Bound by the trust
Do trustee meetings have to be attended by all trustees?
SOMETIMES it is difficult for all trustees to attend a physical meeting. Luckily, technology has made it easier to have meetings in conference or Skype calls.
Alternatively, the courts accept that a trustee who cannot attend a meeting can make use of a proxy, as long as this condition is not broadly interpreted. Only the use of a proxy to convey the input and vote of the represented trustee, in writing, (with no input or vote by the proxy personally) will result in valid decisions taken by the trustees (Steyn v Blockpave, 2011). The reasoning is that the Trust Property Control Act only allows duly appointed trustees to act on behalf of a trust – in other words, trustees approved in writing by the Master of the High Court.
Unfortunately, some trustees abuse the fact that certain ones cannot attend. They may rely on a provision in the trust deed allowing trustees to make decisions by majority vote, and deliberately have meetings excluding certain trustees.
It is not well known that such a provision 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. The principle stems from the fact that trustees of a discretionary trust are co-owners of a 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.
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, 2004), and even when the trust deed stipulates that the majority of trustees can make a decision, the resolution must be signed by all 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, 2005).
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
PHIA VAN DER SPUY deed states that a decision may be made by the majority of trustees, all the trustees must be involved in the decision. And 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 the decision to be taken or involvement by him or her in making it.
The courts emphasise that a trust functions through its appointed trustees, and that its legal personality requires that all trustees act together for and on behalf of the trust. The minority trustees are obliged to act jointly with the other trustees in signing resolutions adopted by the majority of trustees (Van der Merwe v Hydraberg Hydraulics CC, 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, 2003).
In Le Grange v The Louis And Andre Le Grange Family Trust, 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 among 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 gainst 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.”
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 meeting, or allows for the majority decision of trustees, such a majority may perfectly take a valid internal decision by acting together on the internal front.
However, it will not be a valid resolution that externally binds the trust unless it is signed by all trustees, including trustees in whose absence the decision was taken and disagreeing trustees.
Van der Spuy is a registered fiduciary practitioner of South Africa, a master tax practitioner (SA), a trust and estate practitioner and the founder of Trusteeze, a professional trust practice.