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[2015] ZAGPPHC 1073
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Germiston Municipal Retirement Fund v Ekurhuleni Metropolitan Municipality (36600/2011) [2015] ZAGPPHC 1073 (22 May 2015)
I
N THE HIGH COURT OF SOUTH AFRI CA
GAUTENG
DIVISION, PRETORIA
CASE
NO: 36600/2011
DATE:
21/5/15
In
the matter between:
GERMISTON
MUNICIPAL
RETIREMENT
FUND
Plaintiff
and
EKURHULENI
METROPOLITAN MUNICIPALITY
Defendant
Date
of Hearing: 23 to 26 February 2015
Date
of Judgment: 22 May 2015
JUDGMENT
MOTHLE
J
Introduction
[1.]
The plaintiff, Germiston Municipal Retirement Fund
("
the Fund")
instituted an action against the
defendant, Ekurhuleni Metropolitan Municipality
("
the
Municipality”)
for payment of a total
amount of R78,138,124.15 plus interest per annum, being the
Municipality's portion of contribution
to the shortfall from 5.5% in
the Fund's interest earned on investment, in accordance with the
rules of the Fund.
Background
[2.]
The Fund was established in 1924 and is duly registered in terms of
Section 4 of the Pension Fund's Act, No. 24 of 1956
("the
Act'').
The Municipality is a Local Government,
established in terms of
Section 12
of the
Local Government: Municipal
Structures Act, No. 117 of 1998
.
[3.]
The Fund administers the pension scheme for its members who are the
employees of the Municipality.. The rules of the Fund,
which were
agreed to between the Municipality and members of the Fund, were
approved and registered on 1 May 1994, by the Registrar
of Pensions
Funds in terms of Section 12 of the Act.
[4.]
In terms of Rule 1.5 of the rules of the Fund, where reference is
made to
"the
council”
and to
"employer",
it means the Municipality. The
Municipality is bound in terms of Section 13(a) of the Act to pay all
contributions due in terms
of the rules of the Fund.
[5.]
As an employer, the Municipality pays pension contributions on behalf
of its employees, to the Fund. The Fund then invests
such
contributions to maximize returns on the investments, in order to
offer better pension payouts to the members on their retirement.
[6.]
Rule 10.8.1 of the rules of the Fund states thus:
“
If
the rate of interest earned on the total monies (including any
uninvested monies) of the
Fund during any financial
year should
be lower than five and one-half per cent (5.5%)
the council shall
contribute to the Fund such
a
sum
as would increase, on being
added to the interest actually
earned, the rate of interest to five
and one-half
per
cent (5.5%)
during such financial
year."
[7.]
Rule 10.8.1 in simple terms means that if the interest rate earned on
the total monies of the Fund during any financial year
is lower than
5.5%, the Municipality shall make its required contribution to the
Fund, such portion of the amount as would increase,
on being added to
the interest actually earned, the rate of interest to 5.5% during
that financial year. The contribution is also
made by other
municipalities as participating employers to the Fund and on behalf
of their employees.
The
Claim
[8.]
The Fund alleges that for the financial years 2008 and 2009 there was
a shortfall on the interest earned in each of these financial
years,
to make up the threshold of 5.5%. In the financial year of 1 July
2007 to 30 June 2008, the Fund earned a rate of interest
of 3,89% on
its total moneys and for the financial years 1 July 2008 to 30 June
2009, an interest rate of 0,40% on its total moneys.
In terms of Rule
10.8.1 of the rules as stated above, the Municipality is liable to
contribute its portion that will result in
the shortfall on the
interest earned reaching the threshold of 5.5%. The cause of action
is based on a claim by the Fund that the
Municipality must make good
its portion of the shortfall below the threshold of 5.5% in the rate
of interest earned for the financial
years 2008 and 2009. The total
shortfall in this instance is stated as R78 138 124,15.
[9.]
Before dealing with the defences raised by the Municipality against
this action, it is apposite to state that there is a history
of
litigation between the two parties, where an action was instituted as
a result of failure by the Municipality to pay its portion
of the
contribution in terms of the same rule.
[10.]
On the
1oth
August
2004 the
Fund issued
summons
against
the
Municipality
for
payment
of
a
shortfall
on
the
rate
of
interest
earned
during
the
financial
year
1 July 2002
to
30 June
2003.
[1]
The matter
came before Mr. Justice Claassen in the High Court,
Gauteng
Local Division, Johannesburg
('the
Local
Division
'
).
The Municipality raised a
number of defences in that case. These included a dispute on the
correct interpretation of Rule 10.8.1.
[11.]
The learned Judge quotes a summary of the defences from the heads of
argument filed by Counsel for the Defendant, in particular
with
reference to Rule 10.8.1 as follows:
"4.
The defendant denies that it is liable to the plaintiff. It relies
for this purpose on essentially the following defences
which are
alternative to each other:
4.1
The first defence relates
to
the determination of the rate of
interest which should be earned by the Fund before the rule is
triggered into play;
4.2
The defendant has alleged that the rule contemplates that it will
only be obliged to make such a contribution, "if
the monies that
flow into the Fund over a financial year, being a return on the money
it has invested, were less than 5.5%."
In other words, the
defendant alleges that one must look at what was actually laid out by
the plaintiff in order to determine its
"total moneys (including
any uninvested moneys)". This is the book value approach.
5.
Alternative to the above but closely linked to it is that the
defendant, if bound by this rule, is obliged to pay
only: "
...if the yield achieved on the actuarial value of the assets,
determined using a discounted cash flow approach, was
less than 5.5%
per annum compound";
6.
Alternative to the above defences, the defendant has alleged
that the municipality had no authority to agree to be bound
by such a
rule and the said rule was inconsistent with the interim Constitution
and the final Constitution."
[12.]
After
examining
the various
cannons
of
interpretation
as well as
authorities,
the
Local
Division
dismissed
the
Municipality's
contentions
on
the
interpretation
of
Rule
10.8.1,
including
the other
defences
it
raised
and
ordered
payment
of
the
shortfall
due.
With
leave of
the
Local
Division, the
Municipality
took
the
matter
on
appeal to
the
Supreme
Court
of Appeal
('the
SCA”)
The
appeal in the SCA was confined to the interpretation of Rule
10.8.1.
After
consideration
of
submissions from
both
parties
as
well
as
other
authorities,
the
SCA
[2]
upheld
the
decision
of
the Local
Division
on
its interpretation
of Rule
10.8.1, which decision
went
against
what
the
Municipality
contended
was
the
correct
interpretation.
The
Municipality's defence in this action
[13.]
The Municipality in this action has, in essence, pleaded three main
defenses. These are:
(i)
a plea to this Court to reconsider the interpretation of Rule 10.8.1,
in light of some historical background facts which it
concedes were
not placed before the Local Division as well as on appeal in the SCA
during the previous action;
(ii)
A plea that the Fund, in terms of the Act, owes it a fiduciary duty
to accommodate its interests in selecting its investments;
and
(iii)
A
further
plea, with
reference
to section
50 of the
Municipal Finance
Management
Act
56
Of
2003,
[3]
('MFMA")
that
Rule 10.8.1
offends public policy and is unlawful and unenforceable.
Consequently
the Municipality considers itself not bound by
that rule,
in that the shortfall
contended
for could be used for other more compelling
need
for delivery of municipal service to deserving
communities
within
their
area
of
jurisdiction.
[14.]
In response, the Fund raised a replication of
res judicata
and estoppel to the Municipality's plea which was followed by the
Municipality's rejoinder to the Fund's replication. I deal with
the
replication and rejoinder in detail hereunder.
Issues
for determination by this Court
[15.]
The issues for determination in this action are that the Court should
:
(1)
reconsider the interpretation of Rule 10.8.1 as decided by the Local
Division and
confirmed by the SCA on appeal, in light of certain
historical facts which were then not known to it and as such,
not
placed before the two Courts in
the previous action;
(ii)
Decide whether Rule 10.8.1 is against public policy and should
therefore not
be enforced, for reasons different to those raised in
the previous action and dismissed by the Local Division, which
however were
not raised on appeal in the SCA;
(iii)
Decide whether the Fund should be barred from claiming from the
Municipality because
when it made its investments, it did not
consider the interests of the Municipality and thus failed to act in
good faith, as provided
for by the Act. In terms of the Act, the Fund
owes a fiduciary duty to the Municipality to act in its interest and
in good faith;
(iv)
Decide on the objections of
res judicata
and estoppel as
raised in the Fund's replication The alleged new evidence on the
"history of the rule"
[16.]
It is contended by the Municipality that the SCA decision on
interpretation of this rule, was taken without the Court being
alerted to the history of the
rule. This would include the
accounting practice of the Fund over the period. The period contended
would be the time since the introduction of the rule into
the rules
of the preceding scheme, through to the point at which the rules of
the Fund in its current form were registered in 1994.
[17.]
By way of exploring the historical development of the rule, the
Municipality contends that the rule never existed until 1973
when the
new rules of the Fund were promulgated in the administrator's notice
1643 of 11 October 1973. This was Rule 43(1) which
was taken from the
provisions of Section 8(3) of the Local Government Superannuation
Ordinance 16 of 1958 (Transvaal).
[18.]
One important difference between the provisions of Section 8(2) of
the 1958 Ordinance and Rule 43(1) as it then was, is that
in Section
8(3) of the 1958 Ordinance there is an additional clause which
prescribes how the calculation of the interest
should be made.
The provision contains clauses A and B. Ordinance 23 of 1969 has a
similar clause which also prescribes how the
calculation should be
made.
[19.]
The Municipality further contends that the accounting history of
the Fund
shows that when the rule refers to
"the
rate of interest earned
on
the total monies (including any uninvested monies) of the Fund'
and
to
"interest
actually
earned".
The
statutes
contemplated
a
distinction between interest, on
the one
hand, and capital gains and losses
on
the
other
[4]
.
it
could
not
have
contemplated
that
these
phrases would include unrealized capital gains.
It
contends
further that unrealized capital gain or losses over a particular
financial year are
the
difference
between
the
market
values
of
assets
at
the
commencement
and
completion of
that
financial year. It
will
therefore be necessary to state the assets at market
value.
[20.]
However, the Municipality further submits that when Rule 43(1) was
introduced into the rules of the Fund in 1973, the assets
of the Fund
were valued only at book value and the market value of the Fund asset
was not reflected in the financial statements
of the Fund at all.
This practice according to the Municipality continued until 2001. In
the financials of 2001, six years after
the new rule was agreed to by
the parties and registered in 1994, the accounts changed to value
assets at market value on the balance
sheet with the inclusion of
adjustments to fair value of investments on the revenue account.
These changes became features of the
financial statements of the Fund
from 2002 onwards.
[21.]
Relying on the
decision
in Natal
Joint
Municipal
Pension
Fund v
Endumeni
Municipality
[5]
the
Municipality
contends
that
the
new
interpretation
must take into account
"the
language used in light of
the
ordinary rules of grammar and syntax; the context in which the
provision appears; the apparent purpose to which it is directed
and
the
material
known
to
those
responsible
for
its
production.
The
inevitable point
of
departure is the language of the provision
itself,
read in context and having regard to purpose
of the
provision
and the
background
to
the
preparation
and
production
of the
document."
[22]
With this brief background history of the evolution of the rule, the
Municipality contends that the present interpretation
of the rule
should be based, amongst others, on how the parties would ordinarily
have understood the rule when it was first introduced
into the rules
of the predecessor Fund.
The
replication
and rejoinder
[23.]
In its replication to the Municipality's plea, The Fund contends that
two of the defences raised by the Municipality, i.e
the
interpretation of rule 10.8.1 as well as the defence that the rule is
unconstitutional, invalid and unenforceable on the grounds
of public
policy, should be disposed of on the basis that they are
res
judicata
and that the Municipality should be
estopped, in that both these defences have been rejected by the Local
Division and the one on
interpretation of Rule 10.8.1, also by the
SCA.
[24.]
It is the Fund's further contention that the Municipality's attempt
to reintroduce consideration of these two defences, by
suggesting
that new evidence has been uncovered which would lead to a different
interpretation, should be rejected. Finally, it
is contended that
even if this Court considers these defences in light of the so-called
new evidence, there is nothing in that
evidence which justifies a
departure from the interpretation and decision of the SCA.
[25.]
In the rejoinder, the Municipality contends that it has new evidence
which if considered by this Court will lead to a different
interpretation of rule 10.8.1 from that decided by the Local Division
and the SCA on appeal. It further contends that the public
policy
defence arises out the provision of the MFMA, which was not in force
at the time the Local Division heard the action in
2003.
[26.]
The Municipality presented the oral evidence of Jeremy Peter Andrew,
in support of the interpretation of the Rule in light
of its
historical development. This witness has also testified in the
previous 2004 Local Division trial. He was the only witness
to
testify in this trial.
The
legal principles
of res
judicata
and estoppel
[27.]
Re
s
judicata
is a
defence that is raised on the basis that the matter
has already
been adjudicated
upon in
the
previous action between the parties. For a party to succeed on the
defence of
res
judicata,
it
must
show
that
the
new
claim
is
between
the same
parties,
on
the
same
cause
of
action
and for
the
same
thing. See
in
this regard
Royal
Sechaba
Holdings
v
Coote
and Another
[6]
and
Smith v
Porritt
and
Others
[7]
•
[28.]
In Evins v Shield
I
nsurance
Company
Ltd
[8]
the
Court
stated the purpose of the
doctrine
of
res
judicata
as
being to
prevent the
repetition of law
suits
between the same parties, the harassment of a party by
a
multiplicity of actions and the possibility of conflict in
decisions
by different Courts on
the same
issue.
[29.]
The requirements of this doctrine has been extended and relaxed to
make way for a party to raise estoppel as a defence between
the same
parties in subsequent proceedings where either
"same cause of
action"
or the
"same thing"
requirement is not strictly speaking met, but where the same
issue is raised. See in this regard
Smith v
Porritt_
supra,
paragraph
10.
[30.]
The defense
of estoppel
is thus
limited in
scope
in
that
a
party
can
rely upon
it if it
can prove that the parties are the same and that
the
issues
between
them
which
led
to
the
judgment
will arise in the subsequent
case.
Prior to the decision in the
Smith
v Porritt
case, the
Appellate
Division in
African
Farms and
Townships
Limited
v
Cape
Town
Municipality
[9]
at
page
563
C
and D, held
that a litigant was not permitted
"to
obtain a reversal of
the
decision
of
the
same
question
by
advancing
different reasons".
Further,
"different
reasons
leading
to
a
different
conclusions
cannot affect the
identify
of
the
question
to
be
decided'
.
[31.]
The Municipality concedes that in the current action before this
Court, the parties are the same and the cause of action is
the same.
However, the Municipality contends that the thing claimed is not the
same in that the previous action sought to recover
the shortfall to
the interest earned in the financial year of 2003 while the current
action seeks to claim shortfall on the interest
earned in 2008 and
2009 financial years, also the amounts claimed being different in
both instances. Consequently, according to
the Municipality, the
res
judicata
defence cannot be good in law in that the thing claimed
is not the same. However, the Municipality does not attack the
defence of
estoppel which is much narrower in its requirements than
the
res
judicata.
[32.]
The
objection
raised by
the
Fund
is similar to the
one that
was raised
in the
matter
of
Pratt
v
First
Rand
Bank
Limited
[10]
.
The
facts
in this matter were briefly that a party to a loan agreement first
brought
a
claim
to
have the
agreement
declared
null and
void
on
a
number
of
grounds
that
were
ultimately
dismissed.
The validity of the agreement was upheld by the High Court and also
on appeal. When a subsequent
claim was
brought
under the
same
agreement
against
the
party
who
sought
the
declarator
1 the
invalidity of
the
agreement was once again raised in defence, although now on different
grounds. The High Court held, which
decision
was
subsequently
confirmed
by the SCA,
that
the
issue
of
invalidity
of
the
agreement
had
been
finally
decided.
[33.]
In casu,
the defense in law raised by the
Municipality and challenging the interpretation and validity of the
rule, have been raised
in the Local Division and further on appeal in
the SCA and were rejected in both Courts.
[34.]
It is trite, as stated in
African
Farms
and
Townships v
Cape Town
Municipality
supra
,
that the important consideration in a plea of
res judicata
is
that there must have been a judgment. The Court in that matter held
thus at page 564 C - D:
"Because
of
the
authority with
which,
in
the
public
interest,
judicial
decisions are invested1 effect must be
given
to
a final
judgment,
even if it is erroneous.
In regard
to
res
judicata
the
enquiry
is not
whether
the
judgment
is
right
or
wrong,
but
simply
whether
there
is
a judgment.”
"It
is quite clear therefore, that a Defendant is entitled to rely upon
res judicata
notwithstanding that the judgment is
wrong."
[35.]
It is thus clear, as contended by the Fund that the defence of
interpretation on the validity of Rule 10.8,1 has been raised
and
rejected by the Local Division and on appeal, also by the SCA.
Similarly, the defence on the question of public policy
considerations
has been raised in the Local Division and rejected by
that Court. The Municipality has in both cases
[36.]
It is apposite to state that the attempt by the Municipality to have
this Court reconsider the interpretation of Rule 10.8.1
is fraught
with difficulties. Firstly, the Municipality concedes that the
"new
evidence}!
which it purports to raise in this Court was
available prior to the proceedings that led to the Local Division
judgment. That evidence
was not presented during the trial in the
Local Division. In paragraph 43 of his judgment, Mr Justice Claassen
stated thus:
"43.
Mr Andrew
speculated
that the term
{(monies" might mean
book
value
(that
is
the purchase
price
of
the
asset) because "this
would
be
consistent
with
actuarial
practice to
value
assets
at
book
value
(bearing
in
mind
the
Fund was established
in
1924)."
"But
there
is
no
evidence
when
the
rule
was
introduced, nor whether, what actuaries was accustomed to
"historically",
had
any
connection
with
the
drafting
of
the rule. If Defendant
wanted
to rely
on
this
interpretation
it would have been necessary
to plead
a technical
meaning of
the
rule
in a
actuarial
sense.
No
such
technical
or special meaning was
pleaded nor was
it
proved.
The Defendant's contentions
on
this score fall to be rejected.”
[37.]
Being aware of the remarks of Mr Justice
Claassen in
his judgment as quoted
above,
in
particular the absence
of
averments
relating to
the
historical
practice
that
preceded
the
drafting
of
the
Rule, the
Municipality
went
on to
appeal
his
decision
and
still
failed to
present
the
evidence
of
the
historical
development
of
Rule
10.8.1 before the SCA.
Section
22(a) of the Supreme Court
Act
59
of
1959
before
its
repeal,
and
presently
substituted
by
Section
19
of
the
Superior
Court's
Act,
Act
10
of
2013
provides
that
a
Court
of
Appeal has
the
power
to
receive
further
evidence under this section.
See also:
S
v Swanepoel
[11]
and
Dormehl
Properties
282
CC v
Renasa
Insurance
Company
Limited
and
Others
NNO
[12]
[38.]
The Municipality failed to seek leave of the SCA to present this
evidence in terms of Section 22(a). It now wants to present
the
evidence before this Court. No explanation or reason is provided for
this failure except that in launching its defence in this
action
before this Court1 the Municipality pleads in the rejoinder that it
was not aware of the evidence of the historical background
to the
development of Rule 10.8.1 at the time of the previous action. As
already stated, this rule is a replacement of rule 43.1
in the
previous scheme and is a product of the negotiations and agreement
with the Fund. Thus the plea that the Municipality was
not aware of
the history of this rule cannot be sustained.
[39.]
There are guiding principles for the Court to determine whether or
not to receive further evidence in any proceedings and
these include,
amongst others:
(i)
An acceptance that there should be finality to proceedings and a
litigant should not, except in exceptional circumstances, be allowed
to adduce further evidence.
See:
O'shea
NO
v
Van Zyl NNO
[13]
(ii)
The Applicant must show that the failure to adduce the evidence was
not due
to his negligence and must satisfy the Court that he could
not have obtained the evidence if he had used reasonable diligence.
See:
Douglas
v
Douglas
[14]
(iii)
There must, accordingly, be an explanation why the evidence was not
led earlier
See:
Jeebhai
&
Others
v
Minister
of
Home
Affairs and
Another
[15]
[40.]
The Fund submits, correctly so, that both in the SCA and this Court,
the Municipality has not provided an explanation that
the failure to
adduce evidence which it now intends to present, was not due to its
negligence and that such evidence could not
have been obtained with
reasonable diligence. This evidence of historical development of Rule
10.8.1 was, or should have been at
all material times available to
the Municipality. Under the circumstances, the plea to this Court
that the interpretation already
decided by the SCA should be
revisited cannot be accepted.
[41.]
Even if I am wrong on this point, there is nothing of substance in
the history and development of the rule that would in my
view, lead
to a different interpretation to the one already determined by the
SCA. There are two reasons for this. Firstly, when
the SCA considered
the previous action between the parties, it was mindful of the
history of the predecessor to the rule 10.8.1,
which
is
rule
43.1
and the
fact
that
the
pension
scheme
changed
from a
defined
benefit to
a defined contribution fund.
[16]
Further
that the rules governing the
pension
Fund
scheme
are
a
result
of a negotiation
process
between
representatives
of
the
employees
on the
one
side and the municipalities
as
employers
on
the other.
[42.]
Thus the question whether the Rule existed before and how it was
practiced should have been known to the Municipality at the
time of
the negotiations After all
"(T)he Rule in issue .
was
carried over from the old rules
(where
it was
rule 43.
1)
to
the
new,
where
it is rule
10.8.
1"
[17]
[43.]
Secondly, there is no ambiguity in the manner in which the Rule has
been expressed, which ambiguity would then justify a revisit
of how
it operated if ever, before its adoption in 1994. The SCA, in
paragraph 33 of its judgment held thus:
"[33]
Having regard to the context of the rules
-
the
nature of
the Fund,
the general practice
of pension
funds, and,
most
importantly, the purpose
and
effect
of
the
Rule
-
the
only
sensible commercial meaning to be given to it is
that argued
for by the Fund and accepted by the High Court.
The
municipalities are accordingly obliged to pay to the Fund
the
amount
claimed."
[44.]
The
Local
Division
and
the
SCA
considered
the
arguments
on
the
disputed
interpretation
concerning
the
meaning
of
the
"interest
actually
earned.
[18]
Both
Courts took
into
account the
manner
in which it was applied and accepted by both parties. It seems
to me that the
Municipality
did not object
to
the implementation of
the Rule
during
the
financial
years
where
the
Fund
registered
interest
above
5.5%.
on
its
investment.
[45.]
Having regard to the above, I am of the view that the objection of
res judicata
incorporating estoppel as raised by the
Fund and the fact that no explanation was
provided
as to why the Municipality did
not present
"the
new
evidence"
to
the Local Division and the SCA as it now wants to, the Municipality's
new evidence cannot be accepted and it stands to be rejected.
[46.]
I now turn to deal with the public policy defense.
Public
Policy
defence
[47.]
The Municipality contends that the public policy defence which was
dealt with
by the
Local
Division
Johannesburg
is not the
same
as
the one that has now been raised in
the current
action proceedings. Therefore,
the
res
judicata
does
not
apply
in this
instance.
It is
common
cause
that
in
the
2007
judgment of
the
Local
Division
Johannesburg,
the
argument
on
public
policy
defence
was
dealt with
and dismissed by the Court.
The Local
Division correctly in my
view
identified
the principle inherent in the public policy defence in paragraph
66
of
i
ts
judgment.
This
it
does
with
reference
to
the matter
of
Brisley
v
Drotsky
[19]
where
the
Court
"stated
that
there
may be
circumstances
in
which an agreement,
unobjectionable
in itself,
will
not be enforced because the object it seeks to achieve is contrary to
public policy. In its modem guise,
"public
policy"
is now rooted in our Constitution and the Fundamental
values
it enshrines include "human dignity,
the
achievement
of
equality
and
the
advancement
of
human
rights
and
freedoms,
non-racialism
and
non-sexism".
The
judgment
of the
Local
Division quotes from paragraph 92 of the
Brixley
case as follows:
"[92]
It is not difficult to envisage situations in which contracts that
offend these fundamentals of
our new social compact
will be struck down as offensive to
public policy.
They will be struck down because the Constitution requires it,
and the values it enshrines
will guide the Courts in
doing so. The decisions of this Court that proclaim that the limits
of contractual sanctity lie at the
borders of public policy
will therefore receive enhanced force and clarity in light of
the Constitution
and
the
values
embodied
in the Bill of Rights.”
[48.]
Against the background of the meaning of public policy as defined in
the Brisley case, Mr. Chaskalson, for the Municipality,
argued
that:
a.
Section 50 of the MFMA precludes municipalities from extending their
financial commitments by way of guarantees in order to control
its
financial resources. This Act was only promulgated
in 2003 and could thus not form
part of the
defences raised in the 2003 action proceedings;
b.
That the Municipality would remain true to its constitutional and
statutory obligations by directing its resources to the development
of the communities in the form of providing housing, water and
sanitation instead of directing such funds to the pension fund scheme
under circumstances which would amount to a gratuity on the pension
due to its employees.
[49.]
Counsel conceded, when asked by the Court that Section 50 of the PFMA
does not have retrospective effect and cannot therefore
nullify
agreements and guarantees that were made before its enactment In
particular in this case, the agreement between the Fund,
acting on
behalf of the employees of the Municipality on the one side and the
Municipality itself, is expressed in the form of
rules of the Fund
which have been registered by the Registrar of Pension Funds in terms
of the Act. Their enforcement is provided
for and protected by the
Act. It is thus an agreement that has full recognition, support and
protection of a statute. As
Mr Justice Claassen, in the Local
Division stated:
"It
should be remembered
that the
present rule also involves administrative acts by
an officer of the executive
arm of government. The involvement of
the Registrar in the validation of the rules, the administrative
nature of the act of their
registration, the necessary joinder of
members to an action which would result in the striking down of any
rule, and the unraveling
effect of such an order on the rules in
their entirety, will complicate the striking down of the rule as
being against public policy.
In view of these complicating
factors it cannot simply be "struck down" as one may do in
the case of a contract
between two patties."
[50.]
The Learned Judge continues in paragraph 68
to state as follows:
"In
any
event
I
can
find
no
basis
in
fact
or
in
law
to conclude
that the bargain painstakingly
approved by several role players including
the
Registrar, contravenes public policy.
For these reasons
the argument based on a
contravention
of
public
policy
falls
to
be
rejected
as well."
[51.]
I agree with the views expressed by the Local Division. Insofar
as the argument on the need by the Municipality to divert
pension
contributions to address delivery of its
mandate in the form of housing, sanitation and other
services, it
should be remembered that these services will be made possible by the
very employees of municipalities, members of
the Fund, to whom a
promise has been made that they will be provided their pension on
retirement. The Municipality can thus not
be heard to say that it is
at liberty to ignore its undertakings which have been reduced to
contractual and statutory obligations,
by simply diverting funds
intended for their employees to address other municipal obligations.
The defence of public policy can
therefore not succeed. On
consideration of the whole matter, it seems to me that there is
nothing new that has been introduced
on this defence to rescue it
from the
res
judicata
objection. It is
the same defence with a different slant on the argument. Either way
it falls to be rejected in this case.
The
"good faith" defence
[52.]
The Municipality contends that in terms of Sections 7C and 70 of the
Act, the board of the Fund owes a duty to act in good
faith to its
participating employers including the Municipality. Consequently, the
board of the Fund should, in selecting investments,
take account of
the risk carried by the Municipality under the provisions of Rule
10.8.1. Failure to do so will result in a duty
to act in good faith
been breached and the Municipality can thus not be held liable to
make good the guarantee in respect of that
particular financial year.
Section 7C of the Act provides thus:
"7C.
Objects of the board.-(1) The objects of the board shall be to
direct, control and oversee the operations of a fund in accordance
with the applicable laws and the rules of the fund.
(2)
In pursuing its objects the board shall-
(a)
take all reasonable steps to ensure that the interests of
members in terms of the
rules
of
the
fund
and
the
provisions
of
this Act
are
protected
at
all
times,
especially
in
the event
of an amalgamation
or transfer
of
any business
contemplated
in section
14,
splitting of a
fund, termination or
reduction of contributions
to
a
fund by
the employer,
increase
of
contributions
of members and withdrawal of an employer who
participates in
a
fund.
(b)
act with due care, diligence and good faith;
(c)
avoid conflicts of interest;
(d)
act with impartiality in respect of all members and
beneficiaries;
(e)
act independently;
(f)
have
a
fiduciary
duty
to
members
and
beneficiaries
in
respect
of
accrued benefits or any amount accrued to provide
a
benefit, as well
as
a fiduciary duty to the fund, to ensure
that the fund is financially sound and is responsibly managed and
governed in accordance
with the rules and this Act; and
(g)
comply with any other prescribed requirements."
[53.]
The Fund admits in the pleadings that the board owes a duty to act in
good faith to the
Municipality,
in
minimizing
the
risk
inherent
in
Rule 10.8.1.
However
1 the
Fund pleads that its primary mandate is to act in the interest of its
members, who are the employees of the municipalities
which
participate
in the
scheme.
In the
event
of
a conflict
between the interest of the municipalities and those of the members
of
the Fund,
the
latter's
interest
would
prevail.
This
contention
by the
Fund is
also
referred to
in
paragraph
22 of the
SCA judgment.
[20]
[54.]
During argument I raised with counsel for the Municipality whether
there is any particular evidence, based on objective facts
which
shows that in the years 2008 and 2009 or any other year for that
matter, there was anything untoward which the board of the
Fund did
to demonstrate that it did not act in good faith as provided for in
terms of the Act. Such evidence was not presented
before me. It seems
the Municipality assumes that because the investments made by the
Fund in 2008 and 2009 did not yield returns
above the threshold of
5.5%, therefore the board in its selection of the investment failed
to act in good faith.
[55.]
Consequently, it cannot be argued that in the years in which the Fund
obtained return on their investments above the 5.5%
threshold they
are said to have acted in good faith and in the financial years where
there is a shortfall, it is an indication
that they did not act in
good faith. (It should be noted that the Municipality formulated its
attack carefully to avoid raising
an allegation that the board of the
Fund acted in
"bad faith").
[56.]
I am thus unable to find, in the absence of factual evidence
supporting this allegation, that in selecting investments in
2008 and
2009, the board of the Fund failed to act in good faith. This defence
must also fail.
Quantum
[57.]
Apart from an amount of approximately R7 million which has been
identified by the Municipality as an amount it disputes, the
parties
are generally agreed on the
quantum.
The Municipality
claims that an amount of R?,456,371.54 has been incorrectly included
in the
quantum
of R78, 138,124.15 because the R7
million plus amount is in respect of an alleged shortfall
attributable to the Liberty and Old
Mutual Annuities, where the
Fund's liabilities to pensioners have been outsourced. I agree that
this amount of R7 million plus
cannot be included in the
quantum
claimed against the Municipality.
[58.]
In the premises, it is my view that the Fund's action should succeed
and I accordingly make the following order:
1.
The action instituted by the Fund against the Municipality succeeds;
2.
The Municipality is ordered to pay the Fund an amount of
R70,681,752.61 as the shortfall due in terms of Rule 10.8.1
of the
Fund's rules plus interest thereon at 15,5% per year from 9 June
201O; and
3.
The Municipality is ordered to pay the costs of this action including
costs of two counsel.
___________________
S
P MOTHLE
Judge
of the High Court Gauteng Division, Pretoria
For
the
P
laintiff.
Adv. C D A Loxton SC
Assisted by:
Adv. N Fourie
Sandton Chambers
Johannesburg
Instructed
by:
Len Dekker Attorneys
Pretoria
For
the
D
efendant:
Adv.
A E Franklin SC
Assisted
by:
Adv. M Chaskalson SC
Johannesburg Chambers
Instructed
by :
Bowman Gilfillan Inc
Sandton
IN
THE HIGH COURT OF SOUTH AFRI CA
GAUTENG
DIVISION, PRETORIA
CASE
NO: 36600/2011
DATE:
36600/2011
In
the matter between:
EKURHULENI
METROPOLITAN
MUNICIPALITY
Applicant
and
GERMISTON
MUNICIPAL RETIREMENT
FUND
Respondent
JUDGMENT
MOTHLE
J
1.
This is an application for leave to appeal
the whole of the judgment and
order granted
by this Court on 22 May 2015 including the order as
to costs, but excluding paragraph 57 of the
judgment.
2.
I will refer to the parties as named in the main judgment. The
Municipality is the applicant in this application and the Fund
is the
respondent.
3.
Before dealing with this application, I need to place on record that
I was requested by the Fund, by way of an application which
the
Municipality did not oppose, to correct item 2 of the orders I made
in the main judgment. In granting the order for payment
of the
amount claimed, I had omitted reference to
the interest payable on that amount. This interest
is
specifically prayed for in the particulars of claim. At the
commencement of the hearing of the application for leave to appeal,
I
made the order in terms of Rule 42 of the Uniform Rules of Court,
correcting this error in the main judgment, that the following
words
"...
plus interest thereon
at
15.5%
per
annum
from
9 June
201011
be added to Item 2 of the
judgment orders. I now attach hereto a copy of the corrected
version of that order, which is reflected
in a replacement page of
page 32 of the written judgment.
4.
I now turn to deal with the Municipality's application for leave to
appeal.
5.
The fund instituted action against the municipality for payment of a
total amount of R78, 138,124.15 plus interest per annum,
being the
municipality's portion of contribution to the shortfall from 5.5% in
the Fund's interest on investment, in accordance
with rule 10.8.1 of
the rules of the Fund.
6.
In a written judgment delivered on 22 May 2015, this Court decided
the matter in favour of the Fund and ordered the Municipality
to make
payment as claimed by the Fund.
7.
The Municipality now seeks leave to appeal the whole of the judgment
and orders of the Court, referred to in the preceding paragraph.
8.
It is trite that in terms of
Section
17
of
the
Superior
Courts
Act 10 of 2013
,
leave to appeal may be grantee if the
Judge is of the opinion that the appeal would have a reasonable
prospect of success. There
are further other grounds outlined in
Sections 17(1)
(a)(ii), (b) and (c) of that Act, which I am of the
view they do not apply in this instance.
9.
It is common cause between the parties that there was a previous
action before them which came before the High Court, Gauteng
Local
Division, Johannesburg where the Fund was also successful. As it
seeks to do in this case, the Municipality took that matter
on appeal
to the Supreme Court of Appeal
("SCA").
The SCA
upheld the decision of the High Court, also ruling for the Fund.
10.
This court found, on the evidence, that apart from the amount claimed
in this case and the period in which the debt arose, the
cause of
action and- the legal principles raised in the previous action are
the same as those in the action in this court. Also
the defences
raised in this case were dealt with by the Gauteng Local Division,
Johannesburg and in part by the SCA in the previous
case. The appeal
in the SCA concerned the interpretation of rule 10.8.1 of the Fund
rules, which is also the case in this instance.
11.
In this court, the Municipality in its defence, again launched an
attack on the interpretation of the same rule, on the ground
that new
evidence on the history of the rule has been uncovered, which would
lead to a different interpretation to that of the
SCA.
12.
This Court found, having considered the defences raised by the
Municipality, amongst others, that:
12.1
the new evidence alleged by the Municipality concerning the
interpretation of rule 10.8.1 will not lead to a different conclusion
to that already reached by the SCA;
12.2
no explanation has been provided by the Municipality as to why the
so-called new evidence was not presented before the High
Court and
the SCA even though it was reasonably available at that time; and
12.3
the whole defence of the Municipality is essentially a rehash of the
same defence that was placed before the Gauteng
Local Division,
Johannesburg, when the parties were involved in the previous action.
The only difference appear to be a different
approach to the argument
the Municipality had raised in the previous action
12 I
agree with counsel for the Fund that it would not be proper for this
Court to simply burden the SCA
with a matter dealing with a legal
principle on which it
has already considered
and pronounced.
13 I
am thus not persuaded that of there would be any reasonable prospects
of success in the intended appeal.
Consequently, I make the following
order:
The
application for leave to appeal is hereby dismissed with costs
including costs of senior counsel.
____________________
S
P MOTHLE
Judge
of the High Court
Gauteng
Division
Pretoria
For
the A
pplicant:
Adv. A
E Franklin SC
Assisted
by:
Adv. M Chaskalson SC
Johannesburg Chambers
Instructed
by :
Bowman Gilfillan Inc
Sandton
For
the R
espondent:
Adv. C D A
Loxton SC
Sandton Chambers
Johannesburg
Instructed
by:
Len Dekker & Associates Attorneys
Plaintiff's Attorneys
Pretoria
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION,PRETORIA
CASE:
36600/2011
PRETORIA
30 July 2015
BEFORE
THE HONOURABLE MR JUSTICE MOTHLE
In
the matter between
EKURHULENI
METROPOLITAN MUNICIPALITY
APPLICANT
AND
GERMINSTON
MINICIPAL RETIREMENT FUND
RESPONDENT
HAVING
HEARD counsel for the parties and having read the application for
leave to appeal against the judgment of the Honourable
Justice
MOTHLE
delivered on
22
JULY
20
15
IT
IS ORDERED THAT:
JUDGMENT:
The
application for leave to appeal is hereby dismissed with costs
including costs of senior counsel.
BY
THE COURT
REGISTRAR
MM
Attorney:
[1]
Case number 17692/2004, High Court, Gauteng Local Division,
Johannesburg.
[2]
The decision of the SCA is reported in Ekurhuleni Municipality v
Germiston Retirement Fund 2010 (2) SA 498 (SCA).
[3]
Section 50 of the MFMA provides that a municipality “may not
issue any guarantee for any commitment or debt of any organ
of state
or person, except on the following conditions” ...
The
conditions are listed in the sub-section.
[4]
Paragraphs 5.6 to 5, 9 of the Municipality's plea.
[5]
2012
(4)
SA 593 (SCA) at paragraph
18
[6]
2014 (5) SA 562 (SCA)
[7]
2008 (6) SA 303 (SCA)
[8]
1980 (2) SA 815
(A) at 835 G.
[9]
1963 (2) SA 555 (A).
[10]
(696/13) [2014] ZASCA
119 (11
September 2014) at paragraph 20.
[11]
1983 (1) SA 434 (A).
[12]
[2011]
1
All SA 557
(SCA).
[13]
2012 (1) SA 90 (SCA)
[14]
[1996] 2 All SA 1 (A)
[15]
2009 (5) SA 54
(SCA)
[16]
SCA judgment
201O (2) SA 498
at 500 paragraph 6
[17]
SCA judgment,
201O (2) SA 498.
at 499 paragraph 1.
[18]
Local Division Judgment, paragraph 41
et
seq;
SCA
judgment,
201O (2)
SA 498
at 504
paragraph
23
et
seq.
[19]
2002
(4)
SA
1
(SCA) at pages 34 and 35, paragraph [91].
[20]
2010 (2) SA 498
(SCA) at 504.