Nedbank is bracing for protracted legal battle with Transnet SOC and the Special Investigations Unit (SIU) over their intention to sue the banking group in a bid to recover R2.7 billion in interest rate swops dating back to the State Capture era in 2015/16.
This comes as the bank on Friday stated that the return on equity of 15.5% earned from the swops was market related and amounted to less than R43 million.
The SIU and Transnet announced on Friday that they were suing Nedbank for recovery of R2.7bn they claimed were proceeds of transactions from Transnet’s multi-billion rand locomotives procurement project where the bank was allegedly involved in restructuring the interest on the debt used to fund its freight rail and port operations, while the bank would receive fees for doing so.
Interest rate swop transactions are typically concluded by large companies, banks and financial institutions to manage interest rate risk. No principal capital amount is exchanged; only the interest payment obligations are made.
Transnet’s executive manager for governance, Peter Volmink, testified in May 2019 that the capture of Transnet happened through a process that was designed to override controls such as deviating from open bidding processes.
In a statement, Transnet and the SIU said the interest rate swop transactions featured under the report of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector formed part of a greater scheme to misappropriate and divert public funds from Transnet to Gupta-linked entities.
“There is sufficient basis for the sought relief and Nedbank must account for its involvement and conduct in the swop transactions. Transnet and the SIU collaborated closely in preparation of the court proceedings, and this included SIU’s uncovering of evidence critical to the case,” they said.
Nedbank has said to date, no evidence has been found, or presented to it of any staff dishonesty, corruption or collusion.
“Nedbank stands by its previous statement on the matter Termination of Nedbank/Transnet mediation. To the extent that there was corruption this was on the part of the Regiments Group and Transnet’s staff members and not Nedbank. Nedbank will not be held liable for any governance failures at Transnet,” it said in a statement.
Rob Thackwell, director at Thomson Wilks Attorneys, said he was not aware of a precedent in the country of any other case in South Africa which has a similar fact pattern to this matter or even where a litigant sought to have an interest rate swop transaction reviewed and set aside.
“The Nedbank case, I suspect, will be factually and legally novel in a number of respects,” Thackwell said.
He said the matter was likely to be protracted for several reasons, including multiple interested parties, which may intervene or be joined to the proceedings, potentially leading to numerous interlocutory hearings.
Thackwell also said extensive discovery might be a factor, as both both sides were likely to seek comprehensive document disclosure, which could result in additional preliminary hearings and delays as well as the introduction of expert testimony, possibly to assess the reasonableness of Nedbank’s profits on the swop transactions, which may add complexity to the case.
He said disputes of fact, the appeal process as it is likely that any initial judgment will be appealed, as well as practical challenges and current court backlogs could also lengthen the process.
“I would not be surprised if this matter ended up in the Constitutional Court in five or more years,” Thackwell said.
Asked on the likely precedence to be set by the matter as it arose from the state capture report, Thackwell said while it was challenging to predict specific precedents at this stage, “court decisions on matters emanating from the State Capture Report could potentially set important legal precedents across various broad areas including public procurement processes and corporate liability”.
“However, each case will be judged on its own merits and specific circumstances. The fact that a case originated from or was somehow linked to the State Capture Report does not mean it will receive special treatment or set unique precedents,” he said.
Nedbank already faces a similar complaint by Airports Company South Africa (Acsa) which has referred the bank to the SIU over its role in the interest rate swop deals.
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