The majority of the trustees in a trust must allow participation by the minority in discussion and decision-making.
Can a majority of trustees take a valid decision on behalf of the trust without involving the minority trustees?
It has been said that the trust is the crowning achievement of English jurisprudence. And indeed, trusts can be used for a wide variety of purposes - as family trusts, realization trusts, business trusts, charitable trusts, etc.
The business community is generally well acquainted with the fundamentals of company law. In particular, it is widely understood that the will of shareholders holding a majority of votes at a shareholders' meeting must ultimately prevail and that the minority have no legally valid complaint if their only grievance is that they have been outvoted.
The business world is not well informed about trusts
By contrast, the business community is far less knowledgeable about the workings of a trust, particularly in regard to the question whether the will of the majority of the trustees must prevail over a dissentient minority.
Indeed, as the judgment of the Bloemfontein High Court in Steyn NO v Blockpave (Pty) Ltd 2011 (3) SA 528 (FB), discussed below, indicates, the knowledge of some attorneys in this regard is also below par, for it may be inferred that the unsuccessful litigant in this case had been relying on legal advice that turned out to be fundamentally wrong.
In essence, this case involved a family feud, which was being played out in litigation between a trust (of which members of the family were trustees) and a company of which the directors were members of the same family. The trust was suing the company for arrear rent in respect of a building leased to the company.
Before the court would allow the rental claim to be debated, an issue in limine had to be decided, that is to say, a preliminary issue which could decide the fate of the litigation.
That point in limine was the following- had the trust validly taken a decision to embark on this litigation and had the trust validly instructed attorneys to act for it in this regard?
For if the answer to those questions were in the negative (as indeed turned out to be the case) that would be the end of the court hearing, for the court would refuse to allow the proceedings to continue. This is what in fact transpired.
It is worth noting that the court also ordered the trustees who had caused the trust to embark on this abortive litigation to pay the legal costs out of their own pockets.
How does a trust make a legally valid decision?
A trust, being a legal entity which exists only in the eyes of the law, can make decisions only through human intermediaries, and in the manner laid down in the trust deed.
Often - as in this case -the trust deed says that resolutions of the trustees can be passed by majority vote, and need not be passed unanimously.
But what exactly does this mean? In particular, does it mean that a majority of the trustees can simply sideline one or a minority of the trustees and make legally valid decisions on behalf of the trust without involving the minority in any way?
The court answered that question with an emphatic negative.
The court held that where a trust deed says that trustees can pass resolutions by way of majority vote, it is essential that the minority be allowed to participate in the proceedings that lead to that resolution. If the majority votes in favour of a certain resolution and the minority votes against it, and the resolution is consequently carried, the minority trustees are bound by that decision, and the decision so taken is the decision of the trust itself.
But if a majority of the trustees were to sideline the minority, not give them notice of meetings, and simply pass a resolution in their absence, that resolution will not be a valid decision of the trust, and a court will refuse to give effect to it.
This is what had occurred in the present case. There were three trustees, and the trust deed allowed for resolutions to be taken by majority vote. Two of the trustees professed to reach a decision on behalf of the trust without involving the third trustee. The court ruled that the decision so taken was not a valid decision of the trust.
The court held, further, that a trust can make decisions only by way of a "resolution" by the trustees, and nothing short of a resolution will constitute a decision of the trust.
In this particular case, certain matters were discussed at meetings of the trustees, and certain actions by the trust were envisaged in the course of those discussions and were recorded in a "minute" of the meeting. But this, said the court, was insufficient. In these circumstances and in the absence of a "resolution", no valid decision had been taken by the trust.
In particular, no valid decision had been taken by the trust to sue the company, nor to authorize attorneys to represent the trust in that litigation.
The court also affirmed the fundamental principle, (for which the leading authority is now the decision of the Supreme Court of Appeal in Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA)) namely, that during any period that a trust lacks the minimum number of trustees as laid down in the trust deed, the trust has no legal capacity and is incapable of taking any action or taking any decision whatever.