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REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(SOUTH GAUTENG, JOHANNESBURG)

CASE NO: 42728/2012

DATE:11/09/2012

In the matter between:

LIVING HANDS (PTY) LIMITED N.O..................................................................................First Plaintiff

WILHEMINA JACOBA LUBBE-PRELLER N.O..............................................................Second Plaintiff

and

PETER DITZ.....................................................................................................................First Defendant

JEOFREY LLEWELYN GOVER...................................................................................Second Defendant

IVANKA ATCHESON....................................................................................................Third Defendant

DONOVAN GUTHRIE...................................................................................................Fourth Defendant

HARDY MILEHAM.........................................................................................................Fifth Defendant

JOHNTY GIBBS............................................................................................................Sixth Defendant

DANISA BALOYI...........................................................................................................Seventh Defendant

STEINWAY TRUSTEES (PTY) LIMITED N.O......................................................... ..Eighth Defendant

HARDY MILEHAM N.O …..........................................................................................Ninth Defendant

IVANKA ATCHESON N.O.........................................................................................Tenth Defendant

PACIFIC STAR TRADING (PTY) LIMITED..............................................................Eleventh Defendant

JEOFREY LLEWELYN GOVER N.O.......................................................................Twelfth Defendant

INVESTEC BANK LIMITED …................................................................................Thirteenth Defendant

JOSEPH ARTHUR WALTER BROWN................................................................. Fourteenth Defendant

ANDREW HERBERT TUCKER.............................................................................Fifteenth Defendant

HJALMAR MULDER................................................................................................Sixteenth Defendant

PHILIPPUS JOHANNES MALAN..........................................................................Seventeenth Defendant

JOHANNES DE JONGH..........................................................................................Eighteenth Defendant

OLD MUTUAL UNIT TRUST MANAGERS LIMITED............................................Nineteenth Defendant

J U D G M E N T

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 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.’

[2] I undertook to furnish the reasons later. Here are the reasons. The plaintiffs issued summons on 22 October 2010 against all nineteen 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 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, 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, 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 Company (Pty) Ltd (Matco), was initially the sole trustee of a Trust (now known as Living Hands Umbrella Trust). For the sake of convenience, I refer to the first 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 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 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.

[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’s Property Control Act. He resigned in October 2004, after which the seventeenth 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 Matco from 19 October 2004. Brown (the eighth defendant) was also at all relevant times a director of Fidentia Holdings Limited (Fidentia), as well 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 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 it had sufficient funds to pay the purchase price, within 3 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 fulfill this 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 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 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 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 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 is 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) 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 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 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 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, 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 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 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, is a summary of the factual

[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 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 even of an exception¹.

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

(d) An excipient who alleges that a summons does not disclose a cause of action must establish that, upon any construction of the particulars of claim, no cause of action is disclosed.³

(e) An over-technical approach should be avoided because it destroys the usefulness of the exception procedure, which is to weed out cases without legal merit.⁴

(f) Pleadings must be read as a whole and an exception cannot be taken to a paragraph or a part of a pleading that is not self-contained.⁵

(g) Minor blemishes and unradical embarrassments caused by a pleading can and should be cured by further particulars.⁶

Wrongfulness

[16] The exception by Investec raises places wrongfulness in issue. In Telematrix, above, Harms JA (as he then was) restated the general approach in determining wrongfulness, namely that wrongfulness exists where public policy considerations demand that in the circumstances the plaintiff has to be compensated for the loss caused by the negligent act or omission of the defendant.⁷ The enquiry must be made whether contemporary social and legal policy calls for the law to be extended to the exigencies of the particular case: AB Ventures v Siemens⁸.

[17] A Court must be apprised of all the factors and circumstances relevant to the enquiry. Although public policy considerations can in some instances be decided without a detailed factual matrix⁹, if this cannot be done, the issue of wrongfulness cannot be decided on exception.¹⁰ In this present matter, as was the case in Telematrix, the plaintiff’s amended particulars of claim contains a full exposition of the events surrounding the loss of the funds, as a result of which, the case does not have to be decided on bare allegations only, but on allegations supported by a full complement of annexures. I therefore conclude that it is appropriate in the circumstances to consider the exception on the factual matrix before me.

The case against Investec

[18] The gravamen of the plaintiffs’ case against Investec is the alleged duty of care and a fiduciary duty on the part of Investec to ensure that the directors appointed to the board of Matco would not act to the detriment of the trust beneficiaries. That is contained in paragraph 63 of the plaintiff’s amended particulars of claim, which is framed as follows:

‘63. The eighth to thirteenth defendants owed the first plaintiff and the trust beneficiaries a duty of care and fiduciary duty:

63.1 to satisfy themselves and/or to ensure that the directors appointed to the board of the first plaintiff would maintain, control and exercise their duty of care and fiduciary duty to the first plaintiff and the Trust beneficiaries in the manners as set out in paragraph 62.1 to 62.8;

63.2 to satisfy themselves and/or not to transfer their shareholding to such entity or entities and in such a manner as would cause the control of th first plaintiff to be exercised other than in accordance with the duty of care and fiduciary duty applicable to directors of the first plaintiff referred to in paragraphs 62.1 to 62.8 above;

63.3 to satisfy themselves and/or to ensure that in the event of the shareholding being transferred to a third party, that such third party would ensure that the directors of the first plaintiff appointed by to the third party, would act in the manner as set out in paragraph 62.1 to 62.8.’

[19] It is further alleged that Investec breached its fiduciary duty and duty of care alleged above, in its capacity as shareholder of Matco, by not preventing the conclusion and implementation of the sale of shares agreement, it being contended that at that time, Investec ‘knew that the first plaintiff had granted FAM a mandate containing an unfettered discretion to invest and manage the trust funds’. It is further alleged that the ‘new mandate’ (i) was materially at variance with the mandate in existence between the first plaintiff and Old Mutual; (ii) exposed the funds and the Trust beneficiaries to a material risk of misappropriation and/or depletion; (iii) was materially at variance with the express intention and object of the Trust Deed; (iv) was inappropriate and inconsistent with the nature of the investment and the provisions of the Trust Deed, the purpose of the investment and the interest of the Trust beneficiaries.

Investec’s exception

[20] In its exception, paragraph 18 Investec responds as follows to the plaintiffs’ allegations:

‘The plaintiff say Investec was a shareholder in the first plaintiff until 19 October 2004 (paragraph 18) and in that capacity owed the first plaintiff and the beneficiaries of the trust the duties of case and fiduciary duties described in paragraph 63 read with paragraph 62.

‘18. Paragraph 63 is bad in law in the following respects:

18.1 A shareholder does not in law owe the alleged duties to its company. The facts upon which the plaintiffs rely in any event did not in law give rise to alleged duties.

18.2 A shareholder does not in law owe the alleged duties to the beneficiaries of the trust of which its company is the trustee. The facts upon which the plaintiffs rely in any event did not in law give rise to the alleged duties.

18.3 Even if Investec owed the alleged duties to the first plaintiff and the beneficiaries of the Trust, the duties did not in law extend to a duty protect the first plaintiff or the beneficiaries against losses of the kind they suffered in case, which were caused by the first plaintiff and others after Investec had ceased to be a shareholder.

18.4 Even if Investec owed the alleged duties to the beneficiaries, its breach of those duties could not in law render Investec liable to the first plaintiff for its loss.

19. Paragraph 63 is also vague and embarrassing because Investec is unable to determine how it was meant to discharge its alleged duties.’

[21] The dispute between the plaintiffs and Investec raises the question: what duties do shareholders owe to the companies in which they hold shares? In our jurisprudence and common law jurisdictions such as England, Australia and New Zealand, it is settled that a shareholder owes no fiduciary duty to the company in which he is a shareholder, and has no duty of care to the company in his capacity as such. See Kuwait Asia Bank E.C v National Mutual Life Nominees Ltd¹¹ where the position was neatly summed up as follows:

‘With regard to the alleged cause of action based on negligence, the law does not recognize any duty or care owed by shareholders of a company to creditors of the company, or to other third parties with whom the company may have dealings. This is a consequence of the fundamental principle that a company is a legal entity separate and distinct from its shareholders. The courts in England have refused to recognize any such duty. . .(T)he idea that shareholders owe any such has also not found favour with those directly concerned with law reform in the United Kingdom or in New Zealand.’

[22] As such, this point admits of no debate. In both written and oral submissions Mr. Epstein SC, counsel for the plaintiffs, correctly disavowed any reliance for Investec’s liability, on the duty of care and fiduciary duty of Investec qua shareholder. Instead, counsel submitted that the plaintiffs’ claim against Investec derives from specific circumstances that prevailed over the relevant period. He emphasised that the plaintiffs did not suggest that a shareholder generally as a matter of principle owes a duty to a company. Counsel contended, however that, the fact that a shareholder ordinarily does not owe a duty as a consequence of owning shares does not imply that a shareholder is immune from liability under any circumstances.

[23] Counsel urged me to consider the conduct of Investec in implementing the sale of shares agreement. In paras [8] and [9] above, it would be recalled, I mentioned how Investec implemented the sale of shares agreement without satisfying itself that Fidentia had complied with the terms of the agreement with regard to its ability to pay the purchase price of R93 million for the shares. In this regard, it was contended in the particulars of claim that Investec (and other defendants) acted recklessly in relation to the affairs of the Trust and the Trust beneficiaries in allowing the disposal of the control of the funds to Fidentia.

[24] Indeed, Mr. Epstein argued that Investec performed under the agreement under circumstances where (i) it was not yet required to do so because the suspensive condition had not been fulfilled nor waived; (ii) moreover, Investec only had to comply with its obligations in terms of clause 7 of the sale of shares agreement against payment of the purchase price, which had not been made; (iii) it had knowledge of the nature of the Funds; (iv) it did so with knowledge of the intentions of Fidentia; (v) it knew that performance under the agreement would hand over the Funds to potential thieves; and (vi) had it refused to do so, as it could and should have, Fidentia would on the probabilities not have been able to pay the purchase price and therefore would not have been able to obtain control of, and dissipate the Funds.

[25] Assuming the correctness of these suppositions, it must be borne in mind that negligent causation of pure economic loss is not regarded as prima facie wrongful. Its wrongfulness depended on the existence of a legal duty. The imposition of this legal duty is a matter of judicial determination involving criteria of public or legal policy (see Administrateur, Natal v Trust Bank van Afrika Bpk¹²; Bayer South Africa (Pty) Ltd v Frost¹³; Knop v Johannesburg City Council¹⁴; Sea Harvest Corporation (Pty) Ltd and Another v Duncan Dock Cold Storage (Pty) Ltd and Another¹⁵; Minister of Safety and Security v Van Duivenboden¹⁶; Gouda Boerdery BK v Transnet¹⁷; Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA¹⁸; Trustees, Two Oceans Aquarium Trust v Kantey & Templeter (Pty) Ltd¹⁹; Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd²⁰; and PQR Boberg The Law of Delict vol 1 at 30-4).

[26] The present case was, so submitted Mr. Epstein, one in which liability should be extended. This should be so because public policy considerations demand that in the circumstances sketched in the particulars of claim, Investec has to compensate the plaintiffs, as Investec was in a position to easily prevent the alleged theft of the funds. Counsel argued, with analogy to Minister of Police v Ewels²¹ and certain social security legislation, that public policy demands that vulnerable persons should be protected against conduct previously considered acceptable.

[27] With these submissions, counsel in effect invited me to extend the delictual liability of the shareholders, in the specific circumstances of the present case. Where, as here, it is sought to extend the established rules or standards in respect of liability to factual situations, our law adopts a conservative approach to the extension of remedies under the lex Aquilia (see Union Government v Ocean Accident and Guarantee Corporation Ltd²²; and Liillicrap, Wassenaar and Partners v Pilkington Bros (SA) (Pty)²³. In the Ocean Accident case, the principle of elasticity in applying the lex Aquilia was recognised. In considering the extension of remedies under the lex Aquilia, the first question to be answered is whether there is a need for the extension of the existing remedies: Lillicrap at 500E-F. Faced with that question in the Minister of Law and Order v Kadir²⁴, the court referred with approval to an article titled ‘Policy Considerations in the Law of Delict’ by Annèl van Aswegen²⁵, where it is suggested that such a need will only be recognised where there is:

‘...(an) obvious dissonance between the law as applied hitherto and present circumstances and attitudes. Only very glaring disjunctions between the law and social reality will be addressed by Judges in this manner...’

[28] In determining in a given case whether the defendant’s conduct which resulted in foreseen or foreseeable economic loss was unlawful or wrongful, the question is always whether it would in all circumstances be reasonable to recognise that the defendant owed the plaintiff a duty of care. Put differently, the question is whether the reasonable man in the defendant’s position would in all circumstances have recognised that he owed the plaintiff a duty of care. Certain guidelines have been laid down by our courts in this regard (see for example Coronation Brick (Pty) Ltd v Strachan Construction Co (Pty) Ltd²⁶) where the following was stated:

‘A defendant’s conduct, including an omission, is regarded as unlawful when the circumstances of the case are of such a nature that it not only incites moral indignation but also that the legal convictions of the community demand that it ought to be regarded as unlawful and that the damage suffered by the plaintiff ought to be made good by the plaintiff. In determining whether conduct is of such a nature as to be determined unlawful, the court must carefully balance and evaluate the interests of the concerned parties, the relationship of the parties and the social consequences of the imposition of liability in that particular type of situation.’

[29] In the Kadir case it was restated that conclusions as to the existence of a legal duty in cases for which there is no precedent, as here, entail policy decisions and value judgments. Put differently, the crucial question is whether there are any considerations of public or legal policy which require that extension. What is required is that, not merely the interests of the parties inter se, but also the conflicting interests of the community, be carefully weighed and that a balance be struck in accordance with what the court conceives to be society’s notion of what justice demands.

[30] The nature of the enquiry dictates that it will generally not be helpful in a particular case to look at what has been decided in other cases of an altogether different kind. Each case should therefore be dealt with on its own merits. See, for example, the approach adopted in Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd²⁷. In AB Ventures Ltd v Siemens, above, para 10 the following was stated:

‘Where the case is not one that fits within the social and legal policy that has led to liability being recognised in other cases, then what is called for instead is reflection upon what considerations there might be that necessitate the law also being advanced to meet the new case. That calls not for a mere intuitive reaction to the facts of the particular case, but for the balancing of identifiable norms.’

[31] Mr. Van der Linde SC, counsel for Investec, argued that the specific circumstances which would give rise to Investec’s liability, and relied on by Mr. Epstein have not been pleaded. What has been pleaded, so was counsel’s submission, a duty of general application imposed on shareholders. Counsel submitted that the duty which is contemplated by the plaintiff and on which it would rely to base a cause of action is one which would give rise to an indeterminate liability for shareholders generally and for Investec specifically. With reference to Viv’s Tippers v Pha Phama Staff Services²⁸, he contended for circumspection in extending the scope of liability for pure economic loss because of the possibility of unlimited liability.

[32] In considering whether the facts pleaded are sufficient to support the existence of a legal duty owed to the plaintiff, it must be borne in mind that it is for the defendant to satisfy the court that the conclusion of law for which the plaintiff contends cannot be supported upon every interpretation which the particulars of claim can reasonably bear (see Lewis v Oneanate (Pty) and Another²⁹ and Kadir, above at 318D-E).

[33] It must be assumed that the facts alleged by the plaintiffs in support of the alleged legal duty represent the high-water mark of the factual basis on which the court, if the exception is not upheld and the matter goes to trial, will be required to decide the question. Therefore, if those facts do not prima facie support the legal duty contended for, there is no reason why the exception should not succeed (see Indac Electronics (Pty) Ltd v Volkskas Bank Ltd³⁰). In the present case, the high water-mark of the plaintiffs’ case against Investec is that Investec knew that of the vulnerable nature of the funds and that it was likely that the funds would be dissipated and/or misappropriated once they landed in ‘wrong hands’.

[34] Mr. Epstein placed heavy reliance on Peterson and Another NNO v Absa Bank³¹, to buttress his argument for extension of delictual liability in the present case. In that case, financial institutions belonging to the so-called Oviation group had opened accounts with the respondent bank (ABSA), and then deposited into them large sums of money consisting of funds administered on behalf of investors. The funds in question were juggled from one account to another and ultimately misappropriated. The financial institutions were placed under curatorship. The curators sought to recover the losses on behalf of the investors from ABSA via a delictual claim based on dereliction of duty to adequately monitor and manage the accounts in question. ABSA excepted to the curators’ particulars of claim on the basis that they failed to disclose wrongfulness. The court concluded that a prima facie duty existed obliging the bank to report suspicious financial transactions, and to properly manage and monitor the accounts, which should have alerted the bank and prompted it to act. The court therefore found the bank was under a duty to prevent the investors’ losses.

[35] In my view Peterson is distinguishable from the present case in one important respect, and it is the following: key to the court’s finding, was that ABSA had breached its statutory duties under the Financial Intelligence Centre Act 38 of 2001 (FICA) (see para 45 of the judgment). In the present case, there is no statutory duty alleged to be owed by Investec to the trust beneficiaries. In any event, the duty that the court had to determine in Peterson, although novel, was not entirely without jurisprudential foundation. The legal duty of a bank not to act negligently, thereby causing pure economic loss, was recognized two decades ago in Indac Electronics, above. The situation is different in the present case, where I am asked to break new jurisprudential ground.

[36] Mr. Epstein emphasised that the role played by Investec (and other shareholders) in disposing their shares to Fidentia, (which led to the eventual dissipation of the funds to the detriment of the poor and vulnerable) would evoke moral indignation. I agree. But moral indignation on its own is not sufficient to found wrongfulness. See Minister van Polisie v Ewels above at 597A-B where it was emphasised that a legal duty arises when the circumstances are such, not only that the omission evokes moral indignation, but also that the legal convictions of the community demand that it be regarded as wrongful and that the loss should be compensated by the person who failed to act positively. In the present case, the fact that the poor and vulnerable have been left in such a perilous position, would certainly evoke moral indignation, but it is doubtful that the legal conviction of the community would demand that Investec be visited with liability on the case pleaded in the amended particulars of claim. The case resuscitates the ever-present tension between morality and law. In this regard I can do no better than quote Hefer JA in the Kadir case above, at 319J-320A:

‘...(I)n gauging the depth of popular disapproval of any particular omission, one should constantly bear in mind that the old-age problem of the distinction between morally reprehensible and legally actionable omissions is a lasting one which has not been solved by the mere recognition of societal attitudes and public policy as determinants of the existence of a legal duty to prevent economic loss to others.’

[37] Apart from my principled view that the extension of Aquilian liability is not warranted in the present case, I agree with Mr. Van der Linde that the case argued on behalf of the plaintiff has not been pleaded. The duties sought to be imposed on Investec, as part of the selling shareholders, are couched in general terms against Investec qua shareholder. Apart from stating what Investec knew about the funds, there is nothing in the amended particulars of claim to suggest that the duties are sought pertinently to meet the specific circumstances of this case.

[38] My reading of the plaintiff’s amended particulars is that the plaintiffs seek to attribute obligations to Investec in its capacity as a minority shareholder selling its shares, which is an act of a shareholder, and not of the company. The duties sought to be imposed on Investec (and other shareholders) are too widely stated. It is not, for example, alleged that the position of the shareholders vis-a-vis the beneficiary funds, created a special relationship between the shareholders and the trust beneficiaries from which a duty of care could be inferred. In the result I conclude that no sufficient nexus between Investec’s conduct and the dissipation of the beneficiary funds has been alleged to persuade me that there are considerations of policy to justify the extension of the Aquilian liability so as to cover the facts of the present case (at least as presently pleaded).

[39] Should liability be extended on the amended particulars of claim as presently framed, this would have major and far-reaching consequences for company law in general and the duties of shareholders in particular. The risk of indeterminate liability for shareholders generally is real. Mr. Van der Linde pointed out that the duties contended for by the plaintiffs on Investec would apply across all companies - including publicly listed companies – imposing an obligation on any shareholder looking to sell his shares to ensure that the incoming shareholders was ‘responsible’ and would appoint ‘responsible’ directors. I agree.

[40] For all of the reasons stated above, I decline to extend, generally, the liability of Investec qua shareholder (as pleaded). Such an extension ‘would involve such a radical departure from the conservative approach established in the Ocean Accident case’ (as remarked in Shell & BP SA and Others v Osborne Panama SA³²). I would also be embarking on ‘over-zealous judicial reform’ against which the Constitutional Court has cautioned in Carmichele v Minister of Safety and Security and Another³³.

The alternative claim against Investec

[41] The alternative claim against Investec is based on the condictio furtiva. For this delictual action to succeed the plaintiffs have to plead and prove that Investec participated in the theft. In Crots v Pretorius ³⁴ it was stated that the plaintiffs need to show that ‘the defendant deliberately shut his eyes to the real and glaring possibility that he was facilitating the theft …, reconciling himself to the risk and took it.’ In this regard, the facts of the case should be borne in mind. Even if Investec had known that Fidentia did not have the necessary capital to pay for the shares, and that it had sought the transfer of R150 million from Old Mutual to pay the purchase price, can it be said that at that stage there was a ‘glaring possibility’ of theft? I do not think so. Once again, this should be considered against the fact that Investec was a shareholder. Fact is, at that stage, Fidentia had signed a valid sale of shares agreement, though the suspensive condition had not been fulfilled. It sought to accelerate performance at a point it was not yet entitled to do so.

[42] That, to my mind, would not have led to a reasonable suspicion on the part of Investec that the Fidentia Group was on a theft crusade. One should be careful not to be unduly influenced by an ex post facto reflection. I am therefore unable to agree that at the time of the sale of shares agreement, there was a ‘glaring possibility’ of theft of the funds by the Fidentia Group. It follows then that Investec could not have facilitated the theft, if any, by the Fidentia Group.

The case against Old Mutual

[43] I turn now to the plaintiffs’ case against Old Mutual, which stands on a different footing, in the sense that there is no issue regarding the existence, in principle, of the legal duty owed to the Matco and the trust beneficiaries. According to the plaintiffs’ amended particulars of claim, those duties arise by virtue of the contractual relationship arising from the two investment agreements Old Mutual agreements and the relevant legislation.

[44] The case against Old Mutual is set out in paragraphs 72- 72C of the amended particulars of claim as follows:

‘72. Old Mutual, knowing that the Fund would be placed under the administration of FAM, caused the Funds to be paid to the first plaintiff during the period from 26 October 2004 to 8 November 2004 without insisting on the 90 days notice period

required by clause 23 of “POC6”.

72A As at 26 October 2004 Old Mutual knew that:

72A.1 “POC18” was not written for and/or on behalf of the first plaintiff;

72A.2 FAM did not have the authority of the first plaintiff to address “POC18” to Old Mutual;

72A.3 “POC18” constituted a fraudulent attempt by FAM, represented inter alia by De Jongh, to misappropriate R150 Million of the Funds;

72A.4 as at 15 October 2004 FAM had not been appointed as investment manager to the first plaintiff and the Trust with effect from 14 October 2004;

72A.5 De Jongh did not as at 15 October 2004 have authority to deal with the investment portfolio as he fit in his capacity as representative of FAM, and accordingly that “POC19" was inaccurate, and/or fraudulent, and/or not written by the first plaintiff, but was created in an attempt to misappropriate the said amount of R150 million; and

72A.6 the contents of “POC22” was without a factual basis and contained falsehoods and material inaccuracies and demands which were inconsistent with the terms of the first and second Old Mutual agreements and the Trust Deed, alternatively ought to have suspected through the exercise of reasonable care and diligence that “POC22” was not a lawful instruction from a recognised fund administrator addressed to it in the normal course of business.

72B Alternatively to 72A.1 to 72A.5 Old Mutual ought to have known, alternatively ought to have reasonable suspected that “poc18” and “POC19” constituted a fraudulent attempt on the part of FAM, as represented by inter alia De Jongh, in his capacity as director of FAM, to misappropriate R150 million of the Funds.

72C Old Mutual, knowing that an attempt had been made by FAM and/or De Jongh, Tucker, Linde and Malan to fraudulent misappropriate part of the Funds, ought not to have released the Funds such as it did between the period from 26 October 2004 to 8 November 2004 or at all to FAM or the first plaintiff or any entity in which FAM or Fidentia Holdings and/or De Jongh, Tucker, Linde and Malan had a material direct or indirect interest or appeared to have a material direct or indirect interest or appeared to have a material direct or indirect interest.’

Old Mutual’s exception

[45] Initially Old Mutual had raised six grounds of exception. Two of those were not pursued, following amendments by the plaintiffs rectifying the complaints raised in those grounds. Accordingly, only the remaining four grounds fall to be considered, namely (i) causation; (ii) the role of legislation; (iii) liability ensues from a contractual relationship in cases of pure economic loss; and (iv) prescription. I deal with those grounds, in turn.

Causation

[46] Old Mutual contends that the actual cause of the loss was the maladministration and misappropriation of the trust funds by FAM, which in turn resulted from the transfer of the funds by Matco to FAM (which, as the investment manager appointed by Matco, had a full discretionary mandate). Old Mutual therefore asserts that it was the failure of Matco’s to comply with its fiduciary obligations to the Trust and to monitor the activities of the investment manager it appointed, that resulted in the dissipation of the funds, and not any of its conduct. Its transfer of the funds was pursuant to a demand by the investment manager (FAM) which Matco had confirmed to it had a full discretionary mandate. It was an initial step, which did not by itself occasion any loss. Had it not been for the grossly remiss conduct of Matco, and the fraud and recklessness of FAM, the funds would have been secure.

[47] In short, Old Mutual’s argument is that it was not the cause of the funds having been dissipated, and thus been lost to the beneficiaries. Put differently, it is Old Mutual’s case that the pleaded allegations are not sufficient to satisfy the legal causation requirement; in other words, the loss claimed by the plaintiffs was too remote. It is contended that, even if it breached the duties contended for, its actions or omissions did not cause the loss, but that the loss was caused by the conduct of others namely FAM as the investment manager of Matco.

[48] Causation represents a dual problem on different levels of enquiry. The issue was authoritatively enunciated in the leading case of Minister of Police v Skosana³⁵

‘Causation in the law of delict gives rise to two rather distinct problems. The first is a factual one and relates to the question whether the negligent act or omission in question caused or materially contributed to … the harm giving rise to the claim. If it did not, then no legal liability can arise and cadit quaestio. If it did, then the second problem becomes relevant, viz whether the negligent act or omission is linked to the harm sufficient closely or directly for legal liability to ensue or whether, as it is said, the harm is too remote. This basically a juridical problem in which considerations of legal policy may play a part.’

(See also Siman & Co (Pty) Ltd v Barclays National Bank³⁶; Tuck Commissioner for Inland Revenue³⁷ and Silver v Premier, Gauteng Provincial Government³⁸)

[49] In International Shipping Co. (Pty) Ltd v Bentley³⁹ Corbett CJ restated the general principles of causation as follows:

“As has previously been pointed out by this Court, in the law of delict causation involves two distinct enquiries. The first is a factual one and relates to the question as to whether the defendant’s wrongful act was a cause of the plaintiff’s loss. This has been referred to as “factual causation’. The enquiry as to factual causation is generally conducted by applying the so-called ‘but-for’ test, which is designed to determine whether a postulated cause can be identified as a causa sine qua non of the loss in question. In order to apply this test one must make a hypothetical enquiry as to what probably would have happened but for the wrongful conduct of the defendant. This enquiry may involve the mental elimination of the wrongful conduct and the substitution of a hypothetical course of lawful conduct and the posing of the question as to whether upon such an hypothesis plaintiff’s loss would have ensured or not. If it would in any event have ensued, then the wrongful conduct was not a cause of the plaintiff’s loss; aliter, if it would not so have ensued. If the wrongful act is shown in this was not to be a causa sine qua non of the loss suffered, then no legal liability can arise. On the other hand, demonstration that the wrongful act was a causa sine qua non of the loss does not necessarily result in legal liability. The second enquiry then arises, viz whether the wrongful act is linked sufficiently closed or directly to the loss for legal liability to ensure or whether, as it is said, the loss it too remote.’’

[50] In Fleming The Law of Torts, 7ed, the learned author summarized the enquiry into causation as follows:

‘The second problem involves the question of whether, or to what extent, the defendant should have to answer for the consequences which his conduct has actually helped to produce. As a matter of practical politics, some limitation must be placed upon legal responsibility, because the consequences of an act theoretically stretch into infinity. There must be a reasonable connection between the harm threatened and the harm done. This enquiry, unlike the first, presents a much larger area of choice in which legal policy and accepted value judgments must be the final arbiter of what balance to strike between the claim to full reparation for the loss suffered by an innocent victim of another’s culpable conduct and the excessive burden that would be imposed on human activity if a wrongdoer were held to answer for all the consequences of his default.

(See also Smit v Abrahams⁴⁰)

[51] What has to be considered is a conspectus of factors relevant to the legal causation enquiry, such as foreseeability, proximity, direct consequences, fairness etc) See Fourway Haulage, above, paras 30-35a; and mCubed International (Pty) Ltd v Singer NNO.

[52] Applying those principles to the present case, I do not share Old Mutual’s view, which seeks to concentrate only on what occurred after the funds were transferred. To my mind, what happened before then is also important. In this regard, I take into account the following that Old Mutual was aware, not only of the delicate and vulnerable nature of the funds, but also of its fiduciary duty in relation to those funds.

[53] It should be recalled that FAM, had already attempted by 15 October 2004 to have R150 million transferred to its account. The very tenor of Matco’s letter of 15 October 2005, where it was stated that FAM had the sole discretion to deal with the funds as it deemed fit, clearly alerted Old Mutual, in light of the nature of the funds, to be more circumspect. It was, and its response bears this out. Old Mutual clearly recognized its duties towards Matco, as it insisted on proof of proper authorization for it to accede to FAM’s demand, and informed Matco of the attempt by FAM to have access to the funds. Old Mutual’s response is important, and bears full quotation:

‘1. We were approached by three gentlemen, Steve de Kock, Johan de Jongh and Johan Linde from Fidentia Asset Management (Pty) Limited (“Fidentia”) who handed us a letter suggesting Fidentia’s appointment as portfolio manager.

2. We were not fully satisfied with the validity, scope and intended impact of the letter based on the following reasons:

(a) the manner in which the letter was signed, created uncertainty was we were not informed of management changes in the company – it was also not dated;

(b) we feel that the instructions were vague and unclear and open to possible interpretation; and

(c) coupled to this the letter was addressed to Fidentia (a “unknown” third party) and not to OMUT.

(d) when contacted this morning on the potential repurchase you were also not able to confirm such repurchase.

3. We were also present with am “instruction” from Fidentia instructing us to liquidate R150 million and transfer to their bank account. Please note that no mention is made of the specific fund from which the withdrawal should be affected.

4. In our discussion with the gentlemen we pointed out that client is Matco and we therefore have a fiduciary duty to act in their best interest that any instructions are based on proper authority confirmed by our client alternatively a valid instruction from Matco as our client.

5. We furthermore advised the gentlemen that we would contact yourself to inform you of our requirements which are as follows:

(i) OMUT will only act on an instruction form Matco, signed by one of the authorized signatories alternatively based on clear confirmation addressed to us from the client, confirming the proper appointment of a third party;

(ii) the proceeds of the repurchase will only be paid into the account as stipulated in the agreement;

(iii) in terms of clause 6.4 of the SLA the client shall give OMUT 5 days notice should the value of the repurchase exceed 3% of the overall unit trust fund portfolio. At this stage we have to reserve the right to rely on such clause but will have to take instructions to determine the likely impact of such big repurchase on the portfolio as a whole; and

(iv) the instruction must reach the OMUT by 14h30 on the relevant day.

6. During our telephone conversation you confirmed that you were satisfied that OMUT was acting in your best interest and that, “Matco and Fidentia were in the process of negotiating a deal”.

7. After our telephone conversation with yourself we met with the gentlemen from Fidentia once again and advised them that we had discussed the matter with you telephonically and explained to them that we were waiting on a written instruction /confirmation from yourself and would only act once we receive a valid instruction /confirmation and the proceeds would only be paid into the account as already stipulated and not to any third party.

[54] Old Mutual’s attitude persisted on 20 October 2004, when, in response to another letter from Matco dated 19 October 2004 calling up the entire Matco investment trust portfolio, Old Mutual insisted on confirmation of FAM’s authority from the beneficial owner, the Matco Trust. Furthermore, on 29 October 2004 it demanded certain documentation in terms of FICA, from both Matco and Matco Trust. On 2 November 2004, as a follow-up, Old Mutual wrote to Matco, again demanding certain documentation. Paragraphs 4 and 5 of the letter encapsulate Old Mutual’s recognition of its statutory duties:

4. Should we not be in possession of the required documentation by the time stipulated above we will have no choice but to suspend all further repurchases and payments to you until such time that our request has been fully complied with.

5. We are obliged as an accountable institution to request the necessary documentation from all our clients to promote compliance with FICA.’

[55] Despite these legitimate and valid concerns it itself had raised, Old Mutual eventually paid the funds over to FAM without satisfying itself that the funds would be dealt with in terms of the Trust Deed by the Fidentia Group. Old Mutual contends that the nature and extent of the intervening causes (what Old Mutual calls ‘the true causes’ of the loss) were such as to preclude Old Mutual’s conduct ever being regarded as a factual cause of the loss. But this completely misses the point of the complaint by the plaintiffs. The plaintiffs do not rely on the concept of novus actus interveniens, which would have been applicable had it been the plaintiffs’ case that Old Mutual’s conduct had caused the loss, but that subsequent event would have caused the loss in any event, removing Old Mutual’s liability. That is not the plaintiffs’ case. The plaintiffs contend that Old Mutual’s conduct allowed the situation whereby the funds were lost – it facilitated such conduct, which could not have been prevented had it had not acted in the manner complained of by the plaintiffs.

[56] Old Mutual’s contention that the loss was, in any event, occasioned by others, ignores fact that damages may be caused by more than one wrongdoer, who need not act in concert, but whose individual acts and omissions may contribute to the same loss.

[57] That Old Mutual owed a duty to the Trust not to allow the dissipation of the funds cannot be seriously disputed. In my view, that entailed a duty not to allow Fidentia Group to gain access to the funds, especially with the knowledge of the circumstances that prevailed during the relevant period. The manner, and the indecent haste with which FAM attempted to have access to the funds, made the dissipation of funds a reasonable foreseeability. For that reason I conclude that the plaintiff’s particulars of claim contain sufficient averments necessary to found a cause of action such that the trial court might find Old Mutual to have been factually and legally partly the cause of the loss, jointly with others. Accordingly this ground of exception is not upheld.

Duty to prevent loss in terms of legislation

[58] The plaintiffs allege in their amended particulars of claim that the loss suffered was contemplated by legislation. The legislation referred to is the Financial Institutions (Protection of Funds) Act 28 of 2001; Financial Advisory and Intermediary Services Act 37 of 2002; General Code of Conduct for Authorised Financial Services Providers and Representatives published in terms of FAIS; Collective Investment Schemes Control Act 45 of 2002; Financial Intelligence Centre Act 38 of 2001; Trust Property Control Act 57 of 1988.

[59] Old Mutual’s contention in this regard is that the statutes relied on by the plaintiffs do not contemplate that a financial institution in the position of Old Mutual being held liable for any losses caused by the conduct of the new investment adviser. Old Mutual, in this particular instance, was not merely a vehicle through which the funds were invested. The very fact of Old Mutual’s initial stance when the investment portfolio was called up, fortifies my view that it was conscious of its potential liability if it did not act with the necessary prudence. I draw an analogy with the situation in the Petersen case, above. The plaintiffs are not concerned with a mere situation where a financial institution returns funds upon the withdrawal of its mandate. Mr. Epstein correctly pointed out that the real complaint is that Old Mutual, as financial institution, handed over the Funds without further ado, under circumstances where, in terms of the various obligations imposed upon it by the legislation referred to, it was obliged to not hand over the Funds to persons who would place the Funds at unacceptable risk. I therefore do not find any merit in this argument.

Contractual relationship does not give rise to liability for pure economic loss

[60] According to the plaintiffs, the written investment agreements concluded on 7 May 2002 and 15 September 2004 respectively, between Matco and Old Mutual created a contractual relationship between the parties as a result of the legislation referred to above. This is the basis of Old Mutual’s third ground of exception. Mr. Fagan SC, counsel for Old Mutual, argued with reference to the well-known principle established in Lillicrap, above, that breach of contractual duty is not per se a wrongful act for purposes of Aquilian liability. In that case, the appellant, a firm of consulting and structural engineers, undertook to perform professional services in connection with the planning and construction of a glass plant for the respondent. The respondent was not satisfied with the manner in which the appellant performed its duties, and sought damages it allegedly suffered as a result of the appellant’s professional negligence. The Appellate Division held that, having regard to policy considerations, it would be undesirable to extend the Aquilian action to the duties subsisting between the parties to a contract of professional service like the one in issue in that case.

[61] Mr. Fagan contended that Lillicrap was a hurdle that the plaintiffs had to overcome. But Lillicrap is no authority for the more general proposition that an action cannot be brought in delict if a contractual claim is competent. Grosskopff AJA was at pains to emphasise (at 496D-I) that our law acknowledges a concurrence of actions where the same facts can give rise to a claim for damages in delict and in contract, and permits the plaintiff in such a case to elect which he wishes to pursue (see Holtzhausen v Absa Bank Ltd⁴¹).

[62] So all what Lillicrap determined was that that no claim is maintainable in delict when the negligence relied on consists solely in the breach of the contract. Where the claim exists independently of the contract (but would not exist, but for the existence of the contract), a delictual claim for economic loss is competent. The learned Judge pertinently stated that the mere fact that respondent might have framed his action in contract therefore does not per se debar him from claiming in delict. All that he need show is that the facts pleaded establish a cause of action in delict. That the relevant facts may have been pleaded in a different manner so as to raise a claim for contractual damages is, in principle, irrelevant. (See also Bayer South Africa (Pty) Ltd v Frost⁴²; and Viv’s Tippers above, para 7)

[63] This should take care of Old Mutual’s contention in this regard. In any event, it is clear from the judgment in Lillicrap that the thrust was on damages arising from a voluntary contract entered into by the two parties, who would be free to regulate those features which they consider important for the purpose of the relationship they were creating. In the present case one is concerned with obligations which the plaintiffs allege were imposed ex lege, independent of the parties’ wishes. This does not mean that the duties contended for arise from the contract, but merely that the contract triggers the application of the legislation which imposed the duties.

[64] Finally on this point, it was contended by Mr. Fagan that Old Mutual had not acted wrongfully by accepting the termination of its investment mandate by its principal or its agent. Old Mutual would, so was the argument, have been acting unlawfully had it held on to the trust investment portfolio after having its mandate summarily terminated (and having checked that this was indeed so). A short answer to this submission is clause 23.1 of the investment agreement concluded on 15 September 2004, which provides for the agreement to be terminated on the giving to the other party 90 (ninety) days written notice of intention to terminate. Old Mutual caused the funds to be paid without insisting on the period required by that clause.

[65] During argument Mr. Fagan sought to overcome this difficulty by suggesting that the instruction to transfer the funds was merely a withdrawal and in principle, the funds could be re-invested. I have two difficulties with this proposition. First, it contradicts counsel’s own contention that Old Mutual was obliged to transfer the funds as its investment mandate had been terminated. Second, it flies in the face of overwhelming evidence in that direction. The letter by Matco (under new directors) dated 19 October 2004 was meant to be a termination of the investment agreements, and nothing else. The tenor of the letter is confrontational, suggesting irregularities on the part of Old Mutual. There was therefore no room for any construction of that letter, but one of termination.

(emphasis added)

Prescription

[66] Old Mutual’s final ground of exception is that, on its face, the plaintiffs’ claim against it has prescribed. As stated earlier, the plaintiffs allege that Old Mutual paid the entire trust investment portfolio over to Matco between 26 October and 8 November 2004, and the funds were depleted while under the custody of FAM between 26 October 2004 and March 2007. Summons was only served on Old Mutual on 25 October 2010. Old Mutual in the circumstances contend that the summons was served on it almost six years later after the loss was alleged to have been suffered.

[67] The immediate question is whether prescription may be raised by way of an exception as opposed to a special plea. Mr. Fagan submitted that in circumstances where the particulars of claim provide no basis at all for a conclusion that the claim had been brought within the prescribed time period (and he submitted this is such a case) it is permissible to except to the particulars on the basis that they have prescribed. In their written submissions, counsel for Old Mutual placed reliance for this submission on a judgment of this court in Sanan v Eskom Holdings Ltd⁴³. In his oral submissions, Mr. Fagan also cited Cassimjee v Cassimjee⁴⁴. In that case prescription was raised by way of exception to two of the defendant’s claims, and the exception was upheld.

[68] I think Sanan’s case should be considered in context. The matter concerned s 35 of the Compesation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA). The section bars any legal proceedings by an employee or his dependent against an employer arising from injuries sustained on duty. So in that context it is quite understandable that the court found it easy to dispose of the issue of prescription, for there could in any event, not be anything in replication that the plaintiff could raise, as his action is barred by statute. It is quite different in the present case where the plaintiff may wish to replicate and plead facts showing that prescription had been interrupted.

[69] Before I leave this subject, I need to make a few remarks about Sanan’s case and its potential effect. In paragraphs [14] – [20] of the judgment, the learned Judge seems to suggest that as a matter of principle, in all cases, a party has a choice to raise the defence of prescription either by a special plea or prescription. If that is what the learned Judge meant to convey, I am in respectful disagreement. That prescription should be raised by way of special plea, is time-honoured and has been followed by our courts for many decades (see for example Holmes v Scholtz⁴⁵; Reubens v Meyers⁴⁶; Shield Insurance Co. Ltd v Zervoudakis⁴⁷; Walsh v Scholtz⁴⁸; Rand Staple Machine Leasing (Pty) Ltd v ICI (SA) Ltd⁴⁹; and Union & SWA Insurance Co. Ltd v Hoosein⁵⁰).

[70] The learned Judge in Sanan’s case referred to none of the above authorities, save for an en passant reference to Union & SWA and Rand Staple, as footnotes to a passage from Herbstein & Van Winsen, which passage the learned Judge critisised. Not having discussed the authorities mentioned above, it is difficult to know how the learned Judge arrived at the conclusion he did. The doctrine of stare decisis does not appear to have been observed by the learned Judge. Dealing with this subject in Van der Walt v Metcash Trading Limited⁵¹, quoting from a passage in Hahlo and Kahn The South African Legal System and Its Background,1968, Moseneke J (as he then was), stated the following:

‘The doctrine of precedent is an incident of the rule of law. Its primary purpose is to advance justice by ensuring certainty of the law, equality and equal treatment and fairness before it. To that end, the doctrine imposes a general obligation on a court to follow legal rulings in previous judicial decisions.’

How does a Judge

[71] The learned Judge in the Sanan’s case was clearly bound by the decisions referred to above - unless he was satisfied that they were all ‘clearly wrong’. How does a court decide that an earlier judgment by which it is otherwise bound is ‘clearly wrong’? In Ex Parte Hansmann⁵² Schreiner J (as he then was) said:

‘But for the purposes of this case it is enough for me to say that where the question of the jurisdiction of a Transvaal Court is concerned I am bound to follow a Transvaal decision in preference to decisions of other provinces, at all events unless I am completely satisfied of the incorrectness of the Transvaal decision or, applying the stronger language …unless it has been arrived at on some manifest oversight or misunderstanding.’

[72] It is not enough for a court to have ‘preferred’ an argument contrary that of subject of a decision in a court of equal jurisdiction (see Wimpey Homes (Pty) Ltd v Joint Liquidators, Glen Anil Development Corporation Ltd (in liquidation)⁵³. In National Chemsearch (SA) (Pty) v Borrowman & Another⁵⁴ Botha J, writing for the Full Court, made the following apposite remarks at 1101B-F:

‘In the field of precedents and stare decisis it is used to be said that a decision otherwise binding could be departed from if a later Court considered it to have been ‘clearly wrong’: nowadays the more usual way of expressing the requirement is that the later Court must be ‘convinced that it was wrong’. The words used in formulating the principle are not important; what matters is the degree of conviction, but the test to be applied is incapable of exact definition. In functioning under a ‘virile living system of law’ a Judge must not be fain-hearted, and when he is morally convinced that justice requires a departure from precedent he will not hesitate to do so; but on the other hand he must guard carefully against being overbold in substituting his own opinion for those of others, lest there be too much chopping and changing and uncertainty in the law. As I see the position, a mere difference of opinion, without more, ought not to justify a departure from precedent.’

[73] The learned Judge in the Sanan’s case was clearly bound by the decisions referred to above. He did not set out a basis to depart from them. In the result, I consider myself to be bound by those authorities. In Holmes v Scholtz above, Cassimjee, the other case which Mr. Fagan relied on, was considered but not followed. Therefore, to the extent Sanan is at odds with the authorities, it is clearly wrong and should not be followed. It follows that Old Mutual’s exception based on prescription should similarly fail.

The application to strike out

[74] Old Mutual has applied in terms of Rule 23 of the Uniform Rules of Court to strike out the contents of various paragraphs in the amended particulars of claim on the grounds that they are scandalous and vexatious. The impugned paragraphs are 67.10, 72A; 72C and 74.62. I deal with them in turn.

(a) Paragraph 67.10

In paragraph 67.10 it is alleged that Old Mutual and the other defendants acted ‘recklessly in relation to the affairs of the Trust and the Trust beneficiaries’ and were ‘conflicted at the time of the sale of shares…’ Old Mutual seeks those allegations to be struck out in so far as they relate to it, on the basis that they are manifestly unfounded.

(b) Paragraph 72A

Here the allegation is that Old Mutual knew that the letters from FAM and Mantadia of 15 and 19 October 2004 were purportedly unauthorised and fraudulent, and contained material falsehoods.

(c) Paragraph 72C

It is asserted that Old Mutual knew as of 26 October 2004 that an attempt had been made by FAM and/or De Jongh, Tucker, Linde and Malan fraudulently to misappropriate part of the Funds

(d) Paragraph 74.6.2

In paragraph 74.6.2 it is stated that Old Mutual knew that a material risk existed that the Funds or a portion thereof could be depleted if redeemed to Mantadia after 19 October 2004.

[75] The basis proffered by Old Mutual to have the allegations struck out is two- fold. Firstly, that they are scandalous, vexatious and untrue, and secondly that it would be prejudiced in the conduct of its defence if the impugned allegations were to remain.

Rule 23(2) reads:

‘Where any pleading contains averments which are scandalous, vexatious or irrelevant, the opposite party may … apply for the striking out of the matter aforesaid, and may set such application down for hearing in terms of paragraph (f) of subrule (5) of rule 6, but the court shall not grant the same unless it is satisfied that the applicant will be prejudiced in the conduct of his claim or defence if it be not granted’

[76] The court clearly has a discretion in this regard, which, of course, should be exercised judiciously. The key consideration is clearly that of prejudice. Matter which is scandalous or vexatious may, in the Court’s discretion, be struck out of a pleading, only if the Court is satisfied that the applicant for the striking out will be prejudiced in the conduct of his defence if not granted (see Swissborough Diamond Mines (Pty) Ltd v Government of the RSA⁵⁵.

[77] I am not persuaded that the impugned allegations are either scandalous or vexatious. In my view, they form an intergral part of the plaintiffs’ claim against Old Mutual that it can hardly be said that they have been included merely for the purpose of abusing or prejudicing Old Mutual. Even if they might be deemed to be scandalous (which I don’t think they are) I deem them necessary or relevant to the issues in dispute. I really do not see how Old Mutual can be prejudiced in the conduct of its defence if the allegations are allowed to stand. That the plaintiffs have not responded to the application to strike out is not decisive. Old Mutual has to make out a case in its application for the plaintiffs to meet. It has not, and the plaintiffs’ silence does not assist Old Mutual. The application has to fail.

[78] To sum up: Investec’s exception should be upheld. Old Mutual’s exception and its application to strike out fall to be dismissed. With regard to costs, Investec has requested costs of three counsel (although only two appeared, the other counsel having co-signed the heads of argument). I think that the importance of the matter to all the parties warranted employment of more than one counsel, considering also the complex nature of the legal issue. Indeed, all the parties employed more than one counsel. Those parties entitled to costs should be allowed costs of more than one counsel. With regard to Investec’s counsel, for the purpose of taxation the Taxing Master would be minded that the third counsel did not argue the application.

[79] For all these reasons I made an order referred to in paragraph [1] above:

_____________________________

TM MAKGOKA

JUDGE OF THE HIGH COURT

DATES OF HEARING : 11 & 12 JUNE 2012

JUDGMENT DELIVERED : 11 SEPTEMBER 2012

FOR THE FIRST EXCEPIENT

(THIRTEENTH DEFENDANT) : ADV W VAN DER LINDE SC (with ADV D TURNER)

(Heads of argument co-signed with ADV D SMIT)

INSTRUCTED BY : SHEPSTONE & WYLIE , DURBAN AND KEITH

SUTCLIFFE & ASSOCIATES, JOHANNESBURG

FOR SECOND EXCEPIENT

(THE NINETEENTH DEFENDANT) : ADV E W FAGAN SC (with ADV PBJ FARLAM)

INSTRUCTED BY : WEBBER WENTZEL, CAPE TOWN AND

JOHANNESBURG

FOR THE RESPONDENTS : ADV H EPSTEIN SC (with ADV P DANIELS SC

(THE PLAINTIFFS) and ADV A BESTER)

INSTRUCTED BY : WERTHEIM BECKER INC, JOHANNESBURG

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