Lotter, M, van den Berg, G, Strydom, S --- "The express power to amend a trust deed where the trust beneficiaries have accepted the benefits reserved for them" (Vol 2) [2018] DEJURE 16 (2024)

MelanyLötter
LLM;PGDip (Financial Planning)
SeniorLecturer, University of Johannesburg

Gertvan den Berg
BCivIur LLB
Distinguishedresearch associate, University of Johannesburg

StefanStrydom
BCom(Law) LLM LLD
Distinguishedresearch associate, University of Johannesburg

51Volume 2 2018 pp 215-233
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OPSOMMING

Diewysiging van ’nintervivostrustakteingevolge die bepalings van ’n uitdruklike wysiginsgklousule endie implikasies indien begunstigdes reedsvoordele aanvaar het

Diegeldigheid van trust wysigings het die afgelope jare baie aandaggetrek. Selfs die mees noukeurig- opgestelde trustakte magwysigingsbenodig en sekerheid aangaande die geldigheid van sodanige wysigingis uiters belangrik. Die toestemming van ’nbegunstigde watreeds sy voordele ingevolge die trustakte aanvaar het, is sondertwyfel gesag-hebbend vanuit ’n gemeenregtelikepespektiefaangesien die aanvaarde regsbeginsel is dat hy of sy na sodanigeaanvaarding as kontraksparty gereken word. Hierdiebeskouing wasweereens bevestig in diePotgietersaakwat die beslissings inCrookes- en Hofer -gevolghet. In al drie sake het die trustakte óf geenwysigingsklousule bevat nie (CrookesenHofer),óf wel ‘n wysigingsklousule bevat, maar welke klousuleoor beperkings beskik het wat dit ontoepaslik in die omstandighedegemaak het (Potgieter).Gevolglik was die normale gemeenregtelike beginsels aan-gaandetrustwysigings toepaslik op hierdie drie hofsake. Ongelukkig isdiebeginsels neergelê in diePotgietersaakblindelings gevolg in latere hofsake sonder dat onderskeid getref istussen die gevalle waar ’n uitdruklike magom te wysig in dieakte voorgekom het en waar dit nie voorgekom het nie. Die doel vanhierdie artikel is om te bepaal of ’nbegunstigde van ’ntrust wat sonder twyfel sy of haar voordele ingevolge die trustaanvaar het, vereis word om toe te stemtot ’n wysiging van dietrustakte waar daar wel ’n wysigingsklousule in die aktevoorkom. Is sodanige toestemming ’nvereiste waar diewysigingsklousule die vereiste prosedure of metodologie vir diewysiging spesifiseer en stipuleer dat dit gedoenkan word sonder datdie toestemming van die begunstigde vereis word? Ek stel voor dat dieaanvaarding van voordele deur ’nbegunstigde nie dieselfderelevansie inhou vir beide scenario’s nie. By aanvaarding worddie begunstigde ’n party totdie trustooreenkoms wat diebegunstigde ’n reg tot voordele beloof, maar terselfdertydbehels dit dat die begunstigde ookenige gestipuleerde verpligtingewat verband hou met die beloofde voordeel aanvaar. Gevolglik is ditso dat die begunstigde inderdaadsekere beperkinge uit hoofde van dietrustakte kan oploop, wat natuurlik kan insluit dat sy toestemmingtot verdere wysigings vandie trustakte nie nodig sal wees nie.

1Introduction

Inthe South African law of trusts it is generally accepted thatanintervivos1trustdeed may be varied2interms of the common law3onthe one hand, which rules are derived from thestipulatioalteriorthe contract in favour of a third party, or on the other hand byvirtue of or in accordance with the terms of an expressprovision inthe trust deed, a so called variation clause,4andthat these amendments may be effected without the interference of thecourt.5Theneed to amend a trust deed has become pertinent for a number ofreasons, including changes in legislation, economic circ*mstancesand/or the personal circ*mstances of the parties to the trust.6Eventhe most carefully drafted trust deed may require amendments fromtime to time and certainty about the validity of thetrust deedamendment is of the utmost importance and critical to trust andfiduciary practitioners or advisors, as subsequent litigationcanprove very costly.7

Thesignificance of the beneficiaries’ acceptance of benefits andthe implications thereof for the validity of the amendmentsto thetrust deed were once again underlined in thePotgietercase.8Theacceptance of benefits by beneficiaries is undoubtedly authoritativewhen the validity of the amendments to trust deedsis considered froma common law perspective.9However,does the acceptance of benefits have the same significance where anexpress variation clause is contained in thetrust deed? The crispquestion for consideration in this article is whether thebeneficiaries of a trust who have unequivocallyaccepted the benefitsstipulated for them, are required to consent to an amendment of thetrust deed where the trust deed containsa variation clause and,specifically, where the variation clause excludes the need for thebeneficiaries’ participation andor involvement in theamendment.

DeWaal correctly cautions against the temptation to generalise andoversimplify in the quest for the validity of a trust amendment10andreiterates the necessity to clearly distinguish between the scenariowhere a variation clause exists and where it is absentorinapplicable. Where an amendment of the trust deed is contemplated,the advisor or trust practitioner must first determine whetherthedeed should be amended in accordance with the express variationclause in the deed (if there is such an express power reservedin thedeed), or whether the common law principles of stipulation alterishould be followed. If the latter approach is to be followed,thesecond question is about the acceptance of the benefits by thebeneficiaries. Did they indeed accept the benefits stipulatedforthem in the trust and how significant is that acceptance of benefitsin the context of the amendment of the trust deed?

Thesetwo questions will be analysed in this document and the authoritiesfrom leading judgments will be considered, as well asthe viewpointsfrom the leading commentators in this field. The nature ofthestipulatioalteriwillbe reviewed and the consequences of the acceptance of benefits bytrust beneficiaries and its significance on a variationclause in atrust deed will be examined.

2Commentators: How Should anInterVivosTrustDeed be Amended?

DeWaal clearly indicates that the provisions in the trust deed shouldbe decisive11andthat those provisions should dictate how the trust deed should beamended or, conversely, to prevent such amendments.De Waal refers tothe common law approach, that is where all the parties to the trustagreement must agree to the amendment ofthe deed, as an alternativeoption but only applicable where such intended amendment is notexpressly authorised in the trust deed.12

Olivieretalsummarisethe position by proposing that the trust deed should first beexamined for a variation clause or any express powerafforded toparties to amend the deed (the authority afforded to amend the trustdeed need off course not be expressed in a separateloose-standingclause) and only in the absence of such a clause or provision, tothen consider the common law approach to amendthe trust deed.13

DuToit equates a trust deed to a ‘constitutive charter’ andsays that the wording of the trust deed should always bethe point ofdeparture.14Claassenagrees with Du Toit and notes that only in the absence of a variationclause should one consider the common law approach.15

Ina recent Chief Masters Directive,16theChief Master sets out its viewpoint as follows:

“Therule regarding the amendment of contracts (includingintervivostrustdeeds) in common law is as follows (Christie Law of Contract 2006;447):

a)Parties to a contract are free to vary (or amend) their agreement.This means that all the parties to the original contract mayamendthe original agreement as they please, provided that, if a statuteprescribes formalities for the amendment of a contract,thoseformalities must be complied with.

b)Where the original agreement contains a clause prohibiting theamendment of the contract, the parties may still amend the contract,but it must now take place in two stages, first the prohibitionclause needs to be amended, after which the contract may be amended.The two-stage approach can be contained in the same document, but thefirst stage is a pre-requisite for the second stage.

Interms of our common law principles on trusts as set out in Crookes vWatson 1956 (1) SA 277 (A) the trust founder, the trustees andbeneficiaries with vested rights in the trust who have acceptedbenefits under anintervivostrustmay vary the provisions of the trust by agreement. If a beneficiaryhas not yet accepted the benefit, the founder andtrustee may varythe trust provisions without the cooperation of the beneficiary.Should the founder and trustees of anintervivostrustpurport to vary the provisions of the trust without the consent ofthe beneficiaries who have accepted a benefit, thevariation to thetrust deed would be invalid and have no legal force and effect.

Thequestion arises as to whether the provisions of anintervivostrustdeed with regard to the amendment of the deed can overrule the abovecommon law rule by expressly permitting amendmentsof the trust deedby the trustees without the consent of beneficiaries with vestedrights in the trust and who have accepted theirbenefit under thetrust deed. This question was answered in the decision ofPotgieter& another v Potgieter NO & others [2011]JOL 27892 (SCA) the essence of which was succinctly summarized byThinus Claassen in his article “Die wysiging vanintervivos-trustaktes:’n evaluerende perspektief op die Potgieter saak”,published in 2014ActaJuridica243.The current position can be distinguished as follows:

a)If the trust deed expressly permits the amendment of the deed by thetrustees without the involvement of the beneficiaries, theconsent ofthe beneficiaries who have vested rights will not be required,provided the amendment which is made falls within anycondition whichis set for amendment by the trustees in the trust deed. This appearsto have been one of the issues in thePotgieterdecisionwhere the amendments made by the trustees did not fall within thosepermitted in the trust deed.

b)If the trust deed is silent on the involvement of beneficiaries inthe amendment of the deed, then the common law rules willapply andthe consent of the beneficiaries with vested rights will be required,provided they have already accepted the benefit.”17

Asthe Master of the High Court is the so-called “watchdog”which regulates the amendments made to trust deeds, itsviewpoint isvery important, although not necessarily legally authoritative. Therole of the Master is accepted by our Courts tobe regarded not onlyas a mere “rubber stamping”.18Itis clear that the Master has placed emphasis on the provisions of thetrust deed and determined that the methodology prescribedto amendthe trust deed should “overrule” the common lawrequirements.

Paceand Van der Westhuizen19recommenda checklist to be followed when an amendment is considered and seemto suggest that preference be given to the commonlaw approach beforeregard be given to the powers afforded in the variation clause.

Whilethere are clearly distinctive views on the matter, it seems that themajority of the commentators agree that the trust deedshould firstbe examined where a trust amendment is contemplated.

Theleading Supreme Court of Appeal judgments involving the amendmentofintervivostrustdeeds must also be considered. In all three cases,Crookesv Watson,20Hoferv Kevitt21andPotgieterv Potgieter,22theauthority to amend a trust deed was considered and established. Thesethree cases will be analysed to determine if theamendment waseffected in terms of the common law powers of the parties, or interms of the express provisions of the trust deed.

21CROOKESV WATSON

InCrookesv Watsonthequestion was whether the founder (which was also a trustee) wasentitled to amend the deed with the concurrence of hisco-trustee andof the only beneficiary who had accepted benefits under the deed. Theresult of such amendment would have been prejudicialto theconditional rights of other beneficiaries who had not accepted thebenefits stipulated for them in trust and who had notagreed to theenvisaged amendment. Centlivres CJ decided that he was compelled tofollow the decision inCIRv Estate Crewe23whereit had been decided that a direction by the founder in the trust deedthat the trustees had to effect payment to hisson from the trustfunds indeed constituted a contract between the founder and thetrustees, to which the son was not a party.24Beforeacceptance by the son he only had an “inchoate right” anduntil acceptance by him the direction given bythe founder to thetrustees to pay the funds could have been revoked by agreementbetween the founder and the trustees only.25CentlivresCJ eventually remarked that nothing prevented the contracting parties(the founder and the trustees) to vary theagreement prior to theacceptance by the third party. However, it is evident from thejudgment that there was no express powerto amend nor a variationclause in the trust deed, hence the validity of the amendment couldonly be considered from the perspectiveof the common law principles.With an envisaged amendment of the deed in mind, the trustees appliedto the Natal Provincial Divisionfor an order declaring that thetrust deed could be amended by agreement between the founder and thetrustees only. The trusteeswere obviously mindful of the potentialprejudice to the interests of trust beneficiaries who had notaccepted benefits while theabsence of a variation clause in thetrust deed further amplified this uncertainty. It is interesting tonote that Centlivres CJcommented that before considering the effectof any authorities on the point in issue it would be convenient toconsider the termsof the deed itself in so far as those terms may beregarded as being relevant to the enquiry.26Itis evident that he placed great emphasis on the wording of the trustdeed in this regard. Had there been an amendment clause,it wouldundoubtedly have been discussed and considered, and in my opinionprobably be conclusive. The judgment of Steyn JA (partof themajority decision inCrookesv Watson)seems indicative of the emphasis placed on the wording of the trustdeed and to the mind-set with which the judges consideredthevariations to this trust deed.27Afterconcurring with the finding of Centlivres CJ that the correct generalposition is that the founder may by agreementwith the trustees varyor revoke benefits which have not as yet been accepted by thebeneficiaries,28SteynAJ posed the following question:29

“Thequestion then is whether there is anything in the present deed todeprive the settlor of the right to vary it in the mannermentioned.”

Itis suggested that the judge will not have raised this question unlesshe accepted or at least suspected that the general commonlawprinciples ofstipulatioalterishouldbe secondary and subject to what is stipulated in the trust deed.

22HOFERV KEVITT

InHoferv Kevittthetrust deed was amended on three occasions by means of notarialdeeds.30Oneach occasion the deed was amended on the instructions of the founderwith the trustees for the time being consenting thereto.To thesecond and third amendments some (but not all) of the beneficiariesalso provided their consent. These amendments gave riseto anapplication by the three appellants (grandchildren of the brother ofthe founder who were also beneficiaries of the trust)to the Court aquo for an order declaring the amendments without force and effect asthe amendments were undoubtedly prejudicialto the rights of thesepotential beneficiaries. Importantly, no pertinent provision appearedin the trust deed for the amendmentof its terms, nor was there anyreservation of a unilateral right of revocation for the founder.31Itwas clearly again a case where the validity of the amendments to thetrust deed needed to be decided upon the general commonlawprinciples. In this case there was no contention that the amendmentswere made before the benefits had been accepted by oron behalf ofthe grandchildren and, consequently, the amendments were found on theauthority ofCrookes’caseto be valid.32Itwas argued on behalf of the appellants that an approach whichrecognises that anintervivostrustin South African law is not purely contractual in nature should beadopted.33VanColler JA, however, regarded this approach as one that would deviatefrom the authority laid down inCrookesv Watsonandwas not prepared to accept it.34

Onceagain the parties found reprieve in the common law principles toamend the trust deed, and not from any express provisionsin thetrust deed.

23POTGIETERV POTGIETER

InPotgieterv Potgieterthefounder of the trust was Mr VPJ Potgieter who passed away on 28 April2008 at the age of 49. The relevant trust was theBuffelshoek FamilieTrust which had been created by means of a trust deed that wasnotarially executed on 1 June 1999. This wasa typical discretionarytrust with regards to the income and capital of the trust. On 11September 2003 the marriage between MrVPJ Potgieter and his firstwife (the two appellants’ mother) was dissolved by a decree ofdivorce. During the divorce proceedingsthe appellants’ motherclaimed that the assets of the trust be regarded as part of thedeceased’s estate for purposesof the divorce proceedings andmeetings were held in this regard. After the divorce Mr VPJ Potgietermarried the first respondenton 22 November 2003. The fourth andfifth respondents were born of the first respondent’s previousmarriage. On 25 January2006 the first respondent became the thirdtrustee of the Trust, together with Mr VPJ Potgieter and Mr Wessels(the attorney).

Anagreement to amend the trust deed was then entered into on 21February 2006 between the founder (Mr VPJ Potgieter) and the trustees(Mr VPJ Potgieterexofficio,the first respondent and Mr Wessels). Before the conclusion of thisagreement the capital beneficiaries of the trust, were thetwoappellants (the children of the founder from his first marriage)only, whilst the income beneficiaries could be chosen fromthecapital beneficiaries and or their family.

Themain intention with this amendment was to extend the class ofdiscretionary capital beneficiaries. The two appellants (the twochildren born from the marriage with the first wife) were no longerthe only capital beneficiaries. They were reduced to membersof aclass of potential capital beneficiaries. Other members of the classsubsequently included the founder’s new wife andher own twosons (the second and third respondents). In addition, the trusteeswere afforded an absolute discretion to benefitanyone who falls intothat class of capital beneficiaries. Nothing therefore prevented thetrustees from excluding the appellantsaltogether from anydiscretionary distribution of benefits from the trust. Clause 21 ofthe deed contained the prescriptions asto how amendments to the deedshould take place and made specific mention on how the class ofcapital beneficiaries could be amended.35Thisright of the trustees to amend the capital beneficiaries meant thatthe parties which was included as capital beneficiariescould beexcluded and other capital beneficiaries could be added to the class,but it had to take place in accordance to the prescriptsof thevariation clause.36Thisright to amend was limited to the extent that only members of thefamily or a descendant of the founder could be addedto thisclass.37Fromthe prohibitory nature of this clause it is evident that thecontracting parties were, in terms of the trust deed, proscribedtoeffect the envisaged changes to the class of capital beneficiariesbecause the second and third respondents were not membersof thefamily nor descendants of the founder. Therefore, the variationclause in the trust deed was inapplicable and could notserve assource for the authority to amend the class of beneficiaries. Thismeant that the amendment had to be adjudicated againstthe common lawprinciples ofstipulatioalteri.The question was whether the two appellants could be said to beparties to the contract that would have required their consentto theamendment of the trust deed. The appellants were indeed found to havebeen parties to the trust agreement because evidencewas acceptedthat they have previously accepted benefits stipulated for them intrust.38Asonly the trustees and the founder effected and consented to theamendment, the appellants argued that such amendment wasinvalid andaccordingly null and voidabinitio.39TheSupreme Court of Appeal and the court a quo seemingly accepted thatthe envisaged amendments did not fall within the ambitof thevariation clause.40Itis critical to note that the appellants did not contest or disputethe notion that an amendment in accordance with thevariation clausewould have been valid even without their consent. Brand JA ruled infavour of the applicants and referred to thesignificance of thebeneficiaries’ acceptance of benefits in terms of the commonlaw as follows:41

“...a trust deed executed by a founder and trustees of a trust for thebenefit of others is akin to a contract for the benefit ofa thirdparty, also known as astipulatioalteri.In consequence, the founder and trustee can vary or even cancel theagreement between them before the third party has acceptedthebenefits conferred on him or her by the trust deed.”

24 CONCLUSION

Inall three cases referred to above the respective trust deeds whichwere under scrutiny did either not contain any express powerto amendthe trust deed(Crookesand Hofer),or did indeed contain such a power to amend but the envisagedamendment could not be brought within the ambit of such variationclause due to the inherent limitations or restrictions (Potgieter).Therefore, the common law principles had to dictate whether theamendment to the trust deed had been validity undertaken or not.Thejudgments of both Centlivres CJ and Steyn JA inCrookesv Watsonunderlinethe importance to consider the terms of the trust deed beforeundertaking its amendment on general common law principles.

Afterconsideration of the facts in the three leading cases discussed aboveand the views of the different commentators I suggestthat thecorrect approach to the amendment ofintervivostrustdeeds should be that the express provisions of the trust deed shouldfirst be considered to determine how the trustdeed could be amended.In most instances this takes the form of a clear variation clause inthe trust deed, but it can also beafforded alongside or integratedwith the general powers allowed to the trustees of the trust. Only inthe absence of any suchexpress directions in the trust deed shouldthe general principles of the common law be considered and then itbecomes very importantwho the parties to the trust agreement arebecause they need to consent to any amendments to the deed.

3Significance of Acceptance of Benefits by the Beneficiaries

31 COURT DECISIONS WHICH FOLLOWED THEPOTGIETERCASE

Ifthe variation clause prescribes that the deed may be amended withoutthe consent of any beneficiaries, would it make a differenceif abeneficiary or beneficiaries have indeed accepted their stipulatedbenefits in trust? Would they still be required to agreeto theenvisaged amendment notwithstanding the fact that the terms of thetrust deed do not require their consent? It was clearfrom thediscussion above of the three Supreme Court of Appeal judgements thatthe consent and involvement of the beneficiarieswho had acceptedtheir benefits were imperative in order to have rendered theamendment of the trust deed valid. There is a realdanger ortemptation that the above judgements could be oversimplified andgenerally applied to amendments ofintervivostrustdeeds, as was the case in the unreported Western Cape caseofAdvocateLeon Luke Zazeraj v JH Jordaan.42

Herethe court strictly followed the judgement in Potgieter withoutclearly distinguishing between the two types of scenarios asdiscussed above. The applicant was appointed as curator ad litem toassist the patient, who was blind, handicapped and in needoffull-time care, in legal proceedings to protect his interests in thetrusts. The patient was the son of the first respondent,Mr Jordaanand Mrs Jordaan. Mrs Jordaan was the deponent to the foundingaffidavit in this case. Mr and Mrs Jordaan were marriedin 1976 anddivorced in 2000. A number of trusts were created during theirmarriage for purposes of financial planning. The trustswere intendedto be for the benefit of the children, however in February 2010 MrsJordaan discovered that:

• MrJordaan intended to sell the beach house registered in the JohannesJordaan Trust (“the JJ Trust”), to increasehis cashflow. He envisaged making distributions from the trust to himself;

• Thetrustees of the JJ Trust had amended the trust deed in 2000 (afterthe divorce) to include Mr Jordaan as a capital beneficiary.TheMaster was only notified of the change in October 2008;

• Thetrustees of the Groothoek Trust (“The GH Trust”)arranged to amend the trust deed to include Mr Jordaan as abeneficiary of the trust on 1 June 2001.

Thevalidity of the amendments in 2000 and 2001 was challenged when thefellow-trustee gave notice in October 2011 that Mr Jordaanhadapplied for the capital in the JJ Trust and the GH Trust to betransferred or lent to him.

Thetrust deeds of the JJ Trust and the GH Trust were essentially thesame. The founder of the trusts was Mr Jordaan and the beneficiarieswere described as the children of Mr and Mrs Jordaan, their lawfuloffspring as well as Mrs Jordaan herself (as income beneficiaryonly), or any later lawful spouse of Mr Jordaan. It was stipulated inthe variation clauses of the original trust deeds that amendmentstothose deeds could be effected by way of written agreement between thefounder and the trustees. All the amendments to the trustdeeds tookplace by written agreement between the founder and the trustees,hence exactly in accordance with the prescripts ofthe variationclauses. When considering the validity of the amendments, Meer Jsolely relied on the decision in Potgieter as authorityfor hisfollowing contention:43

“Withregard to the amendment of trust deeds, it is established law thatbeneficiaries of discretionary trusts who have receivedconditionalbenefits, as have the Patient and his sister, have vested rights andthe trust deeds cannot be changed without theirassent. SeePotgieterv Potgieter 2012(1) SA 637 SCA para 28. Clause 2844ofthe trust deeds of both the JJ and the GH Trusts specificallyprevents this. Accordingly, the amendments which occurredwithout thepermission of the beneficiaries stand to be declared invalid.”

Itseems as if Meer J merely applied the principles enunciated inPotgieter without any consideration that the envisaged amendmentstothe trust deed under scrutiny were effected in terms of the expressstipulations of the trust deed45anddid not need to adhere to the general principles of the common lawwhere all the parties to the trust agreement had toconsent to theenvisaged amendment. There was in fact no reference to this in theunreported written judgment.

Anotherunreported case that strictly followed the judgment in Potgieter isSmart v Burne46wherethe validity of a trust amendment was contested again because of thelack of involvement of the trust beneficiary. Herethe trust deed hadagain been amended by the founder and trustees in terms of thevariation clause.47Theamendment in question concerned a specified foundation, whichsubsequently was intended to be made the sole beneficiaryof thetrust, whilst the initial beneficiary, the founder’s minorgranddaughter, was to be removed as beneficiary in theprocess. Theappellant sought an order to declare the trust amendment in questionnull and void and to be set aside.48Followingthe judgement in the Potgieter case the acceptance of benefits

bythe beneficiary was deemed to be of great importance to the outcomeof the case.49Therespondents contested and argued that the beneficiary, uponacceptance of her stipulated benefits in trust, also acceptedtheterms of the trust deed which included the prescripts of thevariation clause in the deed.50Thereforeit was submitted by the respondents that the founder and trusteeswere indeed authorised to amend the trust deedwithout the consent ofthe beneficiary who was deemed to be bound by the variationclause.51Thecourt followed the judgement in Potgieter and rejected this argumentof the respondents and consequently granted the orderas sought.

Aswas mentioned earlier Pace and Van der Westhuizen52adoptthe same approach as in theJordaanand Smartdecisions.However, they also acknowledge that the alternative may be argued, aswas contested by the respondents inSmart:

“Suchacceptance and the involvement of the beneficiaries to the variationapparently overrule any stipulation in the trust deed(aftermaintaining this view for many years in previous service issues it isnow confirmed inPotgieterv Potgieter 20121 SA 637 (SCA)). It is equally possible to argue that once thebeneficiaries have accepted the benefit in terms of thestipulatioalteri,they acquire not only the rightsbutalso the duties in terms of the agreement and therefore have to abideby the exclusion as a party to a variation.Thisstill remains an uncertain and grey area because, despite verycreative arguments, this was not raised inPotgieterv Potgieter 20121 SA 637 (SCA) and has not yet elsewhere been authoritativelydecided.” (my emphasis)

Claassenin his discussion of Pace and Van der Westhuizen’s approach,suggests that their argument cannot be supported ascorrect.53Hesuggests that haphazard application of the finding inthePotgietercasein the subsequent judgements disturbed the generally acceptedprinciple that the deed of anintervivostrustshould be amended in accordance with what the deed itselfprescribes.54Hefurther suggests that thePotgietercasecould not serve as authority for theJordaancaseand should actually not even have been considered. Oliveretalintheir discussion of theJordaandecisionsuggest that that decision cannot be held to reflect the correctlegal position and that an amendment of a trust deed inaccordancewith the variation clause would be valid notwithstanding the factthat a beneficiary may have accepted benefits underthe trust andhave not consented to the amendment.55Olivieretalalsoexpress their concern in following theJordaanjudgement,that a beneficiary upon acceptance of benefits, will have obtainedmore rights than what is awarded to him if thisdecisioninJordaaniscorrect.56

Inhis discussion of theSmartcaseDe Waal expresses his doubts whetherPotgieterwentas far as was assumed in theSmartcaseand believes that the respondents’ argument necessitated a morein-depth consideration.57Itseems as if he agrees with the respondents where he states thefollowing:

“Therefore,the appellants in Potgieter (that is, the beneficiaries on whosebehalf trust benefits had been accepted in that case)did not contestthat amendments in accordance with the trust deed would have beenvalid even without their consent.”

Iagree with the authors that this remains a grey area which compels usto further investigate the parameters of what in fact isacceptedwhen one refers to the acceptance of benefits by a trust beneficiary.This necessitate another careful look at thestipulatioalteriwhichis accepted as the cornerstone of a trustintervivosfroma common law perspective.

32 NATURE OF ASTIPULATIOALTERI

Ithas been authoritatively accepted by the Supreme Court of Appeal thata trustintervivosshouldbe regarded as a contract for the benefit of a third party, theso-calledstipulatioalteri.58Thereare mixed views on the application of astipulatioalteritoaccommodate a trustintervivosandsome authorities warn against the reduction or equation of atrustintervivostoa contract.59However,there seems to be consensus that the creation, variation andacquisition of rights by beneficiaries are regulatedby the law ofcontract from the principles ofstipulatioalteri.60Astipulatioalteriiswhere the founder of the trust (thestipulans)contracts with the trustee of the trust (thepromittens)to render performance to the beneficiary (thetertius).61

Byallowing the rules applicable to the stipulation alteri into therealm of theintervivostrust,it is clear that the terms of the trust deed may be amended betweenthe trustee and the founder, without the consentof the beneficiaryprior to the acceptance of the trust benefits by the

beneficiary.62Althoughit may be argued that a trustee is not merely a party to a contract,but also the holder of an office with a fiduciaryduty towards thebeneficiary,63ithas nevertheless been held that an amendment to a trust deed isindeed a matter to be determined in accordance with theprinciples ofthe law of contract.64Beforeacceptance by the beneficiary, there exists novinculumjurisbetweenthe beneficiary and the trustees and the contract may be varied.However, upon acceptance,65suchbeneficiary acquires an indefeasible right.66

Uponacceptance, it is essential to determine whether the beneficiarybecomes a party to the trust and secondly whether the beneficiaryonly acquires benefits under the trust, or if he or she also assumesobligations, which, if that be so, will be binding upon thebeneficiary.

33 AFTER ACCEPTING BENEFITS, DOES THE BENEFICIARY BECOME A PARTY TOTHE TRUST AGREEMENT?

Withregard to thestipulatioalteri-construction,the South African courts and commentators chose to explain itsapplication by reference to a two-contract arrangement.67Atwo-contract arrangement occurs where the original contract iscreated between the founder and the trustee and a secondcontract isconcluded upon acceptance by the beneficiary subsequent to the offerby the trustees.68

Inthe first contract, the founder agrees with the trustees that theywill render performance to the beneficiaries and this contractconstitutes an offer of donation by the founder to the beneficiaryupon acceptance.69Itis a contract that enables a third party to enter as a party with oneof the original two parties (the trustee). The beneficiaryhas toaccept the benefit to become a party to a contract with thetrustee.70

Thetwo-contract arrangement was also evident in the dissenting, minorityjudgement of Schreiner JA71inCrookesv Watson,where Schreiner JA stated that a contract for the benefit of a thirdparty facilitates the third party to become a party to acontractwith the trustee.72SchreinerJA’s statement of the law has been generally accepted asauthoritative and was unanimously approved by theAppellate DivisioninJoelMelamed and Hurwitz v Cleveland Estates (Pty) Ltd.73DeWaal stated with reference to theJoelMelamedcasethat the courts support a construction whereby the third party isenabled to become a party to the contract and so acquirerights,rather than a contract that creates such rights.74

Consideringthis two-contact arrangement, it is clear that the beneficiary wouldbecome a party to the trust agreement after acceptanceof benefits.How this acceptance should be performed is also considered to be agrey area and falls beyond the scope of this article.

34 DOES ACCEPTANCE OF BENEFITS ALSO ENCOMPASS ACCOMPANYINGOBLIGATIONS?

Interms of thestipulatioaltericonstruction,acceptance by the third party affords the third party a right topromised benefits, but it also entails bindingthe third party to anyobligations associated with the promised benefits. The two-contractarrangement does not serve as an impedimentto the notion thatobligations can be brought about for the third party.75Inhis discussion of a two-contract arrangement, Gertz specificallyrefers not only to the rights, but also the duties thatthebeneficiary may acquire from such contract.76Wherethe benefits carry with them a corresponding obligation orcounter-performance, the beneficiary cannot accept the benefitwithout being bound by the obligation.77

InnesCJ inMcCulloghv Fernwood Estate Ltd Respondent78statedthat although the objective of a contract in favour of a third partyis to secure some benefit, the benefit may includea correspondingobligation.79InnesCJ emphasised that the right cannot be separated from the obligationand that the third party cannot decide to acceptthe benefit andreject the obligation. Upon acceptance, the third partysimultaneously undertakes the corresponding obligation.Malansuggests that the concept of a contract in favour of a third party ismisleading since the object is not just to gain orbenefit.80Mostlyit is to enable the third party to enter a reciprocal relationshipwith the trustee where the third party not onlyacquires personalrights but also obtains accompanying obligations.81Fromthese remarks it is clear that a beneficiary who has acceptedbenefits under a trust agreement can also be liable tocomply with acorresponding obligation. These obligations in my opinion include thelimitations or restrictions stipulated in thevariation clause of thetrust deed.

Ittherefore appears correct to accept that, with reference to theauthorities quoted on thestipulatioalteri,the beneficiary who has accepted his or her benefits under a truststeps into an agreement with the trustees. In terms of thisagreement, the beneficiary acquires rights and accompanyingobligations where the underlying terms are the terms of the initialtrust agreement. The beneficiary does not merely receive a benefitfrom the trust agreement but becomes a party on the same termsandwith the same advantages and disadvantages that the founder and thetrustees agreed to. If the beneficiaries of a trust acceptthebenefits in terms of the trust, such beneficiaries become parties tothe trust agreement, subject to the provisions alreadynegotiated andagreed between the founder and the trustees.82

Consequently,when a trust beneficiary accepts his or her benefits, he or shebecomes party to an agreement with the trustees andaccepts the termsof the trust deed which may include the directives of a variationclause. Therefore, the beneficiary will bebound by those directivesand the beneficiary’s consent to future amendments of the deedwill not be required if the variationclause stipulates that only thetrustees and the founder need to approve of the amendment.

4PPS Insurance Company Ltd and Others v Mkhabela83

Inmy opinion the abovementioned Supreme Court of Appeal case alsoprovides authority for the viewpoint that the acceptance of benefitsby a beneficiary must be subject to the express provisions of theagreement. In this case the daughter (Ms Sebata) nominated hermother(Ms Mkhabela) as beneficiary of a life policy of which she, thedaughter, was the owner and insured life. Her mother predeceasedherand, after the daughter’s death (two months after her mother’sdeath), the question arose whether the proceedsshould be paid to theestate of the mother or the estate of the daughter. In the provisionsof the life policy Ms Sebata reservedthe right to change or cancelthe beneficiary nomination at any time. The Supreme Court of Appealaccepted that the appointmentof a beneficiary under a life policyamounted to a stipulation in favour of the third party (stipulatioalteri).This is why we deem the decision in this case also to be of relevanceto anintervivostrust,which also has its foundation based on thestipulatioalteri.The Supreme Court of Appeal ruled that acceptance of the benefits bythe mother prior to the death of the life insured had nolegalconsequences because of the reserved contractual right to be able tovary or cancel the beneficiary nomination at any time.It wasspecifically mentioned that because the insured expressly reservedthe right to change or cancel the nomination, the nominatedbeneficiary has no claim to the benefit of the policy until theinsured’s death and that if the insured subsequently shouldchoose another beneficiary and thereby revoking the first, thenominee’s acceptance would become nugatory. It is clear thatthe court held the opinion that, where the life insured had the rightto unilaterally or in conjunction with the insurance companycancelthe nomination, the acceptance of the benefits by the beneficiaryprior to the death of the life insured could not haveany legalsignificance. This makes perfect sense due to the fact that anopposite view would lead to the absurdity that acceptanceof thebenefit by the beneficiary would nullify the right of the lifeinsured to change the beneficiary.

Inthe context of anintervivostrustit also does not make sense that if the trust beneficiary hadaccepted the benefits stipulated for him in trust, thathe could vetoa decision by the parties to amend the trust deed, which parties havebeen afforded the express right to amend thedeed.

5Conclusion

Thesignificance of the acceptance of benefits by the beneficiaries andthe involvement of such beneficiaries from the perspectiveof theamendment of anintervivostrustdeed has, from a jurisprudential point of view, been considered andresolved and certainty should now prevail. In variousjudgmentssubsequent to thePotgieterdecision,the same significance was attached to the acceptance of benefits bythe beneficiaries where the trust deed was inactual fact purportedto be amended in terms of an express provision in the trust deed. Iconclude that the courts should havedifferentiated between thescenarios where the amendment of the trust deed is undertaken byvirtue of the provisions of the trustdeed, as opposed to the commonlaw principles which is authoritative where a trust deed does notcontain a variation clause or,where such a power to amend does existin the deed but due to the stipulated restrictions is not applicable.I propose that theacceptance of benefits by a beneficiary undertrust does not hold the same significance in both scenarios.

Torecapitulate: the accepted view is that a trust beneficiary step intoan agreement with the trustees upon acceptance of benefits,where thebeneficiary not only acquires certain rights, but also theobligations as stipulated in the trust deed. The beneficiaryacceptsthe terms of the trust deed and is therefore bound by the terms ofthe trust deed. Should the trust deed be prescriptiveabout the powerto amend the trust deed and does not require the beneficiary’sconsent to it, such beneficiary is deemedto be bound to thatprovision and his acceptance of the benefits under trust does notchange that. Therefore, if the trust deedempowers the trustees tounanimously amend the trust deed, they may legally undertake suchamendment notwithstanding the fact thatthe beneficiaries hadaccepted the benefits and terms of the trust deed.

Thefocus of this article was on the consent required by a beneficiarywho has previously accepted his/her benefits stipulated forhim/her,specifically in a case where a variation clause appears in a trustdeed, and such clause does not require the consentof such abeneficiary.

Althoughit has been authoritatively decided that the validity of theamendment of a trust deed is solely to be considered withinthecontext of the law of contract, the extent of a trustee’sfiduciary obligations is still a matter of contention in instanceswhere the amendment was prejudicial to certain beneficiaries’rights. Although the amendment could have been validly undertakenfrom a contract law point of view, can it also be said that thefiduciary obligations have been adhered to by the trustees whohadconsented to the amendment of the trust deed, especially if it hasprejudiced the rights of beneficiaries? It is accepted inlaw thatthe trustees owe the same fiduciary duties towards discretionarytrust beneficiaries. This aspect requires further investigationwhichfalls beyond the scope of this article.

1.Thearticle is limited to a discussion of an inter vivos trust.Variations to a mortis cause trust falls outside the ambitof thisarticle.

2.Theentire trust deed can be amended, with the exception of the identityof the founder and the act to create. Pace andVan der WesthuizenWills and Trusts (2016) B 18.

3.Crookesv Watson 1956 1 SA 277 (A); Hofer v Kevitt 1998 1 SA 382 (SCA);Potgieter v Potgieter 2012 1 SA 637 (SCA); Olivier Strydom Van denBerg Trust Law and Practice (2014) 2-30 (1).

4.Atrust deed can empower parties to freely amend a trust deed, empowerparties to amend within limits or restrict it. DeWaal “Diewysiging van ‘n inter vivos trust” 1998 TSAR 326; CameronDe Waal Wunsh Solomon Kahn Honore’s South African Law of Trusts(2007) 25; Olivier et al 2-26 (14).

5.Variationsby the powers of the court in terms of section 13 of the TrustProperty Control Act 57 of 1998 falls outsidethe ambit of thisarticle.

6.Olivieret al illustrate the need to vary a trust deed based on theinvestment restrictions in the original trust deed.Olivier et al2-26 (7).

7.Vorster“When good intentions go bad: Considering the amendment of atrust deed with great care” 2013 1st AnnualInternationalInterdisciplinary Conference, AIIC 2013 Azores, Portugal.

8.Potgieterv Potgieter supra.

9.Kerr“The juristic nature of trusts inter vivos” 1958 SALJ 88;Cameron et al 35, 497; Potgieter v Potgieter supra; Olivier et al2-29.

10.DeWaal 326.

11.DeWaal 326.

12.DeWaal 326.

13.Olivieret al 2-30(11).

14.DuToit “Trust deeds as ‘constitutive charters’ andthe variation of trust provisions: a South Africanperspective”2013 Trusts and Trustees 40.

15.Claassen“Die wysiging van inter-vivos trustaktes: ’n Evaluerendeperspek-tief op die Potgieter-saak” 2014 Acta Juridica 243.

16.2of 2017 Circular 13 of 20177http://www.justice.gov.za/master/m_docs/2017-02_CHM-directive.pdf(accessed2018-03-01).

17.7.

18.Hanekomv Voight 2016 (1) SA 416 (WCC).

19.B18.2.

20.Crookesv Watson supra 286.

21.Hoferv Kevitt supra 386-387.

22.Potgieterv Potgieter supra.

23. 1943AD 656.

24.285E-287C.

25.288A.

26.284G.

27.306D.

28.306A-C.

29.306D.

30.384.

31.384.

32.387.

33.385-387.

34.386-387.

35.641.

36.641.

37.641.

38.648.

39.649.

40.643.

41.645.

42.Caseno 22526/11 WCHC.

43.11par 22.

44.JudgeMeer (or the court typist!) erred when he referred to (in theabovementioned passage) “Clause 28 of the trustdeeds of boththe JJ and the GH Trusts specifically prevents this”, as thevariation clauses in the deeds were in actualfact clause number 5and there was nothing preventative in those clauses.

45.Asstipulated in clause 5.

46.2013JDR 2429 (KZD).

47.4par 7, 12-14.

48.2par 1.

49.7par 11.

50.10par 15

51.10par 14.

52.Paceand Van der Westhuizen B18.2.2.

53.Claassen253.

54.Claassen252-253. With McCullogh v Fernwood Estate Ltd Respondent 1920 AD 204as authority, Claassen argues that the beneficiary upon acceptancealso accepted the terms of the trust deed.

55.Olivieret al 2-30(3)-(5).

56.Olivieret al 2-30(4).

57.DeWaal 2013 Annual Survey of South African Law 1006.

58.Crookesv Watson supra followed in Hofer v Kevitt supra 386-387; Potgieter vPotgieter supra; also see Hahlo “Thetrust in South AfricanLaw” 1961 SALJ 203; De Waal 327.

59.Kerr 1958 SALJ 92-93; Cameron et al 35; Du Toit South African Trust LawPrinciples and Practice (2007) 18 51; See the judgment of Steyn AJ inCrookesv Watson supra 304E-G; Doyle v Board of Executors 1999 (2) SA805 (C).

60.DeWaal 1998 TSAR 329-330; Cameron et al 35; Du Toit 51; also seeCrookes, Hofer and Potgieter decisions.

61.HutchisonPretorius Du Plessis Eiselen Floyd Hawthorne Kuschke Maxwell Naude DeStadler The Law of Contract in South Africa(2013) 238.

62.Crookesv Watson supra; Hofer v Kevitt supra; Potgieter v Potgieter supra 645par 18; Cameron et al 35493; Olivieret al 2-27.

63.Andnot all aspects of an inter vivos trust fall within the ambit of lawof contract. Also see De Waal 1998 TSAR 330; Cameron et al 596; DuToit 51; Doyle v Board of Executors 1999 (2) SA 805 (C).

64.Crookesv Watson supra; Hofer v Kevitt supra 386-387; De Waal 1998 TSAR 330.

65.SeeCameron et al 498 -501 on what constitutes acacceptance by thebeneficiary; see Olivier et al 2-27 on the nature ofthe benefitsthat a beneficiary may accept; Also see Ras v Van der Meulen 2011 4SA 17 (SCA); Potgieter v Potgieter supra; Adv Leon Luke Zazeraj v JHJordaan supra; Smart v Burne supra on what constitutes acceptance.Vorster underlines the lack of regulation or record keeping tosupport or verify if a beneficiary accepted any benefits; Vorster“When good intentions go bad: Considering the amendment of atrust deed with great care” 2013 1st Annual InternationalInterdisciplinary Conference, AIIC 2013 Azores, Portugal.

66.McKerron“The juristic nature of contracts for the benefit of thirdpersons” 1929 SALJ 390, 393; Mutual Life Assurance Co. of NewYork v Hotz 1911 AD 556567; Cameron et al 35.

67.McCulloghv Fernwood Estate Ltd Respondent 1920 AD 215; Kynochs Limited vTransvaal Silver and Base Metals, Limited 1922 WLD 71 77; Crookes vWatson supra 278 -288; Pieterse v Shrosbree; Shrosbree v Love 2005(1) SA 309 (SCA) paragraph 9; McKerron 1929 SALJ 390, 393; Kerr is inagreement that a two-contract agreement applies to a trust intervivos, however he is of the opinion that thenature and effect ofthese contracts differ, Kerr 1958 SALJ 84 86 92; Sonnekus “Enkeleopmerkings om die beding ten behoewe van ’n derde” 1999TSAR 624; Hutchison et al 238; Claassen 249; Although Getz do notagree with this approach, he acknowledge that the South Africancourtsfollow the two-contract approach, Getz “Contracts forthe benefit of third parties” 1962 Acta Juridica 44.

68.McKerron 1929 SALJ 387 390; Kerr 1958 SALJ 92; Malan “Gedagtes oordie beding ten behoewe van ‘n derde” 1976 De Jure 86.

69.Crookesv Watson supra 286.

70.Aninter vivos trust involves two legal transactions, one between thefounder and the trustee and another as an offer bythe trustee to thebeneficiaries which the beneficiaries may or may not accept. Kerr 92;Hahlo 203; Sonnekus 595.

71.Crookesv Watson supra 291.

72.SchreinerJA conferred to Jankelow v Binder Gering 1927 TPD 364 where GreenbergJ had accepted the analysis suggested from the Bar by the futurejudge of appeal: “the test whether the contractis made for thebenefit of a third party is whether that third party, by adopting thecontract, can become a party to it.”

CloeteAJ in Eldacc (Pty) Ltd v Bidvest Properties (Pty) Ltd (682/10) 2011JDR 1178 SCA par 9 accepted the finding of Ponnan AJAin Pieterse vShrosbree NO & others; Shrosbree NO v Love & others 2005 (1)SA 309 (SCA) where he remarked “... on acceptance of the offerby that beneficiary, a contract will be established between thebeneficiaryand the insurer.”

73.[1984] ZASCA 4; 19843 SA 155 (A) 172A-F.

74.DeWaal 326.

75.Vander Merwe Van Huyssteen Reinecke Lubbe Contract: General Principles(2012) 233; Van Zyl “Die regte vanlewensversekeringsbegunstigdes” 2013 TSAR 637.

76.Getz43.

77.McKerron 1929 SALJ 394; Hutchison et al 239; Joubert General Principles of theLaw of Contract (1987) 189.

78. 1920AD 204.

79.Mcculloghv Fernwood Estate Ltd supra 206.

80.Malan85.

81.Malan85-86.

82.Claassen253; Olivier et al 2-30(4).

83. 2012(3) SA 292 ZASCA.