A question of race

Thursday, 01 October 2009
The recent South African judgment on racially discriminatory clauses in a trust deed.

In the recent case of the University of Kwazulu-Natal and Malegapuru William Makgoba and others, a decision of the then Durban and Coast local division, the issue of discriminatory clauses in a trust deed were once again examined by a South African court. The case threw up some debatable issues and also contained an interesting look at South African history.

Facts of the case

The late Sir Charles George Smith, by way of his last will and testament, bequeathed three-tenths of the residue of his estate to the Council of the Natal University College. This residual was to be held in a trust fund called ‘The Emma Smith Educational Fund’, dedicated in perpetuity for education as specified in terms of his will.

Clause 26 (f) of the will read as follows:

‘The proceeds of this bequest shall form a fund to be called The Emma Smith Educational Fund in memory of my Mother.

‘The Council shall stand possessed of the said fund and the investments from time to time representing the same upon trust to apply the income thereof in and towards the higher education of European girls born of British South African or Dutch South African parents, who have been resident in Durban for a period of at least three years immediately preceding the grant, payment or allowance hereby authorised…’

The university sought an order for the variation of the trust document. They wanted the following:

  1. the deletion of clause 26 (f) (2) of the words ‘European’, ‘British’ and ‘or Dutch South African’;
  2. the deletion of the word ‘Durban’ and its replacement by the words ‘the Ethekwini Municipality’.

The university applied to have the deed varied in terms of Section 13 of the Trust Property Control Act 57 of 1988, which reads as follows:

‘13. Power of court to vary trust provisions:

If a trust instrument contains any provision which brings about consequences which in the opinion of the court the founder of a trust did not contemplate or foresee and which

  1. hampers the achievement of the objects of the founder; or
  2. prejudices the interests of beneficiaries; or
  3. is in conflict with the public interest,

the court may, on application of the trustee or any person who in the opinion of the court has a sufficient interest in the trust property, delete or vary any such provision or make in respect thereof any order which such court deems just, including an order whereby particular trust property is substituted for particular other property, or an order terminating the trust.’

What was interesting in this matter was that curators-ad-litem were appointed to look after the interests of potential beneficiaries of the class referred to in clause 26(f) of the will, for the purpose of investigating how the interests of such persons would be affected by the grant of the order asked for, which meant this case was argued. The curators did note that women in general are regarded by the South African Constitution as being previously disadvantaged. They proposed an amendment to the trust deed to award 30 per cent of the income available to white women.

Discussion of the court

The court gave a short background on Sir Charles. He was a very successful businessman and a very generous person with a great concern for the ‘underdog’. Apart from the bequest in this case, he had instituted a scholarship in 1920, also in his mother’s name, for painters, sculptors, architects and art teachers. The current fund was substantial and in September 2005 had assets valued at ZAR27 million and had distributed over ZAR4 million. The court said that here the generosity in question was directed at poor white women who were, at the time, financially disadvantaged and unlikely to have obtained a university education otherwise.

The university did recognise that the bequest was enlightened in the 1930s, but submitted that the South Africa of the present age is a radically transformed one. Apart from the difficulty of identifying who are European women of British or Dutch South African parents, the university pointed out that more than half of the students attending the University currently could not be classified as white. In addition, the university has policies that are non-discriminatory and designed to achieve the goals of equality that are enshrined in the Constitution.

The court recognised that the main reason Sir Charles restricted the bequest to European girls of British and Dutch parentage was that he was a Senator for and member of the South African Party from 1921-1930 and a great admirer of General Smuts. The latter’s political policies included, inter alia, a great determination to heal the rift between Afrikaner and English speakers and he regarded that as the most important problem in South Africa at the time of the bequest. Sir Charles, so it was alleged by the applicants, would not have directed his mind to people of colour at that time, as during that period, of the 933 graduates, only 54 were not white and very few, if any, women. The applicants continued that Sir Charles would not have foreseen was that his bequest would no longer be regarded as progressive and showing foresight and that the provision of bursaries for poor white women would at a later age be regarded as sectarian and divisive and preserving privilege for the few and motivated by racism.

The court held that it accepted that there is a significant public interest in the fact that a testator’s desires are carried out, it also accepted that charitable trusts should be benevolently interpreted and upheld as far as legitimately possible. It then referred to the cases of the Minister of Education v Syfrets Trust Ltd NO where bursaries were restricted to persons who were of ‘European descent’, not of Jewish descent, and not female. These words were deleted by that court, and the case of Ex parte President of the Conference of the Methodist Church of Southern Africa NO: In re William Marsh Will, where the testator bequeathed the residue of his estate in trust to be applied to ‘the founding and maintaining of a home for destitute white children’. It was also held by that court that the clause in question was contrary to the public interest.

Conclusion of the court

The court entered into an interesting discussion on what would be contrary to the public interest. They asked if it would be unfair discrimination and therefore not in the public interest to establish a religiously based trust that provides assistance to poor people regardless of their race. The court also posed the question whether a gender-based provision such as a bequest to a daughter, which excluded a son, would not be in the public interest and unfairly discriminatory.

The court stated: ‘It seems to me that bequests to individuals and organisations, whether religious or otherwise, would almost invariably be unexceptional. It is easy to understand why a testator would want, quite justifiably, to benefit his daughter who has loved and cared for him all his life. Similarly a testator who wished to single out a church that has given him religious succour in his darkest days should not have his bequest struck down.

‘I would tentatively suggest that such provisions would provide no problems. While it is always difficult to prescribe situations which might incline a court to strike down a provision it would be telling if none could be envisaged. Should the organisation selected espouse principles that are anathema to the foundational values of the Constitution then the courts might adopt a different attitude. It may well be that at some stage the courts will be seized with such problems and will have to grapple with them…’

The court then turned its attention to the facts in question and said that: ‘The central issue in this matter relates to race and to a lesser extent gender. The court in the Syfret’s matter thoroughly examined the values in the constitution and found that that the equality provisions in that regard were foundational. Within the principles of equality are rooted the equality of races as important if not more so than the other values. A perusal of the academic opinion, case law – both foreign and local – cited in the Syfret’s case, shows that equality of race is so fundamental that in a sense it trumps all other principles…If these benefactors are permitted to allocate their funds to a substantial group of persons in a discriminatory way it will skew the funds available to the general populace in an unacceptable manner and would not be in the public interest.’

The court finally concluded as follows:

‘I do not believe that this case can be distinguished in any material way from the Syfret’s and William Marsh matters. The decisions in those matters were well-reasoned and I am bound by them unless I believe them to be wrongly decided. I have not been so persuaded. It follows that I am of the judgment that it is in the public interest that the relief sought in the notice of motion be granted.’

Accordingly the court ordered that the terms of the trust created by the provisions of clause 26 (f) of the will of the late Sir Charles Smith and known as the Emma Smith Educational Fund should be varied by:

  1. the deletion of clause 26 (f) (2) of the words ‘European’, ‘British’ and ‘or Dutch South African’.
  2. by the deletion of the word ‘Durban’ and its replacement by the words ‘the Ethekwini Municipality’.

Comment

This is now the second major case where the South African courts have had to deal with racially discriminatory clauses in a trust deed. These clauses will clearly not be upheld, and there can be little debate on that issue. However, what is more interesting is the fact that the issue of bequests based on religious issues was raised. The court did comment, even if it was only an obiter. The comment was, with respect, slightly simplistic.

Going forward, will it be acceptable to bequest to a body based on their religious principles? Or more interesting still, will it be acceptable to make a bequest to an individual on condition they conform to certain religious rules? While there are judgments on these issues, they are mostly older ones, and particularly in the South African arena, have generally taken place prior to the new constitutional order.

Given the recent precedent, these are clearly the next set of clauses to ‘be in the firing line’ and the writer awaits future court judgments on these matters, both from South African as well as other courts, with great interest.

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Harry Joffe

Harry Joffe TEP is Head of Legal Services at Discovery Life, Johannesburg.

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