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By Marietjie du Toit

The trust legal institution, as it is recognised today – was unknown in Roman-Dutch law, although the principle of fiduciary duties has been a universal phenomenon for many centuries. After the occupation of the Cape by the English in 1806, the legal institution of a trust, as it developed in England, was ‘imported’ into the South African Legal system (PA Olivier, S Strydom and GPJ van den Berg Trust Law and Practice (Durban: LexisNexis) 3-33 at para 3.4.2.1.10 – self-enrichment and the bonus paterfamilias). It mentions that in the United States of America, the trustee’s primary obligations are identified as ‘duty of loyalty’. This term is not known in South African legal terminology, although it may manifest in the spirit of public policy and ubuntu. This duty primarily excludes any element of ‘self-dealing’, and ‘self-enrichment’ is expressly prohibited.

Post the establishment of the Union of South Africa in 1910, various statutes gave recognition to the trust as a legal institution (JP Coetzee ‘n Kritiese ondersoek na die aard en inhoud van trustbegunstigdes se regte ingevolge die Suid-Afrikaanse Reg (LLD thesis, UNISA, 2006) at 75-76). In 1984, the Appellate Division recognised that a testamentary trust was in fact a legal phenomenon sui generis, confirming its unique nature in Braun v Blann and Botha NNO and Another 1984 (2) SA 850 (A), and rejected the comparison of the trust to a fideicommissum. Consequent to the ruling, a trust became recognised as a legal institution sui generis.

Walter Geach and Jeremy Yeats (Trusts: Law and Practice (Cape Town: Juta 2008) at 5) state that the former Law Commission, now known as the South African Law Reform Commission (SALRC) already recommended in 1987, that the law of trusts should not be codified but that only certain administrative aspects needed regulation. The result was the promulgation of the Trust Property Control Act 57 of 1988 with effect from 31 March 1989. The Act consists of 27 sections and it is clear from the provisions that the Act in practice aims to regulate certain administrative aspects in respect of a trust. These aspects include inter alia: the control of the office of the fiduciaries/trustees; the powers vested in a trustee; protection of the beneficiaries; the powers vested in the Master of the High Court as well as the powers of the court.

The Trust Property Control Act can be described as ‘special law’ (VG Hiemstra and HL Gonin Trilingual Legal Dictionary (Cape Town: Juta) 217; (Paul.: Dig. 1.3.16)). ‘Special law is that which, contrary to the dictates of reason, has been introduced by the authority of the legislators in contemplation of some particular advantage.’ It can be anticipated that the law incorporated in the Trust Property Control Act is subjective law, for the particular advantage of one person or spouse in the creation of a trust by the transfer of ownership in either a joint- or accrued property.

Currently, in South African trust law, there is no certainty in law, with regard the division of joint assets which are then transferred to a discretionary trust. In the event of a divorce action the negative financial consequences for a spouse, as an equal contributor to the family trust fund may be devastating. There is no legislation regulating the creation of the family trust, except the common-law principles which, it is argued, are more than often not applied clearly and consistently by South African courts. It further follows then that the protection of beneficiaries includes the constitutional validity and legality of trust deeds, any other agreement between trustees as well as deeds of settlement. It is commonly asserted that spouses and their partners all have a common intention even before the marriage, to provide for themselves and/or their family.

It is alleged that basic human rights and valid trust-law principles are not deemed applicable by the majority of South African courts in divorce disputes and the division of matrimonial property that include trusts. This contributes to an infringement on property rights, which may be a criminal course of action resulting in said invalid resolutions and actions being legalised by some South African court rulings. The dilemma is worsened by the deceptive definition of a ‘trust’ as regulated by the Trust Property Control Act. It is suggested that the wording in s 1, ‘ownership in property of one person’, in the definition of a ‘trust,’ could contribute to the prejudice of a spouse in a joint estate where jointly-owned assets are transferred to a family trust and the balance of power is reserved for only one trustee with even a testamentary prerogative. The same principle may apply to the accrual objective.

The uniqueness and flexibility of a trust as legal instrument, coupled with little legislative regulation, may allow the misuse and abuse of this legal institution as stated in Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA) at paras 22, 26 and 29. To endorse this statement, note must be taken of the important judgment in Crookes, NO and Another v Watson and Others [1956] 1 All SA 227 (A) at 242-244. At this early stage of the development of trust law, Schreiner JA, in a minority ruling, was already of the opinion that a trust is an independent legal entity with great potential. However, care had to be taken not to force it into a ‘mould not properly shaped’ for it. Such a mould may be in the form of a legal institution, where existing personal and property rights of one of the spouses are exterminated, without any legal basis or foundation and procured by the other spouse for the accumulation of personal wealth.

The trust as a legal institution has its critics. Van den Heever JA, in a separate minority judgment in Crookes at 242-244, found the trust entity, as it arose in those circumstances, unacceptable in South African law. He was further of the opinion that the trust as a legal institution, does not deserve independent existence within the South African legal system in the form that it was presented in that specific case. He held in this regard in Crookes at 243:

‘Shorn of verbiage the trust deed amounts to no more than this: it is a contract between the settlor on the one side and himself and his by no means independent nominee on the other, pursuant to which he takes his money from one pocket, places it in the other and proceeds to dictate laws unto himself as to what the fate of that money shall be.’

In WT and Others v KT 2015 (3) SA 574 (SCA), the SCA overruled the decision of Lamont J in TW v TK (GJ) (unreported case no 02268/2010, 19-9-2013) in the South Gauteng High Court. The partners lived together before they were married in a community of property matrimonial regime. The trust was proposed, when they decided to purchase a family home. However, with its creation, the trust had no beneficiaries who could possibly benefit from this simulated ‘trust’ legal institution.

In fact, such a ‘trust’ is a sham and invalid. However, when the applicants discover this fact during the process of getting divorced, they immediately created an amendment to the trust deed, which is illegal and fallacious. This wrong decision in WT v KT, has become the stare decisis for the past nearly eight years. It follows that the consequences for one of the equal contributing spouses in the case of Du Toit v Du Toit (FB) (unreported case no 2792/2015, 22-1-2016) (Daffue J) a stare decisis ruling on WT v KT, may be recognised as unjustified enrichment of the founder to the value of approximately nearly R 25 million.

As there is no current legislation to redress this unjust situation of the creating of a trust by alleged agreement and the subsequent transfer of equal ownership in property, the aggrieved spouse as a beneficiary is left without any remedy if the marriage is terminated by divorce. Indebted relief was, however, brought by the ruling in the out of community of property case of LW v CW and Others (WCC) (unreported case no 12866/2014, 26-8-2020) (Salie-Hlophe J) and the recent ruling in PAF v SCF 2022 (6) SA 162 (SCA) – subject to the accrual system.

It may be argued that the founder of a trust, created prior to the adoption of the Constitution into South African law, did not foresee that constitutional and Bill of Rights’ values (both of which protect any individual against unfair discrimination on the grounds of race, sex, gender, association and/or religion), would become the rule of law, although the common-law principles have the same effect. Francois du Toit (South Africa Trust Law: Principles and Practice (Durban: LexisNexis 2007) at 60) claims that the ‘ownership in property of one person’, refers to the property of the founder. Consequently, the trust deed may be invalid and unenforceable, if the transfer of assets fails due to the common-law maxim, nemo plus iuris (see also IM Shipley ‘Trust assets and the dissolution of a marriage: A practical look at invalid trusts, sham trusts and piercing the veneers of trusts/going behind the trust form’ 2016 (28) SA Merc LJ 508 at 517 III: Argument one: failed transfers). The trust can be a simulation of a transaction, as well as the de facto, invalid control of trust assets because of the exploitation of the common-law maxim nemo plus iuris.

The ruling of the Supreme Court of Appeal in Marais and Another NNO v Maposa and Others 2020 (5) SA 111 (SCA), is of significance in respect of the protection of the property rights and interests of spouses married in community of property. A Full Bench ruled on s 15(3)(c) of the Matrimonial Property Act 88 of 1984 (MPA). The spouses in question were married in community of property. The matter in dispute was the validity of the alienation of joint assets without the consent of the other spouse as set out in s 15(9)(a) of the MPA. The stipulation in a will to transfer joint property to a third party was declared void. It is assumed that no spouse in any matrimonial regime, is likely to give consent to a transaction in which he or she could suffer a loss of assets which were accumulated over many years of hard work and financial prudence.

A concerning fact is, that the effects and consequences of the creation of a trust within the context of s 1 of the Trust Property Control Act are never mentioned, nor the fact that one of the spouses may enter into the transaction, not knowing of the fraudulent misrepresentation of said transaction. The creation of a trust from joint assets, or assets which will form part of the accrual remedy, could be done for no other reason than to hide those assets in the trust to escape the consequences that would ensue in the event of divorce or other dispute. This is an example of the ‘substance over form’ law principle or the ‘shamming intention’ of the founder as discussed by D Pavlich in Trusts in Common-Law Canada (Canada LexisNexis 2014) at 111. Pavlich, asserts that ‘an Act of Parliament shall not be used as an instrument of fraud.’ It can unfortunately not be construed that the Trust Property Control Act does not provide a loophole for fraudsters in any matrimonial regime.

It is thus proposed that the alleged unconstitutional and illegal Trust Property Control Act is in need of development in the sense of lawmakers becoming aware of potential prejudice to property and human rights as a result of the present definition of a ‘trust’. A reasonable solution may be the reading into s 1 of the Trust Property Control Act, a few critical additional words for the protection of spouses’ personal and property rights, in whichever matrimonial regime the spouses are married. The definition of a ‘trust’ could read: ‘[T]rust means the arrangement through which the ownership in property of one or more founders, equipped with notarial pro rata interest certificates (or shares) is made over or bequeathed by virtue of a trust instrument.’ This procedure is already being followed in some business trusts, without any regulated trust legislation.

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

This article was first published in De Rebus in 2023 (Dec) DR 28.