From: The Registrar, Supreme Court of Appeal

Please note that the media summary is intended for the benefit of the media and does not form part of the judgment of the Supreme Court of Appeal

Land and Agricultural Bank of South Africa v Parker NO and others

The Supreme Court of Appeal today upheld an appeal against a judgment of the full court of the Pretoria high court in which the sequestration of a trust was set aside. The effect of the SCA judgment is to reinstate the judgment sequestrating the trust.

The case concerned a family trust (‘the Jacky Parker Trust’) which the trustees had purported to bind as surety for loans of many millions of rands that companies associated with the family businesses accepted from the Land Bank. When things went awry, the trustees resisted liability on many grounds, including their own lack of capacity to bind the trust.

The SCA upheld one of these defences to the Bank’s claim. This was that the trust deed required that there always be a minimum of three trustees in office. Because of a breach of trust by Mr and Mrs Parker, they were the only trustees in office when most of the loan agreements were signed. The SCA held that they could not bind the trust during this period.

Even after they appointed their son as a third trustee, they did not consult him about a further loan agreement with the Bank. The SCA held that although Mr and Mrs Parker were now a majority of trustees in office, they could not bind the trust without consulting the son.

However, by happy symmetry, the SCA found that the very same argument led to the conclusion that the proceedings before the full court (which set aside the sequestration order) had not been properly instituted on behalf of the trust. This was because when Mr Parker (who also stood surety with the Bank) was sequestrated, he automatically ceased to be a trustee. The result was that the trust was not properly before the full court, and its judgment had to be set aside. The SCA indicated that in view of the unscrupulous conduct the case evidenced, this result was not unjust.

The SCA’s judgment goes on to consider the problem that ‘family trusts’ of this sort – where the trustees are also the beneficiaries, and have no independent interest in seeing to the proper conduct of trust affairs – creates. The Court held that it would in a suitable case exercise its power to ensure that trusts function in accordance with principles of business efficacy, sound commercial accountability and the reasonable expectations of outsiders who deal with them. This could be achieved by (i) applying to trusts the rule that outsiders dealing in good faith with entities that conduct business do not have to concern themselves with whether ‘internal formalities’ have been complied with; (ii) drawing the conclusion that trustees who are in charge of a trust’s affairs have actual or implied authority from the other trustees to conclude contracts; (iii) in suitable cases concluding that the trust itself is a sham, and that the assets should be used in satisfaction of the contested debt.

In the present case, the Land Bank did not rely on any of these approaches, but the SCA indicated that in a suitable future case they could be applied.