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[2020] ZASCA 143
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Vrystaatse Munisipale Pensioenfonds v Minister of Finance and Another (1161/201) [2020] ZASCA 143; [2021] 1 All SA 116 (SCA) (2 November 2020)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 1161/2018
In
the matter between:
VRYSTAATSE
MUNISIPALE
PENSIOENFONDS                                                 APPELLANT
and
THE MINISTER OF
FINANCE                                                                 FIRST

RESPONDENT
FINANCIAL
SECTOR CONDUCT AUTHORITY
SECOND
RESPONDENT
CHIEF MASTER OF
THE HIGH COURT                                             THIRD

RESPONDENT
CHRISTOPHER HENRY
ROSENBERG NO                                     FOURTH

RESPONDENT
In
his capacity as the former member representative
Neutral
citation:
Vrystaatse Munisipale
Pensioenfonds v The Minister of Finance and Another
(Case
no 1161/18)
[2020] ZASCA 143
(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 (Wepener J, sitting as court of first instance):
judgment reported
sub nom Free State
Municipal Pension Fund v The Minister of Finance and Others
[2018] ZAGPPHC 404
1 The appeal is
upheld with no order as to costs.
2 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 appeals 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 Fund Act 24 of 1956 (the PFA), to
have regulation 35(4)
of the regulations, promulgated by the first respondent,
[3]
the Minister of Finance (the Minister), declared invalid on the basis
that it exceeds the Minister’s power under the PFA,
was
dismissed. In all three cases the high court had 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 and offended 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. Neither the
third respondent, the Chief Master of the High Court, who is in
control of the Guardian’s Fund, nor
the fourth respondent, who
is the former member representative of former members of the
appellant, the Vrystaatse Munisipale Pensioenfonds
(the Fund),
participated in the proceedings in the court below or before us.
[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, was established under s 56 of the Financial Sector

Regulation Act 9 of 2017 (the FSRA), and 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 by promoting fair treatment by financial institutions and
assisting in maintaining financial stability.
[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 its assets exceeds 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.
[6]
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 the present appeal is set out
hereafter. The Fund is a closed pension fund, which was established

and registered on 31 March 1963, in terms of prevailing legislation.
The Fund has three categories of active membership, with class
A
members accruing benefits on a defined benefit basis, class B members
accruing benefits on a defined contribution basis and class
C members
having certain vested pension benefits, accrued on a defined benefit
basis and accruing further benefits on a defined
contribution basis.’
[7]
The Fund’s members, subject to certain minor exceptions, are
full-time employees and former employees of Local Authorities
in the
Free State. The following seven paragraphs explain how the litigation
culminating in the present appeal arose.
[8] On 29 November
2013 the Fund deposited a copy of a Statutory Actuarial Valuation
Report (12/8/412) reflecting the valuation
of the Fund as at 30 June
2011, with the Registrar of Pension Funds, as required by
s 16(1)
of
the PFA. Paragraph 5.55 of the Valuation Report reads as follows:
‘
In
terms of
Rule 45(2)
the contingency reserve account in respect of
surplus allocations to former members of the Fund revert to the fund
two years after
the approval of the surplus scheme by the Registrar.
The two-year period expired in October 2008 and an amount of R86.5
million
reverted to the fund.
’
The
reference to
rule 45(2)
is a reference to the rules of the Fund which
would in the ordinary course have been authorised in terms of the
PFA.
[9] On 28 January
2014 the Registrar’s office wrote to the Fund, stating that it
had ‘pended’ the Valuation Report
until the following
issues were resolved or satisfactorily explained:
‘
Section
5.55
refers. It is stated that in terms of
Rule 45(2)
, the
contingency reserve account in respect of surplus allocations to
former members of the Fund revert to the Fund two years after
the
approval of the surplus scheme by the Registrar. The two-year period
expired in October 2008 and an amount of R86.5 million
reverted to
the Fund.
Rule 45(2)
states
that ‘a contingency reserve account will be maintained in the
Fund and will be credited with actuarial surplus payable
to former
members in terms of (
sic
) s 15B(5)
(e)
(i) and (ii) of
the Act. Any remaining balance in the contingency reserve account two
years after the approval of the surplus apportionment
scheme by the
Registrar will revert to the Fund.
In its surplus
apportionment scheme, approved by the Registrar on 24 October 2006,
the Fund did not establish a contingency reserve
account for former
members in terms of s 15B(5)
(e)
of the Act.
The Registrar is of
the opinion that the Fund is acting
ultra vires
its rules. The
Fund is expected to amend the report in line with its registered
rules.
The
Registrar requires the Fund to amend its rules in line with the Act
to provide for the adverse experience reserve. The Fund
is expected
to attend to this forthwith, as the statutory actuarial valuation has
not been performed in line with the rules of
the Fund...’
[10] The Fund’s
attorney wrote back, stating that he could not comprehend why the
Registrar adopted the view that the Fund
was acting
ultra vires
its own rules. He thought it appropriate to bring the following to
the Registrar’s attention:
‘
On
11 November 2005 the board of our client approved a Surplus
Appointment Scheme under s 15B the PFA for submission to the
Registrar.
Paragraph 2.3 of the Scheme reflects the allocation of
surplus to former members. Included in that allocation was 2114
“Former
members for whom the calculations could be performed,
but could not be traced. (ie 58.64% of the total number of 3605
former members).”
On 9 December 2005,
our client approved at its Annual General Meeting a rule amendment to
establish a contingency reserve account
to house the benefits
allocated to the category of former members quoted above.
On 25 April 2006,
the Registrar approved our client’s rule amendment number 24,
which reads as follows (Rule 45(2)):
“‘
n
Gebeurlikheidsreserwerekenig word in die Fonds in stand gehou wat
gekrediteer word met enige aktuariïele surplus betaalbaar
aan
vorige lede waarna daar in Artikel 15B(5)
(e)
(i)
en (ii) van die Wet verwys word. Die kredietsaldo van die
gebeurlikheidsreserwerekening word vermeerder of verminder met die

beleggingsopbrengs verdien op die bates in hierdie rekening. Die
kredietsaldo van die gebeurlikheidsreserwerekening word gebruik
om
voordele te betaal aan enige vorige lede waarna daar in artikel
15B(5)
(e)
(i)
en (ii) van die Wet verwys word wat deur die Uitvoerende Komitee
opgespoor word en wat in staat is om hul aanspraak op die betaling

van ‘n gedeelte van die aktuariële surplus tot die
bevrediging van die Uitvoerende komitee te staaf. Indien daar, twee

jaar nadat die Registrateur van Pensioenfordse die
surplustoedelingskema goedgekeur het, ‘n kredietsaldo in die
surplustoedelingskema
goedgekeur het, ‘n kredietsaldo in die
gebeurlikheidsreserwerekening is, word sodanige kredietsaldo aan die
Fonds verbeur
en het enige vorige lid waarna daar in Artikel
15B(5)
(e)
(i)
en (ii) van die Wet verwys word, geen verdere eis teen die Fonds
nie.”
On 24 October 2006,
the Registrar approved our client’s Surplus apportionment
Scheme and the board thereafter allocated the
surplus as per the
approved Scheme. This allocation included an allocation to the 2114
former members as per para 2.3 of the Scheme
to the contingency
reserve account in terms of Rule 45(2).
By October 2008, the
amount standing to the credit of the contingency reserve account
reverted to our client in accordance with
Rule 45(2).
As appears from the
above:
our client did
establish a contingency reserve account for former members in terms
of Rule 45(2) as referred to in s 15B(5)
(e)
of the PFA; and
our client has acted
in accordance with its rules.
Please
convey this information to the Registrar on our client’s behalf
and establish from the Registrar whether the first
issue has been
clarified to his satisfaction, or (if not), the basis upon which the
Registrar still contends that our client is
acting
ultra
vires
its rules.’
[11] There were
numerous interactions thereafter between the Fund and the Registrar’s
office. On 18 May 2015 the Registrar’s
office wrote to the Fund
as follows:
‘
In
terms of s 33A(1) the Registrar
directs
the board of the fund within two months of the date of this letter
to—
reverse
the decision
to revert the R83.357
million of s 15B surplus payable to its former members in terms of
the surplus apportionment scheme and calculated
as at 31 October 2008
and restore the fund to financial neutrality, ie in the same position
it was prior to the reversion of the
said amount; and
implement
the provisions of Regulation 35(4)
made
in terms of s 36(1) of the PFA in respect of s 15B surplus mentioned
in paragraph 18.1 (sic).’
Section
33A of the PFA empowers the Registrar, in order to ensure compliance
with the PFA, to issue a directive to a pensions fund,
an
administrator or any other person in which practices or actions that
are required or prohibited are set out.
[12] The Registrar,
it seems, initially objected to the valuation report on the basis
that the Fund was precluded from releasing
funds in terms of Rule
45(2) because it had not established a contingency reserve account
for former members in its surplus apportionment
scheme in terms of s
15B(5)
(e)
of the PFA and that it was therefore acting
ultra
vires
its own rules. Later, from early 2015, the objection was
that contrary to regulation 35(4), the Fund was releasing the surplus
allocated to former members. I shall, in due course, deal with the
provisions of the sub-regulation within the scheme of regulation
35
as a whole.
[13] On 18 May 2015
the Registrar’s office wrote to the Fund as follows:
‘
The
Registrar is concerned that contrary to the PFA and contrary to the
Regulations made in terms of the PFA, the fund released
R83.357
million of s 15B surplus which is payable to former members in terms
of the fund’s surplus apportionment scheme …
the fund is
bound by Regulation 35(4) of the Regulations published by the
Minister in terms of s 36(1) of the PFA which says that
where a board
is able to determine the enhancement value due in respect of a
particular former member in terms of s 15B(5)
(b)
or
(c)
of
the PFA, but is unable to trace the former member to make the
payment, the board must put the enhancement into a contingency

reserve account established specifically for that purpose. Regulation
35(4) makes it clear that notwithstanding the rules of a
fund, the
moneys in this contingency reserve account may not be released except
to pay the former member or as a result of crediting
the Guardian’s
fund or another fund established by law to include such amounts. This
is what the Fund was supposed to do
in terms of the PFA and the
Regulations and it was therefore not permitted to “release”
the R833.357 million of s 15B
surplus payable to its former members
for all of whom its surplus scheme indicated that it could calculate
their benefits …
The Registrar
directs the board of the Fund to within two months of the date of
this letter implement the provisions of Regulation
35(4) made in
terms of s 36(1) of the PFA in respect of the s 15B surplus mentioned
in paragraph 18.1 (sic).
’
It
is clear that the Registrar considered herself and the Fund bound by
regulation 35(4).
[14] Section 26 of
the FSBA permits an appeal against any decision of the Registrar to
the FSB appeal board, established in terms
of s 26A of the FSBA. The
Fund lodged an appeal but because it raised. as a ground of appeal, a
challenge to the validity of regulation
35(4) the Fund and the FSB
appeal board agreed that the appeal be held in abeyance, pending an
application to be brought in the
high court by the Fund. That
culminated in the application referred to in the first paragraph of
this judgment and to the resultant
order.
[15]
I now turn to deal with the nature of the challenge by the Fund as
expressed in its founding affidavit, followed by the Minister
and the
FSCA’s responses and the findings of the court below.
[16] The appellant’s
case was that regulation 35(4), impermissibly, ‘placed a number
of fetters’ on the wide discretion
of the board to decide how
an actuarial surplus is to be applied. The following are the relevant
parts of the Fund’s summary
of its challenge to the validity of
the regulation as expressed in its founding affidavit:
‘
Firstly…
the discretion of the board to determine how, in the case of former
members, the allocated portion of actuarial
surplus shall be applied
for their benefit is sufficiently wide as to place in the hands of
the board, a power to determine the
extent, if at all, of a former
member’s entitlement to actuarial surplus. There is accordingly
nothing in the PFA as is stood
at the time of the promulgation of the
Regulation which states that this enhancement is legally due and
payable to the former member.
Secondly, the
Regulation prescribes that where the board is unable to trace the
former member in order to make payment, “the
board
shall
put the corresponding enhancement into a contingency reserve account
specific for the purpose…”
This imperative
requirement that the enhancement be placed in a contingency reserve
account contradicts the statutory discretion
vested in the board to
determine how, in the case of… former members, the allocated
portion of actuarial surplus shall be
applied for their benefit.
Thirdly,
notwithstanding that the statute provides that the board shall
determine how, in the case of former members, the allocated
portion
of actuarial surplus shall be applied for their benefit, the
Regulation provided that 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.’
In
formulating its challenge the Fund relied, inter alia, on the
provisions of s 15B(5)
(a)
,
(b)
,
(c)
and
(e).
[17]
For reasons that will become apparent it is unnecessary to deal with
the Fund’s other grounds of challenge, namely that
the
regulation in question was arbitrary and irrational.
[18]
In presenting its case the Fund described how it applied its surplus
apportionment scheme (SAS) and explained how it dealt
with former
members, for whom a benefit was calculated but were untraced and who
had failed to substantiate a claim. On 11 November
2005, the Fund
approved a surplus apportionment scheme as contemplated in s 15B of
the PFA. The surplus apportionment date was
30 June 2002 and it was
the first statutory actuarial valuation date after 7 December 2001,
as contemplated by s 15B(1)
(a)
.
The Fund resolved in the SAS, as required under s 15 B(4), that
former members who had left the Fund in the period from 1 January

1980 to the surplus apportionment date would participate in the SAS.
[19] The fourth
respondent, as required by the PFA, was appointed in terms of the Act
to represent former members. Steps were taken
by the Fund to identify
and contact former members and obtain sufficient information to
enable the calculation of top-up benefits.
The Fund’s
administrators had remained unchanged since 1980 and retained
information of each former member of the fund. In
its attempts to
trace former members the Fund used newspaper advertisements, radio
broadcasts and written communications. The Fund
also made enquiries
at the Department of Home Affairs, tried telephoning former members
and used tracing agents.
[20]
An amended SAS reflected the allocation of the surplus to former
members. Included in that allocation were 8770 former members,
of
whom 5165 were excluded, because their exit benefit exceeded the
minimum benefit. Of the remaining balance of 3605 former members,

payments were made to 1491, for whom calculations could be performed
and who could be traced and/or who claimed the benefit. The
remainder
were a group of 2114 former members for whom the calculations could
be performed, but who could not be traced and who
did not register
for payment. They represented 24.10% of the total number of former
members entitled to participate in the SAS
and 58,64% of the total
number of former members who were included in the apportionment.
[21]
On the 11 November 2005 when the Fund approved the SAS it also
amended its rules to establish a contingency reserve account
to hold
the actuarial surplus for former members for whom benefits could be
calculated but who could not be traced and for those
who were unable
to substantiate their claims, but which also provided that if there
were no claims after two years the amounts
so credited would revert
to the fund. The rule does state that thereafter no former member
will have any claim against the fund.
On 26 April 2006 the Registrar
approved the rule amendment.
[22]
On 24 October 2006 the Registrar approved the Fund’s SAS and
the board thereafter allocated the surplus as per the approved

Scheme. This allocation included an allocation to the 2114 former
members for whom the calculations could be performed but who
could
not be traced and/or who did not substantiate their claims as per
paragraph 2.3 of the scheme, as amended.
[23]
In the subsequent years all but 49 of these former members, ie 2065
former members, could still not be traced and/or had not

substantiated their claims. Accordingly, the Fund advised the
Registrar in a registered letter sent on 12 August 2008 that it
intended to implement the Rule and that the amount standing to the
credit of the contingency reserve account, in terms of rule 45(2),

would revert to the Fund.
[24]
On 24 October 2008 the amount standing to the credit of the
contingency reserve account reverted to the Fund in accordance
with
the above Rule 45(2). Following the reversion of this amount the Fund
was of the view that in terms of its Rules it was no
longer obliged
to make provision for these former members. The board of the Fund had
nevertheless, in the exercise of its discretion
to settle and
determine claims made against the Fund (rule 23(1)
(e)
of the rules), made a few
ex
gratia
payments to certain former
members who after 24 October 2008 came forward and substantiated
their claims. The Fund has made no
further payments to any former
members since 3 March 2010, more than a decade ago.
[25]
The Fund’s valuator reported in the Valuation Report referred
to above (as at 30 June 2011), under the heading ‘Contingency

Reserve Accounts’, and with respect to the former member
allocation under the s 15B scheme, that the amount which on 30 June

2008 had been R83 357 million, was now nil
[26]
As stated above, the Registrar refused to approve the valuation
report and ordered the fund to reverse the R83 357 million
and
to implement the provisions of rule 35(4). That is what led to the
application in the court below.
[27]
In opposing the application, the Minister insisted that there was
nothing in the provisions of the PFA that prevented the Minister
from
directing or requiring a pension fund to create contingency reserve
accounts. The Minister and the FSCA pointed out that the
purpose of
the surplus legislation was to ensure that past abuses were remedied
and that members who had been unfairly treated
in the past, due to
improper uses of pension fund surpluses by many employers, were now
given their due. The surplus legislation
was designed to ensure that
former members received enhancements due to them. Regulation 35(4)
was directed to that purpose. The
regulation required the creation of
a contingency reserve fund as envisaged in the PFA and, as far as the
Minister was concerned,
it was consistent with the legislative
scheme.
[28]
The FSCA made common cause with the Minister. It denied that the
impugned regulation fettered the board’s discretion
in any way
and contended that the Fund misread and misunderstood the relevant
provisions of the surplus legislation. The FSCA was
adamant that upon
the approval of a pension fund’s SAS it immediately incurred a
liability towards those former members for
whom calculations could
and were done. It was submitted on behalf of the FSCA that there was
no discretion vested in the board
to deal with this category of
quantifiable claimants. The amounts held in the members’
surplus accounts no longer formed
part of the surplus. Where such
members could not be traced the liability was not extinguished. The
impugned regulation was directed
at preserving the rights of those
members to claim their due from the Fund. The FSCA contended that
s15B(5)
(e)
catered only for those for whom calculations could
not
be made and that there was no established liability in relation to
the contingency account which a Fund decided to establish in
terms of
that subsection. In short, as postulated by the FSCA, the liability
by a pension fund to untraced former members is absolute
and there
could be no talk of a contingency reserve account in the true meaning
of that expression. To the extent that the regulation
speaks of a
‘contingency reserve account’ it must be understood that
it is to a specific purpose and that it was meant
to recognise a
fixed liability towards former members. The FSCA reiterated that the
regulation in question was entirely consistent
with the provisions of
the PFA.
[29]
The impugned regulation was promulgated by the Minister on 22 April
2003 and the review application was launched on 25 August
2015, more
than a decade thereafter. The Fund, belatedly (after all the
affidavits were filed), conditionally applied for condonation
in
terms s 9 of the Promotion of Administrative Justice Act 3 of 2000
(PAJA),
[7]
submitting that it
was in the interests of justice that the matter be heard, despite the
considerable delay. Curiously, it commenced
by stating that it was
advised that the application to have the regulation set aside was one
in terms of PAJA, but then went on
to state that it was also advised
that the making of regulations did not fall under PAJA. It submitted,
alternatively, in the court
below and before us, that the Fund’s
challenge to the regulation was a classical collateral challenge as a
result of which
the need to bring a condonation application in terms
of PAJA fell away. The court below dealt with these issues as well as
with
the merits as set out hereafter.
[30]
The court below (Wepener J), dealt with the question of the delay
described in the preceding paragraph. The court noted that
it was
only after all the affidavits had been filed that the Fund had sought
condonation in terms of s 9(2) of PAJA, conditionally,
asserting that
it was relying on a collateral challenge to the validity of
regulation 35(4), for which condonation was not required.
Wepener J
had regard to the decision of the Constitutional Court in
Merafong
City Local Municipality v Anglo Gold Ashanti Limited
[8]
in considering the Fund’s asserted collateral challenge.
[31] The court below
went on to state the following:
‘
Accepting,
as the applicant does, that it knew of the regulations and its impact
shortly after it was promulgated, this court must
determine whether
the applicant has satisfied the provisions of s 9 in order to grant
the applicant condonation or whether it is
not time barred at all due
to the collateral challenge, should it be able to rely thereon
despite the manner in which it was introduced
into the papers.
’
[32] Wepener J
proceeded to examine the ‘unexplained’ lengthy delay and
considered that it militated against both the
application for
condonation and the asserted collateral challenge. The court below
weighed the prejudice that might arise because
of the delay. It said
the following (at para 15):
‘
In
my view, there is severe prejudice for the respondents and well as
other Funds, the latter which have adhered to the regulation.
The
majority of the Funds have complied with the regulation. That, in
turn, resulted in surplus funds having been allocated as
prescribed
over a period of twelve years. There would be manifest prejudice to
those employees who were identified and were recipients
of
allocations over the years. The applicant failed to set out specific
facts, even
baldly
,
to show that there is no prejudice to other parties. I am driven to
the opposite conclusion. Since the promulgation of reg 35,
the vast
majority of funds (and there are approximately 500 of them with only
three that have not complied with the regulation)
have indeed
complied with the regulation and allocated funds in accordance with
its provisions. Should the regulation be set aside,
these Funds will
have to reallocate the funds retrospectively and also amend their
records since 2003 in order to comply with a
new regime since reg 35.
Such refunds and reallocation will be made despite the vested rights
of former members, an aspect to which
I will return. These rights
would be annulled despite having accrued to former members and will
be to the prejudice of such former
members. The prejudice will also
be for those Funds who complied with the regulation and they, if the
regulation is set aside,
will have to reallocate funds and re-do all
the allocations since 2003. This, too, will affect the rights of
those former members
who acquired rights due to the allocation to
them pursuant to the provisions of the regulation. These members are
entitled to protection
rather than action that would deprive them of
their rights. The applicant has failed to show that the problem of
acquired rights
can be accommodated should the regulation be set
aside. That it would constitute an onerous task on the Funds who
complied with
the regulation is apparent if regard is had to the
various prescriptive provisions and the manner in which the boards of
Funds
are required to consider the issues when allocating funds.
’
[33] In dealing with
time delay in relation to a review application brought in terms of
PAJA, as opposed to a collateral challenge,
the court below expressed
itself thus:
‘
The
position, should s 9 of PAJA not apply, is no different. Delay may
not be a bar to a collateral challenge in many cases. But
as held by
Cameron J in
Merafong
,
it is available to a party “who never previously confronted”
the legal issue and where the law was possibly unknown
to the person
it is sought to be enforced against. The applicant falls in neither
category. It is common cause that the applicant
was confronted with
the regulation over twelve years ago but elected to ignore it. It was
therefore well aware of the promulgation
of the regulation and delay
can indeed be a disqualifying consideration. In addition, the
applicant is disqualified from attacking
the regulation for the same
reasons that were set out why an extension of time would not be in
the interests of justice. The applicant’s
gross failure in so
far as its delay is concerned makes its unnecessary to consider the
prospects of success.
’
[34] The court below
concluded as set out hereafter:
‘
In
my view, the applicant failed to make a case that it would be in the
interests of justice to allow it to embark on the collateral

challenge belatedly introduced after all parties had filed their
affidavits dealing with the merits of the review matter. The
application falls to be dismissed on this basis alone.
’
[35] The court below
thought it prudent to consider the merits of the Fund’s case in
so far as it might impact on whether
condonation should be granted.
It held:
‘
As
far as the prospects of success are concerned, I find that the
Minister had the authority to make the Regulation. Section 36
of the
PFA grants the Minister wide powers of regulation. A limitation would
have to meet the general principles of legality and
rationality that
have to be met.
’
[36] Furthermore,
Wepener J accepted the correctness of the attitude of the Registrar
concerning the interpretation and application
of ss 15B(4) and
15B(5)
(e)
. In this regard he said the following (at paras
20-21):
‘
The
applicant failed to have regard to the distinction between the
various provisions of the PFA and reg 35(4). In my view, it failed
to
acknowledge the different categories of members dealt with by the PFA
and the regulation and the effect and purpose of the regulation
but
dealt with the different categories generically. A failure to
appreciate that distinction led to the challenge based on legality
or
that it is
ultra vires
the Minister’s powers, and a challenge based on rationality. An
analysis of the legislative scheme of the PFA leads to an

understanding of, which counsel for the second respondent submitted,
the distinction between the “calculation problem”
and the
“payment problem” that is evident from s 15B(4)
(b)
and s 15B(5)
(e)
on the one hand and reg 35(4) on the
other. These provisions provide for two different situations in which
actuarial surplus can
be placed into a contingency reserve account.
The sections confer a discretion on a board whilst the regulation
imposes an obligation.
The
first situation arises where the benefits that are due to a former
member are incapable of calculation because of inadequate
records
that exist regarding that member. This results in a board of a Fund
being unable to apportion an actuarial surplus to such
former member
because it is unable to determine what period the former member was a
member of the Fund. This leads to a difficulty
in calculating the
amount to apportion to such a member. A second situation arises when
the benefits of former members can be calculated
but payment cannot
be made because the member cannot be traced. In such a case a board
is able to apportion actuarial surplus to
the members’ surplus
account and, importantly, the former member acquires a right to such
surplus. However, payment cannot
be made to the former member because
the member’s whereabouts are unknown. This leads to a payment
problem for the Fund since
it involves the payment of a benefit that
has been calculated. The right to the allocation vests in the former
member “once
the actuarial surplus in apportioned…”
This is different from other members who have been excluded from
apportionment
in terms of s 15B(4)
(a)
due to the fact that there are
insufficient records available. These members do not acquire rights
to actuarial surplus.
’
[37] At para 25 of
its judgment the court below held as follows:
‘
The
very purpose of reg 35(4) is to cater for the former members for whom
a benefit can be calculated but who cannot be traced.
In the result,
since reg 35(4) does not deal with the same category of former
members as s 15B(5)
(e)
,
there is no inconsistency between the two provisions and the
regulation is therefore not
ultra vires
as it does not fetter the board’s discretion when it comes to
dealing with the former members as contemplated in s 15B(5)
(e)
.
’
[38]
In the result, the court below dismissed the application in the terms
mentioned at the beginning of this judgment. It is against
that order
and the conclusions on which it was based that the present appeal is
directed.
[39]
The anterior question was whether, because of the long delay, 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.
[40]
Before us counsel for the respective pension funds in each of the
three related 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, 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 that there was no cross appeal in relation thereto, by the
FSCA or the Minister.
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.
[41]
After conferring, counsel on behalf of the FSCA and the Minister
informed this court that the 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 FSCA
had always adopted a neutral stance on the question of delay.
[42]
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.
[9]
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.
[10]
The 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.
[11]
It must also
be understood that the coercive force was only brought to bear more
recently. Be that as it may, condonation was effectively
correctly
conceded by the Minister and the FSCA. I turn now to address the
merits.
[43]
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 and Others v Lorentz
.
[12]
A core conclusion in that case was the following:
‘
Once
a surplus arises it is ipso facto an integral component of the fund
.’
This
court, in
Tek
,
acknowledged that the legislature was best placed to deal with the
manner in which surpluses should be apportioned. 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.
[44]
The surplus legislation is clearly remedial in nature in that it was
designed to redress past abuses of surpluses by a number
of
employers, but its other purpose was also to ensure fairness in the
distribution of a 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.
[45] 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).
[46] 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).
[47] The definition
of contingency reserve account at the time of the promulgation of the
regulation in question reads 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 words after ‘…
an account of the fund’
as it appears in the definition
immediately above. Those words are:
‘…
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
, 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).
[48]
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’.
[13]
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...
[14]
’
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.
[15]
Lastly, ‘surplus apportionment date’, as defined in s 1
of the PFA, ‘means the first statutory actuarial valuation
date
following the commencement date’.
[49] 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 a pension fund 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 that object, it is required that the board act in the best
interests of members and with ‘due care, diligence
and good
faith’.
[16]
[50] 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 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.
’
[51]
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.
[52]
‘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, once
at least 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.
[53]
Section 15B also sets the rules of general application for
all
apportionments, in favour of members, former members and employers.
Section 15B(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.
[54] 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)
.
[55] Sections
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.
[56] Section
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)
[57]
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, that 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
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 s 15B(4). These sections, read and understood

contextually, make it clear that a board determines who may
participate in the apportionment of an actuarial surplus, and
determines
how a surplus 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.
[17]
[58]
It was correctly submitted before us on behalf of all of the funds in
the three 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.
[59] 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 respect of
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, any regulation pursuant to s 36 is meant to be
consonant with the provisions of the authorising Act, the
PFA.
[60] More than
seventeen years ago, on 22 April 2003, the Minister, purporting to
act in terms of s 36(1) of the PFA, promulgated
regulations,
including regulation 35(4), which is at the centre of this appeal.
Although referred to in the Registrar’s communication
set out
in para 20 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).
[61]
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 the funds may not be released except to pay the
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 envisaged 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
sterilizing the monies from which past or present members who are
traceable could never benefit. It
will be recalled that in terms of s
15A all actuarial surplus belongs to a fund.
[62]
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 relate only to
unquantifiable former members, namely, those for whom benefits cannot

be calculated. It has to be read within the scheme of s 15B and there
is a cross reference to s 15B(4). 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.
[63]
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.
[64]
During oral argument this court directed the parties to provide
post-hearing, written submissions 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 and Other v Genorah Resources
(Pty)
Ltd and Others
[18]
that setting aside the regulation, without suspending the order of
invalidity, to enable an opportunity for the Minister 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.
[65]
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 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.
[66]
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 and 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.
[67]
The court below, in considering whether the long delay by the Fund in
bringing the application should be excused, concluded
that there
would be prejudice in relation to other funds which have complied
with directives by the Registrar and have held funds
in a special
contingency reserve and that there might have to be reallocations
retrospectively, in the event of the impugned regulation
being set
aside. The court surmised that those to whom allocations had been
made pursuant to the provisions of the regulations
would be
prejudiced as their allocations might have to be revisited.
[68]
Those fears are unfounded. The board of a fund can make provision for
claims that might materialise, as in
Hortors
.
The sufficiency of such measures might be interrogated by the FSCA.
Those issues will come to light in a SAS and an accompanying

valuation. That is the debate to be had, rather than rigid adherence
to the unyielding prescripts of regulation 35(4). All the
indications
are that strict adherence to the regulation would, for the most part,
result in the sterilization of that part of the
surplus, well in
excess of what would be required to meet future claims. On the other
hand, such sterilization would prevent further
allocations to benefit
former members, frustrating the purpose of the surplus legislation to
ensure fairness in the distribution
of a surplus.
[69]
In the present case the Fund was mistaken as to the claims of former
members being extinguished. They continue to adhere. The
question is
whether actuarial assumptions in valuation reports as to their
eventuating are within an acceptable compass. The Fund’s
rule
on reversion and the extinguishing of claims is not the answer. The
engagement between the Fund and the regulator in this
case should be
about whether it is necessary to make provision for claims
eventuating and if so, its sufficiency.
[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.
[71]
The funds in all three appeals, after conferring, were agreed that in
the event that they were successful in the appeal there
should be no
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 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
.’
________________________
M S NAVSA
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: AE Franklin SC, with PA Buirski
Instructed
by: Du Randt & Louw Inc, Kroonstad
Phatshoane
Henney Attorneys, Bloemfontein
For
First Respondent: NH Maenetje SC, with S Khumalo
Instructed
by: State Attorney, Pretoria
State
Attorney, Bloemfontein
For
Second Respondent: A Cockrell SC, with N Mbelle
Instructed
by: Rooth & Wessels Inc, Pretoria
Pieter
Skein Attorneys, Bloemfontein
[1]
The
other two being
Hortors
Pension Fund v Financial Sector Conduct Authority and Another
(Case no 054/2020) 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
Hortors
Pension Fund v Financial Sector Conduct Authority and Another
GP 28-08-2019 case no 70215/2017 and
Southern
Sun Group Retirement Fund v The Registrar of Pension Funds and
Others
GJ 18-12-2018 case no 21229/215.
[2]
This particular appeal is against a decision of the Gauteng Division
of the High Court, Pretoria (Wepener J, sitting as court
of first
instance). The other two –
Hortors
Pension Fund
(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)(Kollapen 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]
Some
of these provisions were either amended or substituted in subsequent
legislation.
[7]
In
terms of
s 7
of PAJA an application in terms thereof must be brought
without unreasonable delay and not later than 180 days from the date

of the action complained of.
Section 9
of PAJA authorises a court to extend the period of 180
days ‘where the interests of justice so require’.
[8]
Merafong
City Local Municipality v AngloGold Ashanti Limited
[2016] ZACC 35
;
2017 (2) SA 211
(CC) para 69.
[9]
Those factors would have been relevant whether the regulation making
in the present case constituted administrative action or
not. Of
course, in relation to PAJA the period to be taken into account for
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
para 19.
[10]
That they faced the coercive power of the FSCA is best demonstrated
by the directive form 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 years 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.
[11]
Merafong
City Local Municipality v AngloGold Ashanti Limited
[2016] ZACC 35
;
2017 (2) SA 211
(CC) paras 27, 30 and 32.
[12]
Tek
Corporation Provident Fund and Others v Lorentz
1999
(4) SA 884
(SCA) para 17.
[13]
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.’
[14]
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…’
[15]
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.’
[16]
Section 7C(2) of the PFA.
[17]
See, further, para 62 (infra).
[18]
Bengwenyama
Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and
Others
[2010] ZACC 26
;
2011
(4) SA 113
(CC) para 81-84.