Issue: March/May 2008


Fee, fi, fo,fum

Curators smell the blood of a really big one. Paid as a percentage of monies recovered for pension funds, and nothing else, they face real expense risks in taking on the giant of Bellville. The FSB’s given them a thumbs-up.

Against what benchmarks might the “reasonableness” of curators’ fees be tested? Time? Skill? Complexity? Success?

And which is the preferable means – from the perspective of pensioners, widows and orphans as the beneficiaries ultimately intended – for curators to be remunerated? Hourly professional rates, modified by volume discounts? Or contingency fees, where the curator is at risk for recoveries?

The subject is contentious, and understandably sensitive, because of three high-profile curatorships now under way. With the unravelling of the “Ghavalas option”, Fidentia and Ovation there are high costs to be borne, notwithstanding that beneficiaries’ pockets might already have been woefully exposed by events that necessitated the curatorships in the first place. Sometimes there might be no assets left for curatorship, which is where contingency fees come in.

Clearly, there has to be a balance – easier said than struck – for fair reward from the recovery pools. On a contingency basis, reward follows risk and recovery; the more that’s recovered, the higher the reward, and vice versa, irrespective of time spent or expense incurred. On an hourly-fee basis, reward is benchmarked to the time of skilled professionals, which can itself be difficult to measure.

Take, firstly, particular funds in the “Ghavalas option” (explained elsewhere in this TT edition). Among funds stripped naked were the Datakor pension fund, Datakor retirement fund and Cortech pension fund. For three years, curators Tony Mostert and David Wandrag struggled for documentation that could help them explain how R70 million of assets belonging to the pension funds suddenly belonged to others.

For accountability, look to Sanlam. On the one hand, it was the Datakor funds’ administrator. On the other hand, Sanlam subsidiary Sankorp controlled the Datakor/Cortech group, which meant it was the funds’ ultimate principal employer. When one hand is in a position to wash the other, interest conflicts can bristle.

In this dual capacity, it would seem, conflicts converged in the R44,1 million received from Sanlam by Sankorp in November 1997. Purportedly, it was a dividend from Datakor but actually it had been raised from the funds’ surplus. This is implicit in Sanlam’s R106 million payment, representing the R44,1 million plus interest compounded annually at 15,5 percent, for the benefit of fund members (TT Dec ’07-Feb ’08).

More than this, the curators are convinced that the funds’ R126,3 million in total assets were wilfully dissipated. Their jigsaw suggests that Sanlam, as the administrator, was at least in breach of its statutory and common law duty of care for its distribution of the assets.

Of the R126,3 million, it paid out the lot. Some R70 million went surreptitiously as a surplus (R44,1 million to Sanlam/Sankorp, R25,9 million to parties who had no connection with the pension funds) and most of the R56,3 million balance for an allegedly irregular purchase of a Fedsure annuity policy to switch the funds’ employee members into this and a Wynne-Jones preservation fund. These actions, say the curators, were unlawful.

An open question is whether Sanlam was an innocent bystander or a knowing participant in the “Ghavalas option”. If the former, then Sanlam is indeed altruistic (as it intimates on affidavit) in having made the R106 million payment to reach needy pensioners quickly; if the latter, it could face consequences for the original R44,1 million being stealthily derived by Sankorp from laundering.

Which interpretation, then, is correct? That Sanlam was being generous and righteous in paying R106 million, while Mostert and Wandrag were together picking up a windfall of R26,5 million (their 25 percent contingency fee) that Sanlam contended was unjustifiable because they were merely conduits? Or that the R106 million payment was forced on Sanlam by persistent curators whose legal challenge, after years of badgering, it eventually found unanswerable?

The funds’ members can decide themselves whether they are better off for the contingency arrangement. Without it, they might have got 100 percent of zero. With it, they get 75 percent of R106 million. Left to Sanlam alone, it might have taken more than nine years (if ever) before it refunded the “dividend” that was Sankorp’s portion of money obtained through a scheme for which erstwhile merchant banker Peter Ghavalas and others (including three former Sankorp/Datakor executives) have been charged.

Meanwhile, the stripped funds remain denuded. Accordingly, the curators instituted litigation against Sanlam as administrator for the full R126,3 million plus interest it had distributed from the three funds. When the litigation started in December 2006, the claim, inclusive of interest, was computed at R304,3 million. When it gets to the High Court, it will be higher. And if it goes to the Appeal Court, it will be higher still.

The time taken for the civil claims to be resolved delays payment of full entitlements to members of the stripped funds. An investigation by the FSB into the various funds, five years ago, concluded that the cupboard was bare. It evidently had little inkling of where the funds’ assets had been channelled or how they’d been dissipated.

Mostert and Wandrag, attorneys with successful track records at this kind of forensic inquiry – recall Mostert’s victory in the Appeal Court against Old Mutual for pensioners of Corporate Acceptances Finance – offered to have another shot on a contingency basis. Their calculated risks were in not knowing the investigation’s complexities, hence the amount of time it would involve, or whether they’d find sufficient cause to extract recoveries in any amount.

They also didn’t know whether, due to lack of funding, they’d be able to pursue litigation. What they did know was that they’d be up against powerful individuals and institutions, including Sanlam, well-resourced to defend litigation for as long as it took.

The FSB sought advice on an appropriate level of contingency fee, then accepted the offer. On an FSB application to court, an order was granted for Mostert and Wandrag to be curators of the two Datakor funds and the Cortech fund. The basis was that they’d be entitled jointly to 25 percent of amounts recovered for these three funds. (The third curator, Segopotje Mphahlele, did not go at risk and is being remunerated at an hourly rate.)

The only cushion was a R1 million advance from the FSB, to be refunded from recoveries for disbursements. It was not an advance of fees.

At worst for the FSB, it had nothing to lose. At worst for the three funds, they’d be in with a chance to get something better than nothing. At worst for the two curators, not only would they receive nothing should they recover nothing but they would be liable for possibly years of expense in conducting investigations and pursuing court actions whose outcomes can never be certain. At worst for the pensioners, it’s only a matter of how much or how little they’ll pocket at the finish.


As the saga unfolds through the courts, Sanlam will be asked:

  • Why it gave R25,9 million of the R70 million surplus, from the funds it administered, to parties unconnected with the funds;

  • Why, until at least end-December 2006, it resisted repayment of the R44,1 million plus interest that it purportedly wanted quickly to reach needy pensioners;

  • Why it had not produced annual signed financial statements, in years subsequent to 1996, for the Datakor funds it administered;

  • What, if anything, was known by Sanlam but not by the Registrar about the “Ghavalas option” when application was made for the merger of the three funds with the Lifecare fund (pivotal for payout of the surplus);

  • For what reasons it switched members of the three funds into a Fedsure policy and a Wynne-Jones preservation fund.

Theoretically, on the basis of the 25 percent contingency, the curators stand so far to earn R26,5m (from Sanlam’s repayment of the Sankorp “dividend”) for administering three funds and for their two firms undertaking major law suits on risk. How long this will continue is anybody’s guess, but it has already lasted for some three years and is likely to last for some years to come.

With hindsight, perhaps the FSB should have negotiated with the curators at the beginning for a cap on the fees. It is now being addressed. The eventual number will turn on the amount of time and effort still required.

Something reasonable is intended to emerge; reasonable in terms of matching time, effort and risk to reward, and reasonable in terms of projected recoveries. When pensioners get cheques they otherwise wouldn’t have received, they’d have the best sense of what’s reasonable.

And if there’re still rival professionals green with envy, well, they hadn’t volunteered to put their practices on the line at the outset.