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[2003] ZAWCHC 56
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Sage Schachat Pension Fund and Others v Pension Funds Adjudicator and Others (10983/2001) [2003] ZAWCHC 56; [2003] 4 All SA 394 (C); 2004 (5) SA 609 (C) (17 October 2003)
IN THE HIGH COURT
OF SOUTH AFRICA
(CAPE OF
GOOD HOPE PROVINCIAL DIVISION)
Case No: 10983/2001
In the matter
between:
THE SAGE
SCHACHAT PENSION FUND
First
Applicant
THE SAGE
GROUP LIMITED STAFF PENSION FUND
Second Applicant
THE
SAGE LIMITED STAFF PENSION AND
LIFE
ASSURANCE SCHEME
(now known as
The Sage Group Pension Fund
)
Third Applicant
SAGE LIFE
LIMITED
Fourth Applicant
and
THE
PENSION FUNDS ADJUDICATOR
First Respondent
NICHOL,
ARCHIBALD BARRY
Second Respondent
SMALL,
RONALD HENRY CECIL
Third
Respondent
THE
REGISTRAR OF PENSION FUNDS
Fourth Respondent
THE
FINANCIAL SERVICES BOARD
Fifth Respondent
JUDGMENT:
17 OCTOBER 2003
VAN ZYL J:
INTRODUCTION
[1] This
is an application for an order: (1) setting aside the first
respondentâs determination, dated 13 November 2001 and made
in
terms of the
Pension Funds Act
24 of 1956
as amended;
and
(2) declaring that the applicants are not obliged to give effect to
such determination. Costs are sought only against those respondents
opposing the application. In this regard the first, fourth and fifth
respondents have indicated that they abide the decision of this
court. It is hence only the second and third respondents who oppose
such application.
[2] The
first, second and third applicants are pension funds that have,
historically, served the interests of persons employed by
companies
within the Sage group of companies, known in the commercial world as
the âSage Groupâ. The fourth applicant, Sage Life
Limited, is a
public company described as âthe employer of the employees of the
Sage Groupâ. Its joinder in these proceedings
has clearly been
justified by the obligations placed on it in terms of paragraphs
21.3, 21.5 and 21.6 of the first respondentâs
aforesaid
determination (see par 21 below).
[3] The first
respondent is the Pension Funds Adjudicator (hereinafter referred to
as "the Adjudicator") appointed in terms
of chapter VA of
the
Pension Funds Act
24 of 1956 (âthe Actâ) to consider
and adjudicate upon complaints raised in terms thereof. The second
respondent, Mr A B Nichol,
and the third respondent, Mr R H C Small
(hereinafter referred to as "Nichol" and "Small"
respectively) are both
pensioners who were active, contributing
members of the first applicant until their retirement. Although the
applicants aver that
they are now members of the third applicant,
they still regard themselves as members of the first applicant. The
fourth respondent
is the Registrar of Pension Funds ("the
Registrar"), appointed in terms of the Act and having
wide-ranging powers and functions
in accordance with its provisions.
The fifth respondent is the Financial Services Board ("the
FSB"), a statutory body established
in terms of the
Financial
Services Board Act
97 of 1990. Section 3(a) thereof provides that
its function is, primarily, âto supervise the exercise of control,
in terms of any
law, over the activities of financial institutions
and over financial servicesâ. This includes the activities of
pension funds
in terms of the Act, section 3 of which in fact
provides that the executive officer of the FSB and his deputy shall,
in their respective
capacities, also serve as the Registrar and his
deputy.
[4] The
present application has arisen from a determination made by the
Adjudicator in a statement issued by him on 13 November 2001
in
response to a complaint lodged by Nichol and Small. The application
was launched by Mr Collin Tomsett ("Tomsett") on
behalf of
the applicants. He was described as the chairman of the third
applicantâs board and as a director of the fourth applicant.
He was
duly authorised to act on their behalf and averred that he was
likewise authorised to act on behalf of the first and second
applicants, whose trustees he had represented on various occasions.
The applicants were, initially, all represented in this court
by Mr D
M Fine SC, assisted by Mr L N Harris. In view of a concession
relating to the
locus standi
of the first and second
applicants (para 55 below), however, they represented only the third
and fourth applicants by the time the
matter was argued before me.
The second and third respondents (Nichol and Small) were represented
throughout by Mr D A Neser SC,
assisted by Mr J du Plessis.
BACKGROUND
[5] The
Sage Group is engaged, for the most part, in the business of life
assurance, property ownership and management, and the provision
of
various financial services. Its operational activities require
complex administrative and human resource skills with a view to
running its business and providing the aforesaid services. At the
time the application was launched I was given to understand that
it
employed approximately, or in excess of, one thousand five hundred
people in its various branches and divisions.
[6] Since
1997 all the operational activities of the Sage Group have been
regrouped within a holding company known as Sage Group Limited,
a
public company listed on the Johannesburg Stock Exchange. Inasmuch as
the group has effectively been operating as a single entity,
it
appeared logical to the management that there should be only one
pension fund to serve the needs of all Sage employees. It was
hence
resolved, during August 1998, to amalgamate the first, second and
third applicant pension funds. This was to be effected by
transferring the assets and liabilities of the first and second
applicants to the third applicant in accordance with the provisions
of section 14 of the Act.
[7] The trustees of the first, second and third
applicant pension funds duly approved the proposed amalgamation by
resolutions taken
during December 1998. At all relevant times,
according to Tomsett, they believed that the amalgamation would be
fair and reasonable
and to the benefit of all the members concerned.
In the
bona fide
belief that the required consent would be
granted expeditiously, they gave effect to the resolutions prior to
their approval and merged
the three funds with effect from 1 December
1998. From that date they were known, collectively, as the "Sage
Group Pension Fund",
being the third applicant in the present
matter.
[8] In the meantime, on 14 April and 27 May 1999
respectively, Nichol and Small lodged a complaint with the
Adjudicator in terms of
section 30A of the Act. The basis of their
complaint was that, as members of the first applicant fund, which was
small and financially
strong, they had not been consulted on its
proposed merger with the larger and less wealthy second and third
applicant pension funds.
They opposed the merger on the ground that
the first applicant had a substantial surplus of accumulated funds as
at 1 December 1998.
This, they averred, belonged to its pensioners
and members and should be distributed among them. If this surplus
should be merged
as an asset with those of the second and third
applicants, the pensioners and members of the first applicant fund
would be seriously
prejudiced.
[9] In response to the said complaint Tomsett, on
behalf of the fourth applicant, averred that it had not been
necessary to consult
Nichol and Small or, for that matter, any other
pensioners, in regard to the merger since there had been no change to
their benefits
or reasonable benefit expectations. The merger would
not materially or substantially affect their future retirement
provisions and
was, indeed, in their interest. The same applied to a
suspension of employer contributions ("contribution holiday")
that
took effect from 1 April 1996. As for the surplus, this belonged
to the fund and not to the members. If the fund should be wound
up
and the excess assets distributed, pensioners, such as Nichol and
Small, whose benefits had been secured and reasonable benefit
expectations met, would have no share in such distribution.
[10] Nichol and Small were not satisfied with this
response and requested the Adjudicator to determine the issue. While
persisting
in his averment that the merger had not prejudiced Nichol
and Small, Tomsett did not oppose such investigation. He in fact
suggested,
in a letter dated 17 June 1999 to the Adjudicator, that
the complaints of Nichol and Small should, for purposes of
convenience and
to prevent unnecessary delay, be considered together.
There was nevertheless a fairly substantial delay until October 1999,
when
the applicants for the first time submitted their application
for the proposed merger of their respective pension funds to the FSB
for approval by the Registrar.
[11] Then followed another inordinately long delay
extending over a period of almost two years. A faint glimmer of light
in the protracted
chain of events became visible on 15 September
2001, when the Adjudicator, in terms of his wide procedural powers
(section 30J of
the Act) convened a meeting of the parties,
including Nichol and Small, in an apparent attempt to settle the
matter amicably. It
would appear that there was a further meeting
held in Johannesburg on 21 October 2001. The attempt to resolve the
issues failed,
however, whereupon the applicants appear to have
requested the Adjudicator to delay his determination pending the
Registrar's imminent
approval of the merger.
[12] In a
letter dated 22 October 2001, Tomsett subsequently advised Ms K
MacKenzie of the Adjudicator's office that the applicants
had agreed
"to ring fence the surplus in each section of the fund".
The distribution of such surplus would be subject to
the approval of
two thirds of the members, including pensioners, of each section. In
addition, as appears from a letter dated 14
November 2001, Tomsett
informed Ms MacKenzie that the FSB had indicated its willingness to
approve amended rules providing for the
protection of the interests
of the members and pensioners aforesaid.
[13] On the same day, 14 November 2001, Tomsett
directed an e-mail message to the Adjudicator, suggesting that any
ruling by his office
prior to the FSB having had an opportunity to
approve the amended rules, would be "potentially prejudicial".
He therefore
requested a short delay in order to give Mr Jeremy
Andrew ("Andrew"), the chief actuary in the office of the
FSB, sufficient
time to deal with the amendment. In this regard he
requested Andrew, in a letter dated 16 November 2001, to attempt to
persuade the
Adjudicator to hold back his determination pending the
approval of the amendment by the FSB.
[14] The
Adjudicator appears not to have been prevailed upon and proceeded to
make his determination on 13 November 2001. Such determination
was
communicated to the applicants on 16 November 2001 and a copy thereof
was sent to the FSB on 18 November 2001.
[15] In a letter dated 29 November 2001 to the
Adjudicator, Andrew suggested a way to avoid "unscrambling the
omelette"
and restoring the respective funds to their pre-merger
status as on 1 December 1998. This could be done, he assured the
Adjudicator,
"without sacrificing the reasonable expectation of
members". In order to achieve this, he said, the FSB had decided
to
approve the rules of the merged funds and the applications to
amalgamate their assets and liabilities. Such approval was, however,
subject to certain specified conditions aimed at protecting the
rights of members of the original funds with regard to the
distribution
of any surplus after the merger. These conditions,
Tomsett averred, had in fact already been approved by the third
applicant in a
resolution dated 25 October 2001, and had been duly
registered by the Registrar.
[16] On 18 December 2001, more than a month after
the Adjudicator's determination, the Registrar advised Tomsett that
the revised
rules of the third applicant, as amended, and its change
of name to "Sage Group Pension Fund", had been approved. On
the
same day the applicants were informed that the requirements in
terms of section 14(1)(a) to (d) of the Act had been complied with
regarding the transfer of business from the first and second
applicants to the third applicant. The relevant certificates, in
terms
of section 14(1)(e) of the Act, were attached. These
certificates made it clear that the aforesaid approval and the
transfer of business
would be retrospective to 1 December 1998, when
the
de facto
merger came into operation.
THE ADJUDICATOR'S DETERMINATION
[17] In considering the issues before him, the
Adjudicator accepted, as common cause, that the first applicant
pension fund was "in
a far more favourable surplus position"
than the other two funds. It was also a smaller fund with fewer
members and liabilities.
Unless there were "specific rules
ring-fencing the present surplus position in the respective funds",
the first applicant
would "effectively be cross-subsidising the
other two funds as a result of the pooling of resources". In
view of the circumstances,
however, it was not necessary for him to
determine whether a scheme of this nature could be sanctioned in
terms of section 14 of
the Act.
[18] In this regard the Adjudicator held that,
since the Registrar had not yet, at the time of his determination,
approved the merger
of the funds, they effectively remained separate
entities. He expressed concern, however, at the fact that the funds
had ostensibly
been merged since 1 December 1998, without such
approval having been obtained. Although this had probably been done
in good faith
and with the best of intentions, the Adjudicator opined
that "the situation underscores the alarming trend in the
pension industry
of legal self-help when the regulatory topography
becomes too cumbersome".
[19] On the facts of the present case the
Adjudicator was of the view that the Registrar had refused to certify
the scheme because
of his concerns relating to the effect of the
scheme on "the reasonable benefit expectations" of the
first applicant's
members. The complainants (Nichol and Small) were
hence, in principle, "entitled to relief in the form of a
declarator that
the Schachat fund [first applicant] is still an
independent legal entity". They were also "entitled to a
mandamus
aimed at restoring the position insofar as the funds
may have been administered as an amalgamated entity contrary to the
rules of
any of the funds, and to a forensic audit reflecting the
position of the Schachat fund over the last three years,
demonstrating any
adjustments that may be required to be made
pursuant to the unscrambling of the 'amalgamation'".
[20] With reference to the first applicant's
rules, the Adjudicator was furthermore of the view that its
management board was not
lawfully constituted in terms of section 7A
of the Act providing for the right of the members to elect at least
50% of its members.
It was "trite law that the provisions of the
Act override the rules of a fund in the event of any conflict".
Section 7A
in fact "empowers a board of management to act in
accordance with the provisions detailed in the section, even if their
rules
do not permit them to do so". The present board should
hence be directed "to take all necessary steps to regularize
this
situation". Although it was desirable that the rules be
amended to bring them "into conformity with the Act", it
was
not "strictly necessary for the appointment of a properly
constituted board as the Act takes precedence in any event".
[21] The Adjudicator thereupon issued an order in
the following terms:
It is hereby
declared that the first respondent [first applicant in the present
matter] still exists as an independent pension
fund organization as
defined in the Act.
The board of
management of the first respondent is hereby directed to take all
necessary steps to convene an election on a date
not later than
three calendar months after the date of this determination for the
purpose of forming a board of management that
complies with the
provisions of the
Pension Funds Act 24 of 1956
.
The fourth
respondent [fourth applicant in the present matter] is directed to
appoint an actuary to investigate and report on
the financial
position of the first respondent subsequent to the compilation of
the financial statements of the first respondent
pertaining to the
period ending September 1998.
The appointment
referred to above is to be made in consultation with the newly
elected board of management of the first respondent
and, if
consensus cannot be reached, the dispute must be referred to this
forum for decision.
The fourth
respondent is hereby directed to make good any shortfall revealed
by the abovementioned report in respect of the financial
position
of the first respondent that can be attributed to the unlawful
merger of the first respondent with the second and third
respondents [second and third applicants in the present matter].
The fourth
respondent is to bear the costs of the investigation and report as
well as any costs incidental to restoring the financial
position of
the first respondent.
The order was signed in Cape Town on 13 November
2001 by Mr John Murphy as "Pension Funds Adjudicator".
THE APPLICANTS' RESPONSE TO THE ADJUDICATOR'S
DETERMINATION
[22] According to Tomsett the applicants were
aggrieved by the Adjudicator's determination in that the rationale
for such determination
had fallen away by virtue of the Registrar's
approval of the merger of the three pension funds on 18 December 2001
(see par 16 above).
Inasmuch as the approval was effective from 1
December 1998, the determination was no longer binding.
[23] The applicants accepted that, at the time of
the Adjudicator's determination, the three funds had continued to
exist independently
of one another. The factual position, however,
was that the business of the first and second applicant funds had
been transferred
to the third applicant fund as from 1 December 1998.
This meant, according to Tomsett, that the members of the first and
second applicant
funds had been "lawfully transferred" to,
and were now members of, the third applicant fund as from the said
date.
[24] In view of this situation it would be very
difficult, if not impossible, to give effect to the provisions of
paragraph 21.2 of
the determination. The first applicant no longer
had any members, since they had all been transferred to the third
applicant. Furthermore
an elected board of management would have no
other function than to cancel the registration of the first applicant
in terms of section
27(1)(a) of the Act. In any event it was no
longer necessary to comply with the said provisions of the
determination since the Registrar
had given the requisite approval in
terms of section 14 of the Act.
[25] As for paragraph 21.3 of the Adjudicator's
determination, the appointment of an actuary to investigate and
report on the first
applicant's financial position subsequent to
September 1998 would not achieve any purpose and would involve
unnecessary expense.
Such a report would cover only the two-month
period from 1 October to 1 December 1998. In addition the erstwhile
members of the first
applicant would be adequately protected by the
conditions imposed by the FSB in regard to the merger.
[26] For these
reasons, Tomsett added, the provisions of paragraph 21.4, regarding
the mode of appointment of the actuary aforesaid,
were incapable of
implementation and would serve no useful purpose.
[27] Paragraph 21.5 of the determination,
requiring the fourth applicant to make good any shortfall revealed by
the said actuarial
report, had never, according to Tomsett, been
sought or even raised by Nichol or Small in their respective
complaints. No such shortfall
was suggested in the papers and, in any
event, even if it should be demonstrated that a shortfall had
occurred, the aforesaid conditions
imposed by the FSB, as contained
in the amended rules of the third applicant, would reveal it.
[28] Any costs eventuating from an actuarial
investigation and report, or emanating from the fourth applicant's
making good any shortfall
incidental thereto, would, in Tomsett's
view, be quite unnecessary and would indeed constitute an unjustified
burden on the fourth
applicant. The applicants were thus justifiably
aggrieved by the costs order contained in paragraph 21.6 of the
determination.
[29] With reference to the Adjudicator's concern
that the merger of the first applicant fund with the other two funds
would have the
effect of "cross-subsidising" the latter two
funds, Tomsett emphasised that this concern had been fully addressed
in the
aforesaid conditions imposed by the FSB. The Registrar had
clearly been satisfied with such conditions in that he had approved
them
in terms of section 14 of the Act. If this court should give
effect to the Adjudicator's determination, it would in fact be
"undoing"
the Registrar's approval. This would yield no
benefit to any erstwhile member of the first applicant who had now
been transferred
to the third applicant.
REPORT OF REGISTRAR AND FSB
[30] In a report dated 1 February 2002, Mr D P
Tshidi ("Tshidi"), in his dual capacity as Deputy Registrar
of Pension Funds
and Deputy Executor Officer of the FSB, confirmed
that the Registrar and FSB abided the decision of this Court. They
did, however,
wish "to convey the salient facts and information
in their possession for consideration in these proceedings". In
this
regard they agreed in substance with the facts set forth in
Tomsett's founding affidavit. They added, however, that there would
be
advantages to merging the funds, as appears from paragraph 7 of
the report:
there are benefits
in terms of the management of risk in aggregating funds together as
a pool of lives is larger and there will
be less fluctuation in the
mortality experience of the fund and therefore in the risk premiums
charged; indeed the risk premium
for the merged fund could be lower
than the sum of the premiums for the three funds separately;
there would be
economies of scale in terms of expenses as there would only be one
audit and actuarial valuation, and not three
of each, and the one
large fund would cost less to administer than three funds
separately, two of which were small; and
there would be
reduced opportunity costs to the participating employer and
employees (members of the Fund) as there would only
be one board of
management meeting each quarter and not three.
[31] The one negative aspect perceived in the
merger of the funds was "an adverse impact on the members'
reasonable expectation
to participate in any future distribution of
the actuarial surplus, because the levels of actuarial surplus
relative to the value
of the accrued liabilities were materially
different in the three funds". This problem was remedied, Tshidi
stated, by an amendment
to the third applicant's revised rules, which
made provision for the separate identification of the actuarial
surplus of each of
the three funds at the date of transfer. The
respective surpluses would then be held in three separate accounts
subject to certain
further conditions.
[32] The first applicant's management board had
supported the merger on the basis that it was in the best interests
of its members.
After taking legal advice and holding discussions
with various officials of the FSB, the boards of all three funds
believed that
the merger would be approved.
[33] The Registrar was, according to Tshidi,
satisfied with the third applicant's revised rules and the amendment
thereto, as not
being inconsistent with the Act or financially
unsound. He was also satisfied that the rights and reasonable
expectations of members
would not be prejudiced by the transfer of
assets and liabilities from the first and second applicants to the
third applicant. The
existing benefits of members were guaranteed and
they were effectively given the right to participate in transferred
or accumulated
surplus emanating from their respective funds. The
Registrar therefore approved the revised rules and the applications
to merge the
three applicant pension funds in terms of section 14 of
the Act.
[34] For the rest the Registrar had considered the
complaints of Nichol and Small and was satisfied that, in terms of
the third applicant's
revised rules as amended, they were guaranteed
the same benefits as they had enjoyed under their previous fund. This
included a right
to participate in the surplus from their previous
fund similar to that which they would have enjoyed had the funds
remained separate.
[35] Finally, Tshidi stated, the Registrar had the
power to approve the merger of the funds and the section 14
applications retrospectively
to late 1998. Once this power had been
exercised the applicant funds could not comply with the Adjudicator's
determination. The first
and second applicants no longer existed and
the third applicant had a properly constituted management board. The
Registrar and FSB
hence considered the application to set aside the
Adjudicator's determination as being well founded.
NICHOL'S ANSWERING AFFIDAVIT
[36] At the outset Nichol questioned Tomsett's
locus standi
to act on behalf of the first applicant in terms
of a resolution of its management board dated 21 January 2002, more
than three years
after the board's term of office had expired without
a new board being elected. He also averred that the application was
out of time
in terms of the provisions of section 30P of the Act and
that this court does not have jurisdiction to hear the matter in
terms of
section 30M of the Act. In addition he raised the point that
all members of the first applicant pension fund should have been
cited
as respondents in that they all had, and still have, a
substantial interest in the outcome of the application. In any event
the determination
of the Adjudicator had the force of an order of
court in terms of section 30O of the Act, in which event the matter
was
res iudicata
.
[37] Nichol then sketched the background to his
involvement in the present matter, pointing out that he had commenced
employment with
the Schachat Management Group on 1 July 1972 as a
property advisor and manager of township development. He retired on
30 September
1994 and has since then been a pensioner-member of the
first applicant. He elected to take part of his retirement benefit in
the
form of a cash lump sum and the balance by way of monthly pension
payments.
[38] As soon as he became aware of the possibility
of a merger of the three applicant pension funds during 1996, he made
it known
that he and other pensioners should be given the opportunity
to comment on any such proposal. His main bone of contention was that
the first applicant fund was in a stronger financial position than
the other two funds and it would serve no purpose if it should
be
amalgamated with them. Then follows what appears to have been a
frustrating flow of communication over a period of more than two
years in the course of which Nichol sought information and assurances
that no merger would take place without pensioners being afforded
an
opportunity to state their case. The response from the relevant
officials was, generally speaking, uncooperative and misleading
in
that assurances were, ostensibly, given but not adhered to. By the
time the truth was conveyed to Nichol, the merger on 1 December
1998,
and the dissolution of the first applicant's management board, was a
fait accompli
.
All that remained was for him to lodge a
complaint with the Adjudicator.
[39] Nichol's answer to Tomsett's founding
affidavit may be dealt with briefly. He persisted throughout in his
view that the first
applicant fund was still in existence and that he
had remained a member thereof. He denied ever having become a member
of the third
applicant fund. The purported merger of the three funds,
and the simultaneous dissolution of their respective management
boards,
was an irregularity in that it had never been approved in
terms of the Act. The subsequent attempt by the Registrar, after the
Adjudicator
had already made his determination, to grant approval of
the merger subject to certain conditions and with retrospective
effect was,
in Nichol's view, equally irregular and essentially in
conflict with an order of court. This had prompted him to lodge a
review application
in the Transvaal Provincial Division on 3 October
2002 under case number 3804/2002 ("the Transvaal application").
Therein
he sought to have the decision or decisions referred to in
Andrew's letter dated 29 November 2001, and the certification in
terms
of section 14(1)(e) of the Act reviewed and set aside.
[40] Of some interest in this regard is that the
applicants appear to have been advised from time to time that there
should be consultation
with the pensioners and other interested
parties before finalising the merger. This must be seen against the
background of the minutes
of a meeting of the second applicant's
management board held on 9 December 1998, in which the following
appears under the heading
"Report dated 12 November 1998":
Mr
Tomsett advised that the Company had decided to merge the three funds
on the existing basis as specified in the Rules of the individual
funds. This decision has resulted from the drop in the markets and
the decline in the underlying assets. The following points were
discussed:
Merging of the
surpluses: After discussion it was agreed that, in the context of
the current merger proposals, the surplus was not
relevant (being at
the disposal of the employer), but in practice it had been relevant
to the Sage managers as any increase in
Company contributions would
be absorbed by the managers' salaries.
The trustees must
act in good faith to protect the interests of the members of their
fund.
It appeared that
Sage Life employees would benefit from the merger of the surpluses,
while Sage Group and Sage Schachat employees
would be prejudiced.
However, in the context of the current proposals, this was not a
pension fund matter.
[41] It would appear that the matter did not stop
here and that there was indeed subsequent debate on the need to
consult with pensioners
and members of the funds. This emerges from a
memorandum, dated 28 June 2001, written by Andrew (par 13 above) and
addressed to Tomsett.
It indicates that, as at 31 March 1998, there
was a surplus of R114 million resulting from the merger of the three
pension funds.
This was to be divided as follows: (a) R38 million or
one third would be placed in an employer reserve account to be used
to support
a "contribution holiday" in favour of the
employer; (b) R38 million would be used to improve benefits for
members, including
pensioners; and (c) the balance of R38 million
would be used to provide increased pensions. No benefits or increased
pensions would
be received, however, if members did not agree to
convert to "defined contribution" and pensioners did not
agree to be
"outsourced" through the purchase of an annuity
policy. Should they not be prepared to do so, Andrew surmised, "it
would then be the employer who gets the benefit of this allocation
because it is the employer's costs that get subsidised".
He then
stated:
I
can see no sign that members or pensioners have been consulted. The
minutes of the meetings of the trustees of the respective trusts
to
which this proposal was put are so brief that I have difficulty in
concluding that there was meaningful discussion. There is a
sound
opinion by Adv. Kuper, which is then followed up by a letter which
says that he is satisfied by the scheme. I do not know what
happened
in the meantime to make him change his mind concerning the need for
independent advice and consultation.
â¦
I am not
satisfied that the communication material revealed the apportionment
of surplus in an open and comprehensive manner.
I am left feeling very uncomfortable with the
action taken by the trustees to merge the funds without the approval
of the Registrar,
and with a less than open and comprehensive
communication to members and trustees.
[42] While
appreciating the difficulties involved in "unravelling" the
merged funds, Andrew suggested that there were only
two alternatives
that would enable them "to regularise the current ultra vires
situation". The first alternative was to
apportion the surplus
as though the funds had not been merged, and the second was to put
the proposal for a revised scheme to the
vote after an open and
comprehensive communication exercise.
[43] In a subsequent internal memorandum dated 29
June 2001, Andrew pointed out that the merger of the three funds had
been put into
effect without the approval of the FSB or Registrar and
that Nichol and Small had duly lodged their complaints with the
Adjudicator.
He had not been surprised at their complaint that the
allocation of the surplus, was inequitable. The first applicant fund
was the
"best funded" of the three and they (Nichol and
Small) had the "most to gain" by requiring that the surplus
be
allocated "on a fund by fund basis". In this regard
Andrew referred to a handwritten note in the file reflecting a
request
by the Adjudicator that the merger not be approved before the
completion of his determination. For this reason the FSB and
Registrar
had held back their approval. Tomsett, however,
subsequently requested Andrew to consider approval of the merger
retrospectively,
"thereby sanctioning what they had already
done". Nichol and Small objected strongly thereto. This led
Andrew to state
the following:
I find myself now in a
quandary.
I
have reviewed the material provided by Colin Tomsett and, far from
being satisfied that the interests of members have been preserved
and
that there was adequate disclosure/ consultation / etc, I feel that
the interests off the members of the smaller funds are adversely
impacted and the trustees and the members, if they have been
consulted at all, have been given a very selective
employer-orientated
view of the situation. They did not really
receive independent advice.
I therefore wish to reject the merger of the funds
as proposed by Colin Tomsett unless either Sage can satisfy us that a
substantial
majority of the active members and the pensioners of each
fund separately have approved the merger on the terms proposed or
they
merge the funds but separate the surplus brought into the merged
fund in such a way that only the stakeholders of each of the old
funds will determine what happens to that portion of the surplus.
[44] Despite these misgivings, it was Andrew who,
in his aforesaid letter of 29 November 2001 (par 15 above), apprised
the Adjudicator
of the decision of the Registrar and the FSB to
approve the merger subject to certain conditions relating to the
"ring fencing"
of the surpluses and related matters. Nichol
saw this as
mala fide
and
ultra vires
conduct, and as a
wrongful attempt to override the Adjudicator's decision, well knowing
of its effect as a high court order.
[45] Nichol was particularly critical of Tomsett's
conduct both before and after the issuing of the Adjudicator's
determination. The
steps taken by him to delay the determination (par
13 above) constituted, in Nichol's view, an offence in terms of
section 30V of
the Act in that it anticipated the determination of
the Adjudicator in a manner calculated to influence his
determination. Tomsett's
conduct was also calculated to circumvent
his complaint.
[46] The attempt to remedy or ameliorate the
situation by "ring fencing" the respective surpluses and
making their distribution
subject to the approval of two thirds of
the members (including pensioners) of each fund (par 12 above) was
not, according to Nichol,
acceptable. No provision was made for an
actuarial audit to consider,
inter alia
, the financial
consequences of the
de facto
merger that had been operating
since 1 December 1998. The merger had clearly affected the
"reasonable benefit expectations"
of the first applicant
fund members, who were entitled to be represented by a management
board consisting of trustees duly elected
by them. Merging the
members of the second and third applicant pension funds with those of
the first applicant pension fund with
a view to electing a "merged"
board of trustees was, Nichol averred, in conflict with the relevant
provisions of the Act.
[47] Nichol's response to Tshidi's report on
behalf of the Registrar and the FSB was that it smacked of
superficiality and consisted
mainly of hearsay conveyed to Tshidi by
Andrew. The purported approval of the merger after the Adjudicator's
determination had been
made was
ultra vires
and amounted to
contempt of a court order.
SMALL'S ANSWERING AFFIDAVIT
[48] In his affidavit opposing the relief sought
by the applicants, Small associated himself generally with the
response appearing
from Nichol's answering affidavit. He added that
he had been in the employ of Schachat Bros (Pty) Ltd since April 1962
as a quantity
surveyor. He had retired on disability pension on 1
January 1992 and on full pension with cash commutation on 12 November
1994. Throughout
his employment with the Schachat Group he had been a
contributing member of the first applicant pension fund.
[49] On retirement Small established that there
was a healthy surplus of accumulated funds in the said pension fund.
When he became
aware of the rumours that the first applicant fund was
to merge with those of the second and third applicants, his reaction
was that
it would prove disastrous to pensioners like himself if the
said surplus should be part of the merger. He thereupon directed a
letter
dated 22 February 1999 to the Sage Life Employee Benefits
Division expressing his chagrin at what had been happening behind his
back.
He rejected the merger as clandestine and lacking in
transparency in that it had been effected without giving him "an
opportunity
to assess or comment on the advantages or otherwise of
such a move".
[50] In response Small received, on 23 March 1999,
a letter dated 18 December 1998 addressed to "[a]ll pensioners
of the Sage
Group Pension Fund, Sage Schachat Pension Fund and Sage
Life Pension Scheme". In this letter pensioners were informed
that the
boards of trustees of the three pension funds had approved
the merger of such funds with effect from 1 December 1998. The
benefits
of pensioners would, however, remain unchanged.
[51] In further correspondence Small made it quite
clear that he regarded the merger as illegal and that he would
certainly place
his grievances before the Adjudicator, as he
subsequently did. After experiencing much frustration and deflection
of the issues,
Small was comforted somewhat by an e-mail letter from
Tshidi dated 13 July 2001. It read:
As
stated in my previous letter to you, the Chief Actuary did revisit
the matter, particularly because the fund administrator, which
happens to be Sage, approached the Registrar to approve the merger of
the three Sage Funds. We have declined to approve the merger
because
we do not believe that members have been treated fairly with regard
to the pooling of surplus assets existing in the three
funds.
A letter has been written to the administrator
instructing him to either put the members of the old funds back into
the position with
regard to surplus apportionment that they would
have been had the funds not merged or put the employer proposal for a
revised scheme
to the vote, after an open and comprehensive
communication exercise.
[52] It is common cause that the instruction
contained in this letter was not executed. On the contrary, as
mentioned before (par
16 above), the Registrar and the FSB appear to
have been prevailed upon to approve the merger subject to certain
conditions, in the
face of the unequivocal determination made by the
Adjudicator.
THIRD AND FOURTH APPLICANTS' REPLYING AFFIDAVIT
Condonation
[53] Shortly before this matter was due to be
heard, the third and fourth applicants presented their replying
affidavit for filing
out of time, and hence irregularly. They sought
that the irregularity be condoned. Nichol strenuously opposed the
application for
condonation on various grounds. One of them was that
the board of directors of the fourth applicant had changed
"dramatically"
since the launch of the present application
and there was "serious doubt" whether the present board
would wish to continue
with the application. Another ground raised
was that the applicants did not have reasonable prospects of success
on the merits of
this matter. During argument Mr Neser, for Nichol
and Small, expanded on these grounds with copious reference to
relevant authorities.
It is not necessary to review these
authorities, most of which are well known and regularly applied in
our courts in considering
applications for condonation.
[54] After consideration of this argument, and
taking into account all the relevant facts and circumstances, I was,
and still am,
of the view that it would be in the interests of
justice to allow the late filing of the reply. I was not persuaded
that Nichol and
Small would be prejudiced thereby in that it should
not delay the finalisation of this matter in any material way. There
was, in
my view, no indication of bad faith or other reprehensible
conduct on the side of the applicants or their legal representatives.
Condonation was hence granted.
Locus Standi
[55] The reason why the first and second
applicants have not been associated with the replying affidavit is
that they have conceded
that they do not have
locus standi
in
the present matter. Tomsett hence deposed to such affidavit only on
behalf of the third and fourth applicants. The management
board of
the third applicant has been duly appointed in terms of section 7A of
the Act, thereby bestowing on it the necessary
locus standi
,
while that of the fourth applicant has never been questioned. For
purposes of clarity, when I henceforth speak of "the applicants"
I refer only to the third and fourth applicants.
Application
to Postpone
[56] In the replying affidavit on behalf of the
applicants Tomsett persisted in his view that compliance with the
Adjudicator's determination
would serve no purpose and would merely
result in unnecessary costs being incurred. In any event, the present
application should,
he submitted, be postponed pending the
finalisation of the Transvaal application (par 39 above). This was
justified, he suggested,
by the fact that the main issue in the
Transvaal matter is in fact the same issue as falls to be determined
in the present matter.
Mr Fine, for the applicants, pressed this
argument further, with reference to
Williams v Shub
1976 (4)
SA 567
(C), on the basis that the Transvaal court is in a much better
position than this court to determine such issue, having all the
relevant
material before it. Needless to say Mr Neser, for Nichol and
Small, opposed the application.
[57] After considering the various arguments, I
was not prepared to grant a postponement as requested and was not
persuaded that the
present matter should be held in abeyance pending
the finalisation of the Transvaal proceedings. In this regard Mr Fine
appeared
to have lost from sight the fact that the complete file in
the Transvaal matter, including "all relevant material", as
he described it, had been placed before this court for its
consideration. In any event the case of
Williams v Shub
(
supra
)
is clearly distinguishable from the present in that the
lis
pendens
in that matter related to two actions, claiming
substantially the same relief, both commenced in this division. The
first action
had never been set down for hearing and the court quite
correctly stayed the second action pending finalisation of the first.
Assumption that Approval and Certificate
Valid and Enforceable
[58] Tomsett submitted further that, should this
court not be disposed to grant a postponement, the matter should
proceed "on
the basis that the approval given by the FSB and the
certificate issued by the Registrar are valid and were correctly
given and are
effectual in their terms". If this means that it
should be accepted or assumed, for purposes of the present
application, that
the approval and certificate are valid and
enforceable, I find it a startling proposition. It is common cause
that the major issue
between the parties in the Transvaal application
is whether or not the
ex post facto
approval of the merger is
valid and enforceable. This issue is inextricably linked with the
major issue in the present case, namely
whether or not such
ex
post facto
approval justifies setting aside the Adjudicator's
determination (see par 72 and 73 below). It cannot, in my view, be
avoided in considering
the relief sought by the applicants.
[59] If, on
the other hand, Tomsett means by this proposition that the decision
to approve the merger should be presumed to be valid
and enforceable
until the contrary is proved, he is simply stating trite law. The
decision in
Secretary of State for Trade and Industry v F
Hoffmann-La Roche & Co AG and Others
[1973] 3 All ER 945
(CA), to which Mr Fine referred me in this regard, says no more than
this. In that case, which was confirmed on appeal in
F Hoffmann-La
Roche & Co AG and Others v Secretary of State for Trade and
Industry
[1975] AC 295
, Lord Denning MR held (at 955
c
-
g
)
that a statutory order approved by Parliament appeared, on its face,
intra vires
and valid. As such it remained enforceable until
such time as it was held to be invalid.
Compliance with Adjudicator's Determination
[60] With reference to the Adjudicator's
determination, Tomsett suggested further that the first applicant had
in fact complied therewith
by transferring assets and liabilities
from the first to the third applicant in accordance with the third
applicant's amended rules.
His computation of the surplus
attributable to the first applicant fund was, however, questioned by
Nichol in an affidavit opposing
the application to file the replying
affidavit out of time. Tomsett responded to this in a supplementary
affidavit in which he indicated
that he had relied on a report
compiled by Mr Corné Heymans and reviewed by Ms Marli Venter. It is
not necessary to deal with the
various allegations, propositions and
counter-propositions made in this regard since it is abundantly clear
that there has not yet
been compliance with the determination.
Preliminary Points: Out of Time;
Jurisdiction; Non-Joinder
[61] Tomsett thereupon dealt with the various
preliminary points raised by Nichol (par 36 above). On the view I
take of the facts
and circumstances in the present matter, and
bearing in mind the concession relating to the first and second
applicants' lack of
locus standi
(par 55 above), I shall
dispose of three of the preliminary points briefly.
[62] Nichol and Small have clearly not suffered
any substantial prejudice because of the applicants' being out of
time and failing
to comply with the provisions of section 30P of the
Act, however irritating and even frustrating it might have been to
them. The
jurisdiction and non-joinder points bear little weight. I
have no difficulty with the application having been lodged in the
forum
where the Adjudicator's office is situated and where he issued
his determination. I likewise do not believe it necessary for the
applicants to have joined as respondents a vast array of interested
parties who have not objected to the proposed merger.
Preliminary Point: Res Judicata
[63] The
res judicata
point raised
in
limine
is interesting but, in my view, not persuasive. It is
quite correct that the determination of an Adjudicator is, in terms
of section
30O(1) of the Act, "deemed to be a civil judgment of
any court of law had the matter in question been heard by such
court".
This means that it is as enforceable as any civil
judgment or order of a competent court would be. In the event that a
new, or further,
complaint be lodged with the Adjudicator on the
same, or substantially the same, grounds as a complaint already
determined, the defence
of
res judicata
could doubtless be
raised by any interested party against the complainant. The basis of
the defence would be that the complaint has
already been adjudicated
and determined.
[64] When the Registrar is approached for his
approval of a merger in terms of section 14(1) of the Act, he is
required, on the basis
of information placed before him, to consider
an application for the merger or amalgamation of two or more
businesses. He is not
required to adjudicate upon it or make a
determination in respect thereof, as if it were a complaint in terms
of section 30 of the
Act. Whether or not he should have considered
the application after becoming aware of the Adjudicator's
determination, however, is
another matter, to which I shall return
later on in this judgment.
Reply on Merits of the Application
[65] Tomsett conceded that the first applicant
still existed as a legal entity and that the Adjudicator's
determination remained in
force until rescinded or set aside by a
court in accordance with section 30P of the Act. He persisted,
however, in his averment that
compliance with the determination would
be "meaningless" in that all members of the first applicant
had been "lawfully
transferred" to the third applicant,
making it difficult, if not impossible, to give effect to the
provisions of paragraph 21.2
of the determination.
[66] With regard to Nichol's objection to not
having been consulted or given an opportunity to comment on the
proposed merger, Tomsett
pointed out that the Adjudicator had made no
reference, in his determination, to such alleged lack of consultation
as a basis for
granting relief to Nichol and Small. It was hence not
material to the issues in the present application.
[67] As for the resolutions to merge the three
funds, Tomsett emphasised the Adjudicator's finding that Sage had not
acted in bad
faith in creating and prematurely implementing the
scheme. He repeated his averment that the applicants had acted in all
good faith
when implementing such resolutions, in the expectation
that the Registrar and FSB would give their approval expeditiously.
The ensuing
delays could not be attributed to the applicants.
[68] Tomsett denied that he at any stage attempted
to interfere with the Adjudicator's determination proceedings by
suggesting that
it should be settled or held back. He had simply
communicated to the Adjudicator that the FSB had advised its
intention of approving
the merger with retrospective operation to 1
December 1998. He had believed that it was important for the
Adjudicator to know this
before making his determination.
[69] Tomsett likewise denied that the applicants
were in contempt of the Adjudicator's determination. The very purpose
of the present
application was to avoid being in contempt. The fact
that the third applicant might not have complied with the provisions
of section
7D of the Act by 15 December 1998 did not render the
subsequent election of the Board invalid.
[70] In regard to the election of a new board for
the first applicant, Tomsett averred that, pending the Transvaal
application to
set aside the approval of the merger by the Registrar
and the FSB, such approval remained in force. In the event the first
applicant
did not have any members since they had been transferred to
the third applicant in terms of the said approval. It would hence not
be possible to convene an election to appoint a board for the first
applicant "notwithstanding that in terms of the law and
strictly
speaking, it still remains a separate entity". Any attempt to
convene an election would be "an exercise in futility".
[71] Tomsett denied being of the view that the
Registrar's
ex post facto
approval of the merger could nullify
the Adjudicator's determination. On the contrary, he accepted that it
remained in force until
a court ruled otherwise in terms of section
30P of the Act. The court would be free to rehear the matter on all
the available evidence,
and to make any order it should deem
appropriate, "particularly when changed circumstances affect the
substratum of the Adjudicator's
determination".
THE ISSUES
[72] The major issue in the present matter is
whether or not the approval of the merger by the Registrar and FSB,
after the Adjudicator
had made his determination, justifies setting
aside the determination. Ancillary to this issue is whether or not
the Adjudicator
should have taken cognisance of the fact that an
application in terms of section 14 of the Act was pending and that
its approval
was (allegedly) imminent. In this regard the gist of the
applicants' case was that the determination had been âovertaken by
eventsâ,
namely the said approval of the merger, making it highly
impractical, if not virtually impossible, for the applicants to
comply with
the Adjudicator's order.
[73] A separate issue, in the context of the
present application, is whether the decision of the Registrar and FSB
to approve the
merger and amended rules was
mala fide
and
ultra vires
, as submitted by Nichol and Small. This is indeed
the main issue in the pending Transvaal application that seeks, on
review, to set
aside the approval. Inasmuch as there is no
counter-application, however, for such relief in the present matter,
it is clearly not
necessary for this court to make any finding in
this regard. On the other hand the conduct of the Registrar and FSB,
through its
duly appointed officers, has been dealt with in some
detail in the applicants' papers and has also been thoroughly
canvassed in the
opposing affidavits of Nichol and Small. This court
will of necessity have to make reference thereto in considering the
relief sought
by the applicants.
THE STATUTORY CONTEXT
[74] At the outset it must be accepted that Nichol
and Small both qualify as complainants in accordance with the
definition in section
1 of the Act in that they are members, or
former members, of the first applicant pension fund and are indeed
beneficiaries of such
fund. The particular complaints raised by them
likewise accord with the relevant definition in that they relate to
the administration
of the fund. More specifically they relate to the
decision to merge the fund with the third applicant fund as from 1
December 1998
without fully consulting with its members or affording
them the opportunity to comment on such merger. This, they aver, has
caused
them potential prejudice in regard to the distribution and
apportionment of the surplus of the fund existing at the time of the
merger.
[75] It is common cause that the complaints were
properly lodged in terms of section 30A during April and May 1999
respectively and
referred to the Adjudicator in terms of section 30C
of the Act (par 8 above). The Adjudicator duly accepted his
appointment to dispose
of the complaints "in a procedurally
fair, economical and expeditious manner", as required by section
30D of the Act. It
is not in issue that the Adjudicator disposed of
the complaints within the limits of his jurisdiction, after affording
the parties
to the complaints the opportunity to comment thereon in
terms of section 30E-H of the Act. Somewhat disturbing is the length
of time
it took for the Adjudicator to convene the meetings of 15
September and 14 October 2001 (par 11 above) and to issue his
determination
in terms of section 30M of the Act on 13 November 2001
(par 14 above). Once issued, however, his determination was deemed,
in terms
of section 30O(1) of the Act, to be a "civil judgment
of any court of law had the matter in question been heard by such
court".
[76] It is not in dispute that, at the time of
the
de facto
merger of the three applicant funds on 1 December
1998 (par 7 above), the Registrar had not yet given his approval in
terms of section
14 of the Act. It is likewise not disputed that, at
the time the Adjudicator issued his determination on 13 November
2001, this approval
had still not been given, despite the fact that
the applicants had submitted their application for the proposed
merger during October
1999 (par 10 above).
[77] This delay in submitting the application
almost a year after the
de facto
merger of the funds is a
cause for concern and appears to have been exacerbated by the
Registrar's apparent recalcitrance in approving
it more than two
years later. The underlying reason for these delays was clearly the
difficulty of the various parties in addressing
the complaints raised
by Nichol and Small. The question inevitably arises why Tomsett and
the third applicant's management board
did not simply accede to their
request to convene a meeting of all members and pensioners of the
first applicant in order to give
them an opportunity to voice their
qualms and misgivings about the merger. This would have been
consistent with the principle that
trustees should always act in good
faith to protect the interests of their fund members, as Tomsett
fully realised (par 40 above)
and as required by law (par 80 below).
It would also have accorded with the stance initially adopted by
Andrew in his consideration
of the
impasse
(par 41-43 above).
[78] The persistent attempts by Tomsett and others
to persuade Nichol and Small that their benefits would be secured and
reasonable
expectations met by the amendment of the third applicant's
rules were consistently rejected. There attitude was that no manner
of
"ring fencing" of any surplus by means of amended rules
would be able to account for the growth the first applicant's surplus
could have experienced had the
de facto
merger not taken place
on 1 December 1998. Full and transparent consultation with the said
members and pensioners, during which these
matters could have been
exhaustively debated, would have been a far less expensive and
time-consuming exercise than resorting to
litigation has proved to
be.
[79] A fundamental consideration in this regard is
that the Act is, to a large extent, directed at protecting the
interests of pension
fund members and pensioners. Smalberger ADCJ
underlined this object in
Mostert NO v Old Mutual Life Assurance
Co (SA) Ltd
2001 (4) SA 159
(SCA) at 171F-H (par 13):
The
scheme of the Act is to permit privately administered pension funds
subject to stringent regulatory requirements, or underwritten
pension
funds where an insurer, with its own statutory and internal
regulatory mechanisms, takes over the administration and investments
of the fund. Because pension moneys are perceived to be vulnerable
there is a need to provide protective safeguards. The mischief
which
the Act seeks to prevent is the abuse or misuse of pension funds by
unscrupulous employers and other persons dealing with pension
funds.
[80] This is consistent with the principle that
trustees owe a fiduciary duty, and the employer a duty of good faith,
to the fund
and to its members and other beneficiaries. See
Tek
Corporation Provident Fund and Others v Lorentz
1999 (4) SA 884
(SCA) at 894C-D. In
Meyer v Iscor Pension Fund
2003 (2) SA 715
(SCA) at 730C-F (par 22), Brand JA drew an analogy with the scrutiny
of administrative decisions in line with the principles of natural
justice:
The
general proposition that the trustees are under a fiduciary duty to
act in the best interest of the members appears to be supported
by
authority (see, for example,
Tek Corporation Provident Fund and
Others v Lorentz
1999 (4) SA 884
(SCA) at 898H-I). I accept that
the trusteesâ fiduciary duty towards its members includes a duty of
impartiality, that is an obligation
not to discriminate between
members unfairly. It seems to me to be inherent in the proper
exercise of any discretion that it should
be done with impartiality â¦
I am prepared to assume, without deciding, that, as a matter of
principle, a court is entitled to scrutinise
the decisions taken by
the trustees in the exercise of their discretion under rule 12.8 on a
basis analogous to the review of administrative
decisions, that is in
accordance with the principles of natural justice â¦
[81] Section 14(1)(c) of the Act requires, in
unequivocal terms, that the Registrar must be satisfied, before
giving his imprimatur
to a proposed merger or transfer, that it is
fair ("equitable") and reasonable. Cloete JA linked this
requirement to the
public interest in the case of
Pepkor
Retirement Fund and Another v Financial Services Board and Another
[2003] 3 All SA 21
(SCA) at 27
c-f
(par 14):
The
general public interest requires that pension funds be operated
fairly, properly and successfully and that the pension fund industry
be regulated to achieve these objects. That is the whole purpose
which underlies the Act. Of course only a particular fund and the
members of that fund may be directly affected by a decision of the
Registrar under section 14(1)(c). But that does not derogate from
the
fact that the function which the Registrar performs, is performed in
the public interest generally. In addition, the interests
of the very
persons affected by the decision require the Registrar to perform his
functions properly and to seek judicial review
of his own decisions
should he not have done so. The prejudice to the Registrar in
allowing a certificate improperly given in terms
of section 14(1)(e),
and transfers pursuant thereto, to stand, consists in his not having
had an opportunity to evaluate the true
facts in arriving a decisions
which he is required to make in the protection of the public interest
generally, and the particular
interests of those directly affected.
His function is compromised.
[82] In his aforesaid letter to Small (par 51
above) Tshidi clearly had these principles in mind when he told him
that Andrew had
reconsidered the matter and that they (being the FSB
and Registrar) had declined to approve the merger. Their reason for
doing so
was" because we do not believe that members had been
treated fairly with regard to the pooling of surplus assets existing
in
the three funds".
[83] The key provisions in the Act, for present
purposes, are to be found in section 30P under the heading âaccess
to courtâ.
It reads:
Any party who feels
aggrieved by a determination of the Adjudicator may, within six
weeks after the date of the determination, apply
to the division of
the High Court which has jurisdiction, for relief, and shall at the
same time give written notice of his or
her intention so to apply to
the other parties to the complaint.
The division of the
High Court contemplated in subsection (1) shall have the power to
consider the merits of the complaint in question,
to take evidence
and to make any order it deems fit.
[84] Mr Neser, for Nichol and Small, submitted
that the applicants were not âaggrievedâ parties as meant in this
provision. There
is no merit in this submission. The third applicant,
and indirectly also the fourth applicant, has clearly been prejudiced
by the
determination in that it has had the effect of overturning a
de facto
situation, relating to the financial control of the
merged funds, that had prevailed
for close on three years. As
such I am satisfied that they have not simply been âannoyed or
hurtâ by the determination (
Neuhaus v The Master of the High
Court and Another
1932 SWA 30 at 32) but have in fact been
adversely or prejudicially affected thereby.
[85] In this regard I prefer the qualification
âadverselyâ or âprejudiciallyâ to âwrongfullyâ, as used
in
Ex parte Sidebotham: In re Sidebotham
[1880] 14 ChD 458
(CA) at 465 (
per
James LJ):
It
is said that any person aggrieved by any order of the Court is
entitled to appeal. But the words âperson aggrievedâ do not
really mean a man who is disappointed of a benefit which he might
have received if some other order had been made. A âperson
aggrievedâ
must be a man who has suffered a legal grievance, a man
against whom a decision has been pronounced which has wrongfully
deprived
him of something, or wrongfully refused him something, or
wrongfully affected his title to something.
The word âwrongfullyâ, in my view, imports
something akin to a tortious or delictual element, whereas
âadverselyâ or âprejudiciallyâ
has a less restrictive
meaning. This accords with the approach in
Ex parte Official
Receiver: In re Reed, Bowen & Co
[1887] 19 QBD (CA) 174 at
178, where Lord Esher MR held that the meaning attributed by James LJ
to the words âperson aggrievedâ
in the
Sidebotham
decision
(
supra
) was ânot an exhaustive definition, but ⦠an
affirmative definition of a person who may appealâ. Lord Denning
cited this with
approval in
Attorney-General of the Gambia v Nâjie
[1961] 2 All ER 504
(PC), and added (at 511A-B):
The
words âperson aggrievedâ are of wide import and should not be
subjected to a restrictive interpretation. They do not include,
of
course, a mere busybody who is interfering in things which do not
concern him; but they do include a person who has a genuine
grievance
because an order has been made which prejudicially affects his
interests.
More recently, in
Francis George Hill Family
Trust v South African Reserve Bank and Others
1992 (3) SA 91
(A)
at 101E, Hoexter JA agreed with Lord Denningâs view that the
definition in the
Sidebotham
case (
supra
) was not
exhaustive.
THE NATURE OF THE RELIEF SOUGHT
[86] The relief sought by the applicants, in my
view, constitutes an issue on its own. The application has apparently
been brought
in terms of section 30P of the Act, on the basis of the
applicants' grievance against the determination, in which event the
court
would be empowered "to make any order it deems fit".
On the other hand an application for an order setting aside the
determination
smacks of a review of the determination on common law
or constitutional grounds, in which event, if the application should
be successful,
the determination would fall to be set aside.
[87] Mr Neser submitted that the relief sought by
the applicants indicated that the applicants had intended a statutory
review of
the Adjudicatorâs determination in terms of rule 53 of
the rules of this court. The grounds for review could then either be
the
common law grounds or those stated in section 6 of the
Promotion
of Administrative Justice Act
3 of 2000 (widely known in
abbreviated form as "PAJA").
[88] Mr Fine, in turn, submitted that section 30P
of the Act envisions a complete rehearing of and fresh determination
on the merits
of the matter, with or without additional evidence or
information. This appears from the court's "power to consider
the merits
of the complaint in question, to take evidence and to make
any order it deems fit", as set forth in section 30P(2). In this
form it accords with an appeal in the wide sense, as defined in
Tikly
& Others v Johannes NO and Others
1963 (2) SA 588
(T) at
590G. See also
Johannesburg Consolidated Investment Co v
Johannesburg Town Council
1903 TS 111
at 117;
Goldfields
Investment Ltd and Another v City Council of Johannesburg and Another
1938 TPD 551
at 554;
South African Bank of Athens Ltd v Sfier
(also known as Joseph) and Others
1991 (3) SA 534
(T) at 536F-I.
[89] In
Meyer v Iscor Pension Fund
2003 (2)
SA 715
(SCA) at 725I-726A Brand JA confirmed that the application to
the high court should be interpreted as "an appeal in the wide
sense":
From
the wording of s 30P(2) it is clear that the appeal [
sic
] to
the High Court contemplated is an appeal in the wide sense. The High
Court is therefore not limited to a decision whether the
adjudicator's determination was right or wrong. Neither is it
confined to the evidence or the grounds upon which the adjudicator's
determination was based. The Court can consider the matter afresh and
make any order it deems fit. At the same time, however, the
High
Court's jurisdiction is limited by s 30P(2) to a consideration of
'the merits of the complaint in question'. The dispute submitted
to
the High Court for adjudication must therefore still be a 'complaint'
as defined. Moreover it must be substantially the same 'complaint'
as
the one determined by the adjudicator.
SUBMISSIONS ON BEHALF OF THE PARTIES
[90] Mr Fine, for the third and fourth applicants,
submitted strongly that the Adjudicator had erred by not taking into
account the
fact that, at the time he was about to make his award, an
application was pending before the Registrar and the FSB under
section
14 of the Act. Inasmuch as the present application
constitutes a rehearing of the matter, Mr Fine argued, this court may
properly
take cognisance of subsequent events, more particularly the
approval of the merger by the Registrar and the FSB.
[91] With reference to the Adjudicatorâs concern
that the FSB and Registrar had not approved and certified the merger,
while the
first applicant fund would effectively be cross-subsidising
the other two funds (par 17 above), Mr Fine suggested that the
subsequent
approval and certification, with retrospective effect as
from 1 December 1998, and the amendment of the third applicantâs
rules,
had addressed this concern. Section 12(4) of the Act provided
for retrospective operation of amended rules, as apparently accepted
by the court in
Mostert NO v Old Mutual Life Assurance Co (SA) Ltd
2001 (4) SA 159
(SCA) at 181G-I (par 60).
[92] This had the effect, Mr Fine argued, that the
fundamental basis for the determination had fallen away. For the rest
he reiterated
the arguments raised by the applicants in their
response to the determination (par 22-29 above), adding that the
conditions imposed
by the Registrar in regard to the merger had been
incorporated in the said amendment of the third applicantâs rules,
thereby providing
the protection required by the members of the first
applicant. Further protection appeared from the fact that the amount
transferred
from the first applicant to the third applicant had in
fact been adjusted retrospectively to 1 December 1998, together with
the returns
earned on and âstrainâ attributable to such assets
from the said date. There was hence no question of any âshortfallâ
as
envisaged in paragraph 21.5 of the determination (par 21.5 above).
[93] Mr Neser, on behalf of Nichol and Small,
argued that the applicants had failed to aver or prove any basis for
setting aside the
Adjudicatorâs determination on its merits or
reasoning. The allegation that the determination had been âovertaken
by eventsâ
could never, he submitted, render it reviewable. No
subsequent approval could override a determination with the force of
a court
order. In any event the alleged failure by the Adjudicator to
take account of the âimminentâ approval and certification by the
FSB and Registrar could not constitute a grievance justifying the
setting aside of the determination.
[94] On the merits of the complaints raised by
Nichol and Small, Mr Neser submitted that the trustees of the
applicant funds had clearly
failed to consult with their members and
pensioners on the merger issue, despite Nichol having been given the
assurance that he would
be given an opportunity to comment and that
no action would be taken before then. This assurance was short-lived,
however, as appears
from the fact that Small was informed that the
applicants did not believe it necessary to consult with the
pensioners before giving
effect to the amalgamation. This appears to
have been in conflict with legal opinion obtained by them and was
certainly inconsistent
with Andrewâs initial attitude as to the
importance of consultation and transparency (par 41-43 above). It
likewise flew in the
face of Tshidiâs e-mail to Small to the effect
that the merger had been disapproved because it was unfair to members
(par 51 above).
[95] The complaint relating to the amalgamation of
surpluses and contribution holidays, Mr Neser submitted, was equally
valid. He
referred in this regard to the
Tek Corporation
case
(
supra
par 80) in which this topic was considered in depth. He
submitted that there had been a lack of transparency and an
unreasonable
failure to furnish information This was to a large
extent attributable to Tomsettâs management style and a failure of
the trustees
to fulfil their fiduciary duties.
CONSIDERATION OF THE ADJUDICATORâS
DETERMINATION
[96] The thrust of the Adjudicator's determination
has been dealt with above (par 17 - 21). At the outset he duly
identified the complaint
lodged by Nichol and Small as "the
purported amalgamation" of the three pension funds into a single
pension scheme, allegedly
at the expense of the first applicant,
"whose surplus would effectively be diluted by the
cross-subsidisation of the other funds".
In considering the
complaint he made use of documentary evidence and written submissions
to establish what appears to be a
prima facie
view in favour
of the complainants. He quite justifiably came to the conclusion that
the first applicant fund was "in a far more
favourable surplus
position" than the other two funds, as appeared with eminent
clarity from a table of comparative valuation
dated 30 September
1998. At that stage the first applicant had 71 members, of whom 20
were active members and 51 were pensioners.
The other two applicants
had 768 members and 158 pensioners between them. The first applicant
had a surplus of R18 915 000, the second
applicant R51 223 000 and
the third applicant a debit of R6 080 000. Needless to say, I fully
agree with the Adjudicator that the
merger would seriously prejudice
the first applicant unless the surplus be preserved in some way or
another, such as "ring fencing"
which, at that stage, had
apparently not yet been considered by the applicants.
[97] I am in respectful agreement with the
Adjudicator that, at the time he made his determination, the three
funds were still separate
legal entities. No merger was possible
without the certification of the Registrar in terms of section 14 of
the Act. Without it,
the purported merger as from 1 December 1998 was
illegal and invalid, regardless of any guarantee given by the
applicants that members
and pensioners would not be prejudiced in
that they would receive exactly the same benefits as before the
merger.
[98] It is common cause that, as from the date of
the merger, all benefits, including pensions and bonuses, have been
paid from the
amalgamated fund. It is likewise common cause that the
third applicant has taken a âcontribution holidayâ at the expense
of such
fund and more particularly at the expense of the merged
surpluses. There has, until the amendment of the third applicantâs
rules,
been no attempt to preserve the surpluses for the benefit and
in the interest of members and pensioners, be it by "ring
fencing"
or in any other way. I entirely agree with the
Adjudicator that the conduct of Tomsett and the trustees who approved
the merger without
providing such protection, smacks of "legal
self-help", however good and
bona fide
their intentions
might have been.
[99] It seems irrefutable, as held by the
Adjudicator, that concerns relating to the "reasonable benefit
expectations" of
the first applicant's members and pensioners
lay at the heart of the Registrar's long delay in approving the
merger. I therefore
find it most unfortunate, if not irregular, that
the Registrar and FSB gave their approval to the merger scarcely a
month after the
adjudicator had made his determination. There is no
doubt that they were fully aware of the determination and its legal
effect as
an order of court. Yet they carried on regardless,
ostensibly swayed, if not soothed, by the suggestion that the
retrospective amendment
of the third respondent's rules would rectify
matters and confirm the merger without their having to go back to the
drawing board.
Quite clearly they had been advised that the
ex
post facto
approval with retrospective operation would have the
effect that the âfundamental basisâ, as Mr Fine put it (par 92
above) for
the Adjudicatorâs determination would âfall awayâ,
in which it event it would (hopefully) become academic.
[100] This conduct was totally inconsistent with
their previous decision, at the request of the Adjudicator, to hold
back their approval
of the merger pending completion of the
determination (par 43 above). It was likewise inconsistent with the
acceptance by Andrew,
in his capacity as chief actuary of the FSB,
that the premature merger was
ultra vires
and inequitable in
that it impacted adversely on the interests of members and pensioners
of the smaller funds (par 42 - 43 above).
It was, indeed, Andrew who
pointed out that, because there had been a complete lack of
consultation with the interested parties (par
41 and 43 above), the
Registrar and FSB should reject the merger, unless a substantial
number of members and pensioners should approve
it (par 43 above).
[101] Likewise unfortunate, if not irregular or
even offensive in terms of section 30V of the Act, were the apparent
attempts to delay
the completion of the determination until such time
as the application in terms of section 14 of the Act could be
approved. (par
11, 13 and 45 above). This conduct might well be
regarded, as submitted by Mr Neser, as an attempt to anticipate the
determination
and perhaps even influence it. Fortunately it is not
necessary, for present purposes, to make any finding in this regard.
[102] The letter of 29 November 2001 (par 15 and
44 above) appears to have constituted a
volte face
in that it
still excluded consultation or open and comprehensive communication
with the aforesaid role players, as initially envisaged
by Andrew
(par 41 and 42 above). He now appears to have been satisfied with a
"ring fencing" exercise to cater for the
"reasonable
expectations" of members and pensioners. The object of this
letter, it seems to me, was not only to "unscramble
the
omelette", but also to sidestep, or at least to neutralise, the
effect of the determination. Once again, however, it is
not necessary
for me to make any finding in this regard since it relates to the
issue in the Transvaal application (par 39 above)
rather than to any
issue before this court.
[103] In view of the aforesaid considerations I
must reject Mr Fine's contention that the Adjudicator erred by not
taking account
of the pending application in terms of section 14 of
the Act and its purportedly imminent approval. Had he done so, I
believe he
would have acted irregularly. His function was to
consider, adjudicate and dispose of the complaints lodged with him
"in a procedurally
fair, economical and expeditious manner"
in terms of section 30D of the Act. Of course he would have to take
cognisance of all
relevant facts at his disposal. He would, however,
be acting
ultra vires
should he give prophetic consideration
to the possibility that a pending application before the Registrar
may or may not be successful.
[104] I agree with Mr Neser that no subsequent
approval of a section 14 application could override a determination
with the force
of a court order. The determination stands on its own
legs and may be rescinded or set aside only by this court, and then
only in
terms of section 30P(2) of the Act. The Registrar has no such
power. It would be absurd to suggest that, by approving a merger
after
a determination in respect thereof has already been made, he
would be able to nullify or sidestep it.
[105] As for the argument that it is no longer
practical or convenient, or even possible, to comply with the
Adjudicator's order,
I am singularly unimpressed. There is no reason
why the former members of the first applicant cannot convene an
election for the
purpose of forming a management board that complies
with section 7A of the Act. There is likewise no reason why the
fourth applicant
cannot appoint an actuary to investigate and report
on the financial situation of the first applicant. The order to make
good any
shortfall arising from the report and to bear the incidental
costs should not constitute any obstacle to a person or party in the
position of any of the applicants.
[106] The Adjudicator was, in my respectful view,
quite correct in holding (par 20 above) that the first applicantâs
management
board had not been properly constituted in terms of
section 7A of the Act. For present purposes it is not necessary to
discuss this
point.
[107] Suffice it to say that I am quite satisfied
that the Adjudicatorâs determination was presented in a balanced,
logical and
rational way. There is no basis on which this court can
interfere with it on review or appeal, however wide. In terms of the
provisions
of section 30P(2) of the Act I must perforce conclude that
the Adjudicator has, in his determination, duly and properly dealt
with
the merits of the complaints raised by Nichol and Small. The
relief granted by him was quite appropriate, having the effect of a
restitutio in integrum
in respect of at least the first
applicant, and it cannot, in my view, be faulted in any way. It will,
I believe, have the inevitable
effect that the relevant members and
pensioners, like Nichol and Small, will have the opportunity to
consult with the trustees and
to comment on any proposed merger of
the first applicant pension fund with the other two funds.
[108] On the question of costs Mr Neser submitted
that costs on the scale of attorney-and-own-client should be ordered.
I do not,
however, believe that a case has been made out for any
special order as to costs. I am of the view that the applicants were
probably
acting in terms of senior legal representatives'
instructions and advice. What I am prepared to order is that the air
travel expenses
of counsel and their attorney from Johannesburg to
Cape Town and back should be reimbursed. This is justified by the
fact that the
legal team that appeared on behalf of Nichol and Small
in the Transvaal application were the obvious persons to appear in
the matter
before me.
CONCLUSION
[109] It follows that the applicants have been
unable to persuade me that there is any basis on which to interfere
with the Adjudicator's
determination or to grant any of the relief
sought by them. In the event I make the following order:
The application is dismissed with costs,
including the costs of two counsel and including the return air
travel expenses of counsel
and their attorney from Johannesburg to
Cape Town.
D H VAN ZYL
Judge of the High Court of South Africa