Fedbond Participation Mortgage Bond Managers (Pty) Ltd v Investec Employee Benefits Ltd and Others

Fedbond, the manager of a collective investment scheme in participation mortgage bonds, concluded a written agreement in 1997 with Fedsure Life Assurance Ltd (later renamed Investec Employee Benefits Ltd (IEB)) to invest funds on its behalf in the scheme for a minimum period of five years. Between 1997 and 2000, Fedsure invested R46 030 000 through multiple payments. After the expiry of the five-year period, IEB gave three months’ written notice in July 2006 to withdraw the full investment. Portions of the investment were later ceded to Capital Alliance Life Ltd and Channel Life Ltd, and Fedbond was notified of these cessions. Fedbond neither consented to nor refused the withdrawal or cessions, and failed to provide reasons. Instead, it later resisted payment, alleging a tacit ‘common understanding’ that the investments were long-term and would not be withdrawn in a lump sum. The High Court ordered Fedbond to pay the amounts claimed with interest. Fedbond appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel.

The case affirms the strict application of the parol evidence rule in South African contract law, particularly in regulated financial arrangements. It clarifies the obligations of managers of collective investment schemes in participation bonds, holding that silence or inaction in response to a withdrawal notice amounts to withholding consent without reasons and is unlawful. The judgment strengthens investor protection by confirming that managers cannot evade payment obligations by relying on alleged tacit understandings inconsistent with written agreements and statutory rules.