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 REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 29652/2017

In the matter between:

TRANSNET SECOND DEFINED BENEFIT FUND                                               Applicant

And

REGIMENTS FUND MANAGERS (PTY) LTD                                             1^st Respondent

REGIMENTS CAPITAL (PTY) LTD                                                             2^nd Respondent

REGIMENTS SECURITIES LTD                                                                 3^rd Respondent

MAGANDHERAN PILLAY                                                                           4^th Respondent

LITHA MVELISO NYHONYHA                                                                    5^th Respondent

JUDGMENT

TSOKA, J

[1] The applicant, Transnet Second Defined Benefit Fund (the Fund), in an action instituted in this Court sues the present respondents and several parties as co-defendants for a number of claims totaling in excess of R230 million excluding interest and legal costs. The claims against the first respondent, Regiments Fund Managers (Pty) Ltd attract interest at prime plus 2 percent compounded monthly in arrears.

[2] The present respondents, Regiments Fund Managers (Pty) Limited (RGM), the first respondent; Regiments Capital (Pty) Limited (Regiments Capital), the second respondent; Regiments Securities Limited (Regiments Securities), the third respondent are controlled by Magandheran Pillay (Pillay), the fourth respondent and Litha Mveliso Nyhonyha (Nyhonyha), the fifth respondent. Regiments Capital owns RGM and Regiment Securities. Where applicable, RGM, Regiments Capital and Regiments Securities will be referred to as Regiments Companies.

[3] On Sunday 11 February 2018, the Sunday Times Newspaper published an article headed “Regrets all round as Regiments’ Gupta association finally forces shutdown”. In the article penned by Asha Speckman, it is reported that Regiments Capital is to close its doors after a period of 14 years of existence. It is further reported that both Pillay and Nyhonyha are to exit Regiments Capital after retrenching staff and having divided and sold off the business in parts. This process having been completed, the article reported, Pillay would move into academia while Nyhonyha would retire. The article goes on further to state that Regiments Capital’s interest in Capitec Bank would be hived off into special purpose vehicle to be listed on the ZAR – X stock exchange where it is hoped an amount of between R50 million and R150 million would be raised. Thereafter Regiments Capital would “exist as a legal entity to pursue the court cases and testify in the State Capture inquiry.”

[4] As the Fund believed that the article evinces that Pillay and Nyhonyha are disposing and dissipating of the assets of the respondents in order to defeat the pending claims, on 27 February 2018 and on urgent basis, it approached this Court for an interim interdict to prevent the respondents in proceeding with the intended dissipation. The interim interdict prayed for would lapse if and when the respondents furnish security to the satisfaction of the Fund.

[5] On 15 March 2018, this Court, Adams J ordered Regiments Capital to immediately provide security in the amount of R430 million by placing in escrow Capitec Bank Holdings Limited (Capitec) shares to the value of R430 million with its attorney, Tiaan Jonker of Sewgoolam Incorporated pending the outcome of this application. In the alternative, Regiments Capital was ordered to provide interim security in the said amount of R430 million in the form of a bank guarantee or some other form to the satisfaction of the Registrar to the Fund. Ostensibly the furnishing of security was to enable the respondents to proceed with the bona fide unbundling if such unbundling was in the normal course of business.

[6] The said security not having been furnished, the Fund on 17 April 2018 persisted in its prayer for interim interdict. This is the application that served before me on that day. The order sought by the Fund is resisted by the respondents.

[7] The order sought by the Fund is what is commonly known as anti-dissipation. In Knox D’arcy Ltd and Others v Jamieson and others[1] the order is aptly described as sui generis in that it is not available to an applicant as an alternative to an order for damages. In Carmel Trading v Commissioner, South African Revenue Service[2] such an order is described as one “which interdicts a respondent from disposing of or dissipating assets… in respect of respondent’s property to which the applicant can lay no special claim. To obtain the order the applicant has to satisfy the court that the respondent is wasting or secreting assets with the intention of defeating the claims of creditors. Importantly, the order does not create a preference for the applicant to the property interdicted.”

[8] For the Fund to succeed in the present matter, it must satisfy two elements, namely, (a) that the respondent is dissipating assets or hiding assets and (b) that there is reason to believe that such dissipation or hiding of assets is taking place mala fide with the intention of defeating the claims of the Fund. In addition, the Fund must satisfy the Court that all the other requirements for the granting of interim interdict have been established. Herein below I deal with the two elements.

 

Are the respondents dissipating of their assets?

[9] The question posed above could only be answered by having regard to the interpretation and the effect of the Sunday Times article on which the present application is premised.

[10] The article was published after the author had interviewed Nyhonyha. The contents and veracity of the article are not disputed by the respondents. From the article, it is evident that Regiments Capital, the second respondent, after having been in existence for 14 years, has commenced with an unbundling process which in 2018 was to be pursued to its conclusion. Staff has been retrenched while the constituent parts of Regiments Capital are to be divided and sold in parts. All other interests it had in other companies, would be sold off and listed on the Johannesburg Stock Exchange under a different name. Regiments Capital would be no more. It will remain in name only, while its founding members Pillay and Nyhonyha would exit into academia and retirement respectively.

[11] According to the article, what prompted Regiments Capital and its constituent parts to embark on its actions, was its relationship with the infamous Gupta-linked Trillian which is linked with the State Capture enquiry which has been established to determine corruption in the SOE’s. The association of Regiments Capital with Trillian resulted in the former being shut out of further business with parastatals thus sounding its death-knell. It would not trade anymore though it would remain listed as a company for the sole purpose of pursuing the pending court cases and testifying in the forthcoming Commission of Enquiry in the State Capture.

[12] The inevitable result of Regiments Capital’s unbundling is therefore that it would be possessed of no assets. It would become a shell. The name Regiments Capital would remain in name solely to pursue pending legal claims and testifying in the State Capture Commission of Enquiry. The ineluctable conclusion is therefore that the respondents are dissipating their assets.

 

Is the disposal or dissipation of the assets with the intention to defeat the claims of the Fund?

[13] On 10 August 2017, the Fund instituted an action against the present respondents and other co-defendants for payment of moneys in excess of R230 million, excluding interest and legal costs. The present action is pending before this court and is defended by the present respondents and the other parties that are not the respondents in this matter. In order to enable the respondents to proceed with the unbundling in the ordinary course of business, the Fund required security for costs for its claims. This Court (Adams J) on 15 March 2018 determined the security to be furnished by the respondents for the claims of the Fund in the amount of R430 million. The security for costs was to be furnished pending the determination of this application. It is therefore not an overestimation that at the finalization of the pending action of the Fund, its claims, if successful, would far exceed the said amount fixed as security for costs.

[14] As at the hearing of this application, no security had been furnished. The disposal and the dissipation of the assets by the respondents are made in the face of the substantial pending claims of the Fund. Should the Fund succeed at the finalization of the action, it would have achieved a pyrrhic victory. Its claim would be rendered nugatory although it would have incurred substantial legal costs.

[15] That the disposal and dissipation of the assets is mala fide could be gathered from the circumstances of this matter. The dissipation is taking place in the face of the pending court action. Although this court fixed security to be furnished to enable the respondents to proceed freely with their bona fide activities, as they allege, the said security for costs has not been furnished. No satisfactory explanation is proffered. That this conduct is mala fide and with the intention to frustrate the Fund’s claims, is obvious. The conclusion reached is that the respondents are indeed disposing and dissipating of their assets mala fide and with the intention to frustrate the Fund’s claims as at the finalization of the pending trial they would possess of no assets.

[16] The order being sought, being for an interim interdict, the Fund must first establish that it has a prima facie claim against the respondents. In Cliff v Electronic Media Network (Pty) Ltd and Another[3], Nicholls J had this to say with regard to prima facie right:

‘The establishment of a prima facie right is the first and most important hurdle an applicant claiming interim interdictory relief must overcome. A pima facie right may be shown even where the facts set out by the respondents show contradictions and inconsistencies in the applicant’s version. A temporary interdict can be granted even if the right is open to some doubt. It is only if there is serious doubt cast on the facts alleged by the applicant that a court must refuse the interim relief.’

[17] In determining whether the Fund has made a prima facie right entitling it to an interim interdict, it is necessary to examine the Fund’s claims against the respondents. Claim A, in the principal action, is a contractual claim against RFM based on misappropriation of R4 015 887.41 from moneys belonging to the Fund. The moneys are administered by RFM under trust in terms of a Portfolio management agreement. RFM claimed R4 015 887.41 as an outperformance fee allegedly due in terms of the said Portfolio management agreement. That the said amount of R4 015 887.41 was taken from the Fund’s account is not in dispute. What is in dispute is whether RFM was in terms of the agreement entitled to the said outperformance fee.

[18] According to the Fund, the respondents were in terms of the said Portfolio management agreement, only entitled to an outperformance fee if the respondents managed to beat the bench mark as at the inception of the agreement. It being common cause that at inception the benchmark was not outperformed, the respondents were therefore not entitled to this fee. Instead of dealing with this assertion, the respondents in their answering affidavits merely state that the issue of R4 015 887.41 is irrelevant to the first claim of the Fund. The misappropriation of this amount is thus unauthorized and unlawful.

[19] With regard to the substantial misappropriation of the amount of R228 983 985 (Claims C and D) which is based on contract and delict, it is the Fund’s contention that this amount was transferred from the Fund’s Designated Account by RFM to Regiments Securities for onward payment to Albatime, the eighth defendant in the pending action, alternatively to Kubentheran Moodley, the thirteenth defendant in the action, and to one or more of the Trillian companies as transaction fees purportedly owed by Transnet.

[20] According to the Fund, in making the payment, RFM breached its contractual obligations in terms of the Portfolio management agreement to act diligently, professionally and honestly when dealing with the assets of the Fund. The payment was unauthorized and thus unlawful. In fact the payment was concealed from the Fund when in truth it was intended to be payment to an entity known as Albatime, one of Trillian Companies. The payment was made contrary to Transnet’s contention that neither Trillian nor Albatime were its advisors in respect of the swap transactions.

[21] Trillian and Albatime were not owed fees with regard to the swap transactions. In any event Albatime could not be owed any fees as it is common cause that it was not a registered financial advisor in terms of the FAIS Act. It must be borne in mind that when one Eric Wood, the erstwhile director of Regiments Capital, left the respondents, he had gone to Trillian which later became Transnet’s advisors. It is not far-fetched to assume that when Eric Wood went to Trillian and became Transnet’s advisor on the swap transactions, he colluded with Regiments Capital by utilizing the Fund’s assets to pay Transnet’s current advisors.

[22] The truth is that the Fund’s assets were unlawfully misappropriated to pay for someone’s obligations which have nothing to do with the Fund. That the misappropriation is unlawful is also obvious. It appears that Eric Wood perpetrated fraud against the Fund to utilize the latter’s assets to pay for liabilities that have nothing to do with the Fund. In fact one Gary Pita, the CFO of Transnet states that the advisor to Transnet in the swap transactions was Regiments Capital, the mandated execution agent. According to him neither Albatime nor any of the Trillian companies were advisors of Transnet. That Albatime and Trillian companies were not Transnet’s advisors is clear from Pita’s evidence.

[23] Faced with the legal hurdle that Albatime could not be a financial advisor, the respondents changed tact. They now contend that the payment to Albatime was meant to be payment to Trillian as the latter was Transnet’s advisor at the inception of the swap transactions. According to the respondents, the payment was made by Wood from the Fund’s moneys. As pointed out earlier the explanation makes no sense as Wood had already left Regiments Capital and Albatime was, to the knowledge of the respondents, an unlicensed financial advisor. In that capacity, it could not be a financial advisor. Transnet’s evidence is that it had no relation with an entity by the name of Albatime. The payment by Regiments Capital to Albatime was neither approved nor authorized by the Fund. The existing Portfolio management agreement was between the Fund and RFM. It does not authorize the latter to utilize the former’s assets to pay liabilities of any other party.

[24] The contention by the respondents as to how the Fund’s moneys were used to pay Albatime is illogical. It makes no sense that Albatime, which was not a financial advisor to Transnet, would issue invoices to Transnet for payment. On what conceivable basis were Albatime’s invoices paid from the Fund’s moneys? If the moneys were paid to Transnet on the insistence of Eric Wood, who was no longer associated with either RFM or Regiments securities, but Trillian, then the Fund’s moneys were utilized to pay Transnet’s advisors with the collusion of RFM and Regiments Services. The payment remains unlawful and unauthorized by the Fund. The Fund is entitled to the refund of the money taken from its account.

[25] Claim H in the principal action is against Pillay, Nyhonya and Regiments Capital. It is for an account and disgorgement of profits derived indirectly from the swap transactions. It is the Fund’s contention that the profits earned from the swap transactions by both Pillay and Nyhonyha are the product of conflict of interest. While Pillay and Nyhonya had interest in Regiments Companies, they purported to conclude the swap transactions as agents of the Fund to the latter’s prejudice to which entity they were expected to display the outmost good faith and to act honestly, with due care and skill. The Fund contends further that both Pillay and Nyhonyha were at all material times aware that Eric Wood when leaving Regiments Capital intended to offer financial services to Transnet. While knowing this fact and that Wood would earn fees from the swap transactions, they asserted a right to claw-back a share of the fees generated from Wood to the detriment of the Fund. This, the Fund contends, displays a lack of good faith contrary to the fiduciary duty they owed to the Fund. The said claw-back was neither disclosed nor authorized by the Portfolio Management Agreement the Fund had with Transnet. In fact the said claw-back was concealed from the Fund.

[26] Claims A to D are quasi-proprietary as the Fund lays no claim to the assets of the respondents. It merely seeks an interim interdict to ensure that injustice is not done to it by reason of leaving the respondents to possess of no assets sufficient to satisfy its claim. See Knox D’arcy at 372E. The conclusion reached is that the Fund has, on the evidence, established a prima facie right entitling it to an interim interdict. It is common cause that, in the instant matter, the Fund has established the other requirements for the granting of an interim interdict. In any event other than the respondents’ contention that the Fund has failed to establish a prima facie right, they did not contend that the other requirements for the granting of an interim interdict have not been established. In any event, it could not be so argued as the evidence supports that all the other requirements for the granting of an interim interdict have been established.

[27] The submission and argument that the Fund received payment from Nedbank Limited and thus suffered no loss with the result that it has not establish a prima facie right entitling it to interim interdict, is conflating the swap transactions involved in this matter.

[28] According to the respondents, the said amount of R228 983 985 was repaid by Transnet to the Fund through additional 20 basis points on the yield payable by the former to the latter. It is the respondents’ contention that the said amount of R228 983 985 is the present value of the swap over their life time. However, none of the relevant swap documents provide for any payments of transaction fees to the Fund.

[29] The evidence reveals that Nedbank Limited has two contracts with Transnet with regard to its own swap transactions dated 18 January and 24 January 2016 respectively. None of these contracts provides for any payment of transaction fees by Nedbank to the Fund. In any event there is no factual basis why the Fund would be liable to swap transaction fees incurred by Transnet with Nedbank Limited to be paid by the Fund.

[30] The unchallenged evidence by the Fund is that the payment made by Nedbank on 11 March 2016 was with regard to collateral payments by the latter in regard to the said collaterals as security for net exposure on unperformed obligations on the swaps.  The contended payment to the Fund is therefore a diversion. The Fund appears to be owed the moneys allegedly misappropriated from its assets. The moneys misappropriated from the Fund have not been repaid. That being the conclusion reached, the latter is entitled to an interim interdict. In any event the undisputed misappropriation of R4 015 887.4, on its own, entitles the Fund to the granting of an interim relief. Justice requires that the interdict be granted to prevent any injustice to the Fund, particularly, as the respondents have failed to furnish security as ordered by this court.

[31] Sight should not be lost that the Fund is a retirement fund. Its assets are in the order of R10 billion. These funds are trust monies in terms of the Protection of Funds Act 28 of 2001. They must be administered as such. Regiments Capital is expected to administer the funds on the basis of utmost good faith with no inkling of neither suspicion of any wrongdoing nor conflict of interest. Any conduct short of good faith, is mala fide and contrary to the nature of the assets entrusted to the respondents by the Fund to be administered on its behalf. The conduct of the respondents in this matter, in particular their reluctance to comply with a valid court order in furnishing security, ineluctably supports the conclusion that the dissipation of the assets is with the view to frustrate the Fund’s claims and to render its victory in the pending action pyrrhic. There being no serious doubt cast on the facts alleged by the Fund, it must be entitled to an interim interdict.

[32] In Pohlman and Others v Van Schalkwyk and Others[4] the court pointed out that a remedy such as sought by the Fund is extraordinary. Being an extraordinary remedy, courts must ensure that the remedy granted is not disproportionate to the order sought. In addition, the order granted should not hamstring the bona fide activities of the respondents. A balancing act is therefore required. While the Fund’s claims should not be rendered nugatory, the respondents’ lawful and bona fide activities should not be unduly restricted. Accordingly, an order that strikes a balance between the two competing interests should be made.

[33] For all the reasons set out above, I conclude that the Fund has made out a case for an anti-dissipation interdict.

[34] The respondents having failed to provide security in the form of escrow shares the following order is made-

34.1 Pending finalization of the principal action the respondents are interdicted and restrained from removing from South Africa or any way encumbering or disposing of, dealing with, diminishing the value of, or foregoing or reducing control over any of the assets of the respondents or from permitting that any third party take any such steps in relation to any such assets, or from otherwise acquiescing in any such steps being taken, whether those assets are held in their own name or are held indirectly through any other entities, or are held by any trusts and whether they are solely or jointly owned or solely or jointly controlled and whether such assets are held on the date of this order or acquired thereafter;

34.2 The order in paragraph 1 above does not prevent the respondents from dealing with or disposing of respondents’ assets in the ordinary course of business; does not prevent any of the respondents from spending amounts on legal expenses that do not exceed R1 million per month in aggregate; does not prevent the fourth and fifth respondents from spending R100 000 per month on their respective living expenses;

34.3 In the event the fourth and fifth respondents intend to spend R100 000 per month in respect of their living expenses, they must inform the Applicant’s attorneys of record in writing the source of such living expenses;

34.4 In the further event that the respondents intend to spend legal expenses that do not exceed R1 million, they must also inform the applicant’s attorneys of record in writing of the source of such legal expense;

34.5 Should the respondents wish to deal with or dispose of assets in the ordinary course of business, they shall inform the Applicant’s attorneys of record in writing of the value, location and full description of all such assets and all of the details in relation to the relevant dealings or disposals;

34.6 Each respondent is directed to, in writing and by an affidavit, inform the applicant’s attorneys of record within fifteen days of the date of this order, of any assets held in their own name or indirectly through other entities and whether such assets are solely or jointly owned, giving the value, location and a full and complete description of all such assets.

34.7 The respondents are ordered to pay the applicant’s costs, including costs of two counsel, jointly and severally.

 

______________________

M TSOKA

JUDGE OF THE HIGH COURT

 

DATE OF HEARING: 17 April 2018

DATE OF JUDGMENT: 20 July 2018

 

Appearances:

Counsel for the applicant: Adv M. Chaskalson (SC)

Adv N. Luthuli

Instructed by: Gildenhuys Malatjie Inc.

Counsel for the respondent: Adv L.J Morison (SC)

Adv N.J Horn

Instructed by: Smit Sewgoolam Incorporated

[1] Knox D’arcy Ltd and Others v Jamieson and Others [1996] ZASCA 58; 1996 (4) SA 348 (AD) p373 D 

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