Self-interests vs fiduciary duty – executors beware!

Deepa Singh of Sentinel International describes a legal case that underlines the need for an impartial executor who does not find him or herself conflicted in the execution of his or her duties.

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An executor of a deceased estate has a fiduciary duty to administer the estate and account to the beneficiaries in the prescribed manner as set out in the Administration of Estates Act of 1965 (the Act). Section 54(1)(a)(v) of the Act states that failure to do so may result in the executor being removed from office, ‘if the Court for any reason is satisfied that it is undesirable that he or she should act as executor of the estate concerned.’

This section was invoked successfully in the recent matter of Sally Ann Brimble-Hannath v. Erica Hannath, Carolyn Fisher and Others[i].

The Facts:

The case concerned a widow (Sally Ann) suing her husband’s daughters (Erica and Carolyn) after their father, Stanley’s, death. Sally Ann was married to Stanley out of community property with the exclusion of the accrual system. Erica and Carolyn were co-executrixes of the deceased estate and Trustees and Beneficiaries of an existing inter-vivos trust.

Stanley bequeathed the family home in Noordhoek, to the inter-vivos trust while also granting the applicant (Sally Ann) the right to use and reside therein for the remainder of her life. In their capacities as Trustees, Stanley’s daughters lodged a claim by the trust against the deceased estate in the sum of approximately R4,4-million predicated on the deceased’s debit loan account. One of the daughters testified that her father had borrowed the amount from the trust to purchase the Noordhoek Property.

The Trustees’ claim is reflected as having been accepted by both executrixes in the liquidation and distribution account they lodged with the Master. But Sally Ann questioned the existence of any such claim and complained that Stanley’s daughters had denied her access to the trust’s records to investigate it.

As a result, Sally Ann instituted an application for the removal of Stanley’s daughters as executrixes on the basis that they were unsuitable to remain as executrixes because they had a conflict of interest. The alleged conflict of interest was said to arise from their position as Trustees and Beneficiaries of the trust to which Stanley left the bulk of his estate.

Sally Ann averred that the trust’s claim against the deceased estate ‘eats into the finite pie’ available in the deceased estate to satisfy her maintenance claim. The Will did not specifically provide for her maintenance but it was not disputed that she was entitled in the circumstances to make a claim against the deceased estate.

The Law:

The court referred to, amongst others, the matter of Robinson v Randfontein Estates Gold Mining Co Ltd[ii] where it was held that “where one man stands to another in a position of confidence involving a duty to protect the interests of that other in a fiduciary relationship he is not allowed to place himself in a position where his interests conflict with his duty [my emphasis]”. This principle applies to a range of legal relationships, including those of: a guardian to his/her ward, a solicitor to his/her client and an agent to his/her principal.

As was pointed out in the 1854 UK matter of The Aberdeen Railway Company v Blaikie Brothers, this doctrine must of necessity form part of every civilised system of jurisprudence.

Returning to the case of Sally Ann and Stanley’s daughters, it was rightly accepted by both sides in the current matter that an executor stands in a fiduciary relationship to the beneficiaries in respect of his/her administration of a deceased estate.

In the current case it should be remembered that an executor also has a duty towards creditors of the estate to exercise his or her powers bona fide and with objectivity. In dealing with a claim, an executor is expected to assess its merits on a fair consideration of the facts and its legal merits. Should an executor also be one of the creditors of the estate, an unenviable situation will arise in which he or she will have to be the judge of his or her own claim.

The Court held that it is generally undesirable that an executor should find him or herself in such a situation. It not only goes against common principle that anyone should be a judge in their own case, but it also posits a potential conflict between the executor’s interest as a creditor of the deceased estate and his or her fiduciary duty to administer it for the benefit of the beneficiaries.

The Judgement:

The Court agreed that there was no demonstrated misconduct by the trustees. However, the Court was not in agreement with the argument that proof of misconduct is required to remove an executor who has a conflict of interest. On the contrary, it is the existence of the conflict of interest in itself that renders it inappropriate that anyone charged with a fiduciary duty affected by the conflict should be the person called upon to fulfil the duty.

The Court held that this consideration, when it arises, will ordinarily determine how a court will exercise its discretion in terms of the Act.

The Hon. Mr Justice Binns-Ward held that he would therefore respectfully endorse the previously expressed view that the mere existence of a demonstrated conflict of interest affords prima facie sufficient ground for the removal of an executor in terms of the provision. “It seems to me to be axiomatic that it would ordinarily be undesirable for an executor affected by a conflict of interest to remain in office.”

Deepa Singh, LLB (Admitted Attorney), Legal Consultant

The judge was accordingly satisfied, in the context of the applicant disputing of the trust’s claim against the estate, that it was undesirable that the first and second respondents, who are the co-trustees and beneficiaries of the trust, should remain in office as executrixes of the deceased’s estate. The first and second respondents were removed as executrixes and were directed forthwith to return their letters of executorship to the Master of the High Court.

What does this mean for you?

The above matter underlines the need for an impartial executor who does not find him or herself conflicted in the execution of his or her duties. The Courts strictly apply the doctrine of not placing yourself in a position where your own interest conflicts with your fiduciary duty.

The case described above should have made clear that, should there be allegations of conflict, the resulting litigation will result in delays in the finalisation of the estate – not to mention significant legal costs.

We therefore urge you to carefully consider who you nominate as executor(s) in your Last Will and Testament. Enlisting the services of a Professional Independent Executor is always advisable.

The team of professionals at Sentinel International is ready to assist you with your Last Will and Testament. We are solemnly committed to ensuring that your legacy plays out exactly as you intend it to.

[i] Case Number 3239/2021 held at the High Court of South Africa, Western Cape Division
[ii] Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168 at 177-178