A Comparative Perspective on the “Joint Action Rule” in the context of Business Trusts

• Jurisdiction: South Africa
• Author: MJ de Waal
• Citation: (2014) 25 Stell LR 343
• Published date: 16 August 2019
• Date: 16 August 2019
• Pages: 343-360

343

A COMPARATIVE PERSPECTIVE ON THE

“JOINT-ACTION RULE” IN THE CONTEXT OF

BUSINESS TRUSTS

MJ de Waal

BCom LLB LLM LLD

Professor, Stellenbosch University

I du Plessis

BCom LLB LLM

Senior Lecturer, Stellenbosch University*

Before we commence our discussion of the topic, we want to acknowledge

the quality and value of David Butler’s work on the business trust. For 32

successive years, David taught a module in corporate law to commerce

students and in lat er years a signicant po rtion of that module was devote d to

the business tr ust. David’s notes on the topic became legendar y. Our Faculty’s

Department of Mercantile Law regularly received requests from former

students for copies of David’s notes on the business trust. O nly after entering

practice did they realis e the wealth of insight and knowledge captured in these

notes.

It was an enormous privilege to have worked with David Butler. His

friendship, intellect, sense of humour and, above all, the way in which he

cares for people, have always been an inspirat ion to both of us.

1 Introduction

Numerous examples in recent case law illustrate both the importance and

the practical relevance of the so-called “joint-action rule” in South African

tr ust law.1 The exact meaning of this rule, as well as the principle on which

it is founded, will be addressed in the proper context below.2 By way of

introduction it would be sufcient to say that the rule implies that, outside

of provisions in the trust deed to the contrary, co-trustees of a trust must act

jointly if they want to bind the tr ust. Already this br ief formulation can explain

why the rule has proved to be of practical signicance. Non-compliance with

the rule could (and most often would) result in the invalidity of a contract

* The part of th is article which deals w ith comparative resea rch draws on a chapter in I d u Plessis’s LLD

dissertation

1 For reported cases, see for example Van der Merwe NO v Hydraberg Hydraulics CC 2010 5 SA 555

(WCC); Steyn v Bloc kpave (Pty) Ltd 2011 3 SA 528 (FB); Pasco al v Wurdeman2012 3 SA 422 (GSJ);

O’Shea NO v Van Zyl 2012 1 SA 9 0 (SCA) para 23; Lyn n NO v Coreejes 2012 1 All SA 620 (SCA) For

a discussion of and references to quite a number of un reported cases, see MJ de Waal “The Law of

Succession (I ncluding the Admi nistration of Est ates) and Trusts” (2010) Annual Sur vey of South Afric an

Law 1170 1199-1202; MJ de Waal “ The Law of Succ ession (I ncluding the Admi nistration of Est ates)

and Trusts” (2011) Annual Survey of South African Law 1033 1066-1069; MJ de Waal “ The La w of

Succession (I ncluding the Admi nistration of Est ates) and Trusts” (2012) Annual Sur vey of South Afri can

Law 831 850-852

2 See part 3 1 below

(2014) 25 Stell LR 343

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entered into between the trustees and an outsider, probably with detrimental

results on one or both sides.3

It has been suggested that t he joint-action rule is “generally unproblematic”

with regard to charitable trusts or trusts where the trustees’ main function

is the conservation of property for b eneciaries; but that the rule has posed

“numerous challenges” with regard to trusts used to conduct business or

to undertake commercial activities (that is, business trusts).4 Of course, it

is not difcult to s ee why this is so. The nature of tr usts in a bu siness or

commercial environment normally dictates an active role for the trustees

in the day-to-day running of the particular business. Strict adherence to

the joint-action rule would therefore require very regular meetings of (or at

least communication between) the trustees. As most businesses could not be

run effectively in this way, there are practical means available to soften the

application of the rule under such circumstances. One possibility is that a

provision allowing a deviation from the joint-action rule can be inserted in

a trust deed – for example by stipulating that decisions can be taken by a

majority of the trus tees.5 However, trustees often misunder stand the operation

and limitations of such a provision, and they therefore do not realise that it

would not necessarily addr ess the problem at hand adequately.6 An alternative

– and in our view more effective – approach would be to employ the normal

principles of the law of agency in this context. A trust deed could therefore

contain a provision stipulating that the tr ustees can delegate certain de ned

duties or powers (also generally referred to as trustee “functions” in this

article) to one of their co-trustees or even to an outsider.7 This trustee could

then (and bearing compliance with the principles of delegation and apposite

statutory provisions in mind), for example, enter into valid contracts with

outsiders without the necessity of prior trustee meetings (even ones at which

a majority vote is allowed).

It is thus clear that certain mechanisms can be put into place in order to

ameliorate the problematical pract ical effects of the joint-action rule. However,

it is also clear that pitfalls remai n for trustees and other tr ust practitioners, and

that our courts still face challenges in developing trust law in this particular

area.8 It has therefore been submitt ed, rightly in our view, “that the joint-action

rule in regard to co-trusteeship will remain a focal point of future judicial

development of South African trust law”.9 The primary aim of this article is

to illustrate that in this process of judicial development our courts can derive

much benet from al so looking further a eld to other trust law jurisdictions.

This is because even a relatively brief compar ative exercise will show that there

3 For examples, see t he cases referred t o in n 1 above and in nn 5 and 7 bel ow

4 F du Toit “Co-Trusteeship a nd the Joint-Action Rule in South A frican Trust Law” (2013) 27 Trust Law

International 18 19

5 See, for example, La nd and Agricultu ral Bank of South Afri ca v Parker 2005 2 SA 77 (SCA) para 15; Du

Toit (2013) Trust Law In ternational 22-23

6 See part 3 1 below

7 See, for example, Nie uwoudt v Vrysta at Mielies (Edms) Bpk 2 004 3 SA 486 (SCA) paras 6 and 23; Du Toit

(2013) Trust La w Internationa l 23-24

8 See Du Toit (2013) Trust Law Internatio nal 19

9 29

344STELL LR 2014 2

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