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[2023] ZAKZPHC 80
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Municipal Workers Retirement Fund v Umzimkhulu Local Municipality and Others (11458/2015) [2023] ZAKZPHC 80 (10 August 2023)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
No: 11458/2015
In
the matter between:
THE
MUNICIPAL WORKERS RETIREMENT FUND
APPLICANT
and
UMZIMKHULU
LOCAL MUNICIPALITY
FIRST RESPONDENT
T
NGCEMU
SECOND
RESPONDENT
S
CHIYA
THIRD
RESPONDENT
T
M MADLALA
FOURTH
RESPONDENT
T
SONDZABA
FIFTH RESPONDENT
A
MKHIZE
SIXTH RESPONDENT
N
S MHLAWULI
SEVENTH
RESPONDENT
H
B MBOTHO
EIGHT
RESPONDENT
ORDER
1.
The first respondent is ordered to pay to the applicant the amount of
R2 239 991.34
2.
The first respondent is ordered to pay interest on the amount of
R2 239 991.34 calculated at the rate prescribed
in
section
13A(7)
of the
Pension Funds Act, 24 of 1956
from 31 October 2021 to
date of final payment.
3.
The first respondent is ordered to pay the costs of the application.
JUDGMENT
Delivered
on:
Mngadi
J
[1]
The applicant is the Municipal Workers Retirement Fund (the fund) a
pension fund organisation
registered as such in terms of section 4 of
the Pension Funds Act 24 of 1956 (the PFA).
[2]
The first respondent is UMzimkhulu Municipality (the municipality) a
duly constituted
Municipality in terms of
section 2
of the
Local
Government Municipal Systems Act 32 of 2000
. The second
respondent is T J Ngcemu the Chief Financial Officer of the first
respondent . The third respondent
is S Chiya an adult municipal
worker employed by the first respondent. The fourth respondent
is TM Bandala an adult municipal
worker employed by the first
respondenrt. The fifth respondent is TM Sondzaba an adult
munipal worker employed by the first
respondent. The sixth
respondent is A Mkhize an adult municipal worker employed by the
first respondent. The seventh
respondent is NS Mhlawuli an
adult municipal worker employed by the first respondent. The
eight respondent is HB Mbotho an
adult munbiciopal worker employed by
the first respondent.
[3]
The applicant seeks an order as follows:
1.
That the first respondent is ordered to
pay the applicant the amount of R2 239 991.34
2.
The first respondent is ordered to pay
interest on the amount of R2 239 991.34 calculated at the rate
prescribed in
section 13A(7)
of the
Pension Funds Act 34 of
1956
from 31 October 2021 to date of payment.
3.
The first respondent is ordered to pay
costs of the application on attorney and client scale.
The
first and second respondents oppose the application. The other
respondents have not taken part in the litigation and no
relief is
sought against them.
[4]
The Fund is a pension fund and a number of its members are employees
of the municipality.
The business of the fund is to collect
contributions payable every month in respect of its members from the
participating employers
and to invest them in accordance with the
registered rules of the Fund until such time that the members leave
the service of the
employer and a benefit is payable to then in terms
of the registered rules of the fund.
[5]
The Municipality is a participating employer and an employer in terms
of the rules
of the Fund. The Municipality is also an employer
within the meaning of that phrase in
section 13A
of the PFA read with
the definition of employer in
section 1
of the PFA.
[6]
The Municipality failed to comply with the provisions of
section 13
A(1) and (2) of the PFA in not delivering to the applicant prescribed
information and, further, by failing to make contributions
as
required in terms of the provisions of the rules of the applicant and
the PFA from December 2013. The applicant then instituted
an
application to compel compliance by the Municipal of its statutory
obligations, in particular, the furnishing of prescribed
minimum
information in respect of its members/employees. The
Municipality resisted the application but the applicant succeeded
in
the litigation that followed, and obtained an order to be furnished
with the required prescribed information and that on the
same papers
supplimeted as it may be necessary, could seek an order for payment
of arrear contributions and penalty interest.
The order made by
the Supreme Court of Appeal on 2 April 2019 , the relevant part reads
as follows;
‘
The
first rtespondent is directed to provide the applicant within thirty
(30) days of this order with the prescribed initial and/or
subsequent
contribution statements prescribed by
Regulation 33
of the
Pension
Funds Act 24 of 1956
in respect of the third to eight respondents.
2.
The applicant is granted leave to supplement its papers for payment
of any further arrear contributions after receipt of the
above
statements
[7]
On 3 March 2022 the Municipality furnished the minimum required
information which
enabled the Fund to quantify the quantum of the
arrear contributions up to March 2021. On 13 June 2022 the Fund
advised the
Municiplaity that the arrear pension contributions plus
interest up to 31 October 2021 as on June 2022 amounted to R4 471
814.91.
The Municiplaity paid to the Fund arrear contributions
in the sum of R2 231 831.60
[8]
The Municipality resisted payment of the balance. It contended
that it was entitled
to be furnished with particulars of the
calculation of the balance. It argued that the Fund is required
to prove its claim,
it was not obliged to make payment without a
detailed application of how the amount claimed is determined.
[9]
The Municipality contended that interest owed is not owed in terms of
s13A
(7) of the PFA but had altered its nature becoming a debt
that accrued interest at the prescribed rate of interest in terms
of
the Prescribed Rate of Interest Act and the first respondent is
entitled to a partial exemption from interest based on the delay
by
the applicant in computing the debt, and that whatever interest due
is limited to the capital portion of the debt which is R2 231 823.60
by virtue of the
in duplum
rule.
[10]
The applicant in reply, states that s13 (1) (2) of PFA imposes a duty
on the participating employer
to calculate and pay over to the Fund
the pension contributions on a monthly basis and to furnish to the
fund the prescribed information
accompanying the contributions.
The PFA prescribes the rate of interest and the
in duplum
rule, contends the applicant, has no application. In addition,
the applicant referring to
F & I Advisors (Edms) Bpk Een
‘n’Ander v Eerste Nasionale Bank van Suidelike Afrika
1999(1) SA 515 (SCA) at 525E and
DA Cruz v Bernado
2022
(2) SA 185
(GJ), argues that the first respondent did not raise as a
defence the
in duplum
rule in the answering affidavit and
that, in any case, the
in duplum
rule does not apply to
interest on late pension contributions provided for in section 13A(7)
of the PFA.
[11]
The PFA imposes the obligation on the employer to calculate and pay
over to the fund the prescribed
contributions. The PFA and the
regulations set out how the contributions are to be calculated and
when are they due to be
paid over to the Fund. Section 13 A(7) of the
PFA provides:
‘
(7) Interest at a
rate as prescribed shall be payable from the first day following the
expiration of the period in respect
of which such amounts were
payable on-
(a)
The amount of any
contribution not transmitted into a funds bank account before the
expiration of the period prescribed therefor
by subsection
(3)(a)(i);
(b)
The amount of any
contribution not received-
(i)
by a fund before the
expiration of the period prescribed therefor by subsection (3) (a)
(ii) ; or
(ii)
…
[12]
The first respondent contends that the effect of the Supreme Court of
Appeal judgment was to
alter the debt into a form to which interest
payable in terms of the Prescribed Rate of Interest Act and not
section 13A(7) of
the PFA, it is limited to the capital portion of
debt, to wit R2 231 823.60 by virtue of the
in duplum
rule.
In addition, the first respondent contends that the applicant delayed
in calculating the total amount due and should
be deprived of part of
the
mora
interest claimable in terms of s1(1) of the
Prescribed Rate of Interest Act.
[13]
The first respondent relies on
Da Cruz v Bernardo
2020 (2) SA
185
(GJ) para 57, wherein it was held that where interest is
calculated with reference to a rate stipulated in an agreement,
whether
the agreement is a loan agreement or another type of
agreement, the interest which accrues on the debt cannot exceed the
captal
sum of the debt. It , further, refers to
Paulsen and
Another v Slip Knot Investment 777
(Pty) Ltd
2015 (3) SA
479
(CC) wherein the court held that
in duplum
rule is
not suspended by litigation. In
DA Cruz v Bernado
at
p186 it is stated: ‘The
in duplum
rule broadly speaking,
provided that arrear interest ceased to accrue once the sum of the
unpaid interest equalled the amount of
the outstanding capital.
The question in the present matter was whether the rule applied to
liquidated debts-like the present-
in respect of which there was no
law or agreement governing the calculation of the rate of interest,
but which instead, in terms
of the common law, bore
mora
interest
and accordingly fell within the purview of
s1(1)
of the
Prescribed
Rate of Interest Act 55 of 1975
. The section provided
that the type of debt in question attracted interest as calculated
‘at the rate contemplated
in subsection (2)(a) as at the time
when such interest begins to run’ unless a court of law, on the
ground of special circumstances
relating to the debt, orders
otherwise.’
[14]
I am in agreement with the applicant that its claim for interest is
statutorily regulated, it
does not arise out of a contractual
relationship. The statute imposes liability for the payment of
intererest , stipulates
the a rate of interest applicable, and when
it accues, therefore, it is not
mora
interest and it is
not interest regulated by the provisions of the
Prescribed Rate of
Interest Act. The
court in this matter has no power to order
otherwise as envisaged in the provisions of the
Prescribed Rate of
Interest Act.
>
[15]
The interest the applicant claims is an interest prescribed by
statute in the circumstances of the relationship between
the
applicant and the respondents. The parties cannot contract
otherwise. Therefore, the interest is not claimed in
terms of a
term of a contract. The obligation to deduct and pay over
pension contributions is regulated by the statute, the
PFA which also
imposes interest penalties on late paying over of contributions.
The court order to pay over pension contributions
is an order to
comply with the provisions of the statute. It is not an order
to pay damages or compensation. The Prescribed
Rate of Interest
Act provides:
‘
(1)
If a debt bears interest and the rate at which the interest is to be
calculated is not governed by any other law or by an agreement
or
trade custom or in any other manner, such interest shall be
calculated at the rate contemplated in subsection (2)(a) as at the
time when such interest begins to run, unless a court of law, on the
ground of special circumsatances relating to the debt, orders
otherwise’. Clearly, this provision explicitly exclude
instances where liability to pay interest and the calculation
of
interest is statutorily governed.
[16]
The first respondent contends that an obligation to pay contributions
in terms of the statute for its employees
in question was replaced by
an obligation to pay a future judgment debt. The
contention is based in that the order
sought and granted by the
Supreme Court of Appeal required that the first respondent furnished
particulars which, once furnished,
would enable the applicant to
prove the amount of contributions to be paid to it and the interest
due to it due to late payments
of the contributions. However, it is
claimed, the applicant refused and failed to set out in details how
it calculated the pension
contributions to be paid as well as
interest. It is stated that, despite that the first respondent,
having the benefit of
the particulars furnished, it was able to
satify itself that the amount claimed for unpaid contributions was
correct. In
my view, this contention holds no water.
Firstly, the PFA imposes the obligation to calculate and pay over
pension contributions
on the first respondent. Secondly, on the
information furnished by the first respondent, it was able to satify
itself that
the amount claimed for outstanding contributions is
correct. Thirdly, if the information available to first
respondent was
enough to satify itself that the amount claimed for
outstanding contributions is correct, why based on the same
information, was
it not able to calculate interest due.
[17]
The first resp[ondent claims that a statutory obligation was
converted to an obligation to pay a future judgment
debt. There is no
merit in this contention. The applicant exercised a power given
to it by statute. It is a creature
of statute with no other
power other than powers granted to it by statute. It exercised
its powers to force the first respondent
to comply with its statutory
obligations. It had no power to convert its statutory power to
something else.
[18]
The first respondent pointed out in the supplementary heads of
argument that regulation 33 of
the Pension Funds regulations has been
repealed in its entirely and therefore, it is argued, plaintiff’s
claim framed in
terms of regulation 33 falls to be dismissed.
Government Notice, GN 2977 on 27 January 2023 provides:
1.The
Minister of Finance has in terms of section 36 of the Pension Funds
Act, 1956 (act No24 of 1956) and with effect from 20 Febraury
2023,
repealed regulation 33 of the regulations published under Government
Notice No.R98 of 26 January 1962, as amended.
Regulation 33 is
replaced with by Conduct Standard 1 of 2022 made under the Financial
Sector Regulation Act 2017. Section
5 of the Conduct Standard 1
provides:
1.
For purposes of
section 13A(7( of the Act, compound interest on late payments or
unpaid amounts –
(a)
must be calculated
from the first day following the expiration of the period in respect
of which such amounts were payable until
the date of receipt by the
fund; and
(b)
is prescribed to be
the prime rate plus 2 percent.
(2)
Interest referred to in sub paragraph (1) shall constitute investment
income for the fund
and must be payable to the fund by no later than
the end of the second month following the month in respect of which
the amount
is payable, or the amount it transferable, as the case may
be.’ The respondent argues that the lower interest rate
prescribed in section 5 of Conduct Standard 1 applies to the entirety
of the debt because the provisions replace regulation 33 and
that it
provides for ‘calculation of interest from the first day
following expiration of the period of which such amount
were
payable until the date of receipt by the fund.’
[19]
Section 7 of the Schedule Conduct Standard 1 of 2022 provides that it
comes into operation (a)
six months (6) after the date of
publication, or (b) on a later date as determined by the Authority by
notice on its website.
The repeal of regulation 33 is proposed
since it is to be replaced by Conduct Standard 1 of 2022 and taking
effect on 20 February
2023 as per Government Gazette No 47557 of 22
November 2022.
In
my view, it must be noted that the amendment takes effect on 20
February 2023. It provides for the calculation of interest
from
the first day following the expiration of the period in respect of
which such amounts were payable. It does not apply
in
calculating interest from the first day following the expiration of
the period in respect which such amounts were payable which
fell in
the period before its commencement. In my view, there is no
merit in the first respondet’s contention to the
contrary.
[20]
The applicant seeks costs on attorney and client scale. The
grounds put forward by the
applicant are that the first respondent
has no
bona fide
defence, it has breached its duty to uphold
the law, its breach is non-compliance with the law which constitutes
a criminal offence,
and it has caused prejudice to its
members.
[21]
In my view, the applicant for unknown reasons delayed in persuing the
claim against the first respondent. The delay resulted
in
penalty interest accruing. The opposition by the respondents is
misguided but, in my view, it is not a reason to order
the
respondents to pay costs on a punitive scale.
[22]
The application falls to be granted. It is ordered as follows:
1.
The first respondent is ordered to pay to the applicant the amount of
R2 239 991.34
2.
The first respondent is ordered to pay interest on the amount of
R2 239 991.34 calculated at the rate prescribed
in
section
13A(7)
of the
Pension Funds Act, 24 of 1956
from 31 October 2021 to
date of payment.
3.
The first respondent is ordered to pay the costs of the application.
Mngadi,
J
APPEARANCES
Case
Number:
11458/2015
For
the Applicant:
Pieter
Van Der Berg SC
Instructed
by:
Mathew
Francis Inc.
PIETERMARITZBURG
For First & Second
Respondents:
G D Van Niekerk SC
Instructed by:
Shepstone & Wylie
Attorneys
PIETERMARITZBURG
Date
of Hearing:
17
July 2023
Date
of Judgment:
10
August 2023