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Court case on amending a trust deed

Ferreira and Another v Van der Merwe N.O and Others [2019] ZAECPEHC 39

In this matter the Johannes van der Merwe Trust (the Trust) was originally formed with only one trustee (T) by T’s mother as the founder (F).  F passed away in 1994.
T’s four children were the capital beneficiaries since the Trust’s formation.  T’s relationship with two of his children, the applicants in this matter (R and G), deteriorated over the years and T attempted on more than one occasion to get  R and G to sign settlements that would effectively be prejudicial to their rights under the Trust.  R and G did, however, accept benefits under the Trust, and on occasion received benefits from the Trust.  In 2010, the trustees then in office (including T) passed a resolution to amend the Trust deed by replacing it with a new deed.  In this new deed R and G were no longer beneficiaries of the Trust.

R and G brought the application to:
• Set aside the amendment of the Trust deed as of no force and effect;
• An order declaring the appointment of three trustees in 2017 to be null and void.

The court (Mullins AJ) held that the amendment to the Trust deed was indeed invalid for two reasons.  Firstly, the original Trust deed did not contain any provision allowing the amendment of the deed.  As F had passed away years earlier, the deed could also not be amended by agreement between F and the trustees.  Secondly, the court found on the facts that R and G had accepted benefits before, and consequently their permission was required in order to amend the original deed.  The court referred to the judgement of the Supreme Court of Appeals in Potgieter and Another v Potgieter NO and Others 2012 (1) SA 637 (SCA).

With regard to the appointment of the three trustees in 2017, the court held that the appointment could not be valid due to the fact that the deed under which they were appointed was ruled to be of no force and effect.  The court also reiterated, with reference to Erwee NO v and Another v Erwee and Others NO [2006] 1 All SA 626 (O) that trustees are appointed in accordance with the trust instrument and not by the Master of the High Court, who only authorises trustees to act under powers granted to the Master in section 6(1) of the Trust Property Control Act, 57 of 1988.

The court also criticised the behaviour of T who, in the court’s words, “treated the trust assets as his own, to be distributed as he, in his sole discretion and without reference to the wishes of the Founder, decreed. His cavalier approach to the fiduciary duties expected of a trustee is to be deprecated.”

Comment:
Fiduciary practitioners should always stress the fiduciary duty of trustees when communicating with clients who act as trustees in “family” trusts.

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