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[2019] ZASCA 42
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Municipal Employees Pension Fund and Another v SAMWU National Provident Fund and Another (1412/2018) [2019] ZASCA 42 (29 March 2019)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 1412/2018
MUNICIPAL
EMPLOYEES PENSION FUND
FIRST
APPELLANT
AKANI
RETIREMENT FUND
ADMINISTRATORS
(PTY)
LTD SECOND
APPELLANT
and
SAMWU
NATIONAL PROVIDENT FUND FIRST
RESPONDENT
NTABANKULU
LOCAL MUNICIPALITY SECOND
RESPONDENT
Neutral
citation
:
MEPF
v SAMWU PF
(1412/2018)
[2019]
ZASCA 42
(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 –
right to freedom of association
of employees and right to freedom of
trade of Pension Fund – not infringed by restriction on
termination of membership.
Order
On
appeal from:
Eastern
Cape Division of the High Court, Mthatha (Hartle J sitting as the
court of first instance):
(a) Paragraph 2 of the
order granted on 14 August 2018 is deleted and replaced with the
following paragraph:
‘
2.
The first respondent is directed to pay to the applicant all arrear
pension contributions pertaining to the employees listed
in annexure
“SAM3” which have been withheld from it since September
2013 to date.’
(b) The appeal is
dismissed with costs including the costs of two counsel.
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 124 employees (the employees) of the second
respondent, the Ntabankulu
Municipality (the Municipality), who are
employed by the Municipality, a duly constituted municipality in
terms of the
Local Government: Municipal Systems Act 32 of 2000
,
validly terminated their membership of the first respondent, 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), 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.
The employees, with the consent of the Municipality, purported to
join another
retirement fund, the Municipal Employees Pension Fund
(the MEPF), the first appellant, as from the 1 September 2013, after
which
the Municipality ceased making payment of any contributions in
respect of the employees to the Fund. In the main application the
Fund instituted proceedings in the Eastern Cape Division of the High
Court (Mthatha), with the ultimate aim of compelling 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 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.
[3]
The Municipality asserted that it did not owe the
arrear contributions because the employees had elected to leave the
Fund and had
‘transferred’ to the MEPF. The MEPF and
Akani Retirement Fund Administrators (Pty) Ltd (Akani), the second
appellant,
being the administrators of the MEPF, then intervened in
the main application and brought a counter application in which they
sought
an order:
(a) declaring rule 3.2.1
of the Fund unconstitutional and invalid because it was contrary to
public policy and amounted to an unreasonable
and unjustifiable
limitation of the employees’ constitutional rights to freedom
of association (entrenched in s 18 of the
Constitution) and of the
MEPF’s right to freedom of trade (protected by s 22 of the
Constitution); and
(b) compelling the Fund
to ‘give effect to the transfer of the relevant employees’
in terms of ss 13A(5) or 14 of the
PFA.
[4]
The MEPF and Akani thereafter filed a
supplementary notice of counter- application, the so-called
‘collateral challenge’,
in which they sought to review
and set aside rule 3.2.1 on the grounds that it was adopted without
proper reason and it was unlawful,
irrational and unreasonable.
[5]
The court a quo (Hartle J) granted an order as
prayed with costs in terms of the main application on the basis that
rule 3.2.1 prohibited
the employees from terminating their
membership, whilst remaining in service of the Municipality. The
court a quo also dismissed
the constitutional challenge on the
merits, holding that the rule was not unconstitutional and that in
any event, the MEPF lacked
standing to advance the employees’
constitutional right to freedom of association. The result was that
the Municipality owed
the arrear contributions to the Fund.
[6]
Prior to the decision of the court a quo, the
KwaZulu-Natal Division of the High Court, Pietermaritzburg, in
SAMWU
National Provident Fund v Umzimkhulu Local Municipality
,
[2016] ZAKZPHC 57; (2018) 39 ILJ 121 (KZP) case no 12296/15 (Balton
J) dismissed a similar application brought by the Fund with
costs on
the basis that rule 3.2.1, read together with rule 11.11 of the Rules
of the Fund, allowed members while 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. Hartle J, however, disagreed with the
interpretation placed upon the rules by Balton J and
thereafter
granted leave to the MEPF and Akani 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.
[7]
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 rights to freedom of association of the employees and
the right to freedom of trade of the MEPF.
(c) Whether these rules
of the Fund should be reviewed and set aside as they were adopted
without proper reason and were unlawful,
irrational and
unreasonable.
[8]
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.’
[9]
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.’
[10]
The court a quo held that the approach of Balton
J was artificial and ignored the real meaning of rule 3.2.1. Balton J
had concluded
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 court a quo concluded that the real meaning
of rule 3.2.1 was that it prohibited the Fund from doing what the
Municipality,
the employees and the MEPF sought to achieve, which was
the cessation of the membership of the employees in the Fund, whilst
they
remained in service with the Municipality. As regards rule 11
the court a quo held that this rule dealt with:
‘
[T]he
second discrete process of transferring the member’s share in a
scenario where the Rules permit or require it. It obscures
and
detracts from the real conundrum which is that members may not in
terms of Rule 3.2 cease to be members while in service of
the
municipality.’
[12]
The Fund submits that this is the correct
interpretation to be placed upon rule 3.2.1 namely that it prohibits
members from ‘withdrawing’
from the Fund while in
‘service’ with the Municipality. The MEPF and Akani,
however, submit that the rule does not
restrict a member’s
right to terminate his or her membership in the Fund and join a new
fund.
[13]
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.’
[14]
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.’
[15]
The MEPF and Akani submit that rule 3.2.1 deals
with the withdrawal of benefits, whereas rule 3.2.2 deals with the
termination of
membership. The argument is that rule 3.2.1 prohibits
a member from withdrawing his or her benefits from the Fund (that is,
cashing
in his or her benefits) for as long as he or she remains in
the Municipality’s employ. Rule 3.2.2 provides that a member’s
membership in the Fund will automatically terminate when he or she
leaves the Municipality’s employ. The effect of rule 3.2.1
they
argue is that a municipal employee’s funds and benefits must
remain invested with a pension fund, for as long as he
or she is
employed with the Municipality. The rule does not, however, preclude
a member from electing to terminate membership of
the Fund in order
to join a new fund, such as the MEPF. Such a transfer of membership
would not entail a withdrawal of benefits
from the Fund, and was
consequently not prohibited by rule 3.2.1.
[16]
In my view, this interpretation 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.
[17]
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 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.
[18]
The MEPF and Akani submit that s 13A(5) of the
PFA provides for a member of a fund voluntarily to elect to
leave a fund and
transfer his or her benefits to a new fund, for any
reason whatsoever. The object of the section is to afford members
freedom of
choice concerning their investments. In other words,
regardless of the rules of a fund, a member may elect to leave that
fund in
terms of this section. 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.’
[19]
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.
[20]
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.’
[21]
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
and others v Toll Road Concessionaries (Pty) Ltd & others
1990 (1) SA 925
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) at para 18, this meaning is insensible and undermines the
apparent purpose of the section.
[22]
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.
[23]
Consequently, cessation of the employee’s
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 Act. 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 submission by the MEPF and Akani that s 13A(5) of
the PFA provides for the employees to voluntarily leave the Fund and
to transfer their benefits to the MEPF for any reason whatsoever,
falls to be rejected.
[24]
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.
[25]
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. . . .’
Unless
a number of detailed requirements listed in the section are
fulfilled.
[26]
‘
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.
[27]
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.
[28]
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, state 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 13A(5).’
In
Sasol
para 16, this court approved of the following passage in
Rosemary Hunter et al, at 284:
‘
Section
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.
[29]
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.
[30]
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.
[31]
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.
[32]
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. 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.
[33]
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.
[34]
The court a quo erroneously interpreted this
provision to mean that:
‘
.
. . it is the membership of such a fund and not a single fund serving
the needs of those employees as a condition of employment
that is
being described.’
The
definition, however, specifically requires ‘membership of the
fund’ and not ‘membership of a fund’ which
is a
‘provident fund’.
[35]
The MEPF and Akani submit, however, that the Fund
has not demonstrated that it falls within the definition and relies
on it for
income tax purposes. However, a consideration of the
relevant definitions in the PFA indicates that the Fund falls within
the definitions.
A ‘pension fund organisation’ is defined
in the PFA as:
‘
Any
association of persons established with the object of providing
annuities or lump sum payments for members or former members
of such
association upon their reaching retirement dates, or for the
dependants of such members or former members upon the death
of such
members.’
In
terms of the definition of ‘provident fund’ contained in
s 1 of the Income Tax Act 58 of 1962 (the ITA), the Fund
has to be a
‘. . . permanent fund
bona fide
established solely for
the purpose of providing benefits for employees on retirement date. .
. .’
The
Fund satisfies the requirements of both definitions.
[36]
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.
[37]
The Fund 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.
[38]
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.
[39]
Hartle J therefore correctly concluded that in
terms of rule 3.2.1, members may not terminate their membership of
the Fund while
in service of the Municipality and that the provisions
of s 14 of the PFA were not applicable. Conversely, Balton J 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.
[40]
Before dealing with the constitutional challenges
to the rules of the Fund, and what is described as a ‘collateral
challenge’
for the review of these rules of the Fund, it is
necessary to mention what may be described as procedural obstacles
raised by the
Fund to these challenges. These were as follows:
(a) The constitutional
challenge to rule 3.2.1 was precluded by the principle of
subsidiarity. It was submitted that the MEPF and
Akani 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.
(b) The MEPF and Akani
lacked standing to assert the right to freedom of association, on
behalf of the employees.
(c) The reliance by the
MEPF and Akani on what was described as a ‘collateral
challenge’ was impermissible, as they
had in fact utilised the
proceedings launched by the Fund against the Municipality to bring a
counter-application, seeking a review
of rule 3.2 of the Fund.
(d) The MEPF and Akani
had delayed unreasonably in instituting the review proceedings and
lacked standing to do so.
[41]
The court a quo dealt with only one of these
issues finding that the MEPF and Akani lacked standing to assert the
right to freedom
of association on behalf of the employees. Although
describing the ‘collateral challenge’ as ‘ill-conceived
and
poorly justified’ it made no specific finding as to its
validity. No specific findings were made as to the issue of
subsidiarity, nor whether there had been an unreasonable delay in
instituting the review proceedings, nor whether any delay should
be
condoned, nor whether the MEPF and Akani lacked standing to do so.
[42]
In my view, a just decision of the appeal
requires a determination of the merits of the constitutional
challenges, without their
resolution being frustrated by procedural
obstacles of this nature. A determination of the merits of the
constitutional challenges
is not only of importance to the parties,
but to other pension funds with similar provisions in their rules. To
frustrate a determination
of these issues 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
MEPF and Akani, without deciding these issues, that the procedural
obstacles not dealt
with by the court a quo should not be upheld.
However, with regard to the finding of the court a quo that the MEPF
and Akani
lacked standing to assert the right to freedom of
association on behalf of the employees, a definitive finding was made
by the
court a quo and must be dealt with.
[43]
It is to a consideration of this issue that I now
turn. The Fund relies upon the decisions in
Municipal
Employees Pension Fund v Natal Joint Municipal Pension Fund
(Superannuation) & others
[2017] ZACC 43
;
[2018] 1 BPLR 1 (CC);
2018 (2) BCLR 157
(CC) and
Oostelike
Gauteng Diensteraad v Transvaal Munisipale Pensioenfonds en ‘n
ander
1997 (8) BCLR 1066
(T) as support for
its assertion that the MEPF and Akani lack standing to assert the
right to freedom of association, on behalf
of the employees.
[44]
In
Oostelike
the applicant unsuccessfully asserted not only what it maintained was
its own right of association, but also the rights of association
of
its workers. It was noted at 1076, that although the Constitutional
Court had emphasised that a broad approach to the issue
of locus
standi in constitutional matters should be adopted, an applicant in a
constitutional matter who claimed to be acting on
behalf of other
individuals had to clearly set out the basis and nature of the claim
to locus standi, in order to assert the rights
of those individuals.
[45]
In
Municipal Employees
Pension Fund
(CC), the MEPF as the applicant
sought leave to appeal against the decision of this court in
Municipal Employees Pension Fund v Natal
Joint Municipal Pension Fund (Superannuation) & others
[2016] ZASCA 139
;
[2016] 4 All SA 761
(SCA) in which it was held
that municipalities in KwaZulu-Natal were entitled to associate
with any pension or provident
fund, provided that such association
was in addition to an association with the KwaZulu-Natal Municipal
Pension Funds, created
in terms of provincial legislation. The MEPF
submitted in the Constitutional Court that it:
‘
.
. . sought the protection of the employees’ right of
association and not the Pension Fund’s right of association as
was the case in
Oostelike
.’
[46]
The response of the Constitutional Court to this
submission concerning the locus standi of the MEPF was as
follows:
‘
This
argument has no merit. This is because the employees and trade unions
referred to by the applicant are not parties to the application
and
the applicant failed to demonstrate its legal standing on behalf of
the employees, or why the employees needed it to bring
this challenge
on their behalf. The applicant has also not provided any details on
the nature and extent of the alleged infringement
of this right.’
[47]
The MEPF and Akani submit that the basis for the
decision of the Constitutional Court was that the MEPF had failed to
plead and
demonstrate that it acted on behalf of the employees,
because they had not even been joined in that case. It is submitted
that
the present case is distinguishable on a number of grounds:
(a) No ‘standing
complaint’ was raised in the Fund’s papers and the issue
should accordingly not have been entertained
by the court a quo.
(b) The MEPF had
consistently pleaded that the freedom of association challenge was
bought on behalf of the relevant employees and
the members of the
Fund. The litigation was brought in the relevant employees’
interest, who had indicated an unambiguous
intention to transfer from
the Fund.
(c) The members were
joined and therefore knew that the complaint was pursued on their
behalf, without objection or demur.
[48]
Because the MEPF and Akani place a great deal of
significance on the fact that the employees were joined in the
present action,
it is necessary to briefly examine how their joinder
came about. The proceedings were launched by the Fund in February
2015 against
the Municipality as the sole respondent. In April 2015
the MEPF and Akani successfully brought an application for leave to
intervene
in the application, claiming that they had a direct and
substantial interest in the matter. This was on the basis that the
affected
employees had become members of the MEPF in September 2013,
and any order granted would affect the MEPF and Akani. The order
joining
them was granted on 20 November 2015. As the court a
quo pointed out, the MEPF and Akani never sought the employees’
intervention at the same time. If they wished to promote and protect
the interests of the employees and not only their own interests,
a
joinder at that stage of proceedings would have been expected.
[49]
The employees were, however, only joined to the
proceedings as the fourth to the 128th respondents on 23 June 2016
some seven months
later, pursuant to an objection in limine of their
non-joinder raised by the MEPF and Akani. The need for their joinder
was said
to be their purported change of membership and to whom the
municipality would be accountable in respect of their pension
contributions.
In terms of the order of joinder the employees were
entitled to file answering affidavits, in both the main application
and the
counter-application. No affidavits were, however, filed.
[50]
As pointed out by the court a quo, the employees
did not oppose the main application, nor did they pertinently
associate themselves
with the relief sought by the MEPF and Akani
purportedly on their behalf in the counter-application, or in respect
of the collateral
review that was added late in the proceedings. The
court a quo noted that there was no indication that the papers
relating to the
collateral challenge, were even served on the
employees. The Fund submits that no mandates, resolutions or
supporting affidavits
were obtained from the employees. In addition
the affidavits filed by the MEPF contained no allegation that it was
authorised to
act on behalf of any of the employees, or that it
brought the application on their behalf.
[51]
Considering the aforegoing, I am satisfied that
the MEPF and Akani failed to adequately set out the basis and
nature of their
claim to locus standi, to enable them to assert the
right of freedom of association on behalf of the employees. The court
a quo
accordingly correctly concluded that the MEPF and Akani lacked
locus standi to represent the interests of the employees in this
regard.
[52]
I turn to consider the constitutional challenges.
The first challenge is whether rule 3.2 infringes the right to
freedom of association
of the employees. Despite finding that the
MEPF and Akani lacked standing to assert this right on behalf of the
employees, I will
deal with this issue in accordance with the views
of the constitutional court in
S v Jordan &
others
(Sex Workers
Education and Advocacy Task Force & others as Amicus Curiae)
[2002] ZACC 22
;
2002 (6) SA 642
(CC) para 21:
‘
Where
the constitutionality of a provision is challenged on a number of
grounds and the Court upholds one such ground it is desirable
that it
should also express its opinion on the other challenges. This is
necessary in the event of this Court declining to confirm
on the
ground upheld by the High Court. In the absence of the judgment of
the High Court on the other grounds, the proper course
to follow may
be to refer the matter back to the trial Court so that it can deal
with the other challenges to the impugned provision.
Thus failure by
the High Court to consider other challenges could result in
unnecessary delay in the disposal of a case.’
Although
the dictum is not entirely applicable on the facts of the present
case, I consider the reasoning of the Constitutional
Court relevant
should the determination of whether rule 3.2 infringes the right to
freedom of trade of the MEPF, be scrutinised
by that court.
[53]
The Fund submits that the requirement to belong
to an association and particularly a pension fund, does not limit the
right to freedom
of association, enshrined in s 18 of the Bill of
Rights. The Fund relies upon the decision in
Oostelike
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.’
A
nd
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’.
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.
[54]
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.
[55]
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, 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.’
[56]
In the present case the limitation was also
‘self-inflicted’, because the employees had a choice at
the outset to join
one of the other 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.
[57]
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
(CC). The MEPF submitted
in that case 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 the employees.
This 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.’
[58]
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.
[59]
The MEPF and Akani, however, submit that the fact
that employees are given the choice of which retirement fund to join
at the commencement
of their employment with the Municipality and
have the option to join additional funds during the course of their
employment, is
not adequate to protect an employees’ full
enjoyment of the right to freedom of association. It is submitted
that the right
to freedom of association also safeguards the right to
end an association that a person no longer wishes to maintain and
that this
right is important in the retirement fund context. Members
may wish to terminate their membership in a fund, because they are
dissatisfied
with its performance and consider their retirement
savings at risk.
[60]
The right to end an association in the retirement
fund context cannot be considered in isolation. As pointed out by
this court in
Municipal Employees Pension Fund
(SCA) para 30, the purpose of the compulsory membership of a
particular pension fund, serves to enhance pension benefits and to
secure the viability of a pension fund, by ensuring that it has
significant numbers of members. Pension funds must have the necessary
critical mass to make them viable. The number of members which a
pension fund has directly affects the viability of the fund and
hence
the benefits which the members will receive. It was reiterated by the
Constitutional Court in
Municipal Employees
Pension Fund
(CC) para 41, that the
obligation to join one of the KwaZulu-Natal Pension Funds and to
retain membership until the individual
was no longer employed by a
local authority in KwaZulu-Natal, was done to ensure the viability of
these funds, to secure pension
benefits for local authorities’
employees. Seen in this context, any limitation on the right to
disassociate would
be justified.
[61]
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.
[62]
I turn to consider whether rule 3.2 infringes the
right to freedom of trade of the MEPF. The MEPF submits that but for
the rules
of the Fund that prohibit transfers, municipal employees
could freely choose which fund they wish to belong to, based on its
performance
and service offering and move to that fund. It is
therefore unable to market to and encourage transfer by members of
the Fund,
with the result that its rights under s 22 of the
Constitution are infringed.
[63]
In
City of Cape Town v AD
Outpost (Pty) Ltd & others
2000 (2) SA
733
(C) at 747E-G the following was stated:
‘
In
my view s 22 introduces a constitutional protection to be enjoyed by
individual citizens as opposed to juristic bodies. The right
ensures
that each citizen will have the right to choose how to employ his or
her labour and skills without irrational governmental
restriction. It
is not a provision which should be extended to the regulation of
economic intercourse as undertaken by enterprises
owned by juristic
bodies which might otherwise fall within the description of economic
activity.’
I
agree with these views and the MEPF is accordingly unable to assert
any right to freedom of trade.
[64]
In this regard it should be noted that rule 24 of
the rules of the MEPF provide that, ‘A member shall not cease
to be a member
while he remains in the service of a local authority.’
The Fund quite correctly submits that having such a Rule is therefore
part and parcel of engaging in trade and competition in this sector.
The MEPF cannot claim that its right to trade freely is infringed
in
circumstances where it ‘infringes’ the rights of others
to trade to the same extent.
[65]
I turn to consider whether rules 3.2.1 and 3.2.2
of the Fund should be reviewed and set aside on the grounds that they
were adopted
without proper reason and are unlawful, irrational and
unreasonable. As pointed out above, this court in
Municipal
Employees Pension Fund
(SCA)
para 30, stated that the purpose of the compulsory membership of a
particular pension fund, serves to enhance pension benefits
and to
secure the viability of a pension fund, by ensuring that it has
significant numbers of members. The Constitutional Court
in
Municipal
Employees Pension Fund (CC)
para 41,
reiterated that the obligation to join one of the KZN Pension Funds
and to retain membership until the individual was
no longer employed
by a local authority in KwaZulu-Natal, was done to ensure the
viability of these funds, to secure pension benefits
for local
authorities’ employees. There is accordingly no basis for the
assertion that rules 3.2.1 and 3.2.2 of the rules
of the Fund are
unlawful, irrational and unreasonable.
[66]
Counsel for the Fund brought to our attention
that there was a typographical error in paragraph 2 of the order,
granted by the court
a quo. The paragraph provides that the ‘first,
second and/or third respondent, the one paying the other to be
absolved’
are directed to pay to the Fund, all arrear
contributions pertaining to the employees, whereas the relief should
have been directed
at the first respondent alone. This error will be
rectified in the order granted.
[67]
In the result the following order is granted:
(a) Paragraph 2 of the
order granted on 14 August 2018 is deleted and replaced with the
following paragraph;
‘
2.
The first respondent is directed to pay to the applicant all arrear
pension contributions pertaining to the employees listed
in annexure
“SAM3” which have been withheld from it since September
2013 to date:’
(b) The appeal is
dismissed with costs including the costs of two counsel.
K
G B Swain
Judge
of Appeal
Appearances:
For
Appellants: A R Bhana SC (with I Goodman)
Instructed
by:
Webber
Wentzel, Johannesburg
Symington
& De Kok, Bloemfontein
For
First Respondent: P Van der Berg SC (with S Budlender, H Drake and M
Mbikiwa)
Instructed
by:
Shepstone
& Wylie Attorneys, Johannesburg
McIntyre
Van der Post, Bloemfontein