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[2023] ZAECMKHC 4
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Blue Crane Route Municipality v Municipal Workers Retirement Fund (CA 221/2021) [2023] ZAECMKHC 4 (24 January 2023)

IN THE HIGH COURT OF
SOUTH AFRICA
[EASTERN
CAPE DIVISION – MAKHANDA]
CASE NO: CA 221/2021
Date Heard: 29 August
2022
Date Delivered: 24
January 2023
In
the matter between:
BLUE
CRANE ROUTE
MUNICIPALITY

Appellant
and
THE
MUNICIPAL WORKERS RETIREMENT FUND

Respondent
JUDGMENT
NTLAMA-MAKHANYA
AJ
[1]
The appellant, the Blue Crane Municipality (the Municipality),
appeals against the
whole of the judgment granted in favour of the
respondent, the Municipal Worker’s Retirement Fund, (the Fund)
on 08 October
2020, dismissing its application for rescission of the
default judgment granted on 26 November 2019.
[2]
The Municipality is a Category B Municipality
[1]
,
established in terms of
section 12
of the
Local Government Municipal
Structures Act, 117 of 1998
, situated in the Sarah Baartman District
Municipality in the Eastern Cape Province. It was represented by Mr
Buchanan
SC in these proceedings. The Fund is a pension fund, duly registered
in terms of section 4 of the Pension Funds Act 24 of 1956
(the
Pension Fund Act) with effect from 23 June 1994.
[2]
Its purpose is ‘to provide its members that are employed by the
Municipality and mostly disadvantage with ‘reasonable
and
competitive retirement, resignation and risk benefits’.
[3]
It was represented by Mr
Van
der Berg
SC.
[3]
The leave to appeal was granted by the court
a
quo
on 26 July 2021, having been
persuaded that there are reasonable prospects of success.
Background
[4]
The Fund instituted proceedings against the Municipality for an order
compelling the
latter to pay to it the sum of R3 805 608.68.
According to the Fund, the liability arose as a consequence of the
Municipality failing
to pay contributions in accordance with the Fund
rules. It alleged that for the period of July 2007 to June 2013, the
Municipality
was deducting and contributing at the rate of 5% in
respect of members’ contributions, whereas the prevailing rate
was 7.5%,
and in respect of employers’ contributions at the
rate of 12%, when it should have contributed 18%.
[5]
The Municipality elected not to oppose the rescission application
despite being aware
of the date of the hearing. Consequently, the
Fund obtained judgment in terms of its notice of motion on 26
November 2019.
[6]
During March 2020, the Municipality filed an application for
rescission of the aforesaid
order and ancillary relief. That
application was heard by Rugunanan J who dismissed the application,
with costs.
The
Municipality’s contentions
[7]
The Municipality, in its founding papers, asserted in terms of
Uniform Rule 42(1)(
c
)
that the judgment was obtained as a result of a mistake common to the
parties. It also contended that good cause existed for the
rescission
of the order in terms of the common law.
[8]
Furthermore, the Municipality asserted that at the time the Fund’s
application
was served on it, it was under the bona fide - but
mistaken belief - that it was indebted to the Fund in respect of
contributions
at the respective rates of 7.5% and 18 % from 2007,
onwards. However, it has since ascertained that, upon a proper
interpretation
of the Fund rules, it only became obliged to give
effect to an employee contribution of 7, 5% as from 1 November 2011
and to an
increased employer’s contribution of 18%, as from 1
July 2013.
[9]
It also contended that while the Fund in its application, placed
reliance on rule
11.1.2, which enjoins members to contribute at the
rate of 7.5% and 18% respectively, it did not draw attention to
paragraph 11.1.3(b)
of the rules which provides, inter alia, that:
‘
any amendment which relates to
the employer contribution shall be subject to the employer’s
agreement with the union
’, (my
emphasis).
[10]
The Fund’s failure to draw attention to the abovementioned rule
resulted in it failing
to allege in its founding affidavit that the
precondition for requiring a higher rate of employer contribution,
namely agreement
with the union, had not been fulfilled. That
omission had left the court under the mistaken impression that all
necessary requirements
for the implementation of contributions at the
higher rates had been fulfilled, otherwise the court would not have
granted the
order.
[11]
The effect of clause 11.1.3(b) of the rules is that an individual
participating employer must
reach agreement with the union regarding
the proposed increased contribution and the rules can only thereafter
be amended accordingly.
Thus, an amendment to the rate at which an
employer must contribute towards the Fund for the benefit of members
of the Fund employed
by it, can only become effective as from the
date the employer agrees to contribute at a higher rate. The Fund can
therefore not
unilaterally decide to increase the rate of employers’
contributions in respect of its members. Failing an employer agreeing

with the union to contribute at a higher rate, the Fund is not at
liberty to amend its rules to that effect. In the case of the

Appellant such an agreement to contribute at a higher rate only came
about in 2013.
[12]
The effective date of the rule was therefore 1 November 2011 and, at
best for the Fund, it had
the power to require employee contributions
at the increased rate from that date. The municipality’s
council only resolved
during September 2013 to contribute at a higher
rate, with retrospective effect from 1 July 2013.
[13]
The Municipality never passed a resolution agreeing with the union or
the Fund to pay arrear
contributions at the increased rate for the
period July 2007 to November 2011. Although representatives of the
Municipality had
negotiations with the Fund regarding the possibility
of paying the arrear contributions claimed by it at the increased
rate for
the period July 2007 to November 2011, it had never agreed
to do so.
[14]
The Municipality was thus under the mistaken belief that it was
obliged by law to pay increased
contributions as from July 2007
onwards. It was for that reason that it did not oppose the
application that resulted in the impugned
order. It has discharged
its obligations regarding the increased deductions as from 1 July
2013 in full, and is accordingly not
indebted to the Fund at all. It
therefore has a complete defence to the Fund’s claim.
The
Fund’s contentions
[15]
The appeal is opposed by the Fund contending that:
[15.1]
the municipality decided not to oppose the main application as set
out in the notice of motion whilst it had full knowledge
of such
application and hearing date which meant that it:
(a)
waived the right to apply for rescission; and
(b)
intentionally defaulted and has not met the requirements of common
law rescission.
[15.2]
The Fund argues that the rule remains binding until set aside by a
court or other competent tribunal. Therefore, there
are no
proceedings to set aside the relevant rules and accordingly:
(a)
there is no error or mistake within the
meaning of Rule 42; and
(b)
the municipality has not been able to raise
a
bona fide
defence which is a common law requirement for rescission.
[16]
In his judgment, Rugunanan J found that since the Municipality
unequivocally elected not to oppose
the main application, having been
aware that default judgment would be taken against it, did not take
any steps to oppose, but
allowed the Fund to take its chosen course,
it is presumed to have been in wilful default and is consequently not
entitled to rescission
of the order. The learned judge thus concluded
that ‘[o]bjectively considered, the [Municipality] waived or
perempted its
right to rescind’. The learned judge also found
that the Municipality’s defence, which is based on its
assertion that
the amended rule relating to the rate of contributions
did not become effective on 1 November 2006 has no merit,
particularly in
the light of the fact that it did not take any steps
to set aside the amended rule.
[17]
Therefore, this Court is required to consider the merits of the
appeal in the determination of
the ‘alleged common mistake’
which, as contended by the appellant, constituted a misapprehension
of the obligation
for the payment of the increased fees by both
parties.
The
applicable legal principles
[18]
With the above grounds in mind, the requirements for a successful
rescission application in Rule
42 of the Uniform Rules of the Court
are:
(1)
The court
may
,
in addition to any other powers it may have,
mero
motu
or upon the application of any
party affected, rescind or vary (my emphasis):
(a)
an order or judgment erroneously sought or
erroneously granted in the absence of any party affected thereby;
(b)
an order or judgment in which there is an
ambiguity, or a patent error or omission, but only to the extent of
such ambiguity, error
or omission;
(c)
an order or judgment granted as the
result of a mistake common to the parties
,
(my emphasis).
(2)
Any party desiring any relief under this
rule shall make application therefor upon notice to all parties whose
interests may be
affected by any variation sought.
(3)
The court shall not make any order
rescinding or varying any order or judgment unless satisfied that all
parties whose interests
may be affected have notice of the order
proposed.
[19]
In order to show good cause for rescission at common law, the
Municipality was required to provide
a reasonable explanation for the
default and show that it has a
bona
fide
defence to the Fund’s claim.
[4]
[20]
It is common cause that the success of a rescission application is
grounded on its purpose as
emphasized in
Saphula
v Nedcor Bank Ltd
[5]
,
that the ‘object of rescinding judgment is to restore a chance
to air a real dispute [and for the] … defendant [to]
honestly
… pursue before a Court a set of facts which, if true, will
constitute a defence’.
[6]
[21]
The purpose which encapsulates the test for a successful rescission
application has recently
been articulated in
Gangat
v Akoon.
[7]
The Court in this case held that the ‘[the appellant] must show
that there is a reasonable and satisfactory explanation as
to the
default. Secondly, there is a
bona
fide
defence on the merits of the case which carries the prospect of
success in the action’.
[8]
Issues
for determination
[22]
Before us, it was contended on behalf of the Fund that the
Municipality’s right to apply
for rescission has been perempted
or waived, in that it acquiesced in the judgment. This submission was
based on the fact that
the Municipality had, with full knowledge of
the application and the hearing date, decided not to oppose the
application. The Municipality
was accordingly in wilful default and
has consequently not met the requirements for common law rescission.
[23]
In addition, the Fund contended that until such time as the amended
rule had been set aside by
a competent court or tribunal, it remains
binding. The Municipality’s defence, namely, that the increased
rates of the contributions
have not become effective and that the
order was accordingly granted in error, is untenable. The
Municipality has therefore not
been able to establish that there was
an error or mistake within the meaning of Rule 42, and has
consequently not been able to
raise a
bona
fide
defence, which is a requirement
for common law rescission.
[24]
In terms of section 12 of the Act, a pension fund may alter or
rescind any rule or make any additional
rule, but the alteration,
rescission or addition shall only be valid,
inter
alia
, once it has been approved by the
Registrar and shall take effect as from the date determined by the
Fund, or if no date has been
determined, as from the date of
registration.
[25]
It was common cause that the amended rule had been duly registered
and approved by the Registrar
in terms of section 12 of the Act and
had accordingly come into operation on 1 November 2006.
[26]
It is established law that the rules of a pension fund are binding on
the trustees of the Fund,
employers, employees and participating and
members with effect from that date of operation on 1 November 2006.
In terms of section
13 of the Act, the rights and obligations of
members and participating employees are governed by the rules. The
trustees of the
fund are accordingly bound to observe and implement
the Fund rules.
[27]
The Municipality’s argument that the amended rule only became
effective once its council
had resolved to agree to the increased
rates, is founded upon its interpretation of rule 11.1.3, which
provides that any amendment
relating to employer’s
contributions shall be subject to the employer’s agreement with
the union. The Municipality
contends that the effect of that
provision is that the amendment only became effective once it had
communicated its agreement to
the increased rates to the union.
[28]
I do not agree with this submission. Rule 11.1.3 envisages that the
negotiations between an employer
and the union in respect of proposed
increased rates would take place before the amendment is submitted to
the Registrar for approval
and registration in terms of section 13 of
the Act. Once the amendment had been approved and registered by the
Registrar, it becomes
a binding rule as defined in terms of the Act,
and must be implemented by the trustees.
[29]
Any employer or affected member who wishes to assail the process that
led to the adoption of
the rule cannot simply ignore the rule, but is
constrained to institute proceedings for its review and setting
aside. It is an
established principle of our law that invalid
administrative action cannot simply be ignored, but may be valid and
effectual and
continue to have legal consequences until set aside by
proper process.
[9]
[30]
In
MEC
for Health Eastern Cape v Kirland Investments (Pty) Ltd
[10]
Cameron
J warned about the ‘vortex of uncertainty, unpredictability and
irrationality which may arise should irregular administrative
action
simply be ignored on the basis that it is a nullity, without a legal
challenge to its validity’.
[11]
It is not difficult to conceive of the confusion and prejudicial
consequences for other participating employers and members of
a Fund
if any affected party can simply ignore a rule depending on the view
that he or she takes regarding the validity of that
rule, without
instituting proceedings to have it reviewed and set aside.
[31]
Without challenging the rule in the proper manner, the Fund, the
Registrar or any other person
with an interest in the matter, were
also denied an opportunity to oppose and raise defences against the
claim. By way of example,
the issue of not opposing the application,
prejudicial consequences for other members, the possibility of
reduction in benefits
and repayment by members of the retirement
benefits or death benefits already paid to beneficiaries, may be
raised by parties who
wish to oppose the relief sought.
[32]
There is, in addition, the issue raised by the Fund regarding the
obligation on the Municipality
first to exhaust internal remedies
before approaching the High Court for a review as a tribunal of first
instance. In terms of
the Financial Sector Regulation Act, 9 of 2017,
a person aggrieved by a decision to approve or register a rule or
rule amendment
must to approach the Financial Services Tribunal for a
reconsideration such a decision.
[33]
The Fund has correctly asserted that without the amended rule being
set aside, the rescission
will have no practical effect as the rule
remains extant and the Municipality will remain liable to perform in
accordance with
it.
[34]
A litigant, such as the Municipality in the present case, who is
absent from the court process
and fails to show reasonable cause that
will justify such absence, missed an opportunity that could have
enabled the Court to take
cognisance of the merits of the main
application before-hand of the rule amendment and the effect it has
on the parties.
[35]
The order granted in the main application was not erroneous as
envisaged in terms of Rule 42(1)(a)
or ambiguous in terms of Rule
42(1)(b).
[12]
It is explicit
and its effect reflects the true purpose of the reasoning of the
Presiding Judge. I find no reason of the court
a
quo
for not granting the order in the absence of an opposing affidavit.
[36]
I am accordingly in respectful agreement with Rugunanan J’s
finding that the Municipality
has failed to establish a
bona
fide
defence to the Fund’s claim.
This finding is fatal to its case since it means that it has failed
to establish that there
has been an error as envisaged by Uniform
Court Rule 42(1)(c), neither has it established good cause required
for rescission at
common law. It is accordingly not necessary for us
to decide the issue of the Municipality’s waiver or peremption
of its
right to apply for rescission. Suffice it to say that the
argument presented by the Fund in respect of that issue is equally
compelling.
It is established law that a defendant whilst aware of an
application against him or her and does nothing to oppose it, allows
the plaintiff to take his or her course with a potential of a default
judgment to be taken, is presumed to be in willful default
and not
entitled to rescission judgment. In the result, the appeal must fail
as it is evident that an injustice will be done towards
the Fund and
its members should the relief sought by the appellant be granted.
[37]
In the result, the appeal is dismissed with costs.
N Ntlama-Makhanya
Acting Judge of the
High Court
I agree.
NG Beshe
Judge of the High
Court
JE Smith
Judge
of the High Court
Appearances:
Counsel for the
Applicant:

Advocate RG Buchanan SC
Cloete
& Company
112A
High Street
Makhanda
(Ref:
M Kemp)
Counsel for the
Respondent:

Advocate P van der Berg SC
Shepstone
& Wylie Attorneys
c/o
Netteltons
118A
High Street
Makhanda
Ref:
(Nettelton/Liza)
[1]
See
section 13 on the Guidelines on the selection of types in terms of
the Structures Act.
[2]
See
the Consolidated Rules in terms of the Pension Fund Act 25 of 1956.
[3]
Available
at
http://mwrfund.org.za/
,
(accessed 20 October 2022).
[4]
See
Colyn
v Tiger Food Industries
Ltd
2003 (6) SA 1
(SCA) para 9.
[5]
1999
(2) SA 76.
[6]
Saphula
79 C-D.
[7]
[2021]
ZAGPJHC 431.
[8]
Gangat
para 27 quoting
Government
of the Republic of Zimbabwe v Fick
2013
(5) SA 325
(CC) para 85
.
[9]
See
Oudekraal
Estates (Pty) Ltd v City of Cape Town
2004 (6) SA 222
(SCA) para 26.
[10]
2014
(3) SA 481
(CC).
[11]
Kirland
Para 98.
[12]
See
Colyn
v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape)
2003 (6) SA 1
SCA.