The recovery of dissipated trust assets (De Rebus)

In the Living Hands (Pty) Ltd and Others v Old Mutual Trust Managers Ltd 2023 (1) SA 164 (GJ) case, an attempt was made by Living Hands to recover the losses it suffered when fraudster J Arthur Brown, having gained control of Living Hands’ forerunner Mantadia Asset Trust Co (Matco), looted R 861 million of the R 1,2 billion it had administer on behalf of 52 000 widows and orphans of mineworkers who had died in service. Living Hands accused Old Mutual of allowing Fidentia to access the funds without performing any due diligence or exercising proper precautions.

In what appeared to be a premeditated strategy to gain access to the funds, Fidentia in October 2004 bought Matco for R 93 million and replaced its directors with Fidentia directors (Brown and his colleagues). A Fidentia-controlled entity, Fidentia Asset Management (Pty) Ltd (FAM), was then appointed as Matco’s ‘investment manager’, with full discretionary powers to deal with the Matco portfolio. As a sort of test run for what was to follow, FAM on 15 October 2004 instructed Old Mutual to pay R 150 million from the Matco portfolio into FAM’s bank account. Old Mutual refused on various grounds. But a few days later Old Mutual received and complied with an instruction by FAM to immediately liquidate Matco’s entire portfolio. The upshot was that Old Mutual had by early November 2004 paid the entire R 1,2 billion into Matco’s bank account. Old Mutual argued throughout that the service level agreement it had concluded with Matco had obliged it to implement Matco’s instructions.

Living Hands instituted an action in delict in the GJ against Old Mutual to recover the R 861 million plus interest from Old Mutual. The judge ruled that there were sufficient grounds to hold Old Mutual liable. She pointed out that the sheer size of the portfolio, the material risks and the detrimental consequences were foreseeable and would have been foreseen by a prudent manager, and that Living Hands had thus established factual and legal causation. In addition, public and legal policy considerations dictated that liability for the loss of the funds should be imposed on Old Mutual. She accordingly ordered Old Mutual to pay R 854 650 643 plus R 854 650 643 in interest at the in duplum level. Old Mutual indicated that it intended to appeal the judgment.