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[2008] ZASCA 148
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William Van Der Riet Family Trust t/a Cathedral Peak Hotel v Hospitality Industry Pension Provident Fund (64/2008) [2008] ZASCA 148; 2009 (4) SA 357 (SCA) ; [2009] 2 All SA 196 (SCA) (27 November 2008)
Links to summary
THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case number: 64/2008
In the matter between:
WILLIAM VAN DER RIET FAMILY TRUST t/a CATHEDRAL PEAK
HOTEL
Appellant (defendant)
and
HOSPITALITY INDUSTRY PENSION PROVIDENT FUND
Respondent (plaintiff)
Neutral citation: William Van Der Riet Family Trust t/a
Cathedral Peak Hotel v Hospitality Industry Pension Provident Fund
(64/2008)
[2008] ZASCA 148
(November 2008)
BEFORE : Scott JA, Cameron JA, Cloete JA, Griesel
AJA and Kgomo AJA
HEARD: Tuesday 18 November 2008
DELIVERED: Thursday 27 November 2008
SUMMARY
:
Pension Funds Act
24 of 1956
– Rules of pension fund – interpretation –
obligation of employer – agreement obliging employer to pay
increased contribution of 6% of employee members’ salaries
ORDER
On
appeal from
: The High Court,
Pietermaritzburg (Moleko J and Radebe AJ), sitting on appeal from the
magistrate’s court at Bergville
The appeal is dismissed with costs
JUDGMENT
CAMERON JA (Scott JA, Cloete JA, Griesel AJA and Kgomo
AJA concurring)
[1] In the magistrate’s court at Bergville, the
respondent (the fund) sued the appellant (the hotel) for R15 365,73
plus interest,
which the fund claimed represented underpayments in
the hotel’s monthly dues as a participating employer on behalf
of its
employees. The hotel admitted the underpayments during the
fourteen-month period the summons covered (February 2003 to March
2004),
but denied they were due. Thus presented, the contesting
parties’ dispute raised an issue of significance not only for
the
hotel, but presumably also for other participating employers: the
correct interpretation of the fund’s rules, which have binding
force under the Pension Funds Act 24 of 1956 (the Act),
1
and which the fund (which is registered under the Act) has statutory
power to amend.
2
The Act obliges employer members to pay ‘any contribution
which, in terms of the rules of the fund, is to be deducted from
the
members’ remuneration’, as well as ‘any
contribution for which the employer is liable in terms of those
rules’.
3
[2] The hotel asserted that it was obliged under the
rules, properly interpreted, to contribute only 5% of its employee
members’
salaries. The fund insisted that the hotel was
obliged to pay 6%, since the trustees resolved in January 2003 to
increase employer
contributions to that figure. The sum claimed in
the summons represented the difference for the disputed period. The
magistrate
at Bergville, Ms E De Lange, upheld the hotel’s
contentions. The fund appealed to the High Court in Pietermaritzburg
(Moleko
J; Radebe AJ concurring), which reversed this judgment, and
ordered the hotel to pay the amount claimed, with interest. The
hotel
now appeals, with leave granted by the High Court.
[3] To understand the parties’ dispute it is
necessary to explain its context. The fund was established in
September 1992.
The hotel joined as a participating employer on 24
February 1999. At that date, revisions had recently been effected to
the rules.
So updated, the text defined the ‘rules’ as
including ‘such alterations as may at any time be in force’.
The text also provided, concordantly with the Act, that the rules
‘may be amended at any time by the Trustees’ (among
whose
number, it bears mention, both employers and employees are
represented). Members’ contributions are defined as being
a
‘minimum 6 per cent’ of salary, while employers’
contributions were (in 1999) ‘at least 4 per cent’,
less
certain benefit costs, provided that –
‘
(b) every 1 January the
EMPLOYER’S contribution shall increase by 1% up to a minimum
level of 6% of FUND SALARY’.
[4] It is this latter proviso that afforded the
foundation for the fund’s contentions. However, the hotel’s
accession
was recorded in an Agreement of Participation which the
parties’ respective representatives signed on 24 February 1999
(the
Agreement). This expressly set out the contribution rates, as a
percentage of gross monthly wage payable to the fund, for both
employer and employee. The figure stated was in each case 5%.
[5] Immediately above the parties’ signatures, the
Agreement ‘confirmed’ that the hotel had ‘received
copies
of the Rules of the Fund and the Administration Guide’.
This reference to the rules was plainly intended to integrate them
into the parties’ agreement. (The magistrate’s
observation that ‘no mention is made of the rules’ was
thus mistaken.) The Agreement so became subject to the provisions of
the rules, as amended from time to time, during the period
of the
hotel’s accession to the fund.
[6] Neither in the High Court nor before this Court did
the hotel contend the contrary: indeed its contentions derived from
the
rules, specifically amendments the fund’s trustees adopted
on 28 January 2000. The pivotal amendment was the addition of
the
following proviso to the exposition of ‘CONTRIBUTIONS’ in
the section headed ‘SCHEDULE OF BENEFITS’:
‘
It is specifically
provided that the contribution rate(s) applicable shall be as
specified in the AGREEMENT OF PARTICIPATION.’
This proviso formed the basis for the hotel’s
initial defensive stance to the fund’s claim. It asserted that
the January
2000 amendment pegged the employer’s contribution
to that expressly stipulated in the Agreement, namely 5%, with the
effect
that the trustees’ decision in January 2003 to increase
the employer’s contribution to 6% violated the basis on which
the hotel acceded to the fund and was therefore ineffectual.
[7] But the defence foundered on the point, well-made by
Moleko J in his judgment in the High Court, that the 1999 rules gave
no
special sanctity to the Agreement of Participation, and that the
proviso that seemingly elevated the status of the Agreement was
added
only in 2000. As the learned Judge pointed out, the Agreement the
employer signed in February 1999 did not stand alone,
but was subject
to and had to be read with the rules – which at that time, as
well as subsequently, provided for an annual
escalation in the
employer’s contribution. It followed by simple logic that in
January 2000, when the proviso pegging contributions
at those
specified in the Agreement of Participation was inserted, the
employer’s contribution had already gone up to 6%.
The hotel’s
initial argument therefore required counsel to straddle the
uncomfortable anomaly that, if it were correct,
the hotel’s
contribution went up (automatically) to 6% on 1 January 2000, but
then reverted down to 5% when the 2000 amendments
were adopted just
days later.
[8] That could not be. In argument before us counsel
therefore conceded the force of the contrary logic and abandoned his
earlier
contentions, though he continued to point to what he
suggested were difficulties inherent in it. The rule the fund
invoked entailed,
he said, an automatic annual increase of 1%,
indefinitely waxing, which was an absurdity. And indeed that outcome
would be absurd,
for it seems plain that the parties envisaged that
contributions of both the employer and employee would remain
fractional in relation
to salaries. But the interpretation may
safely be discarded as incorrect, for the 1% increase the rules
mandate ‘every 1
January’ is automatic only until the
minimum of 6% is reached. Thereafter, increases must be fixed by the
trustees, who,
as already mentioned, include both employer and
employee representatives, and may presumably be trusted not to make
absurd decisions.
[9] As pointed out during debate with counsel, the rule
envisages not an indefinitely escalating employer contribution, but a
minimum
compulsory
level, which is 6%, to be attained in one-percent annual increases in
those cases where the employer’s initial contribution
is below
6%. How does the Agreement of Participation, and the 28 January 2000
amendment that pegs employer contributions to it,
tie in with this?
The answer is that it makes provision for those cases where the
employer’s contribution is from the outset
agreed to be higher,
not lower, than 6%.
[10] His main assailant fire thus quenched, counsel
invoked an entirely new contention. He argued that the provisos to
the rule
specifying the employer’s contributions had to be read
so as to limit the annual increases altogether. To understand his
submission it is necessary to set out the provision in question more
fully:
‘
Participating Employer’s
contributions
at least 5 per cent [as amended
28 January 2000] of FUND SALARY, less the cost of providing the
funeral benefits but inclusive of
the cost of providing the RISK
BENEFITS and the administration costs; provided that
if at any time the RISK
BENEFITS and administration costs exceed 5 per cent, the higher
amount shall be paid by the PARTICIPATING
EMPLOYER;
every 1 January the
PARTICIPATING EMPLOYER’S contribution shall increase
by 1% up to a minimum level of
6% of FUND SALARY;
in respect of a MEMBER who
immediately prior to his PARTICIPATION DATE was a member of an
industrial fund, the PARTICIPATING EMPLOYER
shall continue to
contribute to the FUND at the rate at which he was contributing to
such an industrial fund on behalf of such
MEMBER.
It is specifically provided that
the contribution rate(s) applicable shall be as specified in the
AGREEMENT OF PARTICIPATION.’
[11] The basis for this argument is the alphabeticised
sub-paragraphing, from which it is immediately evident that (c) is
not separate
but is part of (b). Seizing on this, counsel urged us
to integrate also (a) into (b), so as to constitute the first three
sub-paragraphs
a single semantic entity. Thus unsundered, counsel
argued, the new single paragraph meant that only when risk benefits
and administration
costs exceed 5 per cent, would the employer’s
contribution increase by 1% every January.
[12] The argument is entirely unpersuasive. For one
thing, the meaning counsel urges us to attribute to the consolidated
provisos
is improbably unbusinesslike, for what if risk benefits and
administration costs exceed the default contribution by more than 1%?
On counsel’s reading, the employer’s contribution can
increase by only 1% at a time, every 1 January. That makes
no sense.
[13] Second, counsel’s reading requires the
insertion of words between (a) and (b) for the two to make sense
together –
at least the words, ‘and then’; or, more
comprehensibly, as counsel conceded in argument, ‘then in that
event
and only in that event’. Such a radical prosthetic
addition is quite unnecessary when the two provisos operate with
perfect
composure on their own.
[14] Third, it is clear that (a) and (b) and (d) (in
contrast to (b) and (c)) are linguistically distinct. Sub-para (a)
is conditional;
(b) is unconditional. And (d) is again entirely
separate. The provisos cater for three (not as many as four; but
certainly not
as few as two) distinct situations, in each of which
employer dues deviate from the minimum stated in the main body of the
provision
– (a) provides for excess costs in risk benefits and
administration; (b) provides for automatically increased dues (up to
a minimum level) in contributions to the main aggregation of the
fund; and (d) pegs contribution levels to those of an employee’s
previous fund.
[15] Finally, counsel’s argument is unworkable for
a further reason. It was neither pleaded, nor put to the only
witness
called at the trial, Mr Gary Lamont, the fund’s
administration manager. At no stage was the fund confronted with the
possible
interpretation that the automatic annual increase
sub-proviso (b) envisaged was triggered only when risk benefits and
administration
costs were excessive. Had the fund been given the
opportunity to deal with this possible interpretation, it may have
called another
witness, which may have enabled it to prevail even on
the interpretation now urged before us.
[16] But even setting aside the pleading and
cross-examination objection, the argument is not tenable. The only
editing clean-up
the clause requires is to add (c) to (b): nothing
more. So clearly mistaken is the split between (c) and (b) that one
is impelled
to the conclusion, suggested to counsel during argument,
that it resulted from a mistaken keystroke, which triggered the
operation
of the automatic paragraph-numbering function of the
word-processing programme.
[17] It follows that the judgment of the High Court
was correct, and that the appeal must be dismissed with costs.
E CAMERON
JUDGE OF APPEAL
Appearances:
For appellant: GR Thatcher
Instructed by
Bowne Brodie Attorneys, La Lucia Ridge
Matsepes Inc, Bloemfontein
For respondent: PU Fischer
Instructed by:
Brodkin & Sohn Attorneys, Pietermaritzburg
Lovius Block, Bloemfontein
1
Pension Funds Act 24 of 1956
,
s 13
Binding force of rules
:
Subject to the provisions
of this Act, the rules of a registered fund shall be binding on the
fund and the members, shareholders
and officers thereof, and on any
person who claims under the rules or whose claim is derived from a
person so claiming.
2
Pension Funds Act 24 of 1956
,
s 12
Amendment of rules
:
(1) A registered fund
may, in the manner directed by its rules, alter or rescind any rule
or make any additional rule, but no
such alteration, rescission or
addition shall be valid –
(a) if it purports to
[a]ffect any right of a creditor of the fund, other than a member or
a shareholder thereof; or
(b) unless it has been
approved by the registrar and registered as provided in ss (4).
Sub-section (2) requires
a copy of resolution to be transmitted to the Registrar of Pension
Funds. Sub-section (3) requires a
statement regarding the financial
soundness or otherwise of the fund should the change affect its
financial condition. Sub-section
(4) empowers the Registrar to
register the change.
3
Pension Funds Act 24 of 1956
,
s 13A(1)(a)
and (b).