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[2018] ZASCA 83
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Moor and Another v Tongaat-Hulett Pension Fund and Others (518/17) [2018] ZASCA 83; [2018] 3 All SA 326 (SCA); 2019 (3) SA 465 (SCA) (31 May 2018)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 518/17
In
the matter between:
BRUCE
ST CLAIR
MOOR
FIRST APPELLANT
WILLEM
JAN
HAZEWINDUS
SECOND APPELLANT
and
THE
TONGAAT-HULETT PENSION FUND
FIRST RESPONDENT
THE
TONGAAT-HULETT DEFINED
BENEFIT
PENSION FUND
SECOND REPSONDENT
TONGAAT
HULETT LIMITED
THIRD RESPONDENT
THE
REGISTRAR OF PENSION FUNDS
FOURTH RESPONDENT
Neutral
citation:
Moor
v Tongaat-Hulett Pension Fund
(518/17)
[2018] ZASCA 83
(31 May 2018)
Coram
Lewis,
Majiedt, Mbha and Dambuza JJA and Schippers AJA
Heard:
17 May 2018
Delivered:
31 May 2018
Summary:
Pension Funds Act – allocation and distribution of
actuarial surplus – proper interpretation of section 15C –
amended rules of pension fund to effect decision to allocate surplus
not contrary to section 15C(1) – no proof of alleged
bias on
part of board of pension fund –
Biowatch
principle not applicable in respect of costs in cases of private
interest litigation.
ORDER
On
appeal from
:
Kwazulu-Natal Local Division of the
High Court (Durban), Koen J sitting as court of first instance:
1.
The application to lead further evidence is dismissed with costs,
including the
costs of two counsel.
2.
The appeal is dismissed with costs, including the costs of two
counsel.
JUDGMENT
Majiedt
JA (
Lewis,
Mbha and Dambuza JJA and Schippers AJA concurring
):
[1]
The central issue in this appeal is whether the second respondent,
the Tongaat-Hulett Defined Benefit Pension Fund (the Fund),
contravened the provisions of s 15C of the Pension Funds Act 24 of
1956 (the PFA) when it allocated R363.2 million to the employer
surplus account (the ESA) in 2012. The Kwazulu-Natal Local Division
of the High Court (Durban), dismissed the challenge to the
allocation, brought by the appellants, Messrs Bruce St Clair Moor and
Willem Jan Hazewindus, holding that it was lawful. The appeal
is
before us with the leave of the high court.
Background
[2]
The appellants are former members of the Fund and former trustees of
the Fund’s predecessor, the first respondent, the
Tongaat-Hulett Pension Fund. The Fund was established with effect
from 1 November 2010 after the unbundling of Tongaat-Hulett Limited
(the third respondent) and Hulamin Limited. The third respondent is
the sponsoring employer of the Fund. Pursuant to a conversion
and
restructuring exercise (the scheme) in terms of s 14 of the PFA, the
Fund’s obligations to the appellants and its other
pensioner
members were outsourced to Old Mutual with effect from 1 April 2013.
As a result, the appellants’ membership of
the Fund was
terminated. The scheme followed upon a resolution of the Fund’s
Board of Trustees (the Board) of 14 May 2012
and it was approved by
the regulator, the Registrar of Pension Funds (the Registrar), on 15
August 2013. In his approval, the Registrar
certified that the
requirements of s 14(1)(
a
)
– (
d
) had been
met, thus signifying that the Registrar was satisfied that the scheme
is reasonable and equitable and accords full recognition
to the
rights and reasonable benefit expectations of the members and
pensioners of the Fund. The Registrar also approved the amendment
of
the Fund’s rules. The scheme was effected in terms of Rule
11.5, a registered rule of the Fund specifically made to implement
the scheme. Rule 11.5 was part of rule amendment no 3 and it was
submitted to the Registrar on 13 June 2012, who approved it on
13
December 2012. It is important to record that the appellants’
challenge in the high court did not include an attack on
the
Registrar’s regulatory approval and the s 14 transfer necessary
to effect the scheme. As will appear later, this has
a material
impact on the main issue before us.
[3]
For present purposes the main features of the scheme were as follows:
(a)
members, pensioners and deferred pensioners had their benefits
enhanced through the enhancement to the members’ and
pensioners’
actuarial reserve values; and
(b)
the Fund allocated a portion of its assets for the benefit of the
employer, Tongaat-Hulett Limited, and credited those assets
to the
ESA. The amount transferred to the ESA was R363.2 million (the 2012
surplus apportionment). This 2012 surplus apportionment
was preceded
by apportionments of actuarial surpluses by the Boards of the first
respondent and of the Fund in 2001, 2007 and 2009.
It is this second
feature in (b) above which formed the subject matter of the challenge
in the high court and which is on appeal
before us.
[4]
The appellants lodged complaints with the Pension Funds Adjudicator
(the Adjudicator) in terms of s 30A of the PFA in respect
of the
2007, 2009 and 2012 distribution of surpluses. The Adjudicator
dismissed the complaints in respect of the 2007 and 2009
distribution
of surpluses. In respect of the 2012 surplus apportionment, the
Adjudicator found that when the future surplus was
allocated
exclusively to the ESA, the interests of all stakeholders were taken
into account in accordance with s 15C of the PFA.
The appellants then
launched their application in the high court. They sought the
following relief:
‘
1.
Condoning the Applicants’ failure to institute this application
within the period stipulated in terms of
section 30P(1)
of the
Pension Funds Act 24 of 1956
;
2.
Setting aside the determination of the Pension Funds Adjudicator
under reference number PFA/GP/00003054/2013/TKM, issued on 19
December 2013;
3.
Setting aside the decision of the board of trustees of the second
respondent (”the board’’) to allocate excess
assets
(”the surplus’’) in the second respondent as at 30
June 2012, alternatively as at 1 April 2013, to the
employer surplus
account in the sum of R363.2 million, alternatively in such amount as
was in fact allowed to the employer surplus
account, in terms of the
second respondent’s rule 11.5.4.1(b);
4.
Directing the Board of the Second Respondent to determine the
actuarial surplus as at 30 June 2012 and to apportion the surplus
in
accordance with the terms of
section 15C(2)
of the PFA;
5.
Directing the Board of the Second Respondent, in giving effect to the
order in prayer 4 above, to take into account:
5.1
the interests of all the stakeholders as at 30 June 2012 in the
manner contemplated by
section 15C(2)
of the PFA;
5.2
prior allocations of actuarial surplus to the employer in 2007 and
2009, respectively;
5.3
any allocation of the actuarial surplus in existence as at 30 June
2012 that may already have been allocated to members of the
Second
Respondent if any, upon their transfer out of the Second Respondent
in 2012.
6.
Ordering the second respondent to pay the costs of their application;
alternatively and in the event of opposition from any other
respondent, that such respondent and the second respondent are to pay
the costs of the application, jointly and severally.
’
[5]
As can be gleaned from the Notice of Motion, the appellants did not
pursue any relief in respect of the 2007 and 2009 surplus
apportionments, but sought relief only in respect of the 2012 surplus
apportionment. It was contended that the Adjudicator failed
to deal
with the appellants’ complaint in respect of the 2012 surplus
apportionment. In argument before us, it was submitted
on behalf of
the appellants that the 2007 and 2009 apportionments are nonetheless
of some relevance, as they entailed substantial
amounts then having
been allocated to the ESA for the benefit of the third respondent as
the employer.
[6]
The scheme entailed the allocation of what is referred to in the
rules of the Fund as ‘excess assets’, which amounted
to a
total of about R1.816 billion. The allocation of the ‘excess
assets’ was 80% to the member group (comprising former
and
current members of the Fund and pensioners) and 20% to the ESA. The
resolution of the Board which brought about the scheme
and rule
amendment 3 was passed on the basis of a proposal contained in the
report prepared for the Board by the task team led
by the Fund’s
actuary, Mr Howard Buck. The report contained, amongst others, a
proposal on how the Fund’s assets should
be dealt with. The
Board unanimously approved the proposal and appointed a working group
to guide it in respect of the implementation
of the proposed scheme.
The working group’s mandate included the drafting of the
necessary rule amendments, drawing up information
material to be
communicated to the Fund’s members and applying for a
s 14
transfer approval from the Registrar. Following the approval of the
rule amendments and the scheme by the Registrar, all the Fund’s
in-service members and more than 90% of pensioners approved the
proposals and the scheme was accordingly implemented.
The
appellants’ challenge to the 2012 surplus apportionment
[7]
The appellants’ challenge was made in terms of
s 30
P(1) of the
PFA, which reads:
‘
Any
party who feels aggrieved by a determination of the Adjudicator may,
within six weeks after the date of the determination, apply
to the
division of the High Court which has jurisdiction for relief and
shall at the same time give written notice of his or her
intention so
to apply to the other parties to the complaint.
’
The
main thrust of the challenge in the high court, as is the case in
this court, was that the 2012 surplus apportionment was overstated
in
contravention of
s 15C of the Act and that, consequently, the fund
failed to discharge its obligations to members, including the
appellants as pension
members, before allocating the surplus to the
ESA. Their case is that future actuarial surplus can only be
distributed in terms
of s 15C of the Act. The Fund did not make the
2012 surplus apportionment in accordance with s 15C, but instead
purported to distribute
actuarial surplus under the guise of ‘excess
assets’. Rule 11.5, in terms of which the allocation was
purportedly made,
is a rule for the allocation of ‘excess
assets’, not actuarial surplus, and therefore does not comply
with s 15C. It
does not provide a lawful basis for the allocation of
surplus to the ESA. Insofar as Rule 11.5 required 20% of ‘excess
assets’
to be paid into the ESA, it is ultra vires the
provisions of s 15C and, to the extent that the Fund sought to effect
the transfer
of 20% of the ‘excess assets’ to the ESA, it
was unlawful and falls to be set aside.
[8]
The allocation to the ESA was made in terms of Rule 11.5.4.1 which
provides as follows:
‘
The
enhancement to MEMBER, DEFERRED PENSIONER and PENSIONER transfer
values in RULE 11.5.1.2(a), RULE 11.5.2.3 and RULE 11.5.3.5,
shall be
calculated as follows:
(a)
The ACTUARY shall
determine, as at the TRANSFER CALCULATION DATE, the excess of the
market value of the assets of the FUND over
the defined benefit and
defined contribution liabilities of the FUND and the value of the
Employer Surplus
Account.
(b)
The value of the excess
assets determined in RULE 11.5.4.1(a) shall be notionally split 80%
to MEMBER, DEFERRED PENSIONER AND PENSIONER
enhancements and 20%
transferred to the
Employer
Surplus Account
.’
(Emphasis added.)
[9]
The appellants’ case rests upon their interpretation of Rule
11.5.4.1 and s 15C of the Act. The rules of a registered
pension
fund, made in terms of s 11 of the Act, are, subject to the
provisions of the Act, binding on pension funds and their members,
shareholders and its officers and on any person who claims under the
rules or whose claim is derived from a person so claiming
(s 13). In
having regard to the applicable legislative provisions it is
necessary to commence with the definition of an ESA, which
is at the
heart of the dispute. That definition is to be found in s 1 of the
Act and reads as follows:
‘’’
employer
surplus account’’
,
in relation to a fund, means an account of the fund to which shall be
credited-
(a)
amounts allocated by the
board in terms of sections 15B, 15C and 15F or transferred into the
fund for the credit of the account
in terms of section 15E(1)(
e
);
(b)
such contributions as are
specified in the rules to be credited to this account; and
(c)
fund return on the
balance in the account from time to time: Provided that the board may
elect to smooth the fund return,
and
to which shall be debited-
(d)
any actuarial surplus
utilised by the employer; and
(e)
any actuarial surplus
transferred to any other account in the fund at the request of the
employer or transferred to another fund
in terms of section
15E(1)(
e
)’
It
is common cause that, having regard to the above definition, the
relevant section which requires closer scrutiny in this instance
is s
15C, which reads:
’
15C
Apportionment of future surplus
(1)
The rules may determine
any apportionment of actuarial surplus arising in the fund after the
surplus apportionment date between
the member surplus account and the
employer surplus account.
(2)
If the rules are silent
on the apportionment of actuarial surplus arising after the surplus
apportionment date, any apportionment
shall be determined by the
board taking into account the interests of all the stakeholders in
the fund: Provided that, notwithstanding
anything to the contrary in
the rules, neither the employer nor the members may veto such
appointment.
‘
[10]
The crux of the dispute is to be found in the nomenclature ‘excess
assets’ in Rule 11.5.4.1, as opposed to ‘actuarial
surplus’ in s 15C, read with the definition of ‘employer
surplus account’. The definition of an ESA contains
certain
categories of lawful allocations to the ESA. Section 15C deals with
the ‘apportionment of future surplus’ and
an
apportionment of a future actuarial surplus as envisaged in that
section to the ESA will clearly be lawful. The question to
be
answered is therefore whether the allocation of 20% of the excess
assets is an apportionment of an actuarial surplus for the
purpose of
s 15C. In answering this question three issues arise:
(a)
first, was the sum of R363.2 million on the facts actuarial
surplus?
(b)
second, is rule 11.5 a rule contemplated in s 15C(1) – that is
a legal question; and
(c)
third, if the answer to (b) above is in the negative –
has s 15C(2) been complied with?
Before
considering these three questions, it is helpful to understand how
s 15C and related provisions (together commonly known
as ‘the
surplus legislation’) came to be enacted and what the objects
of s 15C are.
Section
15C in historical context
[11]
From its inception in 1958, the PFA made no provision for future
surpluses in pension funds. Over time surpluses did in fact
build up
as actuarial forecasts proved to be conservative and some pension
funds became over-funded. Differences arose regarding
who owned the
surplus and what to do with it. Understandably, members and
pensioners on the one hand and employers on the other,
had
contrasting views as to who should benefit from a surplus. Some
disputes ended up in court. The solution plainly lay in legislative
reform, as was recognized by this court in
Tek Corporation
Provident Fund and others v Lorentz
1999 (4) SA 884
(SCA).
Subsequently, the PFA was amended to address this problem. Section
15C, amongst others, is a result of that reform which
came in the
form of the
Pension Funds Second Amendment Act 39 of 2001
. The
accompanying memorandum to the Pension Funds Second Amendment Bill
reads as follows:
‘
The
use of the minimum benefit approach thereafter (ie once the Bill is
passed into law) will ensure that members get a fair deal.
Section
15C
therefore enables any surplus that arises after the surplus
apportionment to be dealt with by the rules or by the trustees in the
carrying out of their fiduciary duties
’
.
[12]
Section 15C
plainly leaves the apportionment of future surplus to the
applicable rules of a particular fund and, absent any rules on the
subject,
to the board of that fund. In the latter event, the only
proviso is that in making a determination, a board must take into
account
the interests of all the fund’s stakeholders (compare:
ICS Pension Fund v Sithole and others NNO
2010 (3) SA 419
(T) para 15;
Tellumat (Pty)
Ltd v Appeal Board of the Financial Services Board and others
[2015]
ZASCA 202
[2016] 1 All SA 704
(SCA) para 10). A board therefore has
the power to decide on the apportioning of surpluses and on how to
effect it. Apportionment
can be effected either by way of a rule or
ad hoc in the discretion of a board.
[13]
Another important related provision in this respect is Directive PF3,
issued by the Registrar during 2009 in terms of
s 33A
[1]
of the PFA, which reads as follows regarding ‘future surplus’
(paras 46-47):
‘
DISTRIBUTION
OF AMOUNTS RELEASED FROM CONTINGENCY RESERVE ACCOUNTS AFTER SAD OR
EFFECTIVE DATE OF NIL RETURN
Where
the board determines, following approval by the Registrar of a
surplus apportionment scheme or after the noting of a nil return,
that an amount set up as at SAD [surplus apportionment date] or the
effective date can be released from a contingency reserve account,
such amount released creates future surplus and this surplus may be
apportioned in terms of section 15C of the Act’
.
Was
the amount of R363.2 million actuarial surplus?
[14]
In order to meet the high court challenge by the appellants, it was
incumbent upon the Fund to establish that the sum of R363.2
million
was actuarial surplus. As stated, this is a factual enquiry. Two
important legal principles bear emphasis in respect of
this factual
enquiry:
(a)
First, the appeal to a high court against a determination of the
Adjudicator is an appeal in the wide sense (
Meyer v Iscor Pension
Fund
[2002] ZASCA 148
;
[2003] 1 All SA 40
(SCA) para 8). The
court can therefore on appeal consider the matter afresh and make any
order it deems fit.
(b)
Second, genuine disputes of fact on the papers must be resolved in
accordance with the well-established approach in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints Ltd
[1984] ZASCA 51
;
1984 (3)
SA 623
(A) at 634E – 635D.
[15]
Before turning to the facts, regard must be had to certain
definitions in the PFA which have a bearing on the facts. In relevant
part, ‘actuarial surplus’ is defined as follows:
‘
a
ctuarial
surplus’
, in
relation to a fund which is –
(a)
subject to actuarial
valuation, means the difference between—
(i)
the value that the
valuator has placed on the assets of the fund less any credit
balances in the member and employer surplus accounts;
and
(ii)
the value that the
valuator has placed on the liabilities of the fund in respect of
pensionable service accrued by members prior
to the valuation date
together with the value of the amounts standing to the credit of
those contingency reserve accounts which
are established or which the
board deems prudent to establish on the advice of the valuator’.
It
is common cause that the Fund is subject to actuarial valuation and
that it is therefore subject to the above definition. A ‘reserve
account’, is defined as follows:
‘
reserve
account’
, in
relation to a fund, means a contingency or investment reserve
account, as the case may be’
.
A
contingency reserve account is defined as follows:
‘
contingency
reserve account
’
,
in relation to a fund, means an account of the fund, which has been
amended in accordance with the requirements of the registrar,
or
which has not been disallowed by the registrar, and to which shall be
credited or debited such amounts as the board shall determine,
on the
advice of the valuator where the fund is not exempt from actuarial
valuations, in order to provide for explicit contingencies
’
.
The
concept ‘excess assets’ is not defined in the PFA.
Reserve accounts serve to ensure the continued solvency of pension
funds.
[16]
The essence of the dispute is whether the 2012 surplus apportionment
(R363.2 million) properly constituted actuarial surplus.
This was the
original challenge by the appellants. When the Fund explained in its
answer that the allocation to the ESA was 20%
of the excess assets in
the Fund as determined by Rule 11.5.4.1, the appellants changed their
attack in their replying affidavit
by questioning whether the
allocation of excess assets to the ESA was not in contravention of
the PFA (more particularly of s 15C).
The Fund’s case in a
further answer to this, advanced by its principal officer, Ms
Samantha Davidson, was that the amount
allocated to the ESA was not
only 20% of the excess assets, but also actuarial surplus as defined
in the PFA. In explaining this,
Ms Davidson relied on the supporting
affidavit of the Fund’s actuary, Mr Buck.
[17]
Mr Buck confirmed under oath that the 2012 surplus apportionment was
actuarial surplus as contemplated in the PFA. He explained
that
‘before the release of the reserve accounts, the ″actuarial
surplus″ in the Fund was approximately R500
million’. He
said that the 2012 surplus apportionment was therefore ‘less
than the ″actuarial surplus″
prior to the release of the
solvency and other reserves in the Fund’. Mr Buck performed
interim actuarial valuations of the
Fund as at 1 January 2012, 1
April 2012 and 1 July 2012 in order to assess the affordability of
the contemplated conversion and
outsourcing under rule amendment no
3. This affordability assessment required a determination of the
excess of the Fund’s
assets over its liabilities (if any) in
respect of its defined benefit and defined best estimate liabilities
and the amounts standing
to the credit of the ESA. A schedule,
prepared by Mr Buck, was attached to his affidavit. The schedule
confirms his explanation.
[18]
In a supplementary affidavit on behalf of the appellant, Mr St Clair
Moor accepted in response to Ms Davidson that ‘it
is possible
that the 20% of ″excess assets″ as defined in Rule
11.5.4(a) may also constitute ″actuarial surplus″,
properly calculated’. However, he persisted in his denial that
the allocation thereof to the ESA was lawful. Mr Jeremy Andrew,
the
appellants’ actuary, also deposed to a supplementary affidavit
to respond to Mr Buck. Mr Andrew accepted that, since
the interests
of stakeholders in the Fund were determined as if the Fund would
terminate on 1 July 2012, Mr Buck was in effect
performing a
valuation as at the termination date. He also agreed with Mr Buck
that there was likely to be an actuarial surplus
of about R500
million at the effective date of the conversion if contingency
reserve accounts had been set up to contain the solvency
reserve.
[19]
The position is thus that on the facts the appellants have not placed
in issue that the sum of R363.2 million was actuarial
surplus. What
remained in dispute was whether Rule 11.5.4.1 was a rule contemplated
in s 15C(1) in terms whereof an apportionment
of actuarial surplus
could lawfully be made. That is a legal question to which I shall
turn presently. It is necessary first to
deal with two related
factual aspects.
[20]
The first is the appellants’ allegation that no proper
actuarial valuation had been done by the Fund’s actuary
and
presented to the Board for its informed consideration before giving
the go-ahead for the scheme. That contention is devoid
of substance.
As stated by Mr Buck under oath, he performed ongoing valuations on 1
January 2012, 1 April 2012 and 1 July 2012.
These were interim
valuations. His averments in this regard are borne out by the
schedule attached to his supporting affidavit.
[21]
An interim valuation must be distinguished from the statutory
triennial valuation, required in s 16 of the PFA. A statutory
valuation entails a full investigation by a valuator (the actuary of
a pension fund) into the financial condition of a registered
pension
fund. The valuator must draw up a report on the investigation and
lodge it with the Registrar. Interim valuations are common
in the
actuarial profession and comprise high level calculation of the
relevant assets and liabilities of a fund. In the present
instance,
interim valuations were self-evidently required to assist the Board
in its deliberations and decision on the proposed
scheme. These
interim valuations formed part of the task team’s detailed
report and recommendations to the Board, which were
discussed at its
meeting of 5 August 2011. The minutes of that meeting reflect that
the sole purpose was to discuss the proposed
scheme, based on the
task team’s report. Reference was made in the minutes to a
‘residual surplus’ which was
recommended to be allocated
to the ESA. That residual surplus can only refer to an actuarial
surplus, as will become clear presently.
At the Board meeting a
working group was appointed to make further recommendations on
implementing the proposed scheme. It is therefore
clear on the
unchallenged evidence that interim valuations had been performed and
were placed before the Board prior to its decision.
[22]
The second aspect is that the evidence reflects that a clear
distinction was drawn between ‘reserves’ and ‘actuarial
(or residual) surpluses’. What ‘excess assets’ are
is set out in Rule 11.5.4.1(a) – ‘the excess of
the
market value of the assets of the Fund over the defined benefit and
defined contribution liabilities of the Fund and the value
of the
employer surplus account’. The PFA itself does not define
‘excess assets’. As is made clear in the supplementary
affidavit of Ms Davidson, ‘excess assets’ refers to
actuarial surplus and reserves. It was also conveyed as such by
the
Fund in its information communiques to its members.
[23]
In its report to the Board, the task team referred to ‘the
total surplus and reserves’, which amounted to about
R1.5
billion as at 31 December 2010 (it grew to some R1.8 billion at the
termination date of 1 July 2012). As stated, Directive
PF 3 expressly
permits pension funds to release reserves and to treat them as
actuarial surplus. All the evidence made clear what
‘excess
assets’ are and it drew a distinction between surplus and
reserves. On the facts therefore, the Fund had established
that the
sum of R363.2 million was actuarial surplus.
[24]
The appellants made much of the fact that allocations of the surplus
had also been made to the ESA in 2007 and 2009. Those
apportionments
do not form part of the appeal. The employer carried the risk to
ensure that the scheme was affordable in the face
of the enhancements
in benefits promised to members and pensioners. In order to ensure
the continuing solvency of the Fund, the
employer had to carry the
balance of cost. Generous allocations to in-service members, deferred
pensioners and pensioners were
proposed in the scheme. The decision
to make a surplus apportionment to the ESA seems reasonable. What we
are concerned with here
is only whether that apportionment was
lawfully made in terms of the PFA.
Is
Rule 11.5 a rule as contemplated in s 15C?
[25]
The appellants contended that s 15C requires a single dedicated rule,
dealing only with future surplus and which provides for
an allocation
to both the member surplus account and the ESA. It was also submitted
that all stakeholders must be consulted in
the formulation of a rule
or when the Board is acting in terms of s 15C(1) and (2). In the
present instance, so the appellants
contended, this did not occur.
These contentions are fallacious. They are not supported by a proper
interpretation of the section.
[26]
Section 15C imposes strict prescripts for the disbursement of
actuarial surpluses. Its ambit and objectives must be understood
in
the light of the historical disputes around surpluses in pension
funds, outlined above. There are only two ways in which a surplus
apportionment can be made, namely through pension fund rules (s
15C(1)) and, absent any rules, by the determination of a board,
provided that it takes into account the interests of all stakeholders
(s 15C(2)). In this instance, on the recommendation of the
task team,
the Fund took a conscious decision to enact rule amendment 3, which
included Rule 11.5.4.1, to effect an apportionment
of the surplus. In
its report the task team outlined the provisions of s 15C. It
recommended, with a comprehensive accompanying
motivation, that the
‘residual surplus’ be allocated to the ESA in either the
Fund or in the defined contribution fund.
The Board decided to
allocate the surplus to the ESA of the Fund, through a rule
specifically enacted for that purpose. Rule 11.5.4.1
was therefore
intended to be a rule envisaged in s 15C(1).
[27]
The high-water mark of the appellants’ case is that the
impugned rule does not in terms refer to ‘actuarial surplus’,
but instead to ‘excess assets’. I have already found
that, on the facts, the surplus apportioned (R363.2 million) was
actuarial surplus. The strictly technical, narrow interpretation
advanced by the appellants would completely undermine the purpose
of
the legislation and would make no business sense (
Dex
Group (Pty) Ltd v Trustco Group International (Pty) Ltd [
2013]
ZASCA 120
2013 (6) SA 520
(SCA) para 16). Neither a proper
interpretation of the section nor the facts preclude the
apportionment of actuarial surplus which
is part of an apportionment
of excess assets. Furthermore, Directive PF 3 supports the Fund’s
interpretation of the section.
And the Registrar approved rule
11.5.4.1, thus signifying his satisfaction that it would achieve its
purpose. The approval of the
rule was part of the approval of the
entire scheme, with one of its chief elements the apportionment of
actuarial surplus.
[28]
There is nothing in s 15C(1) which requires that a rule such as Rule
11.5.4.1 must provide for an allocation to both the members
surplus
account and the ESA.
Hunter et al, Commentary
on the
Pension Funds Act
>, at 434 express the
view that ‘there is. . . nothing in this section [15C(1)] that
suggests that, if the rules are to fall
within the scope of rules
contemplated in subsection (1), they must provide for the allocation
of actuarial surplus to both a fund’s
member surplus account
and its employer surplus account. The rules could, as some do,
provide that all ‘future surplus’
will automatically be
allocated to the employer surplus account. Such a rule would not be
inappropriate if the fund were a defined
benefit, balance of cost,
fund’.
[29]
To uphold the appellants’ contentions regarding
rule 11.5.4.1
simply on the basis that it refers to ‘excess assets’ and
not to ‘actuarial surplus’, would be to impermissibly
elevate form above substance. As stated, the rule passes muster on
the facts and on the law. It is plain that what has been allocated
to
the ESA was in fact actuarial surplus. The findings regarding
Rule
11.5.4.1
renders it unnecessary to consider the further submissions
regarding the alleged non-compliance with
s 15C(2).
A
composite scheme
[30]
There is a further compelling consideration against the appellants’
contentions. Rule amendment 3 formed part of a composite
conversion
and outsourcing scheme in terms of
s 14
of the PFA.
Section 14
governs an important aspect of the regulation of pension funds and
the Registrar’s approval of a scheme is an essential
prerequisite (
Pepcor Retirement Fund and
another v Financial Services Board and another
[2003]
ZASCA 56
;
[2003] 3 All SA 21
(SCA) para 13). In this instance the
Registrar was satisfied that the scheme is reasonable and equitable
and accorded full recognition
to the rights and reasonable benefit
expectations of the Fund’s members and pensioners, and issued a
certificate of approval
in terms of
s 14(1)(
e
).
The scheme was a composite offer to the Fund’s stakeholders
with various components and it was conveyed to them as such.
As
stated, all the Fund’s in-service members and more than 90% of
its pensioners approved the scheme on this basis, resulting
in the
implementation of the scheme.
[31]
It was emphasized in the task team’s report and so understood
by the Board, that ‘the proposed outsourcing and
conversion is
based on all pensioners being outsourced and all in-service members
having their benefits converted to defined contribution,
as opposed
to allowing individuals the option to outsource or convert their
benefits’. This was to ensure that the Fund retained
its
economies of scale and the sustainable cross-subsidization of defined
benefits. Clearly, by its very nature as a composite
package, the
scheme could not and did not permit cherry-picking parts of it. This
is precisely what the appellants seek to do by
challenging only one
component of the scheme (the allocation of the ESA), whilst leaving
the rest of the scheme as it is.
[32]
The scheme has been implemented as a composite whole with the
statutory approval of the Registrar and with the consent of
stakeholders. Should the appellants succeed in their challenge, the
entire scheme, including the transfer of members and pensioners
would
have to be revisited and changed. As the high court colloquially put
it – ‘the egg cannot be unscrambled’.
The following
principle enunciated in
Tellumat
at para 43, albeit in a
different factual setting, applies here as well:
‘
With
the utmost respect to the Appeal Board in the present case it seems
to me that it failed to give sufficient consideration to
the fact
that the
s 14
application was part of a broader scheme of
distribution agreed upon by the trustees in 2007 when they were
dealing with the apportionment
of the surplus. Instead it dealt with
the two issues of the guaranteed 3% annual pension increase and the
impact of the possible
dissolution of the fund as if they were
discrete issues divorced from the entire distribution scheme. Nowhere
in the Appeal Board’s
decision is there any consideration of
the fact that the transfer under consideration was part of a larger
arrangement having its
origins in the decision of the trustees in
regard to the apportionment of the surplus. Nor is there any
consideration of the fact
that the impact of its decision would
necessarily be that the entire apportionment exercise, held by the
arbitrator to have been
valid and lawful in proceedings by Mr Roy
against the Fund, would be thrown into disarray and have to be
revisited.
’
The
discrete challenge to one component of the composite scheme must
therefore fail also for this reason.
Conflict
of interest
[33]
The appellants contended, without much vigour it must be said, that
the Board had a conflict of interest when it formulated
and approved
the rule for the purpose of effecting the surplus apportionment. It
was submitted that the conflict emanated from
the Board’s
composition, which was weighted in favour of the employer and it
resulted in a reasonable apprehension that the
Board was biased in
favour of the employer. These contentions are devoid of merit. The
appellants accepted, correctly so, that
the Board was properly
constituted in accordance with the prescripts set out in
s 7A
of the
PFA and
Rule 5
of the Fund’s rules. There were an equal number
of employer and member representatives. All trustees are invariably
members
of the Fund. That is the case in the boards of all pension
funds. To that extent there will always be an unavoidable structural
conflict of interests inherent in all funds. Ironically, the
appellants were themselves trustees of the Fund’s predecessor
and they had no complaints regarding the composition of that board
before this litigation.
[34]
None of the authorities cited by the appellants
[2]
support their case. They do not support the contention advanced by
the appellants that a lawfully constituted board which performs
its
statutory functions can have its decisions set aside on the basis
that:
(a)
some of its members may have been conflicted because they were part
of the executive of the Fund’s sponsoring employer,
or
(b)
that they had a vested financial interest ‘in ensuring that the
maximum amount is paid into the ESA to improve the profitability
of
the company and therefore receive greater personal bonuses’.
[3]
I
know of no authority, nor has any been cited, which supports such a
proposition in respect of the boards of pension funds. The
allegations of bias must therefore be dismissed. What remains is the
application to adduce further evidence and costs.
The
application to lead further evidence
[35]
A full set of affidavits was filed in respect of the appellants’
application to lead further evidence regarding costs.
The application
was purportedly brought to place additional facts before this court
in support of the appellants’ contention
that this litigation
is public interest litigation. It was contended that the principle in
Biowatch Trust v Registrar, Genetic Resources
and others
[2009] ZACC 14
2009 (6) SA 232
(CC) in respect of costs should apply here. The Fund opposed the
application.
[36]
The test for the admissibility of further evidence on appeal is
well-established (
S v de Jager
1965 (2) SA 612
(A) at 613C –
D). An applicant must meet the following requirements:
(a)
there must be a reasonably sufficient explanation, based on
allegations which may be true, why the new evidence was not led
in
the court a quo;
(b)
there should be a prima facie likelihood of the truth of the new
evidence; and
(c)
the evidence should be materially relevant to the outcome of the
case.
Further
evidence is allowed only in exceptional cases (
De
Aguiar v Real People Housing (Pty) Ltd
[2010]
ZASCA 67
2011 (1) SA 16
(SCA) para 11).
[37]
The application fails at the first hurdle. It was conceded before us
that the new evidence adds very little to what was before
the high
court. It concerns the appellants’ attempts to demonstrate that
they were acting in this litigation not only for
themselves but also
on behalf of other pensioners of the Fund. That evidence is not only
wholly inadequate and controverted by
other evidence, but it will
also not materially affect the outcome. (Compare:
All
Pay Consolidated Investment Holdings (Pty) Ltd v Chief Executive
Officer, South African Social Security Agency
[2013] ZACC 42
2014 (1) SA 604
(CC) para 94.) In the premises, the
application must be dismissed.
Costs
[38]
The appellants contended that they were compelled to approach the
high court, since the Adjudicator failed to adjudicate their
complaint regarding the 2012 surplus apportionment. That submission
is fallacious. The Adjudicator decided that complaint as follows:
‘
(T)he
acceptance of the conversion process by the affected stakeholders is
not the question with which this Tribunal is seized.
The conversion
and outsourcing of pensions is permitted by
Rule 3
of the rules of
[the Fund]. . . . In the circumstances, this Tribunal is persuaded
that, when allocating the future surplus exclusively
to the employer
surplus account the interests of all the stakeholders were taken into
account pursuant to section 15C of the Act.
Therefore, no grounds
exist for the board of the [Fund’s] decision to be set aside
’
.
[39]
The second argument in respect of costs was that this is public
interest litigation and that
Biowatch
applies.
When the litigation commenced, the appellants made no mention at all
that they were acting for anyone but themselves. Although
the joinder
of some 60 other pensioners was foreshadowed in a letter by the
appellants’ attorneys which preceded the application,
they were
never joined. Their attempt to adduce further evidence on appeal in
this regard has failed. This case concerns a dispute
between a
pension fund and its members. It emanates from a private relationship
between the parties, regulated by a contract (the
Fund’s
rules). It has no public interest implications. The Board does not
exercise any public powers – it is a private
entity established
for the employees of Hulett-Tongaat Limited. The Board derives its
powers from the PFA and from the Fund’s
rules. Those powers are
carefully circumscribed and do not extend beyond members and
pensioners of the Fund. Participation in the
Fund and its benefits is
open only to Hulett-Tongaat employees.
[40]
Lastly, as far as costs is concerned, we were urged to extend the
Biowatch
principle to
this case. While one is not unsympathetic to the pensioners’
complaints, this is not a case where that principle
can be applied.
It was reaffirmed recently in
Hotz and others
v University of Cape Town
[2017] ZACC 10
2018
(1) SA 369
(CC) para 22 that the rule applies only in constitutional
litigation and public interest cases. There is no basis to find that
the appellants act for anyone but themselves. The high-water mark of
the appellants’ case is that they have informal support
from a
small percentage of the Fund’s members. If we were to extend
the
Biowatch
principle
to this case it would open the floodgates. It would result in the
general membership of pension funds having to in effect
fund
litigation costs whenever members challenge decisions of their boards
of trustees. That would be to the members’ detriment
inasmuch
as those costs would be funded from money that could otherwise have
funded members’ benefits.
[41]
Costs are a matter within the strict discretion of a trial court and
an appellate court has very limited grounds on which it
can interfere
with a trial court’s decision on costs. That trite principle
was recently restated in
Dobsa Services CC v
Dlamini Advisory Services (Pty) Ltd
[2016]
ZASCA 131
and in
Ferguson and others v Rhodes
University
[2017] ZACC 39
;
2018 (1) BCLR 1
(CC).
Conclusion
[41]
The appeal and the application for leave to lead further evidence
cannot succeed. Costs must follow the outcome.
The
following order issues:
1.
The application to lead further evidence is dismissed with costs,
including the
costs of two counsel.
2.
The appeal is dismissed with costs, including the costs of two
counsel.
______________________
S
A Majiedt
Judge
of Appeal
APPEARANCES:
For
First Appellant:
C E Watt-Pringle SC (with him K S McLean)
Instructed
by:
Fasken Martineau, Johannesburg
Webbers, Bloemfontein
For
Second Respondent:
A E Franklin SC (with him
S Khumalo)
Instructed
by:
Shepstone & Wylie, Durban
Lovius Block,
Bloemfontein
[1]
Section 33A provides as follows:
‘
33A
Directives
(1)
The registrar may, in order to ensure compliance with or to
prevent a contravention of this Act, issue a
directive to a pension
fund, an administrator or any other person in which practices or
actions that are required or prohibited
are set out.
(2)
A directive issued in terms of in subsection (1) may –
(a)
Apply to pension funds generally; or
(b)
Be limited in its application to a particular pension fund or kind
of pension fund, which may among other things
be defined either in
relation to a type or budgetary size of a pension fund.
(3)
A directive issued in terms of subsection (1) takes effect on the
date determined by the registrar in the directive.’
Directives
are issued in terms of the PFA and are legally binding.
[2]
S v Roberts
1999 (4) SA 915
(SCA);
PPAWU
National Provident Fund v Chemical, Energy, Paper, Printing, Wood
and Allied Workers’ Union (CEPPWAWU)
[2007] ZAGPHC 146
2008 (2) SA 351
(W);
Bam-Mugwanya
v Minister of Finance and Provincial Expenditure, Eastern Cape
2001
(4) SA 120
(Ck)
; Council of
Review, South African Defence Force and others v Mönnig and
others
1992 (3) SA 482
(A).
[3]
The extract is from the appellant’s heads of argument in this
court.