Louis Case Reports

UNCONSCIONABLE ABUSE AND COMPANIES

Company – Unconscionable abuse – Sufficiency of evidence to support a finding – Court’s powers to order the liquidation of companies retrospectively upon a finding – Obligation to join creditors and serve court processes on creditors – Companies Act 71 of 2008, s 20(9).
Barak Fund v Insure Group Managers [2022] 2021-43053 (GJ) at [75]-[174]

EBM was a mining enterprise and Barak is its creditor, having lent it US$ 8,340,000. Barak entered into a web of security agreements with EBM, Lebonix (the wholly owned subsidiary of Ericode), Ericode (the wholly owned subsidiary of Insure) and Insure which security agreements included a written guarantee by Insure in favour of Barak in terms of which Insure guaranteed EBM’s obligations to Barak in terms of the loan agreements. Barak ended up claiming against EBM which was placed under business rescue; Hollard instituted an application seeking to place Insure under business rescue; Insure, Ericode, Lebonix and EBM instituted an arbitration against Barak; and Insure was placed in a voluntary creditors’ winding up. Six applications came before the court.

Opperman J discusses non-joinder and Barak’s right to intervene; that the targets of the liquidators’ applications were the Barak securities and that they sought to wrest control of these securities from Barak whose rights as creditor of the Insure Group were materially affected by such a ploy; that liquidators must act in the interests of creditors as a whole, not a select group thereof; the sufficiency of evidence to support a finding of “unconscionable abuse” as provided for in section 20(9) of the Companies Act; the interpretation of s 20(9) and the case of Ex parte Gore NO; the court’s powers to order the liquidation of companies retrospectively upon a finding in terms of section 20(9) of the Companies Act; the obligation to join creditors and serve court processes on creditors; and costs de bonis propriis and as between attorney and client applied to both liquidators and attorney of record – see para [172].

The intervention application, at the behest of Barak to intervene in the section 20(9) application and the interdict application is granted. The section 20(9) application is dismissed. See further the order at [175].

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PURE ECONOMIC LOSS

Delict – Pure economic loss – Omission – Liability of Old Mutual for paying over funds to Fidentia – Funds of trust for widows and orphans dissipated – Actionable wrong – Causation – Regulatory protections – Old Mutual liable.
Living Hands (Pty) Ltd NO v Old Mutual Unit Trust Managers [2022] 42728-2010 (GJ) at [89]-[184]

The Trust was created for the widows and orphans of deceased mine workers and bread winners. About 80 % of trust assets held on behalf of beneficiaries of deceased members of the Mine Workers Provident Fund, amounting to R860 million, was dissipated. This happened after Fidentia, led by the infamous Mr Arthur Brown, acquired the Trust administration company. Fidentia engineered the appointment of one of its employees as its nominee and trustee of the Trust. This employee appointed Fidentia Asset Management (FAM) as its investment manager. FAM called up the entire investment portfolio held with Old Mutual Unit Trust Managers Limited (OMUT) belonging to the Trust. R1,1 billion was paid over and came under FAM’s control. After investigation by the Financial Services Board only R272 million was recovered. The plaintiffs, in their capacity as trustees of the Trust, instituted the action to recover damages from OMUT in the amount of R861 million.

Siwendu J discusses the history of the Trust; the contractual relationship with OMUT; the claim based on omission for pure economic loss; the allegation that OMUT knew the nature of the funds and that its decisions could impact severely on beneficiaries who were vulnerable dependents of deceased mine workers; breach of statutory duties; that OMUT should have taken steps before transferring the funds; the contention that OMUT ought to have reasonably foreseen that a material risk existed that the Trust had come under the control of individuals who may not act in the best interests of the Trust beneficiaries; and the evidence that Fidentia’s strategy and business model was to remove the funds from OMUT.

The court deals with OMUTS defences of (1) absence of liability and an actionable wrong under trust laws; (2) lawful and reasonable conduct; (3) absence of an actionable wrong or wrongfulness; and (4) a lack of causation and limitations of claims for pure economic loss.

The defendant is liable to pay R854,650,643 (as capital) plus R854,650,643 (as interest at the in duplum level). Interest on the amount of R854,650,643 at the rate of 15,5% per annum calculated from date of judgment.

[182] Both public and legal policy considerations dictate that it would be reasonable to impose liability arising from a pure economic loss of the Trust funds. Imposing liability would be wholly consistent with constitutional norms.

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ACCESS TO DOCUMENTS AND NATURAL JUSTICE

Administrative law – Natural justice – Procedural fairness – Investigation panel – Financial Sector Conduct Authority – Person required to attend interview – Not provided beforehand with documents on which he would be questioned – Inherently unjust procedure – Investigation as well as composition of panel reviewed and set aside –Financial Services Regulation Act 9 of 2017.
Deighton v FSCA [2022] 15703-21 (GP) at [41]-[78]

Price Waterhouse Coopers (PWC) reported on allegations on the manner in which Tongaat Hulett had prepared and presented its financial statements. PWC reported and identified certain matters of concern, also on certain senior executives, including Mr Deighton. It was alleged that he had been engaged in undesirable accounting practices. Hulett reported itself to the Financial Sector Conduct Authority (FSCA) and furnished them with the PWC report. An administrative penalty was imposed, the majority of which was remitted. The FSCA initiated a new investigation into the former executives and an investigation panel was constituted consisting of Mr Pascoe, Ms Pillay and Mr Loxton. Mr Deighton was required to attend an interview in terms of section 136(1) of the Financial Services Regulation Act 9 of 2017. Mr Deighton attended two interviews and now seeks an order reviewing and setting aside the steps taken pursuant to the investigation.

Millar J discusses Mr Deighton’s complaint that he had not been given prior access to the documents relating to the transactions about which he would be questioned; that he was unable to prepare or consider the contents of the documents beforehand and the implications of his responses to questions put to him; that the panel said that he would be permitted to see the documents during the interview; that counsel for Mr Deighton contended that the process offended his right to fair administrative process and was akin to subjecting him to a “Court of the Star Chamber”; that the Act requires persons summoned to an investigation to answer fully and truthfully and that such person may not refuse to answer any question; whether the present application was premature; the effect of any decision of the committee on Mr Deighton; and the repeated use by Mr Loxton of the phrase “game, set and match”.

If a person is to be questioned on specific documents and the law compels him to answer fully and truthfully and to the best of his knowledge then natural justice demands that he be given those documents beforehand to ensure that his responses meet the standard expected of him by law. The failure of the panel to make the documents available beforehand was procedurally unfair.

The investigation is reviewed and set aside and it is ordered that if the FSCA proceeds with a fresh investigation that the Mr Pascoe, Ms Pillay and Mr Loxton are removed and take no further part.

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ABOUT THE EDITOR

Louis Podbielski spent ten years at Juta working on various law reports and has read many thousands of judgments for case selection. He has considerable experience in writing flynotes and headnotes, compiling case annotations, and in refining subject indexes.​ During his four years at LexisNexis he was involved with legal data, analytics and in developing various legal tech solutions. He now runs his own case law service Louis Case Law

You can read his full CV and more about Louis on his LinkedIn profile where he shares interesting and recent cases.

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