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[2015] ZAKZPHC 44
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Breetzke and Others v Alexander and Others (12922/14) [2015] ZAKZPHC 44 (8 September 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
No: 12922/14
DATE:
08 SEPTEMBER 2015
In
the matter between
GAVIN
ANTHONY
BREETZKE
.....................................................................................
First
Plaintiff
MICHAEL
JOHN
BREETZKE
....................................................................................
Second
Plaintiff
MARGARET
ANN
BREETZKE
....................................................................................
Third
Plaintiff
And
ROBERT
EDWARD
ALEXANDER
.............................................................................
First
Defendant
ZININGI
(PROPRIETARY)
LIMITED
...................................................................
Second
Defendant
RODNEY
JOHN
TROTTER
.......................................................................................
Third
Defendant
STUART
RICHARD
HOWIES
.................................................................................
Fourth
Defendant
JUDGMENT
Delivered:
8 September 2015
MOODLEY
J
[1]
The parties are referred to as they are in the action.
The
Exception
[2]
The defendants have excepted to the plaintiffs’ particulars of
claim on the ground that the plaintiffs lack
locus standi
to
make a claim on behalf of a Trust, the beneficiary of which is the
trust which the plaintiffs represent; the particulars of
claim
therefore do not disclose a cause of action and/or lack the averments
necessary to sustain the action against defendants.
The defendants
seek an order upholding the exception, striking out the particulars
of claim, and dismissing the plaintiffs’
claim and all
concomitant costs.
[3]
In response, the plaintiffs contend that although the general rule is
that the persons with
locus standi
to act on behalf of a trust
are its trustees acting jointly, the general rule does not operate
when where an aggrieved beneficiary
of a trust seeks recourse on
behalf of the trust, against a ‘delinquent’ trustee of
such trust, as such defaulting
trustee cannot sue himself or be
expected to do so. The exception should therefore be dismissed with
costs, including costs of
two counsel.
Factual
background
[4]
The first plaintiff and the first defendant were appointed the first
two trustees of the Sleepy Hollow Trust (SH Trust) to represent
the
interests of its two beneficiary trusts, the St Francis Trust (SF
Trust) and the June Alexander Family Trust (JAF Trust). Each
trust is
a beneficiary of the SH Trust to the extent of fifty percent (50%).
The assets of the SH Trust included a substantial
property portfolio.
Pursuant to a resolution taken by its trustees to sell some of the
properties, the SH Trust sold immovable
property to the second
defendant.
The
action
[5]
The plaintiffs, in their capacity as the trustees of the St Francis
Trust, instituted an action against the defendants in their
following
capacities :
(i)
First defendant, a trustee of the SH Trust and the JAF Trust, and the
sole director and a shareholder of the second defendant,
in his
personal capacity and representative capacity as trustee of the SH
Trust and the JAF Trust.
(ii)
Second defendant is a close corporation which carries on business in
real estate.
(iii)
Third defendant, in his representative capacity as a trustee of the
SH Trust and the JAF Trust.
(iv)
Fourth defendant in his representative capacity as a trustee of the
JAF Trust.
[6]
No relief is sought against the first, third and fourth defendants in
their representative capacities.
[7]
The plaintiffs allege that in breach of his fiduciary duty to the SH
Trust and its beneficiaries, the first defendant, representing
the
second defendant, negotiated a sale of immovable property which were
assets in the SH Trust to the second defendant, at a price
lower than
the price previously negotiated by the SH Trust with a party
interested in purchasing the same property. The first defendant
then
caused the property purchased by the second defendant to be
sold to a third party at a price higher than the price paid
by the
second defendant to the SH Trust. The first defendant, alternatively
the second defendant, therefore benefited to extent
of the difference
in the purchase price paid by the second defendant and the price at
which the property was subsequently sold.
[8]
The plaintiffs allege further that they, in their representative
capacities, are ‘entitled to require the first defendant,
alternatively the second defendant, to disgorge the said benefit and
to pay the amount thereof to the SH Trust.’ Relief
is
therefore sought by the plaintiffs against the first defendant in his
personal capacity, alternatively the second defendant.
The
Relevant Legal Principles
Exception
:
[9]
An exception must be judged on the pleading excepted to, without
consideration of any fact or allegation extraneous to the
pleading.
[1]
The onus is
on the excipient to show that the relevant pleading is excipiable.
[2]
The excipient must establish that, on every interpretation of the
pleading excepted to, including any annexures thereto, no cause
of
action is disclosed.
[3]
[10]
Therefore in this matter the onus rests on the defendants to
establish that on every interpretation thereof, the particulars
of
claim as amended, do not disclose a cause of action.
Trusts:
[11]
In
Gross
and Others v Pentz
[4]
Corbett
CJ
held that, as a general rule, the proper persons to act in legal
proceedings on behalf of a trust, testamentary or otherwise, are
its
trustees, and the beneficiary of the trust does not have
locus
standi
to do so.
[5]
But a
distinction must be drawn between actions brought on behalf of a
trust eg to recover damages from a third party, on
the one hand and
on the other, actions brought by trust beneficiaries in their own
right against the trustee for maladministration
of the trust estate
etc.
[6]
[12]
The first type of action was called ‘the representative action’
and the second ‘the direct action’.
The general rule
applied only to representative actions.
[7]
[13]
The court however accepted that the general rule had to be modified
by the ‘Beningfield exception’
[8]
,
the principle so termed because of the case
[9]
in which it was encapsulated in the following quotation:
‘
When an
executor cannot sue, because his own acts and conduct, with reference
to the testator’s estate, are impeached, relief,
which
(as against a stranger) could be sought by the executor alone, may be
obtained at the suit of a party beneficially
interested in the proper
performance of his duty: Travis v Milne (1).’
[14]
The rationale for the exception is the impossibility of a defaulting
or delinquent trustee suing himself.
[10]
[15]
If the general rule applies to representative actions, then the
exception to the general rule in accordance with the Beningfield
principle must also apply to representative actions only.
[16]
See also
Honore’s
South African Law of Trusts
[11]
:
‘
Beneficiaries
may sue the trustee to enforce the provisions of the trust eg
in order to obtain payments of income or delivery
of property to
which they are entitled in terms of the trust or simply to keep the
trust fund intact even though they have as yet
no vested right to any
part of it. However a distinction has to be drawn between
direct actions by beneficiaries in their
own right, where a vested
right is required for legal standing (
locus standi
) and a
representative action on behalf of a trust where a beneficiary who
acts need not have a vested right.’
Argument
[17]
Both Mr Dickson, who appeared for the defendants, and Mr Acker, who
appeared for the plaintiffs, relied on
Gross and Others v Pentz
in support of their arguments.
Counsel
agreed that the general rule is that only the co-trustees of a trust
acting together have the
locus standi
to bring or defend legal
proceedings on behalf of the trust and that the Beningfield exception
applied when the recreant or ‘delinquent’
trustee was
sued by a beneficiary of the trust on behalf of the trust, because
the trustees could not act together in suing the
delinquent trustee,
as he could not institute legal proceedings against himself. They
agreed further that the Beningfield
exception only applied when a
beneficiary had no recourse to direct action against the defaulting
trustee.
It
was also not in dispute that the plaintiffs had brought a
representative action, as they sued in their capacities as trustees
of the SF Trust, for payment of a sum of money allegedly due to the
SH Trust.
[18]
The point of departure between the parties was whether the
particulars of claim sustained the reliance by the plaintiffs on
the
Beningfield exception.
Mr
Dickson contended that on the allegations in the particulars of
claim, the plaintiffs could sue the defaulting parties in a direct
action. However they had instituted a representative action.
Therefore, their reliance on the Beningfield exception to sustain
their representative action was misplaced, and the plaintiffs had
accordingly failed to establish that they had the
locus standi
to institute the current action against the defendants.
[19]
While acknowledging that the plaintiffs’ action was
representative and not direct, Mr Acker referred me to the following
excerpt from
Gross
and Others v Pentz
:
[12]
‘……
.in
order to sustain a direct action, a plaintiff must, in my view, have
as beneficiary a vested interest in the trust (see Estate
Bazley v
Estate Arnott
1931 NPD 481
at 490). In this case, as I have
indicated, the plaintiff’s interest in both the future income
and the capital of the Trust
is merely contingent.’
[20]
Submitting that the interest of the SF Trust in the SH Trust was
similarly contingent, Mr Acker went on to argue that although
if the
general rule was applied, the plaintiffs lacked
locus standi
,
the exception to the rule permitted the plaintiffs’ action, as
held in the quoted case.
Reasons
[21]
However a perusal of the founding trust deed of the SH Trust, reveals
that this reliance on the aforementioned excerpt was
inappropriate
and misplaced. As properly pointed out by Mr Dickson, the SF Trust
does not have a mere contingent interest in the
SH Trust but a vested
interest, as it is ‘the holder of 50% of the capital, income
and liabilities accruing to the Trust’
under clause 5 of the
trust deed and is ‘entitled to cede and assign the whole or any
portion of its interest in the trust
to a third party’ under
clause 7.
[22]
Notwithstanding the fact that the SF Trust has a vested interest, the
availability of a representative action to beneficiaries
with a
contingent right only was considered by Corbett CJ :
‘
The
next question is whether a representative action in terms of the
Beningfield principle
is available to beneficiaries who have no vested right to the future
income or corpus
of the trust. While the rights of such beneficiaries are contingent,
they do, as the Court
a
quo
observed (see 523I), have vested interests in the proper
administration of the trust. Although there does not appear to be any
authority directly in point, I am of the view that such a beneficiary
may bring a representative action.’
[13]
In
his dissenting judgment, Harms JA was adamant that application of the
Beningfield exception should be strictly limited, holding
:
‘
I
am unaware of a rule of law that allows a court to confer
locus
standi
upon a party, who otherwise has none, on the ground of expediency and
to obviate impractical and undesirable procedures. The
Beningfield
exception, it will be recalled, is limited to an impossibility
created by the would-be plaintiff's own acts and I would prefer
to
contain the exception within that limitation.’
[14]
However
neither view advances the argument on behalf of the plaintiffs any
further, the pertinent issue being whether or not, on
the particulars
of claim the plaintiffs had a direct action because of the loss the
SF Trust suffered as a result of breach of
trust.
[15]
[23]
On any or every interpretation of the particulars of claim, it is
apparent that:
i)
the plaintiffs sue in their capacities as trustees of the SF Trust, a
beneficiary of the SH trust;
ii)
they allege that as a result of the first defendant’s breach of
his fiduciary duty, the assets of the SH Trust were sold
at a lower
purchase price than had been offered;
iii)
that the SF Trust as a beneficiary of the SH Trust with a vested
interest, suffered a loss.
Therefore
the particulars of claim sustain a direct action by the SF Trust
against the party in default viz the first defendant
in his personal
capacity.
[16]
Consequently the
plaintiffs lack the necessary
locus
standi
to
sue in a representative action and cannot sustain such representative
action by relying on the Beningfield exception.
[24]
Mr Acker’s further contention that I should read into the
phrases ‘in their representative capacities’ in
paragraph
32 and ‘in their representative capacities as aforesaid’
in the prayer to the particulars of claim, that
the plaintiffs refer
to their capacities as trustees of the SF Trust
and
(
my
emphasis
) the SH trust, is in my view, an afterthought that
lacked persuasion or merit, and not merely the consequence of poor
draughtsmanship,
which Mr Acker conceded.
In
paragraphs 1(c), 2(c) and 3(b) of the particulars of claim, the
plaintiffs specifically state that they sue in their capacities
as
trustees of the SF Trust, although the first and second plaintiffs
are also trustees of the SH Trust. Therefore the only representative
capacity in which they sue, is as trustees of the SF Trust. In
any event, a co-trustee may only sue with the consent or approval
of
the court.
[17]
[25]
But insofar as the derivative action against the second defendant is
concerned, I am not persuaded by the submission by Mr
Dickson, that
such action is precluded by the amended Companies Act, as the common
law remains unchanged by the legislation and
any analogous derivative
action to a shareholders derivative action, remains available to the
beneficiary of a trust.
[18]
[26]
In the premises I am satisfied that the defendants have discharged
their onus to establish that the plaintiffs lack
locus standi
and that the averments in the particulars of claim do not sustain the
cause of action. The exception to the particulars of
claim must
therefore be upheld.
Order
1.
The exception to the particulars of claim, as amended, is upheld with
costs.
2.
The plaintiffs are granted leave to amend their particulars of claim
within 20 days of the granting of this order, failing which
the
defendants may apply for the remaining relief as set out in
paragraphs (b) and (c) of the exception dated 23 March 2015.
MOODLEY
J
Counsel
for the Plaintiffs/Respondents: Adv BA Acker SC
Adv
MM Swain
Instructed
by: BARKERS ATTORNEYS
C/O
CAJEE SETSUBI CHETTY INC.
195
Boshoff Street
Pietermaritzburg
3200
Counsel
for the Defendants/ Excipients: Adv AJ Dickson
Instructed
by: J. LESLIE SMITH & COMPANY
332
Jabu Ndlovu Street
Pietermaritzburg
3200
[1]
Minister of Safety and Security & Another v Hamilton
2001(3)SA50(SCA) para 5
[2]
Voget& Ors v Kleynhans 2003(2) SA 148 (c) para 8 & 9
[3]
Lewis v Oneanate (Pty) Ltd & Another 1992 (4) SA 811 (AD) 817
F-G
[4]
1996 (4) SA 617 (A)
[5]
Gross and Others v Pentz 625 A-E
[6]
Gross and Others v Pentz 625 E-F
[7]
Gross and Others v Pentz 625 G-H
[8]
Gross and Others v Pentz 628G
[9]
Beningfield v Baxter (1886) 12 AC 167(PC) 178-9
[10]
Gross and Others v Pentz 628G
[11]
5
th
edition: Cameron, De Waal and Wunsh page 361
[12]
Gross and Others v Pentz 626 H-I
[13]
Gross and Others v Pentz 628I-J
[14]
Gross and Others v Pentz 632F-G
[15]
Honore’s SA Law of Trusts page 373
[16]
Honore’s South African Law of Trusts page 374 :
‘Regarding the direct action, a beneficiary who has suffered
a
loss as a result of a breach of trust is naturally entitled to sue.’
See also Bafokeng Tribe v Impala Platinum Ltd &
Others 1999(3)
SA 517 at 547 H-J.
[17]
Pentz v Gross and Others 1996(2)SA 518 at 525G
[18]
Financial Services Board and Ano v De Wet NO and Others 2002(3) SA
525 at 624 C-I ; Roberts v Gill & Company and Others
2010 (4)
ALL ER 367
at para 45-46