VOL 15 PART 2
François du Toit
Choose your
trustee with care
A recent case illustrates unacceptable
trustee conduct
The Cape High Court recently heard the
matter between Stander & others v Schwulst &
others (CPD (case no 6375/07 and 12461/07)
unreported). In the main case the four
applicants (the living major beneficiaries of
the Jilelf Edwards Trust) sought the removal
of the first three respondents as trustees of the
trust. The three trustees then applied for an
order which would permit them to draw on the
trust to fund the defence of the application for
their removal (called ‘the costs application’ by
the court), which application was followed
by a further application that the three trustees
be granted leave to intervene jointly as a
further respondent in the application for their
removal (called the ‘intervention application’
by the court). The court dismissed both these
applications. Although the judgment was
concerned first and foremost with the merits
of the costs and intervention applications, the
court also listed the grounds upon which
the applicants sought the removal of the
trustees. The court described the allegations
made against the trustees in this regard as
‘serious’ (in par [9]) and stated, even though
not dealing with the merits of these allegations
in the case before it, that the applicants’ ‘case
for removal is strong’ (in par [56.1]). Actually,
the court ordered the trustees to file their
opposing affidavits in the application for
their removal within fifteen days of the court
giving its order in the costs and intervention
applications.
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Examples of unacceptable trustee conduct
The alleged trustee misconduct that incurred
the wrath of the applicants in the Stander
case underscores the simple truth that the
choice of trustee is a decision that must be
exercised with great care and circumspection.
Indeed, the Stander court’s enumeration of the
applicants’ allegations of unacceptable trustee
conduct sounds a clear warning that things
can go horribly awry when trustees fail in their
stewardship of a trust.
The following is a synopsis of the applicants’
allegations:
• One of the trustees (the second respondent)
failed over a protracted period to participate
in important discretionary trustee decisions
and actually abdicated his responsibilities as
trustee to the other trustees (in par [9]).
• The trustees, contrary to the founders’ letter
of wishes and to the language of the trust
deed, strove to preserve the trust’s capital as
an end in itself and to the exclusion of any
benefit for the existing trust beneficiaries,
resulting in a perpetual trust with ever-
growing unused capital (in pars [9.1], [9.3],
and [9.5]). Moreover, the trust’s income
declined in real terms over time and was
applied, again contrary to the language of
the trust deed, for the benefit of beneficiaries
only in instances of extreme need (in pars
[9.2] and [9.4]). This approach of the trustees
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to trust administration is alleged to have
occurred in blatant disregard of the interests
of the existing beneficiaries (in paras [9.1]
and [9.5]).
• The trustees’ preservation of the trust’s
capital appears to have been motivated by
self-interest in that their remuneration is
based on the trust’s capital value from time
to time; hence the greater the trust’s capital
value, the greater the remuneration payable
to the trustees. The applicants alleged that
the trustees’ remuneration actually exceeded
the amount paid to any single beneficiary
(in par [9.6]).
• The trustees were untruthful in respect of the
founders’ wishes in that they initially justified
their approach to trust administration with
reliance on the founders’ letter of wishes, but
later claimed that they were actually guided
by the founders’ unrecorded wishes to which
only one trustee (the first respondent) was
privy.
• The trustees manifested bullying tactics
and threatening conduct towards the
beneficiaries which caused a complete
breakdown in the relationship between the
trustees and beneficiaries — to such an
extent that the major beneficiaries preferred
to have nothing whatsoever to do with the
trustees (in pars [9.8] and [9.9], as well as the
specific instances mentioned in pars [9.10]
and [9.11]).
• One trustee (the first respondent) procured
the appointment of his business associate
(the third respondent) as trustee; the latter
was completely unknown to the beneficiaries
and his appointment is alleged to have
occurred without consultation with the
beneficiaries (in par [9.12]).
• The trustees ignored the beneficiaries’
requests for an accounting in respect of
trust administration and only relented after
considerable correspondence and an opinion
obtained by the applicants from senior
counsel. The applicants averred, however,
that the trustees reimbursed themselves
out of the trust income for their expenses
in challenging the applicants’ requests for
accounts (in par [9.13]).
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• The first respondent acted as trustee for two
and a half years without having received
the requisite letter of authorization from the
Master of the High Court and later denied
that he performed specific acts as trustee
on behalf of the trust during this time (in
pars [9.14] and [9.18]).
• A purported trustee resolution, removing a
former trustee from office and appointing
the first respondent as trustee, was taken at
an improperly constituted trustee meeting, in
all likelihood contained a falsified signature
and was, moreover, falsely backdated to
secure the first respondent’s appointment as
trustee (in pars [9.14]–[17]).
What to expect of your trustee
In light of the aforementioned alleged trustee
misconduct, a trust founder who has to decide
on a trustee can look to the following guidelines
when making this vitally important decision:
• The founder must ensure that the chosen
trustee fully appreciates the demands of
trusteeship and will execute his office
accordingly (Tijmstra NO v Blunt-MacKenzie
& others 2002 (1) SA 459 (T) at 468). Put
simply, the founder must choose a trustee
who has the requisite skill and dedication to
properly administer the trust at hand (Jowell
v Bramwell-Jones supra 1998 (1) SA 836 (W)
at 870; see also the doubts expressed on the
appropriateness of chosen trustees in Jowell
v Bramwell-Jones supra at 882, and Boyce v
Bloem & others 1960 (3) SA 855 (T) at 856).
• The founder must trust the chosen trustee to
adhere meticulously to the trust instrument’s
provisions and all statutory prescripts
in service of the interests of the trust
beneficiaries — indeed, South African courts
have confirmed on numerous occasions that
a trustee is under an absolute obligation
to conduct trust administration in the best
interests of the trust’s beneficiaries (Jowell
v Bramwell-Jones supra at 891 and 894;
Bafokeng Tribe v Impala Platinum Ltd 1999
(3) SA 517 (BH) at 545–546; Land and
Agricultural Development Bank of SA v
Parker & others [2004] 4 All SA 261 (SCA) at
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267; Nel v Metequity Ltd & others 2007 (3) SA
34 (SCA) at 38).
• The founder must be confident that the chosen
trustee will conduct trust administration in
the utmost good faith — with the standard
of care expected of trustees (s 9 of the Trust
Property Control Act 57 of 1988), without
a conflict between the trustee’s personal
interests and those of the trust beneficiaries
(Jowell v Bramwell-Jones & others 2000 (3) SA
274 (SCA) at 284; Tijmstra v Blunt-MacKenzie
supra at 476), with independence (Tijmstra
v Blunt-MacKenzie supra at 474; Land and
Agricultural Development Bank of SA v Parker
supra at 268), and with full accountability
(Doyle v Board of Executors 1999 (2) SA 805
(C) at 815; Tijmstra v Blunt-MacKenzie supra
at 471 and 474).
• Should the founder decide on co-trustees
to administer the trust, the founder must
keep in mind that co-trustees are generally
to act jointly and that all the trustees
must, therefore, together participate in trust
administration (Goolam Ally Family Trust t/a
Textile Curtaining and Trimming v Textile,
Curtaining & Trimming (Pty) Ltd 1989
(4) SA 985 (C) at 988; Hoosen & others v
Deedat & others 1999 (4) SA 425 (SCA) at
432; Nieuwoudt & another NNO v Vrystaat
Mielies (Edms) Bpk 2004 (3) SA 486 (SCA)
at 493; Land and Agricultural Development
Bank of SA v Parker supra at 265; Thorpe
NNO & another v Trittenwein & another
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[2006] 4 All SA 129 (SCA) at 132). The
founder must know that a ‘sleeping trustee’
or one who abdicates his responsibilities in
respect of trust administration to another is
incompatible with co-trusteeship (Hoosen v
Deedat supra).
• The founder of a discretionary family trust
must be alert to the difficulties that family
relationships can occasion and may be well
advised to choose as trustee someone with
an understanding of the family intricacies at
hand, but who can still maintain the requisite
independence, fairness, and objectivity
regarding trust administration (Louis Kernick
‘A matter of trust: there can be a way in a
will’ 1993 JBL 48).
These guidelines underscore the importance
of a chosen trustee fitting into the profile
of an ‘ideal trustee’, described in Land and
Agricultural Development Bank of SA v Parker
supra at 270 as ‘someone who with proper
realization of the responsibilities of trusteeship
accepts office in order to ensure that the trust
functions properly, that the provisions of the
trust deed are observed, and that the conduct
of trustees who lack sufficient independent
interest in the observance of substantive and
procedural requirements arising from the trust
deed can be scrutinized and checked’.
François du Toit: University of the Western
Cape (e-mail: fdutoit@uwc.ac.za)
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