What exactly does the “Trustees Indemnity” entail? We look at this a little more in depth in the
following article :
1.   Section 8(1) of the Sectional Titles Schemes Management Act 8 of 2011 (‘’STSMA’’) states that each body corporate trustee must stand in a fiduciary relationship with the body corporate.
2.   Section 8(1) of the STSM Act states that the ‘‘fiduciary relationship’’, infers that a trustee:
(a)   must, in relation to the body corporate, act honestly and in good faith, and in particular
(i)   exercise their powers in terms of the STSM Act in the interest and for the benefit of the body corporate; and
(ii)   not act without or exceed those powers; and
(b)   must avoid any material conflict between their own interests and those of the body corporate, and in particular
(i)   not receive any personal economic benefit, direct or indirect, from the body corporate or from any other person; and
(ii)   notify every other trustee of the nature and extent of any direct or indirect material interest which they may have in any contract of the body corporate as soon as such trustee becomes aware of such interest.
3.   Prescribed Management Rule 8(4), annexed as Annexure 1 of the STSMA, states that the body corporate must indemnify a trustee who is not a managing agent against all costs, losses and expenses arising from any official act that is not in breach of the trustee’s fiduciary obligations to the body corporate.
4.   The above legislation will not apply in this matter where a Trustee did not incur any costs, losses and expenses arising from any official act as a Trustee but sued in his/her personal capacity
5.   Trustees that are sued in their personal capacity, must defend the matter in their personal capacity, and, therefore, must foot their own legal bill when sued in their personal capacity.
6.   Most Bodies Corporate have building insurance policies that include “Trustees Indemnity Cover.”
7.   Generally, this policy will protect the body corporate and the trustees from claims arising from the economic or financial loss caused by a trustee’s wrongful act.
8.   “Wrongful act” usually refers to an actual or alleged breach of trust, breach of duty, neglect, error, misstatement, misleading statement, omission, or other wrongful act committed or attempted by a trustee arising from his acting in his capacity as a trustee.
9.   An example is where the trustees approve or allow something in error, for example approving the enclosure of a balcony without the members’ consent and as the owner who was incorrectly allowed to enclose his/her balcony and is forced to remove the enclosure (after complaints from other owners), that owner may bring action against the trustees for his financial loss. There is no injury or damage, so it cannot be claimed under the liability section. This is where the need for trustee indemnity arises.
10.   Insurance policies would also have exclusions, meaning that the insurer will not cover any of the acts under the exclusion section ‘’Specific Exceptions’’, for example:
‘’The Company will not indemnify the trustees and/or the body corporate in respect of:
Loss or liability arising out of a publication or utterance or libel or slander or other defamatory …’’
From the above, it is quite clear that defamation is explicitly excluded in this policy.
11.   Most insurers in the country explicitly exclude defamation, slander, etc. It’s doubtful whether a claim can be brought if there is a specific policy exclusion, as the insurer specifically stated in its policy that it will not cover such an act. The trustees surely should have known this when they approved and took out this particular policy.
Trustees must be indemnified by a Body Corporate and may even claim from the scheme’s insurance policy but as can be seen from the example, they would need to carefully consider the wording of the insurance policy for any exclusions.