Living Hands (Pty) Ltd and Another v Ditz and Others

• Jurisdiction: South Africa
• Court: South Gauteng High Court, Johannesburg
• Judge: Makgoka J
• Judgment Date: 11 September 2012
• Citation: 2013 (2) SA 368 (GSJ)
• Docket Number: 42728/2012
• Counsel: HS Epstein SC (with P Daniels SC and A Bester) for the plaintiffs/respondents. WHG van der Linde SC (with D Turner) for Investec (the first excipient and thirteenth defendant). EW Fagan SC (with PBJ Farlam) for Old Mutual (the second excipient and nineteenth defendant).

Makgoka J:

[1] On 23 July 2012 I made the following order:

'1.

The exception of the thirteenth defendant (Investec) is upheld with costs, including those costs occasioned by employment of I three counsel, to be paid by the plaintiffs jointly and severally, the one paying the other to be absolved;

2.

The plaintiffs are granted leave to amend their particulars of claim, if so advised, within 30 days of this order;

3.

The exception of the nineteenth defendant (Old Mutual), as well as its application to strike out, are dismissed with costs, including costs occasioned by employment of three counsel.' J

Makgoka J

A [2] I undertook to furnish the reasons later. Here are the reasons. The plaintiffs issued summons on 22 October 2010 against all 19 defendants. In their amended particulars of claim, the plaintiffs seek judgment in the amount of R1 124 137 589,46 against all the defendants jointly and severally, as well as interest on that amount at the prescribed rate from B 26 October 2004 to date of payment in full. The claim arises from dissipation and loss of certain trust beneficiary funds (the funds) which were invested with the nineteenth defendant, Old Mutual Unit Trust Managers Ltd (Old Mutual). The loss is alleged to have been caused through contributory conduct and/or omission of all the defendants, C which I deal with fully later.

[3] The thirteenth defendant (Investec) and Old Mutual have, respectively, taken exception to the plaintiffs' amended particulars of claim on the basis that they lacked averments necessary to sustain an action. In addition Old Mutual has taken two further points. Firstly, it seeks to strike out certain allegations in the amended particulars of claim, D contending that they are vexatious and scandalous. Secondly, it contends that the claim against it has prescribed.

[4] The factual background is largely common cause. The first plaintiff, previously called Mantadia Asset Trust Co (Pty) Ltd (Matco), was E initially the sole trustee of a trust (now known as Living Hands Umbrella Trust). For the sake of convenience I refer to the first plaintiff as 'the trust'. The trust was the recipient of beneficiary funds (the funds) from beneficiary funders such as the Mineworkers Provident Fund, which Matco was required to administer for the benefit of the dependants and nominees of deceased members of beneficiary funders (the trust beneficiaries). On 24 February 2011 the second plaintiff was appointed a F co-trustee by the master of the high court. The plaintiffs have sued in their capacities as co-trustees.

[5] In pursuit of its administrative function, Matco on 7 May 2002 and 15 September 2004, respectively, concluded two written agreements with Old Mutual in terms of which the funds were to be invested G with Old Mutual. Pursuant to those agreements Matco transferred the funds, or part thereof, to Old Mutual for investment in various portfolios. As of 15 October 2004 an investment balance amount of R1 124 137 589,46 was held by Old Mutual pursuant to those investment agreements.

H [6] The first to seventh defendants were directors of Matco up to 19 October 2004. During the period May 2002 to October 2004 the fifth defendant (Mileham) was Matco's nominee representative appointed by the master of the high court in terms of s 6(4) of the Trust Property Control Act. He resigned in October 2004, after which the seventeenth I defendant (Malan) was appointed as such.

[7] The eighth to thirteenth defendants (including Investec) were shareholders of Matco up until 19 October 2004 (Investec was a minority shareholder at 12,475%). The fourteenth to seventeenth defendants (respectively, Brown, Tucker, Mulder and Malan) were directors of J Matco from 19 October 2004. Brown (the eighth defendant) was also at

Makgoka J

all relevant times a director of Fidentia Holdings Ltd (Fidentia), as well A as the controlling and directing mind of Fidentia Asset Management Limited (FAM) from at least October 2004. The eighteenth defendant (De Jongh) was a director of FAM between 19 October 2004 and December 2006.

[8] On 5 October 2004 Investec and other shareholders concluded a B sale-of-shares agreement with Fidentia Holdings, in terms of which the shareholders sold all the issued shares in Matco to Fidentia for R93 million. Clause 4 of the agreement obliged Fidentia to deliver to Investec (acting on behalf of the other shareholders) a letter from its bankers confirming to the reasonable satisfaction of the shareholders that C it had sufficient funds to pay the purchase price, within three business days after the signature date. The shareholders had to provide signed transfer forms and written resignations of the then directors of Matco against payment of the purchase price. It is common cause that Investec did not receive, nor did it insist upon, the letter from Fidentia's bankers as stipulated in the agreement. Instead, in purporting to fulfil this D condition, Fidentia furnished Investec with a letter from Standard Bank dated 14 October 2004, addressed to 'Whom it may concern', stating the following:

'This letter serves to confirm that we have received an instruction from E our esteemed client, Fidentia Holdings (Pty) Ltd to transfer R93 million to the current account of Matco (Pty) Ltd held with Standard Bank, Jan Smuts Avenue. Please note that this information is given without any responsibility on the part of the Bank, its officers or informants.'

[9] Despite this, Investec and other shareholders provided the F share-transfer forms and the resignations of the then directors of Matco, together with resolutions appointing new directors on 19 October 2004, notwithstanding that the purchase price had not been received. I will revert to this aspect later.

[10] Meanwhile, pursuant to the sale-of-shares agreement, Fidentia had G become the sole shareholder of Matco. On 14 October 2004, Matco, under new management, appointed FAM as portfolio manager of the funds. The terms of Matco's mandate are set out in a letter and a written investment agreement. On 15 October 2004 FAM delivered a letter to Old Mutual instructing it to liquidate R150 million of the funds and to H transfer the proceeds into FAM's account. Old Mutual informed FAM that it would only act on a signed, written instruction from Matco, in which the proper appointment of FAM was confirmed. On the same day, 15 October 2004, Old Mutual also wrote to Matco, advising it of what it had communicated to FAM.

[11] In response Matco sent Old Mutual a letter the same day (15 October 2004) I advising that FAM had been appointed as the investment manager of Matco and the Trust with effect from 14 October 2004. Matco confirmed that FAM had a 'full discretionary mandate', and that FAM, represented by De Jongh, had full authority to deal with the investment portfolio as it saw fit, 'including but not limited to moving a J

Makgoka J

A portion of the entire investment portfolio from the Old Mutual Group to any other registered investment manager as they may see fit'.

[12] On 19 October 2004 Matco replaced all the directors of Matco with the fourteenth to seventeenth defendants. It also informed Old Mutual B that its board had resolved to call up its entire trust-investment portfolio with Old Mutual with immediate effect, and requested Old Mutual to transfer the funds to Matco by not later than 17h00 the same day. That letter was signed by Malan (who was indicated to be the managing director) and Tucker. These were two of the three persons reflected on the letterhead as the directors of Matco. Several reasons were stated for C the decision summarily to withdraw the investment.

[13] On 20 October 2004 Matco, represented by the new directors in the persons of Brown, Tucker, Mulder, Malan and De Jongh, faxed a letter to Old Mutual and Symmetry Multimanager Portfolio (signed by Malan D as managing director), in which it confirmed that (i) Malan was the sole representative trustee of the Trust; (ii) FAM had been given a full discretionary mandate on 14 October 2004 to act as investment manager of the Trust; and (iii) in terms of that mandate, FAM was mandated to liquidate the entire investment portfolio or portions thereof, as it deemed E fit.

[14] Old Mutual caused the funds to be paid over to Matco (under new directors) between 26 October and 8 November 2004. Matco then paid the funds over to FAM (for investment in terms of the investment F mandate). It is stated in the amended particulars of claim that from 26 October 2004 to March 2007 the funds were depleted by the alleged maladministration and misappropriation whilst under the administration of FAM. The alleged maladministration and misappropriation are attributable to Brown, Mulder, Tucker, Malan and De Jongh. That, in brief, G is a summary of the factual background.

[15] Before I consider the exceptions, an overview of the applicable general principles distilled from case law is necessary:

(a)

In considering an exception that a pleading does not sustain a cause of action, the court will accept, as true, the allegations pleaded by H the plaintiff to assess whether they disclose a cause of action.

(b)

The object of an exception is not to embarrass one's opponent or to take advantage of a technical flaw, but to dispose of the case or a portion thereof in an expeditious manner, or to protect oneself against an embarrassment which is so serious as to merit the costs I even of an exception. [1]

(c)

The purpose of an exception is to raise a substantive question of law which may have the effect of settling the dispute between the parties.

Makgoka J

If the exception is not taken for that purpose, an excipient should A make out a very clear case before it would be allowed to succeed. [2]

(d)

An excipient who alleges that...