Shepstone & Wylie Attorneys v Abraham Johannes de Witt N O and Others

Shepstone & Wylie Attorneys (the appellant) represented Mrs Mignon Volker in her divorce proceedings and in defending the Penvaan Property Trust against sequestration proceedings by Firstrand Bank. The Trust had three trustees: Mr Thomas Wilhelm Volker (Mrs Volker's husband), Mrs Volker, and Mr Abraham Johannes de Witt. Due to Mrs Volker's impecunious state, the appellant requested security for its fees. On 25 May 2013, Mrs Volker and Mr de Witt held a trustees' meeting in the absence of Mr Volker and passed a resolution to sign a deed of suretyship binding the Trust as surety and co-principal debtor for Mrs Volker's personal legal fees. Mr Volker had been given notice of the meeting but did not attend due to prior commitments with liquidators and did not appoint a proxy. When Mrs Volker's legal fees remained unpaid, the appellant sued the Trust based on the deed of suretyship. The Trust opposed the application on the ground that the deed was invalid because it was not signed by all three trustees as required by the trust deed.

• Whether a deed of suretyship signed by two out of three trustees, without the participation of the third trustee, is valid and enforceable against the trust
• Whether the requirement in the trust deed that trustees act 'jointly' was satisfied when only two trustees attended a meeting after proper notice was given to all trustees
• Whether the trust deed required unanimous agreement of all trustees for external transactions involving trust property
• Whether the deed of suretyship was concluded for the benefit of the Trust as required by the trust deed
• The correct interpretation of the trust deed provisions, particularly clause 26 of the appendix requiring trustees to 'unanimously agree' to conduct business on behalf of the Trust

The appeal was dismissed with costs, including the costs of two counsel. The High Court's order that the deed of suretyship was invalid and unenforceable against the Trust was upheld.

Unless a trust deed explicitly provides otherwise, trustees must act jointly and unanimously to bind a trust in external transactions involving trust property, particularly when the trust deed contains a unanimity clause. Where a trust deed requires trustees to act jointly, a resolution passed by only a majority of trustees, without the participation of all trustees (either personally or through proxy), is invalid and does not bind the trust. Proper notice of a meeting to an absent trustee does not, by itself, satisfy the requirement that trustees act jointly - the absent trustee must actually participate in the decision-making process. When a trust deed contains provisions requiring unanimous agreement to conduct business on behalf of the trust (such as clause 26 in this case), such unanimity is required for the exercise of all powers affecting trust property in dealings with external parties. A trust operates on resolutions, not votes, when dealing with third parties, and all trustees must sign such resolutions even where majority decision-making is permitted for internal matters. The requirement that trustees act jointly is fundamental to trust law and derives from the nature of trustees' co-ownership of trust property.

The Court observed that there is a fundamental distinction between internal trust administration and external business with third parties. Internally, trustees may disagree and, if permitted by the trust deed, put matters to a majority vote. However, externally, trustees cannot disagree and must present a united front through properly authorized resolutions. The Court noted that clause 16.2 of the trust deed, which provides for majority decisions in cases of disagreement, applies only to internal matters and cannot be used to override the requirement for joint action in external transactions. The Court also made an obiter comment that the appellant may not have lost its claim entirely, as a court order dated 1 December 2011 had directed Penvaan Estates (Pty) Ltd to pay Mrs Volker's legal fees in the divorce proceedings. The appellant could potentially pursue this claim against the liquidated company. The Court further observed that the wide terms of the suretyship agreement, which gave complete protection to the appellant, could not be said to be for the benefit of the Trust. Kathree-Setiloane AJA in the minority judgment emphasized that the word 'provided' in clause 26 must be given its ordinary grammatical meaning of 'on condition that', making it a textual indicator that all powers in clauses 1-25 of the appendix must be exercised unanimously.

This case clarifies and reinforces important principles of South African trust law regarding trustee decision-making and authority to bind trusts. It establishes that: (1) trustees must act jointly when dealing with external parties and trust property, even when the trust deed allows for majority decisions on internal matters; (2) proper notice of a meeting alone does not satisfy the requirement for joint action - absent trustees must actually participate through attendance or proxy; (3) when a trust deed contains a unanimity clause (such as 'provided the trustees unanimously agree'), all trustees must participate in decisions to bind the trust externally; (4) a trust operates on resolutions, not votes, when dealing with third parties; (5) the distinction between internal trust administration (where majority may suffice if provided for) and external transactions (where joint action is required) is fundamental; and (6) trust deed provisions must be interpreted holistically, with appendices forming part of the trust deed. The case is significant for attorneys, trustees, and third parties dealing with trusts, as it emphasizes the importance of ensuring proper trustee authorization before entering into transactions with trusts. It also clarifies that creditors dealing with trusts bear the risk of ensuring that trustees are properly authorized according to the trust deed.