IN THE HIGH COURT OF SOUTH AFRICA
(TRANSVAAL PROVINCIAL DIVISION)

Date: 15/05/2007 
Case No: 18952/06

UNREPORTABLE

In the matter between:
SOUTH AFRICAN FORESTRY COMPANY LIMITED
Applicant
And
MOMENTUM LIFE ASSURERS LRTD
RAND MERCHANT BANK ASSET MANAGEMENT
First Respondent Second Respondent

JUDGMENT
												
HARTZENBERG, J
[1] The applicant ("plaintiff') applies, in terms of Rule 28(4) of the Rules of
Court, for leave to amend its particulars of claim. The respondents ("defendants")
object to the proposed amendment, on the basis that the amended particulars of claim
will be vague and embarrassing. This is the second proposed amendment. The
defendants gave notice of objection to the original particulars of claim.
When,
thereafter, the plaintiff, on two occasions attempted to amend them, they again gave
notice of objection alleging that the proposed amendment will render them vague and
embarrassing. The defendants persist with the objection.

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[2] The plaintiff had a medical aid fund for its employees ("the plaintiff's
fund"). On the advice of the second defendant, who was also authorised to act on
behalf of the first defendant, the plaintiff, who looked for an income tax free
investment, agreed to invest the capital of its fund with the first defendant. A written
policy was issued, on 17 August 1995. At that time the definition of "benefit fund" in
the Income Tax Act was wide enough to include the plaintiffs fund. Paragraph (c) of
the definition in section 1 of "benefit fund" read:
"Any fund (other than a pension fund, provident fund or retirement annuity
fund) which, in respect of the year of assessment in question, the commissioner
is satisfied is a permanent fund bona fide established for the purpose of
providing sickness, accident or unemployment benefits for its members, or
mainly for such a person and also for the purpose of providing benefits for the
dependents or nominees of deceased members. "
[3] Paragraph (c) was deleted with effect from 1 January 2000 in terms of the
Taxation Laws Amendment Act, 30 of 1998.
The result was that the plaintiff s
contributions to the fund were no longer a general deduction allowed under section
11(1) of the Income Tax Act and the plaintiffs fund's receipts and accruals were no
longer tax exempt under section 10(1)(d)(ii) of the Income Tax Act.
[4] The first defendant as a long term insurer was obliged in terms of section 29
of the Income Tax Act to establish four separate funds. For the purposes of this
judgment it is only necessary to refer to the "untaxed policyholder fund" created in
terms of the provisions of section 29(4)(a). That was the fund in which the plaintiffs
fund was invested. It is also necessary to mention that after the investment of the

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plaintiff s fund in that fund, those monies became an asset of the first defendant.
Should any tax have become payable the entity liable for payment thereof, was the first
defendant.
[5] The plaintiffs main claim is for performance by the first defendant in terms
of the policy contract between the plaintiff and the first defendant of an amount of
approximately R3,8 million. It has a conditional alternative claim against the second
defendant, which is not relevant for the purposes of this judgment. In a nutshell its case
against the first defendant is that the whole basis for the investment was that it had to be
tax free1. It is then alleged that the agreement between the parties does not provide that
the first defendant will be entitled, in case of a change in the tax liability of funds like
the plaintiff s fund, to deduct tax so paid by it, from the plaintiff s fund.
The
allegation proceeds that the first defendant did deduct the R3,8 million tax paid by it, by
cancelling 588,510.350 units and that it was not entitled to do so. In the process the
plaintiff actually negates a possible defence which the first defendant may raise i.e. that
on a proper construction of the contract it must be entitled to deduct the tax paid from
the plaintiff s fund.
[6] Salient features of the policy are:
6.1 That the plaintiffs fund is to make contributions to the first defendant but
that in terms of an agreement between the first defendant and the second  
				
1 In the particulars of claim factual averments to substantiate such basis are made.

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defendant, the second defendant will manage the administration of the
plaintiff's fund.
6.2 Contributions made by the plaintiff's fund were to be invested in the
Johannesburg Stock Exchange but would be kept apart and would be known as
the "Investment portfolio” 2.
6.3. All investment income would form part of the Investment portfolio but all
expenses with regard to the purchase and sale of the investments, were to be
debited to the investment portfolio (the plaintiff's fund) 3
6.4 The plaintiff's fund would be liable to pay an investment managing fee on
an agreed basis4.
6.5 The plaintiff would be entitled to terminate the policy on seven days' notice
and to payment of the market value of the investment5
6.6 The first defendant was entitled, unilaterally, to amend the provisions of the
policy after one calendar month's written notice. The plaintiff, however, would
be entitled to terminate the policy in terms of the provisions of clause 10 if it
considered the amendment prejudicial to it, in which case the amendment would
not come into effect. The specific clause further provides:
"Should the statutory authorities introduce measures which affect the
policy, or should the fund cease to be an approved fund for the purposes
of income tax legislation, Momentum Life may make such amendment to
the policy as it considers appropriate. Momentum Life shall notify the
fund of such amendments in writing.” 6
2 Clause 4.1 and 5.1. 
3 Clause 5.2
4 Clauses 7.1 and 7.2
5 Clause 10.1
6 Clause 11.3

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[7] The plaintiff alleges that the first defendant only gave notice of one
amendment to the provisions of the policy. The amendment changed the period of
notice of termination of the policy from 7 days to one calendar month. It further
provided, that the market value of the plaintiffs fund was to be calculated at the expiry
of the period.
[8] In paragraph 10 of the proposed particulars of claim the plaintiff states that
on a proper interpretation of the policy against the stated background facts it provided
for certain express, implied and tacit terms. In paragraph 10.10 it is stated that neither
the expenses in clause 5.2 nor the management fee in clause 7.1 provide that the first
defendant can deduct its tax liability from the plaintiffs fund. In paragraph 10.11 the
plaintiff alleges that the first defendant was not entitled to cancel some of the plaintiff s
units to recover the income tax. In paragraph 10.12 the plaintiff states that it was a tacit
term of the policy that the plaintiff would not recover income tax on income earned on
the plaintiffs fund and paid by it without amending the policy as provided for in the
policy.
[9] In my view the plaintiff s claim is clear. The plaintiff says that the first
defendant deducted the income tax which became payable by it, in respect of income
and accruals earned by its (the plaintiffs) fund contrary to the provisions of the policy.
Although in terms of the policy the parties foresaw a possible change in the tax status
of the plaintiff s fund they did not stipulate how such a change was to be dealt with
other than to give to the first defendant the unilateral right to change it as it wished
subject to the plaintiff s right to terminate the policy if it regarded the amendment
prejudicial to it. There is no express term in the policy that the first defendant could

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deduct the tax. It can be argued that there was a clear failure by the parties to deal with
an aspect which they had in their contemplation and that the officious bystander would
have had a ready answer if asked what would happen in case of payment of tax by the
first defendant. Obviously the first defendant thinks that he would have said that it is
unfair that the first defendant is to pay tax on the plaintiffs income. In my view it is
equally possible that that he might have said that a change in the tax status will have
serious repercussions and that it is for the first defendant to address the issue by giving
notice of an amendment of the policy to alert the plaintiff of the change, to afford it an
opportunity to decide if it wanted to terminate the policy or not and that in the case of a
failure by the first defendant to do so it would not be entitled to saddle the plaintiff with
any tax paid by it.
[10]  I agree with Mr. du Plessis that the particulars of claim, if amended will not 
be vague or embarrassing. The defendants know exactly what the plaintiff s case is. I
agree with Mr. du Plessis that the first two objections on the ground that the particulars
of claim are vague and embarrassing must be seen in the context of the alleged
development of the negotiations between the parties. If they want to, they can plead.
[11] The defendants' real complaint is the third ground of objection which really boils
down thereto that the particulars of claim will not disclose a cause of action against the
first defendant. Although that is, strictly speaking, not the basis of the objection, I am
of the view, that if there is merit in the argument, that the court must deal with it. On
that basis I cannot agree with Mr. van der Linde that the contract is clear and
unambiguous. The parties did not expressly agree how a possible future payment of tax
by the first defendant was to be handled. It would be wrong, at this stage, to declare

--	-	-
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categorically that the agreement clearly provided that the first defendant would be
entitled to debit the plaintiff s fund with the tax. There is room that a court may find
that the terms alleged by the plaintiff were indeed tacit terms of the agreement. In order
to be able to do so the court will have to be fully informed about the background facts,
through evidence. In my view, the plaintiff s proposed particulars of claim constitute a
useful basis from which the parties can define the exact issues i.e. what were relevant
background facts and what not and whether the agreement is clear and unambiguous or
whether there are tacit terms which are to be incorporated in the agreement. As I have
already indicated, there is even scope for a situation where the defendants will have to
have a tacit term inferred, to the effect that they were entitled to debit the plaintiff s
fund with the tax.
1. The Plaintiff s particulars of claim are amended in accordance with the
Plaintiff s second notice of intention to amend its particulars of claim, dated
25 October 2006.
2. The Defendants are ordered to pay the costs occasioned by their opposition
to the application.
J}HARTZENBERG
	THE HIGH COURT

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Date of Hearing:
08/05/2007
Representation
For the Applicants:
Adv. S Du Plessis (SC)
Attorneys:
Roestoff Venter & Kruse
For the Respondents: Adv. S W H G Van cler Linde (SC)
	Adv. D G Leibowitz
Attorneys:
Friedland Hart & Partners