Trust-to-trust: No trustee can turn a blind eye to the wrongdoing of another

By Phia van der Spuy Time of article published Dec 9, 2021

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TRUST TO TRUST

By Phia van der Spuy

Trusts are often trusts in name only, with an essential principle of trust law, namely the independence of trustees, neglected (Tijmstra v Blunt-Mackenzie case of 2002). It is, therefore, important to note that all trustees are acting in a fiduciary capacity, and no one trustee can hide behind another.

A fiduciary duty is an onerous, legal obligation (a duty of loyalty and care) of a person managing property or money belonging to another person to act in the best interests of such a person. All trustees, without exception, are to act with the care, diligence and skill, which can reasonably be expected of a person who manages the affairs of others (Section 9(1) of the Trust Property Control Act).

Joint action

The Courts have, in various cases, established the “Joint Action Rule”, whereby trustees are required to act jointly in dealing with trust assets. The following was held in the Parker case: “It is a fundamental rule of trust law, which this court recently restated in Nieuwoudt and Another NNO v Vrystaat Mielies (Edms) Bpk, that in the absence of contrary provision in the trust deed the trustees must act jointly if the trust estate is to be bound by their acts. The rule derives from the nature of the trustees’ joint ownership of the trust property. Since co-owners must act jointly, trustees must also act jointly.”

A trustee must therefore notify all other trustees when a decision is required to be made concerning assets held by the trust. A trustee may not withhold information from co-trustees. All trustees must always be, and also be seen to be, acting independently, without interference from anyone – even the person or entity who appointed them (PPWAWU National Provident Fund vs Chemical Energy Paper Printing Wood and Allied Workers Union case of 2008).

Can you turn a blind eye?

In the Tijmstra v Blunt-Mackenzie case of 2002, it was held that a trustee may be removed from office, even if they acted bona fide (without an intention to deceive). It was argued that a trustee’s office should be terminated by the court if they allowed maladministration of the trust by the other trustees without acting on it. It further argued that mala fides (acting in bad faith) or even misconduct are not necessary requirements for the removal of a trustee.

In the Burger v Ismail case of 2013, it was also indicated that the court could consider removing a trustee when a trustee turns a blind eye to the wrongdoing of a co-trustee and when a “puppet” trustee allows a dominant trustee to make decisions on behalf of the trust. A “silent”, “sleeping”, “absent”, or “puppet” trustee will therefore not be tolerated (Slip Knot Investments 777 (Pty) Ltd v du Toit case of 2011). This view of the courts is a strong warning to trustees, who should be aware of this view and the possible consequences for turning a blind eye.

Conclusion

The principles are simple: all trustees must, at all times, act with the necessary care, diligence and skill legally required of a trustee (under Section 9(1) of the Trust Property Control Act); all trustees must be invited to participate in all decisions relating to the trust; all trustees must be given an opportunity to provide their views; and even if all trustees do not agree and a majority vote is allowed in terms of the trust instrument, all trustees are required to sign each resolution of the trust.

Phia van der Spuy is a chartered accountant with a Master;s degree in tax and a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner (TEP) and the founder of Trusteeze, the provider of a digital trust solution.

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