If you snooze, you lose!

In many commercial cases, the actual authority of the representatives of the contracting parties is placed in dispute. By way of example, one party alleges that the signatory to a contract was not duly authorised by the board of directors to conclude the contract and, accordingly they seek to avoid the consequences of the contract by virtue of a lack of authority.

8 Jul 2020 4 min read Dispute Resolution Alert Article

The usual defence to such allegations of lack of actual authority is to plead either that there was actual authority, or alternatively that the contracting party represented that the representative had the necessary authority to conclude the contract and is accordingly estopped from denying the lack of authority. 

This is no different in the case of a trust, which acts through its trustees as specified in the trust instrument known as a trust deed, which is registered at the Master’s office. The conduct and authority of certain of the trustees of the Bakubung-Ba-Ratheo Economic Development Trust (the trust) came into focus in a recent case before the Supreme Court of Appeal, Tshaka N.O. and three others vs Standard Bank of South Limited and another (Case Number 141/2019).

The trust had been established with the objective of advancing the socio-economic development and upliftment of the Bakubung-Ba-Ratheo community, and for this purpose the trustees passed a resolution on 23 July 2007 authorising two trustees to open a bank account with Standard Bank. The resolution contained two important provisions:

  • These trustees were to arrange and maintain electronic banking access as well as transnational limits and to sign all relevant documentation pertaining to the account.
  • This authority would remain in force indefinitely or until advised otherwise, by the trustees, by way of a further resolution.

Accordingly, as far as Standard Bank was concerned, these two nominated trustees were authorised to act on behalf of the trust and to transact on behalf of the trust until advised otherwise. The bank account was opened on 21 January 2018.

In this case there were two pertinent transactions that took place on the bank account that became the subject matter of litigation, being two transfers of monies to the second respondent, the Bakubung Economic Development Unit. A transfer of R5.5 million took place on 26 July 2011 and the second transfer of R4 million on 28 October 2011, both in terms of instructions from the authorised representatives of the trust.

On 17 October 2011, and shortly before the second transfer, a representative of the trust met with Mr Millar of Standard Bank to inform him that the first transfer had occurred without a resolution or minutes of a trust meeting. On the same day this trust representative sent an email to Mr Millar requesting that he “stop any transfers from the account... until we notify you as trustees”. The following day Mr Millar responded to the email with the following request: “Please urgently send us a written request signed by ALL trustees to this effect.

No response was received to this written request at the time and a week later the two authorised trustees requested the second transfer of R4 million. It was only on 6 December 2011 that the trustees wrote to Standard Bank enclosing a resolution from all the trustees adopted on 28 November 2011, in terms of which new trustees were appointed as authorised signatories on the bank account. 

Accordingly, the trustees of the trust instituted action against Standard Bank out of the Gauteng Local Division of the High Court, the court a quo, for repayment of the monies transferred out of the trust’s account. The court a quo found that the bank was not negligent in acting on the instructions of the authorised signatories and had in fact made their position clear in regard to what steps had to be taken by the trust to stop any further transfers, which steps were not taken at the pertinent time.

The Supreme Court of Appeal quoted directly from several cases inclusive of the Land and Agricultural Bank of South Africa vs Parker and other the 2005 (2) SA77 (SCA) which provided that “It is a fundamental rule of trust law … that in the absence of contrary provision in the trust deed the trustees must act jointly if the trust estate is to be bound by their acts…Since co-owners must act jointly, trustees must also act jointly.” 

In this case despite being requested to act jointly, the trustees failed to act jointly and failed to provide the bank with the necessary urgent instruction to stop all transfers. This was a critical requirement by virtue of the fact that their previous resolution had authorised two trustees as the authorised signatories on the bank account.

In transacting with third parties it is fundamental that trustees or directors for that matter inform third parties of who is authorised to represent the trust or the company so as to avoid any adverse transactions been concluded to the detriment of the trust and/or the company.  At times urgent action is required and as the saying goes, “If you snooze, you lose!”.

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