seun Transport (edms) Bpk
2014 (2) SA 494
(SCA), para 12.
[16]
The approach in these cases provides that although the starting point
is still the wording of
the document, they are not interpreted
literally, but considered in the light of relevant and admissible
context, including the
circumstances in which the document came into
being. Essentially the interpretation process is one unitary
exercise.
[17]
Mr
Van Rooyen
pointed to the following matters as relevant to
the interpretation of the clause in the trust deed;
(a)
That the first applicant had already completed an unlimited
suretyship on the 23
rd
August 2002 in favour of the bank
for the debts of the close corporation;
(b)
The second and third applicants are the spouse and mother of the
first applicant, and the
fifth and seventh applicants are his
children. In those circumstances, it is inevitable that the
first applicant is the controlling
mind of the trust;
(c)
The first applicant was appointed sole member of the close
corporation on the 24
th
October 1997;
(d)
The first applicant executed the suretyship agreement on behalf of
the trust;
(e)
As the sole member of the close corporation, the first applicant was
then the controlling
mind of both the trust and the close corporation
respondent to whom the money was loaned.
[18]
The only requirement to be established is whether the suretyship and
the bond were executed ‘on
behalf of and for the benefit of any
trustee or beneficiary of the Trust…’. The trust
expressly authorised the signing
of a suretyship agreement and the
registration of a bond over the trust property. In my view, there is
no doubt that the provisions
of the suretyship agreement were in
accordance with clause 4.13 of the trust deed. Although it is
correct that the suretyship
was provided to the close corporation,
the first applicant had been the sole member of the close corporation
since 1997. The trust
was clearly a family trust, designed to benefit
the first applicant, his wife (who are two of the trustees) and their
minor children.
As the first applicant was the operating mind of the
trust, and a beneficiary thereof, it was clearly to his benefit that
the close
corporation, of which he had been the sole member since
1997, was given a loan by the bank.
[19]
In addition to the aforegoing, it is necessary to interpret clause
4.13, and the preamble to
the paragraph. There can be no doubt
that the trust deed enables the trustees to do almost anything in the
way of dealing
with the trust assets and encumbering them, should
they wish to do so. The submission that the monies were
advanced by the
bank to the close corporation, and was not done so
either on behalf of, or for the benefit of, the first applicant, is,
in the
circumstances, a convenient but spurious interpretation of the
trust deed. It would be closing one’s mind to reality to
suggest
that the agreements were not on behalf of, and for the
benefit of the first applicant. Failing such an interpretation
the
suretyship document and the registered bond would be, in effect,
a nullity. That would be manifestly unfair and prejudicial
to
the bank. As it benefitted the aims of the first applicant, it is
ultimately designed to benefit all the beneficiaries.
[20]
I have no hesitation in accepting the argument set out by Mr
Van
Rooyen
and in those circumstances I make the following order:
The application is
dismissed with costs.
Lopes
J
Date
of hearing:
30
th
May 2019.
Date
of Judgment:
14
th
June 2019
For the
Plaintiff:
Mr
Morgan
(instructed by Govender, Pather & Pillay).
For the Defendant:
Mr
Van Rooyen
(instructed by Cox Yeats Attorneys).