Trusts: Majority rules, or unanimity triumphs?

27 July 2023 451
Everyone is familiar with the term ‘majority rules’ and generally when applied it means that the decision of the majority sticks and is valid. The question that arose in the recent case of Shepstone & Wylie Attorneys v Abraham Johannes de Witt N.O. and Others [2023] ZASCA 74 was whether the majority decision by the trustees of a trust needed a resolution signed by all the trustees to be valid. In this article we take a look at the decision and what it potentially means for the law of trusts in South Africa.

The Supreme Court of Appeal (SCA) on 26 May 2023 handed down judgment in the Shepstone & Wylie-case in what has turned out to be a rather controversial decision. 

The case dealt with the Penvaan Property Trust (“the Trust”) which had three trustees. On 25 May 2013, in the absence of one of the trustees and by way of a majority decision, the trustees present passed a resolution confirming that the Trust is authorised to sign the deed of suretyship in favour of Shepstone & Wylie Attorneys. The trust deed of the Trust required a quorum for a trustee meeting of two trustees. Thus, the trustees present when making their decisions proceeded to participate in the decision-making process.

In considering whether the resolution so taken in the absence of the third trustee was valid, the SCA held that even when a trust deed provides for a majority decision, the resolutions must be signed by all the trustees. A majority of the trustees may take a valid internal decision, but a valid resolution that binds a trust externally must be signed by all trustees, including the absent or the dissenting trustee.

This means that a majority decision by trustees will only prevail against third parties where there is participation by all the trustees and adoption of the majority resolution. For majority decisions therefore to succeed it is therefore a requirement that all trustees sign the resolution confirming the decision and their participation therein.

The judgment may still be challenged in the Constitutional Court, but until such time, the SCA decision stands and holds major repercussions for trustee resolutions taken to date by the majority and without the participation of the absent or dissenting trustee(s).

The prudent course of action would therefore need to be for trustees to review their trust decisions to ensure that all trustees have participated in the trust resolutions taken, and where in doubt or concerned about the ramifications of decisions potentially taken incorrectly, to obtain legal advice as to how to correctly proceed to remedy the position.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 
Related Expertise: Wills