Nieuwoudt NO and Another v Vrystaat Mielies (Edms) Bpk. (325/2002) [2003] ZASCA 128; [2004] 1 All SA 396 (SCA) (28 November 2003)

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[2003] ZASCA 128
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Nieuwoudt NO and Another v Vrystaat Mielies (Edms) Bpk. (325/2002) [2003] ZASCA 128; [2004] 1 All SA 396 (SCA); 2004 (3) SA 486 (SCA) (28 November 2003)

REPUBLIC OF
SOUTH AFRICA
THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case
number:
325/2002
Reportable
In the matter between:
WILLIAM
JAMES NIEUWOUDT NO FIRST APPELLANT
TALITHA CECILIA
NIEUWOUDT NO SECOND APPELLANT
and
VRYSTAAT
MIELIES (EDMS) BEPERK RESPONDENT
CORAM
: HARMS, FARLAM, BRAND,
CLOETE JJA et VAN HEERDEN AJA
HEARD
: 14
NOVEMBER 2003
DELIVERED
: 28
NOVEMBER 2003
SUMMARY:
Trusts
and trustees – whether
Turquand
rule applicable.
________________________________________________________
JUDGMENT
________________________________________________________
FARLAM JA
[1]
This is an appeal against a judgment of Van
Coppenhagen J, sitting in the Orange Free State Provincial Division,
in terms of which
it was found that an agreement concluded between a
close corporation and the appellants, in their capacities as trustees
of a family
business trust, was valid and enforceable and that the
close corporation’s rights had been ceded to the respondent. The
judgment
of the court
a quo
has been reported: see
Vrystaat
Mielies (Edms) Bpk v Nieuwoudt en ’n Ander NNO
2003(2) SA 262
(O).
[2]
The agreement in question, which was
concluded on 9 May 2001, was for the sale of 900 tons of yellow maize
at R785-00 per ton, delivery
to be effected during the period from 1
June 2002 to 31 July 2002. The deed of sale described the seller as
‘JJ Boerdery Trust
(James Nieuwoudt)’ (James Nieuwoudt being the
name by which the first appellant is known) and was signed by the
first appellant
above the word ‘Verkoper’. The agreement was
thereafter ceded on 25 January 2002 to the respondent.
[3]
As appears from the dates of the contract and
the date on which the maize was to be delivered, the contract was an
advance contract,
what was described in the papers as a
‘vooruit-kontrak’, concluded before the maize to be sold was
planted and produced. By March
2002, when the respondent launched the
application which terminated in the order now on appeal, the price of
maize, which had earlier
risen as high as R1 640-00 per ton, was R1
239-00 per ton, which may explain the stance taken by the appellants
in this matter.
[4]
On 20 February 2002 the respondent sent to
the appellants by facsimile transmission a letter to which was
attached a confirmation
of the contract in which the appellants were
requested to confirm in writing that they would respect the contract.
In a letter sent
to the respondent by the appellant’s attorneys, it
was stated that the trust did not intend implementing any deliveries
because
of the nullity of the alleged contract. No reason was given
for the assertion that the contract was a nullity.
[5]
This reason was only forthcoming after the
respondent had launched the present proceedings. In his opposing
affidavit the first appellant
annexed a copy of the trust deed of the
family trust as well as a copy of the letter of authority issued by
the Master of the High
Court at Kimberley authorising the appellants
to act as trustees of the trust. He pointed out that in terms of the
trust deed, where
there were only two trustees (as is the case), all
decisions of trustees had to be unanimous. This provision of the
trust deed notwithstanding,
he did not have the second appellant’s
authorisation or approval to act on her behalf in signing the
contract in question. He also
said that, in so far as the contract
stated that it contained the details of an agreement which had been
telephonically or orally
concluded between the close corporation and
the trust, the second appellant had also not participated in the
conclusion of any telephonic
or oral agreement with the close
corporation. He concluded this paragraph of his affidavit by stating
that he had been advised that
in view of the facts which I have
summarized no binding agreement came into existence between the close
corporation and the trust.
[6]
Although there was nothing in the trust deed
which prevented the trustees from delegating certain functions to one
of their number
or even to an outsider (cf
Coetzee v Peet Smith
Trust en Andere
2003 (5) SA 674
(T) at 680 I-J), the first
appellant did not deal expressly in his affidavit with the question
as to whether powers of management
over the trust business had been
delegated to him so as to enable the day to day business of the trust
to be carried on. Nor did
he state whether he told his co-trustee,
the second appellant, of the contract he had signed as seller -
although, as he stated elsewhere
in his affidavit, it was never the
intention that he should contract in his personal capacity - nor, if
he did tell her, whether
she had by words or conduct expressed
agreement with what he had done or denied his authority to conclude
the agreement.
[7]
The second appellant contented herself with
filing an affidavit confirming those parts of the first appellant’s
affidavit that applied
to her.
[8]
In reply the respondent sought to answer the
defence raised by the appellants by saying that the representative of
the close corporation
(one Fourie) had at no stage been informed by
the appellants that there were two trustees or that two trustees had
to sign the contract
and that the appellants had not given Fourie a
copy of the trust deed. The respondent alleged further that the fact
that only one
trustee signed the contract did not provide a defence
for the appellants. This was because, so it was averred, clause 23.4
of the
trust deed provided that the trustees could empower one of
their number to sign documents on their behalf, to implement any
transaction
in connection with the trust’s affairs. It was said
further that the respondent would not be in the position, nor was it
expected
of it, to inquire into the internal prerequisites for
authority, for example, a decision by the trustees. In this regard
the respondent
relied on the so-called
Turquand
rule, first
laid down by the Court of the Queen’s Bench and confirmed by the
Exchequer Chamber in
The Royal British Bank v Turquand
(1856)
6 E & B 248(QB) and 327 (Exch. Ch.), which has been adopted by
our courts as part of our company law (see
Legg and Co v Premier
Tobacco Co
1926 AD 132)
and been held to apply also in cases
involving trade unions (
Mine Workers’ Union v Prinsloo
1948
(3) SA 831
(A)) and municipalities (
Potchefstroomse Stadsraad v
Kotze
1960 (3) SA 616
(A)). A modern formulation of the rule,
which was approved by Lord Simonds in
Morris v Kanssen
[1946]
AC 459
at 474, is taken from
Halsbury’s Laws of England,
2
ed, vol 5, para 698 (see now 4 ed, reissue vol 7(1), para 980) and is
in the following terms:
‘
Persons contracting with a company and dealing in
good faith may assume that acts within its constitution and powers
have been properly
and duly performed, and are not bound to inquire
whether acts of internal management have been regular.’
The respondent contended, relying on the judgment of the
Northern Cape Division in
Man Truck & Bus (SA) Ltd v Victor en
Andere
2001 (2) SA 562
(NC), that the
Turquand
rule
applies to trusts. This contention was upheld by the learned judge in
the court
a quo
and its correctness was debated before us.
[9]
In my view, however, whether or not the
Turquand
rule should be applied to trusts, particularly
business trusts - a matter on which I express no opinion - it cannot
be applied in
the present case. I say this because I am satisfied
that clause 23.4 of the trust deed does not afford a foundation for
the contention
advanced in this regard by the respondent.
[10]
Clause 23.4 (as far as is material) reads as
follows:
‘
Die trustees kan een of meer van hulle magtig om alle
dokumente vir amptelike doeleindes wat vir die administrasie van die
trust en
ter uitvoering van enige transaksie wat met die trust se
sake verband hou, nodig is, namens die trustees te teken’.
[11]
The clause clearly on its plain language
applies only to the signing of documents for official purposes. It
thus does not apply to
the contract signed by the first appellant
which was not for official purposes. It follows that no question of
internal formalities,
such as is dealt with by the
Turquand
rule,
can be regarded as having arisen whereby an outsider who had
concluded a contract with one of the trustees could assume that,
in
signing the contract, the trustee concerned had been empowered, as a
matter of internal management, by his co-trustee to sign
the
contract.
[12]
The matter does not end there, however. The
parties were agreed that the decision in this case turned on the
legal question as to
whether the
Turquand
rule can apply to
transactions concluded between a trust and a third party. It was
accepted by both sides both in the court
a quo
and in the
heads filed in the court that clause 23.4 would form a basis for the
application in this case of the
Turquand
rule if, as a matter
of law, the rule applies to trusts. (In view of what in my opinion is
the correct interpretation of this clause,
it is not necessary to
consider whether on the parties’ interpretation thereof the
Turquand
rule would in any event have been applicable in the
circumstances of this case.) Once it was pointed out to counsel that
they and
the court
a quo
had all proceeded on an incorrect
interpretation of clause 23.4, counsel for the respondent requested
that this Court order that the
case be referred for trial in terms of
Uniform Rule 6(5)(g) with a direction that the respondent file its
declaration within fifteen
days of this Court’s order.
[13]
I considered whether the appeal should not
be dismissed on the ground that the first appellant did not
specifically deny that he was
authorised by his co-trustee, the
second appellant, to conclude the contract on behalf of the trust. I
have, however, come to the
conclusion that such a course should not
be followed, particularly as the respondent’s own counsel
eventually applied for a reference
to trial in terms of Rule
(6)(5)(g), as I have said.
[14]
In my view the appeal must succeed with
costs and the order which is to be substituted for the order of the
court
a quo
should provide for a reference to trial in terms
of Rule 6(5)(g), as applied for by the respondent’s counsel.
[15]
The following order is made:
The appeal succeeds with costs.
The order made in the court
a quo
is set aside
and replaced by the following order:
The application is referred for trial in terms of Rule
6(5)(g) with the notice of motion to stand as a single summons and
the
notice of intention to oppose as notice of intention to defend.
The applicant is to deliver its declaration within 15
days and the further proceedings will be governed by the Uniform
Rules
of Court.
……………
..
IG
FARLAM
JUDGE
OF APPEAL
CONCURRING
HARMS JA
BRAND JA
CLOETE JA
VAN
HEERDEN AJA
Reportable
Case No
325/02
In the matter between:
W J
NIEUWOUDT
Appellant
and
VRYSTAAT MIELIES (EDMS) BEPERK Respondent
Coram: HARMS, FARLAM, BRAND, CLOETE JJA AND VAN HEERDEN
AJA
Heard: 14 NOVEMBER 2003
Delivered: 28 NOVEMBER 2003
Subject: Trusts and trustees – applicability of Turquand rule
J
U D G M E N T
HARMS JA/
HARMS
JA:
[16] This case raises a troubling aspect about business trusts.
Trustees have to act jointly unless the trust deed provides otherwise
and trust deeds seldom do. The principle works well in the
traditional trust setting where trustees hold property on behalf of
beneficiaries
or where the trust is a charitable one.
[17] The trust deed in this case is typical of a newer type of trust
where someone, probably for estate planning purposes or to escape
the
constraints imposed by corporate law, forms a trust while everything
else remains as before. Mr Nieuwoudt, the first appellant,
was the
trust donor. He and his wife, the second appellant, were the first
trustees and still are the only trustees. They are the
only income
beneficiaries. Only he can appoint further trustees. The trust may
conduct business, in particular that of farming. One
wonders how the
farming operations are conducted given the fact that the trustees
have to act jointly. And one can only speculate
as to whether Mr
Nieuwoudt has a copy of the trust deed and the Master’s appointment
at hand when ordinary trust business is being
conducted or whether
Mrs Nieuwoudt accompanies him whenever any transaction has to be
concluded. Maybe the appellants will be able
to explain all this in
due course. Mr Nieuwoudt would then also have the opportunity of
explaining why he did not disclose the terms
of the trust deed and
the existence of his co-trustee to the other party.
[18] What is troubling is the fact that there is no central register
for trusts or trustees as one has in respect of companies and
close
corporations. A member of the public who to wishes do business with a
trust will first have to determine where the trust deed
was filed.
(We know that in this case it is in Kimberley but if the trust had
been formed before the new provincial borders were
drawn it might
have been in Pretoria.) Having found the correct Master’s office,
the said member of the public would have to make
an application to
the Master for permission to inspect the trust deed, something the
Master in the exercise of his or her discretion
may refuse. Section
18 of the Trust Property Control Act 57 of 1988 provides as follows:
‘
Subject to the provisions of section 5 (2) of the
Administration of Estates Act, 1965 (Act 66 of 1965), regarding the
documents in
connection with the estate of a deceased person, the
Master shall upon written request and payment of the prescribed fee
furnish
a certified copy of any document under his control relating
to trust property to a trustee, his surety or his representative or
any
other person who in the opinion of the Master has sufficient
interest in such document.’
[19] Whether knowledge of the contents of a trust deed should be
attributed in law to the public seems to me to be less than obvious.
An underlying principle of company law and the Turquand rule, namely
that a person who deals with a company is bound by the limitations
contained in the memorandum and articles of association because these
documents are accessible to the public, is consequently difficult
to
apply to trusts.
[20] Nevertheless, as Van Dijkhorst J convincingly explained in
Coetzee v Peet Smith Trust en Andere
2003 (5) SA 647
(T), all
this does not justify a departure from the principle that trustees
have to act jointly. And one should not believe, as Cameron
et al
Honore’s South African Law of Trusts
5 ed para 198 point
out, that the ambit of authority conferred by a trust deed is a
matter of ‘internal management’ with which
outsiders need not
concern themselves.
[21] The trust deed in this case provided that if there are two
trustees, they have to act jointly but if there are more than two
the
majority vote counts. Whether both trustees have acted in a
particular manner is not a matter of internal management but rather
one determining the scope of their authority. Whether, on the facts
of the case, the issue in
Man Truck & Bus (SA) Ltd v Victor en
Andere
2001 (2) SA 562
(NC) concerned the ambit of authority (as
Cameron et al
loc cit
suggest) or a matter of internal
management need not be considered.
[22] What does need to be emphasised is that even if the Turquand
rule is extended to business trusts, and even if a trust deed were
to
provide that the trustees could delegate their powers to one of their
number, the Turquand rule would without more be of no assistance
to
third parties. This is because a third party would not be entitled to
assume, merely from the fact that one trustee can be authorised
to
exercise the powers of all of them, that such authorization has in
fact been given:
Legg & Co v Premier Tobacco Co
1926 AD
132
139;
Wolpert v Uitzigt Properties (Pty) Limited &
Others
1961 (2) SA 257
(W) 262G-263F;
Tuckers Land &
Development Corporation v Perpellief
1978 (2) SA 11
(T) 15A-H.
[23] However, as mentioned by Farlam JA, the fact that trustees have
to act jointly does not mean that the ordinary principles of
the law
of agency do not apply. The trustees may expressly or impliedly
authorise someone to act on their behalf and that person
may be one
of the trustees. There is no reason why a third party may not act on
the ostensible authority of one of the trustees,
but whether a
particular trustee has the ostensible authority to act on behalf of
the other trustees is a matter of fact and not
one of law.
[24] This case should consequently serve as a warning to everyone who
deals with a trust to be careful. Although someone in the position
of
the first appellant may be personally liable for a breach of a
warranty of authority, this may, depending on the circumstances,
be
of little solace.
[25] The appeal has to succeed because the respondent misinterpreted
the trust deed for the reasons set out in Farlam JA’s judgment
with
which I agree.
___________________
L T C
HARMS
JUDGE OF
APPEAL
CONCURRED:
FARLAM
JA
BRAND
JA
CLOETE
JA
VAN
HEERDEN AJA