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

• Jurisdiction: South Africa

Living Hands (Pty) Ltd and Another v Ditz and Others
2013 (2) SA 368 (GSJ)

2013 (2) SA p368

Citation	2013 (2) SA 368 (GSJ)
Case No	42728/2012
Court	South Gauteng High Court, Johannesburg
Judge	Makgoka J
Heard	June 11-12, 2012
Judgment	September 11, 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).

Flynote : Sleutelwoorde B

Company — Shares and shareholders — Shareholders — Duty of care to company — Sale by financial institution of entire shareholding in trust company — Purchasers looting trust funds — Claim by trustees against financial C institution on ground that it failed to ensure that purchasers would not act to detriment of trust beneficiaries — Court refusing, on public policy grounds, to extend liability to shareholder such as financial institution — Court upholding shareholder's exception to claim.

Delict — Specific forms — Pure economic loss — Whether recoverable — Duty of D shareholders to prevent financial loss to company — Whether to be imputed — Public policy — Risk of indeterminate liability for shareholders — Financial institution selling its entire shareholding in trust to third parties who proceeded to loot trust moneys to detriment of beneficiaries — Claim by original trustees — Whether nexus between disposal of shares and dissipation of funds sufficient to found delictual liability — Court upholding E financial institution's exception to claim on public policy grounds.

Financial institution — Duties — Fiduciary duty — Fiduciary duty of financial investment institution to its investors — Duty to prevent dissipation of invested funds — New owners of trust directing financial institution to F liquidate trust's entire investment portfolio — Trust funds looted by new owners — Delictual, contractual and statutory liability of financial institution discussed — Having nonchalantly handed over funds in circumstances in which obliged not to expose them to unacceptable risk — Court dismissing exception to claim for damages by trustees.

Prescription — Pleading — Special plea appropriate — Exception inappropriate G since plaintiff might wish to replicate and plead facts showing that prescription having been interrupted.

Headnote : Kopnota

The plaintiffs, suing in their capacities as the trustees of the Matco Trust, sought judgment to the tune of more than one billion rand against the defendants. H The claim, which was based principally on delict, arose from the dissipation of the trust funds invested with the 19th defendant, Old Mutual (OM). The loss was allegedly caused by the sale by certain defendants, including the 13th defendant, Investec, of their entire shareholding in Matco to Fidentia Holdings, whose directors proceeded to loot the trust funds.

The claim against Investec was based on its alleged breach of its duty of care and I fiduciary duty to Matco and the Matco beneficiaries to ensure that the directors appointed to Matco's board would not act to the detriment of the beneficiaries. This duty allegedly arose not from Investec's capacity as shareholder, but from its reckless conduct towards Matco and the beneficiaries in the implementation of the sale of its shares to Fidentia.

Investec excepted to the plaintiffs' particulars on the ground that it did not, as J shareholder, owe the first plaintiff and the beneficiaries of the trust the duty

2013 (2) SA p369

of care or fiduciary duty alleged, and that even if it did, the duties did not A extend to losses suffered by the beneficiaries after it had ceased being a shareholder.

The crux of the claim against OM was the alleged breach of its duties as a financial investment institution, which would have arisen by virtue of the investment agreements it had concluded with Matco. It was contended that B OM had breached said duties when it released trust funds to Fidentia under circumstances in which it should have suspected fraud on the part of Fidentia. OM excepted to the plaintiffs' particulars on several grounds, including lack of legal causation (loss too remote), liability for pure economic loss, and prescription.

Held, as to the exception to the claim against Investec: The negligent causation C of pure economic loss was wrongful only in the face of a legal duty, which, in turn, would only be imputed by public policy. In the present case the alleged nexus between Investec's disposal of its shares to Fidentia and the dissipation of the beneficiary funds was not sufficient for a conclusion that public policy (as opposed to morality) would demand the extension of delictual liability to cover the pleaded facts. In any event, the risk of indeterminate liability for shareholders would be too great should such an D extension be granted in the present case. Investec's exception would accordingly be upheld. (Paragraphs [22], [25] – [33] and [38] – [39] at 377G – I, 378E – 381B and 382F – I.)

Held, as to the exception to the claim against OM: OM's undeniable fiduciary duty to Matco and the trust beneficiaries not to allow the dissipation of the E funds, entailed a duty not to allow Fidentia access to the funds, particularly in view of the knowledge available to OM at the time. The manner and haste with which Fidentia sought access to the funds made their dissipation reasonably foreseeable, especially in the light of OM's awareness of the their vulnerability and its fiduciary duty in relation to them. OM had handed over the funds without further ado in circumstances in which its statutory duties F obliged it not to hand them over to persons who would place them at unacceptable risk. Its various omissions in this regard facilitated the loss of the funds, and therefore the ground of exception based on delict would fail. As to the exception based on liability for pure economic loss: where it existed independently of the contract, a delictual claim for economic loss was competent. All the plaintiffs had to show was that the pleaded facts established a cause of action in delict, and that the relevant facts may have G been pleaded in a different manner so as to raise a claim for contractual damages, was irrelevant. This exception would accordingly fail. As to the exception based on prescription: it was not competent to raise prescription by way of exception rather than special plea, and precedents to the contrary were at odds with established authority and clearly wrong. The exception based on prescription would accordingly also fail. H (Paragraphs [51], [55] – [59], [62] and [69] – [73] at 386G – H, 388E – 389F, 390C – D and 391E – 393F.)

Cases Considered

Annotations:

Case law

Southern Africa I

AB Ventures Ltd v Siemens Ltd 2011 (4) SA 614 (SCA): dicta in paras [5] and [8] applied

Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A): applied

Barclays Bank International Ltd v African Diamond Exporters (Pty) Ltd (2) 1976 (1) SA 100 (W): applied J

2013 (2) SA p370

Bayer South Africa (Pty) Ltd v Frost 1991 (4) SA 559 (A): dictum at 568B – C applied A

Carmichele v Minister of Safety and Security and Another (Centre for Applied Legal Studies Intervening) 2001 (4) SA 938 (CC) (2002 (1) SACR 79; 2001 (10) BCLR 995): dictum in para [55] applied

Cassimjee v Cassimjee 1947 (3) SA 701 (N): doubted

Coronation Brick (Pty) Ltd v Strachan Construction Co (Pty) Ltd 1982 (4) SA 371 (D): dictum at 384D – E applied B

Crots v Pretorius 2010 (6) SA 512 (SCA): dictum in para [12] applied

Daniels v Campbell NO and Others 2004 (5) SA 331 (CC) (2004 (7) BCLR 735): dictum in para [94] applied

Ex parte Hansmann 1938 WLD 89: dictum at 93 applied

Fairoaks Investment Holdings (Pty) Ltd and Another v Oliver and Others 2008 (4) SA 302 (SCA) ([2008] 3 All SA 365): dictum in para [12] applied C

Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd 2009 (2) SA 150 (SCA): dictum in para [12] applied

Gouda Boerdery BK v Transnet 2005 (5) SA 490 (SCA) ([2004] 4 All SA 500): D dictum in para [12] applied

Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901 (N): referred to

Holmes v Schoch 1910 TPD 700: referred to

Holtzhausen v Absa Bank Ltd 2008 (5) SA 630 (SCA): referred to

Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A): referred to E

International Shipping Co (Pty) Ltd v Bentley 1990 (1) SA 680 (A): dictum at 700E – H applied

Jowell v Bramwell-Jones and Others 1998 (1) SA 836 (W) ([2000] 2 All SA 161): dictum at 902J applied

Knop v Johannesburg City Council 1995 (2) SA 1 (A): dictum at 24D – E applied F

Lewis v Oneanate (Pty) Ltd and Another 1992 (4) SA 811 (A): referred to

Lillicrap, Wassenaar and Partners v Pilkington Bros (SA) (Pty) Ltd 1985 (1) SA 475 (A): discussed and dictum at 500D – E applied

mCubed International (Pty) Ltd and Another v Singer and Others NNO 2009 (4) SA 471 (SCA): referred to

Minister of Law and Order v Kadir 1995 (1) SA 303 (A): applied G

Minister of Police v Skosana 1977 (1) SA 31 (A): dictum at 34F – G applied

Minister of Safety and Security v Van Duivenboden 2002 (6) SA 431 (SCA) ([2002] 3 All SA 741): dicta in paras [12] and [22] applied

Minister van Polisie v Ewels 1975 (3) SA 590 (A): referred to

National Chemsearch (SA) (Pty) Ltd v Borrowman and Another 1979 (3) SA 1092 (T): dictum at 1101B – F applied H

Peterson and Another NNO v Absa Bank 2011 (5) SA 484 (GNP): discussed and distinguished

Rand Staple-Machine Leasing (Pty) Ltd v ICI (SA) Ltd 1977 (3) SA 199 (W): referred to

Reuben v Meyers 1957 (4) SA 57 (SR): referred to

Sanan v Eskom Holdings Ltd 2010 (6) SA 638 (GSJ): dictum in paras [14] – [21] criticised and not followed I

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