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[2015] ZAGPPHC 341
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British American Tobacco Pension Fund v Howie N.O. and Others (9480/2014) [2015] ZAGPPHC 341; 2016 (1) SA 398 (GP); [2015] 3 All SA 55 (GP) (27 May 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
Case
Number: 9480/2014
Date:
27 May 2015
Reportable
Of
interest to other judges
In
the matter between:
BRITISH
AMERICAN TOBACCO PENSION
FUND
..........................................................
Applicant
and
C
T HOWIE N.O.
….......................................................................................................
First
Respondent
J
D PEMA N.O.
…......................................................................................................
Second
Respondent
J
M DAMONS N.O.
….................................................................................................
Third
Respondent
REGISTRAR
OF PENSION
FUNDS
.......................................................................
Fourth Respondent
JUDGMENT
POTTERILL
J
Background
[1]
The applicant is the British American Tobacco Pension Fund
(hereinafter referred to as “the Fund”). The
applicant
is in terms of section 6(2)(d), (e), (f), (g) and (h) of
the Promotion of Administration of Justice Act (“PAJA”)
Act
3 of 2000 applying that the decision of the panel of the
Financial Services Board Appeal Board (hereinafter referred to as
“Appeal
Board”) dated 1 August 2012 be reviewed and set
aside. The first, second and third respondents constituted the
Appeal
Board and are not opposing the review application. The
Fund is also applying that the first, second and third respondents’
decision be substituted for an order upholding the applicant’s
appeal against the Appeal Board’s decision of 1 August
2012.
The parties agreed that if I grant the application this order should
follow.
[2]
The fourth respondent, the Registrar of Pension Funds (hereinafter
referred to as “the Registrar”), is opposing
this matter.
[3]
The Appeal Board upheld the Registrar’s decision to in terms of
section 16(9) of the Pension Funds Act 24 of 1956 (hereinafter
“the
Act”) read with section 15(3) of the Act reject the statutory
actuarial valuation of the Fund as on 13 September
2007. It did
so on the basis that the report did not correctly reflect the
financial condition of the Fund.
Common
cause facts
[4]
The following facts are common cause:
4.1 The Fund is a
closed defined benefit fund established with effect from 1 February
1951.
4.2 The Pension Fund
Second Amendment Act, 39 of 2001 (hereinafter referred to as “the
Act”), amended the Act by inserting
inter alia
sections
15(A) to 15(K). Section 15 is known as the “surplus
legislation” and had as its purpose to clean up all
the
surpluses in pension funds that was historically utilised for
improper purposes.
4.3 In terms of
section 15(B)(i) of the Act the Board of every pension fund that
commenced prior to 7 March 2002 and had an actuarial
surplus at its
surplus apportionment date must submit to the Registrar a scheme for
the apportionment of that actuarial surplus.
The applicant’s
surplus apportionment date was 31 March 2002.
2002
Report
4.4 On 1 February
2006 the Fund submitted to the Registrar a scheme for the
apportionment of its actuarial surplus in the Fund as
at 31 March
2002. In terms of this scheme the adjusted actuarial surplus to
be apportioned was in the amount of R238 259 000.00.
First tier apportionments, which in terms of section 15B(5)(b) is
non-discretionary, was to pensioners in the amount of R1 475 000.00
and former members R39 911 000.00. The second tear
discretionary apportionments in terms of section 15B(5)(c) was
allocated to existing members as R3 354 000, to pensioners
as R12 926 000.00 and to deferred pensioners as
R463 000.00. The participating employer was apportioned an
amount of R118 124 000.
4.5
In paragraph 1.6 of the Scheme the following is set out:
“
The
amounts apportioned to the existing members (including pensioners and
deferred pensioners) and former members will be credited
to the
members’ surplus account:
Yes
If the amount in
respect of any class of member or former member is not to be credited
to the members’ surplus account but
is to be used in some other
way in as set out in section 15D, state the class and how the amount
is to be applied:
Not
applicable.”
4.6 The actuarial
surplus apportioned to the employer was credited to the employer’s
surplus account. The actuarial
surplus apportioned to the
existing members, pensioners and former members was credited to the
members’ surplus account.
4.7
In a general communication to stakeholders by the board of the
trustees of the Fund dated 15 July 2005 it was set out that the
apportionment to former members would be paid to them in cash, the
apportionment to active members would be kept in the fund for
them to
purchase additional retirement funds and the apportionment to
pensioners would be available either as lump sum payments
or to
increase their monthly pension. The apportionment to the
employer would be transferred to the reserved account in the
Fund for
utilisation by the employer on behalf of the employees.
4.8 On 26 November
2006 the Registrar approved a revised scheme pursuant to questions
raised by the Registrar to Alexander Forbes.
The main change from the
scheme submitted in February 2006 reflected adjusted actuarial values
of the Fund’s liabilities
and contingency reserves, but not the
actuarial value of its surplus. Alexander Forbes was furnished
with a certificate in
terms of section 15B(9)(i).
2005
Report
4.11 The Fund’s
next statutory valuation report was for 31 March 2005. It was
submitted to the Registrar on 6 September
2007.
4.12 The Fund
undertook an interim non-statutory valuation as at 31 October 2006
and this valuation report revealed that as at 31
October 2006 the
fund’s liabilities exceeded its assets. This report was
undertaken with the specific intent to determine
whether the Fund was
in deficit immediately prior to the Registrar’s approval of the
Fund’s surplus apportionment scheme
in November 2006.
This was necessary to determine the level of the reduction in the
member and employer surplus accounts
in terms of section 15H of the
Act prior to the implementation of the surplus apportionment scheme.
4.13 In order to
address the deficit the employer agreed that the deficit as at 31
October 2006 should be reduced by an amount that
equals the value of
the employer’s contributions since 1 April 2002, before the
remainder of the deficit is funded from the
member and employer
surplus accounts. The report stated:
“
After
taking the above Employer contributions into account, an amount of
R38.306m remains to be funded proportionately from the
Member and
Employer Surplus Accounts, thereby reducing the value of the 2002
surplus plus interest that is payable to stakeholders”
(JAB20
pp.392-393)
The
Fund had utilised the interest on the 2002 surplus in the amount of
R26 292 000 in reducing the deficit.
4.14 This scheme was
approved by the Registrar on 30 November 2010.
The
2007 Report
4.15 The 2007
statutory actuarial report dated 30 September 2007 was submitted on
19 June 2009. This report was submitted
because 30 September
2007 was the date immediately prior to a merger of the Fund with the
British American Tobacco South African
Pension Fund. In this
report it was thus reflected that the Fund had dealt with the deficit
reflected in the March 2005 and
October 2006 valuation reports by
proportionately reducing the credit balances in the member surplus
account and the employer surplus
account by the amount of the
deficit. This was done according to the report furnished by
Alexander Forbes wherein it was
agreed that the deficit as at 31
October 2006 should be reduced by an amount that equals the value of
the employer contributions
since 1 April 2002.
4.16 On 11 December
2009 Mr. Knoetze, the valuator of the fund,
inter alia
explained
that the surplus apportionment scheme submitted to and subsequently
approved by the Registrar on 26 November 2006 incorrectly
contained
duplicate records for 2 273 former members “
which was
rectified after approval of the scheme was obtained, but before the
scheme was implemented”
. This rectification resulted
in a significant reduction in the residual surplus that was allocated
to one class of former
members and “
a corresponding sizable
increase in the residual surplus of the other stakeholders, in
particular the active members, pensioners
and deferred pensioners”
(JAB13).
4.17 On 18 January
2010 the Registrar pended considerations of the reports as at 31
March 2005 and 30 September 2007 and requested
the fund to submit an
addendum to the surplus apportionment scheme reflecting the changes
in the scheme. On 1 September 2010
the Registrar accepted the
addendum so submitted.
4.18 On 3 September
2010 the Registrar requested from Alexander Forbes a reconciliation
of the Fund’s employer surplus account
and member’s
surplus account incorporating the abovementioned addendum to the
surplus apportionment scheme. The Registrar
also informed the
Fund that it could not utilise section 15H to manage the deficit as
at 31 October 2006 because section 15D(2)
required that the credit
balance in the members surplus account, after apportionment of the
actuarial surplus, had to be used as
specified in the section 15B
surplus apportionment scheme.
4.19 On 29 September
2010 Alexander Forbes informed the Registrar that R18 660 000
of the money in the members surplus
account had to be used to fund
the deficit as at 31 October 2005 and thus in fact had used that
credit balance as specified in
the scheme as submitted in terms of
section 15B as required by section 15D(2).
4.20 On 22 March
2012 the Fund submitted to the Registrar a legal opinion which
concluded that it was obliged to invoke the provisions
of section
15H.
4.21 The Registrar
on 10 August 2012 informed Alexander Forbes that it had rejected its
actuarial valuation of the Fund as at 30
September 2007 because the
report did not correctly reflect the financial condition of the Fund.
4.22 This decision
was appealed and is sought to be set aside.
[5]
Issues to be decided
[5.1]
Factually the crux of the matter is whether the Fund could use the
surplus as set out in the 2002 scheme apportioned to members,
former
members, pensioners and deferred pensioners and approved by the
registrar in November 2006 to reduce a deficit revealed
through the
2005 statutory actuarial evaluation as well as a non-statutory
evaluation.
[5.2]
The question in law is thus whether s15H deals only with future
deficits. It also raises the issue of the correct interpretation
of
the interrelationship between sections 15D and 15H of the Act and
whether Section 15D is susceptible to s15H. It also begs the
question
if the Fund was legally compliant; could it take away rights already
accrued to the members, former members, pensioners
and deferred
pensioners in terms of the 2002 surplus scheme?
PRINCIPLES
APPLIED IN COMING TO FINDINGS
[6]
In
Tek Corporation Provident Fund and Others v Lorentz
1999
(4) SA 884
SCA in [16] it was found that: “…
Defined benefit pension funds do not exist to generate surpluses
but they may arise when reality and actuarial expectation do not
coincide …
”. Despite it not being a defined
benefit pension fund’s purpose to generate a surplus it was a
reality that large
surpluses did generate and the legislature had the
intention with the surplus legislation to clean up all surpluses by
means of
distribution. The legislature thus foresaw and enacted that
within 3 years of the commencement of the surplus legislation on 7
December 2001 all surpluses would be cleaned-up and all Funds would
start with a clean slate. This was to be achieved with compliance
with s15B:
“
15B
Apportionment of existing surplus
(1)(a) Subject to
paragraph (b), the board of every fund that commenced prior to 7
March 2002 shall submit to the registrar a scheme
for the proposed
apportionment of any actuarial surplus (in this section referred to
as the scheme) plus the details regarding
any surplus utilised
improperly by the employer as defined in subsection (6) as at the
effective date of the statutory actuarial
valuation of the fund
coincident with, or next following, the commencement date.
(b)
…
(2)
A scheme –
(a)
shall comply with such conditions as may be prescribed; and
(b)
may involve –
(i)
the improvement of benefits to existing members;
(ii) increases to
benefits or transfer of values in respect of former members;
(iii) the
crediting of an amount to the member surplus account;
(iv) the
crediting of an amount to the employer surplus account; or
(v) any two or
more of the matters contemplated in subparagraphs (i) to (iv).”
[7]
As remarked so eloquently by Marais JA in the Tek-matter
supra
:
“…
In assessing the financial health of a pension
fund an actuary is gazing into the proverbial crystal ball to see
what the future
will hold. The use of the metaphor is not intended to
demean the exercise; it is highly sophisticated and requires
considerable
training and skill, yet it remains, when all is said and
done, an exercise in prophecy … [16]
” With this in
mind it is clear that the surplus legislation could not have the
intention, pursuant to the first clean slate
being achieved, to
prevent Funds from generating future surplus, but to utilize it as
prescribed in Sections 15C, 15D and 15H:
“
15C
Apportionment of future surplus
(1)
The rules may determine any
apportionment of actuarial surplus arising in the fund after the
surplus apportionment date between
the member surplus account and the
employer surplus account.
(2)
If the rules are silent on the
apportionment of actuarial surplus arising after the surplus
apportionment date, any apportionment
shall be determined by the
board taking into account the interests of all the stake-holders in
the fund: Provided that, notwithstanding
anything to the
contrary in the rules, neither the employer nor the members may veto
such apportionment.” (Applicant’s
bundle of
authorities p139)
15D Utilisation
of surplus for benefit of members -
(1)
Notwithstanding anything to the
contrary in the rules of a fund but subject to subsection (2), any
credit balance in the member
surplus account may only be used by the
board to –
(a)
improve benefits for existing
members;
(b)
improve the benefits previously paid
to former members or the amounts previously transferred in respect of
former members;
(c)
reduce current contributions due
from members; and
(d)
meet, in full or in part, expenses
which would otherwise reduce the proportion of the members’
contributions that are invested
for retirement.
Provided that the
employer appointed members of the board shall not have a vote in any
deliberation over the use of any credit balance
in the member surplus
account unless the proposal before the board will increase the
contribution rate payable by the employer.
(2)
The credit balance contemplated in
subsection (1) after the apportionment of actuarial surplus as at the
surplus apportionment date
must be used as specified in the scheme
submitted in terms of section 15(B)(1) if the scheme makes provision
for the use of such
credit balance.” (Applicant’s
bundle of authorities p139)
“
15H
Use of contents of any surplus accounts to fund deficits –
(1)
If a fund has credit balances in the
member surplus account or the employer surplus account and the fund
is found to have a deficit
following an actuarial valuation,
including a valuation carried out for the purpose of distributing
assets on liquidation of the
fund, such credit balances shall be
reduced in the same proportion by the amount of the deficit:
Provided that no credit
balance may be reduced by more than the
amount to which the account was in credit.
(2)
If the deficit exceeds the credit
balances in the member surplus account and the employer surplus
account, these credit balances
shall be applied in full to reduce the
deficit and shall be reduced to zero.”
[8]
It was common cause between the parties that as a general principle a
deficit would entail that looking forward the Fund would
not be able
to meet its obligations. In a defined benefit Fund this would
obviously set up a financially unsound situation; one
to be avoided
at all costs. Section 18 of the Act requires a Fund to act once a
deficit is revealed. Although there are ways and
means to address the
deficit, without utilising a surplus, it would be financially sound
to utilize any surplus to address the
deficit. [s15H]. The
registrar’s only qualification was that s15H only had
application to a future surplus and not the initial
surplus.
[9]
Section 15A provides as follows:
“
15A
Rights to use of actuarial surplus
(1)
All actuarial surplus in the fund
belongs to the fund.
(2)
Once actuarial surplus is
apportioned to either the member surplus account or the employer
surplus account in terms of sections
15B and 15C, members and the
employer acquire rights to such actuarial surplus as provided for in
this section.
(3)
…
(4)
Any credit balance in the member
surplus account must be used for the benefit of members as provided
for in section 15D.”
The
surplus thus belongs to the Fund and the members and the employer
acquire rights to such actuarial surplus once it is apportioned
to
either the member surplus fund or the employer surplus fund. An
apportionment is however of no force or effect unless:
[s15B(9)(a)]:”
the scheme, the
statutory actuarial valuation as at the surplus apportionment date of
the fund, as well as a copy of any other actuarial
or other statement
taken into account for purposes of the scheme and the report by the
person appointed in terms of subsection
(3), has been submitted to
the registrar and the registrar is satisfied that the statutory
actuarial valuation has been prepared
on actuarially sound and
acceptable principles prescribed:”
[10]
It is thus clear that any rights acquired by members in terms of this
section are conditional upon the registrar’s approval.
This is
confirmed in the Board Notice, Notice 22 of 2009, directive PF No. 3:
“
Even though the employer,
existing members and former members of a fund acquire a right to be
considered by the board of that fund
for inclusion in the surplus
apportionment, provided there is actuarial surplus to be apportioned
at the SAD in terms of section
15B of the Act, any amount due to the
employer, an existing member, or a former member, in terms of that
apportionment scheme,
accrues only when the registrar has issued a
certificate approving the apportionment scheme in terms of section
15B(()(i).
[49]”
[11]
The registrar has a gate-keeping function and grants approval based
solely on actuarially sound and prescribed acceptable principles.
In
National Tertiary Retirement Fund v
Registrar of Pension Funds
2009 (5) 366
(SCA) it was confirmed that s12(1)(b) did not confer a broad and
equitable discretion on the Registrar. I find
this finding also
applicable pertaining to the approval of a report and the scheme
contained therein; the Registrar is the gate-keeper
not the legal
compliance officer acting on behalf of the stakeholders.
[12]
The Registrar’s reasons for the rejection of the 2007 report
The
Registrar rejected the 2007 report because the valuation report did
not correctly reflect the financial condition of the Fund.
The
reasons for this were that in terms of the 2002-scheme the members
surplus account was to be immediately debited; “
None
of the amounts of surplus allocated to the stakeholders should have
remained credited to the member surplus account after the
surplus
apportionment date, let alone used to fund a deficit in the fund on
31 October 2006.”
[Par 3.6 of
rejection letter].
[13]
In the Registrar’s reasons for purpose of the appeal to the
Appeal Board the Registrar changed its stance. Whereas it
was
previously contended that the stakeholders apportionment of the
surplus could be credited to the members’ surplus account
it
now concluded that: “
The Registrar
is of the view that there was never an apportionment of section 15B
surplus to the Member Surplus Account in terms
of section 15B(2) of
the Act and the Fund never intended that any surplus be placed in the
member Surplus Account. This is clear
from the classes of
stakeholders who were allocated the section 15B surplus, the
communication exercise to stakeholders and the
Fund’s addendum
to its surplus apportionment scheme. Therefore, the section 15B
surplus amounts were improperly placed in
the Member Surplus Account.
Consequently, the provisions of section 15H cannot be used to justify
the reduction in the section
15B surplus amount allocated to members
and former members. “
In
short thus the surplus members’ account was only a conduit.
FINDING
ON WHETHER A FUND MUST IMMEDIATELY DISTRIBUTE THE SURPLUS CREDITED IN
THE MEMBERS’ SURPLUS ACCOUNT.
[14]
The Appeal Board accepted the proposition that the Fund in terms of
the 2002 scheme had to immediately implement and apportion
the
surplus as set out in the scheme. If this was done there was in
effect no surplus to reduce the deficit with. The Appeal
Board
found:
“
On
the basis that the scheme operated with effect from 31 March 2002,
the Registrar’s submission that immediate implementation
of the
scheme by the Fund necessitated an accounting process resulting in a
nil balance in the MSA. Why the process was not set
in train before
the deficits were reported in 2007 the record does not reveal. The
Registrar is right, we think, as regards the
accounting result that
should have eventuated …”
[15]
In argument to me it was stressed that a Fund had a duty upon the
activation of the surplus apportionment scheme to give effect
to that
scheme; the Fund must fulfil its duty in terms of the s15B scheme.
In plain language you could not leave a credit
in the members’
surplus account and then later dip into it when a deficit is found.
If the Fund had fulfilled its duty
there would be no surplus to
reduce the deficit. Technically there was no surplus in the account
because the amount should have
been distributed and there could have
been no reduction of the credit in terms of s15(H). The Fund’s
report thus did
not correctly reflect the financial position of the
Fund. It was conceded by counsel for the Registrar to be
successful in
this argument he must convince the Court that once a
surplus scheme is activated, the Fund has an obligation to act on it
immediately.
It was submitted that because the Fund did not act
on the scheme immediately the Fund was not legally compliant.
The
reduction was thus inconsistent with s15(D) and not authorised by
s15(H).
[16]
It was further submitted that the Fund had to immediately after the
crediting of the member’s surplus account debit back
to back
the apportionments in terms of the scheme. The stakeholders,
i.e. the members, former members and pensioners were
informed that
they were to receive benefits from the surplus fund and that is was
the Registrar approved. This cannot be
gainsaid for the purpose
of a deficit. There were communications to members setting out how
the money would be dealt with and then
individual letters were sent
to each class of stakeholders; this was the outward face of the
scheme. The Fund thus specified
what the money was to be used
for and in not doing so they acted unlawfully. In any event the
addendum submitted by the Fund specified
the use of the credit
balance. The moment the Registrar approved the scheme there was
an immediate right to that money by
the stakeholders allocated, but
with effect from 1 March 2002 the Fund should have credited the
member’s surplus account
and then created these other accounts
and debited these accounts. That would have led to a nil credit
balance in the member
surplus account and the scheme would have been
given effect to and there would have been a clean-up as intended.
[17]
It was also argued that there is nothing impracticable in achieving
back to back accounting because the Fund can open accounts
for
classes of people until the individual amounts have been determined.
Regulation 35 prescribed a contingency reserve account
for former
members for whom enhancement due could be determined but could not be
traced.
[18]
On behalf of the Fund it was argued that the Appeal Board in
accepting the Registrar’s reasoning that the surplus must
be
debited immediately is flawed in that it is inconsistent with the
provisions of the Act and rules; there is no such provision.
[19]
Furthermore it is impossible to immediately debit the accounts
because individual calculations to determine the exact base
amounts
and interest due to each member and former member must first be
determined. Many former members must first be traced
and then
their details must be verified. The reliance of the Registrar
on regulation 35 is misplaced as it does not prescribe
any other
accounts that a Fund must maintain except for a contingency reserve
account which must be utilized when an enhancement
for a former
member has been determined, but the former member is untraceable.
[20]
It was also argued that if there was the requirement to immediately
debit the member surplus account and leave a nil balance
there would
never be credit balances in the member surplus account for the
purposes of sections 15G, 15H and 15I rendering them
superfluous.
[21]
I cannot agree with the submissions made on behalf of the Registrar.
The Registrar was adamant that the Appeal Board
was correct in its
finding that a Fund had a duty to upon the activation of the surplus
apportionment scheme to give effect to
that scheme. It was
however conceded by counsel for the Registrar that to persuade this
court that once the surplus apportionment
scheme is activated effect
must be given is reliant upon him persuading me that it must be
“
immediate”
.
On the Registrar’s argument the Fund’s 2002-surplus
scheme required immediate back-to back accounting; i.e.
credit the
members’ surplus account and then immediately debit this
account to classes of members, former members and pensioners
accounts
[if it cannot be achieved individually]. “
Immediate”
was argued as being when the scheme became of force and effect and
that was 26 November 2006; this is the date of the certificate
issued by the Registrar pursuant to the last two steps as set out in
s15(B)9 having been taken. If this is the true legal
position
why did the Registrar in 2010 approve the 2005 report which gave no
indication of immediate back-to back accounting of
the 2002 surplus?
This period stretched over 4 years; nothing immediate in
this timespan! It only became a bone
of contention when the
2007 report indicated that the amount in the members’ surplus
account would be utilised to address
the deficit. The Registrar
is simply unhappy that the surplus be utilised for the deficit, but
can only be unhappy if the
report is not actuarially sound and based
on prescribed acceptable principles.
[22]
There is nothing in the Act or the Rules indicating that back-to back
accounting must take place. I accept that on general
bookkeeping principles the accounts suggested by the Registrar could
be opened, but they are certainly not prescribed. It
was also
not argued that they were as a general accepted principle in use by
Funds. This is certainly a new principle advocated
by the
Registrar. The Registrar’s reliance on Regulation 35 is
misguided because it pertinently prescribes only one
account; a
contingency reserve account with specific purpose to place the
enhancement of an untraceable former member therein.
It would
have been very easy to prescribe further accounts necessitated by any
required back-to back accounting.
[23]
I am not persuaded by the argument of the Registrar that the Appeal
Board was correct in finding that the activation of the
scheme or
operation of the scheme was with effect from 31 March 2002. Any
surplus, upon approval by the registrar, retrospectively
to the date
of the apportionment affords right to the stakeholders so approved.
As quoted supra “
any amount due to
the employer, an existing member, or a former member, in terms of
that apportionment scheme,
accrues
only when the registrar has issued a certificate approving the
apportionment scheme in terms of section 15B(()(i).
[49]”
[my emphasis]. Although any Act always takes precedence over rules,
regulations and directives, one can only assume
that this directive
was issued to clear up when the stakeholders’ rights in a
scheme accrued. I cannot find that this directive
is in conflict with
s15B, or legal principles as to when rights of stakeholders in such
circumstances should accrue.
FINDING
ON WHETHER S15H ONLY HAS FUTURE APPLICATION.
[24]
It was submitted that the Appeal Board committed a material error of
law in finding that: “
The second
answer to the Fund’s argument is a matter of statutory
interpretation. The first thing to observe is that
section 15D
is not subject to section 15H. Second, although a section 15H
is not subject to section 15D, there was no need
to insert that
qualification. It could not have been contemplated that the two
provisions would, or could, conflict.
A deficit as at
apportionment date would result in no apportionment and no scheme or,
at best, a reduced apportionment. There
would be no scope for
the application of section 15H. The two sections do not
legislate for one and the same time.
Section 15H was clearly
intended to deal with a deficit at a later time when, by necessary
implication the purpose of the scheme
referred to in section 15D(ii)
had already been implemented.”
[25]
The Fund argued that not only could it utilize the surplus to reduce
the deficit, but the Fund was obliged to do so in terms
of s15H(1).
It was submitted that the Appeal Board erred in finding that section
15 D and section 15 H would or could not
conflict because a deficit
as at apportionment date would result in no apportionment scheme and
there would be no scope for the
application of s15H. The
Appeals Board thus incorrectly interpreted section 15H as having only
future application, i.e. after
a scheme in s15D(2) was implemented.
[26]
In fact the purpose of s15H was to ensure that pension funds remain
financially sound. The purpose of s15H was to ensure
that funds
do not allocate surpluses where the fund was in a deficit. The
credit balances must then first and foremost be
utilized to fund the
deficit to ensure financial stability of the fund. Section 15H is
peremptory; …”
such credit
balances
shall
be reduced in the same proportion by the amount of the
deficit..”[s15(1)] and … these credit
balances
shall
be
applied in full to reduce the deficit and shall be reduced to zero.”
[my emphasis]
[27]
In interpreting s15H I was urged to follow the approach as set out
in
Natal Joint Municipal Pension Fund v
Endumeni Municipality
2012 (4) SA 593
(SCA) at 603 [18]. I was also referred to
Dexgroup
(Pty) Limited v Trustco Group International (Pty) Limited
2013
(6) SA 520
(SCA) [16] wherein it was reiterated that “…
Context, the purpose of the provision
under consideration and the background to the preparation and
production of the document in
question are not secondary matters
introduced to resolve linquistic uncertainty but are fundamental to
the process of interpretation
from the outset.”
This
approach was confirmed in
Bothma-Batho
Transport (Edms) Bpk v S Bothma en Seun Transport (Edms) Bpk
2014
(2) SA 494
(SCA).
[28]
In following this approach it was argued that s15H is couched in
clear, unambiguous and peremptory language without being subject
to
any other section of the Act. There is no reference in the
section to a particular date in the future. “
The
Court therefor must give effect to what the Act says and not to what
it thinks it ought to have said
and
….
the [courts] sole duty is to
construe the Act as it stands.”
–
Stafford v Special Investigating Unit
1999 (2) SA 130
(E) at 140F. The
Fund thus had to apply s15H to reduce the deficit.
[29]
The Appeal Board had no legal basis to find that the actuarial
surplus credited to the member surplus account was not susceptible
to
s15H due to the provisions of s15D(2). If the legislature
intended to shield the actuarial surplus distributed in terms
of s15B
from the provisions in s15H, it would have been so expressed.
Without such express provision the Legislature had
no such intention.
The Legislature would have been aware that the first credit balances
in the surplus accounts in terms of s15B
would be vulnerable to the
provisions of s15H.
[30]
The Appeal Board also was influenced by an error of law when it found
that sections 15D(2) and 15H did not legislate for one
and the same
time, but that s15H was intended to deal with a deficit at a later
stage, when by necessary implication, the purpose
of the scheme in
s15D(2) was already implemented. Sections 15D, 15B and 15H were
inserted into the Act on 7 December 2001.This
interpretation by the
Appeal Board are at odds with the literal and purposive
interpretations of sections 15D and 15H of the Act.
Furthermore such
interpretation would also render the provisions of s 15H futile
because the s15B distribution is the only surplus
distribution which
is compulsory.
[31]
It would be odd for section 15H to apply to only future credit
balances, subsequent to a scheme in terms of s 15B, that
may
never arise. That is specifically so because this future surplus is
in terms of section 15C to be apportioned in terms of the
rules of
the fund; apportionment is not compulsory and left to the discretion
of the trustees. It is unlikely that there will be
any future surplus
pursuant to a scheme because all the circumstances leading to the
creation of surpluses before 2001 had largely
fallen away due to the
minimum benefit requirements in sections 14A and 14B and the movement
from defined benefit to defined contribution
funds where it is
inherent in a defined contribution fund that no surplus can arise.-
Tek Corporation Provident Fund and
Others v Lorentz
1991 (4) SA 884
(SCA)
on 891[5].
[32]
This interpretation favouring the overall purpose of the legislature
is also supported by rule 18.5.2 of the Fund which expressly
states
that the provisions of s15H shall apply where there is a deficit in
the Fund and the Fund has credit balances in the member
surplus
account and the employer surplus account.
[33]
On behalf of the Registrar it was contended that the legislature
enacted this legislation to provide for a historical clean-up
of
large surpluses rendering. Section 15 C thus, so it was argued, only
related to future surpluses, i.e. after the clean-up. This
is so in
view of the unique nature of s15B to address the past build-up of
surpluses in pension funds. Similarly s15H only relates
to future
clean-ups because section 15(H)(1) does not override s (15)D(2). The
Appeal Board was thus correct in finding that Sections
15D(2) and
15(H)(1) deal with different moments in the” life of a Fund.
[34]
It was also submitted that s15(D) makes it clear that any credit
balance in the member surplus account after apportionment
of
actuarial surplus as at the apportionment date must be used as
specified in the s15(B)(1) scheme if the scheme makes provision
for
the use of the balance. It was thus argued that it excluded the use
of any credit balance for any other purpose, i.e. funding
a deficit
in terms of s15H (1). It was submitted that the argument of the Fund
that the scheme only provided that the money was
going to a member
surplus account and did not specify in terms of s15(B)(1) the use for
such credit balance is to be rejected.
The member surplus account is
only a conduit from which the transfers to the stakeholders were to
be made.
[35]
Section 39(2) of the Constitution requires of a court to interpret
any legislation to promote the spirit, purport and objects
of Bill of
Rights. In
Natal Joint Municipal Pension
Fund v Endumeni Municipality
2012 (4)
SA 593
(SCA) at 603 the following was found:
“
[18]
The present state of the law can be expressed as follows:
Interpretation is the process of attributing meaning to the
words
used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided
by
reading the particular provision or provisions in the light of the
document as a whole and the circumstances attendant upon
it coming
into existence. Whatever the nature of the document,
consideration must be given to the language used in the 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.
Where more than one meaning is possible each possibility
must be
weighed in the light of all these factors. The process is
objective, not subjective. A sensible meaning is
to be
preferred to one that leads to insensible or unbusinesslike results
or undermines the apparent purpose of the document …
The
inevitable point of departure is the language of the provision
itself, read in context and having regard to the purpose of
the
provision and the background to the preparation and production of the
document.”
[36]
The language of s15H is clear and unambiguous; if a Fund has a credit
balance in the member surplus account and the Fund is
found to have a
deficit then that credit balance shall be reduced in the same
proportion by the amount of the deficit provided
that no credit
balance may be reduced by more than the amount to which the account
was in credit. If the deficit is more than the
credits in the
members’ and employer surplus accounts then the total of the
credit balances are to be applied to the deficit.
Considering the
language of s15H in the light of the ordinary rules of grammar and
syntax there is nothing in the wording of s15H
remotely suggesting
that it only has future application, i.e. after the first
apportionment in terms of s15B.
[37]
The purpose of the provision is to extinguish a deficit in a Fund by
means of credit balances in surplus accounts. A Fund is
left no
discretion to regulate otherwise; the surplus must be so utilized.
This resonates with the general principle that a deficit
in a Fund
must be addressed earlier rather than later. It also conforms to the
principle that a surplus, as not being the purpose
of a defined
benefit fund, must be utilised to keep such a Fund financially sound
and used to the benefit of the members. A surplus
in a members and
employers surplus account must this be utilised to fund a deficit,
despite the provisions of s15D. Section 15H
thus also confirms that
credit balances in surplus accounts need not immediately be debited,
as suggested by the Registrar, otherwise
there would be no credit
balances in surplus accounts available for distribution.
[38]
In interpreting section 15H “…
the
material known to those responsible for its production …”
[Natal Joint supra p604 A’] was that s15B was to clear out all
surpluses in Funds. This was to be done to the benefit of
members. A
deficit was however to be funded by a surplus. I cannot find that the
legislature must have intended that s15H is only
applicable to future
surpluses. The legislature invoked these sections, at the same time,
with the intent to address surpluses.
If it intended that the first
surplus in terms of s15B was only intended for the use of members it
would have been the simplest
thing to say so. The Legislature was
alive to the fact that the first credit balances in the surplus
accounts in terms of s15B
would be vulnerable to the provisions of
s15H. The makers were aware of future application of the surpluses
because s15C has the
heading of: “
Apportionment
of
future
surplus
.”
[my
emphasis]. It would have been very simple to include the word
“future” in s15H. In considering the provisions of
s15 as
a whole I cannot find that the legislature had the intention to make
s15H applicable to only future surpluses. The Appeal
Board thus was
influenced by an error of law in finding that sections 15(D) and 15H
did not legislate for one and the same time;
s15H was only to be
applied to a deficit after the scheme in s15(D)(2) was apportioned.
S15H is not, in the language of the provision,
subject to s15D. There
is no reason to read in that s15H is subject to s15D. I agree with
the Funds submission that if s15H was
applicable to only future
surpluses the provisions of s15H would be futile because the s15B
distribution is the only surplus distribution
which is compulsory.
[39]
The context in which sections 15B, 15D and 15H are to be read was set
out above; Parliament prescribed to Funds to rid surpluses
to the
benefit of its members. Parliament was however aware that deficits
may arise and prescribed that any surplus must fund such
deficit. The
purpose was that surpluses must be cleaned out; either to the benefit
of the members or funding a deficit. The context
was thus that a
surplus must not be improperly used, but “businesslike”
on actuarially sound principles. The stakeholders
acquired certain
rights upon approval of the scheme, but would be hard-pressed to
insist that these benefits were due and payable
when a deficit
required funding. If the stakeholders were unhappy it would be a
matter between the stakeholders and the board of
the Fund, not the
Fund versus the Registrar. The stakeholders’, it would seem,
are not persisting with such claims, but the
Registrar is on their
behalf doing so; this is not the duty of the Registrar unless the
Registrar is correct that the funding of
the deficit is improper on
actuarially sound and acceptable principles prescribed. This was
however not the Registrar’s stance
in address to me, it was
stressed that the reason for rejecting the report was not because the
Registrar disagreed actuarially
with any of the values placed on the
assets or liabilities of the Fund, but that the Fund was not legally
compliant by distributing
the surplus to the deficit at the time it
did so. In interpreting s15H by considering the language and context
together I cannot
find that the Appeal Board was correct in finding
that s15H only had future application.
[40]
CAN S15H OVERRIDE SECTION 15D(2)
For ease of
reference I repeat s15D(2):
“
The
credit balance contemplated in subsection (1) after the apportionment
of actuarial surplus as at the surplus apportionment date
must be
used as specified in the scheme submitted in terms of section 15B(1)
if the scheme makes provision for the use of such
credit balance.”
The
Appeal Board found as follows: “
The
first answer to the Fund’s argument is that s15D (2) does not
only concern purpose. It pertains to a specific, identifiable
and
indeed identified amount i.e. the credit balance in the MSA “after
the apportionment of actuarial surplus as at the apportionment
date.”
If a scheme provides for the use of such credit balance- as this one
does- then that amount “must be used as
specified”.
Therefore none of it is susceptible to use in terms of s 15H (1).”
[41]
It was submitted on behalf of the Registrar that s15H could be
utilised in terms of section 15B if the scheme did not specify
how
the surplus was to be used, for example the Fund could apportion
money only to active members into the member surplus account.
It was
however immediately conceded that whether the Registrar would approve
such scheme is another matter. In
casu
it was argued that the Board had specified and as a matter of law had
in the case of existing members and former members determined
how the
surplus was to be allocated to them. This was a bar to utilising the
surplus as set out s15H.
[42]
On behalf of the Fund it was argued that the correct interpretation
is that s15(D)(1) only sets out the uses to which a credit
balance in
the member surplus account can be put where the surplus apportionment
scheme did not expressly specify how the surplus
allocated to members
and former members was to be used after the scheme was approved.
S15D(2) provides that the credit balance
credited to the member
surplus account after the apportionment of actuarial surplus as at
the surplus apportionment date must be
used as specified in the
scheme, if the scheme made provision for the use of the credit
balance. From par. 1.6 in the Fund’s
scheme it was clear that
it did not specify what will happen to the credit balance in the
member surplus account except that it
would be credited to the member
surplus account.
[43]
The purpose and context of s15(D)(1) is to set out the uses to which
actuarial surplus allocated to a member surplus account
can be put
where the surplus apportionment scheme was not specific as to how the
surplus was to be used. Section 15(D)(2) qualifies
that if the scheme
did specify then the Board cannot rely on the provision of s15D(1),
but must then use the credit balance as
specified in the surplus
apportionment scheme.; i.e. if it specified that it to be credited
for the use of former members only
the Fund can turn around and
credit it to the benefit of existing members.
[44]
Once again there is nothing in the application of the ordinary rules
of grammar and syntax in section 15(D)(2) expressing that
it impacts
on s15(H). S15(D)(2) does not refer to for instance sections 15G and
s15H which relate to the use of credit balances
in a Fund; s15(D)(2)
accordingly did not apply to those sections, or differently put those
sections are not subject to s15(D)(2).
Section 15(D)(1)
expressly states that it is subject to s15(D)(2), there is no such
qualification in s15H.
[45]
The Appeal Board thus erred in relying on s15(D)(2) in coming to its
finding.
[46]
I accordingly make the following order:
46.1 The first,
second and third respondents’ decision dated 15 August 2013 in
which they rejected the applicant’s appeal
against the fourth
respondent’s decision of 1 August 2012, is hereby reviewed and
set aside.
46.2 The first,
second and third respondent’s decision is substituted for an
order upholding the applicant’s appeal
against the fourth
respondent’s decision of 1 August 2012.
46.3
The fourth respondent is ordered to pay the costs, including the
costs consequent upon the employment of two counsel.
__________________
S.
POTTERILL
JUDGE
OF THE HIGH COURT
CASE
NO: 9480/2014
HEARD
ON: 22 April 2015
FOR
THE APPLICANT: ADV. M.A. CHOHAN SC
ADV.
S. KHUMALO
INSTRUCTED
BY: Hogan Lovells South Africa Inc.
FOR
THE 4
th
RESPONDENT: ADV. A.M. BREITENBACH SC
INSTRUCTED
BY: Rooth & Wessels Attorneys
DATE
OF JUDGMENT: 27 May 2015