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[2015] ZAGPPHC 26
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Tellumat Proprietary Limited v Appeal Board of Financial Services Board and Others (2234/2014,2849/2014) [2015] ZAGPPHC 26 (30 January 2015)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
[REPUBLIC
OF SOUTH AFRICA]
CASE NUMBER:
2234/14
2849/14
DATE: 30 JANUARY
2015
Not reportable
Not of interest
to other judges
In the matter
between:
TELLUMAT
PROPIETEARY
LIMITED
..........................................................................
APPLICANT
AND
APPEAL BOARD OF
FINANCIAL
.........................................................................
1
st
RESPONDENT
SERVICES BOARD
CT HOWIE, DL
BROOKING, GL MADLANGA NNO
.......................................
2
nd
RESPONDENT
(In their
capacities as members of the
Appeal Board of
Financial Services Board)
ALAN HUNTER
ROY
............................................................................................
3
RD
RESPONDENT
REGISTRAR OF
PENSION
FUNDS
......................................................................
4
TH
RESPONDENT
TELLUMAT PENSION
FUNDS
.............................................................................
5
TH
RESPONDENT
ET
CASE NUMBER:
2849/2014
REGISTRAR OF
PENSION
FUNDS
..............................................................................
APPLICANT
AND
HOWIE C.T
NO
......................................................................................................
1
st
RESPONDENT
BROOKING D.L,
NO
............................................................................................
2
nd
RESPONDENT
MADLANGA G.O,
NO
..........................................................................................
3
rd
RESPONDENT
ROY ALAN
HUNTER
............................................................................................
4
th
RESPONDENT
JUDGMENT
MAVUNDLA J;
[1] There are two
applications before this court ( case number 2234 / 14 and case
number 2849 / 2014); both seeking essentially
the same relief, namely
that this court review and set aside a decision of the Appeal Board
of the Financial Services ('The Appeal
Board") taken on the 9
th
May 2012, in which the Appeal Board set aside and substituted a
decision by the Registrar to approve an application by the Pension
Fund for a transfer of business in terms of sl4 of the Pension Fund
Act, Act 24 of the 1956 ('the PFA").
[2] For purposes of
convenience, I shall refer to the parties in their respective
identities. The applicant in the case number 2234/
14 is the
principal employer as contemplated in the registered rules of the
Fund (the fifth respondent in both matters). The applicant
under case
number 2849/2014 is the Registrar of the Pension Fund (the fourth
respondent in case number 2234/14) henceforth referred
to as the
Registrar. The Appeal Board of the Financial Services Board (Appeal
Board of FSB) comprise of its members in their respective
nominee
capacities, Messrs CT Howie, D L Brooking, and GL Madlanga (NNO).
[3] The Registrar
approved an application by fifth respondent to transfer assets and
liabilities belonging to Tellumat Pension Fund
(the "Fund")
to an insurer (the "transfer scheme"), save for the credit
balance in the employer surplus account
("ESA"), in terms
of sl4 (1) of the Pension Funds Act, 24 of 1956, as amended. Roy
(Allan Hunter Roy) representing various
pensioner-members of the Fund
lodged an appeal to the FSB Appeal Board against the aforesaid
decision of the Registrar.
[4]
Section 14(1) requires,
inter
alia,
that
the Register "is 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 expectation relate to service prior to the date of
transfer;
(ii) to any
additional benefits in respect of service prior to the transfer, the
payment of which has become established practice;
and
(iii) to the payment
of minimum benefits referred to in section 14(a),
And
that the proposed transactions would not render any fund which is a
party thereto and which will continue to exists if the proposed
transaction is completed, unable to meet the requirements of this Act
or to remain in sound financial condition..."
[5] The FSB Appeal
Board through its trustee members, acting in their nominee
capacities, upheld the appeal by Roy against the decision
of the
Registrar and set it aside but did not make a costs order. It is this
decision which this court is requested to review and
set aside.
[6]
The Tellumat did not participate in the appeal by Roy, however, it
clearly had a direct and substantial interest in those proceedings
and a direct and substantial interest in the FSB Appeal Board's
decision in relation thereto. The impugned Appeal Board's decision
effectively requires a sizable amount in the employer's surplus
account to be used to fund benefits for members of the Fund, and
thus
deprives Tellumat of a significant portion of the sum which it would
have been entitled to have been paid pursuant to the
Registrar's
decisions and the implementation of the transfer scheme authorized
thereby.
1
[7] Tellumat, after
considering the Appeal Board's decision, had a change of heart and
approached this Court under case number 2234/14,
seeking an order
reviewing and setting aside the decision by the FSB Appeal Board
taken on or about 18 July 2013. The Registrar
has also resolved to
bring a review to have the decision set aside, under case number 2849
/14. The thrust of the grounds upon
which review is sought in both
matters, is substantially the same and for that reason, I shall
therefore not traverse the respective
submissions individually, but
make a broad reference to the substance of the attack against the
impugned decision of the FSB Appeal
Board.
THE DECISIONS OF THE
APPEAL BOARD
[8] The Appeal Board
set aside the Registrar's decision on the following basis:
8.1 That the fund
will not continue to exist, (although the statement in Form C2 of the
application provides that it would do so,
and that it will not be
unable to meet its requirements, and despite there being 14 suspended
pensioners and 1 deferred pensioner
who would remain in the Fund;
8. 2 the decision of
tribunals (pertinently, the decision of the PFA and the arbitration )
were not relevant or binding on the Board;
8.3 that the basis
on which annuities were agreed with the insurer failed to include
proper provision for the 3% increase, leading
to undervaluation It is
noted that there was no actuarial deficit in the Fund);
8.4 The 3% should
have been paid for from the PSA members' share of the enhancement;
8.5 The Registrar
ought to have refused his approval on that basis;
8.6 There is a
distinction between section 14(1) and section 28(4), so that full
recognition of members' rights and reasonable benefit
expectations is
not sufficient for a finding that a scheme is just and equitable;
8.7 In section 14
application, there will be no employer surplus account remaining.
That account will be transferred as part of
the application;
8.8 The objective of
the transfer is that there will be no members to whom the employer
owes obligations. (Despite its own finding
that the provision for
unclaimed benefits, deferred pensioners and paid up pensioners must
still be made);
8.9 Because the Fund
is imminently to go into liquidation it is fair and reasonable for
the scheme to have provided for benefits
to be funded also from the
Employer's Surplus Account in terms of section 151(a);
8.10 The legislature
must have contemplated that a fund could be wound up after a transfer
in terms of sl4, and therefore just and
equitable requirement also
applies to the post-transfer phase;
8.11 Sections 28
would have required that the fund's liabilities be met
proportionately from the Members' employer's surplus account
if the
fund value was insufficient,
8.12
The scheme is not reasonable and equitable in depriving the members
of the right to have their entitlements paid
pro
rata
from
the ESA (which would have happened if the outsourcing had been part
and parcel of dissolution) and in enabling the employer
to be paid
the entire proceeds of the substantial surplus in the ESA.
8.13 That, it is not
unreasonable that the employer should be deprived of a part of its
surplus account;
8.14 The lawfulness
of the acquisition of annuities in the fund's own name was not
determined because of the finding in the fourth
respondent's favour.
[9] The Appeal Board
made the following observations that:
"[3] Firstly,
because the members were pensioners, services of all of them will
have predated the transfer. Secondly, no additional
benefits referred
to in paragraph (ii) of the subsection are involved in this case and
the provisions of s 14(A) are not in contention.
Third, apart from
compliance with sundry terminal formalities, the fund will not
continue to exist after the proposed transfer
had been completed.
Apart from transferring members who will become insurance policy
holders there will be a small number of suspended
pensioners for whim
the Fund will buy annuities and then there are unclaimed benefits in
respect of which a special pension fund
will be created. In other
words the transfer will be the inevitable prelude to the Fund's
dissolution or /voluntary liquidation
(either term being
appropriate).
[10]
It is trite that the applicants must satisfy the court that the
impugned decision was materially influenced by errors of law
and must
therefore be reviewed and set aside in terms of S8(1)(C) (II) of
Promotion of Administration Justice Act 3 of 2000 (PAJA).
The
impugned decision of the Appeal Board (FSB Appeal Board) can be
reviewed and set aside by the High Court, in terms of PAJA,
if found
to have been materially influenced by an error of law, or evaluation
of the facts,
inter
alia
;
vide
Edcon v Financial Services Board of Appeal;
2
National Tertiary Retirement v Registrar of Pension Funds
3
;
Pepcor Retirement Fund v Financial Board Services Board
4
.;
Registrar of Pension Funds v ICS Pension Fund
5
.
[11] It is not in
issue that the decision of the Board is administrative and
accordingly falls to be challenged in terms of s6 of
PAJA. The
Supreme Court of Appeal in the matter of Registrar of Pension Funds v
ICS Pension Fund [2010] 4 ALL SA 63 (SCA) at 67
b-c held that "an
appeal against the decision of the registrar is not an appeal in the
strict sense. The board of appeal,
and hence the court below in this
case, is called upon instead to consider the matter afresh, upon all
relevant material that is
placed before the board of appeal."
[12] The Fund was
originally called the TEK Corporation Pension Fund and thereafter the
Plessey Corporation Pension Fund ("the
PCP Fund"). The
Fund's name was changed to its current designation on 1 January 2001.
As of that date, members of the Plessey
SA Pension Fund") the
PSA Fund" had been transferred to the Fund (joining the members
of the PCP Fund), and the assets
and liabilities of the PSA Fund had
been merged with those of the PCP the Fund.
[13] The PSA Fund
members had an entitlement to a minimum pension increase. The Fund is
a closed defined benefit fund, which has
had only pensioners, and no
active members, since August 2003. Certain pensioners, those who were
members of the Plessey SA Pension
Fund ("PSA members") on 1
January 2001 were entitled to a minimum 3% annual increase. The Fund
did not have any distributable
surplus on its surplus apportionment
date 31 December 20003 as contemplated in sl5B of the PFA. However,
on its statutory valuation
dated 31 December 2006, the fund had a
substantial surplus of R174 218 000, which was apportioned 50/50
between the members surplus
account and the employer surplus account.
During this period the employer had continued to make contributions
to the Fund.
[14]
The surplus apportionment was challenged, but confirmed after
arbitration proceedings. Members were paid a once-off payment
of 4
times the monthly pension in November 2007 and were granted an 8%
increase (in addition to the ordinary increase of 6.5%)
on 1 January
2008, as part of the surplus allocation. The
8%
was
provided for before surplus was divided between the employer and the
member Surplus Account, meaning that the Members received
the benefit
of more than 50% of the surplus.
[15] The Fund
amended its rules to permit outsourcing of its pension liabilities by
purchasing annuity policies. Pensioners were
requested to select an
option for the annuity to be purchased, one of which included a
minimum 3% annual increase, without "claw-back",
whereas
the Fund applied a "claw-back" when obliged to apply the
minimum increase. This meant that, in practice, the
PSA pensioners
and other pensioners had similar levels of increases over a longer
period of time.
[16] The sl4
application of the fund to transfer its liabilities to pensioners to
various insurers was based on annuities being
purchased in the name
of each pensioner in March 2010. However, some pensioners, including
Roy objected to the application, resulting
in the application being
withdrawn in June 2010. However, the fund proceeded to purchase the
annuities in accordance with the pensioners'
choices, but on the name
of the Fund. These annuities, including their substantial
enhancements, were funded from all the assets
of the Fund excluding
creditors and Employer Reserve Account. The Fund did not require
approval from the registrar for this application.
The transaction was
confirmed as lawful by the Pension Adjudicator. On 24 May 2011 the
Fund submitted a fresh sl4 application,
to transfer the annuity
policies to individual pensioners. The Registrar eventually approved
the application on 9 May 2012, after
which Roy noted an appeal with
the Board of Appeal.
[17]
The complaint of Roy was,
inter
alia,
that
the surplus should have been used to secure inflationary increases
for pensioners before any of the surplus was allocated to
the ESA,
and also submitted that the amount awarded to ESA was inappropriate,
and neither reasonable nor equitable, because it
failed to take due
cognisance of interests and "reasonable benefit expectations"
of pensioner members. The Fund, in response
stated that the trustees
had been particularly mindful of the reasonable benefit expectations
of pensioners, and had been astute
to provide a benefit enhancement
which exceeded those expectations. The Fund also stated that it had
taken the view that in apportioning
the surplus, its first obligation
was to act "reasonably", and thus to consider properly the
interest of all stakeholders
(and in particular, the pensioner
members and employer). The Fund did thus not take issue with Roy's
contention that the surplus
apportionment had to be reasonable and
equitable; its position was instead that the apportionment complied
with that standard.
[18] It was
submitted on behalf of the registrar of the fund that the Board of
Appeal failed to take into account that the decisions
regarding
distribution of surplus and purchase of the annuities were not before
it. The setting aside of the section 14 approval
had no effect on
those decisions, which remains, in the sense the decisions of other
tribunals regarding those other decisions,
if not binding, ought to
have been taken into account by the Board; Those decisions were
therefore not before the registrar as
part of section 14 application,
nor were they required to be considered. The rights and reasonable
benefit expectations of pensioners
had to be determined, if at all,
in that context.
[19] It was further
contended on behalf of the registrar that the 3% guaranteed by the
annuity in option 2 excluded a "claw-back),
so that members
were, in fact, better off than they had been before annuities were
purchased, since the fund applied a "claw
-back". The fund
would continue to exists, and would still have some obligations to
deferred and suspended pensioners. Section
14 does not require the
transfer of all assets and liabilities in a fund. It may include the
transfer only of identified assets
and or liabilities. It does not
require the fund to be terminated. There was no evidence before the
registrar of the Board that
the fund is imminently to go into
liquidation. The Board refused the admission of further actuarial
evidence. In the absence of
evidence of what will happen to the fund
after the transfer, apart from the declaration in the form C2 that it
will continue to
exists, any consideration of the 'post transfer
phase' will always be a speculation.
[20] It was further
contended on behalf of the registrar that there was no basis on which
to assume that the pensioners would have
received the same
enhancements and increases as they have done, had the fund been wound
up instead of the business transferred.
If the surplus distribution
and purchase of annuities are also to be considered, there is also no
basis to assume that the same
distribution and enhancement would have
resulted if a winding-up had been the objective. A fund that is not
in deficit or insolvent
cannot be forced to wind up, and therefore
cannot be forced to apply sections 151 and 28. There was no evidence
nor did it request
such evidence, regarding whether and to what
extent payment from the Employer Surplus Account would have been
required had the
fund been wound up. The lawfulness of the purchase
of the annuities was neither before the registrar nor the board.
[21]
The fund
in
casu
is
a closed defined benefit fund. In the matter of
Registrar
of Pension Funds v ICS Pension Fund
6
it
was held that in a defined benefit fund its members "become
entitled to fixed benefits that are circumscribed by the rules,
irrespective of the performance of the investments made by the fund.
If the investments of the fund produce insufficient income
to meet
those obligations then the employer underwrites the shortfall. If the
investments that are made by the fund perform better
than expected a
surplus will accrue to the fund. In a 'defined contribution fund' the
benefits that are payable to members are
directly linked to the
performance of the investments that are made by the fund. If the
investments perform well then the benefit
will accrue to the members
directly, and they will likewise bear the brunt of poor performance.
Such a fund thus relieves the employer
of the risk of poor
performance of its investments and likewise promises to members the
direct benefit of sound performance."
[22]
In the matter of
Tek
Corporation Provident Fund and Others v Lorenz
7
the
Supreme Court looked at the issue of surplus fund. In my view what
emerges from this decision, as a general policy is that:
the employer
surplus fund is an integral part of the fund; The employer does not
have in terms of common law or statutorily any
right to lay claim to
surplus fund either during the life of the fund or upon its
liquidation; It is reasonable for the employee
member and pensioner
of the fund to expect to participate in the distribution of the
surplus in the event of the employer being
liquidated; There should
at interval of three years an actuarial evaluation of the assets of
the fund; ’If the valuation
discloses that there is a
substantial actuarial surplus or that there is a deficit that
requires to be funded, the manner of dealing
with the surplus or
funding the deficit shall be considered by the trustees and
recommendations made to the principal employer
for a decision. The
principal employer's decision shall be made within the limitations
imposed by the [Pension Funds] Act and the
Registrar's practice and
shall be final. "If there is any substantial balance then
remaining, must go to members, pensioners
and other beneficiaries on
an equitable basis recommended by the fund's actuary and approved by
the liquidator."
[23] The FSB Appeal
Board after making certain observations concluded that the transfer
will be a prelude to the dissolution or
voluntary liquidation of the
Fund. It then proceeded to chronicle the attack against the
Registrar's decision in approving the
scheme as follows:
"1. It fails to
guarantee the annual 3% pension increase to which PSA members are
entitled as of right;
2. The evidence
justifies the conclusion that members would have had a reasonable
expectation that future annual pension increases
would equal the
annual inflation rate (expressed as "CPIX") and
3 The scheme is not
reasonable and equitable because its implementation places the Fund,
in effect, in liquidation and it would
be reasonable and equitable
for the scheme to provide, as does sl5l: (a) in the event of
liquidation in terms of s28 of the Act,
that members' rights and
reasonable expectations be secured by drawing upon both the members
surplus account ("MSA")
and the employer surplus account
("ESA")."
[24]
In the matter of
Ex
Parte Trans -Africa Staff Pension Fund and Others
1959
(2) SA 23 (W) at 27 G-H it was held that employer surplus fund it is
reasonable for the employee to expect to participate in
the
distribution thereof. A surplus is an integral component of the fund
and the employer has no right thereto.
Vide
Tek
case
supra.
In
my view, the employees are entitled to participate in such surplus in
the event of the employer being liquidated, after liquidation
expenses have been paid. The registrar must be satisfied that the
scheme accords full recognition to the rights and reasonable
benefit
expectations of the fund members; vide Tek decision supra at 903H.
[25] In view, the
fact that pension funds are primarily there to benefit the
contributing members, the focus must be whether their
interest would
be protected, in the event of any transfer of scheme. The approach
adopted by the Appeal Board, in my view, was
correct. I am unable to
agree with the submissions made by the respective applicants
attacking the Board of Appeal in the manner
it eventually arrived at
its decision. Consequently, I am not inclined to set aside the
decision of the Appeal Board.
[26] In this matter
it is not necessary to deal with the question of costs because there
was no opposition.
[27] In the result
respective appeal in matters, case number 2849 / 2014 and case number
2234 / 2014 is dismissed and no order as
to cost is made.
N.M. MAVUNDLA
JUDGE OF THE HIGH
COURT
DATE OF HEARING : 27
MAY 2014
DATE OF JUDGMENT :
30 JANUARY 2015
IN CASE NUMBER 2849
/2014
APPLICANT'S ATT :
ROOTH & WESSELS ATT
APPLICANT'S ADV :
ADVSYACOOB
UNDER CASE NUMBER
2234 /2014
APPLICANT'S ATT :
KLAGSBRUN EDELSTEIN BOSMAN DE VRIES INC
APPLICANT'S
ADV : ADV P B J FARLAM
1
Esorfranki
Pipelines v Mopani District Municipality
(40/13)
[2014] ZASCA 21 (28 March 2014) AT PARA 16; Vide also
Giant
Concertc CC v Rinaldo Investments (Pty) Ltd & Others
2013
(3) BCLRS 251 (CC) at paras29
2
2008
(5) SA 511 (SCA).
3
2009
(5) SA 366 (SCA) at 375.
4
2003
(6) SA 38 (SCA) at 58 para[47] etc.
5
2010 (4) SA 488 (SCA) at 58
6
2010
(4) SA 488 (SCA) at 492 para [14].
7
1999
(4) SA 884 (SCA) at 895E et
Ex
Parte Trans -Africa Staff Pension Fund and Others
1959
(2) SA 23 (W) at 27 G-H