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[2015] ZASCA 202
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Tellumat (Pty) Ltd v Appeal Board of the Financial Services Board (221/2015) [2015] ZASCA 202; [2016] 1 All SA 704 (SCA) (2 December 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 221/2015
In the matter between:
TELLUMAT (PTY) LTD
Appellant
and
APPEAL BOARD OF THE
FINANCIAL
SERVICES
BOARD
First Respondent
C T HOWIE, D L BROOKING
and
G O MADLANGA
NNO
Second Respondent
ALAN HUNTER
ROY
Third Respondent
REGISTRAR OF PENSION
FUNDS
Fourth Respondent
TELLUMAT PENSION
FUND
Fifth Respondent
Neutral citation:
Tellumat (Pty) Ltd v Appeal Board of
the Financial Services Board
(221/2015)
[2015] ZASCA 202
(2 December 2015)
Coram:
MPATI P, LEACH, WALLIS and MATHOPO JJA and
BAARTMAN AJA
Heard
:
24 November 2015
Delivered
:
2 December 2015
Summary:
Pension fund – apportionment of
surplus in terms of s 15C of
Pension Funds Act 24 of 1956
–
apportionment by trustees undertaken as part of an overall scheme for
the outsourcing of pensions and enhancement of pension
benefits –
implementation of distribution scheme involving transfer in terms of
s 14
of the
Pension Funds Act – scheme
to be viewed as a
whole and elements not to be treated as discrete from the whole –
scheme approved by the Registrar of Pension
Funds – appeal to
the Appeal Board for the Financial Services Board – Appeal
Board deciding appeal without regard for
the scheme as a whole or the
impact of its decision on the agreed apportionment of surplus –
such a reviewable error in terms
of
s 6(2)(
e
)(iii)
of PAJA – decision of Appeal Board set aside.
ORDER
On appeal from:
Gauteng Division, Pretoria (Mavundla J,
sitting as court of first instance):
1
The appeal is upheld.
2 The decision by the Gauteng
Division, Pretoria is set aside and altered to read as follows:
‘
(a) The
decision by the Appeal Board of the Financial Services Board in the
appeal by Mr Roy, the third respondent, against the
decision by the
Registrar of Pension Funds to approve, in terms of section 14 of the
Pensions Act 24 of 1956, the application by
Tellumat Pension Fund
under reference S14-092-11, is hereby set aside.
(b) The decision by
the Appeal Board is replaced by the following: ‘The
appeal is dismissed.’
JUDGMENT
Wallis JA (Mpati
P, Leach and Mathopo JJA and Baartman AJA concurring)
Introduction
[1]
The administration of pension funds in
South Africa occurs within the framework established by the Pension
Funds Act 24 of 1956
(the Act). The case of
Tek
Corporation
[1]
exposed a lamentable gap in the legislative framework when it came to
dealing with actuarial surpluses in defined benefit pension
funds.
That gap was filled by the enactment of what is commonly referred to
as the ‘surplus legislation’ by way of
the
Pension Funds
Second Amendment Act 39 of 2001
. It incorporated into the Act
sections 15A to 15K, which governed and, subject to some subsequent
amendment, continue to govern
the use to which such surpluses may be
put.
[2]
The fund in issue here, the Tellumat
Pension Fund (the Fund), is, by a curious turn of fate, the self same
fund as the fund at the
heart of the dispute in
Tek
Corporation
, but under a different name
and much transformed. Like many other defined benefit funds it was
closed to new members some years
before the events with which we are
concerned. As a result it no longer has any active members, but only
pensioners to whom it
owed obligations under its rules.
[2]
Its triennial statutory actuarial valuation as at 31 December
2003 revealed a nil surplus. The following triennial valuation
as at
31 December 2006 reflected a dramatically improved position. Not only
was there now a solvency reserve of some R68 million,
but there was
an actuarial surplus of some R174 million. Together this amounted to
a surplus of a little more than R242 million.
This appeal arises from
the steps taken thereafter to deal with that surplus.
[3]
It will be necessary to describe more fully
in due course the decisions taken in relation to the surplus, but a
summary suffices
here. First the assets in which the Fund was
invested were realised and placed in money market investments in
order to ‘lock
in’ the surplus. A debate then ensued
among the trustees of the Fund as to how to deal with the surplus.
They concluded an
agreement to divide the surplus equally between the
employer, Tellumat (Pty) Ltd (Tellumat), the appellant, and the
members of
the Fund, after affording the latter an increase in their
pensions. They agreed that the portion of the surplus allocated to
the
members would be used first to enhance existing pensions.
Thereafter it would be used, together with the members’
individual
actuarial accounts, to purchase annuities for the members
from a major insurance company.
[4]
The intention was that these annuities
would provide the members with pensions equivalent to or better than
those they were entitled
to under the rules of the Fund. This was
referred to as ‘outsourcing’ the obligations of the Fund.
Once this had been
done and the annuities were transferred to the
pensioners and the liabilities of the Fund to the members had been
transferred to
the chosen insurer, the only assets remaining in the
Fund would be those representing the employer’s surplus
account. The
Fund would then be wound up and those assets transferred
to Tellumat. I will refer to these arrangements collectively as the
distribution
scheme.
[5]
Although the board of trustees,
representing both employer and employees, agreed upon the
distribution scheme, it did not satisfy
a group of pensioner members
of the Fund who regarded the division of the surplus of the Fund
between the employer and the members
as unduly favourable to the
employer. At every stage of the implementation of the distribution
scheme they have sought to block
it. Their purpose was to secure for
members a greater proportion of the surplus. Despite their resistance
their attempts to block
the scheme failed at every stage, until they
came before the Board of Appeal (the Appeal Board) established in
terms of s 26
of the Financial Services Board Act 97 of 1990
(the FSB Act). The attempts included an arbitration on a complaint
lodged with the
Pension Funds Adjudicator (the PFA), two adverse
determinations by the PFA, and the decision by the Registrar of
Pension Funds
that gave rise to the appeal before the Appeal Board
and the present proceedings.
[6] The Registrar’s
impugned decision was to authorise, in terms of s 14 of the Act,
the transfer to the pensioners of
individual annuity policies issued
by an insurance company in place of annuity policies in the name of
the Fund held with that
insurer. The effect of such transfer would be
to transfer to the pensioners those assets of the Fund and to the
insurer all the
liabilities of the Fund towards the members. It would
leave the Fund with the assets constituting the employer surplus
account
and nothing more. The transfer of the annuities in this
fashion would complete the process of outsourcing pensions proposed
in
terms of the distribution scheme. As he was entitled to do in
terms of s 26(1) of the FSB Act,
[3]
Mr Roy, a pensioner and the third respondent in this appeal, appealed
against that decision to the Appeal Board. His appeal was
successful
and the Board set aside the Registrar’s decision to approve the
transfer.
[7]
Tellumat had taken no active part in the
proceedings before the Appeal Board, but it then instituted
proceedings by way of judicial
review to challenge the decision of
the Appeal Board. The application was dismissed by Mavundla J in the
Gauteng Division, Pretoria.
This appeal is with his leave.
The legal framework
[8]
All actuarial surplus in a fund belongs to
the fund.
[4]
Any such surplus may be apportioned to either a member surplus
account or an employer surplus account. Any credit balance in the
member surplus account must be used for the benefit of members. The
only portion of any surplus that may be used for the benefit
of the
employer is the surplus in the employer surplus account.
[5]
The legislation provided for an initial surplus apportionment date,
being the date of the first statutory actuarial valuation of
a fund
after the commencement of the surplus legislation.
[6]
In the case of the Fund the valuation on that date showed a nil value
for surplus so that it was unnecessary for the Fund to undertake
an
apportionment exercise.
[9]
When a surplus arose at the time of the
following statutory valuation, it had to be apportioned in terms of
s 15C of the Act.
That provides:
‘
(1)
The rules may determine any apportionment of actuarial service
arising in the fund after the surplus
apportionment date between the
members surplus account, the employer surplus account or directly for
the benefit of the members
and former members subject to the uses
specified in section 15D(1).
(2)
If the rules are silent on the apportionment of actuarial surplus
arising after the
surplus apportionment date, any apportionment
between the members surplus account, the employer surplus account or
directly for
the benefit of members and former members, subject to
the uses specified in section 15D(1), shall be determined by the
board taking
into account the interests of all the stakeholders in
the fund: Provided that, notwithstanding anything to the contrary in
the
rules, neither the employer nor the members may veto such
apportionment.’
[10]
The rules of the Fund contained no
provision dealing with the apportionment of surplus arising after the
initial surplus apportionment
date. Accordingly it was for the board
of trustees of the Fund to determine how the surplus was to be
apportioned. The board was
constituted of equal numbers of trustees
appointed by the members and the employer, Tellumat. They engaged in
debate and eventually
arrived at the result reflected in the
distribution scheme. It is to the terms of that scheme that I now
turn.
The distribution scheme
[11]
The identification of the actuarial surplus
occurred in June 2007 when the statutory valuation for the three year
period ending
on 31 December 2006 was signed and submitted by
the Fund’s actuary. Thereafter a lengthy debate occurred among
the trustees.
They approached the issue from diametrically opposed
standpoints. The trustees representing the members and pensioners
demanded
that 90% of the surplus be apportioned to the members. It
could then be used to enhance their pensions. Not surprisingly the
trustees
representing Tellumat took precisely the opposite stance.
They proposed that Tellumat should receive 90% of the surplus.
[12]
At the end of the debate between the two
groups of trustees, after making allowance for an immediate
enhancement of pensions, they
agreed to apportion the remaining
surplus equally. In practical terms this amounted overall to an
apportionment of approximately
56% to the members and 44% to
Tellumat. As part of this process the trustees also agreed on what
would happen to the Fund after
apportionment.
[13]
The details of the apportionment and what
was to be done with the member and employer surplus accounts were set
out in a circular
letter addressed to pensioners on 12 October 2007.
By that date the trustees had resolved to ‘lock-in’ the
surplus
by transferring the Fund’s assets from the equity
portfolio, in which they had been invested and which had generated
the
surplus, to what were effectively money market funds. Whilst the
returns on these funds would be more modest the capital would be
preserved.
[14]
The letter of 12 October 2007 was written
on behalf of the trustees by the chair of the board. It was sent to
all the pensioners
of the Fund. The letter gave details of the
surplus and said that as a result it was possible to make material
improvements in
their pensions. It explained that accordingly the
trustees had decided, with the agreement of Tellumat, to make a
number of changes
to the structure of the Fund. These were summarised
as follows:
‘
In
summary the Trustees and the Employer have agreed to a special
increase, a special bonus, outsourcing of the pensions, upliftment,
sharing of surpluses and to the winding down of the Fund.’
[15] Under the
general heading ‘Sharing of surplus’ the letter proceeded
to explain how these changes were to be effected.
There would be a
special pension increase of 8% funded from the overall surplus. The
balance of surplus remaining would be split
equally between a member
surplus account and an employer surplus account. R5.3 million would
be allocated from the member surplus
account to give additional
increases to the lower bands of pensioners. All profits or losses
accruing on the Fund after 1 January
2007 would be for the benefit or
account of the member surplus account. Any liabilities of the
employer towards the Fund would
be paid from the employer surplus
account.
[16]
According to Tellumat the proposal that
pensions be outsourced emanated from the member trustees. Apparently
they thought that if
a large insurer provided the pensions there was
a greater likelihood of their being secure. They took this view
because of the
financial strength of large insurers when compared to
that of a single, relatively small, pension fund catering only for
pensioners.
The letter explained this proposal to pensioners in the
following way:
‘
The
Trustees have decided, as part of this agreement, to undertake a
pension outsource exercise. This means that your pension currently
being paid from the Tellumat Pension Fund will in future be
underwritten by an insurer and no longer by the Fund. The main reason
for this decision is to provide pensioners with the added security of
being part of a substantially larger pool of pensioners underwritten
and protected by the financial muscle of a major insurer as opposed
to the benefits being underwritten by Tellumat which does not
have
the same financial resources as a large insurance company. It is
envisaged that the entire outsourcing process will be completed
by
mid-2008, thereafter the Fund will [be] closed.’
[17]
The financial implications of the surplus
apportionment exercise for pensioners were summarised as follows:
‘
As
a result of the allocation of the surplus, it is envisaged that all
pensioners will receive the following:
(i)
A
cash "bonus" equal to 4 months pension to be paid on 1
December 2007.
(ii)
A
special increase of 8% to be effected from 1 January 2008.
(iii)
The
normal annual increase to be effected from 1 January 2008 (percentage
still to be decided).
(iv)
An additional enhancement on your
pension at date of outsourcing of up to 25%, depending on which
outsourcing option you decide
to take and the final terms offered by
the insurers.’
[18]
The reference to outsourcing options
appeared because it was envisaged that three options would be made
available to pensioners.
The first would be the purchase of an
annuity providing a pension mirroring exactly what they were
currently entitled to in terms
of the rules of the Fund, including
the spouses and children’s pensions, and any pension increase
guarantee. The second would
be the purchase of annuities that would
provide the various pensions provided in the rules of the Fund on a
stronger valuation
basis, but without any guaranteed minimum
increases that pensioners might have enjoyed under the rules. Based
on past experience
it was said that in this way pensioners would be
likely to receive increases equal to or exceeding the increases to be
expected
from the Fund. The third option would be to permit
pensioners to uplift their pension and purchase an annuity of their
choice.
[19]
Following upon the decision by the
trustees, the rules of the Fund were amended to provide for the
outsourcing of pensioners. This
was done by amendment 11 dated
6 December 2007. The Registrar duly registered the
amendment on 21 February 2008.
It has not been challenged.
Rule 7.1 provided that at a date referred to as the ‘pension
outsource date’ the trustees
would be entitled to purchase from
a registered insurer an annuity approved by the trustees that would
cover the pension entitlement
of the pensioners. Under rule 7.2 the
terms and conditions of the annuities would include options elected
by the pensioners. Under
rule 7.3 the trustees were appointed as the
agent of the pensioners to purchase the annuities.
[20]
On 23 January 2008 Mr Roy, on his own
behalf and on behalf of 40 other pensioners, lodged a complaint with
the PFA against the decision
by the trustees in regard to the
apportionment of the surplus. His contention was that all surplus
should have been allocated to
the pensioners and used to secure
inflationary increases for them. He said that it was inappropriate
for the amount credited to
the employer surplus account to accrue to
Tellumat on termination of the Fund.
[21]
The Fund opposed the complaint. It claimed
that the benefit enhancements secured to pensioners through the
apportionment exercise
exceeded their legitimate expectations. It
said that, in arriving at the apportionment, it had been obliged to
act reasonably and
equitably towards both pensioners and employer and
the decision it had reached struck an appropriate balance between the
two.
[22]
The complaint by the pensioners was, by
agreement, referred to arbitration before Mr J F Myburgh SC. In the
meantime the Fund was
unable to pursue the distribution scheme in
case the apportionment of surplus was set aside. On 19 November 2009
the arbitrator
handed down his award and dismissed the complaint. He
rejected all the grounds of complaint advanced by the pensioners. He
held
that it was for the trustees, who represented both the
pensioners and the employer, to determine how the surplus was to be
apportioned
and they had done so.
[23]
After the arbitration award was handed down
the trustees again communicated with the pensioners in a letter
addressed to them in
March 2010. The letter said that they were
pleased to inform them that the arbitration award had decided the
disputes in favour
of the Fund and that they intended to proceed with
the outsourcing initiative immediately. The letter proceeded to
explain the
options that faced pensioners. It highlighted the fact
that there were two groups of pensioners. The first group had come to
the
Fund from the Plessey South Africa Pension Fund (the PSA
pensioners) and the other group from the Plessey Corporation Pension
Fund,
as the Fund had previously been known. The PSA pensioners had
brought with them to the Fund a guarantee of a minimum 3% annual
pension increase. Historically there had been little need for them to
rely on this because the Fund’s pension increase policy
was to
increase pensions by at least 75% of inflation and more if that were
affordable. A table provided to the Appeal Board showed
that there
had only been two years in the previous eleven years when the pension
increase for ex-Plessey Corporation Pension Fund
members had been
less than 3%, and that was made up in the following year when they
received a 10% increase. Throughout the aim
of the trustees had been
to ensure as far as possible that the two groups of pensioner were
treated equally.
[24]
The letter set out the three options being
offered to the pensioners pursuant to the outsourcing scheme. The
first was a pension
with no minimum increase guarantee. The basis
would be that the member’s interest would be invested on a
‘with profits’
basis with an insurer. The trustees said
that this had, on an historical basis, provided similar pension
increases to those that
had been enjoyed through membership of the
Fund. If a pensioner chose this option they would be given a once off
enhancement of
their existing pension of 32%. The second option was
that the member’s interest would be invested on the same basis,
but
with a guarantee of an annual 3% increase in the pension. In this
case the once off enhancement of the pension would be 26%. The
differential represented the cost of obtaining the guarantee. The
third option was the purchase of an inflation-linked pension.
In this
instance the once off enhancement would be substantially less –
10.47% - because the cost of securing the guarantee
was considerably
higher.
[25]
Each letter was accompanied by a form in
which the pensioner was required to elect which of these three
options they were choosing.
They were encouraged to respond quickly
and in any event by 11 June 2010. If the form was not returned by
that date they would
automatically be given the default option and an
annuity best approximating their current pension entitlement would be
purchased
on their behalf. Mr Roy and two other pensioners who
feature in this case, Mr Barnes and Mr Myles, elected option 1.
Under
that option an annuity would be purchased in their names on a
with profits basis, but without any guaranteed annual increase.
Before
purchasing the annuity their existing pension would be
enhanced by the 32% uplift.
[26]
The further implementation of the
distribution scheme and the outsourcing of pensions was checked by Mr
Barnes lodging a complaint
with the Pension Funds Adjudicator. He
said that he had selected option 1 and his pension had been
outsourced by the purchase of
an annuity from Old Mutual. The annuity
had been purchased with his pro rata share of the Fund and a once off
enhancement funded
from the member surplus account. Mr Barnes
complained that he had always received an annual increase in his
pension sufficient
to keep pace with inflation. He argued that this
had become a settled practice and accordingly his reasonable
expectation from
the Fund was that he would receive an annuity
providing a pension that would increase each year by at least the
rate of inflation.
He also argued that as the eventual result of the
outsourcing of pensions would be the dissolution of the Fund it was
necessary
to have regard, in the funding of benefits, to the position
that would pertain if those benefits were to be funded on the
liquidation
of the Fund. In other words he sought to rely, as had Mr
Roy before the arbitrator, on the provisions of section 15I of the
Act.
[27]
The general body of pensioners did not
share the opposition to the outsourcing scheme and the apportionment
of surplus of Mr Roy,
Mr Barnes and their supporters. They wanted to
receive immediately the enhanced benefits they had been promised.
They had already
had the initial pension uplift, but now wanted the
further pension enhancement flowing from the elections they had made
in the
period up to 11 June 2010. In order to satisfy this
demand, during the period from April to August 2010, the Fund
purchased
annuities in its own name according to the election of each
pensioner. It then used those annuities to afford to each pensioner
the pension benefits they had elected to receive, including the
uplift.
[28]
Mr Barnes’ complaint was dismissed by
the Pension Funds Adjudicator on 28 September 2011. The Adjudicator
held that his reasonable
benefit expectations had been satisfied and
that he was not entitled to claim the benefit of section 15I of
the Act dealing
with the dissolution of the Fund as no steps had yet
been taken to dissolve it.
[29]
While awaiting the outcome of the complaint
by Mr Barnes, on 24 May 2011 the Fund submitted an
application to the Registrar
for the approval in terms of s 14
of the Act of the transfer of business from the Fund to various
insurers and the cession
of annuity policies owned by the Fund to the
pensioners. In other words the assets of the Fund in the form of
annuity policies
in respect of each pensioner were to be transferred
to the pensioners and the liabilities the Fund owed to those
pensioners would
henceforth rest on the insurers who issued the
annuities. The business of the Fund would be severely attenuated by
this as it would
be left (apart from the 14 pensioners mentioned
above) with no liabilities and the assets constituting the employer
surplus account.
[30]
The application prompted an objection from
Mr Roy, representing himself and nine other pensioners, including Mr
Barnes. The basis
for the objection was that the section 14 transfer
was not reasonable and equitable because it failed to secure members’
reasonable benefit expectations and it ignored the fact that the
process on which the Fund had embarked would inevitably lead to
its
dissolution. That being so, Mr Roy contended that the proper approach
to the apportionment of the surplus would have been to
pursue it in
terms of s 15I of the Act. He said that the benefit enhancements
that pensioners had enjoyed should have been
funded from both the
member surplus account and the employer surplus account and not, as
had occurred with the major portion of
the pension enhancements, from
the member surplus account alone.
[31]
After the complaint by Mr Barnes had been
dismissed by the PFA the Registrar considered the Fund’s
application in terms of
s 14 of the Act and, notwithstanding the
objection by Mr Roy, approved it on 9 May 2012.
[7]
This prompted Mr Roy to appeal to the Appeal Board on 18 May 2012.
It is that appeal that was upheld and led to the review
proceedings
before the High Court.
The Appeal Board’s
decision
[32]
When authorising the transfer of the
annuities in terms of s 14(1)(
c
)(i)
of the Act the Registrar had to be satisfied that:
‘…
the
scheme … is reasonable and equitable and accords full
recognition-
(i) to the
rights and reasonable benefit expectations of the members
transferring in terms of the rules of a fund where such rights
and
reasonable benefit expectations relate to service prior to the date
of transfer.’
There are further
requirements in ss 14(1)(
c
)(ii)
and (iii) but they are not relevant to this case.
[33]
The Appeal Board viewed this section as
creating two separate and distinct requirements in regard to which
the Registrar had to
be satisfied. The first was that the scheme
under consideration had to give full recognition to the rights and
reasonable benefit
expectations of the members whose business was the
subject of the transfer. The second was that the scheme had to be
reasonable
and equitable.
[34]
I am less than certain that these
requirements are in truth distinct. If the scheme gives full
recognition to the rights and reasonable
benefit expectations of
members it will ordinarily be reasonable and equitable. Save in an
unusual situation – and this does
not strike me as being in any
way unusual – it is difficult to see why it will not be
reasonable and equitable to implement
it. After all the principal
purpose of a pension fund is to provide the members of the fund with
the benefits embodied in its rules.
Section 14(1)(
c
)
is designed to ensure that when considering whether to authorise a
scheme the members’ and pensioners’ rights are
protected
as well as their reasonable benefit expectations.
[35]
The notion of reasonable benefit
expectations arises in two contexts, namely surplus in the fund and
practices and promises of the
fund in regard to future benefits. The
surplus legislation is designed to allocate surplus fairly and
equitably between members
and the employer. That is the matter in
issue here. In regard to future benefits, where the pension fund has
over some years established
practices, say in regard to pension
increases, those practices will give rise to reasonable expectations
that they will be continued
in the future. Similarly, where it has
given undertakings to members about their future treatment, those
undertakings will give
rise to a reasonable expectation that the
undertaking will be fulfilled. The interests arising from this are
encompassed by the
expression ‘reasonable benefit
expectations’. The word ‘reasonable’ is important.
The Registrar is obliged
when considering a scheme to assess whether
the members and pensioners will receive everything that they could
reasonably expect
to receive from the Fund. But that is all.
[36]
The Appeal Board upheld Mr Roy’s
appeal on two grounds.
Firstly it said that
he and the other former PSA pensioners were entitled as of right to
an annual 3% pension increase. As two of
the three options made
available to pensioners did not provide for such a right (including
the one elected by Mr Roy and his colleagues)
the scheme did not give
effect to their rights. The first requirement identified by the
Appeal Board was accordingly not satisfied.
Secondly, it held that
the transfer of business would ultimately lead to the winding-up of
the Fund in terms of s 28 of the Act.
That being so, it held that in
determining whether the scheme was reasonable and equitable s 15I(
a
)
of the Act needed to be taken into account. This provided that any
enhancement in the benefits of pensioners on liquidation should
be
funded
pro rata
from the members surplus account and the employer surplus account.
Apart from the initial 8% increase in pensions, which had been
funded
from the general surplus, thereby reducing the balance available for
apportionment, this had not occurred when the annuities
were
purchased and each member’s benefits were enhanced in 2010. All
of the enhancement came from the member surplus account.
For this
reason the Appeal Board held that the scheme was not reasonable and
equitable and the second requirement was not satisfied.
It
accordingly upheld the appeal and set aside the Registrar’s
decision to approve the s 14 transfer.
The review
[37]
Tellumat had not played any role in the
proceedings before the Appeal Board even though it had been given the
opportunity to intervene
and make submissions. Its reasons for
adopting this approach were understandable. The Fund was appearing in
order to support the
application that it had made and that had been
approved by the Registrar. In addition the Registrar appeared to
explain and support
the decision. It was legitimate for Tellumat to
take the view that it could add little to the debate in those
circumstances and
that its own interests were protected.
[38]
All that has changed subsequently because,
in the light of the Appeal Board’s decision, the board of
trustees of the Fund
has become a house divided against itself. The
member trustees understandably wish to support the Appeal Board’s
conclusion,
the effect of which would be that a substantial portion
of the employer surplus account will become available to enhance
pensioner
benefits. The employer trustees, although themselves
pensioners, continue to support the original arrangement. This
division of
views was the subject of an arbitration and the
arbitrator concluded that the appropriate course for the trustees to
take was to
abide the outcome of any proceedings directed at
challenging the Appeal Board’s decision. That left Tellumat’s
interests
potentially unprotected. In those circumstances it has a
sufficient direct and substantial interest in the validity of that
decision
to give it the necessary locus standi to bring these
proceedings by way of judicial review.
[8]
[39]
The parties assumed with some
justification, as it had also been assumed in several decisions in
this court involving reviews of
decisions of the Appeal Board,
[9]
that the review is one in terms of PAJA.
[10]
However, it was not immediately apparent that a decision of the
Appeal Board was a decision of an administrative nature as required
by the definition of administrative action in PAJA,
[11]
so Tellumat was asked to furnish supplementary argument in that
regard.
[40]
The determination of whether something
constitutes administrative action requires a detailed analysis of the
nature of the public
power or public function in question in order to
determine its true character.
[12]
Tellumat’s argument correctly proceeded from the premise that
the Registrar’s decision in terms of s 14 is
administrative
action. As the function of the Appeal Board is to
‘confirm, set aside, or vary’ that decision and to order
that the
decision of the Appeal Board be given effect to,
[13]
the Appeal Board’s decision either reaffirms the Registrar’s
decision or substitutes it with a varied or different
decision. But
the character of the decision does not change as a result. It remains
a decision in terms of s 14 of the Act.
The fact that the
decision is made in proceedings that, under our former administrative
law dispensation, would have been described
as quasi-judicial does
not affect the matter.
[14]
In the circumstances I am satisfied that the decision by the Appeal
Board constitutes administrative action and is reviewable in
terms of
PAJA.
[41]
The only ground for review to which we need
have regard in this case, is that set out in s 6(2)(
e
)(iii)
of PAJA. That provides that a court may review administrative action
if it was taken because irrelevant considerations were
taken into
account or relevant considerations were not considered. This
encapsulates a principle that was part of our administrative
law
prior to s 33 of the Constitution or the enactment of PAJA,
namely that a functionary who ‘took into account irrelevant
considerations or ignored relevant ones’
[15]
was liable to have their decision overturned on review.
[42]
In approaching this question a court must
be careful not to overturn a decision on review merely because it
disagrees with it. It
must be alive to the fact that it was primarily
for the decision maker to determine which facts are relevant and
which not. But,
once the court is satisfied that the decision could
only properly be taken if certain facts, overlooked by the decision
maker,
were taken into account, it is entitled to interfere.
Similarly once it is satisfied that in taking the decision certain
facts
that were taken into account should not have been, it may
interfere.
[16]
Even when all relevant facts were considered the court will have to
consider the weight attached to the facts. The precise point
at which
a court is entitled to interfere may not be entirely clear, but as
Henning J said many years ago,
[17]
‘where a factor which is obviously of paramount importance is
relegated to one of insignificance, and another factor, though
relevant is given weight far in excess of its true value’
interference is warranted. I would suggest that it is essential.
[43]
With the utmost respect to the Appeal Board
in the present case it seems to me that it failed to give sufficient
consideration to
the fact that the s 14 application was part of
a broader scheme of distribution agreed upon by the trustees in 2007
when they
were dealing with the apportionment of the surplus. Instead
it dealt with the two issues of the guaranteed 3% annual pension
increase
and the impact of the possible dissolution of the fund as if
they were discrete issues divorced from the entire distribution
scheme.
Nowhere in the Appeal Board’s decision is there any
consideration of the fact that the transfer under consideration was
part
of a larger arrangement having its origins in the decision of
the trustees in regard to the apportionment of the surplus. Nor is
there any consideration of the fact that the impact of its decision
would necessarily be that the entire apportionment exercise,
held by
the arbitrator to have been valid and lawful in proceedings by Mr Roy
against the Fund, would be thrown into disarray and
have to be
revisited.
[18]
[44]
After the trustees’ decision in
regard to apportionment of the surplus in 2007, the pensioners had
been given an 8% increase
in their pensions. The lowest band of
pensioners had received a special increase in 2008 at a cost of some
R5.3 million. The
rules of the Fund had been amended to permit
the outsourcing of pensions by way of the purchase of annuities from
an insurer. The
members had made their election as to the nature of
the annuities they wanted and the Fund had purchased those annuities
in its
own name, at the same time enhancing the actuarial value
attributable to each pensioner. The enhanced pensions payable in
terms
of the annuities had been paid. The process would have been
quicker, but for the challenges by Mr Roy and Mr Barnes. And those
challenges had delayed matters for the very reason that the relief
that each of them sought was directed at undoing the distribution
scheme and, in particular, undoing the decision of the trustees in
regard to the apportionment of the surplus. Yet there is no
mention
of all of this in the Appeal Board’s decision.
[45]
Why was this important? The answer is that
if it had been necessary for the outsourced pensions of all the PSA
pensioners to include
a guarantee of a 3% annual increase, different
annuities would have had to be purchased. They would have generated
very different
pensions from those that the pensioners, including Mr
Roy and Mr Barnes and Mr Myles, obtained as a result of their
electing option
1. Those who elected options 2 or 3 either received a
guarantee of a 3% increase or a guarantee of an inflation linked
increase,
so they would have had no grounds for complaint. Only the
PSA pensioners who elected option 1, giving them a considerably
enhanced
pension without a guaranteed annual increase, could have
advanced this objection. So the people who were complaining were
those
who by their own election had decided to forego a guaranteed 3%
increase. They then sought to obtain what they had foregone, by
resisting the transfer to them of the annuities purchased at their
instance, the benefits of which they were reaping on a monthly
basis.
The old saying about wanting to have your cake and eat it springs to
mind.
[46]
I stress that the amendment of the rules to
permit outsourcing of pensions was not challenged and the proposal of
outsourcing emanated
from the trustees elected to represent
pensioners. There was likewise no challenge to the process by which
the pensioners made
their election and chose the form of annuity that
they wanted. In fact Mr Roy made it clear that he and those for whom
he spoke
had no objection to their pensions being outsourced. But he
objected to there being a cost attached to having a guaranteed annual
increase to his pension. But inevitably such guarantees would come at
a cost. To have provided a guarantee to all the PSA pensioners,
would
have disadvantaged all pensioners, because the amount by which their
pensions could be enhanced would have diminished.
[47]
One could more readily understand a
complaint by Mr Roy and his colleagues had they elected option 2, in
order to preserve their
guarantee, and objected to the fact that the
cost of the guarantee was funded by them by receiving a smaller
increase in their
current pensions. But instead they took option 1
and then demanded the guaranteed increase over and above that.
[48]
Unfortunately the Appeal Board did not have
regard to any of these matters. Its approach was that the rules of
the Fund, as they
related to the PSA members, provided for the
guaranteed increase and only one of the options offered to the
members did so. The
Appeal Board held that this meant that the
annuities did not give full recognition to the pensioners’
rights. The fact that
they had been given and had exercised an option
was irrelevant. Its view was summed up in a single sentence from its
decision:
‘
The
trustees could not foist on members choices that were not in
accordance with their liabilities.’
[49]
But the three choices offered to members
were precisely in accordance with the rules. Under rule 7.1 the
trustees were entitled
to purchase annuities for members in a form
approved by them. Clearly that gave them an option as to the form of
the annuities
and, as one would expect, they gave the members a
choice. If they could only offer members annuities that mirrored
their existing
pension rights there would have been no point in
providing in rule 7.2 for the terms of the annuity to be agreed
between the pensioner
and the insurer on terms approved by the
trustees. And, once an annuity had been purchased in accordance with
the member’s
choice, their rights and reasonable benefit
expectations were those embodied in that annuity and not in
provisions of the rules
that they had elected to forego.
[50]
As the Appeal Board did not take account of
any of these matters in arriving at its conclusion its decision falls
to be reviewed
under s 6(2)(
e
)(iii)
of PAJA. Whether the decision should be set aside depends on whether
it similarly erred in relation to the other ground for
its decision.
[51]
Turning to the second ground the Appeal
Board’s approach was that a dissolution or liquidation of the
Fund was inevitable
and therefore the question whether the scheme was
reasonable and equitable should be measured against the provisions of
the Act
dealing with the application of surplus accounts on
liquidation of a fund. Its view was that it was of primary importance
that
s 15I(
a
)
provided that on liquidation all credit balances in both the member
and the employer surplus accounts might be drawn upon proportionately
to secure the rights and benefit expectations of the members
participating in the distribution. Only after that had been done
would the employer be entitled to any benefit from what remained in
the employer surplus account.
[52]
Unlike its approach to the guaranteed
increase the Appeal Board on this issue did look at the distribution
scheme, but only at a
single aspect of it, namely the Fund’s
dissolution on completion of the scheme. That was the basis for its
view that s 15I
needed to be taken account of in determining
whether the scheme before it was reasonable and equitable. In my view
this entirely
overlooked the fact that, assuming there was to be a
dissolution, this was only contemplated after the implementation of
the specific
terms of the distribution scheme as agreed to by the
trustees and communicated to the members in 2007. That was not a
scheme involving
the enhancement of pension benefits funded from the
overall surplus. It was one that contemplated the apportionment of
the surplus
and the provision of enhanced benefits funded largely
from the member surplus account.
[53]
The approach of the Appeal Board appears to
have been that the enhanced benefits would have been provided in any
event and that
it would not make any difference, save as to the
manner in which those benefits would have been funded, to deal with
them as benefits
arising on liquidation. That ignored the fact that
the apportionment of surplus agreed in 2007 was not in any way
distinct from
the distribution scheme that accompanied it. In fact
all the correspondence with the members was based on the scheme as a
totality.
When it was held up by the initial complaint by Mr Roy
forming the subject of the arbitration it was not abandoned. Instead,
once
the award was handed down in favour of the Fund, the chair
informed members that they would proceed immediately with the
outsourcing
initiative. In communications from the Fund’s
attorneys in 2010 and 2011 it was made plain that the Fund was still
in the
process of implementing the original distribution scheme
agreed upon by the trustees.
[54]
It could not be assumed by the Appeal Board
that the enhancements to pensions, both initially and when the
annuities were taken
out, would have been the same if the funding had
to be taken from the overall surplus. That would have diminished the
employer
surplus account and the ultimate benefit the employer would
receive from that account. Would Tellumat have agreed to that? It
seems
unlikely in the extreme that it would. The trustees knew what
surplus had to be apportioned. They started negotiating from opposite
poles. If it had been said that any pension enhancements, beyond the
original 8% increase, would have to be funded proportionally
by both
the member and the employer surplus account, it is inconceivable that
the trustees would have arrived at the same agreement
in regard to
the apportionment of the surplus. The reason is the obvious one that
it would have involved a significant increase
in the benefit to be
derived from the surplus by members and a significant decrease in the
benefit flowing to Tellumat from that
source. In all likelihood the
outcome of the negotiations would have been substantially different.
[55]
In this regard as well, in my view, the
Appeal Board, by failing to reach and locate its decision squarely
within the context of
the entire distribution agreement, failed to
have regard to the most relevant consideration in the task
confronting it. That constituted
reviewable error in terms of
s 6(2)(
e
)(iii)
of PAJA.
[56]
That conclusion dictates that we set aside
the Appeal Board’s decision. The question then is whether we
should remit the matter
to the Appeal Board, or make a substitution
order in terms of s 8(1)(
c
)(ii)(
aa
)
of PAJA. Fortunately there has recently been guidance from the
Constitutional Court on the correct approach to making such an
order.
[19]
Following the approach explained in that judgment the most relevant
factors seem to me to be these. The surplus apportionment was
undertaken in 2007, when the distribution scheme was implemented. The
validity of that apportionment was upheld by the arbitration
award in
November 2009. The three subsequent attempts to derail the process
have all, directly or indirectly, been directed at
the same goal,
namely setting aside the apportionment. All of them have failed. In
the meantime the Fund has in good faith and
at the instance of the
majority of pensioners proceeded to implement the scheme. There can
be no doubt that this is what the general
body of pensioners wishes
it to do. Further delay is undesirable and in any event I think that
the outcome of a remittal would
inevitably be that the appeal by Mr
Roy would be dismissed.
[57]
For those reasons this is a case where the
court should not remit the matter but should substitute the decision
of the Appeal Board
with the decision that it should have made.
Accordingly the following order is made:
1
The appeal is upheld.
2 The decision by the Gauteng
Division, Pretoria is set aside and altered to read as follows:
‘
(a) The
decision by the Appeal Board of the Financial Services Board in the
appeal by Mr Roy, the third respondent, against the
decision by the
Registrar of Pension Funds to approve, in terms of section 14 of the
Pensions Act 24 of 1956, the application by
Tellumat Pension Fund
under reference S14-092-11, is hereby set aside.
(b) The decision by the
Appeal Board is replaced by the following:
“
The
appeal is dismissed.’
M J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellant:
P B J FARLAM SC
Instructed
by:
Alastair
Morrison Van Huyssteen Attorneys, Bellville
McIntyre
& Van der Post , Bloemfontein
For
respondent:
No appearance.
[1]
Tek Corporation Provident Fund &others v
Lorenz
[1999] ZASCA 54; 1999 (4) SA
884 (SCA).
[2]
References in this judgment to members is therefore to be understood
as a reference to those pensioners and references to pensioners
encompass the entire body of people interested in receiving benefits
from the Fund. There are 14 deferred and suspended pensioners
but
their involvement does not affect the matter in any way.
[3]
Financial Services Board Act 97 of 1990.
[4]
Section 15A (1) of the Act.
[5]
Section 15D of the Act.
[6]
Section 15B of the Act.
[7]
On 26 May 2012 another complaint was lodged with
the PFA, this time by Mr Myles, but it does not appear to have
affected subsequent
events. It was dismissed on 20 February 2013.
[8]
Section 38
(a)
of the Constitution. See
Giant Concerts CC v
Rinaldo Investments (Pty) Ltd
[2012] ZACC 28
;
2013 (3) BCLR 251
(CC) paras 41 and 43;
Tulip Diamonds FZE v Minister of Justice
and Constitutional Development and Others
[2013] ZACC 19
;
2013
(10) BCLR 1180
(CC) para 31. Its situation is similar to that of
COSATU in
Sidumo and Another v Rustenburg Platinum Mines Ltd and
Others
[2007] ZACC 22
;
2008 (2) SA 24
(CC) (
Sidumo
) para
52.
[9]
National Tertiary Retirement Fund v Registrar
of Pension Funds
[2009] ZASCA 41
;
2009
(5) SA 366
(SCA) para 26;
Registrar of Pension Funds v ICS
Pension Fund
[2010] ZASCA 63
;
2010 (4) SA 488
(SCA) para 10.
[10]
The
Promotion of Administrative Justice Act 3 of 2000
.
[11]
Grey’s Marine Hout Bay (Pty) Ltd and Others v Minister of
Public Works and Others
[2005] ZASCA 43
;
2005 (6) SA 313
(SCA)
para 21;
Minister of Defence and Military Veterans v Motau and
Others
[2014] ZACC 18
;
2014 (5) SA 69
(CC) (
Motau
) para
33.
[12]
Sokhela & others v MEC for Agricultural and Environmental
Affairs (KwaZulu-Natal) and Others
[2009] ZAKZPHC 30;
2010 (5)
SA 574
(KZP) para 60 quoted with approval in
Motau
para 34
and
Minister of Home Affairs & others v Scalabrini Centre,
Cape Town C
2013 (6) SA 421
(SCA) para 52.
[13]
Section 26B(15)
(a)
[14]
Sidumo
paras 81 to 85 and 125-6.
[15]
Johannesburg Stock Exchange and Another v Witwatersrand Nigel Ltd
and Another
[1988] ZASCA 18
;
1988 (3) SA 132
(A) at 152 C-D;
[1988] 2 All SA 308 (A).
[16]
Jacobs en ‘n Ander v Waks en Andere
[1991] ZASCA 152
;
1992 (1) SA 521
(A) at 550D-H.
[17]
Bangtoo Bros and Others v National Transport Commission and
Others
1973 (4) SA 667
(N) at 685C-D.
[18]
The Appeal Board held that it was not bound by this decision. I am
not sure what it meant by that. Mr Roy and the Fund were certainly
bound by it and, apart from the 41 pensioners who were parties to
that arbitration, no other pensioners had any complaint about
the
apportionment. In those circumstances I have grave doubts as to the
correctness of this statement by the Appeal Board. If
it was wrong
that provides a further reason why it was not open to the Appeal
Board to make an order having the effect of overturning
that award.
[19]
Trencon Construction (Pty) Ltd v Industrial Development
Corporation of South Africa Ltd & another
[2015] ZACC 22.