Article on Trusts and the Need to Protect Third Parties
Whenever the trust idea is debased, it seems that the courts would rather give ad hoc relief to third parties through methods appropriate to each case. In Parker, the court suggested that it may be necessary to go further and extend well-established principles to trusts by holding in a suitable case that the trustees’ conduct invites the inference that the trust form was a “mere cover” for the conduct of business “as before,” and that the assets allegedly vesting in the trustees, in fact belong to one or more of them. Such assets may then be used to repay and satisfy debts to which the trustees purported to bind the trust. Where trustees of a family trust, including the founder, act in breach of the duties imposed by the trust deed, and purport on their sole authority to enter into contracts binding the trust, it may provide evidence that the trust form is a “veneer that in justice should be pierced” in the interests of creditors. Currently, there seems to be a serious debate on the issue of debasement of the trust form and the consequences thereof. Difference in opinion on what constitutes a “sham trust” (invalid trust) is evident from case law, academic research, and practitioners’ views of a “sham.” In the interesting case of Van der Merwe NO v. Hydraulics CC; Van der Merwe v. Bosman, the court was, for the first time, prepared to “pierce the veneer” of a trust. The case, however, had a most disappointing outcome in that section 2(1) of the Alienation of Land Act 68 of 1981 posed an insuperable obstacle to such a result. This contribution looks into some aspects of the decision and investigates possible alternative solutions.