The appointment of additional trustees in terms of a trust deed

The circumstances when the serving trustees have the right to appoint additional trustees in terms of a trust deed.

The appointment of additional trustees in terms of a trust deed

Anna-Marie Van Rooyen
Attorney, Lichtenburg

1 August 2006

The following provision is one that is frequently used in trust deeds, namely:

“Die diensdoenende trustees is geregtig om bykomende trustees van hulle keuse te benoem en aan te stel, (own emphasis added) onderhewig aan die volgende beperkende bepalings:

a.      Indien enige van die eerste trustees ‘n egpaar is, sal ‘n toekomstige gade van hulle nooit kwalifiseer om as ‘n trustee van die trust op te tree nie;

b.      Gedurende sy lewe, het die trustoprigter alleenreg om trustees van sy keuse vir die trust te benoem (own emphasis added);

c.      Elke trustee het die reg om opvolgende trustees by wyse van sy testament te benoem, by ontstentenis waarvan sy/haar oudste kind hom/haar as trustee sal opvolg.”This exact same clause was the subject of discussion in the case of Erwee NO and another v Erwee NO and others [2006] All SA 626 (O). In the judgment Judge Cillie remarks that this clause is drafted in the exact same terms as an example in the work of PA  Olivier Trustreg en Praktyk 1st edition on 281.

The dispute in this case turns on the question of how exactly additional trustees are to be nominated and appointed in the light of the abovementioned clause. On page 629 of the judgment Judge Cillie states that the Master does not appoint trustees. A trustee is appointed by virtue of the trust deed after which the Master merely authorizes the trustee to act as trustee in terms of theTrust Property Control Act. The Court agrees with the submission in Honore SA Law of Trusts 5thedition on 256 that a trustee acquires the office of trustee by appointment and acceptance and not by the Master’s written authorization.

If one looks closely at the clause here discussed (and more specifically paragraph (b) thereof), it appears that the question is: does the founder have the right to appoint trustees, or does he merely have a right to nominate trustees? This question is asked in the light of the fact that the trustees are expressly authorized in terms of this clause to nominate (“benoem”) and appoint (“aan te stel”) trustees.

The question turns on the use of the phrases “benoem” (nominate) and “aan te stel” (appoint). Were these phrases meant to be mere synonyms for one another?

Judge Cillie remarks that the rules of the interpretation of written agreements are also applicable to trust deeds.

Thus:

i.                  the starting point is the usual grammatical meaning of the words in the context of the trust deed as a whole;

ii.                 background circumstances can be taken into account, but only to ascertain the wide context in which the words are used;

iii.                if possible, there should be ascribed a meaning to every word used on the presumption that a trust deed will not contain meaningless words.

Judge Cillie states that the appointment of additional trustees is an important matter that can have far-reaching implications for the trust. Therefore it is accepted that all the serving trustees must decide together on the appointment of additional trustees, except where the trust deed limits this right unequivocally to the founder of the trust.

In the light of the wording of this clause the Court finds that the founder merely has the right to nominate additional trustees, and that the serving trustees at that time will then have to appoint the trustees in terms of the trust deed.

The result of this case is that the appointment of all the trustees who were nominated and “appointed” by the founder and as a result of which letters of authorizations were issued by the Master is invalid, because of the fact that the appointments were not made by the serving trustees.

This can have far-reaching implications for anyone transacting with trustees. The fact that the Master has issued a Letter of Authorization is no guarantee that the trustees have in fact been appointed in terms of the trust deed. The actual appointment of the trustees will have to be scrutinized by anyone wishing to transact with trustees. This is so, because of the fact that the Turquand-rule has never been applied to trusts.

This case also serves as a warning for attorneys that constantly make us of “master” clauses or examples from other trust deeds. The terms of a trust deed should be drawn very cautiously.

Things are already out of hand as far as trusts are concerned and legislative measures are now essential to codify the law of trusts.

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