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[2015] ZASCA 4
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City of Johannesburg and Others v South African Local Authorities Pension Fund and Others (20045/2014) [2015] ZASCA 4; (2015) 36 ILJ 1439 (SCA) (9 March 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 20045/2014
In
the matter between:
THE
CITY OF
JOHANNESBURG
..................................................................
FIRST
APPELLANT
THE
EXECUTIVE MAYOR OF THE CITY
OF
JOHANNESBURG
.................................................................................
SECOND APPELLANT
JOHANNESBURG
WATER (PTY)
LIMITED
..............................................
THIRD
APPELLANT
CITY
POWER JOHANNESBURG (PTY)
LIMITED
..............................
FOURTH
APPELLANT
JOHANNESBURG
CITY PARKS
LIMITED
.................................................
FIFTH
APPELLANT
PIKITUP
JOHANNESBURG (PTY)
LIMITED
.............................................
SIXTH
APPELLANT
and
THE
SOUTH AFRICAN LOCAL AUTHORITIES
PENSION
FUND
.............................................................................................
FIRST
RESPONDENT
INDEPENDENT
MUNICIPAL AND ALLIED TRADE
UNION
.......................................................................................................
SECOND RESPONDENT
SOUTH
AFRICAN MUNICIPAL WORKERS UNION
...........................
THIRD
RESPONDENT
THE
POLICE, PRISONS AND CIVIL RIGHTS UNION
....................
FOURTH
RESPONDENT
DIMAKATSO
AME MNGOMEZULU
......................................................
FIFTH RESPONDENT
AARON
VULENI
VILAKAZI
.....................................................................
SIXTH
RESPONDENT
MOKABI
JOHANNES
MAKGATO
.....................................................
SEVENTH
RESPONDENT
eJOBURG
RETIREMENT
FUND
...........................................................
EIGHTH
RESPONDENT
Neutral
citation:
The City of Johannesburg v
The South African Local Authorities Pension Fund
(20045/2014)
[2015] ZASCA 4
(9 March 2015).
Coram:
Brand, Cachalia, Bosielo, Saldulker JJA and Van
der Merwe AJA
Heard:
25 February 2015
Delivered:
9 March 2015
Summary:
Application to set aside decision by
the appellants as employers to terminate their contributions to the
first respondent as a pension
fund – objection
in
limine
raised by the appellants that
employees whose membership of that fund had thus been terminated
should have been joined as parties
to the litigation –
objection of non-joinder dismissed by court a quo, but upheld on
appeal.
ORDER
On
appeal from:
Gauteng Local Division,
Johannesburg (Foulkes-Jones AJ sitting as court of first instance):
1 The appeal is
upheld with costs, including the costs of two counsel.
2 The order of the
court a quo is set aside and replaced with the following:
‘
(a)
The application is stayed for a period of three months pending the
joinder of members and former members of the first applicant
whose
rights may be affected by the order sought.
(b) The applicants
are ordered, jointly and severally, to pay the wasted costs of the
respondents occasioned by the hearing of the
matter on 7 August 2012,
including the costs of two counsel, wherever applicable.
(c) In the event of
the joinder referred to in (a) not taking place, the application is
dismissed with costs, including the costs
of two counsel, wherever
applicable.’
2
The three month period referred to in paragraphs 2(a) and (c) shall
be calculated from the date of this order.
JUDGMENT
Brand
JA
(Cachalia, Bosielo, Saldulker JJA
and Van der Merwe AJA concurring):
[1]
The first appellant is the City of Johannesburg (the City). The
third, fourth, fifth and sixth appellants are so-called ‘utilities,
agencies and corporatized entities’ (UACs). These UACs were
created during about 2000 as separate corporate bodies, wholly
owned
by the City, to render services previously performed by the City
itself within its municipal area. So, for example, the third
appellant is Johannesburg Water (Pty) Ltd, the fourth appellant is
City Power Johannesburg (Pty) Ltd, which names are indicative
of
their activities. The first respondent is the South African Local
Authorities Pension Fund (SALA) which is mainly a pension
fund for
the employees of local authorities. The second, third and fourth
respondents are trade unions who represent some of the
members of
SALA while the fifth, sixth and seventh respondents are individual
members of that fund.
[2]
Prior to 1 January 2005 the City and the UACs (collectively referred
to as the employers) were contributing employers in SALA
and as such
paid contributions to the fund in accordance with its rules. However,
on 30 June 2004 the employers gave notice to
the SALA of their
intention to cease participation in the fund; to terminate their
contributions on behalf of employees who were
members of SALA; and
instead, with effect from 1 January 2005, to pay their contributions
to another pension fund – eJoburg
Retirement Fund (eJoburg)
only. During May 2005 the respondents brought an application in the
Gauteng Local Division of the high
court, Johannesburg, to challenge
that decision. In their notice of motion, the respondent sought
relief in two parts. Part A was
for interim relief to restore the
status quo ante
pending
the finalisation of Part B which, in turn, sought the setting aside
of the employers’ decision to terminate their
contribution to
SALA. Part A was resolved by agreement. Hence the matter proceeded
exclusively in terms of Part B. Although the
appellants’
answering papers were filed in June 2007, the respondents only filed
their replying affidavits three and a half
years later, in December
2010. Eventually, on 7 August 2012, the matter came before
Foulkes-Jones AJ, who gave her judgment more
than a year later, in
October 2013.
[3]
As the basis for their application in the court a quo, the
respondents relied on various grounds. Stripped to its essence, their
case was that the employers acted in breach of obligations resting on
them in statute, contract, administrative law and labour
legislation
when they decided to terminate their contributions to SALA and that
the decision was in consequence a nullity. In answer,
the employers
denied that their impugned decision was subject to challenge on any
of these grounds. In addition, they raised a
point
in
limine
based on the respondents’
failure to join the employees who were members of SALA at the time of
the decision. Foulkes-Jones
AJ dismissed the employers point
in
limine
and found in favour of the
respondents on every other ground that they raised. So it happened
that about eight years after the employers
implemented their decision
to transfer their contributions from SALA to eJoburg, that decision
was set aside. The appeal against
that judgment is with the leave of
the court a quo. If we hold for the respondents on any one of the
manifold grounds upon which
they succeeded in the court a quo, the
appeal must fail. But the antecedent enquiry must focus on the
non-joinder issue. That flows
from the established principle that a
court will refrain from dealing with any issue which may impact on
the interests of parties
who should have been joined.
Non-joinder
[4]
The merits of the non-joinder contention have to be considered
against the following background facts. In terms of the rules
of
SALA, employee-members are obliged to make monthly contributions
expressed as a percentage of their annual income, while the
employers
have bound themselves to pay an amount equal to 2,04 times that of
the employers’ contributions. It is well-established
that the
fund, the members and their employers are contractually bound by
these rules (see eg
Chairman of the
Board of the Sanlam Pensioenfonds (Kantoorpersoneel) v Registrar of
Pension Funds
2007 (3) SA 41
(T) para
34;
Ekurhuleni Metropolitan Municipality
v Germiston Municipal Retirement Fund
2010
(2) SA 498
(SCA)). As I have said by way of introduction, the notice
to terminate took effect as from 1 January 2005. As from that date,
the
employers ceased to make any contribution to SALA and started to
pay their contributions to eJoburg instead.
[5]
In theory, employee-members were free to keep up their contributions
to SALA. But that would have been rather foolhardy, because
they
would have foregone the benefit of their employers’
contributions. Effectively members of SALA who were employed by
the
City and the UACs, therefore ceased to be active members of SALA and
at least some of them became contributing members of eJoburg.
Yet,
the accrued benefits of these terminating members were not
transferred to eJoburg. Accordingly they continued to retain their
membership in SALA on a non-contributory ‘paid-up’ basis.
As at 1 January 2005 the total number of terminating members
was 297.
Some eight years after the decision was taken and at the time the
matter was argued in the court a quo, only 118 of the
original 297
terminating members remained in the employ of their employers.
[6]
In their founding papers, the respondents contended that the effect
of the employers’ decision to transfer their allegiance
from
SALA to eJoburg would be prejudicial to the greater majority of the
terminating members. Even then they had to concede, however,
that
some members would in fact benefit from the transfer. The contrary
position, taken by the employers in their answering papers,
was that
the transaction would be to the benefit of most of these members.
This position was supported by the consultant actuary
to the eJoburg
Fund. To these contentions the respondents’ answer in reply was
that ‘. . . this is not the point nor
is it, in truth, a
relevant consideration . . .’ whether the members involved are
better off with eJoburg than they were
with SALA. Regarding the
merits of the dispute between the parties, ie whether the impugned
decision by the employers to terminate
the contributions to SALA was
validly taken, the respondents are probably correct. But as I see it
the fact that the relief sought
could very well prejudice the
interests of terminating members is indeed relevant for purposes of
considering the non-joinder point.
[7]
Moreover, it is common cause that while SALA is a defined benefit
fund, eJoburg is a defined contribution fund. Since the impugned
decision came into effect, contributions to eJoburg have therefore
been allocated to members and invested with fund managers on
their
behalf. It stands to reason that reversion to SALA is likely to
prejudice these members. In addition, benefits have been
paid out to
retired members and to the beneficiaries of those who have since
died. In these circumstances it is not possible to
say what the
consequences of the order sought would have on these individual
members. It is not unlikely, however, that it would
be to their
detriment.
[8]
Uncertainty as to the effect of the order also arises from the
general nature of the order itself. Although the content of the
order
is rather verbose and wordy, it declares in essence that the
employers’ decision to withdraw from SALA is set aside
as
‘unlawful and invalid’ and ‘of no force and
effect’. But its impact on the rights and obligations of
SALA,
the employers, the employee-members and eJoburg,
inter
se
is left obscure. So, for example,
the order says nothing about the arrear contributions to SALA which
would have accumulated over
the interim period of about eight years
between implementation of the impugned decision and the order.
Counsel for both parties
were in agreement that the order compelled
the employers to pay their arrear contributions over that period to
SALA. But what about
the employees? Are they also liable to pay their
arrear contributions despite the fact that they have in the meantime
paid their
contributions to eJoburg? And what is the position of
eJoburg? Is it bound to repay any of the contributions received from
the
employers and/or the employee-members? These obscurities,
incidentally, underscores the caveat expressed in
Oudekraal
Estates (Pty) Ltd v City of Cape Town & others
2004
(6) SA 222
(SCA) para 45, that it is generally inappropriate for a
court to make declarations in a vacuum. But more pertinent for
present
purposes is the prospect that the order could potentially
have an even more prejudicial effect on the rights and interests of
the
terminating members than a first glance would seem to indicate.
[9]
As to the relevant principles of law, it has by now become
well-established that, in the exercise of its inherent power, a court
will refrain from deciding a dispute unless and until all persons who
have a direct and substantial interest in both the subject
matter and
the outcome of the litigation, have been joined as parties (see eg
Amalgamated Engineering Union v Minister
of Labour
1949 (3) SA 637
(A) at 657
and 659;
Gordon v Department of Health,
KwaZulu-Natal
[2008] ZASCA 99
;
2008 (6) SA 522
(SCA)
para 9). A ‘direct and substantial interest’ is more than
a financial interest in the outcome of the litigation.
A test often
employed to determine whether a particular interest of a third party
is the one or the other, is to examine whether
a situation could
arise in which, because the third party had not been joined, any
order the court might make would not be
res
judicata
against that party, entitling
him or her to approach the court again concerning the same subject
matter and possibly obtain an
order irreconcilable with the order
made in the first place (see eg
Amalgamated
Engineering Union
at 661;
Transvaal
Agricultural Union v Minister of Agriculture and Land Affairs &
others
2005 (4) SA 212
(SCA) paras
64-66).
[10]
On the application of these principles of law to the facts, it would
appear on the face of it that the appellants’ non-joinder
objection is a valid one. From what I have said so far, it should be
apparent that the order sought and obtained by the respondents
would
probably have a detrimental effect on the rights and interests of at
least some of the terminating members. As I see it,
the
res
judicata
test demonstrates that these
affected rights are direct and substantial. Take the example of a
terminating member who seeks to compel
his or her employer to
continue its contributions to eJoburg instead of SALA. If successful,
the order thus obtained by the terminating
member would be in direct
conflict with the one made in this case. And what if SALA were to
insist that the employers deduct employees’
contributions that
were not made since 1 January 2005 from the salaries of the
terminating members? If a terminating member were
to challenge that
demand in court, the order made in this case would not be
res
judicata
and the ensuing litigation
could therefore result in a conflicting order. I am fortified in this
view by the decision of the English
Court of Appeal in
Edge
v Pensions Ombudsman
[1999] 4 All ER
546
(CA). What the court essentially held in that case was that
contributing employers and members in a pension fund have a legal
interest
in the outcome of disputes concerning their rights and
obligations
vis-à-vis
the fund and that disputes of that kind can consequently not be
entertained without them being joined as parties.
[11]
Contrary to my view formulated thus far, the court a quo held that
the appellants’ non-joinder objection was not well-founded.
According to the court’s judgment, this conclusion was
exclusively motivated by its understanding of
s 7C(2)
of the
Pension Funds Act 24 of 1956
which provides in relevant part:
‘
(2)
In pursuing its object
[which in terms of
subsection (1) is to direct, control and oversee the operations of a
fund]
the board [of the fund] shall-
(
a
) take all
reasonable steps to ensure that the interests of members in terms of
the rules of the fund and the provisions of this
Act are protected at
all times . . .;
(
b
) act with
due care, diligence and good faith;
(
c
) avoid
conflicts of interest;
(
d
) act with
impartiality in respect of all members and beneficiaries.
(
e
) act
independently;
.
. . .’
[12]
Starting out from these provisions, the reasoning of the court a quo
went as follows:
‘
The
board of management of the First Applicant has a statutory and common
law duty to act in the best interests of First Applicant
and its
members in terms of
Section 7C(2)
of the
Pension Funds Act.
This
matter involves
exactly what is contemplated in
Section 7C(2)
of the
Pension Funds
Act (the
Act).
The Act does not
require authorisation by individual members to do so. Section 1 of
the Act defines ‘members’ to include
‘former
members’.
Respondents contend
that the members of the First Applicant ought to have been joined.
This would involve, so contend the First
Applicant, possibly hundreds
of members.
It
is correct that the Board of Management of First Applicant has a
statutory and common law duty to act in the best interests of
the
First Applicant and its members . . . The Act indeed does not require
authorisation by individual members to do so. I therefore
do not
uphold the City’s objection to the First Applicant’s
authority to bring the action and on the issue of non-joinder.’
[13]
But I do not agree with the notion that s 7C(2) entitles a
pension fund or its board to litigate on behalf of its members.
Section 7C deals with the object of the board, which is to direct and
control the operations of the fund. Subsection (2) then proceeds
to
give guidance to the board as to how that object should be pursued.
In so far as the section enjoins the trustees to act in
the interests
of members, it must therefore be understood in the context of steps
taken in the direction, control and oversight
of the fund. It does
not appoint the board as the agent or representative of members to
conduct litigation on their behalf, even
against the wishes of
individual members. As illustrated by the facts of this case, the
interests of all the members of a fund
do not always coincide.
Furthermore, there is the obvious potential of a conflict between the
interests of the fund, on the one
hand, and those of its members, on
the other. Section 7C(2) cannot possibly be understood to preclude
the individual members in
the event of such conflict to contest the
actions of the board, which would be the consequence of the
interpretation attributed
to the section by the court a quo.
[14]
The court a quo’s reference to the joinder of ‘possibly
hundreds of members’ is not understood. As I have
said when
setting out the pertinent facts, the terminating members were never
more than 297 and at the time of the hearing of the
application, only
118 of them remained. Moreover, what I find somewhat ironic when it
comes to numbers is that the respondents
had no difficulty in joining
135 contributing employers, while their risk of being prejudiced by
the order sought was far less
than that of the terminating members.
But, be that as it may, as a matter of principle, once joinder is
found necessary, it cannot
be avoided solely on the basis of the
numbers involved.
[15]
On appeal the respondents relied on a further contention, namely,
that the terminating members need not have been joined because
they
were represented by the three trade unions that were cited as
applicants in the court a quo. If supported by the facts, this
contention could have given rise to interesting questions of
procedure. For instance, whether a trade union can conduct litigation
on behalf of its members outside the ambit of s 38 of the
Constitution and outside the institutions created by the
Labour
Relations Act 66 of 1995
. But the contention founders on the facts.
Nowhere in the papers is it alleged that all the terminating members
were also members
of one of the three trade unions cited as
applicants. On the contrary, the pertinent allegation is that only
some of the terminating
members belong to the trade unions involved.
[16]
The respondents’ final argument in answering the non-joinder
point went along the following lines. Even on the assumption
that the
non-joinder objection is sound when considered with reference to the
respondents’ case based on statute, administrative
law and
labour legislation, it breaks down when it comes to the case based on
contract. This, so the argument went, is because
the respondents’
contractual claim rests on the proposition that the rules of the fund
constitute a contract between SALA
and the employers and that the
latter had acted in breach of this contract when they decided to
terminate their contributions.
Since the terminating members are not
implicated in the alleged breach, so the argument concluded, they are
not involved in the
dispute. In consequence the dispute can be
determined without them being joined.
[17]
I believe the flaw in this argument lies in its exclusive focus on
the subject matter of the dispute based on contract, while
the
relevant legal principles dictate that we must also have regard to
the outcome. If, for example, the respondents’ claim
based on
the alleged breach of contract were to have been one for damages, the
conclusion would probably be justified that the
terminating members
are not affected by the claim and that they therefore need not be
joined. But the respondents’ claim
is not for damages. It is,
in a sense, for specific performance of tripartite contracts –
with the terminating members as
the third parties – based on
the proposition that, because the employers’ cessation of
paying contributions to SALA
constituted a breach of contract, that
cessation must be reversed. In the light of what I have said so far,
my view is that the
terminating members had a direct and substantial
interest in the relief that the respondents sought and obtained from
the court
a quo. I therefore conclude that the non-joinder point
raised by the appellants
in limine
should have been upheld and that the appeal must therefore succeed.
[18]
In the result:
1 The appeal is
upheld with costs, including the costs of two counsel.
2 The order of the
court a quo is set aside and replaced with the following:
‘
(a)
The application is stayed for a period of three months pending the
joinder of members and former members of the first applicant
whose
rights may be affected by the order sought.
(b) The applicants
are ordered, jointly and severally, to pay the wasted costs of the
respondents occasioned by the hearing of the
matter on 7 August 2012,
including the costs of two counsel, wherever applicable.
(c) In the event of
the joinder referred to in (a) not taking place, the application is
dismissed with costs, including the costs
of two counsel, wherever
applicable.’
2 The three month
period referred to in paragraphs 2(a) and (c) shall be calculated
from the date of this order.
________________
F
D J BRAND
JUDGE
OF APPEAL
APPEARANCES
:
For
the Appellant: M S M Brassey SC and D L Wood
Instructed by:
Bowman Gilfillan Inc
Johannesburg
c/o
Matsepes Inc, Bloemfontein
For
the Respondent: N M Arendse SC and S Khumalo
Instructed by:
Thipa Inc Attorneys
Johannesburg
c/o
Honey Attorneys, Bloemfontein