You must have a sound reason for removing a trustee

Category: Lighthouse Blogs

22 October 2018  |  by Chamonie Buys

You must have a sound reason for removing a trustee

Often, we come across a stipulation in a Trust Deed to the effect that a trustee’s office shall be vacated if majority of the other trustees request him/her to resign or a stipulation to the effect that the trustees, office shall be vacated if he/she is removed as trustee by majority of the other trustees.

This mechanism to remove a rogue or uncooperative trustee comes in handy and, if the trustee agrees to resign, the process is simple and effective.

A recent case in the Free State High Court in Bloemfontein answered at least one of the questions which I have raised – What happens if the trustee refuses to resign?

In Du Plessis NO and Others v Van Niekerk and Others (836/2018) [2018] ZAFSHC 120 (26 June 2018) the High Court was asked to decide whether the decision of the majority of the trustees, consisting of three professional persons (i.e. two auditors and an attorney) – the applicants - to request the fourth trustee – the respondent - to resign as provided for in the trust deed was sufficient for her to lose her office as trustee, or put otherwise, caused her to vacate her office.

After a fall-out during a trustee meeting between the applicants and the respondent, the applicants informed the respondent, in writing, that she was removed as trustee in accordance with the provisions of the Trust Deed.  The decision to remove the respondent, according to the notice, was based on the respondent’s rejection or opposition of all items discussed at the relevant trustee meeting, that she made false allegations against the applicants and that she admitted that she did not have sufficient knowledge to fulfil her duties as trustee.

The Master of the High Court, upon receipt of the three applicants’ application to remove the respondent as trustee, pointed out to the applicants that they were not entitled, in terms of the Deed, to remove the respondent, but only to request her to resign.

The applicants subsequently sent a letter to the respondent to request her to resign.  The respondent made representations to the Master’s office in her defence and the Master refused to issue the amended Letters of Authority.

The applicants then approached the High Court for relief and based their case on the clear and unambiguous wording of the relevant clause; the majority of trustees may resolve to request a trustee to vacate his/her office and such trustee does not have any option than to vacate his/her office.  No reasons have to be given.  This was what occurred, in essence, according to them, although the correspondence indicated otherwise. 

The respondent, on the other hand, argued that if the wording of the relevant clause is accepted as it stands, the majority of trustees may cause a trustee to vacate his/her office for frivolous reasons or for no reasons at all, or worse, for mala fide reasons.  Therefore, so she submitted, the court should find that an implied term must be read into the relevant clause so that the request to resign may only be made on good cause.

The court found in the favour of the respondent and based its judgement on the following grounds:

  1. The clause in the Deed is ambiguous and in order to give practical, sensible and business-like meaning to the words used, the clause must be interpreted to read that there must be good cause to request a trustee to resign and that the trustee shall vacate his/her office only in the event of an acceptance of the request.
  2. An implied term should be read into the clause to the effect that good cause must be present for a resolution to be taken by the majority of trustees to get rid of a trustee on the basis that he/she be “requested” to resign and that he/she shall only vacate office once the request is accepted. 
  3. The applicants have not proven that their action is justified.  They cannot be heard to say that they did not have to give reasons, or much worse, that they could take a decision without any reason or even for a mala fide reason. 
  4. Animosity and difference of opinion are not sufficient to have a trustee removed from office and/or for the majority of trustees to unilaterally force another to vacate his/her office through a so-called request to resign.

Should you require any further assistance please contact one of our experts on info@LHTC.co.za

Comments