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[2019] ZASCA 41
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South African Municipal Workers' Union National Provident Fund v Umzimkhulu Local Municipality and Others (297/2018) [2019] ZASCA 41 (29 March 2019)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 297/2018
THE
SOUTH AFRICAN MUNICIPAL WORKERS’
UNION
NATIONAL PROVIDENT
FUND
APPELLANT
and
UMZIMKHULU
LOCAL MUNICIPALITY FIRST
RESPONDENT
T
J
NGCEMU SECOND
RESPONDENT
S
CHIYA THIRD
RESPONDENT
T
M DANDALA
FOURTH
RESPONDENT
T
M
SONDZABA FIFTH
RESPONDENT
A
MKHIZE
SIXTH
RESPONDENT
N
S
MHLAWULI SEVENTH
RESPONDENT
H
B
MBOTHO EIGHTH
RESPONDENT
Neutral
citation
:
SAMWU
PF v Umzimkhulu Local Municipality
(297/2018)
[2019] ZASCA 41
(29
March 2019)
Coram
:
Lewis ADP, Tshiqi, Swain and Van der Merwe JJA and Dlodlo AJA
Heard
:
19 March 2019
Delivered:
29
March 2019
Summary:
Interpretation
of rules 3.2.1 and 11.11 of provident fund –
termination of membership – precluded whilst
in service with
Municipality –
Pension Funds Act 24 of 1956
–
s 13A(5)
–
transfer of individual benefits – only applicable if membership
terminated in terms of rules of Fund –
s 14
and
rule 11.11
–
not applicable to individual termination of membership and transfer
of benefits – rights to freedom of association
of Municipality
and employees – not infringed by restriction on termination of
membership.
Order
On
appeal from:
KwaZulu-Natal
Division of the High Court, Pietermaritzburg (Balton J sitting as the
court of first instance):
(a) The appeal is upheld
with costs, including the costs of two counsel.
(b) The order of the
court a quo is set aside and replaced with the following order:
‘
(1)
The first respondent is directed to provide the applicant within
thirty (30) days of this order with the prescribed initial
and/or
subsequent contribution statements prescribed by
Regulation 33
of the
Pension Funds Act 24 of 1956
in respect of the third to eighth
respondents.
(2) The applicant is
granted leave to supplement its papers for the payment of any further
arrear contributions after receipt of
the above statements.
(3)
Costs against the first respondent, including the costs of two
counsel where employed.’
judgment
Swain JA (Lewis ADP,
Tshiqi and Van der Merwe JJA and Dlodlo AJA concurring):
[1]
The central issue for determination in this appeal is whether the
third, fifth, seventh and eighth respondents, who are
employed by the
first respondent, the Umzimkhulu Local Municipality (the
Municipality), a duly constituted municipality in terms
of the
Local
Government: Municipal Systems Act 32 of 2000
, validly terminated
their membership of the appellant, the South African Municipal
Workers’ Union National Provident Fund
(the Fund), a pension
fund organisation registered as such in terms of the Pension Funds
Act 24 of 1956 (the PFA), on 1 January
2014 whilst remaining in
service with the Municipality.
[2]
It is common cause that the Municipality is a participating employer
in the Fund and that the employees, by virtue of their
employment
with the Municipality, were members of the Fund. Although the fourth
and sixth respondents left their employment with
the Municipality as
of 1 January 2014, their participation in the appeal is still
necessary because of their unpaid contributions
to the Fund, up to
the date of the termination of their employment. I will collectively
refer to the third to the eighth respondents
as the employees.
[3]
The background to the present dispute is that the employees, with the
consent of the Municipality, purported to join another
retirement
fund, the Municipal Employees Pension Fund (the MEPF) as from 1
January 2014, after which the Municipality ceased making
payment of
any contributions in respect of the employees to the Fund. The Fund
therefore instituted proceedings in the KwaZulu-Natal
Division of the
High Court, (Pietermaritzburg) with the ultimate aim of compelling
the Municipality and the second respondent,
the Chief Financial
Officer of the Municipality, to make payment of the arrear
contributions in question, together with penalty
interest. As a
precursor to this relief an order was sought directing the
Municipality and the second respondent, to furnish to
the Fund
certain information, as prescribed in terms of s 13A(2) of the PFA to
enable the Fund to calculate the arrear contributions.
[4]
The court a quo (Balton J) dismissed the application with costs on
the basis that rule 3.2.1, read together with rule 11.11
of the rules
of the Fund, allowed members whilst still in the service of the
Municipality, to transfer their pension fund benefits
to another
participating pension fund, namely the MEPF and to cease to be
members of the Fund. The court a quo thereafter granted
leave to the
Fund to appeal to this court.
[5]
Subsequently, the Eastern Cape Division of the High Court, Mthatha,
in
SAMWU National Provident Fund v Ntabankulu Local Municipality &
others
[2018] ZAECMHC 43 (Hartle J), granted an order in favour
of the appellant against the Ntabankulu Municipality, in the terms
sought
against the Municipality in the present appeal. Hartle J
disagreed with the interpretation placed upon the rules by Balton J
and
granted leave to appeal to this court. As a matter of convenience
and by agreement between the parties, because the central issues
to
be decided are common to both appeals, they were argued at the same
hearing. Separate judgments will be delivered to cater for
differences between the two.
[6]
The issues in the appeal are:
(a) The correct
interpretation of rules 3.2.1 and 11.11 of the Fund and specifically
whether they prohibit elective in-service cessation
of membership of
the Fund;
(b) Whether rule 3.2
infringes the right to freedom of association of the employees and
the Municipality.
(c) Whether these rules
of the Fund are contrary to public policy.
[7]
Rule 3.2 is headed ‘Cessation of membership’ and provides
that:
‘
3.2.1
A Member may not withdraw from the Fund while he remains in SERVICE.
3.2.2
A Member’s membership of the Fund shall cease on cessation of
SERVICE.’
[8]
Rule 11.11 is headed ‘Transfers from the FUND’ and
provides that:
‘
11.11.1
In the event that any portion of the business of the FUND is
transferred to or amalgamates with any other APPROVED FUND,
business
or organization, the following provisions shall apply:
(a)
The BOARD shall determine the amount to be transferred (hereinafter
referred to as the “TRANSFER VALUE”) in respect
of each
MEMBER who is to be transferred from the FUND, which amount shall
consist of the MEMBER’S SHARE.
(b)
The TRANSFER VALUE in respect of each MEMBER to be transferred to
such fund shall, with effect from the effective date of transfer,
be
transferred to such other fund, business or organization, subject to
the approval of the REGISTRAR and subject to the provisions
of
Section 14 of the ACT.
(c)
Once the TRANSFER VALUE has been transferred to such fund, business
or organization, the affected MEMBER’S membership
of the FUND
shall cease and the FUND shall thereafter have no further liability
to or in respect of such former MEMBERS.’
[9]
Central to the conclusion reached by the court a quo was the decision
of the Pension Fund Adjudicator, in the case of
Mtyhopo &
others v South African Municipal Workers’ Union National
Provident Fund
[ 2013] 2 BPLR 203 (PFA) in which it was held
that:
(a) The rules of the Fund
that deal with termination of membership and transfers from the Fund
are respectively rules 3.2 and 11.11.
(b) Rule 3.2 regulates
the cessation of membership but merely prohibits a member of the Fund
who has not resigned, been dismissed
nor retrenched, from cashing in
his fund value whilst he or she is still in service. The rationale
behind the rule is to ensure
that members have sufficient savings at
retirement.
(c) Rule 3.2 does not
prohibit transfers of members from the Fund to another approved
pension fund.
(d) Where a member of the
Fund requests that his fund value be transferred to another municipal
pension fund in which his employer
participates, the appropriate rule
of the Fund which deals with transfers from the Fund is rule 11.11.
[10]
In accordance with this interpretation of rules 3.2 and 11.11, the
court a quo reasoned that although rule 3.2.1 unambiguously
provided
that a member may not withdraw from the Fund while he or she remains
in service, the object being to protect the pension
benefits of the
member upon retirement, rule 11 dealt with transfers and the
procedure to be followed when any portion of the business
of the Fund
‘is transferred to . . . any other Approved Fund’.
Because the employees did not seek to withdraw
their benefits from
the Fund, but only sought to transfer their benefits to the MEPF, an
approved fund, rule 3.2.1 did not prevent
them from doing so.
[11]
The Municipality and the employees submit that this is the correct
interpretation to be placed upon these rules of the Fund.
The Fund,
however, submits that the ordinary language of rule 3.2.1 prohibits
members from ‘withdrawing’ from the Fund
while in
‘service’ with the Municipality.
[12]
Before interpreting these rules of the Fund it is necessary to
consider what was said by this court, in
Sasol Limited &
others v Chemical Industries National Provident Fund
[2015] JOL
33910
(SCA) para 13, concerning the legal status of the rules of a
pension fund and the correct approach to their interpretation:
‘
The
legal principles that apply to pension and provident funds are clear
and uncontroversial. The trustees of a fund are bound to
observe and
implement the rules of that fund. Their powers and responsibilities
and the rights and obligations of members and participating
employers
are governed by the rules, applicable legislation and the common law.
The rules of a fund form its constitution and must
be interpreted in
the same way as all documents.’
[13]
In addition the following was stated in
Tek Corporation Provident
Fund & others v Lorentz
1999 (4) SA 884
(SCA) para 28:
‘
What
the trustees may do with the fund’s assets is set forth in the
rules. If what they propose to do (or have been ordered
to do) is not
within the powers conferred upon them by the rules, they may not do
it.’
[14]
In my view the interpretation of the court a quo ignores the clear
wording of these rules. Rule 3 is headed ‘Cessation
of
Membership’ and rule 3.2.1 provides in clear and unambiguous
terms that, ‘A Member may not withdraw from the Fund
while he
remains in Service’. That a member may not ‘withdraw from
the Fund’ in terms of rule 3.2.1, while he
remains in service
with the Municipality, has nothing to do with a withdrawal of
benefits from the Fund, but everything to do with
a withdrawal of
membership from the Fund. That this must be so is made clear by a
consideration of rule 3.2.2, which provides in
equally clear and
unambiguous terms that ‘A Member’s membership of the Fund
shall terminate on cessation of Service’.
Rule 3.2.1
accordingly prohibits elective in-service withdrawal of a member from
the Fund while he remains in service, whereas
rule 3.2.2 provides for
the compulsory termination of membership of the Fund, when the
member’s service ceases.
[15]
The Fund rules define ‘service’ as ‘active,
permanent employment with an employer for not less than 20 hours
per
week’. Because it is common cause that the employees, save and
except for the fourth and sixth respondents, remain employed
by the
Municipality on a full-time basis, they remain in ‘service’
as defined in the Fund rules. Rule 3.2.1 prohibits
elective
in-service cessation of membership of the Fund, with the result that
the employees are not entitled to withdraw from the
Fund and may only
do so on the cessation of their service with the Municipality. As
will be seen, a consideration of the provisions
of ss 13A(5) and 14
of the PFA as well as rule 11.11, supports this interpretation.
[16]
The court a quo rejected a submission by the appellant that s 13A(5)
of the PFA applies when a member withdraws from the Fund
and elects
that his or her benefit be paid to another fund, in which he or she
participates. The section provides that:
‘
When
a person who, for any reason except a reason contemplated in section
14, 28 or 29, has ceased to be a member of a fund (in
this subsection
called the first fund), is in terms of the rules of another fund
admitted as a member of the other fund and allowed
to transfer to
that other fund any benefit or any right to any benefit to which such
person had become entitled in terms of the
rules of the first fund,
the first fund shall, within 60 days of the date of such person’s
written request to it, or, if
applicable, within any longer period
determined by the registrar on application by the first fund,
transfer that benefit or right
to the other fund in full. The
transfer shall be subject to deductions in terms of section 37D and
to the rules of the first fund.’
[17]
The section is applicable on the facts of this case, because the
reasons advanced by the employees as to why they maintain
that they
ceased to be members of the Fund (the ‘first fund’), do
not fall within the provisions of ss 14, 28 or 29
of the PFA. For
reasons which will become apparent, s 14 of the PFA does not apply on
the facts. Sections 28 and 29 of the PFA
are not relevant, as the
former deals with the voluntary dissolution of a pension fund and the
latter deals with the winding-up
of a pension fund, by the court.
[18]
Section 13A(5) of the PFA must be read in conjunction with the
definition of a ‘member’ in s 1 of the PFA. The
relevant
portion provides that a ‘member’:
‘
.
. . does not include any person who has received all the benefits
which may be due to that person from the fund and whose membership
has thereafter been terminated in accordance with the rules of the
fund.’ (Emphasis added.)
[19]
The contradiction is readily apparent. A ‘person’ cannot
demand the transfer of any benefits from the ‘first
fund’
to ‘another fund’, unless and until that person’s
membership of the ‘first fund’ has
ceased. However, a
cessation of membership of the ‘first fund’ is
conditional upon the person having received those
very benefits. In
the language of
Public Carriers Association & others v Toll
Road Concessionaries (Pty) Ltd & others
1990 (1) SA 925
(A)
at 942I-943 this meaning is glaringly absurd. In the language of
Natal Joint Municipal Pension Fund v Endumeni
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) para 18, this meaning is insensible and
undermines the apparent purpose of the section.
[20]
The absurdity is removed and the purpose of the section restored, if
the phrase ‘ceased to be a member of a fund’,
is
interpreted to mean termination of membership in accordance with the
rules of the first fund, as provided for in the definition
of a
‘member’ in the PFA. In other words, a ‘person’
is entitled to request in writing the transfer of
any benefit, or
right to a benefit from the ‘first fund’, to which such
person is entitled in terms of the rules of
the ‘first fund’
to ‘another fund’, if such person has ceased to be a
member of the ‘first fund’
in terms of its rules and been
admitted as a member of ‘another fund’, in terms of its
rules.
[21]
Consequently, cessation of the employees’ membership of the
Fund in terms of its rules is a necessary condition to be
satisfied
in terms of s 13A(5) of the PFA, before the employees may demand in
writing that any benefit, or right to any benefit
to which they are
entitled must be transferred to the MEPF, in terms of s 13A(5) of the
PFA. Equally, the Fund would only be obliged
to transfer these
benefits to the MEPF within 60 days of a written request, if the
employees’ membership of the Fund has
been validly terminated
in accordance with the rules of the Fund. Consequently, the court a
quo erred in rejecting the submission
by the appellant, that s 13A(5)
of the PFA applies when a member withdraws from the Fund and elects
that his or her benefit be
paid to another fund, in which he or she
participates.
[22]
Section 14 of the PFA and rule 11.11 of the rules of the Fund must
now be considered. It must be determined whether they provide
an
additional avenue for voluntary individual withdrawals of members
from the Fund and the transfer of their individual benefits
to the
MEPF.
[23]
Section 14 is headed ‘Amalgamations and transfers’ and
provides in subsection (1) that:
‘
Subject
to subsection (8), no transaction involving the amalgamation of any
business carried on by a registered fund with any business
carried on
by any other person (irrespective of whether that other person is or
is not a registered fund), or the transfer of any
business from a
registered fund to any other person, or the transfer of any business
from any other person to a registered fund,
shall be of any force or
effect. . . .’ (Emphasis added.)
Unless
a number of detailed requirements listed in the section are
fulfilled.
[24]
‘Transfer of business’ is not defined in the Act. The
scope of the section is described by Rosemary Hunter et al
The
Pension Funds Act, 1956
: A Commentary on the Act and Selected
Notices, Directives and Circulars
(2010) at 284, in the following
terms:
‘
If
a benefit which has accrued to a member is paid to another fund at
his or her request, that does not constitute a transfer of
business.’
Although
the phrase ‘a transfer of business’ may be wide enough to
include such a payment, this is not the purpose of
s 14 of the PFA
for the reasons that follow.
[25]
The introductory paragraph to s 14 of the PFA clearly states its
purpose. The section applies to any transaction:
‘
.
. . involving the amalgamation of any business carried on by a
registered fund with any business carried on by any other person
(irrespective of whether that other person is or is not a registered
fund), or the transfer of any business from a registered fund
to any
other person. . . .’
This
is not language that describes individual voluntary withdrawals from
a fund and the transfer of individual benefits, to another
fund. The
words ‘amalgamation’ and the transfer ‘of any
business’ to any other person, are not easily reconciled
with
the concept of individual voluntary withdrawals and transfers between
funds.
[26]
This conclusion is supported by a consideration of the distinct
functions to be performed by ss 13A(5) and 14 of the PFA, with
regard
to the transfer of business from one fund to another. Rosemary Hunter
et al at 264 fn 484, states the following:
‘
What
is clear, though, is that transfers of the whole or any part of the
business from the fund to another fund or any other person
(such as
an insurer) in terms of s 14 is not regulated in any way by the
provisions of s 13 A (5).’
In
Sasol
para 16, this court approved of the following passage in
Rosemary Hunter et al at 284:
‘
[S]ection
14 does not regulate the transfer of members but the transfer of
assets and liabilities of members. Members do not, strictly
speaking,
transfer between funds.’
In
other words, ss 13A(5) and 14 of the PFA perform separate and
distinct functions. The former deals with termination of membership
of the Fund in terms of the rules of the Fund and the transfer of
individual benefits to another fund, which the individual has
joined.
The latter deals with the transfer of ‘the whole or any part of
the business’ of the Fund to another fund.
[27]
Rule 11.11.1 of the Fund has the same purpose as s 14 of the PFA. It
is headed ‘Transfers from the Fund’ and applies
where;
‘
.
. . any portion of the business of the FUND is transferred to or
amalgamates with any other APPROVED FUND, business or organization.
.
. .’
As
in the case of s 14 of the PFA, this is not language that describes
individual voluntary withdrawals from the Fund and the transfer
of
individual benefits to another fund. A consideration of the remaining
provisions of the rule confirms that this is not its purpose.
[28]
The rule provides that where a transaction involving the amalgamation
of any business carried on by the Fund, with any business
carried on
by any other person, or the transfer of any business from the Fund to
any other person occurs, the Board of the Fund
is obliged to
determine the amount to be transferred, being the ‘transfer
value’ in respect of each member who is to
be transferred from
the Fund, which amount is the ‘members share’. The
‘transfer value’ has to be transferred
to the other fund,
business or organisation on the effective date of transfer, subject
to the approval of the registrar and subject
to the provisions of s
14 of the PFA. Once the ‘transfer value’ has been
transferred, the affected members’ membership
of the Fund
ceases.
[29]
The clear purpose of the rule is the transfer of any portion of the
business of the Fund to another approved fund, business
or
organisation, or the amalgamation of the business of the Fund with
any of these entities. This will necessarily involve the
transfer of
a number of members from the Fund to another approved fund, business
or organisation.
[30]
That the transfer of the members’ share to another fund is
subject to the provisions of s 14 of the PFA, makes it clear
that
voluntary individual withdrawals from the Fund and the transfer of
individual benefits to another fund, are not the purpose
of the rule.
It is understandable that the approval of the registrar and
compliance with the stringent requirements of s 14 of
the PFA is
required, in order to protect the interests of members who are
transferred to another approved fund, business or organisation,
as
part of an amalgamation or transfer of business by the Fund.
Consequently, the rule does not provide an avenue for individual
members to initiate the termination of their membership of the Fund
and thereafter transfer their individual rights and benefits
in the
Fund to another fund, such as the MEPF.
[31]
This interpretation of the rules is in harmony with the requirements
of the Income Tax Act 58 of 1962 (the ITA). Section 1
(c)
(ii)
(bb)
under the definition of ‘pension fund’ provides that in
order for the Fund to be approved as a ‘provident fund’
for tax purposes by the Commissioner, the rules of the Fund must
provide:
‘
[T]hat
membership of the fund throughout the period of employment shall be a
condition of the employment by the employer of all
persons of the
class or classes specified therein. . . .’
Rules
3.2.1 and 3.2.2 ensure that members of the Fund retain their
membership throughout the period of their employment with the
Municipality, in compliance with the requirements of the ITA. That
the requirement is not a condition of the member’s employment
with the Municipality, but a requirement of the rules of the Fund,
matters not.
[32]
That the Fund has been approved as a ‘provident fund’ for
tax purposes by the Commissioner and relies upon this
status in terms
of the ITA, is made clear in the Fund’s heads of argument. For
the Fund not to do so would be incomprehensible,
as this status
results in significant tax benefits for contributing employers and
employee-members. In terms of s 10(1)
(d)
of the ITA, the
receipts and accruals of any pension fund or provident fund are
exempt from normal tax. In addition, any lump sum
award from any
provident fund is excluded from the definition of ‘gross
income’ in the ITA.
[33]
The Municipality and the employees submit that the Fund’s
reliance on the definition of ‘provident fund’
in the
ITA, in support of its interpretation of rules 3.2.1 and 3.2.2, is
misconceived because it overlooks the fact that an employer
can alter
membership of any given ‘class’ of its employees, adding
or subtracting members, or create a new class of
employees, or
abolish an existing class of employees. A provident fund can
therefore satisfy the requirements of the definition
without
depriving an employer of the power to allow employees to transfer
between provident funds. The employer can simply define
employees who
are members of different funds as belonging to different classes and
alter the membership of each such class, in
accordance with the
transfer.
[34]
The Fund, however, correctly points out that this requirement of the
ITA, which is aimed at ensuring the stability of the Fund’s
membership, is necessary for the long-term investment strategy of the
Fund. In terms of reg 28 to the PFA, the Fund is required
to have
asset-liability matching and to invest in corresponding long-term and
therefore often illiquid investments, suitable for
the Fund’s
specific member profile, liquidity needs and liabilities. This
requirement cannot be satisfied by the Fund in
the manner suggested
by the Municipality and the employees as long-term stability in the
composition of the Fund’s membership,
is required to enable the
Fund to fulfil these investment goals.
[35]
Consequently, the cessation of membership by individual members of a
fund and the commencement of their membership in another
fund, which
involves the transfer of benefits or the right to benefits from the
first fund to the second fund, is regulated by
s 13A(5) and not s 14
of the PFA. The provisions of s 14 of the PFA read together with the
provisions of rule 11.1.1 of the rules
of the Fund are accordingly
not applicable on the facts of the present case, whereas the
provisions of s 13A(5) of the PFA read
together with rule 3.2.2 of
the rules of the Fund are.
[36]
Balton J therefore erred in concluding that because the employees did
not seek to withdraw their benefits from the Fund in
terms of rule
3.2.1, but only sought to transfer their benefits to the MEPF, an
approved fund, in terms of rule 11.1.1, the former
rule did not
prevent them from doing so. Conversely, Hartle J in
Ntabankulu
correctly concluded that in terms of rule 3.2.1 members may not
terminate their membership of the Fund while in service of the
Ntabankulu Local Municipality and that the provisions of s 14 of the
PFA were not applicable.
[37]
Before dealing with the constitutional challenge to the rules of the
Fund, it is necessary to mention what may be described
as procedural
obstacles raised by the Fund to this challenge. The first was
whether the Municipality and the employees were
entitled to impugn
the constitutionality of rule 3.2.1 by way of a collateral challenge.
The second was whether the constitutional
challenge to rule 3.2.1 was
precluded by the principle of subsidiarity. It was submitted that the
Municipality and the employees
had failed to challenge the
constitutionality of the PFA and reg 30, promulgated in terms of s 36
of the PFA, as well as the ITA.
The court a quo made no finding on
these issues.
[38]
In my view, a just decision of the appeal requires a determination of
the merits of the constitutional challenge, without their
resolution
being frustrated by procedural obstacles of this nature. A
determination of the merits of the constitutional challenge
is not
only of importance to the parties, but to other pension funds with
similar provisions in their rules. To frustrate a determination
of
this issue by upholding one or more of the procedural obstacles
raised by the Fund, would not be in the interests of justice.
I will
therefore assume in favour of the Municipality and the employees,
without deciding these issues, that they were entitled
to impugn the
constitutionality of rule 3.2.1 by way of a collateral challenge and
that they were not barred by the principle of
subsidiarity, from
doing so.
[39]
The court a quo did not expressly deal with the constitutionality of
rules 3.2.1 and 11.1.1 although the Municipality and the
employees
sought an order in their counter-application, that these rules be
declared unconstitutional and be set aside.
[40]
The constitutional challenge is that rule 3.2.1 infringes the right
to freedom of association, enshrined in s 18 of the Bill
of Rights.
The Fund submits that the requirement to belong to an association and
particularly a pension fund, does not limit this
right. In addition,
where a required association has nothing more than financial
implications as in the case of rule 3.2.1, it
does not violate the
right to freedom of association.
[41]
The Fund relies upon the decision in
Oostelike Gauteng Diensteraad
v Transvaal Munisipale Pensioenfonds en ’n ander
1997 (8)
BCLR 1066
(T) as authority for the proposition that an assertion of
the right to freedom of association, cannot be based purely on
financial
considerations. Cameron J couched the applicant’s
claim to a right of freedom of association, in the following terms at
1077:
‘
Met
‘n beroep hierop het die applikant aangevoer dat dit vir hom,
selfs as ’n gedagtelose, gewetenlose of godsdienslose
entiteit,
vrystaan om aanspraak te maak op die grondwetlike vryheid van
assosiasie.’
And
then added the following:
‘
Sonder
om te wil besluit dat die vryheid van assosiasie alleen betrek word
indien “justified by considerations connected with
freedom of
thought, of conscience or of religion or with freedom of expression”,
is ek nietemin van mening dat die applikant
geen aanspraak
uiteengesit het wat gekoppel kan word aan ‘n krenking van enige
reg wat deur artikel 17 omvat word nie. Dit
blyk inteendeel uit die
stukke dat die assosiasie-kwessie in die huidige geval suiwer ’n
finansiele kwessie is, sonder enige
verdere dimensie. Sonder meer kan
’n verpligting om as deel van diensvoorwaardes geassosieer te
wees by ’n sekere vorm
van diensbevoordeling, soos ’n
pensioenfonds of ’n mediese fonds, na my mening nie inbreuk
maak op die reg tot vryheid
van assosiasie nie.’
[42]
I agree that the compulsory membership of a pension fund which only
holds financial implications for a member, does not constitute
a
limitation on the right to freedom of association.
[43]
The Fund submits that the rules in question do not infringe the right
to freedom of association, on two further grounds. First,
whilst rule
3.2.1 restricts employees to membership of the Fund for the duration
of their employment, employees have the choice
of which fund to join
at the outset of their employment. Second, that during their
membership of the Fund the employees are entitled
to join other
retirement funds.
[44]
In support of the first ground, the Fund relies upon a decision of
the labour court in
Ncungama & others v Bargaining Council for
the Liquor Catering and Accommodation Traders, South Coast,
KwaZulu-Natal & another
[2002] ZALC 37
para 25. In this case
the applicants who were engaged in the liquor, catering and
accommodation trades, applied to the respondent
council for exemption
from the provident fund agreement administered by the council. After
granting a number of exemptions, the
council refused to exempt the
applicants on the grounds that the benefits of the fund which the
applicants wished to join, were
less beneficial than those of its own
fund. The applicants sought review of the decision not to exempt them
from the council’s
provident fund agreement. They contended
that the criterion on which the council had based its decision was
unconstitutional, because
it breached their right to freedom of
association and it was procedurally unfair and unjustified. The
labour court responded to
the constitutional challenge in para 25, as
follows:
‘
.
. . the applicants had acquiesced in the Fund Agreement. They
therefore consented to the particular model for the exercise of
the
right to freedom of association.’
And
added (para 27):
‘
A
further compelling fact in this case is that the limitation was
self-inflicted as the applicants were bound to the Fund Agreement
by
virtue of their membership of a trade union that was party to the
Council.’
[45]
In the present case the limitation was also ‘self-inflicted’,
because the employees had a choice at the outset
to join one of the
Natal Joint Municipal Pension Fund administered retirement funds, but
agreed to join the Fund. In doing so they
consented to any
restrictions that may be placed upon their right to freedom of
association, in terms of the rules of the Fund.
[46]
In support of the second ground, that during their membership of the
Fund, the employees are entitled to join other retirement
funds, the
Fund relied upon certain dicta of the Constitutional Court in
Municipal Employees Pension Fund v Natal Joint Municipal Pension
Fund (Superannuation) & others
[2017] ZACC 43
;
(2018) 2 BCLR
157
(CC); [2018] 1 BPLR 1 (CC). In an application for leave to appeal
from a decision of this court, the MEPF contended that the obligation
that municipal employees should participate in specified pension and
retirement funds, amounted to an infringement of the right
of freedom
of association of employees. The argument was rejected, para 43, in
the following terms:
‘
.
. . Further, the Supreme Court of Appeal’s interpretation of
the legislation and the regulations as well as its amendment
to the
order of the High Court to the effect that employees may join other
funds in addition to the KZN Funds is valid and retains
the
employees’ freedom to associate.’
[47]
The judgment accordingly supports the proposition, that the rights of
association of employees during their compulsory membership
of the
Fund are not infringed, because they are entitled to join additional
retirement funds.
[48]
Consequently, when regard is had to the fact that employees have the
choice of which fund to join at the outset of their employment
and
that during their membership of the Fund they are entitled to join
other retirement funds, as well as the fact that the compulsory
membership of the Fund only holds financial implications for them,
their rights to freedom of association are not infringed. For
the
same reasons the right to freedom of association on the part of the
Municipality is not infringed.
[49]
I turn to consider whether the rules of the Fund are contrary to
public policy. It is difficult to ascertain the precise ambit
and
nature of this challenge on reading the papers. The clearest
formulation of this challenge on behalf of the Municipality and
the
employees, appears in the supplementary heads of argument which were
filed to deal with the judgment of Hartle J. Reference
is made to the
statement by Hartle J at para 106 of the judgment, which reads as
follows:
‘
The
answer, such as it is, to this predicament that transfers of
membership to the MEPF by members who still remain in service of
the
municipality cannot be countenanced in terms of the applicant’s
Rules, is that moral persuasion should be brought to
bear on the
applicant to change its Rules to bring them into modernity and
economic freedom so that members can have an election
to transfer
their membership and benefits between funds on an acceptable basis.’
[50]
The Municipality and the employees submit that the call by Hartle J
for moral persuasion to be brought to bear on the Fund,
‘to
change its Rules to bring them into modernity and economic freedom’
was nothing other than a finding that the Fund’s
rules are
contrary to the contemporary legal convictions of the community. It
was submitted that Hartle J should have found that
the rules were
contrary to public policy and unenforceable. In my view the dictum of
Hartle J says no such thing. The personal
view of the learned judge
that ‘moral persuasion’ should be brought to bear upon
the Fund to change the rules, does
not amount to an objective finding
that the rule is contrary to public policy.
[51]
The Municipality and the employees also submitted that the rules in
question were in the nature of a contractual term governing
the
relationship between the Fund, the Municipality and the employees. In
reliance upon
Barkhuizen v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC) it was
submitted that it would be unfair to enforce a contractual term in
the nature of the offending rules and compel the
Municipality and the
employees to comply with a coercive claim for payment and disclosure
of records, when they have specifically
taken steps to terminate any
such obligation. It was submitted that they have been thwarted from
doing so by the Fund’s refusal
to give effect to rule 11.11 and
to carry out the required actions to perfect the transfer, in terms
of s 14 of the PFA.
[52]
In
AB & another v Pridwin Preparatory School & others
[2018] ZASCA 150
;
2019 (1) SA 327
(SCA) para 27, the relationship
between private contracts and their control by the courts through the
instrument of public policy
underpinned by the Constitution, was said
to be clearly established. The most important principles were:
‘
(i)
Public policy demands that contracts freely and consciously entered
into must be honoured;
(ii)
a court will declare invalid a contract that is prima facie inimical
to a constitutional value or principle, or otherwise contrary
to
public policy;
(iii)
where a contract is not prima facie contrary to public policy, but
its enforcement in particular circumstances is, a court
will not
enforce it;
(iv)
the party who attacks the contract or its enforcement bears the onus
to establish the facts;
(v)
a court will use the power to invalidate a contract or not to enforce
it, sparingly, and only in the clearest of cases in which
harm to the
public is substantially incontestable and does not depend on the
idiosyncratic inferences of a few judicial minds;
(vi)
a court will decline to use this power where a party relies directly
on abstract values of fairness and reasonableness to escape
the
consequences of a contract because they are not substantive rules
that may be used for this purpose.’ (Footnotes omitted)
[53]
The rules, as we have seen, are not inimical to any constitutional
value or principle. In addition, their enforcement on the
facts of
this case is not contrary to public policy. Simply put, the claim by
the Municipality and the employees that the rules
of the Fund are
contrary to public policy has as its objective the avoidance of the
consequences of the rules, by alleging that
they are unfair and
unreasonable.
[54]
As regards the personal liability of the second respondent who is the
Chief Financial Officer of the Municipality, the Fund
submits that he
falls within the parameters of s 13A(8)
(c)
of the PFA as he is
‘regularly involved in the management of [the Municipality’s]
overall financial affairs’.
The Municipality, however, submits
that the claims against the second respondent are misconceived in
that although the second respondent
is involved in the management of
the first respondent’s financial affairs, it is disputed that
he is involved in the ‘overall
financial affairs’ of the
first respondent. That is a function performed by the Council of the
first respondent. It is disputed
that the second respondent is
personally liable to the Fund. No argument was presented at the
hearing on this issue. There is a
dispute of fact on the papers which
cannot be resolved. In the result no order can be granted against the
second respondent and
the relief will be restricted to the
Municipality. The Fund in its heads of argument sought an order in
the terms set out below.
[55]
The following order is granted:
(a) The appeal is upheld
with costs, including the costs of two counsel.
(b) The order of the
court a quo is set aside and replaced with the following order:
‘
(1)
The first respondent is directed to provide the applicant within
thirty (30) days of this order with the prescribed initial
and/or
subsequent contribution statements prescribed by
Regulation 33
of the
Pension Funds Act 24 of 1956
in respect of the third to eighth
respondents.
(2) The applicant is
granted leave to supplement its papers for the payment of any further
arrear contributions after receipt of
the above statements.
(3)
Costs against the first respondent, including the costs of two
counsel where employed.’
K
G B Swain
Judge
of Appeal
Appearances:
For
Appellant: P Van der Berg SC (with S Budlender, H Drake and M
Mbikiwa)
Instructed
by:
Shepstone
& Wylie Attorneys, Johannesburg
McIntyre
Van der Post, Bloemfontein
For Respondents: G O Van
Niekerk SC (with A L Christison)
Instructed
by:
Matthew
Francis Inc. Attorneys, Pietermaritzburg
Rossouw
& Conradie Inc., Bloemfontein