Bound by the trust
August 23rd, 2019 14:28
Sometimes it is difficult for all trustees to attend a physical meeting. Luckily these days technology has made it easier for trustees to have meetings in the form of audio or audio visual meetings such as conference calls, Skype calls, etc. Alternatively the Courts accept that a trustee, who cannot personally attend a meeting, can make use of a proxy, as long as it is not broadly interprete. Only the use of a proxy to convey the input and vote of the represented trustee, in writing, (without allowing him/her to provide his/her own input and/or cast his/her own vote) will result in valid decisions taken by the trustees (Steyn v Blockpave case of 2011). The reasoning behind this is that the Trust Property Control Act 57 of 1988 only allows duly appointed trustees to act on behalf of a trust; i.e. if one is approved in writing by the Master of the High Court.
Unfortunately certain trustees abuse the fact that certain trustees cannot attend meetings and rely on a provision in the trust deed allowing trustees to make decisions by majority vote, and deliberately have meetings excluding certain trustees from decisions. It is not well known that such a provision in the trust deed does not allow trustees to make decisions without involving the minority.
The Courts have, in many cases, established the “Joint Action” rule, whereby trustees are required to act jointly in dealing with trust property. This principle stems from the fact that trustees of a discretionary trust are co-owners of trust property, albeit in a non-beneficial sense. The basic rule is that decisions regarding any transaction in respect of trust matters must be reached by all trustees unanimously. Co-owners own property in undivided shares, meaning that no co-owner is the sole owner of any particular portion of the property. The co-owners together own the property as a whole. Trustees must therefore act jointly in trust affairs, consult with each other and strive to reach agreement on disputed matters (Nieuwoudt NO and Another v Vrystaat Mielies case of 2004), and even when the trust deed stipulates that the majority of trustees can make a decision, the resolutions must be signed by all the trustees. It is a fundamental rule of trust law that, in the absence of contrary provisions in the trust deed, the trustees must act jointly if the trust’s estate is to be bound by their acts. The Joint Action Rule therefore applies when dealing with third parties, and stems from joint ownership (Land & Agricultural Bank of SA v Parker case of 2005).
All trustees must act together when making decisions that affect the trust, not simply the majority of the trustees. Even though a trust deed may allow decision by majority vote, all trustees have to sign resolutions. It is not the majority vote, but the resolution (signed by the entire complement of trustees) that binds a trust. A trust operates on resolutions and not on votes. In the Steyn v Blockpave case of 2011, it was decided that when dealing with third parties, even if the trust deed states that a decision may be made by the majority of trustees, all the trustees must be involved in the decision. All the trustees must be informed of all decisions to be taken. If a trustee is excluded from the decision-making process, he or she is entitled to claim that the transaction authorised by the other trustees is void on the basis that there was no notification of a decision to be taken or involvement by him or her in the decision-making process. The Court emphasised that a trust functions through its appointed trustees, and that its legal personality requires that all trustees act together for and on behalf of a trust. The minority trustee/s is/are however obliged to act jointly with the other trustees in signing resolutions adopted by the majority of trustees (van der Merwe v Hydraberg Hydraulics CC case of 2010).
If there is more than one trustee and there is no provision in the trust deed that determines how decisions should be made, a unanimous vote will be required in matters of substance, as trustees are co-owners of trust property and should act jointly (Coetzee v Peet Smith Trust case of 2003).
In the Le Grange v The Louis And Andre Le Grange Family Trust case of 2017 the judge aptly summarised the obligation of acting jointly as follows: “Acting jointly means that the trustees must participate in the decisions taken on behalf of the trust. Participation usually involves meetings or consultations amongst trustees, negotiating or mediating contested decisions and ultimately in the absence of consensus or resolution contested issues are determined by a vote. Trustees may participate in a vote in three ways: vote for or against a motion or abstain from voting altogether. All three forms of participation in the decision-making are self-conscious and deliberative actions. Participation is elicited after proper notice to the trustees. A trustee who has no knowledge of decisions taken or to be taken on behalf of a trust and consequently does not vote in any decision, cannot be said to have participated in decision-making on behalf of that trust. Consequently even if the majority of trustees arrive at a decision but without the participation of all the trustees, unless the trust deed authorises otherwise, the ensuing decision albeit a decision of the majority is not a decision on behalf of the trust.” Trustees have to present a united front, irrespective of internal disagreement, in the form of a duly signed resolution by all the trustees. The judge also confirmed that the minority trustees must subject themselves to the democratic vote of the majority and co-sign the resolution taken by the majority trustees.
Even if a trust deed allows for the majority of trustees to form a quorum for a trustees meeting, or allows for the majority decision of trustees, such majority may perfectly take a valid internal decision by acting together on the internal front, but it will not be a valid resolution which externally binds a trust, unless it is signed by all trustees, including absent trustees in whose absence it was taken, and that of disagreeing trustees.
~ Written by Phia van der Spuy ~