Brief Summary

Pension Funds — Unfair discrimination — Amendment to pension fund rules — Appellant, a former employee of Iscor, excluded from enhanced early retirement benefits under amended rule 6.2 — Adjudicator found this exclusion constituted unfair discrimination and maladministration — High Court set aside Adjudicator's order — Whether the Adjudicator's determination was valid and enforceable. Held: The Adjudicator's finding of unfair discrimination against the appellant was upheld, as the amendment to the pension fund rules resulted in a significant disparity in benefits between the appellant and other members, constituting maladministration of the fund.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter concerned an appeal to the Supreme Court of Appeal against an order of the Transvaal Provincial Division (High Court) setting aside a determination made by the Pension Funds Adjudicator under s 30C of the Pension Funds Act 24 of 1956. The appeal therefore arose within the statutory dispute-resolution scheme created by Chapter V A of the Act, read with the High Court’s appellate powers under s 30P.

The appellant was Cedric Meyer, a former employee of companies in the Iscor group and a former member of the Iscor Pension Fund. The respondent was the Iscor Pension Fund, a registered pension fund whose membership consisted of employees within the Iscor group.

The procedural history was protracted and involved multiple fora over nearly a decade. After taking early retirement in July 1993 on reduced benefits, Meyer first pursued relief against Iscor in the Industrial Court, where he initially succeeded. That result was overturned on appeal by the Labour Appeal Court in Yskor v Meyer [1995] 7 BLLR 28 (LAC), principally because the pension fund was a separate entity from Iscor and Iscor could not be held liable for loss said to flow from the fund’s rule amendment. Meyer then pursued a statutory complaint against the Fund to the Pension Funds Adjudicator, who found in Meyer’s favour and granted relief framed as compensation. The Fund appealed to the High Court under s 30P, which set the Adjudicator’s determination aside. Meyer then appealed to the Supreme Court of Appeal.

The general subject-matter of the dispute concerned the amendment of a pension fund rule governing early retirement, the conferral of enhanced early retirement benefits on certain members after Meyer had retired, and whether Meyer’s exclusion from those enhanced benefits could be characterised as unfair discrimination, an improper exercise of power, or a violation of legitimate expectations capable of grounding relief under the Act.

2. Material Facts

Meyer was employed by Iscor for more than 33 years and was a member of the Iscor Pension Fund throughout his employment. In mid-1993, during Iscor’s broader rationalisation and retrenchment programme, Meyer was informed that he was about to be retrenched. He took early retirement at the end of July 1993 at age 51, on the basis that this was the date on which he would in any event have been retrenched.

At the time of Meyer’s retirement, the Fund applied rule 6.2 in its then-existing form. That rule provided that where a member retired before the normal retirement age of 63, the pension payable would be reduced by 0.4% for each month by which retirement preceded age 63. Because Meyer retired 12 years early, his benefits were materially reduced.

On 20 September 1993, less than two months after Meyer’s retirement, the trustees of the Fund resolved to amend rule 6.2. The amendment was expressly framed as temporary and designed to support Iscor’s personnel-reduction programme by incentivising early retirement. In broad terms, the amended rule provided enhanced benefits (including the removal of the 0.4% monthly reduction and an extension of pensionable service) for employees who met specified criteria, including attaining age 50 by 31 December 1993, electing within a defined window, and retiring in the first quarter of 1994.

On the figures accepted by the Court, Meyer’s pension under the unamended rule produced a lump sum of R152 019,61 and a monthly pension of R1 669,94. If he had been treated as qualifying under the amended rule, he would have received a lump sum of R342 612,90 and a monthly pension of R3 939,11. Meyer considered himself aggrieved by his exclusion from the enhanced benefits.

The Court accepted the broader context that Iscor had, from about 1983, pursued rationalisation leading to substantial workforce reduction, and that in 1993 there was a further retrenchment programme implemented through voluntary and compulsory phases. During negotiations with trade unions, Iscor gave undertakings that later improvements to rationalisation or retrenchment benefits would be implemented retrospectively for employees whose employment terminated during the programme; these undertakings were repeated in meetings and in communications to employees.

The record also reflected that early retirement was initially unattractive under the unamended rule 6.2, and that a Fund surplus was identified. In early September 1993 Iscor suggested that the surplus be used to create a “window” of improved early retirement benefits, which the trustees adopted through the amendment to rule 6.2. The amendment proved effective in that a large group (about 2 843) retired during the first quarter of 1994 and received the amended benefits.

A further factual feature was that 173 employees who retired during the last quarter of 1993 received the enhanced benefits despite the amended rule’s express limitation to retirements in the first quarter of 1994. The Court treated this as an instance where the trustees appeared to have acted outside the scope of the amended rule in extending its benefit to this group. Three of Meyer’s former colleagues who left in October 1993 fell within this category; their later exit compared to Meyer’s was described as fortuitous.

Meyer also complained about employees from a subsidiary referred to as Usko, whose prior separate pension fund had been taken over by the Iscor Pension Fund in January 1993 at substantial cost. Meyer’s grievance, as described, was that some of these members received increased benefits under the amended rule while he did not.

Where disputes of fact arose in the High Court proceedings on the papers, the Supreme Court of Appeal approached them by applying the Plascon-Evans rule, treating Meyer (as complainant) as the “applicant” for purposes of motion-proceeding principles, notwithstanding the Fund’s formal role in bringing the s 30P application.

3. Legal Issues

The central legal questions concerned whether Meyer’s complaint, properly characterised, established a basis for statutory intervention under the Pension Funds Act, and whether the Adjudicator’s conclusion that Meyer had suffered unfair discrimination (amounting to maladministration or improper exercise of power) could be sustained.

A core issue was whether the Fund’s exclusion of Meyer from the enhanced benefits, which were introduced after he had ceased to be a member, could constitute unfair discrimination or an improper exercise of the trustees’ power to amend rules under rule 12.8, particularly in circumstances where some non-qualifying persons had allegedly been given benefits and where Iscor had made general retrospective undertakings during retrenchment negotiations.

A further issue concerned the doctrine of legitimate expectation: whether, in South African law as articulated by prior appellate authority, a legitimate expectation could ground a claim to a substantive benefit (enhanced pension benefits), or whether it remained confined to entitlements of procedural fairness.

The matter largely involved the application of legal principles to facts (including the binding force of pension fund rules, the scope of trustees’ discretionary powers, and the limits of legitimate expectation), together with evaluative judgments about the appropriateness of the remedy crafted by the Adjudicator in light of the structure and consequences of the rule amendment.

4. Court’s Reasoning

The Court first situated the dispute within the statutory framework of Chapter V A of the Pension Funds Act. It emphasised that the Adjudicator is a creature of statute with no inherent jurisdiction, and that the Adjudicator’s powers are confined to determining “complaints” as defined in s 1. It further explained that an appeal under s 30P is an appeal “in the wide sense” as described in Tikly & Others v Johannes NO and Others 1963 (2) SA 588 (T), because the High Court may consider the merits afresh, take evidence, and make any order it deems fit; however, the High Court’s jurisdiction remains confined to the “merits of the complaint in question”, which must substantially remain the same complaint that was before the Adjudicator.

Turning to the Adjudicator’s determination, the Court held that the Adjudicator’s “golden thread” was a finding of unfair discrimination based on comparisons between Meyer’s benefits and those of other groups. The Court then assessed each comparison advanced.

As to the group of 173 who received enhanced benefits despite not qualifying under the amended rule, the Court reasoned that the trustees’ extension of benefits to them was, on its face, beyond the rule’s scope and therefore contrary to the rules. However, Meyer did not allege or establish that he sustained prejudice in consequence of those payments, as required for the maladministration limb relied on by the Adjudicator. More fundamentally, Meyer’s contention amounted to an assertion that he should receive benefits despite not qualifying, because others who likewise did not qualify had received them. The Court rejected this as untenable, relying on s 13 of the Pension Funds Act, which makes the rules binding on the fund and its members and claimants. Because Meyer conceded he did not qualify under the amended rule, he could not claim those benefits as of right; and the fact that trustees had acted ultra vires in other instances could not compel repetition of illegality.

As to the Usko members, the Court treated their entitlement to benefits as flowing from their status as members and the application of the rules, including the amended rule, once they became members. The Court considered that Meyer’s complaint was not that he suffered prejudice from payments to them; rather, it was that differentiation existed because they qualified while he did not. Differentiation resulting from the application of a valid rule to persons who qualify, while excluding those who do not, was held not to constitute unfair discrimination by the trustees because they were bound to apply the rule as written.

Similarly, in relation to the approximately 2 800 members who retired in the first quarter of 1994 (the primary targeted group of the amendment), the Court held that the Fund had no choice but to apply the amended rule to those who met its criteria. Since Meyer did not qualify, the trustees were neither obliged nor entitled to grant him the same benefits merely because later retirees received them under the amendment.

The Court then addressed the way Meyer’s argument shifted on appeal to focus not on the application of the amended rule, but on its formulation: namely, the contention that the trustees should have drafted the amendment so as to include Meyer and similarly situated former members. The Court accepted that the trustees enjoyed a wide discretion to amend rules under rule 12.8, subject to statutory compliance and required approvals. It also accepted, with reference to Tek Corporation Provident Fund and Others v Lorentz 1999 (4) SA 884 (SCA), that trustees owe a fiduciary duty to act in the best interests of members and that this includes a duty of impartiality and an obligation not to discriminate unfairly. The Court was prepared to assume (without deciding) that decisions under the trustees’ discretionary powers could be scrutinised on a basis analogous to administrative-law review principles, with reference to authorities including Turner v Jockey Club of South Africa 1974 (3) SA 633 (A), Lunt v University of Cape Town and Another 1989 (2) SA 438 (C), and Edge and Others v Pension Ombudsman and Another 1999 (4) All ER 546 (CA).

On jurisdiction, the Court considered the Fund’s argument that “maladministration” did not encompass rule amendment, but found it unnecessary to decide that issue because the complaint fell within the definition’s paragraph addressing an improper exercise of powers purportedly taken in terms of the rules. The Court thus treated Meyer’s challenge to the formulation of the amendment as capable of falling within paragraph (a) of the complaint definition.

On the merits, however, the Court emphasised that when the trustees amended rule 6.2 on 20 September 1993, Meyer had already retired and was no longer a member. The Court reasoned that pension fund rule amendments often improve the position of existing members and that such prospective improvements are not ordinarily discriminatory against those who ceased to be members prior to the amendment. It rejected Meyer’s attempt to distinguish the case on the basis that all retirements were part of one rationalisation scheme, noting that the suggestion to use the Fund surplus as an incentive arose only in early September 1993, after Meyer had retired. In those circumstances, the trustees could not be criticised for treating the amendment as prospective, and the Court regarded differentiation between members and former members as a legitimate distinction that does not in itself amount to unfair discrimination.

The Court then dealt with Meyer’s reliance on Iscor’s undertaking that improved retrenchment benefits would apply retrospectively, and his attempt to frame this as a legitimate expectation of substantive pension enhancement. It reaffirmed the traditional South African position that legitimate expectation operates as a mechanism to secure procedural fairness rather than to compel a substantive result, relying on Administrator, Transvaal, and Others v Traub and Others [1989] ZASCA 90; 1989 (4) SA 731 (A) and Administrator, Transvaal, and Others v Zenzile and Others 1991 (1) SA 21 (A). The Court interpreted Premier, Mpumalanga, and Another v Executive Committee, Association of State-Aided Schools, Eastern Transvaal 1999 (2) SA 91 (CC) as supporting procedural protections (such as notice and hearing) rather than enforcing continued payment as a substantive outcome.

Although Meyer urged the Court to adopt the English developments recognising substantive legitimate expectations, including R v North and East Devon Health Authority, Ex parte Coughlan [2001] QB 213 (CA) and R (Bibi) v Newham London Borough Council [2001] EWCA Civ 607; [2002] 1 WLR 237 (CA), the Court declined to decide that broader question in this case, describing it as difficult and context-dependent. It pointed to differences between English contract law (including the role of consideration) and South African law (which does not require consideration for enforceability), referencing Conradie v Rossouw 1919 AD 279 and McCullogh v Fernwood Estate, Ltd 1920 AD 204, and also noted divergent comparative approaches (including Australian and Canadian positions).

In any event, the Court held that even if substantive legitimate expectation were assumed to be part of South African law, Meyer would still fail for two principal reasons grounded in the facts and the parties’ relationship. First, the promise relied upon was made by Iscor, not by the Fund; the Court held that the factors Meyer relied upon (Iscor’s role in appointing trustees, trustees’ employment by Iscor, trustees’ awareness of Iscor’s aims) were insufficient to treat Iscor as authorised to bind the Fund, and it saw no basis for holding the Fund liable to fulfil a promise made by a separate entity. Secondly, there was a bona fide dispute of fact as to whether Iscor’s promise about improved retrenchment benefits included pension benefits at all. Applying Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A), the Court accepted the Fund’s version on the papers (that pension benefits were not within the promise), finding that version not far-fetched or untenable.

Finally, the Court identified an overriding remedial difficulty with the Adjudicator’s order. The Adjudicator had ordered the Fund to “place” Meyer in the position he would have been in had he qualified under the amended rule, but it was common cause that he did not qualify under its terms. The Court reasoned that Meyer’s true case, if framed as an administrative-law-type challenge to the formulation of the amendment, would have supported (at most) relief setting aside the trustees’ decision and remitting it for reconsideration. However, the Court held that neither the Adjudicator nor the Court was placed in a position to determine what the amendment’s terms should have been if it had to include the additional approximately 800 former members, particularly given actuarial constraints and that different eligibility alternatives had been considered (including raising the age threshold). The Court also noted the practical complication that a substantial part of the surplus had already been distributed and nearly ten years had passed, meaning that the adjudicative bodies could not craft the compensatory relief the Adjudicator had granted without impermissibly speculating about the content and financial consequences of a hypothetical, differently drafted amendment.

5. Outcome and Relief

The Supreme Court of Appeal dismissed Meyer’s appeal and upheld the High Court’s order setting aside the Pension Funds Adjudicator’s determination.

The Court refused to grant relief compelling the Fund to compensate Meyer as if he had qualified for the enhanced benefits, holding that the Adjudicator’s order could not stand in light of the binding nature of the Fund’s rules, the lack of a sustainable basis for unfair discrimination or enforceable substantive legitimate expectation, and the inability to determine the hypothetical terms and consequences of a retrospectively widened amendment.

The appeal was dismissed with costs, including the costs of two counsel.

Cases Cited

Tikly & Others v Johannes NO and Others 1963 (2) SA 588 (T).

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A).

Yskor v Meyer [1995] 7 BLLR 28 (LAC).

Tek Corporation Provident Fund and Others v Lorentz 1999 (4) SA 884 (SCA).

Turner v Jockey Club of South Africa 1974 (3) SA 633 (A).

Lunt v University of Cape Town and Another 1989 (2) SA 438 (C).

Edge and Others v Pension Ombudsman and Another 1999 (4) All ER 546 (CA).

Mokoena and Others v Administrator, Transvaal 1988 (4) SA 912 (W).

Administrator, Transvaal, and Others v Traub and Others [1989] ZASCA 90; 1989 (4) SA 731 (A).

Administrator, Transvaal, and Others v Zenzile and Others 1991 (1) SA 21 (A).

Premier, Mpumalanga, and Another v Executive Committee, Association of State-Aided Schools, Eastern Transvaal 1999 (2) SA 91 (CC).

R v North and East Devon Health Authority, Ex parte Coughlan [2001] QB 213 (CA).

R (Bibi) v Newham London Borough Council [2001] EWCA Civ 607; [2002] 1 WLR 237 (CA).

R v Secretary of State for the Home Department, Ex parte Hargreaves and Others [1996] EWCA Civ 1006; [1997] 1 WLR 906 (CA).

Mount Sinai Hospital Center v Quebec (Minister of Health and Social Services) 2001 SCC 41; [2001] 2 S.C.R. 281.

Reference Re Canada Assistance Plan (BC) [1991] 2 S.C.R. 525.

R v Inland Revenue Commissioner, Ex parte Matrix-Securities Ltd [1994] 1 WLR 334 (HL).

Conradie v Rossouw 1919 AD 279.

McCullogh v Fernwood Estate, Ltd 1920 AD 204.

Legislation Cited

Pension Funds Act 24 of 1956.

Pension Fund Amendment Act 22 of 1996.

Industrial Relations Act 28 of 1956.

Constitution of the Republic of South Africa Act 200 of 1993 (s 24(b)).

Rules of Court Cited

No specific uniform rule of court was cited. The motion-proceedings approach to disputes of fact was applied by reference to Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A).

Held

The Court held that Meyer could not claim enhanced early retirement benefits introduced by an amendment to the Fund’s rules after he had already retired and ceased to be a member, where he did not qualify under the amended rule’s express terms. Differentiation between current members who met the amended criteria and former members who did not was not, on the facts and reasoning accepted, unfair discrimination attributable to the Fund.

The Court held that the Adjudicator’s discrimination-based reasoning could not be sustained where it depended on comparisons with (i) persons who were paid benefits ultra vires the rules, (ii) members who qualified under the amended rule, and (iii) alleged promises made by Iscor that could not be attributed to the Fund and were, in any event, disputed in content on the papers. The Court further held that legitimate expectation, as recognised in South African law on the authorities cited, is directed at procedural fairness and did not provide a basis on these facts to compel substantive payment of enhanced pension benefits.

The Court held that the remedial order requiring the Fund to place Meyer in the position he would have occupied had he qualified was not supportable because it effectively required conferring benefits not provided by the rules and because the adjudicative bodies were not placed in a position to determine what a properly widened amendment should have contained, particularly given actuarial and practical consequences and the passage of time.

LEGAL PRINCIPLES

The Court reaffirmed that the Pension Funds Adjudicator’s jurisdiction is confined to the determination of a statutory “complaint” as defined in s 1 of the Pension Funds Act, and that the Adjudicator has no inherent jurisdiction beyond the statute.

The Court affirmed that an appeal to the High Court under s 30P is an appeal in the wide sense, permitting reconsideration of the merits and the taking of evidence, but that the High Court’s power remains confined to the merits of the same complaint that was determined by the Adjudicator.

The Court applied the principle in s 13 of the Pension Funds Act that the rules of a registered fund are binding on the fund and those who claim under them. A claimant who does not qualify under the rules cannot compel payment of benefits outside the rules, and a fund’s prior ultra vires payments to others do not create an entitlement to further unlawful payments.

The Court accepted that trustees owe fiduciary duties, including a duty of impartiality, and it assumed (without deciding) that discretionary decisions on rule amendments could be scrutinised on a basis analogous to administrative-law review principles. However, it held that the prospective enhancement of benefits for existing members does not ordinarily constitute unfair discrimination against former members who had already exited the fund before the amendment was conceived and adopted.

The Court reaffirmed, on the South African appellate authorities relied upon, that the doctrine of legitimate expectation has traditionally been used to secure procedural fairness rather than to enforce a substantive result, and that on the facts and disputes presented Meyer could not compel the Fund to perform an undertaking made by a separate entity (Iscor), particularly where the content of the undertaking (whether it included pension benefits) was genuinely disputed and had to be resolved on the respondent’s version under the Plascon-Evans approach.

The Court underscored that remedial relief must be practically and legally coherent: where a successful challenge would at most entitle a party to the setting aside and remittal of a discretionary decision, a tribunal or court cannot grant compensation premised on a hypothetical alternative rule whose terms and financial consequences cannot be determined on the record, especially after substantial time has passed and the fund’s surplus position may have changed.

Meyer v Iscor Pension Fund (391/01) [2002] ZASCA 148; [2003] 1 All SA 40 (SCA) (28 November 2002)