A sneak peek into the duties of trustees

What my rubric lacks in appeal my dithyramb makes up for.

It is hackneyed in our law that trustees can only exercise only those powers bestowed expressly or tactility upon them by the trust instrument, and the trustees cannot assume nor create powers not bestowed upon them. A trustee is written to hold a fiduciary duty; a duty he assumes in his capacity as one who holds and controls property of another and one who acts in utmost good faith. In Hofer v Kevitt 1996 (2) SA 402 (C) the court held that a trustee’s fiduciary duty originates from the trust instrument at hand. De Waal in the “Wysiging van ‘n Inter Vivos trust” 1998 TSAR 326, as quoted in Du Toit, argues that a trustee’s fiduciary duty arises from the office of trustee and not from the trust instrument for placing the trustee in such an office. With appreciation of the above argy-bargy it is common cause however that a trustee has a fiduciary duty owed to the beneficiaries regardless of where the duty originates from.

The common law, though not decrepit, is affirmed in section 9 of the Trust Property Control Act 57 of 1988. Section 9 indicates that a trustee shall in the performance of his duties and exercise of his powers act with the care, diligence and skill which is reasonably expected of a person who manages the affairs of another. A trustee in the execution of his duties is to be independent and is to exercise an independent opinion in the running of the trust. Therefore every single trustee is to have an independent opinion, and when jointly administering the trust with the other trustees, the trustees are to exercise their independence in opinion.

Section 11 sets out the trustee’s obligations when administering the trust, which duties are expatiated upon in Cameron et al (Honore) as: a duty to open an account, duty of care, duty of impartiality, duty to keep accounting books, duty to account, duty to distribute trust income and capital, and duty to keep trust documents, amongst others. The court in the matter of Boyce NO v Bloem 1960 (3) SA 855 (T) held that the trustees must act without delay, in the execution of their duties. The trustee in essence champions the interests of the beneficiaries, and when acting in the role of trustee he ought to act promptly as per his duties.

Duty of care

Care is specifically referred to in section 9 of the act. The trustee, based on this duty, is obliged to conduct the administration of a trust in utmost good faith, with a level of care expected of someone who manages the affairs of another. A trustee’s role in the trust is one of a bonus et diligens paterfamilias, and this role is one premised on great trust. The people for whose benefit the trustees administer the trust ought to have confidence in the trustees with regard to the execution of their duties and this confidence is boosted by knowledge of the duty of care which rests on the trustees.

Duty to be impartial

Under this duty trustees have to avoid conflict of interest between their personal interest and their official duties. The trustees are obliged to treat beneficiaries impartially. This duty however does not imply that the trustees are barred from differentiating between the beneficiaries as per the dictates of the trust instrument. Differentiation does not necessarily interpret to impartiality.

The duty of impartiality exists also in the instance of a discretionary trust. In Schaefer and Nagel NNO v Estate Petzall 1966 (3) SA 769 (W), the court held that the trustees in exercising their discretion, could in awarding income to the two children differentiate between them as the testator would have done according to the individual needs of the children rather than on the basis of equality. The reference however by the court in the Schaefer-matter to what the testator would have done, may be misleading. The trustees are not required to do what the testator/ founder would or could have done, they are required to act with care, diligence and skill required of someone holding and controlling assets for the benefit of someone else.

Duty to keep trust documents

This is as per section 17 of the Trust Property Control Act, which provides that the trustees may not destroy trust documents without written authority from the Master of the High Court before the expiration of 5 years after the termination of the trust. This provision protects beneficiaries from trustees wanting to destroy documents and later indicating that they had records of proper administration but same has since been destroyed. It also protects trustees to enable them to perpetually have trust documents as the reference point in instances that they need to bring proof when called upon.

Duty of accountability or duty to account

In Land and Agricultural Bank of South Africa v Parker 2004 All SA 261 (SCA) it is stated that a “core idea of a trust tends to ensure careful scrutiny of transactions designed to bind the trust…”.This quote speaks to the issue of accountability. It is inferred from the attitude of the court, as reflected herein that the core idea of a trust involves perpetual accountability of transactions involving the trust.

The case of Doyle v Board of Executors [1999] 1 All SA 309 (C) engaged vigorously the duty to account. The court indicated that the right to account is made up of two distinct concepts, which are both substantive and procedural. The court proceeded to expatiate the concepts to indicate that on the one hand the duty to account is a right and on the other hand it is a remedy. The interpretation of the duty is to be assessed taking into account that the duty is both substantive and procedural.

Fiduciary rights of trustees

Trustees have a duty of care, rooted under the umbrella of ‘fiduciary duty’ which is commonly agreed to extend to trustees duties. In the Hofer-matter, fiduciary duty was described as a concept with no clearly defined meaning. In the Land Agricultural Bank of South Africa-matter it was stated that a trustee is appointed and accepts an office to exercise responsibility over property on behalf of and in the interest of another.

The court in Phillips v Fieldstone Africa (Pty) Ltd 2004 (1) All SA 150 (SCA) stated that the essential requirements for the establishment of a fiduciary duty is that one party must stand towards another in a position of confidence and good faith which he is duty bound to protect. It is significant to note that the South African courts have extended the trustees’ fiduciary duty beyond the ambit of the English law’s duty of loyalty strictu sensu.

In the Phillips-matter it was further stated that the existence of such a duty, its nature and extent are factual matters to be deduced from the consideration of substance of the relationships between the relevant parties, and the relevant circumstances affecting the operation of the relationship. The nature of the relationship between a trustee and a beneficiary is one of trust, one better defined by a fiduciary duty.

Cognizance should be given to the veracity that the above mentioned, and briefly discussed, duties of trustees are not the only duties entrusted upon trustees. Every trustee should familiarize him or herself with the Trust Property Control Act and the common law duties to fully appreciate the purview of the office of trusteeship and the intertwined duties.

by

Gastavus Chabalala
gastavus@dyason.co.za