Edition: Mar - May 2014
Editorials

LEGAL DISPUTES

About curators and costs

Judgment makes nobody entirely happy. Once again, a fund in the ‘Ghavalas scheme’ is at the centre of it.

Rarely does a civil judgment not satisfy at least one of the parties affected by it. But all have filed notices to appeal the rulings they variously don’t like in a South Gauteng High Court judgment handed down by Justice Caroline Heaton Nicholls.

This matter concerned the Cadac Pension Fund (CPF) where the applicant was the Financial Services Board. Respondents were CPF, its trustees and former trustees, and curator Tony Mostert. On the FSB’s application, the court confirmed the final appointment of Mostert as the fund’s sole curator.

Not that the appellants-to-be-have common cause. Quite the opposite. They continue to go hammer and tongs at one another. The most to be detected are alignments between the FSB and Mostert on the one hand, the CPF with its trustees and former trustees on the other. Yet again, in rounds of seemingly endless litigation, the CPF is at the centre.

On the face of it, said the judge, this was a relatively simply application that hardly warranted the record of over 7 000 pages and days of acrimonious argument (involving four senior counsel). However, the full import of the matter had to be viewed in the context of the “intense animosity” between Mostert and Simon Nash, the latter being chairman and a director of principal employer Cadac as well as chairperson and trustee of the CPF with a casting vote when the fund was placed under curatorship.

The judge referred to CPF as the last of seven pension funds placed under curatorship following the so-called “Ghavalas transactions” (TT Dec ’13- Feb ’14). In the other six pension funds, Mostert is the curator. According to the FSB, he’d achieved “a considerable measure of success”.

While his competence was disputed by the respondents, said the judge, “what cannot be disputed is Mostert’s tenacity in delving into the Ghavalas transactions. This has led to Nash accusing Mostert of having a personal vendetta against him and acting in cahoots with the FSB to destroy him. The relationship between Nash and Mostert goes back several years and is inextricably bound to the fate of several other pension funds.”

Then there’s the Sable pension fund, one of the seven implicated in the Ghavalas transactions. Mostert is also the curator of Sable and Nash was a trustee of Sable until it was placed under curatorship.

There was fundamental opposition to Mostert’s appointment as curator, the judge noted, because of “an irresoluble conflict” between the interests of Sable and those of the CPF: “The objection is that Nash stands conflicted as a result of the alleged claim that Sable has against CPF. Mostert and the FSB aver that the issue of a claim by Sable is merely a red herring.”

In the result, the court confirmed Mostert’s Judgment makes nobody entirely happy. Once again, a fund in the ‘Ghavalas scheme’ is at the centre of it. 38 Today’s Trustee March/May 2014 Legal disputes.indd 1 2014/02/20 8:19 PM appointment as the CPF curator. The matter was too far advanced for the appointment of a new curator. Even a co-curator could not make any meaningful contribution at this stage, the court held. It will merely mean an added and unnecessary expense to a fund that had already been overburdened with legal costs.

“Mostert may not be the ideal candidate in view of the suspicion and controversy surrounding his appointment,” stated Justice Heaton Nicholls. “Under normal circumstances a totally neutral curator would be preferable. But this is no ordinary matter. It involves a series of highly complex financial transactions. Mostert has been instrumental in unravelling some of these transactions which, on the face of it, are unlawful. It is in the interests of justice that this matter be finalised as soon as possible.”

She nevertheless found it disturbing that Mostert litigated in what was described as a lavish scale, using the services of his own law firm at the expense of the CPF. While she accepted that Mostert was the repository of invaluable information regarding CPF, and therefore should not be removed as curator at this late stage, she did not accept that only his law firm can litigate on his behalf.


More arguments await green light

“Mostert must be capable of transferring his wealth of knowledge to another law firm in which he has no financial interest,” she stated. “That his legal firm is best placed to deal with Ghavalas transactions notwithstanding, the appointment of a law firm in which a curator has a direct interest, creates the perception that the curator is benefiting twice, both as curator and as lawyer. This practice should be frowned upon. Accordingly, the rule should not be confirmed with regard to the services of A L Mostert Inc.”

Following on these findings, a series of complex cost awards were made. For instance, on some aspects there was an award against Nash on the punitive scale. On others, there was an award against the CPF trustees. She also held that certain costs should be paid by Mostert personally.

Reaction has been rapid. Amongst arguments, on where the court erred, have been raised in the applications for leave to appeal are:

Nash’s contentions

  • No court has ever concluded, in any opposed matter, that Nash was a party to any fraud or other form of criminal conduct;
  • The court should have had regard to Nash, in his criminal trial, being exonerated by prime state witnesses Peter Ghavalas and Neil van Hees;
  • The objection to Mostert’s appointment was not that Nash stood conflicted but that Mostert stood conflicted;
  • It was not this court’s role to deal with the web of financial transactions;
  • It was incorrect that CPF did not receive any portion of the R36m surplus

CPF’s contentions

  • The judgment should not have been concerned with the “last seven pension funds placed under curatorship pursuant to the so-called Ghavalas transactions”. The application had concerned the suitability of Mostert to act as CPF curator;
  • No evidence was produced to demonstrate Mostert’s personal knowledge of the Ghavalas transactions or his tenacity or success in prosecuting any of them;
  • Actuary Vivian Cohen had failed to support his conclusion that the effect of s14 transfers (for the FSB to approve the merger of pension funds) was fraudulent and designed to separate CPF members/ pensioners from their portion of the surplus. In any event, his views were irrelevant in the matter before the court;
  • The view expressed on affidavit by FSB executive officer Dube Tshidi, in a previous matter, was that a CPF provision for an “overpayment claim” regarding Sable might not be “an issue in dispute” in this matter. This was inconsistent with Mostert’s attitude that the “overpayment claim” was a “red herring” fraudulently concocted by Nash;
  • Mostert had failed to explain why he later adopted the view that the “overpayment claim” was a “red herring”. In any event, he has never abandoned or waived this claim between Sable and CPF (Mostert being curator of both);
  • The court ought to have found that the mere intimation of a claim, in the founding affidavit for curatorship, disqualified Mostert from acting as curator;
  • The court ought to have found that Mostert is clearly compromised vis-à-vis the CPF, its current trustees and members. It is overwhelmingly in the CPF interests that a curator or curators, who are seen to be independent and uncompromised, be appointed in Mostert’s place;
  • The court ought to have found that the trustees appointed after CPF was placed under curatorship, who are all members of CPF, have always acted in good faith, with the support of the majority of members who have repeatedly expressed their full support for the curatorship and an investigation into the conduct of past trustees (including Nash). This attitude was inconsistent with the trustees being “puppets for Nash”;
  • The court had correctly found that a neutral curator would be far preferable, but erred in finding that the curatorship was too far advanced for the appointment of a new curator. The curatorship is ongoing and there is no reliable indication as to when it might end;
  • The court ought to have found that CPF would suffer prejudice if it was not represented by an independent and unbiased curator, especially if an application is launched to set aside the s14 transfer of CPF to the Lifecare fund;
  • Mostert’s preconceived ideas prevented him from acting objectively and independently in the interests of CPF;
  • Where the judgment states that “Nash stands conflicted”, it should have read that “Mostert stands conflicted”.

Mostert’s contentions

The court had erred by ordering that

  • His costs be disallowed for the counter-application (by the CPF trustees), despite dismissal of the counter-application, and by ordering that he was not allowed to recover these costs from any party to the proceedings;
  • Certain costs be paid in his personal capacity, not in his capacity as curator duly representing the fund, despite no finding of male fides or similar grounds.

He further argues

  • The order is unclear whether he’s required to pay only the costs of drafting the affidavit (in support of his appointment as curator) or to bear all the costs of the CDF for the trustees’ entire counterclaim (to appoint alternative curators);
  • In his capacity as provisional curator, he was bound to defend any action against CPF;
  • Much of the content in the counter-application was “fabricated and contrived”. He was duty-bound to persist in continuous investigation which the court, on his application, permitted as evidence. This evidence constituted critical information upon which the court heavily relied. He could not and would not have procured and presented it had he been liable to pay for it;
  • If the evidence contained in his affidavit should have been presented by the FSB, it would largely have been hearsay. In any event, his costs if he were to have presented the evidence through the FSB would have constituted a legitimate cost to the CPF that he would have been entitled to recover;
  • The court had contradicted its own finding that the CPF trustees had no locus standi to launch any legal proceedings and therefore they could not join Mostert in his personal capacity. As the FSB’s application had been launched out of an “abundance of caution”, the court had held, “Mostert should not be out of pocket as a result thereof and I intend to award costs (against Nash) on the attorney-and-client scale”. The CDF trustees’ counter-application had been dismissed on the same grounds.

FSB’s contentions

It wants clarification of the costs award that

  • Nothing detracts from the FSB’s and curator’s obligations to ensure payment of all fees and disbursements to law firm A L Mostert Inc from the CPF business under curatorship until 13 December 2013 (when the Heaton Nicholls judgment was delivered);
  • Exclusion of the services of A L Mostert Inc relates only to services of a litigious nature where the law firm is instructed to act as attorney for the curator or the fund in legal proceedings;
  • The phrase “costs of the curator” will include not only the remuneration of the curator but also the legal costs of the curator including the payments of the fees and the disbursements of A L Mostert Inc;
  • Where the order says that the costs of the curator (cited in the counter-application) are disallowed and he is not entitled to recover these costs from any party to the proceedings, the FSB wants added that the curator is nevertheless “not deprived of his curator’s remuneration in respect of this part of the matter”.