Historical development of Trusts

The English trust found its way to South Africa two centuries ago when, in 1806, the Cape became a British colony. As part of the peace treaty, Roman-Dutch law was retained as the official legal system. Despite this, a gradual absorption of English legal principles and a close relationship with English legal institutions became the order of the day.

It is not known when and where the English law trust was first used in South Africa, but the first reported judgment in which a trust was mentioned was decided in 1833 (Twentyman v Hewitt 1833 as per Cameron 21 et seq). As the years went by, more and more cases were decided in which trusts were referred to. In this way, a process was started whereby the English trust, with its concept of an equitable ownership distinct from, but co-existing, with the legal ownership (or “dual ownership” according to the American law of trusts) was to be reconciled with the Roman law dominium as well as Roman-Dutch law concepts such as fideicommissum, bewind and stipulatio alteri (Estate Kemp v McDonald’s Trustee 1915 AD 491, CIR v Sive’s Estate 1955 1 SA 249 (A); Crookes v Watson 1956 1 SA 277 (A); Hofer v Kevitt 1998 1 SA 382 (SCA) and 1996 2 SA 402 (C); Cameron 272 et seq).

This process of reconciliation between the English law and the Roman-Dutch law, or the South Africanising of the trust law as one can also call it, is still far from completion. Coertze, in his doctoral thesis Die trust in die Romeins-Hollandse Reg, as long ago as 1948 stated (per Olivier 16):

“(d)ie wasdom en ontwikkeling van die Treuhand-idee in ons reg het plaasgevind onder invloed van die Engelse reg. Die Engelse terme trust en trustee is geadopteer maar nie die Engelse trustreg nie. ’n Eie trustreg is deur ons regspraktyk en deur ons Howe ontwikkel maar dit is nog ver van voltooi”.

More than 60 years have lapsed and still many issues regarding the trust are in a process of development, such as whether a testamentary trust and more particularly an inter vivos trust inheriting certain assets from a testator ought to be regulated by the trust law in general or by the law of succession; what the real legal nature of an inter vivos trust is; the definition of a business or trading trust and the legal nature of this form of enterprise and the whole question of the legal personality of the trust, to mention only a few. The time has also come for proper legislation pertaining to pre-formation contracts, as will be discussed later. (See also now BS Smith as well as Smith and Van der Westhuizen.)

In view of want for legal certainty on these and other topics mentioned below, it may be the time now again for a review of the entire subject of the law of trusts by the South African Law Commission (see the Commission’s last report, published in June 1987: Project 9 Review of the law of trusts, which led to the promulgation of the Trust Property Control Act 57 of 1988), or, perhaps, any other law-making body.

Although the classical conservation and protection of property have, over the years, been an important objective for the use of the trust in South Africa, it is only during the latter half of this century that practitioners have started to use the traditional trust figure, with or without certain adaptations and innovations also for business purposes. An example of these adaptations and innovations is the so-called Massachusetts Trust (derived from its origin in the USA) where the beneficiaries provide the trust capital, in return for which they then receive share certificates as proof of their pro rata interest in the venture (Olivier 117–119 and 130 and Wunsh 563).

The historical development of the trust in general and of the business trust specifically, as well as its growth in popularity in South Africa, has caused trustees and practitioners alike to consider the obvious eventuality, namely, of also utilising the trust as a trading entity. Mere considerations soon became implementations and this again led to the development of specific trade usages, which in its turn played and is still playing a role as a trust-law-creating medium. The concept of “trade usage” in this sense refers to the commercial practice of utilising the ordinary or private trust as a trading enterprise, as well as to the applying of a foreign concept of law such as the Massachusetts Business Trust. Whether these trade usages have reached the stage of validity – that is, they are long-established, reasonable, certain and have been uniformly observed over a long period of time – is, perhaps, still lacking confirmation. (Also, on custom, see Van Breda v Jacobs 1921 AD 330; Coutts v Jacobs 1927 EDL 120; Golden Cape Fruits (Pty) Ltd v Fotoplate (Pty) Ltd 1973 2 SA 642 (C).)

Some confirmation is to be found in Goodricke and Son (Pty) Limited v Registrar of Deeds, Natal 1974 1 SA 404 (N) and Pretorius v CIR 1984 2 SA 619 (T) 628A where the validity of the business trust was accepted. Save for these two cases, as well as ITC 1483 (1990) 52 SATC 306 (T) and very limited specific regulation, until recently the only South African sources of law on the business trust have been the legal writings of academics and practitioners, which, in any case, only have persuasive value when it comes to the creation of law. In recent years the practical application of the trust as a business entity came under the scrutiny of the South African courts. In Nieuwoudt v Vrystaat Mielies (Edms) Bpk 2004 3 SA 468 (SCA) 493E Harms JA refers to “a newer type of trust” which is capable of conducting the business of farming and that this case “raises a troubling aspect about business trusts” (493D–E) which will be discussed in par B4.2.3 infra. In Land and Agricultural Bank of SA v Parker 2005 2 SA 77 (SCA) 87G–H Cameron JA refers to the fact that “trusts have increasingly been used to transact business”. Prior to these cases there was little consensus among South African jurists on the true meaning of the business trust. This caused legal uncertainty and even a division into two schools of thought, namely, those in favour of the business trust as a separate business entity and those who do not want to recognise it as such (Wunsh 561, Olivier 116, Theron 1991 SALJ 277). However, as will be seen later on, the Supreme Court of Appeal has now unmistakably given recognition to the business trust, albeit with some concern and important caution. (See B4.2 infra.)

The inter vivos trust in general and the South African business trust specifically, as will be seen infra, is in the process of development and therefore experiencing its fair share of legal uncertainty. As many years ago as 1952 HR Hahlo wrote “When it comes to trusts in our law, even the most elementary propositions cannot be regarded as settled” (SA Law Journal 349). It is amazing to see, how, after all these years, the trust is still surrounded by a great deal of uncertainty, but despite this, it has grown into an indispensable tool for protective planning as part of holistic estate planning, where its popularity overshadows its uncertainty entirely. In recent years it also has become a popular and an important tool for the planning of privately-owned businesses and lately also as an indispensable tool in the business structures developed for the broad-based black economic empowerment of previously disadvantaged persons. According to Cameron the business trust makes available a form of organisation intermediate between a partnership and an incorporated company or close corporation (Cameron 95). Whether the popularity of business trusts continues will depend on their relative tax position and the degree of publicity and state regulation attaching to them (Cameron 92) as well as the extent to which the fiduciary duty attached to the office of trustee will allow trustees to expose trust assets to business risks (Administrator, Estate Richards v Nichol 1999 1 SA 551 (SCA)).

It is furthermore a good example of how a civil law country can assume the common law, in this case the trust figure, adapt it to its own system and put it to a wide variety of uses, one of which is in its corporate law (Van der Westhuizen 15).

Unlike other civil law jurisdictions such as Switzerland, the trust with its home in England and being an English (common) Law concept, therefore, experienced no undue problems in making itself acceptable in the somewhat foreign South African civil law surroundings, confirming what was said by Sir M Amos, that “(t)he English trust has everywhere planted itself like a cuckoo in the nest of the civil law” (per Olivier 7 et seq and Poncet N and Meakin IL “Trusts and Switzerland” International Business Lawyer July/August 1998 324). However Switzerland, unlike South Africa, has ratified the Hague Convention on the Law Applicable to Trusts and their Recognition (Cameron 660 & Richardson 1). It provides that you can choose any governing law for a trust that you wish, provided that the choice is not manifestly contrary to public policy.

Equally, the testamentary trust is undergoing its own process of development after having been rid of its assimilation to the fideicommissum and after our courts having recognised the validity of conferring our common law powers of appointment on trustees to select income and/or capital beneficiaries from a designated group of persons (a more specific power than a mere general power) through a salutary development of our law of trusts (per Joubert JA in Braun v Blann and Botha 1984 2 SA 850 (A) 866H–867A and 859F–G and see also Wiechers (Corbett) 1 et seq). Referring to the Braun case Cameron JA in the Parker case supra (90E) confirms the court’s power and duty to evolve the law of trusts by adapting the trust idea to the principles of our law.


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