22 June 2021 by and Corporate & Commercial Alert

Proxies: The power is in the mandate

In the Supreme Court of Appeal (SCA) case of Malatji v Ledwaba No and Others (1136/2019) [2021] ZASCA 29 (30 March 2021), the court considered whether a general meeting of the Mamphoku Makgoba Community Trust (Trust) was convened in compliance with an order handed down by the SCA in 2018 (2018 Order) and the trust deed of the Trust (Trust Deed).

In terms of the 2018 Order, the SCA ordered the independent trustees of the Trust to convene and hold a general meeting for purposes of nominating and appointing a new board of trustees. A meeting was subsequently held, and a new board of trustees was appointed. Thetele Joseph Malatji (Malatji), who was both a beneficiary and a trustee of the Trust, applied to the High Court to have the election set aside. Malatji argued that the election process was flawed in that, inter alia, the independent trustees (i) made provision in the notice convening the meeting for voting by way of ‘proxy’ where the particular beneficiary was deceased; and (ii) permitted absent beneficiaries to vote by proxy; in circumstances where no provision therefor was made in the Trust Deed or in the 2018 Order. The application was dismissed by the court a quo.

On appeal, the SCA declared that the general meeting of the Trust was unlawful and interdicted the trustees elected at the meeting from acting as trustees of the Trust. In arriving at its decision, the court noted that the nomination and appointment of the new board of trustees was to take place ‘in accordance with the relevant provisions of the Trust Deed’, which enjoined the trustees to hold a general meeting for the purpose of such election by beneficiaries present and entitled to vote in terms of the Trust Deed.  The provisions of the Trust Deed require of a beneficiary to be both present at the meeting and not younger than 21 years old in order to qualify to vote.

The respondents argued that ‘present at such meeting’ should be interpreted to include ‘present by proxy’. It was contended that on a proper interpretation of the Trust Deed, the beneficiaries named in the register are not the sole repositories of benefits under the Trust, but rather they are representatives of a household and where a beneficiary had died, an individual, properly authorised, was entitled to continue to represent the household. The respondents further submitted that the approach taken by the independent trustees to allow voting by proxy through mandated representatives was entirely consistent with the scheme of the Trust Deed.

The SCA rejected this argument and held that a proxy is simply a form of mandate. It requires a mandate to be extended by the principal to his or her agent to exercise the vote to which the principal was entitled at the meeting. Clearly, a deceased beneficiary is unable to extend a mandate and as such, the procedure adopted by the independent trustees in regard to the deceased beneficiaries is unrelated to proxies.

In respect of the beneficiaries who were absent and represented by ‘proxy’ at the meeting, the SCA found that ‘…where a person is required by statute to perform an act involving the exercise of his discretion in a matter in which another has an interest he may not, by common law, delegate his power. Thus, a citizen is not entitled to vote by proxy in a public election. No reason in logic commends itself to hold otherwise where a trust deed entitles beneficiaries under the trust to vote for the appointment of trustees. Voting by proxy could therefore only have been permitted if the trust deed provided for it. It did not do so expressly and Mr McNally was unable to refer to any other provisions in the trust deed which might be indicative of an intention to permit voting by proxy’. The court held that being ‘present at the meeting’ meant being physically present and thus the acceptance of votes by ‘proxy’ on behalf of absent beneficiaries was in breach of the Trust Deed.

This case highlights the importance of ensuring that a trust deed (or a Memorandum of Incorporation, as applicable) contains a proxy construct which expressly allows for the appointment of proxies. There is no common law right to vote by proxy and unless the applicable document provides for voting by proxy, or a statute permits you to appoint a proxy (e.g. in terms of section 58 of the Companies Act 71 of 2008 in respect of shareholders), you cannot appoint a proxy.

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