BACKGROUND AND SUMMARY
|In 1999, two sisters created an inter vivos trust known as the Arathusa Family Trust (the “Trust”). The Trust is the sole shareholder of a company called Manyeleti (Pty) Ltd (the company), which owns a farm that is part of a game reserve. The three trustees appointed in terms of the trust deed were the two sisters, being the first and second applicants herein and the third applicant, a chartered accountant who is the independent trustee. The trust deed gave the trustees the power to, within their discretion, select beneficiaries from time to time from those described as ‘potential beneficiaries’. All the potential beneficiaries had been afforded the right to visit the farm with their families on vacation on a rotational basis.
A difference of opinion over the development of the farm for commercial use resulted in acrimony between the first respondent and the rest of the family. The trustees then resolved to amend the trust deed to remove the first respondent as a beneficiary in the trust. Aggrieved by his purported exclusion as a beneficiary, the first respondent approached the court a quo requiring, inter alia, the re-instatement of his rights as a beneficiary, the removal of the First to Third Applicants as Trustees of the Trust, and that the Master be requested to appoint an independent and impartial Trustees for the Trust.
In the court a quo, the basis of the trustees’ opposition was that the first respondent was only a ‘potential beneficiary’ in the trust, had no vested right in the trust property and, accordingly, had no rights that he could protect. The court a quo found that the trustees had unlawfully discriminated against the first respondent. It reasoned that the law did not allow the trustees to withhold the benefit enjoyed by the first respondent simply because the rest of the family had issues with him. The court a quo further ordered the Master to appoint an independent co-trustee such that at any given time there are two independent trustees of the Trust.
On Appeal, the issues for determination by the SCA were: (i) whether the first respondent, as a beneficiary of the trust, acquired rights as against the Trust which were capable of protection; (ii) and if so, whether the court a quo was correct in granting an order reinstating the first respondent’s access to the farm, directing the Master to appoint an additional trustee, and issuing a punitive costs order.
|On the question of whether or not the right of access to the farm which was previously afforded to the first respondent amounted to a vested right, the first respondent contended that his visits to the farm constituted possession of a trust asset, which, in turn, resulted in a vesting of rights, thus entitling him to approach the court a quo to protect the right. He argued that his description as a potential beneficiary in the trust deed was therefore immaterial.
The Applicants on the other hand, stated the trust deed grants the trustees the discretion to select beneficiaries from a list of potential beneficiaries and that since the beneficiaries had not yet been selected, the first respondent remained a potential beneficiary who merely had contingent rights and had no vested rights worthy of protection. They argued that, notwithstanding the fact that the first respondent and other potential beneficiaries had previously been allowed to occasionally occupy the farm, no vesting of rights was consequent upon that occupation, as the farm in question was owned by a separate entity, namely the company. The company and not the trust had exclusive right to allow persons access to the farm. Given that the trust was the sole shareholder of the company, the SCA held that the latter argument was misplaced in that, the first, second and third applicants, as trustees, jointly exercise the voting rights in the company and therefore make decisions pertaining to the farm, including granting access rights.
In considering whether the first respondent, as a potential beneficiary in a discretionary trust, has rights that he could ask the court a quo to protect, the SCA considered the judgment handed down in Potgieter & another v Potgieter NO & others particularly at para 28, which reads ‘The fact that the appellants were merely contingent beneficiaries does not render their acceptance of these contingent benefits irrelevant. The consequence of acceptance by the beneficiary is that it creates a right pursuant to the trust deed, where no such right existed before. Therefore, after acceptance, the question whether the right is enforceable, conditional or contingent should make no difference.’
Applied to this matter, the privilege of having the right of access to a farm situated on the game reserve was taken away from the first respondent while the other potential beneficiaries continued to enjoy the right. The Trustees owe a fiduciary duty to all beneficiaries irrespective of whether they have vested rights or are merely contingent beneficiaries whose rights to the trust income or capital only vest on the happening of some uncertain future event. Trustees have an obligation to treat all the beneficiaries even-handedly. As a beneficiary, the first respondent therefore had a contingent right to be protected against arbitrary and discriminatory treatment following his acceptance of such right as in the Potgieter case above. It followed that the court a quo was correct in re-instating his right to visit the farm on a rotational basis.
On the question of whether the court a quo was correct to direct the Master to appoint an additional trustee, it was clear that there was a dispute of fact pertaining to the first respondent’s allegation that the trustees did not properly attend to the affairs of the trust. The court a quo failed to provide reasoning on whether there were justifiable grounds for the appointment of a further independent co-trustee to the Trust and merely stated that the appointment of another independent trustee might end the discourse between the parties and restore the role of the trustees to what it should be.
The SCA reasoned that the third respondent, as a chartered accountant is adequately qualified to properly understand the responsibilities of trusteeship. In the absence of facts showing that the third respondent is unable to fulfil her functions, there was simply no legal basis for an order directing the Master to appoint an additional trustee.
The question remaining before the court is whether a punitive costs order was necessary against the applicants herein.
It is trite that the determination of an award of costs is left to the discretion of the presiding officer who must exercise it judicially. The first respondent did not pray for a punitive costs order and the court a quo did not provide any reasons for burdening the applicants with a punitive costs order. Without such reasons justifying the granting of such an order, the inescapable inference is that the court a quo did not properly exercise its discretion. A failure to properly exercise a judicial discretion amounts to a material misdirection which entitles a court of appeal to interfere. As there were no facts justifying the granting of a punitive costs order, same falls to be set aside.
The appeal succeeded but only to the extent that the order of the court a quo directed that the Master be allowed to appoint an independent co-trustee.
After acceptance of a benefit granted in terms of the Trust Deed, our law affords a contingent beneficiary the right to protect his or her interests. In this light, the only relevant question is whether the right thus created is enforceable. Whether the right is conditional or contingent makes no difference.
Written by Khotso Mmatli and supervised by Musa Mathebula