Vermeulen & Another v Mellet N.O. & 2 others (A142/2020) [2021] ZAFSHC 141; [2021] 4 All SA 281 (FB) (27 May 2021)

N THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

Case No.: A142/2020

In the appeal of: -

MARAIS

ROCCO VERMEULEN

1st Appellant

EVAN

ERNEST CORBETT

2nd Appellant

and

BLUCHER HAUMAN MELLET N.O.

1st Respondent

HENDRIK FRANCOIS MELLET N.O.

2nd Respondent

CAROLINA JOHANNA PRINSLOO N.O.

3rd Respondent

CORAM: C. J. MUSI, JP et DAFFUE, J et LOUBSER, J

JUDGMENT BY: C. J. MUSI, JP (Loubser, J concurring)

HEARD ON: 26 APRIL 2021

DELIVERED ON: 27 MAY 2021

[1] This is an appeal against the judgment and order of a single judge of this Division. The issue for consideration in this appeal is whether a trust inter vivos may be the owner of a member’s interest in a close corporation, without complying with the statutory requirements.

[2] The three respondents are the trustees of the BLUCHER MELLET FAMILY TRUST (trust). The first and third respondents were also members of Findaload CC (corporation). They held 60% and 40% member’s interest respectively.

[3] The first respondent was desirous to sell his member’s interest. The two appellants offered to buy his member’s interest. According to the first respondent, he wanted to ensure that payment for the member’s interest should be made to the trust and not to him personally. It is for that reason that the parties agreed that his member’s interest would be transferred from him to the trust and that the trust would sell it to the appellants.

[4] The trust and the appellants entered into a written ‘deed of sale of membership interest’ agreement, in terms of which the trust sold 60% member’s interest to the appellants for R4 504 000.00. The purchase price was to be paid into the bank account of the trust, in 45 monthly instalments of R100 088.68. They also agreed that the payments would be utilized by the trust to pay towards a bond registered over its property, the farm Ospoort.

[5] The purported agreement came into effect on 1 March 2017 regardless of the date of signing thereof.

[6] The parties recorded that the seller (trust) is the holder of 60% of membership interests in the corporation. ‘Membership interest’ is defined as 60% membership interest currently held by BH Mellet and to be transferred to the seller (trust) as well as the claims consisting of the assets and liabilities listed in an annexure to the agreement.

[7] The trust gave a warranty that the first respondent will transfer the member’s share to the trust and that he is bound by the agreement in the same manner as if he personally sold the interest to the purchasers.

[8] The trust and the purchasers further agreed that:

‘…Purchaser shall furnish security for the due and proper payment of the purchase price by registering bonds over the following properties held in the names of Marais Rocco Vermeulen (ID…) and Evan Ernest Corbett (ID …):

Portion 1 of plot 1 Dealesgift Kleinplase District Bloemfontein Value: R3 000 000 outstanding bond ABSA R700 000.

Erf 6365 Dan Pienaar Bloemfontein (32 Louw Wepener Street, Value: R5 000 000. Outstanding Bond ABSA: R2 170 000.

Should the equity on the above mentioned properties not be sufficient then the De Bruin Street property mentioned in “A” hereto shall also be bonded in the same manner as the first mention two properties.

Registration of the bonds shall be handled by Blair Attorneys and 3333 the registration costs and fees shall be paid by the seller and the purchaser on a 50/50 basis.’

[9] The 60% member’s interest was transferred into the name of the trust on 28 April 2017. The certificate issued by the Registrar of Companies indicates that the 60% member’s interest was transferred into the name of the first respondent as a trustee of the BLUCHER MELLET TRUST. The third respondent held the remaining 40% as a trustee of the PRINSLOO FAMILY TRUST.

[10] On 27 July 2017 SJ Gerber Chartered Accountants (SA) (Accountants) confirmed that the corporation’s membership had changed and that the first respondent is no longer a member of the corporation. The parties were erroneously informed, by the accountants, that each appellant acquired 30%, the third respondent 30% and Sarel van Zyl 10% of the members’ interest. Neither the first respondent nor the appellants knew how the 10% was allocated to Van Zyl.

[11] On 6 April 2018, 100% of the member’s interest was mysteriously transferred to the third respondent. The member’s interest was never transferred to the appellants.

[12] During December 2018 there was an unsuccessful attempt at transferring 40% of the member’s interest to the first respondent. It was later ascertained that an employee at the accountants committed fraud in relation to some of these transactions.

[13] The appellants did not register bonds over the properties mentioned in the purported agreement. The respondents approached the Court a quo essentially seeking an order directing the appellants to instruct their attorneys (Blair Attorneys) to register bonds over the properties; alternatively authorizing the respondent’s attorney to instruct Blair Attorneys to register the bonds.

[14] The appellants launched a counter application wherein they sought an order that the purported agreement be declared null and void for lack of compliance with the provisions of the Close Corporations Act 69 of 1984 as amended (Act).

[15] The Court a quo categorised the questions to be decided as follows:

‘1. Can a trust hold membership interest in a close corporation?

2. If so, was the agreement entered into between the trust and the respondents (appellants) valid?’

[16] The Court a quo answered both questions in the affirmative and granted the relief sought by the respondents, save to direct the appellants to instruct a conveyancer of their choice to register the bonds, and dismissed the counter application. The appellants were ordered to pay the costs of the proceedings.

[17] It is against these conclusions and order that the appellants are directing the appeal.

[18] Before us the appellants contended that the Court a quo erred in not finding that the agreement fell afoul of section 29 of the Act.

[19] Section 29 of the Act reads as follows:

“(1) Subject to subsection (1A) or (2)(b) and (c), only natural persons may be members of a corporation and no juristic person or trustee of a trust inter vivos in that capacity shall directly or indirectly (whether through the instrumentality of a nominee or otherwise) hold a member’s interest in a corporation.

(1A) A natural or juristic person in the capacity of a trustee of a trust inter vivos may be a member of a corporation: Provided that—

(a) no juristic person shall directly or indirectly be a beneficiary of that trust;

(b) the member concerned shall, as between himself or herself and the corporation, personally have all the obligations and rights of a member;

(c) the corporation shall not be obliged to observe or have any obligation in respect of any provision of or affecting the trust or any agreement between the trust and the member concerned of the corporation; and

(d) if at any time the number of natural persons at that time entitled to receive any benefit from the trust shall, when added to the number of members of the corporation at that time, exceed 10, the provisions of, and exemption under, this subsection shall cease to apply and shall not again become applicable notwithstanding any diminution in the number of members or beneficiaries…”

[20] Section 30 of the Act states that two or more members shall not be joint holders of the same member’s interest in a corporation.

[21] The various amendments to the Act were succinctly set out in Bank of Athens.[1] No benefit will be derived from repeating that history in this judgment. It is however apposite to briefly set out the common law position relating to trusts before returning to the facts of this matter.

[22] In Parker[2] the common law position was explained as follows:

“Except where statute provides otherwise, a trust is not a legal person. It is an accumulation of assets and liabilities. These constitute the trust estate, which is a separate entity. But though separate, the accumulation of rights and obligations comprising the trust estate does not have legal personality. It vests in the trustees, and must be administered by them – and it is only through the trustees, specified as in the trust instrument, that the trust can act. Who the trustees are, their number, how they are appointed, and under what circumstances they have power to bind the trust estate are matters defined in the trust deed, which is the trust’s constitutive charter. Outside its provisions the trust estate cannot be bound.

[23] It must be remembered that the trustees are primarily responsible for compliance with the formalities stipulated in the trust deed. In Parker it was further said that:

“While outsiders have an interest in self-protection, the primary responsibility for compliance with formalities and for ensuring that contracts lie within the authority conferred by the trust deed lies with the trustees. Where they are also the beneficiaries, the debasement of trust function means all too often that this duty will be violated.” [3]

[24] The first and obvious problem in this matter is that the trust deed was not attached by the respondents.

[25] I now return to analyse section 29 of the Act. Section 29(1) is subject to subsection 29(1A). The subsection makes provision for a trustee of an inter vivos trust to be a member of a close corporation upon fulfilling certain conditions. The conditions are set out in subsection 29(1A) (a) to (d).

[26] The conditions are, in summary, that only natural persons must be beneficiaries of the trust; the trust must appoint and authorize a trustee to be responsible for the member’s interest, the responsible trustee shall personally have all the rights and obligations of a member and not the trust; the corporation shall not be obliged to honour an obligation of or affecting the trust or any agreement between the trust and the trustee who is a member of the trust; this means that the corporation need not have regard to the provisions of the administration of the trust or the trust deed or any agreement between the trust and the responsible trustee; and the total number of the members of the corporation including the beneficiaries of the trust shall not exceed 10, if it does exceed 10, at any time, the benefit bestowed by the subsection shall not again be applicable to the trust regardless of the number subsequently being reduced to 10 or below.

[27] It is clear that a trust with multiple trustees may not, without more, be a member of a close corporation. If such a trust wants to become a member of a close corporation, it must appoint a representative of the trust to be a member, if the trust deed does not contain a contrary provision.[4] That trustee will then become the member of the close corporation and not the trust.[5] One of the reasons for this prohibition is that the trustees of a trust must act jointly whilst the member’s interest in a corporation may not be held jointly by two or more persons.

[28] In order to assist trustees to become members of close corporations the Registrar issued Practice Note 1 of 2006.[6] The Practice Note sets out the additional documents that the authorized trustee must submit. It provides:

‘In order to enable proper implementation of the new membership provisions and to register founding statements and amended founding statements where the trustee/s of trust inter vivos will become a member/s, certain information regarding the trust concerned will have to be provided in addition to the relevant CK forms. To this end the following documents will be required to be lodged together with Form CK 2 or CK 2A, as the case may be, with CIPRO:

(1) A certified copy of the Letter of Authority issued to the trustee/s of the trust by the Master of the High Court;

(2) In the case of multiple trustees, an originally signed special power of attorney by each of the trustees appointing one of them as the representative of the trustees for purposes of holding and dealing with the member's interest in the close corporation concerned;

(3) A letter by the trustee, or in the case of multiple trustees, the representative trustee referred to in paragraph (2) above, in which he or she furnishes-

* the name, registration number and address of the trust;

* the names of all the trustees of the trust;

* the number of beneficiaries of the trust, current at date of the letter; and

* particulars of all the beneficiaries named in the trust deed, irrespective whether capital, income or other type of beneficiaries.

(4) A certified copy of the section/s in the trust deed defining and/or identifying the beneficiaries of the trust, whether capital, income or other type of beneficiaries

(5) If the trustee is a juristic person, a letter on the letterhead of the juristic person, nominating a natural person as its representative.

An amended founding statement (Form CK 2) must be lodged whenever a change is made or occurs in respect of the particulars of-

* the trustees;

* the representative of the trustees;

* the representative of a juristic person which is a trustee; or

* the beneficiaries…’

[29] As foreshadowed above, the trust deed was not attached to these papers. The three respondents in their capacities as the trustees of the trust received the 60% member’s interest as a gift or donation from the first respondent. They as trustees held the 60% member’s interest for a short while and sold it to the appellants. The trust therefore had multiple trustees. There is no indication that one of them was appointed as the representative trustee to hold the member’s interest and to personally have all rights and obligations of a member.

[30] Even when the legality of the transfer to the trust and the selling of the member’s interest to the appellants was directly challenged, the respondents did not even attempt to mount a proper case that there was a representative trustee or how it came about that the first respondent was registered as the trustee of the trust holding 60% of the member’s interest. The closest it came to showing that the conditions were met is merely by stating that the conditions were met. Not a scintilla of proof was presented to substantiated this assertion.

[31] In my view, where a litigant is faced with a direct challenge, such as in this matter, it is incumbent on such litigant to satisfy the Court that all the formalities and conditions have been met. The respondents did not even do so in their replying affidavit. They could easily have attached the trust deed, the relevant resolution and any other documents to show that there was compliance with the requirements and conditions. They did not do so. We do not even know how many beneficiaries the trust had.

[32] The fact that the registration certificate shows that the 60% member’s interest was registered in the name of the first respondent as trustee of the trust is of little assistance in this matter. I say so because on the facts before us it is clear that the member’s interests were fraudulently transferred and assurances were fraudulently given that the members’ interests were properly transferred when in fact it was never transferred. Van Zyl was mysteriously given 10% of the member’s interest without the first respondent and the appellant’s knowledge. None of the parties could explain how the second respondent ended up with 100% of the member’s interest.

[33] The case of the respondents is not subject to any doubt or misunderstanding. They make plain that the member’s interest was transferred to the trust and not to the trustee. The purported contract also makes it clear that it is the trust, as the holder of the member’s interest, and not the trustee that sold it.

[34] The trust could not sell something that it may not legally possess. The authorized trustee and not the trust could enter into an agreement to alienate the member’s interest.

[35] In my view the Court a quo should have found that a trust inter vivos may be a member of a corporation upon fulfilling all the conditions in subsection 29(1A)(a) to (d) of the Act. It should have qualified its answer to the first question it posed.

[36] I do not know what benefit the first respondent or the trust wanted to derive from the process of transferring the member’s interest to the trust and then selling it to the appellants. I need not speculate, but I agree with the appellants that the reason given is improbable. The money could have been paid in the first respondent’s bank account and then used to pay the trust’s debt. It could have been paid directly into the trust’s account even though the member’s interest was sold by the first respondent to the appellants. He could have nominated any account.

[37] It follows that the purported agreement is void ab initio and must be set aside. Restitution must take place since none of the parties could legally perform in terms of the illegal agreement.

[38] The result is very technical and unfortunate but Scott JA’s warning is apposite. In Thorpe v Trittenwein[7] he warned that:

‘Those who choose to conduct business through the medium of trusts of this nature do so no doubt to gain some advantage, whether it be estate planning or otherwise. But they cannot enjoy the advantage of a trust when it suits them and cry foul when it does not.’[8]

[39] The appeal ought to succeed. There is no reason why the costs should not follow the success.

[40] I make the following order:

40.1. The appeal is upheld with costs.

40.2. The order of the Court a quo is set aside and replaced with the following:

(a) The application is dismissed with costs.

(b) The counter application is granted with costs.

C.J. MUSI, JP

I concur.

P.J. LOUBSER, J

MINORITY JUDGMENT BY: DAFFUE, J

I

INTRODUCTION

[41] The appellants appeal a judgment by a single judge of this division delivered on 13 March 2020, leave to appeal having been granted on 7 October 2020. The crisp issue to be adjudicated is whether or not the deed of sale entered into between a trust and the appellants in respect of a member’s interest in a close corporation offends the provisions of s 29 of the Close Corporations Act (“the CC Act”).[9]

[42] This is a minority judgment, the majority judgment having been written by Musi JP, concurred in by Loubser J.

II

THE PARTIES

[43] The two appellants are Messrs MR Vermeulen and EE Corbett, the purchasers of a 60% member’s interest in a close corporation with the interesting name, Findaload CC, registration number 2004/065694/23 (herein later referred as “the CC”). They have been represented herein, as was the case in the court a quo, by Adv R van der Merwe. The instructing attorneys are Lovius Block Attorneys, Bloemfontein.

[44] The three respondents, cited in their representative capacities as trustees of the Blucher Mellet Family Trust, number IT780/1998 (“the trust”) are Messrs BH Mellet and HF Mellet and Me CJ Prinsloo. They have been represented before us, as well as in the court a quo, by Adv SJ Reinders, duly instructed by Eugene Attorneys, Bloemfontein.

[45] I shall refer to the parties as cited in the appeal, unless a particular party needs to be identified personally.

III

THE ORDERS OF THE COURT A QUO

[46] The court a quo had to adjudicate a main and a counter-application. In the counter-application the appellants sought a declaratory order in terms whereof the “Deed of Sale Members Interest” (sic) agreement concluded between the three respondents and the two appellants in respect of a 60% member’s interest in the CC be declared unlawful and null and void. The court a quo dismissed the counter-application and granted relief in accordance with the prayers in the main application.

[47] The order of the court a quo which followed the wording of the notice of motion incorrectly refers to the payment of transfer costs, the effecting of a transfer and the registration of bonds over the properties. An incorrect order was applied for and eventually granted. No transfer of immovable properties had to take place, but mortgage bonds had to be registered over the two properties. Bond registration costs had to be paid and not transfer costs. Mr Van der Merwe accepted during oral argument that if the appeal was to be dismissed, the appellants could not have any objection to this court amending the order of the court a quo to reflect the intention of the parties. It is unnecessary to consider this issue any further in light of the majority judgment.

IV

GROUNDS OF APPEAL

[48] Several grounds of appeal appear from the notice of appeal, but all of these essentially boil down to one issue. Appellants aver that the deed of sale entered into between them and the trust in terms whereof the trust sold a 60% member’s interest in the CC to them was in conflict with s 29(1), read with s 29(1A), of the CC Act.

V THE CLOSE CORPORATIONS ACT, 69 OF 1984 (“the CC Act”)

[49] In 1981 a need was identified for the introduction of a new form of small business to be utilised by small business people, ie either the single entrepreneur or a small number of them. This led to the incorporation of the CC Act that allowed entrepreneurs (natural persons) the advantages of incorporation and separate legal personality by employing a simple, inexpensive and flexible form of enterprise, instead of being subjected to complex company law legislation – an Act consisting of 443 sections[10] - and its intricate and cumbersome processes. The idea was to allow only natural persons to become members of a close corporation, but the legislature recognised that unavoidable situations might arise such as for example upon the death and insolvency of members. Therefore, it catered for such situations.[11] Kumleben JA aptly summarised the purpose of the CC Act, its minimal formalities and the characteristics of the CC in Mörsner v Len.[12]

[50] Section 29(1) of the CC Act now reads as follows:

“Subject to subsection (1A) or (2)(b) and (c), only natural persons may be members of a corporation and no juristic person or trustee of a trust inter vivos in that capacity shall directly or indirectly (whether through the instrumentality of a nominee or otherwise) hold a member’s interest in a corporation.”[13]

From the onset ss 29(2)(b) stipulated that a natural or juristic person, nomine officii, who is a trustee of a testamentary trust entitled to a member’s interest, qualified for membership of a CC subject to two provisos.

The prohibition against trustees of trusts inter vivos to become members of CC’s was eventually abolished when the new ss 29(1A) was inserted some years later. It reads as follows:[14]

“A natural or juristic person in the capacity of a trustee of a trust inter vivos may be a member of a corporation: Provided that-

(1A) A natural or juristic person in the capacity of a trustee of a trust inter vivos may be a member of a corporation: Provided that-

(a) no juristic person shall directly or indirectly be a beneficiary of that trust;

(b) the member concerned shall, as between himself or herself and the corporation, personally have all the obligations and rights of a member;

(c) the corporation shall not be obliged to observe or have any obligation in respect of any provision of or affecting the trust or any agreement between the trust and the member concerned of the corporation; and

(d) if at any time the number of natural persons at that time entitled to receive any benefit from the trust shall, when added to the number of members of the corporation at that time, exceed 10, the provisions of, and exemption under, this subsection shall cease to apply and shall not again become applicable notwithstanding any diminution in the number of members or beneficiaries.”

VI

SOME LEGAL PRINCIPLES AND AUTHORITIES

[51] The term “trust” refers to a legal relationship created inter vivos or on death by a person, the founder, when assets are placed under the control of a trustee (or trustees) for the benefit of a beneficiary (or beneficiaries) or a specified purpose.[15] “Trust” is defined in the Trust Property Control Act[16] as follows:

““trust” means the arrangement through which the ownership of property of one person is by virtue of a trust instrument made over or bequeathed –

(a) to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or

(b) ….” (emphasis added)

[52] It is trite that a trust is not a juristic person, unless specifically so defined in a statute.[17] It is generally regarded as a legal institution sui generis. Its assets and liabilities vest in its trustee(s) and the trust estate is kept separate and does not form part of the private estates of the trustees.[18]

[53] Unless a statute confirms juristic personality on a trust in which case the trust may sue or be sued in a form prescribed by the statute, the trustees of a trust must institute legal proceedings on behalf of the trust or be sued on behalf of the trust. It is a fundamental rule of trust law that in the absence of contrary provisions in the trust deed the trustees must act jointly to bind the trust estate by their acts.[19]

[54] It is an established conveyancing principle that immovable properties are registered in the names of “the trustees for the time being” of a particular trust without the trustees being personally identified.[20] In such case the trust is appropriately identified by its name and registration number. I quote the following from the Deeds Practice Manuals[21]: “In contrast to the transfer of trust assets by the trustees where the names of the trustee(s) must be disclosed, immovable property is transferred to the trustee(s) without mentioning the name of the trustee(s), eg:

“The trustees for the time being of the Piet Pieterse Trust IT 787/2006”. It is permissible to omit the words: ‘Trustees for the time being of’ (CRC 6/2004).” It is thus clear that the established practice to describe transferees in the case of trusts is still in place although the Chief Registrar’s Circular (CRC) 6/2004 now provides that immovable property may be registered in the name of the trust as transferee. This amendment of the practice may be seen as doubtful in light of the established legal principles, but supports the case of the respondents who referred to the trust as the seller in casu.

[55] The Companies and Intellectual Property Registration Office inter alia deals with the registration of founding statements (the so-called Forms CK 1) and amended founding statements (Forms CK 2 and CK 2A) applicable to CC’s. Following upon the aforesaid amendment of the CC Act in 2005, it made the following statement to give effect to what it referred to as two new principles introduced by the amendment, the first only which is relevant in casu, to wit “that trusts inter vivos can now, under certain circumstances, become and be members of close corporations ….” (my emphasis)

Consequently, it issued a Practice Note[22] to inter alia “provide guidelines to and to familiarise users of close corporations with the relevant procedural requirements to effect such membership of trustees of trusts inter vivos.” (my emphasis)

[56] The version in the aforesaid Practice Note that “trusts inter vivos can now … become and be members of close corporations” is legally unsound, but I shall show infra that in popular parlance, or colloquially (in Afrikaans: “in die volksmond”) people, and judges in particular, often refer to property being owned by trusts contrary to the legal position set out supra. I repeat: a trust does not own property, does not have obligations and cannot sue or be sued, save for the exceptions mentioned earlier: its assets and liabilities vest in its trustee(s) to be managed for the benefit of the trust beneficiaries. The trust estate, although not a person, constitutes a legal entity.[23]

[57] I shall mention just a few examples from our law reports to show how loosely judges refer to the trust as the owner of movable or immovable property. The full bench in Gauteng said the following in FirstRand Bank v Folscher and Another:[24]

“Immovable property owned by a company, a close corporation or a trust, of which the member, shareholder or beneficiary is the beneficial occupier, is not protected by the amended rule requiring judicial oversight….” (emphasis added)

In a much more recent judgment, Nedbank v Bestbier NO and Others[25] the trustees of the particular trust were cited as defendants in an application to declare a commercial wine farm specially executable, but the following extracts from the judgment are quoted to prove the point:

“… a property, which belongs to a trust…”

“The Trust is the registered owner of the farm known as Goede Hoop.”

“The Trust conducts a winery business on Goede Hoop.”

In Investec v Frazer and others NNO[26] the court dealt with another application to declare immovable property of a judgment debtor specially executable. In paragraph 1 of the judgment the learned judge referred to “immovable property owned by the Tricour Property Trust” and “a money judgment granted against the Trust…” It is apparent from the heading of the judgment that the trustees of the trust in their representative capacities were cited as respondents.

[58] In Peters and Others v Schoeman and Others,[27] a judgment delivered prior to the 2005 amendment of the CC Act, two family trusts were members of a company that owned immovable property. The trustees of the trust intended selling the shares to the respondents as purchasers who could not raise the full purchase price. Section 38 of the Companies Act, 61 of 1973 prohibited financial assistance by a company to buy shares in it. In casu the immovable property would have to be mortgaged to provide financial assistance. The parties recognised this and decided upon a conversion of the company into a close corporation as the CC Act did not contain a similar provision as s 38. The problem that the parties foresaw was that the trusts could not become members of the CC. Consequently, it was agreed that the purchasers would, after making initial payments become members of the CC upon conversion. Afterwards the purchasers reneged on the contract and when sued for the purchase price, inter alia relied on a s 38 defence. Mpati AJA (as he then was), recorded that the ultimate object of the transaction was to enable the respondents to become the owners of a member’s interest in the close corporation which would acquire the company’s assets. The court held that the deed of sale was not invalid and in contravention of s 38.[28] In my view the reasoning of the Supreme Court of Appeal in this judgment may equally be applied in casu.

VII

THE DEED OF SALE IN CASU

[59] The deed of sale was signed by the first respondent for and on behalf of the seller identified as the Blucher Mellet Family Trust, IT780/1998. The first respondent warranted underneath his signature that he was “duly authorised” to sign on behalf of the seller.[29] The trustees of the trust were not identified as sellers. When the document was signed, first respondent in his personal capacity was still the owner of the 60% member’s interest in the CC. The two appellants purchased this interest in equal shares. More will be said in this respect infra.

VIII EVALUATION OF THE COURT A QUO’S

JUDGMENT AND SUBMISSIONS BY THE PARTIES

[60] At all relevant time before conclusion of the deed of sale that is the subject of controversy, first respondent in his personal capacity held a 60% member’s interest in the CC. He is an adult male person and therefore a natural person. He qualified to become a member of the CC whose management he conducted from inception in 1998. The CC’s principal business is that of transport and related services.[30] It is a relatively small business if the selling price of the 60% member’s interest is considered. It never had more than two members.[31]

[61] The court a quo found that the trust and not the respondents in their capacities as trustees of the trust became a member of the CC prior to the member’s interest passing to the appellants.[32] This is not correct. The objective evidence shows that the 60% members interest was transferred to first respondent in his representative capacity as more fully dealt with infra. A trust is, save for statutory exceptions not applicable in casu, not a juristic person as indicated supra and its assets and liabilities vest in its trustees. However, it is clear that it is now permissible to register immovable property in the name of a trust instead of its trustees. In my view, and notwithstanding the express wording of the deed of sale, it would be appropriate to hold that the trustees of the trust, represented by first respondent, were the actual sellers. At that time, first respondent in his personal capacity was still the legitimate holder of the 60% member’s interest in the CC.

[62] The parties entered into the deed of sale on 10 April 2017, but they agreed on an effective date of 1 March 2017. It is apparent that the parties had in mind that the two appellants would receive the 60% member’s interest of first respondent in the CC in equal percentages.[33] It is not in dispute that at that stage the first respondent was the holder of such interest in the CC. Instead of selling his member’s interest directly to the two appellants, an agreement was entered into on the clear understanding that first respondent would transfer his member’s interest in the CC to the trust which would merely be used as a conduit for the passing of ownership of the member’s interest to the two appellants. First respondent may have had possible tax or estate planning advantages in mind for negotiating an agreement in terms whereof the trust – more correctly, the beneficiaries of the trust - and not he personally would benefit, but that is immaterial for purposes hereof.

[63] The court a quo incorrectly held that the member’s interest was transferred “into the names (sic) of the trust … for the purpose of facilitating transfer to the respondents (the appellants in the appeal).”[34] The trust is not indicated as a member of the CC in any of the Companies and Intellectual Property Commission (“CIPC”) documentation before the court. The member’s interest was not transferred to the trust as indicated above, but the court a quo was correct that the trust was used as a conduit or vehicle to facilitate transfer to the purchasers.

[64] In my view the reasoning of the Supreme Court of Appeal in Peters[35] supports a finding that the parties used the trust merely as a conduit to facilitate transfer of the member’s interest to the appellants as purchasers. Ultimately the appellants would be able to receive transfer of their member’s interest if they did not elect to renege on their contractual obligations as was also the case in Peters.

[65] Notwithstanding the conclusion of the deed of sale, the certificate of amended founding statement of the CC (the CK2 form),[36] issued on 28 April 2017 and thus after conclusion of the deed of sale, reflects that first respondent as a trustee of the trust held a 60% member’s interest and third respondent as trustee of the Prinsloo trust the remaining 40%. This is so for obvious reasons as it must have been done by the CIPC in accordance with Practice Note 1/2006. At that stage they were therefore active members of the CC as the authorised representatives of their trusts in accordance with the definition of “member” in s 1 read with s 29(1A) of the CC Act. Respondents allege in their founding affidavit that they as the three trustees are “the seller” of the member’s interest.[37] This allegation is in conflict with the deed of sale, but in line with the official records referred to supra, indicating that first respondent became an active member of the CC in his representative capacity.

[66] It is a mystery why the 60% member’s interest was later transferred into the name of Prinsloo, the third respondent. This was contrary to the intention of all the parties as evidenced in the deed of sale and later correspondence. This error is irrelevant to the dispute between the parties. It is clear that transfer should have been effected in the names of the two appellants in equal percentages. First respondent as the registered member of the CC in his representative capacity could have arranged the transfer with co-operation of the appellants if they did not elect to renege on the agreement.

[67] The CC Act and s 29 in particular must be read and interpreted in accordance with the established principles pertaining to interpretation. The Constitution Court has recently summarised this in Road Traffic Management Corporation v Waymark Infotech (Pty) Ltd.[38] The language used, the context in which the provision appears and apparent purpose to which it is directed must be considered. I have indicated above that the legislature intended with the promulgation of the CC Act to provide for a small number of entrepreneurs or business people with the exclusion of legal persons to form an entity with separate legal personality. The CC Act does not stipulate that a trust may not conclude a deed of sale to acquire membership in a CC, but only that, in such a case, that the trustee of the trust should become the member of the CC subject to the provisos in ss 29(1A) (a) – (d). I am satisfied that if the language used in the CC Act is read within the context in which the provision appears and the apparent purpose to which it is directed, the deed of sale is not clothed with invalidity. I have shown above that, notwithstanding the fact that trusts are not legal persons capable of owning property, one frequently finds that even immovable property is registered in the name of a trust. I have also indicated that even the CIPC mentioned in its Practice Note that “trusts inter vivos can now become and be members of close corporations.”

[68] I wish to reiterate that although trusts are often referred to as the owners of movable or immovable assets, this must be frowned upon. Scott JA made the point in Thorpe v Trittenwein[39] with reference to Land and Agricultural Bank of South Africa v Parker and Others that “a trust is ‘an accumulation of assets and liabilities’”, but “(a)lthough forming a separate entity, that entity, like a deceased estate, is not a legal persona. The assets and liabilities constituting the trust vest in the trustees and it is they who must administer them.”

[69] There cannot be any doubt that the appellants never disputed the existence of the trust or the first respondent’s authority. Therefore, I do not agree with the majority judgment that it was incumbent upon the respondents to attach the trust deed and “relevant resolutions and other documents to show that there was compliance with the requirements and conditions.” Also, the number of beneficiaries is irrelevant for the adjudication of this appeal. It was never put in contention by the appellants that s 28 of the CC Act or any of the provisos to ss 29(1A) were transgressed and/or not complied with. As said repeatedly, the only issue relied upon by the appellants is that the deed of sale is invalid in so far as a trust cannot lawfully own a member’s interest in a CC and that being the case, the trust in casu could not lawfully become the owner of the 60% member’s interest. Consequently, it was submitted that the trust could not transfer rights to the appellants which it did not and could not lawfully acquire. I do not agree with the submissions of appellants’ counsel.

[70] The undisputed objective documentary evidence clearly serves as proof that the CIPC was satisfied that first respondent, having duly complied with the requirements contained in Practice Note 1/2006 and s 29 (1A) (a) – (d), qualified to become a member of the CC in his representative capacity as trustee. It must therefore be accepted that he supplied the s 6 authority issued by the Master,[40] a copy of the trust deed, a special power of attorney and also presented the further information required in the Practice Note.

[71] My colleague referred in the majority judgment to the judgment of Boruchowitz J in The South African Bank of Athens Limited v Salvadora Properties Ninety Nine CC.[41] In that judgment the court explained the various amendments to the CC Act over the years in much detail. In that case the Bank of Athens relied upon a deed of suretyship in its application for the winding up of a close corporation. The close corporation challenged the validity of the deed of suretyship signed by its member - Viviers - on the basis that the member was not authorised thereto. In that case the entire member’s interest in the close corporation was held by an inter vivos trust of which Viviers was one of three trustees. The court correctly held that the legal position in that matter was not governed by the common law, but by the provisions of the CC Act.[42] The court also held that the trust was not the holder of the member’s interest in the CC in so far as that interest was held by Viviers in his capacity as the authorised representative trustee.[43] This is also what occurred in casu in that the 60% member’s interest was transferred to first respondent in his capacity as trustee.

[72] In paragraph 38 of the majority judgment my colleague refers to the warning sounded by the Supreme Court of Appeal in Thorpe v Tritterwein.[44] While I agree with the dictum, it needs to be emphasised that the facts in that judgment differ completely from those in casu. In Thorpe the first respondent raised several defences, one being that the deed of sale did not comply with the requirements of s 2(1) of the Alienation of Land Act, 68 of 1981. In that case the trust deed was before the court and it was common cause that two of the three trustees did not sign any of the three documents that the appellants contended constituted the deed of sale. The one trustee that signed the documents relied on oral authorisation, but that was totally insufficient to comply with the aforesaid requirements as well as the trite legal principle that trustees must act together, unless the trust deed provides otherwise and the one acting on behalf of the trust was duly authorised by all the other trustees.

IX

CONCLUSION

[73] Although it would have been technically more correct to cite the trustees of the trust as the sellers of the deed of sale, even though the first respondent only signed the document duly authorised by them, I am of the view that the deed of sale is not invalid for lack of compliance with s 29 of the CC Act. This view is supported by the objective evidence contained in form CK2 issued by the CIPC on 28 April 2017. I indicated supra that I did not agree with some aspects in the judgment of the court a quo, but I am in an agreement with the conclusion that the deed of sale does not offend the provisions of s 29 of the CC Act. I would have dismissed the appeal with costs.

JP DAFFUE, J

Appearances:

For the Applicant: Adv. R. van der Merwe

Instructed by Lovius Block Attorneys

Bloemfontein

For the Respondent: Adv. S.J. Reinders

Instructed by Eugene Attorneys

[1] The South African Bank of Athens Limited v Salvadora Properties Ninety Nine CC (2009/41058) [2010] ZAGPJHC 37 (7 May 2010).

[2] Land and Agricultural Development Bank of SA v Parker and Others [2004] 4 All SA 261 (SCA).

[3] Ibid at para 33.

[4] Niewoudt and Another NNO v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486 (SCA) at paras 16 and 23.

[5] Ibid fn 1 at para at para 15.

[6] The Practice Note was published in Government Notice 233 in Government Gazette 28621 of 15 March 2006.

[7] Thorpe and Others v Trittenwein and Another 2007 (2) SA 172 (SCA).

[8] Ibid at para 17.

[9] Act 69 of 1984

[10] The Companies’ Act, 61 of 1973

[11] Section 29 (1) of the CC Act as it originally read, providing for exceptions in ss 29 (2)(b) and (2)(c)

[12] [1992] ZASCA 17; 1992 (3) SA 626 (A) at 631

[13] This subsection was initially amended by s 3(1) of Act 64 of 1988 and finally by s 2 of Act 25 of 2005 which made s 29(1) subject also to ss 29(1A)

[14] Subsection (1A) was introduced by s 1 of Act 17 of 1990 and substituted by s 2 of Act 25 of 2005

[15] See Cameron et al, Honoré’s South African Law of Trusts 5th ed p 5

[16] Act 57 of 1988

[17] See for example the definition of “juristic person” in s 1 of the the National Credit Act, 34 of 2005

[18] See s 12 of Act 57 of 1988; Land and Agricultural Development Bank of SA v Parker 2005 (2) SA 77 (SCA) para 10; a trust is a “debtor” in terms of the Insolvency Act, 24 of 1936 and for purposes of insolvency the trust estate as represented by the trustee in that capacity, as opposed to a “body corporate”, is sequestrated: Magnum Financial Holdings v Summerley NO 1984 (1) SA 160 (W) at 162

[19] Land and Agricultural Development Bank of SA v Parker at para 15

[20] Cameron et al, loc cit p 72 and authority quoted

[21] The Consolidated Practice Manuals of the Deeds Office of South Africa, vol 1 revision service 12, p 1 - 131

[22] Practice Note 1 of 2006 published under GN 233 in GG 28621 of 15 March 2006 and refer to section A in particular

[23] Cameron et al, loc cit p 11 and pp 70 - 72

[24] 2011 (4) SA 314 (GNP) at para 32 where the court dealt with the question whether rule 46, providing for judicial oversight in the execution process, was applicable where the property to be declared specially executable was occupied by the trustee or beneficiary of a trust

[25] Nedbank Ltd v PJ Bestbier NO in his personal capacity as well as in his representative capacity as trustee of the Goede Hoop Trust and the other trustees, (HM Scholtz intervening), Western Cape Division case no 12654/2018, an unreported judgment delivered on 17 September 2020 at paras 1, 2 and 4 respectively; the learned judge regarded the trust as the owner of the property notwithstanding the reliance in para 32 on the well-known case, Land and Agricultural Bank of South Africa v Parker which confirmed that a trust is not a juristic person

[26] 2020 (6) SA 211 GJ at paras 53 - 73

[27] 2001 (1) SA 872 (SCA)

[28] Ibid paras 7 - 8

[29] Record: p 32

[30] Record pp 111 & 152

[31] Record pp 152 & 153

[32] The conclusion should be drawn from the court a quo’s finding in paras 4, 8 and 16 of the judgment

[33] “Membership Interest” is defined as “the 60% membership interest currently held by BH Mellett and to be transferred to the Seller……”: para 3.1 of the deed of sale on p 17 of the record

[34] Para 8 of the judgment

[35] Loc cit in para 18 supra

[36] See certificate issued by the Registrar of Companies & Close Corporations dated 28 April 2017; record p 121

[37] Record at para 2.4, p 10

[38] 2019 (5) SA 29 (CC) at para 29 and further

[39] Thorpe and Others v Trittenwein and Another 2007 (2) SA 172 (SCA) para 9

[40] Of the Trust Property Control Act

[41] 2009/41058) [2010] ZAGPJHC 37 (7 May 2010)

[42] Ibid para 4

[43] Ibid para 15

[44] Loc cit para 17