Brief Summary

Pension Funds — Distribution of death benefits — Applicants sought to restrain the first and second Respondents from processing pension benefits of the deceased and to declare a customary marriage void — The deceased had nominated beneficiaries in a form prior to death, allocating percentages to his children and brother — The first Applicant, legally married to the deceased, contested the allocation of benefits to the third Respondent, asserting she was not a dependant — Court held that the allocation to the third Respondent was unjustified and ordered a revision of the distribution of benefits to lawful beneficiaries.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an application in the Gauteng Division, Johannesburg, in which the applicants sought relief arising from the distribution of a deceased fund member’s death benefits under a retirement fund. The proceedings ultimately concerned a challenge to the lawfulness and rationality of an allocation confirmed by the Pension Funds Adjudicator, and the consequences of setting aside part of that determination.

The parties were the deceased member’s civil law spouse (the first applicant) and their two children (the second and third applicants), on the one hand, and the eJoburg Retirement Fund (first respondent) and its independent principal officer (second respondent) on the other. A further respondent (the third respondent) was the person to whom the trustees had allocated a portion of the benefit, apparently linked in the trustees’ correspondence to an alleged customary marriage with the deceased. The deceased’s brother (the fourth respondent) was also joined, and was among the persons who had received an allocation in the trustees’ distribution.

The procedural history reflected that the first applicant initially lodged a claim for the deceased’s pension benefits and, after becoming dissatisfied with the fund’s allocation, pursued an objection which culminated in a complaint to the Pension Funds Adjudicator. The Adjudicator dismissed the complaint and endorsed the trustees’ distribution. The applicants then approached the High Court in terms of the statutory mechanism permitting a party aggrieved by the Adjudicator’s determination to seek relief from the High Court. The matter also involved earlier interim relief (“Part A”) and a subsequent amendment to the notice of motion in relation to “Part B”, with the remaining substantive dispute focusing on revising the allocation, particularly the portion awarded to the third respondent.

The general subject-matter of the dispute was the proper identification of lawful beneficiaries and dependants under section 37C of the Pension Funds Act 24 of 1956, and whether the trustees (and the Adjudicator in confirming their decision) had acted on a proper basis when allocating 15% of the death benefit to the third respondent.

2. Material Facts

The deceased, Johann Motsioa, died on 30 July 2020. Prior to his death, on 18 December 2019, he signed a beneficiary nomination form in which he nominated the second and third applicants to receive 40% each of the proceeds of his retirement fund, and nominated his brother (the fourth respondent) for 20%.

It was common cause that the first applicant and the deceased had concluded a civil marriage on 19 September 1996, and that the second and third applicants were children of that marriage. The couple lived together at a home in Kempton Park until the first applicant left the common home during 2007 due to matrimonial difficulties. After that, the parties lived apart. One of the children (the second applicant) later lived with the deceased for most of the period until the deceased’s death.

After the deceased’s death, the first applicant submitted a claim for payment of death benefits. She was later informed by letter dated 25 May 2021 from the fund (signed under the hand of the second respondent) that the total death benefit available for distribution was R8 311 422.00, and that an amount of R1 246 000.00 had been allocated to her. The letter indicated that this allocation was based on her status as the deceased’s legal spouse, notwithstanding estrangement, and stated that she remained a dependant.

The first applicant objected and sought information as to how the balance had been distributed. In response, the second respondent stated (in correspondence dated 14 June 2021) that the committee had awarded her the amount solely on the basis of marriage, while taking into account that the spouses had not lived together since 2007, that she was employed and not fully financially dependent, that she was not included in the nomination form, and that the deceased had a “customary wife” with whom he shared a relationship and who had supported him since the relationship commenced.

The first applicant escalated the dispute to the Pension Funds Adjudicator on 11 June 2021. The Adjudicator dismissed the complaint and confirmed a distribution in the following proportions: 15% to the third respondent; 15% to the first applicant; 25% each to the second and third applicants; and smaller percentages (5% each) to additional family members including the deceased’s mother, sister, niece, and brother.

The existence and validity of the alleged customary marriage between the deceased and the third respondent was contested in substance by the applicants. The judgment recorded that the first and second respondents did not oppose the declaration of invalidity of the customary marriage, and that the third respondent did not file an opposing affidavit. The court further recorded allegations that the third respondent was married to another person, and that this affected whether she could be regarded as having been validly married to the deceased by customary law.

The material dispute for decision ultimately crystallised around whether there was a lawful basis to allocate 15% of the benefit to the third respondent, and what should follow if that allocation was set aside. The first applicant abandoned a stance that she was entitled to 50% by virtue of the marriage in community of property, and focused on the contention that the third respondent’s 15% allocation lacked foundation and should be redistributed, in particular to the deceased’s children.

3. Legal Issues

The central legal questions the court was required to determine were whether the application was properly before the High Court procedurally; whether the joinder of the second respondent was competent; and, on the merits, whether the Adjudicator’s confirmation of the trustees’ allocation of 15% to the third respondent was legally sustainable.

On procedure, the dispute concerned questions of law and statutory interpretation, including whether the applicants had followed the correct statutory route when challenging the Adjudicator’s determination, and whether any procedural bar applied.

On misjoinder, the question was predominantly one of procedural law and convenience, requiring consideration of whether the second respondent had a sufficient interest to be cited and whether prejudice would result.

On the merits, the dispute concerned the application of law to fact within the framework of section 37C of the Pension Funds Act. This included assessing whether the trustees’ stated basis for allocating a portion to the third respondent was rational and lawful, and whether the respondents could defend the allocation on a basis not reflected in the contemporaneous correspondence. It further required consideration of the High Court’s powers under the statutory review mechanism (referred to in the judgment as section 30P) to set aside and potentially substitute or direct a revised allocation.

4. Court’s Reasoning

The court first addressed two preliminary objections raised by the first and second respondents. The first point in limine asserted that the applicants had adopted an incorrect procedure by failing to follow the provisions of section 30P of the Pension Funds Act and should have approached either the High Court or the Financial Services Tribunal for reconsideration. The court rejected this argument on the basis that the applicants had in fact approached the High Court for relief against the Adjudicator’s decision, which was precisely the form of process contemplated by the statutory scheme as understood in the judgment. The first point in limine was dismissed.

The second point in limine was misjoinder, in that the second respondent (the principal officer) was said to be a mere employee implementing board decisions and to have no interest in the outcome. The court held that the second respondent was a vital functionary within the administrative functioning of the first respondent and could appropriately be joined for convenience. The court relied on authority recognising that, beyond the confines of formal joinder rules, common-law principles permit joinder where convenience requires, subject to the court’s control. In addition, the court found no demonstrated prejudice to the second respondent if he remained joined. This preliminary objection was also dismissed.

On the merits, the court located the dispute within the statutory purpose of section 37C of the Pension Funds Act, which governs the distribution and payment of lump-sum benefits on a fund member’s death and is directed at protecting dependants. The court referred to the statutory definition of “dependant” and accepted the general approach that trustees must identify dependants and then determine the nature and extent of each dependant’s financial dependence, while also considering factors such as nomination and marital status. Against this framework, the court focused on the justification advanced for allocating 15% to the third respondent.

The fund sought to justify the third respondent’s allocation primarily by reference to a lobola letter dated 24 February 2018 and an affidavit from the deceased’s brother (the fourth respondent). The court held that these documents did not establish the existence of a customary marriage, nor did they resolve whether a customary marriage existed or did not exist. The court further considered the applicants’ version that the third respondent had been a domestic helper who attended at the home once a week, and that there was no intimate relationship between her and the deceased. This was noted to be directly at odds with the fourth respondent’s affidavit. The court regarded it as significant that the third respondent, confronted by these affidavits and a report referred to as compiled by “Molomafo Assessor”, did not respond.

A further consideration for the court was the allegation that the third respondent was married to another person, with the consequence (on the court’s reasoning) that she could not have been “legally married to the deceased by way of custom”. The court also referred to the Recognition of Customary Marriage Act and stated that where a man seeks to conclude a customary marriage during the existence of a civil marriage, the second marriage should have been consented to by the wife in the civil marriage. In addition, the court noted that the third respondent was not named in the deceased’s nomination form.

The respondents, in their answering affidavit, attempted to shift the justification for the third respondent’s allocation by contending that the 15% was not awarded because of a customary marriage but because the third respondent was financially dependent on the deceased. The court rejected this as an impermissible change in justification, emphasising that this dependency rationale was raised for the first time in litigation and did not align with the reasons previously communicated to the first applicant or reflected in the handling of the matter by the fund and the Adjudicator. The court characterised this as disingenuous and held that the respondents could not rely on new or additional reasons in the review. On this basis, the court concluded that the allocation to the third respondent had been taken on a wrong reason, was irrational, and fell to be set aside.

In relation to the first applicant’s position, the court accepted that she and the deceased were still married in community of property at the time of death, but observed that they had lived apart since 2007 and that she was employed and not financially dependent in the strict sense. The court noted that she was not a nominee under the nomination form. The court held that it was correct that she abandoned a claim to 50% based on the marriage, reasoning that community of property ends when a marriage terminates and, critically, that pension fund proceeds did not form part of the joint estate so as to entitle her automatically to half. In support, the court relied on Danielz NO v De Wet, in which it was confirmed that prior to death, the proceeds of a policy do not exist and do not form part of the joint estate.

The remaining question was what should happen to the 15% once the third respondent’s allocation was set aside. The respondents argued that trustees become functus officio once an award is made. The court rejected this as an incorrect understanding in the context of a court order setting aside a determination (or a portion thereof), holding that trustees are required to implement such an order. The court referred to De Beers Pension Fund v Pension Funds Adjudicator & Another for the proposition that an application to the High Court under the statutory scheme is sui generis and entails a power to consider the merits and, where appropriate, substitute the court’s own decision.

The court emphasised the social purpose of section 37C to ensure that persons financially dependent on the deceased are not left without support. It reasoned that the second and third applicants were dependants and heirs, had been nominated by the deceased, and were still in education. In that context, the court considered there to be a strong case that the trustees should exercise their discretion to reallocate the 15% to the second and third applicants, while noting that it was directing revision without purporting to usurp trustees’ discretion. The court referred to Sithole vs ICS Provident Fund and Another and emphasised that the trustees should adhere to the relevant principles, particularly given that the second and third applicants were described as totally dependent on the deceased unlike other beneficiaries.

5. Outcome and Relief

The court granted the application to the extent reflected in its order. It set aside the Pension Fund Adjudicator’s determination insofar as it confirmed the trustees’ allocation of a 15% benefit to the third respondent.

The court directed the trustees of the first respondent to revise the allocation by reallocating that 15% to persons lawfully entitled thereto, expressly including consideration of the second and third applicants. The remainder of the allocation (the “balance”) was confirmed.

On costs, the first respondent was ordered to pay the applicants’ taxed party-and-party costs, including the costs of counsel.

Cases Cited

Rabinowitz and Another NNO v NED-Equity Insurance Co Limited 1980 (3) SA 415 (W).

Lewis N.O. vs Schoeman N.O. and Others 1951 (4) SA 133.

Danielz NO v De Wet 2009 (6) SA 42 (C).

De Beers Pension Fund v Pension Funds Adjudicator & Another [2003] 2 All SA 239 (C).

Sithole vs ICS Provident Fund and Another [2000] 4 BPLR 430 (PFA).

Legislation Cited

Pension Funds Act 24 of 1956, including section 1, section 30, section 30A(3), section 30P, and section 37C.

Recognition of Customary Marriage Act (as referred to in the judgment).

Rules of Court Cited

Uniform Rule of Court 10(3) (as referenced in relation to joinder).

Held

The High Court held that the applicants were properly before it and had not followed an incorrect procedure in challenging the Pension Funds Adjudicator’s determination. The court held further that the joinder of the second respondent was not objectionable and that no prejudice was shown.

On the merits, the court held that the allocation of 15% of the death benefit to the third respondent was taken on a wrong basis and was irrational, particularly where the trustees and the Adjudicator had relied on reasons linked to an alleged customary marriage and where the respondents later attempted to justify the allocation on a different ground (dependency) raised for the first time in the answering affidavit. That portion of the Adjudicator’s determination was set aside, and the trustees were directed to revise the allocation by reallocating the 15% to persons lawfully entitled, including the deceased’s children.

LEGAL PRINCIPLES

Section 37C of the Pension Funds Act 24 of 1956 performs a protective social function by regulating the distribution of death benefits to ensure that dependants are not left without support, and trustees must identify dependants and then consider the extent of their dependency in exercising their distribution discretion.

In exercising discretion under section 37C, trustees commonly consider (among other factors) the deceased member’s nomination, marital status, and dependency; however, the process must remain lawful and rational and must be based on the reasons properly relied upon at the time of decision-making.

In proceedings challenging a Pension Funds Adjudicator determination, the High Court may consider the merits of the underlying complaint and, in an application characterised as sui generis, may exercise powers analogous to original jurisdiction, including setting aside an incorrect determination and directing the proper consequences in accordance with law.

A decision-maker may not seek to defend a challenged determination by advancing new or additional reasons for the first time in review proceedings where those reasons did not form part of the original basis communicated and relied upon.

Pension fund death benefits do not automatically form part of a joint estate merely by virtue of a marriage in community of property, and a spouse is not thereby automatically entitled to one half of pension fund proceeds upon the member’s death.

Motsioa and Others v eJoburg Retirement Fund and Others (43479/20) [2022] ZAGPJHC 454 (6 July 2022)