Old Mutual plans to appeal against a high court order that one of its units — Old Mutual Unit Trust Managers (OMUT) — must pay more than R1.7bn in damages plus costs for losses suffered by the Living Hands Umbrella Trust in relation to the Fidentia scandal.
Gauteng judge Thina Siwendu’s ruling on Tuesday compels OMUT to pay R854,650,643 in capital plus another R854,650,643 in interest. OMUT was also ordered to pay all costs of the legal action including the cost of three counsel and those incurred in having witnesses testify.
The Cape Town-based insurance and investment giant said on Wednesday that it was “deeply concerned” about the judgment as it believes its actions were in accordance with regulations.
“Following consultation with our legal team, we can confirm that it has been formally agreed to lodge an application to appeal,” Old Mutual said. “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.”
The Living Hands Umbrella Trust was the custodian of funds belonging to about 52,000 beneficiaries that were mostly children of deceased pension fund members of the Mineworkers Provident Fund.
Fidentia, which was then under the control of now convicted fraudster J Arthur Brown, funnelled off more than R860m of the trust assets after it bought out Mantadia Asset Trust Company (Matco) — as the Living Hands Umbrella Trust was then known — for R93m in October 2004.
Fidentia then inserted its own employee as a trustee of Matco shortly after the buyout and arranged for its subsidiary, Fidentia Asset Management (FAM), to be named as the new investment adviser in place of OMUT, which was first appointed in 2002. Ironically, FAM was only authorised as a financial service provider just weeks before the Matco buyout was concluded.
By mid-October FAM attempted to gain access to R150m of Matco’s assets by instructing OMUT to transfer that amount to the trust’s Standard Bank account, which had come under the Fidentia subsidiary’s control. Though OMUT initially balked at transferring the trust’s assets over to FAM it eventually acquiesced and transferred more than R1.13bn to MATCO in 15 tranches between October 2004 and November 2004.
In May 2004, Matco changed its name to the Living Hands Umbrella Trust, which by then was fully under Fidentia’s control. Fidentia soon defrauded the trust of roughly 80% of its assets, which it never invested in any financial instruments.
Instead it squandered the money on a series of dodgy ventures ranging from buying a 50% interest in Boland Rugby, the purchase of a game farm and hotel, as well as paying out dividends to a company called Brown Brothers. It also advanced at least one director’s loan to J Arthur Brown himself and siphoned off to pay for the running costs of the Fidentia Group and its associated companies.
Although Brown was sentenced to 15 years in prison in 2014 for masterminding the scandal, he was released on parole in October 2021. OMUT now faces financial sanction for handing over Matco's trust capital to Fidentia, with trustees saying it should have known the funds would come under the control of people who might not act in the interests of beneficiaries.
“Our law sufficiently provides for liability for wrongfulness in such instances,” judge Siwendu wrote in her ruling. “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.”
However, Old Mutual argues that the direct cause of the loss and pain suffered by the beneficiaries of the Living Hands Umbrella Trust was the fraudulent actions of Fidentia, which it says occurred “well after” Old Mutual had transferred funds after a formal client instruction to do so.
The firm also argues that after its verification of the authenticity of the transfer of ownership, it was legally obliged to transfer the money and had no option but to obey the transfer order from Fidentia-controlled Matco.
Old Mutual said that it was concerned about the precedent that the high court ruling against it set for the rest of the financial services industry with regard to how this affects the management of funds on behalf of trustees. It said this made for an additional and compelling reason for it to seek leave to appeal against the ruling.
“We are of the view that there are reasonable prospects that another court would come to a different conclusion,” Old Mutual said. “As a responsible business that always acts in the best interests of our clients, we have continued to focus on ensuring good governance, while strengthening our processes with increased focus on the environment, communities and social welfare.”
Update: July 14 2022
This article has been updated with new information throughout.
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