Beware the trust

I recently presented a seminar on the latest developments in trust law to Chartered Secretaries Southern Africa. I was most concerned to note that there are many recent court judgments where innocent business people have encountered disaster where they transacted with a trust represented by unscrupulous or inept trustees.

In each case, the trustees after for example signing an offer to purchase a property or entering into a business contract, tried to (in the main, successfully) avoid the contract by claiming that the trustees did not have the requisite authority to enter into the contract.

Trustees have no authority to act outside of the provisions of the trust deed, where

  • they have not been properly authorised in advance by all of the trustees, or
  • an insufficient number of trustees are in office at the time of contracting, or
  • the trustees exceed their powers in terms of the trust deed.

So in each of these cases the trust is not bound by the contract, and the other contracting party is left high and dry.

When you are contracting with a trust, my advice is that you demand a copy of the trust deed, and send it on to us so that we can ensure that the trustees are acting intra vires and that the trust will be bound by the agreement. It is a matter of about an hour’s work for us if all is above board, and it can avoid an expensive and time-consuming dispute for you.

If you have encountered a problem with trustees who are alleging the trust is not bound- there is some good news, as some of the cases provide novel and creative methods by which the trust may nevertheless be held bound to the agreement. See Grainco (Pty) Ltd v Broodryk NO and Others (1300/2009) (unreported Free State judgment) and Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA)

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