As published in Business Day’s September 2024 Business Law and Tax Supplement.
In a recent Supreme Court of Appeal judgment [1], the Court dealt with a situation where the Appellant had received a payment from the Road Accident Fund into an inter vivos trust (“Trust”), the terms of the Trust, inter alia, being that the awarded funds were for the exclusive benefit of the Appellant (“Beneficiary”).
Some time thereafter, the Beneficiary became dissatisfied with the performance of the trustees appointed to the Trust (the trustees had been recommended by a curator ad litem, who had assisted the Beneficiary during her claim against the Road Accident Fund while the Beneficiary was still recovering from her injuries).
For the purpose of this article, I shall focus on only two points raised in the unanimous judgment.
Firstly, if a beneficiary of a trust is of the view that the trustees are acting negligently (which would include poor financial reporting), or fraudulently, what recourse does the beneficiary have, presuming that the beneficiary can demonstrate some or all of the above behaviour, against the trustees?
In terms of Section 20 of the Trust Property Control Act (“the Act”)[2] “a trustee may, on application by the Master or any person having an interest in the trust …, at any time be removed from his office by the Court if the Court is satisfied that his removal will be in the interests of the trust and its beneficiaries”.
In its discussion of unacceptable behaviour by trustees, the Court dealt, inter alia, with the concepts of “the breakdown of trust” between beneficiaries and their trustees, and ”conduct which imperils the trust property”. The Court considered that both these concepts should be included in the interpretation of Section 20(1) of the Act.
In the circumstances before the Court, the Court criticised the behaviour of the trustees, particularly in regard to their inadequate financial reporting of the activities of the Trust. For various reasons the Court did not remove the trustees although, it is submitted, the Court could have done so had it so chosen.
The second issue, for the purposes of this article deals with the terms and conditions of the Trust and, more particularly, the fact that the Trust’s terms and conditions were more appropriate for a commercial trust, and accordingly inappropriate for the needs of the Beneficiary. The Court, unsurprisingly, found that many provisions of the Trust gave the trustees a mandate which was not only excessive, but also inappropriate and/or irrelevant.
The question that thus arose before the Court was how a beneficiary deals with a situation where the provisions of the trust deed are inappropriate?
Section 13 of the Act provides that “if a trust instrument contains any provision which brings about consequences which, in the opinion of the Court, the founder of a trust did not contemplate or foresee and which –
- hampers the achievement of the objects of the founder; or
- prejudices the interest of the beneficiaries; or
- is in conflict with the public interest,
the Court may, on the application … of any person who in the opinion of the Court has a sufficient interest in the trust property, delete or vary any such provision or make … any order … [the] Court deems just, including … an order terminating the trust”.
The Court held that the terms of the Trust were so inappropriate that the Trust should be terminated and that a new inter vivos trust should be created in its place. The Court further ordered that such new inter vivos trust should first be copied to the Master of the High Court for comment and approval, and thereafter be forwarded to a judge of the Supreme Court of Appeal (in chambers) for consideration and approval, all prior to registration of such trust.
In summary, in voicing its displeasure regarding the conduct of the trustees, the Court ordered, inter alia, that:
- the trustees disclose in the fullest detail all the financial transactions of the Trust, from its date of inception to the present, including the invoicing of all fees recovered by the trustees and, further, paid by the trustees to third parties other than the beneficiary;
- upon proper performance of the above order, the Trust be terminated, a new trust be formed, and all Trust property be transferred from the one to the other; and
- the trustees pay out of their own personal funds the legal costs of the application by the Beneficiary.
[1] Snyman v De Kooker NO and others (400/2023) [2024] ZACSA 119
[2] Trust Property Control Act 57 of 1988