Shepstone and Wylie Attorneys v Abraham Johannes De Witt N.O and Others [2023]

In Shepstone and Wylie Attorneys v Abraham Johannes De Witt N.O and Others [2023] (“Shepstone”) the Supreme Court of Appeal (“SCA”) considered the validity of a deed of suretyship signed by the majority of the trustees of the Penvaan Property Trust IT 5932/1994 (“the Trust”) in favour of the Appellant, Shepstone & Wylie Attorneys, where the issue considered was whether the act of signing suretyship on behalf of the trust was in dispute.

The issue before the SCA was whether the KwaZulu-Natal Division of the High Court, Pietermaritzburg was correct in dismissing the Appellant’s claim against a trust for a suretyship agreement to be upheld. The High Court found that the resolution authorising the signing of the deed of suretyship was invalid, thus rendering the suretyship agreement itself unenforceable against the Trust. The High Court judgment, which found in favour of the Trust, can be found here.

The Facts

The circumstances of the dispute in Shepstone, began with Ms Mignon Renate Volker who engaged the services of the Appellant in 2012 to assist with her divorce from Mr Thomas Wilhelm Volker. At the time both Mr and Ms Volker, together with Mr Abraham Johannes De Witt, were trustees of the Trust.

In 2013, Ms Volker and Mr De Witt in their capacity as trustees, appointed the Appellant to represent the Trust in a sequestration application brought against it by Firstrand Bank Limited. The Appellant accepted the appointment and requested security in the form of a suretyship agreement by which the Trust would bind itself as surety and co-principal debtor for Ms Volker’s debts, including all legal fees and disbursements in the divorce action.

On 25 May 2013, a meeting of the trustees was held to discuss, inter alia, the signing of the deed of suretyship in favour of the Appellant. Notice of the meeting was provided but Mr Volker did not attend, and the necessary resolution was passed in his absence. Subsequently, the suretyship agreement was signed by the majority of the trustees, namely Mrs Volker and Mr De Witt. When Ms Volker failed to settle her account, the Appellant sought judgment against the Trust.

A deed of suretyship must meet several requirements to be valid and enforceable. It must be a written agreement which clearly sets out the identity of parties, including the principal debtor, the surety, and the creditor, as well as the nature and extent of the debt owing. Additionally, it must be signed by or on behalf of the surety. In the case of a juristic entity, such as a trust, a resolution, signed by the trustees, is also required to authorise the decision to enter into a suretyship agreement on behalf of a Trust.

The Law

The SCA considered various long-established principles relating to the administration of trusts. It confirmed that a valid resolution is essential to authorise all acts by the trustees on behalf of the trust and that, unless a provision in the trust deed holds otherwise, the trustees must ‘act jointly in taking decisions and resolutions for the benefit of the Trust and beneficiaries thereof’. The Court noted further that in relation to the use and control of trust property, the trustees are in essence co-owners and must therefore act jointly when handling trust assets.

The Findings

The Appellant contended that, because all of the trustees were given proper notice of the meeting, the requirement that all the trustees act jointly was met. It argued that because clause 16 of the trust deed required that majority decisions be upheld, the suretyship agreement, which was signed by the majority and authorised by a resolution taken by the majority of the trustees, was therefore valid and enforceable. The SCA did not agree.

Upon consideration of the relevant provisions of the trust deed, the SCA found that the trustees had not acted jointly and in a manner required by the trust deed when they resolved to sign the suretyship agreement. The Court agreed with the Respondents, that the trust deed explicitly required the trustees to act unanimously when acting for and conducting business on behalf of the Trust. The decision to sign the surety agreement was confirmed to be an ‘external’ decision, which involved an outside party and property owned by the Trust. Therefore, to legally bind the Trust, the decision needed to be authorised by a resolution signed by each trustee. In comparison, an internal decision may have been discussed and then passed by the majority.

Additionally, Mr Volker failed to express any opinion on the matter and did not participate in the meeting of the trustees, in person or by proxy. Although the necessary quorum for a meeting of the trustees was met, clause 13.4 of the trust deed required that any resolution taken at a meeting of trustees, should be signed by all trustees. Neither the suretyship agreement nor the resolution was signed by all three trustees and therefore it could not be said that they acted ‘jointly and unanimously’.

Furthermore, neither the deed of suretyship which related to Ms Volker’s personal debts nor the resolution authorising the trustees to sign it was held to be beneficial to Trust. Upon review of the suretyship agreement, the Court stated that the agreement itself was drafted to afford the Appellant broad and over-arching protection and could ultimately not be said to benefit the Trust.

Accordingly, the SCA found in favour of the trustees and the resolution was held to be invalid. As a result, the surety agreement was found to be unenforceable. The appeal was dismissed with costs.

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