The Supreme Court of Appeal (“the SCA”) dismissed an appeal against an order of the Kwazulu-Natal Local Division of the High Court, Durban (“the High Court”), which had held that the apportionment and distribution of actuarial surplus in the amount of R363.2 million to an employer surplus account in 2012 was lawful. The Second Respondent, the Tongaat-Hulett Defined Benefit Pension Fund (“the Fund”), made the surplus apportionment in terms of Rule 220.127.116.11 of the rules of the Fund. That Rule formed part of rule amendment no.3 which was approved by the Registrar of Pension Funds (“the Registrar”) in December 2012.
The surplus apportionment formed part of a composite conversion and restructuring exercise (“the Scheme”) by the Fund, approved by the Registrar in terms of s14 of the Pension Funds Act (the PFA) in August 2013. In terms of the Scheme, the Fund’s obligations to the Appellants (former members of the Fund) and its other pensioner members were outsourced to Old Mutual with effect from 1 April 2013. As a result, the Appellant’s membership of the Fund was terminated.
Aggrieved by this and other apportionments, the Appellants first lodged complaints with the Pension Funds Adjudicator in terms of s30A of the PFA. The adjudicator dismissed the complaints. The Appellants then appealed against that dismissal to the High Court in terms of s30P(1) of the PFA, by way of an application. The High Court dismissed the application, but granted leave to appeal to the SCA.
The Appellants’ challenge was that the Fund’s Rule 18.104.22.168 did not comply with s15C(1) of the PFA, since it referred to ‘excess assets’ and not ‘actuarial surplus’ as 15C(1) did. The s15C of the PFA reads as follows:
15C. Apportionment of future surplus.-
- The rules may determine any apportionment of actuarial surplus arising in the fund after the surplus apportionment date between the member surplus account, the employer surplus account or directly for the benefit of members and former members subject to the uses specified in section 15D (1).
- If the rules are silent on the apportionment of actuarial surplus arising after the surplus apportionment date, any apportionment between the member surplus account, the employer surplus account or directly for the benefit of membersand former members, subject to the uses specified in section 15D (1), 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 apportionment.
They argued that the purported apportionment was unlawful, since Rule 22.214.171.124 was not a rule as contemplated in s15C(1). The SCA identified the key question as being whether the 20% of the excess assets apportioned to the employer surplus account was an apportionment as contemplated in s15C. In finding that the answer to this question is in the affirmative, the SCA considered two related questions.
First, the SCA held that it was undisputed on the facts that the sum of R363.2 million was in fact actuarial surplus. Secondly, it held that the rule is a rule contemplated in s15C(1). It held that the narrow, technical interpretation advanced by the Appellants would undermine the purpose of the legislation.
A further compelling consideration against the Appellants’ contentions was the fact that the rule amendment and the surplus apportionment were part of a composite, comprehensive conversion and restructuring exercise. The Appellants could not cherry-pick and challenge a part of the Scheme, while leaving the rest of the Scheme intact.
The SCA dismissed the Appellants’ contentions that the board of the Second Respondent was conflicted, which gave rise to a reasonable apprehension of bias. It held that to the extent that all the trustees of a pension fund are invariably also members of that fund, there is an unavoidable structural conflict inherent in all funds.
Lastly, the SCA rejected a contention that the principle in Biowatch Trust v Registrar, Genetic Resources and others 2009 (6) SA 232 (CC) regarding costs should apply in this case. It held that this is not public interest litigation as the Appellants did not act on behalf of the other members of the fund.
The appeal was consequently dismissed with costs, including the costs of two counsel.
Interpretation of s15C of the PFA. – Purposive approach
Written by Dewald Claassen and supervised by Charlotte Clarke, 4 June 2018