Posted on

Court case about removal of a trustee

McNair v Crossman and Another [2019] ZAGPJHC 298

The appellant initially applied to the South Gauteng High Court to have both respondents removed as trustees of the McNair Family Trust (MFT).  This following a breakdown in the relationship between the appellant, the first respondent (the appellant’s stepfather-in-law) and the appellant’s brother-in-law, D.  The application was dismissed, hence the appeal to the full bench.

The second respondent became embroiled in the dispute.  The second respondent is also a director of a financial services firm (AFSI) and an accounting firm (AASI), which both delivered services to two companies, TS and AP.  The shares in AP were held by the appellant’s late husband (SM) (51%), the first respondent (25%) and D (24%).  The appellant inherited SM’s shares upon his death.  The shares in TS were held by MFT (75%) and the first respondent (25%).  AP rented its premises from TS, a property holding company.  The dispute centred around AP falling in arrears with its rent payments to TS.  The appellant requested D to agree to the release of some investments to enable AP to meet its obligations, but D refused.
The appellant accused the respondents and D to be in cahoots and trying to force her out of AP.  The second respondent called a meeting of shareholders of TS at the offices of AFSI (to which all parties were invited) to discuss AP’s indebtedness to TS and what must be done about it.  The appellant took issue with the invitation to D as he was not a shareholder in TS.

After analysing all the evidence the court (Vally, Wepener et Mahalelo JJ) held:

“Bearing in mind that the trustees are co-owners of the property of the trust and that they must act in unison in all trust related matters there should, in my view, at least be some mutual respect and trust between trustees. They are free to hold different opinions and to robustly disagree with regard to any matter related to the trust or its property, but they should have mutual respect for each other. Each should accept that despite their differences the other is acting in the best interest of the trust and its beneficiaries. Once that mutual respect and trust is lost then their position as co-trustees is imperilled. At that point the dial has moved and the administration of the trust as well as the management of its property is placed at risk. Put differently, their incompatibility places the trust property and its affairs at risk. It is a risk that the trust should not be exposed to for the obvious reason that should it eventuate the detrimental effect on the trust could be devastating and irreversible.” (par 35)

Because the appellant brought the application for the second respondent’s removal as trustee (the first respondent had resigned by then) and there was no counter application for her removal, the court held that the appeal succeeds and that the second respondent should be removed as trustee of MFT.

Comment:
The second respondent in this matter was probably conflicted in his position as trustee, due to the fact that he was the joint owner (in his trustee capacity) of shares in a company to which other companies of which he was a director delivered services. Fiduciary practitioners should bear in mind the provisions of the FISA Code of Ethics and of Professional and Responsible Conduct regarding conflicts of interest.

Leave a Reply

Your email address will not be published. Required fields are marked *