Saffy NO and Others v Viljoen NO and Others (A258/2002) [2006] ZAFSHC 71 (25 May 2006)

78 Reportability

Trusts and Estates

Brief Summary

Trusts — Authority of trustees — Validity of decisions — Appellants sought specific performance of an option agreement for property transfer from the Leeupoort Family Trust, claiming the trustees acted without proper authorization. The court a quo found that one trustee lacked authority to sign the agreement. On appeal, it was determined that the decision was valid as it was supported by a written resolution signed by both trustees, despite the absence of a formal meeting. The appeal was upheld, confirming the validity of the option agreement and the trustees' authority to act.

Comprehensive Summary

Summary of Judgment

Introduction

This was an appeal to the Free State High Court, Bloemfontein, against a decision of the court a quo in an urgent application for specific performance. The relief sought in the application was aimed at compelling the trustees of a family trust to give effect to an option agreement in terms of which a specified immovable property was to be transferred to the applicants once the option had been exercised.

The appellants (as applicants in the court a quo) were the trustees of the H & P Business Trust (IT2340/2000). The respondents were the trustees of the Leeupoort Familie Trust (IT387/1997), cited in their representative capacities.

In the court a quo the respondents raised three preliminary objections (punte in limine). The court a quo upheld only the first: that the trustees had not acted jointly in accordance with the trust deed and, more specifically, that Pieter Viljoen (a trustee) lacked proper authority to sign the option agreement on behalf of the trust. The remaining two preliminary points were not dealt with by the trial judge and were not pursued on appeal.

On appeal, the respondents persisted with the lack-of-authority defence and additionally raised two further defences, namely that the appeal had become academic (moot) due to later litigation and that the transaction was unlawful as constituting a pactum commissorium.

Material Facts

The dispute arose from a written option agreement granted by the Leeupoort Familie Trust in favour of the appellants. The option, once exercised, would obligate the trust to transfer the relevant immovable property to the appellants. It was common cause that the appellants exercised the option on 22 November 2004.

A core factual premise relied upon by the court on appeal was that Pieter Viljoen was effectively the alter ego of the trust and exercised extensive control over its affairs. The trust deed empowered him, during his lifetime, to remove and appoint trustees at will (as described by the court with reference to clause 5.3.2).

The central factual controversy in the court a quo concerned whether Pieter Viljoen had been properly authorised to sign the option agreement on behalf of the trust. The appeal court treated it as common cause that there existed a written resolution authorising Pieter Viljoen to sign documents relating to the option transaction and that this written resolution was signed by both trustees, Pieter and Neil Viljoen. The contention that no proper “meeting” had been held to adopt the resolution formed part of the respondents’ attack on the resolution’s validity.

The respondents only raised the alleged lack of authority for the first time in the answering affidavit, despite the prior exercise of the option and despite earlier steps taken by the trust’s legal representatives in relation to a threatened forced sale of the trust’s property.

After the institution of the application and while the appeal was pending, the appellants issued a summons dated 2 March 2006 (attached to the respondents’ heads of argument on appeal). In that action the appellants alleged a cession by Nedbank to them (dated 16 January 2006) of Nedbank’s claims against the trust under a loan agreement, and sought repayment of capital and interest said to be due under that loan relationship. The respondents relied on this later action to argue that the appeal had become academic.

Legal Issues

The first and decisive issue was whether, on a proper interpretation of the trust deed and the documents relied upon, the trust’s trustees had validly authorised Pieter Viljoen to sign the option agreement, and whether the absence of a formally convened trustees’ meeting rendered the authorisation defective. This was primarily a question of law (interpretation of the trust deed) and the application of that interpretation to the facts (the existence and signing of the written resolution).

A second issue was whether the appeal should be dismissed as moot, on the basis that subsequent litigation (the later summons relying on a cession of Nedbank’s claims) allegedly removed the foundation for the relief sought in the application. This was an issue of justiciability/mootness, involving an evaluative assessment of the relationship between the pending appeal and later proceedings.

A third issue was whether the combined effect of the option and the contemplated sale transaction amounted to an unlawful pactum commissorium, rendering the option agreement unenforceable. This was a question of law, namely whether the doctrine applied on the facts found to be present.

Court’s Reasoning

Authority of a trustee and compliance with the trust deed

The appeal court held that the court a quo erred by focusing on clause 9 of the trust deed (dealing with signature powers and the requirement of a properly minuted decision) without considering the significance of clauses 28.2 and 28.4, read with clause 8.2.2.

Clause 28.2 provided that a decision reduced to writing and signed by all trustees had the same legal force as a decision taken at a meeting of trustees. The appeal court treated this language as clear and unambiguous and reasoned that it meant a formal meeting was not a substantive prerequisite for a valid trustees’ decision, provided that the decision was in writing and signed by all trustees.

The court further reasoned that clause 28.2 inherently contemplated that trustees might not be physically together and therefore did not require simultaneous signature. The validity of the decision depended on it being in writing and ultimately signed by all trustees; the timing of the signatures did not matter.

On the relationship between clause 9 and clause 28.2, the appeal court reasoned that it was “senseless” to insist upon formal minuting of a decision taken outside a meeting in terms of clause 28.2. It therefore rejected the proposition that clause 9 invalidated a written resolution signed by all trustees. Properly construed together, clauses 8, 9, and 28 were said to operate harmoniously, with none “restricting” the other.

Applying these principles to the facts accepted on appeal, the court held that the written decision authorising Pieter Viljoen to sign all documents regarding the option contract was valid under clause 28.2. Since it was common cause that both trustees had signed that authorisation, the court concluded that the trial judge’s finding of lack of authority could not stand.

Alleged mootness (“academic appeal”)

The respondents’ mootness argument relied on the later summons in which the appellants (as alleged cessionaries of Nedbank’s claims) pursued repayment under a loan agreement and interest payments.

The appeal court declined to accept that the appeal had become academic. It reasoned that the causes of action and the relief in the two proceedings were materially different. In the application (the subject of the appeal), the appellants sought an order compelling the respondents to effect transfer of immovable property in accordance with an exercised option. In the later summons, the appellants pursued a monetary claim for capital and interest flowing from a ceded loan agreement (secured by a mortgage bond over the same property).

The court also accepted the appellants’ explanation that the summons had been issued as a precautionary step, including because prescription might arise and because the appellants could not predict when the appeal would be heard. It reasoned that the outcome of the appeal could have significant consequences for the broader dispute and that potential concerns about double liability could, if necessary, be raised as a defence in the later action.

The court added an express caution that the informal manner in which the later summons was placed before it (by annexure to heads of argument) should not be treated as precedent for such procedure, but proceeded to address the point on its merits because it was not challenged.

Pactum commissorium

The appeal court considered the doctrine of pactum commissorium as described in the authorities and emphasised that the doctrine is concerned with agreements arising in the context of a pledge or mortgage relationship, typically where a lender/creditor is entitled, on default, to keep the pledged or mortgaged property as its own irrespective of its value, in satisfaction of a debt.

The court accepted that the doctrine exists to protect a debtor in a weaker bargaining position against an oppressive creditor and to avoid self-help (including forms of parate executie) without recourse to the courts.

On the facts of the present matter, the court held the doctrine inapplicable. It reasoned that the relationship between the appellants and respondents was not that of creditor and debtor, that the appellants were not in possession of the respondents’ property, and that the appellants did not hold the property as security. The only relationship between the parties, as framed by the court, was that the appellants held an option entitling them to buy the respondents’ property if the respondents defaulted on obligations to Nedbank (the creditor). The court further noted there was no indication the appellants had imposed terms in the separate loan transaction between the trust and the bank.

For these reasons the court rejected the pactum commissorium defence as not capable of defeating the option on the facts before it.

Outcome and Relief

The appeal succeeded with costs. The order of the court a quo was set aside.

The appeal court granted an order in terms of prayers 2, 3 and 4 of the notice of motion (as formulated in the application). The judgment indicated that this relief related to compelling performance of the option transaction, but the appeal court did not reproduce the text of those prayers in the judgment.

Cases Cited

Graf v Buechel 2003 (4) SA 378 (A)

Sun Life Assurance Company of Canada v Kuranda 1924 AD 20

Meyer v Hessling 1992 (3) SA 851 (NMS)

Ex parte Mabunya 1905 (20) SC 165

Mapenduka v Ashington 1919 AD 343

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the trust deed permitted trustees to take valid decisions without a formal meeting, provided the decision was reduced to writing and signed by all trustees, and that such a written resolution validly authorised Pieter Viljoen to sign the option agreement on behalf of the trust. The court further held that the appeal was not rendered moot by later summons proceedings based on a cession of bank claims, because the relief and bases of claim differed. Finally, it held that the pactum commissorium doctrine did not apply because the appellants were not creditors holding pledged or mortgaged property as security and the relevant transaction was an exercised option rather than a security appropriation on default.

LEGAL PRINCIPLES

A trust deed may validly authorise trustees to take binding decisions by way of a written resolution signed by all trustees, and such a mechanism can dispense with the need for a formally convened trustees’ meeting. Where such a clause exists, the validity of the decision turns on compliance with the written-and-signed requirement, and not on the convening of a meeting or the production of formal minutes of a meeting that never occurred.

In interpreting a trust deed, clauses dealing with signature powers and clauses recognising written resolutions must be read together so as to give coherent effect to the instrument as a whole, rather than treating one clause as impliedly negating another where they can operate harmoniously.

An appeal is not rendered academic merely because related litigation is instituted later between the same parties, particularly where the later proceedings concern a different cause of action and seek different relief. Mootness requires a substantive loss of practical effect in deciding the appeal, assessed in the context of the actual relief sought.

The doctrine of pactum commissorium is concerned with creditor–debtor security arrangements such as pledges and mortgages, where a creditor seeks to appropriate the security as owner upon default. The doctrine does not apply to a transaction that does not create a creditor’s security interest in the debtor’s property and does not involve the creditor retaining pledged or mortgaged property in satisfaction of a debt.