The decision of the Supreme Court of Appeal ("SCA") in Shepstone & Wylie Attorneys v De Witt has reaffirmed that, unless the trust deed provides otherwise, trustees must act jointly for the trust to be bound by their acts.
This ruling raises important questions for the administration of trusts, including:
- What are the implications of this principle when a trust deed provides, as it often does, that in the event of disagreement among the trustees, the view of the majority will prevail?
- Can a quorate majority of the trustees proceed to make decisions without the participation of the minority?
- Must the dissenting minority trustees sign the resolution of the trustees, and the agreement that flows from that resolution, if the trust is to be bound in terms of the agreement?
- Is there a difference between the decisions of the trustees, and their resolutions?
The answers to these questions that appear to be given by the SCA in this case might come as a surprise to lawyers and those involved in the administration of trusts.
The case turned on the validity of a deed of suretyship signed
by two of the three trustees of the Penvaan Property Trust
("the Trust") in favour of the appellant
firm of attorneys ("the Attorneys"). The
trustees were Mr Volker, Mrs Volker and an independent trustee, Mr
De Witt. The trust deed required a minimum of three trustees, of
which two would constitute a quorum. Clause 16 provided that in the
event of disagreement among the trustees, the view of the majority
would prevail. Clause 13 contained a typical round-robin
provision:
"A written resolution signed by all Trustees for the time
being or their respective alternates or proxies shall be as
effective as a resolution taken at a meeting of
Trustees". Clause 14 required that all contracts should
be signed by at least two trustees. The powers of the trustees were
set out in general terms in clause 11 of the trust deed, and then
more specifically in an appendix. The first twenty five of the
powers specified in the appendix said nothing about unanimity of
the trustees, but the final clause 26 stipulated:
"Provided the Trustees unanimously agree, to conduct
business on behalf of and for the benefit of the Trust, and to
employ Trust property in such business."
Mrs Volker instituted divorce proceedings against Mr Volker and asked the Attorneys to represent her in those proceedings. Since Mrs Volker was impecunious, the Attorneys agreed to represent her only if the Trust stood surety for their legal costs and disbursements. Mrs Volker gave notice to all trustees of a meeting to pass the necessary resolutions in this regard, but despite attempts made to accommodate him, Mr Volker was unable to attend the meeting. He had indicated, though, that in principle he had no problem with the meeting provided it was a "productive" one. The meeting proceeded in his absence and Mrs Volker and Mr De Witt passed the necessary resolutions and then signed the deed of suretyship in favour of the Attorneys.
When Mrs Volker's fees remained unpaid, the Attorneys sued the Trust on the basis of the suretyship. The Trust denied liability on the grounds, amongst others, that the resolution authorising the trustees to sign the deed of suretyship was invalid, since not all the trustees had signed the resolution. This defence was upheld by the KwaZulu-Natal division of the High Court, and on appeal, by the Supreme Court of Appeal.
The Attorneys' case was that the meeting of the Trustees had been properly convened and constituted; the decision of the two trustees present was a majority decision as contemplated by clause 16; two trustees had signed the deed of suretyship in compliance with clause 14; and that the unanimity requirement in clause 26 of the appendix applied only to instances where the trustees wished to conduct a business on behalf of the Trust and to employ trust property in such business.
The counterargument of the trustees was that clause 26 of the appendix required decisions and resolutions to be taken unanimously by the trustees, acting jointly in resolving to sign agreements such as the suretyship on behalf of the Trust.
In finding for the Trust, the majority accepted that, despite the majority provision in clause 16 of the trust deed, the trustees were required to act jointly in resolving to sign the deed of suretyship to bind the Trust, relying in this regard on clause 26 of the appendix (see paragraph 30 of the judgment) and apparently also on the round-robin provision in clause 13.4 (see the last line of paragraph 24). Where, as in this instance, the trust deed provided for a majority decision, a majority of the trustees could make a valid internal decision, but in order to bind the trust externally, a valid resolution signed by all the trustees (including the absent or dissenting ones) was required. "Internally, trustees may disagree, and if the trustees are not unanimous, a matter may be put to a vote. The majority vote prevails, and the dissenting trustee has to subject himself to the democratic vote of the majority. Externally, trustees cannot disagree. In the external sphere the Trust functions by virtue of its resolutions, which have to be supported by the full complement of the trust body. External decisions are those relating to the trust property with the outside world and internal decisions may relate to the use of income for the welfare of the beneficiaries of the trust" (par 28).
The minority judges agreed with the order of the majority, but on the limited ground that clause 26 of the appendix, properly interpreted, required a unanimous decision of the trustees when exercising any of the powers listed in the appendix, including the power in clause 16 thereof to guarantee the obligations of a beneficiary of the Trust.
Comment
Despite the majority judgment's reliance on the specific provision in clause 26 of the appendix for its finding that the trustees had to act jointly in resolving to sign the deed of suretyship, it appears to hold that even in the absence of such a provision, it is a general requirement of trust law that the resolutions of trustees must be signed by all the trustees. A majority vote provision in a trust deed relates only to internal decisions of the trust body, which are different from their formal resolutions in relation to external matters. This distinction between decisions and resolutions, and the formal requirement of signature by all the trustees of the resolutions of the trust body, stems from the earlier High Court decision in Steyn and Others NNO v Blockpave (Pty) Ltd 2011 (3) SA 528 (FB), and was doubted by the authors of Honore's South African Law of Trusts (6ed, p 378). Nevertheless, it must now be taken to be the law. Dissenting trustees who wish to dissociate themselves from the resolution of the trust body would presumably have to resign.
In light of this decision, it is recommended that the following practical approach should be adopted by trustees in future:
- All trustees must be given proper notice of meetings of the trustees, and of the agenda.
- All trustees must not only be afforded the opportunity to participate in a meeting, they must in one way or another actively participate. Physical presence at the meeting is not necessarily required, but the views of absent members (assuming there to be a quorum present at the meeting) must be sought and obtained.
- Absent a provision in the trust deed that in the event of disagreement amongst the trustees the view of the majority will prevail, the decisions of the trustees must be unanimous.
- Where there is such a majority vote provision, the vote of the majority will constitute the decision of the trust body, if there is disagreement amongst the trustees.
- Whenever the decision of the trustees relates to an external matter, such as the conclusion of an agreement between the trust and another party, the decision of the trustees must be reflected in a formal resolution signed by all the trustees.
- As regards the implementation of that resolution (for example, the signing of a contract on behalf of the trust body), agency principles apply: the trustees, acting jointly, may authorise one or more of them, or even a third party, to sign the agreement on their behalf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
