Land and Agricultural Bank of South Africa v Parker and Others

• Jurisdiction: South Africa
• Judge: Mpati DP, Cameron JA, Brand JA, Erasmus AJA and Jafta AJA
• Judgment Date: 23 September 2004
• Citation: 2005 (2) SA 77 (SCA)
• Docket Number: 186/2003
• Hearing Date: 09 September 2004
• Counsel: A Subel SC (with him S M Katzew) for the appellant. J J Pretorius for the respondent.
• Court: Supreme Court of Appeal

Cameron JA:

[1] This is a battle about a family trust. It concerns an outstanding debt of over R16 million the appellant bank ('the bank') claims the respondent trust ('the trust') owes to it. Though the appeal in the end turns on the trust's legal standing in the Court H below, that question depends on the main argument the bank advanced on the merits of the appeal. And that in turn brings to the fore yet again questions about the use and abuse of the trust form in business dealings.

[2] The three respondents are the current trustees of the trust. (At the hearing of the appeal the bank's application to join I the third trustee was granted without opposition.) The trust was established in 1992. The founder, Mr D W Parker, a Lichtenburg farmer of formerly substantial means, named the trust for his wife ('the Jacky Parker Trust'). The beneficiaries are Parker and Mrs Parker ('the Parkers') and their J

Cameron JA

descendants. The first trustees were the Parkers and one Senekal, the family attorney. But Senekal resigned in A 1996. This left the Parkers as the only trustees.

[3] The trust deed requires that 'there shall always be a minimum of three trustees in office'. And when the number falls below three, it gives the power to appoint a third to the remaining trustees - who were the Parkers. This power, coupled with B the minimum requirement, in effect placed a duty on the Parkers to appoint a third trustee when Senekal resigned. In breach of their duty to give effect to the terms of the trust deed, [1] they failed for nearly two years to do so. Only in June 1998 did they notify the Master of the High Court - who has common law and statutory jurisdiction over C the administration of trusts [2] - that Senekal had resigned.

[4] The fact that they were the only trustees did not stop the Parkers from accepting loans for the repayment of which they purported to bind the trust. In particular, between April and October 1998 they purported to bind the trust as co-principal debtor and surety in a D series of agreements in which companies associated with their family business obtained very substantial advances from the bank. The last of these agreements was concluded in October 1998. By that time, the Parkers - prompted by a direction from the Master - had at last appointed a third trustee. But they E did not replace Senekal with an independent outsider. Instead, they selected their son, D G Parker ('the son') - also a beneficiary. His affidavit - which the bank did not dispute - stated that he was not consulted or informed about the last agreement. That involved a loan of R30 million from the bank. F

[5] Things went awry, and the bank moved to sequestrate the Parkers and the trust. In September 2000 it obtained a provisional order sequestrating the trust and Parker's estate. (Its application to sequestrate Mrs Parker failed because it could not demonstrate benefit to creditors.) Roux J confirmed the orders of sequestration on 27 October 2000, and refused leave to appeal. Parker petitioned this G Court. He failed. But the trust obtained leave, and successfully appealed to the Full Court, which set aside the order sequestrating it. [3] With special leave granted by this Court, the bank now appeals against that decision.

[6] Before the Full Court the trust's central defence to the bank's claim was that the Parkers on their own did not have power to H bind the trust in concluding the loan agreements with the bank, whether before or after

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they appointed the son as third trustee. This defence the Full Court upheld. Kirk-Cohen J pointed out that the trust deed A does not empower two trustees to transact business in the absence of the peremptory minimum of three trustees:

'While the trustees (defined in clause 1 as being the minimum of three trustees) acting together could delegate any rights and duties to one or more of them, such delegation would only be effective if the B minimum of three trustees [were] so delegated. In the papers no case is made out that [the Parkers] were in fact carrying out powers or duties so delegated to them.' [4]

[7] Although the trust deed requires that there must be a minimum of three trustees, it does make provision for decisions to be taken by majority vote, and for the trust to appoint agents to act on C its behalf. That agent could obviously be one of the trustees, if duly authorised. But, as the Full Court emphasised, the bank's case was not that the Parkers were at any stage authorised to act on behalf of the trust as its agents. Its case throughout was that two trustees acting alone could bind the trust. D

[8] Before the son's appointment, the bank's argument rested on the general proposition that trust law permits trustees who are in office, acting together, to bind a trust estate. After his appointment, the bank contended that since the trust deed authorised majority decision-making, it conferred power on the Parkers to bind the trust E acting without the son.

[9] These contentions rest on an erroneous approach to the questions of trust capacity and trustee authority. Given the way the bank pleaded its case, and the evidence it presented, two principles of F trust law entail that its submissions cannot prevail. The first is that a trust does not have legal personality. The second is that, in the absence of authorisation in the trust deed, trustees must act jointly. I deal with these in turn.

A sub-minimum of trustees cannot bind the trust G

[10] The first principle accounts for the fact that the trust could not be bound while there were fewer than three trustees. Except where statute provides otherwise, a trust is not a legal person. [5] It is an accumulation of assets and liabilities. These constitute the trust estate, which is a separate H 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 I

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defined in the trust deed, which is the trust's constitutive charter. [6] Outside A its provisions the trust estate can not be bound.

[11] It follows that 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 B precludes action on its behalf.

[12] This is not to say that the trust ceases to exist. Nor is it to say that the trust obligation falls away. Counsel for the bank cited passages from Honoré [7] establishing that a trust will not be allowed to fail for want of a trustee, and that the C administration of a trust proceeds even when not all the trustees can be appointed in the precise manner envisaged in the trust deed. This is to confuse the existence of the rights and obligations that constitute the trust estate with the question whether and in what manner the trust estate can be bound. It is axiomatic that the trust obligation exists even when there is no trustee to carry it out. The Court or the Master D will where necessary appoint a trustee to perform the trust. [8] But it does not follow that a sub-minimum of trustees can bind a trust.

[13] In the present case, the Parkers alone were not 'the trustees' as defined in the trust deed. Nor, while fewer than three trustees were in office, were there 'trustees' on whose behalf the E Parkers could act, or from whom they could receive authority to bind the trust estate. The fact that they acted jointly in signing the contracts does not change this, 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. F

[14] The Parkers in other words could not bind the trust because no one could. This does not mean that their duties as trustees ceased. On the contrary, their obligation to fulfil the trust objects and to observe the provisions of the trust deed continued. These required that they appoint a third trustee when a vacancy occurred - a G duty they signally failed to fulfil. But until they did so the trustee body envisaged in the trust deed was not in existence, and the trust estate was not capable of being bound. For the Parkers to purport to bind the trust estate during this period was an act of usurpation that simply compounded the breach of trust they committed by failing to H appoint a third trustee. Such conduct may, as I indicate later (para 37.3), provide the basis for impugning the very existence of the trust; but that was not the bank's case.

Cameron JA

Joint action requirement entails that trustees must act together A

[15] For the Parkers to purport to bind the trust estate after the son's appointment, without (according to his evidence) consulting him, constituted a further usurpation and a further breach of their obligations under the trust deed. It is a fundamental rule of trust law, which this Court recently restated in Nieuwoudt and Another NNO v Vrystaat Mielies (Edms) Bpk, [9] B 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. [10] Professor Tony Honoré's authoritative historical exposition [11] has shown that the joint C action requirement was already being...