Trustee Conflict of Interest Rules

Conflict of interest is one of the most common governance failures in body corporate schemes. The Sectional Titles Schemes Management Act (STSA) and common law impose strict requirements on trustees to disclose, manage, and recuse themselves from decisions where they have a personal interest. Failure to manage conflicts of interest can result in personal liability for trustees and invalidate board decisions.

What Constitutes a Conflict of Interest?

A conflict of interest exists when a trustee has a personal, financial, or family interest that could influence their judgment on a scheme matter. Common examples include:

• Voting on matters affecting a family member's unit
• Approving contracts with a business owned by the trustee or family member
• Deciding on disputes involving the trustee's own unit
• Approving fees for services provided by the trustee
• Voting on matters that financially benefit the trustee

Disclosure Requirements

The STSA requires trustees to disclose all conflicts of interest to the board. This disclosure must be made:

• At the start of each board meeting when conflicts may arise
• In writing before any decision is made
• In the minutes of the meeting
• Proactively, not just when asked

Recusal and Abstention

Once a conflict of interest is disclosed, the trustee must typically recuse themselves from the decision-making process. This means:

• Leaving the meeting during discussion of the conflicted matter
• Not voting on the decision
• Not participating in deliberations
• Ensuring the recusal is recorded in minutes

Consequences of Failing to Manage Conflicts

Failure to properly disclose and manage conflicts of interest can result in:

• Personal liability for the trustee for resulting losses
• Invalidation of board decisions made with undisclosed conflicts
• CSOS complaints and investigations
• Removal from the board
• Legal action by residents or the scheme