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[2015] ZAWCHC 12
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National Empowerment Fund Trust v Cape Winds Trading 26 CC and Others (10503/2013) [2015] ZAWCHC 12 (13 February 2015)
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
Case No: 10503/2013
DATE: 13 FEBRUARY 2015
In the matter between:
THE NATIONAL EMPOWERMENT FUND
TRUST
.............................
Applicant
And
CAPE WINDS TRADING 26
CC
..................................................
First
Respondent
AND FOUR OTHERS Second
to
.................................................
Fifth
Respondents
JUDGMENT
Before: The Hon. Mr Justice Binns-Ward
Date of Hearing: 11 February 2015
Date of Judgment: 13 February 2015
BINNS-WARD J:
[1]
In this matter the applicant (the National
Empowerment Fund (‘NEF’))
[1]
has proceeded on motion against the respondents to recover a monetary
debt. The claim lies against the first respondent for
payment
of the balance allegedly owed in terms of a loan agreement. The
claim against the remaining respondents is made on
the grounds of
their having stood as sureties for, and co-principal debtors with,
the first respondent in respect of the latter’s
obligations
under the loan agreement. The loan was advanced to assist the
first respondent in setting up a franchise outlet
business. The
franchise business was established pursuant to a franchise agreement
entered into between the first respondent
and a food business chain
known as Primi Piatti. The applicant had previously committed
to making an amount of R50 million
available to assist the
establishment of franchised Primi Piatti businesses by previously
disadvantaged persons. The terms
on which that commitment was
made were integrated in a co-operation agreement concluded between
the applicant and Primi Piatti.
[2]
The
respondents have opposed the application on a number of grounds.
One of them was the raising of a challenge to the allegation
that the
NEF had authorised the institution of the proceedings. In this
regard the respondents pointed to the provisions
of s 4(2) of
the National Empowerment Fund Act 105 of 1998 (‘the NEF Act’),
which provides ‘
The Trust shall
consist of not less than 7 but not more than 11 trustees appointed in
terms of section 8
’. They
asserted that it appeared that the Board of Trustees in fact
comprised of 13 persons and was thus unlawfully
constituted.
The contention proceeded that in the circumstances a decision could
not validly have been taken to institute
the proceedings.
[3]
In
reply, the applicant admitted that the Board consisted of 13 persons
and that this was more than the maximum number provided
in terms of
the statute. The applicant, however, contended that the
relevant provisions of the Act were stipulated for the
benefit of the
NEF and that the statutory non-compliance was irrelevant. The
implication in this contention was that the
statutory regulation of
the composition of the Board could be waived. Who might do the
waiving, and on what authority, do
not appear to have been
considered. The applicant also relied on s 15 of the Act,
which provides:
15
Proceedings of Board not invalid in certain circumstances
A decision
taken by the Board or an act performed under the authority of such a
decision must not be invalid by reason of-
(a) an
irregularity in the appointment of a trustee;
(b) a vacancy
on the Board;
(c) the fact
that a trustee is guilty of an act or omission justifying his or her
removal from office; or
(d) the fact
that any person who is disqualified from being a trustee or who was
removed from that office sat as such on the Board
at the time when
such decision was taken,
if such
decision was taken by a majority of the trustees lawfully entitled to
vote and the said trustees at the time constituted
a quorum.
[4]
An annexure to the replying affidavit
(annexure KA 10) suggests that the decision to institute the current
proceedings may not have
been taken by the Board, but rather by a
committee. The actual decision-making process that was followed
in this respect
is not clearly explained, however, in the body of the
affidavit. It bears mention in this regard that s 16 of
the Act
provides for the appointment of a chief executive officer
(‘CEO’) for the Trust. The Board is empowered to
delegate
to the CEO such powers as may be necessary for him to manage
the activities of the Trust. The CEO is deemed to be a
trustee
[2]
and is empowered to further delegate any of the powers delegated to
him by the Board to ‘
the staff,
committees, other trustees or other structures of the Trust
’.
Whether this is in fact how it came about that a committee appears to
have authorised the institution of these proceedings
and, if so,
whether the relevant delegation of power was competently given
earlier by a lawfully constituted Board consisting of
no more than 11
members is not apparent in the applicant’s replying papers.
[5]
There
is no substance in the claim in the NEF’s replying papers that
it is irrelevant that the Board of Trustees is purportedly
comprised
of more than the maximum number permitted by the statute. The
provisions concerning the appointment of trustees
are detailed.
There is in addition provision for a balance between the number of
trustees that may be appointed by the President
on the recommendation
of the Minister and that which falls to be appointed by the Minister
on the recommendation of the presidentially
appointed trustees from
the ranks of management. There are other requirements that have
to be satisified in the constitution
of the Board. Its
membership must, amongst other things, broadly represent a
cross-section of backgrounds and professional
skills enumerated in
s 6 of the NEF Act. The purpose of the elaborate scheme is
not starkly evident in all respects,
but one must assume that the
legislature had some rational object in view when it adopted it.
The limitation on numbers has
fiscal implications at the very least
because the remuneration of trustees is liable to be funded, at least
in part, by parliamentary
appropriations. The scheme prohibits
the appointment of more than 11 trustees. Accordingly any Board
comprised of a
greater number of trustees is invalidly constituted.
[6]
The
provisions of s 15 of the Act do not provide an answer to the
point taken by the respondents. They are not directed
at
regulating a decision taken by an obviously invalidly constituted
Board. They are directed at saving the decisions of
an
ostensibly validly constituted Board from invalidity on account of
the disqualification of one or more members who participated
in the
decision making. It assumes the existence of a validly
constituted Board. There cannot be ‘a decision
of the
Board’ in the sense comprehended in the opening phrase to s 15
if a legally constituted Board is not in existence.
The
provisions of s 15 are not directed at saving the decisions of
an unlawfully constituted collective. A Board comprising
of
more than the maximum number of trustees permitted by the statute
does not qualify as one ostensibly validly constituted.
Legally, it does not exist. In such circumstances one does not
get to examining the qualifications of individual members.
It
is also not obvious in any event, in a situation in which the
purported members of the Board exceed the statutory maximum in
number, that the irregular constitution of the body is due to the
appointment of a single trustee, or even one or two of them.
Thus if the President were to appoint eight trustees at the same time
instead of the maximum of seven that he is permitted to,
the
appointment of all eight would be invalid because it would be
impossible to distinguish their individual appointments.
And if
the eight trustees invalidly appointed were to purport to recommend
to the Minister to appoint three additional trustees
from the
management team as the presidentially appointed trustees are
permitted to do in terms of s 8(4) of the Act, their
recommendation and the resultant appointments would also be invalid;
cf.
Seale v Van Rooyen NO and Others;
Provincial Government, North West Province v Van Rooyen NO and Others
[2008] ZASCA 28
;
2008 (4) SA 43
(SCA),
[2008] 3 All SA 245.
Thus, when there is
an excess of trustees above what the statute permits, it may be,
depending on the facts, that none of
them could have been validly
appointed. Section 15 of the Act also could not save the
purported decisions of the ‘Board’
in such a case.
[7]
Thus,
in order for the challenge to the authority to institute proceedings
in the current case to be met, there has to be evidence
as to the
circumstances in which the number of persons purportedly appointed to
the Board came to exceed that permitted in terms
of the governing
legislation, or if the decision was made by a functionary with
delegated powers that the delegation occurred in
terms of a decision
made by a validly constituted Board.
[8]
When
confronted with these truths, counsel for the applicant sought a
postponement so as to supplement the applicant’s replying
papers to deal with the issue properly. Payment of the wasted
costs occasioned by the postponement, including the respondents’
counsel’s preparation costs was tendered. Counsel for the
applicant also indicated that the applicant might wish, if
required,
to adduce evidence of a ratification by a competently constituted
Board of Trustees of the decision to institute the
current
proceedings.
[9]
Mindful
that the lack of authority point, even if it was well made, is a
technical one because there is no reason to believe on
the face of
matters that the NEF would not have wished to recover the substantial
sum of money allegedly due to it in terms of
the loan agreement, and
that the courts, for good reason, prefer to decide cases on their
substance rather than on technical points,
I was inclined in favour
of granting the postponement on the terms sought. Counsel for
the first second and fourth respondents,
however, opposed any such
course. He did so on two bases. Firstly, he submitted
that an invalidly taken decision by
the NEF to institute proceedings
was legally incapable of ratification. Secondly, he argued that
little point would be served
by the postponement if, as he submitted,
proceedings to enforce the claim on motion had been misdirected and
the case should have
been instituted by way of action.
Supplementing the applicant’s replying could not meet that
problem. In that
case, he submitted, it would be preferable,
and more convenient, to simply dismiss the application on the lack of
authority point
and leave it to the applicant to commence afresh on a
summons.
[10]
In
support of the first of the aforementioned bases for his opposition
to a postponement, counsel for the respondents argued that
the NEF
was a trust in the ordinary sense and that it was subject to the
provisions of the Trust Property Control Act 57 of 1988.
He
sought support for this contention in the admitted fact that the NEF
has a registration (IT) number issued by the Master.
It is
common knowledge that such ‘registration numbers’ are
issued when a trust instrument is lodged in terms of s 4
of the
Trust Property Control Act at the office of a Master. He then
sought to rely on the judgments in
Simplex
(Pty) Ltd v Van der Merwe and Others NNO
1996 (1) SA 111
(W) and
Lupacchini NO
and Another v Minister of Safety & Security
2010
(6) SA 457
(SCA), which were to the effect that transactions
purportedly concluded by trustees prior to their having obtained
authority from
the Master in terms of s 6(1) of the Trust
Property Control Act were not only invalid, but also incapable of
subsequent ratification.
[11]
In
my judgment the first basis for the respondents’ opposition to
the postponement is unsound for a number of reasons.
[12]
The
NEF is not a trust in the strict or narrow sense, or, in particular,
in the sense of the Trust Property Control Act. As
noted in
Cameron et al,
Honorė
’
s
South African Law of Trusts
5
th
ed. at §2, ‘In the strict or narrow sense a trust exists
when the creator or founder of the trust has handed over or
is bound
to hand over to another the control of property which, or the
proceeds of which, is to be administered or disposed of
by the other
(the trustee or administrator) for the benefit of some person other
than the trustee as beneficiary, or for some impersonal
object.’
The Trust Property Control Act applies, almost without exception, to
such trusts. The concept is defined
for the purposes of that
Act in s1 as follows:
‘
trust
means the
arrangement through which the ownership in property of one person is
by virtue of a trust instrument made over or bequeathed-
(a) to another
person, the trustee, in whole or in part, to be administered or
disposed of according to the provisions of the trust
instrument for
the benefit of the person or class of persons designated in the trust
instrument or for the achievement of the object
stated in the trust
instrument; or
(b) to the
beneficiaries designated in the trust instrument, which property is
placed under the control of another person, the trustee,
to be
administered or disposed of according to the provisions of the trust
instrument for the benefit of the person or class of
persons
designated in the trust instrument or for the achievement of the
object stated in the trust instrument,
but does
not include the case where the property of another is to be
administered by any person as executor, tutor or curator in
terms of
the provisions of the Administration of Estates Act, 1965 (Act 66 of
1965)’
.
A ‘
trust instrument
’ is defined in
the same section to mean ‘
a written agreement or a
testamentary writing or a court order according to which a trust was
created
’. The trustees of the NEF do not dispose of
the funds made available to the Trust by the
fiscus
or by
donation in terms of a ‘
trust instrument
’, as
defined in the Trust Property Control Act. They are not
appointed in terms of a ‘trust instrument’,
as defined,
and they do not derive or exercise their powers from or in terms of
such a ‘trust instrument’. The
trustees do not fall
to be removed by the Master or a court in the sense contemplated by
s 20 of the Trust Property Control
Act; their removal for
misconduct or disability lies instead in the remit of the Minister of
Trade and Industry. The Trust
is a
sui generis
juristic
person established in terms of a statute. Neither the Trust
Property Control Act nor the NEF Act vests the Master
with any
oversight responsibility in respect of the NEF. The fact that
the Master might have purported to treat the NEF as
a trust within
meaning of the Trust Property Control Act, notwithstanding that it
plainly is not, obviously has no effect on its
juridical character as
determined upon a proper construction of the statutes.
[13]
The
two judgments upon which counsel for the respondents relied turned
upon the proper construction of s 6 of the Trust Property
Control Act. They held that the provision directly prohibited a
trustee (within the meaning of the Act) from doing anything
in that
capacity unless authorised thereto in writing by the Master.
Following the well-established principle enunciated
by Innes CJ in
Schierhout v Minister of Justice
1926 AD 99
at 109 that ‘
It is a
fundamental principle of our law that a thing done contrary to the
direct prohibition of the law is void and of no effect.
’,
the judgments held that it is impossible to ratify that which the law
has prohibited; see also in this regard
Neugarten
and Others v Standard Bank of South Africa Ltd
1989 (1) SA 797
(A) at 808D-E. In the current matter there is
no prohibition of any kind against the NEF instituting proceedings.
On
the contrary, it is expressly empowered to do so; and its
trustees, who, collectively, are its guiding mind, are also empowered
to delegate the function to do so to the CEO and he may sub-delegate
the function to a committee or other structure. If any
of these
permitted functions were to be carried out by any functionary or
structure of the NEF without the necessary authority,
nothing in the
Act prohibits the Board from ratifying it. The institution of
proceedings in the current matter in the circumstances
is not a
nullity, as it would be if there had been an absolute lack of legal
capacity; it is merely limping in the absence of authority.
Any
absence of authority is amenable to rectification by means of
ratification. Moreover, in the case of the NEF, the trustees
do
not act personally in exercising their powers as trustees of the type
of trusts regulated by the Trust Property Control Act
do, they act
rather on behalf of the trust as a juristic person, rather as the
directors of a company would do.
[14]
I
am also not persuaded by the second leg of the respondents’
counsel’s argument that the requested postponement should
be
refused. As the argument is one that may still be pursued in
the principal case, I do not propose to go into it in any
detail.
Suffice it to say that
prima facie
,
at least, I consider that the issues relied upon in support of the
contention that there was a reasonably anticipatable dispute
of fact
in the matter which made it inappropriate for the applicant to use
motion proceedings is predicated on questions extraneous
to the
lis
between the applicant and the respondents; more particularly, the
operation of the franchise and co-operation agreements.
The
applicant was not a party to the franchise agreement and the
respondents were not privy to the co-operation agreement.
It
would appear that the franchisor disposed of the first respondent’s
business to a third party in terms of the franchise
agreement.
The proceeds of such disposal were paid over by Primi Piatti to the
applicant and credited to the first respondent’s
account with
the applicant. The possibility of such a transaction taking
place in given circumstances was something that
was contemplated in
terms of the co-operation agreement. There is an issue
concerning the disposal of the first respondent’s
business by
Primi Piatti and about the amount that was paid over by Primi Piatti
to the applicant pursuant thereto. As I
understand the papers,
it is not in dispute that R650 000 was paid over to the
applicant by the franchisor. The contention
is that it should
have been R700 000. That to me seems to give rise to an
issue between the first respondent and Primi
Piatti. The mutual
rights and obligations created in terms of the franchise and
co-operation agreements appear to me to be
quite discrete to those
which exist between the applicant and the first respondent in terms
of the loan agreement. The mere
acknowledgement in the
franchise agreement of the existence of the co-operation agreement
did not give rise to any rights by the
respondents in terms of the
co-operation agreement. Any inadequacy in the amount paid by
Primi Piatti to the applicant consequent
upon the disposal of the
first respondent’s business appears to me
prima
facie
to be a matter between the first
respondent and the franchisor and does not affect the applicant’s
rights in terms of the
loan agreement. Accordingly, I am not
persuaded that it is probable that it will be held in the principal
proceedings that
the dispute between the first respondent and Primi
Piatti concerning the terms on which the franchise outlet business
was disposed
of and the application of the proceeds rendered it
inappropriate for the applicant to proceed against the first
respondent for
the recovery of the loan debt by way of application.
[15]
The
prejudice occasioned to the respondents by the postponement is
capable of being met by an award of the wasted costs. The applicant’s
counsel confirmed that the tender of costs included the respondent’s
counsel’s fee in respect of the preparation for
the hearing, it
being appreciated that because the matter is not likely to proceed
for some months it will be necessary for counsel
to work up the
matter afresh when it is ripe for hearing.
[16]
The
following order is made:
1.
The
application is postponed
sine die
.
2.
The
applicant is given leave to supplement its replying papers to deal
more fully with the authority challenge raised by the respondents
in
respect of the institution of these proceedings.
3.
The
applicant is ordered to pay the wasted costs incurred by the first,
second and fourth respondents as a consequence of the postponement;
such costs are to include counsel’s fee in respect of
preparation for the hearing on 11 February 2015.
A.G.
BINNS-WARD
Judge of the
High Court
[1]
Erroneously cited in the papers as the ‘National
Empowerment Fund Trust’. Section 2 of Act 105 of 1998
provides:
‘
A trust called the
'National Empowerment Fund
'
(NEF) is established.
’. As
discussed in this judgment, it is evident from the provisions of the
statute that the trust so established is
a trust in the wide, rather
than in the narrow or strict sense of the term.
[2]
The CEO would therefore qualify as a twelfth
permissible member of the Board.