Trustees must act in accordance with the provisions of the trust deed. One of the first responsibilities that any trustee has to comply with is to read and understand the provisions of the trust deed of the trust in resect of which he is appointed as a trustee. This was the salient message from the Supreme Court of Appeal in the matter between Malatji v Ledwaba NO and Others (Case no 1136/2019) [2021] ZASCA 29 in which the Court set aside the election of the trustees of a community trust, on the basis that amongst others, the process followed in relation to the election, was contrary to the provisions of the Trust Deed.

The process for the election of trustees was pursuant to an order handed down by the Supreme Court of Appeal in 2018 ("2018 Court Order"), where the independent trustees (the "Independent Trustees") of the Mamphoku Makgoba Community Trust (the "Trust") were ordered to hold a general meeting of the Trust for the purpose of nominating and appointing a new board of trustees. In addition, in the 2018 Court order, the Court ordered that only those beneficiaries who appeared on the list of 603 beneficiaries of the Trust are entitled to attend and vote at the relevant general meeting. Further, that the nomination and appointment of the new board of trustees at the general meeting , should “take place in accordance with the relevant provisions of the Trust Deed”.

Background facts

Pursuant to the 2018 Court Order, the Independent Trustees constituted a general meeting of the Trust for the purpose of electing a new board of trustees. The notice of the meeting provided that “where a beneficiary is deceased, the family should pass a resolution nominating a successor to represent them as a beneficiary of the Trust and they should have this signed resolution together with a copy of the death certificate to be allowed into the elections..”

In response to the invitation to attend the meeting, 344 persons attended the meeting and of this figure, approximately 100 of the attendees did not appear on the list of 603 beneficiaries. Those individuals who did not appear on the list of 603 beneficiaries of the Trust claimed to be entitled to represent listed beneficiaries who had passed away prior to the meeting as recorded in the invitation or who were unable to attend the meeting.

The individuals who attended the meeting agreed amongst others that, (i) where a beneficiary whose name appeared on the list of beneficiaries had died prior to the meeting, a ‘proxy’ nominated by the family of the deceased would be entitled to exercise that deceased beneficiary’s voting right and (ii) each attendee would cast only one vote in respect of one candidate nominated. In addition, the Independent Trustees resolved to permit proxy votes to be cast on behalf of absent beneficiaries provided that the alleged proxy was in possession of their identity document and the identity document of the absent beneficiary. The alleged proxy voter was further required to attest to an affidavit before a commissioner of oaths who was present at the meeting, to confirm that he was authorized to vote on behalf of the absent beneficiary.

After the election was concluded, one of the beneficiaries and former trustees of the Trust (the Applicant) instituted proceedings with a view to set aside the elections. He contended that the election of trustees was irregular and that the process was flawed. He specifically took issue with amongst others, the Independent Trustees (i) permitting voting by ‘proxy’ on behalf of deceased beneficiaries in circumstances where no provision therefor was made in the trust deed or in the 2018 Court Order, (ii) permitting absent trustees to vote by way of proxy in circumstances where no provision therefor was made in the trust deed or in the 2018 Court Order, (iii) the beneficiaries/ attendees only being allowed to cast only one vote in total, instead of being permitted to one vote each in respect of each vacant post.

Issues to be determined

The primary issue for determination by the Supreme Court of Appeal was whether the general meeting was convened in compliance with the 2018 Court Order and the Trust Deed. This required the interpretation of the 2018 Court Order and the Trust Deed.

Judgment

As indicated above, the Trust Deed sets out the names of the initial beneficiaries of the Trust. Clause 16 of the Trust Deed provided that “Each Beneficiary shall nominate one further beneficiary who shall be a family member to succeed his stead should the nominating beneficiary cease to be a beneficiary. A list of such nominated Beneficiaries shall be recorded in a registry kept at the office of the Trust. A non-family member may only be nominated if the Beneficiary has no member.” In addition, clause 16.1.3 provides that a person ceases being a beneficiary inter alia, upon his death.

In light of this, the Court held that the reference to the 603 beneficiaries in the 2018 Court Order is to the 603 claimants[1] recorded in the list of beneficiaries in the Trust Deed. Further that in the event of their death, their name might have been substituted in accordance with the provisions of clause 16, however the Trust Deed makes no provision directly or by inference, for the nomination of a successor to a beneficiary other than by way of clause 16.1.

The Court noted that in relation to the general meetings of the Trust, the Trust Deed provides that “Beneficiaries for purpose of…. a General Meeting at which it is required that a vote be taken for any reason whatsoever, shall mean Beneficiaries present at such meeting and not younger than 21 (TWENTY ONE) years of age as being a Beneficiary qualified to vote”.

In this regard, the Respondents argued that “Present at such meeting” should be interpreted to include “present by proxy”. The Respondents argued further that the beneficiary named in the register of beneficiaries is not the sole repository of benefits under the Trust – rather, they are the representatives of a family or household; accordingly, where the beneficiary has passed away, an individual, properly authorized, was entitled to continue to represent the household. The Respondents added that there was accordingly no warrant to disqualify that household or family from having its voice heard.

The Court held that the Trust Deed clearly sets out the process to be followed in relation of succession rights and those provisions provide no support for the argument advanced by the Respondents. The Court held further that a proxy is a form of a mandate, and requires a mandate to be extended by the principal to their agent to exercise the vote to which the principal was entitled at the meeting. Self evidently, a deceased beneficiary is unable to extend a mandate; and the procedure adopted by the Independent Trustees in relation to deceased beneficiaries is unrelated to proxies and is contrary to the provisions of clause 16 of the Trust Deed.

In relation to absent beneficiaries who were to be represented by proxy, the Court held that “…where a person is required by statute to perform an act involving the exercise of his discretion in a matter which another has an interest he may not, by common law, delegate his power. Thus a citizen is not entitled to vote by way of proxy in a public election. Accordingly, no reason in logic commends itself to hold otherwise where a trust deed entitles beneficiaries under the trust to vote for the appointment of trustees. Voting could therefore only have been permitted if the Trust Deed provided for it.”

In relation to the method of voting, the Court held that the Trust Deed provides for a notice to be given of a general meeting, stating that a decision of a simple majority of the beneficiaries at the meeting shall be considered to be the decision of the beneficiaries. Accordingly that the Trust Deed envisaged that all beneficiaries present at the meeting would be entitled to cast one vote in respect of each appointment which was to be made. Only if a candidate secured a majority of the votes could they be appointed. The Court accordingly held that none of the trustees were validly appointed.

Concluding Remarks

In light of the above, and in summary the Supreme Court of Appeal held that as a result of the invitation, the meeting of the beneficiaries was not properly constituted as envisaged in the 2018 Court Order and in the Trust Deed and the votes by ‘proxy’ on behalf of the deceased and absent beneficiaries was in conflict of the provisions of the Trust Deed. Further, the methodology adopted for the election was also in breach of the Trust Deed. The election was accordingly set aside.

It is important for trustees to ensure that they are correctly appointed in accordance with the provisions of the trust deed of the trust in resect of which they are appointed as trustees. It is thus essential for trustees to familiarise themselves with the provisions of the relevant trust deed.

We therefore recommend that trustees fully consider and understand the provisions of the trust deed of the trust in resect of which they are appointed, as the trust deed usually contains specific provisions on amongst others, the election of trustees and the powers of the trustees.