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[2020] ZASCA 141
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Hortors Pension Fund v Financial Sector Conduct Authority and Another (054/2020) [2020] ZASCA 141 (2 November 2020)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 054/2020
In
the matter between:
HORTORS
PENSION
FUND
APPELLANT
and
FINANCIAL SECTOR
CONDUCT AUTHORITY                                  FIRST

RESPONDENT
THE
MINISTER OF
FINANCE
SECOND
RESPONDENT
Neutral
citation:
Hortors Pension Fund v
Financial Sector Conduct Authority and Another
(Case
no 054/2020)
[2020] ZASCA 141
(2 November 2020)
Coram:
Navsa, Zondi, Van der Merwe and
Nicholls JJA and Unterhalter AJA
Heard:
21 August 2020
Delivered:
This judgment was handed down
electronically by circulation to the parties’ representatives
via email, publication on the
Supreme Court of Appeal website and
release to SAFLII. The date and time for hand-down is deemed to be
10:00 am on 2 November 2020.
Summary:
Whether regulation promulgated by Minister, in terms of which a
board of a pension fund is obliged to place calculable enhancements

due to former members who cannot be traced in a contingency reserve
fund from which it cannot be released, except as  payment
to
such members or as a result of crediting the Guardian’s Fund or
some other fund, is beyond the Minister’s power
and not in
accordance with the
Pension Funds Act 24 of 1956
– Minister
arrogating power at odds with the Act – against the
principle of legality.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Kollapen J, sitting as court of first
instance): judgment reported
sub nom
Hortors Pension Fund v Financial Sector Conduct Authority and Another
[2019] ZAGPPHC 614
1 The appeal is
upheld with no order as to costs.
2 The cross-appeal
is dismissed with no order as to costs.
3 The order of the
court below is set aside and substituted as follows:
‘
Regulation
35(4)
of the Pension Fund regulations is declared invalid and
unenforceable in that it exceeds the Minister’s powers under
the
provisions of the
Pension Funds Act 24 of 1956
.’
JUDGMENT
Navsa
JA (Zondi, Van der Merwe and Nicholls JJA and Unterhalter AJA
concurring):
[1]
This is one of three related cases that were heard on the same
day.
[1]
This appeal, like
the other two, is directed against a decision of the Gauteng Division
of the High Court,
[2]
in terms
of which an application by a pension fund registered in terms of s 4
of the Pension Funds Act 24 of 1956 (the PFA), to
have regulation
35(4) of the Regulations promulgated by the second respondent,
[3]
the Minister of Finance (the Minister), declared invalid on the basis
that it exceeds the Minister’s powers under the PFA
, was
dismissed. In all three cases the high court made no order as to
costs.
[2]
The principal issue in all three appeals, as it was in the high
court, is whether the regulation in question is
ultra
vires
the powers assigned to the
Minister in terms of the PFA. Put differently, the question is
whether the Minister has, by way of the
regulation in issue,
arrogated power at odds with the PFA, thereby offending against the
principle of legality. The three appeals
require consideration of the
person/functionary in whom, in terms of the PFA, the power to
apportion an actuarial surplus in a
pension fund and to create
contingency reserve accounts, vests. The impugned regulation has to
be viewed against the relevant provisions
of the PFA.
[3]
The historical path leading up to the commencement of litigation, and
the manner in which the issues were framed by the respective

appellants in the three appeals, are not identical. There is also the
accusation before us, on behalf of the Minister, that, in
at least
two, if not all three appeals, the respective pension funds have
departed from their initial challenge to the regulation
and are now
advancing submissions beyond those raised in their founding
affidavits and before the high court. Whether that complaint
is
justified and whether the appellant and the other funds ought to have
been granted the relief sought requires scrutiny of the
pleadings in
each case, hence the necessity for three, separate judgments. There
will, of course, in each judgment be references,
where relevant, to
the other two appeals. The analysis of the law and the conclusions
reached will essentially be the same.
All three appeals are
before us with the leave of the court below.
[4]
The Financial Sector Conduct Authority (the FSCA), the first
respondent, is a juristic person established under s 56 of the

Financial Sector Regulation Act 9 of 2017 (the FSRA). The FSCA came
into existence on 1 April 2018,
[4]
replacing the Financial Services Board (the FSB), which owed its
existence to the Financial Services Board Act 97 of 1990 (the

FSBA).
[5]
The main objectives of
the FSCA include enhancing and supporting the efficiency and
integrity of financial markets, protecting
financial customers
through promoting fair treatment by financial institutions, and
assisting in maintaining financial stability.
[6]
[5]
It is necessary at the outset to have brief regard to the meaning of
an actuarial surplus, since that concept is at the centre
of this
appeal. Simply stated, a surplus arises in a pension fund when an
actuary determines that the pension fund’s assets
exceed its
liabilities. Prior to 2001, how a fund dealt with a surplus was
determined by its rules. The
Pension Funds Second Amendment Act 39 of
2001
came into effect on 7 December 2001. It was enacted to regulate the
distribution of a surplus by pension funds. It became known
as the
surplus legislation. The surplus legislation inserted definitions
relating to pension funds surpluses and also introduced
ss 14A
and
14B
, and
ss 15A
to
15K
into the PFA.
[7]
This appeal turns on the interpretation and application of relevant
provisions of the surplus legislation, located within the PFA.
I
shall, in due course, deal with the historical factors that gave rise
to the surplus legislation.
[6]
The background culminating in this appeal is set out hereafter.  The
Hortors Staff Pension Fund was established on 1 November
1950. On 1
June 1977, it changed its name to that which the appellant now bears,
Hortors Pension Fund (the Fund). In 1994 the Fund
was converted from
a defined benefit fund to a defined contribution fund. Prior to 1998,
the Fund was administered by Old Mutual,
but from 1998 the
administration was conducted by a subsidiary of the participating
employer, Caxton and CTP Publishers and Printers
(Pty) Ltd (Caxton).
From 1 November 1994, the rules of the Fund provided for bonuses to
be credited annually to the members’
retirement contribution
accounts, based on the Fund’s investment performance. The
bonuses were to be declared by the Fund’s
trustees, having
regard to the advice of the actuary. Due to the poor state of the
Fund’s administrative records, the bonuses
declared over the
period 1994 to 2001 were too conservative and well below actual
investment performance.
[7]
In 2001 the Fund engaged with the FSB in relation to paying out
further bonuses, to make up for the under-declarations for the
period
1994 to 2001. In a meeting with the Fund in February 2002, FSB
personnel appeared to accept that the envisaged further payments
were
reasonable. At that time, the Fund did not consider the contemplated
payments to be part of a surplus distribution in terms
of the then
recently adopted surplus legislation, in the form of amendments to
the PFA.
[8]
[8]
On 4 June 2002, preceding further engagement with the FSB, the Fund
received recommendations from the valuator of the Fund concerning
the
allocation of the surplus for the period 1 November 1994 to 31
December 2001. On 5 June 2002, the Fund submitted a proposal
to the
FSB for approval. On 7 June 2002, the FSB expressed the view that the
proposal appeared to amount to a distribution of a
surplus, rather
than an adjustment to past bonuses, and requested that the Fund
motivate why the payment of bonuses should not
be interpreted as an
apportionment of actuarial surplus. The Fund replied on 24 June 2002,
setting out the reasons for its interpretation.
[9]
The Fund’s trustees met on 12 September 2002, by which time the
FSB had not yet responded to the last-mentioned communication.
On
that date, the trustees, relying on the advice of the Fund’s
actuaries, approved the payment of the full investment return
to
those who had been historically deprived of it.
[10] In late 2002
and early 2003, the additional bonuses in respect of active members
were credited to the member accounts, and
cash payments were made to
former members (the 2002 distribution). R86.7 million (plus the
investment return thereon) was distributed
as follows:
10.1 R25.2 million
was paid to past members at the time (going back to 1994);
10.2 R31.5 million
was credited to members who had been paid out upon leaving the Fund,
or retiring up until 30 September 2007;
and
10.3
the remaining R30 million of members' credits were frozen on 30
September 2007.
[11]
On 28 January 2004, more than a year later, the FSB expressed the
view that the 2002 distribution was unlawful. The Fund took
legal
advice and conceded that the distribution ought to have been treated
as part of a surplus apportionment in terms of
s 15B
of the PFA,
rather than as a bonus distribution.
[12]
On 7 February 2007, the FSB appointed a specialist tribunal in terms
of
s 15K
of the PFA.
[9]
On 24
February 2012, the tribunal found that the 2002 distribution had been
incorrect and unlawful. The tribunal noted that:
‘
The
Registrar previously accepted and still accepts that the 2002
distribution was not unlawful to the extent that it grossed up
past
bonus declarations to bring them in fine with actual investment
performance over the years in question. It is the amounts
of the
distribution in excess of such adjustment that the Registrar regards
as unlawful and which the HPF conceded was unlawful.
’
[13]
After adjusting the low bonuses for the period 1998 to 2001 to the
actual investment returns that were achieved during that
period, a
surplus of R83 million was determined by the tribunal. Of the R83
million surplus, R18 million had already been paid
out as surplus
topping-up benefits to persons who participated in the 2002
distribution. Consequently, an amount of R65 million,
plus investment
return (about R280 million in 2012), fell to be paid out as
topping-up benefits. With respect to the frozen credits
referred to
in para 11 above, the tribunal found that the low bonuses allocated
to these members between 1997 and 2001 also had
to be adjusted to
take account of the higher investment returns that were achieved
during that period. The effect was that those
members lost the R30
million in credits but received enhanced bonuses of about R10
million. The tribunal also found that there
was a surplus of
approximately R390 million in 2012 (calculated by disregarding the
2002 distribution), which ought to have been
paid out as topping-up
benefits. As a matter of fact, however, the Fund only had a surplus
of approximately R140 million as a result
of the distribution in
2002, leaving the Fund with a deficit of approximately R230 million
and a funding level of 76.17%.
[14] In its founding
affidavit the Fund stated the following in relation to the deficit:
‘
Notwithstanding
the Tribunal's determination, the reality is that the deficit is
unlikely to materialise at all as it relates to
payments due to
former members who left the Fund prior to 1994 and who cannot be
traced. Moreover, it is a near certainty that,
if any claims should
arise, they will not be for substantial amounts. This is because the
Fund has already taken extensive steps
to trace former members,
without success, and it is highly unlikely that any further former
members will be traced. …
In
addition to the Fund being unable to trace these former members, it
is unlikely that many of these former members are still alive.
This
is demonstrated through an examination of former members' dates of
exit and dates of birth. Specifically, only 12% of total
potential
claims are attributable to the former members who left after 1994 and
who were younger than age 65 in October 2014. If
any claims
materialise, they could be expected to come from this demographic
profile. Older former members and members who exited
before 1994 are
considered extremely unlikely to come forward at any time. This is
significant because if the liability towards
so-called
“unquantified”
[10]
and untraced former members is reduced to a nil value, then there
would be a small surplus of some R12 million in the Fund as at
31
October 2014.
’
The
Fund’s actuaries took the view that there was no realistic
prospect that a material
number of former members, who were
untraced and un-contactable, would come forward to submit claims in
the future.
[15]
The Fund contended that what is set out in the preceding paragraph
provided the context within which its actuaries submitted
a valuation
as at December 2013, in terms of which ‘untraced’ and
‘unquantified’ members were excluded.
Those terms will
become clearer when the applicable statutory provisions are dealt
with later. The Fund contended that if liability
towards untraced and
unquantifiable members were to be reduced to a nil value, there would
be a surplus of R12 million. The Fund’s
perspective, based, at
least in part, on the views expressed by the actuaries, was that the
Fund was financially sound and that
its assets were sufficient to
meet its obligations towards members. I shall deal with the FSCA’s
response to the Funds assertions
in relation to the deficit and the
valuation by the Fund’s actuaries
[16]
On 9 July 2015, the Registrar accepted the Fund's revised valuation
as at 31 December 2013. On the same date, the Registrar
sent a letter
to the Fund stating that because the Fund's funding level was only
76.17%, it was financially unsound, and it was
required to submit a
scheme, setting out the arrangements which the Fund had taken or
would take to bring itself back into a financially
sound condition.
[17] On 23 September
2015, the Fund, taking the view that it was in a position to meet its
financial obligations, filed an appeal
against the decision of the
Registrar. The Registrar filed her reasons for the directive referred
to in the preceding paragraph,
the relevant parts of which read as
follows:
‘
2.5
When evaluating a report on the statutory actuarial evaluation
valuation of a fund to decide whether it properly reflects the
fund's
financial condition, the Registrar, with the assistance of the chief
actuary, considers, amongst other things
...
2.5.3
whether the report reflects a proper accounting
of the fund's assets and liabilities in compliance with applicable
law, including,
in particular,
regulation 35(4)
which
provides that
“
Where
a board is able to determine the enhancement due in respect of a
particular former member in terms of
s 15B(5)
(b)
or
(c)
of
the Act, but is unable to trace that former member in order to make
payment,
the board shall put the
corresponding enhancement into a contingency reserve account specific
for the purpose
. Notwithstanding
anything in the rules of the fund, moneys may not be released from
such contingency reserve accounts except as
a result of payment to
such former members or as a result of crediting the Guardian’s
Fund or some other fund established
by law to include such amounts.”
…
5.1 While, in his
report on the statutory actuarial valuation of the fund as at 2013,
the valuator has reflected a funding level
of 76,17% and a funding
shortfall in the amount of approximately R229 million, it appears
that the fund does not consider that
this shortfall is required to be
addressed into a s 18 scheme approved by the Registrar because—
5.1.1 in its
opinion, it is highly unlikely that it will be able to trace and pay
all those to whom the fund is liable for shares
of surplus allocated
to them in terms of s 15B of the PFA; and
5.1.2 accordingly,
although the fund may have made provision in its report on its
statutory actuarial valuations of the fund as
at 2013 for 100% of the
full face value of those liabilities, it can expect to be allowed to
release at least a part of that provision
and to use the excess to
provide for the fund's other liabilities
.
5.2
However, for so long as regulation 35(4)
is in place, this will not be permissible and so the fund will remain
financially unsound
unless measures
provided for in a s 18
scheme approved by
the Registrar are adopted to address its funding shortfall. It is for
this reason that the Registrar requested
the fund to prepare and
submit a proposed s 18 scheme to him for his consideration, as the
Registrar was entitled, and in fact
required, to do.’
(Emphasis
added.)
[18]
As can be seen, regulation 35(4) obliges a pension fund to place in a
‘contingency reserve account’, the total
amount
(liability) owing, of enhancements due to quantifiable but untraced
members, where it is to stay until claimed or transferred
to a fund
identified in the regulation. It is clear that the Registrar placed
reliance for the position she adopted on regulation
35(4) and was
emphatic that she and the Fund were bound by its provisions.
[19] It was that
perspective that led to a directive by the Registrar that there be
compliance with s 18 of the PFA, the relevant
parts of which read as
follows:
‘
(1)
The Registrar may prescribe criteria for financial soundness, and
when any return under this Act indicates that a registered
fund is
not in a financially sound condition, the Registrar may…
direct the fund to submit a scheme setting out the arrangements
which
have been made, or which it intends to make, to bring the fund into a
financially sound condition within such period, and
subject to such
conditions, as determined by the Registrar.
(1A) When any return
under this Act indicates a deficiency in a registered fund, the fund
shall, within three months from the date
of such return, submit a
scheme to the Registrar setting out the arrangements which have been
made or which it is intended to make
to eliminate the deficiency,
together with a report thereon by a valuator.
(2) If a Registrar
finds that a scheme submitted in terms of subsection (1) or (1A) is
not inconsistent with the provisions of this
Act and is satisfied
that the arrangements set out therein should suffice to accomplish
the objects of this section, he should
approve the scheme.
(3) If the Registrar
is not satisfied regarding the matters referred to in subsection (2),
he shall
request
the fund to make such amendments to the scheme, or to submit such new
scheme, as will enable him to be satisfied, and the
fund shall comply
with the request within a period prescribed by the Registrar…’
[20] An appeal by
the Fund against the Registrar’s decision to the FSB appeal
board was dismissed on the basis that it had
been filed out of time.
On 15 August 2016, the Fund made a submission to the FSB, setting out
why, in its view, a scheme in terms
of s 18(3), which deals with
steps that a Registrar is empowered to take in respect of a Fund that
is considered to be in a financially
unsound condition, was not
called for. The following was part of what appeared in the
submission:
‘
[T]he
Fund’s actuaries considered the Fund to be financially sound,
and that its assets were sufficient to cover the obligations
for the
traced and paid former members. Moreover, they considered that the
probability of former members coming forward in any
material numbers
as being “small”.’ This was the oft repeated
refrain by the Fund.
[21]
On 19 October 2016, the FSB informed the Fund that it did not accept
the submission. This prompted the Fund to make yet another

submission, accompanied by a letter from a valuator. On 14 March
2017, the FSB sent the Fund a letter, dated 28 February 2017,
in
which it recorded its decision to reject the s 18(1) scheme submitted
by the Fund, and reiterated its requirement that the Fund
submit a
new scheme.
[22] The Fund noted
an appeal against that decision. Included in the grounds of appeal,
was a challenge to the validity of regulation
35(4), it being
contended that it was
ultra vires
the PFA. The appeal board
was not empowered to deal with such a challenge. Consequently, the
Fund launched an application in the
high court seeking, inter alia,
the following relief:
‘
1.
Reviewing and setting aside regulation 35(4) of the Pension Funds
Regulations, published in GN R98 in
GG
162 of 26-01-1962…;
2.
To the extent necessary, granting the Applicant condonation for the
late filing of this application in terms of s 9(1) of the
Promotion
of Administrative Justice Act 3 of 2000...’
[23]
Before dealing with the legal basis for the challenge by the Fund, as
asserted in its founding affidavit, it is necessary to
set out the
details provided by the Fund in relation to former members who were
potential claimants for enhanced benefits and the
steps it took in
relation to them.
[24]
The Fund, like the pension funds in the related appeals, set out
relevant data in relation to its former members at the time
of the
2002 distribution date. The Fund explained that at that time there
were 8 792 former members who would have been entitled
to enhanced
benefits. Of those, 7 022 could not be traced. And of those (who
could not be traced), there was insufficient information
to calculate
the benefits for approximately 922 former members (the unquantifiable
members). Benefits could be calculated for 6
100 former members, but
they remained untraced (the untraced former members).
[25] The table
hereunder is a summarised form of the Fund’s administrative
records:
CATEGORY OF MEMBER
NUMBERS
‘
Unquantified members’ for whom
there was insufficient information to calculate benefits
922
‘
Untraced former members’ for
whom benefits could be calculated
6 100
Traced members for whom there was
insufficient information to calculate benefits
197
Traced members for whom benefits have mostly been
calculated and paid
1 573
TOTAL
8 792
[26]
The Fund explained why it had been difficult to trace so many former
members:
’
60.
[P]rior to 1994, the Fund’s record-keeping was poor.
Specifically:
60.1 for members who
left between 1 January 1980 and 31 December 1981, no data at all was
available, except for that which former
members could themselves
provide;
60.2 for members who
left the Fund between 1 January 1982 and 31 October 1994, the
employers' records had to be relied on, as well
as records of the
Principal Officer at the time; and
60.3
from May 1998 (the date on which the Fund transferred to the new
administrator), the Fund was able to produce all of the information

required to calculate top-up benefits.’
[27]
It appears that it is only in respect of persons who were members
prior to 1988 for whom the Fund lacked the data to be able
to trace
them. The Fund set out the steps it took to compile a database of
former members and the extensive efforts it expended
in tracing
former members, including resorting to advertisements in local and
national newspapers and employing tracing agents.
[28]
On 15 April 2011 the Fund’s actuary provided a certificate
stating that the steps taken by the board of trustees were

comprehensive and reasonable and should be expected to result in a
surplus apportionment that complied with the PFA. On 13 January
2012,
the Fund’s actuary provided a second certificate which
contained a more detailed summary of the steps taken by the
Fund to
complete its database.
[29]
The Fund disclosed the measures it had put in place in the event of
some former members, for whom benefits could be calculated
but who
were as yet untraced and who could come forward to make claims. It
also considered the position of those for whom benefits
could not be
calculated who might later be able to make claims. The present
actuarial surplus of R10.9 million could be drawn upon.
If the
surplus were to become exhausted the Fund had, as a back-up, an
undertaking by Caxton, given in 2012, to make a special
further
contribution of R5.7 million. Any further claim, beyond that would be
met by a further special contribution to be made
by Caxton. The Fund
submitted that given all the available information and all the steps
taken and taking into account past experience,
it was highly unlikely
that there would be any further claims by members, more particularly
for the pre-1994 years.
[30] As an example
of why it was unlikely, the Fund provided the following example:
‘
Hence,
in the Fund's view, it is unlikely that there will be any further
claims by former members, particularly for the pre-1994
years of exit
and the older former members. For example, some R153 million of the
potential claim values relates to former members
who would be at
least 65 years old at 31 October 2014, and who left the Fund more
than 20 years prior to 2014.
’
The
Fund was at pains to point out that, in the prevailing circumstances,
it was justified in not meeting the FSB’s call to
make
provision to reflect the contingent liability at full value. The Fund
contended that in taking the measure referred to and
in valuing the
Fund in the manner described above it was adhering to international
accounting practice and relied on the expert
opinion of Professor
Harvey Weiner. It was contended that the Registrar’s approach,
requiring the Fund to cater for the contingent
liability in full, is
at odds with international accounting practice.
[31] The legal
challenge to the validity of the impugned regulation was formulated
by the Fund under the heading ‘Regulation
35(4) is ultra vires
the PFA’ in the following terms:
‘
103.
The Fund will argue that regulation 35(4) of the PFA Regulations is
ultra vires
the PFA in the following respects:
103.1 Regulation
35(4) prescribes that the Fund must place the monies owed to the
untraced former members into a [contingency reserve
account], whereas
the PFA gives the board the discretion to do so;
103.2 Section 1(1)
of the PFA provides for the creation of a "contingency reserve
account” but only for the reservation
of "such amounts as
the board shall determine". It means that, for purposes of the
PFA, a contingency reserve account
must be one for the reservation of
an amount determined in the board's discretion.
103.3 This
interpretation is fortified by s 15B(5)
(e)
which also makes it
clear that it is for the board to determine the amount reserved for
the benefit of former members.
103.4 The PFA's
understanding of a [contingency reserve account] accords with
generally accepted accounting practice. The purpose
of such an
account is to provide for a contingency, that is, an uncertain future
event. The determination of the amount reserved
for such a
contingency is necessarily a matter of judgment. That is why the PFA
says in its definition of a "contingency reserve
account”
that the amount must be determined by the board "on the advice
of the valuator". The amount so reserved
depends on the
likelihood of the contingency occurring and its quantum if it does.
It is nonsensical to suggest that the full amount
of a contingent
liability should be reserved if the likelihood of its occurrence is
remote.
103.5 Regulation
35(4) directs that the Fund must place the full value of the amount
allocated to the untraced members into the
[contingency reserve
account], whereas the PFA allows the Fund to place "a portion"
thereof into a [contingency reserve
account]; and
103.6
It prohibits monies allocated to a [contingency reserve account] from
being released to the Fund, whereas the PFA allows the
board to debit
such monies from a [contingency reserve account] as it deems fit on
the advice of an expert valuator.
’
[32] The Fund went
on to state:
‘
The
PFA accordingly only contemplates and permits contingency reserve
accounts for the reservation of discretionary amounts to cater
for
future contingencies. The Minister thus does not have the power to
create a different kind of contingency reserve account which
requires
the reservation of the full amount of a contingent liability despite
the fact that the likelihood of its occurrence is
remote.
’
There
is thus  a clear challenge to the validity of regulation 35(4),
on the basis that the Minister in promulgating it acted
beyond his
powers in terms of the PFA, and that the FSCA and the Minister’s
view are based on an erroneous interpretation
and application of s
15B(5)
(e)
.
For reasons that will become apparent it is unnecessary to deal with
the Fund’s further bases of challenge to the validity
of the
regulation.
[33]
In resisting the application by the Fund the FSCA, in this and the
related appeals, adopted a neutral attitude to the long
delay by the
Fund in launching the application in the high court and whether it
should be condoned. Not so the Minister, but more
about that later.
[34] In relation to
the merits, the FSCA disputed the Fund’s interpretation of the
regulation and the relevant provisions
of the PFA. The following six
paragraphs of the FSCA’s answering affidavit sets out its
perspective:
’
56.
The applicant's contentions are based on the premise that the
liability towards former members for whom calculations can be
made
(and were made), but who cannot be traced, ie the so-called "untraced
former members", is a contingent liability
as opposed to a
clearly established liability (see, for example, para 105 of the
founding affidavit). However, this premise is
incorrect. The
regulation deals with liabilities of a fund and not contingent
liabilities because the existence of the liability
for a fund with
regard to the discharging of its obligations towards stakeholders
upon the approval of its surplus apportionment
scheme is not
contingent at all. The liability is fixed. What is uncertain ls
whether the persons to whom the money is due will
be traced and when
it will be paid. However, these uncertainties do not translate into a
contingent liability for the fund.
57. The situation
contemplated by the Regulation is therefore quite different to the
situation contemplated by s 15B(4)
(b)
read with the proviso to
s 15B(5)
(e)
. Those provisions envisage that a contingency
reserve account may be established at the board's discretion to cater
for those former
members for whom calculations could not be made and
who may come forward and establish their claims at a later stage.
58. This is an
uncertain future event for which the board may decide to make
provision as a contingency that may arise following
the happening of
such event, i.e. a former member for whom calculations could not be
made but who comes forward at some time In
the future to claim a
surplus payment or who belatedly substantiates a claim to surplus.
59. A fund has no
liability towards former members for whom money has been set aside in
a contingency reserve account contemplated
in s 15B(5)
(e)
.
This is because the former members contemplated in that section, more
specifically the proviso to the section, are those for whom

calculations could not be made and for whom money was set aside on an
aggregate and "benevolent" basis in a contingency
reserve
account. Because this is a contingent liability that may arise in
future, the amounts held in such contingency reserve
accounts may be
released over time in line with the diminishing possibility that the
uncertain future event will materialise.
60.
In contrast, the Regulation deals with the situation that arises
where benefits that were calculated and became due and payable
as
enhancements to each of the former members are quantifiable. Because
the benefits can be (and were in fact) calculated, this
translates
into a liability for a fund upon the approval of its surplus
apportionment scheme. In this case, the obligation to pay
their
unclaimed benefits is recognised as an obligation of a fund in terms
of, inter alia, the peremptory provisions of s 15B(5)
(b)
.
’
[35]
The FSCA’s position was clear, namely, where benefits for
former members can and have been calculated and apportioned
there is
an established liability. As far as the FSCA was concerned s15B(5)
(e)
applied only to unquantifiable members. Assumptions concerning the
likelihood of recovery by former members were irrelevant. As
far as
the FSCA was concerned, the liability in respect of former untraced
but quantifiable members was not contingent, but absolute.
The FSCA
insisted that there was no inconsistency between the Act and the
regulation in question.
[36]
The Minister, in opposing the Fund’s application in the court
below was adamant that there had been an unreasonable and
excessive
delay of more than 14 years by the Fund in launching the application.
In this regard it referred to the period between
the promulgation of
the regulation and the launching of the application. The Minister
took the view that the application by the
Fund was one in terms of
PAJA and that the delay should not be excused. It was submitted on
behalf of the Minister that there was
no proper explanation for the
delay and that given that the regulation was applied by pension funds
over so many years ‘untold’
prejudice would be suffered
by former members.
[37] Like the FSCA,
the Minister adopted the position that there was no conflict between
the applicable provisions of the Act and
the regulations. The
Minister made common cause with the FSCA’s interpretation of
the relevant provisions of the PFA and
submitted that the Fund was
misinterpreting the provisions of s 15(B) of the PFA. The Minister
was emphatic in the assertion that
the impugned regulation and s 15B
dealt with different periods in the life of a pension fund. Paragraph
80 of the Minister’s
answering affidavit is instructive:
‘
Whilst
the applicant relies heavily on the diminishing likelihood of the
former members being traced, it is apparent that such a
“contingency”
will be directly linked to the efforts made by the Fund to trace
those former members. Accounting practice,
approach or terminology
cannot override the legislation and it is fundamentally incorrect to
interpret the provisions of the legislation
in light of an accounting
practice. It must be done the other way round.
’
The
Minister, too, was adamant that there was no conflict between the
regulation and the PFA and that the regulation was not
ultra
vires
the Minister’s powers in
terms of the PFA.
[38]
The Fund, in challenging the validity of the regulation on the basis
that the making of the promulgation of the regulation
in question was
‘administrative action’ as defined, relied, inter alia,
on the following sections of the Promotion
of Administrative Justice
Act 3 of 2000 (PAJA): s 6(2)
(a)
(i)
– in that the Minister was not authorised by the PFA to do so;
s 6(2)
(e)
(i)
– in that it was enacted for a reason not authorised by the
PFA; and s 6(2)
(e)
(vi)
– in that the Minister’s action was arbitrary.
Pre-emptively, the Fund, appreciating that the PAJA requires that
an
application in terms thereof be brought without unreasonable delay,
and not later than 180 days from the date of the action
complained
of,
[11]
and that the FSCA and
the Minister might resist the application on the basis that the
impugned regulation was promulgated many
years before the application
was launched, contended as follows:
‘
If
the point is raised the Fund will submit that this review is, in
substance, a collateral challenge to the Regulations. Our courts
have
confirmed that the right to bring a collateral challenge can be
brought at any time and that the court has no discretion to
disallow
such a challenge.’
[39]
The court below (Kollapen J) dealt with the question of delay in the
bringing of the application. He held that the nature of
the Fund’s
challenge to the validity of the regulation was in substance a
collateral challenge and that he had no discretion
to disallow such a
challenge. The court below dismissed the ultra vires challenge on the
basis that the Minister had wide powers
to make regulations in terms
of the PFA and acted within those powers. It was also dismissive of
the Fund’s contention that
the impugned regulation was
inconsistent with the provisions of the PFA. The court below agreed
with the submissions on behalf
of the FSA and the Minister, that the
regulation in question and ss 15A(4)
(a)
and 15(5)
(e)
dealt with different phases and subject matter than the impugned
regulation.
[40]
It is against those conclusions, and the resultant orders, that the
present appeal is directed. The Minister was given leave
to
cross-appeal the court’s finding that the challenge by the Fund
to the validity of the regulation was a collateral challenge.
[41]
The anterior question is whether, because of the long delay in
bringing the application, the application by the Fund ought
to have
been entertained at all by the court below and whether this court
should consequently entertain the appeal on its merits.
[42]
Before us, counsel for the respective pension funds in each of the
three
appeals
aligned with each other and made common cause in their quest to have
the regulations set aside or declared
ultra
vires
the powers of the Minister. Counsel for the FSCA and the Minister,
likewise, supported each other in resisting the application
brought
by each of the three pension funds. During oral argument before us it
was pointed out to counsel representing the FSCA
and the Minister
that, in the
Southern
Sun
matter,
[12]
which is one of
the related appeals, the high court, in considering whether to
overlook the delay, took into account, inter alia,
the importance of
the issue, including the nature and consequence of the impugned
regulation, and had concluded that it was in
the interests of justice
to condone the delay; and there was no cross-appeal in relation
thereto, by either of them. It was pointed
out that it would be most
peculiar to decide the merits in one case and not in the other two,
because condonation was not warranted,
despite the fact that a
finding in the one case would determine the legal position in
relation to all three.
[43]
After conferring, counsel on behalf of the FSCA and the Minister
informed this court that delay should no longer be considered
an
issue between the disputants and that the matter should be decided on
the merits in all three matters. It will be recalled that
the FSA had
always adopted a neutral stance on the question of delay.
[44]
In my view the concession was rightly made. The high court in
Southern
Sun
,
in condoning the delay, took into account all the relevant factors
when it exercised its discretion in favour of the pension fund
in
that case
[13]
. Similarly, in
the present case,  considering the manner in which the dispute
arose and having regard to the time when matters
came to a head,
rather than the time of the promulgation of the regulation in
question, and the importance of the issues the interests
of justice
dictate that the delay should be overlooked. Moreover, although
courts should scrutinise asserted collateral challenges
carefully, to
ensure that they qualify as such and should be countenanced, lest
that avenue becomes the new ‘go-to’
basis for justifying
extensive delays, it does appear to me that in the three appeals the
respective pension funds were exposed
to the coercive force of the
regulatory body, the FSCA,
[14]
and that delay in the prevailing circumstances consequently ought not
to preclude the challenge on the basis that the challenge
by the Fund
could correctly be construed to be a collateral challenge  and
should be countenanced.
[15]
Be that as it may, condonation was effectively correctly
conceded by the Minister and the FSCA. I turn, now, to address the

merits.
[45]
As a starting point, it must be recognised that the surplus
legislation was a milestone in pension law. Before it came into

operation, as pointed out by the FSCA, the subject that exercised the
mind of many pension lawyers and administrators was the following:

Who owned the surplus in a pension fund at any given time? The debate
around this question endured for a long time before the decision
of
this court in
Tek
Corporation Provident Fund
.
[16]
A core conclusion in that case was the following:
‘
Once
a surplus arises it is
ipso
facto
an integral component of the fund.’
[17]
This
court, in
Tek
,
acknowledged that the legislature was best placed to deal with the
manner in which surpluses should be apportioned.
[18]
At that stage, there had already been a consultation process
concerning pension fund surpluses, involving Government, Business
and
Labour. That process culminated in the surplus legislation.
[46]
The surplus legislation is remedial in nature in that it was designed
to redress past abuses of surpluses by a number of employers,
but its
other purpose was to ensure fairness in the distribution of a pension
fund’s surplus on an ongoing basis. The surplus
legislation put
paid to any notion that the employer owned a surplus in a fund. The
relevant parts of the PFA against which the
impugned regulation has
to be viewed are set out hereafter.
[47] In s 1 of the
PFA, as it stood at the time that the regulation in question came
into being, ‘actuarial surplus’
was defined as follows:
‘“
actuarial
surplus”, in relation to a fund which is—
(a)
subject to actuarial valuation, means
the
difference between
—
(i) the value that
the valuator has placed on the assets of the fund less any credit
balances in the member and employer surplus
accounts; and
(ii)
the value that the valuator has placed on the liabilities of the fund
in respect of pensionable service accrued by members
prior to the
valuation date
together with the value
of those contingency reserve accounts which are established or which
the board deems prudent to establish
on the advice of the valuator
…’
(Emphasis added).
[48] Presently, the
definition of ‘actuarial surplus’ reads as follows:
‘“
Actuarial
surplus”, in relation to a fund which is—
(a)
subject to actuarial valuation, means
the
difference between
—
(i) the value,
calculated in accordance with the prescribed basis, if any, that the
valuator has placed on the assets of the fund
less any credit
balances in the member and employer surplus accounts; and
(ii)
the value that the valuator has placed on the liabilities of the fund
in respect of pensionable service accrued by members
prior to the
valuation date
plus the amounts standing
to the credit of those contingency reserve accounts which are
established or which the board deems prudent
to establish on the
advice of the valuator, calculated in accordance with the prescribed
basis, if any.
’
(Emphasis added).
[49] The definition
of ‘contingency reserve account’ at the time of the
promulgation of the regulation in question read
as follows:
‘”
Contingency
reserve account”, in relation to a fund, means an account of
the fund to which shall be credited or debited such
amounts as
the
board
shall determine, on the advice of
the valuator where the fund is not exempt from actuarial valuations,
in order to provide for
explicit contingencies…’
Section 1
of the
Pension Funds Amendment Act 11 of 2007
amended the definition of
‘contingency reserve account’ by adding the following
words after ‘… an account
of the fund’, as it
appears in the definition immediately above:
‘…
which
has been amended in accordance with the requirements of the
Registrar, or which has not been disallowed by the Registrar…
’
That
amendment was part of a list of definitions and provisions that were
deemed to have come into operation on 7 December 2001,
in terms of
s
40B
of the PFA, which caters for retrospectivity
.
It appears to relate to those funds that
were yet to obtain approval for their surplus apportionment schemes.
It does not apply
to the Fund. The Financial Services Laws General
Amendment Act 45 of 2013 brought about a further change. Presently,
the definition
of ‘contingency reserve account’ in s 1 of
the PFA reads as follows:
‘“
contingency
reserve account”, in relation to a fund, means an account
provided for in the rules of the fund, which has been
amended in
accordance with the requirements of the Registrar, or which has not
been disallowed by the Registrar, and to which shall
be credited or
debited such amounts as
the board
shall determine, on the advice of the valuator where the fund is not
valuation exempt, in order to provide for a specific category
of
contingency.’
(Emphasis
added).
[50]
Because there are references to ‘valuators’ and
‘valuations’ and actuaries in the definitions referred
to
above and in the applicable provisions of the PFA, it is necessary,
first, to have regard to the definition of ‘valuator’
in
s 1 of the PFA. Presently ‘valuator’ means an ‘actuary
who, in the opinion of the Registrar, has sufficient
actuarial
knowledge to perform the duties required of a valuator in terms of
this Act’.
[19]
Second,
I deal with the definitions of ‘actuary’. Presently
‘actuary’ is defined as ‘a natural
person admitted
as a fellow member of the Actuarial Society of South Africa or any
other institution approved by the Registrar...’
[20]
Third, it is necessary to appreciate that actuaries are experts in
statistics and are used  to assess risks and calculate
insurance
premiums, and are routinely employed in the field of pensions, as the
repeated references to actuarial valuations and
actuarial surplus in
the PFA demonstrate.
[21]
Lastly, ‘surplus apportionment date’, as defined in s 1
of the PFA, ‘means the first statutory actuarial valuation
date
following the commencement date’.
[51] As can be seen
from the definitions set out above, a pension fund board features
prominently in relation to an actuarial surplus
and a contingency
reserve account. The status and responsibility of a board in relation
to pension funds can be gleaned from the
object of a board set out in
s 7C(1) of the PFA:
‘
The
object of a board shall be to direct, control and oversee the
operations of a fund in accordance with applicable laws and the
rules
of the fund’.
In
pursuing its object, the board is required, inter alia, to act in the
best interests of members and to act with ‘due care,
diligence
and good faith’.
[22]
[52] As explained
earlier, the surplus legislation included ss 15A to 15K. In most of
those sections of the PFA the board of a pension
fund and a fund
itself features prominently. Section 15A(1), in line with the dictum
from
Tek
cited above, reads as follows:
‘
All
actuarial surplus in the fund belongs to the fund.
’
[53]
Section 15B(1) deals with the apportionment of an existing surplus
and provides that the board of every fund that commenced
prior to
March 2002, must submit to the Registrar a proposed apportionment of
an actuarial surplus. This provision was fundamental
to the new
pension surplus regime introduced by the surplus legislation. In
proposing the scheme, a board had to provide details
of any surplus
historically improperly utilised by an employer who participated in
the fund at the time of the improper utilisation.
[54]
‘Statutory actuarial valuation’, in relation to a pension
fund, means ‘an investigation by a valuator contemplated
in s
16’. That section provides for an investigation by a fund, at
least once every three years, into its financial condition
and for a
report in relation thereto by a valuator at the instance of its
board. The report is to be lodged with the Registrar.
[55]
Section 15B also sets the rules of general application for all
apportionments, in favour of members, former members and employers.

Section 15(2) provides that a scheme may involve the improvement of
benefits to existing members, increases to benefits or transfer

values in respect of former members, the crediting of an amount to a
member’s surplus account, the crediting of an amount
to an
employer’s surplus account or any two of the aforesaid. In
terms of s 15B(3) a board must appoint someone to represent
the
interests of former members and such person must then be of
assistance to the board in identifying former members, communicating

proposals to them and to the funds to which they might have
transferred, communicating proposals from former members to the board

and collating any objections by former members to the scheme. The
person appointed to represent former members is also required
to
report in writing to the board, inter alia, on the adequacy of the
steps taken to involve former members.
[56] Section 15B(4),
which, for present purposes, has to be read with the material parts
of s 15B(5), provides:
‘
The
board shall determine
who may
participate in the apportionment of actuarial surplus, and shall
include in such apportionment existing members and any
former members
who left the fund in the period from 1 January 1980 to the surplus
apportionment date: Provided that—
(a)
the board may exclude
from participation former members in respect of whom the board
satisfies the Registrar that insufficient records are available
to
enable the additional benefits that may be due to such former members
to be calculated, after the board has taken reasonable
steps—
(i) to obtain such
records from the administrator;
(ii) to construct
such records from the records of the—
(aa)
employer;
(bb)
any fund to which such former members transferred;
or
(cc)
a trade union or staff association active in the
workplace during this period; or
(iii) if the steps
in subparagraph (i) and (ii) do not yield sufficient information, to
obtain such records from potential claimants
themselves following an
advertisement­­­—
(aa)
on a national basis and in the area where the
former members used to work; or
(bb)
on a more limited basis as approved by the
Registrar if representations by the fund
satisfy the
Registrar that limited advertisement will be adequate, inviting the
former members to come forward with evidence to
substantiate their
claim, after which advertisement the board should wait at least six
months but no longer than nine months before
excluding any former
members because of a lack of sufficient information to enable the
calculations to be performed;
(b)
rather than excluding former members whose
individual benefits cannot be determined,
the
board may set aside a
portion
of the actuarial surplus in a contingency reserve account explicitly
established to satisfy claims of former members in terms of

subsection (5)
(e)
.’
(Emphasis added).
As
can be seen, this subsection makes
a
board
the determinant of which
categories of persons shall participate in the surplus apportionment.
The board is obliged to include for
participation those who departed
the fund in the period 1 January 1980 up to the surplus apportionment
date, including untraced
members. It may exclude unquantifiable
members. Section 15B(4)
(b)
does, however, provide the option of establishing a contingency
reserve account in order to satisfy the potential claims of
unquantifiable
members in terms of the proviso in s 15B(5)(
e)
.
[57] Section
15B(5)
(a)
and
(b)
read as follows:
‘
(
5)
The board shall apportion the actuarial
surplus
between the various classes of
stakeholders whom
the board has
determined
shall participate in the
apportionment in terms of subsection (4), following which such
portion as is due to the employer shall
be credited to the employer
surplus account: Provided that—
(a)
the actuarial surplus to be apportioned shall be
increased by an amount of actuarial surplus utilised improperly by
the employer
prior to the surplus apportionment date as determined in
terms of subsection (6);
(b)
former members shall have the benefits previously
paid to them, or the amounts previously transferred on their behalf,
increased
to the minimum benefit determined in terms of s 14B(2) or
14B(6) as at the date when they left the fund, with such increase
adjusted
to the surplus apportionment date with fund return over the
corresponding period…’
(Emphasis added).
The remainder of
this subsection deals with an adjustment for pensioners and for a
proportionate
downwards revision in the event that the actuarial surplus to be
apportioned is insufficient to permit such increases.
[58] Sections
15B(5)
(e)
, which, is crucial in the determination of the
appeal, reads thus:
‘
(5)
The board shall apportion the actuarial
surplus
between the various classes of
stakeholders
whom the board has
determined shall participate in the apportionment in terms of
subsection (4)
, following which such
portion as is due to the employer shall be credited to the employer
surplus account: Provided that—
…
(e)
the board shall determine how, in the case of
existing and former members, the allocated portion of actuarial
surplus shall be applied
for their benefit
,
including the crediting of any portion to the members’ surplus
accounts or to the members’ individual accounts, as
the case
may be: Provided further that the board may allocate a portion of the
actuarial surplus to be used for former members
to a contingency
reserve account which will be used to satisfy the claims of former
members—
(i) who have been
identified in subsection 4
(a)
but who cannot be traced; or
(ii)
who did not substantiate their claim during the nine-month period
following the advertisement in subsection (4)
(a)
(iii)
but who do so after the end of the period...’ (Emphasis added)
[59]
The statutory provisions referred to in the preceding paragraphs,
including the definitions referred to earlier, show that
a board is
the
protagonist in directing and controlling the operations of a pension
fund. Of course, this is subject to such measures as the regulator,

the FSCA, might employ in terms of the PFA. It is a board’s
prerogative to determine how to apply a surplus apportionment
for the
benefit of former members, including those who have not yet been be
traced. Section 15B(5)
(e)
has
to be read with the rest of the provisions of s 15B(5). There is a
cross reference to s15B(4). These sections, read and understood

contextually, make it clear that a board determines how a surplus is
to be allocated and then decides how it is to be applied for
the
benefit of various categories of beneficiaries, including the
establishment of contingency reserve accounts. Its discretion
is not
limited by s 15B(5)(e) to the establishment of such an account only
in relation to unquantifiable members. The submissions
to the
contrary advanced by the FSCA and the Minister, and the finding by
the court below that that a board is so limited, are
erroneous.
[23]
[60]
It was correctly submitted on behalf of the funds in the three
related appeals that an actuarial surplus in a fund is an actuarial

calculation of a fund’s assets over its liabilities and need
not be represented by an actual cash fund in the calculated
amount.
When a surplus is apportioned the fund assumes liabilities to its
members. It vests in members a claim against the fund.
That is how s
15A should be understood, where it speaks of rights acquired by
members, former members and employers when a surplus
is apportioned.
[61] At this stage
it is necessary to turn to consider, alongside the statutory
provisions referred to above, the provisions of
regulation 35(4).
Before considering the scheme of regulation 35, regard should be had
to the source of Minister’s power
in terms of the PFA to make
regulations. It is located in s 36, the relevant parts of which read
as follows:
‘
(1)
The Minister may make regulations, not inconsistent with the
provisions of this Act—
(a)
in regard to all matters which by this Act are
required or permitted to be prescribed by regulation…’
The
introductory part of that subsection is typical and is meant to keep
the regulation making within the parameters of the authorising
Act.
Put differently, the regulation is meant to be consonant with the
provisions of the authorising Act, the PFA.
[62] More than
seventeen years ago, on 22 April 2003, the Minister, purporting to
act in terms of s 36(1) of the PFA, promulgated
regulation 35 (4),
which is at the centre of this appeal. Although regulation 35(4),
which is the impugned sub-regulation, is referred
to in the
Registrar’s communication set out in para 17 above, for
convenience it is restated hereafter, within the full text
of
regulation 35. As proclaimed in the heading, regulation 35 purports
to deal with ‘contingency reserve funds’. It
reads as
follows:
‘
35
Establishment of Contingency Reserve Accounts—
(1) By virtue of the
fact that—
(a)
the Act vests powers
in boards of funds to establish contingency reserve accounts; and
(b)
the establishment of contingency reserve accounts
reduces the actuarial surplus available for apportionment and
increases the possibility
that actuarial surplus may be insufficient
to enhance benefits previously paid to former members to the level
prescribed in terms
of s 15B(5)
(b)
of the Act,
no fund may, with
effect from the date of commencement of this regulation, establish
any contingency reserve account under circumstances
where a
reasonable inference may be made that the establishment of the
account is contrary to the duties of the relevant board
under s
7C(2)
(b)
of the Act and motivated by bad faith.
(2) The
establishment and magnitude of any contingency reserve account by a
fund—
(a)
must be motivated by the valuator in the relevant
report on the statutory actuarial valuation; and
(b)
may, where the Registrar is not satisfied with any
such motivation, be rejected by the Registrar.
(3) A fund must, on
any such rejection of the establishment or magnitude of the relevant
contingency reserve account, take such steps in connection
therewith as the Registrar determines and sets out in writing to the
relevant fund.
(4)
Where a board is able to determine the enhancement due in respect of
a particular former member in terms of s 15B(5)
(b)
or
(c)
of
the Act, but is unable to trace that former member in order to make
payment,
the board shall
put the corresponding enhancement into a contingency reserve account
specific for the purpose. Notwithstanding anything in the
rules of
the fund, moneys may not be released from such contingency reserve
accounts except as a result of payment to such former
members or as a
result of crediting the Guardian’s Fund or some other fund
established by law to include such amounts.’
(Emphasis added).
[63]
Regulation 35 commences with the recognition that the power to create
contingency funds vests in a board. Yet, contradictorily,
it goes to
on dictate that the board ‘shall’ put funds into a
contingency reserve account in order to meet claims from
as yet
untraced members; and that the funds may not be released except to
pay such claims or ‘crediting the Guardian’s
Fund or some
other fund’. How can crediting the Guardian’s Fund or
‘some other fund’ be consonant with
the provisions of the
PFA? Counsel for the Minister and the PFA were rightly constrained
not to seek to justify the potential transfer,
as it were, to the
Guardian’s Fund. In the Guardian’s Fund or in some other
fund the monies that were destined for
former untraced members would
be lost to them and to the Fund. If it were to remain in the Fund and
remained unclaimed in perpetuity
that will have the effect of
sterilising the monies from which past or present members could never
benefit. It will be recalled
that in terms of s 15A all actuarial
surpluses belong to a fund.
[64]
The Minister arrogated the power to deal with a surplus and to
establish contingency reserve funds, to the exclusion of the
board.
As demonstrated above those aspects are within a board’s
prerogative. In promulgating regulation 35(4) the Minister
acted
beyond the regulation making powers set by the PFA. The court below
erred in its interpretation of the relevant provisions
of the PFA,
especially in relation to s 15B(5)(
e)
.
That subsection is not time bound nor does it only relate to
unquantifiable former members, namely those for whom benefits cannot

be calculated. It references s 15B(4) and together they set out the
powers of a board in general terms. When a board exercises
a
discretion in allocating a surplus for the benefit of former members,
thereby creating a liability, it must concomitantly decide
how to
cater for claims that eventuate. The board’s decisions can be
interrogated by the regulator against the provisions
of the PFA, but
those decisions are within the remit of the board. Regulation 35(4)
intrudes upon the board’s wide discretion
by compelling the
board to place the entire allocation in a contingency reserve account
and freezing it in perpetuity.
[65]
The Minister and the FSCA’s submissions in relation to the
meaning of ‘contingency reserve account’ in regulation

35(4) are without substance. The impugned regulation itself speaks of
a ‘contingency reserve fund’ but the Minister
and the
FSCA then sought to disown the concept and the description. In the
three related appeals the contingency relates to the
likelihood of
the claims materialising. It is in respect thereto that valuators
make assumptions. It is a regular occurrence in
the field of pensions
and in the insurance industry. The court below erred in its
interpretation of the relevant provisions of
the PFA and of the field
of operation of regulation 35(4) and the Minister’s regulation
making power.
[66]
During oral argument the court directed the parties to provide
post-hearing, written submission on the possible effect of setting

aside the impugned regulation. We received those submissions. In
essence the Minister and the FSCA submitted, with reference to
Bengwenyama
Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and
Others
,
[24]
that setting aside the regulation, without suspending the order of
invalidity, to provide the Minister with an opportunity to correct

it, would result in chaos and encourage maladministration. It was
submitted that pension funds would be incentivised to be lax
in
tracing former members and that boards would be free to do as they
please and build up unmanageable deficits.
[67]
A pension fund in which no contingency reserve account has been
established, but where other arrangements have been made to

accommodate potential claims, will occasion no loss of regulatory
oversight. In terms of the definition of ‘contingency reserve

account’, which appears in para 47 above, credits or debits can
only be entered in relation thereto on the advice of a valuator.
The
board will reflect on the advice it receives from a valuator. In the
periodic reports submitted to the FSCA the advice and
the provision
made for claims that might eventuate. or lack of it, can be
interrogated and either approved, or rejected. Furthermore,
funds are
obliged, unless exempted, to deposit annual financial statements with
the FSCA. The FSCA can utilise s 15K to refer matters
to a tribunal
to make certain determinations. When concerns about the financial
soundness of a fund arise, s 18 of the PFA is at
its disposal.
There are a number of tools at the disposal of the FSCA to ensure
compliance with the provisions of the PFA
and to secure the financial
soundness of a fund.
[68]
The point made on behalf of the Minister and the FSCA that the
setting aside of the regulation will lead to laxity on the part
of
boards in that they will be incentivised to expend very little or no
effort to trace former members, is without substance. The
FSCA can
always question the adequacy of steps taken and issue directions in
relation thereto. In addition, the provisions of s
15B(3), referred
to above, come into play. It will be recalled that the person
appointed to represent former members is required
to report to the
board about the adequacy of steps taken to trace former members.
[69]
In the present case the board took extensive steps to trace former
members. It paid the former members it could trace. It has
not, nor
could it, extinguish the claims of those that remained untraced. Its
actuaries, in the conventional manner of actuaries,
calculated what
it might cost the fund to pay the claims of those untraced members
that might come forward in the future. In doing
so, it took into
account the probability of the claims materialising. It set out in
its founding affidavit the measures that were
put in place to meet
the claims, if they eventuate, including drawing on the existing
surplus and then, as a further back-up, it
procured an undertaking
from the employer. If those measures were considered wanting, and if
the Fund’s actuaries are shown
to have worked on the wrong
assumptions, then that is what the FSCA, through the measures
available to it under the PFA, can take
up with the Fund. Instead,
the FSCA took the view that it was bound by the impugned regulation
and that it could thus direct the
creation of a special reserve as
dictated by the regulation. The Registrar based her directive,
referred to earlier in this judgment,
on the provisions of the
impugned regulation.
[70]
From exchanges between the Fund and the board and from parts of the
affidavits referred to above, the complaint that the Fund’s

challenge to the validity of the regulation has changed and gone
beyond the issues raised in the pleadings is without merit. In
so far
as the cross appeal is concerned the concession on delay referred to
earlier must mean that it serves no purpose and it
cannot be
sustained.
[71]
Counsel on behalf of the funds in the three related appeals after
conferring, agreed that in the event of the appeal and the
cross
appeal being decided in their favour there should not be any order as
to costs.
[72] For all the
reasons set out above it follows that the appeal must be upheld. The
following order is made:
1 The appeal is
upheld with no order as to costs.
2 The cross-appeal
is dismissed with no order as to costs.
3 The order of the
court below is set aside and substituted as follows:
‘
Regulation
35(4) of the Pension Fund regulations is declared invalid and
unenforceable in that it exceeds the Minister’s powers
under
the
Pension Funds Act 24 of 1956
.’
________________________
M S NAVSA
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: W Trengove SC, with A Franklin SC, K McLean, and N Luthuli
Instructed
by: Shepstone Wylie Attorneys
Boshoff
Inc
McIntyre
& VD Post, Bloemfontein
For
First Respondent: A Cockrell SC, with N Mbelle
Instructed
by: Rooth & Wessels Inc, Pretoria
Pieter
Skein Attorneys, Bloemfontein
For
Second Respondent: T Motau SC, with S Khumalo, and D Gondo
Instructed
by: State Attorney, Pretoria
State
Attorney, Bloemfontein
[1]
The
other two being
Vrystaatse
Munisipale Pensioenfonds v The Minister of Finance and another
(Case
no 1161/18) and
Southern
Sun Group Retirement Fund v The Registrar of Pension Funds and
Others
(Case no 215/2019). The unreported judgments of the courts below in
these matters are cited, respectively, as
Free
State Municipal Pension Fund v The Minister of Finance and Others
GP 06-06-2018 case no 67954/2015 and
Southern
Sun Group Retirement Fund v The Registrar of Pension Funds and
Others
GJ 18-12-2018 case no 21229/2015.
[2]
This particular appeal is against a decision of the Gauteng Division
of the High Court, Pretoria (Kollapen J, sitting as court
of first
instance). The other two –
Vrystaatse
Munisipale Pensioenfonds
(ibid) and
Southern
Sun Group Retirement Fund
(ibid)
– are appeals against decisions also of the Gauteng Division
of the High Court, first from the Provincial Division

(Pretoria)(Wepener J, sitting as court of first instance), and
second from the Local Division (Johannesburg)(Siwendu J, sitting
as
court of first instance).
[3]
See GN R98 in
GG
162 of 26-01-1962.
Regulation 35(4)
was inserted in an amendment to
the Regulations: see GN R558 in
GG
24780 of 22-04-2003.
[4]
See
GN
169 in
GG
41549 of 29-03-2018; and the Regulations published in GN R405 in
GG
41550
of 29-03-2018.
[5]
Established
in terms of s
2
of the FSBA.
[6]
See
s 57
of the FSRA.
[7]
Some
of these provisions were either amended or substituted in subsequent
legislation.
[8]
See
the
Pension Funds Second Amendment Act 39 of 2001
, which came into
effect on 7 December 2001.
[9]
Section
15K
provides that the Registrar may appoint a special ad hoc
tribunal to make a determination in respect of certain issues,
including
the situation where a fund fails to submit a scheme for
apportionment of an actuarial surplus
(s 15K(1)
(a)
);
or where the Registrar is not satisfied that a scheme submitted by
the board in terms of
s15B
is reasonable and equitable or that
s 15B
has not been complied with
(s 15K(1)
(b)
(i)
and (iii)).
[10]
That is, members in respect of whom insufficient records are
available to enable the additional benefits that may be due to such

former members to be calculated.
[11]
See
s 7(1)
of the PAJA.
Section 9
in turn authorises a court to
extend the period of 180 days ‘where the interests of justice
so require’.
[12]
Southern
Sun
(above
fn 1).
[13]
Those factors would have been relevant whether the regulation making
in the present case constituted administrative action or
not. Of
course, in relation to
s 9(1)
(b)
of the PAJA, the period to be taken into account as a baseline, in
the assessment of whether the delay should be excused, is
180 days.
See
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
[2019] ZACC 15
;
2019 (4) SA 331
(CC) para 19.
[14]
That they faced the coercive power of the FSCA is best demonstrated
by the directive from the Registrar who disapproved of the
fund,
causing R83.357 million, that had stood to the credit of members who
could not be traced and whose claims could not be
substantiated, to
revert to the fund. Several year thereafter the Registrar directed
the board of that Fund ‘within two
months of the date of this
letter’ to reverse the decision to revert the abovementioned
amount and ‘to restore the
fund to financial neutrality, ie in
the same position it was prior to the reversion of the said amount.’
That was a tall
order.
[15]
Merafong
City Local Municipality v AngloGold Ashanti Ltd
[2016] ZACC 35
; 2017 (2) 211 (CC) paras 27, 30 and 32.
[16]
Tek
Corporation Provident Fund and Others v Lorentz
1999
(4) SA 884 (SCA).
[17]
Ibid at 895D-E.
[18]
Ibid at 895E-H.
[19]
Prior
to amendment by Act 45 of 2013 ‘valuator’ was defined as
follows: ‘valuator means an actuary or any other
person who,
in the opinion of the Registrar, has sufficient actuarial knowledge
to perform the duties required of a valuator
in terms of this Act.’
[20]
Prior
to amendment by the
Financial Services Laws General Amendment Act 22
of 2008
: ‘“actuary” means any Fellow of the
Institute of Actuaries of England or of the Faculty of Actuaries in
Scotland
or of the Society of Actuaries of America or of any other
institute, faculty, society or chapter of actuaries approved by the
Minister…’ And prior to amendment by the Financial
Services Laws General amendment act 45 of 2013: ‘“actuary”

means a person admitted as a fellow member of the Actuarial Society
of South Africa or any other institution approved by the
Minister.’
[21]
See
also the definition of ‘actuary’ in the Oxford English
Dictionary (OED 3 ed, 2010):
‘
A
person who compiles and analyses statistics of mortality, accidents,
etc., and uses them to calculate insurance risks and premiums.’
[22]
See
s 7C(2)
(b)
of the PFA.
[23]
See, further, para 64 (infra).
[24]
Bengwenyama
Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and
Others
[2010] ZACC 26
;
2011
(4) SA 113
(CC) paras 81-84.