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Court case – Terminating trust when object no longer exists

S NO and Another v PJN S Familie Trust and Others [2020] ZAGPPHC 52

J and P were married in 1989.  Prior to the marriage P purchased a fixed property which later became the family home (the property).  P acted as the founder, and is also a trustee and income beneficiary of the PJN S Familie Trust (the Trust).  J was also a trustee and income beneficiary of the Trust.  Their two children are the capital beneficiaries of the Trust.

In 2001, J and P started a business together and the home was transferred to Esteab Investments (Pty) Ltd (Esteab).  All the shares in Esteab are held by the Trust.  A mortgage bond for R480 000 in favour of ABSA was registered over the property and a usufruct in favour of P was also registered.  P’s version of events is that this was done with J’s knowledge, which J denies.

The marriage ended in divorce in 2010.  The property did not form part of the agreement in the divorce proceedings.

J brought an application as first applicant in her capacity as a trustee of the Trust, and as second applicant in her personal capacity, for an order terminating the Trust, removing a restrictive condition from the title deed of the property (the usufruct), and for the sale of the property.  She alleged that P acted as if he owned the property, did not hold board meetings of Esteab nor trustee meetings of the Trust.  J also based her application on an allegation that the property was at all times intended to be the family home and that the object of the Trust was therefore to provide a home for the children.  This has now ceased to exist.  However she admitted that their son stayed with P in the property since 2010 and therefore she did not raise the issue at the time of the divorce.

P’s case was that the object of the trust was at all times to place the property out of the reach of creditors and protect it from the risks attendant to the business they entered into.

The court (Mokose J) looked at the requirements of section 13 of the Trust Property Control Act, 57 of 1988, which reads:   “Power of court to vary trust provisions.—If a trust instrument contains any provision which brings about consequences which in the opinion of the court the founder of a trust did not contemplate or foresee and which—
(a)       hampers the achievement of the objects of the founder; or
(b)       prejudices the interests of beneficiaries; or
(c)       is in conflict with the public interest,
the court may, on application of the trustee or any person who in the opinion of the court has a sufficient interest in the trust property, delete or vary any such provision or make in respect thereof any order which such court deems just, including an order whereby particular trust property is substituted for particular other property, or an order terminating the trust.”

The court pointed out that there are two requirements before the court can change the provisions of a trust instrument, for example by ordering the termination of the trust outside of the provisions of the deed.  Firstly there is the subjective requirement that the instrument or any provision in it brings about consequences not contemplated or foreseen by the founder, and secondly the objective test that the consequences bring about any of the grounds in paragraphs (a) to (c).

In motion proceedings the affidavits of the parties represent both the pleadings of the parties and the evidence.  J chose to approach the court by way of application and not by way of an action.  Therefore the only way that J could succeed would be for there to be no dispute on the facts or for P’s averments in his affidavits to be far-fetched or clearly untenable.  In view of the fact that P’s averments are not far-fetched or untenable, J accordingly laid no basis to enable the court to find that circumstances existed which brought about consequences that P, as founder of the Trust, did not contemplate or foresee and therefore the application of section 13 failed on application of the first test or jurisdictional fact.

The application was dismissed with costs.

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