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ZAMBIAN OPEN UNIVERSITY

SCHOOL OF LAW

NAME; UPENDO BWALYA

COMPUTER NUMBER; 21910691 - Distance

YEAR OF STUDY 2024 (3rd Year)

SEMESTER NUMBER; ONE (1)

COURSE; BUSINESS ASSOCIATIONS

COURSE CODE; LL331

LECTURER; MS. GONDWE

ASSIGNMENT NUMBER; ONE (1)

MOBILE NUMBER; 0961691362/0973866986

EMAIL; upendobwalya98@gmail.com

QUESTION:
Bwanali a trustee for the trust of Carlos Mubanga and Leya approached counsel
Regina of Rex and Regina Associates to handle all matters of the trust. This contract
was entered into on 20th May 2019. Carlos died on 5 th March 2022. Leya visited Rex
and Regina’s chambers on 7 July 2022 to find out how she would proceed with the
businesses and the property in the trust after the death of her husband. She discovered
that some of the property had moved possession to Regina and Bwanali. Regina
explained that it was within their rights as trustees of the property that it must move to
them. Using cases and authorities explain the issues raised in the case in casu and
advise Leya
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INTRODUCTION
Business trusts represent a unique and versatile form of business organization wherein
trustees manage assets or property for the benefit of beneficiaries. This structure has gained
prominence due to its flexibility, offering a range of benefits for different stakeholders
involved. From providing asset protection and facilitating estate planning to enabling
efficient business operations and investment management, business trusts play a pivotal role
in modern commerce. However, navigating the complexities of trust management involves
considerations of fiduciary duties, legal obligations, and regulatory compliance. This paper
shall endeavour to discuss business trusts and the role of party involved therein. After a
comprehensive discussion of business trust, this paper shall advise Leya in her case according
to the facts presented in the question.

MEANING OF A TRUST

The Oxford’s Dictionary of Law1 defines a trust as an arrangement in which a person (settlor)
transfers property to one or more people (trustees), who will hold it for the benefit of one or
more persons (the beneficiaries who may include the trustee(s) or the settlor) who are entitled
to enforce the trust, if necessary by action in court. 2 The simple meaning of a business trust
from this definition is that a trust is a form of business organization where trustees hold and
manage property or assets for the benefit of beneficiaries. These trusts can have various
effects on different parties involved:

Parties Involved in a Trust

1. Beneficiaries:

Beneficiaries are the individuals or entities that benefit from the assets held in the trust.
They may receive income generated by the trust or have a stake in the appreciation of
trust assets.3 From this definition one might think the beneficiary always yield a positive
outcome, however the effect on beneficiaries can be positive if the trust generates
favourable returns or negative if the trust underperforms or if there are conflicts of
interest among trustees.

1
The Oxford Dictionary of Law. 2002. (5th Ed.). (Edited by Elizabeth A. Martin). Oxford University Press;
London.
2
Ibid. p509-510
3
Eric, C. (2020). A Theory of the Business Trust. Available at https://scholarship.law.uc.edu/uclr/vol88/iss3/7
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2. Trustees:

Trustees are responsible for managing the trust and its assets in accordance with the trust
agreement and applicable laws. They have a fiduciary duty to act in the best interests of
the beneficiaries. Trustee fees or compensation may be involved, and trustees can be held
personally liable for breaches of their fiduciary duties. Trusts can provide trustees with
opportunities for income generation and professional growth, but they also come with
significant responsibilities and potential legal risks.

3. Settlors:

Settlors are the individuals or entities that establish the trust and contribute assets to it. By
creating a trust, settlors can achieve various objectives, such as asset protection, estate
planning, or charitable giving. The effect on settlors depends on their goals and the
success of the trust in achieving those goals. For example, a trust designed for asset
protection can shield assets from creditors, while a trust for charitable purposes can
support philanthropic endeavours.4

4. Creditors:

Creditors may be affected by business trusts if trust assets are used as collateral or if trust
assets are subject to claims in bankruptcy proceedings. The extent to which creditors can
access trust assets depends on various factors, including the terms of the trust agreement,
the jurisdiction's laws governing trusts, and the nature of the creditor's claim.

5. Government Agencies and Regulators:

Business trusts may be subject to regulation by government agencies and regulators,

depending on the jurisdiction and the nature of the trust's activities. Regulators may
impose reporting requirements, licensing obligations, or other compliance measures to
ensure that trusts operate in accordance with applicable laws and regulations. Compliance
with regulatory requirements can affect the operations and costs of business trusts.

Overall, business trusts can have significant effects on various parties involved, ranging from
beneficiaries and trustees to settlors, creditors, and regulators. The nature and extent of these
effects depend on factors such as the trust's objectives, the assets held in the trust, and the
legal and regulatory framework governing trusts in the relevant jurisdiction.

4
Albright, T.D. (1964). The Business Trust as an Organization for Practicing Law. Indiana Law Journal Vol.39.
Issue 2, Article 5.
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THE LEGAL FRAMEWORK OF TRUSTS IN ZAMBIA

In Zambia, there are two legal provisions governing the establishment of trust being; the
Administration of Estates (Trust Corporations) Act 5 and the Restriction of Trusts 6. Whether a
trust is established through a contract or a will, there are certain conditions that must be
fulfilled. The above Zambian statutes only address the effects of a trust upon disposition
under section 5 (1) (b)7 of chapter 63 of the laws of Zambia, and they do not go into detail
about the formalities that a founder intending to establish a trust must follow. Additionally,
Section 8 Subsections (2)8 and (3)9 requires notice of both the proposed and actual
registrations in the Gazette.

ISSUES RAISED IN THE CASE AND ADVICE TO LEYA

To understand the issues raised this scenario, it is imperative that we understand the position
every person involved in the case:

a) Carlos and Leya: These are the beneficiaries of the trust, meaning they are entitled to
benefit from the assets held in the trust. They appointed Bwanali as a trustee to
manage the trust on their behalf.
b) Bwanali: As a trustee, Bwanali has a fiduciary duty to act in the best interests of the
beneficiaries, Carlos and Leya. This includes managing the trust assets according to
the terms of the trust agreement and applicable law. Bwanali may have certain powers
and responsibilities outlined in the trust document.
c) Counsel Regina: Regina is a legal representative hired by Bwanali, acting as a
trustee, to handle legal matters related to the trust. She is responsible for providing
legal advice and ensuring that the actions taken by Bwanali, as trustee, comply with
the law and the terms of the trust agreement.

5
Chapter 62 of the Laws of Zambia
6
Chapter 63 of the Laws of Zambia
7
S.5 (1) b. a trust shall have effect as a disposition in fee simple or absolutely, as the
case may be, to the beneficiary;
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8 (2) Any person who claims that any property vests in him in fee simple or absolutely,
as the case may be, by virtue of section five shall, as soon as may be practicable after the
making of the instrument in question, cause to be published in the Gazette a notice in
Form 1 in the Schedule.
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Any person who claims that any property vests in him in fee simple or absolutely,
as the case may be, by virtue of section six shall, as soon as may be practicable after the
commencement of this Act, cause to be published in the Gazette a notice in Form 2 in the
Schedule
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In this assignment, Bwanali and Regina, as trustees, have a duty to manage the trust assets for
the benefit of Carlos and Leya. However, the situation becomes concerning if Regina, as
counsel, is also taking possession of trust property without proper authorization or
transparency, potentially breaching her fiduciary duty to act in the best interests of the
beneficiaries.

PRIMARY ISSUE RAISED IN THIS CASE

a) Breach of Fiduciary Duty by Trustees Regina and Bwanali:

Trustees owe fiduciary duties to the beneficiaries of the trust, including Carlos and Leya. This
duty encompasses acting in the beneficiaries' best interests, managing trust assets prudently,
and avoiding conflicts of interest.

b) Trustees' Obligation to Act in the Best Interests of the Trust and Beneficiaries:

Trust law imposes a high standard of conduct on trustees, requiring them to prioritize the
interests of the trust and its beneficiaries above their own. Trustees must exercise diligence,
loyalty, and impartiality in their decision-making and management of trust assets.

c) Lack of Transparency and Communication:

Transparency and open communication are essential elements of effective trust

administration, ensuring that beneficiaries are kept informed about the management of trust
assets and decisions affecting their interests. Trustees have a duty to provide beneficiaries
with accurate and timely information about trust administration, including any significant
transactions or changes to trust assets. The lack of transparency and communication between
trustees and beneficiaries can erode trust and undermine beneficiary rights.

Leya's visit to counsel Regina's law firm and subsequent discovery of trust property being in
possession of Regina and Bwanali highlights a breakdown in communication and raises
concerns about the trustees' accountability to the beneficiaries. Failure to maintain
transparency and provide adequate communication to beneficiaries may exacerbate the
breach of fiduciary duty allegations against Regina and Bwanali. Courts may view a lack of
transparency as evidence of trustees' failure to fulfil their duty to act in the best interests of
the beneficiaries, potentially leading to further legal consequences for the trustees.

d) Conflict of Interest:
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According to Black’s Law Dictionary10 conflict of interest refers to a real or seeming

incompatibility between one's private interests and one's public or fiduciary duties. A conflict
of interest occurs when trustees' personal interests diverge from their duty to act in the best
interests of the trust and its beneficiaries. Trust law imposes strict standards regarding
conflicts of interest, as trustees are expected to prioritize the interests of the trust and
beneficiaries above their own.

The duty of loyalty requires trustees to avoid conflicts of interest and refrain from self-
dealing or actions that may benefit them personally at the expense of the trust or its
beneficiaries. Regina and Bwanali's possession of trust property and their explanation that it
was within their right as trustees raises concerns about a potential conflict of interest and self-
dealing.

LEGAL REMEDIES AND ADVICE TO LEYA

If Regina and Bwanali are found to have engaged in self-dealing or acted in their own
interests in violation of their duty of loyalty, they may be subject to legal remedies such as
removal from office, restitution of improperly obtained assets, and potential liability for
damages. Courts take conflicts of interest seriously in trust litigation, as they undermine the
integrity of the trust and erode beneficiary trust in the trustees' ability to fulfil their fiduciary
duties. This enhances the understanding of the broader context surrounding the potential
breach of fiduciary duty and underscores the importance of trustees' adherence to their duties
and obligations under trust law. In the Supreme Court appeal case of First Merchant Bank
Zambia & A.G v. Al Shams Minerals co. ltd 11 the applicants’ monies were frozen in 1998
following upon an order for seizure issued by the Drug Enforcement Commission (DEC)
directed at the first appellant bank. On trial, the High Court ruling ordered that the Bank of
Zambia as the liquidator of the First Merchant Bank, the 1 st respondent pays all the monies
remaining unpaid on the judgment sum to the applicants. The High Court found that the
seizure of the monies was illegal. There was an appeal to the Supreme Court. The supreme
Court affirmed the ruling of the High Court.

The best advise to Leya is to bring a cause of action in court for the trustees have been found
to have potentially breached their fiduciary duty, lack of transparency and communication
and because they did not act in her best interest as it was their duty to do so. If found to have
been in breach, the trustees in this case may be held liable for any resulting damages, required
10
Black’s Law Dictionary. (9th. Ed.). Bryan A. Garner. (2009). WEST Publishing CO. p.341
11
SCZ Judgement no.17 of 2006
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to restore any losses to the trust and potentially remove them from their position as trustees.
Trust law imposes strict standards regarding conflicts of interest, as trustees are expected to
prioritize the interests of the trust and beneficiaries above their own.12

CONCLUSION

In conclusion, it is sufficed to say that the trustees Bwanali and Regina owed Leya a duty of
care, loyalty and communication as far as the trust is concerned. According to the facts
presented, those duties seem to have been breached, to ensure that a party is protected from
losses resulting from the actions of another, Trust Law provides for remedies in instances like
the aforementioned.

12
Moffat, G. (2009). Trusts Law. (5th Ed.). Cambridge University Press. P.912.
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BIBLIOGRAPHY

Books and Articles;

Albright, T.D. (1964). The Business Trust as an Organization for Practicing Law. Indiana
Law Journal Vol.39. Issue 2, Article 5.

Eric, C. (2020). A Theory of the Business Trust. Available at

https://scholarship.law.uc.edu/uclr/vol88/iss3/7

Moffat, G. (2009). Trusts Law. (5th Ed.). Cambridge University Press.

Cases:

First Merchant Bank Zambia & A.G v. Al Shams Minerals co. ltd SCZ Judgement no.17 of
2006

Statutes

Administration of Estates (Trust Corporations) Act, Chapter 62 of the Laws of Zambia

Trusts Restriction Act, Chapter 63 of the Laws of Zambia

Dictionaries:

Black’s Law Dictionary. (9th. Ed.). Bryan A. Garner. (2009). WEST Publishing CO.

The Oxford Dictionary of Law. 2002. (5th Ed.). (Edited by Elizabeth A. Martin). Oxford
University Press; London.