Building common-law principles of trust law: One cannot transfer more rights than one has

August 1st, 2022
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By Marietjie Du Toit

This article discusses the substantive gender inequality and unfair discrimination in trust law disputes. The cornerstone of trust law is the common law. In the event of divorce – many an equal contributor to the trust fund is prejudiced by the absence of any protection clauses contained in the trust deed.

Furthermore, prejudice and inequality prevail as a result of wrong decisions made by the courts and the questionable stare decisis doctrine. For example, the decision in the appeal case of WT and Others v KT 2015 (3) SA 574 (SCA), as ordered by a Full Bench of the Supreme Court of Appeal, where the foremost and leading common-law principles of trust law are ignored. In the following stare decisis case of Du Toit v Du Toit and Others (FB) (unreported case no 2792/2015, 22-6-2016) (Daffue J) the WT v KT ruling was followed with the result of immense financial loss for one of the parties.

The deceptive definition of a ‘trust’ as determined by s 1 of the Trust Property Control Act 57 of 1988 provides a loophole for founders of family trusts where the couples are married in community of property or with an accrual matrimonial property regime. The definition states that a trust is the ‘ownership in property of one person’, which is not what it is in these regimes. Section 1 of the Constitution provides the following values:

‘(a) Human dignity, the achievement of equality and the advancement of human rights and freedoms;

(b) Non-racialism and non-sexism’.

This provides certainty and more ammunition in the legal arsenal concerning the protection of the human rights of equal contributors to family trust funds.

Academic authorities state that the validity of 85% of trusts in South Africa (Prof Willie van der Merwe ‘How do I … ? Administer a Trust after Creating it’ Paper presented at trust seminar (October 2010)) and 75% of Canadian trusts (Matthew Conaglen ‘Sham Trusts’ (2008) 67(1) Cambridge Law Journal 176), may be in question, due to the extent of arbitrary control exerted by its founders. It is stated by Mervyn Dendy that:

‘Common-law rules and principles formulated by, for example, courts in decided cases are also subject to constitutional scrutiny, and may thus be modified or, in the last resort, set aside in the light of the Constitution’ (Mervyn Dendy ‘In the light of the Constitution – I: The supremacy of the Constitution’ 2009 (Jan/Feb) DR 60).

In this modern legal era, accountability is preferred to authority. According to Dendy it follows that s 39(3) of the Constitution ‘overrides’ any legal principles or rules that are in conflict with the Bill of Rights. In this regard, it is important to mention the invalid and unfair discriminatory clauses that are included in trust deeds as well as deeds of settlements in the event of divorce.

As the common law forms the cornerstone of trust law (Walter Geach and Jeremy Yeats Trusts: Law and Practice (Cape Town: Juta 2008)) the following maxims are discussed and are of significant importance in context of a valid agreement and in improving the necessary protection of property rights of equally contributing spouses in trust law.

  • Nemo plus iuris ad alium transferre potest, quam ipse haberet.

The absence of the application of this common law principle in the creation of a trust regarding the transfer of jointly owned property, is disturbing and alarming. The non-existence of legal principles, which are meant to protect the property rights of the other spouse in joint and accrual matrimonial regimes requires urgent attention under the equitable rule of law, including the protection as regulated by the constitutional values in s 1 of the Constitution. Latin maxims are to be applied, in order to endorse a statement in research. The primary issue concerns the correctness of the phrase and its origin (Franciszek Longchamps de Bérier ‘Remarks on the methodology of private law studies: The use of Latin maxims as exemplified by nemo plus iuris’ (2015) 21 Fundamina 63).

It is of paramount importance, that one should have a clear understanding of the nemo plus iuris ad alium transferre potest, quam ipse haberet (VG Hiemstra and HL Gonin Trilingual Legal Dictionary (Cape Town: Juta 1992) at 236: ‘No one can transfer more rights to another than he himself has’) maxim, also known as ‘the golden rule’ in the common law of property, as applied to the ‘law of things’ by the Roman jurists. This legal principle focuses on the rights of beneficiaries in an inter vivos discretionary family trust and in particular the right in title of a founder in a joint property regime.

In the everyday use of Latin maxims, the legacy of the Roman law as the foundation of the common law is acknowledged. The Roman law fully respected the nemo plus iuris rule regarding personal rights (De Bérier (op cit) at 78). The maxim was first used by Ulpian at the beginning of the third century AD and was applied within the context of the law of succession, where the rule developed dynamically as a result of the activities of the jurisdictional magistrate (De Bérier (op cit) at 69 – 70).

Ulpian (De Bérier (op cit) at 71 – 72) found it absurd for someone for example, the founder/trustee to whom an estate has been bequeathed, to have stronger rights than the heir or the testator himself would have had, if he had accepted the inheritance. This fact brings into dispute, the arbitrary clauses for the benefit of the founder as a trustee and as a beneficiary (eg, in deeds of settlement), as well as the testamentary prerogative clauses for the benefit of the founder’s estate, while ignoring the material fact that joint assets have been transferred. De Bérier writes that F Schulz goes even further, stating that Ulpian’s wording may have actually meant, that it was legally unacceptable for an heir (the founder) to transfer greater rights to someone else (the trustee of the trust), than he would have had if he had accepted the inheritance (De Bérier (op cit) at 71).  Furthermore, De Bérier writes that Ulpian’s contemporary, the ancient jurist, Paul, held the same view: ‘I ought not to be in a better position than the person from whom the right passes to me’ (De Bérier (op cit) at 72).  De Bérier notes that Reinhard Zimmerman states:

‘First of all, we have to remember … [that in its structure] the contract of sale contained everything that was necessary to transfer ownership except [the act of delivery by] traditio (or mancipatio). Once the object was handed over (or mancipated), and provided the vendor himself had been owner, ownership passed’ (De Bérier (op cit) at 76).

Paul states further that nemo sibi ipsum, the equivalent to nemo plus iuris, was well established and documented in ancient Roman law, adding that ‘no one can change for himself the title by which he possesses something’ (De Bérier (op cit) at 79-80). In Roman Law this maxim was also of great significance in the Law of Obligations. Ulpian (De Bérier (op cit) at 75) elaborate on it, as follows:

‘Delivery should not and cannot transfer to the transferee any greater title than resides in the transferor. Hence, if someone conveys land of which he is owner, he transfers his title; if he does not have ownership, he conveys nothing to the recipient. Now whenever ownership is transferred, it passes to the transferee to the same extent to which it was held by the transferor.’

The statement confirms the fact that the founder in a joint or accrual matrimonial regime does not have the right in terms of the law, to create the trust, by means of a transfer of ‘ownership in property of one person’ (s 1 of the Trust Property Control Act. F Du Toit South African Trust Law: Principles and Practice (Cape Town: LexisNexis 2007) at 60 states that ‘the ownership in property of one person’ refers to the property of the founder). Both spouses, (same can be said for spouses married with the accrual system) have to be involved in the process of creating the trust, with equal financial interest in the form of a certificate or a share in the procedure (the Companies Act 71 of 2008 defines ‘share’ as ‘one of the units into which the proprietary interest in a profit company is divided’). A founder as a spouse in a joint matrimonial regime cannot, therefore, under the rule of law transfer arbitrary power to himself or herself, by including subjective beneficial provisions in trust deeds.

A family trust is a legal institution of fiduciary obligations towards the beneficiaries and not for the benefit of only one beneficiary, being the founder himself or herself in a joint matrimonial regime. Such conduct will bring us back to the verdict of Van den Heever JA in the minority judgment in Crookes, NO and Another v Watson and Others [1956] 1 All SA 227 (A) at 243 – 244 where the concern for the misuse and abuse of this trust legal institution was stated by the judge.

  • Quod ab initio non valet in tractu temporis non convalescit.

This Latin maxim holds that whatever is void from its beginning does not gain validity by the effluxion of time (Hiemstra and Gonin (op cit) at 270). This maxim could include any agreement or act with an unlawful intention. It is trite law, that no legal outcome flows from an illegitimate act. In Crookes at 244 it was held by Van den Heever JA that:

‘I can think of no principle of our law according to which the individual can during his lifetime unilaterally sequester a portion of his estate and dedicate it to certain ends. I have especial difficulty in seeing how he can in that manner irrevocably benefit persons not as yet conceived. If he performs an act purporting to do these things, I have some difficulty in seeing how he himself can inhibit his autonomy.’

When the definition of a trust as set out in s 1 of the Trust Property Control Act is scrutinised, the consequences for one of the spouses in a community or accrual of property regime, will prejudice both property and personal rights. Thus, the founder, who transfers all the property as if the title vests in himself or herself alone, could well be guilty of an attempt at fraud and theft, or unjustified enrichment and thus without any legal ground to stand on.

  • Delegatus delegare non potest.

In his article on the use of Latin maxims, De Bérier (op cit) at 66 quotes the famous second century AD jurist, Julian, who declared that a power in obligation to administrative justice, should only be delegated to another, where the power vests in him or her (the founder/trustee) personally and not through the favour of another. Therefore, the ancient root of the maxim lies in the domain of power possessed by the one who delegates the power. He further declares ‘the structural impossibility’ to delegate power that had been delegated.

Conclusion

A fundamental characteristic of South African constitutionalism is the principle of respect for the law. The issues of the past, namely before 1994 and the adoption of the Constitution, underscore the fact that the rule of law per se does not provide enough protection for the necessary rights of individuals in the jus publicum. To solve this injustice, the Constitution, including a Bill of Rights for the protection of the values of equality, human dignity and the advancement of human rights and freedoms, was adopted. These values are rooted in s 1 of the Constitution and promote the objectives of public policy constituted in good faith, reasonableness, fairness and ubuntu in conduct and agreement.

The supremacy of the Constitution was communicated strongly and unmistakably by Chaskalson P in Pharmaceutical Manufacturers Association of SA and Another: In re Ex parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) at para 44:

‘There is only one system of law. It is shaped by the Constitution which is the supreme law, and all law, including the common law, derives its force from the Constitution and is subject to constitutional control.’

A caveat

Choose the right foundation … and do not build on sand. The tide of justice may easily sweep your sandcastle away.

 

Marietjie Du Toit LLB (Unisa) LLM (NMU) is an accredited mediator of the Social Justice Foundation in Mossel Bay.

This article was first published in De Rebus in 2022 (Aug) DR 15.

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