Introduction

In terms of the Trust Property Control Act, No. 57 of 1998 (“the Act”), trustees are given extensive powers to bind the trusts for which they have been appointed. This means that their decisions can have drastic and wide-ranging consequences for the beneficiaries on whose behalf the trust has been created. Given the control that trustees exercise over the trust assets and their ability to determine the way in which those assets are utilised, often including the powers to dispose of or to offer those assets as security for loans that bind the trust, the Act has imposed various limitations on how trustees’ powers can be exercised. One of the ways the Act does this is by enforcing a stringent, peremptory procedure for the authorisation of a trustee to act on the trust’s behalf. It is therefore very important that trustees know (1) when they are authorised to act on the trust’s behalf and (2) what consequences there may be for a trustee who has not been authorised but attempts to exercise trustee powers in relation to the trust.

When is a trustee authorised to act on the trust’s behalf?

Section 6(1) of the Act provides that:

“Any person whose appointment as trustee in terms of a trust instrument, section 7 or a court order comes into force after the commencement of this Act, shall act in that capacity only if authorized thereto in writing by the Master.”

The section has been interpreted as unequivocally establishing the necessity for written authorisation from the Master of the High Court in which jurisdiction the trust is registered (“the Master”) before a person can assume the role of a trustee.

In the case of Metequity Ltd & Another v NWN Properties Ltd & Others[1] it was held that:

“A trustee is defined as any person who acts as trustee by virtue of an authorisation under section 6. That section envisages in section 6(1) that the Master’s authorisation to act as trustee is granted to persons appointed as trustees in a trust instrument, by the Master or by the Court. The office of trustee is therefore created by the trust instrument and filled thereby by the Master or the Court. The Trust Property Control Act, however, as a regulatory and control measure, provides in section 6 that such existing trustee shall not act without authorisation by the Master.”

This principle has been consistently upheld in various other cases, including Simplex (Pty) Ltd v Van der Merwe and Others NNO[2]; Van der Merwe v Van der Merwe en Andere[3]; Kriel v Terblanche[4]; Lupacchini v Minister of Safety and Security[5]; and Meijer NO and other v Firstrand Bank Limited[6].

An appointed trustee will not be formally authorised to act as such until the Master has issued Letters of Authority bearing the name of that trustee.

 

What happens when a trustee who has not been formally appointed attempts to exercise trustee powers on behalf of the trust?

In the Simplex case, the Court held that, in terms of section 6(1) of the Act, any act of an unauthorised trustee has no legal consequences and is of no force and effect.

The Court reasoned that the purpose of this prohibition:

“is not purely for the benefit of the beneficiaries of the trust but in the public interest to provide proper written proof to outsiders of incumbency of the office of trustee. […] The whole scheme of the Act is to provide a manner in which the Master can supervise trustees in the proper administration of trusts properly and s 6(1) is essential to such purpose. By placing a bar on trustees from acting as such until authorised by the Master, the Act endeavours to ensure that trustees can only act as such if they comply with the Act.”[7]

A trustee cannot participate in voting or any other trustee activities, including performing any of the powers or fulfilling any of the obligations set out in a trust deed, without prior authorisation by the Master (by the issuing of the Letters of Authority).

Our courts have further held that any agreement concluded by an unauthorised trustee that is intended to bind the trust, is void and of no effect.[8] Furthermore, an unauthorised trustee does not have the authority to commence legal proceedings on behalf of the trust.[9] Although there is authority from the Western Cape High Court that an unauthorised trustee has a sufficient interest to defend proceedings instituted against a trust,[10] the Supreme Court of Appeal in Lupacchini critiqued the reasoning of that judgment and it is unlikely to be followed in the future.[11]

Accordingly, the position is that a trustee will not have the capacity to perform the general duties, powers and obligations of a trustee until they have received Letters of Authority from the Master formally authorising them to act in that capacity.

 

Can a trustee ratify unauthorised exercises of trustee powers once they have been authorised by the Master?

The Act does not expressly provide a view on whether ratification (i.e. whether the unauthorised conduct can be retrospectively validated or confirmed) is possible, but there is case law that has ruled on this point.

In the Simplex case, the Court had to consider whether the issuing of Letters of Authority subsequent to the conclusion of an agreement by trustees who were at that time not authorised by the Master to act as such, had the effect of curing the trustees’ lack of authorisation retrospectively, hence validating the agreement. The Court held that the trustees’ lack of authorisation at the time of conclusion of the agreement rendered it void ab initio – in other words, void “from the beginning” – and that it was accordingly incapable of being ratified by the trustees’ subsequent authorisation.

A contrary position was upheld in a subsequent case, Kropman and Others v Nysschen[12], where the Court held that there was “no reason why a Court in exercising its discretion cannot retrospectively validate” the actions of a trustee performed at a time when they were not authorised to act.[13]

This decision has however been critiqued and was expressly rejected by the Western Cape High Court in Van der Merwe.[14] Referring to Simplex, the Court held that:

“Indien eenmaal aanvaar word dat ‘n ongemagtigde handling deur ‘n trustee nietig is, volg dit dat nie agterna geratifiseer kan word nie.”[15]

[Translation: “Unless it is accepted that an unauthorised transaction by a trustee is legal, it follows that it cannot be ratified afterwards.”]

The reasoning in Simplex and Van der Merwe has not been overturned and remains good law. Accordingly, as it stands, ratification of the conduct of an unauthorised trustee after Letters of Authority have been issued by the Master, is not possible in our law and has not been upheld by our courts.

 

Conclusion

It is therefore vital that a trustee is authorised by the Master before they exercise or undertake any trustee powers or duties. If this is not adhered to, these unauthorised acts are void and of no legal effect. This can place the trust, its beneficiaries and even the trustees themselves, depending on the circumstances, in a precarious position which could have financial or other adverse consequences.

If you would like to discuss the trustee authorisation process or the duties, powers and functions of trustees in more detail, feel free to give our offices a call or drop one of our attorneys an email.

[1] 1998 (2) SA 554 (T) at 557G-H.

[2] 1996 (1) SA 111 (W).

[3] 2000 (2) SA 519 (C).

[4] 2002 (6) SA 132 (NCD).

[5] 2010 (6) SA 457 (SCA).

[6] 2012 JDR 0564 (WCC).

[7] Supra note 2 at 112J-113B.

[8] Ibid. See also Van der Merwe supra note 3.

[9] Lupacchini supra note 5.

[10] See Watt v Sea Point Products Bpk [1998] 4 All SA 109.

[11] Supra note 5 at para 13.

[12] 1999 (2) SA 567 (T).

[13] Ibid at 576F.

[14] Supra note 3 at para 20.

[15] Ibid at para 22.