A fine line between delegation and abdication of trustee responsibilities

Trustees are the guardians of the trust’s assets and have a duty to manage these assets in the best interests of all beneficiaries, as outlined in the trust instrument. Trustees may not act in a way that violates this duty, or is outside the parameters of the trust instrument. A number of trustees do not appreciate the seriousness of this role and often abdicate their responsibilities as trustees, either to avoid conflict with other trustees (typically soon-to-be-ex spouse) or because they are ‘silent’, ‘sleeping’, ‘absent’, or ‘puppet’ trustees, which our law in any way does not allow (Slip Knot Investments 777 (Pty) Ltd v du Toit case of 2011).
 
Why do all trustees have to participate in trust decisions?
It is a fundamental rule of trust law that, in the absence of contrary provisions in the trust instrument, the trustees must act jointly if the trust’s estate is to be bound by their acts, and a unanimous vote will be required in matters of substance. The rule derives itself from the nature of the trustees’ joint ownership of the trust assets in ownership trusts. Since co-owners must act jointly, trustees must also act jointly (Coetzee v Peet Smith Trust case of 2003 and Nieuwoudt v Vrystaat Mielies case of 2004).
 
Co-trustees are required to act jointly concerning trust administration at all times. When dealing with third parties, even if the trust instrument stipulates that a decision can be made by the majority of trustees, all trustees are required to be involved in the decision and have to sign each resolution (Land and Agricultural Bank of South Africa v Parker case of 2005). All trustees must therefore participate in the management of the trust and cannot simply abdicate their responsibilities (Stander and Others v Schwulst and Others 2008 (1) SA 81 (C)). It was also held in the Hoosen v Deedat case of 1999 that a trustee cannot delegate the exercise of their discretion and decision-making to another.
 
Sometimes trustees, who cannot attend a meeting or is temporarily absent and cannot participate in the trust’s affairs, appoint alternate trustees to act in their place. However, even if the trust instrument allows for the appointment of a temporary alternate trustee to serve in the place of another trustee, such alternate trustee’s actions may be null and void for the following reasons:
·       Section 6 of the Trust Property Control Act requires a person to be duly authorised by the Master of the High Court before they can act as a trustee of the trust. The Act does also not make provision for the appointment of an alternate trustee.
·       A trustee cannot empower an alternate trustee to act on their behalf to exercise general discretion and decision-making which vests in them. The alternate trustee can, therefore, not decide as they wish. A stipulation in the trust instrument allowing a proxy/alternate trustee to vote as they “may deem fit” results in an abdication of a trustee’s powers, which is not allowed. If an alternate trustee is allowed to exercise their independent judgement and form a personal view at a trustees meeting, they would be allowed to act similar to an appointed trustee of the trust, without being duly authorised as trustee, as required in terms of Section 6 of the Trust Property Control Act (Hoosen v Deedat case of 1999).
There is, therefore, a real risk that, even if a trust instrument allows for the appointment of an alternate trustee, a decision taken by trustees of that trust, including such an alternate trustee, would be invalid and of no force and effect.
 
In the Hoosen v Deedat case of 1999, the Court held that a trustee cannot abdicate their powers and, in so doing, achieve such trustee’s release from the responsibility as trustee. No act of a person, while acting as a trustee, will indemnify them against the liability for breach of trust where they fail to show the degree of care, diligence and skill required in terms of Section 9(1) of the Trust Property Control Act.
 
Can one delegate the implementation of a decision?
Trustees may, however, delegate tasks (in other words, they may execute decisions already taken by the board of trustees), but they are still required to make decisions and exercise discretionary powers personally and independently, without the influence of any other person.
 
After acting jointly, the trustees may delegate certain functions to one or more of them while retaining responsibility for the actions taken on their behalf. The acting trustee then becomes the agent of the board of trustees. Such authority may be express or implied. If the trust instrument is silent on the matter of whether one or more trustees can act on behalf of others, the outsider will have to establish actual or implied authority – otherwise, the trust will not be bound. It is advisable to check that all internal formal or procedural requirements have been met, especially if a trustee or trustees have been given authority to bind the trust. One can typically ask for a resolution signed by all trustees to confirm that such authority was provided.
 
In the van Wyk v Daberas Adventures CC case of 2018, the Court ruled that as long as the unanimous delegation of power by a body of trustees to another trustee does not amount to an abdication of the fundamental discretionary powers of a trustee in the exercise of their management and control duties as trustees, and unless such delegation is not prohibited by the trust instrument, a delegation of (implementation) powers can validly be done in law by trustees.
 
It is clear that the fact that trust instruments, in many cases, contain a general stipulation that the trustees shall have unlimited or unfettered discretion does not allow them to do as they please. They have to be able to prove that they always act in the best interests of the beneficiaries, that they do participate in all trustee decisions and that they have applied their minds.