What to consider when a trust is involved in legal action
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ALL ABOUT TRUSTS:
By Phia van der Spuy
Any legal action by a trust must be properly brought in the names of the trustees. Since a trust is not a person and cannot act, when litigation is initiated the action must be brought (or defended) by its trustees. Although it is desirable to cite the trustees of the trust as the applicant, failure to do so does not mean that the case will fail (Villon Family Trust v Kirby case of 2012).
In order to bring legal action on behalf of a trust, certain aspects must be met by the trustees:
The applicant must be either all the trustees or a trustee who is acting in a representative capacity (not in their personal capacity). A representative trustee or agent must be properly authorised by the board of trustees to act on their behalf.
First, where there is more than one trustee, they must act jointly, unless the trust instrument provides otherwise. Since they have individual interests, all trustees must necessarily join in litigation concerning the affairs of the trust - although one trustee may authorise another to sue in their name (Luppachini v Minister of Safety and Security case of 2010).
Second, all trustees must be joined in suing, unless one of the trustees is authorised by the remaining trustee/s. As a general rule, co-trustees must act jointly. A trustee may, through delegation, authorise another trustee (or an agent) to act on his or her behalf only if the trust instrument permits such a delegation and only if the full board of trustees retain ultimate responsibility for the outcome (Goolam Ally Family Trust t/a Textile, Curtaining and Trimming v Textile, Curtaining and Trimming (Pty) Ltd case of 1989).
The trustees or representative trustee must be authorised by the Master of the High Court (through letters of authority) in terms of section 6 of the Trust Property Control Act. One trustee may not authorise another to institute legal proceedings on his or her behalf unless such person has the relevant authorisation by the Master (Luppachini case cited above). Trustees can be appointed in terms of the trust instrument, the Master, or the court. Since more steps are required before a trustee can act, this first step is nothing more than a nomination. The nominated trustee is required to accept the nomination formally. Only then can the Master authorise the appointment.
The trustees must have the capacity to act in respect of trust matters. In the absence of the specified minimum required number of trustees in the trust instrument, any transaction - or the institution of proceedings - will be a nullity and cannot be ratified. However, if a person who is not yet authorised by the Master to act as trustee participated in a trust decision, as long as the remaining number of authorised trustees meet the minimum required number of trustees in terms of the trust instrument, the decision will not be invalidated due to that trustee’s lack of authority. Their vote will be excluded, and, as long as the authorised trustees’ actions have met the requirements of the trust instrument, the decision will be valid (Hyde Construction CC v Deuchar Family Trust case of 2015). If the participation of the unauthorised trustee was required to meet the requirement for the participation of the specified minimum number of trustees in terms of the trust instrument, the decision will fail, even though the rest of the trustees were authorised to act. All the trustees, therefore, lack the capacity to act until such time as the required minimum number of trustees are stipulated on the letters of authority.
The Land and Agricultural Bank of South Africa v Parker case of 2005 also held that, where fewer than the specified number of trustees are in office, “the trust suffers from an incapacity that precludes action on its behalf”. Such action can never be ratified, since the alleged action in invalid in the first place, also confirmed in the Luppachini case.
In the Hyde case (cited above), there was no incapacity on the part of the trust to institute legal proceedings. Although the minimum number of trustees as required in the trust instrument was authorised by the Master, only two trustees instituted legal action and excluded the participation of the others. In this instance, since the trust did not lack capacity, the unauthorised institution of the proceedings could be ratified later.
Phia van der Spuy is a Master Tax Practitioner (SA), a Trust and Estate Practitioner and the founder of Trusteeze, a professional trust practitioner.