Some might have heard of the term ultra vires, which is a Latin phrase loosely translated to ‘without authority’ or ‘beyond powers.’ This phrase is often used in company law litigation, to describe situations where the directors or functionaries of a company make decisions with the intention to bind the company, albeit without authority. This is where the turquand rule was codified in sections 20 (7) and 20 (8) of the Companies Act of 2008, to protect innocent third parties who contract under the impression that the internal requirements have been complied with by the Directors or agents.
In this article, we will talk about personal liability of Trustees, which goes beyond mere acting without authority.
The capacity to act as a Trustee comes into force and effect upon the issuing of a Letter of Authority by the Master of the High Court, meaning that a party may not act as a Trustee prior thereto. Any act or conduct in the purported capacity of Trustee without the Master having issued the Letter of Authority, is null and void.
The authority and duties of a Trustee are derived from the Trust Deed, the Trust Property Control Act 57 of 1988 (the Act), the Common law as well as any other directives from the Master of the High Court. It therefore means that where a Trustee or Trustees act, outside the bounds of what is permissible under the above, is null and void and without force or effect.
However, beyond the above (acting without authority) there are instances where the Trustee(s) may act with gross negligence, dishonesty and/or sheer recklessness. These instances usually attract personal liability, as opposed to merely acting without authority although the intention had been good from the start. The duties of a Trustee are fiduciary in nature and at all material times the Trustees ought to act in the best interests of the Trust. The Act itself, provides as such in section 9;
(1) A trustee shall in the performance of his duties and the exercise of his powers act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. (2) Any provision contained in a trust instrument shall be void in so far as it would have the effect of exempting a trustee from or indemnifying him against liability for breach of trust where he fails to show the degree of care, diligence and skill as required in subsection (1)
In much the same way as in the provision above, the same duty of care, diligence and skill are required from the Directors of a company and where it is found that one has not met the standard, personal liability may be preferred against such Director depending on the circumstances of the case.
In the case of Country Cloud Trading CC v MEC, Department of Infrastructure Development, Gauteng (CCT 185/13) 2014 ZACC 28; 2015 (1) SA 1 (Cc); 2014 (12) BCLR1397 (Cc) it was stated that,
‘… the wrongfulness enquiry focuses on— “the [harm-causing] conduct and goes to whether the policy and legal convictions of the community, constitutionally understood, regard it as acceptable. It is based on the duty not to cause harm – indeed to respect rights – and questions the reasonableness of imposing liability.”
Trustees ought to act together in the best interests of the Trust and the beneficiaries, and where they fail to meet the standard as required by section 9 as above, they may be held personally liable for their conduct and for any loss suffered at the incidence of their actions. The Act takes this obligation in serious light such that section 9 (2) of the Act disapproves any clause in any Trust Deed that seeks to bulletproof any Trustee for their dereliction of the obligations under 9 (1).
Therefore, besides being held personally liable for any loss, the Trustee who has acted with recklessness and gross negligence in violation of 9 (1) may also suffer double jeopardy by being removed from the position. This procedure is done either by the Master or through the Courts and the principles laid out in Konstantinos v Van Lingen And Others (2021) JOL 49289 (SCA) and Fletcher v McNair (2020) ZASCA 135 will be taken into consideration.
At Van Deventer and Van Deventer Incorporated we assist with Trust matters. Our services extend to general litigation, civil matters, criminal, labour, personal injury, company law, deceased estates amidst an array of others.
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