BACKGROUND
| The Appellant in this case is Gillian McNair, the former wife of the late Steven McNair (the “Deceased”). The Deceased, prior to his death, registered the McNair Family Trust (the “Trust”) nominating his wife and children as beneficiaries of the Trust. While the Deceased was alive, the trustees were the Deceased, the Appellant and the Deceased’s stepfather, (the “First Respondent”). Upon the Deceased’s death, the Second Respondent (a life-long friend of the Deceased) replaced the Deceased as a trustee in accordance with the Deceased’s last will and testament. The Second Respondent is an accountant by profession and is a director of Alchemy Financial Services Incorporated (“AFSI”). He is also a director of Alchemy Audit Services Incorporated (“AASI”). |
The Trust owned 75% shareholding in Top Spin Investments 101 (Pty) Ltd (“Top Spin”) (a property holding company) and the remaining 25% of Top Spin was owned by the First Respondent. Both the Appellant and the First Respondent are directors of Top Spin. During or about 2011, AFSI was appointed to assist the managing affairs of Top Spin. As such, the Second Respondent, as a representative of AFSI, was mandated to take over Top Spin’s financial affairs. |
In March 2000, the Deceased acquired 100% shareholding of Applied Pneumatics SA (Pty) Ltd (“Applied”) and then sometime between 2000 and 2010, the First Respondent acquired a 25% shareholding with the Deceased owning the remaining 75%. The Deceased then gave 24% of the shares to his brother, David McNair (“David”) and upon his death, the remaining 51% shareholding was inherited by the Appellant. |
During or about 2015, Top Spin concluded a lease agreement with Applied. Applied fell into arrears with rental payments, which resulted in a dispute and breakdown of the relationship between the parties. On 28 October 2015 the Second Respondent issued a formal notice to the Appellant, First Respondent and to David inviting them to a meeting of Top Spin shareholders to discuss, amongst other things, the “action to be considered” against Applied for the ”continuous breach of property rental leases”. The issue here was that it would be impossible for all parties invited to the meeting to be shareholders of Top Spin. Either David or the First Respondent was not a shareholder and should not have been at the meeting. Despite this, David was a shareholder of Applied and quite clearly was aware of what was happening between both companies. |
A resolution was passed at the meeting stating that should Applied not bring the account up to date within three months, then the Appellant would be personally responsible for all outstanding rentals. The legal validity of the resolution was questionable due to the impossibility of all parties being shareholders. |
The relationship between the parties clearly broke down as a result of their business dealings. The Appellant believed that the Second Respondent was colluding with the First Respondent and David. As such, she launched an application in the High Court of South Africa, Gauteng Local Division, Johannesburg (the “court a quo”) to have the First and Second Respondents removed as trustees of the Trust. The application was dismissed with costs, which brought rise to the appeal in question. |
The Appellant settled with the First Respondent (who was no longer a trustee of the Trust) prior to the hearing of the appeal. The First Respondent agreed to resign as a trustee of the Trust and to pay the Appellant’s legal costs. The Second Respondent, however, elected to oppose the appeal to overturn the court a quo’s decision. |
HELD
| In an appeal to a full bench of the court a qua (the “Appeal”), the Court noted that the relationship between the Appellant, the First respondent and David had clearly broken down irretrievably. The breakdown was due to competing business interests. The Appellant alleged that the Second Respondent’s conduct, in particular, had jeopardised the administration of the Trust, and that his continuance as a trustee was detrimental to the well-being of the beneficiaries. |
Vally J referred to section 20 (1) of the Trust Property Control Act 57 of 1988 (the “Act”), which states that “a trustee may on application of the Master or any person having an interest in the trust property, at any time be removed from his office by the court if the court is satisfied that his removal will be in the interests of the trust and its beneficiaries”. |
Furthermore, the Court mentioned that in Gowar and Another v Gowar and Others 2016 (5) SA 225 (SCA) it was held that friction or enmity between trustees and the beneficiaries is not in itself adequate reason to remove trustees from office (Note, this is not friction between co-trustees). |
Despite the above, the Court relied on section 173 of the Constitution of the Republic of South Africa 1996, which gives the Courts an inherent power to develop the law. In saying such, although Courts have tended to remove trustees only on the grounds of misconduct, incapacity or incompetence, they could do so also on another more unusual ground: a breakdown in the relationship between co-trustees to the extent that there was no longer any mutual respect and trust. This, on a wide interpretation of section 20(1) of the Act, could result in the imperil of trust property and the administration of the trust. |
Having found such a situation to exist, the Court ordered the removal of the second respondent as trustee. |
The Court acknowledged that trustees 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 always have mutual respect for each other. Without mutual respect, their position as co-trustees is imperilled.
Lastly, given that it was the Appellant who sought removal of the Second Respondent and made application of same, the Court refrained from entertaining any prospect of her removal.
VALUE
| This case portrays the willingness of the Court to engage with the law and develop the common law where it deems fit and necessary to do so. |
Had the Court failed to develop the common law by taking a literal interpretation of s 20(1) of the Trust Property Control Act, then the irretrievable breakdown of relationships between co-trustees would not be grounds for the removal of a trustee. This would have a significant impact on both the operation of trusts as well as the beneficiaries.
Written by Mohau Ledwaba and Stef de Gouveia
