Authorisation to act on behalf of a trust: The risks of “blanket authority”

“I am a trustee on the family trust of a deceased friend. With my work I will have to travel extensively in the next year, which will make it difficult to attend to many of the day-to-day decisions and resolutions relating to the trust. I have a competent co-trustee who I would trust completely to do this. Can the trustees pass a resolution authorising this co-trustee to sign all documents and agreements on behalf of the trust for the next year?”

The wish to simplify fiduciary duties, although an understandable one, should not be entertained at the expense of proper administration of a trust. As a trustee, it is the duty of the trustee to execute his or her fiduciary duties correctly and ensure that all decisions taken by the trust are considered and that the trustees always act in the best interest of the beneficiaries. Any ‘simplification’ which could compromise these fiduciary duties should therefore be approached with caution, even if it appears to hold little risk.

In the recent Supreme Court of Appeal case of Costa NO v Arvum Exports, the trustees of a family trust, whose main purpose was to hold immovable property, passed a blanket resolution (“first resolution”) authorising a fellow trustee to “sign all necessary documentation”. This first resolution was followed by another resolution (“second resolution”) two years later where the trustees considered the trust’s possible acquisition of a farm and authorised the same trustee to “sign all documents necessary to effect the transfer” of the identified property to the trust.

The authorised trustee proceeded to conclude two business agreements with large companies under the blanket authorisation afforded to him in terms of the first resolution. Upon the death of this authorised trustee, the remaining trustees refused to honour the terms of these two agreements concluded by the late authorised trustee, stating that they (the remaining trustees) did not know of the existence of these agreements and were unable to recall ever discussing or attesting to such authority being bestowed upon the authorised trustee.

In considering the matter, the Court found that the second resolution was sufficiently clear on the nature of the authorisation afforded to the authorised trustee and that the documents to be concluded by the authorised trustee related to the acquisition and transfer of the farm.

The first resolution in comparison, was not related to any identified matter to be considered by the trustees or any potential transaction known to the trustees at the time of authorising the trustee. Accordingly, the Court had to interpret the first resolution to be read with the second resolution which limited the scope of authority of such first resolution to the property acquisition by the trust and the first resolution could not be interpreted to include the authority of the authorised trustee to also have the authority to conclude the two business agreements due to the vague nature of the resolution. The trust was accordingly found not to be bound by the two business agreements concluded by the trustee in question.

What is clear from this case is that trustee resolutions, particularly those where authority or agency is afforded to a representative of the trust, must be clear and specific with sufficient detail to ensure that it is determinable to which matters the authority or agency applies. It would also be prudent, albeit inconvenient, to ensure that a new resolution is passed by trustees for each new matter to be concluded by the trust in order to avoid disputes as to authority. 

In your case, it would therefore not be advisable to provide a blanket authority to your co-trustee for the year. Rather consider alternative ways to authorise the co-trustee on specific matters from time-to-time (for example through electronic means).

November 16, 2017
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