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Why the court validated the Njenga Karume Trust

By William Maema

The outcome of the epic court battle pitting a faction of the children of the late Cabinet Minister and tycoon Mr. Njenga Karume against the trustees appointed by him to manage his multi-billion-shilling empire was anxiously awaited not only by the parties themselves, but everyone interested in succession law. The dispute split the family down in the middle, with some of the family members siding with the trustees which added more flavour to the contest.

Unlike most succession cases in Kenya which are primarily about distribution of property, the case of Albert Kigera Karume & 2 Others v. George Ngugi Waireri & 2 Others (Milimani Civil Case No.125 of 2015), revolved around the complexities of the novel concept of administering the estate of a deceased person by    means of a trust as opposed to the traditional method of executors appointed under a Will.   

Mzee Karume had, for personal reasons, transferred most of his assets to the Njenga Karume Trust and directed that the trust would be managed by his trusted friends, the current Attorney General Justice Kihara Kariuki as Chairman (who resigned soon after Karume’s death) and Mr. Kung’u Gatabaki as well as Karume’s eldest son, Mr. Henry Waireri Karume.

Following subsequent changes, the line-up of trustees at the time of the suit featured Mr George Ngugi Waireri as Chairman, Henry Waireri Karume, Kung’u Gatabaki and Margaret Nduta Kamithi.

In a nutshell, the disgruntled family faction challenged the validity of the trust besides claiming that   the trustees had mismanaged and were systematically wasting the trust assets by disposing of  them without accounting to the beneficiaries for the proceeds. They also claimed that the trustees had kept them in the dark on the operations of the Trust, had failed to furnish them with books of accounts and neglected to attend to some pressing financial needs of the beneficiaries, among a litany of other grievances.

Until the determination of this case, the use of a trust as an instrument of estate planning was viewed skeptically as a product of innovative lawyering with a suspect legal foundation.

However, in a well-reasoned judgment delivered on 7 May 2020, High Court Judge Rosslyn Aburili spawned a tome of jurisprudence which will remain an unassailable treatise on the law of trusts and estate planning in Kenya for many years to come.

By declining to impugn neither the concept nor the configuration of a trust and by disallowing the plaintiffs’ cardinal prayer for appointment as direct replacements of the trustees, the court affirmed the validity of a trust as a lawful instrument of estate planning in Kenya. It found that the founder’s decision to have his wealth managed by persons of his own choice was sacrosanct and deserved to be given effect.

This decision broadens the spheres of existing jurisprudence by affirming that  while the good old Will remains an essential tool in the gamut of legal instruments available to estate planners, as Kenyans become wealthier and investments get more sophisticated, it will progressively become less effective as the sole tool of estate planning.

The court was categorical that it is not the duty of any court to alter or destroy a trust but to uphold and protect it and ensure that the trustees perform their duties as envisaged in the Trust Deed and as required by law. In this regard, the interests of the beneficiaries are paramount since, ultimately, the property vested in the trust by the founder belongs to them. The trustees are, therefore, accountable to the beneficiaries for the proper management of the trust property.

This is not to say that the trustees should take instructions from the beneficiaries on the day to day management of the estate as that would defeat the very purpose of their appointment. On the contrary, the responsibilities of trustees are so onerous that courts have observed that it as an act of great kindness to accept the role of a trustee.

Trustees are required to perform their duties with utmost diligence as would be expected of an ordinary person managing his own affairs while at the same time holding a fiduciary duty of care to the interests of the beneficiaries. Therefore, there should never be a conflict between the interests of the trustees and those of the beneficiaries and if such a situation were to arise, the trustees should not place their interests above those of the beneficiaries.

Perhaps the most important lesson from this case is that for a trust to operate optimally and achieve the objectives of the founder as set out in the Trust Deed, the trustees must win and retain the confidence of the beneficiaries throughout the period of their engagement. The beneficiaries must have confidence in the trustees and their ability to manage the trust assets diligently and transparently. Based on the evidence presented, the court found that the confidence of the beneficiaries in the trustees had irretrievably broken down.

While the trustees are not required to accommodate every fanciful wish, desire or demand of the beneficiaries, they must always place themselves in the shoes of the beneficiaries and address the plight of each individual beneficiary in a reasonably satisfactory manner.  

Although trustees are not required or expected to consult the beneficiaries on any decision that they make concerning the trust assets or potential investments, they should maintain an effective and meaningful channel of communication with the beneficiaries to afford them reasonable visibility into the affairs of the trust.

Trustees are required to act impartially towards all the beneficiaries without showing any favouritism to some. It was claimed that this principle was not observed by the trustees and that the beneficiaries who declined to submit to certain conditions imposed by the trustees were excluded from the financial support that other beneficiaries were receiving.

The Judge made it clear that where, based on evidence the court is of the view that the trustees have failed in the discharge of their duties, it would not hesitate to order their removal and replacement in accordance with the procedure set out in the Trust Deed (as happened in this case).The remedy, therefore, lies, not in the dissolution of the trust or giving direct control of the trust  property to the beneficiaries  as that would defeat the founder’s intention.

The final take-away from the judgment is that even where trustees are found to have fallen short of the very high standards expected of them, courts will still respect and uphold the founder’s wishes as expressed in the Trust Deed regarding the appointment of their replacement. The court, therefore, directed lawyer James Kamau (the person mandated by the founder to nominate new trustees) to consider the varying interests of the beneficiaries  and ensure that the  new trustees  are persons who enjoy the confidence of the beneficiaries  for the trust to be run smoothly and achieve the objectives envisaged by the founder.

The article was featured in the Business Daily on 17 June 2020 and can be accessed here