Can trustees refuse to account to the Master?
June 11th, 2021 06:20
In a recent case (Weir-Smith v Master of the High Court of South Africa, Gauteng Division, Pretoria case of 2020), the wife, after exhaustive attempts to obtain information from the trustees - as part of a process to protect, and provide for, her minor children (who are beneficiaries of the trust) - turned to the Master for help. The Master then requested information from the trustees in terms of Section 16(1) of the Trust Property Control Act, requiring trustees to account to the Master, failing which they could be removed as trustees in terms of the Act. The trustees had a history of not accounting to beneficiaries as required in terms of the Doyle v Board of Executors case of 1999, which created legal precedent that beneficiaries are entitled to information. The Master’s request was, however, very taxing as he asked for a ‘shopping list’ of information for a period of twenty four years – which was from inception of the trust. The trustees brought an application to Court challenging the Master’s decision in terms of the Promotion of Administrative Justice Act of 2000 (PAJA), claiming that the Master’s decision in terms of Section 16(1) is administrative action which is unlawful, irrational, unreasonable and procedurally unfair.
PAJA strives to keep discretionary powers (such as the power of the Master under this section) within “lawful bounds” if an administrative action is taken. The following is required for PAJA to apply:
* A decision of an administrative nature – it requires the implementation of legislation. Section 16(1) is central to the Master’s statutory mandate to oversee the control of trusts and trust property, which is the purpose of the Act. The section provides the Master with the discretionary power to request documentation they determine are necessary. A decision taken under this section therefore meets this requirement.
* The decision should adversely affect right; i.e. a decision that has “the capacity to affect legal rights” (Greys Marine Hout Bay (Pty) Ltd v Minister of Public Works case of 2005). The judge held that although the Master’s decision did not immediately punish or penalise the trustees and that they have not made a final determination regarding the trustees’ rights, legal position or fiduciary liability, failure to comply with the request (which imposes obligations on the trustees) to provide extensive documentation (which may be difficult to source and labour intensive) may result in their removal as trustees in terms of the Master’s discretion in terms of Section 20(2(e) of the Act. The Master’s request in terms of Section 16(1) effectively constitutes the commencement of an accounting process under the Act and any failure to comply with it may result in the removal of the trustees. Unless the request is challenged by the trustees, the legality of the Master’s request will be accepted.
* The decision should be final and have the necessary degree of externality – Once the Master uses this section, it is final that the trustees have to respond; they have no choice.
The judge confirmed that the Master’s power under Section 16 may not be read in a “narrow fashion” and that the Master has the overall responsibility for the appointment, supervision and removal of trustees. The Master therefore has the power in terms of this section to call for the accounting or delivery of documentation, which is not limited to instances where there are “substantial allegations of maladministration” only (Doidge v Master of the Gauteng High Court, Pretoria case of 2015). Although the Master was not provided with a fixed list of instances in which it would be appropriate to call for accounting and documentation in terms of Section 16(1), it is important that the Master has “good reason” to use these powers such as when there are credible allegations of wrongdoing even though the Master can exercise this discretion with or without an underlying complaint or request.
The judge held that the Master must consider the following:
* Is it necessary or otherwise appropriate in the interests of the proper supervision, oversight and governance of a trust or having regard to any other relevant considerations? It was held that documents and accounting should not be requested by the Master for purposes entirely unrelated to the broad objectives of the Act and the Master’s powers. However, if the Master has information requested on file, any person with sufficient interest in such documents, may request copies from the Master, even if you want to use it for a divorce (Section 18 of the Act).
If the Master is approached by an aggrieved person to request information under this section, the Master should carefully assess the request and ask for clarification to establish whether it is necessary or appropriate to their powers. The Master would be obliged to obtain input from the relevant trustees and even third parties who may assist the Master – this is however not a requirement of procedural fairness.
The judge held that due to the possible adverse impact of a Section 16(1) decision, as a matter of procedural fairness, the Master should have allowed the implicated trustees the opportunity to make representations, before making a decision. The judge also held that the Master should have obtained clarification from the aggrieved person first. If so, to which extent is it required and is it practical and reasonable?
* Given the urgency of the matter and the extent of documentation and accounting requested, what is a reasonable deadline to be provided to trustees to provide the information requested?
The judge found the Master’s decision to apply the section “procedurally unfair and irrational”. The Master should have rather done the following:
* notify the trustees of the complaint and his intention to apply this section first
* afford a reasonable opportunity to the trustees to make representation to the Master
The judge therefore held that the Master’s decision is reviewable under PAJA, as supported by Section 23 of the Trust Property Control Act, which allows any person aggrieved by any decision by the Master in terms of the Act to apply to the Court for relief. The scope of this section includes a judicial review application testing the legality of the Master’s conduct, regardless whether the Master has made a decision regarding the removal and liability of the trustees – i.e. The Master’s decision had “the capacity to affect legal rights” and could therefore be challenged. The Court has a wide discretion, and is actually obliged, to make any order that is just and equitable as required by our constitution to protect the right to administrative justice. The remedy granted by the Court should repair the constitutional injury identified by it. The judge therefore found that the Master’s decision was unconstitutional and was set aside as there was a “lack of consultation, procedural unfairness and related irrationality”. The matter was referred back to the Master for reconsideration under Section 16(1), as the Master is “principally afforded the institutional and constitutional competence to make a decision in terms of Section 16(1)” as long as the Master follows the correct constitutional and legal principles and rules.
The big lessons from this case – ensure you provide the Master with sufficient background information justifying the type and extent of information requested through the Master, the Master should, given the information and explanations provided, inform the trustees of their intention to request a set of information and provide the trustees with an opportunity to make representations, and running to Court will not paralyse the Master to not exercise this power they have in law. Trustees have an inherent duty to account and have to keep all trust information handy for a period of five years after termination of the trust (in terms of Section 17 of the Trust Property Control Act). Trustees cannot claim that it is difficult to source information and that it is labour intensive as indicated by the judge. The Court in the Doyle case held that the trustees have a duty to provide full trust administration reports and accounting records to trust beneficiaries, and even to contingent beneficiaries born later, dating back to the time the discretionary trust was established.
~ Written by Phia van der Spuy ~