Curbing the abuse of the trust form: The inclusion of penalty and prohibition provisions as well as compulsory audits in the Trust Property Control Act 57 of 1988

• Jurisdiction: South Africa
• Published date: 12 October 2020
• Author: Manie, L.
• Pages: 297-314
• Date: 12 October 2020
• Citation: (2020) 31 Stell LR 297

297

CURBING THE ABUSE OF THE TRUST

FORM: THE INCLUSION OF PENALTY AND

PROHIBITION PROVISIONS AS WELL AS

COMPULSORY AUDITS IN THE TRUST

PROPERTY CONTROL ACT 57 OF 1988

L Manie

LLB LLM LLD (UWC)

Senior lecturer, Department of Private Law, University of the Western Cape*

Abstract

The abuse of the trust form has become prevalent in recent times. As a

consequence our courts have relied on other branches of law to nd remedies

to assist third parties who contract with trusts. This article analyses some

of these remedies, as well as amendments to the Trust Property Control Act

which could provide assistance in combating the abuse of the trust form.

There are, however, certain remedies which should continue being developed

by our courts.

Keywords:

Abuse of trust form, alter ego trust, piercing the trust veneer, Trust Property

Control Act, penalty and prohibition provisions, compulsory audits

1 Introduction

The South African Law Reform Commission (“SALRC”) in its Report

(“SALC Report”)1 on trusts expressed its opposition against the inclusion

of penalty provisions in the proposed Trust Property Control Act 57 of 1988

(“TPCA”). However, with the increase in the number of cases where an

abuse of the trust form occurred, the question that will be addressed in this

article is whether the TPCA should be amended to include penalty provisions

and a so-called prohibition against reckless behaviour, as well as requiring

compulsory audits, to combat this problem. The article will, rst, highlight

* This article is based on the author’s LLD dissertation: L Manie The South African Law of Trusts

with a View to Legislative Reform University of the Western Cape (2016).

1 South African Law Commission Review of the Law of TrustsProject 9 Report (1987). (At the

time the report was issued, the Commission was known as the South African Law Commission

(“SALC”) and therefore this acronym will be used throughout. The Judicial Matters Amendment

Act No 55 of 2002 changed the Commission’s name to the South African Law Reform Commission.

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298STELL LR 2020 2

the reasons why the SALC opposed the inclusion of penalty provisions.

This will be followed by an analysis of recent cases where an abuse of the

trust form occurred as a consequence of trustees’ non-compliance with

the TPCA, their common-law duties, and/or their duties in terms of the

relevant trust deed. It will be argued that these cases evince the need for the

amendment of the TPCA as they do not always provide adequate remedial

relief. Lastly, recommendations and proposals will be made on the content

of such amendments.

2 The SALC’s reasons for opposing the inclusion of penalty

provisions

While acknowledging that it is customary to make non-compliance with a

statutory provision that is generally of an administrative nature punishable

as an offence, the SALC felt that it would be undesirable to apply criminal

sanctions in an area where civil remedies and administrative procedures

already exist. The SALC felt that doing so would result in the unnecessary

criminalisation of conduct.2 What these available civil remedies and

administrative procedures are, is not apparent from the SALC Report.

It should, however, be highlighted that at the time the SALC Report was

published, the current problems that our courts face relating to the abuse of

the trust form were not as common. The case law on the abuse of the trust

form strengthens the argument that the SALC’s reasoning as to why penalty

provisions should not be included is no longer justied. To assist third parties

who contract with a trust in those instances where the trustee(s) abuse the

trust form, the courts have sought recourse in other branches of law. These

remedies will be analysed later. However, the application of these remedies

often depends on the facts.

3 Abuse of the trust form

In Land and Agricultural Bank of South Africa v Parker (“Parker”),3 the

Supreme Court of Appeal (“SCA”) noted that the core idea of a trust is

the separation of ownership (control) from enjoyment.4 Such separation,

inter alia, ensures diligence on the part of a trustee.5 A lack of separation

between control and enjoyment invites an abuse of the trust form.6 An abuse

of the trust form occurs in those instances where the trustees, in essence,

2 95.

3 2005 2 SA 77 (SCA).

4 Para 19. See also REM v VM2017 3 SA 371 (SCA) para 19; Van Zyl v Kaye 2014 4 SA 452

(WCC).

5 Land and Agricultural Bank of South Africa v Parker2005 2 SA 77 (SCA) para 22.

6 E Cameron, M de Waal & P Solomon Honoré’s South African Law of Trusts 2 ed (2018) 308.

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