When can a trustee be held personally liable for their actions?
Category Newsletter: Article
Taking on the role and duties of a trustee of a sectional title scheme comes with a fiduciary duty to act in the best interest of the body corporate. Failure to do so, or breaching the fiduciary duty can find a trustee personally liable in certain circumstances.
A recent article by Paddocks, notes that the Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”) clarifies the matter of liability not previously dealt with under the Sectional Titles Act 95 of 1986.
It should be noted that the duties and obligations of a chairperson is essentially the same as that of trustees and his/her main role, is to conduct the body corporate meetings and provide the casting vote in the event of a stalemate.
Section 8 of the STSMA, states that a trustee stands in a fiduciary relationship to the body corporate and must act honestly and in good faith. Trustees are elected to exercise certain powers and perform certain functions as directed or restricted by the members of the body corporate (comprising of all property owners in the scheme). These must be in the interest and for the benefit of the body corporate and, these powers may not be exceeded.
A trustee must avoid any material conflict of interest and may not receive any direct/indirect personal economic benefit from the body corporate. Any direct/indirect material interest in a contract must be disclosed to fellow trustees once the trustee becomes aware of it.
In terms of Prescribed Management Rule (“PMR”) 6(3) of Annexure 1 of the Regulations to the STSMA, a trustee must be excused from any discussion and decision in which he/she has a direct/indirect personal interest.
A beach of this fiduciary relationship can render the trustee personally liable to the body corporate for any loss suffered or economic benefit received out of the breach. The body corporate may however, provided it is aware of all material facts and it did not constitute an exceeding of the powers of the trustee, provide written approval of the trustee’s conduct which will nullify the breach.
In terms of PMR 8(4), the body corporate must indemnity all trustees, provided the trustee is not the scheme’s managing agent, against all costs, losses and expenses arising or resulting from any official act which is not a breach of the fiduciary relationship to the body corporate.
PMR 23(7) regulates that the body corporate must insure against the risk of loss of their funds as a result of any fraud or dishonesty committed by a trustee. The Regulations to the Community Schemes Ombud Service Act 9 of 2011 regulates this requirement for fidelity insurance.
Author: Coastal Property Group
