Old Mutual Unit Trust Managers Limited v Living Hands (Pty) Ltd and Others (18/2023) [2024] ZASCA 75 (16 May 2024)

The case involves Old Mutual Unit Trust Managers Limited (OMUT) as the appellant and Living Hands (Pty) Ltd along with other respondents. On 5 September 2000, Mercantile Asset Trust Company (Pty) Ltd (Mercantile) and the Mineworkers Provident Fund (the Provident Fund) entered into a service level agreement. Mercantile agreed to establish and administer trusts to receive death benefits for dependants of deceased Provident Fund members. The Trust was a recipient of such funds and was required to administer them for the benefit of the Trust beneficiaries.

In early 2002, Mercantile sold its administration business to Living Hands (Pty) Ltd (then known as Mantadia Asset Trust Company, Matco), which assumed the rights under the service level agreement and became the sole trustee of the Trust. On 10 May 2002, Matco entered into an agreement with OMUT, which was replaced by a new agreement on 15 September 200 These agreements regulated the relationship between Matco and OMUT regarding the buying, selling, and switching of units in portfolios administered by OMUT.

On 5 October 2004, Fidentia Holdings (Pty) Ltd concluded a sale of shares agreement with Matco's shareholders, acquiring its entire share capital for R93 million. The directors of Fidentia Holdings included Joseph Arthur Walter Brown, Graham Alan Maddock, Andrew Herbert Tucker, Hjalmar Mulder, and Johannes Cornelis Linde. Fidentia Asset Managers (Pty) Ltd (FAM), a wholly-owned subsidiary of Fidentia Holdings, was appointed as the portfolio manager of the Trust. FAM was an approved portfolio manager under various financial regulations.

On 15 October 2004, representatives of FAM met with OMUT and handed over letters confirming FAM's appointment as the portfolio manager and instructing OMUT to liquidate R150 million of the Trust’s assets and transfer the proceeds to FAM’s trust account. OMUT did not act on this instruction immediately and sought confirmation from Matco. On 19 October 2004, Matco’s board resolved to call up its entire investment portfolio with OMUT and requested the funds to be transferred to its bank account by 17:00 that day. This instruction was confirmed by Matco’s Managing Director, Mr. Malan, and its director, Mr. Tucker.
Between 22 October and 10 November 2004, OMUT paid the funds, totaling R1_130 319 4432, into Matco’s designated bank account.

Following the transfer, Matco paid the funds over to Fidentia Holdings and its subsidiary, Fidentia Capitalwise (Pty) Ltd. The funds were then misappropriated by individuals within the Fidentia Group, leading to significant financial loss for the Trust and its beneficiaries. The plaintiffs (Living Hands and others) claimed damages in delict from OMUT, alleging that OMUT was negligent in failing to safeguard the funds and that this negligence caused the Trust to suffer pure economic loss. The High Court initially upheld the plaintiffs' claim, ordering OMUT to pay R854 654 (I am sure this is a mistake in the judgment, and it should read R 854 654 000) in damages, along with interest and costs. OMUT appealed this decision.

The High Court found that OMUT owed a duty of care to the Trust and its beneficiaries, which it breached by not reporting the disinvestment to regulatory bodies and not conducting due diligence on Fidentia and FAM. The court held that OMUT’s failure to act prudently and diligently contributed to the loss suffered by the Trust.

 OMUT appealed the High Court’s decision, arguing that it did not act wrongfully or negligently and that it was not the cause of the plaintiffs' loss. The Supreme Court of Appeal ultimately upheld OMUT's appeal, dismissing the plaintiffs' claim with costs.

The ratio decidendi, or core legal principle underlying the decision in this case, is that OMUT did not owe a legal duty to the Trust and its beneficiaries to prevent the misappropriation of funds by the first plaintiff's directors. The Supreme Court of Appeal found that:

 No Legal Duty: OMUT's obligations were to its client, the first plaintiff (Living Hands (Pty) Ltd), under the terms of their contractual agreement. There was no statutory or common law duty extending to the Trust and its beneficiaries that required OMUT to safeguard the funds beyond following the first plaintiff's duly authorized instructions.

 Wrongfulness: The court determined that OMUT's conduct in paying out the funds to the first plaintiff was not wrongful. OMUT acted in accordance with the contractual agreement and the instructions provided by the first plaintiff. The court emphasized that imposing a duty on OMUT to second-guess or investigate the internal affairs of the Trust or the first plaintiff would be unreasonable and overly burdensome.

 Negligence: The plaintiffs failed to prove that OMUT was negligent. OMUT took reasonable steps to ensure that the instructions it received were properly authorized. There was no evidence that OMUT could have foreseen the misappropriation of the funds by the first plaintiff's directors.

 Causation: The court found that OMUT's actions were not the factual or legal cause of the plaintiffs' loss. The loss was caused by the criminal conduct of the first plaintiff's directors, which was not foreseeable by OMUT. The court held that the plaintiffs did not establish a sufficient causal link between OMUT's conduct and the harm suffered.

In summary, the core legal principle is that OMUT did not owe a duty to the Trust and its beneficiaries to prevent the loss caused by the first plaintiff's directors' criminal actions, and OMUT's conduct was neither wrongful nor negligent. The plaintiffs failed to establish the necessary elements of delictual liability, leading to the dismissal of their claim.

The Supreme Court of Appeal relied on several key cases in its reasoning process. Here are the primary cases cited, along with their neutral citations:

 Administrateur, Natal v Trust Bank Van Afrika Bpk 1979 (3) SA 824 (A)
This case was referenced to affirm that there is no general right not to be caused pure economic loss, and that wrongfulness must be positively established.

 Country Cloud Trading CC v MEC, Department of Infrastructure Development, Gauteng [2014] ZACC 28; 2015 (1) SA 1 (CC); 2014 (12) BCLR 1397 (CC) This case was cited to explain the concept of wrongfulness in delictual liability and the cautious approach courts take in extending liability for pure economic loss.

 Loureiro and Others v Imvula Quality Protection (Pty) Ltd [2014] ZACC 4; 2014 (5) BCLR 511 (CC); 2014 (3) SA 394 (CC) This case was used to discuss the focus of the wrongfulness enquiry and the policy and legal convictions of the community.

 Olitzki Property Holdings v State Tender Board and Another 2001 (3) SA 1247 (SCA) This case was referenced to explain that whether the breach of a statutory duty is delictually wrongful is a matter of statutory interpretation.

 Steenkamp NO v Provincial Tender Board of the Eastern Cape [2006] ZACC 16; 2007 (3) SA 121 (CC); 2007 (3) BCLR 300 (CC) This case was cited to outline factors that point to wrongfulness, including the object of the statutory scheme and whether it envisages a claim for damages.

 Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA 2006 (1) SA 461 (SCA) This case was referenced to affirm that wrongfulness must be positively established.

 Kruger v Coetzee 1966 (2) SA 428 (A) This case provided the authoritative test for negligence, which was applied in assessing OMUT's conduct.

 Sea Harvest Corporation (Pty) Ltd and Another v Duncan Dock Cold Storage (Pty) Ltd and Another 2000 (1) SA 827 (SCA) This case was used to discuss the criterion for determining negligence.

 Minister of Police v Skosana 1977 (1) SA 31 (A) This case was referenced to explain the two distinct problems of causation in the law of delict: factual causation and legal causation.

International Shipping Co (Pty) Ltd v Bentley 1990 (1) SA 680 (A); [1990] 1 All SA 498 (A) This case was cited to discuss the factors involved in determining legal causation.

Trustees, Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd 2006 (3) SA 138 (SCA) This case was referenced to emphasise that there is no policy imperative for the law to superimpose a further remedy in the context of contractual relationships.

Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A) This case was cited to affirm that courts should be cautious in extending the law of delict into areas governed by contractual relationships.