Trustees can’t escape their fiduciary obligations

"There is no magic in the term ‘fiduciary duty’”.
 
This is what the judge said in the Phillips v Fieldstone Africa (Pty) Ltd case of 2004. In carrying out their duties, trustees fulfil a fiduciary position. A fiduciary duty is an onerous, legal obligation of a person managing property or money belonging to another person to act in the best interests of such a person. A fiduciary relationship arises from the nature of the actual relationship undertaken.
 
It was held in the Doyle v Board of Executors case of 1999 that one of the principal characteristics of the office of trustee is that it is fiduciary in nature and that a trustee holds trust property in a fiduciary capacity. The Court held that a trustee’s duty of “utmost good faith” towards all trust beneficiaries was pertinently founded on such trustee’s occupation of a fiduciary office and not from the trust instrument as held in the Hofer v Kevitt case of 1996.

The main components of a trustee’s fiduciary duty under our law are:

1. The duty of care (Section 9(1) of the Trust Property Control Act). It is interesting to note that the fiduciary duty of a trustee must not be confused with the duty of care, diligence and skill required of a trustee in terms of Section 9(1) of the Trust Property Control Act. A fiduciary duty does not necessarily demand competence and skill when someone manages the affairs of another. Although it is accepted that a trustee’s general fiduciary duty arises from, or is equivalent to, the duty of care, Section 9(1) is an added duty imposed on trustees and is, therefore, in addition to the common law fiduciary duty of a trustee. The Court in the Metequity Ltd v NWN Properties Ltd case of 1998 referred to “the fiduciary duties imposed on a trustee by s 9 of the Act”.

2. The duty of impartiality. The Court held in the Jowell v Bramwell-Jones case of 2000 that “A trustee must, generally speaking, avoid as far as possible a conflict of interest between her personal interests and those of the beneficiaries... I am satisfied that the allegations contained in the particulars of claim are capable of supporting evidence which would establish a breach of the trustee’s fiduciary duty.”

3. The duty of independence. It was held in the Land and Agricultural Development Bank of SA v Parker case of 2005 that a trustee’s independence is an essential component of trusteeship, stemming from the “core idea” of the trust, when it was stated that the functional separation of a trustee’s ownership (control) over trust property from any benefit (enjoyment) of such assets “tends to ensure independence of judgment on the part of the trustee – an indispensable requisite of office”.

4. The duty of accountability. Trustees must maintain a proper set of accounts and be in a position to report to beneficiaries when requested to do so (Doyle v Board of Executors case of 1999 and Mia v Cachalia case of 1934).

The trustees should act in the best interests of the beneficiaries. A trustee, therefore, has to be more careful and cautious with the affairs of the trust than they would be with their own affairs. Whereas an individual can take personal risks in managing their own investments and affairs, they must take greater care when dealing with trust assets and avoid any business risk as far as possible (Sackville West v Nourse case of 1925). This view was confirmed in the Estate Richards v Nichol case of 1999, where it was stated that a person in a fiduciary position, such as a trustee, is obliged to adopt the standard of the prudent and careful person.
 
In the Griessel v de Kock case of 2019 the Court held that the “role of a trustee in administering a trust calls for the exercise of a fiduciary duty owed to all the beneficiaries of a trust, irrespective of whether they have vested rights or are contingent beneficiaries whose rights to the trust income or capital will only vest on the happening of some uncertain future event”.
 
Trustees cannot exempt themselves from their fiduciary duties, as the Trust Property Control Act requires all trustees to act with the necessary care and diligence expected of a person managing the affairs of another (Section 9(1)). Therefore, any such clause in a trust instrument will not give the trustees the protection they seek and it may even render the trust instrument invalid due to this ‘illegal’ clause.
 
When there has been a breach of a fiduciary duty by a trustee, a beneficiary may claim the trustee’s gain from a transaction (if they benefitted financially from the breach), or hold the trustee liable for breach of trust, even if the trustee did not financially benefit.