Duties of trustees

“Care, diligence and skill required of trustee

9  (1) A trustee shall in the performance of his duties and the exercise of his

powers act with the care, diligence and skill which can reasonably be expected of a

person who manages the affairs of another.

(2) Any provision contained in a trust instrument shall be void in so far as it would

have the effect of exempting a trustee from or indemnifying him against liability for

breach of trust where he fails to show the degree of care, diligence and skill as

required in subsection (1).”  Section 9 of the Trust Property Control Act 57 of 1988.

The trust deed sets out the powers of the trustees. The settlor of a trust usually incorporate the trust with a certain goal in mind. The trustees’ powers are limited so that the settlor’s goal can be achieved and therefor they can only act in accordance with the settlor’s wishes as set out in the trust deed.

A common misperception amongst trustees regarding their powers, is that trustees, as authorised by the Master of the High Court, can perform all the powers as set out in the trust deed, without all the trustees written decision and specific authorisation to perform a certain act.

The trustees’ main duty is the management of trust assets and the duty of care that goes along with it. What are the trustees’ powers? The trust deed usually lists the trustees’ powers. The trustees’ are authorised to perform any act as stipulated in the trust deed.  If a certain act is not specifically authorised in the trust deed, the trustees’ would not be able to perform it. The trust act as mentioned above neglects to mention that an act, which is performed without proper authorisation from all the trustees, is not valid. Especially when it concerns the sale or purchase of immovable property in the case where it is an aim of the trust deed and authorised as such. The problem arose in recent case law, specifically in the case of Jansen NO and others v Ringwood Investments 87 CC (59771/2009) [2013] ZAGPPHC 129 (20 May 2013). In this case one of the trustees of a trust concluded a contract of sale of immovable property on behalf of the trust, without proper authorisation from the other trustees. The agreement was subject to a suspensive condition, which the trust could not fulfil because it could not obtain financing. The co-trustees of the trust tried to cancel the agreement and subsequently approached the High Court for relief. In the judgment the judge decided that before they look at all the legal aspects of the case, it is important to establish first whether the agreement was valid.

“[16] The principal issue to be ascertained is the validity of the agreement, that is, if First Applicant, who acted without the written authority of the other trustees entered into a valid contract of sale of land binding the trust, establishing as questioned by 1st Respondent if it is a requirement in law that a trustee be authorised by resolution in writing to conclude a written agreement in respect of land.” Judge N V Khumalo.

To determine the above Judge Khumalo refers to the case of Luppacchini No & Another v Minister of Safety and security, the case also dealt with proper authorisation of trustees.

Nugent J also in Luppacchini No & Another v Minister of Safety and Security & Another 2010 (6) SA 457 clarifies the trust’s capacity to transact by stating that:

“by the nature of the office of the trustee the control and administration of the trust property vests in each trustee individually. It follows that where there is more than one trustee, they must act jointly unless the trust instrument provides otherwise.”

Judge Khumalo goes on to explain the nature of ownership in trusts.”[22] The interest of the trustees in the trust property is even-handed as ownership vests in them equally. Therefore each of the trustees (as authorised by the letters of authority issued by the master) has a legal right to sign the agreement but such right can only be exercised jointly with the other trustees for it to have any legal effect unless a trustee is the lone holder of letters of authority in terms of that particular trust (if it ever happens).”

The judge ruled that the transaction was invalid and therefore declared null and void. In conclusion he found that verbal consent of the trustees is not sufficient. Decisions must be in writing and signed by all trustees. He refers to Thorpe v Trittenwein & Another 2007 ( 2 ) SA 172 ( SCA ) which case confirmed that the authorization by the trustees to enter into similar transactions must exist before the transaction takes place and it is not sufficient to rectify the decision at a later stage. In this instance, the transaction will invalid ab initio due to the lack of authority.

Please ensure that the trustees of your trust always have sufficient authority before any transactions are entered into on behalf of the trust. It is important for the trustees of a specific trust to know what the objectives of the settlor were when the trust was incorporated and to remember them when they exercise their power.

Contact our Estate & Trust Manager, Lize Roux (lizer@bgrworcester.co.za)  or any of our directors for assistance:

Johan Jacobs: johan@bgrworcester.co.za

Gert Griessel: gert@bgrworcester.co.za

Wessel Bester: wessel@bgrworcester.co.za

Hermias Van Zyl (Associate): hermias@bgrworcester.co.za