Contributed by Nicolene Schoeman – Louw of Schoeman Law Firm, Cape Town
In a recent court judgement the challenges faced by improper trust application and administration were highlighted again.
In this particular instance, the matter involved a property transaction. This is where trusts are most popular as vehicles. So, the likelihood that this may affect you at some point is very real. For most of us, dealings with trusts are most likely to happen when selling a property to, or buying a property from, a trust. No matter why or how it happens, you need some professional input before contracting.
A recent court case
In the case of Smith v ABSA Bank Limited (A892/2014)  ZAGPPHC 409 the bank tried to enforce a trustee’s personal suretyship. According to a recent Ghost Digest publication, the facts are briefly as follows:
- “A trust concluded instalment sale agreements with a bank.
- Owed R1m by the trust, the bank tried to enforce a personal suretyship signed by one of the trustees in which she had bound herself as surety and co-principal debtor with the trust.
- The High Court however found that the suretyship was invalid because the instalment sale agreements themselves were invalid. They had only been signed by one trustee, whereas the trust deed required a unanimous decision by two trustees.”
Some points on what to lookout for
- Check the letters of authority: Only once the Master of the High court has formally appointed a trustee by issuing letters of authority can such person act as a trustee.
- Check Identity documents (ID’s): Compare the trustees’ ID documents to the letters of authority and any resolutions received.
- Check the trust deed: The entire trust structure is governed by the deed of trust (aka trust deed) and the Trust Property Control Act 57 of 1988 as amended. Furthermore, the deed is a contract between the Founder, Trustees and Beneficiaries of the Trust. As such, all actions or steps taken by the Trustees must be measured against the provisions of the trust deed.
Notably, the Trust will only be bound by what the trustees do if their appointment and actions comply strictly with the trust deed’s requirements, for example –
- Capacity to contract: Ensure that the trustees have authority to enter into your particular type of contract.
- Minimum number of trustees: If the deed requires a minimum number of trustees to be in office, they must all be authorised to act as such (letters of authority issued) for the trust to have any legal capacity at all. In the abovementioned case for example, the trust deed required a minimum of 3 trustees, whereas in fact there were only 2. However, luckily for the bank, the deed also provided that where there were only 2 trustees they could still bind the trust.
- Number of trustees required to act jointly: Unless the trust deed provides to the contrary, trustees must always act jointly. Or, as was the situation in the abovementioned case, a trust deed may specify certain actions that can be carried out by one trustee acting alone, or by two trustees acting jointly, or by all trustees acting unanimously.
It is crucial that you obtain legal assistance before contracting with a trust to ensure that the aspects highlighted above, in addition to many other aspects not addressed in this article, are properly considered and that you are fully aware of all issues or challenges. As such, professional assistance is crucial. Contact an expert at SchoemanLaw today.
 http://www.ghostdigest.com/articles/property-and-trusts/55035 – accessed 06/05/2016