Fiduciary relationship of Trustees in Sectional Title Schemes

All sectional title schemes are managed, controlled and administered by a body corporate, the members of which are all owners within the scheme, and these functions and powers are performed and exercised on a day to day basis by the trustees. 

Trustees are elected and appointed at each annual general meeting by the members, and must operate within the limitations imposed in the Sectional Titles Act, subject to any restrictions imposed at a general meeting of the owners and in the management rules of the scheme. 

The management rules, which regulate the management and administration of a scheme and which sets out the powers and responsibilities of the trustees, may be added to, amended or repealed by unanimous resolution of the members but one critical element thereof is the fiduciary relationship with the body corporate that every trustee stands in, once appointed to hold office until the next annual general meeting. 

This relationship demands that every trustee acts honestly, in good faith and may not exceed the powers granted by the sectional titles act, the rules and/or the owners at a general meeting, and must exercise these powers in the interest and for the benefit of the body corporate as a whole. 

Moreover, a trustee must avoid any and all material conflicts between his or her own interests and those of the body corporate. In particular, a trustee may not derive any personal benefit from the body corporate or from any other person if such benefit is obtained in conflict with the interests of the body corporate. 

Should any possible or suspected conflict exist, the trustee is obliged to notify all other trustees of the nature and extent thereof.  An example of this is any direct or indirect material interest the trustee may have in any contract entered into by the body corporate.  Should the trustee not disclose such conflicts, then any affected contract entered into is voidable should the members so decide. 

If a trustee breaches his or her fiduciary duties by an act or omission that is grossly negligent or performed in bad faith, he will be liable to the body corporate for any resultant loss suffered by the body corporate or any economic benefit derived by the trustee.  

The sectional titles act however does provide indemnity, for trustees, for acts or omissions that result in a loss for which the body corporate becomes lawfully liable, where gross negligence or bad faith is not proven.  Moreover, and on a similar basis, the insurance policy of the body corporate should hold cover for trustees’ indemnity as well.