Fedbond Participation Mortgage Bond Managers (Pty) Ltd v Investec Employee Benefits Ltd and Others (211/09) [2010] ZASCA 42; [2010] 4 All SA 467 (SCA) (31 March 2010)

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[2010] ZASCA 42
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Fedbond Participation Mortgage Bond Managers (Pty) Ltd v Investec Employee Benefits Ltd and Others (211/09) [2010] ZASCA 42; [2010] 4 All SA 467 (SCA) (31 March 2010)

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THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
JUDGMENT
JUDGMENT
Case No: 211/09
In the
matter between:
FEDBOND PARTICIPATION MORTGAGE BOND
APPELLANT
MANAGERS
(PTY) LTD
v
INVESTEC
EMPLOYEE BENEFITS LTD FIRST RESPONDENT
CAPITAL
ALLIANCE LIFE LTD SECOND
RESPONDENT
CHANNEL LIFE LTD
THIRD RESPONDENT
Neutral citation:
Fedbond
Participation Mortgage Bond Managers v Investec Employee Benefits
(211/2009)
[2010] ZASCA 42
(31 March 2010).
Coram:
Harms
DP, Mthiyane, Mlambo, Cachalia JJA et Saldulker AJA
Heard: 25
February 2010
Delivered: 31
March 2010
Summary:
Contract –
extrinsic evidence inadmissible to contradict written terms –
evidence of terms of alleged common understanding
inconsistent with
written terms. Collective Investment Schemes Control Act –
withholding of consent by manager of a collective
investment scheme –
to be accompanied by reasons – failure to respond to notice of
withdrawal amounts to withholding of consent
without reason – does
not relieve manager of obligations arising from agreement –
relationship between participant and manager
does not exclude
manager’s obligation to make payment to a participant who has
complied with the agreement.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
South
Gauteng High Court, Johannesburg (Malan J sitting as court of first
instance).
The following order is made:
The appeal is dismissed with costs including the costs
consequent upon the employment of two counsel.
________________________________________________________________
JUDGMENT
________________________________________________________________
MLAMBO
JA
Introduction
[1] This appeal with the leave of this court, is against
a judgment and order of the South Gauteng High Court (Malan J). In
terms
of that order the appellant, Fedbond Participation Mortgage
Bond Managers (Pty) Limited (Fedbond), was ordered to pay to the
first
and second respondents certain amounts of money which were
invested with it in terms of the Collective Investment Schemes
Control
Act 45 of 2002 (the CIS Act). The funds were invested in a
collective investment scheme in participation bonds,
1
called the Fedbond Participation Mortgage Scheme (the scheme)
administered by Fedbond. The scheme is the successor in title, in
terms
of the CIS Act, to the Participation Mortgage Bond Scheme,
previously operated by Fedbond in terms of the Participation Bonds
Act
55 of 1981 (the Part Bonds Act) which was repealed by the CIS
Act.
[2] The type of investment we are dealing with was aptly
described by this court in the following terms:
‘
In broad, the Act is
designed,
inter alia
,
to enable financial institutions to offer to investors, many of whom
may wish to invest relatively small amounts of money, an opportunity
of participating with other investors in an investment secured by a
registered mortgage bond over immovable property and yielding
a
competitive rate of interest. Each participant who holds such a
participation in a participation bond becomes a creditor of the
mortgagor to the extent of the participation. The debt so created is
owed by the mortgagor to the participant and not to the nominee
company in whose name the bond is registered and the rights conferred
by the bond are deemed to be held by the participants (s 6(1)).’
2
Background
[3] Before I consider the issues raised in the appeal it
is necessary to traverse the background circumstances of the matter
in some
detail. In July 1997 Fedbond concluded a written agreement
with Fedsure Life Assurance Ltd (Fedlife). In terms of the agreement
Fedlife
undertook to pay funds to Fedbond from time to time and
authorised the latter to invest those funds on its behalf upon the
security
of a particular participation bond
3
or bonds in the scheme. The salient features of the agreement are
briefly that:
3.1 Fedbond was defined as ‘the Manager’
4
and Fedlife as the ‘participant’;
5
3.2 Fedbond Nominees (Property) Ltd (second respondent
in the court a quo) was formed and registered for the purpose of
holding participation
bonds, included in the scheme, in trust as
nominee for or representative of participants in the scheme;
3.3 Fedlife authorised Fedbond to invest on its behalf,
upon the security of a particular participation bond or of any
participation
bonds, such funds as Fedlife could pay to or held by
Fedbond on its behalf with specific instructions directing the
investment of
such funds upon the security of a participation bond or
participation bonds;
3.4 any money received by Fedbond from Fedlife would
remain invested for a period of not less than five years in a
participation bond
or bonds included in the scheme.
[4] Pursuant to the conclusion of the agreement and from
July 1997 to August 2000 Fedlife made 63 payments, totalling
R46 030 000,
to Fedbond for investment in the scheme.
Thereafter and during 2001 Fedlife was acquired by the Investec Group
and its name was,
on 16 October 2001, changed to Investec Employee
Benefits Limited (IEB), the first respondent in this appeal.
[5] In that year and subsequent to the acquisition of
Fedlife, Fedbond sent a letter to Investec Asset Management (Pty) Ltd
(IAM),
IEB’s asset manager, confirming the total amount of the
investment (R46 030 000) in the scheme. In that letter Fedbond set
out
details of each investment, making up the total, as well as the
maturity dates thereof. The letter also stated:
‘
The investment is for a
period of five years and the said proceeds shall not be paid to the
participant before expiry of the five
years. The investments will
only be scheduled for repayment on receipt of the required 3 (three)
months’ written notice. Interest
is paid monthly in advance to the
nominated bank account as per the participant.’
There is also email correspondence from Fedbond to IAM
in which it was clarified that the name change from Fedlife to IEB
did not
affect the maturity dates of the investments.
[6] In July 2006 Deneys Reitz Attorneys, acting on the
instructions of the respondents, gave Fedbond three months’ notice
of the
withdrawal of the total investment from the scheme. In
response, Fedbond questioned the identity of the respondents as being
the
correct investors in the scheme, stating that in its records
Fedlife had made the investments. Fedbond further requested the
attorneys
to provide a basis on which the respondents claimed
ownership of the investments. This response was said to be necessary
in terms
of the Financial Intelligence Centre Act
6
(FICA) which was said to make it obligatory on a manager of a scheme
to have correct identities of its investors. The lawyers in
return
referred Fedbond to Fedlife’s name change in 2001 and also tendered
delivery of any document required for FICA purposes
relevant to IEB.
The letter concluded by stating that the July 2006 letter constituted
formal notification to Fedbond of IEB’s
intention to withdraw the
total investment.
[7] No further communication was received from Fedbond
in this regard until 10 months later, in June 2007, when IEB
requested Fedbond,
in its capacity as manager of the scheme, to note
in its records that amounts of R 35 430 000 and R5 245 000, of its
investment in
the scheme, were transferred to Capital Alliance Life
Ltd (CAL) and to Channel Life Ltd (Channel), the second and third
respondents
herein, in terms of a reinsurance agreement and a sale of
business arrangement, respectively. Fedbond was further requested to
confirm
within seven days that it had noted CAL and Channel’s
investments as well as confirmation that all fees and charges were
paid in
full. Fedbond did not respond to the notification and in
October 2007 Werksmans Attorneys sent a demand to it for payment of
the
amounts of R5 355 000, R35 430 000 and R5 245 000 to
IEB, CAL and Channel respectively. That demand was based on the July
2006 withdrawal notice and June 2007 notification of CAL and
Channel’s investments. When the demand evoked no response from
Fedbond,
proceedings were initiated in the court a quo resulting in
the order referred to at the beginning of this judgment.
[8] The thrust of Fedbond’s opposition before Malan J,
to the relief sought by the respondents, was premised on a defence
disavowing
their entitlement to withdraw the total investment on the
basis of an alleged common understanding amongst members of the
Fedsure
Group which is said to have included Fedllife. Fedbond
persists with that argument in this appeal amongst others.
The common understanding argument
[9] Primarily Fedbond contended that IEB was not
entitled to withdraw the total investment because from 1990 to 2000
there was a common
understanding by members of the Fedsure Group that
Fedlife would continuously invest in Fedbond and that those
investments, would
form part of the long term investment arrangements
between members of the group which would never be called up
simultaneously; that
in the event of the investments being withdrawn,
this would be gradual and individual notices were required in
relation to each investment
at intervals not shorter than those at
which those investments had initially been made. In this regard it
was contended on Fedbond’s
behalf that these terms were
incorporated, tacitly at least, into each investment made by Fedlife
in the scheme.
[10] In considering this argument the relevant
regulatory framework which governs the agreement concluded by the
parties, should also
be considered in addition to the evidence. In
this regard s 58 of the CIS Act provides:
‘
Minimum
investment period
An agreement
in terms of which a manager accepts money for investment in a
collective investment scheme in participation bonds must
provide that
such money is invested in such scheme for a period of not less than
five years.’
[11] Furthermore, the agreement is subject to certain
rules published in the Government Gazette.
7
The material provisions thereof are inter alia:
‘
20. Every participation bond
must provide that the mortgagor must pay interest on the principal
debt secured by such bond to the manager
as agreed upon by the
manager and mortgagor. Such interest, less the manager’s
administration fee and such other fees and charges
as imposed and
determined by the manager from time to time must within 30 days after
the date on which interest payments have been
received from the
mortgagor, be paid by the manager to participants.
22(1) A participant may
transfer, cede or encumber part or the whole of his or her
participatory interest without the consent of the
mortgagor concerned
provided that –
(a) the manager is not obliged
to note such cession, transfer or encumberance unless informed in
writing thereof and such fees and
charges as may be determined by the
manager have been paid by such participant or his or her successor;
(b) such cession, transfer or
encumberance is only enforceable against the manager if the manager
has confirmed in writing that the
cession, transfer or encumberance
has been noted and that the aforementioned fees and charges have been
paid in full; and
(c) the manager may refuse to
note such cession, transfer or encumberance if such participatory
interest is ceded or transferred to,
or encumbered in favour of, more
than one person with the result that the extent of any participatory
interest held by any such person
is less than the minimum investment
determined by the manager from time to time.
(2) A participant may, upon the
expiry of the 5-year period referred to in section 58 of the Act,
withdraw part or the whole of the
funds invested by him or her in a
scheme, if –
(a) the manager has consented to
such withdrawal: Provided that the manager may withhold such consent
subject thereto that the manager
furnishes reasons for withholding
such consent;
(b) the participant has given
the manager written notice, the period of which must be determined by
the manager and disclosed in the
application form, of his or her
intention to withdraw such investment; and
(c) the participant has paid
such fees and charges as the manager may impose.’
[12] Lastly the agreement was also subject to Fedbond’s
terms and conditions, contained in a document issued to investors.
Some
of the material terms are that:
12.1 Fedbond could accept money for investment in the
scheme provided that such money was invested in such scheme for a
period of
not less than five years;
12.2 the Registrar had published rules consistent with
the CIS Act for the administration of a collective investment scheme
in participation
bonds;
12.3 the rules permit transfer, cession or encumberance
by a participant of part or the whole of his participatory interest;
12.4 a participant, by signature to the document agreed
that upon the expiry of the five year period, the participant could
withdraw
his investment subject thereto that it had given Fedbond
three calendar months’ written notice and, in terms of rule 22(2) –
12.4.1 Fedbond had consented to such withdrawal;
12.4.2 the participant had given Fedbond three calendar
months’ written notice; and
12.4.3 the participant had paid such fees and charges as
Fedbond may impose.
The document containing the terms was signed as required
therein.
[13] Counsel for Fedbond argued that IEB was aware of
the common understanding which, he said, was communicated to IAM, in
a letter
from Fedbond dated 2 July 2003. That letter stated inter
alia:
‘
The investments were not
placed as a five year investment but were part of the long term
funding arrangements of Fedsure for Fedbond.’
It is important to state that IAM questioned this
statement, stating that it was not aware that this was so and
requested full details
of the arrangement referred to. No such
details were forthcoming from Fedbond and when IAM persisted in its
request Fedbond stated
that it would not litigate the issue through
correspondence.
[14] Properly viewed Fedbond’s argument in this regard
suggests that the written agreement does not contain all the terms
agreed
by the parties and seeks the admission of facts that add to
the terms thereof. This is referred to as the integration rule in
terms
of which extrinsic evidence of additional terms of a written
agreement not embodied therein is admitted. See
Union
Government v Vianini Ferro-Concrete Pipes (Pty) Ltd
8
where the following was stated:
‘
Now this Court has accepted
the rule that when a contract has been reduced to writing, the
writing is, in general, regarded as the
exclusive memorial of the
transaction and in a suit between the parties no evidence to prove
its terms may be given save the document
or secondary evidence of its
contents, nor may the contents of such document be contradicted,
altered, added to or varied by parol
evidence . . . .’
[15] The terms of the common understanding imply that
the investments were for longer than five years and that there could
be no lump
sum withdrawal. These terms clearly impugn the written
terms which provide for the maturing of the investments after five
years.
I point out further that the CIS Act, the rules and Fedbond’s
terms and conditions, which govern the agreement, all provide for
an
investment period of five years after which the investments mature.
Clearly the terms of the alleged common understanding are
inconsistent with and contradict the clear terms of the written
agreement. They are for that reason inadmissible and unenforceable.
[16] Furthermore, the evidence of the parties’
dealings with each other clearly excludes the possibility of the
parties having come
to an agreement encompassing the terms of the
common understanding. I point out in this regard, and this is not in
dispute, that
when notice was given to Fedbond of the withdrawal of
the total investment, it evoked no response from the latter asserting
the terms
of the common understanding. In my view, and purely as a
matter of logic, receipt of the withdrawal notice should have
impelled Fedbond
to expressly withhold consent to the withdrawal and
to cite the existence of the terms of the common understanding as a
reason. As
we all know the details of the common understanding only
came in the answering affidavit despite being requested by IAM some
three
years before the onset of litigation.
[17] The July 2003 letter is of no assistance to
Fedbond’s argument. Quite apart from the fact that this letter was
not precipitated
by a withdrawal notice, IAM clearly did not accept
that the investments were for a period longer than five years, hence
its insistence
that details of the alleged long term ‘arrangement’
be provided. The evidence we have vindicates IAM’s refusal to
accept that
the investments were not for five years. Such evidence is
in Fedbond’s August 2001 letter to IAM referred to in para 5 above
as
well as Fedbond’s email confirmation also referred to above that
the five year investment period was not effected by the name change.
[18] Incidentally the August 2001 letter and its
contents was not referred to nor corrected in the July 2003 letter.
Importantly,
and as I state above, the latter letter is inconsistent
and contradictory to the clear terms one finds in the agreement,
whilst the
earlier letter confirms these. I am not persuaded by the
explanation in the answering affidavit that the author of the August
2001
letter, Alet Horn (Horn), was a ‘new’ employee who was
unaware of the common understanding. If this was indeed so, one can
justifiably
wonder why Horn, who must have been in charge of the
investment at the time, as is clear from the email correspondence,
was not aware
of such important terms of what was probably a very
large investment.
[19] In my view the existence of the alleged common
understanding was correctly rejected by Malan J. It is clearly an
ill-conceived
attempt to avoid honouring the withdrawal of the
investment.
Withholding of consent in terms of rule 22(2)(a).
[20] The other basis advanced for disputing the
respondents’ entitlement to withdraw their investments is that
Fedbond had not consented
thereto within the contemplation of rule
22(2)(a). As is apparent from the rule, referred to in para 11 above,
the manager of a collective
investment scheme may not unreasonably
withhold its consent to a withdrawal but it must provide a reason(s)
if it does so. As we
know, Fedbond neither gave nor withheld consent
when the requisite notice was given to it. It simply did nothing. It
cannot be argued
that Fedbond’s letter questioning the identity of
the respondents as being the correct investors, on receipt of the
withdrawal
notice, was a reason for withholding consent. Neither can
it be argued that Fedbond withheld consent due to non-compliance with
FICA
requirements as the documents relevant in this regard were
properly tendered to it.
[21] Fedbond’s inaction amounts, I surmise, to a
withholding of consent without a reason. For this reason rule
22(2)(a) affords
Fedbond no respite. It simply has no legal basis in
terms of that rule to frustrate the respondents’ legitimate
intention to withdraw
their investments withholding consent without a
reason. Its inaction cannot, in my view, shield it from its
obligations in terms
of the agreement, the rules and its terms and
conditions. This conclusion applies equally to Fedbond’s argument
that it did not
consent to the cession by IEB of portions of its
investment to CAL and Channel. In that regard too Fedbond simply
failed to respond
to the notice requesting it to note the cessions.
Debtor and creditor relationship
[22] Counsel for Fedbond argued finally that the order
issued by the court a quo inclusive of the order for payment of
interest was
incompetent as it presupposed a debtor-creditor
relationship between Fedbond and IEB. Reference was made in this
regard to s 6(1)
of the Part Bonds Act which provides:
‘
Rights of participant – (1)
The debt secured by a participation bond shall to the extent of the
participation granted to any participant
be a debt owing by the
mortgagor to such participant and not to the nominee company, and the
rights conferred by the registration
of any such bond shall,
notwithstanding the registration of the bond in the name of the
nominee company, be deemed to be held by
the participants.’
Counsel argued that the relationship encapsulated in
that provision, which was not altered by the repeal of the Part Bonds
Act, between
a manager of a scheme and a participant was not that of
a debtor and creditor. It was further argued, relying on the judgment
of
this court in
Syfrets Participation Bond
Managers Ltd v Commissioner, South African Revenue Service
9
that a participant can only claim repayment of its investment in a
scheme from the mortgagor, and not from the manager. This argument
is
also reliant on the provisions of rules 15
10
and 16
11
which provides for the procedure when a participant seeks to claim
its investment from a mortgagor in a scheme.
[23] I am of the view that the relationship created when
an investment is made in such a scheme is tripartite in nature.
Whilst the
respondents, as investors, are in fact creditors
vis
a vis
the mortgagor(s), Fedbond remains in
the picture as the administrator of the investment scheme. Whilst it
is further correct conceptually
that Fedbond as manager of the scheme
does not become a debtor to a participant, the agreement between them
provides for certain
obligations by either. The agreement encompasses
a relationship between Fedbond and the respondents in terms of which
once they have
complied with the agreement and the rules in terms of
notice and payment of the relevant fees and charges, Fedbond as
manager must
honour the withdrawal notice, unless it contends that
the funds are not available which will kick-start the process
envisaged in
rule 15 and 16. Those rules essentially provide for the
procedure to be followed by a participant regarding the enforcements
of its
injusts against a defaulting mortgagor.
[24] In this regard when one takes into account the
agreement signed between the parties that investments were placed for
five years,
it must follow that once a participant gives notice to
the manager to withdraw any portion of its investment on maturity
thereof,
the manager must honour the withdrawal notice. It can avoid
honouring the requested withdrawal if for instance it cannot effect
the
withdrawal in view of the fact that the funds have not yet been
received from the mortgager. This is not the case asserted here by
Fedbond. The simple fact of the matter is that Fedbond has not
asserted that it cannot pay and in terms of the agreement it must
pay. The order of the court a quo was clearly correct including its
order for the payment of interest. Clearly IEB as investor relies
on
the agreement and the terms thereof to say that on maturity of its
investment it can withdraw it and that is what it did in this
matter.
I also point out that my conclusion does not detract from that in
Syfrets
, which in the
main restated the general principles of the relationship. In any
event the circumstances of our case bear no relation
to those in
Syfrets
. Lastly, on
this point, it is necessary to also point out that this case has
nothing to do with the situation envisaged in rules
15 and 16.
Clearly the order granted by Malan J was competent in all respects.
[25] In the final analysis I conclude that the
respondents were perfectly within their rights to withdraw their
investment at the
expiry of five years. At that time the investments
had matured in terms of the written agreement. The argument that
individual notices
of withdrawal were required is misconceived.
Nowhere in the agreement, the rules and terms and conditions does one
find such a limitation.
In the circumstances the appeal must fail.
[26] The following order is granted:
The appeal is dismissed with costs including the costs
consequent upon the employment of two counsel.
_______________
D MLAMBO
JUDGE OF APPEAL
HARMS DP (Mthiyane and Cachalia JJA and Saldulker AJA
concurring):
[27] I have read the judgment of Mlambo JA, and while I
agree with his conclusion, I prefer to formulate my reasons somewhat
differently.
[28] Malan J, in the high court, granted judgment in
favour of the first respondent, Investec Employee Benefits Ltd
(‘Investec’),
and the second respondent, Capital Alliance Life
Ltd for, respectively R10 696 122.57 and R35 333 877.43. The reason
for the split
award is that Investec, which was previously known as
Fedsure Life Assurance Ltd, had ceded part of its claim (which
consisted of
a number of discrete claims) to Capital. Much time was
wasted in the court below on the validity of the cession but the
issue was
not argued in this court because it would have made no
difference to the outcome of the case: the appellant, Fedbond
Participation
Mortgage Bond Managers (Pty) Ltd (‘Fedbond’) is
either liable for the whole amount or it is not. I shall,
accordingly, not refer
to Capital any further. The third respondent,
Channel Life Ltd, played no role in the appeal and will be ignored.
[29] In addition to the costs order, Malan J ordered
payment of interest at the statutory rate. The correctness of this
order relates
to the nature of Fedbond’s alleged liability,
something to which I shall return during the course of the judgment.
[30] Fedbond is a manager of a participation bond
scheme. Investec invested during the period 1 July 1997 and 13 August
2000 the sum
of R 46 030 000 with Fedbond in terms of the
Participation Bonds Act 55 of 1981. The investment consisted of a
number of tranches,
significantly 13 on 27 May 1998, 12 on 26
September 1999 and 17 on 13 August 2005. As manager of a
participation bond scheme, Fedbond
had framed rules that were
approved by the registrar and these rules contained the form of
agreement between a participant (Investec)
and the manager.
[31] The written agreement between Investec and Fedbond
authorised the latter to invest on Investec’s behalf, upon the
security
of a particular participation bond, the amounts invested by
Investec from time to time. It also provided that the monies would
remain
invested for a period of not less than five years. This
accorded with the provisions of the Act which provided that money
invested
upon the security of a participation bond included in a
participation scheme ‘shall remain invested for a period of not
less than
five years’ (s 3(3)(d)). The rules stated that the period
of five years would be calculated from the date on which the funds
were
invested in a participation in the scheme; and that three
months’ notice was required for repayment after the five year
period.
Based on this, Investec’s investments matured between 2002
and 2005, and in spite of the necessary notice, Fedbond refused to
repay
any amounts.
[32] Fedbond’s first defence is based on the so-called
common understanding between the parties which, according to the
argument,
overrode the written agreement and the rules. The gist of
the understanding was that the money could not have been withdrawn
after
five years on three months’ notice. Malan J found that this
understanding was in conflict with the written memorial and could,
therefore, not be proved. I am prepared to go further and hold on the
papers that the evidence of deponent Field, the managing director
of
Fedbond, was contrived. The basis of the understanding (and its main
term) was that Investec’s investment in the participation
bond
scheme would form part of a long-term investment arrangement between
the members of the Fedsure Group which, at the time, included
Fedbond
and Investec (under its old name) to provide long term funding for
the Group. Counsel could not explain the basis of this
‘understanding’ and the consequent tacit agreement or how it
could have existed in the context of a participation bond investment
unless Fedbond had misappropriated the money. Once the foundation of
the understanding collapses, so does the whole structure.
[33] The second defence was based on the ‘rules’ or
regulations issued under the Collective Investment Control Act 45 of
2002.
12
This Act repealed the mentioned 1981 Act. The rules provide that a
participant may, upon the expiry of the 5-year investment period,
withdraw part or whole of the funds invested in a scheme ‘if the
manager has consented to such withdrawal: Provided that the manager
may withhold such consent subject thereto that the manager furnishes
reasons for withholding such consent’ (rule 22(2)(a) – the
other
conditions are of no moment for present purposes). I have some
reservations about whether this rule can apply to an investment
made
under the repealed Act. Section 117(2), which deals with the effect
of the repeal on things done under the repealed Act, does
not appear
to me to affect existing contractual arrangements.
13
In any event, I do not accept that parties to a scheme may not agree
on a fixed or other regime in relation to the term of the investment,
provided the statutory requirement of a minimum of five years is
adhered to. It is not conceivable that if a participant wishes to
invest for a period not exceeding, say, five years and reaches an
agreement with the manager to that effect when the investment is
made
that the manager may, after the five years and after all other
conditions have been fulfilled, withhold his consent – even
with
good reasons – under the rule. The object of the rule is to
regulate those cases where there is no agreement about the term
of
the investment.
[34] Fedbond’s counsel submitted that the
‘understanding’ was the reason why consent was withheld. Assuming
that this ‘reason’
was conveyed when the consent was withheld
(which, on the facts, it was not) the word ‘reason’ in the rule
is not equivalent
to ‘excuse’. A bad reason is no reason. A
reason under the rule must be objectively justifiable.
[35] This brings me to the major point on appeal which,
according to respondents’ counsel, was not argued below and did not
feature
in Malan J’s careful analysis of the facts and law. The
argument was this: because Fedbond was the manager of the scheme and
not
Investec’s debtor, judgment for the capital amount and mora
interest at the prescribed rate could not have been awarded against
Fedbond even if it is assumed that Investec was entitled to call up
its investment.
[36] Fedbond relied in this regard on the following
quotation from
Syfrets
Participation Bond Managers v Commissioner, SARS
:
14
‘
In broad, the Act is designed,
inter
alia
, to enable financial institutions to
offer to investors, many of whom may wish to invest relatively small
amounts of money, an opportunity
of participating with other
investors in an investment secured by a registered mortgage bond over
immovable property and yielding
a competitive rate of interest. Each
participant who holds such a participation in a participation bond
becomes a creditor of the
mortgagor to the extent of the
participation. The debt so created is owed by the mortgagor to the
participant and not to the nominee
company in whose name the bond is
registered and the rights conferred by the bond are deemed to be held
by the participants (s 6(1)).’
[37] The correctness of the quotation is not in doubt.
It does not, however, deal with the full picture. Participation bond
schemes
work as follows: Collective investment schemes are managed by
managers such as Fedbond. Managers are appointed by nominee companies
who act as nominee for or representative of a participant (investor)
in a participation bond. (The nominee company in this case was
a
party in the court below but did not take part in the appeal.) The
nominee company lends money through the agency of a manager,
against
the security of mortgages registered over the immovable property of
borrowers in favour of the nominee company.
[38] The manager is responsible for the operation of the
scheme. A manager may offer and grant participation in bonds under
the scheme
to any person and accept money for investment on the
security of participation bonds. These funds must be kept on deposit
by the
manager in the name of the nominee company on behalf of the
investor.
[39] The manager is the person responsible for
enforcement of the rights against the mortgagors and must do so
through and in the
name of nominee company (rule 14). A participant
may not in his own name take any action to enforce his rights in a
participation
bond (rule 16) but may instruct a manager to do so if,
for instance, the mortgagor has failed to comply with the conditions
of the
bond (rule 15). The rights of a participant are limited to his
pro rata interest in the particular bond, and he has no other right
of recovery against the manager or the nominee company (rule 18).
[40] The problem in this case is something different and
may be illustrated by way of an example. Assume that the participant
and
manager had agreed that the investment would be for ten years
only. The manager, contrary to the terms of the agreement, lends the
money on a mortgage bond for a period of twenty years. After the
lapse of the ten years the participant gives due notice of withdrawal
of the investment. The manager is unable to call up the bond because
the mortgagor is not in default and, for the same reason, the
participant cannot instruct the manager to call up the bond. The
participant has also no claim against money held by the nominee
company. Is the participant without remedy? According to Fedbond’s
argument the investor has to carry this risk because it (Fedbond)
is
not the debtor of the participant. This means that the participant
has no remedy against anyone and that the manager would be
entitled
to ignore investment agreements and keep the money of a participant
bound up in a bond for whatever period it pleases the
manager.
[41] I believe that it is an over-simplification to say
that the manager does not stand in any debtor-creditor relationship
with a
participant. The manager undertakes by necessary implication
to manage and structure the portfolio in such a manner that the bonds
in which a particular participant has an interest may be called up
whenever the participant is entitled to call up his investment.
This
obligation has nothing to do with the relationship between the
manager, the mortgagor and the participant. It is an obligation
of
the manager towards the participant and it follows that there is in
this regard a debtor-creditor relationship between them. The
manager
is in other words obliged to pay a participant who, under rule 22, is
entitled to payment. If the dedicated funds are not
in the account of
the nominee company the manager has to pay the money it has agreed to
pay. And if it fails to do so it is also
liable for statutory mora
interest which is something different and distinct from the bond
interest.
[42] I do not understand Fedbond’s dilemma and
delaying tactics. On its own version Investec could have called up
the investments
since July 2002, and that the last call could have
been made in August 2005. All that was required, it said, was that
the aggregate
amount could not have been withdrawn on the same date
and that the intervals between withdrawals could not have been
shorter than
between investments. Nearly five years later, and
nothing has been paid or offered.
[43] For these reasons I agree with the order proposed
by Mlambo JA.
_____________
L T C HARMS
DEPUTY PRESIDENT
APPEARANCES
APPELLANTS: J J Bret SC (with him E Kromhout)
Instructed by Oosthuizen Du Toit Berg & Boon,
Johannesburg
Van Der Merwe & Sorour, Bloemfontein
RESPONDENTS: D M Fine SC (with him M M Antonie)
Instructed by Werksmans Inc, Johannesburg
Naudes Inc, Bloemfontein
1
Section 52(1):
‘[A] scheme
of which the portfolio, subject to the provisions of this Act,
consists mainly of assets in the form of participation
bonds, and in
pursuance of which members of the public are invited or permitted to
acquire a participatory interest in all the
participation bonds
included in the scheme.’
2
Syfrets Participation Bond Managers v
Commissioner, SARS
[2000] ZASCA 80
;
2001 (2) SA 359
at
363G-H. Though the court there was dealing with the Part Bonds Act,
this description remains true in terms of the CIS Act.
3
Section 52(1) ‘Participation Bond’ means –
‘a mortgage bond over immovable property –
(a) which is described
as a participation bond and is registered as such in the name of a
nominee company and is included in a
collective investment scheme in
participation bonds; and
(b) which is a first
mortgage bond or which ranks equally with another first
participation bond and has the same mortgagor.’
4
Section 1: ‘A manager means
a person
who is authorised in terms of this Act to administer a collective
investment scheme.’
5
Section 52(1): ‘A participant
means a person who holds a
participatory interest in all the participation bonds included in a
collective investment scheme in participation
bonds.’
6
Act 38 of 2001.
7
GN
577
in
GG
24984 of 28 February 2003.
8
1941 AD 43
at 47. See also
Johnston v
Leal
1980 (3) SA 927
(A) at 944B-D: ‘Furthermore, in my view,
an instructive and relevant analogy is provided by cases of what is
termed a "partial
integration". Where a written contract
is not intended by the parties to be the exclusive memorial of the
whole of their agreement
but merely to record portion of the agreed
transaction, leaving the remainder as an oral agreement, then the
integration rule merely
prevents the admission of extrinsic evidence
to contradict or vary the written portion; it does not preclude
proof of the additional
or supplemental oral agreement.’;
Capital
Building Society v De Jager & others
;
De Jager & another v Capital
Building Society
1963 (3) SA 381
(T)
at 382B-C;
Rielly v Seligson and Clare
Ltd
1977 (1) SA 626
(A) at 628D-E;
National Board (Pretoria) (Pty) Ltd v
Estate Swanepoel
1975 (3) SA 16
(A) at
26A-C.
9
(
Supra) at 366A-B.
10
Rights of participants: Recovery of debts – Despite rule 14 a
participant may in respect of a participation bond instruct the
manager to take all the necessary steps through and in the name of
the nominee company to recover from the mortgagor such portion
of
the principal debt as is necessary to repay in full the
participatory interest of such participant in such bond: Provided
that
a participant may only so instruct the manager if – (a) the
mortgagor has failed to comply with the conditions of the bond; or
(b) subject to the terms and conditions of the bond, the
participants in the scheme (excluding the manager) in which such
participation
bond is included, who hold a majority in value of the
participatory interests in such scheme, have instructed the manager
in writing
to recover from the mortgagor such portion of the
principal debt as is necessary to repay in full the participatory
interests of
all such participants.
11
Rights of participants: Legal proceedings – A participant may not
take any action, legal or otherwise, in his or her own name
to
enforce the rights held by such participant in any participation
bond included in a scheme.
12
Rules for the Administration of a Collective Investment Scheme in
Participation Bonds GN 577, GG 24984, 28 February 2003.
13
Compare
Adampol (Pty) Ltd v Administrator Transvaal
1989 (3)
SA 800
(A) at 811D-812I.
14
[2000] ZASCA 80
;
2001 (2) SA 359
at 363G-H.