Crookes, NO and Another v Watson and Others

• Jurisdiction: South Africa
• Judge: Centlivres CJ, Schreiner JA, Van Den Heever JA, Fagan JA and Steyn JA
• Judgment Date: 03 November 1955
• Citation: 1956 (1) SA 277 (A)
• Hearing Date: 01 June 1955
• Court: Appellate Division

Centlivres, C.J.:

In 1936 J. J. Crookes (to whom I shall refer as the settlor) entered into a notarial deed of trust which was registered in the Deeds Registry in Natal. According to clause 1 of the deed the settlor in consideration of his natural love and affection for his daughter D Elaine gave and donated irrevocably upon trust certain shares to two trustees, one of whom was the settlor himself. Clause 3 of the deed is as follows:

'The settlor shall have no power wholly or partly to revoke, cancel or annul any of the trusts or provisions hereby declared or to declare any new or other trusts of and concerning the same or any part thereof, but the settlor may from time to time add to the trust fund hereby created.'

E Under clause 4 the trustees are to hold the shares in trust for the following purposes:

(1) to apply so much of the net income from the shares as in their discretion may be necessary for the education, maintenance and support of Elaine until she attains the age of 25 years;

(2) on Elaine attaining the age of 25 years to pay to her for life the net income up to £1,000 per annum;

F (3) to accumulate all income not required for (1) and (2) so as to create an income reserve which could be drawn upon for the purposes of (2) in case the income from the trust fund falls short of £1,000 in any year;

(4) on Elaine's death to distribute the trust fund, including the income reserve, among her lawful issue equally, failing lawful issue equally among her other surviving brothers and the issue of any deceased brother, and failing surviving brothers among her next of kin.

G Clause 5 empowered the trustees to realise the shares and invest the proceeds. Clause 10 reserved to the settlor the right to discharge any of the trustees and to appoint another or others in his or their stead. This right was also reserved to the executors of the settlor after his death. Under clause 15 each trustee (other than the settlor) was to H receive £50 per annum as remuneration. The concluding clause of the deed stated that the trustees

'declared to have accepted as they hereby accept the foregoing gifts in trust and the trust hereinbefore mentioned.'

Elaine attained the age of 25 in 1945. She is married out of community of property and has two minor children. She has four brothers, all of whom are married and have minor children. From 1945 the trustees have paid Elaine £1,000 per annum and have paid the surplus

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income into an income reserve account which now stands at more than £22,500. The assets of the trust fund are now worth about £60,000.

The settlor desires to increase the amount of income payable to Elaine, both because the value of money has fallen considerably since the trust A was created and because the trust fund has increased far beyond his expectation through accumulation of surplus income. The settlor feels that it is not in the interests of Elaine's children, nor is it his wish, that they should receive a very large sum from the trust fund. He therefore desires to amend the trust deed in order to empower the trustees to -

(a)

reduce the trust fund by paying £5,000 to Elaine, and

(b)

B pay Elaine the whole of the net income from the trust fund.

The trustees (one of whom is still the settlor) moved the Natal Provincial Division for an order declaring that it was competent for the trust deed to be amended accordingly by mutual agreement between the C settlor and the trustees. In their petition to the Provincial Division they contended that such an amendment was competent because:

'(a)

there has been no acceptance by or on behalf of the ultimate beneficiaries of the benefits conferred by the trust deed;

(b)

the acceptance by Elaine of the limited benefit conferred upon her is not, in law, an acceptance on behalf of such beneficiaries nor is it sufficient, in law, to render such acceptance unnecessary;

(c)

the acceptance by the trustees of the property for the purposes of the said trust is not, in law, an acceptance on behalf of D such beneficiaries, nor is it sufficient in law to render such acceptance unnecessary;

(d)

the gift in favour of such ultimate beneficiaries, not having been accepted by them or on their behalf, may accordingly be revoked and/or amended by mutual agreement between the settlor or donor and the said trustees.'

The petition annexed affidavits made by Elaine, her husband and her four E brothers all agreeing to the terms of the suggested amendment of the trust deed. All these persons figured as respondents. Elaine's husband and her four brothers professed to give their consent in their personal capacity as well as in the capacity of father and natural guardian of their minor children. The seventh respondent was Mr. Burne in his capacity as duly appointed curator-ad-litem to represent:

(1)

F all possible unborn lawful issue of Elaine;

(2)

all possible unborn lawful issue of Elaine's four brothers;

(3)

all other possible beneficiaries under clause 4 of the trust deed.

The Provincial Division dismissed the application. The learned JUDGE-PRESIDENT held that

'the true juristic nature of the transaction' (i.e. the trust) 'is a G contract for the benefit of third parties having the effect of a fideicommissum.'

He stated that the general rule was that 'beneficiaries' acquire no rights under a trust such as the present until they have accepted

'but that there was an exception to this general rule, the exception being that in the case of the settlement of property in a family the acceptance of the first donee enures for the benefit of and is considered an acceptance by all the donees.'

H The learned JUDGE-PRESIDENT held that as Elaine, the first donee, had accepted the benefits under the trust her acceptance enured for the benefit of all the beneficiaries and that the trust deed could not be amended. For this reason he held that the declaratory order must be refused.

MILNE, J., held that a trust inter vivos can be validly created so as to

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confer actual rights upon third parties without their having to notify their acceptance to the settlor, the true principle being that the trustee in accepting the trust, undertakes to hold the property against all comers, including the settlor, for the benefit of the indicated A beneficiaries. The learned Judge therefore held that the trust deed in this case could not be amended. The learned JUDGE-PRESIDENT found himself unable to agree with the view taken by MILNE, J. on this ground for holding that the petition should be dismissed. But MILNE, J., assuming that his view of the legal position was incorrect, concurred with the learned JUGDE-PRESIDENT's reasons for refusing the declaratory order.

B The first question to be decided in this appeal is whether a settlor, having executed a trust deed and having handed over the subject matter of the trust to the two trustees appointed in terms of the deed, one of whom is himself and the other of whom holds his office during the pleasure of the settlor, is entitled to amend the deed with the C concurrence of his co-trustee and of the only beneficiary who has accepted any benefit under the deed, if the result of such an amendment will be to prejudice the rights of other beneficiaries who have not notified their acceptance of any benefit and who have not agreed to the amendment. I shall refer to these beneficiaries as the ultimate beneficiaries and I may at this stage remark that the ultimate D beneficiaries are at present unascertainable. Elaine, the immediate beneficiary, is still alive and the ultimate beneficiaries can be determined only as at her death. Elaine's four brothers, who in the event of their surviving her and of Elaine's lawful issue predeceasing her would be beneficiaries, consent to the proposed amendment. They and E Elaine's husband also profess to consent on behalf of their minor children. I shall assume, against the appellants, that such consent cannot bind the minor children and in any event there is no purported consent on behalf of any children that may still be born to Elaine.

Elaine's next of kin are also possible ultimate beneficiaries: who they F might be on Elaine's death it is impossible to say and in the nature of things their consent to the amendment is not possible. Consequently I shall decide this appeal on the footing that the consent of all the possible ultimate beneficiaries has not been obtained. And I may add that, if the proposed amendment is competent, it will operate to the detriment of the ultimate beneficiaries.

G Before considering the effect of any authorities on the point in issue it will be convenient to consider the terms of the deed itself in so far as those terms may be regarded as being relevant to the enquiry. The acceptance by the trustees of 'the foregoing gifts in trust and the trust herinafter mentioned' does not amount, in my opinion, to an H acceptance by them on behalf of the ultimate beneficiaries: it amounts to no more than an agreement to carry out the provisions of the trust deed as long as it stands in its present form. They do not profess to accept on behalf of any of the beneficiaries and they themselves are not beneficiaries. The remuneration to which the one trustee is entitled is merely recompense for work and labour done in carrying out the terms of the trust and cannot make that trustee a beneficiary under the deed.

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Under clause I of the deed the settlor donated 'irrevocably' to the trustees the shares mentioned in that clause. I do not think that the word 'irrevocably' is of any significance as far as the present proceedings are concerned. If A enters into a contract with B and the contract purports to be irrevocable that does not mean that the contract may not be cancelled or amended with the consent of both A and B. Similarly A when a contract is entered...