Brief Summary

Trusts — Interpretation of trust deed — Applicant, executor of deceased estate, sought declaratory relief regarding beneficiaries entitled to capital payments from the Rae Family Trust — Respondents contended that deceased estates could not be beneficiaries and raised various grounds of opposition — Court held that the trust deed's interpretation indicated that the estates of the deceased were entitled to capital payments, as the vesting date had occurred when the younger beneficiary reached the age of 25, thus making their rights to receive capital payments unconditional.

Comprehensive Summary

Summary of Judgment

Introduction

The matter was an application in the High Court (Western Cape Division, Cape Town) for declaratory relief concerning the interpretation of an inter vivos trust deed, together with an ancillary application to strike out portions of an answering affidavit.

The applicant was Thomas Charles Henry Dunn N.O., acting in his capacity as executor of the deceased estate of the late Mr Barry Louis Rae. The first and second respondents, Simon Leigh Thompson and Matthew Mitchell Thompson, were the only parties who opposed the relief. The remaining cited respondents were trustees and officials connected to the trust (including the Master), but they did not oppose the application.

The dispute arose after Barry Rae’s death, when the applicant sought a declaration as to which beneficiaries were entitled to receive a capital payment in terms of the trust deed of the Rae Family Trust. The applicant contended that Barry’s deceased estate (and also the deceased estate of Fay Alice Rae, the settlor) fell within the class of beneficiaries entitled to receive capital upon the trust’s “vesting date”. The respondents disputed this and contended, in substance, that only the living named beneficiaries were eligible to receive the capital distribution contemplated by the trust deed.

The proceedings culminated in a hearing on 16 October 2023 before Cloete J, with judgment delivered electronically on 14 November 2023.

Material Facts

The Rae Family Trust was an inter vivos trust registered on 5 June 2000. Fay Alice Rae was the donor/settlor, and the first trustees were Fay, Barry, and another trustee. At the time of the application, the only trustees were the fifth and sixth respondents.

It was common cause that the trust deed identified four relevant beneficiaries for present purposes, namely Fay, Barry, Simon, and Matthew, and that other potential beneficiaries mentioned elsewhere in the trust deed were not relevant to the relief sought.

It was also common cause that the trust deed defined a “vesting date” in clause 19.2, and that the trustees never appointed a vesting date by written agreement under clause 19.2.1. In the absence of such an appointment, the vesting date occurred by operation of clause 19.2.2 on the date when the youngest beneficiary attained the age of 25. It was undisputed that Matthew, being the younger of Simon and Matthew, turned 25 on 8 January 2004, with the consequence that the vesting date, as defined, occurred on that date.

It was further common cause that no capital of the trust had ever been paid to any beneficiary, and that the trustees never made a decision regarding the proportions in which the trust capital should be distributed as contemplated in clause 23.2 of the trust deed.

Fay died on 13 April 2015. Although she left a will, her estate had never been reported to the Master. Barry died on 13 October 2020, and the applicant acted as executor of Barry’s deceased estate. Barry’s sole heir was his widow, Mrs Sarah Rae.

The applicant sought a declaration that, upon a proper interpretation of clauses 21 read with 23.2, there were four beneficiaries entitled to a capital payment, namely Simon, Matthew, and the deceased estates of Fay and Barry. The respondents disputed this, contending (among other grounds raised in the papers) that deceased estates could not be beneficiaries and that the applicant’s case failed on a proper interpretation of the trust deed.

Legal Issues

The central issue was a question of law, namely the proper interpretation of the trust deed, in particular clauses 19.2, 21, 22, and 23.2, and the legal consequences that followed from that interpretation for the entitlement to capital distributions.

More specifically, the court was required to determine whether, after the vesting date occurred on 8 January 2004, Fay and Barry acquired unconditional (vested) rights to a capital distribution capable of transmission to their respective deceased estates, or whether their rights remained conditional (contingent) because the trustees still had to exercise a discretion on distribution proportions in terms of clause 23.2.

A further issue was procedural and discretionary in nature, namely whether paragraphs of the respondents’ answering affidavit fell to be struck out under Uniform Rule 6(15) on the basis that they were irrelevant, scandalous, or vexatious, and whether prejudice was shown.

Court’s Reasoning

Interpretation principles applied

The court approached the matter as an interpretive exercise governed by established principles of document interpretation, beginning with the language of the instrument, read contextually in light of the purpose and factual matrix. The judgment referred to the interpretive approach articulated in Natal Joint Municipal Pension Fund v Endumeni Municipality and subsequent authorities summarising and applying that approach.

However, the court emphasised an important qualification applicable to trust deeds. In interpreting a trust deed, the focus is not on the intention of “the parties” in the contractual sense, but on the intention of the settlor at the time the trust deed was executed. In support of this approach, the court relied on Harvey v Crawford, which affirmed that the trust “speaks” from the time of execution and must be interpreted as at that time, and that subsequent conduct cannot be used to alter the settlor’s intention.

The court therefore held that what the donor and/or trustees did or did not do after the trust deed was executed was irrelevant to discerning Fay’s intention, beyond the self-evident context that it was a family trust.

Application to the trust deed and the vesting date

The court identified the relevant operative clauses. Clause 21 provided that the trust capital would be held until the vesting date, whereupon the capital still held would vest in and be paid to the beneficiaries alive at that date, subject to clause 22. Clause 22 created a deeming provision for beneficiaries dying on the vesting date or within 30 days after it. Clause 23.2, prefaced by “anything to the contrary notwithstanding”, provided that the capital remaining on the vesting date would be distributed to the beneficiaries alive at that date (subject to clause 22) in such proportions as the trustees deemed fit.

On the undisputed facts, the “vesting date” occurred on 8 January 2004 because the trustees never appointed an alternative vesting date and the youngest beneficiary had attained 25. The decisive question, however, was whether the occurrence of the vesting date, without more, resulted in vested rights in favour of each beneficiary (including Fay and Barry) that were transmissible to their estates.

The court reasoned that the trust deed itself made clear that a further step was required before any beneficiary could obtain an unconditional entitlement: the trustees still had to exercise their discretion under clause 23.2 by determining the proportions in which the capital was to be distributed. Because that determination was never made, the beneficiaries’ rights did not become unconditional.

Contingent rights and deceased estates

The court referred to the principle (including as explained in Honore’s South African Law of Trusts and applied in BRR v MBJ) that where trustees have a discretion not only as to how but also as to whether to distribute capital, a beneficiary’s right is contingent and does not constitute an asset in the beneficiary’s estate upon death.

Against that framework, the court concluded that, although the vesting date had arrived, Fay and Barry did not acquire unconditional rights to capital distributions because the trustees never exercised their clause 23.2 power to fix distribution proportions. As a result, neither Fay nor Barry had rights capable of passing to their deceased estates. This meant that the declaratory relief seeking to include the estates of Fay and Barry as beneficiaries entitled to receive a capital payment could not succeed.

The court rejected the applicant’s contention that the trustees’ failure to make the required decision should result in the capital being distributed in equal shares among all named beneficiaries. The court regarded the trust deed as indicating that Fay intended the trustees to make a distribution decision at the vesting date, and the absence of that decision could not be treated as creating an automatic equal distribution mechanism.

Striking out application

The court then dealt with the striking out application brought under Rule 6(15). The applicant sought to strike out numerous paragraphs of the answering affidavit containing serious allegations about his alleged dishonesty in his prior capacity as trustee, with reference to separate pending litigation in which no findings had yet been made.

The court found that these allegations were irrelevant to the interpretive question before it. The allegations did not advance the proper interpretation of the trust deed and did not constitute material facts bearing on whether the deceased estates had acquired transmissible rights to capital. The court further found that there was no substantive factual basis advanced showing that the applicant had failed to fulfil his duties as executor, apart from an unsubstantiated assertion that he launched the proceedings to obtain higher remuneration.

The court accepted that such allegations were likely advanced to create “atmosphere” and would cause inherent prejudice to the applicant given his professional standing and role as executor. It held that the doctrine of “unclean hands” had no bearing on his capacity as executor on the respondents’ own version. The striking out application accordingly succeeded, although the court declined to award punitive costs, noting that the respondents had relied on legal advice.

Outcome and Relief

The court granted a declaration that the only beneficiaries entitled to receive a capital payment in terms of clause 21 read with clause 23.2 of the Rae Family Trust deed were Simon Leigh Thompson and Matthew Mitchell Thompson.

The court granted the applicant’s application to strike out the identified paragraphs of the respondents’ answering affidavit under Rule 6(15).

On costs, the court ordered that the first and second respondents pay the applicant’s costs of the striking out application, jointly and severally, on the party-and-party scale, including the costs of senior counsel. Save for the costs order relating to the striking out application, the court made no further order as to costs.

Cases Cited

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA)

Wilma Petru Kooij v Middleground Trading 251 CC and Another (1249/18) [2020] ZASCA 45 (23 April 2020)

Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd 2016 (1) SA 518 (SCA)

Urban Hip Hotels (Pty) Ltd v K Carrim Commercial Properties (Pty) Ltd [2016] ZASCA 173

Harvey v Crawford 2019 (2) SA 153 (SCA)

Moosa and Another v Jhavery 1958 (4) SA 165 (N)

Greeff v Estate Greeff 1957 (2) SA 269 (A)

Segal and Another v Segal and Others 1976 (2) SA 531 (C)

BRR v MBJ [2021] 4 All SA 383 (GJ)

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

Uniform Rule of Court 6(15)

Held

The court held that, although the vesting date defined in the trust deed occurred when Matthew turned 25 on 8 January 2004, the beneficiaries did not thereby acquire unconditional rights to payment of the trust capital. The trust deed required an additional trustee decision under clause 23.2 to determine the proportions of distribution, and in the absence of such a determination the beneficiaries’ rights remained contingent.

The court further held that Fay and Barry had not acquired vested rights capable of transmission to their deceased estates, with the consequence that their estates were not beneficiaries entitled to receive a capital payment under clause 21 read with clause 23.2. The declaration was therefore granted in favour of Simon and Matthew only.

The court also held that extensive allegations in the answering affidavit concerning the applicant’s alleged dishonesty were irrelevant and prejudicial in the context of a trust deed interpretation dispute, and ordered the offending material to be struck out, with costs awarded to the applicant in respect of the striking out application.

LEGAL PRINCIPLES

The interpretation of a trust deed is governed by the general approach to interpretation which begins with the language used, read in context, and understood purposively, as articulated in Natal Joint Municipal Pension Fund v Endumeni Municipality and related authorities.

In the specific context of a trust deed, the interpretive focus is on the settlor’s intention at the time of execution of the deed, rather than on the later conduct or intentions of trustees or beneficiaries. Subsequent events and conduct do not alter the meaning derived from the settlor’s expressed intention in the deed, as confirmed in Harvey v Crawford with reference to earlier authority.

Where a trust deed confers a discretion on trustees regarding capital distributions, including a discretion as to the manner (and effectively the entitlement) of distribution, the beneficiary’s interest may remain contingent until the discretion is exercised. A contingent beneficiary interest does not necessarily constitute an asset transmissible to the beneficiary’s deceased estate, consistent with the discussion in Honore’s South African Law of Trusts and the approach in BRR v MBJ, as applied to the deed in issue.

Under Uniform Rule 6(15), matter in affidavits may be struck out where it is irrelevant, scandalous, or vexatious and causes prejudice. Allegations aimed at impugning a litigant’s character, unrelated to the real issues to be determined, may be struck out where they do not advance the adjudication of the dispute and create unfair prejudice.

Dunn N.O. v Thompson and Others (12025/2022) [2023] ZAWCHC 281 (14 November 2023)