Old Mutual says it will file an application to appeal against the judgment by the South Gauteng High Court ordering Old Mutual Unit Trust Managers (Omut) to pay more than R1.7 billion in damages, plus costs, for losses suffered by the Living Hands Umbrella Trust in relation to the Fidentia scandal.
The court ordered Omut to pay the plaintiffs R854 650 643 in capital, plus R854 650 643 in interest at the in duplum level, plus interest at 15% a year calculated from the date of the judgment. It must also pay the costs of the legal action, including the costs of three counsel and those incurred in having witnesses testify.
Living Hands accused Omut of handing over R1.1bn to the Fidentia-controlled Mantadia Asset Trust Company (Matco) when Omut had reason to believe that the trust had come under the control of individuals who might not act in the best interests of the beneficiaries.
Matco, which later became Living Hands Umbrella Trust, managed the trust funds of about 50 000 beneficiaries, the vast majority of whom were minors. Matco was sold to Fidentia for R93 million in 2004.
The trust funds qualified as social security funds
In her judgment handed down on 12 July, Judge Thina Siwendu wrote she had “no hesitation in concluding that the trust funds qualified as social security funds and were understood as such by all the parties, including Omut”.
Judge Siwendu said public and legal policy considerations dictate that it would be reasonable to impose liability arising from a pure economic loss of the trust funds. The economic loss suffered did not arise from the expected exigencies of market forces and operations.
“On the facts of this case, there is nothing extraordinary about the recognition and imposition of liability as has been contended. The provisions are clearly intended to protect the trust funds, and therefore are measures to protect the end beneficiaries, albeit indirectly. The imposition does no more than give effect to the regulatory protections intended.”
Accordingly, there were good reasons to recognise and impose liability.
“Our law sufficiently provides for liability for wrongfulness in such instances. While I do not decline the relief to develop common law, I am of the view that there is already a sufficient basis to hold Omut liable,” Judge Siwendu said.
Old Mutual confident it followed due process
In a statement, Old Mutual said it believed its actions were in accordance with regulations, and Old Mutual was confident it followed due process.
“Quite apart from Old Mutual, the direct cause of the loss and pain suffered was the fraudulent actions of Fidentia well after Old Mutual had transferred funds following a formal client instruction to do so. In the circumstances and following our verification of the authenticity of the transfer of ownership, we were legally obligated and had no other option but to transfer the money,” Old Mutual said.
“We are of the view that there are reasonable prospects that another court would come to a different conclusion.
“We are also concerned about the precedent which the High Court sets for the rest of the financial services industry as it relates to managing funds on behalf of trustees. This is an additional compelling reason for Old Mutual to seek leave to appeal against the High Court judgment. It is important to note that the facts of the case are not in dispute.
“We understand the need for someone to be held accountable, but we are resolute that Old Mutual is not liable for the damages being claimed.”