Investec Employee Benefits Ltd and Another v Electrical Industry KwaZulu-Natal Pension Fund and Others

• Jurisdiction: South Africa
• Judge: Joffe J
• Judgment Date: 19 November 2008
• Citation: 2010 (1) SA 446 (W)
• Docket Number: 08/2602
• Counsel: DM Fine SC (with MM Antonie) for the first applicant. AP Rubens SC (with AT Rowan) for the second applicant. GD Harpur SC (with PJ Wallis and A Coutsoudis) for the opposing parties. DA Gordon (with D Donnelly) for the interdicting parties.
• Court: Witwatersrand Local Division

Joffe J: A

[1] The applicants seek an order in their notice of motion -

'confirming in terms of s 37 of the Long-term Insurance Act 52 of 1998, as amended, the transfer of the first applicant's insurance business to the second applicant, in accordance with the transfer agreement which was signed on behalf of the first and second applicants on B 18 June 2007 respectively, a copy of which has been attached to the founding affidavit in the application as appendix E'.

Reference will be made to the applicants herein as IEB and CAL, respectively.

[2] IEB is a wholly owned subsidiary of Investec Employee Benefits C Holdings Ltd which in turn is owned by Investec Ltd (previously Investec Group Ltd). CAL is a wholly owned subsidiary of Liberty Life Ltd. Both IEB and CAL carry on and transact long-term insurance business in South Africa.

[3] The application is opposed by the opposing parties. They comprise D nine pension funds and provident funds which have instituted action against IEB for damages arising out of alleged breaches by IEB of the provisions of certain policies of insurance concluded between each of the pension or provident funds and IEB (then known as Federated Life Assurance Co Ltd). E

[4] The opposing parties, together with two other pension funds, collectively referred to in the papers and in this judgment as the interdicting parties, seek in a conditional counterclaim 'anti-dissipatory' relief against IEB. The conditional counterclaim is opposed by the first applicant. F

[5] The present application is the second application brought by IEB in terms of s 37 of the Long-term Insurance Act 52 of 1998 (the Act). The first application was brought under case No 18506/06. The opposing parties made representations against the transfer and filed affidavits in opposition to the application. Ultimately the opposing parties did not G persist in their opposition to the transfer. It is contended that assurances were given to them by IEB that, notwithstanding the proposed transfer, sufficient assets would remain to pay the opposing parties' claims to which reference will be made later. The opposing parties contend that they are even more prejudiced by the present application by reason of the substantial dividends that have been declared by IEB since the assurances H mentioned above were allegedly given.

[6] The record of this application grew like Topsy. The founding affidavit was followed by an answering affidavit and a conditional counter-application. IEB responded with an affidavit which served as I both a replying affidavit to the application brought by it and CAL and as an answering affidavit to the conditional counter-application. CAL also filed a replying affidavit. This was followed by a replying affidavit in the counter-application. Hereupon IEB filed a supplementary replying affidavit. The opposing parties then filed a supplementary affidavit dealing with the quantum of the pension funds' alleged claims. Hereafter the J

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A opposing parties filed a further affidavit which led to IEB filing a supplementary replying affidavit. At the end of this exchange of affidavits a record of 2429 pages had been created, excluding the report of the Registrar of Long-Term Insurance (the registrar) which itself consists of 257 pages. There can be no doubt that this record could have been B substantially truncated.

[7] The opposing parties and the interdicting parties brought two applications to strike out portions of IEB's affidavits. The parties to the striking-out applications resolved their disputes and the applications were not argued. The costs of the applications, by agreement, will follow C the result of the application.

[8] The 11 pension and provident funds aforementioned, together with two additional pension funds that are neither opposing parties nor interdicting parties, allege that they have illiquid claims for damages against IEB. All 13 pension and provident funds (collectively referred to D as the pension funds) have instituted separate actions against IEB. As at 31 August 2008 their composite claims amounted to R3,972 billion, of which R1,547 billion represents simple interest calculated at the rate of 15,5 % per annum. All these actions are opposed by IEB. It is suggested by counsel that these actions will only be finally determined E within the next five years.

[9] It should be noted that the aggregate of the illiquid claims of the opposing parties amounts to R1,119 billion. The aggregate of the illiquid claims of the pension funds that seek relief in the conditional counterclaim amounts to R3,691 billion. Accordingly, pension funds with F illiquid claims of approximately R2,851 billion do not oppose the application.

[10] In addition to the pension funds which have illiquid claims against IEB, but which have nonetheless elected not to oppose the relief sought by IEB and CAL in this application, IEB has creditors totalling R738 million and policyholders, including reinsured policyholders, with claims G totalling R21,68 billion. None of these creditors or policyholders oppose the relief sought by the applicants.

[11] The quantum of the pension funds' illiquid claims for damages increases by 15,5 % per annum. Thus as at 31 December 2009 the claims will amount to R4,373 billion and as at February 2013 (that is the H outer limit for the final determination of all the pension funds' illiquid claims) R5,515 billion.

[12] All the pension funds' pending illiquid claims arise out of the same set of circumstances. It is alleged that IEB (at that time known as I Federated Life Assurance Co Ltd) owed them a duty to invest the assets underpinning the pension- and provident-fund obligations owed to them in accordance with an agreed philosophy. The philosophy, in essence, amounted to investing the assets in a manner reasonably befitting pension- and provident-fund obligations, in a balanced and diversified portfolio of assets. In breach of this duty, IEB (at that time known as J Federated Life Assurance Co Ltd) utilised the assets for its own strategic

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purposes, ultimately leading to massive losses that would not have been A sustained if the assets had been invested in the agreed manner. The pension funds allege that the duty to invest the assets as aforementioned arose in various ways, including the manner in which the benefits were presented to policyholders and the expectations created by marketing material. It is further alleged that, at the time when Investec Group Ltd B acquired Fedsure Life Assurance Co Ltd, the assets held by the latter company which underpinned the liabilities of the pension funds, and assets held for the benefit of the companies' shareholders, were all mixed in one communal portfolio of assets. It is alleged that this constituted a major breach by Federated Life Assurance Co Ltd of its obligations to the pension funds. The pension funds allege that when Investec Group C Ltd acquired its controlling interest in Federated Life Assurance Co Ltd, the aforesaid breach could have been rectified by the simple expedient of correcting the previous allocation so as to accord with Federated Life Assurance Co Ltd's contractual obligation. Instead IEB split the assets in the communal fund in such a manner that the pension funds were allocated the major share of the losses and IEB's shareholders the minor D share of the losses. The opposing parties and interdicting parties have annexed to a supplementary affidavit reports setting out how their respective claims are computed.

[13] All these allegations are denied by IEB. It is alleged by IEB that its E defences are detailed in the pleas filed in the various actions. IEB states that the validity and sustainability of the claims will be addressed at the trial of the various actions in due course.

[14] It is argued on behalf of the opposing parties that documents, F discovered by IEB in the pending actions aforementioned, contradict in serious and material respects IEB's defences in the actions. IEB did not deal with these documents in any detail. IEB took the view that, in determining this application, this court is unable to determine the merits or demerits of its defence. This is patently correct. It is impossible for any court in application proceedings to express a considered view on the G merits of the pension funds' claims against IEB or on IEB's defence, or whether or not the discovered documents do or do not contradict IEB's pleaded defence in material respects. Indeed, the parties are ad idem, at least to the extent that this court is unable to make any finding in regard to the claims and the defences raised by IEB. Suffice for present purposes to state that IEB hotly opposes the pension funds' claims. H

[15] The locus standi of the opposing parties is in dispute on the papers. Both IEB and CAL's counsel conceded at the commencement of their respective arguments that certain of the opposing parties have the requisite locus standi by virtue of certain property-investment policies I which certain of them hold with IEB. No distinction was made between those opposing parties that hold the aforesaid policies and those who do not hold such policies. Section 38(1)(d) of the Long-term Insurance Act 52 of 1998 (the Act) provides that, amongst others, any policyholder may file affidavits and other documents relating to a proposed transfer in terms of s 37 of the Act and may appear and be heard at the hearing of J

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A the application. It is accordingly not necessary to consider the issue of the locus standi of the opposing parties any further.

[16] The relevant history of this application commences with the acquisition in 1998 by Fedsure Life Assurance Co Ltd of the entire issued share capital of Norwich Life South Africa Ltd. In May 2001 this B court granted an...