A full bench of the Western Cape High Court has confirmed that a deficiency in trustees’ authority can be cured by ratification, but a lack of capacity cannot be so cured.
The case, Hyde Construction CC v Deuchar Family Trust 2015 JDR 1544 (WCC), involved a long drawn-out and still unresolved dispute between the parties relating to the construction of a house on a property owned by the trust. The dispute went to arbitration, where the Association of Arbitrators (Southern Africa) appointed one Du Toit as arbitrator. It transpired that Du Toit had in 2009 been involved as the plaintiff in litigation in which Adv DJ Coetsee, counsel for the Trust in the present matter, successfully represented the defendant. It seems that the sight of Coetsee at the arbitration triggered in Du Toit a decision to apply for condonation and a late application for leave to appeal against the 2009 decision. Du Toit supported his application with a scathing attack on Coetsee.
This led the Trust to seek Du Toit’s removal as arbitrator. Hyde Construction opposed this application in the Western Cape High Court, although Du Toit did not do so. He did, however, file an explanatory affidavit in which he made further remarks highly critical of Coetsee. The court of first instance granted the Trust’s application and ordered Du Toit’s removal.
So much for the background. The issue actually before the full bench of the court was a contention by Hyde Construction that the trust was not properly before the court and that the order of the court of first instance removing Du Toit was invalid. Its reason was that in the original papers Mr Deuchar had stated that he and his wife were the trustees of the trust, whereas in fact their two major children were also trustees. In later papers Deuchar admitted his error, but stated that since 2007 he had been operating on a resolution of trustees authorising him to sign all documents relating to the development of the property. He submitted that the children, who had become trustees in 2009, had tacitly authorised their father to act on their behalf. In any event, contended the father, the omission could be cured by ratification.
Not so, argued counsel for Hyde. Citing Land and Agricultural Bank of South Africa v Parker & Others 2005 (2) SA 77 (SCA), counsel submitted that the general principle of ratification does not apply to trusts. The effect of Parker and other cases was that “the unauthorised institution of proceedings by a trust cannot be ratified by a subsequent decision of the trustees”. The court found that these cases address the position where the number of trustees is less than the minimum required in terms of the trust deed. As Cameron JA stated in Parker, where fewer than the specified number of trustees are in office “the trust suffers from an incapacity that precludes action on its behalf”. In this type of situation there can be no question of ratification because the purported action is invalid in the first place.
In the present matter the prescribed number of trustees was present, so they had capacity to act. The authority issue could thus be cured by ratification.
