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[2015] ZAGPPHC 1143
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Germiston Municipal Retirement Fund v Ekurhuleni Metropolitan Municipality (36600/2011) [2015] ZAGPPHC 1143 (22 May 2015)
“A”
I
N
THE HIGH
COURT OF
SOUTH AFRI
CA
GAUTENG DIVISION,
PRETORIA
CASE NO:36600/2011
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.J
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.
[1O.] On the 10
th
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 Rule10.8.1. 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 :
(i)
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 deparlure 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.]
Resjudicata
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] J In Evins v Shield Insurance 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 invested
1
effect must be given to a final judgment, even
if it is erroneous. In regard to
res iudicata
the
enquiry is not whether the judgment
is
right
or
wrong,
but
simply
whether
there
is
a judgment.
11
"It is quite clear therefore, that
a
Defendant
is
entitled
to rely upon
res
iudicata
notwithstanding that the judgment is
wrong."
[35.] It is thus clear, as contended by the Fund that the defence
of (696/13)
[2014] ZASCA 119
(11 September 2014) at paragraph 20.
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 not raised any further
appeal.
[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 NN0.
[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 Court
1
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
NN0
[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, thereis 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 its 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
R?0,681,752.61
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
201
O;
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
Fouri
e 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
"B"
I
N
THE
HIGH
COURT
OF
SOUTH
AFRI
CA
GAUTENG DIVISION, PRETORIA
CASE NO:36600/2011
In the matter between:
EKURHULENI METROPOLITAN
MUNICIPALITY
Applicant
and
GERMISTON MUNICIPAL
RETIREMENT
FUND
Respondent
JUDGMENT
MOTHLE
J
1This
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
r
ecord
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
i
nterest
i
s
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
2010
11
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.
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.
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.
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.
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
HIGH
COURT OF SOUTH
AFRICA
(
GAUTENGDIVISION,PRETORIA)
PRETORIA 30 July 2015
In the matter
between
CASE
NO: 36600/2011
EKURHULENI METROPOLITAN MUNICIPALITY APPLICANT
AND
GERMISTON MUNICIPAL
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
2015
IT IS ORDERED
THAT:
JUDGMENT
:
The application for leave to
appeal is hereby dismissed with costs including cists 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 judgement,
2010 (2) SA 498
, at 498 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.