Breetzke and Others NNO v Alexander NO and Others

The Sleepy Hollow Trust owned commercial properties including a SARS property. In September 2012 the Trust decided to dispose of its property portfolio. In February 2013, Mr Alexander, a trustee of the Trust, offered to purchase the properties. On 17 May 2013, the Trust sold the properties to Ziningi Properties (Pty) Ltd, a company owned and controlled by Mr Alexander, for R179.5 million (with approximately R90 million attributed to the SARS property). After the transfer, on 6 November 2013, Ziningi sold the SARS property to Delta Property Fund Limited for R110 million, realizing a gross profit of over R19 million in six months. The St Francis Trust (SF Trust), represented by the appellants, was a beneficiary of the Sleepy Hollow Trust. It was alleged that when Mr Alexander made his offer, Delta remained eager to purchase the SARS property, but Mr Alexander failed to disclose this opportunity to his fellow trustees. The SF Trust brought a claim against Mr Alexander for breach of fiduciary duty and against Ziningi for knowingly participating in that breach, seeking half of the profit from the SARS property sale.

• Whether an allegation that a company knowingly participated in a trustee's breach of fiduciary duty is sufficient to establish wrongfulness and disclose a cause of action
• Whether a third party who knowingly aids, enables or facilitates a breach of fiduciary duty is liable to the trust or its beneficiaries for loss suffered
• Whether an exception should be upheld where a pleading alleges knowing participation in a breach of fiduciary duty but does not explicitly plead wrongfulness
• Whether the principle established in Yorkshire Insurance Co Ltd v Barclays Bank regarding liability for knowing participation in breach of trust remains valid law

The appeal was upheld with costs, including costs consequent upon employment of two counsel. The order of the high court was altered to read: 'The exception is dismissed with costs, such costs to include the costs consequent upon the employment of two counsel.'

An allegation that a third party knowingly participated in a breach of fiduciary duty is an allegation of wrongfulness and is sufficient to establish a cause of action in delict. A person who knows that another person is acting in breach of fiduciary duties owed to others, and who aids, enables or facilitates the execution of that breach of trust, acts wrongfully and attracts liability under the Aquilian action. Knowledge of the breach of fiduciary duty is central to the liability of the third party - their guilty knowledge attracts liability. Only actual knowledge, not mere negligence or failure to enquire, suffices to establish liability. The legal convictions of the community, constitutionally understood, demand that a third party who knowingly participates in a breach of fiduciary duty should share liability with the person breaching the fiduciary duty, because by aiding, enabling or facilitating the breach they are themselves equally responsible for the injury or loss suffered by the injured party.

The court observed that the use of corporate vehicles to execute business transactions is commonplace, and if third parties who aid breaches of fiduciary duty could escape liability, it would be relatively easy for those who owe fiduciary duties to escape the consequences of their wrongdoing. The court noted that in this case, if the allegations regarding Mr Alexander's connection to Ziningi are established, his knowledge would clearly be attributed to Ziningi, and it could not be regarded as an innocent bystander. The court also noted that the requirement of honesty and fairness in dealing with the property and property interests of others demands that liability should follow where a third party knowingly participates in a breach of fiduciary duty. The court rejected the argument that imposing such liability would lead to limitless liability, noting that only those with actual knowledge would be liable, and that innocent participants (such as banks honouring cheques or conveyancers attending to transfers) would not be liable. The threshold for liability is high - mere negligence does not suffice.

This case is significant in South African trust and delict law because it confirms and reinforces the principle that third parties who knowingly participate in a breach of fiduciary duty are liable as joint wrongdoers. The judgment clarifies that an allegation of knowing participation in a breach of fiduciary duty is itself an allegation of wrongfulness sufficient to disclose a cause of action. The case is important for establishing that the long-standing authorities on knowing participation in breach of trust remain good law and are consistent with modern principles of wrongfulness in delict. It provides important protection for trust beneficiaries by ensuring that fiduciaries cannot easily escape liability by using corporate vehicles or third parties to execute breaches of trust. The case also provides guidance on the pleading requirements for claims against third parties involved in breaches of fiduciary duty.