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[2016] ZAGPPHC 259
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Watson v Cockin and Others (78012/2014) [2016] ZAGPPHC 259 (22 April 2016)
HIGH COURT OF SOUTH
AFRICA
(GAUTENG DIVISION,
PRETORIA)
22/4/16
Case no. 78012/2014
Not reportable
Not of interest to other
judges
Revised.
In the matter between:
DD
WATSON
Applicant
and
N. COCKIN
NO
First
Respondent
N.F.
COCKIN
Second
Respondent
N.A.
COCKIN
Third
Respondent
WOODLANDS ENGINEERING
(PTY)LTD
TRADING AS WOODLANDS
FIRE
Fourth
Respondent
WOODLANDS CORPORATE
PROPERTIES (PTY)LTD
Fifth
Respondent
THE MASTER OF THE HIGH
COURT. PRETORIA
Sixth
Respondent
JUDGMENT
RABIE, J
1.
This is an ongoing
battle about a family trust. The applicant approached this Court in
order to resolve disputes which arose between
herself, her mother and
her two brothers relating to an
inter vivos
trust, the Colton Trust (hereinafter "the
trust"), created during March 1996 by her late father who passed
away on 26
June 2013.
2.
The applicant's late
father (hereinafter "the deceased") and her mother, the
first respondent, were appointed as the first
trustees of the trust
and were authorised to act as such in terms of Letters of Authority
dated 3 July 1996 issued by the Master
of this Court. The second and
third respondents are the two brothers of the applicant and also the
children of the first respondent
and the deceased. The fourth and
fifth respondents are companies which are run by the third and fourth
respondents respectively.
The trust is the sole shareholder of both
the fourth and fifth respondents.
3.
In terms of the joint
will of the deceased and the first respondent one third of the value
of their common residence was bequeathed
to the applicant. The
remaining two thirds of the value of this property was bequeathed to
the trust. All rights and membership
interests in the Close
Corporation known as Woodlands Fire CC (apparently the predecessor of
the fourth and fifth respondents)
were also bequeathed to the trust
as well as all personal assets of the deceased, with the first
respondent retaining a usufruct
in respect of the personal assets
until her death.
4.
According to the Deed
of Trust the trust was created in order to benefit the capital
beneficiaries which were defined by the Deed
of Trust as the deceased
and the first respondent together with their children, namely, the
second respondent, the third respondent
and the applicant. The income
beneficiaries were defined as "the persons who shall benefit
from the income of the trust in
terms of the discretionary powers of
the trustees, and may include the capital beneficiaries, their
parents, spouses, widows, lawful
issue and such other natural persons
who the Trustees may appoint from time to time."
5.
As mentioned, the
deceased and the first respondent were the first trustees of the
trust. This was stipulated in paragraph 4.1 of
the trust deed.
According to paragraph 4.2 thereof the trust shall during its
existence have not less than two or more than five
trustees in office
at any time except in the event of a Financial Institution as
described in Act 56 of 1964 being appointed as
trustee, in which
event such financial institution may act as sole trustee. The maximum
number of trustees may be exceeded by testamentary
stipulation by the
deceased. He, however, had not done so.
6.
Paragraph 4.2 further
provides that except in the event of a Financial Institution being
the sole trustee, if the number of trustees
are reduced to less than
two, the remaining trustee shall have no power to act with respect to
the trust fund, except to the extent
that it may be necessary to
appoint new trustees in terms of paragraph 4.3 of the trust deed.
Paragraph 7.7 thereof in addition
specifically stipulates that a
quorum of trustees shall be two trustees unless a Financial
Institution is the sole trustee. It
is further stipulated that the
trustees shall not conduct any business at any meeting unless there
is a quorum present, other than
the appointment of a further trustee,
if there is only one trustee at the time.
7.
The powers as well as
the obligations of the trustees are comprehensively dealt with in the
trust deed including the obligation
to keep proper records and
accounts reflecting truly and correctly the trustees' administration
of the trust fund. The trustees
have absolute discretion as to the
appropriation, awarding and distribution of the income of the trust
and are entitled to pay
from time to time from the income of the
trust fund to any capital beneficiaries such amounts as the trustees
in their sole discretion
deem necessary and reasonable for the
maintenance of the beneficiaries. They also may in their absolute
discretion pay at any time
to any income beneficiary so much of the
income of the trust as they deem necessary and reasonable.
8.
It is further provided
that pending the distribution of the trust capital, which would
include all accumulated and unpaid income,
no portion of the trust
fund shall be considered to be a specific share on behalf of an
ultimate capital beneficiary, but shall
be kept by the trustees as
one undivided portion.
9.
Since the passing of
the deceased the disputes between the parties, with the applicant on
the one hand and the first, second and
third respondents on the other
hand, escalated to such an extent that it can only be described as a
very serious, uncompromising
and acrimonious family feud.
10.
Matters came to a
head approximately three weeks after the deceased passed away when
the first respondent, in a letter dated 19
July 2013, advised her
children, the applicant and the second and third respondents, of the
minutes of a meeting of the trust held
on 19 July 2013. According to
the letter the purpose of the meeting was to nominate and appoint
trustees to act in terms of the
trust deed after the passing of the
deceased. According to the resolution she appointed the second and
third respondents as trustees
and also appointed them as
"beneficiaries" of the trust. In a letter addressed to the
applicant's attorneys dated 15
January 2014 the attorney acting on
behalf of the first, second and third respondents, stated the
following in respect of the applicant:
"According to our client
your client is not a beneficiary of The Colton Trust anymore."
11.
It is not clear what
the first respondent intended by appointing the second and third
respondents as "beneficiaries" to
the exclusion of the
applicant. If this was an attempt to exclude the applicant from any
benefits arising from the trust fund or
to amend the trust deed to
the effect that the applicant is no longer a capital and income
beneficiary, such attempt had obviously
been invalid. This stance,
that the applicant is not a beneficiary of the trust, was later
abandoned in the correspondence between
the attorneys representing
the parties except that it seems that the first, second and third
respondents still deny that the applicant
is an income beneficiary of
the trust.
12.
It is common cause
that the sixth respondent has to this date not issued Letters of
Authority to the second and third respondents.
According to the
provisions of the trust deed, including those referred to above, the
second and third respondents cannot act as
trustees and neither can
the first respondent do so either individually or with the second and
third respondents. This also accords
with the provisions of section
6(1) of the Trust Property Control Act which reads as follows:
"Any person whose
appointment as trustee in terms of a trust instrument, section 7 or a
court order comes into force after
the commencement of this Act,
shall act in that capacity only if authorised thereto in writing by
the Master."
13.
A trustee is
accordingly prohibited from acting until the Master has issued
Letters of Authority. See Lupacchini N.O. v Minister
of Safety and
Security
2010 (6) SA 457
(SCA) at paragraph 3; Land and Agricultural
Bank of South Africa v Parker
2005 (2) SA 77
(SCA) at paragraphs 10
and 11. In paragraph 11 of the Parker matter Cameron JA (as he then
was) held as follows:
"It follows that a
provision requiring a specified minimum number of trustees must hold
office is a capacity-defining condition.
It lays down a prerequisite
that must be fulfilled before the trust estate can be bound. When
fewer trustees than the number specified
are in office, the trust
suffers from an incapacity that precludes action on its behalf."
14.
Despite being unable
to act on behalf of the trust and to deal with assets of the trust,
that is exactly what the first, second
and third respondents had been
doing and are still doing, despite having been made aware of their
lack of authority by the applicant
and her attorney. I shall refer to
a few examples of the first, second and third respondents purporting
to act on behalf of the
trust.
15.
Since the passing of
the deceased the first, second and third respondents have alienated
assets and distributed capital and most
probably also income from the
trust. A Land Rover motor vehicle and a Mercedes-Benz Unimog Camper
belonging to the trust were sold
for R620 000,00 and R170 000,00
respectively. In selling the Mercedes-Benz vehicle the second
respondent stated in writing to the
purchaser that he was authorised
to act as a trustee on behalf of the trust and to dispose of the
trust's assets.
16.
The second and third
respondents are in the
de facto
control
of the fourth and fifth respondents. They are conducting the
day-to-day business of these companies of which the trust is
the sole
shareholder. The fourth and fifth respondents conduct a manufacturing
business. Despite her best efforts to have access
to the business
records of either the trust or the fourth and fifth respondents, the
applicant was unable to achieve that for more
than a year prior to
the launching of the present application. According to the applicant,
the combined value of the fourth and
fifth respondents, including the
fixed property on which they are situated, are no less than R 15
million. As the liquidation and
distribution account in the deceased
estate, which had been prepared by the attorneys of the first, second
and third respondents,
shows the value for distribution as less then
R1 million, the applicant has filed an objection against the account
with the Master
alleging misappropriation and non-disclosure of
certain assets which belonged to the deceased and which have been
inherited by
the trust.
17.
The applicant also
referred to documentation which would indicate a transfer of offshore
funds of the deceased of more than R 6,3
million to the HSBC Bank in
Jersey. A few months before the death of the deceased the name of the
account was changed to "Messrs
Cockin & Mrs N Cockin"
which implies a disappearance of the money from the estate of the
deceased.
18.
Subsequent to the
death of the deceased all these funds were withdrawn from the HSBC
account and paid to entities in Mauritius,
ostensibly for holiday
properties. These properties were not purchased in the name of the
trust but in the names of the first,
second and third respondents.
The applicant stated that she was not aware of any Deed of Donation
prior to the deceased's death
in respect of the HSBC funds but even
if that were to be the case, the deceased's will makes no provision
for collation with the
result that such donations would have to be
repaid to the estate.
19.
In the answering
affidavit on behalf of the respondents the third respondent stated
that on the day that he drafted his will, the
deceased donated all
the funds in the HSBC account to the first, second and third
respondents with the result that this amount
did not fall into his
estate, and with the further result that the trust did not inherit
this amount. It was stated by the applicant,
and submitted on her
behalf, that these factors constitute very good reasons why
independent trustees should be appointed. The
trust is the sole
beneficiary that stands to gain if the donation were to be set aside
or the money were to be paid back to the
deceased's estate for any
other reason. However, only independent trustees would be willing to
investigate the alleged donation
of probably the bulk of the
deceased's estate. The third respondent in fact stated that the
applicant was not supposed to know
of the existence of the offshore
funds. This attitude, if anything, is even more of a reason why
independent trustees should be
appointed. The trust, as sole
beneficiary, has an interest in this amount and to establish the
validity of the alleged donation
to the first second and third
respondents. If the first, second and third respondents, who had
benefited from the alleged donation,
were to be left with the sole
control of the trust as trustees, this donation would, as in the
past, never be investigated and
challenged on behalf of the trust.
20.
The applicant further
pointed out that apart from not answering the Master's queries, the
respondents have failed to advise how
they, as the recipients of the
funds in the amount of R 6 341 666, 00 have treated the donations tax
of 20%,
i.e.
an amount
of R 1 268 333, 20 payable to SARS if the aforesaid amount in fact
constituted a donation. The applicant suggested that
the respondents
had not paid such tax which is a further indication that it is
unlikely that any donation was in fact made to the
respondents as
alleged. Even if there was a donation, it would have to be repaid to
the estate in terms of the principle of collation.
21.
In her replying
affidavit the applicant also responded to the financial statements of
the fifth respondent as at 28 February 2014.
Therein the fifth
respondent recorded that an unsecured long-term liability in favour
of the trust increased from R 1 082 022,
00 on 28 February 2013 to R
1 253 923, 00 on 28 February 2014. The conclusion to be drawn is that
the trust lent and advanced the
sum of R 171 901, 00 to the fifth
respondent during the time when the first respondent was the only
trustee and would not have
had the power to do so.
22.
The applicant also
pointed out that the financial statements of the fourth and the fifth
respondents for the financial years 2012
to 2014 have not been
audited as it was supposed to have been done.
23.
The applicant also
pointed out that in 2011, the trust's loan account to the fifth
respondent was R 879 436, 00, in 2013 it was
R 1 082 022, 00, in 2014
it was R1 253 923, 00. According to the applicant this would indicate
increasing amounts lent to the fifth
respondent by the trust. In
particular, an amount of R 171 901, 00 was lent after the deceased
had passed away.
24.
Similarly, it appears
that a loan was made to the trust by the fourth respondent in the
amount of R 783 157, 00 during the 2014
financial year. The first
respondent, in her capacity as the only remaining trustee, would not
have had the power to lend and borrow
the aforesaid amounts. The
applicant suggested that it is more probable that the first
respondent was totally unaware of these
transactions and that the
second and third respondents were indeed the operating minds behind
same.
25.
In response to the
above the third respondent stated in a further answering affidavit
that the amount of R171 901,00 presents interest
charged on a loan
which the fifth respondent made from the trust during 2002/2003.
26.
In respect of the
loan account owed by the trust to the fourth respondent it was
explained in paragraph 12 to 15 in the further
answering affidavit as
follows:
"12. The surplus
cash reserves of the fourth respondent are transferred on a regular
basis which are transferred to the Colton
trust as a type of
untouchable reserve which would need to be instantly accessible to
secure overseas stock purchases.
13. These transactions
happen regularly to excess funds and as a result, there are many in
and out transactions of this nature throughout
the year.
14. The only other
transaction that occurred in the year was an annual interest charge.
15. From the description
of the above, it can be seen that this is not a loan that was
advanced to the fourth respondent by the
Colton Trust but in fact a
only reserves of the fourth respondent that is kept in the account of
the Colton Trust to be utilised
when the funds are required for
purposes of purchasing stock abroad by the fourth respondent."
(sic)
27.
If my understanding
of this explanation is correct, I find it quite disturbing for it
would seem that the fourth respondent is using
the accounts of the
trust as if it is the fourth respondent's own business account. To
say that this was the practice while the
deceased was still alive, is
obviously no answer.
28.
According to the
applicant neither she nor her children have received anything from
the trust as beneficiaries and she submitted
that the appointment of
the second and third respondents as trustees, is a blatant attempt to
exclude her as a beneficiary from
the trust.
29.
It is clear that as
matters stand, the first, second and third respondents are unlawfully
administering the business of the trust
as well as the businesses of
the fourth and fifth respondents. This is so because the second and
third respondents have not been
authorised to act on behalf of the
trust by the Master and since the trust is the sole shareholder of
the third and fourth respondents
respectively, no decisions can be
taken by the third and fourth respondents to allow for the second and
third respondents to act
lawfully on their behalf.
30.
It is undisputed that
there exists an acrimonious relationship between the applicant and
the first, second and third respondents
regarding the business and
interests of the trust. A conspectus of the evidence before this
court also makes it clear that there
is a deliberate attempt by the
first, second and third respondents to push the applicant out and to
deprive her of the required
information regarding the trust and in
sharing in the benefits of the trust. Furthermore the second and
third respondents appear
to be using the trust is their
alter
ego
and the trust assets as their own, and
also the fourth and fifth respondents as their own property. Clearly
the rights of the applicant
and her daughter, as beneficiaries of the
trust, are presently denied by the first, second and third
respondents. It is also clear
that with the first, second and third
respondents as trustees, this situation would not change and, as
stated above, the alleged
donation by the deceased of the bulk of his
estate to the first, second and third respondents shortly before his
death, would,
to the detriment of the trust, remain unchallenged.
31.
In Parker,
supra,
Cameron JA said the following in paragraphs
[19] and [20] on p86:
[19] ... some
observations are needed about the abuse of the trust form this case
yet again brings to light. The core idea of the
trust is the
separation of ownership (or control) from enjoyment. Though a trustee
can also be a beneficiary, the central notion
is that the person
entrusted with control exercises it on behalf of and in the interests
of another. This is why a sole trustee
cannot also be the sole
beneficiary: Such a situation would embody an identity of interests
that is inimical to the trust idea,
and no trust would come into
existence. It may be said, adapting the historical exposition of Tony
Honore, that the English law
trust, and the trust-like institutions
of the Roman and Roman-Dutch law, were designed essentially to
protect the weak and to safeguard
the interests of those who are
absent or dead. 15
[20] This guiding
principle provided the foundation for this Court's major decisions
over the past century in which the trust form
has been adapted to
South African law: That the trustee is appointed and accepts office
to exercise fiduciary responsibility over
property on behalf of and
in the interests of another."
In paragraph [22] Cameron
JA added the following (without references):
"[22] ... The
essential notion of trust law, from which the further development of
the trust form must proceed, is that enjoyment
and control should be
functionally separate. The duties imposed on trustees, and the
standard of care exacted of them, ... derive
from this principle. And
it is separation that serves to secure diligence on the part of the
trustee, since a lapse may be visited
with action by beneficiaries
whose interests conduce to demanding better. The same separation
tends to ensure independence of judgment
on the part of the trustee -
an indispensable requisite of office ... - as well as careful
scrutiny of transactions designed to
bind the trust, and compliance
with formalities (whether relating to authority or internal
procedures), since an independent trustee
can have no interest in
concluding transactions that may prove invalid."
32.
Having regard to the
aforesaid I am of the view that in the present instance there should
be an adequate separation of control by
the trustees from the
enjoyment by the beneficiaries, in the trust. Something which is
presently totally lacking. This would only
be possible if sufficient
independent trustees were to be appointed to avoid a situation where
beneficiaries of the trust could
take majority decisions to the
detriment of other beneficiaries.
33.
As far as the
disputes relating to the estate of the deceased is concerned the
trust is the sole beneficiary of the will and it
is thus important
that the trustees assert the rights of the trust. Up to now the
respondents have failed to deal with the essence
of the objections to
the liquidation and distribution account and is clearly of the view
that the aforesaid alleged donation should
not come under scrutiny.
It further appears that the same attorney appeared for the first
second and third respondents and was
also tasked with the
administration of the deceased's estate. This was the same attorney
who earlier informed the Master that according
to his instructions
the third respondent is not aware of any monies paid to him by the
deceased. This is the opposite from the
alleged donation which the
respondents later mentioned in their answering affidavit. Clearly,
only independent trustees would be
able and prepared to establish and
enforce the rights of the trust in respect of the will of the
deceased.
34.
The Master of this
Court has the necessary powers in terms of the Trust Property Control
Act to grant Letters of Authority only
to such persons which in his
view would enhance the trust principles referred to above. The Master
similarly has the authority
to cause the required investigation to be
carried out into the administration and disposal of trust property of
the trust. On the
facts before this court I am of the view that such
trustees and such a number of trustees should be appointed so as to
ensure that
the trust would be able to take majority decisions that
would enhance the principle of separation of control and enjoyment
and
also the fair treatment to all beneficiaries concerned. However,
no more needs to be done by this court, in my view, then to direct
the Master to consider the exercise of his powers in this regard.
35.
What this court
should do at this point is to pronounce on the rights of the parties
and to ensure that the Master is placed in
a position to exercise his
powers in terms of the Act.
36.
As far as costs are
concerned I agree with the submission on behalf of the applicant that
the trust is not properly before this
court due to its lack of
capacity and that the costs, which should follow the event, be paid
by the second and third respondents
jointly and severally. It was
submitted on behalf of the applicant that a punitive order for costs
should be made against the second
and third respondents. I have
considered all the submissions in this regard but in my view such an
order should not be made.
37.
In the result the
following order is made:
1.
1.1. It is declared that
the applicant, Diane Dawn Watson (born Cockin) (hereinafter "the
applicant") is a capital beneficiary
of the Colton Trust
(bearing Master's Reference 3264/1996) (hereinafter "the Colton
Trust");
1.2. It is declared that
the applicant is an income beneficiary of the Colton Trust.
2. The Master is directed
to consider exercising his power in terms of section 7 (2) of the
Trust Property Control Act to appoint
as co-trustee so many
independent persons so as to ensure that an adequate separation of
control (by the trustees) from enjoyment
(by the beneficiaries) is
maintained in the Colton Trust.
3. The Master is directed
to consider exercising his power in terms of section 16 (2) of the
Trust Property Control Act to cause
an investigation to be carried
out by some fit and proper person appointed by him into the trustee's
administration and disposal
of trust property of the Colton Trust.
4.
4.1. It is ordered that
unless and until the Master issues Letters of Authority in favour of
additional trustees, the first respondent
is interdicted and
restrained in her capacity as trustee of the Colton Trust from
dealing with the assets of the Colton Trust and/or
from entering into
agreements on behalf of the Colton Trust and/or purporting to act on
behalf of the Colton Trust in any manner
save for the purpose of
appointing new trustees in terms of clause 4.3 of the Deed of Trust.
4.2. It is ordered that
unless and until the Master issues Letters of Authority in favour of
the second and third respondents, the
second and third respondents
are each interdicted and restrained from acting or purporting to act
as trustees of the Colton Trust
and in any way dealing with the
assets of the Colton Trust, whether the same are situated in South
Africa, the Isle of Mann, Mauritius
or elsewhere.
5. The first respondent,
in her capacity as trustee of the Colton Trust is ordered to deliver
to the Master and to the applicant:
5.1. The financial
statements of the Colton Trust for the past three financial years;
5.2. the bank statements
of the Colton Trust for the past three years.
6. The second and third
respondents are ordered jointly and severally to pay the costs of
this application.
_____________________
C.P. RABIE
JUDGE OF THE HIGH
COURT