Posted on

Court Case: Actions by trustee before authority void

In the court case Moosa NO vs Akoo, actions by a trustee before authority were found to be void and therefore could not be ratified.

Read the case below.

Moosa NO & others v Akoo & others
[2010] JOL 25872 (KZP)

   
Reported in: Judgments Online, a LexisNexis Electronic Law Report Series
Case No: 5378 / 06
Judgment Date(s): 22 / 06 / 2010
Hearing Date(s): 31 / 05 / 2010
Marked as: Unmarked
Country: South Africa
Jurisdiction: High Court
Division: KwaZulu-Natal, Pietermaritzburg
Judge: Msimang JP
Bench: HQ Msimang JP
Parties: Shaukat Alli Moosa NO & 24 others (At); Mahomed Aslam Osman Akoo & 14 others (R)
Appearance: Adv D Shaw QC, Adv U Lennard, Lockhat & Associates (At); Adv NA Cassim SC, Adv D Ramdhani, Abbas, Latib & Company (R)
Categories: Application – Civil – Substantive – Private
Function: Confirms Legal Principle
Relevant Legislation: Uniform Rules of Court

Key Words

Trusts – Trustee – Letters of authority

Mini Summary

The present application was part of prolonged litigation involving family trusts. The applicants had started by seeking a declarator that a partnership relationship subsisting between the parties had been lawfully dissolved with effect from 28 February 2006 and an order appointing a liquidator with powers to effect a final liquidation of the partnership and to make applicable distributions to the partners according to the extent of their determined interests in the partnership.

The respondents filed a counter-application seeking an order declaring their family trust to have been equal partners with the applicants as at the date of the dissolution of the partnership on 28 February 2006 and seeking, inter alia, an order directing the said trust to deliver a statement of account of the partnership as at 28 February 2006. The court appointed a liquidator and referred the issues in the counter-application for oral evidence.

Held that the applicants challenged the conduct of the first respondent in acting for the trust before his Letters of Authority were issued. The court found that the first respondent’s act, when he purported to represent the trust when it took over the interests in the partnership, was void.

The court accordingly found for the applicants for the main relief.

Page 1 of [2010] JOL 25872 (KZP)

MSIMANG JP

[1]  The present application constitutes a sequel to a longstanding and prolonged litigation involving family trusts. The litigation commenced on 28 July 2006 when the first applicant, together with other trusts, launched an application against the first respondent together with other trusts, citing the Master of the High Court for the Province of KwaZulu-Natal as the seventeenth respondent.

[2]  The relief sought by the applicants in that litigation was a declarator that a partnership relationship subsisting between the parties had been lawfully dissolved with effect from 28 February 2006 and for an order appointing a liquidator with powers to effect a final liquidation of the partnership and to make

Page 2 of [2010] JOL 25872 (KZP)

applicable distributions to the partners according to the extent of their determined interests in the partnership.

[3]  The first four respondents in that application intimated that they intended to oppose the application but during the exchange of the pleadings it became evident that they were not opposed to the granting of an order declaring the partnership to have been dissolved on 28 February 2006 but that they were opposed to an order appointing a liquidator. In addition, they filed a counter-application seeking an order declaring the Osman Family Trust to have been equal partners with the applicants as at the date of the dissolution of the partnership on 28 February 2006 and seeking, inter alia, an order directing the said Trust to deliver a statement of account of the partnership as at 28 February 2006.

[4]  The matter subsequently came before me and after argument I, on 12 October 2007, issued the following order:

“1.

I grant an order in terms of paragraphs 1 to 11 of the Notice of Motion save that paragraph 2 thereof is substituted with the following paragraph:–

‘The liquidator to be appointed in terms of this order shall be a chartered accountant agreed upon by the parties within five (5) days of this order or, failing that, one nominated by the Chairman for the time being of the South African Institute of Chartered Accountants.’

2.

The costs of the application must be borne by the first, second, third and fourth respondents, jointly and severally, the one paying the others to be absolved. Such costs to include the costs occasioned by the employment of two counsel.

Page 3 of [2010] JOL 25872 (KZP)

3.

In terms of Rule 6(5)(g) the issues in the counter-application set out in Annexure ‘A’ of this order are referred for the hearing of oral evidence on a date to be arranged with the Registrar.

4.

The costs of the counter-application are reserved for determination by the court hearing that oral evidence.”

[5]  The important issues which were referred for the hearing of oral evidence and which were set out in annexure “A” of the order were as follows:

“1.1

The terms of the partnership agreement concluded between the ten trusts represented by the applicants on the one hand, and the Mahomed Aslam Osman Family trust on the other hand, which agreement was concluded after the termination of the partnership relationship between the ten trusts represented by the applicants on the one hand, and the O S Akoo family Trust on the other hand.

1.2

The percentage of each partner’s interest held by each of the ten trusts represented by the applicants on the one hand, and the Mahomed Aslam Osman Family Trust on the other hand, in the said partnership.”

[6]  The hearing of oral evidence commenced on 5 May 2008 and further evidence was heard on 10 other days and the last day to which the hearing of further evidence had been adjourned was 31 May 2010. On the said date it transpired that the first applicant had roped in Mr Shaw QC to present argument on his behalf. Mr Shaw launched yet another application which he termed an interlocutory application incidental to the pending proceedings. In that application the following relief was sought:

“2.

That paragraph 3 of [the order] the Honourable Justice Msimang made on 15 October 2007 whereby he referred certain issues in the counter application for the hearing of oral evidence be varied as follows:–

2.1

By substituting for paragraphs 3 and 4 of the said order the following:–

Page 4 of [2010] JOL 25872 (KZP)

‘3.

That the counter application be dismissed with costs such costs to include the costs consequent upon the employment of two counsel.’

2.2

In the alternative to sub paragraph 1, that there be added to the said order the following paragraph 3A:–

‘That Mahomed Aslam Osman Akoo be ordered to attend personally to be examined and cross examined as a witness before any other witness is heard at the commencement of any further hearing of oral evidence with regard to the counter application.’

3.

That the respondents pay the costs of this application including those consequent upon the employment of two counsel.”

[7]  The basis for that application, as I understood it, is thus. The Trust Deed in respect of the MA Osman Family Trust was executed on 25 February 2002 and the Trust was registered with the Master under IT No. 255/2004N who issued letters of authority authorising Mahomed Aslam Osman Akoo (the first respondent) and Fowsia Osman to act as trustees of the MA Osman Family Trust. In paragraphs 30 and 31 of the first to fourth respondents’ affidavit filed in support of the counter-application and deposed to by the first respondent, the latter intimates that, during the year 2002, he represented the MA Osman Family Trust when it took over the interests of the OS Akoo Family Trust in the partnership.

Page 5 of [2010] JOL 25872 (KZP)

[8]  Mr Shaw then referred to section 6(1) of the Trust Property Control Act,1  the provisions of which read as follows:

“(1)

Any person whose appointment as trustee in terms of a trust instrument, Section 7 or a court order comes into force after the commencement of this Act, shall act in that capacity only if authorized thereto in writing by the Master . . .”

[9]  Relying on those provisions, the first applicant contended (and it was argued by Mr Shaw) that the first respondent could not validly have represented MA Osman Family Trust when the said Trust purported to take over the interests of the OS Akoo Family Trust in the partnership. It is accordingly not possible for this Court to grant the first respondent the relief he seeks in the counter-application, namely, an order declaring the said trust to have been equal partners with the applicants as at the date of the dissolution of the partnership on 28 February 2006, the argument concluded.

[10]  The application is opposed by the first, second and third respondents and they have filed an answering affidavit deposed to by the first respondent.

[11]  Relying upon the decision in Kropman & others NNO Nysschen,2  Mr Cassim SC, who appeared for the first respondent, submitted that the court, in the exercise of its discretion, should retrospectively validate the actions of the trustees in acting on behalf of the Trust, prior to the issue of letters of authority. Indeed, in Kropman letters of authority had been granted on 26 April 1991 and

Page 6 of [2010] JOL 25872 (KZP)

McArthur J found that cession of the assets in the estate earmarked for the Trust, including the claim against the defendant, had taken place prior to that date. Finding that such acquisition should be validated, irrespective of the provisions of section 6(1) of the Trust Property Control Act, he remarked as follows:

“Having regard to the purpose of the legislation, which is clearly designed to protect those who will ultimately benefit from the trust, there seems no reason why a Court in exercising its discretion cannot retrospectively validate any such actions if the circumstances deem it fit to do so . . .

In the present matter the question of alienating trust property does not arise. The plaintiffs, in acting as trustees before being officially appointed, received the assets, including the claim against the defendant, and this was done for the benefit of the trust, and in the circumstances I am of the opinion that act should be approved and ratified.”3

[12]  The finding in Kropman on the issue is in direct contrast with the finding in an earlier decision in Simplex (Pty) Ltd v Van der Merwe & others NNO.4  The latter case involved the validity of an agreement concluded by a trustee, in his capacity as such, prior to being authorised thereto by the Master in terms of section 6(1) of the Trust Property Control Act. It had been argued on behalf of the trustees that the prohibition prescribed in section 6(1) was directory and not peremptory. Not so in the judgment of Goldblatt J in that case. He opined:

“I do not agree with such submission. The language of the prohibition is, in my view, peremptory. The words ‘shall . . . only’ are clearly of a peremptory nature, indicating an unambiguous prohibition on acting as trustee until authorized thereto in writing by the Master. It is a precondition to a trustee’s right to act as such that he be authorized to [do] so in terms of s 6(1) of the Act.

Page 7 of [2010] JOL 25872 (KZP)

I am further of the view that s 6(1) is not purely for the benefit of the beneficiaries of the trust but in the public interest to provide proper written proof to outsiders of incumbency of the office of trustee.”5

[13]  The construction of the section came up pointedly for decision in Van der Merwe v Van der Merwe6  and the issue to be decided by the court revolved around the validity of a juristic act performed by a trustee prior to the issue of letters of authority by the Master in terms of the section. Griesel J referred to Simplex (supra) and to Kropman (supra) and, in a jurisprudentially convincing judgment, he preferred the interpretation given to the provisions of the section in Simplex, concluding that:

“Indien eenmaal aanvaar word dat ‘n ongemagtigde handeling deur ‘n trustee nietig is, volg dit dat dit agterna geratifiseer kan word nie.”7

[14]  Having considered the matter I, too, have found the Simplex and Van der Merwe interpretation of the section to accord with the principles of our law and accordingly that the first respondent’s act, when he purported to represent the Trust when it took over the interests of the OS Akoo Family Trust in the partnership, was void and that, on the authority of Van der Merwe, it cannot be ratified.

[15]  Mr Cassim, however, submitted that, as from 23 September 2004 to 20 February 2006, the parties before court, namely, the MA Osman Family Trust on the one hand and the IO Moosa Family Trust on the other, conducted

Page 8 of [2010] JOL 25872 (KZP)

themselves in a manner that gave rise to the inescapable inference that both desired the revival of their former contractual relationship on the same terms as endured before. Relying on the Supreme Court of Appeal decision in Golden Fried Chicken (Pty) Ltd v Sirad Foods CC & others,8  he urged the court to find that the facts establish that there was a tacit relocation of the partnership agreement.

[16]  For a number of reasons, I have found Mr Cassim‘s submissions on the issue to be devoid of any substance. In the first place, the facts in Golden Fried Chicken are clearly distinguishable from the facts in the present case. Besides, the case based on tacit relocation of the partnership agreement has never been first respondent’s case in the proceedings. Also, Mr Cassim‘s submission loses sight of an important issue in the application, to wit, the invalidity of a juristic act based on non-compliance with the law in respect of which Griesel J pronounced himself as follows in Van der Merwe (supra):

“Die verdere oorweging wat deur MacArthur R genoem word, naamlik dat die Wet nie spesifiek voorsiening maak vir nietigheid in geval van nie-nakoming van die vereistes van art 6(1) nie, is ook nie oortuigend nie. Die algemene uitgangspunt is juis die teenoorgestelde: in die afwesigheid van ‘n ander bedoeling is die algemene reël dat ‘n handeling in stryd met ‘n Wet verrig, nietig is.”9

[17]  I accordingly find for the applicants for the main relief and have found it unnecessary to deal with the alternative relief. What is now left is for the court to exercise its discretion in the award of costs in this matter.

Page 9 of [2010] JOL 25872 (KZP)

[18]  On 5 May 2008, Mr Cassim made an application for leave to withdraw the counter-application and tendered costs. The application was strenuously opposed by Mr Singh who, at the time, acted for the applicants and who argued that it was important that the shareholding in the partnership should be determined by the court. I refused application for leave to withdraw the counter-application and the matter proceeded on 6 May 2008 and on other days when witnesses were called to testify. It was only on 31 May 2010 that the applicants launched the present interlocutory application.

[19]  In my judgment, the interlocutory application ought to have been launched after the dismissal of an application for leave to withdraw the counter-application. The delay in launching the same is therefore not justified. I have accordingly concluded that, though the costs should follow the result, the first, second and third respondents should not be mulcted in costs of 6 May 2008 and other days when evidence was adduced.

I accordingly grant an order in terms of paragraphs 2 and 2.1 of the draft order save that the first, second and third respondents will be responsible for the costs incurred only on 5 May 2008 and 31 May 2010.

The costs which the respondents incurred on other days must be borne by the applicants, those costs to include the costs consequent upon the employment of two counsel.

Footnotes 

1

Act 57 of 1988.

2

1999 (2) SA 567 (T) [also reported at [1998] JOL 4130 (T) – Ed.

3

Ibid, at 576E–G.

4

1996 (1) SA 111 (W).

5

Ibid, at 112H–113A.

6

2000 (2) SA 519 (C) [also reported at [1999] JOL 5734 (C) – Ed]

7

Ibid, at 525C.

8

2002 (1) SA 822 (SCA) [also reported at [2002] JOL 9360 (SCA) – Ed].

9

Van der Merwe (supra) at 524C–D.

Footnote   
1

Act 57 of 1988.

Footnote   
2

1999 (2) SA 567 (T) [also reported at [1998] JOL 4130 (T) – Ed.

 

Footnote   
3

Ibid, at 576E–G.

Footnote   
4

1996 (1) SA 111 (W).

 

Footnote   
5

Ibid, at 112H–113A.

Footnote   
6

2000 (2) SA 519 (C) [also reported at [1999] JOL 5734 (C) – Ed]

 

Footnote   
7

Ibid, at 525C.

Footnote
8

2002 (1) SA 822 (SCA) [also reported at [2002] JOL 9360 (SCA) – Ed].

 

Footnote
9

Van der Merwe (supra) at 524C–D.

Leave a Reply

Your email address will not be published. Required fields are marked *