In the recent case of Shepstone & Wylie Attorneys v Abraham Johannes de Witt N.O and others (2023), the Supreme Court of Appeal (SCA) ruled that a majority decision by trustees “prevails only where there has been participation by all trustees”, irrespective of a provision in the trust deed in terms of which a majority decision prevails.

The facts, briefly, were as follows:

• A deed of suretyship was signed by two of the three trustees of the Penvaan Property Trust (the Trust) at a properly constituted trustee meeting.
• The deed of suretyship was signed in favour of Shepstone & Wylie Attorneys, as security for its fees and disbursements.
• The deed of suretyship was signed in accordance with the following salient provisions of the trust deed:
  [Meetings of Trustees] “The Trustees may meet together for the despatch of business… the quorum necessary at any such meeting shall be two Trustees.”
  [Execution of Documents] “All … contracts, deeds and other documents which require to be signed on behalf of the Trust shall… be signed by at least 2 Trustees”.
• The third trustee had received due notice of the meeting, but did not attend and never “tabled his views on the subject”.
• It was however common cause that the meeting had been duly constituted. ¹
• When Shepstone & Wylie Attorneys relied on the deed of suretyship to claim payment of all amounts due to them, the Trust opposed the application, alleging that the provisions of the trust deed required the trustees to act jointly and unanimously and that the deed of suretyship was invalid due to not being signed by all three trustees.

The SCA agreed with the Trust and declared the deed of suretyship unenforceable. In its judgment, it concluded that, notwithstanding those provisions of the trust deed stating that the majority prevails, the participation of all trustees are required for such an action to be effective against the outside world. In other words, there must have been some evidence of the third trustee (himself, or by proxy) applying his mind to the decision at hand by, for example, signing an internal trustee resolution (even if by dissenting vote). In making its decision, the SCA relied on the following:

• The Trust deed also contained the following provision (in contradiction to those quoted above):
  [Power to the Trustees] “… the trustees shall have the following powers which shall be exercisable in their sole and absolute discretion for the purposes and benefit of the Trust, namely… provided the Trustees unanimously agree, to conduct business on behalf of and for the benefit of the Trust, and to employ trust property in such business”. (Emphasis added.)
• In Thorpe and Others v Trittenwein and Another (2007), the SCA confirmed that, “unless the trust deed provides otherwise, the trustees must act jointly if the Trust is to be bound by their acts… A trustee who was not a party to the decision making process and who therefore has not authorised the contract would be free to contest the validity of the transaction”.
• In Steyn and Others N N O v Blockpave (Pty) Ltd (2011) the court confirmed that “… internal matters [of a trust] may be put to a vote, thereafter the voice of the majority will prevail [if according to trust deed]… However, in so far as the Trust is required to deal with external business, all trustees are required to participate in the decision-making”.
• In Land and Agricultural Development Bank of SA v Parker (2004), SCA held that “when dealing with third parties, even if the Trust instrument stipulates that the decision can be made by the majority of trustees, all trustees are required to participate in the decision making and each has to sign the resolution”.

The Shepstone case is somewhat puzzling (albeit based on a poorly drafted and contradictory trust deed). In cases preceding the Shepstone case, the Courts have consistently held that, in the context where a trust deed states that majority rules, “trustee participation” is limited thereto that all trustees (even those that did not participate in the trust’s internal decision making process) must present a united front to the outside world and adhere to the decision made by the trust in accordance with its decision-making mechanisms.

In the Shepstone case Judge Mbatha might have conflated the role of all trustees in the internal decision-making mechanisms of a trust (making decisions in accordance with the trust deed) and in the external dealings of the trust (where all trustees must abide by what was decided internally).

Notwithstanding the above, in light of the Shepstone case it is now advisable that trustee resolutions be fully signed (with all trustees indicating whether they assent, dissent or abstain from voting) in order to ensure that the trust’s external dealings with third parties cannot be called into question.

¹ The court in Van der Merwe NO and Others v Hydraberg Hydraulics CC and Others (2010) confirmed that, “A majority decision is competent only if adopted by a majority of the trustees present at a quorate meeting of trustees … in order to qualify as ‘a meeting’, all trustees in office would have to receive notice thereof so as to participate in it if they so wished”.

Margot Basson