Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner (TEP) and the founder of Trusteeze, the provider of a digital trust solution. Photo: File
Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner (TEP) and the founder of Trusteeze, the provider of a digital trust solution. Photo: File

Trustees can’t escape their fiduciary obligations

By Phia van der Spuy Time of article published Jul 19, 2021

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“THERE is no magic in the term ‘fiduciary duty’.” This is what the judge said in the Phillips v Fieldstone Africa 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:

  • The duty of care (section 9(1) of the Trust Property Control Act). It is interesting to note that the common-law fiduciary duty required of a trustee must not be confused with the duty of care, diligence and skill required of a trustee in terms of the Trust Property Control Act. Common-law 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
  • The duty of impartiality. The court held in the
  • The duty of independence. It was held in the
  • 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 (

The trustees should act in the best interests of the beneficiaries. Trustees, therefore, have 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, because 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, because the clause is essentially “illegal”.

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 benefited financially from the breach), or hold the trustee liable for breach of trust, even if the trustee did not financially benefit.

Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner (TEP) and the founder of Trusteeze, the provider of a digital trust solution.

PERSONAL FINANCE

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