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[2012] ZAWCHC 23
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Meijer NO and Another v Firstrand Bank Ltd (formerly known as First National Bank of Sourthern Africa) and Another, In re: Firstrand Bank Ltd (formerly known as First National Bank of Sourthern Africa) and Another v Meijer and Others (2123/2010) [2012] ZAWCHC 23 (4 April 2012)
IN THE HIGH COURT OF SOUTH
AFRICA (WESTERN CAPE HIGH COURT, CAPE TOWN)
REPORTABLE
CASE NO. 2123/2010
In the matter between:
JOHANN
HINRICH EVERS MEIJER N.O.
...................................................
FIRST
APPLICANT
ALEXANDER
STRACHAN KOTZE N.O.
.................................................
SECOND
APPLICANT
And
FIRSTRAND
BANK LIMITED
(formerly
known as FIRST NATIONAL BANK
OF
SOUTHERN AFRICA)
.
...........................................................................
FIRST
RESPONDENT
MARCELLE
MEIJER
…...................................................................
SECOND
RESPONDENT
In
re:
FIRSTRAND
BANK LIMITED
(formerly
known as FIRST NATIONAL
BANK
OF SOUTHERN AFRICA)
….......................................................................
PLAINTIFF
And
JOHANN
HINRICH EVERS MEIJER N.O.
.................................................
FIRST
DEFENDANT
MARCELLE
MEIJER N.O.
.......................................................................
SECOND
DEFENDANT
ALEXANDER
STRACHAN KOTZE N.O.
.
..................................................
THIRD
DEFENDANT
MARCELLE
MEIJER
................................................................................
FOURTH
DEFENDANT
JUDGMENT DELIVERED ON
WEDNESDAY, 04 APRIL 2012
DLODLO, J
INTRODUCTION
[1] This is an application for
rescission of the judgment granted on 22 December 2010 by the
Registrar. This application also
seeks to set aside a warrant of
execution granted on the strength of the said judgment. The
application seeks an interdictory
relief as well against the First
Respondent (Firstrand Bank Limited - pending the finalization of the
action contemplated).
[2] This
matter concerns the law of trusts which constitutes a dynamic and
rapidly changing field of South African Law. The trust
as an
instrument of estate planning enjoys enormous application. The
popularity of this legal institution in recent times is
probably
mainly due to the fact that it is extremely versatile and flexible
and that it is not currently subjected to extensive
Government
regulation in creation, operation and administration. See
Land
and Agricultural Bank of South Africa v Parker and Others
2005
(2) SA 77
(SCA) at paragraph [23];
Pace
and Van der Westhuizen
2005:
B1;
Honore
and Cameron
2002:
19;
Honore
1996:
871, 872. A further reason for the trust's popularity in rebut
decades has been for tax reasons. However, many of the advantages
which the employment of the trust figure traditionally entailed have
not been curtailed by legislation. See Pace
Pace
and Van der Westhuizen
2005:
B1
et
seq;
Honore
and Cameron
2002:
443-489;
Honore
1996:
871, 872. The trust's versatility is illustrated by the various
forms which it can assume, although wills and contracts
(giving rise
to testamentary and
inter
vivos
trusts
respectively) are the primary vehicles through which trusts are
constituted. From a comparatively humble and uncertain
reception,
the trust has developed to such an extent that a unique and
distinctively South African law of trust has been formed.
Although
this development was initially almost exclusively undertaken by the
Courts, it later became clear that the intervention
of the
legislature was required in order to clarify some to the uncertainty
created by the piecemeal (at times fragmented) judicial
development
which had taken place. To this end a number of statutes of direct
(and at times indirect) application to the South
African Law of
trusts were promulgated. Although these statutes succeeded, to a
large extent, in providing the clarity sought,
a number of
problematic issues continue to exist. In consequence of the South
African Law commission findings a Bill was approved
and promulgated
on 17 June 1988 as the Trust Property Control Act 57 of 1988 which
came into operation on 31 March 1989. It repealed
inter
alia
the
Trust Money Protection Act 34 of 1934 and Chapter 111 of the
Administration of Estates Act 64 of 1965
.
BACKGROUND FACTS
[3] The First and Second
Applicants and the Second Respondent were appointed as the first
trustees of the Veendam Trust, a trust
which was registered by the
Master of the High Court, Pretoria on 17 November 1998 ("the
Trust"). The First Applicant,
the Second Respondent, the two
children born of their marriage (Orpa and Rut) and the Primary School
Anton van Wouw are the designated
beneficiaries of the Trust whilst
the two daughters are designated in the Trust Deed as the capital
beneficiaries. The Trust is
the registered owner, through its
trustees from time to time, of the immovable property known as Erf
4305, Plettenberg Bay. The
value of the Trust property had been
enhanced by the construction of a residential dwelling thereon. The
marriage between the First
Applicant and the Second Respondent was
dissolved by a decree of divorce on 10 November 2000. The First
Applicant, in terms of
a deed of settlement which had been made an
order of Court on the aforesaid date, agreed to resign as trustee of
the Trust. At
the time of the First Applicant and the Second
Respondent's divorce nothing at all was owed on the property and it
was unencumbered.
[4] On 15
February 2001 the Trust purported to resolve to,
inter
alia,
accept
the resignation of the First and Second Applicants and it was minuted
that
"...die
oorblywende Trustees M Meijer voortaan as Trustees van die Veendam
Familie (sic) Trust sal optree in ooreenstemming
met die bepalings
van die Trust Akte."
On
19 February 2001 the First and Second Applicants addressed letters to
the trustees of the Trust wherein they informed the trustees
of their
respective resignations with immediate effect. They also,
inter
alia,
requested
the trustees to notify the Master of the High Court accordingly. On
19 February 2001 the Second Applicant addressed a
letter to the
Master, Pretoria, to which copies of resignation and the "resolution"
of the Trust alluded to above were
enclosed and wherein he requested
the Master to adjust his records accordingly. He also requested the
Master to issue an amended
letter of authority.
[5] The aforesaid letters of
resignation, however, did not find their way to the Master's office
and were only filed with the Master
(under cover of a letter of Rooth
Wessels Attorneys) on or about 5 April 2011. Subsequent to the
settling of the divorce and the
furnishing of the letters of
resignation by the two Applicants as alluded to above, the Second
Applicant, as remaining trustee
of the Trust, proceeded to act on her
own and did not take any steps to have additional trustees appointed
in the place of the
First and Second Applicants. During or about
January 2007 the Second Respondent, professing to act on behalf of
the Trust, applied
to the First Respondent for a loan of R450 000.00,
which loan was to be secured by the registration of a mortgage bond
over the
immovable property of the Trust. In the documents required
by First Rand Bank Limited to be completed and submitted for purposes
of granting the loan and registering the bond, it was repeatedly made
clear that the Second Respondent was the only trustee in
the office.
[6] The First
Respondent granted the loan to the Trust and caused a bond in the
amount of R450 000.00 as security for the due repayment
of the
aforesaid loan, to be registered over the immovable property of the
Trust. The Second Respondent thereafter defaulted on
repayment of the
loan, to the extent that the First Respondent caused summons to be
issued against the Trust as well as the Second
Respondent in her
personal capacity. The order issued by the Registrar makes it clear
that the First and Second Applicants and
the Second Respondent are
sued in their capacities as Trustees of the Trust having been cited
as First, Second and Third Defendants.
Judgment in the amount of R448
553.84 was also granted against the Second Respondent personally,
jointly and severally with the
Trust, the one paying the other to be
absolved. This apparently means that the Second Respondent has bound
herself to the First
Respondent as surety and co-principal debtor for
the debt which she purported to incur on behalf of the Trust. The
summons was
not served on either of the two Applicants and they only
became aware of the fact that judgment had been granted against the
Trust
when the First Applicant fortuitously heard that the property
was advertised to be sold in execution at an auction scheduled for
15
April 2011.
WHEN DID THE RESIGNATIONS BY
THE APPLICANTS BECOME EFFECTIVE?
[7] The Applicants, in their
Founding Affidavits, departed from the premise that as neither of
them had been replaced as trustees
by the Master, they have residual
legal obligations in terms of their respective positions as trustees.
In his Replying Affidavit
the First Applicant referred to the fact
that he has since learned that the Master had not been informed of
the resignations which
had been tendered in 2001 and that the
resignations were ostensibly only delivered to the Master on 5 April
2011. The First Applicant
then proceeded as follows:
"Even if it should be
held that the resignation of the applicant became effective already
in 2001, despite the fact that the
master did not replace us as
trustees, and this is not conceded, the second respondent could not
legally on her own take decisions
binding the trust at the time that
she signed the 'certificate in respect of a loan to a trust' on 22
January 2007
Indeed at
common law, in the absence of provision in the trust instrument, a
trustee was not entitled to resign office except for
good reason with
the consent of Court. See
Cameron,
De Waal and Wunsch
Honore's
South African Law of Trusts
5th
ed (2002) at p 227. In terms of the provisions of Section 21 of the
Trust Property Control Act a trustee now has the general
power of
resignation subject to the conditions set forth in the section. The
trustee must resign by notice in writing to the Master
and,
inter
alia,
to
the ascertained beneficiaries who have legal capacity. The
entitlement to resign, however, is not subject to the Master's or
the
Court's permission. The question which is more vexed, however, is (a)
whether the resignation of a trustee is of any force
and effect until
such time as the Master has appointed and authorised another trustee
to act in his or her stead and (b), if not,
whether or not the
statutory mode of resignation (as provided for in Section 21) was
meant to lay down the rule for all resignations
- regardless of the
fact that the internal requirements provided for in the trust
instrument have been met.
[8] Mr La
Grange,
inter
alia,
relied
on
WM
Soekoe and Others v Le Roux
(an
as yet unreported judgment of the Free State - Case 898/2007 (O)),
where Rampai J held as follows:
"I
have already found that the Respondent's resignation on 10 October
2006 did not legally relieve him of his duties as trustee.
He
remained legally accountable to his fellow trustees for the entire
period until the Master of the High Court officially removed
him from
office as a trustee. ... The respondent's duties did not fall away
when he resigned, but when he was replaced by the third
applicant."
It is true that
judgment in
Soeke
matter
supra
has
been the subject of criticism particularly in academic circles. See
for instance
Olivier
Strydom & Van den Berg
Trust
Law and Practice
,
p
3.17
et
seq,
where
the authors point out that the decision creates practical problems.
What is important to note, however, is that the authors
also justify
their criticism by saying that:
"Once
a trustee has, in our opinion, complied with the provisions of
Section 21 we find it hard to understand how it could
be the
intention of the legislator that that trustee still remain liable
until new letters of authority had been issued by the
Master of a
High Court".
Olivier
et
al,
Trust
Law and Practice,
seem
to be more circumspect. At p 3-18 they say the following:
"Furthermore
if a trust deed provides for resignation by a trustee in a certain
manner, compliance with that provision of the
trust deed should be
enough. It might be worthwhile to include a clause in a trust deed
stating that a trustee's resignation will
be effective from the date
upon which the Master of the High Court receives notice of such
resignation."
With
regard to the question posed in (b)
supra,
Cameron
et
al,
in
Honore's
South African Law of Trust
seem
to subscribe to the view that the statutory mode of resignation
provided for in Section 21 is not prescriptive in instances
where the
trust instrument permits resignation:
"Apart
from the requirement of written notice introduced by the Trust
Property Control Act, when the trust instrument permits
resignation
there are no particular formalities for resigning, apart of course
from those the instrument itself may specify. The
object of the
statutory provision concerning resignation appears to be to allow a
trustee to resign notwithstanding the provisions
of the trust
instrument, not to impose a formality of written notice of the Master
and others on all resignations. The statutory
mode of resignation is
additional, and is capable of being exercised alongside other methods
permitted by the trust instrument."
Mr La Grange
correctly submitted that the question when precisely the resignation
of the two Applicants actually became effective
does not materially
impact on the central issue which falls to be determined, namely
whether or not the Second Respondent had the
requisite authority to
bind the Trust to a loan agreement and allow trust property to be
mortgaged. In this regard there are only
two possible scenarios,
namely: (a) The loan was effected and the mortgage bond was
registered at a point in time when the Second
Respondent was the
only
trustee in office
,
or (b) the loan was effected and the mortgage bond was registered at
a point in time when all three trustees were still in office
(either
due to the fact that the resignation had by then not yet been
communicated to the Master or as a result of the applicability
of the
Soekoe
-principle,
as alluded to
supra).
[9] On both the
above-mentioned scenarios it does seem that the Second Respondent did
not have the required capacity to bind the
Trust. The Applicants
maintain that the estate of the Trust could not be bound to
transactions of the nature which the Second Respondent,
as single
trustee, has purported to conclude with the First Respondent. Even if
it can be said that the Applicants were still in
office at the time,
the undisputed facts show that the resolution to enter into a loan
agreement and pass the mortgage bond over
trust property was not
taken by the trustees acting together/jointly or by the Second
Respondent as delegated by the remaining
trustees. It seems that the
Second Respondent, acting alone simply had no power to bind the
Trust. I undertake to revisit this
aspect
infra.
For
now it suffices to say at the very best for the Respondents, the date
upon which the resignations became effective might have
some role to
play in deciding the issue of the legal standing of the Applicants to
institute these proceedings (and to intervene
in the pending
proceedings which had been instituted by the First Respondent).
[10] If a
trustee wishes to resign as trustee, he/she is required to lodge a
resignation letter with the Master of the High Court
in terms of
Section 21 of the Trust Property Control Act 57 of 1988. The said
provision provides that the trustees are entitled
to resign as
trustee of any trust by providing a notice in writing to that effect
to the Master and the ascertained beneficiaries
who have legal
capacity, or to the tutors or curators of the trust under tutorship
or curatorship. The Act further provides that
if a trustee who has
been authorised by the Master to act as such is removed from his/her
office, or resigns, he or she must without
delay return his or her
written authority to the Master. See
The
Law of South Africa (LAWSA)
2
nd
ed, 2011 -
Joubert p.358. The effect of the common law is that it is not
competent for a trustee to give up his/her fiduciary duties
simply by
electing no longer to fulfil them. See Cameron et al where the
common-law position is set out in
Honore's
South African Law of Trusts
5
th
ed. at 135. I
set out infra, though the provisions of Section 21 of the Trust
Property Control Act referred to
supra:
"Whether or not the
trust instrument provides for the trustee's resignation, the trustee
may resign by notice in writing to
the Master and the ascertained
beneficiaries who have legal capacity, or to the tutors or curators
of the beneficiaries of the
trust under tutorship or curatorship."
[11] The Founding papers
including the Supplementary papers are strangely silent on how the
Applicants who intended to resign in
fact resigned. I am not told,
for instance, that the resignation letter was sent to the Master. To
send the resignation to the
remaining trustee/trustees only obviously
does not, in my view, amount to proper resignation contemplated by
Section 21 of the
Act. It remains of absolute importance that the
Master receives the resignation in writing. To comply with the
provisions of Section
21 of the
Act, whoever
alleges resignation must prove that not only the ascertained
beneficiaries were sent notification of resignation but
that the
Master as well was similarly sent such notification. I am more than
aware of what was decided in
Soekoe's
judgment.
My view would be that proof of the fact that the necessary notice of
resignation (letter of resignation) was in fact given
to both the
Master and the ascertained beneficiaries in writing should suffice.
Importantly, the Act is silent on when the resignation
of a trustee
actually takes effect, namely it can be the date of resignation or
the date on which the resignation is received by
the Master or which
other date. It is important that there be legal certainty in this
regard. I am of the view that this is exactly
why Rampai J in
Soekoe
matter
supra
decided
that matter in the manner already referred to in this Judgment. To
ameliorate any possible hardship that may result from
the above
finding made by Rampai J, it is suggested that proof of the fact that
resignation had been sent to the Master in writing
coupled with an
acknowledgement of receipt by the Master's office should suffice. In
my view, in the latter scenario, the trustee
should be deemed as
having resigned. In other words, the resignation should take effect
not only upon it being shown that the written
notice was sent to the
Master and the ascertained beneficiaries, but upon an acknowledgement
by the Master of the receipt thereof.
Merely because the papers in
the instant matter do not prove that the Master was notified in
writing of the two Applicants' resignation,
I hold that they remained
trustees. Even if I may be wrong in this regard, the discussion that
follows
infra
will
indicate that the decision to enter into a transaction with Firstrand
Bank was indeed not without difficulties. See also
Van
der Merwe N. O. and Others v Hydraberg Hydraulics CC and Others; Van
der Merwe N.O. and Others v Bosman and Others
2010
(5) SA 555
(WCC) where this Court held that co-trustees must act
jointly is derived from the nature of the trustees' joint ownership
of property
and that in the absence of a contrary provision in the
trust deed, the trustees had to act jointly if the trust is to be
bound
by their acts. The Court in the above matter further held that,
because the trust instrument did not provide for a power to the
trustees, authorising one or more of their number to make decisions
on the trust's behalf, the
Turquand
rule
could not find application.
[12] It is
trite that a trustee's appointment can be terminated if he resigns or
dies. In terms of Section 21 of the Trust Property
Control Act (as
pointed out earlier on) a trustee is entitled to resign whether or
not the trust instrument provides for this.
I have pointed out
supra
that
prior to the enactment of Section 21 the common law position applied
in terms of which the trust instrument could permit a
trustee to
resign, but if it did not, the permission of the Court had to be
obtained and this would be granted only for a good
reason. Hence an
attempted resignation did not relieve a trustee of liability. See
Alexander
v Opperman
1951
(1) SA 609
(O) at 617;
Soofie
v Hajee Goolam Mohamed Trust
1985
(3) SA 322
(N) at 330 and
BoyceN.O.
vBloem
1960
(3) SA 855
(T) at 859. The statute contains a general power of
resignation obviously subject to conditions. See
Honore's
184.
The latter author interprets Section 21 to mean:
"(t)he
trustee must resign by notice in writing to (a) the Master and (b)
the ascertained beneficiaries who have legal capacity
or, in the case
of beneficiaries under tutorship or curatorship to the tutors or
curators concerned."
It
is required from a trustee who resigns (also where he is removed) to
return without delay, his written authority to the Master.
INDEPENDENT LEGAL STANDING
(FIRST APPLICANT)
[13] The First
Applicant is not only an income beneficiary of the Trust, but he also
acts herein on behalf of an income beneficiary,
Rut Meijer, his minor
daughter. The present application is ultimately directed at
nullifying the transaction which the Second Respondent
has purported
to enter into on behalf of the Trust (and upon which transaction the
First Respondent's action against the Trust
is founded). The general
rule is that it is for the party instituting proceedings to allege
and prove that he has
locus
standi,
and
the onus of establishing that issue rests upon the Applicant. It is
and remains an onus in the true sense; the overall onus.
See:
Mars
Incorporated
v Candyworld (Pty) Ltd
[1990] ZASCA 149
;
1991
(1) SA 567
(A) at 575 H-I;
Gross
and Others v Pentz
[1996] ZASCA 78
;
1996
(4) SA 617
(AD) at 632.
[14] Mr Scott
emphasised that the First Applicant makes the allegation that he has
a legal duty (as parent of the two beneficiaries)
to protect the
interest of the beneficiaries but does not suggest that he brings the
application in his capacity as guardian of
his children, one of whom
is a major. In Mr Scott's submission even if the First Applicant were
able to establish his
locus
standi
in
reply, if he was representing his minor child in the application he
would not be acting in his personal capacity but rather in
a
representative capacity as father and natural guardian of his minor
child. The fact of the matter is that the First Applicant
does
expressly state that he has a legal duty as parent of the two
beneficiaries to protect the interest of the beneficiaries.
How
otherwise can he protect the interest of the beneficiaries apart from
acting on their behalf? The allegation of acting in a
representative
capacity is clearly made and established. In any event, the
application qualifies as a "representative action
in terms of
the
"Beningfield
exception"
which
in terms of the decision in
Gross
v Pentz
1996(4)
SA 617 (A) is available to beneficiaries (such as the First Applicant
and his minor daughter) whose rights to future income
or capital of
the Trust have not yet vested, since they do have vested interests in
the proper administration of the Trust. In
this regard I should point
out that in
Gross
matter
supra
a
distinction was drawn between actions brought on behalf of trusts to,
for instance recover trust assets or nullify transactions
entered
into by the trust or 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, or for transferring to a beneficiary
what is not due.
[15] The
significance of the distinction referred to
supra
which
has a direct impact on the standing of an aggrieved beneficiary, is
explained thus in
Honore's
South African Law of Trusts
at
page 37:
"In the
judgment the first type of action was called 'representative' and the
second 'direct'. The general rule applying to
representative actions
is that the proper person to sue is the trustee and normally a trust
beneficiary has no legal standing to
do so. However, the court
recognised what it calls the Beningfield exception and that the
general rule had to be modified by it.
This rule was derived from
Beningfield
v Baxter
(1886)
12 AC 167
(PC)....
in
which the Earl of Selborne LC said: 'When an executor cannot sue,
because his own act and conduct, with reference to the testator's
estate, are impeached, relief which (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 ... .'
The rationale for the rule is
the impossibility of the delinquent trustee being both plaintiff and
defendant."
Clearly the
First Applicant does indeed have the required
locus
standi
-standing
in law to bring this application in his own name and in his capacity
as father and natural guardian of his minor daughter,
Rut Meijer.
THE SECOND RESPONDENT'S
CAPACITY TO ENTER INTO A LOAN AGREEMENT FOR AND ON BEHALF OF THE
TRUST AND HER POWER TO MORTGAGE TRUST PROPERTY
[16] At common
law a trustee has no power to mortgage trust property, unless such
power is given by the trust instrument, expressly
or by implication.
See:
Honore's
South African Law of Trusts
at
312. In plain terms the trustees do not automatically possess the
right, among other things, to enter into loan agreements and
to
mortgage trust assets. Both Respondents maintain that the Second
Respondent at all relevant times intended to act as sole trustee
and
as a matter of fact, kept office as sole trustee of the Trust. The
Respondent further contend that, as such, the Second Respondent
was
in reality clothed with a general authority to do whatsoever joint
trustees would have been authorised to do pursuant to the
provisions
of the Trust Deed, had the full complement of joint trustees been in
office. It is significant to note that the Second
Respondent
specifically maintains that she derived her authority to encumber the
Trust property with a bond from the provisions
of Clause 11.3.7 of
the Trust Deed. It is necessary to set out the provisions of Clause
11.3.7 hereunder:
"11.3.
Die Trustees het te alle tye al sodanige magte as wat nodig is om met
die goedere van die Trust te handel as wat hulle,
volgens hulle
uitsluitlike diskresie nodig ag om die trustfonds te beheer tot
voordeel van die begunstigdes. Sonder inperking van
die algemene
bevoegdhede van die trustees, is die trustees geregtig, en waar
wetlik vereis verplig, om: ... 11.3.7. enige bate
van die Trust onder
verband te beswaar, dit te verhipotekeer of 'n retensieregdaarop te
he."
This authority, the Respondents
say, was bestowed on the Second Respondent by the provisions of
Clause 7.1 of the Trust Deed, which
reads as follows:
"7.1.
Daar moet te alle tye minstens DRIE (3) trustees in amp wees,
met
dien verstande
dat
in geval daar minder oorbly as gevolg van bedanking of dood van 'n
mede-trustee, die oorblywende trustee/s gemagtig is om alle
magte van
trustees uit te oefen
vir
behoud en administrasie van die trustfonds
tot
tyd en wyl 'n verdere trustee aangestel is. ..."
Underlining
supplied. I agree with the loose translation of the above which Mr La
Grange supplied, namely:
"There shall at all
times be at least three (3) trustees in office, provided that in the
event that less than three remain
due to the resignation or death of
a co-trustee, the remaining trustee/s are authorised to exercise all
powers of trustees for
the jetention and administration _of the Trust
fund until such time as a further trustee is appointed".
[17] The
Respondents' case is of course not that Second Respondent was at any
stage authorised by her co-trustees to act as agent
of the Trust. The
Respondents' case is that Clause 7.1 of the Trust Deed means that in
circumstances where the quorum requirement
has not been met, a single
trustee acting alone could bind the trust to the same extent as the
full complement of trustees would
have been entitled to do had they
been in office. This in effect means that a single trustee would
under these circumstances enjoy
much more freedom than joint trustees
would have had - he or she will for instance not be bogged down by
restrains imposed by joint
trusteeship, such as the duty to meet with
co-trustees or obtain their consensus in matters. With regard to the
interpretation
of Clause 7.1 set out above, Mr Scott found it
necessary to refer to the dictionary meaning of the word "behoud".
"Behoud"
is defined in the Trilingual Legal Dictionary
(written by VG Hiemstra and HL Gonin) as meaning "conservation,
keeping, preservation,
salvation, or retention." According to Mr
Scott the use of the word "behoud" in Clause 7.1 is in
keeping with the
description of the general powers of a trustee,
namely to hold (or retain) and administer the trust assets. Relying
on
Coopers
& Lybrand v Bryant
[1995] ZASCA 64
;
1995
(3) SA 761
(A) at 767 E - 768 E, Mr Scott submitted that in
interpreting Clause 7.1 one should have regard to the "golden
rule"
of interpretation, namely that the language in the
document should be given its grammatical and ordinary meaning unless
this would
result in some absurdity or some repugnancy or
inconsistency with the rest of the instrument. I hasten to mention
that there is
no complication whatsoever in understanding the
provisions of Clause 7.1 of the Trust instrument.
[18] It would
appear that reliance by the Respondents on the provisions of Clause
7.1 as support for their contention or proposition
deserves to be
described as flawed and legally untenable. The Trust Deed requires
that there shall always be at least three trustees
in office. And
when the number falls below three, the Trust Deed gives the power to
appoint a third trustee to the remaining trustee/s.
Clause 7.1
specifically provides that if a single trustee remains in office,
such trustee will be obliged to appoint further trustees
within 90
days of the resignation or death of the other trustees, and failing
that, the serving auditor must either himself act
as trustee or
appoint a second trustee of his choice, which second trustee must
then be appointed as further trustee within 30
days. I thus agree
with Mr La Grange's submission that the aforesaid power, coupled with
the minimum requirement in effect placed
a duty on the Second
Respondent to appoint a second and third trustee when the Applicants
resigned. In breach of her duty to give
effect to the terms of the
Trust Deed, the Second Respondent has (up to at least 25 August 2011
- being the date when she deposed
to her Answering Affidavit) failed
to do so. See
Land
and Agricultural Bank of South Africa v Parker and Others
2005
(2) SA 77
(SCA) at par [3]. See also
Honore's
South African Law of Trust
at
page 262. It is indeed trite law that except where statute provides
otherwise, a trust is not a legal person. The effect of this
has been
explained thus by Cameron JA (as he then was) in
Parker
case
(supra)
par
[7]:
"It is an accumulation
of assets and liabilities. These constitute the trust estate, which
is a separate entity. But though
separate, the accumulation of rights
and obligations comprising the trust estate does not have legal
personality. It vests in the
trustees, and must be administered by
them -and it is only through the trustees, specified as in the trust
instrument, that the
trust can act. Who the trustees are, their
number, how they are appointed, and under what circumstances they
have power to bind
the trust estate are matters defined in the trust
deed, which is the trust's constitutive charter. Outside its
provisions the trust
estate cannot be bound."
[19] In the
case of a trust a Trust Deed is therefore its "constitutive
charter" and "[w]hen fewer trustees than
the number
specified [in the trust deed] are in office, the trust suffers from
an incapacity that precludes action on its behalf".
See
Parker
(supra)
par
[11]. Also see
Lynn
NO v Coreejes
(687/2010)
[2011] ZASCA 159
at par
[9]
. Even where trustees act jointly, they
cannot in law bind the trust estate where they are not the requisite
number stipulated in
the trust deed, because "the trust's
incapacity during this period does not arise from the joint action
requirement, but from
the trust's incapacity while a sub-minimum of
trustees held office. See
Parker
(supra)
par
[13]. Clause 7.1 of the Trust Deed which is presently under
discussion is undoubtedly a capacity - defining condition. The clause
in question not only specifies the number of trustees that is
required to be in office, but also defines and restricts the scope
of
authority which the remaining trustees or trustee will have to bind
the trust once the trust has been incapacitated by virtue
of the fact
that the quorum requirement is not met. Based on the clear wording of
the clause the residual authority of the remaining
trustee/s is
limited and restricted to matters which relate to the
preservation/maintenance and administration of the trust fund
only
(("'behoud en
administrasie van die trustfonds").
I have
highlighted above that on the Respondents' version the words
"behoud
en administrasie"
should
be interpreted and understood to mean that the authority of the
remaining trustee/s was intended to remain unrestricted and
even
broadened. (In that sense the remaining trustee becomes virtually
autonomous) - to the extent that the wide-ranging scope
of powers
which are bestowed on the joint trustees under Clause 11.3 of the
Trust Deed (including the power to encumber the trust
property with a
mortgage bond) would not be affected at all. If the contention of the
Respondents in this regard were to be accepted
that would make a
mockery of the fact that the parties to the Trust Deed bothered to
include the stipulation regarding the three-trustee
requirement. I am
of the view that the interpretation favoured by the Respondents
overlooks the fact that the residual powers of
remaining trustees are
spelled out and provided for in that part of Clause 7.1 that starts
with the words "met
dien
verstande ..."
which
follow on the principal part of the stipulation (consisting of the
phrase
"Daar
moet te alle tye minstens Drie (3) trustees in amp wees")
and
therefore clearly amounts to a proviso. It is trite law that the true
function of a proviso is to qualify the principal matter
to which it
stands as a proviso. See, for example,
Hira
and Another v Booysen and Another
1992
(4) SA 69
(A) at 79 F - J. This is pithily explained by Morisen AJ in
Thula
v Road Accident Fund
2011
(5) SA 446
(GSJ) at par [51] to mean that
"a
proviso taketh away, but it does not giveth").
If
there is a principal matter (in this case the stipulation that there
should at all times be at least three trustees in office)
it is not
the function of a proviso to increase or enlarge that which it
follows, it is to reduce, qualify and limit that which
goes before it
in the text. It is thus correctly submitted by Mr La Grange that in
this instance the proviso only entails that
the remaining trustees
would be in the position to make decisions regarding matters
pertaining to the preservation or maintenance
of trust assets (such
as paying rates and taxes, effecting necessary repairs and the like)
and perform administrative tasks (such
as taking the necessary steps
to have trustees appointed). When fewer trustees than the number
specified in Clause 7.1 are in office,
the Trust would suffer from an
incapacity that precludes the borrowing of money or the encumbering
of its assets by means of a
mortgage bond. In any event, it is hardly
known what the Second Respondent did with the proceeds of the loan.
[20] Therefore
the Second Respondent was in law not in a position to bind the Trust
when she purported to conclude the loan agreement
with the First
Respondent and when she caused the trust property to be mortgaged. As
it is a fundamental principle of our law that
a thing done contrary
to the direct prohibition of the law (whether the prohibition is
express or otherwise) is void and of no
effect, it follows that the
resultant loan agreement and the bond which was passed to secure the
loan are of no force and effect.
Vide
Schierhout v Minister of Justice
1926
AD 99
at 109. Notably it has not been contended by either of the
Respondents that the Second Respondent was authorised to contract
with
the First Respondent by a trust resolution which was passed by
the joint trustees. The following fundamental principle of trust
law,
as expounded by Cameron JA in
Parker
supra,
was
simply flaunted by the Second Respondent:
"It
is
a fundamental rule of trust law, which this Court recently restated
in Nieuwoudt and Another NNO v Vrystaat Mielies (Edms) Bpk
2004(3)
SA 486 (SCA) at par [16]
that
in the absence of contrary provision in the trust deed the trustees
must act jointly if the trust estate is to be bound by
their acts.
The rule derives from the nature of the trustees' joint ownership of
the trust property. Since co-owners must act jointly,
trustees must
also act jointly."
See
also
Van
der Merwe v Hydraberg Hydraulics
2010
(5) SA 555
(C). Even if I should find that the Applicants were still
in office at the time when the agreements with the First Respondent
were
concluded, it is clear that they were not party to any
resolution by the Trust in terms of which the Second Respondent was
authorised
to enter into a loan agreement and pass the mortgage bond
over the trust property. It remains common cause that no such
decision
was taken by the trustees acting together/jointly or by the
Second Respondent as delegated by the remaining trustees. As such the
Second Respondent acted alone and had no power to bind the Trust.
[21] There is
another development in this matter which needs to be dealt with. I do
so hereunder. At the inception of the hearing
on 10 November 2011 I
allowed the Second Respondent to supplement her Opposing papers by
way of Affidavits deposed to by the Second
Respondent one Barend
Oosthuizen and Orpa Meijer respectively. Based on the information
contained therein this Court accepts as
a fact that the Master of the
North Gauteng High Court (Pretoria) has indeed on 8 July 2008
authorised the Second Respondent, Barend
Oosthuizen and Orpa Meijer
to act as trustees of the Veendam Trust. The following appears in
paragrapg 7 of the Affidavit by Mr
Barend Oosthuizen:
"Despite
the fact that I am not cited as a respondent in this application, I
am aware thereof and I support the Respondents
in opposing the relief
sought by the Applicants. Furthermore, and insofar as may be
necessary, I ratify all decisions made by the
Second Respondent, when
acting as sole trustee, and more specifically, the decisions giving
rise to the judgment obtained by the
First Respondent against the
Trust."
Submissions
were made before me that the "decisions" by the Second
Respondent (i.e. entering into a loan agreement for
and on behalf of
the Trust and allowing the Trust property to be mortgaged - (the
Firstrand transactions)) which Mr Oosthuizen
belatedly seeks to
ratify, are not susceptible to ratification. It may be helpful to
deal with this in sub-topics
infra.
THE SECOND RESPONDENT
PROFESSED TO ACT AS SOLE TRUSTEE - NOT AS REPRESENTATIVE OF
CO-TRUSTEES
[22] It is important to bear in
mind that it is not the Respondent's case that the Second Respondent,
at the time of transacting
the Firstrand transactions, purported to
act pursuant to some or other resolution taken by her co-trustees
whereby she was delegated
or authorised to represent them (and
therefore, the Trust) in the dealings with Firstrand. To the
contrary, the Respondents maintain
that the Second Respondent at all
material times acted and professed to act as sole trustee of the
Trust - their contention being
that she was fully authorised to do so
in terms of the trust deed (and she therefore did not require or need
the support or authorisation
of co-trustees).
[23] One is
therefore not dealing with the ordinary principles of agency. It is
trite that unless the trust deed provides otherwise,
trustees must
act jointly. In the absence of a contrary provision in the deed they
may, however, authorise someone to act on their
behalf and that
person may be one of the trustees. If this is what the Respondents
alleged has happened the principles of law of
agency might have had a
role to play. See
Nieuwoudt
and Another NNO v Vrystaat Mielies (Edms) Bpk
2004
(3) SA 486
(SCA) at paras [16] and [23]. In this case there was
indeed nothing in the trust deed which prevented the trustees from
delegating
certain functions to one of their number (see Clause 9 of
the Trust Deed) at the time when they were in office. This, however,
they did not do. The Second Respondent also does not maintain that
any powers of management over the trust business had been delegated
to her at a stage when there were still three trustees in office.
[24] In my view
and based on the facts of the matter, the principles of agency (which
would only have entered the equation in circumstances
where one
trustee has purported to represent or act on the authority of one or
all his or her co-trustees) do not apply. Cameron
JA in the
Parker
case
supra
at
para [10] correctly observed that a trust is "an accumulation of
assets and liabilities". Although forming a separate
entity,
that entity, like a deceased estate, is not a legal persona. The
assets and liabilities constituting the trust vest in
the trustees
and it is the trustees who must administer them. They are not the
agents of the trust or for that matter of the beneficiaries.
See
Thorpe
v Trittenwein
2007
(2) SA 172
(SCA) at par [9];
Hoosen
v Deedat
1999
(4) SA 425
(SCA) at par [21]. Unlike an agent, a trustee therefore
does not derive his powers from a principal to whom he is
responsible.
RATIFICATION CURES LACK OF
AUTHORITY AND NOT LACK OF CAPACITY
[25] The
purported reliance on ratification which has its roots in the law of
agency appears to be misplaced. Ratification is directed
at
retrospectively bestowing authority on an agent, who lacked such
authority to begin with. See generally,
LAWSA
Vol 1,
par
200. "Agency" is used to denote the phenomenon of one
person called the agent, concluding a juristic act on behalf
of or in
the name of another called the principal. In this meaning "agency"
is an instance of representation. See
Joel
Melamed & Hurwitz v Cleveland Estates (Pty) Ltd
[1984] ZASCA 4
;
1984
(3) SA 155
(A) 166 C-D. In order to conclude juristic acts on behalf
of another so as to affect that other's legal relationships, the
agent
has to have the necessary authority. Where a person acts for
another without authority, that lack of authority may in appropriate
circumstances, be cured by ratification.
[26] An act may
only be ratified if, at the time when the agent or purported agent
acted, he not only acted but also professed to
act on behalf of
another. It follows that the only person who may ratify is he for
whom the agent intended and professed to be
acting. See
Kerr,
The Law of Agency
(4
th
Edition) page
82. As authorisation is a juristic act, a person who has no capacity
to conclude juristic acts cannot authorise another
to conclude
juristic acts on his or her behalf. Thus an infant and a lunatic
cannot validly authorise another to conclude a juristic
act on his or
her behalf. See
Pleasant
v Warne
1922
AD 481.
The rule is that any act which admits of representation may
be ratified if performed by a person who had no authority. However,
if prior authority is required an act concluded without such
authority will not be capable of subsequent ratification.
[27] The act
cannot subsequently be ratified even in writing. See
LAWSA
Vol
1, par 204. The effect of a valid ratification is therefore to cloak
the agent's unauthorised acts with authority retrospectively,
establishing the relationship of principal and agent after the fact
with retrospective effect, with the usual consequences of agency.
See
Francois
du Bois
et
al:
Wille's
Principles of South African Law
(9
th
Edition) at
page 992 (with reference to,
inter
alia,
Reid
v Warne
1907
TS 961
at 976. Our case law leaves no doubt as to the fact that
ratification is not possible if the transaction or act concerned is
indeed
null and void. See in the context of trust law for instance
Thorpe
v Trittenwein
2007
(2) SA 172
(SCA) (where it was emphasised that as ratification
relates back to the original transaction, there can be no
ratification if the
contract is
void
ab initio)
and
Luppachini
NO v Minister of Safety and Security
2010
(6) SA 457.
See also
Simplex
(Pty) Ltd v Van der Merwe and Others NNO
1996
(1) SA 111
(W) where the enquiry concerned the lack of authority of a
trustee to bind a trust in a contract, in the absence of being
authorised
thereto in writing by the Master. Goldblatt J held that,
in a case like that, the trustee was not authorised to bind the
trust,
and the shortcoming could not be ratified. See also
Van
der Merwe v Van der Merwe
2000
(2) SA 519
(C) where it was re-affirmed that a juristic act performed
by a person without the required authority of the Master is null and
void and the proposition that a Court has a discretion to
retrospectively validate acts of a trustee that are performed without
such authority (as stated
in
Kropman and Others NNO v Nysschen
1999
(2) SA 567
(T)) was rejected.
[28] The
question that needs to be addressed in the instant matter is not
whether a lack of authority on the part of the Second
Respondent to
act on behalf of the co-trustees can be cured by ratification, but
rather whether in incapacity of the Trust to operate
(due to the fact
that the required number of trustees were not in office) at the time
of the conclusion of the Firstrand transaction
can be cured by the
ex
post facto
ratification
of a trustee who was only appointed as such some four and a half
years after the event. This, in my view, is not possible
in terms of
our law. A provision requiring that 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. That much has been made
clear by Cameron JA in
Parker
supra
at
par [11]. The Trust instrument makes provision of how the Trust in
such an event can be capacitated.
[29] The legal
impact of the resignation of a trustee (in circumstances where a
minimum number was required to be in office) was
explained thus in
Steyn
and Others NNO v Blockpave (Pty) Ltd
2011
(3) SA 525
(FB) at paras [32] and [34]:
"The
resignation of Ms Moolman had a profound impact on the proceedings.
It fundamentally crippled the capacity of the trust
to operate —
it functionally paralysed the trust. ... It is therefore temporarily
dysfunctional, and was so at the time the
replying affidavit was
delivered. ... The true character of the trust that we are here
dealing with is tripartite. The trust body
with a full complement of
three trustees, as envisaged in the trust deed, was not in existence,
and the trust estate was unable
to operate. In my view the Dries
Steyn Trust did not de jure exist and operate in the way a trust has
to operate in law".
At
the risk of being accused of being repetitive I emphasise that at the
time of the conclusion of the Firstrand transactions, the
Trust in
the instant matter lacked the capacity to enter into the loan
agreement and cause the property of the Trust to be mortgaged.
As the
Trust lacked contractual capacity to conclude the Firstrand
transactions at the time, it cannot ratify even if it subsequently
(upon the appointment by the Master of two additional trustees)
acquired full contractual capacity. The purported "ratification"
on the part of Mr Oosthuizen is, in the premises, of no consequence.
VOID TRANSACTIONS CANNOT BE
RATIFIED
[30] It is
trite law that the Trust Deed forms the constitutive charter of the
Trust. In the result the trust estate cannot be bound
outside its
provisions. See
Parker
supra
at
par [10]). In paragraph [10] of
Parker
case
the Supreme Court of Appeal approved the statement in
Honore's
South African Law of Trust
(5
th
Edition) at
page 242 which reads as follows:
"The
trust instrument forms, as it were, the statute under which the
trustee acts. Properly interpreted, it should be regarded,
as Coertze
says, as 'objektiewe reg', though its source will be a valid
contract, will or other constitutive document."
The answer to
the question whether a trustee or trustees has/have the capacity to
enter into a particular contract must therefore
be sought within the
express and implied provisions of the trust deed. If the legal
capacity on the part of a trustee to enter
into a specific contract
is not to be found there, then the trustee has exceeded his power in
entering into the contract and it
is null and void. In any event in
the light of what the Supreme Court of Appeal said in
Parker
supra
there
is and can never be basis upon which it can be held that the doctrine
of
ultra
vires,
which
applies to corporations or corporate bodies, should not apply to a
trust. Cf
ABSA
v SACCAWU
(697/10)
[2011] ZASCA 150
(27 September 2011) at par 31.
[31] As is the
case with the constitution of a corporate body, the Trust Deed
defines the acts which the trust (acting through the
trustees) are
permitted to do and also specifies the manner in which those acts are
to be done (cf
Parker
supra
par
[10]). As Cameron JA eloquently explains in the
Parker
matter:
"Who the trustees are,
their number, how they are appointed, and under what circumstances
they have power to bind the trust
estate are matters defined in the
trust deed, which is the trust's constitutive charter."
In the result
the following principles, as crystallised in
Grundling
v Beyers & Others
1967
(2) SA 131
(WLD) at 139 - (and recently reaffirmed in
ABSA
vSACCAWU
supra)
find
application:
"Now, the constitution
does specify certain acts which the Union is required or permitted to
do; it often specifies too the
manner in which those acts are to be
done. The former are the Union's powers, the latter, its internal
management (cf. Mine Workers'
Union v. Prinsloo,
1948 (3) S.A. 831
(A.D.)). If it exceeds the former powers, that is, does an act that
the constitution does not require or permit it to do, that
act is
ultra vires, and null and void. Such an act cannot be validated by
ratification or estoppel, and the Union, any outsider
affected by it,
or a member may, if necessary, have it set aside or declared null and
void. On the other hand, if the act is within
its powers, but the
manner of doing it deviates from or is contrary to the constitution,
it is not null and void; at most, it is
voidable, but it can be
validated by ratification or estoppel."
[32] In the
instant matter the Second Respondent was in terms of the Trust Deed
not permitted to enter into the Firstrand transactions.
That in
effect means the acts performed by her
qua
trustee
(the obtaining of the loan and the mortgaging of the Trust's
immovable property) are
ultra
vires
the
trust deed and
null
and void.
Accordingly
these acts cannot be validated by ratification.
See
Van
Niekerk v Clarke & Another
[2010]
JOL 26111
(C) where Zondi J held that as the trustees could not rely
on a provision in the trust deed as providing authority for them to
delegate to an outsider the power to cede a trust claim, the deed of
cession "...
is
void and invalid as the person who concluded it did not have
authority to do so and it is an act which cannot be ratified."
Van
Niekerk v Clarke & Another
supra
is
thus a judgment by this Division which authoritatively confirms that
acts which are
ultra
vires
the
constitutive charter of a trust such as the Firstrand transactions in
the instant matter concluded by the Second Respondent
as solo trustee
- are void and not susceptible to ratification.
THE RELIEF SOUGHT
[33] The common
law empowers the Court to rescind a judgment obtained on default of
appearance, provided sufficient cause therefor
has been shown. See
De
Wet and Others v Western Bank Ltd
1979
(2) SA 1031
(A) at 1042;
Chetty
v Law Society, Transvaal
1985
(2) SA 756
(A). The term
"sufficient
cause"
(or
"good
cause")
defies
precise or comprehensive definition, for many and various factors
require to be considered. See
Cairn's
Executors v Gaarn
1912
AD 181
at 186. But it is clear that in principle and in the
long-standing practice of our Courts two essential elements of
"sufficient
cause"
for
rescission of a judgment by default are: (a) that the party seeking
relief must present a reasonable and acceptable explanation
for his
default; and (b) that on the merits such party has a
bona
fide
defence
which,
prima
facie,
carries
some prospect of success. See
PE
Bosnian Transport Works Committee and Others v Piet Bosman Transport
(Pty) Ltd
1980
(4) SA 794
(A). According to Mr La Grange's submission both the
requirements mentioned
supra
have
been met. In his submission the Applicants have not only presented a
reasonable and satisfactory explanation of their "default"
but have shown that there are
bona
fide
grounds
for resisting or defeating the First Respondent's claim against the
Trust, which
prima
facie
carries
some prospect of success. The "default" in this instance is
of an extraordinary nature - it consists not of a
failure to defend
an action
qua
Defendant,
but a failure on the part of the two trustees, alternatively, the
First Applicant
qua
beneficiary
and in his capacity as father of a beneficiary, to intervene in the
action in order to have the actions of a delinquent
trustee nullified
by way of a representative action. It shall be recalled that on the
First Respondent's own version the two Applicants
were at the time of
the institution of the action perceived to be trustees who were in
office - as such they ought to have been
appraised of the action
which had been instituted against the Trust. I am well aware that the
current stance adopted by Mr Scott
is that they were cited in error
and that the Respondents concede that judgment against the Applicants
only may be rescinded. Accordingly
more than a compelling case has
been established for the relief sought in the instant matter.
ORDER
[34] In the circumstances I make
the following order:
(a) It is ordered that the
judgment by the Registrar on 22 December 2010 under case number
21231/2010 is hereby rescinded.
(b) The warrant of Execution
issued under case number 21231/2010 consequent to the judgment
granted on 22 December 2010 is hereby
set aside.
(c) The First Respondent is
hereby interdicted from selling the said immovable property or
allowing it to be sold pending the finalization
of the action under
case number 21231/2010.
(d) The First and Second
Respondents shall pay the costs of this application, jointly and
severally, the one paying the other to
be absolved.
DLODLO, J