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[2013] ZAWCHC 142
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Brown and Others v Financial Service Board and Others (679/2007) [2013] ZAWCHC 142 (20 September 2013)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE HIGH
COURT, CAPE TOWN)
CASE NO: 679/2007
In the matter between:
JOSEPH ARTHUR WALTER
BROWN
......................................................
First
Applicant
CARTER & KLOOF
(PTY) LTD
...........................................................
Second
Applicant
MARTIN JAMES VAN
SCHALKWYK
......................................................
Third
Applicant
JAW BROWN FAMILY TRUST
..............................................................
Fourth
Applicant
Z C BROWN FAMILY TRUST
....................................................................
Fifth
Applicant
ANTHERU MANDATED
INVEST
.............................................................
Sixth
Applicant
BROWN BROTHERS HOLDING
.
.......................................................
Seventh
Applicant
and
THE FINANCIAL SERVICES
BOARD
..................................................
First
Respondent
FIDENTIA HOLDINGS
(PTY) LIMITED
...........................................
Second
Respondent
FIDENTIA ASSET
MANAGEMENT (PTY) LTD
...................................
Third
Respondent
BRAMBER ALTERNATIVE
INVESTMENTS (PTY) LTD
..................
Fourth
Respondent
DINES CHANDRA MANILAL
GIHWALA
N.O.
..................
First
Intervening Respondent
GEORGE NICHOLAS
PAPADAKIS
N.O.
.....................
Second
Intervening Respondent
(in their capacities as
the duly appointed Curators
of the Second, Third and
Fourth Respondents)
Heard: 9 September 2013
Delivered: 20 September
2013
JUDGMENT
DAVIS AJ
:
On 27 March 2007 this
Court granted a final order placing the financial services business
of the Second to Fourth Respondents
(“the Fidentia companies”)
under curatorship in terms of section 5 of the Financial
Institutions (Protection of Funds)
Act 28 of 2001 (“the
Financial Institutions Act”) at the instance of the Executive
Officer of the first respondent,
the Financial Services Board
(“FSB”) (“the curatorship order). The curatorship
order was preceded by a provisional
curatorship order granted on 1
February 2007, together with a
rule nisi
calling upon
interested persons to show cause why the order should not be made
final.
The application for the
provisional and final curatorship orders followed an inspection into
the affairs of the third respondent
(“FAM”) and its
associated companies, which had been authorised by the Executive
Officer of the FSB (“The Registrar”)
on 1 June 2006, in
terms of section 3(1) of the Inspection of Financial Institutions
Act 80 of 1998 (“the inspection”
and “the
Inspection Act”).
In terms of the
curatorship order the first and second intervening respondents (“the
curators”) were finally appointed
as curators to the Fidentia
companies and authorised,
inter alia,
to alienate or dispose
of any of the property of the Fidentia companies with a view to
repaying investments made in or entrusted
to FAM by persons or
institutions (“investors”). The curators were also
tasked, in terms of the curatorship order,
with reporting to the
Registrar on a monthly basis and with reporting to the Court on the
status of the curatorship by 16 November
2007. Since that date, the
curators have filed regular reports with this Court, as directed, on
the progress of the curatorship.
On or around 6 February
2012 the applicants launched the present application in terms
whereof they seek orders:
4.1.
setting aside the mandate and instructions issued by the Registrar in
2006 to inspect the affairs of the Fidentia Companies,
together with
all subpoenas issued by the inspectors and all draft and final
reports produced by them pertaining to the Fidentia
Companies (prayer
5 of the notice of motion);
4.2.
setting aside the decision of the FSB to apply to Court to place the
Fidentia companies under curatorship (prayer 6);
4.3.
setting aside the curatorship order (prayer 7);
in
the alternative
4.4.
directing that the Fidentiacompanies be removed from the control of
the curators, the curatorship ended and the Fidentia companies
restored to the status of companies under the sole control of new
directors to be appointed (prayer 8);
4.5.
appointing new directors to the Fidentia Companies in the person of
third applicant, Zacharias Christiaan Brown and Matthew
Paul Machin
(prayer 9);
4.6.
directing that second applicant be appointed to assist with the
administration of “
the
company”
(prayer
10)
;
4.7.
directing that Fidentia investors not
(sic)
be
paid a monthly stipend amounting to R 5 million per month as of
the date of this order and that the capital be reduced accordingly
until such time as the capital claim has been met (prayer 11).
1
The applicants were not
legally represented in bringing the application. The notice of
motion was signed by the first applicant
(“Brown”),
purportedly acting on behalf of second applicant,
“
Per
Carter and Kloof (Pty) Ltd”.
2
The relief sought was
opposed by the FSB, who gave notice of its intention to oppose the
application on 13 February 2012 and delivered
its answering
affidavit on 15 May 2012.The relief sought was also opposed by the
curators, who were not originally cited as respondents
despite their
manifest interest in the relief sought. They were put to the trouble
and expense of having to apply for leave to
intervene in the
application, which leave was ultimately granted in terms of an order
made by agreement between the parties on
25 May 2012. In terms of
that order a timetable was laid down for the filing of answering
affidavits by the curators and replying
affidavits by the
applicants.
Full answering
affidavits were filed by the FSB and the curators dealing with the
allegations made in the founding affidavitdeposed
to by Brown and
supported by the other applicants. Heads of argument were duly filed
by counsel for the FSB and the curators
prior to the hearing of the
application, which was set down for 9 September 2013 in terms of a
notice of set down issued by the
Registrar of the High Court on 11
June 2013.
As appears from an
affidavit of service filed of record, the attorneys representing the
FSB saw to it that a copy of the notice
of set down was served on
Brown, third applicant, Zacharias Brown, Mr Heydenrych on behalf of
the so- called Antheru Mandated
Investors (“Antheru
Investors”)
3
and
the seventh applicant.A number of attempts were made to serve on
second applicant at various business addresses, which were
unsuccessful as second applicant was found to have left the
premises.
When the matter came
before me on 9 September 2013, the applicants had not delivered
replying affidavits, or heads of argument
as required in terms of
court practice. There was no appearance for the second to seventh
applicants at the hearing. I was informed
by one Mr Abraham Nel
(“Nel”) that he was there to request a postponement for
one week on behalf of Brown, who could
not be present as he had an
abscess in his mouth.
I was further informed
by one Mr Woodrow Christian (“Christian”), that he
wished to seek a consolidationof the present
application with an
application broughtby Mr ThembalenkosiShibani (“Shibani”)
and Christian (undercase number 13532/2013)
to have the curators
removed from office and replaced with different curators (“the
removal application”).The papers
in the removal application
were not before me.
Mr Mitchell, who
appeared on behalf of the FSB, and Mr Goldberg, who appeared for the
curators, opposed the oral applications
for postponement and for
consolidation.As regards the postponement, Mr Mitchell handed up
from the bar copies of email correspondence
exchanged between Brown
and Mr Koen of Bisset Boehmke McBlain (“Bissets”)
4
at 07h32 and 09h03 on 9
September 2013, which read as follows:
“
Dear Mr
Koen
I have unfortunately taken ill. I
request that the matter be postponed for a week as to allow me to
recover and be in a position
to argue the matter.”
“
Dear Mr
Brown
You are not the only applicant in
the matter, and our client is not the only respondent. None of the
other parties appear to have
been consulted about your request for a
postponement.
Our client is adamant that the
matter must proceed, and is not prepared to accept your email as
sufficient motivation for a postponement.
Our client will request the
Court to hear the matter.
If you wish to apply for a
postponement you will have to arrange for there to be an appearance
on your behalf, for a proper written
application for a postponement
to be made, for it to be accompanied by at least an affidavit from a
doctor.”
Mr Mitchell addressed me
on the history of the matter and what he referred to as “
repeated
attempts by Brown to hamper and delay matters to the detriment of
the interests of the investors in Fidentia.”
He argued that
it was contrary to the interests of the Fidentia investors to delay
finalisation of the application and that, in
the event the Court saw
fit to grant a postponement, payment of the wasted costs thereby
occasioned should be secured inasmuch
as Brown is an
un-rehabilitated insolvent and a man of straw.
I did not deem it fit,
in the circumstances, to grant a postponement merely on the strength
of an informal request made on behalf
of Brown from the bar. I
therefore stood the matter down until 14h15 and directed that Brown
file a formal application for a
postponement by no later than 12h45,
supported by an affidavit furnishing proof of his illness, failing
which the matter would
proceed on its merits at 14h15. I further
directed that satisfactory security would have to be provided for
payment of any wasted
costs occasioned by the postponement. Mr Koen
informed Brown of the situation in an email transmitted at 11h11,
which read as
follows:
“
Dear Mr
Brown
Mr Nel advised the Court this
morning that he appeared on your behalf.
The judge directed that a written
application for a postponement including sufficient medical proof of
your illness be made by 12h45
at the latest, failing which the matter
will proceed on its merits at 14h15.
The judge also indicated that it
would also be necessary for an indication to be included in any such
application as to how the
wasted costs occasioned by the postponement
would be paid, or secured.
Mr Nel, would not doubt have told
you about this.
The court is court 12.”
As regards Christian’s
informal application for consolidation, Mr Mitchell pointed out that
the relief sought in the removal
application – which aims to
have the curators removed and replaced with different curators –
is contradictory to
the relief claimed in the present application,
which aims to set aside the curatorship
ex tunc
,
alternatively to set aside the curatorship
ex nunc
and place
the Fidentia companies under the control of directors to be
appointed by the Court. Furthermore, I was informed by Mr
Goldberg
that, as in the case of the present application, the removal
application was not served on the curators, who will therefore
require an opportunity to apply for leave to intervene in and oppose
the removal application. The removal application was launched
recently on 20 August 2013. Answering and replying affidavits have
not yet been filed, and the curators have not yet been granted
leave
to intervene. The matter is therefore not ripe for hearing,and will
not be so for some time. The finalisation of this application
would
therefore be unduly delayed by the proposed consolidation.In all the
circumstances I considered that it would not be appropriate
to
consolidate the two applications and I accordingly refused
Christian’s oral request in this regard.
Shortly before 12h30, or
thereabouts, a document signed by Brown and styled “
Notice
of Withdrawal”,
was hand delivered to my chambers. The
notice read as follows:
“
Be
pleased to take notice that the Applicants herewith withdraw their
action
[sic]
,
proposed for hearing today the 9
th
September
2013.”
When the matter resumed
at 14h15, Mr Mitchell handed up a copy of an email sent by Brown to
Mr Koen at 11h55 in response to the
latter’s email of 11h11,
which read as follows:
“
Dear Mr
Koen
Your email under reply refers. I
understand that a group of investors have brought an application to
replace the present curators.
I further understand that the
notice of motion in the application in which I am the applicant is
requesting the cancellation of
the curatorship all together. This was
never my intention, and appears to be a strategy of my attorneys at
the time
. It is undesirable and impossible given my
present status and clearly in conflict with the desires of the
investors.
I don’t want to waste costs
of the curatorship and due to the notice of motion and the technical
issues raised by yourself
I have no alternative but to
withdraw from the present application
.
I have discussed the matter with
the other applicants and they agree that it would be most prudent to
withdraw
.
I shall forward the medical
certificate in a separate email for your insight.
I have no further intention of
opposing the FSB in their endeavours, and will not bring any other
applications. I trust that the
matter is now closed.”
(Emphasis
added)
It is difficult to
credit Brown’s statement that it was never his intention to
apply for the setting aside of the curatorship
where this relief is
plainlysought in terms of the notice of motion which Brown signed
himself.Be that as it may, what is important,
for present purposes,
is that Brown conveyed a clear and unequivocal intentionto withdraw
the application for the relief sought
in this application.In so
doing he purported to act on behalf of all the applicants.
Rule 41(1) of the
Uniform Rules of Court provides that once a matter has been set down
for hearing, the proceedings may only be
withdrawn by consent of the
parties or with the leave of the Court. In the absence of such
consent or leave, a purported notice
of withdrawal is incompetent
and invalid.
5
Mr
Mitchell objected to Brown’s purported notice of withdrawal on
the grounds (a) that it did not embody a consent to pay
costs and
(b) that Brown was not duly authorised to act on behalf of the
second to seventh applicants in withdrawing the application.
Mr
Goldberg associated himself with Mr Mitchell’s stance in this
regard.
In the absence of
consent to a withdrawal of proceedings after set down, the Court has
a discretion whether or not to grant such
leave.
6
The
court may, in the exercise of its discretion, decline leave to
withdraw proceedings after set down where justice requires
that
finality be reached, if possible,
7
and
where the withdrawal amounts to an abuse of process.
8
In my view the
circumstances in this matter are such that justice requires that
finality be reached regarding the relief sought
in this application,
notwithstanding the belatedattempt by the applicants to withdraw the
proceedings. The curatorship has been
in place for longer than six
years and has, according to the curators, all but run its course. It
is undesirable, in my view,
that the winding down of the curatorship
be delayed by, or that the curators be put to further expense in
opposing,
9
any
application which might surface in the place of this application
based on the very same allegations.
Iam
mindful, in this regard, that this application represents a
“re-cycling” of many of the allegations which were
raised in applications previously brought by Antheru Trust for the
liquidation of the Fidentia companies (“the Antheru
liquidations”), which allegations were denied by the FSB and
the curators in answering affidavits filed in those applications.
At the hearing of the
Antheru liquidation application in respect of FAM on 10 May 2011,
Antheru Trust withdrew the application
and tendered costs. It
further withdrew all allegations of recklessness, fraud and
dishonesty made against the curators. In a
trustees’
resolution passed by the trustees of Antheru Trust on 10 May 2011 it
was recorded,
inter
alia,
that:
“
4) We the
undersigned trustees hereby further withdraw all allegations against
the Curators, D Gihwala and Mr Papadakis, which are
set out in the
court documents under case no 6657/2010 in respect of recklessness,
fraudulent conduct, and any other expressed
allegations or innuendos
of alleged dishonesty by them.
5) Our attorneys of record are
instructed to obtain a letter from the curators confirming the
withdrawal of the aforesaid allegations
and that they accept the
withdrawal and that no action will be taken against the trustees by
the curators emanating from the withdrawal
of the allegations against
them.”
The withdrawn
allegations have, however, been resuscitated by the applicants in
support of the relief sought in the present application.As
in the
case of the Antheru liquidations, reliance is placed on the views
expressed in the “expert” report compiled
by one
Nicolaas Janse Van Rensburg (“Van Rensburg”). I deal
further with this aspect below.
The applicants have not
shown any willingness to consent to a judgment on the merits so that
there may be finality regarding the
issues raised in the
application. The serious and far-reaching allegations on which the
application is founded have not been
withdrawn.In the circumstances,
and for the reasons given, I consider that the applicants should not
be permitted to withdraw
the application,
and
that the FSB and the curators are entitled to seek a final judgment
on the merits.
10
It
is apposite to refer to the following remarks of Beck J, who
was confronted with a not dissimilar situation in
Huggins
v Ryan N.O. and Others:
11
“
Upon Mr
Andersen’s objection being voiced to a mere withdrawal of the
motion proceedings that have now been repeated, the
applicant was
asked to clarify whether or not he was prepared to consent to
judgment on the merits, so that there should be finality
regarding
the validity of the will. The applicant assured the Court that he had
no further intention of ever initiating further
proceedings to have
the will declared void,
but
I did not understand him to concede that the allegations of
fraudulent conspiracy between the first and second respondents are
unfounded, and he has not withdrawn them
.
All of the respondents have stated specifically that they do not wish
to object to the fact that the proceedings have once again
been
brought by way of notice of motion and not by way of a normal trial
action.
They
contend, correctly, that the Court is now seized with the matter and
cannot be deprived of its discretion to proceed with the
hearing by
way of a belated withdrawal of the application
.
(Abramacos v Abramacos
1953(4)
SA 474 (SR) at p 478 A;
Karroo
Meat Exchange Ltd v Mtwazi
1967(3)
SA 356 (C) at 359 A – H.)” (Emphasis added.)
I turn then to deal with
the merits of the application. The applicants have not filed
replying affidavits taking issue with the
allegations contained in
the answering affidavits filed by the FSB and the curators. To the
extent that factual disputes are
raised on the founding and
answering affidavits, they fall to be determined in accordance with
the approach laid down in
Stellenbosch
Farmer’s Winery Ltd v Stellenvale Winery (Pty)
Ltd
12
andqualified
in
Plascon-
Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd(“Plascon
Evans”),
13
namelythat
final relief on motion should only be granted where the it is
justified on the basis of the facts as stated by the
respondent
together with the facts put up the applicant which are either
admitted or cannot reasonably be denied. This is clearly
not a case
where it can be said that the allegations and denials raised by the
respondents are
“
so
far-fetched or clearly untenable that the Court is justified in
rejecting them merely on the papers.”
14
The version put up in
the affidavits deposed to on behalf of the FSB and by the curators
must therefore be accepted as correct
for purposes of deciding the
matter. The question which must be asked is whether the admitted
facts contained in the applicants’
founding affidavit, read
together with the facts set out in the answering affidavits,
justifythe relief sought by the applicants.
The prayers to set
aside the decisions to conduct the inspection and to apply to court
for the curatorship order
The prayers referred to
in paragraphs 4.1 and 4.2 above are aimed at setting aside the
Registrar’s decision to inspect the
affairs of the Fidentia
companiesand his decision to apply to court to place the Fidentia
companies under curatorship.
The difficulty with this
relief is that the inspection and the application for the
curatorship are both
fait
accompli -
they
cannot be undone.The setting aside of the Registrar’s
instruction to conduct the inspection and the subpoenas and reports
of the inspectors would not have any impact on the curatorship which
was ordered by the court and is still in existence. The
setting
aside of the Registrar’s decision to apply for the curatorship
order would have no effect unless the curatorship
order were also
set aside, in which case the relief in this prayer would be
superfluous.In my view the relief sought in prayers
5 and 6 of the
notice of motion would have no practical effect and falls to be
refused on this ground alone, since it is trite
that theCourt will
not make orders which are of academic interest only.
15
The prayer to set
aside the curatorship order
The prayer to set aside
the curatorship order is in essence an application to rescind the
curatorship order
ex
tunc
.
The curatorship order was granted after the merits of the matter had
been determined and was not an order granted by default.
It is a
final judgment. At common law the power to rescind a final judgment
is limited to instances where the judgment was obtained
by fraud,
or, exceptionally,
iustus
error
.
16
Rescission of a final
judgment on the basis of
iustus
error
is
confined to the situation of
instrumentum
noviter repertum
,
where relevant documents have come to light subsequent to the
judgment,
17
which is not the case in
this instance.
In order to succeed in
an application for rescission of a final judgment based on the
ground of fraud, an applicant is required
to prove that:
27.1.
the successful litigant was a party to the fraud or perjury on the
ground of which it is sought to set aside the judgment;
18
27.2.
the evidence was in fact incorrect;
19
27.3.
that the evidence was made fraudulently with intent to mislead;
20
27.4.
that the facts presented to the Court diverged from the truth to such
an extent that the Court would have given a different
judgment had it
known the true state of affairs;
21
27.5.
he or she was unaware of the alleged fraud until after judgment was
delivered.
22
The founding affidavit
is replete with far-reaching allegations of improper conduct on the
part of the FSB and the curators. It
is difficult to discern amidst
the myriad of complaints a clear and competent basis for the relief
sought by the applicants.
Their case for the rescission of the
curatorship order appears to rest on the contentions that:
28.1.
the curatorship order was granted on the basis of the final
inspection report which was an “
utter
fabrication and distortion of the true facts”;
28.2.
the Registrar alleged in the application for the curatorship order
that an amount of R 680 million was unaccounted for or
had been
misappropriated by the officers of the Fidentia Group, whereas the
inspectors had conceded that the funds unaccounted
for might be
closer to R 406 million;
28.3.
the Registrar did not follow “
normal
procedure”
in securing suitable candidates as curators and appointed the
curators because of their “
long
standing corrupt relationship with various senior officials of the
FSB”;
28.4.
the powers granted to the curators to dispose of the assets of the
Fidentia companies are not powers contemplated by the Financial
Institutions Act and the Court was not competent to grant them;
28.5.
Brown was denied an opportunity to challenge the final inspection
report or the granting of the curatorship order.
Save for the first
ground, which pertains to the contents of the inspection report, I
consider that none of these complaints (assuming
they could be
established on the facts) would suffice to meet the requirements for
rescinding a final judgment on the basis of
fraud. In this regard I
consider that:
29.1.
it cannot seriously be thoughtthat the Court would not have granted
the curatorship order had it been told that the unaccounted
for funds
amounted in fact to R 406 million or R 245 million as
opposed to R 680 million;
23
29.2.
any impropriety surrounding the appointment of the curators could not
have had any bearing on the Court’s decision to
grant the
curatorship order and would not, therefore, constitute grounds for
setting aside the curatorship order on the basis of
fraud;
29.3.
were it indeed so that the Court acted
ultra
vires
the
provisions of the Financial Institutions Act in conferring power on
the curators to dispose of the assets of the Fidentia companies,
the
remedy would lie in an appeal against the curatorship order and not
an application for its rescission;
29.4.
Brown’s alleged lack of opportunity to challenge the inspection
report and the curatorship order would not constitute
grounds for
setting aside on the basis of fraud a final judgment which was
granted not by default but with the full knowledge of
Brown.
As regards the complaint
that the curatorship order was granted on the basis of an inspection
report filled with fabrications
and falsehoods, it should be noted
that the attorneys then representing the Fidentia companies were
furnished with a draft of
the inspection report on 18 December 2006
and given an opportunity to comment thereon prior to the bringing of
the application
for a provisional curatorship order. Brown himself
was furnished with a copy of the draft inspection report on 19
December 2006.
On Brown’s own
version,
when
application was made for the provisional curatorship order on 1
February 2007, the directors of the Fidentia companies exercised
a
conscious choice not to oppose the relief sought. He states as
follows in this regard in the founding affidavit:
24
“
On legal
advice of Mckinnel and in an attempt to “
win
hearts and minds
”
at the Financial Services Board the other Directors of Fidentia in a
majority decision elected not to actively oppose the
FSB application
for provisional curatorship. The Directors of Fidentia at the time
were of the view that in working with duly qualified
Curators the
same objective of an orderly winding up of the portfolio and
repayment in full of all the clients could be achieved.”
Furthermore, neither
Brown nor the other directors of the Fidentia companies opposed the
confirmation of the
rule
nisi
in
respect of the provisional curatorship order, despite having had
ample opportunity to do so. The answering affidavit on behalf
of the
FSB reveals that Brown was represented by an attorney and senior
counsel who was briefed to oppose the granting of a final
curatorship order on 27 March 2007, but that Brown elected at the
last minute not to oppose:
25
“
On 26
March 2007 a notice of intention to oppose the confirmation of the
rule nisi was delivered to the attorneys for the FSB. Adv
R Stockwell
SC of the Johannesburg Bar was briefed on behalf of Brown. On the
afternoon of 16 March 2007, Adv Stockwell SC advised
counsel for the
FSB (Adv A G Binns-Ward SC) that Brown would no longer oppose the
granting of the final order in the amended terms
sought. I attach the
confirmation email from the FSB’s attorneys to Mr Hunter marked
‘GA8’.”
Assuming, for purposes
of argument, that Brown could show that the inspection report
contains false or inaccurate information,
he faces the difficulty
that he was well aware of the contents of the inspection report but
voiced no complaints regarding its
veracity or accuracy at the time
when application was made for the curatorship order. To my mind this
precludes him from seeking
to rescind the curatorship order on the
basis of alleged fraud and untruths in the inspection report. As was
held by Thirion
J in
Port
Edward Town Board v Kay and Another:
26
“
In my
view, if a litigant, knowing that the evidence adduced against him in
the course of a case is perjured or that a fraudulent
concealment of
evidence which is relevant to the decision of the case has occurred,
deliberately omits before judgment to challenge
or refute the
evidence when he is in a position to do so, he cannot afterwards
claim restitution in integrum in respect of the
judgment obtained
against him on account of the fraud.”
On this basis alone I
consider that the application for the rescission of the curatorship
order must fail. But in my view there
is yet a further obstacle to
the rescission of the curatorship order on the basis of alleged
untruths in the inspection report,
namely that the inspectors
continue to stand by the contents of their report, and their
averments in this regard must be accepted
as correct for present
purposes.
Furthermore, and in any
event, there are material, undisputedfindings in the inspection
report, which would, in my view, constitute
good cause for the
granting of the curatorship order as contemplated in section 5(1) of
the Financial Institutions Act, namely
that:
35.1.
FAM failed to submit audited financial statements for the 2005 and
2006 financial years as required by section 19 (2) of the
Financial
Advisory and Intermediary Services Act 37 of 2002 (“the FAIS
Act”) for the reason, as appears from an affidavit
deposed to
by the auditors of FAM, that the auditors had not obtained a
satisfactory breakdown and reconciliation of client monies,
and it
did not appear that client funds were separately identifiable from
those of FAM;
35.2.
client funds were not being kept separately from funds belonging to
the Fidentia companies and were being used to defray operating
expenses and to purchase assets for seventh applicant and other
companies within the Fidentia Group;
35.3.
client funds were not being invested in accordance with the behests
of section 4 of the Financial Institutions Act inasmuch
as they were
not held separately in the names of individual clients, but in the
names of “
Fidentia
related companies”
.
The proper investment of
funds in the name of the client and the separation of trust property
from the assets of the business
are fundamental requirements laid
down by section 4 of the Financial Institutions Act for the
protection of trust property. There
can be no doubt, to my mind,
that indications of non-compliance with these requirements would
justify the granting of a curatorship
order. As was pointed out in
Executive
Officer, Financial Services Board v Dynamic Wealth and Others:
27
“
The
inability or unwillingness of the institution to comply with
regulatory requirements applicable to protect funds itself provides
a
reason for appointing a curator.”
Given that the
curatorship order was warranted on the basis of these findings in
the inspection report – findings which
have never been
challenged by the applicants –I consider that the curatorship
would have been granted in any event, notwithstanding
the alleged
fabrications and falsehoods complained of by the applicants. In my
view the applicants have not shown that the curatorship
would not
have been granted but for the alleged untruths in the inspection
report, and on this ground, too, the application for
the rescission
of the curatorship order must fail.
The alternative relief
pertaining to the removal of the Fidentia Companies from curatorship
In the alternative to
the rescission of the curatorship order, the applicants seek to have
the Fidentia companies removed from
curatorship
ex nunc
, the
curatorship terminated, and the Fidentia companies restored to the
status of companies under the control of directors sought
to be
appointed by the Court.
As regards the prayer
that the Court should appoint third applicant, Zacharias Brown and
Paul Machin as directors of the Fidentia
companies, there is simply
no basis in law for this relief.
Section 5 (9) of the
Financial Institutions Act provides that the Court may, on good
cause shown, cancel the appointment of the
curator at any time.
In support of their case
that the curators ought to be removed the applicants allege that the
curators mismanaged the affairs
of the Fidentia companies and were
guilty of fraudulent and dishonest conduct. Their chief complaint is
that the curators disposed
of assets for less than their true value,
thereby occasioning loss to Fidentia investors.
It is not necessary, for
present purposes, to deal in detail with the many serious
allegations advanced in the founding affidavit.
Suffice it to say
that allsuch allegations were comprehensively dealt with and
satisfactorily answered by the curators, both
in the present
application and in the Antheru liquidations where the self-same
allegations first surfaced prior to being withdrawn
unconditionally
by the Antheru Trust in the circumstances which I have already
mentioned. On the basis of the rule in
Plascon Evans
, the
curators’ averments must carry the day.
To the extent that
complaints against the curators are based on the contents of a
so-called forensic report prepared by Van Rensburg,
28
the conclusions drawn in
the report, which is largely based on the
ipse
dixit
of
Brown, have been roundly refuted by Mr Pappadakis on behalf of the
curators, both in the present application and in the Antheru
liquidations. Janse Van Rensburg has not seen fit to depose to an
affidavit dealing with the criticisms advanced by Mr Pappadakis
and
I think it can safely be inferred that he is unable to explain away
the deficiencies exposed in his report. Again, on the
basis of the
rule in
Plascon
Evans
,
no reliance can be placed on the contents of the Van Rensburg report
in substantiation of the allegations of misconduct and
mismanagement
on the part of the curators, and the curators’ answers in this
regard must be accepted as definitive as regards
these claims.
It is also relevant, in
this regard, that the curators have exercised their functions
subject to the control of the Registrar
and the supervision of the
Court, to whom the curators have made regular reports on the
progress of the curatorship. Neither
the Registrar nor this Court
has hitherto found any basis for questioning the conduct of the
curators.
I am therefore unable to
find any basis for concluding that there is good cause to cancel the
appointment of the curators in terms
of section 5(9) of the
Financial Services Act.
It follows that, in my
view, the applicants have failed to make out a case for this relief
sought on any ground, and that the
application falls to be dismissed
on its merits.
Delay and
locus
standi
In view of the fact that
I have dealt with the application on its merits, it is unnecessary
for me to deal with the points
in limine
raised regarding
locus standi
and undue delay.Suffice it to state that, in my
view, the objection that the first to sixth applicants lack
locus
standi
is well founded.I should also record, for the sake of
completeness, that I would be inclined to dismiss the application on
the
grounds of undue delay in circumstances where the curatorship
order was granted over six years ago, the majority of the assets
of
the Fidentia companies have already been sold, monies have been
distributed to investors, the curatorship is in its very last
stages, and no explanation whatsoever has been put up for the
applicants’ failure to take action earlier.
Costs
I was requested, in the
event that I dismissed the application, to make a punitive costs
order against the applicants on the scale
of attorney and client on
the basis that the application is vexatious and an abuse of
process.It is trite that a punitive costs
order may be warranted in
circumstances where litigation is patently unfounded and puts a
party to needless trouble and expense
in opposing, or where the
conduct of the litigant is reprehensible in some way.
In my view a punitive
costs order is indeed justified in this case on the following
grounds, to name but a few.First, I consider
it an abuse that the
applicants saw fit in this application to resuscitate allegations
against of misconduct on the part of the
curators which had been
withdrawn by the Antheru Trust. It matters nought, in my view, that
the allegations were withdrawn by
the Antheru Trust and not the
applicants. It cannot be ignored that Brown was no impartial
observer in the Antheru applications
- indeed Bozalek J found that
if Antheru did not at least indirectly represent Brown’s
interests, he was
“
an
important source of information to (Antheru Trust) in this matter
regarding the views which it expresses concerning the value
of the
assets and businesses sold.”
29
Brown
was clearly the driving force behind the present application. In my
view it was unscrupulous and vexatious for him “recycle”
the withdrawn allegations and present them as the basis for this
application. The curators have been put to the trouble and expense
of answering the same allegations twice – costs which
ultimately diminish the amount to be distributed to investors. The
other applicants, by associating themselves with Brown in this
application, have made themselves party to what I consider to
be
improper conduct on the part of Brown.
Second, the application
was, in my view, misconceived and doomed from the outset on the
grounds of undue delay alone. Given the
advanced stage of the
curatorship, and the fact that the sales of the assets of the
Fidentia companies cannot be undone, the
relief sought by the
applicants was quite plainly an exercise in futility. The following
remarks made by Bozalek J with reference
to Antheru Trust are
equally apposite to the present applicants:
30
“
If, as it
seems clear, it has been unhappy for years with the manner in which
the (curators) have been discharging their duties
in terms of the
curatorship orders, it could at a much earlier stage have either
interdicted them from disposing of (FAM’s)
assets or businesses
or it could have approached the court in terms of section 5(8) or
5(9) of the FI Act to cancel the appointment
of the curators or set
aside or alter any decisions made or action taken by the curators
with regard to the management or control
(FAM’s) business. The
applicant has not furnished any good reasons why these steps were not
taken and why there has been
such a lengthy delay in taking any
action at all.”
Third, the far-reaching
allegations levelled against the curators were purportedly
substantiated by the Van Rensburg report which
had already been
roundly refuted in the context of the Antheru liquidations. In my
view it was frivolous and irresponsible to
put up a discredited
report in support of these serious allegations. For this reason,
too, the application can rightly be viewed
as vexatious.
In all the
circumstances, I consider it appropriate to mark the Court’s
disapproval of the applicants’ conduct by
way of a costs order
on a punitive scale.
In addition, having
particular regard to the fact that the costs incurred by the
curators have to be borne by the Fidentia investors,
albeit
indirectly, I consider it fair and just that the costs order made
should afford the fullest possible indemnity.
Conclusion
I therefore make the
following order:
(i)
The application is refused with costs, such costs to include the
costs occasioned by the employment of two counsel, where applicable.
(ii)
The applicants are ordered jointly and severally to pay the costs of
the first respondent and the first and second intervening
respondents, i.e., the curators, on the scale as between attorney and
client.
_______________________
D.M. DAVIS, AJ
Acting High Court Judge
FOR
FINANCIAL SERVICES BOARD: Adv. D Mitchell SC and A Du Toit
INSTRUCTING
ATTORNEYS: Bisset Boehmke McBlain
FOR
RESPONDENT: Adv. D Goldberg
INSTRUCTING ATTORNEYS:
Cliffe Dekker Hofmeyr Inc
1
This
relief, which is nowhere dealt with in the founding affidavit, makes
no sense. It would appear that the inclusion of the
word “not”
is an error.
2
The
Notice of Motion is silent as regards the representation of the
third to seventh applicants. It would appear that the applicants
were assisted at some point by attorney June Marks, but she did not
come on record formally as the attorney for the applicants
in the
matter.
3
A
distinction must apparently be drawn between
Antheru
Mandated Investors (“Antherus Investors”), described by
Brown as
“
a group of individuals
who include all the investors of Antheru who have invested in
Fidentia”
and Antheru Beleggings
Trust (“Antheru Trust”).
4
Attorneys
of record for the FSB.
5
Protea
Assurance Co Ltd v Gamlase and Others
1971 (1) 460 (E) at 465 G
– H.
6
Farlam
et al Erasmus Superior Court Practice
B1 – 304 and
cases cited at footnote 6.
7
Huggins
v Ryan N. O. and Others
1978 (1) 216 (R) at 218 E.
8
Levy
v Levy
[1991] ZASCA 81
;
1991 (3) SA 614
(A) at 619 F – 620D.
9
To
the prejudice of the Fidentia investors who
ultimately bear these costs.
10
Cf
Irish & Co Inc (Now Irish & Menell Rosenberg Inc) v Kritzas
1992 (2) SA 623
(W) at 632 I, where it was stated that, “
It
has long been recognized that where in an ordinary action a party
chooses not to appear at the trial the other party remaining
need
not content himself with an order for absolution from the instance
but may elect to lead evidence in order to satisfy the
Court that he
is entitled to a judgment on the issues raised by those claims.”
11
Supra
n 7 at 218 B – E.
12
1957
(4) SA 234
(C) at 235 E – G.
13
[1984] ZASCA 51
;
1984
(3) SA 623
(A).
14
Plascon
Evans supra
n 13 at 635 C.
15
Rajah
& Rajah (Pty) Ltd and Others v Ventersdorp Municipality and
Others
1961 (4) SA 402
(A) at 408A.
16
Colyn
v Tiger Food Industries Ltd t/a/ Meadow Feed Mills (Cape)
2003
(6) SA 1
(SCA) at 6 A – B.
17
Childerley
Estate Stores v Standard Bank of SA Ltd
1924 OPD 163.
18
Makings
v Makings
1958 (1) SA 338 (A).
19
Swart
v Wessels
1924 OPD 187
at 189 – 190.
20
Ibid.
21
Rowe
v Rowe
[1997] ZASCA 54
;
1997 (4) SA 160
(SCA) at 166 I.
22
Port
Edward Town Board v Kay and Another
1994 (1) SA 690
(D) at 705 C
–
706 F.
23
Brown’s
affidavit contains contradictory versions in this regard. At
paragraph 17 he alleges that the inspectors insisted
that an amount
of R 245 million was unaccounted for. At paragraph 28 he alleges
that the inspectors conceded that the funds unaccounted
for might be
closer to R406 million than R 680 million.
24
Record
p 2596, para 110.
25
Record
3743, para 143.2.2.
26
Supra
n 22, at 706 E – F.
27
2012
(1) SA 453
(SCA) at 458 H.
28
Van
Rensburg’s qualifications do not appear from his report. No
basis is laid for his alleged expertise.
29
Unreported
judgment of Bozalek J delivered on 15 March 2011 in the matter of
The Trustees for the Time Being of Antheru Beleggings Trust v
Fidentia Asset Management (Pty) Ltd
(WCC Case No 6657/10)
(“Antheru security for costs application”)
30
Ibid
.