The Standard Bank of South Africa Ltd v Koekemoer and Others

The trustees of the Supedre Trust obtained two home loans from Standard Bank in 1992 and 1996, secured by mortgage bonds over trust property. The trust deed authorised trustees to borrow money and encumber trust assets, but prohibited them from using trust capital or income for their own benefit unless they were beneficiaries and had consent. The loan proceeds were on-lent by the Trust to the third respondent (a trustee but not a beneficiary), who used the funds for his personal business ventures. The bank knew the purpose for which the funds would be used and held a copy of the trust deed. After default, the bank sued the trustees for repayment and execution against the property. The trustees and beneficiaries argued that the loan agreements were ultra vires the trust deed and unenforceable.

The appeal succeeded. The order of the court a quo was set aside. The trustees were ordered, in their representative capacity, to pay Standard Bank R2 414 479.22 with interest at 13.5% per annum from 1 May 1996. The mortgaged property was declared executable. Costs were awarded against the trustees on an attorney-and-client scale.

The case clarifies the position of third parties dealing with trusts, confirming that lenders are generally entitled to rely on the express borrowing powers in a trust deed and owe no general duty to protect beneficiaries. It provides important guidance on when breaches of trust render contracts unenforceable and limits the circumstances in which knowledge of internal trust restrictions will affect external transactions.