About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2015
>>
[2015] ZASCA 172
|
|
South African Local Authorities Pension Fund v Msunduzi Municipality (994/2013) [2015] ZASCA 172; 2016 (4) SA 403 (SCA) (26 November 2015)
Links to summary
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 994/2013
DATE: 26 NOVEMBER 2015
Reportable
In the matter between:
SOUTH AFRICAN LOCAL AUTHORITIES
PENSION FUND
.................................
APPELLANT
And
MSUNDUZI
MUNICIPALITY
......................................................................................
RESPONDENT
Neutral Citation: South African
Local Authorities Pension Fund v Msunduzi Municipality (994/2013)
[2015] ZASCA 172
(26 November 2015)
Coram: Lewis, Ponnan, Theron, Willis
and Mathopo JJA
Heard: 16 November 2015
Delivered:26 November 2015
Summary: Where a pension fund seeks to
rely on an amended rule in claiming contributions to members’
benefits from employers,
it must show that the rule was amended in
accordance with
s 12
of the
Pension Funds Act 24 of 1956
: absolution
from the instance rightly granted where the South African Local
Authorities Pension Fund did not adduce any evidence
to show that it
had complied with the Act and its own rule, and thus that the
approval of the amendment by the Registrar of Pension
Funds was
valid.
ORDER
On appeal from: KwaZulu-Natal High
Court, Pietermaritzburg (Gyanda J sitting as court of first
instance).
The appeal is dismissed with costs
including those of two counsel where so employed.
JUDGMENT
Lewis JA (Ponnan, Theron, Willis and
Mathopo JJA concurring)
[1] In 2008, the appellant, the South
African Local Authorities Pension Fund (the Fund) instituted action
in the KwaZulu-Natal High
Court, Pietermaritzburg, against the
respondent, the Msunduzi Municipality (the Municipality), for payment
of some R324 000 plus
interest. This sum was claimed as the
Municipality’s arrear contribution, in its capacity as
employer, in respect of employee
members’ pension benefits. The
action was one of a number brought against several municipalities on
the same basis.
[2] The Fund relied in its particulars
of claim on an amendment to the Pension Fund Rules which, it alleged,
allowed for an increase
in the Municipality’s contribution and
which the Municipality refused to pay. The trial before the high
court commenced in
May 2013. At the end of the Fund’s case, and
after the evidence of one witness for the Fund was led, the
Municipality applied
for absolution from the instance, which was
granted by the trial judge, Gyanda J. He held that the Fund had
failed to put up a
prima facie case showing that the amendment had
been validly adopted by the Board of Trustees of the Fund, and
approved by the
Registrar of Pension Funds (the Registrar).
The relevant statutory provisions and
rules of the Fund
[3] Before dealing with the particulars
of claim that form the basis of the Fund’s action, it is useful
to consider
s 12
of the
Pension Funds Act 24 of 1956
, as well as
Rule
2.3.1
of the Fund rules, both of which which deal with the amendment
of rules. The rule provides:
‘The Trustees may by resolution
amend these rules (which shall include, if necessary and after
consultation with the Valuator,
reducing Members’ benefits in
respect of future service or increasing Members’
contributions). No amendment to the
Rules by the Fund may be made
unless the amendment has been approved by the Registrar of Pension
Funds.’
[4] The rule is consonant with
s 12
of
the Act. The relevant provisions read:
‘12. Amendment of rules
(1) A registered fund may, in the
manner directed by its rules, alter or rescind any rule or make any
additional rule, but no such
alteration, rescission or addition shall
be valid -
(a) if it purports to affect any right
of a creditor of the fund, other than as a member or shareholder
thereof; or
(b) unless it has been approved by
the registrar and registered as provided in sub-section
(4). [My emphasis.]
(2) Within 60 days from the date of the
passing of a resolution adopting the alteration or rescission of any
rule or for the adoption
of any additional rule, a copy of such
resolution shall be transmitted by the principal officer to the
registrar, together with
the particulars prescribed.
. . .
(4) If the registrar finds that any
such alteration, rescission or addition is not inconsistent with this
Act, and is satisfied
that it is financially sound, he shall register
the alteration, rescission or addition and return a copy of the
resolution to the
principal officer with the date of registration
endorsed thereon, and such alteration, rescission or addition, as the
case may
be, shall take effect as from the date determined by the
fund concerned or, if no date has been so determined, as from the
said
date of registration.
(5) A registered fund may at any time
consolidate its rules, and in such event the principal officer shall
forward to the registrar
a copy of such consolidated rules and if the
registrar is satisfied that the consolidated rules are not different
from the existing
rules of the fund, the registrar shall register
such consolidated rules and return a copy thereof to the principal
officer with
the date of registration endorsed thereon, and such
consolidated rules shall take effect as from the date determined by
the fund
concerned or, if no date has been determined, as from the
date of registration thereof.
(6)(a) The registrar may request such
additional information in respect of any alteration, rescission,
addition or consolidation
of the rules of a registered fund
transmitted or forwarded to the registrar for approval as the
registrar may deem necessary.
(b) If a registered fund fails to
furnish the information requested by the registrar within 180 days
from the date of that request,
any submission for approval of an
alteration, rescission, addition or consolidation of the rules of
that fund lapses.’
[5] Thus in order for a rule amendment
to be properly made, there must be a resolution taken at a meeting of
the Board to amend
a particular rule; that resolution must be
transmitted to the Registrar within 60 days ‘from the date of
passing the resolution’
(s 12(2))
adopting the alteration, and
the Registrar must decide whether to approve that resolution. To
found a claim on an amended rule,
therefore, the Fund must prove that
a resolution has been properly adopted, transmitted to the Registrar
timeously and approved
by him or her.
[6] The power to condone non-compliance
with the time periods laid down in the Act is given to the Registrar
in
s 33(2)
, but it must be at the request of the person obliged to
perform the specified act (33(1)); and the Registrar may only extend
the
specified period in ‘special circumstances’
(s
33(2)).
(The subrules are set out above.) In terms of
s 12(6)(a)
the
Registrar may request additional information about the amendment. If
the Fund fails to provide this within 180 days of the
request, the
resolution to amend the rule lapses
(s 12(6)(b)).
The basis of the Fund’s claim
[7] I turn now to the relevant
allegations made by the Fund in its particulars of claim in the
action against the Municipality.
It alleged that the Municipality was
obliged in terms of
s 13A
of the Act to pay to the Fund any
contribution for which it was liable as employer ‘in terms of
the rules’ (para 4.2.2.2).
It further alleged (in para 5) that
on 20 August 2003, the Board duly adopted a resolution amending
rule
4.2.2
in such a way as to require the Municipality to make an
increased annual contribution to the Fund being 20,78 per cent of a
member’s
annual salary including the annual bonus (annual
salary and bonus is regarded as the pensionable salary), with effect
from 1 July
2003. The Fund attached the resolution on which it relied
as Annexure B to the particulars.
Rule 4.2.2
before the purported
amendment required a contribution of 18,07 per cent of pensionable
salary.
[8] In para 6.1 of the particulars, the
Fund alleged that by ‘letter dated 24 October 2003 and received
on 28 October 2003’,
a copy of which was attached as Annexure
C, the Fund, represented by the Fund administrator, submitted the
resolution to the Registrar
for approval. In para 6.2, which
obviously follows immediately, the Fund stated that ‘As appears
from the Registrar’s
letter of 6 July 2006, together with its
annexure, copies of which are annexed marked “D”, such
approval was granted
by the Registrar on 5 July 2006.’
[9] The Fund alleged further that the
Municipality was accordingly liable to pay the difference between the
contributions it had
paid and the amount that it should have paid
pursuant to the rule amendment. I shall revert to the details of the
additional percentage
of the contributions that it claimed, as these
give rise to some difficulty.
[10] The particulars of claim are
completely silent on what occurred between the adoption of the
resolution by the Board and the
approval of the Registrar some three
years later. We cannot glean from the particulars, and the annexures
attached, precisely when
a resolution that was approved by the
Registrar was actually taken by the Board, for the resolution of 20
August 2003 was not approved
in its terms, and no other resolution or
meeting of the Board is pleaded.
The defences pleaded
[11] The Municipality raised several
preliminary defences to the claim. Some of these, such as
prescription, that the Fund lacked
locus standi and that it had not
given notice to the Municipality, as required by the
Institution of
Legal Proceedings Against Certain Organs of State Act 40 of 2002
,
have fallen away.
[12] The substantive defence in the
amended plea amounted to a denial of the allegations in paras 5 and 6
that I have discussed
above. In amplification, the Municipality
denied the validity of the amended
rule 4.2.2.1
, stating that the
amendment effected was incompetent and unlawful; and that the
resolution adopted on 20 August 2003 was not adopted
with due
process. It did not expressly plead that the approval of the
resolution by the Registrar was invalid. The Fund replicated,
alleging inter alia that the resolution was validly adopted. The
process leading to the adoption of the resolution is not in issue
now, although I shall refer to it to explain some of the difficulties
that arise in connection with the resolution apparently approved
by
the Registrar.
[13] On appeal the Fund contends that
the validity of the approval was never placed in issue. I shall deal
with its approach on
appeal later. But it is important to state now
that at the start of the trial before Gyanda J, counsel for the
Municipality recorded
that all issues remained in dispute and the
validity of the approval was contested throughout.
The background to the purported rule
amendment
[14] The background to the purported
rule amendment providing for an increase in the employer’s
contribution is not clearly
revealed by the papers in this matter.
The Fund asks us to puzzle out the muddle in the appeal record from
correspondence with
the Registrar’s office that is randomly
placed in the record, and to which it did not refer in its heads of
argument.
[15] It appears from a reading of other
judgments dealing with this particular rule amendment (see especially
the unreported judgment
of Dolamo J in South African Local
Authorities Pension Fund v George Municipality Case No 2064/08,
handed down on 11 September
2015) and as further explained by the
Municipality’s counsel, and to be gleaned from the documents
placed before us, that
the following occurred.
[16] In 2003, and for some years
preceding that, the Fund had been in an unsound financial position.
Because of a deficit, the Fund’s
valuator made various
proposals to the Registrar that, it transpired, were not effective in
reducing the Fund’s deficit.
The valuator then proposed that
the employers’ contributions to members’ benefits be
increased by 2,5 per cent on members’
pensionable salaries,
which included the annual bonus. A scheme of arrangement pursuant to
which the increase would be adopted
was approved by the Registrar.
[17] On 9 April 2003 the principal
officer of the Fund wrote to all municipal managers in the country
advising of the proposed increase
and stating that it would implement
it over the next five years when it was anticipated that the deficit
would be settled. The
Fund advised that the increased benefits would
be payable with effect from 1 July 2003. Meetings were held by the
Fund with Provincial
Committees on which municipalities were
represented and the increase agreed. The meetings with the provincial
committees were held
at different times, mostly in 2003. The
KwaZulu-Natal committee passed a resolution accepting the increase on
13 March 2003, signed
only on 31 August 2005.
The resolutions that form the basis of
the Fund’s claim
[18] I turn now to the resolutions of
the trustees of the Fund annexed to the particulars of claim. The
rules of the Fund were annexed
to the particulars as Annexure A. The
rules are preceded by a resolution of the Fund taken at Port
Elizabeth on 25 August 2006.
The particulars of claim do not refer to
any resolution of the trustees taken in August 2006. The resolution
was, however, to adopt
consolidated rules with effect from 1 November
2006.
Rule 4.2.2.1B
provides that in the case of members of the Fund
other than municipal police (governed by A), an employer’s
contribution
for each month to the fund ‘shall be equal to
20,78 (twenty comma seven eight) per cent of such members’
annual salary
including his annual bonus.’
[19] Annexure B is the resolution of
the trustees at the meeting held in Port Elizabeth on 20 August 2003,
referred to in para 5
of the particulars. In para 2 of the
resolution, reference is made to
rule 4.2.2.1B
, and there it is said
that an employer’s current contribution is ‘R20,78
(twenty comma five seven)’ of such
member’s annual
salary including his annual bonus. The resolution was signed by the
chairman of the Board of Trustees, the
principal officer and a third
trustee on 5 May 2006.
[20] The discrepancy between the
figures and the words setting out the percentage contribution is
immediately apparent. So too is
the difference in date between the
meeting at which the resolution was purportedly adopted and the date
on which the resolution
was signed.
[21] Annexure C is the same resolution
as that reflected in Annexure B, save that it refers in both numbers
and words to 20,57 per
cent in respect of the employer’s
contribution. It is dated 10 October 2003, and is signed again by the
chairman, the principal
officer and a third trustee (the signature is
not the same as on the resolution dated 5 May 2005). It is that
resolution that was
apparently approved by the Registrar on 5 July
2006.
[22] The papers are confusing. In
particular, the Fund has nowhere made it clear what happened between
August 2003 and July 2006
when the Registrar approved the amendment.
There is no allegation that another meeting of the Board of Trustees
was held before
5 May 2005 when the resolution put up as annexure B
was signed. Nor is there any explanation why the resolution embodied
in Annexure
C is dated 10 October 2003.
The evidence before the high court
[23] The Fund called Mr Wilberforce
Kgakane, then its principal officer, to testify in support of its
claim. Much of his evidence
was not audible and it is hard to
decipher all that he said. But what was made clear was that the
resolution actually adopted is
that reflected in Annexure C, and that
was forwarded in October 2003 to the Registrar. This is the
resolution approved by the Registrar.
Kgakane also testified that
there was only one meeting of the Board of Trustees – that held
on 23 August 2003 – and
no other resolution in respect of
employers’ contributions was passed.
[24] Kgakane explained that when the
Registrar’s office had received the resolution of August 2003
it had raised numerous
enquiries about it, and correspondence had
been exchanged between the Fund’s office and the Registrar’s
office over
three years. That is why it took so long for the
Registrar to approve and register the resolution. In particular there
was a lack
of clarity about whether the resolution effected an
increase of 2,5 per cent on a member’s pensionable salary
(including
the annual bonus) or whether it was applied only to the
annual salary. It should have been the former in accordance with the
valuator’s
recommendation.
[25] The Fund’s reliance on
annexure B, signed on 5 May 2005, as the resolution approved by the
Registrar, is thus unwarranted.
Moreover, the valuator had
recommended an increase of 2,5 per cent on the pensionable salary.
That was regarded by the Fund, in
its letter to the municipalities on
9 April 2003, as being an increase of 2,71 of annual salary.
[26] Prior to the purported amendment,
employers paid an 18,07 per cent contribution in respect of an
employee’s benefits.
This was allegedly increased to 20,78 per
cent in respect of the annual salary including the bonus, but that
was not in accordance
with the valuator’s recommendation. The
correct calculation would have resulted in only a 19,18 per cent of
pensionable salary
contribution by employers. The correct calculation
was communicated to the Registrar’s office by the valuator of
the Fund,
Mr S Feldman, on 24 March 2006.
[27] Where the resolution referred thus
to 20,78 per cent it should have been in respect of only the annual
salary and not the pensionable
salary. That is neither what the rule
attached as Annexure A provides, nor what the resolution stated. So
the purported amendment
did not follow the recommendation. And it was
inherently contradictory anyway because of the discrepancy between
the numbers and
the words.
The findings of the high court
[28] Gyanda J accordingly considered
that the Fund had not made out a case that the Municipality had to
meet, and granted absolution
from the instance. Thus he did not have
to deal with the argument raised by the Fund, that has reared its
head in several of the
cases, that when a municipality seeks to rely
on the invalidity of an administrative act – the Registrar’s
approval
of the amended rule in this instance – the action
stands until it is set aside by a court on review. I shall deal with
this
contention when considering the arguments raised on appeal.
The arguments on appeal
[29] As I understand the Fund’s
approach, it is that the Registrar in fact approved a resolution to
amend the rules of the
Fund, that consolidated rules were approved
and came into effect on 1 November 2006, and that the Fund had thus
proved that
rule 4.2.2.1B
required an employer municipality to
contribute, for the member’s benefit, a monthly amount equal to
20,78 per cent of a
members annual salary including the annual bonus.
We are asked to glean from various documents the existence of a rule
amendment
made pursuant to a resolution that was approved by the
Registrar.
[30] However, as Gyanda J found, and as
the Municipality argues, the Fund is unable to show when the
resolution amending
rule 4.4.2.1B
, as now reflected in the
consolidated rules, was taken at a meeting of the Board of Trustees.
The only meeting at which the purported
rule amendment was discussed
was held on 23 August 2003. The resolution agreed to was signed only
on 5 May 2006. The resolution
in respect of the rule was
contradictory. The resolution that was actually sent to the Registrar
was signed on 10 October 2003,
and that reflected the employer’s
contribution as being 20,57 per cent of the member’s annual
salary including annual
bonus.
[31] The annexures to the particulars
of claim thus do not bear out the claims made. And the evidence for
the Fund also did not
support the particulars. The fund has failed
dismally in presenting its own case. The Municipality was accordingly
rightly held
not to have to answer the Fund’s case. The test
for granting absolution from the instance at the end of a plaintiff’s
case is set out in Claude Neon Lights (SA) Ltd v Daniel
1976 (4) SA
403
(A) at 409G-H where Miller AJA said:
‘[W]hen absolution from the
instance is sought at the close of plaintiff’s case, the test
to be applied is not whether
the evidence led by the plaintiff
establishes what would finally be required to be established, but
whether there is evidence upon
which a Court, applying its mind
reasonably to such evidence, could or might (not should or ought to
have) find for the plaintiff.’
[32] In Gordon Lloyd Page &
Associates v Riviera & another
2001 (1) SA 88
(SCA) Harms JA
repeated the test set out in Claude Neon Lights and added (para 2):
‘This [the passage quoted above]
implies that a plaintiff has to make out a prima facie case –
in the sense that there
is evidence relating to all the elements of
the claim – to survive absolution because without such evidence
no court could
find for the plaintiff . . . .’
[33] The Fund has not provided any
evidence at all that supports its claim that the amended rate of
contribution was agreed by its
Board of Trustees and validly approved
by the Registrar. It has also not pleaded that condonation for the
late transmission of
the resolution to the Registrar was applied for
and granted. The particulars are silent on this point. We cannot
simply accept
that condonation was granted and that the rule
amendment was validly made and approved.
[34] The argument that the validity of
the approval was not placed in issue at the trial or in the pleaded
defence is contrary in
any event to the general denials in the plea
and that which was placed on record at the commencement of the trial.
It can hardly
be expected, moreover, that a defendant be required to
deny that which is not pleaded. The Fund simply did not plead a valid
approval
of a valid rule amendment.
[35] The Fund nonetheless argued that
even if the Registrar’s approval was invalid, as an
administrative act it stood and
had legal consequences until set
aside on review. It referred in this regard to Oudekraal Estates
(Pty) Ltd v City of Cape Town
& others
2004 (6) SA 222
(SCA)
(para 26) where Howie P and Nugent JA held that an administrative
act, despite being invalid, may have legal consequences
until it is
set aside. (See now also MEC for Health, Eastern Cape & another v
Kirland Investments (Pty) Ltd t/a Eye and Laser
Institute
2014 (3) SA
219
(SCA), confirmed by the Constitutional Court
2014 (3) SA 481
(CC).)
[36] This court said in Oudekraal,
however, that when there is a collateral challenge to the validity of
an act, a court has no
discretion but to set it aside. (See also City
of Tshwane Metropolitan Municipality v Cable City (Pty) Ltd
2010 (3)
SA 589
(SCA) para 15 on the absence of discretion.) A collateral
challenge will generally arise where the subject is sought to be
coerced
by a public authority into compliance with an unlawful
administrative act (para 32 of Oudekraal). But, said the court (para
35):
‘It will generally avail a person
to mount a collateral challenge to the validity of an administrative
act where he is threatened
by a public authority with coercive action
precisely because the legal force of the coercive action will most
often depend on the
legal validity of the administrative action in
question. A collateral challenge to the validity of the
administrative act will
be available, in other words, only “if
the right remedy is sought by the right person in the right
proceedings” [a
reference to Wade Administrative Law 7 ed by
Christopher Forsyth and H R Wade].’
[37] In my view, the appellant has
misconceived the position. As Oudekraal itself makes plain (para 36)
‘the right to challenge
the validity of an administrative act
collaterally arises because the validity of the administrative act
constitutes the essential
prerequisite for the legal force of the
action that follows and ex hypothesi the subject may not then be
precluded from challenging
its validity.’ Thus faced with the
general denial of the kind encountered here, it remained for the
appellant to prove the
validity of the amendment, which was an
essential feature of its claim. The Fund simply did not adduce
evidence upon which a court
could determine whether the
administrative action of the Registrar in approving the rule
amendment was valid or invalid. Gyanda
J in the high court referred
to the judgment of Singh AJ in South African Local Authorities
Pension Fund v Ethekwini Metropolitan
Municipality and the Registrar
of Pension Funds (unreported judgment delivered on 1 July 2011, in
case number 10330/2008), in which
the same rule amendment was in
issue. There, however, the Fund excepted to the municipality’s
defences that included one
that the amendment was invalid for a
number of reasons. The court rejected the argument that the Fund was
entitled to rely on the
invalid administrative act until it was set
aside on review and dismissed the exception. It held that the right
to challenge an
administrative action collaterally was available to
the municipality.
[38] Similarly in George Municipality
(above) Dolamo J held that the municipality was entitled to challenge
the validity of the
Registrar’s approval. The learned judge
relied in this regard on National Industrial Council for the Iron,
Steel, Engineering
& Metallurgical Industry v Photocircuit SA
(Pty) Ltd & others
1993 (2) SA 245
(C) where Scott J said (at
253E-G):
‘A Court, however, will not in
every case permit an administrative act to be challenged in
collateral proceedings. Indeed
an administrative act or order will be
treated as invalid ‘only if the right remedy is sought by the
right person in the
right proceedings [Wade Administrative Law 7 ed
by Christopher Forsyth and H R Wade] . . . . Where, however, the
enforcement of
such an act or order is resisted, whether in criminal
or civil proceedings, on the ground that in making it the official
acted
beyond his powers, our Courts, to my knowledge, have never
refused to allow the question of validity to be canvassed.’
The decision was approved in Oudekraal
para 33. Dolamo J in George Municipality accordingly found that it
was open to the municipality
to challenge the validity of the
resolution and the consequent approval by the Registrar and dismissed
the Fund’s claim.
[39] The Fund in this matter sought to
distinguish Oudekraal with reference to V & A Waterfront
Properties (Pty) Ltd & another
v Helicopter & Marine Services
(Pty) Ltd & others
2006 (1) SA 252
(SCA). In V & A (para 10),
Howie P stated that, in brief, a collateral challenge is applicable
in proceedings where a public
authority seeks to coerce a subject
into compliance with an unlawful admibistrative act. He added: ‘[i]f
these proceedings
are not of that nature then the . . . order will
have legal effect until set aside by a reviewing Court.’ He
concluded (para
15): ‘[I]n the circumstances the proceedings a
quo were not such that the defence of collateral challenge was
available’.
I do not understand how that case bears on this
one. Nor do I propose to discuss the appropriate circumstances in
which a collateral
challenge may or may not be permissible. I do not
think that this case is one where a collateral challenge even arises.
And I do
not consider that the Registrar’s act in purportedly
approving a rule amendment must stand until it is set aside on
review.
[40] The Fund itself relies on the
Registrar’s approval to enforce a claim against the
Municipality. It is for it to show
that it complied with
s 12
of the
Act in obtaining that approval. It has failed to adduce any evidence
to establish even on a prima facie basis that the resolution
agreeing
to the amendment was taken, when it was taken, whether or when it
complied with the provisions of
s 12(2)
of the Act, and that the
Registrar’s approval was in respect of that resolution.
Accordingly the high court correctly granted
absolution from the
instance.
[41] The appeal is dismissed with costs
including those of two counsel where so employed.
C H Lewis
Judge of Appeal
APPEARANCES
For Appellant: N M Arendse SC
Instructed by: Thipa Incorporated
Attorneys, Sandton
Honey Attorneys, Bloemfontein
For Respondent: Y N Moodley SC (with
him V Moodley)
Instructed by: Logan Chetty
Attorneys, Pietermaritzburg
Symington & De Kok, Bloemfontein