Can you trust a trustee?

Authority of a trustee to bind the trust


The issuing of a Letter of Authority to the trustees of a trust by the Master of the High Court signals
the assumption of office as trustee to the designated party.

It is at this point that the responsibilities, authority and duties of a trustee begin to be binding and
effective, provided the trustee’s actions are allowed in terms of the provisions of the registered trust
deed and the trustee’s actions are authorised by the trustees of the trust.

The above means that the authority of the trustees begins upon written authority from the Master
of the High Court, and not prior to this.

Section 6(1) of the Trust Property Control Act 57 of 1988 (the “Trust Property Control Act”) provides
that any trustee who acts on behalf of a trust must have prior written authorisation from the Master
of the High Court.

The provisions of section 6(1) are peremptory and it requires written authorisation by the Master
and any act performed by a trustee prior to authorisation will be null and void. Ratification will be
impossible as an act which was null and void at any time of performing the act cannot be ratified.

Under the Alienation of Land Act, No 68 of 1981 (the “ALA”), any deed of sale of immovable
property has to be in writing, and the parties thereto or their agents representing them, have to be
legally authorised to act at the time of signing of the contract.

Section 2(1) of the ALA specifically provides that no alienation of land shall be of any force or effect
unless it is contained in a deed of alienation signed by the parties thereto or their agents acting on
their written authority.

Legal capacity of a trust

Unlike a company, where a pre-incorporation contract can be ratified, unauthorised acts by a
trustee/trustees cannot and are therefore void and invalid.

The court held in the Jansen v Ringwood Investments 87 CC case handed down in 2013 that the
ratification of a contract by the trustees is not possible if a statute requires prior written authority
for such action, no matter what the trust deed provides.

The Supreme Court of Appeal in Thorpe and Others v Trittenwein and Another 2007 (2) SA 172 (SCA)
confirmed that the very object of section 2(1) of the ALA is to facilitate proof of the trustee’s
authority, by requiring the authority to be in writing. The court held that there can be no ratification
of a contract which is void ab initio.

In a more recent decision, the court in Goldex 16 (Pty) Ltd v Capper NO and Others (2019) (ZASCA)
dismissed the appellant claim for specific performance against the trustee who signed the sale of
immovable property agreement. The court held that what the appellant is essentially seeking is
specific performance of a void and invalid contract against a person who signed the contract but was
not a party to it.

Property transactions with a trust to be formed

A new trust comes into existence only once letters of authority are issued to the trustees by the
Master. Therefore, any transaction entered into by someone claiming to act on behalf of a trust to
be formed, is invalid.

A ‘trust to be formed’ may not be nominated as a purchaser, not even with the wording ‘stipulatio
alteri’ (an agreement benefiting a third party), because the trustees will not be in a position to ratify
the transaction on behalf of the trust retroactively.

Is the turquand rule applicable to trusts?

Outside parties that deal with a trust often assume that the trustees have both the authority and the
capacity to enter into transactions binding the trust. If trustees have not ensured that these
requirements are met, to what extent can these outside parties be deemed to have known?

In the instance of companies and close corporations, the courts have adopted a principle called the
Turquand Rule, which provides that a contracting party, dealing in good faith, can assume that
actions have been properly and duly performed and that the required approvals were obtained.

Section 20(7) of the Companies Act 71 of 2008 (the “Companies Act”) provides that a person dealing
with a company in good faith, is entitled to presume that the company, in making any decision while
exercising its powers, has complied with all the formal and procedural requirements, unless, in the
circumstances, the person knew or ought reasonably to have known of any failure by the company
to comply with any such requirements.

There is no such equivalent provision in the Trust Property Control Act. The liability is therefore on
the outsider to ensure that due process was followed. Contracting parties are advised to carefully
examine the constitutional document of the party it is contracting with and to ensure that the
requisite authorising resolutions have been properly passed.

In particular, when contracting with trusts in respect of a sale of immovable property, it is important
to ensure that the trust has been registered by the Master of the High Court and that the trustees
have been properly appointed. In addition, ensure that a resolution authorising the sale and the
trustee to act on behalf of the trust is properly passed and in writing in accordance with the formal
and procedural requirements set out in the relevant trust deed prior to the conclusion of a sale