Fletcher v McNair

The McNair Family Trust was an inter vivos trust created in 2006. The original trustees were Morag Crossman (founder), her husband Gerald Crossman, their son Steven McNair (now deceased) and his wife Gillian McNair (the respondent). The respondent and her two adult children were beneficiaries. When Steven McNair died, Warren Fletcher (the appellant), an accountant, was appointed as trustee in terms of the deceased's Will. The Trust owned a share portfolio worth approximately R2.8 million and a 75% shareholding in Top Spin Investments, a property-owning company. After Steven McNair's death, relationships deteriorated between the respondent and both the appellant and Mr Crossman in their capacities as co-trustees and shareholders of Top Spin. The respondent accused them of excluding her from decision-making, siding with her brother-in-law David McNair (with whom she had conflicts regarding another company, Applied Pneumatics), and not acting in the best interests of the Trust. Specific disputes arose over: (1) Applied's debt to Top Spin for which the respondent became personally liable; (2) the sale of a Top Spin property in Port Elizabeth in her absence; and (3) a distribution agreement involving Applied that was allegedly damaged by the appellant's letter to an international distributor. The respondent applied to remove the appellant and Mr Crossman as trustees. Mr Crossman later resigned.

• What are the grounds and test for removal of a trustee under section 20(1) of the Trust Property Control Act 57 of 1988?
• Whether loss of trust and respect between co-trustees, without more, constitutes sufficient grounds for removal of a trustee
• Whether the breakdown in relationship between co-trustees originating from matters outside the trust imperils the trust property or its proper administration
• Whether the test for removal differs depending on whether the applicant is a co-trustee or a beneficiary
• Whether conduct by a trustee in relation to entities connected to but separate from the trust can justify removal as trustee

1. The appeal is upheld with costs, including costs of the application to adduce further evidence. 2. The order of the Full Court is set aside and substituted with: 'The appeal is dismissed with costs.' (This means the original order of Mudau J dismissing the application to remove the appellant as trustee is restored.)

A trustee may be removed under section 20(1) of the Trust Property Control Act 57 of 1988 only if removal will be in the interests of the trust and its beneficiaries. The determinative test is always whether any state of affairs – be it incompetence, misconduct, incapacity, or lack of trust and respect among trustees or beneficiaries – has resulted in the trust property or its proper administration being placed at risk. Loss of mutual trust and respect among co-trustees does not, without more, translate to a ground for removal of a trustee or to a conclusion that trust property has been imperiled. It must further be established that, as a result, the trust property has been imperiled or the administration of the trust and management of its property are at risk. This is a factual enquiry. The grounds on which a trustee may be removed do not depend on who the applicant is, whether a trustee, beneficiary or other interested person. Where there is disharmony, the essential test is whether it imperils the trust estate or its proper administration. A breakdown in relationship between co-trustees originating from matters outside the trust, which does not demonstrably imperil the trust property or its proper administration, does not justify removal of a trustee.

The court noted that there are no discernible differences between English law and South African law on removal of trustees, with both systems focusing on whether trust property is imperiled and whether the interests of beneficiaries would be served by removal, exercised with circumspection. The court clarified that section 173 of the Constitution entrenches the court's inherent power to develop the common law (substantive law) on removal of trustees where the interests of justice dictate, which should not be conflated with the court's inherent power to regulate its own processes (procedural matters). The court observed that the deliberate wishes of the deceased person (or settlor) in selecting trustees in reliance upon their ability and character to manage the estate should be respected and not lightly interfered with. The court noted with approval that the trust in this case was functioning relatively well despite acrimony, with meetings being held, effective decisions being taken, and substantial distributions being made to beneficiaries.

This judgment provides important clarification on the test for removal of trustees under South African law. It reaffirms and clarifies the principles established in Gowar v Gowar (2016) regarding when a trustee may be removed. The judgment emphasizes that the determinative test is always whether the trust property and affairs are imperiled, not merely whether there is disharmony between trustees or between trustees and beneficiaries. The case clarifies that: (1) loss of trust and respect between co-trustees does not per se justify removal; (2) the same test applies regardless of whether the applicant is a trustee, beneficiary or other interested person; (3) conflicts originating from matters outside the trust do not justify removal unless they demonstrably imperil the trust; and (4) courts must exercise the power of removal with circumspection and not lightly interfere with the settlor's deliberate choice of trustees. The judgment also clarifies that section 173 of the Constitution entrenches the court's inherent power to develop the common law on removal of trustees (substantive law), which is distinct from the court's inherent power to regulate its own processes (procedural matters).