During 2010, The Living Family Trust filed a lawsuit in the Johannesburg High Court against the Old Mutual Unit Trust Managers (OMUT)
The basis of the suit was that Old Mutual was negligent when it transferred funds that it had been managing on its behalf to a newly appointed asset manager (Fidentia Asset Managers).
Old Mutual had on the 10th of November 2002 liquidated all the portfolio it held on behalf of the trust after its investment mandate had been terminated by the trust. The investment mandate was terminated after the trust company had been acquired by The Fidentia Holdings Company, formerly owned by convicted fraudster Arthur Brown. Immediately after acquisition, influenced by The Fidentia Asset Managers, The Living Hands Family Trust recalled its investment with OMUT. Subsequently the funds would be misappropriated by The Fidentia Trust Managers.
The Living Hands Family Trust alleged that OMUT should have foreseen that when it repaid the funds to The Fidentia Trust Managers that the funds would be misappropriated.
It had argued that OMUT was in breach of various statuary obligations mainly (a) Sections 2(1) and 4(4) of the Collective Investment Schemes Control Act (CISCA), which regulate the functions of a manager in administering collective investment schemes, (b) Section 2 of the Protection of Funds Act, which requires financial institutions inter alia to exercise utmost good faith, proper care and diligence, and (c) Section 9 of the Trust Property Control Act, which enjoins trustees to perform their duties and exercise their powers with care, diligence, and skill. The Trust also relied on Sections 27 and 28 of the Constitution of South Africa, which guarantee the right to social security and children’s rights, respectively.
The Living Hands Family Trust lawsuit was doomed from the beginning, they strategically chose to sue Old Mutual instead of the obvious wrongdoers being The Fidentia Asset Managers and Fidentia Holdings because the latter were insolvent and going to be liquidated.
It is often a challenge for victims of monetary loss to recover their embezzled funds because most often the embezzler is bankrupt and has already dissipated the funds. It is because of this reason that The Living Hands Family Trust decided to proceed on a fishing exercise against OMUT in the hope that it would be able to catch Old Mutual on the grounds of negligence or the other. The Living Hands Family Trust knew or should have known that they have a weak case against OMUT.
The case against Old Mutual was flawed in all respects. On an evidentiary basis, The Living Hands Family Trust failed to produce any evidence implicating OMUT during the hearing before Judge Siwendu. None of the witnesses were able to show that the Living Hands Family Trust could have been aware that The Fidentia Asset Managers would have mismanaged the funds, therefore there was simply no evidence to demonstrate that OMUT could have foreseen that, by repaying the funds over to The Living Hands Family Trust, the funds would be misappropriated. OMUT did not even bother to lead witnesses because there was nothing to rebut, it therefore chose to close its case without leading evidence. The court case exceptionally opportunistic.
It was quite surprising that the High Court ruled in favour of The Living Hands Family Trust notwithstanding the weakness of the case.
The legal team of The Living Hands Family Trust argued that OMUT should have conducted due diligence before repaying the funds to The Living Hands Family Trust. They also argued that OMUT had a legal duty of care and skill even after OMUT's investment mandate had been terminated. There is nothing in Sections 2(1) and 4(4) of CISCA, or Sections 2 of the Protection of Funds Act, which extends the duty of utmost good faith passed the termination of an investment mandate.
The Living Hands Family Trust had a clear-cut case against Fidentia Asset Managers and the holding company, unfortunately these companies were bankrupt and would not be able to pay any favourable judgement obtained by The Living Hands Family Trust.
It is also important to note that erstwhile the board of The Living Hands Family Trust was also complicit in the misappropriation of funds and therefore in the exceptionally unlikely event that The living Hands Family Trust had been successful against OMUT, the judgement issued by the court would have apportioned much of the blame of the negligence to to their conducting in the award, thereby minimising the amount of damages awarded.
The case was a dead end from the beginning, The Constitutional Court will throw it out on the papers without the need for a hearing.
JULY 2024
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