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"Trust Issues"

Fasken
Reading Time 6 minute read Reading Level Easy
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Trust law and the regulation of trust property originated as an English Law concept whereas the South African legal system is based on Roman Dutch Law. Consequently, trust law in South Africa has historically been regulated by the common law and the law of contract.

In 1988, a transition occurred with the introduction of the Trust Property Control Act 57 of 1988 (‘the Act’) and currently in South Africa, the regulation of trust property law is mainly governed by the Act (amongst other pieces of legislation such as the Income Tax Act, the Estate Duty Act as well as the Companies Act). The Act was promulgated to regulate the control of trust property and to provide for matters connected with the running and functioning of trusts in South Africa, such as inter alia, the registration and identification of trust property, the lodging of Trust Deeds, the appointment and removal of trustees and the duties of trustees.

Trustees act in a fiduciary capacity, which entails that if they do not act accordingly or are negligent in any way, they may be held liable by the beneficiaries of the trust in which they act for. The difficulty with the duties of trustees is that many trustees are appointed without consideration of the duties and obligations imposed upon them. In reality, most trustees have no appreciation for the fiduciary duties they assume when they accept appointment or simply do not take the time to acquaint themselves with the trust deed or law when they assume appointment.

Once a trustee has been appointed by the Master of the High Court, the trustee can be removed from office by a Court or according to the provisions of the Trust Deed. Additionally, the trustee also has the discretion to resign from the office. The resignation of a trustee is governed by section 21 of the Act and in terms of these provisions,  a trustee has the general power of resignation subject to the conditions set forth in the section. The trustee must resign by notice in writing to the Master and to the ascertained beneficiaries who have legal capacity. The entitlement to resign, however, is not subject to the Master’s or the Court’s permission. The question which is more complex, which to date has not yet been fully explored, is whether the resignation of a trustee is of any force and effect until such time as the Master has appointed and authorised another trustee to act in his or her stead.

Whether a trustee may continue to act after his/her resignation and after notifying the Master (but still before the issue of the new Letters of Authority), is a grey area in South African law. The question first came to Court in WM Soekoe and others v Le Roux Case No. 898/2007 (O), where Rampai J held that the trustee’s resignation on 10 October 2006 did not legally relieve him of his duties as trustee and that he remained legally accountable to his fellow trustees for the entire period until the Master of the High Court officially removed him from office. Accordingly, the trustee’s duties did not fall away when he resigned, but rather when he was replaced by the newly appointed trustee. 

However, the judgment in the WM Soekoe case has been criticized by many academics. The school of thought, with a contrary view, places emphasis on the requirements of section 21, in that once a trustee has complied with the provisions of Section 21 (the giving of notice to the Master and beneficiaries), there is trouble in understanding how it could be the intention of the legislator that the trustee still remains liable until new letters of authority have been issued by the Master.

In Meijer NO and another v Firstrand Bank Limited (Formerly Known as First National Bank of Southern Africa) and another In re Firstrand Bank Limited (Formerly Known as First National Bank of Southern Africa) v Meijer NO and others [2013] JOL 30560 (WCC), the Court had to deal with the issue regarding the time when the resignation takes effect. Unfortunately, the court did not decide on the issue in its entirety but was aware of the issues it may cause in practice.

The court held that indeed the Act is quiet in relation to when the resignation of a trustee actually takes effect. Disappointingly, the court did not deal with the issue as to whether a resignation notice which was coupled with a condition that the master appoint a new trustee, takes effect once the conditions in the resignation have been fulfilled. It may be important to note that resignations are generally unconditional and are made with immediate effect. When there is a condition on the resignation, there is uncertainty as to how to treat such resignations. Where a resignation is conditional upon the Master issuing new letters of authority, but the notice is served prior to such issue, confusion is created in the sense that although the Master may acknowledge receipt of the resignation letter, the intention of the drafter (or outgoing trustee) is to make the resignation effective only once the suspensive conditions outlined in the letter have been fulfilled. The outgoing trustee seems to appreciate the practical difficulties in the transition period and makes provision for this in the resignation letter.

On the one hand, a resignation letter which is unconditional and immediate would take effect when the Master has acknowledged receipt of such resignation as was held in the Meijer NO and Another v Firstrand Bank Limited decision. Conversely, if the resignation notice has a condition (which has not yet been satisfied) and is delivered to the Master, when is the effective date of the resignation? Unfortunately we are not provided with any clarity in this regard apart from the decision in WM Soekoe which decided that the trustee’s resignation (which was immediate and unconditional) could only be effective once the Master had issued new letters of authority. It is imperative to note that the facts in WM Soekoe were slightly different in that the resignation letter itself was unconditional and was made with the intention of being with immediate effect. Essentially, the position regarding unconditional resignations is not problematic, it is the conditional resignations which leave question marks.

In the absence of any confirming or opposing judgments to the WM Soekoe decision, it is unclear what the position should be regarding conditional resignations.  The Chief Masters Directive of 2017 also provides no comfort on this point. Accordingly, we are of the view that it would not be a terrible idea to amend section 21 to provide clarity regarding the effective date of conditional resignations. Perhaps an additional sub-section confirming the effective date of the resignation will provide some clarity and illumination. This is more so important because in some instances, trustees would be required to perform their duties notwithstanding their resignations due to the administrative backlog experienced at the Masters office. From our experience, it is possible that it could take a considerable amount of time for the Master to issue new letters of authority and because of this it is even more so pressing to settle.

 

 

Written by candidate attorney Daniel Mwale, and overseen by partner David Hoffe.

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